by: Chris McGraw, JD, LL.M.

Introduction

Often, closely held businesses are the cornerstone of wealth creation for ultra-high-net-worth families. Yet for owners, the business is not just an asset – it is often the asset of greatest value, the retirement plan, the legacy vehicle and the family’s economic engine. That level of significance demands precision planning.

According to the Exit Planning Institute, 80–90% of business owners’ net worth is tied up in their company, and more than 75% expect to use it to fund more than 60% of their retirement.¹Despite this reliance, only 35% of companies have formal succession plans.² This lack of planning may leave business owners’ wealth and legacy exposed to unnecessary risk.

The following outlines how business owners can proactively integrate estate tax, liquidity and governance strategies to preserve both their business and legacy liquidity.

The Planning Blind Spots

Things we see include:

• Overconcentration in the operating business: With 70-90% of their net worth tied to the company, owners may face significant exposure to valuation swings, liquidity constraints and transfer risk.
• Retirement plans primarily anchored to a single liquidity event: Over 60% of owners expect the business to fund their retirement, yet few have modeled the timing, tax impact or market readiness required to execute that plan efficiently.
• Estate tax exposure without liquidity: A $30 million business with no liquidity plan can trigger forced sales or shareholder disputes when estate taxes come due, especially if the business interest is held in a taxable estate without freeze techniques or insurance overlays.

These blind spots are not just theoretical. They show up in probate court, in shareholder litigation and in family summits. They are dangerous because often they are latent until it is too late.

Strategic Tools for Business Owners

Fortunately, the planning toolkit is fully equipped, and when used proactively, it can help owners steer risk into opportunity. Here are structures sophisticated owners may consider:

• Grantor Retained Annuity Trusts (GRATs) and Installment Sales: For businesses with robust growth potential, GRATs and installment sales to Intentionally Defective Grantor Sales (IDGTs) are powerful estate freeze techniques. They can allow the owner to shift tax efficiently out of their estate while retaining income and control.
• Family Limited Liability Companies (FLLCs): Owners may use FLLCs to consolidate holdings, apply valuation discounts and retain control while gifting discounted minority interests. They are especially effective when paired with dynasty trust structures.
• Employee Stock Ownership Plans (ESOPs) and Section 1042 Rollovers: For owners seeking liquidity without a full sale, ESOPs offer a tax-efficient exit. Under Section 1042 of the Internal Revenue Code, sellers can defer capital gains by reinvesting in qualified replacement property.
• Charitable Overlays: Charitable Remainder Trusts (CRTs), Charitable Lead Trusts (CLTs), Donor-Advised Funds (DAFs) and private foundations can align family philanthropic goals with tax efficiency, particularly when dealing with low basis assets or concentrated holdings.

Case Studies: Planning in Action

Below are two examples to bring this to life:

The Founder with no Succession Plan

• A 68-year-old owner (widower) of a $50 million manufacturing firm has three adult children, none involved with the business. His estate plan is outdated, and the company represents approximately 78% of his net worth. He has not utilized any of his lifetime gift/estate tax exemption. Without any estate tax, liquidity or governance planning, his passing could trigger around a $20 million estate tax liability (under 2025 tax laws), with no clear path for business continuity. 
• Potential Planning Solutions:
  • Stock Recapitalization and discounted installment sale to an IDGT to tax efficiently shift value and future appreciation from his estate;
  • Key person life insurance to fund estate tax;
  • Independent board and use directed trustee to manage business interests, and
  • Family mission statement to guide legacy decisions.

The Family Business with Governance Gaps

• A third-generation family business has twelve shareholders, including cousins with diverging views. No formal buy-sell agreement exists, and board decisions are ad hoc.
• Potential Planning Solutions:
  • Buy-sell agreement with valuation protocols;
  • Directed trust structure for trust-held shares;
  • Family council and annual governance retreat, and
  • Education of non-professional or family member trustees/directors on fiduciary duties and business oversight.

Action Checklist: 10 Questions for Business Owners to Ask

1. What percentage of my net worth is tied to the business?
2. Do I have a formal succession plan – and is it documented?
3. Have I modeled estate tax exposure under current law?
4. Is there liquidity available to fund estate taxes or buyouts?
5. Who votes the shares in the event of incapacity or death?
6. Are my trusts structured to hold business interests effectively?
7. Do I have a buy-sell agreement with valuation protocols?
8. Have I considered GRATs, IDGTs or ESOPs for wealth transfer?
9. Is my charitable planning aligned with my business exit?
10. Have I engaged a multidisciplinary team to coordinate planning?

Final Thoughts

Business owners commonly sit at the intersection of wealth, control and legacy. The planning decisions they make, or delay, can shape outcomes for generations. By layering tax strategy with governance and liquidity planning, owners can help preserve the engine that built their wealth while empowering the next generation to steward it wisely. Your Oxford team brings deep experience in counseling business owners through liquidity events, succession planning and legacy transitions, combining technical rigor with strategic clarity.

¹Understanding Exit Planning from EPI Partner, Maus by Colleen Kowalski, Jan. 2023
²Succession Planning Statistics for 2025 by Anastasia Belyh, Feb. 2025