Estates and Trusts

Building a successful business requires years of dedication, strategic decisions, and countless hours of hard work. Yet many business owners focus so intently on growing their companies that they overlook one of the most critical aspects of business ownership: planning for what happens when they’re no longer at the helm. 

Succession planning isn’t just about retirement – it’s about preserving the value you’ve built, protecting your employees and customers, and ensuring your business continues to thrive long after you’ve moved on.

Why Succession Planning Cannot Wait

The statistics paint a sobering picture. Fewer than 30% of family businesses survive to the second generation, and only 12% make it to the third generation. While these numbers reflect family businesses specifically, they highlight a broader truth: businesses without proper succession planning face significant risks that can destroy decades of hard-earned value.

Many business owners operate under the assumption that they have plenty of time to address succession planning. However, life rarely follows our carefully laid plans. Health issues, unexpected opportunities, economic downturns, or family circumstances can force business owners into transition situations before they’re prepared. Without a solid succession plan in place, these situations often result in hasty decisions that can severely impact the business’s value and viability.

The consequences of inadequate succession planning extend far beyond the business owner. Employees face uncertainty about their job security and career prospects. Customers may question the stability of their supplier relationships. Family members might find themselves embroiled in disputes over business control or value.

Important Legal Considerations

The legal framework surrounding business succession involves multiple areas of law that must work together seamlessly, and it’s important to have a partner like Wilson Ratledge on your side, with the experience to make sure all the pieces are addressed.

Business structure significantly impacts succession options and requirements. Sole proprietorships offer maximum flexibility but provide literally no built-in succession mechanism. If you are a sole proprietor with a business that can continue without you, you will want to talk with your legal counsel about creating a legal structure for that.

Partnerships and limited liability companies require careful attention to partnership and operating agreements, respectively, and other governing agreements which should address what happens when a partner wants to or is otherwise forced to exit. 

Corporations offer the most structured approach to succession, with some established mechanisms for transferring stock ownership and changing management roles.

Regardless of what legal structure you currently have, buy-sell agreements represent one of the most important legal tools in succession planning. These agreements establish the terms under which ownership interests can be transferred, set valuation methods for determining business price, and provide for funding mechanisms to ensure transactions can be completed. Without proper buy-sell agreements, business owners may find themselves locked into partnerships they want to exit or facing disputes over business value.

Valuation and Business Worth

Accurate business valuation forms the foundation of virtually every succession planning decision. Whether you’re selling to a third party, transferring ownership to family members, or implementing an employee ownership plan, understanding your business’s true value is essential for making informed choices and structuring transactions appropriately.

Business valuation for succession planning involves more than calculating current market value. The valuation must consider how different succession strategies might affect that value. A business might be worth more to a strategic buyer who can achieve synergies than to a financial buyer focused primarily on cash flow returns.

Professional valuation becomes particularly important when succession planning involves transfers to family members or key employees at below-market prices. These transactions often receive scrutiny from tax authorities, and proper documentation of value is essential for avoiding unexpected consequences.

Family Business Succession

Family businesses face unique challenges in succession planning. The intersection of family dynamics and business operations creates complexity that requires careful navigation to preserve both family relationships and business value. Successful family business succession often involves gradual transition processes that allow younger generation members to develop skills before assuming full responsibility.

One important decision involves determining which family members are truly suited for business leadership roles. Family loyalty doesn’t automatically translate into business acumen or leadership ability. Successful family businesses often implement formal assessment processes to evaluate potential successors objectively.

Trusts and Estate Planning integration becomes crucial when family business succession involves transferring ownership across generations. Various estate planning vehicles may provide opportunities to transfer business interests while minimizing consequences and maintaining control during transition periods.

External Sale Options

Third-party sales often provide the highest financial return for departing business owners, especially if succeeding family generations are not interested in carrying on the business. Strategic buyers – usually companies in the same or related industries – often pay premium prices for businesses that complement their existing operations. These buyers may achieve synergies that justify higher purchase prices, though they may also make significant operational changes.

Financial buyers, including private equity firms, typically focus on cash flow returns and may be more likely to maintain existing business operations. While they may not pay premium prices for strategic value, they often provide more certainty of closing and flexibility on transaction terms.

