According to a recent article from Reuters, “Estate planning for founders: a roadmap for success, ” estate planning should be at the foundation of an entrepreneur’s overall plan for the future.” Don’t overlook estate planning while building a business, the pressures of building a business can cause estate planning to be overlooked, leading to significant issues for family members and the business itself.
Core planning, business continuity and wealth transfer strategies are key components to be addressed.
Core planning clarifies estate planning. Who will control the assets, who will benefit from them and how will taxes be paid? Included in core planning is creating a will and trusts and appointing fiduciaries for the estate. Within this area, there are three further elements:
- Planning for taxes. If a startup value appreciates rapidly, there needs to be a plan to mitigate transfer taxes to maximize the wealth passed to the next generation.
- Asset protection. Inheritances need to be protected by implementing asset protection strategies. This may include using trusts, company structures (like LLPs) and other means of protecting assets from claims by creditors or ex-spouses.
- Planning for Incapacity. With properly created documents, including Financial Power of Attorney, Healthcare Proxy, HIPAA Release and Living Wills, the business owner’s personal and financial affairs are handled smoothly by individuals of their choosing.
Business continuity requires a strategic plan for incapacity and the eventual fate of the business, whether it’s to be passed down to the next generation, sold, or dissolved.
- Liquidity planning. If the founder’s retirement is to be funded by the sale or transfer of the business, how will the business continue to operate? Cash flow mechanisms could include insurance policies, investment accounts, or other liquid assets.
- Buy-Sell Agreements. These are often created to take effect following a triggering event, like death or incapacity. The agreements should be designed to avoid any disputes and ensure the stable continuation of the business.
- Funding with Life Insurance: Life insurance is often used as part of buy-sell agreements to ensure that the business can continue and the family receives fair compensation for their portion of the business.
Wealth transfer strategies. The goal is to maximize the owner’s legacy by minimizing taxes and transferring wealth to beneficiaries most efficiently.
- Estate “freezing” techniques include the use of Grantor Retained Annuity Trusts (GRATs), Spousal Lifetime Access Trusts (SLATs) and dynasty trusts, used to minimize estate taxes by transferring future appreciation of assets to beneficiaries.
- Qualified Small Business Stock Planning. If founders have Qualified Small Business Stock (QSBS), they can achieve significant income tax benefits with careful estate planning.
- Charitable Giving. Philanthropy is a means of reducing estate taxes, while supporting causes that have meaning for the founder. Creating charitable trusts or foundations allows business owners to impact their communities, significantly enhancing the founder’s legacy.
Regardless of the size of the business, it’s important to create a plan to address issues to protect the business’s long-term growth, maximize the wealth of the founder and their family and create a legacy for the future. Talk with an estate planning attorney about creating a plan today.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: Reuters (April 17, 2025) “Estate planning for founders: a roadmap for success”