You’ve spent years growing your government contracting business, expanding capabilities, hiring talent, and navigating an increasingly complex regulatory environment. Along the way, the value of that business has likely become the largest component of your personal net worth. You may find yourself wondering: What would a future sale of the business look like? How much of that value would remain with my family after taxes? Are there steps I should be taking now before a potential sale is on the table?
These questions point to a broader issue: planning for the wealth your business has created is more complex than simply relying on a single advisor. Effective planning requires a coordinated approach across tax, legal, and wealth advisors, all working toward a shared vision that ultimately supports your family’s goals and legacy. Without this alignment, key considerations such as future appreciation, potential sale timing, charitable objectives, and multigenerational wealth transfer can be overlooked or addressed too late to be fully effective.
Planning Before the Transaction Drives Better Outcomes
Business owners should start thinking about an exit or transition strategy earlier than most owners think. The greatest benefit of planning early is having options. When you start years before a transition, you have time to strengthen value drivers, develop leadership, address risks, and position the company for multiple potential outcomes. Owners who wait often find themselves making important decisions in a compressed time frame, potentially under pressure and typically with fewer choices.
For business owners anticipating a future sale, timing can be one of the most important, and often most overlooked, factors in effective estate planning. One strategy frequently considered is the use of a dynasty trust, which allows owners to transfer a portion of their business interest to future generations in a tax-efficient manner.
When structured properly, transferring ownership interests into a dynasty trust before a liquidity event can “freeze” the current value of those interests, shifting future appreciation outside of the owner’s taxable estate. The ideal time to transfer ownership interests is before a letter of intent is signed or a sale becomes imminent.
By acting earlier, when there is still meaningful uncertainty around the value of a potential transaction and timing, owners may be able to transfer interests at a lower valuation and allow subsequent growth to benefit future generations, free from additional estate and generation-skipping transfer taxes.
One of the most common hesitations we encounter when discussing pre-sale planning has less to do with taxes and more to do with control. Transferring ownership interests, particularly into an irrevocable dynasty trust, often requires an owner to give up a degree of direct control and access to the business they have built. This is where thoughtful structuring and a coordinated advisory team become critical, as planning can preserve appropriate levels of oversight, governance, and family involvement while still achieving tax efficiency.
Insight from Forvis Mazars: Our Wealth Strategy team recently helped model a sizable future liquidity event for a business owner. Prior to a hypothetical transaction, we advised the client that they may consider transferring a portion of the company’s interests to a dynasty trust through a combination of a gift, using the client’s lifetime gift and estate tax exemption, and a sale to the trust in exchange for a promissory note, resulting in the trust owning a portion of the business. By completing the transfer before an anticipated sale, future growth on the interests was positioned to occur outside of the owner’s taxable estate while still providing liquidity to the owner through payments received from the promissory note.
The modeling showed that as the underlying business value continued to grow, a significant portion of that appreciation accrued for the benefit of future generations rather than remaining subject to future estate taxation. Most importantly, the strategy worked because planning occurred while flexibility still existed, which is often lost after a transaction becomes imminent. The engagement demonstrated how planning well in advance of a transaction can materially enhance after-tax family wealth outcomes.
Estate Planning Is More Than Estate Taxes
Having a plan and having an effective plan are not necessarily the same. An estate plan that made sense 10 years ago, when the business was worth significantly less, may not reflect today’s reality or the increased lifetime gift and estate tax exemption. Business owners should work periodically with their integrated team to review whether the assumptions underlying their planning remain accurate given their current net worth, family circumstances, and long-term objectives. With the increased exemption, federal estate taxes may no longer represent the primary concern they once did. While that is certainly positive news, one of the biggest misconceptions among business owners is that a reduced estate tax concern means reviewing estate planning routinely is no longer necessary.
In practice, many of our estate planning discussions today focus on issues beyond federal estate taxes, including:
- State imposed estate tax exposure
- Future domicile considerations
- Income tax consequences for future beneficiaries
- Asset protection, e.g., asset titling and wills
- Business succession planning
- Family governance
- Charitable donation planning opportunities
- Preservation of family wealth across generations
- Preparing heirs for responsibility, often with an educational component
The estate planning conversation has shifted from simply reducing estate taxes to ensuring that wealth is transferred intentionally, efficiently, and in a manner consistent with family objectives.
Insight from Forvis Mazars: We recently worked with a family that had accumulated substantial wealth over several decades, post-sale. Their children were largely grown, retirement was approaching, and the family owned residences in multiple states up and down the East Coast, providing flexibility for wherever they ultimately intended to establish their permanent domicile. What began as an estate planning discussion quickly evolved into a broader conversation about the long-term tax implications of that decision.
We walked through how certain states impose their own estate taxes, inheritance taxes, or both, while others impose neither; we also discussed how those differences can result in millions of dollars of additional transfer taxes for highly affluent families. We shared how a family with a taxable estate in the hundreds of millions of dollars could face meaningful state-level transfer tax exposure depending on where they are domiciled at death, in addition to any applicable federal estate tax.
