Family Business Estate Planning: 7 Questions to Ask Now

Family business estate planning starts with three questions: who takes over, what the business is worth, and who pays the tax. Everything else follows.

What makes family business estate planning different?

A large transfer of wealth between generations is underway across American families. For most households, that transfer moves cash, retirement accounts, and a house. For a family business owner, it moves an operating company: something that employs people, carries debt, signs contracts, and has to keep running the Monday after a funeral.

That is the difference. A brokerage account does not need a successor on Tuesday morning. A business does.

The trigger for a family business transfer is rarely a date on a calendar. It is a diagnosis, an accident, or an offer that arrives on a Tuesday. So the planning has to be finished before it is needed, not started when it is.

An estate plan that assumes you get twenty years of warning is not a plan. It is a hope.

Below are seven questions. The first three are the ones that decide everything else.

Question 1: Who is taking over, and have they actually agreed?

Many owners have a successor in mind. Far fewer have a successor who has said yes out loud, in front of the rest of the family.

Ask three things. Has the person you have in mind confirmed they want the role? Do the other family members know? And can that person run the company without you in the building for ninety straight days?

If the answer to any of those is no, the estate documents are describing a transition that will not happen the way they say it will. That gap does not show up until the worst possible moment.

Also plan for the honest answer that no child wants it. That is a legitimate outcome, and it changes the plan from succession to sale. Both are fine. Guessing between them is not.

Question 2: What is the business actually worth, and who says so?

Owners tend to carry a number in their head. That number came from a competitor's sale, a rule of thumb, or a conversation at a conference. It is not a valuation, and it will not hold up when the IRS, a bank, or a sibling asks where it came from.

A qualified, independent appraisal does three jobs at once. It sets the number used for estate tax reporting. It sets the price in any buy-sell agreement. And it gives non-operating heirs something objective to look at instead of taking the operating child's word for it.

Fair market value

The price a willing buyer and a willing seller would agree to, with neither under pressure and both knowing the relevant facts.

Valuation discount

A reduction in the appraised value of a minority or hard-to-sell ownership interest. Discounts must be supported by a qualified appraisal and can be challenged by the IRS.

Basis step-up

Property included in a decedent's estate generally receives a new income tax basis equal to its fair market value at the date of death, which can reduce the capital gain if heirs later sell.

Liquidity

Cash, or assets that convert to cash quickly. Estate tax is paid in cash, not in shares.

A number you cannot defend is an opinion with a dollar sign in front of it.

Question 3: Where does the tax cash come from?

This is where family business estate planning most often fails. The estate can be large and the checking account small.

For the 2026 tax year, the federal estate and gift tax basic exclusion amount is $15,000,000 per person, up from $13,990,000 in 2025. A married couple can generally preserve both exclusions, but the surviving spouse's ability to use the deceased spouse's unused amount requires a timely filed estate tax return, even when no tax is owed. That filing is missed more often than you would expect.

These figures are adjusted annually and are subject to change by Congress. Confirm the current-year amount before you act on it, and do not build a plan that only works at one specific number.

If tax is owed, the estate has a limited set of places to find the money: cash on hand, a sale of the business or part of it, borrowing, life insurance held outside the estate, or an installment election. Under Internal Revenue Code Section 6166, if a closely held business interest makes up more than 35% of the adjusted gross estate, the estate may elect to pay the estate tax attributable to that interest over a period of years rather than all at once. That election has strict eligibility rules and requires planning to qualify.

Also consider state estate or inheritance tax, which several states impose at thresholds well below the federal amount. State rules vary and change independently of federal law.

Question 4: How do you treat children fairly when only one runs the business?

Equal ownership sounds fair on paper. In practice, it hands the operating child three partners who did not choose the job and cannot be fired, and it hands the non-operating children an illiquid asset they cannot sell and do not control.

There is no universally correct answer here. There is only the answer your family can live with, chosen deliberately and explained while you are alive to explain it. The explanation matters as much as the structure. Most family conflict after a death comes from the surprise rather than from the plan itself.

Question 5: Does your buy-sell agreement still do what you think it does?

Pull it out and read it. Owners routinely find agreements signed a decade ago with a fixed price that is now badly stale, a valuation formula nobody uses, a funding source that no longer exists, or the names of former partners.

Ask your attorney to confirm how the agreement will be treated for estate tax purposes given how it is structured and funded, and whether the funding mechanism still matches the current value of the company. If the agreement obligates a purchase the funding cannot cover, it is a promise with no money behind it.