The Mergers & Acquisitions process requires advance planning and careful orchestration to maximize value while minimizing disruption to business operations. Confidentiality becomes particularly important, as premature disclosure can create uncertainty among employees and customers that may harm business performance.

Employee Ownership Alternatives

Employee Stock Ownership Plans (ESOPs) allow business owners to sell to their employees while potentially achieving favorable treatment. ESOPs can provide significant advantages for selling shareholders while giving employees ownership stakes that may improve motivation and retention.

Management buyouts offer another option for business owners who want to ensure continuity of leadership and operations. Key managers involved in running the business may be the most qualified successors with the strongest motivation to maintain performance and culture.

These transitions typically require creative financing solutions, including seller financing arrangements where departing owners provide purchase price financing. However, this creates ongoing risk for departing owners who remain financially tied to the business’s future performance.

Implementation and Timing

Successful succession planning requires attention to timing considerations and flexibility to adapt to changing circumstances. Market conditions, business performance, family situations, and personal health can all affect optimal timing for succession plan implementation.

Key factors for successful implementation include:

• Early Planning: Begin the process five to ten years before anticipated transition
• Gradual Transitions: Allow time for successor development and stakeholder adjustment
• Contingency Planning: Prepare backup options for unexpected circumstances
• Professional Guidance: Wilson Ratledge can help with a team of legal, financial, and industry advisors

The most well-crafted succession plan is worthless if it’s never implemented or occurs at the wrong time. Regular plan reviews and updates ensure strategies remain aligned with current business conditions and personal objectives.

Protecting Your Business Legacy

Business succession planning is ultimately about preserving and transferring the value you’ve created over years of hard work. It’s about ensuring that your employees, customers, and community continue to benefit from the business you’ve built while providing financial security for yourself and your family.

At Wilson Ratledge, PLLC, our attorneys are experienced in helping business owners navigate the complex legal landscape of succession planning. We work closely with clients to understand their unique goals and circumstances, develop customized succession strategies, and implement those strategies effectively.

Don’t wait until succession becomes urgent. The most successful business transitions are those planned well in advance and implemented gradually over time. Contact our firm today at 919-787-7711 to discuss your succession planning needs and begin developing a strategy that will protect the value you’ve worked so hard to create.

You’ve worked hard to build your business from the ground up, and now you’re reaping the rewards. But have you ever wondered what will happen to your finances after you’re gone? If you’d like to share your wealth with future generations, consider dynasty trusts.

Below, learn about the benefits of creating a dynasty trust, as well as how to set one up for your descendants.

What Is a Dynasty Trust?

Typical trusts distribute wealth to just one or two generations (children and grandchildren, for example). Dynasty trusts, on the other hand, can last for many generations. A dynasty trust remains open until the last bit of wealth is distributed to beneficiaries. That means an inheritance for your great-grandchildren and beyond can be protected from being squandered by setting up a dynasty trust.

Dynasty trusts are a type of irrevocable trust. That means once you put assets into the trust, you can’t take them back out. This sounds rather restrictive, but it allows for significant asset protection and tax savings.

Who Are Dynasty Trusts For?

Unlike regular trusts, which anyone can set up regardless of how much money they have, dynasty trusts are largely economical only for high net worth individuals. That’s because the point of a dynasty trust is to pass down wealth to multiple generations. If you don’t have much wealth, the costs of maintaining the trust for multiple generations may outweigh the benefits and the funds in the trust will be exhausted sooner rather than later.

Benefits of Dynasty Trusts

One of the biggest benefitsof setting up a dynasty trust is the tax minimization your beneficiaries will enjoy. You pay gift or estate taxes on assets only once when they enter the trust, which means your beneficiaries won’t owe estate taxes on those assets when they’re distributed. Because many assets appreciate significantly over time, this transfer tax savings is a very appealing benefit.  Care must be taken, however, to optimize the application of generation skipping tax exemption in order to minimize generation skipping transfer taxes.

Dynasty trusts also offer the creator of the trust a significant amount of control. You can choose your trustee and beneficiaries and dictate terms for how the trustee will distribute the funds.

