Estate Planning for Business Owners: A 2026 Playbook

Why Business Owners Need More Than a Standard Estate Plan

A standard estate plan answers who gets your house and your accounts. A business owner's plan has to answer something harder: who runs the company on Monday morning, who buys your ownership stake, and where the cash comes from to pay the tax bill. Wills, trusts, and beneficiary designations are the starting point, but they don't create a buyer for an illiquid private company or keep the business operating when the founder is gone.

The attrition numbers explain the stakes. Only about 30% of family businesses survive into the second generation, and just 12% reach the third, with weak succession planning consistently named as a primary cause. Planning early is how you build something that lasts alongside the family and partners who help run it.

A business owner's plan does three jobs an ordinary plan does not. First, it creates a ready market for your ownership stake so your heirs aren't left holding a minority interest with no buyer and no dividends. Second, it controls how the business is valued for estate tax purposes, which drives everything from the tax bill to gift planning. Third, it keeps the company running without the person it depends on, through documented systems, a management team, and key-person coverage.

These pieces overlap, which is why they tend to fail when handled in isolation. The buy-sell pricing depends on the valuation. The valuation drives the estate tax exposure. The tax exposure dictates the liquidity plan. Neptune coordinates the experienced attorneys, CFPs, and CPAs required to handle all of it as one process, so the buy-sell, the trust, the insurance, and the tax model actually line up instead of contradicting each other.

The 2026 Estate Tax Landscape for Closely-Held Businesses

The number to know for 2026 is $15 million. That's the federal estate and gift tax exemption per individual, $30 million for a married couple, made permanent under the One Big Beautiful Bill Act enacted in July 2025. Above that threshold, the federal estate tax rate is 40%.

Fifteen million sounds like plenty of headroom until you add everything up. The IRS values your estate at fair market value, and for a business owner that means the company plus real estate, equipment, accounts receivable, goodwill, and intellectual property. A founder who thinks of the business as "worth a few million" is often surprised when a defensible valuation, combined with personal assets, pushes the estate well past the exemption. If your estate owes tax, the math is simple and unforgiving: 40% of the amount above $15M.

Geography matters too. Seventeen jurisdictions impose their own estate or inheritance tax, and their thresholds are often far below the federal level, sometimes starting around $1M to $2M. Where you live and where you die can add a state bill on top of the federal one.

Understanding your exposure early is what lets you and your partner plan with clarity rather than react to a bill you never modeled.

Buy-Sell Agreements and What the Connelly Decision Changed

A buy-sell agreement is a contract, among co-owners or between owners and the company, that fixes what happens to an ownership interest when a triggering event occurs: death, disability, divorce, or departure. It sets who must or may buy the interest, at what price or formula, and on what terms. Without one, your heirs can inherit an illiquid stake with no buyer and no exit, while your co-owners inherit a partner they never chose.

Two structures dominate, plus a hybrid. In a redemption agreement, the company itself buys back the deceased owner's interest, usually with corporate-owned life insurance. In a cross-purchase, the surviving owners buy the interest personally, each holding policies on the others. A hybrid "wait-and-see" design lets the parties decide which route to take at the time of death.

The biggest recent change came from the Supreme Court. In Connelly v. United States, 602 U.S. 257 (2024), the Court unanimously held that life insurance proceeds a corporation receives to redeem a deceased owner's shares count as a corporate asset when valuing the company for estate tax. In plain terms, the insurance the company collects to buy out the estate can inflate the company's taxed value, increasing the estate tax bill. Many redemption agreements signed before 2024 now warrant review, and some owners are restructuring toward cross-purchase or insurance LLC arrangements. This is a decision to review with a qualified attorney, because the right fix depends on your entity type and existing policies.

A properly funded agreement gives the family cash exactly when they need it and gives the surviving owners a clear path forward, instead of a locked, illiquid stake.

