Before you sell the family business: Valuable estate planning strategies

August 03, 2026
What should be front of mind when planning to sell your business? BBH Senior Wealth Planners Ali Hutchinson and Karin Prangley review some key estate planning considerations for business owners preparing for a sale.

Selling your business may be the most important financial event in your life. Common questions include:

  • What is my business really worth?
  • How do I get the highest sale price possible?
  • What is the right deal structure?

Naturally, these key questions are addressed almost immediately by your corporate deal team. There are, however, additional trust and estate planning strategies that are often overlooked but can deliver as much value as a dramatic increase in sale price.

Three tax-saving strategies to implement now

If the sale of your business will be successful enough to leave you with more money than you wish to spend during your life, then there are really only three places this extra money can go: to your family or other loved ones, to charity, or to the government in the form of taxes.

Unfortunately, taxes can be a significant impediment to realizing the full value of your business upon its sale. A careful analysis of the multitude of taxes that may apply in selling your business is crucial to maximize the proceeds that you’ll receive in the deal. Not only will you want to minimize income taxes on the immediate sale of the business, but you should also consider the taxes that may apply when the money you’ve earned in selling the business passes to the next generation of your family (or your desired beneficiaries).

Sharing wealth with loved ones often means benefiting the government by paying gift and estate taxes (collectively called “transfer taxes”), which are assessed on transfers made during life or at death that exceed a certain total amount (currently, $15 million). These transfer taxes can be 40% or higher, depending on the state you live in, how much money you give away, and your relationship with the gift recipient. Maximizing the amount that goes to your loved ones and minimizing the amount of transfer taxes due involves careful advance planning.

While an analysis of your wealth planning needs is highly personal, there are several common estate planning strategies that work well for many business owners. Following are three of the most popular strategies that business owners can use to transfer wealth to their families in connection with the sale of their business. These techniques can help business owners save transfer taxes even if the sale of the business does not happen for many years. In fact, many of these strategies work best when they are implemented long before the business is sold.

Today, each U.S. citizen has an exemption from gift/estate tax that they can use to transfer property during life free of gift tax or at death free of estate tax. In 2026, the exemption amount is $15 million per individual ($30 million for a married couple who split gifts).1  To the extent gifts are made that exceed the exemption amount, and don’t qualify for the annual exclusion from gift tax, gifts will be subject to gift tax at the current rate of 40%.

These illustrations assume that the business owner desires to pass wealth to his or her children. However, these strategies can work equally well if the business owner instead desires to pass wealth to another family member, friends, or beneficiaries. Another great technique is to incorporate charity in the plan, but that strategy is beyond the scope of this article. For detailed information on charitable giving strategies, please contact your BBH relationship manager or wealth planner.

A simple yet effective strategy to pass part of the value of the business to your beneficiaries is to give an interest in the business to them (or a trust for their benefit). A noncontrolling interest in a privately held business is an ideal asset to give to beneficiaries because the value of the business interest for gift tax purposes can be discounted by two important features - lack of marketability and lack of control.

How it works:

There are fewer available markets to sell an interest in a privately held company as compared with publicly traded securities, making an interest in a private business relatively illiquid. This lack of marketability reduces the value of the business interest for gift tax purposes since the beneficiaries do not have a marketplace in which to quickly sell the interest for full value. The beneficiaries also usually receive nonvoting shares, or simply do not receive enough of an interest in the business to control voting decisions. Lack of voting control also reduces the value of the business interest for gift tax purposes since the beneficiaries cannot vote to change any of the business operations. These valuation discounts alone can make a gift of an interest in a privately held business a good estate planning strategy for a business owner.

Key considerations:

  • The key to making a gift of an interest in the business a great estate planning strategy is to make the gift before the business is on the market for sale, ideally at a time when the value of the business is still growing.
  • If structured correctly, all of the growth in the value of the shares following the date you make the gift will pass to your beneficiaries free of gift tax.

A gift of an interest in a privately held business is a simple yet effective way to transfer assets to your beneficiaries at a reduced tax cost. This simple technique can be made even more effective by selling the shares to a trust for the benefit of your beneficiaries, rather than giving the shares to them outright.

How it works:

The trust would buy the shares from you, not for cash, but in exchange for a promise to pay you the value of those shares after a certain number of years. The promissory note may require interest only (at an IRS-determined interest rate) and a balloon payment at the end of a fixed term. The IRS-determined interest rates are typically low, relative to market interest rates, which will require less money to flow back to your estate in the form of interest payments and will allow more value to stay in the trust for the benefit of your beneficiaries. It is recommended that the trust have cash or other liquid assets of at least 10% to 20% of the face amount of the promissory note so that it has the ability to service the debt. This may require you to make an initial seed gift to the trust. The trust would be designed to be an intentionally defective grantor trust (IDGT), or simply grantor trust. This means that you will be treated as the owner of the trust assets for federal income tax purposes during your lifetime, even though the trust assets will not be included in your estate at your death.

