Maximizing Tax Efficiency Through Estate & Business Succession Planning

Estate and business succession planning are two closely related areas of law that can both serve similar purposes. One reason that individuals, families, and small business owners choose to avail themselves of planning is to minimize taxes. If you’ve never created an estate or succession plan or it’s been a while since you’ve updated yours, the time to do so is now. The Estates & Trusts team at Seder and Chandler has a number of tools to save more of your hard-earned money for yourself and your family.

Tax-Efficient Planning for Estates

Estate taxes are levied at the state and federal levels on estates whose assets exceed a certain threshold. Having a carefully designed estate plan in place can achieve tax savings along with other goals. These are some strategies our estate planning attorneys can review with you:

Lifetime gifting and charitable giving

Giving gifts to your beneficiaries while you are alive, known as lifetime gifting, can lower the total value of your estate once you pass on. This, in turn, results in estate tax savings. The annual gift tax exclusion ($18,000 per recipient as of 2024) allows an individual to make gifts of a certain amount each year to recipients without needing to file a gift tax return. Married couples can also engage in gift-splitting if necessary. Lifetime gifting is beneficial in other ways too, such as possibly reducing your personal income tax liability.

Charitable giving is another way to reduce one’s tax consequences. Not only can the donor potentially reap tax benefits, but they can support charitable causes that align with their values. There is also the option to create a charitable foundation which can perpetuate one’s legacy. Our experienced

lawyers can advise you as to the tax benefits of charitable donations as part of your estate plan or lifetime giving.

Establishing trusts

Trusts come in many shapes and sizes, and can be utilized to not only support beneficiaries but also effectuate positive estate tax results. With a trust, a separate legal entity is set up and assets are transferred to it. A trustee manages these assets in the beneficiaries’ interests. Two specific types of trusts are commonly used because of their tax benefits: irrevocable trusts and charitable remainder trusts. It is best to retain the services of an attorney who can help you determine the best structure for your particular situation.

Use the marital deduction

The marital deduction allows an individual to transfer an unlimited amount of assets to his or her spouse upon death without incurring estate taxes. This allows one spouse to effectively defer estate taxes until the passing of the surviving spouse. It’s important to note that in certain situations, this could either increase or decrease the total taxes paid. Combined with other tools like those discussed here, wise use of the unlimited marital deduction can have substantial savings.

What To Know About Business Succession Planning

Whereas estate plans protect individuals and their families, business succession planning protects their closely held family businesses. A business succession plan is a comprehensive strategy designed to ensure not only the continued operation of a business after the passing of an owner but also protect assets from foreseeable tax liabilities.

Every small business is different, with its own unique legal structure and operation. Discussing your goals with an estate planning attorney is a great way to protect your assets from both taxing authorities and creditors. Some possible tactics your lawyer may recommend include:

  • Restructuring: This means reorganizing your business as a different legal entity (e.g. from an LLC to a corporation) and reaping the tax benefits of that new structure.
  • Family share transfers: Giving the shares of your family business to your children can help save on income taxes.
  • Buy-sell agreements: If done properly, executing a buy-sell agreement to transfer one’s interest in a business can not only minimize liability in general but also reduce negative tax implications. It can also help structure ownership of the business for the next generation.

We’re Here to Advise Your Family and Business

Taken together, estate planning and business succession planning can increase tax efficiency while accomplishing other goals such as supporting your loved ones and protecting the legacy of your family business. Seder and Chandler’s estate planning attorneys are ready to take a look at your specific goals and then devise a strategy to achieve them. Connect with us today to get started.