Dollars and Sense: Estate and Succession Planning
Kelly Tobin
Older male farmer standing in his field in the country pointing at the hay bails wearing dirty worn jeans and button up shirt

There are many reasons for business owners to develop estate and succession plans. A good plan will allow for competent asset management if the business owner should become incapacitated or die by outlining the manner and timing of asset distributions, this will provide a smooth transfer of assets, manage income and estate taxes, educate the business owner’s beneficiaries, and much more.

It is natural to take life for granted without taking time to think about the possibility of death or becoming incapacitated. Nevertheless, you owe it to yourself and your family to plan how your property will be used after your death.

A good plan will answer the following six questions:

  1. Who will care for your minor children or aging parents?
  2. Will the family business continue?
  3. If you own real estate, does your family wish to keep it and will they have the financial resources to do so?
  4. Will your spouse be able to live comfortably after your death?
  5. Will estate taxes consume your family’s security?
  6. Are there other federal, state, or local taxes, or other expenses, that should concern you?

Estate and succession planning is a set of steps for effective management, enjoyment, and disposition of your property at the least possible cost, both in life and at death. Making a will is a crucial part, but the planning doesn’t stop there. It involves a review of your property ownership, insurance needs and your family business structure.

The planning task can be simplified into five basic steps:

  1. Begin the dialogue with your beneficiaries
  2. Develop your objectives
  3. Compile information
  4. Seek professional advice necessary to implement a plan
  5. Update documents as situations change

During this process, it is common to worry that professional advice will be too costly. However, by taking initiative on the first three steps in this process prior to the first meeting with your chosen professionals, you can reduce the expense. Time is valuable for attorneys, tax professionals, and other experts needed to develop a successful plan. Conduct family discussions, set clear objectives, and compile information these professionals will need before employing them.

Many estate and succession plans never get written because death is a sensitive subject. Another problem involves the dynamics of family businesses. Nurturing family values often conflict with the hard decisions necessary to operate a successful business, such as selecting which child will be the future financial manager of the business. Using a third-party consultant to identify and document the skills of each child can mitigate this issue. A good way to start dialogue is to have the entire family attend a community estate and succession planning seminar.

An estate and succession plan should evaluate the need to form a living trust, which will avoid probate court and keep the transfer of assets a private matter since probate estates are public information. The type of entities used to operate the business is also an important issue. The attributes of partnerships, LLC’s, corporations and trusts need to be evaluated to determine the best entities to accomplish your objectives. Selling and/or gifting strategies also need to be considered to ensure the senior generation has a comfortable retirement and the new generation has the resources necessary to continue operating a successful business.

Many people understand the importance of a good estate and succession plan. Getting started is the hardest, yet most important step, so do not procrastinate. Do yourself a favor and get started now! For more help or estate planning resources, contact your local GreenStone branch.

Kelly Tobin is a senior tax accountant/tax services product manager in GreenStone's East Lansing corporate office.

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