Short-Term and Long-Term Plans for Utah Business Succession

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Succession planning where company ownership is concerned can be fairly complicated, but at a simple level every plan is based on two basic issues. You’ve probably thought a lot about who will take over for you; that’s one. But, just as importantly, how can you make sure what you want to happen will happen? Without the right short- and long-term plans in place, it won’t.

Business succession planning focuses on two main concerns. On the one hand, what will happen way down the line when you’re ready to give up the business? And, on the other hand, what will happen to the family business if you pass away tonight?

What is needed is a tiered approach as explored in a recent Forbes article titled “Don’t Let Your Family Business Die With You.” This may require both short-term plans and long-term plans.

Essentially, these are the same kinds of thoughts and approaches you should begin with in all aspects of your life, property and estate. However, there is a special difficulty when it comes to a business. Proper planning has, at all times, one foot in the future and one foot in the present because you never know when the unthinkable could happen.

Do you have a plan in place? If you do, does it take everything into consideration? If you don’t, now is the time to start putting the pieces into place. Even if you have not yet gotten your thoughts together for a long-term plan, you absolutely must have the short-term plan safely in place.

Reference: Forbes (June 11, 2014) “Don’t Let Your Family Business Die With You

Estate Tax Liabilities and Life Insurance for the Utah Estate

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“While there are a number of ways to address estate tax liabilities and retirement savings distinctly, developments in the life insurance arena are providing new and potentially better options. These strategies are highly versatile to meet the evolving needs of the individual many years into the future.”

As those in business well know, there are really only two ways to deal with a potential business liability: proper planning and execution on the one hand, and proper use of insurance on the other. Many find both approaches can also work in tandem to effectively achieve their estate planning and retirement goals.

The use of insurance to deal with an estate tax liability inevitably brings us to the topic of life insurance. In fact, an interesting approach was advocated recently in a Forbes article titled “Life Insurance For Estate Taxes And Retirement.” Why life insurance? Well, while the fundamental risk life insurance is meant to resolve is the loss of income upon the death of a breadwinner, it can cure the problem of illiquidity when estate taxes are due. That is especially helpful if real estate or other illiquid assets are what is driving your estate to taxation in the first place.

These sorts of insurance already have to be balanced so as not to create further tax liabilities. How does the life insurance work for you in life? As you can read the original article, there are ways to draw upon it in the form of a loan for retirement income without actually eliminating the death benefits payout.

There is much to say on the topic, but knowing the option is there can make a world of difference in how you structure your affairs. What else can you do and what else are you concerned about? When considering life insurance, remember to consult with competent estate planning legal counsel.

Reference:  Forbes (June 11, 2014) “Life Insurance For Estate Taxes And Retirement”

Your Utah Doctors Need to Know: Who is the Decision-Maker?

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“What about the wife?” the social worker asked.

How could we have missed this most basic and vital piece of information? It’s easier than you might think. The sister didn’t get along with the wife and apparently wasn’t moved to tell us of her existence. The social worker had been out sick, and his replacement assumed that we knew. And we had a concerned sibling at the bedside who fulfilled our mental checkbox for who makes an acceptable surrogate decision-maker.

While doctors are dealing with the medical issues during end-of-life situations, they have a harder time thinking about the personal wishes of their patients. It’s best to have a plan in place and someone to communicate those wishes to the doctor in charge.

For the thoughts and an appreciation for these end-of-life difficulties, you might want to read a recent article in The New York Times titled “Who Can Speak for the Patient?”

Doctors have an incredibly difficult role to play at a very important juncture in the lives of a patient and their family. This “role” is above and beyond their job of ensuring for medical care. The role of the doctor is to relay the medical information and difficult prognosis to decision-makers, but that is not always clear to the doctors or the hospital. In the original article, a very common family situation became the backdrop for a decision about whether to continue life-sustaining care, and the wrong person was almost relied upon for innocent and understandable reasons.

