Anita Mahamed is a CPA, CFP and a partner at Milwaukee-based Wipfli, an accounting and consulting firm that works with construction companies. She leads Wipfli’s construction and real estate practice in southern Wisconsin. Opinions are the author’s own.
While the upcoming Republican-controlled Congress and presidency may extend current tax exemptions, construction company owners aren’t taking chances with their succession planning. At stake is a potential reduction in the lifetime estate and gift tax exemption from nearly $14 million per person to approximately $7 million in 2026 — a change that could dramatically impact how construction company owners transfer wealth to the next generation.
Under current law, the lifetime estate and gift tax exemption through 2025 allows married couples to transfer nearly $28 million without federal estate or gift tax implications. Though political shifts may extend these benefits, industry experts advise that waiting for certainty could mean missing crucial planning opportunities, especially given the complex nature of construction company succession.
Here are some steps that construction pros can take now:
Embracing employee ownership
Anita Mahamed
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Employee stock ownership plans are a particularly powerful tool for construction company owners looking to make this transition. These plans offer unique advantages in an industry where finding willing buyers with sufficient liquidity can be challenging.
Unlike traditional buyers who typically prefer asset purchases to maximize depreciation deductions, ESOPs facilitate stock transactions that generally result in more favorable capital gains tax treatment for sellers.
The flexibility of ESOP structures allows owners to sell either part or all of their company, using various funding methods including excess company cash, seller financing or lender financing. This adaptability is especially valuable for construction company owners who want to maintain some control while beginning their transition process.
Through seller financing arrangements, owners can spread their capital gains over time as they collect note payments, creating additional savings through the time value of money — this is particularly advantageous in today’s high-interest-rate environment.
Beyond immediate tax considerations, ESOPs can enhance estate planning through creative structuring. Sellers can transfer the remaining shares to future generations outside the ESOP.
And because an ESOP transaction adds debt to the company’s balance sheet, it often results in lower company equity and stock prices. This reduction allows owners to gift shares to future generations using less of their lifetime exclusion, potentially maximizing the benefit of current high exemption levels before any potential changes in 2026.
Building future-ready organizations
The benefits of ESOPs extend well beyond tax efficiency, addressing some of construction’s most persistent challenges. According to the World Economic Forum, by 2025, machines will perform more current work tasks than humans, compared to 71% being performed by humans today.
This technological shift makes employee ownership particularly valuable, as employee-owners tend to be more receptive to adopting new technologies when they understand how these investments benefit the company’s — and therefore their own — long-term success.
The industry’s inherently collaborative nature positions companies uniquely well for employee ownership transitions. This existing culture of teamwork and hands-on engagement is a great foundation for ESOP success.
Integrating philanthropic goals can further enhance succession planning through ESOPs, as the sale to an ESOP provides estate liquidity that can fulfill charitable objectives while creating additional tax advantages — amounts that pass to charities from an estate are not subject to estate tax.
Overcoming change resistance
As construction companies face mounting pressure to modernize their operations, ESOPs offer unique advantages beyond tax and succession benefits. The ownership structure inherently supports the industry’s evolving needs for enhanced technology adoption and talent retention.
Traditional construction firms often struggle with implementing new systems and processes because of short-term pressures and resistance to change. However, ESOP-owned companies typically find it easier to invest in long-term infrastructure improvements because their ownership structure naturally aligns with longer investment horizons. This becomes particularly important as firms grapple with cybersecurity concerns and the need for enhanced data visibility.
The employee-ownership model also helps address the industry’s persistent talent challenges. While many construction companies struggle with succession planning and leadership development, ESOP structures create natural pathways for emerging leaders.
Employee-owners are more likely to embrace professional development opportunities and take on increased responsibilities when they have a direct stake in the company’s success.
Looking ahead
Potential legislative changes might extend current exemption levels, but succession planning is complex, so companies should prepare immediately. Owners should work closely with their CPAs and attorneys to identify tax-efficient wealth transfer strategies that align with their specific circumstances and goals. To help ensure long-term success, this planning should account for current tax implications and for operational considerations.
Key considerations for contractors weighing ESOPs:
- Evaluate company structure, as only C and S corporations can take advantage of ESOP benefits; partnerships and sole proprietors would need to restructure first.
- Consider taking back installment notes to spread capital gains over time, which is particularly advantageous in the current high-interest rate environment.
- Explore the IRC Section 1042 election to potentially defer gains by rolling proceeds into qualified replacement property.
- Review philanthropic goals, as ESOP transactions can provide estate liquidity for charitable giving that isn’t subject to estate tax.
- Assess technological infrastructure and cybersecurity measures, as employee-owned companies need robust systems to support distributed ownership.
- Begin discussions with third-party administrators who can manage ongoing ESOP accounting and regulatory filing requirements.
For construction company owners considering succession options, the early months of 2025 will be an important implementation time. The combination of high exemption levels, flexible ESOP structures and the industry’s strong collaborative culture creates an opportunity for thoughtful transition planning that benefits owners, employees and company legacy.
Instead of thinking about whether they should adapt to potential new policy changes, construction companies should think about how quickly they can build the infrastructure needed to take advantage of these tax benefits while they last.
