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Impact Study: Trusts and Estates



For more than 20 years, Ellis Lawhorne’s Trusts and Estates Practice Group has provided estate planning, and administration services to families throughout South Carolina. We have served some 4,500 families during this time, including farmers, business owners, professionals, and retirees. With attentive, diligent and thorough counsel, we help clients prepare and implement plans to transfer family assets from one generation to the next in a manner that will help minimize estate taxes, provide proper management, and protect family harmony.

Having a Proactive Estate Plan Significantly Lowers Estate Tax Burden on a Family-Owned Business 

In early 2006, a member of the Ellis Lawhorne Trusts and Estates Practice Group met with a couple who owned a successful business in the Columbia area. Although they had managed the financial aspects of their business well, they had not considered a number of structural and legal issues that would ultimately have an affect on their estate taxes. They asked for our perspective. The couple’s assets were considerable, including a business valued at approximately $9 million, $2 million in life insurance on the husband and additional assets of approximately $1 million. The business was operated as an unincorporated sole proprietorship, and all assets were titled in the husband’s name. While the clients had simple wills leaving all assets to the surviving spouse, no other estate planning documents existed. Under this scenario, we estimated that there would be an estate tax of $4.6 million due after both of their deaths, more than one-third of the estate’s total value. We also were concerned about the liability exposure of operating the business as a sole proprietorship, with no provision made for business continuity in the event the wife was predeceased by her husband. After consulting with the couple to determine their personal and financial goals, we developed and are now implementing a proactive estate plan that includes the following: 

  1. The preparation of durable powers of attorney and health care powers of attorney for the couple so that a primary and alternate agent are designated to make health care and financial decisions for them in the event of their incapacity.
  2. The formation of a business entity to own and operate the business, providing increased liability protection for the owners. The couple has equal ownership in the new entity, resulting in a more favorable valuation for estate tax purposes.
  3. The creation of an irrevocable life insurance trust to own the husband’s life insurance. This removes the insurance from his estate and dramatically reduces the estimated estate tax.
  4. The preparation of wills and revocable trusts for the couple that will (a) facilitate the administration of the estate and allow the couple to avoid county probate court fees on assets titled in the name of the trust; (b) provide a management structure for the assets after the death of one or both spouses for the benefit of the surviving spouse and minor children; and (c) allow the couple to utilize both of their estate tax exemptions to shelter a total of $4 million from estate taxes.
       

Final Impact

When this proactive estate plan is implemented, the couple should reduce the estimated estate tax from $4.6 million to approximately $1.4 million, a savings of $3.2 million.