Michigan Estate Planning Blog

Business Owners and Estate Planning: Special Concerns

 

Estate planning for business owners offers numerous opportunities for lifetime transfers to move value and future appreciation out of the taxable estate. An article from The National Law Review, “Estate Planning for the Business Owner, Part 1: The Business Owner as a New Client,” explains the information an estate planning attorney needs to know when helping a business owner create a plan addressing their business and personal assets.

First, how is the business structured? Is it a partnership or wholly owned by the founder? If it includes real estate, is the real property owned by the business or a separate entity? If more than one legal entity owns the business and its assets, all of those entities need to be considered when creating an estate plan. Some entities also have restrictions on their ownership, so this may need to be examined.

Are the proper business agreements in place already? This includes shareholder and operating agreements between equity owners. If the business is a corporation, are bylaws, limited liability companies, or partnerships in place? These may impact transfers of equity.

When was the last time a business valuation was performed? Income statements and balance sheets must be reviewed to create an estate plan. The estate planning attorney may benefit from meeting with the accountant.

Understanding the cash flow from the business is an integral part of building an estate plan. Does the business owner take a salary? Are net profits disbursed to equity holders at the end of the year, or are they plowed back into the business?

Is the business a new one, a family business passed down from many generations, or is it nearly time for the owner to retire? The stage of the business and projections for its future will have a major impact on the owner’s estate plan.

Finally, is there a succession plan? If there is one, the estate planning attorney will need to review it to ensure that the estate plan dovetails with the plan for the future. If there is no succession plan, this needs to be addressed.

Reference: The National Law Review (April 18, 2024) “Estate Planning for the Business Owner, Part 1: The Business Owner as a New Client”

Would Your Family Benefit from a Living Trust?

 

Estate planning is rarely on top of anyone’s bucket list. However, taking charge of your legacy is a gift to your family and should be done sooner rather than later. A recent article from The Motley Fool explains why a living trust should be part of your estate plan. The title says it all: “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family.”

At its essence, a trust is a way for one person to own and manage another person’s property or even to manage their own property. The IRS definition of a trust is as follows: “In general, a trust is a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another.”

A living trust requires you (the grantor) to transfer assets into it. If you manage the trust yourself, you are also the trustee. This lets you make all decisions for the trust while leaving instructions in very specific language for its distribution by a successor trustee (or two successor trustees) after you pass away.

Having the correct language is essential for the trust to achieve your goals, which is best prepared by an experienced estate planning attorney. They will know how the laws of your jurisdiction treat trusts and what language must be included for the trust to be valid.
Property can also be distributed through a last will and testament. However, there are several advantages to using a living trust.

Trusts avoid the time and costs of probate. During probate, the court supervises the distribution of assets. It takes time—months or, depending on the complexity of the estate, years. During this time, heirs don’t have access to assets, which they may have been counting on to pay for final expenses or maintain a home.

Trusts keep your life and death private. Once a will is filed with the court, it becomes a public document. Anyone who wants to can review its contents. Creditors, ex-spouses, estranged family members and salespeople can all review the will. This is why phone calls and mailings from realtors and financial advisors after a death in the family often besiege loved ones. Trusts remain private and are only reviewed by the trustee and, in some cases, beneficiaries.

Revocable trusts are flexible. While a revocable trust doesn’t provide the same level of tax protection as an irrevocable trust, it allows you, as the grantor, to make changes. You can add or delete beneficiaries, move assets in or out of the trust and change your appointed successor trustees.

A trust of any kind is not a do-it-yourself project. Consult an experienced estate planning attorney to define your goals and determine the best trust for your situation.

Reference: The Motley Fool (Feb. 12, 2024) “3 Reasons to Seriously Consider Using a Living Trust to Pass Inheritance to Your Family”

What Is the Purpose of a Living Trust?

 

There are so many misconceptions around trusts, especially thinking trusts are only for wealthy people, according to a recent article, “2 Key Benefits of Living Trusts” from Forbes. During your lifetime, a living trust is an extension of yourself. There are no tax benefits or tax liabilities until you die, when living trusts provide benefits compared to assets not held in trust.

What happens to different types of assets after death?

If you own assets with beneficiary designations, these will be passed to beneficiaries outside of probate. These are typically retirement accounts, life insurance, some investment accounts, pensions and annuities.

If you have joint ownership of assets, they will become the property of the surviving joint owner(s) after death. The most common jointly owned assets are real estate, bank and investment accounts.

