Loyd Rawls

Common Estate Planning Pitfalls Impacting Business Succession Goals: Part III
March 6, 2008

Estate planning independent of succession planning can be the curse that keeps on cursing. Let’s continue to look as common estate planning activities that create succession planning problems and consider alternative solutions. Please note that the following are only suggestions and not advice, as everyone’s planning situation differs.

• “We have adopted an equitable asset distribution plan that provides specific bequests of non-business assets to those children who are not actively employed in the business, but we have not considered the apportionment or funding of estate taxation.”  

Potential Impact: Those children who will operate the business will have to carry the burden for payment of estate taxation.

Consider: Provide for apportionment of estate taxes so that the cost of taxation is applied to beneficiaries reflective of the value of assets received. When the division of assets complicates credit continuity, reconsider the merits of individual life insurance that can liberate specific assets from credit complications.

• “We have adopted an irrevocable trust to hold life insurance intended for payment of estate taxes, however, since the adoption of the irrevocable trust, the business has grown and the equitable allocation of our estate is now inconsistent with the ownership of the irrevocable trust.”

Potential Impact: The allocation of life insurance for funding of estate taxes will be inequitable.

Consider: Consider the use of an LLC to hold life insurance in lieu of the relatively inflexible irrevocable life insurance trust. With a Manager in lieu of a trustee, the LLC is a much more versatile structure. With agreement of the trust beneficiaries and court approval, an irrevocable trust could possibly be terminated and the prior beneficiaries, who would become the subsequent policy owners, could transfer the policy to an LLC.

I anticipate that these questions touched several sensitive issues. They have all impacted my clients in some form or fashion. Good intentions will not be an acceptable excuse for inadvertently creating significant problems that could restrain or even impede the continuity of your business through the next generation. 

Your succession planning is the underground power line of your family’s legacy. If you are Seeking Succession, think in terms of this estate planning warning, “Caution! Don’t Dig Here Without Reviewing Impact on Succession Plans!”

Posted by Loyd Rawls on March 6, 2008 | Comments (0)