Nine months. That’s how long your family has to pay the estate tax bill after you die, and it has to be paid in cash. Not in stock, not in equipment, not when the company finally sells. Nine months.
I lead with that because it reframes what estate planning for business owners actually is. If your wealth were sitting in brokerage accounts, a deadline like that would be an inconvenience. When eighty percent of your net worth is a company you cannot sell quickly — and would not want to sell quickly — that deadline becomes the thing that forces a rushed sale, a bank negotiation your family is not prepared for, or a fire-sale price your company was never worth.
So the plan you need is not only a will and a trust. It is a continuity plan, a succession plan, a tax plan, and a liquidity plan working together. I’ve organized what follows so the most important considerations come first. If you read nothing else, read the next section.
The Eight Questions Every Business Owner Should Be Able to Answer
Here is the short version. If you cannot answer these eight questions today, your estate plan has a gap in it.
1. Who owns the business after you die? Your will probably doesn’t decide this. Your operating agreement or shareholder agreement does — and if those documents say something different from your estate plan, they’re usually the ones that get followed.
2. Who actually runs the company? Owning a business and running one are two different jobs. Your plan needs to name someone for each. Don’t assume the person who inherits the company is the right person to lead it.
3. What happens if you become incapacitated? This is the one that causes the most damage. If you’re alive but can’t make decisions, no one automatically steps into your shoes — and the standard power of attorney most people sign doesn’t give anyone authority to run a company.
4. How will the business be valued? The IRS taxes your estate on what the company was worth the day you died, and it can challenge whatever number your family reports. An old price formula sitting in your buy-sell agreement won’t settle the question.
5. Where will the estate get the cash? The estate tax bill is due nine months after death, and it has to be paid in cash. A business isn’t cash. This is where I see plans fall apart more than anywhere else.
6. How do you transfer ownership without a big tax bill? The first $15 million per person is exempt from federal estate tax, so many owners won’t owe any. But some states tax far more, and a growing business can pass the line later. Moving ownership early is almost always cheaper than moving it late.
7. How do you treat your children fairly if only some work in the business? Equal isn’t always fair, and fair isn’t always equal. Decide which one you’re going for, then tell your children while you’re still here to explain it. That one conversation prevents most family fights.
8. What if you have business partners? Your buy-sell agreement is the most important document the two of you will ever sign. It decides who your partner ends up in business with, what the company pays, and whether the money is actually there. Most of the ones I review are outdated, unfunded, or both.
1. Who Owns the Business After You Die?
Here is something that surprises a lot of owners: your will may have no authority over your business interests at all.
If you have an LLC operating agreement or a corporate shareholder agreement, that document controls what happens to your units or shares at death. It may require the company to redeem them. It may give the surviving partners a right of first refusal. It may restrict transfers to anyone outside the current ownership group — which would include your spouse and children.
Titling matters just as much. Shares held in your individual name pass through probate, a public, months-long process during which your executor, not your family, holds voting authority. Shares held by a revocable living trust pass immediately to the trustee you named.
So the first exercise is not drafting. It is reconciliation. Pull the operating agreement, the shareholder agreement, the buy-sell, and your estate documents, and read them side by side, asking one question of each: if I died tonight, what does this document say happens? If the answers conflict, fix the business documents first. They are the ones that will be enforced.
2. Who Actually Runs the Company on Monday Morning?
Ownership is a property question. Management is a competence question. Confusing the two is how good companies get damaged by well-meaning estate plans.
Consider the common scenario. An owner leaves the company equally to a spouse and three adult children, none of whom have run it. The general manager of twenty years now reports to four people who do not agree with each other and have never held a board seat. Within a year the GM leaves, the bank calls the loan on a change-of-control violation, and the company is worth far less than it was on the day of the funeral.
The data reflects this. Only about 30 percent of family-owned businesses survive into the second generation, and roughly 12 percent into the third. Some of that is market forces. A great deal of it is unmanaged transition.
Separate the two roles deliberately in your documents:
- Name a successor manager or officer. Your operating agreement or bylaws should identify who holds operating authority if you are gone, even as an interim leader. A key employee who knows they are named — and is retained with a stay bonus or phantom equity — is worth more to your family than any document.
- Create a governance layer. A three-person board with at least one outside member gives your family a structure for making decisions rather than an argument. For a company doing $10 million or more, it is the highest-return piece of the plan.
- Use a trustee competent to own a business. If the company will be held in trust, consider a corporate trustee paired with a special trustee whose only job is voting the business interest.