Funding the Estate Tax Bill With Liquidity and §6166

Federal estate tax is generally due 9 months after death, and it's payable in cash. That's the problem for business owners: if most of the estate is tied up in a private company, there may be no liquidity to write the check. The heirs get pushed toward selling a piece of the business under pressure, accepting a forced buyout, or borrowing against it.

One common answer is to pre-fund the bill with life insurance held inside an irrevocable life insurance trust (ILIT). Because the trust owns the policy rather than the insured, the death benefit generally stays outside the taxable estate, and the proceeds become the cash the family uses to pay the tax without touching the business.

The other tool is IRC §6166, an installment election available when a closely-held business makes up more than 35% of the adjusted gross estate. It lets the estate defer and then spread the estate tax attributable to the business over as long as 14 years, with a favorable 2% interest rate applying to the tax on a set portion of the business value (indexed annually) and a reduced rate on the excess. For a family that wants to keep operating the company, §6166 can turn an impossible 9-month deadline into a manageable multi-year payment.

A CFP and CPA working together model the projected tax bill under realistic valuation assumptions, then match it to a liquidity plan: insurance for part, §6166 for part, and reserves for the rest. Doing that math while you're alive is how you keep the family from having to improvise later.

Moving Future Growth Out of Your Estate: Gifting, Trusts, and Valuation Discounts

Here's the logic behind lifetime gifting: a gift you make today uses today's value and today's exemption. If your business is growing, moving equity out of your estate now means all the future appreciation happens outside the estate, where it won't be taxed at 40% later. With the exemption permanently at $15M per person, there's meaningful room to make substantial gifts of business interests to trusts for the next generation.

Gifting fractional interests also opens the door to valuation discounts. A minority interest in a private company is worth less than a proportional slice of the whole because it can't control decisions (a minority discount) and can't be easily sold (a lack-of-marketability discount). Structured through a family limited partnership (FLP) or LLC, these combined discounts often run in the 20-40% range, meaning you can transfer more economic value while using less of your exemption. The discounts must be supported by a defensible appraisal, so this is attorney-and-appraiser territory, not a do-it-yourself move.

More advanced freeze techniques, such as selling interests to an intentionally defective grantor trust (IDGT), shift future growth to the next generation while you continue paying the income tax, which further reduces your estate. And if a sale of the company is on the horizon, gifting shares that qualify for the [qualified small business stock (QSBS)](https://www.irs.gov/) exclusion before a liquidity event can multiply the available capital gains exclusion across trusts and family members.

Each of these is a way to pass the business to your family and successors on your terms, with less value lost to tax.

Building a Succession Plan Over a 5-10 Year Runway

A business is generally worth more when you've spent 5-10 years preparing it for transition than when you decide one Tuesday that you're done. Buyers and successors pay for documented systems, recurring revenue, multi-year financials, and a management team that doesn't depend on the founder being in the building. Building that takes years, which is why the exit conversation should start well before the 12-month mark.

The core decision is who takes over. The main paths are a transfer to family, a management buyout, an employee stock ownership plan (ESOP), or a third-party sale. Each has different tax, financing, and cultural consequences, and the right answer depends on whether your successors want the role and can fund the purchase.

Get a real, defensible valuation now, even if you won't sell for years. Founders routinely misjudge their company's value by 30-50% without one, and that number drives your buy-sell pricing, your gift planning, your key-employee equity grants, and your estate tax exposure. A valuation isn't just for the eventual sale; it's the input every other decision relies on.

Two more items belong on the list. If you've been living on business income, you'll need a plan to reinvest the sale proceeds to replace that compensation, which is a CFP conversation, not an afterthought. And stay current on Corporate Transparency Act beneficial ownership information (BOI) reporting requirements, because entity structures used in your plan may carry filing obligations with FinCEN.

Neptune shepherds owners and families through this entire multi-year process, keeping the attorney, the CFP, the CPA, and the valuation aligned so the plan you build actually holds together when it's needed. Couples and partners who plan together grow together, and a business is one of the biggest things you'll ever plan for as a family.