Estate planning for business owners: How can I plan for my legacy and my business?

Discuss these with your attorney, tax advisor and financial advisor

Will: Documents how assets are to be distributed following an owner’s death and names individuals or entities you would like to serve as a guardian, executor or trustee. A will does not control how all assets are distributed: Those that are jointly held with the right of survivorship automatically pass to the survivor, and beneficiary designations, rather than your will, typically control how IRAs, other retirement plan assets, and life insurance proceeds are distributed.

Trusts: The assets of a trust created during your lifetime often avoid probate. Certain types of trusts can also remove assets, and the appreciation on them, from your taxable estate.

Buy-sell agreement: A legally binding contract that stipulates how a business partner’s shares in a business may be transferred should that person choose to leave the business or die.

Family limited partnerships: A partnership into which business assets can be transferred with shares of the partnership then transferred to successors; if the shares do not confer control, their value can generally be discounted for federal gift tax purposes due to lack of marketability.

Life insurance: Often used to provide cash flow to offset estate taxes, equalize an inheritance or minimize the income taxes paid by a trust. Life insurance owned by and payable to a properly structured trust may be excluded from your taxable estate and the proceeds of the policy are not subject to federal income tax.

Annual gifting strategy: Transferring shares in a business in amounts under the annual gift tax exclusion amount enables an owner to gradually transfer business ownership to family members, reducing the value of his or her taxable estate. Gifting also removes future appreciation of those assets from the donor’s eventual estate. In 2025, individuals can gift up to $19,000 per recipient without triggering gift tax, and married couples who elect to split gifts can give up to $38,000.

Durable power of attorney: Appoint an agent to act on your behalf to handle specific, enumerated financial duties such as paying bills or making decisions regarding investments or real estate. If durable, the power of attorney will apply immediately upon signing and will survive any future incapacity.

Living will: Communicates your wishes regarding the medical treatment you wish to receive or reject under specific conditions; typically outlines the conditions under which extraordinary measures to prolong life should or should not be taken.

Health care proxy or health care power of attorney: Appoints a proxy or agent to make health care decisions in the case that you are not able to make decisions or communicate your wishes. May be combined with a living will and referred to as a health care advance directive.

Katie Carlson, Head of Wealth Strategy at Bank of America Private Bank, leads a team of wealth strategies advisors who works closely with business owners on complex wealth planning considerations. In this conversation, she shares her insights on business estate planning opportunities and pitfalls.

What would you say is the single biggest misstep business owners make?

It’s more an omission than a misstep, per se. A lot of business owners are so focused on growing their businesses that succession and wealth planning fall on the wayside. In other cases, it’s emotions — resistance to the idea of letting go someday — that make them postpone having conversations with beneficiaries and taking action. Luckily, what I’ve seen time and again is that once owners dive in and commit to the process, there’s a sense of relief, accomplishment and even excitement about the future.

How do you approach identifying and addressing the estate planning issues particular to a specific situation?

Every business and family is unique, so I start by spending time getting an understanding of the business, as well as family members’ expectations. The first premise of an estate plan is control — you want to be in the driver’s seat about to whom and how your assets will pass. We take all those elements into consideration in helping the owner design a transition plan that is both grounded in reality, fiscally sound and meets the owner’s vision for preserving their legacy.

What do you look for – what kinds of issues do sometimes find?

I look for gaps, such as the lack of clear succession and estate plans — or lack of communication about those plans to family members and business stakeholders. Clarity about what everyone wants and expects is essential. For example, an owner may have always intended to pass the business down to their children but never shared or documented who within the family would manage the business or how that ownership will be divided among them. Or the plan was always to sell, but the kids are blindsided when the time comes. These unspoken assumptions can lead to confusion and conflict — or even jeopardize the future of the business if they aren’t addressed.

Assessing the ownership structure and existing legal documents is also key. Many owners draft documents when their business is formed and never revisit them. Those documents may still list a former spouse, neglect to include a youngest child or be too simplistic for a business that’s grown significantly since formation. Life events, developments in tax law, business expansion and other changes can all warrant updates. An estate plan is not a one-and-done exercise; it should be revisited regularly to see whether changing circumstances warrant an adjustment.

From a tax perspective, I look at the potential financial impact of a transaction or ownership transfer and analyze how different strategies or techniques such as trusts, family limited partnerships or gifting shares over time might be employed. We always want to make sure that plans that ensure continuity are in place. Or if business owners are entering a transaction, they have a full understanding of the tax ramifications and have taken steps to maximize value.

How do you integrate estate planning needs with business owners’ broader wealth management strategies?

Estate planning — clarifying your intent for the disposition of your assets after you’re gone or no longer able to communicate those desires — should always be part of a well-rounded overall wealth management strategy. This is particularly true for business owners, for whom personal and business finances are inherently intertwined. For example, if a business represents a large percentage of an owner’s net worth, the estate plan needs to account for that concentration risk so that if something happens to the owner, there’s a mechanism in place to protect both the business and the family’s financial stability.

Estate planning can also address tax considerations. As with the sale of a business, strategies like gifting shares over time, setting up trusts or restructuring the company as a partnership in advance of a transaction may significantly reduce estate tax exposure and maximize the value of wealth being transferred to beneficiaries. 

What is the biggest misconception business owners have about succession and estate planning?

People don’t always understand that succession and estate planning isn’t just for uber wealthy individuals with complicated businesses holdings. Virtually any business owner will benefit from a well-structured plan that provides for continuity if he or she steps away unexpectedly and ensures that key transitions are handled in a tax-efficient, legally sound way.

And the sooner, the better — don’t feel you need to wait until your business hits a certain threshold or you know all the answers about your future plans. An experienced advisor can help you explore decisions like whether you want to pass the business to family, sell to a third party, transition it to employees or some combination of these and how best to pursue that goal. He or she can also facilitate family discussions about the future. The picture may be blurry now but starting the conversation and expert guidance will help you bring it into focus.

The 58-year-old founder of a successful specialty beverage company wasn’t ready to retire but wanted a plan in place in case something happened to him. He was starting to think about the future of the company he had built —which he estimated was worth several million dollars — as well as that of his two adult children, who both held key roles in the business. His daughter led sales and marketing, while his son handled finance. The family had never sat down and talked through what a leadership transition might look like — nor how the company’s ownership might be structured.

The founder called his private client advisor to ask for help thinking through his options. The advisor enlisted the help of a wealth strategist and met with the man and his children to talk about the opportunities and drawbacks for different approaches. After considering their options, the family came to a consensus: The founder would retain a controlling interest in the company but begin transferring ownership stakes to his children with the long-term goal of them running it as partners.

The Bank of America team, including a wealth strategist, guided the founder through the process of assessing his company’s worth and developing a succession plan.

The plan called for using a trust to transfer minority ownership stakes to the children — preserving control while reducing the size of their taxable estate. The Bank of America team worked with his attorneys to update all estate documents and created a buy-sell agreement setting forth how shares would be transferred to ensure a smooth transition if either of the kids chose to leave the business.

Today, the whole family feels prepared — not only for the founder’s retirement, but for the future of the company and their own financial well-being. The planning process enabled the founder to turn uncertainty into empowerment — and ensure his beneficiaries would benefit from his legacy.