- Write it down. A short continuity memo — who to call, where the bank documents are, which customers need a personal call within 48 hours — does more good in the first week than a hundred pages of trust language.
3. What Happens If You Become Incapacitated?
Death at least triggers a legal process. Incapacity often triggers nothing at all.
If you have a stroke on a Tuesday, no one is appointed, no document springs into effect automatically, and no bank will accept your spouse’s signature on a wire. Your general durable power of attorney may not help either — many institutions and state statutes treat the authority to vote shares, sign a credit agreement, or bind an operating company as powers that must be granted expressly. A generic form POA gets declined at exactly the moment it matters.
Real business continuity planning for incapacity has four parts:
- A durable power of attorney with explicit business powers, naming the entities and granting authority to vote interests, execute company documents, make distributions, and deal with lenders.
- A clear definition of incapacity in your operating agreement and trust — typically written certification by one or two physicians — so authority transfers on an objective trigger rather than a family argument.
- A standby management provision in the entity documents, so a named officer assumes authority immediately rather than waiting on a court-appointed conservator.
- Banking and vendor authority updated in advance. Signature cards, payroll processors, and insurance policies each have their own authorization forms. Your attorney’s documents do not override them.
Incapacity planning is unglamorous, and it is the part of the plan most likely to be tested. I would rather see a client with a strong incapacity package and a simple will than the reverse.
4. How Will the Business Be Valued?
Your estate is taxed on the fair market value of your business interests as of your date of death. That number drives your estate tax, the size of any buyout, and what your heirs actually receive — and for a private company it is genuinely uncertain, which is why it is the most litigated issue in this area.
Three things every owner should understand:
A formula price is not a fair market value. Many buy-sell agreements set price by formula — book value, a multiple of EBITDA, a fixed number nobody has updated since 2019. That price binds the parties to the agreement; it does not automatically bind the IRS. Under the rules governing family and related-party agreements, a below-market formula price is disregarded for estate tax purposes unless it meets specific requirements, including comparability to an arm’s-length arrangement. The result is an estate taxed on a value it can never actually receive.
Valuation discounts are real and require substantiation. A minority, non-controlling interest is worth less than its pro rata share of the whole, because the holder cannot force a sale or a distribution. Discounts for lack of control and lack of marketability commonly run from the mid-teens to 35 percent or more in combination. They are a powerful planning tool and a frequent audit target, and they must be supported by a qualified appraisal and by entity documents that genuinely create the restrictions being discounted.
Company-owned life insurance can increase the taxable value. In 2024 the Supreme Court decided Connelly v. United States, and every closely held owner should know the outcome. Two brothers owned Crown C Supply, with Michael holding 77.18 percent, and the company carried $3.5 million of life insurance on each to fund a redemption at death. When Michael died, the company redeemed his shares for $3 million using those proceeds, and the estate reported the company’s value without counting them. The IRS counted them — valuing the company at $6.86 million rather than $3.86 million and Michael’s shares at $5.3 million — and assessed an additional $889,914 in estate tax. The Court agreed unanimously: a corporation’s obligation to redeem shares is not a liability that offsets the insurance proceeds funding it.
The lesson is not that company-owned insurance is bad. It is that a redemption funded with corporate insurance can inflate the tax bill, and that a cross-purchase structure, an insurance LLC, or a properly designed trust may produce a materially better result. If your buy-sell is a corporate redemption funded by company-owned policies, it is worth a fresh look.
5. Where Will the Estate Get the Cash?
Federal estate tax is due nine months after the date of death, in cash. Not in stock. Not in real estate. Not when the business sells.
In 2026 the federal estate and gift tax exemption is $15 million per person — $30 million for a married couple with proper portability planning — and the top rate above that is 40 percent. That exemption, made permanent and indexed under legislation enacted in 2025, means most business owners will not owe federal estate tax. Two things still deserve attention.
First, state death taxes reach much lower. About a dozen states plus the District of Columbia impose an estate tax, and five impose an inheritance tax. Oregon’s exemption is $1 million, Massachusetts $2 million, Rhode Island under $2 million. A company worth $8 million in Portland or Boston produces a real state tax bill even though it is nowhere near the federal threshold.
Second, estate tax is not the only cash need. The estate must cover administration costs, final income taxes, debts, and the family’s living expenses during a period when the business may not be distributing anything. If a buy-sell obligates the company to redeem your shares, the company needs that cash too — without breaching a loan covenant.
