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Estate Planning When Not All of Your Kids are in the Family Business

Estate Planning When Not All of Your Kids are in the Family Business

Owning your own business can be a great endeavor that takes a lot of passion and drive. Many small business owners focus on the day-to-day management and growth of the business, rather than thinking about a time when he or she may not be in the business. This is a far too common mistake. Future plans for your enterprise are even more important when one child works in the business but the others do not. Keeping the peace among your children after you are no longer able to participate in the business requires careful balancing of your estate plan.

Planning Ahead

Before considering whether or not to pass your business to the next generation — as opposed to selling it to a third party — make sure at least one of your children is capable of (and willing to) running the company. Once that has been established, then early planning is the next step to ensuring the best outcome. Ideally, succession planning should start at least five years before you decide to retire. And because life is unpredictable — you may become incapacitated or pass away without warning — the best time to start planning is now. There are several things to consider when planning for your small business if not all of your children are involved. It is important to keep in mind that treating your children fairly does not necessarily mean you will treat them equally when it comes to your estate planning. For this reason, being proactive will make sure your desires will be followed even after you can no longer run your company.

Factors to Consider

First, minimizing the risk of conflict among your children once you are gone requires a mindful weighing of your estate, your successor trustee, and other aspects of your estate plan to ensure your wishes are recorded and can be easily followed.

Second, you must consider the value of the business as well as control and management issues. This can be done by clearly identifying the roles and responsibilities of your successor in a written plan.

Third, if you have a sizeable estate, there are financial strategies that a knowledgeable estate planning professional like myself can use to equalize distributions. This can also be done with other assets such as IRAs, 401(k)s, investment real estate, life insurance, as well as stocks, bonds, and/or mutual funds.

Finally, there must be an analysis of how the business is capitalized in order to ensure your estate plan is fair when it comes to your children — whatever you consider fair to be in your particular circumstance. Notably, how a person’s business is organized has a direct effect on how it is treated, taxed, and administered upon his or her death.

Don’t Leave It To Chance

Ignoring or delaying estate planning for your small business is not financially prudent. As a successful business owner who already has the next generation involved in the company, you must take charge of the future so that the fruit of your hard work can continue on. More important, clearly writing down your desires will help keep your family from bickering — a likely result if you just leave the business’s future to chance. As a Family Business Lawyer® Give me a call today, so we can craft an estate plan that will allow your business to continue to thrive for generations to come.

This article is a service of Tara Cheever, Family Business Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.  I also offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death.  As part of this service, I offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call me today to schedule.

The Key Differences Between Wills and Trusts

The Key Differences Between Wills and Trusts

When discussing estate planning, a Will is what most people think of first. Indeed, Wills have been the most popular method for passing on assets to heirs for hundreds of years. But Wills aren’t your only option. And if you rely on a Will alone (without a Trust) to pass on what matters, you’re guaranteeing your family has to go to court when you die.

In contrast, other estate planning vehicles, such as a Trust-based plan, which used to be available only to the uber wealthy, are now being used by those of all income levels and asset values to keep their loved ones out of the court process.

But determining whether a Will alone or a Trust-based plan (Trust and Pour-Over Will) is best for you depends entirely on your personal circumstances. And the fact that estate planning has changed so much makes choosing the right tool for the job even more complex.

The best way for you to determine the truly right solution for your family is to meet with me as your Personal Family Lawyer® for a Family Wealth Planning Session™. During that process, I’ll take you through an analysis of your personal assets, what’s most important to you, and what will happen for your loved ones when you become incapacitated or die. From there, you can make the right choice for the people you love.

In the meantime, here are some key distinctions between Wills and Trusts you should be aware of.

When they take effect
A Will only goes into effect when you die, while a Trust takes effect as soon as it’s signed and your assets are transferred into the name of the Trust. To this end, a Will directs who will receive your property at your death, and a Trust specifies how your property will be distributed before your death, at your death, or at a specified time after death.  The Trust is what keeps your family out of court in the event of your incapacity or death.

Because a Will only goes into effect when you die, it offers no protection if you become incapacitated and are no longer able to make decisions about your financial and healthcare needs. If you do become incapacitated, your family will have to petition the court to appoint a conservator or guardian to handle your affairs, which can be costly, time consuming, and stressful.

