Estate Planning and Trusts for Businesses

Estate Planning

Minimizing Tax Liability

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One of the main benefits of estate planning for businesses is the possibility of reducing tax liability. If an owner fails to account for these expenses before death, the firm may suffer a significant financial loss in the form of estate tax (Herzberg & Boone, 2016). However, some current aspects of a company also demand consideration when discussing possible decreases in tax liability. For example, partnerships and corporations treat this tax differently, a factor that causes the process of estate planning to vary as well.

For partnerships, an unlimited number of partners can be established, while corporations have strict guidelines regarding the entity’s structure, authority figures, and roles (Hoyle, Schaefer, & Doupnik, 2014). Moreover, the taxes generated also differ for the two establishment types as partnerships are taxed according to their profits, while corporations must pay state and federal taxes. On a further note, liability is shared in partnerships, which have partners who share the assets, and lowered in corporations whose stakeholders divide the value of the firm (Hoyle et al., 2014).


An individual who founds a corporation rather than a partnership may benefit during the estate-planning process. As noted, liability in a partnership grows with income as all partners share the assets of the company and thus multiply liability. The structure of trusts that can be organized in a partnership is also less formal than for a corporation. This means that while a corporation’s rigid policy may seem to complicate the process of succession, its lowered liability and protection of financial information grant it more benefits in estate planning.

For example, a “buy–sell agreement” developed for stakeholders can grant successors the ability to avoid estate taxes by taking advantage of IRS tax breaks (Hoyle et al., 2014). Such a document deals with share purchasing, and its amount can redeem the cost of death taxes and transition expenses. Moreover, it can provide the corporation’s new owner a chance to fully cover the estate tax that all-too-often divides or destroys businesses (Kopczuk, 2015). In a partnership, this opportunity is limited due to shared liability. Finally, corporations are structured to be more private and secure than partnerships regarding transparency about finances.

Succession Plan

Amazon, a large electronic commerce company operating in the United States and worldwide, is known to have a succession plan. Jeff Bezos, the founder and president of the company, has commented on his strategy, stating that a successor or a group of them had been chosen to continue his work in the event of his death or retirement (Mac, 2016). Moreover, Amazon currently has multiple CEOs who may be viewed as possible future owners of the business. All information about the details of the succession strategy is confidential, however, and shared only among Amazon’s board members (Mac, 2016).

While it may be that Amazon as a corporation has a plan whose details are shrouded in confidentiality to ensure that all financial operations are not available to the general public, some successors are clearly being trained to replace Bezos in the future. Moreover, while the company’s expense and income statements do not feature any trust activities, it is possible to assume that a trust has been established as a part of the succession plan. This strategy seems to align with the company’s vision, which is centered on aggressive competition, growth, and risk-taking (“Amazon annual report,” 2017). The implications of this ideology show why Bezos’s main concerns do not include transparency or exhibit a family focus.

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A number of steps can help company owners to decrease their organization’s tax liability. First, the person responsible for the company should develop a plan of succession that includes enough detail to eliminate any opportunities for the government to assume authority over the firm after the owner’s death. Accordingly, investment policy statements should be written to describe all processes involved in the succession (Herzberg & Boone, 2016). The next step would be to establish a trust to hold the deceased individual’s shares in the company to guarantee that all future income will be tax-exempt, a concept discussed in more detail in the next section.



As mentioned, a trust allows profits to grow while also protecting the price of the business for future purchases. Upon establishing a trust, a person gives his/her shares to a different organization that is tax-exempt, increasing the profits and securing both physical and digital assets (Hoyle et al., 2014; Kopczuk, 2015). Possibilities include a charitable trust, an irrevocable life insurance trust (ILIT), a grantor retained annuity trust GRAT), and a number of other types of money-conserving entities. Each variety has its own benefits, but all provide a business’s successors with a degree of stability and tax minimization.

A charity can create a more philanthropic image for the organization and its owner, while other methods rely on reducing the estate by transferring the individual’s life insurance, residence, or income-producing assets to the trust. In turn, this reduction leads to lower taxes for the future operations of the business.

Estate Planning Processes

Even small business owners can benefit from creating a trust, especially because many of them may contribute a significant part of their personal assets to the operation of their firm. Moreover, their level of competition is usually much lower than that of large enterprises in terms of local and global markets. Thus, the success of the company after the passing of its principal shareholder can greatly depend on its financial stability and tax exemption.

If successors fail to minimize tax liability, estate and death taxes can deplete all transferred assets. In order to prevent this from happening, the owner of a small business can create a trust that will reduce the influence of taxes on the company and its future members (Hoyle et al., 2014). As a result, the estate-planning process will also include this trust and the necessary steps for the successors to regain authority over shares. Moreover, a trustee will become an essential figure in this strategy to ensure a smooth transition process.


The main difference between trusts and corporations lies in their objective. Trusts are set up to contain and exercise authority over some assets in an individual’s private possession. Corporations, while also having assets, use them for business purposes—selling or manufacturing goods and offering services. Trusts have beneficiaries and trustees, while corporations have shareholders and other employees (Hoyle et al., 2014).

Trustees manage the assets of the established trust according to the terms stated by the owner; in this case, control is limited. Corporations have a variety of assets, including stocks of other entities, which they can use to gain profit. The primary purpose of a corporation is to ensure business expansion and income growth, while trusts are focused on maintaining and preserving the investments that were made by the benefactor. For protecting income, an income-based trust such as a GRAT would be the best option for a company because of its tax-minimizing aspects.

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Amazon annual report. (2017). Web.

Herzberg, P., & Boone, L. (2016). Enhancing estate planning with investment policy statements. Journal of Financial Planning, 29(8), 36-37.

Hoyle, J. B., Schaefer, T., & Doupnik, T. (2014). Advanced accounting (12th ed.). New York, NY: McGraw Hill Education.

Kopczuk, W. (2015). What do we know about the evolution of top wealth shares in the United States? Journal of Economic Perspectives, 29(1), 47-66.

Mac, R. (2016). After Jeff Bezos hands out promotions, Amazon now has three CEOs. Forbes. Web.

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