Transferring a Florida business to the next generation, key employees, or co-owners is one of the most complex planning events a business owner faces. Estate taxes, gift taxes, valuation discounts, buy-sell agreement funding, and income tax consequences all interact. Florida's no-income-tax advantage simplifies part of the picture, but federal taxes remain substantial. Planning well in advance of any transfer is essential.
The federal estate tax exemption in 2026 is approximately $13.9 million per person ($27.8M per married couple) — the TCJA-elevated amount expires December 31, 2025, reverting to approximately $7 million per person inflation-adjusted. This potential halving of the exemption is a critical planning event for Florida business owners whose estates include significant business value. Florida has no state estate or inheritance tax — a notable advantage over states like Massachusetts ($2M threshold) or Oregon ($1M threshold). All Florida estate tax planning focuses on federal law.
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Annual gift tax exclusion: $19,000 per recipient in 2026. A Florida business owner can give $19,000 of business interest annually to each child/grandchild without using the lifetime exemption. Minority interest discounts: LLC or limited partnership interests gifted without control rights may be discounted 15%–40% for lack of control and lack of marketability — this allows larger transfers relative to the reported gift value. Grantor Retained Annuity Trusts (GRATs) allow transfers of future appreciation to heirs with minimal gift tax — particularly valuable for businesses expecting significant growth.
Buy-sell agreements establish the terms under which ownership transfers when an owner dies, becomes disabled, or wants to exit. Funding mechanisms: life insurance (death provides liquidity to buy out the deceased owner's estate); disability buyout insurance (disability triggers buyout over time); installment payments (from business cash flow). Florida businesses with multiple owners should have a buy-sell agreement — without it, a deceased owner's family becomes an unintended business partner. The valuation formula in the buy-sell agreement (formula, agreed value, or appraisal) must be carefully crafted — a poor formula disadvantages either buyers or sellers at trigger events.
An ESOP allows a Florida business owner to sell the business to employees through a trust — often with significant tax advantages. Key ESOP tax benefits: S-corp owned 100% by an ESOP pays zero federal income tax (employees pay ordinary income tax when they receive distributions at retirement). The selling owner can defer capital gains by reinvesting proceeds in qualified domestic securities (Section 1042 rollover). ESOPs work best for profitable Florida businesses with $2M+ in EBITDA and a workforce willing to participate. ESOP setup costs ($100,000–$300,000) are recouped quickly through tax savings for qualifying businesses.
Gifted business interests: the recipient takes the donor's basis — no step-up at gift. This embeds capital gains that the recipient pays when they eventually sell. Inherited business interests: step-up in basis to fair market value at death — eliminating capital gains on appreciation during the owner's lifetime. This 'step-up at death' strategy favors keeping appreciated business interests until death rather than gifting, particularly under current capital gains rates. For Florida business owners with both estate tax concerns and embedded capital gains, the optimal strategy balances these competing considerations — often preferring step-up at death over gifting for highly appreciated assets.
We help Florida business owners create tax-efficient succession plans — whether transferring to family, employees, or outside buyers.
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