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Should I Transfer My Business to My Children When I’m Ready to Retire? Key Considerations for Estate and Elder Law Planning

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Transferring your business to your children when you’re ready to retire is about more than just paperwork—it’s about securing your legacy and allowing for a smooth transition. 

Family businesses play a huge role in the economy—approximately 90% of all businesses in the U.S. are family-owned according to the U.S. Bureau of the Census. Yet, without proper planning, many businesses struggle to survive the transition, showing the need for a clear strategy.

If you don’t plan ahead, the process can lead to tax headaches, legal issues, and family disagreements. That’s where estate and elder law planning comes in. With the right steps, you can make the transition smoother and make sure your family business stays strong for the next generation.

At Jarvis Law Office, we don’t just create a plan; we guide you step-by-step, helping you move assets into a trust, use the right tools, and keep control over your financial future. Our team works alongside your financial advisors to make sure your assets are managed—not taken over.

Key Takeaways

  • Plan ahead to avoid probate, minimize taxes, and secure your retirement income.
  • Decide between gifting or selling based on your financial goals and family needs.
  • Use trusts, legal documents, and professional help to make the transfer smooth.
  • Clear communication and fair planning prevent family conflicts and protect your legacy.

What Are the Legal and Financial Implications of Business Transfers?

Transferring your business to your children isn’t as simple as just saying, “It’s yours now.” Asset protection through estate planning is essential to secure your business from creditors, taxes, and probate delays. There are important legal and financial factors to consider, and each choice can impact your family and your business for years to come.

Legal Implications

The legal side of transferring a business involves making sure that ownership is properly documented and protected:

  • Ownership Structures determine how a business is organized and owned, and how ownership is divided amongst individuals or entities. Here are several ways to structure ownership:
    • Sole Proprietorships: A business is owned and operated by one individual, who is personally responsible for its debts and obligations
      • Assets may be subject to probate if no estate plan exists.
    • Partnerships/LLCs: A business where multiple owners share management and liabilities, with LLCs providing limited liability protection.
      • Ownership agreements must be updated to reflect the transfer.
    • Corporations: A separate legal entity that provides limited liability and can raise capital through stock sales.
      • Shares of ownership must be transferred, often requiring updated shareholder agreements.
  • Estate Planning for Asset Protection:
    • Tools like living trusts allow for seamless ownership transfer while avoiding probate.
    • Buy-sell agreements outline what happens when ownership changes, preventing legal disputes.

Financial Implications

The financial side of transferring a business includes taxes, asset valuation, and retirement planning:

Tax Considerations:

  • Gift Tax Exclusion: The IRS allows up to $19,000 per recipient (2025) to be transferred tax-free each year.
  • Capital Gains Tax: Selling the business may trigger taxes on the appreciation of its value.

Business Valuation:

A professional valuation makes sure the business is transferred at a fair market price, reducing tax and financial discrepancies.

Retirement Income:

Selling the business in installments can provide steady income during retirement, while gifting may impact your long-term financial security.

Gifting vs. Selling Your Business to Your Children

When transferring your business, you have two main options: gifting it or selling it. Each choice has its own pros, cons, and tax consequences, so it’s important to decide what works best for you and your family. 

Deciding whether to gift or sell your business involves careful thought however. Gifting can be a generous way to pass on your legacy, but it may come with gift tax implications. As previously stated, the annual gift tax exclusion is $19,000 per recipient for 2025, according to the IRS.

On the other hand, selling the business provides retirement income, though you may face capital gains taxes. Choosing the best method depends on your financial goals and your children’s ability to manage the business transition.

Gifting the Business

3 pros and 3 cons for gifting your business.

You give ownership of the business to your children without expecting payment.

  • Pros:
    • You avoid immediate financial costs for your children.
    • It can help keep the business in the family without adding financial stress.
    • You may reduce the size of your taxable estate, which can lower estate taxes.
  • Cons:
    • Gift Taxes: If the value of the business exceeds the annual gift tax exclusion ($19,000 in 2025), you may owe taxes.
    • You lose some control over the business once ownership is transferred.
    • Your children might not be ready to handle the responsibilities.

Selling the Business

Your children pay for the business, either upfront, in installments, or through a loan.

  • Pros:
    • You secure income for your retirement, which can provide long-term financial stability.
    • Selling the business allows for a smoother transfer of control.
    • There are fewer gift tax worries since it’s a sale, not a gift.
  • Cons:
    • Your children may struggle to afford the purchase, especially if the business is large or valuable.
    • You could face capital gains taxes on the sale, depending on how much the business has grown in value.

Which Option is Right for You?

Deciding whether to gift or sell your business depends on your goals:

  • Do you need money for retirement? Selling may be the better choice.
  • Do you want to keep the business transfer simple and affordable for your children? Gifting would be more valuable.

Pro Tip: In many cases, a mix of gifting and selling works best. For example, you can sell part of the business and gift the rest over time. Consulting an estate or elder law attorney will help you weigh your options and plan the best solution for your family.

5 Ways to Minimize Tax Implications During the Transfer

Transferring your business can trigger taxes, which might reduce the value of what you’re passing on. With careful planning, you can minimize taxes and keep more of your hard work in the family.

1. Understand Gift and Estate Taxes

When you transfer your business to your children, the IRS considers it either a gift or a sale. Both can trigger taxes:

  • Gift Tax: If you gift more than the annual exclusion limit, the excess applies to your lifetime gift exemption ($13.99 million in 2025).
  • Estate Tax: If your total estate (including your business) exceeds the federal exemption, your children may owe estate taxes after you pass away.

