Business Succession and Exit Planning

The illiquid asset

A closely held business is the classic estate-planning headache: often worth a great deal, and often impossible to turn into cash quickly. The federal estate tax is due in money, generally nine months after death, but the family may not want to sell the business — and even if they do, a rushed sale of a private company rarely fetches full value. Every part of succession planning traces back to this tension between a valuable asset and a cash obligation.

Who gets it, and how

The first question is where the business goes: to the next generation, to co-owners, to key employees, or to an outside buyer. Each path has its own structure, but most closely held companies with more than one owner use a buy-sell agreement to govern the transfer — a binding contract fixing who may buy a departing owner’s interest, at what price, and how it is paid for. A good buy-sell turns an unsellable private interest into one with a defined buyer and price, and, done right, can help set the value for estate tax. The structures — cross-purchase versus redemption — and the recent case that upended one of them are on the buy-sell page.

What it’s worth

Everything downstream — the estate tax, the buy-sell price, the fairness among heirs — depends on what the business is worth, and a private company has no market quote. Valuation for tax purposes follows fair market value, weighing the factors the IRS laid out decades ago and still uses (Rev. Rul. 59-60), and often applies discounts for lack of marketability and minority interests. The vocabulary every owner should know is on the valuation page.

The Connelly shift

In 2024 the Supreme Court changed a common approach to funding buy-sells. In Connelly v. United States, the Court held that when a corporation owns life insurance to buy back a deceased owner’s shares, those insurance proceeds increase the company’s value for estate-tax purposes — and the obligation to redeem the shares does not offset that increase.

Key-person risk

Separate from ownership is dependence: many businesses rely on one person whose death would impair the company’s value or its ability to operate. Key-person life insurance lets the business itself hedge that risk — but the tax-free treatment of the death benefit depends on following specific notice-and-consent rules (IRC § 101(j)), covered on the key-person page.

The estate-tax liquidity problem

When a taxable estate is dominated by a business, paying the tax without selling the company is its own challenge. The Code offers a targeted relief: an estate in which a closely held business exceeds 35% of the estate can elect to pay the business’s share of the estate tax in installments over up to about fourteen years, at a reduced interest rate (IRC § 6166). Tools like this, and the sequencing of a planned exit, are on the exit-timeline page. These decisions are technical and interact with the whole estate; if you want a professional to model them against your own company, our directory of estate-planning professionals lists people you can verify yourself.

Common questions

Sources & methodology