The State of Your Estate

Planning to pass on ownership:

The equity in a privately held business is usually the largest asset in the owner’s personal estate, and many owners fail to maintain and update documents that coordinate the business with their personal financial plans; make sure that doesn’t happen to you.

Legal documents such as wills and trusts exist to protect a surviving spouse, create equity among children, assist with the transfer of business ownership and minimize taxes. Remember Congress has effectively outdated the U.S. Tax Code every 19 months on average since it was established in 1939. So, vigilance is the best protection you can offer your survivors from the tax vultures.

Your business grows and changes, and perhaps your relationships with potential heirs improve or deteriorate. So, review and revise documents every couple of years to reflect your wishes. Will your wealth go to heirs (those you know and have chosen), charities (strangers who deserve your gifts) or the government (strangers you have not chosen)? Is there sufficient cash available for immediate expenses and the minimal taxes for which you have planned?

Your estate plan must be coordinated with business documents, such as a current valuation that includes your equity share and buy-sell agreements that include current stock values. A family business continuation agreement ensures your heirs and employees understand their future places as well as how equity will either be maintained in the company or distributed. An emergency plan should be in place to assist everyone if you die before the intended transfers of control can be completed.

Your will reflects your intentions. Since three quarters of U.S. citizens die intestate (without a will), including former Supreme Court Chief Justice Warren Burger, make sure yours is current, correct and signed. Unless you enjoy the idea of potential heirs fighting and suing each other, detail not only who gets what, but how and when. If your youngest child is a profligate neer-do-well, you may structure a trust with limited access to funds. If your niece covets the Persian carpet in your study, and would treasure it as you do, list the gift specifically. If your current spouse has children from a previous marriage, reflect your wishes accordingly.

Trusts provide a way to avoid many probate court issues, but not all attorneys are trust experts. Relying on a poorly structured trust is tantamount to having no trust at all and can cause anguish to your heirs at an already stressful time, so make sure any trusts are prepared by a specialist in this area. The effects of different types of trusts vary with regard to factors such as premature death of the grantor and the timing of asset transfer.

Insurance is another vehicle for minimizing the impact of both courts and taxes during the transfer of your assets. Insurance policies also offer a reliable way to provide cash flow to your heirs, as well as your business, during transitions. What they don’t provide is immediate cash during the first few weeks, and bank employees are trained to watch obituaries and restrict access to accounts and safe deposit boxes. Never open an account without a joint signatory, and never keep anything in a safe deposit box without a backup copy, unless you want your survivors to be rushing to the bank before your obituary hits the newspapers.

There are several major strategies used to miminize the tax impact of wealth transfer. First, you must separate ownership from control. If you try to keep control over too many assets, instead of designating beneficiaries at arm’s length, the trusts and insurance policies won’t do what you want them to do. Be careful about using revocable trusts, for example. Once you establish a beneficiary, don’t try to control the assets, or you risk undoing the protection you are trying to provide your heirs.

Leveraging and gifting are other ways to ensure minimal taxation and proper transfer. With gifting, you simply siphon off assets each year, staying below the maximum in the tax statutes. Leveraging relates to using the channel to transfer money that allows for the most protection from taxes. Your professional financial planners, accountants and attorneys can help you select the most effective trusts, insurance products or other investments.

Powers of attorney often are overlooked, but critical to ensure people you trust are making legal decisions. Also, provide a channel to change professional advisers or trustees. Unfortunately, attorneys, trustees, bankers, accountants and other advisers are not immune to the temptation to become predators instead of protectors. Also, make sure any impact on subsequent generations is included in your plans, or your grandchildren may suffer.

Planning for your own demise is a frustrating, frightening process that never seems finished, but you can take comfort in these reminders. Tax avoidance is legal—it is not the same thing as tax evasion, unless you don’t plan properly. Your best efforts at fairness may not please your heirs, but you won’t have to be there to hear the complaining. Most important, you have done the best you can.           EC

NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached via e-mail at



About the Author

Denise Norberg-Johnson

Financial Columnist
Denise Norberg-Johnson is a former subcontractor and past president of two national construction associations. She may be reached at .

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