Most private business owners stay away from wealth transfer or estate planning issues until they sell or have a liquidity event with their business. The reason for this is that wealth transfer planning often has irrevocable transfers attached to the process. Until you, the owner of the private business, actually have the cash in your hands you don’t often believe your business value is real.
When you need to do estate planning
Most of the time estate or wealth transfer planning is not a high priority, at least not beyond the basics. It is necessary to do basic estate planning as part of risk management and asset protection for your family. You will want to have your assets pass to your significant other and you will want to have an orderly transfer of your business if you are not around to run the business.
The second time estate planning is crucial is when you plan to transfer your business to your children or other family members. Not having done adequate wealth transfer planning can unravel the plans you have made with respect to who will run and control the company in the future.
Some estate planning basics
You will want to think about how much of your estate you want to go to your spouse or significant other and how much of your estate you want to go to your children or other heirs. You will also want to understand how to use what is called the unified credit for each of you to take maximum advantage of the estate tax exclusion the government gives you.
Basic estate planning is about managing risk. You want to make sure your children are able to be educated and your spouse has a reasonable chance to live their life in an appropriate manner. You also want to make sure your children don’t squabble about your estate after you pass on.
Working with a competent estate planning team will help you achieve basic risk management needs with ease. The core team we recommend would include an attorney who specializes in tax and estate law, an insurance agent who understands planning opportunities for the private business owner, and a CPA who understands the needs of the business after you’re gone.
Advanced planning opportunities
If the business is a large one and you want to pass it to the next generation of managers, or if you’ve sold your business and your estate value is over $7,000,000, you will probably want to engage in more advanced planning in order to limit the estate taxes your family pays. You also will want to control who has influence in the business and make sure your children are treated fairly for estate distribution issues.
You often will run into the alphabet soup of estate planning at this point in your life. Estate planning professionals throw around terms such as GRAT, NIMCRUT, CRUT or defective trusts. You may even decide to use some of these techniques to help you achieve your goals.
The key to advanced estate planning is to have clearly delineated goals for what you are trying to accomplish. After your goals are established, you will want to use a seasoned team of professionals to put your plans in place. Your wealth manager will play a crucial role in assembling and coordinating the work of the team.
Selected Tools:
Family Limited Partnership
Charitable Remainder Trust
Charitable Lead Trust
Articles
Mission Vision Values and Goals
The Wealth Optimization Process
The above tools, techniques and resources are listed as examples. Your Stage2 Advisor will work with you to identify the right strategies for you depending on your specific life goals and financial goals.