If you own assets as an individual, they will go through probate. While bank and investment accounts do permit transfer-on-death (TOD) and payable-on-death (POD) elections to bypass probate, this is not appropriate for every situation.

Two of the most common benefits of having a living trust are avoiding probate or reducing the probate estate and having greater control over the distribution of assets.

If one spouse passes and owns all liquid funds (and/or a privately owned business) in their own name, the survivor may be left without funds to pay bills while the probate estate is being settled. Having a living will means the survivor, if named as a beneficiary of the trust, has access to assets during probate.

Probate also incurs expenses and can take months to settle an estate. Any assets going to through probate become part of the public record, which can create a host of other issues. A large estate in probate can become a burden on the surviving spouse and family.

When assets go through probate, the court has the final word on how assets are distributed. This may align with your will, but it might not. Suppose assets are held in a living trust. In that case, probate or at least reduce the number of assets going through probate and control the distribution of the assets without your personal financial information becoming part of the public record.

Your estate planning attorney can create a living trust, naming you as the trustee and a person to serve as a successor trustee. Your successor trustee will be responsible for distributing the assets in the trust upon your death.

There are many ways to create the trust. The spouse is typically the successor trustee, with varying levels of access to assets during the surviving partner’s lifetime, with the remainder going to children or relatives. Trust laws are state-specific, so speak with an experienced estate planning attorney to create a trust that suits your unique situation.

Reference: Forbes (Jan. 24, 2024) “2 Key Benefits of Living Trusts”

Successful Family Business Succession Tips Saginaw, MI

Planning for your estate and planning for your business are one and the same. When you are a family business owner looking to pass the torch, the business is at once your greatest asset and likely the center of the family's wellbeing – but in another important sense planning for a business is not at all the same. You cannot afford to mess this up. Succession planning is unique because business is business, and so a successful succession is a careful one. There are a great number of moving pieces to your business and to your family. Nevertheless, there are some basic guiding principles to help tie it all together. A recent article in The Business Journals offers “5 tips for a successful family succession.” While you should consult the original article for the details, here are the “five tips”: 1. Be Transparent 2. Clarify Ownership Values 3. Plan Ahead 4. Consider Financial and Tax Ramifications 5. Stay Connected Essentially, respect the family as family and the business as business. Family is here to stay and everyone has to come out on top, while the business requires leadership, sharp decision-making, and a business mindset. It pays dividends to work with the family and maintain transparency regarding your plans to make the “handoff” and their plans to receive. Ownership is a big issue to clarify, since ownership and a voice in the company straddles that fine line between merely family-owner and head-honcho decision-maker. These may be roles some loved ones are designed to occupy. What are the issues that most directly affect you and your family? How can or will you work through them to pass on the business? These are not simple questions by any stretch. More to the point, succession is more a process of working out the solution than just offering up the plan. You might say that succession is always a process unique to each family and family business, but one during which it is essential to have a steady hand guiding the process.

Reference: The Business Journals (December 9, 2013) “5 tips for a successful family succession”

For more information, see www.jerryreiflawyer.com

Nine Tips for Successful Estate Planning Saginaw, Michigan

Everyone likes practical pointers. Here are more than eight, but fewer than ten practical estate planning pointers for your consideration, especially as we enter a new year. 1. Keep your important documents like your will or trust up-to-date. Keep your legal residence address, marriage status, children, guardian list, etc. updated. 2. Keep track of beneficiaries for all of your IRAs, qualified plans and insurance policies. If you don't, they may be going to someone you no longer wish to receive them. 3. Maximize the liquidity of your estate. Liquidity is defined as the ability to quickly turn assets into cash. Without sufficient cash to pay taxes, funeral, and other expenses, your family may have to sell illiquid assets - such as a family business or other property - at an inopportune time. 4. Maintain an appropriate mix of investment risk. Over time, more risky investments like stocks and mutual funds should be moved into safe and stable investments such as annuities. 5. Name a dependable executor and/or trustee. Executors are called upon to collect assets, pay obligations, and distribute your assets. Your trustee must enforce all the provisions of any trusts you created. Choose people who have the knowledge, integrity and stamina in the face of pressure from family members to fulfill these obligations. 6. If you have minor children, consider naming one guardian for your minor children and a separate guardian for the property you've left to support them. The best guardian for your children may not be the most effective money manager you know. 7. Estate planning for your spouse. If your net worth is high enough, your estate may be subject to taxes. A simple estate plan can potentially save your loved ones hundreds of thousands of dollars in estate taxes. 8. Leaving the right assets to the right people. Make sure proper financial management systems are in place for people such as special needs children, teenagers, or other dependents. 9. Plan, plan, plan. While estate planning is important for everyone, it is most important for business owners, who must plan for the succession and/or buyout of their business. This is just a quick review of issues that should be addressed by you and your attorney when creating your estate plan. Remember, every situation is different and your estate plan is not going to look exactly like your neighbor’s estate plan. It is always best to contact an experienced estate planning attorney to assist you with all of your estate planning options.

