Most Business Owners Do Not Have Up-To-Date Estate Plans, But They Should

As long as there are estate taxes, as long as there are intergenerational considerations, and as long as there are interconnected business interests, there will be a need for estate planning. Business owners are looking to achieve a certain agenda and do so in as tax-efficient a manner as possible. However, it’s important to keep in mind that taxes are not the tail that should wag the dog.

According to Anthony J. Carone, managing member of the specialty law firm Carone & Associates, “Basic estate planning employing such strategies and financial products as credit-shelter trusts and traditional life insurance is far from complicated and sufficient for many business owners. However, for more complicated situations there are many more sophisticated strategies available including self-canceling installment notes, granter retained annuity trusts, and remainder purchase marital trusts.”

Based on a survey of 513 business owners, a little more than seven out of ten business owners have an estate plan which is defined as having, at a minimum a will. Among the 138 business owners without an estate plan, half of them have not done the planning because the topic is very hard to deal with. “There are many reasons, “ explains Carone, “From facing the prospect of death to needing to make difficult decisions concerning the disposition of assets including the future fate of the business, estate planning can very well be arduous and emotionally nerve-wracking.”

About 30 percent of the business owners surveyed said they didn’t have an estate plan because there wasn’t a need. “Although there might not be estate tax concerns, it’s usually advisable that everyone have an estate plan, even if it’s only a will,” explains Carlo Scissura, president of the Brooklyn Chamber of Commerce and author of Maximizing Personal Wealth: An Advanced Planning Primer for Successful Business Owners, “This is especially the case for business owners as their company is often an integral and considerable part of their estate.”

For those business owners surveyed who had an estate plan, most of them are over five years old. Almost a quarter of the estate plans are two to five years old, with the remaining 12 percent less than two years old. Frank Seneco, president of Seneco & Associates, an advanced planning boutique says, “Because of changes in the tax laws, estate plans more than five years old – most probably more than a few years old – are likely to not be up-to-date and fail to take maximum advantage of available opportunities.”

What’s even more telling is that more than half of these business owners report that they’re wealthier since they created their estate plans. More importantly, nearly seven out of ten reported that since they created their estate plans they’ve experience life changing events. These events can be anything from divorce to the birth of children or grandchildren to the death of prospective guardians, and so forth.

What this tells us is that, from changes in the tax laws to changes in the lives and wealth of the business owners, their estate plans are likely outdated. In order to attain the greatest benefits from estate planning, business owners need to stay on top of the matter and revise your estate plans when appropriate.

Source: Forbes

 

6 Essential Estate Planning Steps For You And Your Parents

We’d been married for more than 30 years and were very close with Terrie’s mother “Jean,” spending every holiday and Sunday together (her name has been changed here for privacy reasons). But our happiness turned into a nightmare in the span of just a few weeks.

We think our story about protecting Jean from a financial predator is worth knowing for anyone with an elderly parent. And based on our harrowing ordeal, we recommend six steps (below) to keep yourself and your family safe and financially sound.

Here’s our story:

A Car Crash and Then a Financial Predator

First, Jean was in a car accident and suffered a severe traumatic brain injury, which severely impacted her short-term memory, leaving her frustrated and vulnerable. We then became her primary caregivers and nursed her through a difficult recovery.

In the months that followed, “Billy,” Jean’s long-time boyfriend who had avoided meeting us, took advantage of Jean’s disability and confusion to convince her that Terrie was stealing her money. He managed to also persuade a police officer (with no evidence) as well as a judge — who issued a restraining order without a shred of proof.

In addition, home care workers allegedly colluded with Billy, helping to make arrangements for a one-day visit to Las Vegas, so Billy and Jean could get married there.

As a result, our lives were turned into a roller coaster ride as we were thrust into a four-year legal battle to save Jean from a financial predator and a justice system gone wrong.

