BUSINESS ESTATE PLAN (THE SHAREHOLDERS TRUST)
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Use a SHAREHOLDERS TRUST (the PSG Business Estate Plan) to "hold" ALL the stock of your C-corporation (not useful for S-corporations but can be used in conjunction with a Limited Liability Company or LLC) and by doing so ALL of your business assets like, equipment, stock in trade (inventory), vehicles used by your corporation, accounts receivable, business property and leases and cash will automatically be owned by the beneficiaries of your trust.
Essentially a Shareholders Trust is a revocable, intervivos trust (similar to a "living trust"), but it is a trust that is absolutely separate from your personal estate for the purposes of state and federal inheritance taxes, probate and any government interference at all. (Priority Services Group will gladly provide full details on this outstanding process upon request).
As an example, I recently received an E-mail from a new corporate client who told me that her parents had died 6 years ago leaving her and her siblings a business that was then valued at 13 million dollars. After 6 years of legal entanglement her and her siblings were "granted" their share of the remaining estate. The total amount that was available for them to share was a little over $600,000 dollars. Legal fees, court costs, probate fees and taxes had eaten up twelve million four hundred thousand dollars that her parents had intended to be passed along to her and her siblings.
This is just one example of this "theft" of the future for the generations that follow after us. Worse still is it doesn't have to be this way. There is a very simple solution that actually costs very little, doesn't require an attorney to set up and when you pass on, there's no transfer, no probate, no taxes - and best of all, NO PROBLEMS for your heirs to endure.
Business And Estate Tax Benefits: The Business Estate Plan incorporates the use of a C-Corporation (or an LLC owned primarily by a C-Corporation but NOT an S-Corporation) as the best business vehicle to provide asset protection for your business assets and for dramatically reducing or eliminating your business taxes. When you couple this business strategy with a Shareholder Trust, you have also created the best possible estate preservation strategy as well.
This business and estate tax reduction can be accomplished because of the unique attributes of the C-Corporation, which are not present in any other business entity. Of primary importance is the ability to shift the value of assets out of your estate without any loss of control.
For example, the Smith business owns a business with a current value of $1 million, a rental property with equity of $500,000, and retirement savings in stocks and bonds equal to $1 million. That's a total estate of $2.5 million. Under current law, using a living trust, and the current maximum exemption of $2 million dollars, the estate tax on the balance of $500,000 would be approximately $225,000. Mr. and Mrs. Smith would like to take steps to preserve the business estate for the benefit of their three children, but they do not wish to give up control over their assets during their lifetime.
One solution to the problem involves a properly structured business estate plan that incorporates a C-corporation to hold all business assets and a Shareholders Trust to own the stock of the corporation. While living, Mr. and Mrs. Smith would have complete management and control over their property in the C-corporation and the trust as well.
Further, by employing a Land Trust (discussed below) to separate the real estate from the other assets, the $500,000 worth of rental property would effectively have been separated from the business estate and the personal property portion of the Smith's estate as well. Thus, their entire estate could pass directly to their heirs without any probate, lawyers or government interference at all.
Introducing The Business Estate Plan That Never Dies:
Many creative estate-planning strategies have been developed using C-Corporations. The reason for this is that C-Corporations are generally more flexible when passing business assets to heirs than living trusts. At the same time, they provide similar benefits such as avoiding probate, and potentially eliminating ALL estate and inheritance taxes.
In addition, unlike ALL other forms of business structures (Limited Liability Companies (LLCs), partnerships and S-Corporations), the C-Corporation is the only structure that "stands alone" for tax purposes allowing it to potentially "zero out" its taxability. All other entity types are what is called a "pass-through" structure, meaning they are not tax paying entities in and for themselves, they must pass the taxability directly to your personal tax return, where you will have to pay the maximum in taxes because you are taxed on your "gross" income (OUCH) not the "net" income as it is with the C-Corporation. (Priority Services Group will gladly provide a comprehensive comparison of each of these entity types upon request).
HERE IS A TRUISM THAT YOU SHOULD UNDERSTAND:
Individuals receive income, pay taxes and then buy things (and pay bills) with whatever money is left over (after taxes are taken out). This taxability is based on the full "GROSS" amount of the individual's income. Conversely, "C" Corporations receive income, buy things (and pay bills) with "pre-tax" dollars and then pay taxes on any money that is left over. This taxability is based on the "NET" amount of the C-Corporations income.
"A Corporation Never Dies; It Just Gets A New President."
Corporations are immortal. They can live well beyond their original incorporators unless terminated by statute, by not filing any state required annual reports or by its corporate articles. Additionally, corporations do not cease to exist just because one of its key people happens to die.
It's Really That Simple: Almost without a hick-up, the corporation (and your entire business estate) can move on to the next generation in total. Your heirs are still the beneficiaries of the Shareholders Trust and can add new beneficiaries as new generations join the family, thus continuing to pass the business estate on to succeeding generations. Best of all, you while living, have complete control of the corporation, its assets, its money, and its real estate (as well as the Shareholders Trust) - everything. You can sell these assets and pay yourself the money, or add to the assets, pay for any and all expenses such as: travel, medical and so forth for as long as you live.
The Bottom Line Relating To Business Estate Planning: When you pass on to the "happy campground in the sky", your heirs already own all you want them to have. Since your heirs already own your business estate when you pass on, there's no transfer, no probate, no taxes - and best of all - NO PROBLEMS.
What can otherwise take years of legal delay, astronomical expenses, waste and agony for the ones you love is accomplished by them simply by holding a stockholders meeting and electing new directors and officers and bank account signatories. That's it, your business continues as usual without interruption.
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