Question 6: Do your documents agree with how the business is actually owned?

Three documents have to line up: the operating agreement or bylaws, the buy-sell agreement, and the estate plan. When they conflict, the governing documents of the business usually win, and the estate plan is left describing a transfer that cannot legally occur.

One specific trap for S corporations: only certain shareholders are eligible to own S corporation stock, and only certain trusts qualify. A trust that is perfectly good for every other asset can terminate an S election if it receives the shares and does not meet the requirements. Confirm this with your attorney and CPA before, not after.

This is the same coordination failure covered in whether your estate plan will actually work the way you intended, and it is the reason coordinating your CPA, advisor, and attorney is a planning task, not an administrative one.

Three well-drafted documents that disagree with each other produce one bad outcome.

Question 7: What happens if the transfer starts tomorrow instead of in twenty years?

Estate planning tends to focus on death. Incapacity arrives more often and is messier, because nothing automatically transfers.

Check that someone can legally sign for the business, access the accounts, approve payroll, and speak to the bank the week after you cannot. That usually means durable powers of attorney, current signature authority at the bank, successor trustee designations, and written instructions somebody besides you has read.

Run the same test for a sudden opportunity. If a buyer approached your company this quarter, would the structure you have today support a tax-efficient outcome, or would you spend the first ninety days fixing the entity? That is the ground covered in estate planning basics to have in place before a transaction.

What to review in the next ninety days

1. Get a current, independent valuation of the business.
2. Read your buy-sell agreement start to finish and note every clause that is out of date.
3. Confirm your trust is an eligible shareholder if the business is an S corporation.
4. Estimate the estate tax and identify, in writing, where the cash would come from.
5. Confirm signature and payroll authority for an incapacity scenario.
6. Have the successor conversation out loud, with the family in the room.

Owners approaching retirement can pair this with the broader estate planning checkpoints to review around age 60.

Anchor's role in this work is strategy and coordination across your tax, retirement, insurance, and legacy decisions. Your attorney drafts the documents. Your CPA files the returns. The value we add is making sure those pieces are pointed at the same outcome.

Frequently asked questions

Do I need a business valuation if I am not selling?

Yes. A valuation supports estate tax reporting, sets the price under a buy-sell agreement, and gives non-operating heirs an objective number. Waiting until a death or a dispute means the valuation is prepared under pressure, by someone with a stake in the answer.

Is the estate tax exclusion per person or per couple?

Per person. For the 2026 tax year the basic exclusion amount is $15,000,000 per individual. Married couples can generally preserve both amounts, but using a deceased spouse's unused exclusion requires a timely filed federal estate tax return, even when no tax is due.

Can my revocable trust own my S corporation shares?

Sometimes, and only if the trust meets the shareholder eligibility rules for S corporations. Certain trusts qualify and others do not, and some qualify only for a limited period after death. Confirm this with your attorney and CPA before the shares are retitled, because an ineligible shareholder can terminate the S election.

What if none of my children want the business?

Then the plan is a sale, not a succession, and the preparation is different. That path emphasizes clean books, transferable customer relationships, reduced owner dependence, and entity structure well ahead of any transaction.

How often should a family business estate plan be reviewed?

Review annually at a high level, and in detail after any of the following: a significant change in company value, a change in ownership, a marriage or divorce, a death, a move to another state, or a change in federal or state tax law.

Can the estate pay the tax over time instead of all at once?

Possibly. Internal Revenue Code Section 6166 allows an installment election when a closely held business interest exceeds 35% of the adjusted gross estate. Eligibility is technical and depends on how the business and the estate are structured, so it should be planned for in advance rather than discovered afterward.

Sources

1. IRS, tax inflation adjustments for tax year 2026, for the $15,000,000 basic exclusion amount and the 2025 comparison figure.
2. IRS, Estate Tax, for how the federal estate tax applies to property transferred at death.
3. IRS, Gift Tax, for the treatment of lifetime transfers of business interests.
4. IRS, About Form 706, for the estate tax return and the portability election.
5. 26 U.S.C. 6166, for installment payment of estate tax where a closely held business exceeds 35% of the adjusted gross estate.
6. 26 U.S.C. 1014, for the income tax basis of property acquired from a decedent.
7. IRS, S Corporations, for shareholder eligibility rules affecting trusts that hold S corporation stock.

Federal figures are adjusted annually and tax law can change. Confirm the current-year amounts with a qualified tax professional before acting.