Volume 7 • Issue 8 • September 2017
The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. This month’s issue will be a discussion of step seven of the exit planning process – personal wealth and estate planning. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.
This newsletter is the final installment in a series of newsletters discussing the seven step exit and succession planning process used by Hallock & Hallock. In this month’s issue, we will take a closer look at step seven – personal wealth and estate planning. Step seven will involve strategies to protect your assets, plan for your wealth now, and the distribution of wealth after your death.
A solid estate plan is one that will control property while you are alive and well; plan for you and your loved ones if you become disabled; avoid probate; give what you have to who you want, the way you want, and when you want; ensure the long term control and protection of property; and leave a legacy for your family. When engaging in succession or exit planning, it is not unusual to begin with an interim estate plan that can provide for a more orderly transition of the business in the event of the untimely death of the owner. As the exit plan or succession plan is completed, the personal wealth and estate planning is often revisited to coordinate the two.
Your exit or succession plan should allow for financial independence during retirement. Therefore, you will need to plan for wealth accumulation. The retirement assets of a business owner are going to come from two sources: the sale of business or assets and non-business savings and investments. Unfortunately, many business owners have re-invested heavily in the business, but not necessarily in non-business assets. As part of step seven, a plan for retirement should be created to allow for the accumulation of wealth both within and outside of the business.
Asset Protection Planning
Asset protection planning is not about hiding or concealing assets. It is about using the existing laws appropriately to obtain the best possible level of protection in the event a lawsuit happens. Asset protection planning is the process of analyzing ownership of assets and re-arranging ownership of those assets as needed to ensure maximum protection, maximum use of exemptions and to minimize risk of loss in future litigation. Asset protection is not evasion of taxes or defrauding current creditors. To be effective, asset protection plans must be properly designed, drafted and implemented. An asset protection plan is never stronger than its weakest link. Asset protection planning tends to be a balancing act between your desire for access to/control over assets and your desire to protect the assets from the claims of others.
When engaging in asset protection planning, thought should be given to both above ground planning (planning while you are alive) and below ground planning (planning after your death). Items that might be considered are:
- Adequate insurance;
- Proper use of existing exemptions;
- Use of entities such as limited liability companies (LLCs) or Corporations;
- The use of special trusts such as Domestic Asset Protection Trusts (sometimes called Self-Settled Trusts) or Offshore Trusts.
There are many reasons that could be given as the rationale for engaging in estate planning. Maybe you are interested in preserving family harmony; you have seen the discord that can be sown among children when no plan exists; or a poor plan is implemented and want to avoid it. Maybe you would like to see a gift to your favorite charity as a way of giving back. Other reasons why you need an estate plan might include:
- Protecting and providing for your spouse and minor children;
- Caring for a special needs child you are responsible for;
- Avoid the difficulties and expense associated with probate;
- Concerns with the estate tax.
The list could go on and on. For the business owner looking to exit the business, the estate plan becomes the tool for allowing the plan to proceed in the event of your early demise. Whether the plan is for a transfer to a family member, employee, or third-party buyer, the estate plan will become the driving force in completion of your goals if you are not there.
Questions to Consider
Personal wealth and estate planning is a crucial step in the exit and succession planning process. In preparing for personal wealth and estate planning, how would you answer the following questions?
- Have you taken steps to protect your family’s wealth from unnecessary tax liabilities and investment market volatility?
- Have you done any planning to ensure that your family receives the full value of your company if you don’t survive?
- Have you considered gifting business interest today to eliminate or reduce future tax liability?
- Do you have a plan to protect your personal assets from personal and business liabilities?
- Have you reviewed your current life insurance to confirm that it is sufficient to satisfy the needs of your family and estate?
- Do you have a personal wealth accumulation plan?
- Does your estate plan clearly reflect your desires about the ownership, control, and ultimate disposition of your business interest?
- Will your family’s long-term financial needs be met if you were to die unexpectedly?
- At your death, will any real estate interest associated with business operations be resolved according to your wishes?
This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.