Estate Planning for Business Owners: What You Need to KnowMay 27, 2025

Estate planning is often associated with personal wills, trusts, and inheritances. But for business owners, it’s much more than that. Without proper planning, the death or incapacity of an owner can trigger business chaos, family conflict, and unexpected tax burdens.

Your business is likely one of your largest assets—and one of the most complicated to pass on. Whether you plan to transfer ownership to your children, sell to a partner, or liquidate the company, your estate plan must address both personal and business goals. A well-crafted estate plan can preserve your company, protect your heirs, and ensure a smooth transition of control and value.

This guide explores everything business owners need to know about estate planning: legal tools, tax strategies, succession planning, and how to avoid the most common pitfalls.

Why Estate Planning Is Essential for Business Owners

Business owners face estate planning challenges that others don’t. Unlike employees or retirees, you aren’t just managing personal assets—you’re also responsible for ensuring that your company survives without you. Without a plan, your death or incapacity could leave your business vulnerable to leadership gaps, disputes among heirs, and even forced liquidation to pay estate taxes.

An effective estate plan gives you the power to dictate what happens to your business and protects it from uncertainty. It ensures that your family receives the value of what you’ve built, your employees have leadership continuity, and your clients or customers remain served.

The risks of failing to plan are significant. Without clear succession, there may be power struggles or legal battles over who controls the business. If estate taxes are owed, but your estate lacks liquidity, heirs may be forced to sell valuable business assets at a discount—or shut down operations entirely. Planning ensures stability when your business and loved ones need it most.

Core Estate Planning Tools for Business Owners

For business owners, estate planning begins with personal tools and expands into more complex strategies for ownership, taxation, and succession.

The most basic document is a last will and testament. A will specifies how your assets, including business interests, should be distributed. However, wills are public documents and must go through probate, which can be slow and expensive. Relying on a will alone may not provide the privacy or protection a business needs.

That’s where trusts come in. A revocable living trust allows you to transfer business ownership outside of probate while maintaining control during your lifetime. Irrevocable trusts can provide asset protection and remove business interests from your taxable estate, which is especially useful for high-net-worth owners or family businesses.

You’ll also need to establish powers of attorney for financial and healthcare decisions. These documents appoint someone to act on your behalf if you become incapacitated. Without them, your business operations could be stalled until a court appoints a guardian or conservator.

A business valuation is another essential element. Knowing the fair market value of your business helps you plan for taxes, create accurate buy-sell agreements, and ensure fair treatment of all heirs. Professional valuations should be updated regularly, especially if the business is growing or changing structure.

Business Succession Planning

A key part of estate planning for business owners is deciding what happens to the company itself. This is known as business succession planning, and it answers critical questions: Who will run the business when you’re gone? Who will own it? Will it be sold, dissolved, or passed on to family?

Defining your succession goals is the first step. You might want to pass the business to your children, a co-owner, or a group of key employees. Or you may plan to sell the business to fund your retirement. Your plan should reflect these objectives clearly.

Once your goals are set, document your formal succession plan. This should outline how ownership will transfer, when it will occur, and what conditions must be met. If you’re passing the business to a family member, include a plan for training and leadership development. If you’re selling, include financial terms and buyer conditions.

Don’t create your plan in a vacuum. Bring in key stakeholders such as family members, business partners, and advisors. Open communication builds trust and ensures everyone is on the same page. Without it, even the best-written plans can fall apart.

Using a Buy-Sell Agreement to Protect Ownership

A buy-sell agreement is a legal contract that outlines what happens to a business owner’s share when they die, become disabled, or leave the company. It’s a cornerstone of estate planning for businesses with multiple owners.

There are different types of buy-sell agreements. In a cross-purchase agreement, the remaining owners agree to buy out the departing owner’s share. In an entity-purchase agreement, the business itself buys back the shares. Hybrid models combine both approaches.

These agreements are typically funded with life insurance, which provides the necessary liquidity to complete the transaction. This prevents the surviving owners or heirs from scrambling to find funds or being forced to sell the company.

A buy-sell agreement protects all parties. It ensures that your heirs are fairly compensated for your share and that control of the business stays within the agreed group. It also prevents outsiders or unqualified family members from unexpectedly gaining ownership.

Minimizing Estate and Business Taxes

Business owners are especially vulnerable to estate taxes because much of their net worth is tied up in illiquid business interests. This creates a scenario where a large tax bill is due shortly after death, but the estate has limited cash to cover it.

