Your Guide to Estate Planning and Business Succession

Planning for the future isn’t just about protecting your wealth - it’s about ensuring your family and business thrive for generations to come. Estate and business succession planning helps you safeguard assets, minimize tax burdens, and create a clear roadmap for transferring ownership when the time comes. Whether you’re a business owner preparing for retirement or looking to preserve your legacy, proactive planning today can prevent costly disputes and provide peace of mind tomorrow.

Why Create an Estate Plan?

An estate plan is more than a legal document - it’s a roadmap for protecting your assets and ensuring your wishes are honored. Without a plan, your family could face unnecessary stress, costly probate proceedings, and potential disputes over property and business interests. A well-structured estate plan helps minimize taxes, safeguard wealth, and provide clarity on how your assets will be distributed. It also ensures continuity for your business and peace of mind for your loved ones, knowing everything is organized and secure.

Proper estate planning can:

• Ensure financial security for you and your family during your lifetime and after your death.
• Make certain your estate is passed on – intact – to your heirs and according to your wishes.
• Reduce or eliminate taxes, administrative expenses, and delays in connection with the transfer of your estate.
• Provide liquidity to cover taxes, debts, and expenses you may owe.
• Provide the peace of mind that comes with knowing steps have been taken to protect the people who depend on you and everything you’ve worked a lifetime to build.

Without an estate plan:

• State law will determine who inherits your assets — even if it means they pass to distant relatives or to children who lack the maturity to properly care for them.
• The court appoints administrators whose management style and priorities may not be compatible with your desires.
• You may pay unnecessary taxes and expenses.
• The court appoints a guardian for your children.
• Your family could be forced to sell your assets at less than market value to pay the estate taxes you owe.

Wealth Transfer Costs Without an Estate Plan

Without an estate plan, there can be additional or unnecessary costs associated with transferring wealth:

Professional Fees and Probate Costs

Legal fees, accounting fees, and probate costs can deplete your estate, particularly if your estate is contested amongst heirs (as may be the case in an intestacy situation, where there is no valid will or binding declaration).

Income Taxes

Most assets receive a step-up in basis at death. Please note, some qualified accounts (IRAs, 401(k)s, for example), and annuities are subject to ordinary income tax after death.

Gift and Estate Taxes

For individuals with substantial wealth, federal estate taxes can significantly impact the value passed on to heirs. Each person subject to the estate tax has a lifetime exemption, which allows them to transfer a certain amount of property—during life or at death—without incurring gift or estate taxes. Transfers exceeding this exemption are taxed at a 40% rate.

Under the Tax Cuts and Jobs Act of 2017, the lifetime exemption was temporarily increased from $5 million (indexed for inflation) to $10 million (indexed). For 2025, the exemption is $13.61 million per individual (or $27.22 million for married couples). However, this increase is scheduled to sunset after December 31, 2025, reverting to approximately $6–$7 million per person (adjusted for inflation from 2011–2025).

State Estate and Inheritance Taxes

In addition to federal estate taxes, many states impose their own estate or inheritance taxes. Currently, 12 states and the District of Columbia levy an estate tax, and six states impose an inheritance tax (some states have both). Rates can reach up to 20%, depending on the state, the size of the estate, and the beneficiary’s relationship to the decedent.

Unlike the federal exemption of $13.61 million in 2025, state exemptions are often much lower—some as low as $1 million. This means individuals with significant assets could face substantial state-level taxes even if they are below the federal threshold. Because rules vary widely by state, it’s critical to review your state’s laws and plan accordingly to minimize tax exposure.

Generation-Skipping Transfer Tax

In addition to gift and estate taxes, another tax to consider is the generation-skipping transfer (GST) tax, which imposes a tax on transfers to persons two or more generations below the transferor (“skip-persons”), including transfers from grandparents directly to grandchildren.

