At Apollon Wealth Management, family business succession planning is a short list of ownership decisions in deadline order, each priced for its tax cost before you make it. Before any shares move to children, we compare the estate tax a gift would save with the capital gains tax it adds. Gifted shares keep your old basis, while inherited shares get a basis stepped up to their value at death.
Say your CPA's draft just landed and you see it: shares already sit in a trust, and nobody checked whether that trust may hold S corporation stock. Or the buy-sell agreement names a $2 million price and no money stands behind it. Both are small things to spot and expensive to leave alone. Our clients nationwide meet us by video or phone, and we start with whichever date is closest.
What age should a co-owner start family business succession planning?
Age isn't the trigger. The first ownership change is. For a 47-year-old co-owner like Raj (hypothetical), that change is his unrelated partner leaving within two years, because from that day the firm has one owner and one family behind it.
Check one: does anyone outside your family still own shares, and does a signed agreement say who buys them and at what price? If either answer is no, that becomes decision number one on the list.
In practice the plan covers three decisions, each with a tax cost and a date. Who owns the bought-out half, Raj personally or the company? Do shares later go to Sharon or to a trust for the three children? And who runs the firm if Raj can't?
Four steps Apollon Wealth Management takes, in deadline order
First, we list every decision with its date: the buyout closing, Form 1120-S on March 15, any Form 709 on April 15, and any trust election due 2 months and 16 days after a share transfer. You get that list on a single page.
Second, we put a tax cost beside each option before anyone chooses. For shares given to children that means carryover basis against step-up, who pays the cost, and in which tax year it lands.
Third, the people who carry out the choice do their part. Your CPA files the returns, your estate attorney drafts the trust and an appraiser values the shares. Apollon Wealth Management then reads the finished paperwork against the decision, for example whether the trust can legally hold S corporation shares.
Fourth, at each progress meeting we strike the finished decision off the list and move the next deadline to the top. For Raj, once the buyout closes, the question of who holds the bought-out half takes its place, with the tax cost written next to it.
How long does the IRS give you after each share transfer?
Gifts above $19,000 per recipient go on Form 709, due April 15 of the following year, or October 15 with an extension. They count against the IRS lifetime exclusion of $15,000,000 per person, and no gift tax is owed until that exclusion is used up.
Only eligible trusts can hold S corporation shares. A non-grantor trust needs a QSST or ESBT election filed within 2 months and 16 days of the transfer. The mistake usually arrives as two small slips: the attorney uses a standard trust form, and nobody tells the CPA an election is due. Together they can end the S election. For a firm earning a hypothetical $600,000, corporate tax at 21 percent would be $126,000 for the year, before any tax on dividends. Re-electing generally means waiting five years unless the IRS grants relief.
When a parent sells shares to a child for less than fair market value, the IRS treats the difference between fair value and the price as a gift. If the child pays with a seller note, the note generally must carry interest no lower than the applicable federal rate, or the IRS recharacterizes part of each payment as interest.
Look at the table for the clocks. The April and October dates belong to the gift return, while the two-month-sixteen-day clock starts on the transfer date, not on a calendar date.
A trust that holds S corporation shares may need a QSST or ESBT election within 2 months and 16 days of the transfer. Miss it and the S election can end.
| Date | What's due | Why it matters for succession |
|---|---|---|
| March 15 | Form 1120-S and owner K-1s | Shows each owner's share of profit |
| April 15 | Form 709 for last year's gifts | Reports gifts over $19,000 per recipient |
| 2 months 16 days after transfer | QSST or ESBT election | Keeps the S election intact |
| September 15 | Extended Form 1120-S | Last date for K-1s |
| October 15 | Extended Form 709 | Final gift return date |
| December 31 | Last annual exclusion gifts | $19,000 per recipient resets |
How much tax do five years of share gifts to the children save?
For a hypothetical couple, Raj and Sharon, five years of gifts save $0 in estate tax and can add $190,000 to the children's eventual tax cost. Here is the arithmetic. After Raj buys out his partner, he owns 100 percent of an S corporation worth $4 million, with a total basis of $2.1 million. They consider giving 10 percent, or $400,000 of shares, each year to a trust for their three children.
Each year, annual exclusions cover $114,000 ($19,000 × 2 parents × 3 children). The other $286,000 goes on Form 709. Assume the value stays flat and no discounts apply.
After five years, $2 million has been given. The shares carry $1,050,000 of basis over to the children. The couple has used $1,430,000 of lifetime exclusion ($286,000 × 5), against $15,000,000 per person. And $950,000 of gain ($2,000,000 minus $1,050,000) never gets a step-up. At an assumed 20 percent rate, the children's eventual sale costs $190,000 more. Returns and values are never certain, so treat this as an illustration, not a forecast.
Income shifting barely helps either. K-1 income on the children's shares falls under the kiddie tax, which taxes it at the parents' rates above a small threshold while children are under 19 (under 24 if full-time students). Check the current IRS threshold.
Our rule of thumb: if your whole estate, business included, is well under the $15,000,000 per-person exclusion and your state has no estate tax, move shares to children only for control or succession reasons, and give the highest-basis shares first. Low-basis shares are worth more held until death for the step-up. For Raj and Sharon we lean toward holding the low-basis shares for now, and revisiting at each progress meeting if the firm's value climbs toward the exclusion or a child joins the business.
Gifting still earns its place where control matters. Moving non-voting shares, for example, means a future child-successor isn't buying back the whole firm. Even then, give the highest-basis shares first.
Year-by-year effect of the gifts
Where gifting still makes sense
If a sale, its tax cost or the money afterward is also on your list
Business exit planning sets the timeline for leaving the firm altogether. Business sale tax planning shapes the structure and tax cost of a sale to an outsider. Wealth after a business sale deals with the proceeds, IRAs and Medicare premiums once the deal closes.
If no ownership change is coming in the next five years
This service can wait for a sole owner with no partner, no child in the business and no sale in view within five years. Update the will and the beneficiary form on the SEP-IRA, keep the buy-sell price current, and come back when a child joins or a co-owner raises leaving. We don't value the company or draft documents; the appraiser, CPA and estate attorney do that.
The first succession meeting: what you bring and what you leave with
Bring the buy-sell agreement, Form 1120-S and K-1s for the last two years, any appraisal or valuation letter, current wills or trust documents, and the SEP-IRA year-end statement.
The meeting runs by video or phone. We go through the decisions in date order, starting with the closest one. For Raj, that's the buyout terms with his partner.
You leave with a single page: each decision, its deadline, the options, the estimated tax cost (or what's still missing to estimate it), and who does the next task. Every fee is listed in the client agreement, and nothing outside that list is charged. The client minimum is $500K in investable assets.
One decision at a time, with its deadline and its tax cost in front of you.
Your questions about family business succession planning, answered
Our CPA sent a draft Form 709 for last year's gifts of company shares; by what date does it have to be filed?
Form 709 is due April 15 of the year after the gift. Filing for an extension moves it to October 15. Gifts above $19,000 per recipient are reported, and no gift tax is owed until the $15,000,000 per-person lifetime exclusion is used up. Confirm your dates with your CPA.
Can we take back shares already given to the children's trust if our succession plan changes?
Usually not. A completed gift is generally irrevocable, so the shares stay with the trust unless its terms allow otherwise. That's why we price the tax cost, including carryover basis, before the transfer. Ask your estate attorney what the trust document permits.
Read the rules at the source
This content is general information only and does not constitute investment, tax or legal advice tailored to your circumstances. Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. Consult a qualified professional before making any financial or legal decision.