Currently, federal estate tax applies to estates over $13.61 million per person (as of 2024). If your business and other assets exceed this threshold, strategic planning is essential.

There are several ways to reduce or defer estate taxes. One option is lifetime gifting of business interests, which removes the gifted shares from your estate and shifts appreciation to the next generation. Another strategy is using Family Limited Partnerships (FLPs) to transfer ownership at discounted valuations while retaining control.

You can also consider grantor retained annuity trusts (GRATs) to pass appreciating assets to heirs at a reduced tax cost. For businesses that will remain in the family, the Section 6166 election allows estates to defer estate taxes on business assets and pay them in installments over 15 years.

These advanced strategies should be executed with the help of an estate planning attorney and tax professional to ensure compliance and maximum benefit.

Ensuring Liquidity for Estate Settlement

Liquidity is crucial in estate planning, especially for business owners with asset-heavy estates. Estate taxes, legal fees, and inheritance distributions all require cash. Without proper liquidity, your heirs may be forced to sell part or all of your business under pressure.

One solution is life insurance. When structured correctly—often through an Irrevocable Life Insurance Trust (ILIT)—the death benefit is excluded from your taxable estate and can provide immediate, tax-free liquidity. This money can cover estate taxes, fund a buy-sell agreement, or support family members during the transition.

You can also plan liquidity through pre-arranged funding mechanisms in your succession plan or business agreements. This might include sinking funds, business reserves, or third-party financing secured in advance.

Coordinating Your Business and Personal Estate Plans

Estate planning must be consistent across all documents. If your will says one thing, but your buy-sell agreement says another, disputes and delays are almost guaranteed. Review and update your will, trust, business agreements, and beneficiary designations regularly to make sure they align.

It’s also critical to plan for incapacity, not just death. If you are unable to run your business due to illness or injury, who takes over? Do they have legal authority? Establishing a financial power of attorney and clear operational continuity plans helps keep the business running.

Your business plan and personal estate plan should support each other. Together, they form a complete strategy that preserves value, maintains control, and protects your family and company.

Working with Estate Planning Professionals

Estate planning for business owners is not a do-it-yourself job. The complexities of business valuation, tax laws, legal structures, and family dynamics require expert guidance.

A successful plan often involves a team that includes:

• An estate planning attorney to draft documents and coordinate legal structures.
• A CPA or tax advisor to handle tax implications and compliance.
• A business valuation expert to determine fair market value.
• A financial advisor to integrate estate planning with retirement and investment strategies.

When working with professionals, ask the right questions:

• How should my business be valued for tax purposes?
• What are the tax consequences of transferring ownership?
• What if my heirs don’t want to run the business?
• How can I create a plan that balances fairness and practicality?

By building a team and staying proactive, you’ll avoid surprises and create a lasting legacy.

Frequently Asked Questions

What happens to my business if I die without a plan?
If you die without an estate or succession plan, your business may be tied up in probate. Ownership will pass according to state law, which may not align with your wishes. The business could face leadership gaps, legal disputes, and liquidity problems.

Can I leave my business to my children?
Yes, but it requires planning. You can transfer ownership through your will, trust, or succession plan. If you have multiple children, consider whether they’ll share ownership or one will lead while others receive different assets.

How is my business valued for estate tax purposes?
The IRS requires a fair market value as of the date of death. A professional appraisal is essential. Discounts may apply for lack of control or marketability, especially with minority interests.

What if my heirs want to sell the business?
That’s possible, but your estate plan should outline terms for sale and provide guidance on timing, buyers, and tax consequences. Proper liquidity planning will help heirs avoid fire-sale situations.

How often should I update my estate plan?
Review your plan every three to five years, or after major events like marriage, divorce, birth, death, business sale, or change in financial circumstances.

Conclusion

Estate planning for business owners is more than just preparing a will—it’s about protecting the company you built, securing your family’s future, and preserving your legacy. A solid plan minimizes taxes, avoids court battles, ensures business continuity, and gives you peace of mind.

Start early. Consult with the right professionals. Coordinate your personal and business goals. By taking these steps now, you’ll be in control of what happens later—and your family and business will thank you for it.

 

Please contact Lynn Conover at lconover@curchin.com with any additional questions or feedback regarding Estate Planning.