In addition, we spent considerable time discussing the factors that states evaluate when determining domicile, including where the family spends its time, where key personal and financial relationships are maintained, the location of family members, and whether the family’s actions consistently support its stated intent in these matters. Because the conversations occurred years before retirement, a domicile change, or any significant liquidity event, the family had an opportunity to proactively align its lifestyle goals, wealth transfer objectives, and anticipated tax exposure rather than attempting to address those issues after the fact.
Income Tax Consequences for Future Generations
A $10 million traditional individual retirement account (IRA) and a $10 million Roth IRA may have the same account balance, but they can produce dramatically different after-tax outcomes for the next generation.
Insight from Forvis Mazars: We recently worked with a family that had accumulated substantial wealth over several decades and held an overleveraged portion of their assets in traditional IRAs and other tax-deferred retirements accounts. Their primary concern was not federal estate taxes, but rather the income tax burden that could eventually fall on their children and grandchildren. We discussed how inherited traditional IRA assets generally represent income in respect of a decedent (IRD), meaning the account may pass free of income tax at death, but beneficiaries are ultimately required to recognize income as distributions are taken.
Following the SECURE Act, most non-spouse beneficiaries must fully distribute inherited retirement accounts within 10 years, which can accelerate taxable income into their highest earning years and potentially subject those distributions to federal income tax rates up to 37%, in addition to applicable state income taxes.
As a result, the family began evaluating a multiyear Roth conversion strategy, intentionally recognizing taxable income during their lifetime at known tax rates in exchange for allowing future growth to occur within a Roth IRA. While the conversions generated current income tax liability, the strategy allowed future beneficiaries to inherit assets that could generally be distributed federal income-tax free if applicable holding period requirements were satisfied.
Beyond the tax savings, the family appreciated that the strategy effectively shifted the income tax burden to a generation that had both the liquidity and planning flexibility to absorb it, while simplifying the wealth transfer process for future generations.
Charitable Donation Planning Can Be More Powerful Than Many Owners Realize
One of the most rewarding conversations we have with clients involves philanthropy and finding meaningful ways to engage the next generation. Successful wealth transfer is not just a transfer of assets; it is also a transfer of values and purpose. Estate planning tools such as donor-advised funds (DAFs), charitable remainder trusts, or private foundations may be worth considering to support philanthropic goals while integrating with overall estate and tax planning.
Charitable planning often includes family members, including children and grandchildren, to participate in evaluating charitable organizations, recommending grants, or serving in governance roles. These opportunities allow younger generations to develop an appreciation for the impact that their resources can have and uniting them around a shared sense of purpose.
As previously mentioned, timing can be critical. Evaluating charitable strategies before a transaction occurs may create opportunities that no longer exist once liquidity has been realized.
Insight from Forvis Mazars: We have worked with numerous families whose wealth was significantly impacted by an initial public offering (IPO), business sale, or a concentrated equity position that experienced substantial appreciation over a relatively short period of time. In many of those situations, the conversation initially begins with a desire to support charitable causes but quickly evolves into a broader discussion about tax efficiency, liquidity planning, and long-term wealth transfer goals.
For clients holding highly appreciated shares, we often consider whether transferring stock to a DAF before a sale may provide a charitable deduction while also avoiding the recognition of capital gains that would otherwise be incurred on the appreciation. In other cases, particularly when clients are comfortable making a larger philanthropic commitment, we have explored structures such as charitable lead annuity trusts (CLATs), which can simultaneously support charitable objectives while transferring future appreciation to family members in a tax-efficient manner.
How Professionals With Forvis Mazars Private Client Can Help
The owners who achieve the best outcomes tend to be intentional and proactive. They work with seasoned professionals who help them understand their options, align their business goals with their personal goals, and regularly gauge their readiness. The benefit is not only a potentially stronger transition outcome but also having the flexibility to transition on a self-imposed timeline.
If your business has experienced significant growth over the past several years, consider whether your tax, legal, and wealth advisors are working from the same roadmap, and whether your current advisor is helping you plan for what’s next (instead of reporting what has already happened). The most successful wealth transitions are well designed and intentionally executed by a team that understands your business and family legacy.
At Forvis Mazars Private Client, we work with families to navigate complex estate, gift, and income tax matters, helping them preserve wealth and create meaningful legacies for future generations. If you would like to discuss how these strategies may fit into your family’s planning goals, we encourage you to connect with a professional at Forvis Mazars.
Forvis Mazars Private Client services may include investment advisory services provided by Forvis Mazars Wealth Advisors, LLC, an SEC-registered investment adviser, and/or accounting, tax, and related solutions provided by Forvis Mazars, LLP. The information contained herein should not be considered investment advice to you, nor an offer to buy or sell any securities or financial instruments. The services, or investment strategies mentioned herein, may not be available to, or suitable, for you. Consult a financial advisor or tax professional before implementing any investment, tax or other strategy mentioned herein. The information herein is believed to be accurate as of the time it is presented and it may become inaccurate or outdated with the passage of time. Past performance does not guarantee future performance. All investments may lose money.