Estate Planning for Business Owners

Back in February, Stock Legal hosted an event for business owners to dip their toes in estate planning and learn why it is so important.

Estate planning is important for many people, but in some ways, it can be especially important for business owners. After all, you’ve got to make a plan for your business in case you are no longer there to run it. This can be even more critical if you employ others through your business.

At our event, Stock Legal’s chair of the Estate Planning Department, Daniel Julius, took clients through the basics of estate planning and why we recommend you do something to prepare for the future.

Here’s a breakdown of what we covered:

• One of the many reasons we do estate planning is to plan for taxes. The estate tax is a 40% tax on what you own or control when you die. However, there is an exemption, and if you die with assets worth less than the exemption, then you do not pay any estate tax. Currently, in 2023, the exemption is at $12.92 million. So, if you have less than that amount, you are in the clear. Since most Americans do not have to worry about the estate tax, the biggest worry is the 15% capital gains tax. When going through our Stock Legal estate planning process, we cover tax considerations in detail and determine the best solution for each unique situation.

• We also talked to our business owners about another important aspect of estate planning, which is planning for your incapacity, not just your death. This is where Powers of Attorney come into play. These documents give an agent power over your financial decisions and medical decisions. As we discussed at our event, they are necessary documents, but we prefer them in conjunction with a revocable living trust. Powers of Attorney must be maintained and sometimes, financial institutions are hesitant to recognize them. 

• We discussed another important reason people estate plan - to avoid probate. Probate is a section of the court that distributes things you own when you die that do not have named beneficiaries. It is not inherently “bad,” but it can be a long and costly process. 

• Some people ask why they can’t just put a “transfer on death” (also known as TOD or POD) or assign beneficiaries to all of their accounts to avoid probate? The short answer is, you can, but you miss out on a lot of other benefits to estate planning that you can get with setting up a trust. For example, with these quick fix methods, you can’t give inheritance in a form that protects it from creditors or say, a divorce, like you can with a trust. You also can’t always designate equal amounts of your assets to each child. The list goes on.

• The best way to protect your assets, distribute your assets, plan for taxes, and avoid probate is to set up a revocable living trust for you or your family. For business owners, protecting assets can be even more important than it is for the rest of the population, because you have a greater likelihood of getting sued. Planning for the unknowns also gives business owners a chance to plan to decide who would take over their business in an emergency.

To learn more about each of these topics, please do not hesitate to reach out to the Stock Legal Estate Planning Department for a complimentary initial meeting. Look out for more Stock Legal estate planning events in the future!