In Depth With Daus: The Essential Estate Planning & Corporate Succession Guide

BY MATT DAUS

In the post-pandemic world, transportation companies experienced how business is impacted by external factors outside of their control at the macro, worldwide level. At a micro level, business owners who have worked for years to build a company, a brand, and a loyal customer base would be remiss not to consider and prepare succession plans in the event of an illness or death, and this isn’t limited to those approaching retirement age as we’re all too familiar with those who suddenly passed in the prime of their lives. This planning priority is particularly needed in this industry since many of these businesses are inextricably linked to the founder or long-time CEO. This guide is meant to assist transportation company owners and executives in ensuring that their lifetime’s work is passed on pursuant to their desires, and that their expressed wishes for the company are implemented.

PART 1: ESTATE PLANNING
Estate planning is the process of ensuring that your assets are distributed according to your wishes after your passing and helping to protect them from creditors, taxes, and future business disputes. The specific steps you need to take will depend on your circumstances; however, there are some basic elements that are common to most.

Create Your Will
This is a legal document that specifies how—and to whom—your assets will be distributed after you die and is the most important part of any estate plan. The beneficiaries will receive the property of your estate based on this document, which can contain specific provisions subject to applicable laws. The named executor of your estate—a trusted family member, advisor, or attorney, for example—will be responsible for carrying out your wishes. For it to be fully enforceable, it should be drafted by a qualified attorney familiar with the applicable law in your jurisdiction.

Consider Forming a Trust
A trust is a legal entity that can be used to hold your assets and distribute them according to your wishes. Additionally, they can be used to protect your assets from creditors, to reduce estate taxes, and to provide for your loved ones in a specific way. Common types of trusts include:
↹ Revocable trusts: Also known as living trusts, they can be changed or revoked by the grantor (the person who creates the trust) at any time during the grantor’s lifetime. They are often used to avoid probate, which is the court-supervised process of distributing a person’s assets after their passing. They are a popular choice because they offer flexibility, which can be helpful if the grantor’s circumstances change, or it's decided to terminate the trust.
↹ Irrevocable trusts: These trusts cannot be changed or revoked once created and are often used to protect assets from creditors or to provide for a beneficiary with special needs. Although they are less common, they do offer some important benefits like protection from creditors (cannot be seized in a bankruptcy) and reduction of estate taxes.
↹ Testamentary trusts: These trusts are created in your last will and testament and only come into effect after the grantor passes. These are often used to provide for minor children, or to distribute assets in a specific way according to your business succession plan as discussed below.
↹ Charitable trusts: These trusts are created to benefit a charitable organization. Charitable trusts can be revocable or irrevocable.

Appoint a Power of Attorney
A power of attorney (POA) gives someone else the authority to make decisions on your behalf, which can be especially important if the business owner becomes incapacitated. This could include making financial decisions, medical decisions, or both. You can provide specific limitations on the scope of authority of the agent under your POA, including specific limitations or directives in accordance with your estate and business succession plan.

There are two main types of POA: durable and limited. A durable POA remains in effect even if you become incapacitated or unable to make decisions for yourself. A limited POA only gives your agent the authority to act on your behalf for specific purposes such as for business affairs but not for medical decisions (this is typically reserved for a living will). The main difference between durable and limited is that a durable POA is immediate and remains in effect even if you become incapacitated, while a limited POA is only in effect under those specified conditions.

If you want to ensure that someone can continue to act on your behalf if you become incapacitated, then a durable POA is the better option. We have seen many situations where regulatory agencies across the US have refused to transfer ownership of licenses and permits. In extreme cases, an entire business can be interrupted and remain in limbo until the estate is processed by the courts. One way to potentially avoid this situation is to have a POA in place and/or to have those in line of succession listed with the regulatory agency on the permit or license.

Establish a Living Will
In addition to a durable POA, a living will is a legal document that specifies your wishes for end-of-life care and other medical-related decisions in the event of your incapacity. This could include whether you want to be placed on life support, and who you want to make decisions about your care if you are unable.

In the event of incapacitation, without a living will or an equivalent durable POA containing specific medical-related provisions, your loved ones may not be able to make the decisions to carry out your wishes. A living will is not a substitute for a durable POA, however, as the POA will apply to a wider range of issues like financial and legal.

Account for Long-Term Care
Long-term care can be expensive, so it is important to plan for it. You can do this by purchasing long-term care insurance (LTCI), by setting aside money in a special account, or by relying on Medicaid or Medicare. LTCI can help pay for care such as a nursing home or assisted living facility (or even stay in your home longer), although it may have high deductibles and copays. It can be a valuable financial tool, especially if you have the resources to purchase, but it is important to understand the pros and cons and compare policies from different companies first.

