United States: Legacy Planning Starts Now

Don't let uncertainty over estate tax repeal become one more reason to delay focusing on framing the legacy you want to leave for your family and your business. Instead, view legacy planning as an ongoing process that could become critically important at any time. Having a well-designed plan will exponentially increase the likelihood of achieving your goals. Remember: only one in four businesses survives to the second generation, and only one in ten businesses are successfully transitioned to the third.

Establish goals and objectives: create a legacy plan.

  • Your plan doesn't need to be perfect; it may change over time. What's most important is to get a plan in place.
  • You may need to have a longer term plan (such as transitioning your business to one or more of your children or readying your company for sale at top value) and a contingency plan to bridge the gap between an untimely death or disability and your ultimate succession goal.
  • Consider the difference between ownership and management. You may want your family to continue to own the business, but outside management may be essential if the business is to succeed.

Incorporate a business continuity plan.

  • Your business is vulnerable if you are suddenly incapacitated or die. Death or disability should trigger a plan that addresses who has the power to vote the stock and details interim or successor executive leadership.
  • A gradual transfer of responsibilities to a successor is optimal. If your successor is a family member, make sure they receive the training and education they need to succeed. If your successor is an employee, make sure you properly incentivize that employee and other key management to stay with your business through deferred compensation plans, stock options or phantom stock and employment agreements.
  • If you don't have detailed powers of attorney naming an agent to act for you in the case of a long-term or short term disability, you should. Consider whether the agent you name for non-business decisions is appropriate to be your agent for business matters.
  • Consider the important role that a Board or advisory Board can play in the event of a disability or sudden death.

Determine your personal needs for cash flow and access to capital.

  • Create liquidity outside your business and diversify your wealth.
  • Consider having your business appraised to ensure that you are not over or under estimating its value.
  • Separate business real estate from the operating company to add flexibility for retention of cash flow from the real estate, or value for children who you determine should not own interests in the operating company.
  • Consider deferred compensation arrangements to provide cash flow after retirement and transfer of business interests to the next generation

Execute an estate plan which implements your wealth distribution wishes.

  • Consider how your personal and business wealth should be distributed. This plan can and should be reviewed and changed over time.
  • Important decisions include:
    • Determining beneficiaries and the limitations/protections to be provided.
    • Identification of Fiduciaries (Trustees/Personal Representatives/Agents/Directed Parties/Trust Protectors).
  • Consider how to equitably treat active and inactive children in the business.
  • A funded buy-sell agreement can provide a ready buyer for a family that does not wish to continue to have its wealth deployed in the business.
  • Consider liquidity needs.

Consider how estate taxes may disrupt your wishes.

  • Each spouse currently has an exemption of $5.49 million. Over and above the exemption, the rate is a flat 40%.
  • Is repeal likely? Although President Trump and the Republican-controlled Congress seem unified in their wish to repeal the estate tax, there are significant obstacles to doing so. Not having a 60 vote majority means either:
    • Working with Democrats to pick up votes; or
    • The legislation will be subject to reconciliation so that any tax cuts must be offset by cuts in spending—this makes permanent repeal difficult to achieve.
  • Even if a repeal happens, there is much uncertainty regarding:
    • When?
    • For how long?
    • What about the gift tax?
    • What about the impact on "step up" in basis?

Plan for the possible impact of estate taxes.

  • Look to insurance as a short or long term solution.
  • Be aware of statutory requirements that trigger the ability to use IRC section 6166 to pay estate tax over installments, and IRC section 303 which provide for tax-free redemptions for estate tax payments.
  • Opt to separate high growth lines of the business into separate structures with ownership in the next generation to avoid compounding estate tax issues.
  • Consider annual exclusion and medical/educational transfers without use of exemption.

Explore the possibility of large, irrevocable transfers.

  • If you are willing to transfer value but not control, consider separating value from control through a stock recapitalization agreement.
  • Consider shareholder agreements to protect the business from transfers to outsiders.
  • Understand the power of valuation discounts for lack of control/minority interest and lack of marketability.
  • Understand the power of leverage and current low interest rates.
  • Consider estate "freeze" techniques such as installment sales to intentionally defective grantor trusts ("IDGTS") and grantor retained annuity trusts ("GRATS") which can
    freeze the value of your taxable estate while providing cash flow after the business interests are transferred.
  • Understand how your charitable objectives can assist in cutting your estate tax burden.

Use irrevocable structures (LLCs/FLPs/Trusts) to hold wealth.

  • These structures can be both irrevocable, which will allow you to move growth outside your taxable estate and the reach of your creditors, and flexible, so that if circumstances change, there is access to the transferred assets. Consider the use of:
    • Trustees and Directed Parties.
    • Voting Trusts.
    • Trust Protectors.
    • Grantor trust planning, including incorporating the flexibility to "turn off" grantor trust treatment.
    • Multi-generational planning through application of the generation skipping transfer ("GST") tax exemption—give your business the best chance of continuing past your children's generation.
    • Spousal Access Trusts that can provide continued access to trust assets and exclusion from the estate for tax purposes and protection from creditors.
  • Consider "two-track" planning that functions differently depending on whether or not an estate tax exists at the time of you death.
  • For existing structures, consider modification, decanting and other tools available under Wisconsin's new Trust Code.

Build in protection for your legacy.

  • Use detailed provisions in your trust documents to protect from:
    • Estate taxes otherwise applied at each transfer.
    • Your beneficiary's creditors.
    • Ramifications of divorce.
    • Costly will and trust disputes and other litigation.
    • Issues with drugs/alcohol/too much wealth.

Review and Refine your plan routinely.

  • Changes in tax and other laws, the profitability of your business, your management team and in family dynamics can throw a wrench into a well-crafted plan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions