The Wiewel Law Firm

Not a Billionaire? Trusts Can Still Be Beneficial

“Even if your asset base doesn’t measure up to the Bill Gates standard, you may consider using trusts in estate planning. This is because they can help your heirs in many different ways.”

You don’t have to be wealthy to benefit from the use of a trust. A trust is a legal arrangement by which one person transfers his or her assets to a trustee who will hold those assets in trust for third parties, explains the Stamford Advocate’s article “Trusts are not for the wealthy only.” As the person who created the trust, referred to as “the settlor,” you determine who the trustee is, as well as naming the beneficiaries.

There are many different types of trusts which serve different purposes. However, the two basic categories of trusts are revocable (also known as “living” trusts) and irrevocable trusts. Their names reflect two chief characteristics: the revocable trust can be changed and controlled by the settlor. The irrevocable trust cannot be changed, and the settlor gives up the control of the trust. However, it should be noted that the irrevocable trust has certain tax and other benefits not offered by the revocable trust.

A will is definitely necessary to pass assets on according to your wishes, but a trust can serve other purposes. Here’s a look at some common reasons why people use trusts:

• Protect assets from creditors
• Allow heirs to avoid probate of assets in the trusts
• Avoid, minimize or delay estate taxes, transfer taxes or income taxes
• Control how assets are disbursed or invested
• Facilitate business succession planning and manage business assets
• Shelter assets for descendants, if a spouse remarries
• Establish a family tradition of philanthropy

Trusts allow assets to be passed on quickly and privately, while eliminating some expenses for heirs. They also permit closer management of who will benefit from your assets.

The cost of setting up a trust depends on the complexity of the trust and the estate, as well as other factors, like the number of beneficiaries and how many generations are being planned for. Bear in mind that the cost of setting up a trust should be measured against the future cost of not just taxes, but any litigation that might occur if the estate is probated and becomes public knowledge, or if family members are dissatisfied with the distribution of assets.

Speak with an estate planning attorney to first determine what kind of trusts are needed for your estate plan to achieve your wishes. Discuss the role of a Special Needs trust, if any family members have mental or physical needs that make them eligible for public assistance. An experienced estate planning attorney will know which planning strategies are best in your unique circumstances.

Reference: Stamford Advocate (Jan. 19, 2020) “Trusts are not for the wealthy only”

Business Owners Should Start End-Game Planning Now

“Running and owning a business is just like raising a child: Both are investments in the future and both require a lot of time, resources and effort to raise successfully.”

Most parents understand that the ultimate goal of child-rearing is to help a child become an independent adult. For the business owner, this means building a business that would continue after they have retired or passed away. However, when it comes to estate planning, says the article “Why Business Owners Should Think About Estate Planning Sooner Than Later,” from Forbes, many business owners think only about their personal assets and their children.

For a successful business owner who wants to see their business continue long after they have moved on to the next chapter in their lives, the best time to start succession planning is now.

Succession and estate planning should not be something you wait to do until the end of your life. Most people make this mistake. They don’t want to think about their own mortality or what will happen after they’ve died. Very rarely do people realize the value of estate planning and succession planning when they are engaged in a start-up or when their companies are just getting solid footing. They are too busy with the day-to-day concerns of running a business than they are with developing a succession plan.

However, any estate planning attorney who has been practicing for more than a few years knows that this is a big mistake. Securing assets and business planning sooner, not later, is a far better way to go.

Business continuity is the first concern for entrepreneurs. It’s not an easy topic. It’s far better to have this addressed when the owner is well and the business is flourishing. Therefore, the business owner is making decisions and not others, who may be emotionally invested but not knowledgeable about the business.

A living trust and will can put in place certain parameters that a trustee can carry out. This should include naming the individuals who are trusted to make decisions. Having those names and decisions made will minimize the amount of arguing between recipients of assets. Let them be mad at you for your choices, rather than squabbling between each other.

