For family-owned heavy construction businesses, proper estate planning is an essential component of long-term, generational ownership transition. Transition planning is already complex enough for most construction companies, but certain factors make it even more challenging for heavy construction businesses.

Given the recent passage of the July 2025 One Big Beautiful Bill Act (OBBB) and landmark rulings like Connelly vs. U.S., it’s more important than ever for business owners to understand how estate laws affect ownership transition strategy, liquidity options, and tax planning.

This article explores several key themes:

• Why is estate planning so important? Comprehensive planning goes beyond legal agreements, addressing short-term contingencies, dictating transfer mechanisms and landing spots for ownership upon death, and providing a pathway for certain aspects of long-term ownership transition.
• The July 2025 OBBB Act supersedes many tenants of the 2017 Tax Cuts and Jobs Act (TCJA) and provides stability and certainty into estate planning, noting several distinct and significant updates.
• Estate planning should not be viewed in isolation, rather as a key component of the broader succession, governance, and capital allocation framework that guides ownership transition.
• Timing and proactive planning are critical. Effective planning allows owners to leverage current tax laws, secure liquidity, and ensure continuity.

The Heavy Construction Challenge

Many heavy construction companies benefit from strong balance sheets due to the utilization of equipment and their relative fair market value (FMV). While this is beneficial to equity levels, many companies use book value or adjusted book value (for FMV of equipment) for valuation purposes.

As a result, valuation is often inflated, which increases the future cash flows needed to transact shares.

Recent Legislation

On a positive note, the OBBB Act provides clarity to future estate planning, noting the following essential aspects:

• Qualified business income (QBI) deduction: Permanently enacts the 20% QBI deduction for non-corporate taxpayers.
  • Provides annual taxation certainty for pass-through entities such as S corporations and limited liability companies (LLCs).
• Estate and gift tax exemption: The 2017 TCJA provided a $13.99 million individual estate exemption with reduction to an estimated $7 million in 2026. The OBBB Act permanently set the exemption to $15 million per individual for 2026, with inflation adjusted increases in future years.
  • This creates significant clarity for estate and gift transactions.
  • Additionally, it provides a mechanism for heavy construction companies under the threshold to transition within estates in a tax efficient manner.

Long-Term Ownership Philosophy & Planning

All construction businesses, whether family-owned or not, face generational changes to the ownership landscape. As companies scale and grow, they require additional capital to fuel continued growth and fund transitions, adding complexity into the next iteration of heavy construction ownership.

Fundamentally, there is no wrong approach in terms of ownership structure; however, here are two specific approaches through the lens of estate planning:

Continued Family Ownership

In this model, estate planning is at the forefront as it provides a means to retain and transition shares within the family or into trusts. Key considerations include:

• Gifting shares: The OBBB Act provides significant ability to gift shares within estates and/or trusts under the $15 million exemption amount.
• Liquidity generation: While gifting is helpful, it does not provide existing owner liquidity. Other avenues exist like direct sales or corporate stock redemptions.
• Family vs. non-family ownership: Bringing in non-family owners is a key consideration that can provide liquidity while also expanding ownership, while maintaining control.

Critical Consideration

Many heavy construction businesses have family owners both in and outside of the organization who may not be involved in the business. A thoughtful approach to shares held by non-working family members is recommended, as these can present certain risks to the business and possibly to the family.

Moving Away From Family Ownership

Moving away from family ownership reduces access to many estate planning tools like gifting, trusts, and discounts. However, it can offer more immediate liquidity and clarity for transitioning owners.

Selling shares to key employees, for example, fosters leadership continuity and preserves company culture, yet it lacks tax efficiency, requiring the use of after-tax dollars and generating immediate capital gains. However, with carefully contemplated structuring and execution, this approach can deliver liquidity and long-term stability.

It’s important to note that the most tax efficient means to generate liquidity is via an employee stock ownership plan (ESOP) transaction, offering the potential for deferment of capital gains tax. 

