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What Business Owners Can Accomplish with the Right Estate Plan

MP900423021Business owners know that they should have an estate plan in place, but not all of them will take the necessary steps. Many find it challenging to imagine that the business will continue after they are gone, but with the right plan in place, it’s possible. No plan? Not likely.

A recent article in Hotel Management, “How to handle estate planning for continued business growth,” advises business owners that a good estate plan can help distribute wealth and minimize estate taxes. However, a good estate plan will also increase the changes of the business surviving when the owner has passed.

One reason is that it lets the owner maintain control of the business beyond his or her lifespan.  Estate plans can also insulate owners against lawsuits and the impact of divorce. They direct the distribution of assets, communicate owners’ health-care wishes, decrease estate tax liability at the state and federal levels and help create a legacy.

A primary reason to implement estate planning in any business, is to limit estate tax exposure. Paying for or decreasing federal and state taxes are two key reasons for estate planning.

The new tax law says the federal estate tax threshold is $11.2 million per person. That means owners can pass a total of $11.2 million to their beneficiaries tax-free. Any amount over that cut-off is taxed at 40% on the federal level. Remember that, absent future political action, this exemption will revert to $5 million per person indexed for inflation after 2025.

Estates can also be taxed on the state level, which can create some complications.

Some states have estate taxes, and some have inheritance taxes. A few have both estate and inheritance taxes, like New Jersey and Maryland. Tax thresholds and percentages vary based in each state.

Establishing a will or revocable living trust is important, because these legal tools allow you to designate assets to certain heirs and helps to avoid probate judges making decisions on an owner’s behalf.

In some states, if you own an asset when you pass away, and if it’s not clearly written in a will or a revocable living trust that it goes to your intended heir (your daughter or grandson, for example), the probate judge will determine who will get the asset based on state intestacy law.

In addition, a will or revocable living trust can allow for equalization of the estate. For instance, if one child wants to continue the business, but another wants to do something else, then their parents can make sure they are both treated equally in the will or revocable living trust.

Reviewing and updating estate plans is particularly important for business owners, because assets tend to be larger and there’s more at risk. Changes in tax law and changes in your life also call for reviews to ensure that your wishes are followed, and your family is protected.

Please contact us today to schedule an initial consultation to discuss your estate planning and business succession needs.  

Reference: Hotel Management (February 13, 2018) “How to handle estate planning for continued business growth”