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Estate Planning Considerations for Business Owners

Following is an excerpt from MFA’s whitepaper, Strategies for Real Estate Company Growth & Opportunity

Regardless of whether your business’ succession plan includes a transition to another owner or an acquisition strategy, minimizing the tax burden for yourself and future generations should be a top priority. But with advanced planning and collaboration with a qualified estate planner, you can set up both yourself for a successful retirement as well as provide your family members with a financially secure future.

In recent years — and notably with a number of changes enacted through 2017’s Tax Cuts and Jobs Act — business owners have opened their eyes to flexible opportunities to transfer wealth without transferring tax liabilities. Some recent estate planning trends include:

  • Estate & Gift Tax Exemptions: Most broadly, the 2017 tax reform changes nearly doubled the transfer tax exemption; adjusted for inflation, the 2019 exemptions were $11.4 million per individual or $22.8 million per married couple.
  • Annual Gift-Giving ‘Program’: Under current tax laws, individuals can gift up to $15,000 per year without triggering a gift tax. Business owners with a long-term strategy can use this to their advantage, slowly gifting assets to younger generations to avoid unnecessary tax burdens.
  • QPRT & SLAT: While trusts, in general, are an extremely effective means of transferring wealth with a reduced tax impact, both the qualified personal residence trust (QPRT) and spousal lifetime access trust (SLAT) have supported tax-reduction strategies for individuals looking to remove traditional property or assets from a taxable estate.
  • Donor-Advised Funds for Charitable Donations: A donor-advised fund (DAF) allows individuals to make charitable contributions through a 501(c)(3) organization, receive an immediate tax deduction from the IRS, and recommend grants from the DAF over time. Contributions can grow tax-free within the DAF, and appreciated assets are not subject to capital gains taxes. Additionally, DAFs are not subject to estate taxes.

The key to estate planning is getting started early. Having a plan also means having time to enact it and take advantage of tax minimization strategies. The sooner you start, the more flexibility you’ll find in opportunities to plan for your future.

Planning Note: Consider developing and/or reviewing estate plans in tandem with succession plans. Naturally, as a business owner is invested in the company itself, it needs to be determined what income or value he/she will require from the business upon exiting. That determination may also impact how an owner sets up his/her estate and so on and so forth.

Reach out to the experts at MFA to understand the full breadth of opportunities for transferring wealth without transferring tax liabilities.

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