2. Use Trusts to Avoid Probate and Taxes

Trusts are a powerful tool for minimizing taxes and avoiding probate.

  • Irrevocable Trusts: Transfer ownership permanently, reducing the size of your taxable estate.
  • Grantor Trusts: Allow you to transfer ownership while keeping income tax responsibilities, reducing the financial burden on your children.

3. Take Advantage of Valuation Discounts

If your children receive part of the business now and part later, you may qualify for valuation discounts.

  • Minority Discounts: A smaller ownership share is worth less than controlling interest, reducing its taxable value.
  • Lack of Marketability Discounts: Family businesses are harder to sell, which can also lower the value for tax purposes.

4. Structure the Sale as Installment Payments

If you sell the business instead of gifting it, consider using installment payments. This spreads out the income over time, which can:

  • Reduce your capital gains tax burden each year.
  • Make the purchase more affordable for your children.

5. Plan for State-Specific Taxes

Some states have their own gift and estate tax rules, which could impact your transfer. Be sure to work with an attorney who understands both federal and state laws.

How to Manage Family Dynamics in a Business Transfer

Family relationships can complicate business transfers, especially when there’s no plan in place. According to PR Newswire, 61% of U.S. family businesses do not have a formal succession plan, which increases the risk of family conflicts and business disruptions.

To avoid disputes, it’s important to have open conversations with your children about roles, responsibilities, and fairness. Tools like life insurance or balancing assets can allow for everyone to be treated equitably while keeping the business stable.

Here are a few things to consider when conducting a business transfer:

Is Your Child Ready to Take Over?

Not all children are prepared—or even interested—in running the family business. Ask yourself:

  • Do they have the skills and knowledge to manage the business?
  • Are they interested in taking over, or are they feeling pressured?
  • Do they need time to learn the ropes before taking full control?

Addressing Fairness Among Siblings

What happens if one child is involved in the business, but others aren’t? You’ll need to balance fairness with reality. Here’s how you can handle it:

  • Split Ownership and Roles: Give shares of the business to all children but assign management roles only to those involved.
  • Equalize Inheritances: If one child gets the business, leave other assets (like property, savings, or investments) to the other children.
  • Use Life Insurance: A life insurance policy can provide financial compensation to children not involved in the business.

Avoid Family Conflicts with Clear Communication

Family disagreements often arise when plans aren’t discussed openly.

  • Have Honest Conversations: Talk to your children about your plans, expectations, and their roles.
  • Set Boundaries: Define clear roles and responsibilities for children who are involved in the business.
  • Put It in Writing: Use legal documents to outline who owns what and how decisions will be made.

Plan for a Backup Option

Sometimes, children may decide later that running the business isn’t for them. To protect the business, plan for this possibility:

  • Appoint a trusted manager to run the business temporarily.
  • Include a clause in your legal agreements to sell the business to a third party if necessary.
  • Create a plan to dissolve the business if no one can manage it.

Why Business Succession Planning Is Important for Retirement

Succession planning is all about securing your own retirement. Without a clear plan, your financial stability could be at risk. Only 30% of family businesses make it to the second generation, according to Harvard Business Review, showing the importance of planning for longevity. , 

By selling or gifting your business strategically, you can create reliable income for retirement while making sure your business stays strong in your children’s hands.

6 Steps to Transfer Your Business to Your Children

An adult hand handing a silver key to a smaller hand against a white background.

Breaking the transfer process into steps makes it more manageable. Following the steps and consulting an elder law attorney are key to securing a smooth and efficient transfer.

1. Identify Your Successors 

Decide which child (or children) will take over and confirm they are ready and willing to manage the business.

2. Get a Business Valuation

Hire a professional to determine the fair market value of your business. This helps with taxes, gifting, or selling.

3. Decide Between Gifting and Selling

  • Gifting: Pass ownership without payment but consider gift taxes.
  • Selling: Your children buy the business, either upfront or through installment payments.

4. Update Your Legal Documents 

Work with an elder law attorney to prepare or update:

  • Wills and trusts
  • Buy-sell agreements
  • Operating agreements

5. Minimize Taxes 

Use trusts, valuation discounts, or installment sales to reduce tax burdens.

6. Plan for Your Retirement Income 

Some states have their own gift and estate tax rules, which could impact your transfer. Be sure to work with an attorney who understands both federal and state laws.

How Jarvis Law Firm Attorneys Can Help

Transferring your business is a major decision that demands thoughtful planning and experienced guidance. Without a clear strategy, 70% of family wealth is lost by the second generation, and 90% by the third, as reported by the Financial Times.

Our elder law and estate attorneys at Jarvis Law Firm make the process smooth and stress-free by addressing every detail:

  • Drafting Legal Documents: We create or update key documents like wills, trusts, and buy-sell agreements to allow for a seamless transfer.
  • Minimizing Taxes: Our team develops smart strategies to reduce gift, estate, and capital gains taxes that can burden your family.
  • Managing Family Conflicts: We act as neutral advisors to resolve disputes and make sure everyone is treated fairly.
  • Protecting Your Retirement: We help you structure plans that secure your income so you can step away with confidence.

Don’t let your hard work be undone. At Jarvis Law Firm, we’re here to help you avoid probate, reduce taxes, and preserve your family business for generations to come. Contact us today to build a succession plan that works for you and your family.

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