What Her Mom Did Right

Fortunately, Jean and her first husband had put their estate plans in place through a family trust, which made it possible for Terrie to successfully fight for a conservatorship for her mother. But not before Billy closed all of Jeans’ bank accounts, opened new joint accounts, cashed some bonds and took Jean’s name off one of the accounts.

Though still estranged from Jean, we have made certain that Billy can’t drain Jean’s financial assets through the trust — nor will he inherit them — assuring that Jean can live out her life being financially comfortable.

6 Estate Planning Steps for Families

Based on our experience, we think others should take these six steps to ensure their family knows their wishes and plans when they die or become mentally or physically incapacitated:

1. Organize your emergency information. This is more than a list of doctors and phone numbers. It should include specifics about your digital assets, bank accounts, storage rental, lawyers and financial advisers. Doing so will save your loved ones additional stress during an already stressful time and can be critical for quick decision-making.

2. Draw up a will and maybe trusts, too. Meet with an estate attorney who can give you guidance and create the proper documents. Make sure everything is as clear as possible and easily understood so there will be no questions about what you really meant.

3. Designate a durable power of attorney. This allows the person you designate to make legal decisions if you’re incapacitated. Provide as much detail as possible, including safe deposit boxes and passwords to online accounts. Without power of attorney, the courts or a third-party designated by the courts will wind up making legal decisions.

4. Prepare an advance medical directive. This document will save family members from having to make end-of-life decisions for you.

5. Open frank conversations with your parents about their financial affairs sooner rather than later. “Don’t wait until they have an injury, get sick or you notice that they shouldn’t be driving anymore,” says Terrie.

6. Tell your grown children your plans. They probably assume you have been smart with your money. Prove them right. Then teach them to put their affairs in order, too.

A Final Piece of Advice

Putting your affairs in order is not about death. It’s about making sure things get done your way and the right way. It is one of the most important financial and lifestyle decisions of your life. It’s about writing the last chapter of your amazing legacy.

Source: Forbes

5 Reasons CEOs Don’t Focus on Exit Planning

According to recent studies, 60% of business owners do not currently have or plan to develop an exit strategy. Because business owners spend a large majority of their time running the business, it’s not surprising that little attention is given to thinking about what will happen to both the business and to them personally once they are ready to move on.

While every CEO has a personal and unique motivation for eventually selling the business, there are five common reasons most do not spend the necessary time to plan accordingly for this event:

Not Enough Time

The deadlines and intellectual rigors of running the day-to-day of a business can leave little time for anything else. Many owners put off their succession planning to focus on business operations and finding ways to enhance the value of their business through activities such as introducing new sales strategies, cost-cutting and customer diversification. While increasing the value of a business is the vanguard to any M&A transaction, planning for the exit itself is just as vital.

Most business owners know that developing a succession plan is a time-consuming process that can take months, even years, to complete. For an owner within five years of such a transition, it is recommended to begin this process two to three years prior to sale.

Reluctance to Cede Control

Business owners are accustomed to being in control. Planning for the sale of one’s business cannot be divorced from the fact that they will need to relinquish control to another party and move on from something they have managed meticulously over many years.

Concern about losing control might be related to personal reasons or may be purely operational. An business owner may not know what his second act is going to be and may find the idea of not coming to work everyday uncomfortable to think about and plan for. Alternatively, an owner who has been heavily involved in and is still instrumental to the daily operations of a business may be worried about what will happen to the business when he leaves.

Deal Complexities

Owners have a lot of decisions to make when considering how they want to sell their business and what the financial implications of those decisions are. There are a number of structures such a transaction can take, a plethora of buyers to consider, and legal, tax and accounting decisions to take into account.

For example, an owner might consider an asset sale or stock sale. He might consider selling to a strategic buyer or financial buyer. Even if he knows he wants to sell to a financial buyer, choosing to sell to a private equity firm versus a family office represents very different outcomes for the business and the owner alike.