Nine Tips for Successful Estate Planning Saginaw, Michigan

Everyone likes practical pointers. Here are more than eight, but fewer than ten practical estate planning pointers for your consideration, especially as we enter a new year. 1. Keep your important documents like your will or trust up-to-date. Keep your legal residence address, marriage status, children, guardian list, etc. updated. 2. Keep track of beneficiaries for all of your IRAs, qualified plans and insurance policies. If you don't, they may be going to someone you no longer wish to receive them. 3. Maximize the liquidity of your estate. Liquidity is defined as the ability to quickly turn assets into cash. Without sufficient cash to pay taxes, funeral, and other expenses, your family may have to sell illiquid assets - such as a family business or other property - at an inopportune time. 4. Maintain an appropriate mix of investment risk. Over time, more risky investments like stocks and mutual funds should be moved into safe and stable investments such as annuities. 5. Name a dependable executor and/or trustee. Executors are called upon to collect assets, pay obligations, and distribute your assets. Your trustee must enforce all the provisions of any trusts you created. Choose people who have the knowledge, integrity and stamina in the face of pressure from family members to fulfill these obligations. 6. If you have minor children, consider naming one guardian for your minor children and a separate guardian for the property you've left to support them. The best guardian for your children may not be the most effective money manager you know. 7. Estate planning for your spouse. If your net worth is high enough, your estate may be subject to taxes. A simple estate plan can potentially save your loved ones hundreds of thousands of dollars in estate taxes. 8. Leaving the right assets to the right people. Make sure proper financial management systems are in place for people such as special needs children, teenagers, or other dependents. 9. Plan, plan, plan. While estate planning is important for everyone, it is most important for business owners, who must plan for the succession and/or buyout of their business. This is just a quick review of issues that should be addressed by you and your attorney when creating your estate plan. Remember, every situation is different and your estate plan is not going to look exactly like your neighbor’s estate plan. It is always best to contact an experienced estate planning attorney to assist you with all of your estate planning options.

For more information, see www.jerryreiflawyer.com

 

Nine Tips for Successful Estate Planning Saginaw, Michigan

Everyone likes practical pointers. Here are more than eight, but fewer than ten practical estate planning pointers for your consideration, especially as we enter a new year. 1. Keep your important documents like your will or trust up-to-date. Keep your legal residence address, marriage status, children, guardian list, etc. updated. 2. Keep track of beneficiaries for all of your IRAs, qualified plans and insurance policies. If you don't, they may be going to someone you no longer wish to receive them. 3. Maximize the liquidity of your estate. Liquidity is defined as the ability to quickly turn assets into cash. Without sufficient cash to pay taxes, funeral, and other expenses, your family may have to sell illiquid assets - such as a family business or other property - at an inopportune time. 4. Maintain an appropriate mix of investment risk. Over time, more risky investments like stocks and mutual funds should be moved into safe and stable investments such as annuities. 5. Name a dependable executor and/or trustee. Executors are called upon to collect assets, pay obligations, and distribute your assets. Your trustee must enforce all the provisions of any trusts you created. Choose people who have the knowledge, integrity and stamina in the face of pressure from family members to fulfill these obligations. 6. If you have minor children, consider naming one guardian for your minor children and a separate guardian for the property you've left to support them. The best guardian for your children may not be the most effective money manager you know. 7. Estate planning for your spouse. If your net worth is high enough, your estate may be subject to taxes. A simple estate plan can potentially save your loved ones hundreds of thousands of dollars in estate taxes. 8. Leaving the right assets to the right people. Make sure proper financial management systems are in place for people such as special needs children, teenagers, or other dependents. 9. Plan, plan, plan. While estate planning is important for everyone, it is most important for business owners, who must plan for the succession and/or buyout of their business. This is just a quick review of issues that should be addressed by you and your attorney when creating your estate plan. Remember, every situation is different and your estate plan is not going to look exactly like your neighbor’s estate plan. It is always best to contact an experienced estate planning attorney to assist you with all of your estate planning options.

For more information, see www.jerryreiflawyer.com'