Start Early to Optimize Valuation and Ensure Continuity

Business owners often approach estate planning and succession planning as two separate processes. But in the manufacturing industry, owners have unique issues that make a coordinated approach to estate and succession planning the best strategy for maximum protection.

It’s important to keep in mind the different goals of estate and succession planning. An estate plan is primarily designed to address ownership transfer, tax exposure, asset protection and the owner’s wishes if the owner becomes incapacitated or passes away. Succession planning is not simply about retirement. It’s about preserving the value of the business and protecting employees.

As a succession plan is structured, it will likely contribute to changes in the business’s valuation, which will in turn impact the estate plan. Consequently, coordinating updates to the two plans as valuations and other circumstances change over time can help owners reach their goals without unanticipated surprises.

Estate Planning for Manufacturers

Manufacturing is a capital-intensive industry, as the owner of any manufacturing company knows. Most of the owner’s capital is tied up in hard assets. While this may create a high valuation for the business, it also creates challenges for estate planning.

The biggest issue is keeping the estate’s total value below the federal estate tax exemption limit. For 2026, the exemption limit is $15 million for individuals, and up to $30 million for married couples if portability is properly elected. That may sound like a lot of money, but when you consider the value of manufacturing equipment and other assets that even a small manufacturer may have, plus the owner’s personal assets, such as a home, vehicles and perhaps land, exceeding the applicable estate value threshold may not be such a stretch.

Moreover, depending on the ownership structure of the business, the order in which spouses die can potentially have a negative estate tax impact on the surviving spouse. If a company owner dies as the sole owner of the business and the surviving spouse has no ownership interest, the surviving spouse could be left with a federal estate tax bill if the estate plan does not address that possibility.

However, state law could come into play. Kansas is not a traditional community property state, but effective July 1, 2026, Kansas law allows married couples to opt into community property treatment through a qualified Kansas community property trust. That structure may provide favorable basis planning opportunities for qualifying assets. Separately, federal portability rules may allow a surviving spouse to use a deceased spouse’s unused federal estate tax exemption if the executor timely files Form 706.

Additionally, couples can put different types of trusts in place to help minimize estate tax issues that might arise.

The point is to be continually aware of the value of the business, even when structuring an estate plan that you consider an entirely personal document. And structuring the estate plan does not need to be a massive undertaking. Even younger couples can start small and review the plan every three to five years, updating as needed. Starting small means putting in place the critical documents, including a will, financial and health care powers of attorney, relevant business agreements such as a buy-sell agreement and, potentially, a trust.

Succession Planning for Manufacturers

When it is done well, succession planning takes time, and in most cases, it takes several years. This is because a key part of succession planning is determining who will run the company after you’re gone. This may involve identifying a new CEO or even a team of future key managers.

But as of today, those people may not have the education, the skills or knowledge of the business needed to run it. They may need several years to get an education and build their experience and credentials before taking over. And if it’s a family-owned business, there are additional layers of planning, decision-making and, possibly, diplomacy that go into a succession plan.

The bottom line is that if your ultimate goal is to transition the company to someone in the family or to a key employee rather than sell to a third party, you must start planning early.

Family businesses bring unique challenges to the succession planning process, including informal discussions and verbal agreements that may have taken place years before the succession plan is put in place. By the time succession planning starts, circumstances may have changed, and the business owner may need to address family members who feel territorial about the business and their roles in it.

The best way to avoid this type of conflict is for the owner to establish from the very start a practice of documenting any conversations about the company’s future and the roles individual family members may play.

On the other hand, if there are young family members who are interested in a future with the company, they should be developed as potential leaders from an early age.

Whether a succession plan designates a family member or a key manager as the future leader of the company, it should spell out how that person or those people will obtain the education and experience needed to assume a leadership role when the time comes. Integrating the succession plan with the company’s strategic plan is a key measure that can help build value in the business as future leaders help it meet strategic goals. Moreover, it will help ensure leadership continuity and preserve culture.

Bear in mind that if your ultimate decision is to sell the business to a third party, the deal structure could be very complex because of the asset-heavy nature of the business. During the ramp-up to exit, it will be important to maintain liquidity in order to help preserve value, which will in turn impact the estate plan.

A business valuation done every three to five years will help keep the valuation up to date and help keep expectations in line with reality.

Questions?

The strongest succession plans are developed years before the owner’s anticipated exit and allow the owner to strengthen teams and procedures, prepare the next generation of leaders and, most importantly, coordinate the succession plan with the estate plan.

It will be important to bring in a team of advisors to help get the process started, including your business attorney, your accountant and your wealth advisor. They will be with you throughout the years as your business and estate grow and as the succession and estate plans are updated. All key documents should be reviewed and updated every three to five years.

It’s never too early to start. And if you are having trouble with the idea of planning who your successor will be, just remember that your business is most valuable when it can run without you.

If you would like to get the conversation started, contact an Adams Brown advisor.