Entrepreneurs have vision, understand risk and reward, and are good at decision-making. Why is it then that many don’t understand the importance of planning for their legacy or having an estate plan? As an entrepreneur myself, I view estate and legacy planning like a business plan for life―a road map to long-term success and peace of mind. There’s no escape from death and taxes, so we might as well plan for both.
Why is an Estate Plan Necessary?
A thoughtful estate plan guides and protects during life. For example, a financial power of attorney allows you to choose someone you trust to handle your financial affairs or urgent investment matters if incapacitated. Estate planning allows you to transfer assets in a tax efficient manner that best suits your family. If you should pass away without a will detailing disposition of assets or appointing a guardian for your children, the law will make those determinations for your family. It’s THIS reality that helps provide motivation to many of my clients. You’re never too young or too old to work on a plan.
Planning for Business Assets
As an advisor and business owner, I understand the planning opportunities associated with a start-up, a liquidity event, and agreements among business partners. Some of the most effective gift planning happens during business start-up stages. For example, a client can put stock in a trust for children early on, since it’s better for stock to appreciate in trust, rather than transfer value to children after the stock has appreciated. For clients with a liquidity event and charitable objectives, I show them the advantages of giving before the event so they won’t pay potential taxes on the appreciation and more funds end up with their charity of choice.
Gathering Data and Implementing the Plan
In order to develop a plan, I talk with people about their current personal and financial situations. Although each plan is unique, there are several basic documents that should be included in almost every plan:
1. A financial power of attorney that details who will handle financial affairs if you cannot
2. A health care power of attorney that specifies who will make medical decisions if you are incapacitated
3. A health care directive or living will that states your wishes regarding life-sustaining procedures
4. A will that details how you want your assets to be distributed, and specifies guardians for minor children
5. Beneficiary designation forms for life insurance and retirement plans.
Once we have these, we bring the elements together into a working plan, which we must periodically review and update. Life events that may require a review of your estate and legacy plan include marriage, children, divorce, career changes, major liquidity events, business succession, and relocations to name just a few.
Thoughtful estate and legacy planning serves as a business plan for your life. As an advisor, I show my clients how the time spent planning now can provide peace of mind for family, aid in the transition of business interests, and protect family members and business partners. A plan that encompasses the 3 dimensions of wealth can potentially provide more money to the people you love and the charities you support―all while paying less in taxes.
-By Greg Hammond, CFP®, CPA
Greg Hammond, CFP®, CPA and Ron Ware, JD have over 20 years of experience guiding individuals, families, businesses and tax-exempt organizations in the various aspects of estate and legacy planning, charitable planning, and transfer of wealth between generations. Contact Greg at (800) 416-1655 or firstname.lastname@example.org or Ron at (781) 489-9800 or email@example.com