How To Create Your Dynasty Trust

Your dynasty trust will last for generations, so it’s important to set it up properly. Here’s how to do it.

Consult With an Estate Planning Attorney

Dynasty trusts involve complex state and federal tax situations, so you’ll need to consult with an estate planning attorney who can explain the implications to you. Your attorney can also discuss asset protection strategies that will safeguard your wealth from creditors.

Name Your Beneficiaries and Choose Your Trustee

When it comes to choosing your beneficiaries, you can opt to leave wealth to children, grandchildren, great-grandchildren, other recipients, or a combination of these. The longer you want the trust to last, the more complex choosing beneficiaries becomes.

You will also have to choose a trustee to manage your trust. The trustee is responsible for safeguarding your assets and distributing them according to your terms, so choose wisely.

Decide Which Assets To Place in the Trust

You can place any assets you like into a dynasty trust, but some assets are better than others. Non-income-producing but appreciating assets, such as tax-exempt bonds and non-dividend-paying stocks, are ideal for dynasty trusts.

Real estate is another option. Many families use dynasty trusts to buy property with the intention of preserving these assets for future generations.

Determine the Distribution of Funds

Now comes one of the trickiest parts: deciding how you want the trustee to distribute funds. Will your beneficiaries need to meet certain requirements before they can inherit your wealth? For example, you might choose to distribute funds when a beneficiary marries or goes to college.

Such stipulations are called spendthrift clauses. They protect your wealth from being lost by irresponsible beneficiaries and taken by creditors. 

Fund the Trust

You can choose to add funds to your trust while you’re still alive or at your death. Both of these choices have tax implications that can affect both you and your beneficiaries, so talk with an estate planning lawyer before you decide.

You could also claim certain exemptions depending on when you fund your trust. For example, the Tax Cuts and Job Act (TCJA) doubled the lifetime federal estate tax exemption (which is indexed for inflation and is, in 2024, about $13.6 million, but the increased exemption will expire (“sunset”-drop by half) in 2025 absent Congressional action. If you’d like to take advantage, it might be worth funding your trust before the increased exemption amount sunsets.

Protect Your Multigenerational Wealth for Future Generations

Want to learn more about dynasty trusts and determine whether they are right for your estate planning goals? Contact Wilson Ratledge, PLLC at (919) 787-7711 for your consultation now.

Wherever you are on your journey to building wealth and a legacy, including starting or growing your business or thinking about how your business fits with your financial and estate planning, having a carefully selected team of professional advisors to answer your questions and provide you with trusted advice is critical in making wise, strategic decisions. The professionals on your advisory panel, in addition to your attorney, should include a CPA, a financial planner/wealth management advisor, and possibly a real estate professional, and they should all work together as a team.

What Role Will Each Member of Your Wealth Preservation and Growth Panel Serve

While you may have a clear understanding of what each of the professionals described above, we want to discuss how they can support you as a collective. We’ll go one-by-one and highlight how each of the uniquely trained advisors on your team can pool their expertise in helping you make informed business and wealth management decisions. 

Your CPA as Accounting and Tax Advisor

You can rely on your accountant to provide you with operational assistance such as bookkeeping and payroll compliance, as well as assistance with budgeting and financial forecasting and tax planning, reporting, and compliance. Your work with a good CPA can reduce the chances of you encountering more costly problems in the future.

Your Wealth Manager as an Investment and Financial Planner

The role of your wealth manager is not only to safeguard the wealth you already have but to help you grow your proverbial nest egg. A skilled financial advisor will know you and your objectives, and your risk tolerance, and with this insight and their experience and knowledge to help you develop investment strategies to help you achieve your desired financial outcomes.

Your Real Estate Advisor as Property Professional

For many, investing in real estate is a component of a long-term growth strategy, or you may need to find space for your business to rent. Having an  experienced real estate professional to help you navigate investment opportunities or find a home for your business can be essential in your overall plan

Your Attorney as Legal Advisor and Quarterback

From starting your business to drafting and negotiating contracts, and possibly one day selling your business or passing it on to your heirs through a comprehensive estate plan, these are just some examples of how a lawyer can counsel you and aid you in devising risk mitigation strategies, to advance your financial objectives.

