Integrating Irrevocable Trust into Medicaid Planning

June 24, 2024

When planning, especially under the umbrella of elder law and Medicaid, one tool often considered is the irrevocable trust. While reviewing the advantages and challenges of integrating an irrevocable trust into Medicaid planning, it’s important to consider the broader implications of asset management for elder care. This article helps to clarify how these trusts work, their benefits and their limitations.

An irrevocable trust serves a strategic role in Medicaid planning. By transferring assets into an irrevocable trust, these assets are generally not counted as personal assets for Medicaid eligibility purposes. This arrangement allows individuals to qualify for Medicaid, while preserving their wealth for future beneficiaries. This aspect of asset protection is paramount, as the trust shields the assets from creditors and legal claims, ensuring that the beneficiaries’ inheritance remains intact and secure.

Medicaid Asset Protection Trusts (MAPTs) are one type of irrevocable trust specifically designed to safeguard a Medicaid applicant’s assets from being counted towards Medicaid eligibility, as explained by Very Well Health. This is crucial for those whose assets would otherwise disqualify them from receiving Medicaid benefits for long-term care, which is often necessary for custodial care in nursing homes or at home.

Very Well Health notes that Irrevocable Funeral Trusts and Medicaid Compliant Annuities are also used to shield assets to enable seniors to become eligible for Medicaid benefits.

The primary advantage of using an irrevocable trust in Medicaid planning lies in its ability to protect and preserve assets. Since the assets placed in the trust are no longer under the direct control of the individual, they are effectively shielded from many forms of legal recovery efforts, including those from creditors and lawsuits. This protective measure ensures that the assets can be passed on to loved ones without being depleted by external claims or excessive taxation.

Despite their benefits, irrevocable trusts are not without their drawbacks. The most significant of these is the loss of control over the assets. Once assets are placed into an irrevocable trust, the terms of the trust cannot be easily changed, nor can the grantor retrieve the assets. This lack of flexibility can pose a problem if the financial situation of the grantor changes unexpectedly. The Medicaid five-year “look-back” period also applies, meaning that any assets transferred into the trust within five years before applying for Medicaid can incur penalties, potentially affecting Medicaid eligibility.

Setting up and maintaining an irrevocable trust involves navigating complex legal and financial planning landscapes. The trust must be structured correctly to comply with Medicaid regulations and to align with personal estate planning goals. This often requires sophisticated legal and financial advice to ensure that all aspects of the trust serve the intended purpose without unintended consequences.

Key Takeaways:

Asset Protection: Irrevocable trusts, including MAPTs, protect assets from being counted towards Medicaid eligibility, allowing individuals to qualify while preserving wealth for beneficiaries.
Benefits of Irrevocable Trusts: Assets placed in an irrevocable trust are protected from creditors and lawsuits, ensuring that the beneficiary’s inheritance remains secure.
Disadvantages of Irrevocable Trusts: Once assets are transferred into an irrevocable trust, the grantor cannot alter the trust terms or retrieve the assets, reducing flexibility. Transferring assets into a trust less than five years before applying for Medicaid can incur penalties due to the look-back period, potentially affecting eligibility.
Complex Setup Requires Legal Guidance: Establishing and maintaining an irrevocable trust requires careful legal and financial planning to ensure compliance with Medicaid rules and alignment with personal goals.

If you have the goal of integrating an irrevocable living trust into Medicaid planning, work closely with your estate planning and elder law attorneys to ensure you have covered all of the complexities of this law. If you would like to learn more about Medicaid planning, please visit our previous posts.

Reference: Very Well Health (Feb. 11, 2024) “How Medicaid Asset Protection Trusts Work”

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Should You have an Irrevocable Trust?

June 20, 2024

You may have heard the terms “revocable trusts” and “irrevocable trusts.” Both are created to hold assets for different purposes. Which is right for you? Should you have an irrevocable trust? The differences are explained in a recent article from Kiplinger, “With Irrevocable Trusts, It’s All About Who Has Control.”

