Who this suits
Family succession suits an owner whose child or children want to run the business and have shown they can, and who has time, ideally five to ten years, to hand over gradually. It works best when the owner has other wealth or income to live on, since passing the business on rarely produces a large cash payment.
It suits less well if no family member wants the job or is ready for it, if the owner needs the full value of the company to retire, or if family relationships are strained. In those cases a sale, a management buy-out or an ESOP may serve the family better, and the proceeds can still be passed on.
Two transfers, on two timetables
Leadership usually takes longer than ownership. A successor needs real responsibility well before the handover: running a division, owning results, being accepted by managers, customers and lenders. Many families bring in a strong outside manager or board member to support the transition.
Ownership can move earlier, often while values are lower, using a mix of:
- Gifts of shares, directly or to trusts, using the federal gift and estate tax exemption.
- Sales to children or to trusts, paid with a promissory note over time, so the parents receive an income.
- Voting and non-voting shares, so ownership can pass to the next generation while the parents keep control until they are ready.
- Inheritance, at death.
The 2026 estate tax rules
Under the tax law passed in July 2025, the federal estate and gift tax exemption is $15 million per person in 2026, or $30 million for a married couple, and is now permanent, rising each year with inflation. Transfers above the exemption are taxed at up to 40%. For a family whose business and other assets exceed the exemption, planning matters; for many, the higher exemption means the tax is no longer the main concern, and fairness and leadership are. State estate taxes can apply at much lower levels.
Gifts of minority or non-voting shares in a private company are usually valued at a discount to their share of the whole company's value, because they carry no control and cannot easily be sold. This lets more of the business pass within the exemption.
A worked example
Our illustrative company is worth $24 million. The owner and his wife, both in their sixties, have two children: a son who has worked in the business for twelve years and now runs operations, and a daughter with a career elsewhere. They want the son to take over, the daughter to be treated fairly, and enough income to retire on.
| Step | What happens | Effect |
|---|---|---|
| 1. Recapitalize | Shares split into 1% voting and 99% non-voting | Parents keep control |
| 2. Gift | Non-voting shares worth about 40% of the company are gifted to trusts for the son, valued at a discount | Uses part of the parents' exemption |
| 3. Sell | Further shares are sold to the son over ten years, paid by a promissory note funded from company dividends | Parents receive retirement income |
| 4. Balance | The daughter receives the real estate the company leases, and other family assets of similar value | Fairness without splitting control |
| 5. Hand over | The son becomes CEO in year three; voting shares pass to him when the father steps off the board | Leadership follows ownership |
The plan takes years, and the details (valuation, trust structures, the note's interest rate) need specialist tax and legal advice. The structure, though, is typical: control passes last, income for the parents comes from the business, and the child not in the business is treated equally through other assets rather than shares. Figures are illustrative.
Planning to hand the business to your children? Start with a clear view of what it is worth and the options alongside.
Book a confidential callTreating children fairly
Equal is not always fair. Leaving equal shares to a child who runs the business and one who doesn't often leads to conflict: one wants to reinvest, the other wants dividends. Common solutions:
- Equalize with other assets: real estate, investments or life insurance for the children not in the business.
- Non-voting shares with a dividend policy for inactive children, with control resting with the child who runs the company.
- A buy-sell agreement that sets how and at what price family members can sell shares to each other.
- Family governance: a written family charter, regular family meetings, and independent directors on the board.
Getting the business ready
- Name and develop the successor early, with real responsibilities and an outside mentor.
- Build the management team around them: a strong financial lead and operations lead outside the family.
- Professionalize reporting and the board, so lenders and customers see continuity.
- Get a formal valuation: it is needed for gifts and sales, and helps the family discuss the numbers openly.
- Keep a plan B. If succession stalls, a sale, management buy-out or ESOP may still be the best outcome, and the proceeds can be passed on instead.
How ExitBuy helps
We are not estate lawyers, and work alongside yours. What we bring is an objective view of what the business is worth and of the alternatives: what a sale, minority investment, management buy-out or ESOP would mean for the family's wealth, compared with keeping the company in the family. Some families combine routes, for example selling a minority stake to fund the parents' retirement while passing control to the next generation.
Frequently asked questions
When should we start?
Five to ten years before you want to step back. Leadership takes longer to transfer than shares.
Do I have to give the business away?
No. You can sell shares to your children over time, which provides retirement income, or combine gifts and sales.
What if my children don't want the business?
That is common and nothing to be ashamed of. Selling and passing on the proceeds keeps the family's wealth without forcing the business on anyone.
How do I keep control while passing shares on?
Separate voting and non-voting shares. Non-voting shares can pass to the next generation while voting control stays with you until you are ready.
Will my children pay estate tax on the business?
Only on the part of the estate above the federal exemption, $15 million per person in 2026, and any state estate tax. Planning can reduce or eliminate it.
Should outsiders be on the board?
It often helps. Independent directors give the successor experienced support and reassure lenders, managers and family members not in the business.
Mauro Terrinoni, CFA, founder of ExitBuy Co. 25 years in investment banking and private equity, including at JP Morgan, Citigroup and Fortress Investment Group, and has bought, run and sold a company as its owner.
General information only, not investment, legal or tax advice. Figures are illustrative. Tax rules change; confirm current law with your own advisors.
Sources: Morgan Lewis, IRS announces increased gift and estate tax exemption amounts for 2026