With a Trust-based plan, which includes a Pour-over Will, Durable Power of Attorney and health care documentation, you can include provisions that appoint someone of your choosing—not the court’s—to handle your medical and financial decisions if you’re unable to. This keeps your family out of court, which can be particularly vital during emergencies, when decisions need to be made quickly.

The property they cover

A Will covers any property solely owned in your name. A Will does not cover property co-owned by you with others listed as Joint Tenants, nor does your will cover assets that pass directly to a beneficiary by contract, such as life insurance.

Trusts, on the other hand, cover property that has been transferred, or “funded,” to the Trust or where the Trust is the named beneficiary of an account or policy. That said, if an asset hasn’t been properly funded to the Trust, it won’t be covered, so it’s critical to work with me as your Personal Family Lawyer® to ensure the trust is properly funded.

Unfortunately, many lawyers and law firms set up Trusts, but don’t emphasize the important of ensuring your assets are properly re-titled or beneficiary designated, and the Trust doesn’t work when your family needs it. I have systems in place to ensure that transferring assets to your Trust and making sure they are properly owned at the time of your incapacity or death happens with ease and convenience.

How they’re administered

In order for assets through a Will to be transferred to a beneficiary, the will must pass through the court process called Probate. The court oversees the Will’s administration in Probate, ensuring your property is distributed according to your wishes, with automatic supervision to handle any disputes.

Since Probate is a public proceeding, your Will becomes part of the public record upon your death, allowing everyone to see the contents of your estate, who your beneficiaries are, and what they’ll receive.

Unlike Wills, Trusts don’t require your family to go through Probate, which can save both time and money. And since the Trust doesn’t pass through court, all of its contents remain private.

How much they cost

Wills and Trusts do differ in cost—not only when they’re created, but also when they’re used. The average Will-based plan can run between $500-$2000, depending on the options selected. An average Trust-based plan can be set up for $3,500-$6,000, again depending on the options chosen. So at least on the front end, Wills are far less expensive than Trusts.  However, Wills must go through Probate, where attorney fees and court costs can be quite hefty, especially if the Will is contested. Given this, the total cost of executing the Will through probate can run $15,000 or more plus all of the other disadvantages of going through a Court proceeding.

Even though a Trust may cost more upfront to create than a Will, the total costs once Probate is factored in can actually make a Trust the less expensive option in the long run.  And if you think you can cut costs by having your “trust” done through an online program like LegalZoom or through a Trust-mill company, please think again.  While you will end up with a document with the word “Trust” on the first page, the document is likely filled with errors and problems that will leave your loved ones in Court proceedings that you thought you were avoiding.  Since the problem will be discovered at your incapacity or at your death, it will be too late to correct.  As the old adage goes “you get what you pay for.”  While we all like getting a bargain, your estate plan is not the place to cut corners.

During our Family Wealth Planning Session™, I’ll compare the costs of Will-based planning and Trust-based planning with you, so you know exactly what you want and why, as well as the total costs and benefits over the long-term.

As your Personal Family Lawyer®, I offer expert advice on Wills, Trusts, and numerous other estate planning vehicles. Using proprietary systems, such as my Family Wealth Inventory and Assessment™ and Family Wealth Planning Session™, I’ll carefully analyze your assets—both tangible and intangible—to help you come up with an estate planning solution that offers maximum protection for your family’s particular situation and budget. Contact me today to get started.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Roth IRA Conversions After Tax Reform…Still a good idea?

Roth IRA Conversions After Tax Reform…Still a good idea?

What are the implications for your family if you don’t spend all the money?

Twenty years ago, the Roth IRA first became available to investors as a financial tool for their estate planning needs. These accounts have maintained their popularity because unlike their traditional IRA counterpart, a Roth IRA provides account owners tax-free income during retirement.  In fact, many people chose to convert their traditional IRA or 401(k) plan into a Roth IRA to benefit from this long-term tax advantage. (Of course, there is a current tax bill that has to be considered when you make a conversion.) The recently enacted tax reform, however, has removed one helpful opportunity: the ability to recharacterize — or undo — a Roth IRA conversion.

