Every business owner has their own financial goals reflecting their philanthropic ambition, level of success, retirement plans, and designs for beneficiaries. Only a strong relationship with a capable advisor can help you navigate your unique situation to arrive at the right path forward.
Still, there are fundamentals of asset protection that are universally applicable.
This article will introduce readers to the fundamentals of asset protection and qualified professionals to basic issues they can address to help owners best protect their assets and realize their financial goals. Ideally, readers will gain a better understanding of the asset protection process and the importance of preserving the assets they have worked so hard to earn as business owners.
Setting the Stage for Planning
Getting started is often the hardest part. Asset protection is a broad topic that includes retirement and estate planning but goes even further to also account for the future of your business.
Ask these fundamental questions to get an idea of what’s most important to you – and what’s at stake if you don’t have a comprehensive plan.
What is my business worth?
The owner’s valuation and the markets may not align. Conduct a valuation to get a concrete sense of the true value of the business. Substantiating that value will prove important in any discussions centering on an exit and serve as the basis for calculating valuation discounts, a powerful tool in tax, estate, and gift planning contexts.
How would I like my assets deployed after I’m gone?
An estate plan is essential for maximizing your ability to support the charitable missions and individuals closest to you. Setting these intentions before beginning the process will help you build an effective strategy. This question may also raise succession as a means to preserve ownership, in whole or part, by passing the business along to a family member, key employee, or outside interest. A succession plan involves identifying who might be a suitable steward to take over the business and should include a timeline for the transition.
What do I need to support myself and my spouse through retirement?
Anticipating your future needs will help ensure you and your immediate family can live out retirement with financial security.
The Goal
In construction, an effective plan centers on estate and tax planning, and is designed to preserve the “three C’s,” which are: character, capacity, and capital. The estate planning options available to contractors, and variables that arise throughout the planning process, stand to impact the owner’s reputation, family members, and continuing business interests, as well as the clients, vendors, and employees of the business, among others.
Crucially, the plan you establish today is a living document that can be amended and updated as your circumstances and goals evolve. And, with the plan in place, the highest hurdle is behind you. Rest assured, it’s much easier to update a plan to meet changing goals than build it from scratch.
The Team
Sophisticated strategies need to feature the informed perspective of all of those immediately affected, including the owner(s) themselves, their spouse(s), children, and others. They should be influenced and guided by professional advisors and business partners, including accountants, bankers, bonding agents, estate planning attorneys, and sureties.
Tax Landscape
In the estate planning context, maximizing benefits and limiting liabilities is a multifaceted process that requires the input of a professional. Still, there are some universal issues to consider and no forward-looking plan is complete without an appreciation for the long-term tax implications.
Here are a few of the top tax considerations your plan should account for:
Capital gains tax
The sale of a business to a third party will often trigger capital gains taxes that reduce the cash flow from the sale of the business to the business owner. Some sales structures offer tax advantages. For example, a sale to an employee stock ownership plan (ESOP) is not subject to capital gains if a section 1042 election is made, but selling to an ESOP is not an option for all companies.
Navigating the implications of inheritance, estate, and gift tax at the state level requires the assistance of a professional with the relevant regional experience. It’s also important to consider the impact of “transfer taxes.” These include:
The federal gift tax
These are taxes imposed on property transfers during the lifetime of the donor. The federal gift tax is subject to an annual exclusion when made directly to or for the benefit of a spouse, child, grandchild or any donee, and when the amount is under a certain threshold in dollar value ($19,000 in 2026). Further, every U.S. resident can also exempt up to $15 million in federal gifts in their lifetime, so a married couple can gift up to $30 million in their lifetime, gift tax free. Effective planning means this tax is rarely paid.
Federal estate tax
Applying to transfers of property after death, the federal estate tax is exempted on transfers of property (of any amount) to a spouse. Upon death, any remaining lifetime exemption not used during life in gifting (currently $15 million or $30 million if married), will reduce the taxable estate and reduce estate taxes. In certain cases, additional deductions may apply. The federal estate and gift tax rates are currently 40%.
Federal generation-skipping transfer tax
Transferring property to those more than one generation younger, most typically directly to grandchildren or to trusts that include a grandchild, are subject to the generation-skipping transfer tax (GST) in addition to other forms of gift and estate tax. Similar to the federal estate and gift tax rates, the GST rate is 40%, and every U.S. resident can exempt up to $15 million of GST in their lifetime or at death.
The Methods
To accomplish the goal outlined above, namely the preservation of the three Cs, professionals employ a variety of methods, all of which depend on specialized knowledge and careful planning.
An effective plan leverages the insights of a variety of qualified professionals with the goals of (i) minimizing tax liabilities, (ii) making assets creditor-proof to maximize their value to beneficiaries, (iii) creating multi-generational structures to take full advantages of the lifetime gift and GST exemptions, (iv) reducing the value of transfers using lack of control and/or lack of marketability discounts; (v) basis step ups (vi) transferring ownership of the company, if desirable, and (vii) accomplishing the financial goals of the owner, including fully funding their lifestyle through retirement.
Each business is unique, with its own goals and circumstances. Still, no matter what your ambitions are, the following principles of effective planning can help ensure they are met:
- Tax liabilities can be minimized by leveraging exemptions and using lack of control and lack of marketability discounts.
- Estate plans can protect beneficiaries from creditor claims that most commonly arise alongside divorce, torts, and contractual issues.
- For qualifying entities, large trusts can help ensure the value your business has generated can support future generations without being subject to transfer taxes.
- Transferring a business isn’t right for everyone, but success planning that preserves the engine of financial success has obvious advantages. Family dynamics, aptitudes for the work involved, and other factors will be unique in every instance of an intrafamily business transfer.
- Estate plans need to be future-proof as much as possible. That means protecting the assets necessary to support the owner and their spouse over the long term.
Every plan should account for its administrative demands and the tax and industry-specific insights necessary to reach the desired results. As laws change, families evolve, and economic circumstances introduce new issues, plans must be able to change accordingly.
Achieving a sufficiently flexible estate plan requires ongoing knowledge of the construction industry’s unique dynamics, tax accounting methods, and reporting requirements. The specialized insights required make advisors indispensable.
In addition, when plans involve active businesses, the potential impacts of comprehensive planning (particularly those involving succession) can have business implications that affect loans and bonding arrangements. For that reason, loans and bonds from banks and sureties involved with the business should be collateralized and secured, and the institutions should be aware of the estate planning process to ensure the business is not negatively affected by provisions within the owner’s asset protection plans.
Conclusion
Asset protection is a complex, emotional, and time-consuming process that owners often put on the back burner to focus on more immediate concerns. Foregoing the process can be disastrous though, as grieving family members can face administrative and financial upheaval while processing the loss of a loved one.
With the fruits of their labor at stake, owners that fail to create an estate plan risk compounding personal loss with the loss of a business or worse, financial liabilities and business responsibilities that fall on bereaved loved ones who are not prepared or equipped to shoulder them.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.