Key Recommendations for Long-Term Ownership Planning

Determine Ownership Strategy & Philosophy

All construction businesses will benefit from having a clear view of long-term ownership strategy. Ask yourself: Is there a need to mitigate risk by broadening ownership, or do we have the right family members to lead?

Clearly Distinguish Between Active & Passive Shareholders

Non-working family members may have different expectations and needs, which can introduce risk if not addressed in agreements or estate plans. Define roles, rights, and liquidity expectations to prevent future conflict.

Align Strategy With Planning

Strategy and estate planning must work hand in hand with ownership objectives. 

If the goal is continued family control, then estate planning must be tailored to support efficient transfer. If broader ownership or an exit is anticipated, then planning should focus on liquidity, tax liabilities and continuity.

Without strategic alignment, estate planning may fall short or create unintended consequences.

Evaluate Current Buy/Sell or Shareholder Agreements

Understand the mechanisms in place for purchasing shares upon the death of a stakeholder. Certain aspects of buy/sell agreements may need to be updated as organizations evolve and as legislation changes.

• Clear valuation: Ensure that your buy/sell agreement clearly specifies how and when valuation is calculated.
• Adherence to agreements: Shareholders must follow the terms of their agreements. As noted in the Connelly decision, the shareholders did not obtain annual valuations or have a clearly defined valuation methodology, which hurt their case with the IRS.
• Ownership philosophy: The future ownership model, whether family-held, employee-owned, or hybrid, should inform the estate plan with consideration for capital needs and long-term governance objectives.

Short-Term Transition Planning

All heavy construction businesses should maintain a clear short-term contingency, often referred to as a red truck plan for key leaders and owners. 

These plans ensure that adequate liquidity is available to fulfill any obligations under the terms of the buy/sell or operating agreement.

A common funding strategy involves the use of key person life insurance, which provides immediate liquidity to support share redemption or repurchase. This insurance can be owned by the company or structured through cross-purchase arrangements among shareholders.

Recent tax rulings have heightened the importance of properly structuring these policies to avoid unintended estate tax consequences, making regular review and planning essential.

Key Person Life Insurance Consideration

In 2024, the U.S. Supreme Court issued a unanimous ruling in Connelly vs. U.S. determining that corporate-owned life insurance proceeds utilized to fund share redemptions upon a shareholder’s death must be included in the corporation’s estate tax value, thus increasing estate taxes and reducing estate proceeds. 

Key Recommendations

To avoid unintended tax consequences like those in the previously mentioned case, businesses should address the following:

• Review existing life insurance policies: Determine insurance beneficiaries (corporate vs. personal) and assess coverage amounts to ensure they are sufficient for current valuation levels and align with estate and corporate objectives.
  • Policy transfer: Policies can be transferred from corporate ownership to beneficiaries; however, there could be certain tax implications depending on entity type.
  • Funding buyouts: In situations where life insurance doesn’t fully fund a buyout, ensure that agreements stipulate how the estate can obtain value without immediately impacting the organization.
• Consider alternative purchase arrangements: There are a few potential means to purchase or redeem shares to avoid additional estate tax issues, including:
  • Cross-purchase agreements: Implementing a cross-purchase agreement in the event of a shareholder’s death may nullify the effects of the Supreme Court ruling. In practice, shareholders obtain life insurance policies on other shareholders as funding mechanisms. This is highly utilized yet can be cumbersome for broadly held companies.
  • Family trusts: For family-owned businesses, transferring individual ownership to a trust prior to death can reduce certain estate tax affects. This requires thoughtful estate tax advice given tax and legal intricacies.
  • Other alternatives: Consider forming trusts or special-purpose LLCs to hold insurance on behalf of shareholders.

Conclusion

Long-term transition and estate planning involves many moving parts, particularly for heavy construction businesses where ownership, valuation, and liquidity are closely intertwined.

Given the evolving legal landscape and the high stakes involved, it is essential to take a proactive, strategic approach. Owners should work closely with their financial, legal, and tax advisors to assess their current position and develop a robust estate and ownership transition plan that supports business continuity, legacy, and financial objectives.