As a business owner, one of the many things to consider as you grow your business is ensuring that your business and your family are protected in case something happens to you.
Estate planning for small business owners is often an overlooked topic when business owners first start their business. Yet it’s essential to start putting the right documents in place early while being mindful that things may get more complex as your business grows in size, revenue, and number of employees or partners.
The estate planning process for business owners usually goes beyond basic wills, requiring careful coordination between personal assets, business interests, and tax implications. Here, we take a deeper look at some of these considerations and provide an overview of the key items that business owners should consider to protect their legacy and business.
We are not estate planning attorneys and do not provide legal advice, so please be sure to consult a qualified estate planning attorney in your state for more information prior to making any decisions.
Click here or on the image below to watch a free recording of our webinar for business owners, “The Business Owner’s Monetization & Exit Blueprint: Structure, Sell, and Transfer Your Business for Maximum Wealth and Minimal Taxes” with Faith Liveoak from Foley & Lardner LLP to help you gain more ideas for estate planning for your business.
3 Reasons Business Owners Need to Pay Special Attention to their Estate Planning
While everyone needs to have at least some basic estate planning done, business owners have at least three important reasons to pay extra attention to their estate plan:
1. Asset Protection
Your business assets and personal wealth may be more connected than you realize. Many business owners use personal guarantees for business loans, own real estate through their companies, or have retirement savings tied up in business equity.
2. Succession Planning
How are you going to ensure that your business continues to run in good order if something happens to you? You may also carry responsibility for employees and stakeholders who depend on your business for their income. Your estate plan needs to account for their needs while protecting your family’s interests. This is where succession planning comes in.
3. Tax Mitigation
In addition, owning a business makes planning for estate taxes more complex. Business valuations, transfer taxes, and succession timing can dramatically impact how much wealth actually transfers to your beneficiaries.
Let’s take a close look at each of these and how you can prepare your estate planning as a business owner.
1) Asset Protection Strategies for Business Owners
Within the realm of estate planning for business owners, the goal of asset protection is creating legal barriers between your personal assets and business liabilities while also protecting business assets from your personal creditors.
Your Business Structure
One of the first steps to protect your personal assets is to set up the right type of business entity. Forming an LLC, S Corporation, or C Corporation can help separate your personal finances from your business, so you’re not personally responsible for business debts—if everything is set up and maintained correctly.
Each state has its own process to register your business. For an LLC, you typically file something called Articles of Organization. For a C Corporation, you file Articles of Incorporation. If you want your business to be taxed as an S Corporation, you’ll first form the LLC or corporation and then file Form 2553 with the IRS to elect S-Corp tax status. Once your entity is officially formed, you’ll also apply for a tax ID number for your business.
Insurance and Protection for Personal Assets
Insurance is another important layer of protection for your assets. Business liability insurance and umbrella policies can help cover claims or lawsuits and serve as a first line of defense.
Beyond your business structure, certain states also offer legal protections for your personal assets, such as homestead exemptions (which may protect your primary residence) and protections for retirement accounts.
For business owners with significant assets or higher levels of legal risk, offshore asset protection may also be worth exploring. This involves setting up legal structures in certain foreign countries with stronger privacy and creditor protection laws. However, offshore planning is more complex, expensive, and requires careful legal guidance.
Finally, it’s critical to put asset protection strategies in place before any legal problems or creditor claims arise. Waiting until you’re facing a lawsuit or debt issue often limits your options and can result in certain actions being viewed as fraudulent transfers.
Transferring Business Interests Into a Trust
While you can’t move your entire business into a trust, you may be able to transfer your ownership interest—whether it’s shares of a corporation, membership units in an LLC, or partnership interests—into your personal trust. This allows the trust to become the legal owner of your share of the business, helping to avoid probate and ensure a smooth transition to your heirs.
Once the transfer is made, ownership records and company documents need to be updated to reflect the trust as the new owner.
2) Succession Planning to Ensure Business Continuity
A business succession plan will affect how business assets are valued and transferred, which directly impacts estate planning for business owners.
Effective succession planning may require years of preparation. You need time to identify potential successors, provide them with training and experience, and gradually transition responsibilities while you’re still available for guidance.
Developing a Comprehensive Succession Strategy
Identifying and training successors for your business requires honest assessment of who has the skills and motivation to lead your business. This might be family members, key employees, or external candidates who need time to learn your business.
Creating transition timelines helps ensure smooth handoffs of responsibility. When possible, gradual transitions may work better than sudden changes, giving successors time to prove themselves while you’re available for support.
Legal Mechanisms for Smooth Transitions
Buy-sell agreements are documents where you can create predetermined methods for transferring ownership. These agreements specify who can buy ownership interests, how they’re valued, and what triggers ownership transfers.
Key person insurance is another tool that can provide a financial safety net if a key owner or leader unexpectedly passes away or becomes disabled, helping fund a buyout, hire a replacement, or stabilize operations during a difficult transition.
For business owners who want the option to transfer some or a share of ownership to employees, employee stock ownership plans (ESOPs) may also be something to consider.