Both types of trusts are separate legal entities created through contracts. They name a trustee who is in charge of the trust and its assets. The trustee is a fiduciary, having a legal obligation to manage the assets in the trust for the beneficiaries. Depending on how the trust is structured, these are the people who will receive assets or income generated by the assets in the trust.

With the revocable trust, the grantor—the person who creates the trust—can be a trustee and maintain total control of the trust. They can change the terms of the trust, beneficiaries, and successor trustees at any time. In exchange for this level of control, however, come some downsides. The revocable trust doesn’t have the same level of protection as an irrevocable trust while the grantor is living.

The irrevocable trust trades control for benefits. The grantor of an irrevocable trust can’t change the trust once it’s been created, nor can they move assets in and out of the trust at will. Beneficiaries may not be changed either. However, when the irrevocable trust is properly created with an experienced estate planning attorney, they achieve many estate and tax goals.

Your estate planning attorney will be able to explain which irrevocable trust suits your situation, as there are many different kinds.

An irrevocable trust where the grantor is also the beneficiary is referred to as a Domestic Asset Protection Trust or DAPT. The grantor is allowed to be the beneficiary of the trust, but it has to be created in one of the 20 jurisdictions where the grantor is allowed to be the beneficiary. You can have a trust created in a jurisdiction other than your own.

The first step is to determine how to fund an irrevocable trust, where assets are transferred into the trust. There are fine points here. For instance, you can’t fund an irrevocable trust if there are issues with the IRS or the threat of litigation from a creditor. If the dispute goes to court, a judge can set aside the transfers into the trust as they were made with the intent to circumvent a creditor’s claim under fraudulent transfer laws.

If a trust seems like the right planning structure for your assets, discuss with your estate planning attorney if you should have an irrevocable trust. Decisions about naming trustees, successor trustees, beneficiaries, and funding sources should be discussed with an experienced estate planning attorney first. Creating irrevocable trusts, like much of estate planning, needs to be completed before issues arise. If you would like to learn more about different types of trusts, please visit our previous posts.

Reference: Kiplinger (April 28, 2024) “With Irrevocable Trusts, It’s All About Who Has Control”

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Diverse Family Structures Have Unique Estate Planning Challenges

June 10, 2024

American family law has traditionally focused on the nuclear family. However, Forbes reports that only 18% of American adults now fit this model. There are many new types of families today, such as blended families, single-parent households and LGBTQ+ families. Dated legal definitions of family could be a hurdle in your estate planning. Diverse family structures have unique estate planning challenges. However, it’s a hurdle you can overcome with knowledge and legal guidance.

Most legal protections and rights cater to the assumption that a family is a married couple with blood children. This alone creates obstacles for many families, even those that look traditional. Many heterosexual couples have children but haven’t yet married. This can deprive them of various rights and may exclude partners from inheritance.

Blended families with stepchildren also frequently struggle with inheritance. If the parents fail to lay out the rights of the children, it can go to a lengthy probate process. Likewise, the children of single parents face a uniquely uncertain future should their parents die unexpectedly. Another diverse family type that frequently struggles with family law is LGBTQ+ families. The rights of same-sex couples vary widely by state, which makes estate planning especially important for them.

These diverse families and more can find themselves underserved by laws that don’t have them in mind. However, that doesn’t mean that their wishes must go un-respected. There are many estate planning tools available that can help people clarify and execute their wishes once they’re gone.

Advanced estate planning techniques can give anyone greater control of their estate. Everyone with a significant estate or minor children should have an estate plan. However, diverse families need to use these tools to safeguard their wishes.

Wills: A well-drafted will is Step One. It makes it far easier to ensure that your assets go to your inheritors as you wish.
Trusts: Trusts offer greater control over asset distribution while avoiding will-related pitfalls. Living trusts can be adjusted during one’s lifetime, while irrevocable trusts protect assets but are permanent.
Powers of attorney: Financial and healthcare powers of attorney let a trusted person decide if the primary individual is incapacitated.
Testamentary guardianship: Single-parent, blended families and same-sex couples should appoint guardians for minor children in their wills.
Beneficiary Designations: Designate the beneficiaries for life insurance, retirement and investment accounts. This ensures that the executor of your will transfers assets according to your wishes.

