1. FAMILY BUSINESS
ESTATE PLANNING
Personal wealth, created over time, is a result of hard work, calculated risk and
insightful planning. These qualities comprise the foundation of an estate, and
provide security and opportunity for the estate owner’s family. The responsibility
of managing, and enhancing, an estate is very complicated, and stressful. The
estate owner must make trying personal decisions relating to the preservation,
and enhancement, of current wealth, as well as the transferance of wealth to
heirs. Financial, emotional and social pressures prove to be formidable
roadblocks in the decision-making process, and convolute the goals of the estate
owner. Tax strategies, gifting strategies, investment management and myriad
other wealth management issues require efficient, integrated estate planning
strategies. Resourceful estate owners realize the importance of securing
objective estate-planning experts when dealing with such important personal
decisions. A competent advisor can facilitate the needs assessment process,
identify planning techniques and create a customized estate plan designed to
realize the goals of the estate owner.
Estate owners invest substantial amounts of time and energy in creating their
estate, yet many do not have a completed estate plan. How will they cover estate
taxes, upon their death? Are they relying on a life insurance policy to cover such
taxes? Is it realistic to rely on this one asset to provide for estate tax liability
coverage? Are business valuation and successor transition plans current? Fleet
Capital advisers can provide the guidance, and support, that estate owners need,
when exploring these questions. Fleet estate planning experts realize the value
and integrity within every estate, and can secure the resources necessary to
create a customized estate plan strategy.
Personal vision. Commitment. Perseverance. These qualities constitute the
infrastructure of any estate. The realization of long-term personal and financial
goals, and the subsequent transfer of wealth to heirs, is often met by crippling
estate taxes. In order to preserve the financial integrity of an estate, creative tax
strategies must be implemented. A comprehensive estate plan is founded upon
the strategic use of Trusts. These estate-planning vehicles help to protect an
estate from tax liability, provide for an efficient transfer of wealth to heirs and
afford numerous other benefits for effective estate planning strategy.
The concept of a trust is rather simple, yet the complex legal, tax and financial
mechanisms that actuate a trust require the expertise of professional advisors.
Estates require individual, customized strategy plans, and, in light of this, estate
owners can choose from a number of different trusts.
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2. • Grantor Retained Annuity Trust (GRAT) – This trust allows the estate
owner to receive fixed annuity payments from a high-yielding, appreciating
property, with the intention of transferring the assets to designated
beneficiaries. The (GRAT) effectively minimizes gift, estate and death tax,
reduces probate costs and protects the asset(s) against the claims of
creditors.
• Qualified Personal Residence Trust (QPRT) - This trust allows the estate
owner to remove the value of a primary and/or secondary residence from the
estate, with the intention of transferring the residence to designated
beneficiaries. The estate owner retains the right to live in the residence for a
specified time period, which, upon lapsing, the residence is transferred to the
beneficiaries, or retained in trust for their benefit. The (QPRT) is an
irrevocable trust. The (QPRT) substantially reduces estate taxes, and allows
an estate owner to maintain control of their home.
• Defective Grantor Trust (DGT) - This trust allows the estate owner to retain
ownership of a trust, so as to realize income tax benefits, yet simultaneously
designate a trustee “subordinate” owner, so as to be excluded from gift and
estate tax liability. This intentional “defective” ownership permits the owner to
sell assets to a trust, effectively reducing the overall value of the estate. The
(DGT) effectuates the transfer of asset appreciation to children and/or
grandchildren, and preserves estate value.
• Irrevocable Life Insurance Trust (ILIT) - This trust allows the estate owner
to designate the trust as a separate legal entity for the purpose of maintaining
cash and life-insurance policies. A trustee is appointed to oversee the
property for beneficiaries, and to purchase new policies if cash is transferred
to the trust. The (ILIT) effectively reduces estate tax liability.
• Generation Skipping Trust (GST) - This trust allows the estate owner to
protect assets, distributed over successive generations, from repeated
transfer taxation. An estate owner often ‘skips’ a generation, and designates
the grandchildren as primary beneficiaries, effectively eliminating one
generation of estate tax liability. The (GST) facilitates long-term estate
preservation by suspending transfer tax for as long as the assets remain in
the trust.
• Charitable Remainder Trust (CRT) - This trust allows the estate owner to
gift assets to a charitable organization of their choice, while retaining the
income from the assets. Investment and re-investment, within the trust,
creates significant income over the course of the estate owner’s lifetime. The
(CRT) is an irrevocable trust. The (CRT) yields multiple benefits for the
estate owner, such as minimizing estate and capital gains tax, as well as
providing for philanthropic expression and preserving the value of the estate
for the beneficiaries.
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3. As part of an estate planning strategy, trust funds provide extensive benefits for
the estate owner. Primarily, they re-enforce the goal of protecting estate assets
from excessive taxation, and ensure the efficient transfer of wealth to designated
beneficiaries.
Estate planning experts realize the importance of exploring strategic options with
an estate owner. Utilizing multiple financial options, within a strategy plan,
creates the asset protection that is a primary need for all estate owners. The goal
of preserving, enhancing and transferring wealth can be realized within the
unique structure of an active business entity. These specifically designed
businesses effectively reduce tax liability, and are governed by liberal
regulations, designed to protect the assets of an estate owner.
Two of these estate-planning business entity options are as follows:
• Family Limited Partnership (FLP) - This option creates a partnership
through which members of an extended family can hold, and transfer assets.
A written partnership agreement sets forth the rights and obligations of the
partners, and establishes general partners, who oversee the daily affairs of
the partnership. These partnerships allow family members to customize
internal management, based on their specific needs, providing for centralized
asset management. The (FLP) successfully reduces income, gift, estate and
generation-skipping tax liability.
• Limited Liability Company (LLC) - This option creates a hybrid company,
combining the personal liability protection of a corporation, with the flexible
management and equity structure of a partnership. The (LLC) is not taxed as
an entity; effectively eliminating double taxation as all profit and loss is
passed through to individual members. The (LLC) serves to ensure limited
liability for its members, and to minimize tax liability.
In essence, an estate owner’s primary need is to preserve the integrity and value
of the estate they have created. The legacy of an estate owner is infused with
commitment, perseverance and a vested belief in the well being of future
generations. These values comprise the foundation upon which personal wealth
is created. Preserving, enhancing and transferring this wealth to future
generations is a formidable challenge for an estate owner, and requires the
expertise of an estate planner to simplify a very complex process. With the help
of a competent advisor, estate owners needs are identified, customized
strategies developed and integrated solutions implemented. Within an estate, the
family is the most valuable asset. Estate planning re-enforces the value of the
family by preserving and enhancing current wealth, and providing the opportunity
for future generations to carry on the family values of hard work, perseverance
and a belief in the well being of generations to come.
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