Estate Planning with a Business

Estate planning with a business addresses owner succession, protecting assets and the smooth operation of the business.

Estate planning with a business is different. If you have children, ownership shares in a business, or even in more than one business, a desire to protect your family and business if you became disabled, or charitable giving goals, then you need an estate plan attuned to those needs. The recent article “Estate planning for business owners and executives” from The Wealth Advisor explains why business owners, parents and executives need estate plans.

An estate plan is more than a way to distribute wealth. It can also:

  • Establish a Power of Attorney, if you can’t make decisions due to an illness or injury.
  • Identify a guardianship plan for minor children, naming a caregiver of your choice.
  • Coordinating beneficiary designations with your estate plan. This includes retirement plans, life insurance, annuities and some jointly owned property.
  • Create trusts for beneficiaries to afford them asset or divorce protection.
  • Identify professional management for assets in those trusts if appropriate.
  • Minimize taxes and maximize privacy through the use of planning techniques.
  • Create a structure for your philanthropic goals.

An estate plan ensures that fiduciaries are identified to oversee and distribute assets as you want. Estate planning with a business especially focuses on managing ownership assets, which requires more sophisticated planning. Ideally, you have a management and ownership succession plan for your business, and both should be well-documented and integrated with your overall estate plan.   See here for a deeper dive into business succession planning.  https://galligan-law.com/business-succession-planning-in-your-estate-plan/

Some business owners choose to separate their Power of Attorney documents, so one person or more who know their business well, as well as the POA holder or co-POA, are able to make decisions about the business, while family members are appointed POA for non-business decisions.

Depending on how your business is structured, the post-death transfer of the business may need to be a part of your estate planning with a business. A current buy-sell agreement may be needed, especially if there are more than two owners of the business.

An estate plan, like a succession plan, is not a set-it-and-forget it document. Regular reviews will ensure that any changes are documented, from the size of your overall estate to the people you choose to make key decisions.

Reference: The Wealth Advisor (July 28, 2020) “Estate planning for business owners and executives”

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Estate Planning after Divorce

Divorce changes your estate plan, so make sure to update it and your beneficiary designations after the divorce.

Estate planning after divorce takes careful consideration.  Without a spouse as the center of an estate plan, the executors, trustees, guardians or agents under a power of attorney and health care proxies will have to be chosen from a more diverse pool of those that are connected to you.

Wealth Advisor’s recent article entitled “How to Revise Your Estate Plan After Divorce” explains that beneficiary forms tied to an IRA, 401(k), 403(b) and life insurance will need to be updated to show the dissolution of the marriage.

There are usually estate planning terms that are included in agreements created during the separation and divorce. These may call for the removal of both spouses from each other’s estate planning documents, assets, bank and retirement accounts. For example, in Texas, bequests to an ex-spouse in a will prepared during the marriage are voided after the divorce. Even though the old will is still valid, a new will has the benefit of realigning the estate assets with the intended recipients and avoiding difficulties in probating the will.

However, any trust created while married is treated differently. Revocable trusts can be revoked, and the assets held by those trusts can be part of the divorce. Irrevocable trusts involving marital property are less likely to be dissolved, and after the death of the grantor, distributions may be made to an ex-spouse as directed by the trust.

A big task in the post-divorce estate planning process is changing beneficiaries. Ask for change of beneficiary forms for all retirement accounts. Without a stipulation in the divorce decree ending their interest, an ex-spouse still listed as beneficiary of an IRA or life insurance policy may still receive the proceeds at your death.  Sometimes beneficiary designations or retitling of assets occur during the divorce process, but often they occur after resolving the divorce and aren’t complete by the time an estate planning attorney needs to be involved.

Divorce makes children assume responsibility at an earlier age. Adult children in their 20s or early 30s typically assume the place of the ex-spouse as fiduciaries and health care proxies, as well as agents under powers of attorney, executors and trustees.  Many clients often try to coordinate their estate plans with their ex-spouses to ensure their mutual children are provided for.

If the divorcing parents have minor children, they must choose a guardian to care for the children, in the event that both parents pass away.  This was always true, but the need for it is heightened if parents aren’t on the same page.