The evolving definition of family challenges conventional estate planning. Unmarried couples, blended families and other non-traditional arrangements often need tailored estate plans. However, untangling estate law on your own isn’t easy.

Diverse family structures have unique estate planning challenges. Schedule a consultation with an estate planning attorney, who will address local laws and your unique family structure, to craft a comprehensive estate plan. If you would like to learn more about planning for blended families, please visit our previous posts.

Reference: Forbes (April 2, 2024) “How Expanding The Legal Definition Of Family Helps Us All”

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Maximizing Tax-Free Giving to Children

May 21, 2024

In the ever-evolving landscape of wealth management, affluent estate owners choose to support their children and grandchildren financially during their lifetimes. While the desire to make a positive impact is evident, navigating the tax implications of such generosity can be complex. Fortunately, several strategies exist to facilitate tax-efficient giving, while maximizing the benefits for donors and recipients. Based on Kiplinger’s article, “Three Ways to Give to Your Kids Tax-Free While You’re Still Alive,” we explore three strategies that can maximize tax-free giving to children in your estate planning.

One estate planning strategy leverages possible tax breaks on capital gains. Beneficiaries of assets that increase in value have traditionally received a break if the IRS calculates capital gains tax based on the inherited value, not when the decedent purchased the asset. The inherited asset’s higher valuation is considered a “stepped-up cost basis” and lowers capital gains tax on any increase in value.

You can give to your children during your lifetime and get capital gains tax breaks if the recipient’s taxable income falls below certain thresholds. If a single child’s taxable income is below $47,025 or a married child’s is below $94,050, they may pay zero capital gains tax upon selling the asset. Note that these tax breaks apply to capital gains. Estate taxes are a different story.

The gift tax exclusion allows individuals and married couples to give money to a child and maximize tax efficiency. Individuals can contribute money to a child’s college education or the down payment on a home as a gift. In 2024, the exclusion amount is $18,000 per recipient or $36,000 for married couples engaging in split gifts. With the lifetime federal exclusion set at $13.61 million per person, most individuals can engage in tax-free giving without exceeding their lifetime allowance.

Specific expenditures, such as educational or medical expenses and direct payments to institutions, are excluded from the annual gift limit and lifetime exclusion. This direct payment strategy allows donors to support significant financial obligations, such as college tuition or medical bills, without impacting their gifting allowances. Donors can provide meaningful support to their children and grandchildren while minimizing tax implications.

While maximizing tax-free giving is essential, assessing the broader impact of financial support on recipients is essential. By incorporating gifts into a comprehensive financial plan, donors can align their generosity with their financial objectives and ensure sustainable support for future generations.

Key Tax-Free Giving to Children Takeaways:

Giving to a Child Tax-Free: Take advantage of tax breaks to give to a child in your lifetime.
Giving in Your Lifetime: Maximize the tax advantage of giving money to a child during your lifetime.
Paying for College: Transferring money directly to a child’s college does not impact the gift tax exclusion limit.

Maximizing tax-free giving allows affluent parents to support their children and grandchildren, while minimizing tax liabilities. Implement gifting strategies and consider the broader financial impact to leave a lasting legacy and support loved ones. If you would like to learn more about minimizing taxes in your estate planning, please visit our previous posts.

Reference: Kiplinger (April 10, 2024) “Three Ways to Give to Your Kids Tax-Free While You’re Still Alive,”

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Avoiding Trouble with Your Trustee

April 25, 2024

Estate planning and elder law considerations linger in the background of our senior years. We plan for senior living, incapacity, and Medicaid. We create an estate plan to protect and preserve your wealth and provide for heirs after you are gone. Trusts are a smart and well-known estate planning tool that names or appoints a trustee to administer and distribute the assets according to the terms. However, how often do estate owners ask, “What if something goes wrong and the trustee breaches their duties?” This blog offers tips on avoiding trouble with your trustee.