An owner may be subject to various tax liabilities upon the sale of such a large asset, including capital gains, income, gift and estate taxes upon sale. Consulting with and beginning to formulate a deal team including a banker or advisor, lawyer and accountant can help business owners stay organized and account for these types of options and outcomes in their exit plan.

Designating a Successor 

As previously discussed, an exiting business owner must account for who will take the reigns in his absence. When considering who might succeed him, a CEO may take into account the role that senior managers, investors, partners or family members have played in the business thus far.

This is a particularly sensitive area for family-owned businesses which of late have struggled to transfer the businesses within the family. In fact, only about one-third of businesses succeed in passing the business down to the next generation.

Without a clearly defined successor, a buyer may take it upon himself to fill the role or a CEO may be forced to continue on in his role until a successor is identified. This is a less than ideal outcome for a seller who is either hoping to keep the business “in the family”, enable his employees growth opportunities and ready to immediately retire.

Retirement Jitters

Many owners may not be mentally or financially prepared to head into their golden years. While many business owners hope to achieve a sale price that provides a sufficient nest egg for them and their family to live off of, some have unrealistic expectations on what they will receive for their business.

Other business owners may not be ready to cash out their emotional equity or associate “retirement” with “being old”. What CEOs need to know is that exit planning is not the end, a great sale can free up a business owner up to pursue another venture, allow him to pass the business to a deserving second generation owner, or if he’s ready, retire and relax.

Source: Forum

The best place to retire isn't Florida

If you're about to retire, these are the 10 best cities to do it in, according to Bankrate.com. Sorry, New York, you're on the worst list this time.

Americans on the brink of retirement should head for rockier terrain.

Phoenix, Denver and Colorado Springs are among the top 10 best cities to retire, according to a Bankrate.com survey out today.

The full list includes:

1. Phoenix metro area, including Mesa and Scottsdale

2. Arlington/Alexandria, Va.

3. Prescott, Ariz.

4. Tucson

5. Des Moines

6. Denver

7. Austin

8. Cape Coral, Fla.

9. Colorado Springs

10. Franklin, Tenn.

Arizona cities showed up three times in the top 10 due to unparalleled weather and low property taxes, says Chris Kahn, research and statistics analyst at Bankrate.

"It's just a great place for a low-maintenance, outdoor type of lifestyle," he says. Plus, "your dollar is going to stretch further in Arizona."

Bankrate ranked the cities based on cost of living, weather, crime rate, health care quality, tax rates, walkability and a measure of well-being based on surveys of seniors already in the areas. Retirees, in particular, need to prioritize cost of living because they're relying on a fixed income, Kahn says.

However, proximity to family may often trump all other factors when it comes to deciding where to live in retirement, says Tom Warschauer, a finance professor and director of the personal financial planning program at San Diego State University.

"If the financial factors were the dominant factors, you would find everybody moving to the least costly alternative," he says. "And that's not happening."

He recommends retirees also take into account whether they want to live in a community with people their own age or be in a neighborhood with a range of age groups.

While people might expect Florida cities along the coast to be some of the more desirable locations for seniors, Kahn says the major ones don't make the top 10 because of how much it rains, the humidity and how expensive it can be to live in cities such as Miami. Northeast cities also fare poorly due to cost of living and cold.

Arlington and Alexandria, suburbs of Washington, D.C., are more expensive, but seniors benefit from Virginia's superior health care system, the ability to get around on foot and a low crime rate. Denver also has a higher cost of living but received good marks for similar reasons as Arlington and Alexandria: low taxes, good health care and the ability to walk.

Des Moines made the list for being affordable and receiving high praise from seniors who already live there, plus, "Iowa has one of the highest-ranking health care systems in the country," Kahn says.

In Austin, retirees will have no state income tax, same in Cape Coral. 

Bankrate found in a survey out in December that 60% of people who aren't yet retired would consider moving in retirement.