Building a Strong, Strategic-Oriented Advisory Panel To Support You

When forming your panel of advisors, it’s important that each professional is a communicative and proactive member of your team. Building your collective of professionals who understand the synergy and value of teamwork to help you develop and regularly update and adapt a strategy to build the legacy you envision can take time. However, one or more of our attorneys who regularly handle business and estate planning, and asset preservation is a good starting place. 

Contact our law office, Wilson Ratledge, PLLC, to discuss how our legal team can assist you in strategically planning for your future, including preserving and growing your business and your legacy. 

Being a North Carolina business owner comes with a lot of benefits, including the ability to be your own boss and do what you yourself deem to be meaningful work. However, one of the downsides to owning your own company is that sometimes, the more successful you are, the more of a target you become for legal liability. This is the main reason we often advise our corporate clients at Wilson Ratledge to consider funding asset protection trusts to shield their business from legal threats.

There are all sorts of benefits associated with funding trusts, whether you own your own business or not. [link to a revocable living trust post? If we have one?] However, as someone who has their own company, you may have, or may be perceived to have a higher income than most who are traditionally employed, and you may own your own home plus a portfolio of rental properties or a vacation house. If this is the case for you, then taking time to learn more about asset protection trusts is critical. Below, we’ll share how specific trusts can protect your business and personal wealth so you can have more peace of mind knowing you have done all you can to provide for yourself and future generations. 

Trusts That Protect Against Unknown Future Creditors

As suggested previously, your goal as the owner of your own NC business should be to focus on your business, not protecting your personal assets against anyone who might make a claim to them in the future through unexpected or unforeseen civil litigation or threats of civil litigation. 

It is important to note that North Carolina prohibits “self-settled spendthrift trusts.”  This means you cannot put your assets out of creditors’ reach by moving them to an irrevocable trust of which you are a beneficiary.  Competent legal counsel is critical in navigating rules like this and others preventing “fraudulent transfers” (moving assets out of your name when a creditor threat is known).  We can, however, use a variety of tools to position your assets to continue to benefit you and your family in a manner that works for you and complies with North Carolina law.  Some of the best asset protection trusts in North Carolina include:

• Spendthrift or Protective trusts: Referenced in N.C. Gen. Stat. § 36C-5-502 and N.C. Gen. Stat. § 36C-5-508 the beneficiaries cannot give away any interest in, or borrow against, or sell property contained in the trust. These protective trusts are most commonly used to protect assets from being squandered by reckless or immature beneficiaries. 
• Discretionary trust: Addressed in N.C. Gen. Stat. § 36C-5-504, trustees managing these irrevocable trusts exercise complete control over the amounts and when distributions from the trust will occur.  Since the beneficiaries have no right to compel a distribution from the trust, the assets are protected. Since assets contained in the trust are held separately from those of beneficiaries, it protects them should the beneficiary file for bankruptcy or be sued by creditors, or have any other issues which indicate that assets should remain in trust or be used for the beneficiary’s benefit through direct payment to others (such as universities or health care providers) rather than be distributed outright.
• Spousal lifetime access trust (SLAT): This irrevocable trust allows for donor/settlor spouses to gift assets in trust for the benefit of their spouse(and sometimes other family members).  In addition to the protective nature of these trusts, they can reduce the value of the combined taxable estate. Trusts like these result in a loss of control over trust assets, which means they give up say over their disposition or the ability to claw them back; however, grantors typically continue receiving indirect income from these trusts via their spouse’s role as beneficiary.

Out-of-State asset protection trusts (APT): The APT is often lauded as the strongest protector against potential judgments, lawsuits, and creditors who may attempt to stake a claim to your assets. This is a self-settled trust, meaning grantors can be permissible beneficiaries and, thus, access funds contained in it. North Carolina isn’t one of 17 states that allows you to set up one of these; however, some of our state’s business owners do so in other states. There are important advantages and disadvantages of this option, which you’ll want to discuss with legal counsel like ours at Wilson Ratledge.