The case discussed in WealthCounsel’s article, “Trustee of Living Trust Who Was Beneficiary of Decedent’s Residuary Estate Had Duty to Collect and Protect Assets Not Yet Transferred to Trust,” reminds us to take steps in appointing the right trustee and to draft the trust’s terms carefully.

The case discussed in WealthCounsel’s article involved three beneficiaries, three co-trustees and assets meant for a restated revocable trust. One of the trustees did not collect and protect untransferred trust assets. The deceased’s three children and their mother sued that trustee for breaching fiduciary duty.

The Barash v. Lembo case underscores a critical aspect of trusteeship: the duty to protect and collect assets awaiting transfer into the trust designated for distribution from the trust. Despite the probate process, trustees must proactively preserve trust assets, even before their transfer.

In this case, the Connecticut Supreme Court emphasized that trustees are entrusted with a fiduciary duty from the moment of acceptance. This duty extends to diligently administering the trust in the beneficiaries’ best interests, including the prudent collection and protection of assets.

Central to the trustee’s role is the obligation to uncover and address breaches of fiduciary duty by prior fiduciaries. Whether it’s compelling the transfer of assets or rectifying breaches, trustees must act in the trust’s best interests.

When a testamentary trust emerges as a will beneficiary, trustees are tasked with pursuing reasonable claims against the estate executor. This duty demands due diligence in securing all trust assets and ensuring comprehensive asset management.

While a duty of due diligence binds trustees, evaluating their performance hinges on contextual considerations. All trustee’s actions are scrutinized within the framework of trust administration dynamics, emphasizing the need for meticulous asset management.

In Barash v. Lembo, the court’s ruling underscores the significance of trustees’ proactive engagement in protecting and collecting trust assets. Trustees must exercise diligence and vigilance, leveraging legal avenues to preserve beneficiaries’ interests.

In your pursuit of avoiding trouble with your trustee, partner with a seasoned estate planning attorney who understands the intricacies of trust administration. If you would like to learn more about trustees and trust administration, please visit our previous posts.

Reference: WealthCounsel (Jan 19, 2024) “Trustee of Living Trust Who Was Beneficiary of Decedent’s Residuary Estate Had Duty to Collect and Protect Assets Not Yet Transferred to Trust.”

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Explore the Intricacies of Business Trusts

April 23, 2024

Entrepreneurs often seek robust mechanisms to safeguard assets and navigate liability in the intricate landscape of business ownership. Enter the realm of business trusts—a lesser-known yet powerful tool entrepreneurs can leverage to secure their ventures. Based on SmartAsset’s article, “What Is a Business Trust and How Does It Work,” we’ll explore the intricacies of business trusts, uncovering their nuances and exploring their potential advantages and drawbacks.

At the heart of business trusts lies a fundamental premise: the delegation of authority to manage a beneficiary stake in a business. Functionally akin to individual or family trusts, business trusts serve as legal instruments facilitating asset management on behalf of the grantor.

A business trust holds the rights to an individual’s stake in a business entity. In a sense, the trust, as a legal entity, owns the business. With the potential to shield against taxes and liability, business trusts offer a compelling avenue for entrepreneurs seeking robust asset protection.

Creating a business trust typically starts with deliberations between involved parties and a trust lawyer. This legal instrument, a declaration of trust, formalizes the terms governing the trust’s operation.

Central to the trust’s dynamics is the fiduciary duty entrusted to the trustee—the individual responsible for managing the trust’s assets in the best interests of beneficiaries. This fiduciary obligation underscores the trustee’s paramount responsibility to act prudently and diligently.

Just as individual trusts come in various forms, business trusts exhibit diversity in structure and function. Here’s a breakdown of the primary categories:

Grantor Trust Characterized by the grantor’s control over trust assets and taxation, this trust type offers a self-contained framework for asset management.
Simple Trust Operating under IRS verification, this trust directly distributes profits to beneficiaries without accessing principal assets.
Complex Trust Offering greater flexibility, this trust type permits partial distribution of profits and contributions to external entities, such as charities.

