Business Succession & Exit Planning
The planning before the transaction determines the outcome.

Why Sequence Is Everything

The most consistent pattern in business succession planning failures is not bad legal documents or poor negotiation. It is the sequence. The business owner closes the transaction, receives the proceeds, and then engages an advisor to figure out what to do with the money. By then, most of the best strategies are gone.

Pre-sale estate planning — transferring business interests to irrevocable trusts, funding charitable vehicles with pre-sale equity, qualifying stock for Section 1202 treatment — requires that the transaction not yet be binding. Once a purchase and sale agreement is signed, the IRS can characterize subsequent transfers as anticipatory assignments of income. The practical deadline for most pre-transaction planning is 60 to 90 days before closing, at minimum. For more complex strategies, considerably more time is needed.

QSBS — The Most Powerful Exit Tool Most Owners Never Use

Section 1202 allows shareholders of qualifying C corporations to exclude up to 100% of capital gains — up to $15 million of gain per issuer — when qualifying stock is held for the required holding period. For stock issued after July 4, 2025, a tiered structure applies: 50% exclusion after three years, 75% after four, and 100% after five.

On a $15 million exit from a qualifying company, the federal income tax savings at current rates exceeds $3.5 million — tax that simply does not exist for a properly structured Section 1202 exit. This is not obscure planning. It is a provision of the tax code specifically designed to reward business investment. What makes it underused is that most business owners do not know they qualify — or do not have an advisor who identified the opportunity early enough to preserve it.

Pre-Sale Estate Planning Strategies

Transferring a portion of the business interest to an irrevocable grantor trust before the sale closes allows the sale proceeds to flow into the trust rather than into the owner's taxable estate. The trust sells the interest, receives the proceeds, and reinvests them outside the estate. The owner receives installment payments from the trust at the applicable federal rate and recognizes no income on the sale because the grantor trust rules treat it as a sale to oneself.

A charitable remainder trust funded with pre-sale business interests sells the business tax-free and reinvests the full proceeds in a diversified portfolio. The owner receives an income stream for life or a term of years, takes an immediate income tax deduction for the present value of the charitable remainder, and removes the contributed interest from the taxable estate. For business owners with charitable intent, this combination — tax-free diversification, income stream, and estate reduction — is exceptionally powerful.

Deal Structure Matters as Much as Price

The difference between an asset sale and a stock sale can represent millions of dollars of tax difference on a transaction of any significant size. Buyers typically prefer asset sales for the stepped-up basis and deductibility of goodwill amortization. Sellers typically prefer stock sales for capital gains treatment on the entire proceeds rather than ordinary income treatment on the asset-by-asset allocation.

Personal goodwill — the value of the owner's relationships, reputation, and expertise that is personal to the individual rather than the business — can be allocated separately from business goodwill in a transaction, producing capital gains treatment for a portion of what would otherwise be ordinary income. This analysis requires both the legal documentation to support the allocation and the tax expertise to implement it correctly.