The GST tax also affects transfers to, and distributions from, certain trusts. Similar to the lifetime exemption, a GST tax exemption exists to shelter transfers to skip-persons from tax. For 2025, the GST tax exemption is $13.61 million per individual (indexed for inflation), matching the federal estate and gift tax exemption. Transfers exceeding this exemption are taxed at a flat 40% rate. However, this increased exemption is scheduled to sunset after December 31, 2025, reverting to approximately $6–$7 million per person (adjusted for inflation

Basic Estate Planning Tools

An effective estate plan does more than minimize taxes - it ensures your wishes are honored and your loved ones are protected. These tools help reduce transfer costs, maintain liquidity, and provide clear instructions for managing your assets.

Last Will and Testament

Your will outlines who inherits your assets and appoints an executor to manage your estate. Without a will, state law decides how property is distributed. A will can also name guardians for minor children. Keep in mind, assets with joint ownership or beneficiary designations (like life insurance or retirement accounts) typically bypass the will and probate process.

Durable Power of Attorney

This document authorizes someone you trust to handle financial and legal matters if you’re unable to do so. It avoids the need for court-appointed guardianship and offers significant privacy and cost benefits.

Revocable Trust

A revocable (or “living”) trust lets you manage and distribute assets during your lifetime and after death while avoiding probate. It offers flexibility, privacy, and control over how and when beneficiaries receive assets.

Irrevocable Trust

Unlike a revocable trust, an irrevocable trust cannot be changed once established. Assets transferred to it are removed from your taxable estate, providing potential estate tax savings. Additional benefits include privacy, creditor protection, and long-term control over asset distribution.

Irrevocable Life Insurance Trusts

An irrevocable life insurance trust (ILIT) is an irrevocable trust that contains provisions specifically designed to facilitate the ownership of one or more life insurance policies. The ILIT is both the owner and the beneficiary of the life insurance policies, typically insuring the life of the grantor. If the trust is structured and managed properly, the life insurance death benefit received by the ILIT will not be subject to income tax or estate tax. An ILIT can help:

• Provide cash for your beneficiaries, usually free of income and estate taxes, to pay estate taxes and other transfer costs
• Create a pool of assets to increase your beneficiaries’ total inheritance
• Protect the trust assets from your beneficiaries’ creditors
• Provide for the effective management of assets after your death
• Take advantage of the annual gift tax exclusion
• Effectively leverage your GST tax exemption
• Provide liquidity for estate equalization among heirs, especially when the estate is made up of assets that may be hard to divide, such as business interests, real estate, art, or other collectibles

The trustee of an ILIT can generally be anyone other than the insured, although naming an “independent trustee” may offer greater flexibility for distribution of trust assets. If a trust beneficiary is also a trustee, distributions should generally be subject to an “ascertainable standard” such as health, education, maintenance, or support.

Adding Flexibility and Longevity to Irrevocable Trusts

Dynasty Trusts

A dynasty trust is a long-term trust created to maximize the transfer of wealth from generation to generation while minimizing (or eliminating) the impact of the GST tax and estate tax. To minimize or eliminate continual exposure to estate and GST tax, a dynasty trust generally provides beneficiaries with access to the trust assets (such as for health, education, maintenance, and support) with no set date for termination. Accordingly, dynasty trusts are meant to last for as many generations as is allowed under state law.6 (See page 4 for more information on the GST tax.)

Spousal Lifetime Access Trusts

A spousal lifetime access trust (SLAT) is a type of ILIT that names the grantor’s spouse as a beneficiary of the trust, thus providing the spouse with access to trust assets, including life insurance cash value if applicable. If drafted and administered properly, an ILIT with SLAT language will not cause inclusion in either spouse’s estate. ILITs with SLAT provisions provide an enhanced level of control and flexibility over the assets because the trustee can make distributions to the spouse should the spouse need access to the trust funds in the future.

A SLAT can be set up using either a single life or a survivorship life insurance policy. It can be a good way to supplement retirement income or provide emergency cash while getting the benefits of owning life insurance inside an irrevocable trust. A SLAT can also be a way to hedge against the possibility of tax law changes by providing financial security for your family through the ILIT, as well as offering increased flexibility and indirect access to trust assets.

