2026 Tax Law Changes Matter for Multi-Unit Franchisees

Are you aware that in 2026, the estate tax credit will drastically drop from $13.6 million to $5 million per individual? For franchisees with high-value business holdings, this change could significantly impact how much wealth you can shield from taxes. The clock is ticking as the Tax Cuts and Jobs Act (TCJA) sunsets, reducing key tax advantages. Right now, you have the opportunity to capitalize on current credits, but that window is rapidly closing. If you own multiple franchises or have considerable assets, now is the time to act and secure your financial future.

TCJA sunset

When the TCJA was passed in 2017, it created a substantial increase in the estate tax exemption, allowing individuals to pass on up to $13.6 million tax-free, while couples could protect nearly $27 million. For multi-unit franchisees, this opened a rare opportunity to transfer wealth and business assets without facing high estate taxes.

But these benefits are not permanent. In 2026, the exemption will roll back to $5 million per individual, adjusted for inflation. This means franchisees with significant holdings will face higher estate tax liabilities if they haven't taken advantage of current exemptions.

Act now

With the estate tax exemption set to shrink, the message is clear: use it or lose it. Franchisees who don't take action now risk missing out on substantial tax-saving opportunities. Strategic gifting is one of the best ways to reduce your taxable estate. By gifting assets or placing them into trusts today, you can lock in the current exemption and keep more of your business wealth out of the IRS's reach.

Waiting until 2025 to start planning could lead to rushed decisions and missed opportunities, especially as more business owners scramble to take advantage of the current tax structure. And as a multi-unit franchisee, you face additional complexities. Business valuations, legal considerations, and asset structuring take time and professional guidance. Starting now ensures you won't be caught in a last-minute rush to secure your financial legacy.

Specific for franchisees 

Multi-unit franchisees have unique challenges when it comes to estate planning. Unlike traditional business owners, franchisees often deal with a mix of physical assets, intellectual property, and contractual obligations that complicate tax planning. A key step is obtaining accurate business valuations. Whether you own five, 10, or 100 franchise locations, understanding the value of your holdings is essential to avoiding unnecessary tax liabilities.

Placing assets into trusts can also offer substantial tax benefits while giving you more control over how your wealth is distributed. Selling nonessential business assets to free up liquidity for gifting can be an effective way to reduce your taxable estate, but it requires careful consideration and expert negotiation.

By planning now, you can explore options like trusts, gifting, or even selling parts of your franchise empire to protect your legacy. Waiting too long could result in missed opportunities and a higher tax burden.

Prepare for uncertainty 

Though the 2026 estate tax changes are currently scheduled, the political landscape remains unpredictable. The outcome of the 2024 election could influence future tax policies. Whether the exemptions are extended or further restricted will depend heavily on who controls Congress and the White House.

For franchisees, the stakes are high. Potential increases in capital gains taxes could affect the sale of franchise locations while changes in tariffs or corporate tax rates might impact day-to-day operations. The best strategy is to plan for the worst-case scenario—higher taxes and fewer exemptions—while remaining flexible enough to adapt to new legislative developments.

Protect your empire

If you haven't started your estate planning process yet, now is the time. Waiting could result in costly mistakes, especially as financial advisors, estate planners, and attorneys become overwhelmed with clients rushing to beat the 2026 deadline.

Here's what multi-unit franchisees can do today:

• Meet with your advisors. Work with your succession planner, tax experts, and legal team to assess your current financial situation and develop strategies to minimize future tax liabilities.
• Consider gifting. Use the current $13.6 million exemption by gifting assets or placing them into trusts, protecting your franchise empire from future tax hits.
• Review your business valuations. Properly valuing your franchises is crucial to avoiding IRS scrutiny and maximizing your estate planning.
• Stay flexible. Keep your estate plans adaptable to potential political shifts. Changes following the 2024 election could alter the tax landscape, and you need to be prepared.

The 2026 tax law changes are on the horizon, and multi-unit franchisees face a shrinking window to protect their wealth. Start planning now to ensure that your franchise empire continues to thrive for future generations, no matter what the future holds.

Click here for deeper insights in a conversation between Champ Rawls, a seasoned succession planner with The Rawls Group, and Doug McCullough, an experienced attorney with Crady Jewett McCulley & Houren LLP.

While the 2024 election may bring many uncertainties, one thing remains clear: The current tax laws offer a fleeting opportunity that multi-unit franchisees must capitalize on. This isn't just about a tax law change—it's an urgent call to action. Now is the time to begin estate planning and secure the future of your franchise holdings before the 2026 deadline approaches.

Kendall Rawls, a second-generation family member at Rawls Succession Planners, uniquely understands the hurdles of privately held businesses. She offers invaluable insights to foster strong leadership and sustainable growth. Let us guide you to success. For tailored support, visit seekingsuccession.com or contact [email protected].