Do you have a family business that you would like to pass on to your children or beyond to future generations? Preserving your legacy and ensuring the continuity of your business can be challenging, especially when considering estate taxes. Here are some strategies that can help.

Estate Taxes and Business Continuity

Have you considered whether your family will be able to pay estate taxes at your death without liquidating the company’s assets? Without proper planning, your heirs might face the difficult decision of selling parts of the business or other valuable assets to cover these taxes. Estate planning with tools such as a dynasty trust or an irrevocable life insurance trust (ILIT) can safeguard your business and your family’s future.

Dynasty Trusts: Ensuring Long-Term Financial Security

A dynasty trust can put aside an asset for future generations while only impacting your present lifetime exemption. The asset can continue to grow free of estate taxes for generations to come if proper planning is done. Here’s how it works:

    • Protection from Creditors — Dynasty trust assets are shielded from creditors, lawsuits, and divorce settlements, ensuring they remain intact for future generations.
    • Family Governance — You can establish rules and guidelines for managing and distributing assets, fostering a legacy of responsible stewardship and financial education.
    • Tax Advantages — You can minimize the tax burden on your descendants by leveraging your lifetime exemption and other tax strategies.

Irrevocable Life Insurance Trusts: A Strategic Tax Solution

An ILIT can be utilized to hold a life insurance policy outside of your estate and can be a strategic way to pay estate taxes without owing additional taxes on the policy itself. Here’s how an ILIT benefits your estate plan:

    • Liquidity for Estate Taxes — The life insurance proceeds can provide the necessary liquidity to pay estate taxes, ensuring that your business and other assets are not sold.
    • Estate Tax Exclusion — Since the ILIT owns the life insurance policy, the death benefit is not included in your estate, thus avoiding additional estate taxes.

Take Action

Estate planning can be complex, especially when it involves a family business. However, taking proactive steps today can secure your legacy for tomorrow. Working with experienced professionals can help you navigate these challenges effectively.

At GBQ, we offer a personalized approach to crafting a plan tailored to your unique situation, empowering growth for future generations. To discuss whether these types of trusts or other estate planning strategies would benefit you, please contact your GBQ advisor.


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