Update Your Estate Plan Regularly
Life circumstances such as marriage, divorce, business relations and transactions, moving to a new state, or changes with your business or financial situation fluctuate regularly, so it’s important that your current situation is reflected in your plan. Estate planning can be complex, but it is a critical part of financial planning. Some helpful tips:
↹ Get professional help. From our experience, estate planners and corporate attorneys can assist you in creating a comprehensive plan that meets your personal needs as well as protects your business assets.
↹ Be specific. Be as detailed as possible about your wishes to avoid any future turmoil.
↹ Communicate your wishes. It is important to share your requests with your loved ones, so they understand and can carry them out in the future.

Special Considerations for Those With High Net Worths High-net-worth individuals (HNWIs), including business owners, have additional estate planning considerations, such as:
↹ Business succession: If you own all or a significant portion of the business, you will need to plan for the succession after you die. This may involve selling the business, transferring ownership to family members, or hiring a manager (more details below).
↹ Estate taxes: HNWIs are more likely to be subject to estate taxes. You will need to take steps to minimize your estate tax liability, such as using trusts and other estate and business planning techniques, which vary by state.

With respect to estate tax issues, HNWIs will also require detailed estate planning to maximize the most beneficial tax treatment. Here are a few of the most common:
↹ Gifting: You can give away up to $17,000 per person per year (2023 amount) without incurring gift taxes. Married couples can gift up to $34,000 per person per year. You can also give away more than the annual gift tax exclusion, but you will have to use up part of your lifetime gift and estate tax exemption.
↹ Trusts: Several different trusts can be used to hold assets for beneficiaries and can be structured in a way to minimize estate taxes.
↹ Charitable giving: There are two main types of charitable trusts: charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). CLTs provide income to a charity for a specified period, and then the assets go to the beneficiaries. CRTs provide the beneficiaries with income for life, and then the assets go to the charity.
↹ Life insurance: Proceeds are not subject to estate taxes. You can name your beneficiaries as the owners of the policy, or you can use the policy to fund a trust.
↹ Retirement accounts: These accounts, such as IRAs and 401(k)s, are not subject to estate taxes until the money is withdrawn. You can name your beneficiaries as the owners of the accounts, or you can use the accounts to fund a trust.

The estate tax exemption amount changes every year. For 2023, the exemption amount is $12.92 million for individuals, and $25.84 million for married couples filing jointly.

PART 2: CORPORATE SUCCESSION PLANNING
This is a vital component of estate planning for individual owners of closely operated companies and is the process of ensuring that a business can continue to operate effectively after the death or retirement of the current owner/manager. Key considerations:
↹ Identify potential successors. This could include family members, employees, or outside managers.
↹ Develop a succession plan. This should outline how the company will be transferred to the successor(s) and how the company will be managed in the future.
↹ Train and prepare successors. This training should include both technical and management skills, and regulatory compliance.

The succession plan should be communicated to all relevant individuals so that they are aware of your intentions. Leaving the successor and employees without critical details can cause a systemic breakdown of operations and gaps in processes, which could result in frustrating and costly gremlins like unpaid taxes, summonses, and fines plus the associated interest, penalties, and fees that are required to be paid in order to maintain good standing. The specific documents that are necessary will vary depending on the size and complexity of the company, but the following list is a good starting point:

↹ Ownership documents: This is an outline of who owns the company and how the ownership is structured. This could include articles of incorporation, bylaws, and shareholder agreements.
↹ Management documents: These reflect who is responsible for managing the company and how decisions are made. This could include a management team charter, a succession plan for key management positions, and a conflict-of-interest policy.
↹ Financial documents: These detail the company’s financial situation and how it is managed. This could include budgets, financial statements, and investment policies.
↹ Operational documents: These are a breakdown of the company’s operations and how they are run. This could include policies and procedures, training manuals, and customer service guidelines.
↹ Communication plan: This key document outlines how the succession plan will be communicated to employees, customers, and other stakeholders.

Additional tips:
↹ Start early. This will give you time to identify and develop potential successors and resolve any issues.
↹ Get input from key stakeholders. The succession plan should be a collaborative effort that includes input from key stakeholders, such as employees, customers, and investors.
↹ Be flexible. Your plan should be adaptable to changes in the company’s ownership structure.
↹ Review and update the plan regularly. The plan should be reviewed and updated regularly to ensure that it is still relevant and effective.

SOME PARTING THOUGHTS
Estate planning and corporate succession planning are important for individuals and businesses of all sizes, and will involve working with your CPAs, lawyers, and financial advisors as well as your family and executive team during the process. Being able to achieve estate planning and corporate succession planning in advance of an emergency will provide a cost-benefit result, and those early—and updated—consultations with your estate planning professionals can best ensure that your heirs and business partners have an unambiguous understanding should you become unable to lead that business.   [CD1023]