How to Avoid the Estate Tax Fire Sale: A Must-Read for Business Owners
Intro:
Imagine you’ve built a $100 million company from the ground up. Your family is proud, your employees are loyal, and your clients trust you. But then you pass away—and the IRS hands your heirs a $34 million tax bill… due in just 9 months. They look around for cash. There is none.Welcome to the estate tax trap for business owners.
The Big Problem: No Liquidity
If your wealth is locked inside your business, your heirs won’t have liquid assets to pay the estate tax. The IRS doesn’t accept equity—it wants cash.
The result? They may be forced to:
Sell the business under pressure (likely at a discount).
Take out loans (often at poor terms).
Give up control or ownership.
Smart Moves to Avoid the Trap
1. Get Life Insurance – Outside of Your Estate
Use an Irrevocable Life Insurance Trust (ILIT) to fund a policy. That money comes in tax-free and fast—ready to pay the IRS.2. Fund a Buy-Sell Agreement
Set up a plan with co-owners (if applicable) to buy your shares. Life insurance can fund the purchase and provide liquidity to your heirs.3. Use Section 6166 of the IRS Code
This provision lets the estate pay taxes in installments over 14 years—if a closely held business is involved and meets the criteria.4. Begin Gifting Now
Use annual exclusions, your lifetime exemption, and valuation discounts to transfer ownership in advance.
Final Thoughts
A business may be your greatest asset, but without liquidity planning, it could become your family’s biggest burden. Estate planning isn’t just about saving taxes—it’s about protecting your legacy and your loved ones from financial chaos.