Create a business succession plan that designates successor trustees who will be in charge of managing the business, in the event of the owner’s incapacity or death. A power of attorney document is used to nominate a fiduciary agent to act on your behalf if you should become incapacitated, but a trust should be considered to provide for a smoother transition of the business to successor trustees.

By transferring a business to a trust, the inconvenience and costs of probate may be avoided and assets will be passed along to chosen beneficiaries. Timely planning also preserves business assets, since they can take advantage of advanced tax planning strategies.

Estate and succession planning is usually not top-of-mind for young business owners, but it is essential planning. Talk with an experienced estate planning attorney to get yourself and your business ahead of the game.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”

Own a Business? What about Succession Plan?

It is a good idea to have a plan, just in case you do retire.

Many business owners have worked for years to build up their business and don’t have any intention of retiring. However, that day is likely to come and it would be wise to have a succession plan, according to The Gardner News in “Do you have a business succession strategy?”

It takes a very long time to create a succession plan that works. Therefore, planning for such a plan should begin long before retirement is on the horizon. That’s because there are as many different ways to map out a succession plan, as there are types of business. A business owner could sell the business to a family member, an outsider, a key employee or to all the employees. The plan could be implemented while the business owner is still alive and well and working, or it could be set up to take effect, only after the owner passes.

The decision of how to handle a succession plan needs to be made with a number of issues in mind: family dynamics and interest in the business (or lack of interest), the nature of the business, the success of the business and the owner’s overall financial situation.

Here are a few of the more popular strategies:

Selling the business outright. There are business owners who don’t need the money and feel that no one else will care as much as they do about their business. Therefore, they sell it. There needs to be a lot of planning to minimize tax liability, when this is the choice.

Using a buy-sell arrangement to transfer the business. This can be structured in whatever way works best for both parties. It allows a slower transition to new ownership. Some families use the proceeds of a life insurance policy to fund the buy-sell agreement, so family owners could use the death benefit to buy the owner’s stake.

Buying a private annuity. This permits the owner to transfer the business to family members, or someone else, who then makes payments to the owner for the rest of their life, or maybe their life and another person, like a surviving spouse. It has the potential to provide a lifetime stream of income and removes assets from the owner’s estate, without triggering gift or estate taxes.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and can include a succession plan.

Reference: The Gardener News (June 4, 2019) “Do you have a business succession strategy?”

New Year Is a Good Time to Consider Estate Planning

An estate planning resolution can be beneficial to everyone.

There are many possible New Year’s resolutions. However, a good one to consider may well be creating an estate plan or taking a fresh look at your current plan, according to the Grand Rapids Business Journal in “Incorporate estate planning into New Year’s resolutions,”

Resolving to address your estate plan and wealth administration in the coming year, will be a big help to you and your family. It’s easy to become overwhelmed—how many accounts do I have? Who is the named beneficiary? Who will administer my estate? To make it easier, use this checklist:

Revisit your estate plan. Have you looked at your estate plan in light of the 2018 tax law changes? Have you updated your beneficiary names on any accounts? Do you have contingent beneficiaries named?

Develop or update your will and don’t forget to sign it. If you pass without a will, the laws of your state will determine how your property is distributed, and the court will assign a guardian to your minor children. Better—have your will created or update it. Not having a will may increase your family’s tax liabilities, not to mention the legal disputes or challenges that result when there is no will. Don’t forget to finalize the document with your signature. Yes, that really does happen, and it leads to unnecessary problems.

Revise your charitable giving. Instead of annual charitable giving that may no longer be deductible under the new tax laws, consider donating a larger sum to a donor-advised fund. This lets you receive an immediate charitable deduction and distribute funds to carefully vetted charities over time. This also lets your money grow tax-free before it is donated.

Check on your insurance coverage: Just as your life changes and your estate plan changes, your insurance needs change also. Make sure there are no gaps in your coverage and that there’s enough liquidity to pay estate taxes, satisfy any buy/sell agreements and provide enough money to support any survivors. If you have young children, have you included their college educations in your insurance portfolio?

