USA – TEXAS Law and Practice Contributed by: Perrin Clark, Ytterberg Deery Knull LLP
• creation of limited liability entities, such as LLCs; • use of premarital agreements; • asset transfers between spouses and family mem - bers, including in trust for their benefit; • purchases of insurance products; • funding of retirement accounts; and • investment in a residence to use as a homestead. 4.2 Succession Planning Individuals and families with substantial wealth, some - times involving significant closely held operating busi - nesses, often struggle with developing a viable suc - cession plan. While numerous strategies may exist and be employed to transfer wealth to lower genera - tions, a plan for succession of control over entities and property, particularly with respect to control of signifi - cant closely held operating businesses, can be much more challenging to create and much more nuanced in substance and implementation. Succession plans are often incorporated within other planning vehicles, such as trusts, LLCs, limited partnerships, and corpo - rations. With significant closely held operating busi - nesses, use of various strategies may be appropriate, including without limitation: robust company or part - nership agreements; shareholders’ agreements; buy/ sell agreements; insurance programmes; and board structures, potentially involving business managers and/or outside directors. Sometimes an actual suc - cession plan, setting forth a specific succession of governing persons and management provisions, may be appropriate. Family conflict with respect to suc - cession plans is often best avoided by creating a clear and robust succession plan well in advance of need and coupling it with transparency, so all the stake - holders are fully aware of the plan, including before implementation. 4.3 Transfer of Partial Interest In Texas, valuation discounts due to lack of control and lack of marketability are important estate planning tools for tax-efficient transfer of wealth to lower gen - erations. Often, ownership of property is bundled in a new holding company or partnership, if an appropriate entity for such planning is not already in existence. The entity is structured in a manner that separates control from ownership, either through the appoint - ment of governing persons (ie, managers of an LLC) or through a recapitalisation that creates a class of con -
trolling shareholders or a general partner. Once such an entity is properly structured, non-controlling eco - nomic interests are transferred to lower generations, often in trust, without transferring control of the entity. Sometimes this transfer is done as a gift, but often it is wholly or partially done as a sale, perhaps in return for promissory notes that utilise an appropriate AFR as their interest rate. Due to the non-controlling nature of the transferred interests, as well as their inherent lack of marketability (perhaps enhanced by transfer restrictions within the entity’s governing documents), significant valuation discounts might apply, reducing the transfer costs. The most significant current driver of family conflict is the unprecedented intergenerational wealth transfer that is occurring in the United States and in Texas. See 2.1 Cultural Considerations in Succession Planning . Often, this intergenerational wealth transfer includes the transfer of significant closely held operating busi - nesses and the transfer of control over these busi - nesses can enhance family conflict, particularly if such control is transferred asymmetrically, or family members perceive inequalities in the transfer of such control and the transfer of control over (and owner - ship of) other family properties. These family conflicts are playing out in various forums depending on the specific facts, including probate contests involving wills and testamentary transfers, litigation alleging breaches of fiduciary duty in both estate and trust contexts, litigation alleging breach of various duties 5. Wealth Disputes 5.1 Trends Driving Disputes in business contexts, and marital disputes. 5.2 Mechanism for Compensation Texas law provides many potential remedies to an aggrieved party in a wealth dispute. The appropri - ate remedy in a specific circumstance is highly fact dependent and may include, without limitation: • the requirement for accountings; • the award of monetary damages, including com - pensatory damages, attorneys’ fees, and punitive damages;
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