One of the critical and complex challenges family business owners face is establishing a succession strategy. This includes considering how to divide the business's value among heirs while retaining the business within the family. How does the older generation provide for fair treatment of those who participate in the business and those who profit passively from it? How will ownership be passed to the next generation? How will the taxes on those transfers be paid? Here are some exit strategies for the family to consider.
- Give or sell to family members during lifetime. A sale will usually involve taxable gain. Additionally, a sale may be a way to distribute the business amongst children or family members. A taxable sale will avoid any gift tax, assuming it is for full and adequate consideration.
- Sale to grantor trusts – family members as beneficiaries. This approach avoids both income and gift taxes if structured properly.
- Tax-free division — split-up, split-off, or spin-off. This may be useful when there are family tensions. A tax-free division could involve dividing the business geographically, by product line, or into retail and wholesale components.
- Sale to employees. This strategy may be appropriate when there are no family members who are interested or qualified to take over the management of the business. This can also be considered if it is not practical to bifurcate ownership and management, because the cash generated by the business does not enable it to provide sufficient compensation to non-family members to entice them to assume major roles in running the business.
- Sale of assets. In the case of a C Corporation, a sale of assets will involve two levels of tax, once to the corporation on the unrealized appreciation of its assets and once to the shareholders on the excess of the value of the liquidating distribution over their basis in the stock. With a sale, the proceeds may be divided equally among heirs.
- Sale of stock. It is usually difficult to find a buyer of the stock of a closely held corporation because of potential unknown liabilities. In addition, the purchaser may not want the existing basis for the corporation’s assets, although there are ways to have the basis reflect the purchase price for the corporation.
- Tax-free acquisition — merger. A tax-free exchange will usually require that a significant number of family members receive stock in the acquiring company rather than cash, and the stock will usually be subject to restrictions on resale for a period because of securities laws.
- Transfer equity interests to one or more grantor retained annuity trusts (GRATs).
- Give or sell to family members upon death. Allowing family members to purchase the ownership interest of a decedent at a pre-established price may have unintended transfer tax and non-tax consequences if the price is not equal to the fair market value of the interest as determined for federal estate tax purposes. It could affect the eligibility for or the amount of the marital deduction. It could raise the question of who will pay the additional estate tax on the additional value.
- Liquidation of the business, including bankruptcy. If the business succession plan has not been established or is not executed accordingly, forced liquidation or a bankruptcy results in the loss of intangible value, including good will and going concern value.
Consider tax exposures
For business owners who pass in 2026, the federal estate tax exemption will be $15 million. Thus, if the value of the business plus retirement plan benefits, investment portfolios, and real estate is less than that amount, there will be no federal estate tax to worry about. Furthermore, the exemption is adjusted for inflation every year.
However, estates that include interests in a family business often exceed the exemption thresholds. Here’s how the federal estate tax works out at higher wealth levels in 2026. State death taxes (estate tax and/or inheritance tax) are extra.
| Taxable estate | Federal estate tax |
|---|---|
| $15 million | No tax |
| $20 million | $2,000,000 |
| $30 million | $6,000,000 |
| $40 million | $10,000,000 |
| $50 million | $14,000,000 |
| $100 million | $34,000,000 |
Source: Internal Revenue Code; M.A. Co.
Discuss your unique strategy with your professionals
We have assisted many business owners with their succession planning, and our Advanced Planning team is experienced in navigating complex scenarios involving combined and multigenerational families. We can assist with estate settlement, trust management, and navigating unique family dynamics to meet your wealth strategy goals. As a first step in your family business succession planning, consider setting up an appointment with a local Arvest Trust Officer.
This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.
© 2026 M.A. Co. All rights reserved.
Arvest and its associates do not provide tax or legal advice. The information presented here is not intended as, and should not be considered, tax or legal advice. Consult your tax and legal advisors accordingly.