Grantor Trusts

A grantor trust – also commonly referred to as an “intentionally defective grantor trust” (IDGT) – is a type of irrevocable trust that contains certain provisions or powers that cause the grantor of the trust to be treated as the owner of the trust assets, but only for income tax purposes. For estate tax purposes, assets held inside the trust remain outside of the grantor’s taxable estate. Consequently, the trust is referred to as being “defective” because the grantor must pay all income taxes associated with trust assets even though the grantor does not actually own these assets or control them.

A grantor trust, in addition to owning life insurance, can also own income-producing assets such as stock or real estate. The income generated by the assets will be taxed at the grantor’s income tax rate, which is typically lower than the trust’s income tax rate. Moreover, because the trust income is attributed to the grantor individually, rather than to the trust, no trust assets need to be spent to pay income taxes, which can allow them to grow more rapidly inside of the trust.

Additional Estate Planning Options

Family Limited Partnerships

You can use a family limited partnership (FLP) or a limited liability company (LLC) to consolidate ownership and management of family assets and shift income or appreciation to other family members. These entities allow parents to make discounted gifts of limited partnership interests to children and grandchildren, or to trusts for their benefit, without surrendering control of a business or property. 

Grantor Retained Annuity Trusts

A grantor retained annuity trust (GRAT) is a sophisticated estate planning tool that can help you reduce or avoid gift and estate taxes on certain assets. A GRAT is an irrevocable trust into which you transfer assets, such as stocks, to an irrevocable trust and retain a right to receive an annual annuity payment from the trust. The annuity payment is calculated using an interest rate determined monthly by the IRS known as the 7520 rate. At the end of the trust term, all other assets and any appreciation on those assets remain in the trust for the benefit of the trust beneficiaries.

With a GRAT, because you have retained an interest in the trust assets, there may be a substantial gift tax discount on the original transfer to the trust. Any appreciation on the trust assets that occurs during the trust term will also pass to the beneficiaries, free of additional estate or gift tax. However, if you die during the term of the GRAT, its value will be included in your gross estate for estate tax purposes. Life insurance can help offset this potential increase in estate tax.

Qualified Personal Residence Trust

Qualified personal residence trusts (QPRTs) function similarly to GRATs, except that the asset you transfer into the trust is a qualifying personal residence or vacation home. You retain the right to live in the residence for a specific number of years. If you survive the trust term, the ownership of the residence passes to your beneficiaries at the end of the term, free of additional gift or estate tax. Note: The QPRT may be drafted to permit the grantor to continue to occupy the property after the term of the trust expires in return for payments of market rent to the QPRT.

Similar to a GRAT, a gift tax discount on the original transfer to the trust may be available. If you outlive the QPRT term, the residence and all appreciation will pass to the trust beneficiaries free of additional estate or gift tax.

Private Loan to a Trust

In lieu of making gifts to a trust, entering into a private finance arrangement with your ILIT can be an efficient way to fund an irrevocable trust using little to no gifting. Under a private financing arrangement, you loan cash to your trust in exchange for a promissory note with interest charged at or above the applicable federal rate (AFR). Your ILIT trustee can then use the borrowed funds to purchase life insurance or other assets in the trust as well as repay the interest due on the note. At the end of the loan term, the trust repays the debt using assets held in the trust and all remaining assets will be retained in the trust and appreciate out of your taxable estate.

Sale to an Intentionally Defective Grantor Trust

Another effective technique to remove assets from your estate using minimal gifting is by selling an asset to an intentionally defective grantor trust (IDGT). In this technique, you will make an initial “seed” gift to an irrevocable trust with grantor trust provisions (usually the gift is at least 10% of the value of the assets that will be sold). Afterwards, you will then sell assets to the trust in exchange for a promissory note bearing an interest rate at or above the AFR. Once the asset is in the trust, all appreciation and income stays (and grows) in the trust for the benefit of the trust beneficiaries and is removed from your estate. By selling the asset, you are able to “freeze” the value of the asset in your estate and move the appreciation of the asset outside of your estate with minimal gifting required. Moreover, because the trust is a grantor trust and you are responsible for paying the income taxes for the trust each year, assets within the trust can accumulate and compound at a faster rate.

