Monday, March 28, 2016
Summary: Estate planning is important for all people, but it is extremely important for small business owners. A proper plan can help ensure that the business can continue seamlessly and without interruption, can go to the person or people you want, and can separate your business assets from your personal ones to make certain each is properly protected.
In 2014, in the U.S. Tax Court, a taxpayer defeated the Internal Revenue Service in an important case called Frank Aragona Trust v. Commissioner. Mr. Aragona had created a trust and named his five children as beneficiaries, and funded the trust with several rental real estate properties. The IRS had tried to classify the trust's control of the properties as "passive" ownership, which would have negative tax consequences, but the Tax Court ruled for the trust, which meant that it got to claim active participation status, which is more tax-friendly.
While the case of the Aragona Trust centers around many intricate, technical aspects of the law, it also has a broader meaning outside the world of tax lawyers and CPAs. The Aragona family benefited because Frank Aragona took the time to create an estate plan and to ensure that he meshed his business holdings with his estate plan.
Making sure that your small business is covered by your estate plan goes beyond just making certain your beneficiaries are positioned as well as they can be in terms of income taxes. Most businesses fail to survive past the first generation, and in many cases, they fail due to a lack of planning. A good estate plan for a small business owner takes into account potential estate tax issues. Because many small businesses are cash-flow operations with relatively little liquidity, an estate tax bill can be devastating -- forcing a sale of the business just to pay the tax obligation. With a proper plan in place, you may be able to reduce or avoid this tax trap.
Additionally, some small businesses fail because there is no clear plan for who will take over running the operation. Creating buy-sell agreements can help establish a clear line of succession to ownership of your business when you die. Even once you've established succession, the person you want to take over the company may lack the funds to buy it. Life insurance may serve as a exceptionally helpful tool to aid in carrying out your succession plan. You can purchase a policy that pays out when you die to whomever you desire to purchase the company, thereby giving them the money they need to transition ownership smoothly.
If you're a small business owner, you also must consider protecting your personal assets from business liability and vice versa. You don't want a disgruntled business client to ruin your personal wealth, nor would you want a messy divorce to take down your company. A plan that properly uses trusts, LLCs or other legal tools can help you ensure you have the necessary protection in place.
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Monday, March 21, 2016
Summary: Alzheimer's Disease can affect people across a wide array of ages and races. For that reason, it is important to act without delay to craft an estate plan that will protect your family and yourself. It is also important to make sure that you update your plan regularly to reflect any changes in your life. A complete and updated plan, which includes a will, advance directive and powers of attorney, along with possibly a living trust, can make sure that your have your planning goals in writing and that you have clearly designated who you want to make decision for the management of your assets and your personal care should you lose the ability to make those decisions yourself.
Actress Julianne Moore's Oscar-winning portrayal of an accomplished Ivy League professor in her early 50s who is diagnosed with Alzheimer's Disease in the recent film "Still Alice" is just the latest reminder that Alzheimer's can affect wide range of people. Three years ago, Hall Of Fame basketball coach Pat Summitt retired as head coach of the University of Tennessee women's basketball team at the young age of 59. She retired because, a year earlier, her doctors diagnosed her with Alzheimer's. Additionally, the Alzheimer's Association reports that African-Americans are 200% more likely (and Latinos 150% more likely) than whites to develop the disease, though these groups are less likely to be diagnosed.
While having the knowledge that Alzheimer's can attack a wide spectrum of ages and races is important, that knowledge must also be put into action. So how should you plan for the possibility of Alzheimer's? One of the key steps is to create an estate plan right away, and to update it regularly. Your estate plan will allow to put down your planning goals while you are unaffected by any type of dementia or other cause of mental incapacity. Your regular updates will make sure that your plan reflects the current state of your planning preferences and your family's life situation. An estate plan crafted when your children are elementary school-aged will likely look different than what you'd want it to say 20 years later when your children are adults and perhaps have spouses and children of their own.
Your plan should include a will, an advance directive ("living will",) and powers of attorney. Your health care power of attorney may be especially important because, if you have Alzheimer's, you may live for a period of many years after you've lost the ability to make decisions for yourself and this document will empower the person you prefer to interact with your doctors with regard to managing your care. A financial power of attorney allows the person you designate to manage your financial affairs if you become incompetent. Depending on your preferences and your financial situation, you might choose to ensure the continued management of your financial matters through the use of a living trust. Utilizing a trust can provide for a seamless handoff of the control of your financial affairs by possibly helping you avoid the need to go to court to obtain the appointment of a guardian or conservator of your financial estate.
With regard to updating your plan if you have Alzheimer's, it is important to remember that just because your doctors have diagnosed you with Alzheimer's, that does not necessarily make you mentally incapacitated and unable to modify your plan. Many people with Alzheimer's can live for months or years before the disease becomes so advanced that it makes them incompetent. Because the disease is unpredictable, however, it is vital to act on your estate planning goals without delay.
Thursday, March 17, 2016
Summary: No estate plan is 100% immune from estate litigation. The litigation of the estate of actor Robin Williams demonstrates this, as the items in dispute are of comparatively low monetary value. While litigation is sometimes inevitable, including a detailed set of asset distribution instructions in your plan can provide even greater clarity into the nature of your true wishes and hopefully minimize the chances that your family will require the courts to resolve the distribution of your possessions.
For some folks, procrastination serves as a road block that prevents them from ever creating an estate plan. In other cases, people overcome the inertia of procrastination and do create a plan, but make the mistake of placing too few details in their plans. When it comes to your estate plan, it is often true that the more details you include, the better off your plan will be when it comes time to carry out your true wishes.
The late actor and comedian Robin Williams created what was generally viewed as a strong estate plan. His plan included multiple trusts, including one that benefitted his three children and another that benefitted his wife of three years. The plan also contained provisions for distributing many of the celebrity's personal possessions between his wife and his children. However, Williams's estate plan was not foolproof. The wife and the children are now in court battling over several pieces of Williams's personal effects.
The estate plan left the contents of Williams's Tiburon, Cal. house to his wife, but left his jewelry and memorabilia to the children. Unfortunately, while detailed, this plan left enough room for conflict, which is why the estate litigation has occurred. When a family has reached a point where they seek a judicial resolution to the ownership of movie posters and Japanese anime (as is true in the Williams case,) perhaps litigation is inevitable. Nevertheless, the more details you can include in your plan, the more likely your family will be to know your true wishes and possible avert the need for litigation.
For estate plans where assets are distributed using a will, it may be helpful to specifically distribute each asset that has a value (whether financial or sentimental) individually and by name. Your collection of old vinyl records may only be worth $100, but if you have someone whom you'd like to inherit them, list them. If your plan includes a living trust, your Schedule A can be very helpful here. Your Schedule A is often used to make specific distributions, especially with assets that don't have a deed or title. Even if an asset lack significant monetary value, it is worth listing in your Schedule A if you have a loved one with an emotional attachment to that item, or if the item's distribution is likely to cause conflict in the absence of specific instructions from you.
As with the other parts of your estate plan, your estate planning attorney can provide you with invaluable assistance and advice in crafting your living trust's Schedule A or the specific distribution paragraphs of your will. While no plan is 100% safe from estate litigation after your death, you can, with the aid of your attorney, minimize the chances of a court battle by maximizing the level of detail when it comes to distributing your belonging.