So, you created something actual.
A business. A legacy. A family-owned business that has survived recessions, pandemics, and probably more sleepless nights than you care to remember.
Maybe this is a restaurant. A dentistry practice. A little farm.
Perhaps it is a consulting firm that began at your kitchen table with a laptop and a desire.
And now?
You're thinking how to pass it on—to your daughter, nephew, or niece who recently earned her MBA.
But here's something nobody tells you:
Running a family business is hard.
Transferring one? Even harder—if you don’t plan for the tax traps.
This is not about completing legal paperwork or "naming a successor."
It's about ensuring that the business you founded does not fail as a result of bad planning, IRS penalties, or avoidable family conflicts.
Let's talk strategy, simple English style.
You can't just pass over the business and be done.
If you "gift" the firm, the IRS considers it a taxable transfer. What if you sell it for too low? Same stuff. What happens if you die and the business passes down through inheritance? There could be estate taxes, valuation concerns, and disagreements about what is "fair."
No one wants to run payroll from probate court.
So let's go over what to do—and the traps to avoid along the road.
Let's imagine you launched your firm with $20,000 20 years ago. It is currently worth $2 million.
Nice.
If you sell it to your children for its fair market value—or even give it as a gift—your original basis is lost. That means if they ever sell it, they must pay capital gains tax on the entire difference.
Trap: Giving now may avoid estate tax later, but it may cost you much more in capital gains.
Better solution: Inheritances include a step-up in basis, which resets the value to the date of death amount. Depending on the size of your estate and timetable, waiting may be a better option.
S-corps are picky.
They contain restrictions on who can own shares—no companies or partnerships are permitted, and only specific types of trusts qualify.
Trap: Transferring S-corp shares in the wrong way might invalidate your S-corp status and result in substantial tax repercussions.
A better alternative is to use grantor trusts or direct gifts and consult with a tax expert who is well-versed in S-corp requirements.
In 2025, the lifetime gift and estate tax exemption is $13.99 million. Under OBBBA, it will increase to $15 million in 2026 ($30 million married). That seems like breathing room, doesn't it?
Yes, but only if you plan ahead.
Trap: If you exceed the annual gifting limit without submitting paperwork, you will deplete your lifetime exemption—possibly without realising it.
A better solution: Use yearly exclusion gifts to progressively transfer ownership tax-free, while having a professional track them.
Ever seen siblings debate over how much a business is "worth"?
It isn't fun. Especially when the IRS becomes involved.
Trap: If you gift or sell business shares without a qualified valuation, you risk undervaluing or overvaluing the transfer, resulting in penalties.
A better option: get a professional valuation. It isn't cheap, but it's less expensive than fighting the IRS.
This one is personal for many families.
Farms are generally land-rich but cash-poor. When a parent dies without a will, the heirs are required to sell the property solely to pay the estate tax.
Trap: Inheritance taxes can be devastating when there is no liquidity, particularly in farming households.
A better solution: Section 2032A (special-use valuation) and conservation easements can help reduce estate taxes. Life insurance can give liquidity. However, you must make plans ahead of time.
What if one of your children wishes to leave the business? Or do they sell their interests to a non-family member?
Trap: Without a buy-sell agreement, anyone can become an owner—or worse, the business fails.
Better solution: Create a purchase-sell agreement that specifies who can buy, how valuation works, and what happens if an owner dies or wants to sell.
What's the biggest mistake?
Thinking you would "deal with it later."
Trap: You wait too long and something unexpected occurs. Your family is currently grieving and navigating tax court.
Better solution: Begin the procedure now, even if you haven't transferred anything yet. Clarity prevents confrontation.
You didn’t build this just to have it fall apart in probate.
Whether you’re two years from retirement or two decades away, succession planning isn’t something you “someday” into. It’s something you protect.
Your family deserves it.
Your staff deserve it.
You deserve it.
We assist family-owned businesses protect what they've built while also making wise tax decisions.
Before you transfer a single share, let's run the figures, go over the choices, and devise a plan that works.
Contact our office today to schedule a confidential family business strategy session.