Succession & Family Business Transfer
Passing a business to the next generation — family dynamics, valuation for transfer, gift/estate tax strategy, and management transition.
Tools & Resources
Key Terms to Understand
Buy-Sell Agreement
A contract between business co-owners that governs what happens when an owner wants to leave, dies, becomes disabled, or gets divorced. Specifies how ownership interests are valued, who can buy them, and the terms of purchase. The single most important document for any multi-owner business, and the one most often missing or outdated.
Stepped-Up Basis
When assets are inherited at death, their tax basis resets to fair market value at the date of death, eliminating all built-in capital gains. Critical for succession planning: transferring a business at death can be more tax-efficient than gifting during life. Also relevant in asset sales where buyers get a stepped-up basis on purchased assets.
Gift Tax & Annual Exclusion
Federal tax on transfers of property for less than full value. Annual exclusion: $18K per recipient (2024). Lifetime exemption: $13.61M (2024), but scheduled to drop to ~$7M in 2026. For family business transfers, annual gifting of ownership interests is a core strategy — but valuation discounts and timing matter enormously.
Estate Tax
Federal tax on the transfer of a deceased person's estate. Current exemption: $13.61M per person (2024). The exemption is scheduled to be cut roughly in half in 2026, making estate planning urgent for business owners with estates over $7M. California has no state estate tax, but the federal rate is 40% above the exemption.
Valuation Discount (DLOM / DLOC)
Reductions applied to the fair market value of a business interest to reflect lack of marketability (DLOM, typically 15–35%) and lack of control (DLOC, typically 15–25%). Used in gift and estate tax planning to transfer more value within exemption limits. Discounts on minority interests in family businesses are a powerful succession planning tool but face increasing IRS scrutiny.
Proposition 13 (California Property Tax)
California's 1978 constitutional amendment capping property tax at 1% of assessed value with annual increases limited to 2%. Properties owned for decades may be assessed at a fraction of fair market value, creating enormous embedded tax savings. The catch: 'change in ownership' triggers reassessment to current market value. For businesses, transferring real estate to a new entity, selling a corporation that owns real estate, or transferring partnership interests above 50% can all trigger reassessment — potentially increasing property taxes 5-20x overnight.
Dealing with succession planning? Let's talk.
Dennis Duitch has guided hundreds of business owners through succession planning situations across technology, entertainment, manufacturing, and professional services.
MBA, Northwestern University · CPA · Certified Business Appraiser · Mediator · 30+ years of practice