Business succession plan review. Business owners who pour their heart and soul into their businesses hate to think about succession planning, and as a result many do nothing, leaving partners, family members, and clients in a bad position. What would happen to the business, if something unexpected occurred to you? Does your retirement plan center on the sale of your business? It usually takes a long time to create a business plan, and then it needs to be reviewed on a regular basis to ensure that it still works for all involved.

Make an appointment with your estate planning attorney. An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances or take a fresh look at an old plan.

Reference: Grand Rapids Business Journal (Dec. 7, 2018) “Incorporate estate planning into New Year’s resolutions”

Business Owner? Plan for the Future and Your Family

So, what would you like to happen with your business?

If you are a business owner, you have worked long and hard to be successful. However, there comes a time when you look toward the future and decide what you would like to happen, according to Northern Nevada Business in “Protect your business through estate, succession planning.”

The continuity of any business, when the owner leaves the business because it is sold or because of death, must be dealt with, so that the owner, family members and business partners have a plan in place.

An estate plan helps a smooth transition occur, if the owner should die unexpectedly. Even a basic plan that authorizes a partner or key employee to continue operating the business on a temporary basis, will serve to protect the value of the business and the good will of its customers.

It is not easy to decide who the successor will be, but it is one of the big decisions that must be made. If you simply name a spouse or a child who is not ready to take the helm, you could doom the business. If the family is involved with the business, you’ll need to give clear directions as to who will be responsible for what tasks.

If you’ve got adult children who have never worked in the business at all, and worse, never worked in the business together, you could be looking at the end of the business. Consider a plan where family members become “silent owners,” and key employees are given more authority. You’ll need to work with an estate planning attorney who has helped clients successfully accomplish this, so that family strife does not spill over into the business.

A valuation of the business will also have to be done by an experienced professional.

Some families use life insurance proceeds to provide the funds for a child, spouse or partner to buy out the other business partners when the founder dies. This is also a way to provide assets to family members, who won’t receive any interests in the business.

Make sure that your estate plan aligns with your succession plan. A buy-sell agreement defines the exit strategy for partners and details what will happen to the business in the case of retirement, disability or death.

If no family members or partners want to take on a leadership role, you’ll need to identify a key employee and discuss with him or her the possibility of buying into the company. This can help foster employee retention and offers consistency during the transition.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and can include your business asset.

Reference: Northern Nevada Business (Oct. 30, 2018) “Protect your business through estate, succession planning,”

Transition to Succession for a Family Business

While most estate plans have a good chance of success even if you do not inform your heirs of the details, the chances of success are greatly diminished if you are passing on a family business.

If you own a family business it is not only vital that you plan ahead for passing on the ownership and control but that you also have a transition plan in place in order to increase the chances of a success, according to the Wills, Trusts & Estates Prof Blog "Preparing the Family Business for Succession."

For the family business to thrive after the current owner passes away, careful plans must be made for who will be in charge next. Everyone needs to know who will be in charge on day one and, to make that go as smoothly as possible, it is important that the next leader knows what he or she is supposed to do.

Ideally, the next leader should be groomed for the role by taking part in the business on a day-to-day basis and making decisions about it sooner rather than later. Even if all that is done, it is important to plan for any contingencies that might occur. A secondary plan for succession should also be in place.

Should a family business be part of your life, it would be wise to meet with an estate planning attorney to increase your chances of a successful family business transition.

Reference: Wills, Trusts & Estates Prof Blog (Oct. 6, 2016) "Preparing the Family Business for Succession."

Emotions Have No Place in Business Estate Plans

Survivors are almost always emotional when dealing with the passing of a loved one, but if the deceased is a business owner it is important to limit the impact on businesses and operations.

The drama that surrounds survivors after a death can affect businesses of all sizes from tiny Mom & Pop operations to large corporations as heirs question whether they are being treated fairly

This leads to emotionally fueled conflict that can be difficult to resolve.