There are five real sources of liquidity, and most good plans use more than one:
- Life insurance, usually held in an irrevocable life insurance trust so the death benefit sits outside your taxable estate. For owners with concentrated business value, this remains the cleanest dollar-for-dollar solution. A second-to-die policy is often the cost-efficient choice for a married couple whose tax is deferred to the second death.
- Section 6166 installment payments. If closely held business interests exceed 35 percent of the adjusted gross estate, the executor may elect to defer the estate tax attributable to the business over as long as 14 years and 9 months — interest only at first, then up to ten annual installments. A favorable 2 percent rate applies to the tax on a limited portion of value ($1,940,000 in 2026), with the remainder at a reduced rate. Miss an installment by six months and the entire deferred balance accelerates.
- Section 303 redemptions, which let a corporation redeem enough stock to cover estate taxes and administration expenses without the payment being treated as a dividend.
- A pre-arranged credit facility, negotiated while you are alive and healthy rather than by a grieving executor.
- Sinking funds or a partial sale, including a minority recapitalization or an ESOP, converting some of the company’s value to liquid assets on your terms rather than under duress.
If I could get every owner reading this to take one action, it would be this: ask your advisor to run an estate liquidity analysis. Total the estimated tax and cash needs, total the liquid assets available, and look at the gap. It takes an afternoon, and I have never seen a client regret knowing the number.
6. How do you transfer ownership without a big tax bill?
The core insight behind almost every advanced technique is the same: it is far cheaper to transfer a business before it grows than after. You are giving away today’s value; all future appreciation happens in your children’s or your trust’s hands, outside your taxable estate.
A company worth $6 million today that compounds at 12 percent will be worth roughly $18 million in a decade. Transferring it now uses a fraction of the exemption that transferring it later would. Timing matters more than sophistication.
The tools worth understanding:
Annual exclusion gifting. You may give $19,000 per recipient in 2026 ($38,000 for a married couple) without touching your lifetime exemption. Gifting minority units annually is slow but completely free of transfer tax, and it establishes a pattern of valuation and transfer that supports later, larger moves.
Grantor Retained Annuity Trusts (GRATs). You contribute business interests to a trust and receive a fixed annuity back over a term of years. Anything the business earns above a modest government-published interest rate passes to your beneficiaries free of gift and estate tax. GRATs work exceptionally well ahead of a liquidity event or a period of outsized growth.
Sales to intentionally defective grantor trusts (IDGTs). You sell business interests to an irrevocable trust in exchange for a promissory note. Because it is a grantor trust for income tax purposes, the sale triggers no capital gain and you continue paying the trust’s income taxes — itself an additional tax-free transfer to your heirs. This is probably the most powerful technique available to a mid-market owner, and it pairs naturally with valuation discounts.
Recapitalization into voting and non-voting interests. You can transfer 90 percent of the company’s economic value while retaining 100 percent of the voting control. For owners who want to move value but are not ready to hand over the keys, this is often the unlock.
Family limited partnerships and LLCs. Beyond consolidating ownership of the family’s business interests, these entities create the transfer restrictions that support valuation discounts.
Charitable strategies. A charitable remainder trust funded with pre-sale business interests can diversify a concentrated position, generate income, and produce a deduction — but it must be established well before any binding agreement to sell.
Two cautions. Each of these requires a qualified appraisal and disciplined administration; sloppy execution is how good plans fail on audit. And permanent does not mean unchangeable — it means it takes a new act of Congress to change it.
7. How do you treat your children fairly if only some work in the business?
This is the part of the conversation that gets emotional, and it is the one most likely to produce a lawsuit.
The instinct is to divide everything equally. For a family whose wealth is mostly an operating company, equal division is frequently the worst outcome. The daughter who has worked in the business for fifteen years now shares control with two siblings who have no operational knowledge and a strong preference for distributions. She is doing the work; they are voting on her compensation. That arrangement rarely survives a decade, and often does not survive the first recession.
There are better approaches:
Equalize with other assets. Leave the business to the child who runs it and direct life insurance, real estate, retirement accounts, or investments to the others. Insurance is particularly useful because it creates value that does not otherwise exist in the estate: if the business is worth $9 million and represents most of your net worth, a $6 million policy makes a clean three-way outcome possible where it otherwise was not.
Separate the real estate from the operations. If the company occupies a building you own, the building can go to the non-operating children with a long-term lease to the business. They receive income; the operator keeps the company clean.
Use non-voting interests. Non-operating children can receive economic participation without governance rights. Pair that with a mandatory distribution policy and a put right so they have an exit.
