Unless you plan to sell your business to an unrelated party, it is important to properly plan for the orderly transition of the management of the family business from one generation to the next. If you don't have confidence that any family members are capable of or interested in managing the business, it may be preferable to retain outside management. For example, there may be a key employee in your company that could be trained to take over your management duties. This may or may not involve equity ownership.

There are several advantages to gradually transferring some of your management responsibilities to others while you are still actively involved in the business. Most importantly, it will allow you to retain control while permitting your intended successors to learn the business gradually. It is also important that all family members are aware of the succession plan so that potentially damaging squabbles are minimized.

As a general rule, family members who are not active in the family business should not become owners in the business. However, if the business is the major asset of your estate, equalizing the amount of inheritance (if this is an objective) with children who are not active in the business is difficult. One way to solve this problem is to purchase sufficient life insurance, with the proceeds being payable to beneficiaries who won't inherit the business.

To equalize your estate among your children, the value of the business must be determined. Of course, the value of the business changes over time. Therefore, you may consider "freezing" the value of your shares in the business so that an equalization formula can be determined. Family members not active in the business may inherit the "frozen" shares, which can be dividend-paying but have no votes.

If your current net worth is more than sufficient to provide for your needs and wants, planning strategies are available to minimize the estate tax that will have to be paid on your death. The type of planning will depend on the assets you own. For example, it can be as easy as transferring assets to your intended beneficiaries during your lifetime. However, if these assets have increased in value since their acquisition, the transfer could cause an income tax liability. There are planning strategies available such as "estate freezes" to limit this liability.

An estate planning strategy is to gradually reduce the value of your private company shareholdings over time, thereby reducing the value of your estate and the estate taxes and probate fees payable on death. Making such gifts may generate gift taxes. (These taxes may be offset by your estate tax credit.) It is possible to give assets away while still retaining control. Such techniques as Family Limited Partnerships or Family LLCs have the added benefit of reducing the gift amount for tax purposes. They may also provide creditor protection.

If you have substantial wealth, you should consider whether or not to create continuing trusts through your will (known as testamentary trusts). For example, if you bequeath all of your assets to your spouse or other family members, they can do whatever they want with the assets they receive. You will not have any continuing control over the assets. A possible alternative is to create a Qualified Terminal Interest Property Trust (QTIP Trust) through your will. Your spouse will still be entitled to all of the income from your assets-with ability to access capital if needed and you can establish definite parameters regarding how the assets will be dealt with after the death of your spouse.

A Non-QTIP testamentary trust can be similarly used to govern assets that are intended to provide longer term income to other family members and still provide income to the spouse.

Testamentary trusts have the added benefit of allowing for income splitting after your death.

In general, if you own an IRA or pension plan at the time of your death, its entire value must be reported as income by the beneficiary in the year of your death unless a natural person (not some types of trusts) is entitled to receive the funds.

The best option is to name your spouse as the direct beneficiary of the funds in your plan because he/she has the most flexibility to extend the tax deferral. Naming your estate as beneficiary greatly hinders the stretch-out of tax deferral and exposes the funds to the probate process.

If you don't have a spouse, there are still planning strategies available to reduce your plan's potential tax liability on your death.

In order to determine the tax cost of settling your estate, you will need to know the tax cost of every asset you own on your death. Generally, this will be the amount you paid for it. If you inherited any of your assets from someone else, you must also determine what value the executor placed on those assets. However, if you acquired the property from a spouse, you may have to determine your spouse's tax cost for the property, since assets generally pass between spouses on a tax-deferred basis.

It's a good idea to have a list of assets prepared and advise your executors where it is located (a safety deposit box is a good location). If this information is not readily available on your death, the cost of administering your estate could be significantly increased, particularly if your executors have to retain professionals to assist them.

Estate tax and other laws will continue to change until Congress passes a new law or 2011, whichever comes first. If you have a sizable estate, your heirs may have incentive to accelerate your demise in 2010 when there is no estate tax. A will that may have been suitable fifteen years ago, may no longer be tax effective. A properly structured will can significantly reduce your taxes. As a general rule-barring a change in your personal circumstances, such as marriage or divorce or a significant change in your net worth-you should have your will professionally reviewed and updated every ten years.

Everyone should have a will, because dying intestate (without a will) can defeat almost all of the estate planning arrangements you may have put in place. Each state has rules that determine (without any flexibility) how assets will be distributed to family members if you die without a will.

Income and estate tax rules are constantly changing. In order to minimize taxes, it may be necessary to make certain elections or to dispose of assets in a certain manner. To avoid having to update your will every time the tax rules change, a properly drafted will generally contains a clause giving the executor(s) the power to make any elections deemed necessary. They should also have the power to take any other action regarding the administration of your estate that might be needed to minimize taxes. It's a good idea to advise your executor(s) to seek professional tax advice as soon as possible after your death to ensure that tax minimization opportunities are not missed.

In general, upon death all of your capital property is valued at its fair market value as if it were being sold (i.e., a deemed disposition). Estate tax may be due on that amount.

There is an exception to the general rule: Assets that pass to a spouse or to a spousal trust can be transferred, and estate tax may be deferred. Therefore, your estate plan should leave assets to your spouse or to a spousal trust. However, each individual receives a credit against estate tax. You will likely want to generate enough estate tax to use up your credit before you pass assets to your spouse.

Sometimes it's just not possible to avoid taxes when you die. If your estate has sufficient liquid assets, the payment of taxes and expenses may not be much of a cash problem for your estate. But, if a major portion of your estate consists of shares of private companies or real estate, it may not be possible to satisfy your tax bill on death without selling some assets.

In such cases, the funding of potential taxes through the purchase of life insurance can be an effective estate planning tool. If sufficient insurance proceeds are available, any tax owed can be paid without resorting to the sale of your assets.