You worked hard to build your company from the ground up and have family members or close friends that you want to enjoy the fruits of your labor now or once you die. You may already know that trusts are the best option for maximizing wealth transfers to others. However, you may be unclear about tax-efficient trust strategies business owners like you can use to ensure your loved ones receive as much of the assets as possible. Continue reading where we’ll discuss tax-saving trust options our attorneys at WilsonRatledge help business owners like you fund.
Types of Trusts To Consider as the Owner of a Company in North Carolina
A few different trust options worthy of consideration when transferring wealth, such as your business interests, to others include:
- Gifting to an irrevocable trust: Making gifts to or funding an irrevocable trust may be an effective strategy for you to consider if you, as a business owner, want to transfer wealth to a child or grandchild, yet you have concerns about their ability to be financially responsible if you were to make a direct gift instead. One downside to an irrevocable trust is that you cannot change it once you fund it. However, a carefully thought-out estate plan can help you avoid potential pitfalls and provide a steady flow of income from the trust and tax-saving benefits.
- Funding a generation-skipping trust (GST): By skipping your child’s generation and creating this trust in which you transfer assets to future generations, like your grandkids, it allows you to avoid having to pay any estate taxes you might otherwise owe.
- Establishing an irrevocable life insurance trust (ILIT): This irrevocable trust owns life insurance and so the policy benefits continue to be held by it once the insured dies, which shields the proceeds from taxation.
- Creating a grantor retained income trust (GRIT): This trust allows you to transfer assets to your heirs and receive an income stream for a limited time thereafter. Once that period ends, appreciation for those transferred assets beyond the annuity payment payouts can be received tax-free by your beneficiaries.
- Create a charitable remainder trust (CRT): Business owners can transfer interests in the company into a charitable remainder trust. The trust, in turn, makes yearly payments to a designated non-charitable beneficiary. That remainder, which must equate to 10% or more of the funding value, transfers to the selected charity at the conclusion of the trust term. Many business owners fund CRTs because they allow them to contribute to a charitable cause and because the charitable remainder creates an income tax deduction, reduces their obligation to pay capital gains taxes, and allows the non-charitable beneficiaries to receive significant annual payments, details regarding which are discussed in the North Carolina Charitable Remainder Trust Administration Act.
- Funding a non-grantor trust: These trusts can be appropriate for business owners seeking to reduce the tax burden associated with selling their business in a state with higher income rates compared to a state with lower or no state income tax state.
Why To Schedule a Consultation With Our North Carolina Tax and Trust Attorneys
The above is far from an exhaustive list of wealth transfer trust options that can reduce your tax burden so you can pass on more of what you’ve worked hard to build and earn to others. The trusts, estates and tax planning attorneys at Wilson Ratledge can be a great resource to you in deciding which wealth transfer options will benefit you, your business, and your loved ones. Contact our law office to schedule an initial consultation to discuss tax-efficient options for passing your assets to others now or in the future via trusts.