You can think of these recharacterizations as a second-look at whether the conversion made financial sense. For example, Kevin decides to convert a $100,000 traditional IRA to a Roth IRA. When Kevin does this, he has to pay income tax on the $100,000 now. This isn’t as bad of a deal as it sounds, because now the money is in a Roth IRA, where eventually all of the withdrawals will be tax free. When Kevin retires, he’ll have “tax-free” income from the Roth IRA instead of having to pay income tax on each withdrawal if it were still in the traditional IRA. In the past, if the market were to decline to say $90,000, Kevin could recharacterize — or undo — the conversion. This is important because he had to pay income tax on the full $100,000 of the conversion, but assets have declined in value only $90,000. So, Kevin would be paying income tax on a “phantom” $10,000 IRA conversion. Now, this second-look that a recharacterization offered is closed, so a Roth IRA conversion is just a little riskier than is used to be.

Implications For Loved Ones

Many people who create IRAs, and the ones who inherit them, are unfamiliar with the rules that apply to them. There are several basic scenarios that will result in different consequences for your loved ones in the event you pass away and leave behind an IRA.

First, if you die before spending all the money in your IRA you can leave the retirement account to your surviving children, grandchildren, or other beneficiary you have designated in your estate plan.

Second, the type of IRA — in other words, whether it is a traditional IRA versus a Roth IRA — is important as it vastly affects the amount of benefit your loved ones will receive. For example, when you leave behind a traditional IRA your family will pay income taxes on the money they withdraw when it is taken out of the account. On the other hand, if you leave behind a Roth IRA the money will be income tax-free for your family. Although both types of accounts are subject to the estate tax (or death tax), the death tax is likely a non-issue for most people now, as the federal estate exemption is presently over $11 million per person.

Third, you can create an IRA trust as part of your comprehensive estate plan. An IRA trust is special trust that is purposefully designed to receive IRA distributions for the benefit of your loved ones after you die. This powerful tool maximizes the benefit to your family upon your passing and can be used for both traditional or Roth IRAs. So, whether you decide to convert or not, you still need to consider an IRA trust.

Finally, although tax reformed altered the flexibility of IRA conversions by removing the ability to undo them with a recharacterization, a conversion may still be a good financial planning option for some. As you work with your financial and tax advisors on your conversions, consider your beneficiary designations and whether an IRA trust might be right for you.

Contact an Estate Planning Professional

There are several factors that should be considered when choosing financial and estate planning tools. Always work with a knowledgeable financial and tax professional. Then, work with me, as your knowledgeable Personal Family Lawyer, so we can achieve your goals and maximize the benefit to your loved ones.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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How and When to Talk to Your Children About Money

How and When to Talk to Your Children About Money

Whether you consider yourself wealthy or not, you need to think about how (and when) you’ll talk with your children about money, whether they’re little kids, tweens, teens, or already adults.

The Wall Street Journal article “The Best Way for Wealthy Parents to Talk to Children About Family Money” offers guidelines for how and when “the money talk” should take place. Based on interviews with multiple financial experts, the article suggests these discussions should happen in three stages during the child’s lifetime.

Here, I’m showing you how each of these three stages apply to your family wealth as a whole, regardless of how much—or how little—money you have at the moment:

Tweens and teens

The tween years (ages 10-12) are a good time to start talking with your children about your family wealth. At this age, the discussion should be aimed at letting your children know that family wealth is not just the amount of money that your family has, but involves all of the family resources.

Time, energy, attention, and money (TEAM) are the resources that make up your family wealth. With this in mind, use one day over a coming weekend to create a Family Wealth Inventory with your tween or teen children. Inventory all of the family’s TEAM resources, along with other intangibles, such as values, insights, as well as stories and experiences you want considered as part of the Family Wealth bank.

This is an ideal time to tell them the family story, talking about how you and their other relatives worked your way to the family wealth you have now, how decisions have been made from one generation to the next regarding family wealth, and how you hope decisions will be made in the future.

Around ages 10 to 12, you can also start talking to your children about the fact that one day you won’t be here, your intentions surrounding what you plan to pass on to them (beyond just money) and how you plan to pass it on, as well as what they choose to do with the inheritance they’re receiving.

Again, the inheritance they’re receiving is not just the money you’re leaving—it also involves your family genetics, epigenetics, values, ancestry, connections, knowledge, and much more.

In their 20s
If you haven’t yet begun talking to your children about your family wealth, you should start now. And if you’ve already begun the conversations, make sure to continue talking to them during this important stage of their life.

