People often find it awkward to talk about what happens after they’re gone. After all, it wouldn’t seem right to imagine what to do with all your properties and assets once you’re dead, especially if you’re still living and breathing in this world.
However, this shouldn’t be the case at all. Imagine encountering an accident and not having a solid plan for your properties. Your family wouldn’t even know how to begin, much less find all the files about your deeds, assets, and other essential documents.
People often think that only wealthy individuals need to plan their estate. You’ll be surprised, however, to know just how important this is for families, as long as you have any property. It is even more critical if you are a business owner.
Perhaps among the most financially debilitating parts of the turnover and inheritance of properties are taxes. Without proper estate planning, your beneficiaries and trusted holders might face financial burdens in the form of taxes (in addition to legal fees) due to your lack of foresight when it comes to planning your overall estate.
With the help of smart estate planning and a dependable probate attorney, you will be able to smoothly transition your properties and your business to their rightful beneficiaries if ever you become disabled, mentally unfit, or if you’ve perished from this world.
What You Need to Know About Estate Planning
Right now, you may have questions about estate planning and family business transition planning and how it differs from other types of plans and wills. As a smart and responsible business owner, it is your duty to know everything you can about estate planning to make the transition of properties and assets as easy as possible. Here are some of the most important things you should know about estate planning:
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What exactly is an estate?
When we talk about estates, most people would think that it is a vast piece of property—regardless if it’s commercial or residential. However, an estate is more than just a piece of land with buildings or homes. It is whatever an individual leaves behind if they die or become unfit to run their property wisely. As a business owner, your main estate (apart from your personal properties) is probably going to be your business.
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What is an estate plan?
In basic terms, an estate plan is a collection of legally-binding tools that give individuals the chance to control what happens to their estates once they’re dead. An example of an estate tool is a will or even a will with a testamentary trust. Making an estate plan is incredibly beneficial as it lets you plan and control what happens to your property even after your death.
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What is probate?
Probate refers to the entire process of administering the estate of a person who has passed away. Probate includes the organization of assets, properties, possessions, money, and distributing them in accordance to the will of the person who formerly owned the estate or the existing probate law or probate code in the state.
Probate laws exist to safeguard your decision regarding how you want your estate to be managed. However, you’ll need to do this in legally-enforceable methods like making a last will and testament and planning your estate thoroughly.
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What is intestacy?
As mentioned, you need to formally make a legally-binding estate plan to have full control over what happens to your estate once you’re gone. If you do not leave specific decisions on your estate, you will be considered as having died “intestate.” Intestacy gives the state the right to enact its laws regarding all your properties. The only way to override the state’s control over your estate is to make an estate plan of your own.
When it comes to planning your estate, there are a few tools you can use. The first and most important one includes having a last will and testament. You can also set-up a trust so that people you rely on can manage your property on your behalf once you’re gone. Other estate planning tools include transfer-on-death assets, planning for incapacitation, medical directives, and power of the attorney.
How to Get Tax Efficiencies
Being tax-efficient means that you will be able to lessen or minimize the tax liabilities that come with your financial decisions. There are numerous ways to be tax-efficient, with some more effective than others. An established approach to lessen the tax burden on your properties is through making an intentionally defective grantor trust (IDGT). It is a type of irrevocable trust that puts your funds and assets in non-taxable trusts. The aim is to help you avoid gift taxes, estate taxes, and generation-skipping transfer taxes, among others.
Take note, however, that the grantor must pay the income tax on all types of revenue generated from the trust’s assets. That is what makes this trust “defective.” It is considered tax efficient because since the grantor pays the taxes on the trust income every year, the assets within the trust will grow tax-free. They will not be subject to gift taxation once given to the beneficiaries.
Strategies to Avoid Having the Business Hung-Up
You’ve probably heard a lot of horror stories plaguing family members and successors of business owners undergoing the probate process. Some of these include lengthy delays, open court battles, and high expenses.
In reality, however, probates aren’t necessarily to complicate the process. You can have a smooth and easy process with the help of estate planning and an experienced probate attorney. To avoid facing issues like business hung-ups after you’re gone, here are some things you should try looking into:
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Real Estate
If you want to avoid lengthy probate, you can title the real estate that your business uses in joint ownership with right of survivorship, life estate, and even a transfer on death. Your business won’t be troubled by real estate issues if the property gets transferred quickly after you’re gone when you title it smartly.
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Trusts
You can avoid long and grueling probates with the help of trusts. Of course, trusts aren’t the be-all-and-end-all of estate planning. But it would be beneficial for you to have it anyway. You can do a revocable trust to avoid probate while still being able to control your assets. Otherwise, you can do an irrevocable trust and avoid estate taxation as well (but yield control to a trustee).
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Wills, Executors, and Powers of Attorney
A combination of these three will lead to a smooth estate turnover for business owners. Wills let people know how you want your assets to be handles. Having an executor says that you are naming someone to handle matters for you when the time is right. Finally, a power of attorney ensures that a person of trust will get the business (and probate) going smoothly if ever the business owner dies or loses the capacity to make decisions.
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Personal Property and Insurance
You should make sure that your personal properties, insurances, and assets that are related to your business becomes legally tied up with it. One of the many issues that businesses experience during probates are the assets used in business that are personally held by business owners (like copyrights, insurances, and licenses). To prevent hung-up issues during probate, it would be wise to title your assets appropriately.
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Business Continuation
This couldn’t be said enough—a smart and responsible business owner should have a predetermined business continuation plan. This plan includes knowing how they want the business to continue, how the salaries, debts, rent, and other payments should be made, and how the business operations should run. By doing so, you can help your business avoid lengthy probate as well as a hung-up once you’re gone.
Setting Up Your Estate Plan as a Business Owner
You have a lot of things to think about and prepare for as a business owner. Make sure that you have everything settled before you’re gone. Look for a probate attorney and ask for advice regarding how you want to move forward with your business.
There’s no one way to deal with estate plans, especially since all businesses are different in their own way. But we can give you a short guide to hiring a lawyer, especially a probate attorney, here at the Chamber of Commerce. Contact us now to know more about how we can help you!
