Once upon a time, the primary concern of estate planning was preparing for—and minimizing when possible—estate and/or inheritance taxes (the “death taxes”). That concern has receded now that the federal exemption from estate taxes is set permanently at $5 million (plus inflation adjustments; it’s $5.34 million in 2014).
For the corporate executive, the more important estate planning concerns are likely to be liquidity, concentrated holdings of employer stock, deferred compensation and stock options. When the company is closely held, the issues can become quite thorny. Typically, a buy-sell agreement will be employed to provide a ready market for the executive’s shares upon his or her death. Such an agreement can provide a methodology for valuing shares. At the same time, it provides for continuity of ownership for the surviving shareholders.
As the executive transitions into retirement, additional concerns may come into play. For the philanthropically minded, a charitable remainder trust offers the opportunity for tax-free diversification of a concentrated holding and/or stock options, converting those assets into a reliable stream of lifetime retirement income. When the trust terminates at the death of the owner and other named private beneficiaries, the remaining assets pass to a designated charity. A charitable remainder trust may pay an annuity, expressed as a percentage of the initial value of the trust, or the income may be determined each year as a percentage of the value of the trust in that year (a “unitrust” interest). This choice, coupled with the number and ages of the named beneficiaries and market interest rates at the time of the funding of the trust, will determine the level of tax benefits associated with the arrangement.
Other issues that may come up in planning for an executive’s estate include interests in qualified retirement plans, life insurance, and split-dollar insurance arrangements. The counsel of an experienced fiduciary will be important.
© 2014 M.A. Co. All rights reserved.