Putnam County Estate Planning & Medicaid

Will Your Business Die When You Do?

Some businesses do not outlive their owner's involvement, but many do. What does it take for a business to continue when the founder is no longer at the helm?
If you think of your business as a legacy that you wish to pass on to a family member, a partner or a valued employee, start planning now to create a business succession plan. Don't limit your thinking to a family member taking over for you. There are many different ways that small businesses continue after the owner has passed control of the company, but all require advance planning.
Interestingly, business.com's recent post, "The Show Must Go On: The Importance of Business Succession Planning," explains that there are some key underlying factors that determine whether a business succession plan is necessary. In some instances, it's easiest just to sell the business entirely, but other times there are partners who may want the business to continue operating after the founder is no longer involved. After determining if the business has the potential for long-term viability, an owner should have a succession plan that includes selecting a successor and getting the business appraised.
Selecting a Successor
Sometimes a small business owner will select a family member to assume the leadership role. However, you may not know if that person has the skills or experience to make a go of it and ensure that the business will continue to grow. You can't assume your children will want to continue the family business, and there actually may be other business partners or key employees who are better suited to take over. In any event, it's important to select and train your successors in all phases of the business. Then the business owner needs to be able to step aside and let the successors start to make the transition.
The Valuation of the Business
There are three ways to determine the value of a business. Let's look at each one. In the Asset Approach, the value of a business is determined by examining the stated assets and deducting the liabilities. However, this look focuses mainly on the balance sheet and doesn't consider important elements such as market conditions or good will. The Income Approach analyzes business income, requiring a review of past earnings, projecting future earnings and factoring future cash flow and capitalization to arrive at the present or future value of the business. Finally, the Market Approach, which is basically a comprehensive analysis of comparable companies that have been sold in the same industry, accounts for differences in the size, duration, and market risk of the business. An objective evaluation of present or future value of a business requires the services of a business valuation expert such as a CPA with business valuation credentials.
Creating and implementing a well-thought-out succession plan helps business owners in several ways. If the value of the business is determined, there should be no need for valuation in the event of death, and the price for a partner's share can be agreed upon. Also, a succession plan, along with a comprehensive estate plan, can expedite the settlement of an estate if the owner dies.
To develop a business succession plan suitable for you and your business, you should involve trusted advisors, including a CPA, tax advisor and estate planning attorney.
Reference: business.com (January 21, 2016) "The Show Must Go On: The Importance of Business Succession Planning"

Will Boomers Refine the Concept of Inheritance?

Did you spend your entire life accumulating wealth just to leave it to the next generation, or do you plan to spend it all and have a good time while you are still living?
The same generation that redefined American culture is making changes to the concept of inheritance as well. A recent article in Forbes, "How Boomer Parents Feel About Leaving Inheritances," looked at two studies concerning inheritances to find that Baby Boomers are of two minds when it comes to leaving inheritances to their children. Some have no intention of leaving anything behind. They don't lack for generosity; they just have a different way to share. Others are planning on leaving assets to their offspring, but are not sure that their heirs will be able to manage an inheritance wisely.
The Hearts & Wallets report, Funding Life After Work: Impact of Parenthood & Wealth Transfer on Retirement Solutions for Baby Boomers, reveals that roughly 40% of those surveyed plan to leave inheritances. About 30% expect to spend all their money, and the other 30% aren't sure. There's one item that the majority of the parents had in common: they're afraid of running out of money. And those who plan to leave inheritances are extremely terrified of running out of money!
Interestingly, ultra-wealthy parents appear to be more apt to give their kids inheritances, according to a US Trust survey of high net worth individuals with at least $3 million in investable assets. Some 57% of the respondents think it's important to leave a financial inheritance to the next generation—which is somewhat less than the 66% of Gen X'ers and 74% of Millennials who felt this way. However, only 27% of the parents surveyed have told their children how much they are likely to inherit. One reason for this is that only 20% strongly agreed that their children will be prepared to handle the wealth they'll receive.
The wealthier boomer parents interviewed were also more apt to leave inheritances than ones with fewer assets.
Many boomer parents who won't leave inheritances aren't stingy with their cash—they're just giving their children and grandchildren money while they're still around to watch them use the cash to fulfill their dreams (and also watch to be sure it's used wisely). Some call this phenomenon "investing in their children while they are growing."
Those who do plan to leave inheritances see this generosity as "the ultimate insurance policy against ever running out of money" and earmark some of their assets for their children. They'll only tap in retirement for the amount they'll have beyond that. Yet these parents are afraid that they may have to tap into their principal one day.
Regardless of your position on inheritances, having an on-going conversation with heirs about your plan will be more instructive than making family members wait until the will is read to find out what you wanted, and why. If these conversations are difficult, consider including a trusted estate planning attorney in the family discussions.
Reference: Forbes (January 21, 2016) "How Boomer Parents Feel About Leaving Inheritances"

Maybe the Biggest "OOPS!" In Estate Planning

We can't say it often enough: make sure to update your beneficiary designations. Even if you never get divorced or have children, you should still check those designations every few years.
Updating beneficiary designations is usually the simplest part of estate planning, but it's also the most likely part of estate planning to be overlooked. You have beneficiaries on pretty much every account, from 401(k)s to life insurance policies. Do you know who your beneficiaries are?
USA Today says that it's not just because many of us have the majority of our assets tied up in products like these. The article, "Your ex could get rich if you don't update your beneficiaries," explains that it's also because beneficiary designations on a 401(k) or IRA are legally binding and often take precedent over anything in your will. This can lead to some serious unpleasantries if your beneficiary information isn't updated.
Many times a person who has worked at the same company for 20 years has a beneficiary designation that they set up on their first day of work, and they never think about it again. However, their lives are rarely the same fifteen or twenty years down the line. For example, they might be divorced and remarried, or they might have children or grandchildren who weren't even a twinkle in someone's eyes way back then. Leaving an estate to an ex-spouse or disinheriting your own children is not a rare event when people don't update their beneficiary designations.
Even if family circumstances are friendly, when that money passes to someone else, they can't just give it back. The IRS allows gifts of under $14,000 tax-free annually, but anything over that is going to be subject to taxation.
Always remember that the beneficiary designation trumps a will. You can avoid a lot of trouble (and fees!) if you approach beneficiary designations the right way. One trick to avoid taxes as long as possible is to skip a generation with a tax-deferred retirement account like a 401(k) or IRA that you leave to your grandkids instead of your kids. Once you reach age 70½, you'll have to withdraw money from these accounts, but leaving the cash directly to a younger family member allows them to keep it growing tax-free for a few more decades.
Think about your accounts and how you'd want them to be passed on to your family, instead of leaving inheritance up to chance. Part of this is reviewing your beneficiary information regularly.
Many accounts allow you to designate beneficiaries with a simple online form, so you can ensure the orderly transfer of wealth in just a few minutes. Some others may take more time to update, but you'll be glad you did it—and so will your heirs!
Here are some common events triggering a need to update beneficiary designations:
• Marriage or divorce;
• Birth of a child or grandchild;
• Death of a previous beneficiary; and
• When a minor beneficiary comes of legal age to inherit.

Here are some of the financial products that are most likely to designate a beneficiary:
• CDs, checking accounts or other bank accounts;
• Life insurance;
• Retirement accounts (401(k) or IRA);
• Some stocks, bonds, and mutual funds.
• Pension plans;
• Annuities with a death benefit;
• Corporate profit-sharing plans; and
• 529 college saving plans;

Reference: USA Today (January 14, 2016) "Your ex could get rich if you don't update your beneficiaries"