Are you a business owner and considering creating an Estate Plan?
If you want to prevent your business or businesses from being wrapped up in litigation, handicapped with tax liabilities or even run by people who have little understanding of what your goals are for the business then you should consider this when creating an estate plan.
You should plan for incapacity and avoid guardianship. Who would you want to run your business if you become unable to manage the day to day affairs? He or She should be designated through a power of attorney or revocable trust. If you do not designate someone in advance upon your incapacity you leave the decision-making power of your business to who the guardianship court appoints. Some very important business decisions may also require advance court approval. Planning to avoid guardianship can help ensure that the business will continue to be effectively managed if you are unable to do so.
One key component to creating an estate plan and considering your closely held business is to avoid probate. Any property in your name is generally subject to probate following your death. Assets which may be included in probate including their fair market values become public record. Being stuck in probate is long drawn out process which may take longer than a year or more before your business can be transferred to your loved ones.
What about your estate tax liability? Currently the law states that anyone with over 11.18 million will be subject to estate tax within nine months of death. Several closely held businesses exceed that value, often triggering a substantial tax liability. Without advance planning your estate may need to borrow or sell assets to raise the funds.
Planning to minimize estate tax can involve many complex measures, including life insurance, buy-sell agreements, and sales or gifts to trusts. An attorney with experience should be involved when making these decisions.
What about my personal income tax? Death is difficult to go through, however, it also can bring income tax benefits. Planning may eliminate income tax benefits. Many high net worth individuals make gifts of business interests to the next generation in order to remove appreciating assets from the donor’s estate. The estate tax savings is generally expected to outweigh the loss of income tax savings.
To avoid the painstaking process of probate you should have an attorney create a revocable trust and transfer the title of your business to that trust. Therefore, your assets are now in a trust and are not public record and do not require the probate court to become involved.