While business trusts present enticing benefits—from liability protection to enhanced privacy—they pose certain challenges. Here’s a snapshot of the pros and cons:

Pros:

Liability Protection: Shields beneficiaries from individual liability, akin to LLCs or corporations.
Privacy Enhancement: Offers an additional layer of privacy in asset management.
Flexible Distribution Terms: Facilitates tailored distribution schedules for beneficiaries.

Cons:

Cost and Complexity: Establishing and maintaining a business trust can be expensive and legally intricate.
Legal Compliance Challenges: Navigating legal requirements and compliance hurdles can pose significant obstacles.
Lifetime Limitations: Business trusts are typically constrained by a maximum lifespan of 99 years, limiting multi-generational arrangements.

If you’re considering a business trust, the journey begins with competent legal guidance. Collaborate with a trust lawyer to navigate the intricacies of trust creation and ensure alignment with your business goals and objectives.

While establishing a business trust entails upfront costs and legal complexities, the potential benefits of asset protection and operational flexibility can be substantial. Before proceeding, it’s crucial to weigh the key considerations and assess the suitability of a business trust for your unique circumstances.

Business Trusts Key Takeaways:

Early Consultation is Key: Engage with a trust lawyer early in the process to navigate legal complexities and ensure alignment with your business objectives.
Deliberate Consideration is Essential: Thoroughly assess the pros and cons of a business trust, weighing factors such as cost, complexity, and compliance.
Tailored Solutions Yield Optimal Results: Customize your business trust to align with your unique needs, leveraging its flexibility to achieve optimal asset protection and operational efficiency.

If you are ready to explore the intricacies of business trusts, schedule a consultation with a seasoned estate planning attorney today. If you would like to learn more about business trusts, please visit our previous posts.

Reference: SmartAsset (April 19, 2023) “What Is a Business Trust and How Does It Work”

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New IRS Tax Rule affects Irrevocable Trusts in Estate Planning

April 19, 2024

Trusts have been foundational estate planning strategies for decades and are becoming more popular as economic shifts and the aging population highlight unique estate planning goals. An irrevocable trust is one practical estate planning strategy for excluding assets from an estate’s taxable value, safeguarding wealth and helping to meet asset threshold limits for government benefits like Medicaid. The Tax Advisor details how the 2023-2 IRS tax rule has significantly impacted estate planning strategies, particularly irrevocable trusts. We look at how this new IRS tax rule affects irrevocable trusts in your estate planning.

Capital gains taxes are the heart of the IRS Rule 2023-2 changes. Individuals pay taxes on the difference between an asset’s purchase price and a higher sell price as that asset’s value grows over time. The original purchase price is their cost basis or non-taxed value. Amounts over the cost basis are taxed as a capital gain. Assets include property, investments, cars and anything providing income or profit. If you create or update an estate plan, the IRS rule may change your estate planning or updates in 2024. Work with an experienced estate planning attorney to find the right type of trust for your goals and structure it accordingly.

The cost basis for an asset’s beneficiaries significantly impacts capital gains taxes once they sell. Capital gains from the deceased’s date of purchase will be much higher than fair market value on the date of death. An irrevocable trust typically gave heirs a break by calculating an inherited asset’s capital gains from the fair market value at the owner’s death. That tax break has changed.

The IRS issued Rule 2023-2 in early 2023, which impacts an inherited asset’s cost basis for capital gains taxes. The cost basis was calculated on the fair market value on the date of death but is based on the deceased’s date of purchase as of March 2023. Calculating taxes from the date of purchase is considered a “step-down,” meaning a lower cost base and higher capital gains. Conversely, the date of death means fair market value at a higher cost basis and less capital gains.

The main differentiator with an irrevocable trust is its ability to exclude assets from an estate’s valuation. The person establishing an irrevocable trust technically no longer owns the assets. This type of trust is a strategy that helps older adults applying for Medicaid benefits meet maximum thresholds.

With the new IRS rule, assets in an irrevocable trust are not part of the owner’s taxable estate at their death and are not eligible for the fair market valuation when transferred to an heir. The 2023-2 rule doesn’t give an heir the higher cost basis or fair market value of the inherited asset. Once they sell that asset, capital gains taxes are calculated using the value when the deceased purchased it.