One of the goals of estate planning is to make it so that any emotions do not affect how the estate will be distributed and do not lead to unnecessary litigation. If you own a business, or even just a part of one, you can create a business estate plan to accomplish the same goals for the business.

In "Don't Be So Emotional: Drama-Free Business Estate Planning" Forbes described some methods that can be used to accomplish this, including:

• Buy-Sell Agreement – This allows you to set a valuation for your share of the business, determine who will be getting it and make sure that your heirs receive fair value.
• Escrow and Trusts – Stock can be held in escrow until such time as agreed upon plans are carried out. Trusts can be used for all sorts of things, such as holding stock, voting, and buy-sell agreements.
• Pre-Funding – One of the biggest sources of conflict over business succession is when any party that will receive a payment gets the money. This can be resolved by using pre-funding to make sure that the money is available when you pass away.

A qualified estate planning attorney should be consulted to ease the drama and head off the conflict.

 Reference: Forbes (Nov. 9, 2015) "Don't Be So Emotional: Drama-Free Business Estate Planning"

Don't Let a Perfect Storm Ruin Your Plans for the Family Farm

In February of 1959, rock and roll musicians Buddy Holly, Ritchie Valens and J.P. "The Big Bopper" Richardson were killed when a plane Holly chartered at the last minute crashed near Clear Lake, Iowa. The event later became known as "the day the music died." Richardson had the flu and talked Waylon Jennings into giving up his seat on the plane. Valens won a coin toss with Tommy Allsup for the last seat. The timing of these two fateful actions altered the course of history for these men and their families. My first memory of playing musical chairs was in kindergarten. Our elementary music teacher taught us not only about music but also unknowingly about competition. When the music stopped, the goal of the game was to be in a position to grab the chair and not be left standing, alone and out of the game. We were taught the "Golden Rule" — to be nice to classmates — but at the same time, the game instilled a conflicting desire to grab that last open chair from a fellow 6-year-old who may not have been quite as quick on the draw. There is a perfect storm brewing in agriculture — specifically regarding transition of assets from one generation to the next. The timing of this perfect storm could be catastrophic for a family farm.

Factors included in this perfect storm include the quantity of farms owned by the older age group, as well as the psychological and emotional issues involved with trying to keep a family institution thriving and in the family. Couple these issues with the amount of capital investment required to continue the farm and the uncertainty of when things will happen, and your farm operation could be in trouble. You need a complete plan, says an article in the Iowa Farmer Today, "Discuss farm estate and succession plans now so no heir is 'left standing.'"

The article advises every farm family to create and review an estate plan and a farm succession plan. These two plans may overlap, but they are two different programs. The estate plan includes documents such as a will or trust, powers of attorney, farm continuation language, executors, trustees, distribution plans, and the age of distribution for minor beneficiaries, as well as contingency plans in the event a beneficiary has predeceased or is disabled at the time of your death. The estate plan includes the coordination of beneficiary designations of retirement plans and life insurance. An important point is to maintain liquidity to pay debts, taxes, or administration costs. This may not be accomplished by simply naming your children as beneficiaries, as many do.

A farm succession plan typically includes the business operating agreements, terms of future purchase, the terms for lease if not purchased, and limitations on ownership. Which of the parts of an estate and farm succession plan will be most important to your family will depend on the timing and what stops the music in the estate.

A key part of any estate plan is identifying ownership and an updated fair market value of the estate assets.

Many folks think that an estate plan just deals with the distribution of assets at death. But an estate plan should identify and discuss strategies for the distribution of any assets that could or should be distributed prior to your death, in addition to those distributed when you pass away.

A good estate plan not only identifies assets but sets out a timeline to distribute those assets with a process that is tax efficient, while keeping in mind the general goals of the estate.

Sharing plans for your estate and business succession is critical for the effective and efficient transfer of the operation. You can avoid some hurt feelings and selfishness down the road if you explain your goals and transparently deal with the heirs whose ideas of distributing your estate may not be the same as yours.

