- Companies
- Wiggin and Dana
April 17, 2025 - Founders and entrepreneurs face numerous challenges while building their companies, from choosing the right business entity to managing employees and protecting intellectual property. Amidst these pressures, personal estate planning often takes a backseat, which can lead to missed opportunities for minimizing tax exposure and cementing a founder's legacy.
In this article, we highlight the importance of this estate planning by breaking it down into three core segments: core planning, business continuity and liquidity, and advanced wealth and transfer strategies.
Sign up here.
Segment I: Core planning — laying the foundation
Core estate planning is the foundation of a founder's overall plan, addressing the crucial questions of who controls the assets, who benefits from them, and how taxes are managed. This segment involves the preparation of a comprehensive set of estate planning documents, including a will and revocable trust, and appointing fiduciaries to manage the estate.
Core planning is also important for investors who want to know there is a plan in place for the ownership and management of a business if the business owner is incapacitated or has died.
Key elements of core planning include:
Tax planning: Founders should plan to protect the value of rapidly appreciating startups by implementing a core plan that is designed to mitigate transfer taxes — and thus maximize the wealth that gets passed onto the founder's beneficiaries.
Asset protection for beneficiaries: Core planning can ensure that the inheritance a founder leaves to his or her heirs is safeguarded from creditors by implementing asset protection planning — a strategy that may involve both trusts and other legal structures to insulate assets from claims (e.g., those brought by a divorcing spouse).
Incapacity planning: Planning for incapacity with documents like financial powers of attorney and living wills helps ensure that a founder's personal and financial affairs are handled smoothly by trusted individuals if the founder is no longer able to make decisions during his or her lifetime.
Core planning is an ongoing process that adapts as the founder's business and family grow. Regular reviews and updates to the estate plan ensure that it remains aligned with the founder's evolving circumstances and goals.
Segment II: Business continuity and liquidity — protecting your business legacy
While Segment I Planning is essential for everyone, founders must also think about the future of their company, which is covered in Segment II. This segment focuses on ensuring continuity for the business after the founder's death or incapacity and ensuring liquidity for the beneficiaries.
This Segment is important to the founder, family members, co-owners, investors, and employees.
Key elements of business continuity and liquidity include:
Liquidity planning for the founder's family: Ensuring liquidity for the founder's beneficiaries is crucial for avoiding financial strain during transitions. This involves setting up mechanisms to provide cash flow, such as life insurance policies, investment accounts, and other liquid assets. Liquidity planning helps the founder's family cover expenses and maintain their standard of living after the founder's death.
Buy-sell agreements: A critical part of business continuity, buy-sell agreements set the terms for the sale or transfer of business ownership upon certain triggering events, like death or disability. These agreements help avoid disputes and ensure the business remains stable through transitions.
Funding with life insurance: Life insurance is often used as a tool in connection with buy-sell agreements. Permanent life insurance policies, like whole life or universal life, provide stable funding for the purchase of business shares by surviving partners or family members. This ensures that the business can continue operating smoothly and that the founder's family receives fair compensation for their share of the business.
Segment III: Advanced wealth and transfer strategies — maximizing your legacy
Advanced wealth and transfer strategies focus on maximizing the founder's legacy by minimizing taxes and efficiently transferring wealth to beneficiaries.
Key elements of advanced wealth and transfer strategies include:
Estate freezing techniques: Estate freezing techniques, such as grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs) and dynasty trusts, help minimize estate taxes by transferring future appreciation of assets to beneficiaries. These techniques are beneficial for founders with rapidly appreciating businesses, as they lock in the current value of the assets for tax purposes while allowing future growth to benefit the heirs.
Qualified small business stock planning: In addition to minimizing exposure to estate taxes, founders who hold Qualified Small Business Stock (QSBS) can achieve significant income tax benefits through careful estate planning.
Pursuant to Section 1202 of the Internal Revenue Code, the first $10 million of gain (or 10 times the adjusted basis of the stock, if greater) is excluded from federal capital gains tax upon the sale of QSBS if it meets certain requirements. Ensuring that a founder's stock qualifies for this exclusion — and that it is maximized to the extent possible — can significantly reduce the founder's overall tax exposure upon a liquidity event.
Charitable giving: Charitable giving is an effective way to reduce estate taxes while supporting causes that the founder cares about. Setting up charitable trusts or foundations allows the founder to make significant contributions to charity while receiving tax benefits, and it can also enhance the founder's legacy by creating a lasting impact on the community.
Conclusion: Ensuring a lasting legacy
Estate planning for founders is a complex but essential process that ensures the founder's legacy is preserved and beneficiaries are protected. By focusing on core planning, business continuity and liquidity, and advanced wealth and transfer strategies, founders can create a comprehensive estate plan that addresses their unique needs and goals.
Proactive estate planning minimizes tax consequences, safeguards assets, and ensures smooth transitions for the founder's business and family. As the founder's business and personal circumstances evolve, regular reviews and updates to the estate plan are crucial for maintaining its effectiveness. By taking decisive steps towards successful estate planning, founders can secure their legacy and provide for their loved ones.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.
Michael T. Clear
Michael T. Clear is the chair of the private client services department of Wiggin and Dana LLP. As a partner, he advises clients on estate planning, trust administration, probate litigation, and business succession planning, with a focus on family dynamics. He assists with tax-efficient estate planning, guides fiduciaries through estate settlement, and supports business owners with succession planning. He is also active in professional organizations and frequently speaks on trust and estate strategies.
Erin D. Nicholls
Erin D. Nicholls is a partner in Wiggin and Dana LLP’s private client services department and co-chair of the family office and strategic investments group. She advises individuals, family offices, and closely held businesses on tax, estate, and business planning matters, including wealth preservation, business succession planning, and charitable giving, and counsels tax-exempt entities. She is active in the Connecticut Bar Association and serves on the Connecticut Advisory Board of the Trust for Public Land.
