The temporary $12 million estate tax exclusion, indexed for inflation, should limit the impact of federal estate taxes to a few thousand estates per year. But that does not mean people should become complacent about their estate planning.
Business owners and professionals with practices provide incredibly vivid examples of the continuing importance of estate planning. Leaving aside the question of whether the business or practice is valuable enough to enter the federal estate tax zone, there are four other significant objectives for a business owner’s estate plan.
- Control and Ownership. One usually doesn’t want to be in business with one’s partner’s family members. A buy-sell agreement is needed to provide an orderly plan for successor management.
- Family Members. There can be problems among heirs if some family members are active in a business and others are not. Those who are not active probably should not be given a voice in management, even if they will have a financial interest in the business. An estate plan may need to address equalizing inheritances in a way that won’t impair the business’ value or manageability.
- Probate Avoidance. No one wants to have their business mired in the probate process. Imagine that you can’t cash royalty checks or sell a building because you must wait for a personal representative to be appointed and the statutory period for creditors to make claims to pass. Even worse, in formal probate, no distribution of assets can occur without a court order. Imagine that a professional business valuation to the tune of $10,000 must be obtained to claim the business’s value with the court legally. A trust, buy-sell agreement, transfer-on-death shares, or a combination thereof will avoid the costly delays and court requirements of probate.
- State Death Taxes. Most states have eliminated their estate and/or inheritance taxes. Those that still have them typically have “decoupled” from the federal tax guidelines, and they impose their taxes at death on much smaller estates in the area of $1 million. If you live in one of those states or own property in one, you may still have some tax planning.
For additional information on how Legacy’s team of professionals can help you develop a durable plan for your family’s financial future, visit our Estate Planning page: https://www.lptrust.com/our-services/estate-planning/.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or email@example.com.
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Any developments occurring after July 1, 2022, are not reflected in this article.
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It is not intended as legal, accounting, or financial planning advice.