Category: Estate Planning Blog

Not Your Average Estate Plan: Additional Challenges for Business Owners

You already know that owning a business is both rewarding and challenging. But owning your own business also presents unique challenges when it comes to estate planning. It’s important to keep that in mind so that you can create a plan that protects both your loved ones and your business. Below are four things every business owner should consider when creating their estate plan.

  1. 1.What do you want to happen to the business? Your estate plan is going to look very different if you want to pass the business on to your children than if you want to sell it and leave them the proceeds.
  2. 2.What exactly are your business interests? How those interests are classified (for example, “business property” for a sole proprietorship or “corporate stock” for a corporation) makes a big difference. You’ll have different estate planning options for different types of interests.
  3. 3.Is your estate plan consistent with your business plan? There can be major problems if the two plans don’t match. Take an example: you won’t be able to leave your stock to your children if a buy-sell agreement gives other shareholders the right to buy your shares.
  4. 4.Do you have life insurance? Many business assets aren’t liquid (i.e., easily converted to cash). A life insurance policy that names the business as beneficiary can provide much needed capital to keep the business going or allow other partners to buy out your share.

Just like your family and friends, your business is important to you. Ultimately, that’s what estate planning is about—protecting what matters most to you. Make sure your estate plan protects both your loved ones and your business.

Executing Your Estate Game Plan Part 2

Setting up an estate plan is a great start to accomplishing your estate planning goals. But too many times we take the plan we’ve drawn up and lock it away until it’s needed. In this series, we’ll take a look at what you can do now to make sure that your estate plan will actually meet your goals when it’s time to be carried out.

Part 2: Discussing Your Estate Plan

Discussing your estate plan with your loved ones can be difficult, but it’s one way to ensure that your wishes will be carried out.

The most important discussions should happen before you draw up your estate plan. These are the discussions you need to have with anybody you want to assign responsibility to. Those people include guardians for your minor children, trustees, powers of attorney and healthcare powers of attorney. Make sure that person understands what you’re asking of them and is willing to take on the tasks that come with the position.

After you draw up your estate plan, it’s a good idea to go over what you’ve decided, in general terms, with the people who will be executing it. For example, trustees will probably want to have at least a basic idea of how you set up the trust so they know what to expect.

Finally, many family members have emotional attachments to some of your personal effects, like family heirlooms. Being up front about why you made certain gifts can soothe any hurt feelings, not to mention avoiding a court battle.

Ultimately, it’s up to you how much of your estate plan you want to share with others. But a few honest discussions now can avoid some of the headaches and stress down the road.

Next: When to Update Your Estate Plan

Executing Your Estate Game Plan Part 1

Setting up an estate plan is a great start to accomplishing your estate planning goals. But too many times we take the plan we’ve drawn up and lock it away until it’s needed. In this series, we’ll take a look at what you can do now to make sure that your estate plan will actually meet your goals when it’s time to be carried out.

Part 1: Funding Your Trust

Trusts are an important part of estate plans today. They allow a trustee to manage your property for you and distribute it based on the terms you set out when you created the trust. But in order for the trust to work the way you want it to, you have to fund it. Funding a trust means actually transferring your property to it.

Why is it so important to fund your trust? Because any property that you don’t transfer is subject to probate, along with all of the probate delays and costs. In other words, you can lose one of the most important reasons you set up the trust in the first place.

Some transfers are fairly easy to make. For example, your personal effects were probably transferred to the trust by simply stating that fact in the trust document. Other transfers, like business interests or retirement plans, can be much more complicated and have trade-offs you should discuss with your attorney and/or financial advisor.

You’ve taken the time to create a trust that makes sure your loved ones are taken care of. Properly funding your trust makes sure that those loved ones are supported the way you intended.

Next: Discussing Your Estate Plan

Getting Personal: The Real Reasons You Need an Estate Plan

Many of us think of estate planning as the way wealthy people distribute their estate with minimal taxes. But estate planning shouldn’t be all about the money: it’s about taking care of people you love. Everyone needs estate planning.