Families increasingly use irrevocable trusts to safeguard assets from spend-down for government benefits, like Medicaid and VA Aid and Attendance.

Future considerations must include reevaluating how irrevocable trusts are structured to navigate the evolving tax landscape effectively. Planning strategies need to adapt to ensure that assets are protected, and taxes are minimized for the benefit of future generations.

This new IRS tax rule raises important considerations about how it might affect irrevocable trust estate planning. While it may seem like irrevocable trust planning could lead to additional taxes for beneficiaries, the reality is more nuanced. Future considerations in estate planning involve setting up irrevocable trusts that align with new IRS rules. If you would like to learn more about irrevocable trusts, please visit our previous posts.

Reference: The Tax Advisor (Nov. 1, 2023) “Rev. Rul. 2023-2’s Impact on Estate Plans.”

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Protect Family Wealth from Third Generation Curse

April 10, 2024

Have you heard of the “Great Wealth Transfer?” It’s the period when Baby Boomers are projected to pass trillions of dollars to the next generation. Creating or updating an estate plan to protect family wealth from the third-generation curse requires communication between generations centered on the values leading to wealth creation and a financial education on how to preserve and grow wealth.

The anticipated $84 trillion expected to be bequeathed to Generation X, Millennials, and Gen Z beneficiaries sounds enormous, but the third-generation curse may leave heirs with far less than expected. Often, wealth is earned by one generation, grown by the second generation who witnessed firsthand how hard their parents worked to maintain their wealth, and mismanaged or wasted by the third generation members, who are too far from the original wealth creation to respect it.

Many estate plans are structured to address tax planning, but that’s only one aspect of estate planning. Communicating the “why” of the estate plan, including where the money came from, how it has been stewarded over the years, and what needs to happen to protect it, will help beneficiaries have a deeper regard for their inheritance.

Boomer values may differ from their heir’s values, but they may also be similar, as they use different language to describe the same thing. Clarifying these values and communicating with heirs may help to give context to their inheritance and its importance.

Understanding your priorities and values should ideally lead to an estate plan reflecting your wishes. For instance, if the family prizes education, your estate planning attorney may advise you to create a trust to fund advanced education. Such a trust should be accompanied by a letter of intent explaining your wishes and values to both trustees and heirs.

If you’re unsure about mandating the use of funds, you may have your estate planning attorney create a discretionary trust with a similar letter explaining what you’d like them to use the funds for and why it’s important to you. Because circumstances change, the trustee will have the flexibility to distribute the funds as they see fit.

Creating or updating an estate plan to protect your family wealth from the third-generation curse will give everyone the peace of mind they crave. When the estate plan is completed, have a series of conversations with family members about what’s in the plan and why. They don’t need to know every detail, but broad strokes will go a long way in letting them know what you’ve done, your wishes, and your hopes for their future. If you would like to learn more about planning for future generations, please visit our previous posts.

Reference: Kiplinger (March 12, 2024) “How Estate Planning Can Thwart the ‘Third-Generation Curse’”

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The Complexities of Co-Owning a Vacation Home

March 26, 2024

Dreaming of a vacation home you can escape to at any moment is wonderful. However, the reality of co-owning that slice of paradise with friends or family might be more complicated than you think, explains Better Homes and Garden’s article, “What You Need to Know Before You Buy a Vacation Home with Friends or Family.” Let’s dive into the complexities and considerations of co-owning a vacation home, inspired by insights from experts in the field.

Co-owning a vacation home often starts with a dream shared among friends or family. It’s an appealing idea, especially when the cost of owning a vacation spot on your own seems out of reach. The idea of pooling resources to afford a better, more luxurious property in a prime location is tempting. It promises a place to stay and a shared investment, potentially increasing in value over time.

The main attraction of co-owning is financial efficiency. You can access better properties in desirable locations without shouldering the entire financial burden alone. It allows more frequent visits to your favorite vacation spot and turns an otherwise unreachable dream into a tangible reality. Owning a property with others can also create deeper bonds and shared memories that last a lifetime.

