The federal estate and gift tax basic exclusion amount is $15 million per person in 2026, with inflation adjustments beginning in 2027. For owners of closely held businesses, the higher exemption raises questions about the timing of planning and how to measure the value of an estate.
Higher Exemption Creates Opportunity, Not a Reason to Delay Planning
The higher estate tax exemption is semi-permanent, or permanent with an asterisk. While it’s great that we have this extra room now, high- or ultra-high-net-worth families shouldn’t just defer planning.
If you’re an ultra-high-net-worth family or even a high-net-worth family, your assets may grow faster or slower than inflation, but it’s only by inflation that the exemption is going to grow. If you have a taxable estate or are projected to cross that threshold, right now is the best time to plan how to take care of this problem and maximize the exemption.
Ratherthan fundamentally changing how owners of closely held businesses should approach estate planning, the exemption mostly changes the tax calculations within a larger plan. Ownerswith estates below the exemption threshold shouldn’t assume they no longer need sophisticated planning. Depending on the state they live in, they might have a bigger problem than they think.
You Can’t Plan Around Business Value You Don’t Know
The value of a privately held business requires particular attention because it can be difficult to know what the business is worth. Determining the value of some assets is easy. For example, I can look at my 401(k) and know how much it’s worth on a day-to-day basis.
With other assets, it gets a little gray. When determining what your house is worth, for example, you can get different valuations from your property tax appraisal, your realtor, and Zillow. But even when the value is fuzzy, you can establish a range.
Valuing a business is much more complex than valuing real estate. You can’t go to a website to find out what your business is worth.
Similarly, you can’t do a back-of-the-napkin valuation where you figure, hey, since owners in my industry get five times EBITDA and my cash flows at $5 million EBITDA, my company must be worth $25 million. That’s almost certainly not true. When it comes to valuing your business, your range is going to be significantly bigger than it is with real estate. From a planning perspective, you need a valuation to know what you’re dealing with. There’s going to be an appraisal whether you’re alive or not. If you’re alive, you can plan around whatever that number is, but if you’re not, the chips are going to fall where they may and the people you’ve left in charge will deal with it.
