As a Founder or entrepreneur, you’re focused on building a business that reflects your vision. You’re making decisions on business structures, funding, intellectual property protection, and managing employees. However, in the rush of growing your company, one crucial aspect can often be overlooked—your personal estate planning. While it may not be easy to think about what happens to your assets in the event of incapacity or death, proactive estate planning is essential for minimizing tax consequences and ensuring your legacy.
Estate planning for Founders can be broken down into three core segments, each addressing different aspects of the Founder’s personal and business life: Core Planning, Business Continuity and Liquidity, and Advanced Wealth and Transfer Strategies. Let’s explore each segment in detail.
Segment I: Core Planning – Laying the Foundation
Core estate planning is the foundation of your overall plan and answers the crucial questions of who controls your assets, who benefits from them, and how taxes are managed. This includes creating a comprehensive set of wills, revocable trusts, and appointing fiduciaries to manage your estate. Key elements of Core Planning include:
- Tax Planning: With current federal estate tax exemptions reaching up to $13.99 million per individual in 2025, planning helps minimize taxes on any wealth passed to heirs. Although the exemptions are substantial, Founders should plan to protect the value of rapidly appreciating startups.
- Asset Protection: Core planning ensures your children’s inheritance is safeguarded from creditors, and that the right individuals are appointed to handle your estate should you become incapacitated.
- Incapacity Planning: This part includes documents like powers of attorney and living wills, so that your personal and financial matters are managed by trusted individuals if you are unable to make decisions for yourself.
Core planning ensures that your beneficiaries receive your wealth as you intended, with minimal tax burden. It’s an ongoing process that adapts as your business and family grow.
Segment II: Business Continuity and Liquidity – Protecting Your Business Legacy
Unlike other individuals, Founders must also think about the future of their company. Segment II focuses on ensuring continuity for your business after your death or incapacity and ensuring liquidity for your beneficiaries.
- Buy-Sell Agreements: A critical part of business continuity, these agreements set the terms for the sale or transfer of business ownership upon certain triggering events, like death or disability. This avoids disputes and ensures your business remains stable through transitions.
- Funding with Life Insurance: Often, life insurance is used to fund buy-sell agreements. Permanent life insurance policies, like whole life or universal life, are preferable because they provide stable funding for the purchase of business shares by surviving partners or family members. However, the risks of using life insurance should be carefully considered.
- Liquidity for Heirs: A Founder’s wealth may be heavily tied up in the business, making it difficult for heirs to access liquid assets. Life insurance can also provide liquidity to your estate, ensuring that your beneficiaries have cash on hand when needed, without the need to sell business assets at a disadvantageous time.
Segment III: Advanced Wealth and Transfer Strategies – Maximizing Wealth and Minimizing Taxes
For Founders who have successfully built value in their businesses, Segment III offers strategies to transfer wealth while minimizing tax exposure. The aim here is to reduce the estate tax burden and transfer assets efficiently.
- Freezing Value: One way to mitigate taxes is to freeze the value of assets at a certain level. For instance, using a strategy like a Grantor Retained Annuity Trust (GRAT), a Founder can transfer assets to a trust while retaining an annuity payment for a set period. Any appreciation beyond the annuity amount passes to heirs without incurring gift taxes.
- Discounting Values: Another strategy involves discounting the value of assets before transferring them. For example, gifting a partial interest in a business to heirs may result in a reduced valuation due to lack of control or marketability.
- Intentionally Defective Grantor Trust (IDIT) Sale: A more advanced approach, an IDIT Sale allows the Founder to sell business assets to a trust in exchange for a promissory note. If the business grows beyond the interest rate on the note, the excess wealth passes to heirs with no additional gift tax.
- Spousal Lifetime Access Trust (SLAT): This trust is another effective strategy for Founders. It allows assets to be transferred to a trust for the benefit of a spouse and descendants, while also providing the Founder some peace of mind, as the spouse has access to the trust’s assets during their lifetime.
Conclusion: A Proactive Approach to Estate Planning
For Founders, estate planning is about more than just distributing wealth—it’s about preserving the value you’ve created, ensuring the continuity of your business, and providing for your family in the most tax-efficient manner. Breaking estate planning into three segments—Core Planning, Business Continuity and Liquidity, and Advanced Wealth and Transfer Strategies—can simplify the process and provide clear focus.
By addressing these critical areas early, Founders can reduce the potential impact of taxes, avoid disputes, and set up a legacy that reflects their vision. Whether you’re just starting out or preparing for a significant growth phase, each segment of estate planning builds upon the other to create a comprehensive plan that evolves with you and your business.
If you’re ready to discuss your estate planning needs, we can help you determine which segment is most relevant to your current personal and business situation.