Business Owner Wealth Transfer Strategies

A business owner meeting with his client

After spending years growing your business, you may be starting to think about your strategy for stepping away from it. If you haven’t put a plan in place yet, you’re not alone.

Transitioning Your Closely Held Business


Only about a third of family business owners have created a strong succession plan and shared it with their family, according to PWC. But it’s a good idea to get started sooner than later.


“A wealth-transfer plan gives a business owner the best chance of success for both business continuity and personal estate and legacy planning,” says Jeanne Krigbaum, Chief Wealth Planning Officer with 1834, a Division of Old National Bank. “Otherwise, if something unexpected happens to a business owner without a wealth transfer plan in place, you’re really leaving a lot up to chance.”


Even if you’re not planning to retire right away, putting a wealth transfer strategy in place now can help smooth the transition when the time comes. With that said, here are some important questions to start thinking about.


1. Will you keep the ownership and/or leadership in the family?
The dream for many business owners is to pass down their business to a child who takes over both ownership and leadership. Of course, such a scenario requires the younger generation to have the interest and capabilities for such a transition. If that’s not an option, you might look at keeping business ownership within the family and bringing in outside leadership, or selling the business outright.


2. How much is the business worth—and how much do you need?
The best way to answer this question is to get a third-party valuation of the firm. That will give you a ballpark number that you can work with both to negotiate a potential sale price and to determine how its sale will fund the lifestyle that you have envisioned in retirement. “The value of your business, and the cash flow needed to fund your ongoing expenses for your lifetime, will dictate whether you have to sell, whether you can gift the business to family, or whether it’s a combination of the two,” Krigbaum says. “The very first thing to do is get your personal house in order so that you can develop a transition plan for the business.”


3. How will I structure the transfer?
This depends on the answer to question number one. If you’re transferring the business to family members, you might structure it as a gift or a series of gifts over time, which can be helpful for estate planning purposes. Another option is to use a trust, which has tax benefits and could protect your heirs’ interest in the business from future creditors.


If you’re selling the business (to families or others), you can either sell it outright or sell a portion of the business and retain a smaller ownership stake. You can also offer financing to your buyer and turn the sale into a future income stream for yourself.

Determining the right structure for your situation will require a team of advisors, typically including at least an estate attorney, a tax professional, and a financial planner or wealth strategist, says Krigbaum.


4. How will you deal with the tax impact?
There are a variety of ways that your wealth transfer strategy can impact your taxes. Be sure to discuss the following with your wealth advisor and tax professional:


      • Capital gains taxes: In most cases, proceeds from the sale of your business are subject to capital gains taxes, which is 15% or 20%, depending on your income.
      • Income taxes: If your income changes substantially following the sale of your business, you may have access to different credits, deductions, or tax strategies that could lower your annual tax bill.
      • Estate taxes: While you won’t have to pay estate taxes right now, the way that you structure the sale of your business could have significant impact on the amount of taxes your heirs could have to pay later.


“Depending on the size of the estate, a 50%-60% tax burden may be the result of failure to plan,” Krigbaum says. “The remainder family members could be facing an estate settlement that requires a fire sale of assets to produce the necessary liquidity to meet millions of dollars in tax obligations. The estate could lose a lot of money, all because you didn't plan.”


5. Is your business succession plan aligned with your estate plan?
Since your business may be your biggest asset, it’s important to make sure that you’ve thought through the impact a change in ownership could have on your estate plan. This should factor in not only taxes but also how and to whom you want your wealth distributed to after you pass away. You may have to update your existing estate plan to account for changes in your net worth or the types of assets that you own.


Answering the above questions can help you put together a wealth transfer strategy that ensures that you can make the most of one of your most valuable assets. If you're thinking about selling, reach out to an 1834 team member near you. We can help you determine the best next step now and as you go through this important milestone for your personal and financial life.