A critical aspect of a succession plan is to identify the method of pricing the assets that adequately represents not only the structure of the business but also the goals of the owner. Another important component of a complete plan is a source of funding when the transition occurs, such as a loan or insurance if the buyout would occur at death. Cash flow is essential for any viable business.

Business succession and estate planning is more of an art than a science. Although there are parts of each plan that are consistent, the real value of an estate and a business succession plan is recognizing the unique issues of each individual situation. There's no "boiler-plate" plan that will work and should be automatically used for every family business. You need to find a way to create plans that fit your distinctive goals.

Sometimes being involved in a farm business without a concrete estate and farm succession plan can be a little bit like playing the game of musical chairs: when the music stops in your estate, don't let your farm heir be the one left standing with uncertainty and confusion—and ultimately find themselves out of the game.

Reference: Iowa Farmer Today (October 16, 2015) "Discuss farm estate and succession plans now so no heir is 'left standing'"

Business and Avoiding Probate Problems

Small and family business owners have heard many nightmares about similar businesses that have had problems with probate. Many of the stories are true. However, with careful planning most of the problems associated with probate can be avoided.

Business owners normally fear probate because of the numerous nightmare stories they have heard about it. Many small businesses have had problems with probate. In the worst cases, the problems have led to the end of the business itself.

However, the truth is that most probate problems can be avoided with proper planning.

Recently, Forbes published an article titled "Five Ways Business Owners Can Avoid Probate Problems."

Their helpful list includes the following tips:

1. Trusts - If the business is placed in a trust, then it can pass to the next generation without going through probate.
2. Real Estate - Several methods exist to avoid probate with real estate including joint ownership and transfer on death deeds.
3. Personal Property - Make sure that business-related personal property is properly disposed of in an estate plan.
4. Wills - Even if you have a trust, you still need a will that works with that trust.
5. Succession Plan - Make sure you have a succession plan in place for the business.

Questions about these tips and how they can be put to work for the benefit of your business should be directed to an experienced estate planning attorney.

Reference: Forbes (May 4, 2015) "Five Ways Business Owners Can Avoid Probate Problems."

What's Your Business Exit Strategy?

You already may have resolved to create and monitor your business plan and develop a succession plan for your business.  The first part of the resolution is fairly easy to achieve.  After all, everyone with a business needs a business plan.  But few of us really consider what would happen to our business – and our families, our employees and their families – if something happens to us.

A recent National Law Review article, titled "Five Steps to Business Succession Planning,"lists some simple steps you can take to build a successful exit plan.

Some of these steps include:

Plan Now for Yourself and Your Family. Determine your planned exit strategy, retirement date, and the amount of income and resources you and your family will need after that date. An estate planning attorney can help you in articulating your objectives and creating a strategy to achieve those goals. The original article states that your ultimate goal is financial independence, so that you do not have to depend on the government or other individuals for your well-being.

Determine How to Exit Your Business. If the business is being sold to an outsider, you have settled on a straightforward and hopefully uncontroversial exit plan. But if the business is being transferred within the family, there are other issues. The original article gives an example of the situation in which one of your children is heavily involved in your business to the exclusion of the other children. In that scenario, you might want to even things out by making gifts or bequests of other property to your other kids. If more than one of your kids is involved or if you want to control the behavior of these children, another idea is to transfer your business ownership interest into a trust for the benefit of these kids or for all your children. Drafting these types of trusts and the succession planning relating to the trusts is really complex when you want to keep control of the business until your death or your spouse’s death. Talk to your estate planning attorney and examine potential estate taxes and income taxes when transferring the family business—you do not want your children to be forced to sell to pay the taxes at your death (or during your life in the case of gifts).

Work with your estate planning attorney to create the necessary business succession documents, and remember that it is never too early to start your succession planning!

Read more basic steps about a well-thought-out exit strategy in the original article, and talk to an estate planning attorney about the steps you need to take.

Reference: National Law Review (October 14, 2014) "Five Steps to Business Succession Planning"