The takeaway from this instructive article should be an awareness of how vital it is to maintain readily available records, so it is clear who is responsible when a patient cannot make their own choices and what kind of choices those might be. In this case, once the wife was properly identified, then she was able to make the right decisions. However, precious time is lost and family strife can build when it is not clear who has authority. These are things we all have to think about, and it is necessary to think them through before it is too late.

Reference:  The New York Times (June 19, 2014) “Who Can Speak for the Patient?”

Leaving Your Utah Estate to Family or to a Charity?

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Is inherited wealth making a comeback?

Is leaving an inheritance a good or bad idea? Well, it all depends on who you ask. For example, a recently published book by French economist Thomas Piketty, “Capital in the Twenty-First Century,” argues that estates are getting larger and eventually most of the money in the world will be tied up in huge estates. The argument is that this is bad. Why? Because the wealthiest people will have done nothing to earn the wealth themselves and much of the money will never be spent. Consequently, the money will just accumulate in estates and remain outside the greater economy.

Not all economists see this as a necessarily bad thing. In a recent article in The New York Times titled “How Inherited Wealth Helps the Economy,” Harvard Professor N. Gregory Mankiw explains how those who save their money and leave an estate to their heirs actually induce a redistribution of wealth from the owners of capital to workers. He states, “Because capital is subject to diminishing returns, an increase in its supply causes each unit of capital to earn less. And because increased capital raises labor productivity, workers enjoy higher wages.”

Of course, many people for personal or political reasons do not want to leave everything to their families. There is not necessarily a right answer. No one should feel guilty for what he or she wants to do with his or her own wealth. Whether you want to give everything to charity or leave it to your family, you can get an estate plan that does exactly what you want.

Reference: New York Times (June 21, 2014) “How Inherited Wealth Helps the Economy”

Spring Cleaning for Your Utah Finances

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From checking Unclaimed Property to setting up automatic bill payments, here are some simple tips each of us can use to keep our finances organized this year.

Although you may not live in Missouri and it may not be “spring cleaning” season, Missouri State Treasurer Clint Zweifel offered sound financial advice in a column from The South County Mail entitled”Spring cleaning? Don’t forget your finances.” Mr. Zweifel has some “simple tips” on estate planning and taking care of money that you can do any time of the year.

Review and eliminate unnecessary expenses. Keep track of your subscriptions and automatic payments. If you have not watched your movie channels in months, cancel the subscription and save some money.

Set up an automatic payment to your savings account. Try to save money when you can, whether it is an emergency fund or for an upcoming purchase. Make it easier to pay yourself first, and over time it will become just another part of your monthly budget. You should also set up automatic payments. It isa good way to ensure that you are always up to date on your payments and avoid late fees.

Make sure you have appropriate insurance. Insurance is a critical safety net in the event of an emergency. Take some time to look through all of your plans and make sure you have the coverage that best matches your needs.

Finally, create or update your estate plan. The article warns that this will not earn you extra money, but it is crucial in planning for your financial future. Make sure your estate plan is up to date and that it includes all relevant assets. Talk to your estate planning attorney about a revocable living trust and/or beneficiary designations to avoid probate.

There can be some complicated questions when it comes to finances and taxes. Speak with an estate planning attorney and make sure that you do your “spring cleaning” even in the middle of summer!

Resource: South County Mail [Rogersville, Missouri] (April 3, 2014) “Spring cleaning? Don’t forget your finances“

Prevent Litigation Over Your Utah Estate Plan

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Lawyers for Mr. Cohen say that he was entrusted with his father’s business, and that the two men enjoyed a close and caring relationship. But lawyers for Ms. Perelman claimed that it was that closeness that allowed Mr. Cohen, who eventually took over operations of Hudson Media, to manipulate the ailing man into changing his will. 

Even when there are good reasons for leaving everything to one child, disinherited children will often choose to fight in court. Most people attempt to leave all of their children an equal proportion of their assets. That is not always easy to do. If the majority of assets are tied up in a business, for example, then it may be prudent to leave the business to the child who is active in the business. Just be ready for a fight if this decision is done late in life.

