Pre-Sale Tax and Estate Planning for Business Owners
In our previous article, we explored how business owners can evaluate whether a sale makes sense and determines whether the proceeds can support their long-term goals. Once a transaction becomes a realistic possibility, attention turns to another critical question: how should ownership be structured before a sale occurs?
Aligning Ownership with Long-Term Goals
Once a sale becomes a real possibility, attention turns to structuring. How the business is owned going into a transaction can have a significant impact on what the owner keeps.
This is often the phase where the most meaningful planning opportunities exist, particularly because many strategies require time to implement effectively.
We begin by revisiting ownership through a broader lens. Who should benefit from the sale? How much wealth should remain within the owner’s estate, and how much should be transferred to future generations? Are there charitable goals that should be incorporated into the plan?
Answering these questions allows us to align the structure of ownership with long-term objectives rather than treating the sale as a standalone event.
Estate Planning Opportunities Before a Sale
For many families, this includes thoughtful estate planning. Transferring shares prior to a sale – often into trusts – can shift future appreciation out of the taxable estate while taking advantage of valuation discounts tied to lack of control or marketability. When executed properly and early enough, these strategies may reduce future estate and GST tax exposure while preserving flexibility for beneficiaries.
In certain cases, Qualified Small Business Stock planning (hyperlink to QSBS one pager) can provide an additional layer of efficiency. Where applicable, it allows for the exclusion of substantial capital gains — often $10-$15 million per shareholder. Through careful structuring, that benefit can sometimes be extended across multiple family members or trusts. The resulting tax savings can be significant.
Charitable and Residency Planning Considerations
For those with philanthropic intentions, the period before a sale also creates a unique opportunity. Donating appreciated shares prior to a transaction can eliminate capital gains tax on those shares entirely, while still allowing the owner to direct proceeds to charitable causes. Vehicles such as donor-advised funds or charitable trusts can help align giving with broader financial goals in a tax-efficient way.
Another often overlooked, but highly impactful consideration is state residency. Depending on where an owner lives, state-level taxes can meaningfully reduce net proceeds. In some situations, residency may be a relevant planning consideration prior to a sale. However, this type of planning requires time and careful coordination, reinforcing the importance of starting early
Why Timing Matters
The common thread across these strategies is timing. Once a transaction is imminent, options become limited. Planning well in advance preserves flexibility and allows decisions to be made deliberately rather than reactively.
Next in the series: Even the most thoughtful planning ultimately needs to be implemented through the transaction itself. In our final article, we explore deal execution and the factors that determine realized liquidity.
