For many business owners and executives, the thought of a life’s work being dismantled by red tape is a big concern. Without a clear strategy in place, the state steps in to decide the fate of a company and personal possessions. This lack of direction can lead to agonizing delays, unnecessary taxes, and the risk of assets landing in the hands of the wrong people.
Effective estate planning removes that uncertainty. By documenting specific wishes through a will or trust, the power stays with the person who built the legacy, not a government office. It provides a clear path for asset distribution, helps reduce the tax burden on heirs, and identifies the right guardians for children.
While designating beneficiaries and tax strategies are high-level concepts, the verbiage used throughout estate planning can create confusion if you don’t take the time to educate yourself. Here are a few common terms and definitions.
Power of attorney: A POA will act as an agent and make decisions on your behalf. You may want a healthcare power of attorney to make medical-related decisions when you’re unable. You can also appoint a financial power of attorney to make financial and business-related decisions.
While appointing a power of attorney to help oversee business decisions can be an important step, a POA does not automatically transfer ownership interests or succession rights. That is why wills, trusts, and buy-sell agreements are often critical components of a broader estate and business succession plan.
Trust: A trust is a relationship between a trustor (or grantor), trustee, and beneficiary. The grantor puts assets into the trust and the trustee manages and oversees the assets. The trustee is obligated to act in a fiduciary manner. The primary goals of a trust are the efficient transfer of assets to beneficiaries and, in some cases, minimizing taxes.
Will: A will communicates an individual’s wishes and aids in dispersing assets to beneficiaries upon their passing. There are varying forms and purposes for wills.
Estate: An estate is a sum of all wealth, assets, and property.
As a business owner, your estate will include the value of your business at the time of your passing. Estate taxes vary by state; if an estate tax applies, the sum of your estate includes the value of your business.
It’s important to understand that estate taxes come with thresholds. As your business grows, the tax implications may increase. Federal estate tax exemptions are historically high, though they are subject to future legislative changes. Some states also impose separate estate taxes with significantly lower exemption thresholds.
When it comes to your estate value, here are other points to remember:
Minimizing taxes and estate planning go hand in hand. To get your wheels turning, here are two examples of tax-minimizing options for business owners:
Without proper planning, state law and probate courts may determine how assets are distributed. In this instance, ownership of the business often falls into the hands of a spouse or children. In reality, many want to pass their business on to a high-level executive or co-owner with an interest in the business.
For this reason, many prepare a buy-sell agreement, which predetermines the passing of your business on to a new owner. This helps avoid the business inadvertently falling to a family member.
Executives often receive compensation in forms other than a paycheck. This means the terms of the agreement need to be clear and regularly reviewed. Businesses and relationships evolve; you want your buy-sell agreement to remain fair and current.
Another common scenario is when a business owner wants ownership to remain within the family, but the family member is not best suited to handle day-to-day operations. In this instance, you can declare ownership to one individual and management responsibilities to another.
You put countless hours and resources into your business, so it needs to live on in a manner that best honors you. Whatever the situation may be, you want to have confidence that you’re setting up future operations for success.
Getting your affairs in order is no small feat. However, proper estate planning helps reduce taxes and stress, saving time for the family members or business partners who handle the paperwork. It’s the difference between leaving behind a complex puzzle and providing a clear blueprint for the people who matter most.
At Wealth Advocate Group, our services go beyond basic wealth management or retirement plans. Helping families navigate the intersection of personal wealth, business ownership, and long-term legacy planning is a central focus of our work. This perspective guides the process to build a plan that covers the person, the family, and the business as a single, cohesive picture.
Reach out to us at Contact@Wadvocate.com or 440-505-5578 to schedule an introductory consultation. We look forward to speaking with you!
John Brown, CFP®, is a wealth advisor at Wealth Advocate Group, LLC, who leverages over a decade of financial experience and an accounting background to serve senior executives. He specializes in managing the complexities of concentrated securities and restricted stock strategies, helping his clients navigate the associated tax and risk burdens with confidence. With a thorough, detail-oriented approach, John provides sophisticated guidance to address every piece of a client’s financial picture and keeps them on the path toward their long-term goals.
Securities offered through LPL Financial, Member FINRA & SIPC. Investment advice offered through Stratos Wealth Partners, a registered Investment Advisor. Stratos Wealth Partners and Wealth Advocate Group LLC are separate entities from LPL Financial.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
When you link to any of the websites mentioned, we make no representation as to the completeness or accuracy of information provided at these websites. The opinions found therein are those of the author(s) of the article or website.