Non-money reasons to have an estate plan include:

  • Number one, especially for young adults, is to appoint a guardian for your minor children. Make sure someone you know and trust will care for your children if you can’t.
  • Setting up a trust can give your children a safety-net to protect their inheritance and take care of them as they grow.
  • A life insurance policy can pay your mortgage, medical bills, or final expenses and cost as little as $300 a year. It’s a small expense to ensure your spouse and children have support if something happens.
  • A power of attorney and healthcare power of attorney choose someone you trust to make financial and medical decisions for you in case you can’t. This, along with a living will, can make sure your wishes are known and limit stress on loved ones having to make those difficult decisions.

Your estate plan is about more than your financial worth. You want your loved ones to be taken care of even if you can’t be there to do it. The attorneys at Epiphany Law will work with you to create a plan that meets your personal needs and protects those you love regardless of the size of your estate.

Having a Will Does Not Avoid Probate

Creating a will does not avoid probate!  The opposite is actually true: A will is a document that speaks directly to a probate court.  Probate is the legal process of transferring assets from your estate to your heirs.  This process is required whenever a death occurs and there is no other mechanism that automatically transfers the assets.  Those mechanisms can include beneficiary designations, “transfer on death” or “payable on death” designations, and marital property laws, to name a few.  In Wisconsin, if you have $50,000 or more of assets that don’t automatically transfer through such a mechanism, probate will be required.

So what’s so bad about that?  Probate has been described as “a lawsuit that you file against yourself for the benefit of your creditors”.  Even the most straightforward of estates can become cumbersome to the family and /or personal representatives during this process.  And, of course, the probate court charges a fee based on the value of the asset that are transferred.  AND, it’s a public court process so your creditors, or your kids’ creditors, or Nosy Neighbor Nelly can see who gets what when all is said and done.

Having said that, a will is better than nothing, since at least it provides direction to your loved ones about guardianship for your kids and where you want things distributed when you die.  Otherwise, the court gets to pick.  Also, there are lots of opportunities these days to use designations like the ones mentioned above to keep many assets from going through the probate process.

If probate doesn’t sound like much fun to you, there are common ways to avoid it, like setting up a revocable living trust and funding it with your property.

Bottom line: Get something in writing and make sure you know how/if it’s all going to work when you’re gone.  It’s pretty simple to do, and it takes a big burden off your loved ones.

No Estate Planning

If you have ever spun a roulette wheel, you know what it feels like as the wheel slows and the roulette ball finally comes to rest.  And you surely know that where the ball ends up is of its own making.

In many cases, estate planning is like calling your color and number, then walking over and placing your ball correctly without ever spinning the wheel.  It accomplishes your goals without any stressful uncertainty.

Most people in America, however, don’t have any estate planning.  Like roulette, if you don’t plan, you never know where the ball will land.  You don’t know that your wishes will be respected.  But there’s a big difference between not planning for your future and the game of roulette:  When you play roulette, you get to see where the ball lands, even if you chose incorrectly.  When you don’t plan, you never get to see what happens when the wheel stops because you have passed on.

Estate planning is about documenting your wishes so that when you become incapacitated or pass away, your loved ones will know how you wanted things to be handled.  State governments have also created default plans for people who have not documented their instructions.  In essence, if you don’t have a will or trust, the state makes one for you based on what it thinks is best.
Each state has its own rules for people who die without a will.  There are fifty different ways of handling the same issue.

So which one is right?  You are.  You are the only one who knows how you want your things to be distributed.

Will the state know who you want to raise your children?  Will it know which property or asset you want to go to whom?  What if you are remarried: Will your new spouse receive your entire estate, or will your children?

Sometimes the system works, and the ball falls on the right color and number.  But other times it doesn’t.  It is too easy to lose control over your assets and your property and your legacy if you let the state make decisions for you.

No estate planning is a large pitfall indeed.

Great Gifts in 2010

It’s not too late yet.  For many wealthy parents, grandparents or business owners, giving lifetime gifts is a valuable way to decrease your taxable estate.  And 2010 is a great year to give those planned lifetime gifts.