The trustee may use some of the seed gift and/or income generated off the asset to purchase a life insurance policy on your life to provide additional leverage or liquidity to help repay the note. Trust income can also be used to pay the interest on the note each year and may help with repaying the principal on the promissory note prior to death. Income-producing assets, such as commercial real estate, securities, or limited partnership interests, and assets that are expected to appreciate are ideal for this technique.

Split-Dollar Arrangements

A split-dollar arrangement is a plan in which a permanent life insurance policy’s premiums, cash value, and death benefit are split between two parties — usually the grantor of the trust and the trust itself. One of the greatest benefits of this type of split arrangement is the opportunity for you to fund a permanent life insurance policy outside of your taxable estate while minimizing exposure for gift and GST taxes. As part of the arrangement, the trust generally will be required to repay you (or your estate) some portion of the death benefit, usually equal to premiums paid, or in some cases, cash value; however the excess death benefit will be held in trust for the benefit of your family and will generally be received income and estate-tax free.

This technique offers the opportunity to fund significant amounts of life insurance outside the estate with very minimal use of gifting when compared to making gifts of the full premium to the trust each year.

Marital Estate Planning Considerations

Married couples have unique estate planning opportunities to reduce taxes and protect assets:

• Unlimited Marital Deduction: You can transfer unlimited assets to your U.S. citizen spouse during life or at death without federal estate or gift tax. This can be done outright or through a marital trust, such as a QTIP trust, which lets you control final beneficiaries after your spouse’s death. Note: Assets passed under this deduction will be taxed when the surviving spouse dies.
• Portability: Portability allows a surviving spouse to use any unused lifetime exemption from the deceased spouse, effectively doubling the amount sheltered from estate taxes. Formal election is required, and portability does not apply to GST tax.
• Credit Shelter Trust: Also called a bypass trust, this tool uses the decedent’s remaining exemption to benefit the surviving spouse and children while keeping assets outside their taxable estates. Though portability has reduced its necessity, credit shelter trusts remain valuable for control, asset growth outside the estate, and GST planning.

Estate Planning Through Gifting

Gifting during your life can remove assets and their future appreciation from your estate, and help you establish a legacy. When deciding which assets to give away, you should generally choose assets that you believe will appreciate over time, and/or assets that can be given away at a discounted gift tax value.

• Annual Exclusions Gifts: You can gift up to $15,000 in cash or other assets each year to as many individuals as you wish without paying any federal gift taxes.4 If both spouses use their annual exclusions, a married couple can transfer $30,000 per year to each recipient. An annual gift-giving strategy may help to reduce your total estate tax liability.
• Trusts with Crummey Powers: Gifts to a trust can qualify for the annual gift tax exclusion if the trust provides its beneficiaries with the right to withdraw gifts from the trust for a certain time after the gifts are made. These withdrawal powers are known as Crummey powers. Crummey trusts can also be established to benefit minors and to provide for their future expenses, such as education.
• Lifetime Exemption Gifts: In addition to annual exclusion gifts, transfers made during life up to the lifetime exemption amount ($11.7 million in 2021) do not result in any gift tax being due. Because the lifetime exemption amount is indexed annually for inflation, consider gifting the increases as they occur.
• Gifts Paid Directly to Medical or Education Providers: If you are interested in paying certain educational or medical expenses on behalf of another individual, such as a child or grandchild, consider paying the provider directly. Qualifying payments do not count against the annual gift tax exclusion or your applicable exclusion amount, and they are not subject to gift tax or GST tax.