A recent article in The New York Times, titled “In Inheritance Battle, Judge Sides Against Perelmans,” reported on a legal dispute over the estate of billionaire Robert Cohen.

Late in his life Mr. Cohen was sick and changed his estate plan. He had a son and a daughter. It appears that Cohen decided to leave everything to his son, as it was his desire for the son to carry on the business. However, the daughter was married to the wealthy chairman of Revlon. He and the daughter both attempted to contest Cohen’s will. They claimed that the inheriting son had manipulated Mr. Cohen. A judge in New Jersey decided otherwise and ruled in favor of the son.

With the significant dollars at stake in the Cohen estate, it may not have been possible to prevent a legal fight between the family members. Nevertheless, there were steps that could have been taken to make such a battle less likely.

For instance, it would have been better for Cohen to finalize his plans before he was dying. You should never wait until the last minute to make (or change) an estate plan. That does not leave time to explain to your family why you are doing something unusual. Had Cohen acted earlier, he might also have been able to rearrange assets and divide them more equally between his children while still leaving the business intact for his son.

Reference New York Times (June 25, 2014) “In Inheritance Battle, Judge Sides Against Perelmans”

Appraised Value vs. Auction Value. Did You Really Leave your Utah Collection to the IRS?

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Over the past few years pieces have not been selling as well as expected or not selling at all. Often the amount they are appraised for, and thus the amount the IRS views them as valuing, is not close to the amount that they garner at auction. 

Have you ever watched the TV show Pawn Stars? The same process plays out on the show over and over again. Someone will bring in a rare item, the pawn store owner will call in an expert to appraise the item, the appraiser will give an approximate value, and then the store owner will offer to pay half the appraised value of the item.

Obviously, a pawn shop is not going to pay full price for anything. However, the spiel that the store owner often gives contains lessons. He explains to the customer that the appraisal value is how much the item might get at auction, but that it has to be the right auction with the right buyer and that in this economy nothing is going at auction for the full appraisal value.

This has implications for estate planning, too. Why? For tax purposes the IRS considers assets worth their appraisal value and not the amount they garner at auction. Thus, if you have a piece of art appraised at $5 million that your heirs can only sell for $3 million at auction, then your heirs might have to make up the difference from other assets when it comes time to pay the IRS.

A recent Wills, Trusts & Estates Prof. Blog article, titled “Rare Collectibles May Not be the Best Estate Plan,” illustrates the point with the case of a stamp collection appraised at $20 million that sold for less than half that amount.

Before you leave your collection to your heirs, it is important to consider how they will pay taxes on the collection. Even if the collection is sold to pay the taxes, the proceeds from the sale may not be enough to pay the tax bills.

Reference:  Wills, Trusts & Estates Prof. Blog (June 24, 2014) “Rare Collectibles May Not be the Best Estate Plan”

Not All Wealth Transfers Are “Portable”

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“Portability” means the surviving spouse can use the deceased spouse’s unused exclusion amount without having to create complex trusts or use other tax-saving techniques. This provision was designed as a simplification effort. But many people may need to hire an expert to make sure they understand all the fine print.

For the most part, we are still scrambling to come to terms with the tax changes enacted at the end of last year with the American Taxpayer Relief Act (ATRA). The ATRA involves more than tax math and even includes some novel notions. One of those notions relevant to estate planning is the concept of “portability.”

A recent Q&A in The Wall Street Journal reveals that the “Gift-Tax Exclusion Isn’t ‘Portable’.” Consequently, there are some important lessons to draw from this.

The concept of “portability” first arose in 2011. Essentially, “portability” is a feature of your unified credit. The unified credit is a fancy term for the amount you can exclude from taxation either by way of gifting during your lifetime or through bequests after death. Under current tax law, you get one unified amount ($5.25 million under current law) to use either in life or in death. If unused by one spouse at death, the amount becomes “portable” in that such spouse can pass any unused credit to their surviving spouse in much the same way they pass their assets.