This is the first time Bankrate analyzed specific metro areas as desirable retirement locations; it puts out a survey on the best states to retire each year, but "it's not the most satisfying ranking," Kahn says. "We're basically combining the retirement experience (of) someone living in Manhattan with someone living in the Finger Lakes region. They're two totally different things."

The worst cities to retire include New York City, Little Rock, Ark., New Haven, Conn., and Buffalo. 

 Source: USA Today

Hoping is not a plan

Insurance is often necessary since most people can’t self-insure against financially catastrophic events.

Insurance is often necessary since most people can’t self-insure against financially catastrophic events.

To many, buying insurance for your car, home or life seems like a big waste of money.

What if you never get into an auto accident? Although most states require auto liability insurance, people nonetheless grouse about all that money doled out over the years. Or what if you never make a claim against your home insurance policy? That’s money gone too, they grumble.

And chances are you’re going to live a long life.

But like it or not, insurance is often necessary because most of us can’t self-insure against financially catastrophic events.

Still, lots of people have to be persuaded — when the law or a contract such as a mortgage doesn’t force the issue — to buy insurance. Such is the case of a reader who wrote me during one of my online discussions. She’s at a loss as to how to prove to her husband that they need life insurance.

Their background: They are in their early 30s with two young children. He is the main income earner. She works part time from home and cares for their children.

The mortgage is their only debt. “Emergency savings and retirement are in decent shape, although I would like to be saving even more,” the wife wrote. “We definitely aren’t living paycheck to paycheck, but don’t have much monthly wiggle room for ‘extras.’ ”

The wife’s argument for life insurance: “I feel strongly that we both need it,” she wrote. “I think we just need enough money to be able to afford to pay the mortgage and child care for a couple of years.” Life insurance would give the surviving spouse a chance to regain footing and make a more permanent game plan, she said.

The husband’s argument against life insurance: “He says he doesn’t want to pay a premium for something we are highly unlikely to ever need. He thinks that if one of us passed away, the other would just need to ‘deal with it’ as best we could.” And by “deal with it,” the husband’s plan is that the surviving spouse would sell the house and move out of state to be with family who would help with child care, she wrote.

I asked Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, to weigh in on what he would tell the husband.


“My first reaction is that ‘deal with it’ isn’t a plan,” Weisbart said. “Insurance is for rare but financially crushing events; because they’re rare, the premium is affordable and if the event insured-against does happen, financial disaster is avoided, and the road to recovery is faster and smoother,” Weisbart said he would tell the husband.

Okay, what about selling the house?

“We don’t know anything about the current house, but under the pressure of a post-death sale, it would likely fetch less than under more favorable selling conditions, particularly if there are some defects that couldn’t be fixed quickly and cheaply,” Weisbart said.

But the wife could go back to work, right?

“If [the husband] dies, she would immediately have new expenses,” Weisbart said. “She would need to transition from a part-time to full-time earner plus begin paying for child care.”

Weisbart had other questions for the husband:

●Does he have health insurance through his employer? “If so, the cost of successor coverage could be a substantially greater expense,” Weisbart said.

●Are there tasks that he performs for the couple that she would have to hire people to do after his death?

●Are living costs near the out-of-state family higher or lower than where they live now?

●Would the wife need to pay for school or a training program to boost her employment skills? How much would this cost?

●Would she ultimately be able to replace the income he earns?

●As for child care, has the family who would provide it agreed to do so, and are they — financially, physically, etc. — in a position to do that? (People promise a lot of things they don’t or can’t follow through on. Just saying.)

●If his wife dies, would he move with the kids to be nearer to family, and would he have to switch jobs? If so, would he have to take a salary cut to find employment in the new location?

“I think that it would be helpful for each of them to have life insurance, at least to help manage what I call transition expenses,” Weisbart said. “At their ages, it would be very cheap, particularly if they bought 20-year term policies.”

I hope the couple live a long and prosperous life. But hoping is not a plan.

Source: Washington Post