Generally speaking, properly planned lifetime gifts can help lower your taxable estate over the course of years, so that your assets are distributed to whom you want with less going to the tax man.  Each year, you can give gifts of a certain amount to other individuals without having to pay gift tax.  In 2010, for instance, you may give up to $13,000 (or $26,000 if you give as a married couple) to other individuals.  If you have two nephews, you could give each $13,000 without tax.  You could give another gift of a similar amount next year to the same individual, and so on through the years.

Many individuals want to give more than the allowed annual amount.  If you fall into this category, it is important to talk to a professional who understands the intricacies of gift taxation before making large gifts.  If you are thinking about larger planned gifts, there is still a small window in 2010 to complete the gift. And it is a great year to do it.

Why?  At least three reasons.  First, at 35%, the current gift tax rate is the lowest it’s been since the 1930’s.  Second, when the 2011 bell tolls, there are sure to be a myriad of tax changes, and one of the expected changes is that the gift tax will rise to 55%.  For those giving large gifts, a 20% increase is quite a hit.  Third, the values of many key assets are still depressed.  If you gift those assets now, there will be less there to tax than if they were significantly appreciated.

All in all, by giving a gift in 2010 with a depressed asset, you can potentially save on the value of the gift while being taxed at historically low rates.  While no one can predict the future, the gifting climate is excellent for persons with the right assets.

Zen and the Art of Estate Planning

Physical health and peace of mind work together for a reason.

Defying long odds in modern society, we continue to better our heath, wealth and, often consequently, our peace of mind.

The hope, of course, is to have good habits pay off. By passing over the doughnut (most days) for an orange, we come to expect the Vitamin C to keep us running strong. Many of us have learned to do a few exercises before turning on the television soap opera. These decisions keep us happier and stronger. They also help us live longer to see our children and grandchildren grow and succeed.

It doesn’t stop with physical well-being. That nest egg you have created in your home or other investments have given you options that our ancestors could never fathom. These assets will hopefully grow despite numerous dips and will certainly allow more options to you and loved ones.

Unfortunately, despite our best efforts, our physical bodies don’t last forever. No, eventually the Vitamin C runs out.

But our children and grandchildren live on. And the assets that we nurtured can continue to grow with them. When we are pulled away to our higher and better place, we want assurance that we have properly passed our legacy to our loved ones rather than Uncle Sam or other undeserving relatives.

Zen is achieved by having your things passed to those who will value them the most and that isn’t the government. Complete peace, health and security can only be achieved by ensuring that you are prepared for the future.

Everyone asks the question, “What will happen to everything accumulated in life?” The answer is: “Whatever is written in your will or trust.”

When did you last review and update your will or trust? If you are forced to think back over years, or worse, have not yet worked with someone to create your plan, read on.

A plan made for you

Estate planning is for everyone. It is not a mechanism for the uber-rich. Estate planning is the process of documenting your wishes so that when you become incapacitated or pass on, your loved ones will know how you wanted things to be handled. It includes instructions on how to distribute and protect your assets but it also passes on peace of mind to your loved ones.

You have worked hard to live a healthy, active lifestyle by making the right decisions. It is only fitting to pass on those decisions as instructions. Explain things like: (1) who should make medical or financial decisions on your behalf, (2) declaring a guardian for your minor children, and (3) how you want to provide for your loved ones and protect what you have earned.

Each individual has different needs and wishes, and so it is important to have an estate plan tailored to you. Some individuals are concerned with the cost or publicity of the probate process and choose a Living Trust. Others have specific wishes on how and when their children and grandchildren should receive assets.

The options are endless and even simple needs require careful attention to changing state and federal laws. While Internet “wills” might seem attractive, the only way to truly protect your wishes is to work with an attorney familiar with the complexities of estate planning.

As we enter 2011, the death tax will likely be reinstated. That means many relatively modest estates could be surprised with high tax rates. Without planning, children could find that a significant portion of their inheritance transferred to Uncle Sam’s coffers instead of their own.

Have you updated your estate plan in the past five years to account for changing laws? If not, consider setting up an appointment now with a knowledgeable estate planning attorney. A simple consultation can help secure the peace of mind so important to a healthy life, for you and those who follow you.