1. Estate Planning for the Business Owner
PACE Conference
October 8, 2013
Prescott B. Pohl
602.382.6515 | ppohl@swlaw.com
DENVER
LAS VEGAS
LOS ANGELES
LOS CABOS
ORANGE COUNTY
PHOENIX
RENO
SALT
LAKE
CITY
TUCSON

2. Outline of Presentation
•
Estate Planning 101 – Basic Goals and Documents
•
Estate Planning 102 – Revocable Trust Tips
•
Estate Planning 103 – Beneficiary Designations
•
Estate Planning 201 – Estate and Gift Taxes
•
Estate Planning 202 – Advanced Estate Planning
•
Summary
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3. EP 101 -- Basic Goals
•
Allow others to make financial and
health care decisions on your behalf
if you are incapacitated
•
Provide for the disposition of your
assets upon your death
•
Avoid probate
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4. How to accomplish first goal:
Allow others to make health care and financial decisions on
your behalf if you are incapacitated
•
Health Care Power of Attorney and Living
Will
(referred to as an Advanced Health Care
Directive in some jurisdictions)
•
Durable (i.e., financial) Power of Attorney
(referred to as a General Power of
Attorney in some jurisdictions)
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5. Health Care Power of Attorney
& Living Will
Health Care Power of Attorney
• Appoints other individuals (i.e., “agents”) to make
healthcare decisions for you if you are unable to do
so yourself
Living Will
• Primarily addresses whether you want to be kept on
life support. In some jurisdictions, also addresses
your wishes concerning autopsy and organ
donation.
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6. Durable Power of Attorney
Appoint other individuals (i.e., “agents”) to make
financial decisions for you if you are unable to do
so yourself.
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7. How to accomplish second goal:
Provide for the disposition of your property upon
your death
•
Last Will & Testament
•
Revocable Trust
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8. Last Will & Testament
•
Control disposition of property held in your name at
your death that does not otherwise transfer by
operation of law (i.e., the probate estate)
•
Designate guardians for your minor children
•
When used with a Revocable Trust, typically transfers
property not already held by your Revocable Trust to
your Revocable Trust (i.e., “pour over” Will)
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9. Revocable Trust – Part 1
•
Created by trust agreement, which is simply a
contract between three parties: settlor, trustee
and beneficiary – during your life you are all
three parties
•
In community property States, typically H and W
have joint Revocable Trust
•
Can be changed at any time prior to your death
•
Private document – not filed anywhere
•
Invisible for purposes of federal income tax
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10. Revocable Trust – Part 2
•
Allows you to prevent monies from being
paid to your beneficiaries at age 18 or 21
•
Helps prevent need for conservatorship in
event of your incapacity
•
Property held in Revocable Trust
administered pursuant to terms of trust
agreement…which leads to third basic
goal of estate planning…
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11. How to accomplish third goal:
Avoid Probate – Part 1
What is probate?
Process by which State
oversees transfer of property in your name at your
death that does not otherwise transfer by
operation of law.
Why avoid probate? Public, time-consuming,
costly and burden for surviving family.
How do you avoid probate?
operation of law.
Transfers by
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12. How to accomplish third goal:
Avoid Probate – Part 2
•
Examples of transfers by operation of law:
◦
Property held in joint ownership with rights of
survivorship (e.g., JTWRS)
◦
Property subject to a beneficiary designation
(e.g., life insurance policy)
◦
Property subject to POD designation (e.g.,
bank account)
◦
Property held in a Revocable Trust
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13. EP 101 Review: Basic Estate
Planning Documents
1.
2.
3.
4.
Health Care Power of Attorney / Living Will*
Durable Power of Attorney*
Last Will & Testament
Revocable Trust
Remember:
These documents can be amended or revoked by
you at any time before your death, except during incapacity
*Different jurisdictions may employ different names
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14. EP 102 -- Revocable Trust Tips
•
Not everything you own must be held in
your Revocable Trust to avoid probate;
remember other ways to transfer by
operation of law
•
Don’t forget about your
interests in your business
•
Mortgage on house does not prevent
transfer to Revocable Trust
ownership
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15. EP 103 -- Beneficiary Designations
•
Retirement Accounts:
make
surviving spouse primary beneficiary
and Revocable Trust contingent
beneficiary
•
Life Insurance Policies:
make
Revocable Trust primary beneficiary
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16. Estate Planning 201 – Estate and Gift
Tax
•
Estate Tax: tax on your right to
transfer assets at your death
•
Gift Tax: tax on your right to transfer
assets by gift during your life
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17. Estate and Gift Tax Exemptions and
Rates
2013
Estate Tax Exemption
Estate Tax Rate
Gift Tax Exemption
Gift Tax Rate
$5.25 million
40%
$5.25 million
40%
*discuss unification and portability
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18. Reporting and Paying Estate and Gift
Tax
•
Estate Tax – IRS Form 706
•
Gift Tax – IRS Form 709
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19. EP 202 – Advanced Estate Planning
•
Reducing exposure to estate and gift
tax
•
Business succession planning
•
Asset protection planning
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20. Reducing Exposure to Estate and
Gift Tax
•
Give assets away as soon as reasonably
possible
•
Discount asset value
•
$14,000 annual exclusion
•
Unlimited tuition and medical expenses
paid directly to the service provider
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21. Business Succession Planning –
Part 1
•
Gauge interest in succession and develop
plan
•
Divide economic rights and voting rights
•
Divide core business assets from other
assets
•
When possible make gifts in trust
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22. Business Succession Planning –
Part 2
•
What if no interest in succession?
•
Prepare business for sale
•
Understand significance of selling assets
vs. selling equity
•
Consider related matters including earn
outs, non-compete agreements, and
consulting arrangements
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23. Business Succession Planning –
Part 3
•
Possible approach: recapitalize company
into voting and non-voting and/or supervoting, and begin transferring non-voting to
trusts
•
Over time transfer remaining interests
•
What’s accomplished: retain control while
transferring wealth and training next
generation
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24. Asset Protection Planning – Part 1
•
Basics – make assets exempt from or
unattractive to future creditors’ claims
•
Homestead exemption important in certain
states
•
IRAs typically exempt
•
Life insurance often exempt
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25. Asset Protection Planning – Part 2
•
Trusts typically offer best protection
for non-exempt assets
•
Superiority of third-party settled trusts
•
Self-settled spendthrift
domestic vs. offshore
trusts:
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26. Summary
•
Have basic estate planning documents in place and
review periodically
•
Transfer property to Revocable Trust now – e.g., your
partnership interest and your house(s)
•
If estate and gift tax exposure a concern, begin
planning process
•
Develop plan for business succession
•
Remember that good estate planning addresses many
overlapping considerations including distribution of
assets upon death, minimizing taxes, business
succession and protecting assets
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