Ask an experienced estate planning attorney to help you with the issues that are involved in estate planning after a divorce.

Reference: Wealth Advisor (July 7, 2020) “How to Revise Your Estate Plan After Divorce”

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The Difference Between an Executor, a Trustee and Other Fiduciaries

Who is the best person to be your executor, trustee, or agent?
Who is the best person to be your executor, trustee, or agent?

When putting together an estate plan, you need to choose wisely those you trust to carry out your intent. Many people wonder what is the difference between an executor and a trustee. But those aren’t the only roles you need to consider filling when putting together your estate plan. You also may need to name agents and guardians.

The people you designate for these positions are generally called “fiduciaries.” Because these people will play an important part in the success of your estate plan you need to know what these roles entail and what kind of person would be best suited for each position.

Here is a summary of what fiduciaries you may need in your estate plan:

  • Executor  – This is the person named in your will who has the responsibility for identifying what property you own, paying your debts and final expenses, filing final tax returns, and distributing the remaining assets to your beneficiaries. Often the executor has the authority to determine what assets make up a beneficiary’s share. The executor should be organized and able to make financial decisions. The executor needs to be impartial with regard to beneficiaries. He or she should be willing to communicate regularly with the beneficiaries and keep them informed.
  • Trustee – A trustee manages a trust. As opposed to the executor, this could be a long term position, depending on how long the trust is supposed to last. The trustee must be able to communicate with the beneficiaries and be responsive to their needs while following the terms of the trust. There are many kinds of trusts, so one person may be good as trustee for one kind of trust, but may not be appropriate for another kind of trust. For example, an adult child may be a good trustee for his or her own trust, but a poor choice as trustee of a trust created for his or her step parent.
  • Guardian of a Minor or Incapacitated Child – The guardian of a child’s “person” has the responsibility for making sure that the child’s day to day physical needs are met (food, clothing, and shelter). The guardian assumes the care of the minor or incapacitated child or children upon the death or incapacity of the last of the child’s parents to die or become incapacitated. The child’s guardian should be someone who holds the same values you do and someone you trust to raise your child the way you would.
  • Agent Under Medical Power of Attorney – This is the person you appoint to make decisions regarding your medical treatment when your health care provider has determined that you cannot make your own medical decisions. This person should not be afraid or hesitant to ask you what kind of treatment you would want in certain situations. He or she needs to be able to make tough decisions and be committed to making decisions based on what you want and have expressed, not on their own wishes.  It’s important to have a frank discussion with your medical agent regarding the kinds of treatment you want or don’t want.
  • Agent Under a General Durable Financial Power of Attorney – This is the person you appoint to step in when you are unable to take care of your own business affairs, but you also may appoint an agent to act on your behalf when you are not incapacitated. The agent will be responsible for handling your day to day tasks, such as paying bills, managing investments, paying for your care and medical expenses, signing tax forms, dealing with insurance, social security, etc. This person should be organized and able to make financial decisions and have the time to handle your affairs. Your agent may hire outside help, like a bookkeeper or a caregiver.

Certain positions, such as an agent acting under a power of attorney, for practical reasons should probably be filled by one person at a time. For other roles, such as trustee or executor, you may wish to name two or more people. Just remember, the more people involved in the decision making, the more cumbersome the process may become.

You should also name successor executors, trustees, agents and guardians to act in the event the first person you choose is unable to take on that role.

In some situations, a trust company is the appropriate choice for carrying out your instructions as to how assets should be distributed and beneficiaries cared for. Trust companies are impartial and can be effective in diffusing emotions that may arise between beneficiaries and an executor or trustee. Another option may be to name an individual and a trust company as co-executors or co-trustees. The individual may be sensitive to a beneficiary’s needs and a trust company can take care of investing and managing assets.

In any event, your estate planning attorney will be able to help you explore further which roles you need to fill in your estate plan and the best people for those roles.

If you’re interested in learning more about how a trust company works. See https://galligan-law.com/how-does-a-trust-company-work/

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