Once they’ve moved out of the home, they need to begin thinking about their own family wealth, including setting up their own legal documents, so if something happens to them, you won’t get stuck in court or conflict. They also need to know whether you plan to offer them financial assistance during their lifetime, along with what the parameters of this assistance are and why you’ve set things up this way.

Additionally, this is an ideal time to start discussing your own plans for retirement and whether or not you’ll need any financial support from them later on in their life.

If you haven’t already shared your estate plan with your children—including where to find it, why you’ve made the decisions you’ve made, and introduced them to your family lawyer—this is the time to do that as well.

In their 30s and 40s
By their 30s, your children should be ready to be fully involved in your family wealth. This would be the perfect time to have a family meeting facilitated by me, if you haven’t done so already.

You can kick-start the talk by reading from a letter you’ve written that outlines the hopes you have for your family wealth, both now and in the future. Since you’ll likely be nearing or in retirement at this stage, it’s important that you eventually discuss the actual value of the family’s wealth and detail your wishes about passing it on. At this age, you never know how much time you have left to prepare your children to effectively manage the money you’ve spent your entire life accumulating.

By now, you definitely want your children to know if they should plan to provide financial support for you. At the same time, you may want to start looking at how you can pass on what you do have during your lifetime, instead of waiting until death, so you can invest in creating more family wealth with your children together.

As your Personal Family Lawyer®, I can not only help facilitate these discussions, I can also provide estate planning strategies to help your children become creators of more family wealth, instead of people who you might be afraid will squander what you’ve created. Indeed, I can help you set up structures that incentivize them to invest and grow their inheritance, rather than waste it. Contact me today to learn more.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Why Every Pet Parent Needs to Consider a Pet Trust Today

Why Every Pet Parent Needs to Consider a Pet Trust Today

Estate planning is about protecting what’s important to you. Although much of the traditional estate planning conversation focus on surviving spouses, children, grandchildren, many pet parents wonder about what could happen to their “furry children” after their death or if they become incapacitated and unable to care for the pets. Read on if you’ve ever thought, “What will happen to my cat, dog, or other pet if I pass away?” “What if I’m incapacitated and unable to care for them?”

Enter the pet trust. This tool is something that can be easily incorporated into a new or existing estate plan to provide a strategy for caring for your pets. Remember, estate planning is about protecting what’s important to you. So, even if you anticipate outliving your pets, it’s always better to be safe than sorry.

How a Pet Trust Works

Although these can be set up as standalone trusts, most pet trusts are incorporated into your overall estate plan. First, you determine an amount of money you want to leave for the care of your pet. When the pet trust becomes active (upon your death or incapacity) and while your pet is alive, the money you have set aside will be managed by a trustee for your pet’s benefit. Second, decide on a caretaker who will have custody and responsibility for the care of your pet. Lastly, after your pet’s death, the trust will terminate and any money that’s left will be distributed to the remainder beneficiaries you have chosen.

What a Pet Trust Avoids

Frankly, it can be chaos for your pets if you are incapacitated or deceased without a plan. With the shuffle of so many other tasks, a pet can sometimes be overlooked, abandoned, or even euthanized. A pet trust provides a legal tool to ensure that your beloved dog, cat, or other pet is not left somewhere or euthanized merely because you are not here any longer. Proactively including a pet trust is especially important when you have family members that may be unable or unwilling to care for your beloved pets.

The Three Easy Decisions You Will Make

Trusts may seem complicated, but it is a reasonably straightforward process to get your planning in order. A pet trust is a trust, so let’s start with a quick review of the cast of characters in trusts. There’s a grantor, settlor, or trustmaker (the person who creates the pet trust – that’s you!), the trustee (the person who will manage the assets of the trust – you select who this is), and then the beneficiaries (who will receive whatever assets are left after the pet passes away – you choose this as well).

In the case of a pet trust, there are three decisions you will need to make to make sure everything works as you intend.

