October 21, 2016

Your Estate Planning Questions - Updating Your Will and Succession Planning for Business Owners

To round out our Estate Planning Awareness Week, we answer more client questions about wills and succession planning.
Shellie Kurek Peters, CFP®, ChFC®

I had a Will prepared years ago, why should I have it reviewed or updated now? 

Estate planning laws, estate tax exemptions and your own circumstances may change, and these could have a significant impact on a will you created years ago. A Will that made sense then for your spouse or heirs, may not be structured that way given today’s circumstances. 

As an example, a friend’s husband passed away and she came to me for help in handling all that she had to take care of on the financial front. Their Will was created many years ago based on the current exemption at that time that could pass to heirs free of federal estate tax.  It stated that $675,000 would pass outright to her as the surviving spouse and everything else would go into an Irrevocable Trust that set forth cumbersome rules to access income from the Trust. This put her in the position of having to justify things like her car purchase to the Trustee who had the power to question or even deny the request. 

Had she and her husband updated their Will with today’s exclusion amount of $5,450,000 (and further indexed for inflation), she could have avoided this difficult situation.

I have a verbal agreement with my business partners that if something was to happen to me, they would pay out my portion of the business to my spouse and family. I would like to have something more concrete in writing. What should I consider?

Many business owners have what is referred to as a Buy-Sell Agreement.  Within this document, the owners agree ahead of time on the details of the buyout in circumstances such as retirement, disability and even death.  It also provides for how the payout will occur such as timelines and amounts. If there is any chance that the business may not have enough assets or cash flow to make the payout, things like life insurance policies or disability insurance policies could be used to solidify your plan. 

A family business may own assets integral to the operation of the business, like cars or equipment used to make the products.  An unplanned event could put the owners in a position where it is necessary to sell key assets that could affect the business’ ability to continue to operate. 

Also, if a key person is lost, the company likely also needs to replace that person with another who can do the job within the company to keep the business going.  For all these reasons, proper time and thought must be given to design your contingency plan – before it’s necessary!

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Shellie Kurek Peters, CFP®, ChFC®

Shellie’s experience includes over 20 years of advising individuals, families and business owners.  Her wealth management and financial planning expertise provides strategies and insights in such areas as: cash flow analysis, risk management, estate and trust planning, investment management, and charitable planning.