Future-Proof Your Wealth: Estate Planning Insights for Construction Leaders
Meet Anita Mahamed, a savvy CPA and CFP who’s not just crunching numbers but shaping the future of construction firms in Milwaukee. As a partner at Wipfli, she’s at the helm of the construction and real estate practice, steering clients through the complexities of wealth transfer and succession planning. Her insights? Always fresh and thought-provoking.
With the political landscape shifting, many construction company owners aren’t leaving their futures to chance. A looming change in 2026 could slash the lifetime estate and gift tax exemption from nearly $14 million to around $7 million per individual. This is a game-changer for how wealth is passed down through generations!
Currently, married couples can shield close to $28 million from federal estate or gift taxes. While there’s talk of extending these benefits, waiting for certainty could mean missing out on vital planning opportunities, especially in the intricate world of construction succession.
So, what can construction leaders do right now to secure their legacies?
Harnessing the Power of Employee Ownership
Anita Mahamed
Permission granted by Wipfli
Employee Stock Ownership Plans (ESOPs) are revolutionizing how construction firms transition ownership. Why? Because they offer unparalleled benefits, especially in an industry where finding buyers with deep pockets can be tough.
Unlike traditional buyers who may prefer asset purchases for maximum depreciation benefits, ESOPs facilitate stock transactions that can lead to better capital gains tax outcomes for sellers.
These flexible ESOP structures empower owners to sell part or all of their business, utilizing various funding methods like excess cash, seller financing, or lender financing. This is a crucial advantage for those wanting to ease into their transition while retaining some control.
Through strategic seller financing, owners can space out their capital gains over time, reaping the benefits of the time value of money—an especially valuable strategy in our current high-interest environment!
But there’s more! ESOPs can also be creatively structured to enhance estate planning, allowing sellers to transfer shares to future generations outside the ESOP. This not only maximizes current high exemption levels but also sets the stage for a prosperous future.
Building Future-Ready Companies
ESOPs do more than provide tax benefits; they tackle some of the toughest challenges in construction. With predictions indicating that by 2025, machines will outperform humans in many tasks, the need for adaptable employee ownership has never been more pressing.
Employee-owners are more likely to embrace new tech, understanding how these advancements lead to company success—and their own. This is a win-win situation!
Plus, the collaborative spirit inherent in construction makes it an ideal candidate for employee ownership transitions. A culture of teamwork is the perfect foundation for a thriving ESOP.
Integrating philanthropic objectives can further enrich succession planning via ESOPs. Selling to an ESOP not only provides immediate liquidity for charitable endeavors but also offers tax advantages, as charitable gifts from an estate are exempt from estate tax. Talk about a double win!
Embracing Change
As construction firms are pushed to modernize, ESOPs stand out as a beacon of opportunity, offering unmatched advantages beyond just tax and succession benefits. The employee ownership model aligns with the industry’s evolving needs, making it easier to adopt the latest technologies and retain top talent.
Traditional firms often resist change due to short-term pressures, but ESOPs create an environment where long-term investments can flourish. With cybersecurity concerns and the demand for better data visibility on the rise, this alignment is more critical than ever.
The ESOP model also addresses talent retention, creating clear pathways for budding leaders. Employee-owners are more inclined to seek professional growth when they have a stake in the company’s success.
Looking Forward
While future legislation may prolong current exemption levels, the complexity of succession planning means that action is crucial now. Owners should collaborate closely with their CPAs and attorneys to carve out tax-efficient wealth transfer strategies tailored to their unique goals. This planning should factor in both the present tax landscape and operational considerations.
Here are key takeaways for contractors considering ESOPs:
- Assess your company structure; only C and S corporations can reap ESOP benefits, so partnerships and sole proprietors may need a restructuring.
- Consider seller financing to spread capital gains over time—important in today’s high-interest environment.
- Look into the IRC Section 1042 election—an opportunity to defer gains by rolling profits into qualified replacement property.
- Review your philanthropic objectives, as ESOP transactions can provide charity liquidity without estate tax implications.
- Evaluate your tech infrastructure and cybersecurity measures; robust systems are crucial for supporting a distributed employee ownership model.
- Engage with third-party administrators to manage ongoing ESOP accounting and regulatory paperwork.
For construction company owners, the first half of 2025 will be a pivotal time for implementing these strategies. By leveraging high exemption levels, adaptive ESOP structures, and the industry’s collaborative ethos, you can lay the groundwork for a thoughtful transition that safeguards your legacy, empowers your employees, and strengthens your company.
Rather than worrying about potential policy shifts, construction companies should focus on how quickly they can build the infrastructure needed to seize these valuable tax benefits while they remain in place.
