Dust off the cobwebs of the COVID19 year. It’s time to get back into the game of business or even step up for a new mile marker of achievement. However, it’s not just time to take care of business. It’s time to take care of your estate plan. What is the connection between your business and your estate? How does estate planning protect you as a business owner? Estate planning solutions in asset protection exist for business owners to help protect business assets and the bottom line.
Basic Estate Planning
A Last Will and Testament is basic estate planning. A will takes assets belonging to one person through Probate Court. Probate costs and attorney fees increase as the estate value increases. However, for Small Business owners or even a family-owned business, a Last Will and Testament is simply not enough to protect a family, a business, or the owner. A will is not a viable solution. Even for a single person, a Will is basic, but better options exist.
If you are a single business owner, consider a Revocable Living Trust. Revocable allows changes and revocation before death. A married couple may consider a Qualified Spousal Trust (QST). The QST is a powerful living trust that offers creditor protection. The basic plan needs to be in place before we can protect more withadvanced estate planning, especially with proposed tax laws.
Proposed Tax Issues
The 99.5% “Act” proposals reduce the tax exemption to $3.5 or $5 million per individual with a progressive estate tax rate. A reduction equals an increase in estate taxes. Instead of paying $0, a $5 million will pay a tax of $675,000. The STEP Act will tax transfer of property, even at death. The stepped-up basis at death value is possibly being eliminated. Capital gains tax may increase from 29% to 43%. Valuation discounts are on the chopping block. What does that mean for you? More tax.
Why Now: Moderately wealthy families may start paying taxes never paid before. Business owners may not have enough plans in place. Proactive planning is critical now before the tax laws change. Let’s look at possible wealth management solutions.
Wealth management works for the individual and for the business owner. Current tax proposals will impact your estate, gifting, and capital gain tax dollars. Strategies such as the Irrevocable Life Insurance Trust (ILIT), a Domestic Asset Protection Trust (DAPT), or a Grantor Retained Annuity Trust (GRAT) may meet your financial goals. The ILIT is a powerful tool to reduce estate and gift tax. For a single entrepreneur, a DAPT is an alternative to a pre-nuptial agreement. In fact, Missouri is ranked among the top states to create a DAPT. A Spousal Lifetime Access Trust (SLAT) is perfect for the vacation home. Estate planning needs to meet your family and financial goals. As a business owner, you have even more at stake.
Protect Your Business Assets
Holding assets solely in LLCs is not the best solution. Multiple LLCs is not an estate plan. You are missing out on estate planning solutions. An LLC certificate is not the only necessary step to form a company. Operating agreements become important. Many business owners have incomplete or poorly structured operating agreements in place. If improperly structured, the operating agreement leaves behind is a financial headache for your family.
Viable solutions help the family-owned business. A family limited partnership (FLP) or a family limited liability company (FLLC) is created to retain family business interests and manage family wealth. The FLP or FLLC allows you to maintain management over the business while offering creditor protection and reducing gift and estate taxes. An Irrevocable Life Insurance Trust (ILIT) removes money from the estate and avoids gift tax. A separate trust can hold your intellectual property. A DAPT offers creditor protection. Wealth management solutions in estate planning complete your business plan. It’s time to put all the pieces together.
Asset Protection is wealth management. The key to starting is this: you must have a basic estate plan in place. Then, you can add advance planning to protect your assets. There is a short window of opportunity. Seriously, the time to put a plan in place is now before you pay more in taxes. After all, it’s your bottom line to save. For a complimentary consultation, book now with Sheri or call 314-221-0011 for your appointment.