Build in a buyout mechanism. Give the operating child the right to purchase the others’ interests over time at an appraised value, converting a permanent entanglement into a defined transaction.
Have the conversation while you are alive. This matters more than any structure. Families that litigate are almost always families that were surprised. Tell your children what you intend and why. You will absorb some discomfort — far less than they will absorb hearing your reasoning from a lawyer reading a document aloud.
8. When There Are Multiple Owners: Making the Buy-Sell Agreement Work
If you have partners, the buy-sell agreement is the most consequential document you will sign. It determines who your partner’s heirs will be, what your company will pay, and whether the payment is funded. Most of the agreements I review fail on at least one of those points.
A buy-sell should address:
- Triggering events. Death, disability, retirement, divorce, bankruptcy, and voluntary departure each deserve their own treatment. Divorce is the one owners forget; without a provision, an ex-spouse can become your partner.
- Structure. A cross-purchase, a redemption, or a hybrid that allows the choice at the time. As Connelly made clear, this has direct estate tax consequences, and the default redemption structure is often not the right one.
- Price. Preferably a defined appraisal process with a named valuation standard and a timeline, rather than a static formula. If you do use a formula, it must be reviewed annually and actually signed.
- Funding. An unfunded obligation is a promise, not a plan. Life insurance on each owner, disability buyout coverage, and security for any unpaid balance.
- Terms. How the price is paid, over what period, at what interest rate, and what happens if the company cannot pay.
Review it every two or three years, and any time ownership percentages, company value, or the ownership group changes materially. A buy-sell written when the company was worth $4 million and funded with $4 million of insurance is dangerously inadequate at $15 million.
Succession Planning Is a Process, Not a Document
Everything above is legal and financial architecture. Succession is the human side, and it takes longer than owners expect — generally three to five years to identify, develop, and install a successor properly.
The survey data is consistent and uncomfortable. A 2025 study of private business owners found only 46 percent had a formal succession planning process underway, and 30 percent had no plan at all. Other research finds that while roughly 72 percent of owners want the business to stay in the family, only about a third have a robust plan in place.
A practical sequence:
- Decide the destination. Family transfer, sale to management, ESOP, or third-party sale. Each implies a different estate plan, and you cannot design the plan without the answer.
- Identify and develop the successor. Give them real P&L responsibility, exposure to the bank and the top customers, and the chance to make decisions you would have made differently.
- Reduce key-person dependency. Document processes, diversify customer relationships, build a management team. This is also the most reliable way to raise the value of the company.
- Retain the people who matter. Stay bonuses, phantom equity, or deferred compensation tied to a transition period cost far less than replacing a team that leaves in month two.
- Set a timeline and communicate it. Ambiguity about when you will step back is corrosive. Name a date, even a soft one.
Asset Protection: Keeping the Company and the Family Separate
Asset protection is not about hiding assets; it is about structuring them so a problem in one place does not become a problem everywhere.
The basics are unglamorous and effective. Maintain genuine entity separation — separate accounts, real corporate formalities, no personal expenses running through the company — because commingling is what lets a creditor pierce the entity. Hold operating real estate and significant equipment in entities separate from the operating company. Review liability and umbrella limits against your current net worth, not the net worth you had when the policy was written.
For heirs, the protective structure is the trust. Assets left outright to a child are exposed to that child’s divorce, creditors, and judgments. The same assets left in a properly drafted lifetime trust — with the child as beneficiary and often co-trustee — remain available to them and protected from nearly all of it. It costs almost nothing extra at the drafting stage and cannot be added later.
Where to Start
If this feels like a great deal to take on, do three things in the next thirty days.
Pull your operating agreement, shareholder agreement, and buy-sell, and read them against your estate documents to find the conflicts. Ask your advisor to run an estate liquidity analysis so you know the size of the cash gap. And get a current, defensible valuation of the company — not a broker’s opinion, an actual appraisal — because nearly every decision in this article depends on knowing what the business is worth today.
Those three steps will tell you more about the condition of your plan than any amount of reading will, and they will make your next conversation with your attorney and CPA dramatically more productive, because you will arrive with facts instead of assumptions.
You spent decades building something durable. The planning described here determines whether that durability survives you. In my experience, owners who do this work are not motivated by taxes. They are motivated by the thought of their family sitting around a table trying to make a decision no one prepared them to make. That is the outcome worth planning against.
