Business exit planning with Corient Wealth Management

When does business exit planning start to matter for an S corporation owner?

Business exit planning starts to matter the moment an informal valuation surfaces or when owners reach 3 to 5 years before a planned departure date. At Corient Wealth Management, the exit process resolves 4 foundational questions before an owner signs any binding paperwork: what each transaction structure leaves after tax, which calendar year the closing lands in, what occurs if an owner dies mid-deal, and what annual distributions the remaining capital must fund afterward.

Consider an S corporation owner who receives an informal $6,000,000 private equity inquiry. That preliminary figure means little until shareholder basis and corporate liabilities get measured against the gross number. Remedying hidden defects, like outdated entity filings or incomplete corporate records, typically takes several months of deliberate legal and tax work.

A formal buy-sell agreement must also match these exit realities. A cross-purchase agreement allows remaining owners to purchase a departing partner's equity directly, whereas an entity-purchase redemption arrangement requires the business itself to redeem those shares. When life insurance policies fund these obligations, death benefits generally disburse free of federal income tax, protecting surviving family members while providing immediate liquidity for the remaining leadership.

What happens if the share paperwork fails the buyer's review?

Unchecked titling oversights create severe friction during legal due diligence. For instance, shares gifted years ago to a family trust for adult children without a timely Qualified Subchapter S Trust or Electing Small Business Trust filing can inadvertently terminate the company's S election.

When the buyer's counsel uncovers this defect, the deal often freezes until the business secures formal IRS relief for an inadvertent termination, forcing attorneys to draft curative paperwork while the buyer demands substantial escrow holdbacks or insists on restructuring into an asset sale.

Another expensive trap involves executing an initial term sheet or letter of intent specifying an asset purchase before modeling the ordinary-income impact of asset depreciation recapture. Once that deal structure is signed, altering asset classifications becomes exceedingly difficult.

Stale buy-sell formulas introduce similar exposure under Internal Revenue Code section 2703. If valuation formulas do not represent an arm's-length standard, tax authorities can disregard those values for federal estate tax evaluations, creating unintended tax assessments if an owner dies before closing.

• Missing trust election forms terminating S status
• Unmodeled asset depreciation recapture classifications
• Outdated shareholder agreement valuation formulas

At age 61, the closing year sits outside Medicare's lookback

Timing a transaction around key birthdays alters secondary expenses that many business owners overlook. For a hypothetical household like Boyd and Tracy, aged 61 and 59, their S corporation landscaping supply company holds a $6,000,000 purchase figure. In the transaction year, their taxable income will surge far past the $750,000 married filing jointly threshold where top-tier Medicare Part B surcharges apply. However, Medicare premium adjustments look back 2 tax years.

If Boyd and Tracy close the transaction immediately at Boyd's age 61, the revenue spike impacts income evaluated at age 63, prior to either spouse enrolling in Medicare. The resulting Medicare surcharge cost is $0. If they delay the sale 2 years until Boyd turns age 63, that transaction income dictates his premiums at age 65. Under 2026 CMS rates, top-tier Part B requires $689.90 each month compared to the standard $202.90 base, creating an extra $487.00 monthly expense, or $5,844 for his initial year of coverage. If they postpone the closing 5 years until Boyd is 66 and Tracy is 64, both spouses fall subject to the surcharge 2 years later, generating $5,844 each for a joint expense of $11,688.

The underlying federal tax on the sale proceeds remains unchanged across those scenarios, yet intentional timing eliminates unnecessary Medicare premium penalties. While taxpayers can submit Form SSA-44 citing a life-changing event to request relief from IRMAA assessments following retirement, that adjustment remains an agency discretion rather than a guaranteed statutory exemption. In our wealth advisor practice at Corient Wealth Management, exit planning coordinates with broader financial realities: business equity representing over 50% of liquid net worth, aging past 60, and required minimum distributions beginning at age 75 for individuals born in 1960 or later.

3 years of returns go to the buyer first

Buyers start accounting diligence by asking for 3 years of Form 1120-S filings, the matching Schedule K-1s and the fixed-asset depreciation schedules. We pull those together before deal terms are discussed. With them in hand we can calculate ordinary income recapture and shareholder basis before a letter of intent exists. Discrepancies found midway through due diligence tend to surface as price cuts or escrow demands.

What does a strong exit-planning answer sound like from an advisory firm?

A strong answer spells out the depreciation recapture liability and cites the asset class allocation reported on IRS Form 8594. It also gives an estimated net dollar figure for your company and is worked out alongside your CPA's numbers. A weak answer skips the transaction mechanics and spends most of its time on gathering the proceeds to manage.

When you interview professionals, ask them directly: 'What do I keep after tax if the buyer will only do an asset sale?' An experienced team will explain that recaptured equipment write-offs are taxed as ordinary income, at rates up to 37%, while long-term capital gains top out at 20%. They will also read your tax returns to gauge state-level costs and basis limits. Past market results do not predict future performance, and money invested after a sale can lose value. Corient Wealth Management works tax-first on every transaction, calculating the capital left after federal and state authorities collect their share.

When should you initiate exit planning with Corient Wealth Management?

You should initiate business exit planning when an informal or formal purchase proposal arrives, an existing owner reaches age 60, or family successors decline to take operational command, as occurred with Boyd and Tracy's 2 adult children. If a buyer has named a price and you haven't seen the after-tax amount for both an asset sale and a stock sale, don't sign the letter of intent yet.

Prospective clients reach Corient Wealth Management with an introductory inquiry submitted on corientmanagement.com. We do not run a public phone line for new inquiries. In the first review, our professionals look at the buyer's correspondence, your entity structure and your retirement horizon. The client minimum is $500,000 in investable assets. You receive a written fee agreement explaining how the firm is paid before any account is transferred.

Owners should gather 3 years of corporate tax returns, current K-1 schedules, formal shareholder agreements, trust certificates, and any initial correspondence from prospective acquirers before our initial conversation.

• Gather past 3 years of Form 1120-S returns
• Assemble shareholder buy-sell agreements
• Submit the secure digital request form