Succession Planning: Ensuring Your Business Legacy
When it comes to business succession planning, most people first think about taxes — and for good reason.
The 2017 Tax Cuts and Jobs Act significantly raised the federal estate tax exclusion to $13.99 million per person and $27.98 million per married couple (as of 2025).
However, tax planning is only one piece of the puzzle. Thoughtful succession planning goes beyond saving on taxes — it’s about ensuring that your business, and the family legacy behind it, thrives for generations to come.
Let’s take a closer look at some critical aspects of succession planning every business owner should understand:
1. The Tax Traps You Must Avoid
While transferring ownership can be a smart move, you need to watch out for technical tax pitfalls.
For instance:
IRC Section 2036(b): If you transfer a business but retain 20% or more of the voting rights, that ownership interest can get "clawed back" into your taxable estate. Planning your exit carefully is key.
IRC Section 303: If a closely held business makes up more than 35% of your adjusted gross estate, this provision allows for certain stock redemptions without triggering harsh taxes — helping your estate pay off debts, funeral costs, and administrative expenses after your passing.
Without paying attention to these rules, your well-laid plans could end up backfiring.
2. Ownership Structures Matter — Big Time
Different types of business structures create different risks when transferring ownership:
S-Corps vs. C-Corps: These are taxed and governed differently, and mishandling voting vs. non-voting shares could dilute family control.
Voting vs. Non-Voting Stock: Carefully structuring who holds decision-making power is critical to keeping your business in the family.
A poorly executed transfer plan can lead to outside influences or even loss of control over the company you worked so hard to build.
3. Advanced Estate Planning Techniques
There are several sophisticated tools designed to help business owners freeze the value of their estate and pass ownership to the next generation, such as:
Self-Canceling Installment Notes (SCINs)
Private Annuities
Grantor Retained Interest Trusts (GRATs) — which can even hold S-Corp shares
Intentionally Defective Grantor Trusts (IDGTs)
Additionally, structures like Family Limited Partnerships (FLPs) and Family LLCs have long been used to transfer wealth while keeping control within the family.
For those thinking even bigger, Dynasty Trusts offer a way to safeguard a family business for multiple generations without worrying about estate taxes eroding its value.
4. The Importance of Buy-Sell Agreements
What if there are multiple business owners, including some who aren’t family? Succession planning becomes even more critical.
A Buy-Sell Agreement ensures the smooth transition of ownership in the event of death, disability, retirement, or other unforeseen events. The goals are simple:
Preserve the business
Protect the interests of remaining owners
Secure the deceased owner's family’s financial share
There are three primary types:
Cross-Purchase Agreements
Entity Redemption (Buy-Out) Agreements
Hybrid Agreements
Typically, life insurance is used to fund these agreements, providing liquidity exactly when it’s needed most.
Conclusion: Securing Your Legacy
Succession planning isn’t just a "nice-to-have" — it’s critical to ensuring that your life's work survives and thrives. While we've only touched on a few of the many techniques available, the message is clear: It’s never too early to start planning for your business's future.
With thoughtful structuring, careful attention to tax law, and the right tools, you can preserve your business legacy and protect your family’s financial future.
