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Key Takeaways

  • Treat the ESOP as a wealth planning moment.
  • Start estate and tax planning early.
  • Help employees build their own plan.
  • Design the plan with care.
  • Build the right advisory team.

Selling a company is more than a financial decision, it is a legacy decision. After years of building a business, it is common for owners to seek an exit strategy that preserves the culture and rewards the employees who helped make the business successful. An employee stock ownership plan, or ESOP, is one way to accomplish that goal. There are several benefits of an ESOP: it benefits the company’s owner and also enables employees to become owners through a qualified retirement plan.

While the benefits of an ESOP can be significant, the transition also introduces important wealth management considerations for everyone involved. Whether a business owner or employee, here are some points to keep in mind.

An ESOP is a Liquidity Event – and a Wealth Planning Moment

When a business transitions to an ESOP, the owner receives payment for their stake, while employees gain a pathway to ownership through shares held in the ESOP trust. For many owners, this may be one of the largest liquidity—and wealth generating—events of their lives. That makes wealth management planning critical. The business owner should retain experienced advisors who understand tax concerns and can help to ensure tax benefits are not lost with proceeds being invested correctly.

A wealth advisor and financial planner can help business owners evaluate how to construct an optimal estate plan and investment portfolio for their next chapter. That planning should include investment management, retirement savings, estate planning, philanthropic giving or perhaps a new business venture. The goal is to help create a plan that reflects the owner’s long-term objectives and legacy.

Estate and Tax Planning Should Start Early

Business owners considering any kind of business sale such as through an ESOP should begin estate planning as early as possible and well before the transaction is finalized. A coordinated advisory team, including a lawyer, financial planner and accountant, can help evaluate the appropriate strategies based on the owner’s goals. For example, if a sale is expected to generate a large capital gain, some owners may consider charitable planning vehicles, such as a charitable remainder trust, for a portion of the business interest. This can provide an income stream while also supporting charitable goals and potentially reducing the immediate tax impact. 

These strategies are complex and not appropriate for every situation, which is why owners should work closely with qualified tax, legal and wealth advisors to understand their options and create a plan reflecting their goals.

Employees Also Need a Plan

An ESOP is a retirement plan, which means employees should think about it as part of their broader financial picture.

In most cases, employees receive shares of the company over time based on the terms of the plan. If the company continues to grow and performs well, the value of those shares may increase. This means employees have a direct interest in the company’s continued success. At the same time, employees should understand how ESOP benefits fit with other retirement savings, such as a 401(k), IRA or personal investment account.

Important questions for employees may include:

  • When will I become eligible to participate in the ESOP?
  • How are shares allocated?
  • When do I become vested?
  • What happens if I leave the company before retirement?
  • How and when can I access the value of my shares?
  • What are the tax implications of taking a distribution?
  • How does this fit into my overall retirement plan?

Retirement age is especially important. Depending on the plan, accessing ESOP distributions early could result in taxes or penalties. Employees should understand the rules before making decisions about retirement timing, career changes or distributions.

Plan Design Matters

The success of an ESOP depends in part on how the plan is structured. A plan document sets the rules for eligibility, vesting, share allocation, distributions and other key details. The business owner and company management should consider engaging an attorney to draft the plan document based on guidelines provided by the Internal Revenue Service (IRS) and the ultimate goals of the ESOP.

Because an ESOP is a qualified retirement plan, it requires proper administration and compliance. Businesses should work with experienced advisors, including an ESOP attorney, trustee, valuation expert, CPA and qualified plan administrator, to draft the plan document and help ensure its ongoing qualification with the IRS.

For employees, the plan determines how wealth is accumulated and accessed. For the company, the structure affects cash flow, repurchase obligations and long-term sustainability. The goal is to create a plan that rewards employees while helping the business remain financially strong.

Building the Right Advisory Team

An ESOP touches nearly every part of a business owner’s and employee’s financial lives. That is why it is important to have the right team in place.

For business owners and senior leaders, that team may include:

  • A commercial banker to advise on the ESOP loan
  • A corporate attorney with ESOP experience
  • A CPA or tax advisor
  • A wealth advisor
  • An estate planning attorney
  • An ESOP trustee
  • A valuation expert
  • A qualified retirement plan administrator

Employees may benefit from working with a financial planner or wealth advisor who can help them understand and evaluate how their ESOP benefit should fit into their retirement planning, tax planning, savings goals and investment diversification.

Sustaining the Wealth You Worked Hard to Build

An ESOP can be a powerful tool for business succession, employee engagement and longterm wealth creation. But the transition is only the beginning. Once an ESOP is in place, both owners and employees alike should plan carefully how to manage, protect and sustain the wealth they created.

 

Cambridge Trust Wealth Management is a division of Eastern Bank. Views are as of October 2026 and are subject to change based on market conditions and other factors. The opinions expressed herein are those of the author(s), and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice based on market conditions and other factors. These views and opinions should not be construed as a recommendation for any specific security or sector. This material is for your private information, and we are not soliciting any action based on it. The charts presented within are for educational purposes only. The information in this report has been obtained from sources believed to be reliable but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information. Past performance does not guarantee future performance.