Exit Planning: The 3 Stages of Estate and Tax Planning for Business Owners.

We are about to tie up our 3-day miniseries on the first three initiatives for a business owner’s personal readiness:

1. Written Personal Plan
2. Personal Financial Plan
3. Estate and Tax Plan

Today, we will look at three major stages of Estate and Tax Planning. Regardless of where you are in the process, you will almost certainly find a few actionable items to implement immediately.

 I. Stabilize

1. Review and update all beneficiary designations, including contingent beneficiaries. You might be surprised how often this is left undone or outdated by several decades. It takes very little effort, and the future headaches avoided are well worth it.
2. Update wills, trusts, living wills, powers of attorney, successor trustees and trusted contacts. Like the last item, this is low-hanging fruit, and even if you don’t know exactly how you want everything to flow at the end of your life, getting your basic documents in order is a must. 
3. Make sure life insurance and disability insurance are in place, both for your family and to protect the business.
4. Educated all stakeholders – guardians, successor trustees, senior leadership team – of their roles in your contingency planning.
5. Audit your inventory of assets, including real estate, investments, and all personal property. This will help make sure nothing is overlooked in your planning.
6. Schedule and conduct regular reviews of everything in this stage with the relevant professionals.

II. Optimize

1. Begin educating yourself on business exit strategies: internal vs. external sale, recapitalization options, potential proceeds, and tax implications of each strategy.
2. Know where you land, either below or above the estate tax exemption (both under the TCJA levels, and after they potentially expire in 2026). Ask your advisor and tax strategist for ways to mitigate estate tax.
3. Optimize charitable giving through strategic use of Donor Advised Funds, Qualified Charitable Distributions, or other means if applicable. Again, this is where your team needs to be bringing you the ideas that specifically apply to your situation, and helping you evaluate which ones are the most optimal.
4. Begin family wealth conversations thoughtfully, helping heirs understand their role in helping steward family wealth.
5. Talk to your estate planning team about advanced tax strategies. These may include Grantor Retained Annuity Trusts (GRATs), irrevocable life insurance trusts (ILITs), or a host of other strategies.
6. Review and optimize your retirement plan. As the business owner, you need to be fully aware of all of the ways that qualified plans can accelerate your growth and potential exit, all while optimizing for lower taxes.
7. Direct your financial advisor team to conduct an audit of your long term care needs. This is a very inexpensive way to protect your estate from getting eaten up by high long term care costs later in life.

III. Maximize

1. Develop a succession plan. This should include catastrophic succession, as well as measured and intentional succession.
2. Focus your growth and exit planning around the type of sale you want to prepare for, even if you don’t plan to exit soon. If internal, continue mentoring key employees or family members to succeed you in the business. Build a team.
3. Find capital partners so that your own personal wealth is not needed to collateralize business growth initiatives after you exit.
4. If selling outside, consider a) what skills and knowledge you need, and b) who can help with the research and vetting of strategic partners.
5. Invest in post-sale windfall planning. Take the necessary time to plan how you want to manage and invest the proceeds from a potential sale.

Final Thoughts

Estate and tax planning can be complicated and intimidating, but it doesn’t have to be this way. Our best advice for the whole process is to engage a high-level team of professionals, a team that can be trusted to ask the questions you don’t know to ask to help you get the answers you didn’t know you needed. When done properly, this can help you achieve outcomes that you didn’t know were possible.

We hope you have enjoyed this miniseries about personal readiness inside of our larger examination of business growth and exit. If these topics have been engaging for you, chances are they might be helpful for someone else that you know. We invite you to share these with them.

Looking forward to seeing you tomorrow!