Helping Business Owners Get the Best Out of Estate Planning

Advisors can help clients maximize the value of their businesses for themselves and their heirs.

For business-owning clients, the business is often their largest single asset, or at least a very significant portion of their estate. It is important that they consider the business in their estate planning.

Some initial questions:

  • Is it a service business or a business that manufactures or distributes products/?
  • Is the client the owner of the business or are there partners in the business?
  • Are there family members willing to take over the business?
  • Does the client have an exit strategy or business succession plan?

Here are some estate planning considerations for business owner customers.

Get out of strategy

Business exit planning is critical for business owner clients. An exit strategy is a business owner’s plan to exit the business when the time is right or circumstances dictate an exit.

An exit strategy involves realizing the full value of the business through a sale to an outside party, a succession plan that includes family members, key employees or partners in the business. In addition to selling a business as an entity, selling assets, a customer or customer base, a business’s intellectual property, or other aspects of a business can bring significant value.

Having an exit strategy that maximizes the value of the business is a key estate planning strategy that maximizes overall estate value. This is true whether clients retire from the business or whether their exit is due to death or disability.

Succession Planning

Succession planning is key for more than just estate planning reasons. Having a succession plan is a form of building an exit strategy for business owners that includes business continuity. A succession plan may require that the business be passed on to family members such as children, siblings or grandchildren. It may also result in the sale of the business to key employees.

When selling to employees, it is important to have an agreement to reimburse the business owner for the full cost of the sale. When a business is transferred to family members, there may or may not be compensation for the business owner involved.

Purchase and sale agreement

If the client has partners or co-owners in the business, a sale and purchase agreement can help facilitate an orderly transition of the business. A buy-sell agreement is often funded by a life insurance policy that kicks in when one of the owners dies and/or a disability policy that pays out in the event of a disability that prevents them from continuing their role in the business.

A life insurance policy compensates the customer’s family in case of death. It can also serve as full or partial payment to the family for the business by other partners in the business.

Life and Disability Insurance

Life and disability insurance can be key elements of a purchase agreement. Even without such an arrangement, life and disability insurance is important to business owner customers.

Proceeds can be used to provide value to the business owner’s family in the event of death or disability. This money can help cover family living expenses if the business owner dies or becomes too disabled to continue working. These proceeds can help protect other assets in the business client’s estate.

Estate Planning Documents

Virtually all clients should have proper estate planning documents, and this is certainly true of business owner clients. Depending on the nature of the client’s business and overall estate planning needs, any or all of these estate planning documents may be appropriate:

  • A will that states the client’s wishes about how their business and personal assets will be distributed after death. A will is a key document, and without it, the client’s assets may be distributed according to the state’s default rules, which are inconsistent with the client’s wishes regarding business and personal assets.
  • A power of attorney names another person to manage the client’s finances and make business transactions and decisions in the event of the client’s incapacity. This can help sustain the business until the customer is reinstated or the business is sold. Either way, it helps protect what could be a key piece of property.
  • A medical power of attorney allows clients to name someone to make medical decisions on their behalf when that is not possible.


There are various trusts which they can use to ensure the continuity of the business if the entrepreneur becomes incapacitated or dies. Some of the advantages of using a trust are:

  • Avoid probate with personal and commercial assets. This can save time and costs when transferring a client’s assets.
  • A trust can protect a client’s business from creditors.
  • A properly structured trust can help make a business transition smoother. A business owner can appoint a successor to run the business in the event of death or incapacity.
  • Using a trust can help minimize any taxes that may result from passing the business down to the next generation in the case of a family-based succession plan.

Minimizing taxes

In some cases, the size of the business and its assets may be sufficient to trigger estate taxes, esp sunset of the current gift and estate tax exclusions It is planned to happen after 2025. It would cut the federal estate tax exemption in half from current levels.

Depending on the structure and size of the client’s business, a will, trust or partnership agreement can help reduce the tax impact if the business needs to be passed on to heirs.

The result

For clients who own a business, the business is probably one of their biggest assets. This is generally a large component in estate planning, with proceeds from the sale of the business or passing the business itself on to heirs. Business owner clients need help with the estate planning process to ensure they maximize the value of their business for themselves and their heirs.

These clients will seek guidance in assembling a team of professionals to help them have an appropriate estate plan for their business and personal assets.

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