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Succession Planning Techniques Often Overlooked

“Is there anything you would have done different than your father regarding estate planning?”  “Yes”, replied the son.

The son, now a highly successful auto dealer, was emphatic in his response.  “Dad was unwilling to do anything. He thought he would lose control.  We were lucky he died during good market conditions - our dealership products were hot and the real estate market allowed us to sell assets to pay the estate taxes.  We could have lost everything!”

“How can I more effectively utilize my Will and Revocable Trust to save estate taxes?”

  • Does your Exemption Trust mandate payment of income to your spouse

Since most business owners of capital-intensive businesses have sufficient assets to provide for their spouses, by requiring mandatory payout of income you are likely incurring substantial additional estate taxes.

Most capital-intensive business owners’ estates are large enough to consider distributing some assets to their children and still retain more than enough assets to provide for their spouse.  Yet this fact is generally ignored, resulting in higher estate taxes.

  • Do you have a QTIP Trust and a third-party trustee? 

If so, and if the business stock is divided between your spouse and the QTIP Trust, it is possible under a private letter ruling to have your stock valued utilizing minority discounts.  For many owners the estate tax savings could be in the millions.

  • Are your life insurance policies taxable in your/spouse’s estates?  

Often I encounter business owners who neglect to utilize irrevocable life insurance trusts that could protect life insurance proceeds from estate taxation.

  • Do you want to retain control while reducing estate taxes? Consider:
    • Utilize minority discounts to sell/gift business stock.  

Transferring a small percentage of stock to children allows minority discounts for valuation purposes plus the appreciation of gifted stock is removed from your estate.  You retain control until your ownership falls below 51%.  Recapitalizing stock into voting/non-voting can increase your options.

    • Family Limited Partnerships (FLP) and Limited Liability Companies (LLC)

These structures allow you to maintain 100% control while gifting/selling equity to children at greatly discounted values.

    • Qualified Personal Residence Trusts (QPRT)

“Would you consider transferring your home into a trust that could save substantial estate tax? At end of the trust term you could continue to live in the home and pay FMV rent, further reducing your estate; or you can move to another home”  Many business owners nationwide responded favorably to this concept.

    • Grantor Retained Annuity Trusts (GRAT)

Real estate or S-corporation stock placed in GRATs that generate periodic distributions of income to you from the trust. The asset is transferred to beneficiaries at the end of trust term transfer at impressive estate tax savings.

“How can I incorporate charitable giving into my estate planning?”

Charitable Remainder Trusts, Charitable Lead Trusts and Family Charitable Foundations are effective in accomplishing your goal.  

These complex planning concepts demand careful examination. Consult with your professional advisors on the best fit for your specific needs/situation.

  • Will your children wish you had addressed your estate and dealership succession planning with the same drive and energy you addressed every other problem?
  • Are you avoiding the subject of estate planning because it’s uncomfortable? 
  • Do you like being in control of what happens in your life?

Dealing with these issues puts you in control as you will actively review all your options and implement plans in line with your wishes. The sooner you address these issues with competent advisors who regularly deal with these estate planning issues, the more in control you will be. Your decisions will dictate your estate disposition – not the IRS, the manufacturer or a judge.  


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Woodland Hills, CA 91364, USA
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Transfer Stock: Gift or Sale
 

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