Written By Adam Brooks
You’ve poured your heart, soul, and countless hours into building your business. Your level of accomplishment demands professional estate planning that aligns with the legacy you want to leave behind.
But amid the day-to-day pressures of leadership, have you fully addressed preserving your legacy? Most business owners haven’t thought through the factors that go beyond simply distributing assets after you’re gone.
In this article, I share some of the essential elements of a comprehensive estate plan, including business ownership considerations and tax-mitigation strategies.
Taxes to Consider: Navigating the Fiscal Landscape of Your Business Legacy
Estate taxes vary by state. If applicable for your state, the value of your company at the time of your death is included in your estate.
Therefore, it’s important to understand that there are certain thresholds for estate taxes. That means that your tax obligations can potentially increase as your company expands.
For example, one threshold states that until December 31, 2025, your estate must be valued at $13.9 million or more before it’s subjected to a federal estate tax. This underscores the urgency of proactive estate planning.
Here are some other things to keep in mind about your estate value and how it’s taxed:
- Your taxable estate includes the payout from a life insurance policy. Although insurance is typically exempt from income tax, any insurance you own is subject to estate tax.
- If you designate a charity to receive a percentage of your estate, your state conducts an appraisal to verify the charity receives the correct donation amount.
- Retirement account assets are often taxed in the future when the beneficiary takes withdrawals and are fully included in calculating your taxable estate, potentially leading to double taxation.
Estate planning and tax mitigation go hand in hand. Here are two examples of tax-mitigation strategies for business owners:
- Utilizing a trust. When a trustee transfers assets into an irrevocable trust, the assets are no longer part of the individual’s estate. As a result, the trustor’s entire estate is worth less. Lowering your total estate value also lowers your total estate tax.
- Utilizing a family limited partnership (FLP). An FLP allows multiple family members to purchase shares of the business. One objective of this strategy is to build wealth over time and support future generations through tax-free transfer of assets.
Key Estate Planning Consideration for Business Owners
In the absence of proper estate planning, the State is left to decide how your assets are distributed.
In these situations, ownership of the business is often acquired by a spouse or children. In reality, though, many business owners would prefer to transfer ownership of their company to a senior executive or co-owner who has a stake in it.
Because of this, many business owners draft a buy-sell agreement that predetermines the transfer of your company to a new owner. This keeps the company from unintentionally going to a family member.
Another typical situation is when a family member is not the most qualified to manage day-to-day operations but the business owner wants ownership to stay in the family. In this case, you can assign management duties to one person and declare ownership to another.
No matter your situation, the bottom line is that you want to feel confident that your business can continue to flourish even after you’re no longer at the helm.
Estate Planning With ABLE Financial Group
It’s not easy to verify your affairs are in order. But it’s a smart move to prioritize proper estate planning as it can help lower taxes, ease family stress, and provide confidence your business will continue to thrive.
At ABLE Financial Group, our team of CERTIFIED FINANCIAL PLANNER® professionals works with you and your legal professionals to build a comprehensive estate plan and strategy, balance your competing priorities with one another, and establish a tax-efficient strategy to preserve your legacy.
To learn more about our team and the ways we can help guide your estate planning, call 480.258.6104 or email adam@ablefinancialgroup.com today.
About Adam
Adam Brooks is Managing Director at ABLE Financial Group, a financial services practice that focuses on transition planning and simplifying the complexities of their clients’ wealth. As a CERTIFIED FINANCIAL PLANNER® practitioner, Adam has been guiding individuals, businesses, and non-profit organizations toward their financial goals since 1993. Co-founding ABLE Financial Group in 2006, Adam oversees the practice, working with business owner clients, primarily focusing on succession planning and mergers and acquisitions (M&As).
Adam obtained degrees in finance and accounting from the University of Arizona and holds the CFP® certification. Adam was recognized as one of Barron’s Top 1,200 Financial Advisors in 2021 and 2022, and was named a 2022 Forbes Best-in-State Wealth Advisor. Outside of his work as a financial advisor, Adam has taught a variety of courses at surrounding community colleges, including Successful Money Management Seminars and Rich Dad’s Cash Flow courses. Adam also previously hosted a radio show called The Truth About Money.
When not serving his clients, Adam actively serves his community in a variety of leadership positions. In 2011, Adam and co-founder Lee began funding the ABLE Financial Group Philanthropic Fund at the Jewish Community Foundation, allowing them to support some of their favorite organizations and causes today and into the future. Adam lives in Scottsdale with his wife, Cindy, their three sons, Jordan, Dylan, and Cameron, and their two dogs, Nelson and Sunny. Adam is active in his children’s lives, an avid cyclist, and enjoys local hikes with his family. To learn more about Adam, connect with him on LinkedIn.
