Act now or wait? Succession planning in uncertain times

Why many business families are hesitating right now

Business owners who are planning to transfer company assets to the next generation over the coming years are currently facing a highly unusual situation.

A pending constitutional court decision, ongoing political reform discussions and tax allowances that have remained unchanged for years are causing many business families to reassess their succession plans. The key question is often the same: Is now the right time to move forward with succession planning, or is it better to wait?

There is no one-size-fits-all answer. In many cases, however, waiting may prove to be the greater risk.

The current situation: Three sources of uncertainty at once

Rarely has succession planning been shaped by so many unknowns at the same time.

First, the German Federal Constitutional Court is currently reviewing case 1 BvR 804/22 to determine whether the existing inheritance and gift tax relief provisions for business assets under Sections 13a and 13b of the German Inheritance and Gift Tax Act (ErbStG) are compatible with the constitutional principle of equal treatment.

Second, a range of political reform proposals are being discussed. These include new allowance models and potential amendments to existing regulations that could significantly change the tax framework for business succession.

A third factor adds further complexity: the personal tax allowances under Section 16 ErbStG have not been increased since 2009. While business valuations, property values and private wealth have risen substantially over recent years, these allowances have effectively lost value in real terms.

As a result, business families are facing a situation in which the current legal framework is known, but its future development remains highly uncertain.

Why waiting is not a neutral option

Many business families are currently delaying decisions in the hope that greater clarity will emerge.

What is often overlooked is that waiting is by no means risk-free. The Federal Constitutional Court’s 2014 decision on inheritance tax demonstrated that legislative changes can be introduced relatively quickly. There is no automatic protection guaranteeing that existing rules will remain in place indefinitely.

Anyone who deliberately refrains from using currently available planning opportunities is effectively assuming that future rules will be at least as favourable as those in force today. There is no guarantee that this will be the case.

Waiting therefore does not automatically create greater certainty. In many situations, it means foregoing planning opportunities that are currently available and well established.

Succession is about more than tax

Our advisory work repeatedly shows that the greatest challenges in succession planning are often not tax-related at all.

More important questions include:

• Who will assume responsibility in the future?
• Is the next generation already involved in the business?
• How should management and ownership be structured going forward?
• What role should the current owners play in the future?
• How can family interests and business interests be aligned?

Answering these questions takes time. Businesses that only start addressing succession once specific legislative changes have been announced often have too little flexibility to plan carefully and strategically.

Which measures make sense today

Regardless of the outcome of future court decisions or political reforms, certain planning steps remain sensible.

These include:

• making use of existing tax allowances through lifetime transfers,
• preparing valuation and documentation materials at an early stage,
• analysing the tax implications of different succession scenarios, and
• developing flexible succession structures that can adapt to changing legal and tax frameworks.

Many business successions are implemented gradually in any case. Early preparation creates the flexibility needed to respond effectively to future developments.

When waiting may still be the right decision

There are, of course, situations where caution is appropriate. For example, if key strategic decisions within the business remain unresolved, succession arrangements within the family are unclear, or major changes to the corporate structure are being considered, a premature transfer may create unnecessary risks.

The key factor is therefore not speed, but the quality of the planning process.

Waiting should be a conscious strategic decision – not the result of insufficient preparation.

Our perspective

The current uncertainty surrounding inheritance and gift tax should not discourage business families from addressing succession planning.

On the contrary, the fact that future legal and tax frameworks remain uncertain makes early planning even more important. For families with active or foreseeable succession projects, delaying decisions may mean exchanging a known and well-established legal framework for one that could ultimately prove less favourable. Anyone already considering a transfer should carefully assess the opportunities currently available.

Succession planning does not necessarily mean transferring assets immediately. First and foremost, it means creating options and preserving flexibility.

Or put differently: those who plan early can respond to future developments with greater confidence. Those who wait until decisions have already been made often find themselves with significantly fewer options.

Are you currently considering the future of your business or exploring a gradual transfer of assets? Our experts would be pleased to help you develop an appropriate succession strategy and assess the tax and economic implications at an early stage.