ESTATE PLANNING |
Good estate planning will help you solve problems and achieve goals:
Bad or no estate planning causes problems and frustrates goals:
- Business Succession Planning: With or without a Will, individual stock ownership in your business results in control of that stock passing to the Probate Court upon the death of the owner of the stock. If you have a "buy-sell" agreement with co-owners of your business, it can eventually take care of the problem - assuming the co-owners have the ability and desire to make the purchase. If you have a revocable living trust and the stock is owned by the trust, it can take care of a part of the problem. See Item 5 below for the other part of the problem.
- Lifetime Gifting: At first glance, the current annual gift tax exclusion amount of $15,000 may not catch your attention. However, assuming your "eligibility" for the federal and/or Minnesota estate tax upon death, there can be a very substantial savings over time. For example, transfer of stock ownership in your company, etc. Now double this if you are married.
- Avoidance Of Multiple Probate Proceedings: Separate Probate Court proceedings are required in each State in which the decedent owned an interest in real estate, whether or not the decedent had a Will. And the interest in real estate may be nothing more than a time share arrangement. Revocable living trusts take care of this problem.
- Children: The younger business owner with minor children should be concerned with who would be a guardian, trustee and whether special needs of a child should be addressed, etc. Otherwise it is all left up to the Probate Court. The older business owner should take heed of the fact that lump sum inheritances are, statistically speaking, often dissipated within a few years. And, then there is the question of which child/children really want or should be a part of the business.
- Key Employees: Your key employees, without prior planning and implementation of incentives by you, are likely to jump ship once the captain is gone. And for good reason. And, you know what will happen to the value of your business. Creating and communicating a succession plan makes a difference.
- Equal Division: Many families have a child or children with special needs and special abilities. Working a plan that addresses those needs and abilities is smart. Just having your assets split equally among your children may not be a good plan.
Most people would say estate planning is about tax avoidance - a negative motivator. However, I have found that my clients end up focusing more on helping their spouse, children, fellow business owners and employees - a positive motivator.
- Intestate Succession: "Intestate" is the legal status of your estate if you die without an enforceable Will or Revocable Living Trust. State statutes then control how your estate is administered and your assets distributed. Not a good idea.
- Loss Of The Minnesota Estate Tax Exemption: The individual exemption is now $3,000,000. However, unlike the federal exemption, the Minnesota exemption is not "portable." Therefore, if the espouse with substantially less assets dies first, then the unused portion of the exemption is lost. As an example, $2,000,000 of lost exemption translates to at least 220,000 in lost savings.
- Individual Ownership Of Company Stock: See Item 1 at the top of this newsletter. In addition, the estate tax consequences can be unfavorable..
- Joint Ownership Of Assets: Many people believe that joint ownership, with right of survivorship, is sufficient estate planning. Pretty accurate, maybe, as long as you ignore "simultaneous" death as in vehicle accident, house fire, boating accident or other accidental occurrences. Then the story changes completely. In addition, the company stock ends up in Probate Court.
- "Free Steak Dinner" Revocable Living Trusts: Not only does one size not fit all, it rarely fits anyone. There is no such thing as good free or cheap legal services. Enough said.
- "Free Steak Dinner" Cabin Trusts: See Item 5 above. In addition, only a small percentage of cabins are successfully transferred to surviving children for any period of time. They are grown-ups. Either they work it out or they don't.
Like many folks, you have thought about this subject, repeatedly. This is good because, as a result, you have been developing a plan. Maybe now is the time to finalize the plan.