Trusts and Estates Blog

Business Owners: Have You Planned Your Exit?

You’ve worked hard building your business, but have you thought about what will happen when you are no longer there running the show?

According to one study (Small Business Review, Summer 2001), only 30% of all family-owned businesses survive to the next generation; only 12% make it to the third generation; and a meager 3% are functioning into the 4th generation and beyond.

Why? Most business owners simply do not plan an exit. They do not do proper estate planning, which often results in unnecessary estate taxes that drain the life out of their businesses. And they do not plan for a successful transition to the next generation.

Who could take over your business? You may have more choices than you think.

Family members are often a logical choice. Most business owners feel a certain pride in being able to pass down a family business. In fact, you may already have a child or two working in the business with you.

Depending on your financial needs, you can gift and/or or sell your business to family members. Some techniques will provide you with retirement income and let you transfer the business at a discount, saving estate and gift taxes. Most let you keep some control.

Be sure to consider family members who will not be involved with the business. Life insurance is often used to “equalize” inheritances. You also need to be objective when considering the abilities of family members whom you consider potential successors.

Business partners are also logical options. You can have reciprocal buy/sell arrangements with each other, so that when one of you is ready to retire or dies, the other automatically buys his/her share of the business. Life insurance is often used to fund these arrangements.

Your employees could also be a source. An Employee Stock Ownership Plan lets your employees enjoy the benefits of ownership, yet you can keep control until your retirement or death.

How about a charity? Charitable trusts can provide terrific income, capital gain and estate tax savings. With a charitable remainder trust, you can receive a lifetime income. And you have the added benefit of helping a charity that has special meaning to you.

Of course, you can also consider an outright sale to another company. But the tax benefits are usually not as good as other planning options.

A good business succession (exit) plan should also provide for the possibility of a long-term illness or disability. Make sure you work with an experienced professional who can help you evaluate your goals and objectives, and can provide you with the best options for your situation.

No Contest Clauses in Wills – When a Creditor Files a Claim

A no contest clause traditionally consists of specific language included in a California will or trust that attempts to prevent any legal dispute against the will after the testator has deceased. A no contest clause, for the most part, does help to discourage legal disputes over a will, except in cases for which the contesting party can offer significant proof of forgery, duress, or problems with validity of the instrument. For most no contest clauses, the language specifically states that any beneficiary of the will stands to be disinherited should he or she decide to pursue unjustifiable litigation in dispute over some aspect of the provisions of the will.

There are, however, certain exclusions to the enforcement of no contest clauses, including among others, when a creditor files a claim against the estate of the testator. Unless the language of the no contest clause specifically includes the circumstances of a creditor filing a claim, the act of doing so would be considered an exclusion to the clause, and therefore, a legitimate reason for a beneficiary to file a dispute without running the risk of losing his or her inheritance.

Many California wills now include standard no contest clauses that include specific language relating to when a creditor files a claim against the estate after the testator has deceased. If so, the validity of such a clause might still be brought into question, and recent California legislation has paved the way for making the entire no contest clause invalid, regardless of the language included within it.

Since the new legislation will not go into effect until 2010, and although the bill will be retroactive for California wills that are currently being drawn up, it is still a good idea to include a no contest clause within your will that includes language relating to when a creditor files a claim against your estate. In this case, a little defense is better than no defense at all, and your estate has a better chance of being legally protected (at least, for a short time) with such a clause.

If you have additional questions concerning no contest clauses, or the California legislation changes surrounding them, a qualified California estate lawyer will be able to give you the best advice concerning the inclusion of a no contest clause in your estate planning options. A highly skilled California estate attorney, with experience in litigating no contest clauses in California, can offer you educated solutions to all of your estate planning needs.

Kevin Von Tungeln is the Managing Partner of EstatePlanningSpecialists.com and Thompson Von Tungeln, P.C. Kevin practices in the areas of estate planning, probate, wills, and trust administration. Visit http://www.EstatePlanningSpecialists.com or http://www.linkedin.com/in/kevintungeln

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What Women Need To Know Before They Are Widows

This applies to both men and women, but I titled this the way I did since men die first about 75% of the time.

Animals have these advantages over man: they never hear the clock strike, they die without any idea of death…their funerals cost them nothing, and no one starts lawsuits over their wills. – Voltaire

The following is a short list of the minimum information married couples need to be aware of in order to protect each other when one spouse dies.

a. One spouse typically handles all of the finances in the house, and it is not always the man of the house.

b. About 74% of the time, the husband dies first. Look at any senior ministry in any church or visit a nursing home if you want to verify this fact. Both overwhelmingly consist of women. (In fact, if this were the only guide, one would conclude that men die first at least 90% of the time!)

c. Organize and discuss all of your finances to protect your spouse if you die first. Make sure your spouse knows where everything is and put this in writing! Do not forget to make note of all the bills that come each month.

d. If you pay the bills, have your spouse pay the monthly bills at least once. Losing a spouse is bad enough. Trying to learn how to pay the bills right after your spouse has died is awful.

Failing to Designate Beneficiaries on Assets

There are many ways in which hiring an estate planning attorney can help you to navigate the often treacherous landscape of estate law. One in particular is in understanding the necessity of designating beneficiaries for all of your accounts.

Regardless of how polished your Will might be, or how clearly you have designated and divided your estate among your loved ones, failing to ensure that the right beneficiaries are noted on your retirement and investment accounts could critically disrupt your carefully-laid plans.

If you have created a Will or revocable trust, then you are already taking the right step in securing your family’s financial future in the event of your death.

However, what many people do not realize is that much of their wealth is tied up in retirement and investment accounts – each with their own rules for distributing those assets when the owner (you) can no longer claim them.

If you own such accounts – as most people do – it is important that you sit down with a qualified estate planning attorney and ensure that your desires that are outlined in your Will are reflected in the beneficiary designations of your accounts.

- Contact your account holders, especially those of accounts that have been established for quite some time, and inquire about the beneficiaries listed.

- Discuss with your lawyer the proper methods for changing beneficiaries to reflect the desires you have laid out in your Will.

- Include Life Insurance accounts, bank/savings accounts, investment portfolios, 401k accounts, or any account that requires a noted beneficiary. Your estate planning attorney can help you identify those accounts.

- Discuss with your lawyer the possibility of additional taxes that may be added to your assets if beneficiaries are not properly noted.

Often, when people do an inventory of their accounts with beneficiaries, they find beneficiaries listed whom they no longer wish to receive part of their estate (for example, ex-spouses).

In many cases, the beneficiary listed on an account would be given the assets within that account, regardless of what is stated in your Will. Essentially, the laws regarding beneficiary designation often override those regarding the settlement of a Will.

It is, therefore, always a good idea to discuss with your attorney ways in which you can keep your beneficiaries up-to-date at all times, especially when you cross important milestones such as a new marriage, a divorce, the death of a loved one, or the birth of a child.

Whether your estate planning goals are immediate or long-term, a qualified California estate planning attorney will be able to counsel you on the best options available to you to meet your individual needs.

Kevin Von Tungeln is the Managing Partner of EstatePlanningSpecialists.com and Thompson Von Tungeln, P.C. Kevin practices exclusively in the areas of estate planning, probate, wills, conservatorships and trust administration.Visit http://www.EstatePlanningSpecialists.com or http://www.linkedin.com/in/kevinvontungeln to learn more.

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