Family Business Succession Planning

If you own a family business, coordinating your estate planning and business planning is critical. Because many business owners fail to plan for the future, only 30% of family businesses make a successful transition to the next generation.

1. Plan For Your Successor: At your retirement, disability, or death, who will run the business? Does your successor have the maturity, training, experience, and desire to run the business? These are important questions to address as part of your estate planning process.
2. Decided How to Transfer Ownership: Will your successor own all or part of the business? How will ownership be transferred, through gift or sale? If you wish to sell all or part of your business, it is often advisable to create a buy-sell agreement, which designates the date, method, and price for the future purchase of your business. 
3. Plan for Estate Taxes: How will your estate pay the estate taxes when your business is transferred at your death, or after the death of you and your spouse? Many estates do not have enough liquid assets to pay estate taxes, and generating cash by selling assets in an emergency can destroy a business.
4. Provide for Employee: As a business owner, you need to structure competitive compensation and benefit packages to attract and retain key employees.

Charitable Estate Planning

You can transfer an unlimited amount of assets to qualifying charitable organizations during your lifetime or at death without paying any estate or gift taxes. Charitable gifts may be made outright (during life or at death) to charitable organizations, or via charitable trusts.

• Outright Gifts to Charity: Making outright charitable gifts (during life or at death)
• Charitable Lead Trust: provides an income stream to a selected charity or charities during the donor’s life or for a specified time period.
• Charitable Remainder Trust: With this technique, you irrevocably transfer an asset to the CRT, and retain the right to receive payments from the CRT for a certain period, such as for your lifetime and your spouse’s lifetime.
• Wealth Replacement Trust: To replace the assets going to charity, the CRT is often coupled with an a wealth replacement trust. You can use a portion of the income stream from the CRT to make gifts to the wealth replacement trust. The trustee can then purchase life insurance on you, or survivorship insurance on you and your spouse, to benefit your family.

The Role Of Life Insurance in Estate Planning

Life insurance is widely used in estate and business planning because it provides an important source of liquidity when it is needed most - at the death of the insured. Death benefits are usually received free of income tax. And, with proper estate planning, insurance proceeds can be free of estate tax as well.

Personal Uses for Life Insurance

• Supply family members with an income source after the death of an income earner or caregiver
• Provide cash to pay estate taxes
• Pay mortgages and other expenses at death
• Create an estate for your beneficiaries
• Equalize inheritances among children
• Leverage your annual gift tax exclusion, lifetime exemption, and GST tax exemption

Living Benefits of Life Insurance

Life insurance offers much more than just an income tax-free death benefit.10 A permanent life insurance policy, along with optional riders, can provide the following benefits:

• Potential ability to accumulate cash value inside the policy, and access the policy’s value on an income tax free basis.11
• Ability to accelerate death benefit during life to pay for qualified long-term care expenses.
• Ability to receive a one-time lump sum in the event that you experience a critical illness. The critical illnesses are defined in the optional riders and often include cancer, stroke, and heart attack.

Life Insurance and Business Succession Planning

• Informal funding vehicle for deferred compensation arrangements
• Provide death benefits to a key employee’s family
• Finance the replacement of a key employee
• Replace lost revenues after losing a key employee
• Finance the purchase of the business (buy-sell planning)

Keep Your Estate Plan on Track

Maintaining your estate plan is as important as creating it. You should review your estate plan periodically with your advisors to make sure it still meets your current goals, especially if a change in any of the following has occurred:

• Marital status
• Immediate family (such as a birth, special needs, marriage, or death)
• Business arrangements
• Tax laws
• Residence (especially if you’ve moved to a new state)
• The amount or type of your assets

Ready to Secure Your Legacy?

Planning for your estate and business succession isn’t just about transferring wealth - it’s about protecting your legacy, reducing stress for loved ones, and ensuring your business thrives for generations. With the right strategies in place, you can minimize taxes, avoid costly delays, and create a clear roadmap for the future. The sooner you start, the more options you’ll have to safeguard what matters most.