Although having to pay the trust’s income taxes may seem unattractive, consider that the amount of federal income tax you pay on the trust’s behalf is equivalent to an additional tax-free gift to the trust of the amount of income tax paid. This feature of the trust allows the value of the trust to keep growing for the benefit of your beneficiaries, without being depleted by federal income taxes. If the business is sold, the trust also does not need to be depleted by paying any of the federal capital gains tax liability on the sale of the business.

Another beneficial feature of a grantor trust is that the initial sale of the shares to the trust does not trigger capital gains tax because, for federal income tax purposes, the sale is treated as if you had sold the shares to yourself.

Key considerations:

  • The loan from you to the trust should contain commercially reasonable terms, including the payment of interest. Ideally, the loan should be paid off in full before your death.
  • This could be an especially effective technique if you have little estate/gift tax exemption remaining, as the only estate/gift tax exemption needed is for the seed gift and not for the assets sold to the trust.

A grantor retained annuity trust (GRAT) is another highly effective strategy for passing wealth to beneficiaries, children, or other loved ones in conjunction with the sale of a business.

How it works:

A GRAT is a trust to which you would transfer shares in the business. The trust will then pay you an annual amount (i.e., an annuity) for a specified term of years. At the end of that term of years, your annuity payments will end, and you will no longer have any interest in the trust property. Any property remaining in the trust will be distributed to your children or other beneficiaries.

For gift and estate tax purposes, you are treated as having made a gift at the time the trust is created. The value of the gift is not the full value of the business interest contributed to the trust. The value of the gift is the present value of the interest passing to your beneficiaries at the end of the trust term. After all, you have kept the right to receive an annuity for a set term of years, and you are permitted to subtract out the value of the annuity interest when determining the value of the gift.

The value of the annuity interest is calculated using the IRS-published interest rate applicable at the time the GRAT is created. Under current law, it is possible to set the annuity payments high enough such that their calculated value is equal to the value of the business interest contributed to the trust. This is referred to as a zeroed-out GRAT because the value of the gift is deemed to be zero in such a case.

As long as the business interest transferred to the GRAT appreciates at a higher rate than the IRS-published rate, there will be property remaining in the GRAT for the benefit of your children when your annuity interest ends. Many business owners find that it is not difficult to grow their businesses at a rate higher than the IRS-published rate, which is often low relative to commercial interest rates.

Like all the techniques discussed in this article, it is important to transfer the shares to the GRAT before the sale of the business is imminent. If the sale of the business is nearly complete, it will be difficult to argue that a value lower than the price received in the sale of the business is appropriate for gift tax purposes.

Unlike the techniques discussed previously, a GRAT is generally more effective when a sale of the business is a few years away, rather than many years prior. Unless the shares in the GRAT are generating substantial cash (perhaps through dividend distributions), the annuity payments will have to be made in-kind by transferring shares of the business back to you.

Taking the shares out of the GRAT and distributing it back to you reduces the effectiveness of the technique, since the share is the asset that will appreciate rapidly and will provide the most benefit to your children. Moreover, an in-kind distribution must be supported by an updated appraisal, which adds to the cost and complexity of the GRAT.

Key considerations:

  • If you do not survive the term of the GRAT, a portion (or all) of the GRAT will be included in your gross estate for federal estate tax purposes.
  • A GRAT is not always an appropriate device to make gifts to grandchildren, great-grandchildren, or more remote descendants. For purposes of the generation-skipping transfer (GST) tax (a tax levied on certain transfers to grandchildren and more remote descendants), the gift to the GRAT occurs when your annuity interest in the GRAT terminates. At that time, exemption from the GST tax can be allocated to the trust, but the amount of exemption used would be based on the then fair market value of the trust. If the property in the trust has appreciated as expected, then a large portion of your exemption from the GST tax would be consumed.
  • From time to time, Congress has considered legislation that would greatly hinder the effectiveness of GRATs. In the past, Congress has considered prohibiting zeroed-out GRATs and requiring GRATs to have a minimum term of 10 years, which would greatly hamper their effectiveness. No such legislation has become law, but some believe that the benefits of GRATs may not be around forever.

Preparing and planning for the sale of a business can be an overwhelming and emotional time for a business owner. For this reason, it may be tempting to postpone thinking about how your deal will affect your family and other loved ones. If you delay, a golden opportunity to pass part of the value of your business to your family in the most tax-effective manner possible may be gone. Timely action is critical, and engaging your trusted team of advisors to assist you with valuable wealth and estate planning well prior to the sale of your business can help maximize the funds you and your family will receive in the deal.

If you are interested in learning more, reach out to our Values-Based Wealth Planning team.

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1The One Big Beautiful Bill Act made this exemption permanent, with annual inflation adjustments scheduled to begin in 2027.

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