Personal Injury & Estate Planning
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Archive for September 2016

Business Owners: Have You Planned Your Exit?

Business Owners: Have You Planned Your Exit?

You’ve worked hard building your business, but have you thought about what will happen when you are no longer there running the show?

According to one study (Small Business Review, Summer 2001), only 30% of all family-owned businesses survive to the next generation; only 12% make it to the third generation; and a meager 3% are functioning into the 4th generation and beyond.

Why? Most business owners simply do not plan an exit. They do not do proper estate planning, which often results in unnecessary estate taxes that drain the life out of their businesses. And they do not plan for a successful transition to the next generation.

Who could take over your business? You may have more choices than you think.

Exit Option #1: Family Members

Family members are often a logical choice. Most business owners feel a certain pride in being able to pass down a family business. In fact, you may already have a child or two working in the business with you.

Depending on your financial needs, you can gift and/or sell your business to family members. Some techniques will provide you with retirement income and let you transfer the business at a discount, saving estate and gift taxes. Most let you keep some control.

Be sure to consider family members who will not be involved with the business. Life insurance is often used to “equalize” inheritances. You also need to be objective when considering the abilities of family members whom you consider potential successors.

Business Owners: Have You Planned Your Exit?Exit Option #2: Business Partners

Busines partners are also logical options. You can have reciprocal buy/sell arrangements with each other, so that when one of you is ready to retire or dies, the other automatically buys his/her share of the business. Life insurance is often used to fund these arrangements.

Exit Option #3: Employees

Your employees could also be a source. An Employee Stock Ownership Plan lets your employees enjoy the benefits of ownership, yet you can keep control until your retirement or death.

Exit Option #4: Charity

How about a charity? Charitable trusts can provide terrific income, capital gain and estate tax savings. With a charitable remainder trust, you can receive a lifetime income. And you have the added benefit of helping a charity that has special meaning to you.

Exit Option #5: Sale

Of course, you can also consider an outright sale to another company. But the tax benefits are usually not as good as other planning options.

A good business succession (exit) plan should also provide for the possibility of a long-term illness or diability. Make sure you work with an experienced professional who can help you evaluate your goals and objectives, and can provide you with the best options for your situation.

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Five Mistakes with Living Trusts

Five Common Mistakes with Living Trusts

A properly prepared and funded living trust has many benefits, including avoiding court interference at death and incapacity. But people often make mistakes that prevent their trusts from working the way they intended. Here are five of the most common ones:

1. Not having a properly prepared document.

Too many people try to save money by using online or do-it-yourself forms, or choosing an attorney with the lowest price. If the documents are not properly prepared, you have wasted your money. Your trust may not work the way you intended or, worse, you could be left with no valid plan at all. It’s best to go with a local, experienced estate planning attorney who will be able to provide you with well-written documents and valuable counsel. Finding the right attorney may take some time, but it will be well worth it in the end.

Five Mistakes with Living Trusts2. Not reading the trust document.

How will you know if your plan is what you want if you don’t read it? If you are having trouble understanding certain parts of it, ask your attorney or paralegal to explain them to you.

3.  Not funding your trust.

Your living trust can only control the assets you put into it. You can have the best documents that contain all of your instructions, but until you fund it (by changing titles and beneficiary designations to the name of your trust) it doesn’t control anything. All too often people don’t finish the funding process and some assets end up going through probate–and avoiding probate is one of the reasons they wanted a living trust in the first place. If you have a trust, make sure it is fully funded so it can do its job.

4. Naming the wrong successor trustee(s).

Your properly preapred and funded living trust may not work the way you intended if your successor trustee does not follow the trust’s instructions and perform his/her duties as required. Many people name one or more of their adult children as successor trustee(s), but consider all of your candidates carefully. Keep in mind the complexities of your trust and how long it will last (for example, to provide for a child with special needs), as well as the personalities and abilities of your candidates, where they live and how busy they are with their own affairs. We all have different gifts and abilities, and being older does not necessarily make one wiser. You need to be more concerned about your trust working properly than about hurting a child’s feelings. A professional trustee may be your best option.

5. Not keeping the trust document current.

Your trust is a reflection of your personal, family and financial situations at the time it was created. These things change over time, and your trust will need to change with them. Review yor trust every year or so, and have it updated whenever needed.

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