Amid the excitement of operating a successful business, commercial real estate owners should put one important task at the top of their list: Plan for what happens if they can no longer run it.

While thinking ahead about one’s death or disability may put a damper on their excitement about their continued future success, owners need to make logistical decisions, including who will inherit the business, or if it even makes sense to continue operations when they are not around.

Owners should have either an exit strategy to pull out of the business or a succession plan for continuing operations. A succession plan should identify crucial roles in the organization and designate family members or key employees to fill those roles and keep operations going when the owner is no longer there.

Andrea Lawrence, senior vice president and senior wealth advisor at Bryn Mawr Trust, stressed the importance of getting a written plan in place as early as possible so owners have control over what happens to the business in the event of the untimely death or disability of an owner.

“Many family-owned businesses, by necessity, do not have a traditional corporate management structure in which an exit strategy or succession plan is put into operation by shareholders," Lawrence said. "These shareholders would appoint a board of directors who oversee a slate of executive officers managing the business. In contrast, family-owned businesses often have only a handful of family members participating in governance."

Bisnow sat down with Lawrence to discuss how CRE owners can develop a plan to ensure the smooth transition of their business.

Bisnow: What are some of the decisions that family-owned CRE businesses need to make prior to creating their succession plan?

Lawrence: CRE owners, in particular, grapple with who’s going to operate the business if they are not around. Also, is the business going to pass on to the next generation, or should it be sold?

If the value of the business is so intrinsically related to one or two owners who possess a certain expertise, the company may have little value after they’re gone. If that’s the case, then what’s the exit strategy? If the business does have value apart from its owners, should it be passed on to the next generation? What role should the next generation play? It may be that the next leader is not a family member, but the family continues to own an interest in the company. The answers to these questions shape how the company will evolve.

Bisnow: How does a shareholder agreement work in the context of a family-owned business?

Lawrence: A shareholder agreement is used in the case of a corporation because corporations have shareholders. In the case of a limited liability company, which is more frequently seen in CRE, it would be a membership agreement, or partnership agreement in the case of a partnership. As it relates to succession planning, the agreement will set forth the percentage interests of the owners, when an owner can transfer their interest and to whom.

Family-owned CRE businesses will want to control who can be an owner. The shareholder agreement will typically set forth to whom shares can be transferred, the method of transfer, whether by sale, gift or transfer on death, the sales price and means funding, if applicable.

Thus, the shareholder agreement is a valuable tool in planning for the succession of the business. Most shareholder agreements will have a buy-sell provision that says, if a shareholder wants to transfer their shares, they first have to offer it to the existing shareholders in proportion to their relative interests.

If the other shareholders don't exercise that “right of first refusal,” the shareholder agreement will typically state that the shareholder can sell their interest, but the purchaser only becomes an assignee and only has an economic interest in the company with no right to vote. To facilitate transfers to the next generation, the shareholder agreement will also allow owners to transfer their shares by gift or sale, for estate planning purposes, to heirs or trusts formed for their benefit.

Another way of shifting value to the next generation is to create two classes of stock, voting and nonvoting. The nonvoting shares can be transferred to lineal heirs or trusts for their benefit. This is a way to shift value and appreciation to the next generation without shifting control.

Bisnow: What tax considerations should these businesses keep in mind when succession planning?

Lawrence: If a business owner has a federal taxable estate, they're going to be concerned about reducing estate taxes. Right now, individuals can pass $12.92M free of federal estate and gift tax, and a married couple can pass over $25M. However, in 2026, the federal estate and gift tax exemption is scheduled to sunset back to approximately $6.8M. Owners who haven’t utilized their $12.92M exemption should talk to their advisers about how they might take advantage of the exemption now.

People who are not going to have a federal taxable estate should be thinking about getting a step-up in tax basis, which reduces the income tax burden for the next generation. When you die owning an asset that has built-in gain, meaning its tax basis is less than its fair market value, your estate will get a step-up in tax basis to fair market value when you die. If you don’t have a federal taxable estate, you would want to own appreciated assets at death so that your heirs could get a step-up, which means they have less income tax liability for built-in gain when they sell the asset. Keep in mind this strategy may not work at the state level.

While there are tax-saving opportunities in CRE, at the end of the day, it’s about what the owners want to have happen to their business. The earlier you address this, the more effective you’re going to be at communicating to all parties in interest, getting feedback and course correcting if need be.

This article was produced in collaboration between Studio B and WSFS Bank. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.