This is not the same as your annual gift tax exclusion, which is the amount you or anyone can give during the course of any given year without taxation or effect upon your lifetime gift tax exclusion (aka unified credit). Your annual gift tax exclusion is not “portable.”

Once we get used to it, “portability” may be a real time-saver and could simplify many estate plans. In the interim, however, it is strange in its novelty compared to traditionally-accepted estate planning techniques.

Even if you are not susceptible to the estate tax at its current level, you might want to investigate how “portability” may impact your own estate planning. Note: the benefits of “portability” are not automatic and require some very specific steps to enjoy it.

Reference: The Wall Street Journal (June 22, 2013) “Gift-Tax Exclusion Isn’t ‘Portable’”

Rising Costs of Special Needs Care in Utah

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New studies are providing more current cost estimates. “What we found was shocking,” Mandell said. “This is a huge hit on families.”

The costs to care for a child with special needs is on the rise, as reported in a new study in the medical journal JAMA Pediatric. The study found that the total lifetime cost of supporting an individual with an ASD is $1.4 million in the U.S.—with an added intellectual disability, the total rises to $2.4 million. Reuters recently reported on this study and its findings in an article titled “Raising an Autistic Child: Coping With the Costs.“

These costs typically include an ongoing mix of special education programs, medical care, and lost wages as many parents of autistic children reduce their work hours or even quit their jobs to help their child full-time. The organization Autism Speaks estimates that it now takes roughly $60,000 annually to support someone with an ASD. Such costs can be so prohibitive that many affected families will move to states that offer a better collection of services.

The original article advises parents not to automatically think they must drop out of the workforce to manage their child’s case full-time. It is the natural human instinct to want to do so. No one knows a child and his or her needs like a parent, and navigating the morass of city, state and federal services can be a full-time job. However, if a parent drops out of the workforce, just as out-of-pocket expenses start to mount up, it can become very challenging financially.

The article urges families to take a long-term view of caregiving. In some situations it might be more advantageous for mom to stay in the workforce, and then hire additional support to provide case-management services. An attorney well-versed in special needs issues can be an indispensable aid in this area.

Reference:  Reuters (June 24, 2014)“Raising an Autistic Child: Coping With the Costs

Can Your Utah Estate Grow After Death?

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Who knew a “Walk on the Wild Side” could pay off so handsomely? Late rock legend Lou Reed left behind a $30 million fortune, The Post has learned. $20 million-plus in “money and other property” doesn’t include the approximately $10 million in gifts Reed left to his wife, sister and mother in his will. It also doesn’t include life insurance or retirement accounts. The funds are likely from Reed’s copyright and publishing interests …

Everyone probably knows some of the late Lou Reed’s songs, such as “Walk on the Wild Side” and “Sweet Jane.” Even though Lou Reed was already a rock and roll legend, he had never had a true number one hit. The songs were not even in the top 10 in the United States. This left Reed with approximately $10 million in assets at the time of his death.

Reed’s manager recently filed papers in court that he had already garnered another $20 million in assets for Reed’s estate. The New York Post recently reported on how the money was likely earned. The article is titled “Lou Reed left behind $30 million fortune.”

When Reed passed away, interests in his works suddenly spiked. Many TV producers and advertisers asked to use his works. It is likely many copies of his music were sold as well. This new income will be distributed between Reed’s widow and his sister.

You do not necessarily have to be a celebrity for your estate to gain value after you pass away. Most estates will not see the same spike in assets celebrity estates do, but they can still grow. Careful estate planning and wise investment of estate assets can see the total value of the estate continue to grow. For example, if the assets of the estate are put in a trust and invested wisely by the trustee, the value of the trust can be much greater by the time the trust’s term ends.

Reference:New York Post (June 30, 2014) “Lou Reed left behind $30 million fortune”

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