How Business Owners Can Save Money for Their Families and Avoid Big Taxes

Successful business owners want to ensure that their money goes to the right people when they pass away. The process of determining who will receive your property and money one you pass is called estateplanning. Estate planning is especially important for wealthy people to avoid having their passed-down property be subject to excessive taxation. Let’s look at some simple ways successful entrepreneurs can protect their money and maximize the value their heirs receive.

Smart Ways to Protect Your Wealth:

1. Skipping a Generation to Save on Taxes (GST Exemption); One way to protect money from being taxed too much is by skipping a generation. This approach avoids the double taxation that occurs when assets are taxed once when passed from parents to children and again when passed from children to grandchildren. By skipping a generation business owners can preserve more of the family’s money for future generations.
2. Using a Trust to Sell Assets and Save on Taxes: Entrepreneurs can also create a special trust (like a box) and sell valuable things like their business or property to the trust. The trust pays them back over time, while any increase in value stays in the trust without getting taxed. This means more of the money can go to their family instead of taxes.
3. Giving to Charity While Helping Family (Charitable Trusts): Some people want to use their wealth to help others when the pass on. They can set up a trust that gives money to charity for a few years, then whatever is left goes to their family. This helps reduce taxes and still allows them to support causes they care about. There are two main ways to do this:

• Charitable Remainder Trust (CRT): The family gets income from the trust for a while, and after that, the leftover money goes to charity.
• Charitable Lead Trust (CLT): The charity gets the money first, and whatever’s left later goes to the family.

4. Keeping the Family Business in the Family (Family Partnerships and LLCs): Business owners can create a family partnership or company and give parts of it to their kids. This approach allows the business to be passed on at a reduced value, minimizing the taxable estate and gift tax exposure. By transferring shares of the business gradually, owners can utilize valuation discounts for lack of control and marketability. This strategy helps keep the business in the family and ensures that wealth is preserved across generations.

5. Gifting to Loved Ones to Reduce Taxes: Wealthy people can also give money to their loved ones while they’re still alive. The IRS allows individuals to give up to a certain amount per recipient each year without incurring gift taxes, known as the annual gift tax exclusion. By taking advantage of this exclusion, families can gradually transfer wealth without triggering significant tax liabilities. By doing this, they can slowly pass on their money without being taxed, making sure more stays in the family.

Why Estate Planning Matters for Entrepreneurs

For successful entrepreneurs, having a smart plan for the future helps make sure that their money stays with the people they care about. By using strategies like skipping a generation, setting up trusts, giving to charity, and making gifts, they can reduce tax liability.

Estate planning can be tricky, so it’s important to work with experts who know the rules. Mavacy operates on a decentralized business model, allowing us to draw the best talent from across the country. Our expert estate planners bring diverse knowledge and experience, ensuring your wealth is protected. With Mavacy, entrepreneurs can safeguard their assets, provide for their families, and support causes that are important to them.