However, with the benefits come significant risks and potential pitfalls. Co-ownership can lead to financial disputes, disagreements over property use, maintenance responsibilities and even conflicts about the property’s future. What happens if one owner wants out of their part of the property or if one owner passes away unexpectedly? What if personal circumstances change, affecting

Before jumping into co-ownership, having detailed conversations about every aspect of the property’s future is crucial. Discussing and agreeing on a budget, usage schedules, guests, pets and even decor can prevent misunderstandings down the line. It’s also wise to consider legal structures, like becoming tenants in common or forming an LLC, to manage the property, ensuring that all agreements are in writing to protect everyone involved.

Getting legal advice from an estate, real estate, or business attorney when considering purchasing joint-owned property is essential. A trusted attorney can help draft a comprehensive co-ownership contract with your friend or family member that outlines each owner’s rights, responsibilities, financial commitments and the procedures for resolving disputes or selling shares in the property. This agreement safeguards your financial interest in the vacation home, ensuring that it remains a source of joy rather than a cause of strife.

Co-owning a vacation home offers a unique opportunity to make your dream of a getaway spot a reality. However, it’s not without its challenges. By prioritizing open communication, financial clarity and professional legal advice, you can navigate the complexities of co-ownership. Remember, the goal is to create a space that enhances your life and relationships, not one that leads to unnecessary stress or conflict. Your estate planning attorney will help you fully grasp the complexities of co-owning a vacation home. If you are interested in learning more about managing real property in your estate plan, please visit our previous posts.

Reference: Better Homes and Gardens (June 29, 2023) “What You Need to Know Before You Buy a Vacation Home with Friends or Family”

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Business Owners needs Succession Planning

March 14, 2024

Business owners typically have a high percentage of their net worth tied up in the business and sometimes the real estate where it operates. What’s surprising is how little attention is often given to the succession plan. Business owners need succession planning, says an article from Accounting Today, “The two sides to succession plans for private businesses.”

Starting with the operational side, who will take over the business owner’s work when they die, become incapacitated, or retire? If a business founder is in the weeds of the business, this is a big issue. The owner must have extensive conversations with key employees to discuss the details.

Multigenerational family ownership isn’t always the cure for a succession plan. Second- or third-generational roles must be planned, so capable people fill them. Bloodline succession doesn’t always work for running a business.

These conversations regarding roles, compensation and equity incentives must be very detailed. Not all employee leaders are willing to pour their lives into a privately owned business for the benefit of heirs without an incentive plan.

On the financial side of succession, who will become the owners of the deceased’s shares, and what financial arrangements will be made for that transfer? Businesses with the least amount of animosity and grief are those who have done the hard work: they have the business evaluated by an outside professional and having clear plans for how the successor owners will own and operate the business.

How will the transfer of the business take place in the future? An estate planning attorney should work with the business’ accountants, financial advisors, insurance brokers and other professionals to develop a clear plan for the business and the family.

If the owner is contemplating retirement, will they count on the income from the business operations to fund their retirement, or will they sell their shares to family members or outsiders? Who will oversee this transfer if the business owner becomes incapacitated?

Business owners needs succession planning for a privately held business. It is a lengthy process requiring input from skilled professionals, and ideally, it should begin the moment the business is well-established. There’s always time to tweak an existing plan, but never time to plan in an emergency. If you would like to learn more about business succession planning, please visit our previous posts.

Reference: Accounting Today (Feb. 13, 2024) “The two sides to succession plans for private businesses”

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Category: Assets

Integrating Irrevocable Trust into Medicaid Planning

Should You have an Irrevocable Trust?

Diverse Family Structures Have Unique Estate Planning Challenges

Maximizing Tax-Free Giving to Children

Avoiding Trouble with Your Trustee

Explore the Intricacies of Business Trusts

New IRS Tax Rule affects Irrevocable Trusts in Estate Planning

Protect Family Wealth from Third Generation Curse

The Complexities of Co-Owning a Vacation Home

Business Owners needs Succession Planning

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