  • The selection of the remainder beneficiaries. These beneficiaries will receive the assets that remain, if any, after the pet has passed away. Some people leave the remaining assets to a favorite pet (or other) charity, whereas others have whatever’s left pour into the children’s or grandchildren’s trust. The law is flexible, and we can tailor the plan to match your goals. It is entirely up to you!
  • The selection of your pet’s caretaker. You can think of this role as similar to the guardian of minor children. This will be the person who cares for your pet if you are no longer able to do so. You can leave detailed instructions or general recommendations for your pet’s care, whichever works best for your pet’s situation. The trustee will be authorized to distribute money to the caretaker for supplies, vet visits, vaccinations, medications, toys, or whatever else you specify in the agreement. You can even have some amount set aside for compensation for the caretaker if you wish.
  • The amount you want to set aside. Some people estimate the expected cost of caring for their pet over the pet’s expected lifespan and leave that amount, plus a little margin for safety. With this approach, the goal is to provide for the care of the pet only. Others want to use the pet trust as a method for caring for their pet, but with an eventual charitable goal (say a local animal shelter). Many of these people will allocate a large sum of money with an expectation that there will be money left over upon the pet’s passing. Determining how much to set aside is really about what you are trying to achieve. We can help you come up with the right number. Moreover, since these plans are fully changeable, you can always update the amount as your and your pet’s circumstances change.

Planning for the Future

You might be thinking that you will outlive your pets, so there’s no reason to plan. But, what if you don’t? The entire purpose of estate planning is to ensure that you have left your wishes known and fully protected your whole family – including your furry, four-legged children.  If you do not have an estate plan yet, you should contact me, a Personal Family Lawyer® today so I can work with you to protect what is important to you.  I can give you the peace of mind knowing you have a plan in place that will work for you and your loved ones in the event of incapacity and at death.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Not Married? You’re not alone – but you still need a plan

Not Married? You’re not alone – but you still need a plan

Approximately half of America’s population over the age of 18 is unmarried. While much of the discussion involving estate planning focuses on married couples, this topic is just as important for a single person. In fact, many times it is even more important that a single person have a well-coordinated estate plan. This is because the default laws governing estates often work poorly for people without a spouse and may not adequately provide for a significant other or unmarried partner. Having a cohesive and well-drafted estate plan will ensure that you protect and provide for those you truly care about upon your death.

Evolving Estate Planning

It is important to understand that your estate plan can change over time. You may eventually experience life changes like getting married, having children, or buying your first home that will necessitate changes to your estate plan. Although life is constantly changing, it is best to get in the driver’s seat early when it comes to estate planning.

If you die without a will — referred to as intestate — all of your possessions will be distributed according to the default laws of your state. While most state laws have a married person’s assets go to their surviving spouse and children, the same is not true for unmarried individuals. Generally, state law provides that a single person’s assets are passed on to their next of kin. This includes children, parents, and siblings. Noticeably absent for many unmarried people are provisions providing for a long-term boyfriend or girlfriend. And, if there are no surviving close relatives, the assets will likely go to the state. To avoid the state dictating what happens to your assets, it is vital that you have a properly drafted estate plan put together.

As an Unmarried Person, How You Own Things Is Very Important

There is an increasing number of couples that are not getting married, and other individuals who are deciding to remain single. For this group, estate planning is important because taxes and other financial benefits tend to favor those who have tied the knot. It also brings up the need to be very careful about how assets are titled.

How your assets are titled and how the beneficiary designations are prepared will impact how your assets will be distributed upon your passing. The most common ways to hold title to property is Tenants in Common and Joint Tenants with Rights of Survivorship. Property that is held as Tenants in Common means that each owner owns an interest in the property. At the death of one owner, that interest is transferred according to his or her estate plan, or intestate succession if there is no estate planning. This is not an ideal way for unmarried couples to own property because at the death of one of them, the other person will end up as joint owner with the deceased’s next of kin. Joint Tenancy is one option for unmarried couples because when one owner dies, the property automatically transfers to the surviving owner. There are several other planning strategies that can be beneficial for unmarried individuals — involving tax benefits, retirement plans, Wills and Trusts, Powers of Attorney and healthcare documents — if the right estate plan is carefully crafted.

Speak to an Estate Planning Attorney

If you do not have an estate plan yet, you should contact me, a Personal Family Lawyer® today. Whether you are married, single, or cohabiting with a partner, I can help you craft a comprehensive financial plan that is tailored to your personal situation and assists you in protecting those you care for the most. Give me a call today so I can help.  I can give you the peace of mind knowing you have a plan in place that will work for you and your loved ones in the event of incapacity and at death.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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