How an Attorney Can Help You Decide Between Asset Protection Trusts

There are many intricacies that apply to each different type of trust depending on how much control you, as the grantor, wish to exercise over the assets placed into or whether you can ultimately revoke the trust, your intended beneficiaries, and how the trust should be taxed. 

Insight gained through years of experience advising clients and developing a strong familiarity with the numerous options and factors involved in choosing an asset protection strategy that works for you and your family is crucial. Contact our law firm if you’re looking to improve or implement safeguards for your business and personal assets.

Many individuals worry about what will become of their property at their death, and the good news is that you can, by and large, control what becomes of it through estate planning. You don’t have to wait until later in life until perhaps you’ve amassed significant wealth to document your wishes for the disposition of your assets in a will or to fund trusts, for example. You can put in place an estate plan right now so that you can rest comfortably knowing everything is clearly documented or set up in alignment with your preferences. 

Below are some of the steps you can take to protect your assets after your death and make sure they go where you intend.

Draft a Will 

The 2023 Wills and Estate Planning Study by Caring.com shows that only 34% of Americans have taken the time to create an estate plan. While it’s most likely that those who have created at least a will, that statistic lets us know that at least 66% of Americans likely don’t have one, which is certainly concerning. Why? 

A will, among other things, allows you to document what you’d like to happen with your property upon your demise, whether that’s your sentimental heirlooms that have been passed down through the generations, your car, social media accounts, cash on hand, etc. Thus, as you can likely read between the lines, having a will in place can protect your assets from ending up in someone else’s hands other than who you intended. 

Fund a Trust

Some of the reasons individuals fund trusts as part of the estate planning process are minimizing their state or federal tax burden, preserving a person’s access to government benefits, protecting their assets from creditors, and exerting more customizable control over the distribution of them. There are many different types of trusts to choose from, including revocable and irrevocable ones, each with its own purposes, pros and cons, which you’ll want to discuss with a Raleigh estate planning attorney like ours at Wilson Ratledge, PLLC, to ensure they protect your assets as you intend.

Engage in Business Succession Planning

Your company’s organizational structure may play a role in dictating what happens with your business after your death and also impact taxation. As for the former, a limited liability company (LLC) or a partnership should have an operating or another type of agreement in place spelling out plans for the company after your death and to have a contingency plan in place if you become incapacitated. Engaging in business succession planning, which includes identifying and grooming a future leader for success and documenting your plans for your family to continue to benefit from this valuable asset, is a critical component of estate planning. 

Consider Gifting Assets While Alive

Per the Internal Revenue Service, an individual can transfer most gifts up to $18,000 for 2024 to someone else without any taxes being incurred. This provides an opportunity for you to pass assets that your loved ones can continue to benefit from after you’re deceased while you’re still alive.

Life Insurance

Life insurance can be a great way to mitigate the effect of income or estate taxes, or unequal distribution of assets at your death (for example, if not all of your children will participate in a family business or if certain assets will benefit only some of your beneficiaries).  Our estate planning attorneys can help you use an irrevocable trust to keep life insurance proceeds from adding to your taxable estate.

Appoint a Beneficiary of Bank Accounts and Other Assets

In some cases, it may be beneficial to name someone as the person who will receive certain assets directly by beneficiary designation at your death. This option is available for many assets, like bank accounts and real estate, not just life insurance and retirement accounts.  Our estate planning attorneys will help you not only draft your estate planning documents appropriately, but will also review your assets and how they are titled, and discuss opportunities outside of the documents to achieve your objectives.

How an Estate Planning Attorney Can Help You Preserve Your Assets for the Future

The fact that you’re thinking ahead about how estate planning and other proactive measures can protect your assets from taxation and creditors and avoid the often-complex and time-consuming probate process, ensures your loved ones will inherit as much of what you plan to leave them as possible themselves. This will allow them to grieve your loss and restore some semblance of normalcy to their lives without having to deal with the added burdens that often come with a close family member not having a well-thought-out estate plan in place. 

Don’t delay creating an estate plan or revisiting your existing one to ensure it adequately protects your assets. Contact our Raleigh law firm, Wilson Ratledge, PLLC, for personalized guidance as to steps you can take to protect your assets after your death. Our estate planning attorneys are eager to help.