Works Cited
Federal estate and gift tax exemption — $15 million per person in 2026; $30 million per married couple; made permanent by 2025 legislation
Morgan Lewis. “IRS Announces Increased Gift and Estate Tax Exemption Amounts for 2026.” October 2025. https://www.morganlewis.com/pubs/2025/10/irs-announces-increased-gift-and-estate-tax-exemption-amounts-for-2026
Morgan Lewis. “Estate Tax Alert: New $15 Million Federal Exemption Becomes Law.” August 2025. https://www.morganlewis.com/pubs/2025/08/estate-tax-alert-new-15-million-federal-exemption-becomes-law
Annual gift tax exclusion — $19,000 per recipient in 2026 ($38,000 per couple)
IRS Revenue Procedure 2025-32, as summarized in Morgan Lewis (above) and Kaplan, “2026 Inflation Adjustments for Tax Professionals.” https://www.currentfederaltaxdevelopments.com/blog/2025/10/9/2026-inflation-adjustments-for-tax-professionals-revenue-procedure-2025-32-analysis
Top federal estate tax rate — 40%
IRC § 2001(c). Rate unchanged by the 2025 legislation.
Nine-month payment deadline
IRC § 6075(a); IRS Instructions for Form 706.
State death taxes — roughly a dozen states plus D.C. levy an estate tax; five levy an inheritance tax; Oregon $1M, Massachusetts $2M, Rhode Island $1.838M
Creative Planning. “2026 State Estate and Inheritance Taxes: What You Need to Know.” https://creativeplanning.com/insights/taxes/state-estate-inheritance-taxes/
Section 6166 installment payments — 35% of adjusted gross estate test; deferral up to 14 years and 9 months; up to 5 years interest-only followed by 10 annual installments; acceleration on a missed payment
IRC § 6166. https://www.law.cornell.edu/uscode/text/26/6166
Vanilla. “Section 6166: How You Can Defer Estate Tax.” https://www.justvanilla.com/blog/what-is-section-6166
The 2% interest rate and the $1,940,000 “2-percent portion” for 2026
IRC § 6601(j); IRS Revenue Procedure 2025-32, § 3.42. Summarized at https://www.currentfederaltaxdevelopments.com/blog/2025/10/9/2026-inflation-adjustments-for-tax-professionals-revenue-procedure-2025-32-analysis
Section 303 redemptions to pay death taxes and administration expenses without dividend treatment
IRC § 303.
Buy-sell formula prices disregarded for estate tax unless they meet statutory tests
IRC § 2703. Exit Strategies Group. “Does My Buy-Sell Agreement Establish Value for Estate Purposes?” https://www.exitstrategiesgroup.com/buy-sell-irc-2703-requirements/
(The three tests: bona fide business arrangement; not a device to transfer to family for less than full consideration; terms comparable to an arm’s-length arrangement. An agreement is deemed to satisfy all three if more than 50% of the business is owned by non-family members.)
Valuation discounts for lack of control and lack of marketability
Sofer Advisors. “Minority Interest and Marketability Discounts in Business Valuation.” https://soferadvisors.com/insights/blog/minority-interest-and-marketability-discounts-in-business-valuation/
Bennett Thrasher. “Discounts for Lack of Control and Marketability for Estate, Gift and Trust Tax Valuations.” https://www.btcpa.net/insights/discounts-for-lack-of-control-and-marketability-for-estate-gift-and-trust-tax-valuations
(See note below.)
Connelly v. United States — Crown C Supply; Michael Connelly’s 77.18% stake; $3.5M policy on each brother; $3M redemption; IRS valuation of $6.86M vs. $3.86M and $5.3M for the decedent’s shares; $889,914 additional estate tax; unanimous holding that a redemption obligation does not offset insurance proceeds
Connelly v. United States, 602 U.S. 257 (2024). Slip opinion: https://www.supremecourt.gov/opinions/23pdf/23-146_i42j.pdf
Case summary: https://supreme.justia.com/cases/federal/us/602/23-146/
Family business survival — about 30% reach the second generation, 12% the third; 72% of owners want the business to stay in the family while roughly a third have a robust succession plan
Conway Center for Family Business. “Family Business Facts.” https://www.familybusinesscenter.com/resources/family-business-facts/
Succession planning — 46% of private business owners have a formal process underway; 30% have no plan at all (2025 survey of 491 owners)
Brown Brothers Harriman. “Succession Uncertainty and Growth Demands Define 2025 for Private Business Owners.” October 2025. https://www.bbh.com/us/en/bbh-who-we-are/bbh-news/pressroom/succession-uncertainty-and-growth-demands-define-2025-for-private-business-owners.html