In addition, Family limited partnerships (FLPs) or family limited liability companies (FLLCs) allow business owners to gradually shift ownership to family members while potentially reducing estate and gift taxes, maintaining control, and protecting assets from creditors.
3) Tax Optimization Strategies in Estate Planning for Business Owners
In addition to filing taxes for your small business every year, you’ll also need to think about the tax implications of selling or transferring your ownership interests and any potential estate taxes that may result if you pass away.
Minimizing Estate and Gift Taxes
In 2025, the federal estate and gift tax exemption is $13.99 million per person (scheduled to decrease in 2026 unless the TCJA is extended), which means that if your net worth is over this amount, your estate may be subject to federal estate taxes.
Making a gift of your business interests now—particularly if your company has recently experienced rapid growth—can help you reduce your taxable estate and potentially lock in a lower tax basis.
Annual exclusion strategies enable you to gift portions of your business interests each year to family members without using any of your lifetime exemption. For 2025, the annual exclusion is $19,000 per recipient so you could potentially gift this amount of your business interests away each year without the transfer being subject to estate taxes later.
Valuation discount techniques are another tool to consider to further decrease the tax burden. Because minority and noncontrolling interests in privately held companies typically trade at a lower fair market value, you may be able to use a minority interest discount (often 20–35%) and/or a marketability discount (another 10–30%) when valuing a gift of your business interests.
Finally, strategic use of annual exclusions for other related items—such as paying premiums on a life insurance policy held in an irrevocable life insurance trust (ILIT)—can accelerate estate reduction. If premiums are paid directly on behalf of the trust beneficiaries, those payments are not considered gifts and do not count against your annual exclusion, helping shelter the death benefit proceeds from estate tax entirely.
Business-Specific Trust Opportunities for Better Estate Planning
In addition to the above suggestions, here are a few specific ideas of different trust structures to discuss with your estate planning attorney and see if they would be a good fit to help you potentially reduce estate taxes when transferring your business interests.
Grantor Retained Annuity Trusts (GRATs)
A GRAT may allow you to transfer the future appreciation of your business interest to beneficiaries while receiving a fixed annuity over a set term. Here’s how it works: you transfer assets into the GRAT, receive fixed annuity payments for a set number of years, and at the end of the term, any remaining assets pass to beneficiaries that you designate ahead of time.
Because you’re treated as the “grantor” for income tax purposes, any growth above the IRS’s assumed interest rate (the Section 7520 rate) passes to your heirs tax-free.
High-growth startups or family businesses with strong projections benefit most, since the larger the appreciation differential, the more value escapes estate tax.
Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs)
If you have philanthropic goals alongside estate planning, a CLT or CRT can serve two purposes: reducing your taxable estate and fulfilling charitable intentions. A Charitable Lead Trust pays a fixed amount (either interest or annuity) to a charity for a set term; afterward, the remainder passes to your beneficiaries. Because the charity’s interest is valued actuarially, your taxable gift or estate value is reduced.
Conversely, a Charitable Remainder Trust holds business-related assets and pays you or other beneficiaries an income stream for life or a set term; when that term ends, the remainder goes to charity. By transferring assets into a CRT, you receive an immediate income-tax deduction based on the charitable remainder’s present value and remove the asset’s full value from your estate.
For business owners anticipating a liquidity event, such as selling to a third party, a CRT can convert illiquid stock into diversified cash while deferring capital gains and reducing estate taxes.
Intentionally Defective Grantor Trusts (IDGTs)
With an IDGT, you sell a minority interest in your company to a trust in exchange for a promissory note. Because the trust is “defective” (you pay its income tax), all future appreciation happens outside your estate. If the note is structured at a low interest rate—often the AFR (Applicable Federal Rate) set by the Treasury—then the trust’s assets can grow at a higher rate than the note’s interest, again shifting value to beneficiaries free of gift or estate tax. For instance, selling a $2 million minority stake to an IDGT at a 2% note rate while the business grows at 7% results in that 5% excess growth compounding inside the trust.
Family Office and Captive Insurance Strategies
High-net-worth business owners may consider establishing a family office to centralize wealth management. Within a family office, a captive insurance company can underwrite business risks, generating deductible premiums and accumulating investment assets inside the captive. Over time, accumulated captive reserves can be distributed to family members or a family trust under favorable tax treatment.
While this strategy requires substantial legal and actuarial support, a well-capitalized captive can shield a significant portion of risk-management expenses from state premium taxes and federal income taxes, indirectly preserving more value for heirs.
Review Your Business Estate Planning Strategy Regularly
Estate planning for business owners requires ongoing attention and regular updates. Your business changes, tax laws evolve, and your family situation develops, all requiring adjustments to your estate plan.
The earlier you start planning, the more options you’ll have and the more effective your strategies can be. Many of the best estate planning techniques require years to implement effectively.
Working with qualified professionals ensures your plan addresses all the complex issues involved in business estate planning. If you’d like to speak with our financial advisors in Tampa to help you craft a strong financial plan for your business while guiding you on important business-related estate planning topics, you can schedule your complimentary consultation and protect your hard-earned wealth today.
