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Savvy Business Owners Look For Creative Plans

Kitsap Sun

Originally Published in Kitsap Sun.

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What would happen to your business if you became incapacitated or worse tomorrow? Do you have an estate plan in place? Is it a “smart” enough plan to protect you and your family from severe losses due to business interruption, court costs and taxes?

Here is a checklist of key tools which should be a part of any savvy business owner’s estate plan. Check the boxes your current plan “covers,” and take a look at the blanks to see how your plan measures up.

Power of Attorney

You should have a durable power of attorney (DPA) which designates someone you trust to carry on your business, financial, and personal affairs should you become incapacitated. Without a DPA, your business could screech to a standstill while an expensive guardianship proceeding is commenced.

Living Will, Medical Power of Attorney

If you would prefer that your family be spared having to decide for you, you can direct in a “living will” that, in case of brain death, life-support systems would be terminated. A medical power of attorney can designate a family member or friend to provide informed consent to necessary medical procedures if you are unable to do so.


Your Will, which should be updated every few years, should provide clearly for the disposition of your business.

Living Trust

Especially if your business owns interests in real estate, you might consider a “living trust” to create an opportunity for a “seamless” business succession and avoid the necessity of probate proceedings.

Lifetime Gifting Program

You should be taking advantage of the ability to make annual tax-free gifts of $11,000 per recipient ($22,000 for married couples). Such gifting can help you pass minority interests in your business to the younger generation while avoiding death taxes altogether.

“Value-Squeezing” Tools

You should be utilizing one or more of these tools – which include Family Limited Partnerships (FLPs), Family Limited Liability Companies (Family LLCs), Grantor Retained Annuity Trusts (GRATs), and Qualified Personal Residence Trusts (QPRTs) – to be able to “stretch” your ability to give more to your heirs on a tax-free or tax-favored basis, while still maintaining control of your business. These and similar tools can easily save many hundreds of thousands in taxes, and free your family from having to sell your business at distress prices just to pay the tax bill.

Life Insurance Trust (ILIT)

If you own your own life insurance policy, the death proceeds will be taxed as part of your estate. Instead, the policy should be held in an ILIT to ensure that all of the proceeds are available for your family or business, rather than the IRS. Many sophisticated estate and business succession plans are built principally around ILITs.

Buy-Sell Agreement

If you don’t want to see your hard-earned business end up in the hands of strangers (or competitors), you should have a buy-sell agreement in place. This is an agreement among all owners (including younger-generation minority interest owners) which provides protections against sales to outsiders, as well as “accidental” transfers via divorce, bankruptcy, or death.

Charitable Lead Trust (CLT)

This is the type of tax-savings trust used by Jackie O, but it certainly helps us ordinary mortals, too. It is a special form of “value-squeezing” tool, in which a charity is given an income interest for a set number of years. At the end of this term of years, the remaining assets in the CLT pass back to family members – at a hefty discount. The CLT saves taxes in several important ways: first, it creates an income tax deduction; second, the value for tax purposes of the property passing to the heirs is usually far lower than its actual value, creating a gift tax bargain; finally, appreciation on the CLT assets is not subject to death tax.


To supercharge the good results of a CLT, many smart business owners have created their own charity – a foundation, either in the family name or in the name of the business. The income stream from the CLT is “retained” in this foundation, where it can be used in your name to perform good deeds in the community. It can also provide paid employment, resume value, civic education, and social entrees for your children and grandchildren.

Charitable Remainder Trust (CRT)

If you are considering selling your business or other assets, but are leery of the capital gains tax hit you’ll be facing, consider selling it via a CRT. This is a “flip” of the CLT – you or your family receives an income stream for life (or for a set number of years), after which the remaining CRT assets pass to charity – ideally, to your own personal foundation. As CRTs don’t pay income tax, you can sell your business without paying any capital gains tax at the time of sale. In addition, the assets in the CRT are creditor-proof, and will not be part of your taxable estate. The frosting is that you also get a modest income tax deduction for your savvy planning.

IRS Circular 230 Disclosure: To the extent this message contains tax advice, the U.S. Treasury Department requires me to inform you that any such advice, whether in the body of the message or in any attachment, is not intended or written by my firm to be used, and cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. Advice from my firm relating to tax matters may not be used in promoting, marketing or recommending any entity, investment plan or arrangement to any taxpayer.

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