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What You Need to Set Up Estates and Trusts

Nancy Burner, Esq., is Principal of Nancy Burner & Associates, P.C.

I have seen a stampede of individuals and families coming to my elder law, estates, trusts practice to protect their assets and safeguard against government taking a chunk of their net worth through tax laws. Concerned by the implications of "the fiscal cliff," this marks the first time many are confronting issues like death, giving control to someone else and trust among their family, friends or business associates to have authority over their assets or estate.

There's a multitude of small business owners who despite their knowledge and skill at enterprise — are unprepared to deal with passing on the wealth they have achieved. Below are twenty advice points where small business owners should be ready, so they make the most efficient use of their elder law/estates/trusts attorney.

  • Owners need to provide an accurate, realistic evaluation and appraisal of the entity and the assets it owns. This should be developed by a knowledgeable service provider, an accountant, an appraiser.
  • Provide all information about who owns the business, the principals, equity shareholders including full names, addresses, phones, e-Mail contact, etc.
  • Provide names, contact information on who is being designated to run the business in the future. Provide details of an exit plan, with the expectations and arrangements.
  • Is any insurance owned on the lives of the equity shareholders and principals? Any "key person" insurance policies? Provide details including carriers, policy numbers, contacts, etc., even copies of the relevant pages of the policies.
  • Are there any existing buy-sell agreements?Are there any existing shareholder or LLC operating agreements?
  • Provide an accurate estimate of other assets and net worth including insurance, retirement plans, investments, real estate, etc. It is best to keep all of these documents in one location and copies with a lawyer, accountant or at a bank. Have a purpose summary of each investment or document.
  • Have a plan how ongoing needs will be financed with conclusion of employment, exiting the company, how expenses will be handled by the severance in terms of health care, retirement?
  • Are there any other regular expenses the company is now covering for this client? Perhaps this includes: club memberships, fringe benefits, travel, or telephones.
  • It is important to bring copies of directives like any "power of attorney" documents, wills, living wills (videos), health care proxies. (If the person has a stroke — is the "power of attorney" legal for the designated agent to run the business and make decisions?)
  • Before you visit the attorney, make sure there is agreement among relatives and shareholders! (Whether it is brothers, sisters, or grandchildren — disputes after the fact can run for years and become enormously expensive! Try to minimize this threat being honest and accurate about what is happening among shareholders and family members.) Make sure arrangements are in accord, with all involved. (About half of family businesses never make it to the second generation. And half of those second generation enterprises never survive to the third generation, etc.)
  • Bring tax returns both personal and corporate spanning several years.
  • Bring a profit/loss statement covering the business, prepared by an auditor or accountant.
  • If the business has any long-term or major contracts significantly impacting the business, or consulting agreements — bring those to the meeting.
  • It is amazing how many enterprises operate on a partnership with a handshake between two honorable people that may have been friends or family. No agreements or understandings have ever been put in writing. When one dies unexpectedly there becomes a myriad of problems including where the heirs fit in, and how they are going to reimburse the other people involved. What role are these people going to play in the enterprises going forward?
  • What is the legal assurance or protections in place so that family members, shareholders, or heirs will get what they are entitled to receive in the corporation? (These issues and concerns occur much more than most people involved with family businesses or partnerships would think!)
  • Very often a corporation between shareholders or family members starts up and everyone gets along, harmonious. A period of time perhaps, years pass when the business gains value. One shareholder or partner becomes disabled. Then conflicts erupt for which there are no arrangements in place. Prepare legal agreements about changes in events concerning shareholders or family members when everyone is healthy and issues can be examined objectively.
  • Try to leave emotion and subjectivity out of meetings and time spent with the attorney.
  • If there are any existing wills or trusts, bring copies of them to the lawyer. Seek to update them about every five years. And for an elderly person or where there is a health concern — look to make updates every year or two.
  • If there is valuable real estate held by a family, which may have significantly appreciated, this potentially poses a problem, especially with the latest pending changes to steeply lower the Federal tax exemption. This situation may well require a major estate tax payment. If there is not enough liquid cash or an insurance policy in place, used to pay the estate taxes (which are generally due nine months from the date of death of the owner), this can trigger a financial crisis for the relatives, shareholders, heirs, etc. (especially if this asset appreciates in value but does not generate much income). Sadly, human nature being what it is — many in this position lose out because they are reluctant to confront this problem and pro-actively plan for it. DEAL WITH IT.
  • Consider the value of taking tax exemptions now, rather than waiting until the nation goes over "the fiscal cliff".

Many people, even those considered sharp and keen in business, waste time and money when they visit their lawyer on these issues because they really have not carefully thought out and deliberated on what they want to do! Sadly, a lot of people truly do not want to squarely address these matters!

The views expressed are those of the author and do not necessarily reflect the views of BusinessNewsDaily.

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