According to the Conway Center for Family Business, family businesses account for 64% of the U.S. Gross Domestic Product (GDP), yet 57% of family businesses have no formal succession plan.1 While the number may shock you, it is not surprising that many small business owners are consumed by the myriad responsibilities of running their businesses.
Nevertheless, owners ignore succession planning at their peril and possibly at the peril of their heirs.
There are a number of reasons for business owners to consider a business succession plan sooner rather than later. Let’s take a look at two of them.
The first reason is taxes. Upon the owner’s death, estate taxes may be due, and a proactive strategy may help to better manage them.2 Failure to properly plan can also lead to a loss of control over the final disposition of the company.
Second, the absence of a succession plan may result in a decline in the value of the business in the event of the owner’s death or an unexpected disability.
The process of business succession planning is comprised of three basic steps:
Identify Your Goals: When you know your objectives, it becomes easier to develop a plan to pursue them. For instance, do you want future income from the business for you and your spouse? What level of involvement do you want in the business? Do you want to create a legacy for your family or a charity? What are the values that you want to ensure, perhaps as they relate to your employees or community?
Determine Steps to Pursue Your Objectives: There are a number of tools to help you follow the goals you’ve identified. They may include buy/sell agreements, gifting shares, establishing a variety of trusts, or even creating an employee stock ownership plan if your desire is that employees have an ownership stake in the future.
Implement the Plan: The execution step converts ideas into action. Once it’s implemented, you should revisit the plan regularly to make sure it remains relevant in the face of changing circumstances, such as divorce, changes in business profitability, or the death of a stakeholder.
Keep in mind that a fundamental prerequisite to business succession planning is valuing your business.
As you might imagine, business succession is a complicated exercise that involves a complex set of tax rules and regulations. Before moving forward with a succession plan, consider working with legal and tax professionals who are familiar with the process.
Conway Center for Family Business, 2019 2. Typically, estate taxes are due nine months after the date of death. And estate taxes are paid in cash. In addition to estate taxes, there may be a variety of other costs, including probate, final expenses, and administration fees.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with CapSouth Wealth Management. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.
CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.
You’ve invested your life
into caring for your family’s wellbeing. You cherish them and want them to
mature into smart, healthy, successful adults. Naturally, as they become adults
and grow older, your authority over them recedes. They make their own
decisions, and you just hope it’s for the best.
Your feelings don’t change.
They are your children. And they’ll always be your children. The same goes for
your closest, most intimate friends. You want their futures to be safe and
secure; you want them to prosper in life. And what better way to show your
devotion and appreciation than by ensuring your hard-earned money and
investments go to them—after your passing?
In other words, how do you
keep your money in your family or within your circle of closest friends?
Estate planning is the key. Why is planning your estate so important?[i]
You avoid probate court. In many states, probate
fees can reach 5% of the value of the estate. For an estate valued at $400,000,
legal fees may reach $20,000.[ii]
Planning your estate will lessen the tax burden
on your heirs. If you die without a will, the laws of your state, not you,
govern how your estate is distributed. However, inheritance laws generally
favor spouses, domestic partners, and blood relatives. But why leave it to the
legal system to decide?[iii]
Many people who are beginning to plan their
estates seek professional financial advice following the loss of a loved one or
a close friend. While wise, the timing may be off. The best time to start
estate planning is immediately—to avoid potential worst-case scenarios, such as
mental decline or sudden death of a spouse or loved one.
Comprehensive estate planning, ironically, helps
protect beneficiaries, both adult and children. With adults, a plan helps guard
against bad financial decisions later or potential credit problems. With children,
it designates guardians or conservators to protect minors’ financial interests.[iv]
A solid estate plan with asset protection
provisions may help shield your assets from potential creditors.[v]
You’re planning to enjoy
many more years with your family and friends. What can you do now to ensure
your money goes to loved ones—as opposed to Uncle Sam?
Here are 5 ways to maximize
your family money in the here and now:[vi]
You can
spend your money and your assets, which will ultimately reduce your tax burden
and benefit your family. Obviously, your first priority is to your loved ones,
not to bolstering government coffers. The problem, however, is that you may
live a good, long life, and your goal is to ensure you don’t outlive your
wealth. This option is worthwhile if you have plenty of cash reserves and a
robust estate.
Gifts
pose the same challenge if your estate and your assets have the potential for a
long-shelf life. While giving to family and friends is noble, the IRS
establishes restrictions on giving levels. You may give up to $15,000 each to
individuals or charities before having to file gift tax returns. The maximum
lifetime gift tax exemption is $11.18 million.[vii]
You may
lend to family members and friends. However, to stay IRS compliant, you should
draft a loan note that includes the loan amount, payback date, interest rate,
and any collateral or security. This enables you to avoid the IRS’s gift
classification.[viii]
You may
pay wages to your family; 4 in 5 older Americans suffer from at least 1 chronic
disease and may need care.[ix]
By 2030, more than 1 in 5 Americans will be over the age of 65.[x]
The IRS allows for the paying of wages to family members, which helps build
their Social Security earnings record.[xi]
Services may include providing home health care or performing other household
or small business-related work.
You can
create a life estate deed, which transfers the family’s house to a child while
the parents retain the right to live in the house. Following the death of the
parents, children don’t have to go through lengthy probate proceedings. The
home transfers to children—beneficiaries or remaindermen—as a gift.[xii]
A life estate deed may also remove the home from consideration as a personal
asset when applying for Medicaid assistance for long-term care needs.[xiii]
Seek guidance from a
financial professional to learn more about your rights and opportunities to
provide for your family—even in future generations.
Contact CapSouth at 800.929.1001 or visit our website at www.capsouthwm.com to learn more about CapSouth or to speak with an advisor about estate planning.
Investment
advisory services are offered through CapSouth Partners, Inc., dba CapSouth
Wealth Management, an independent registered Investment Advisory firm.
Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness
of the information. This material has
been prepared for planning purposes only and is not intended as specific tax or
legal advice. Tax and legal laws are
often complex and frequently change.
Please consult your tax or legal advisor to discuss your specific
situation before making any decisions that may have tax or legal consequences.
This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.
CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.
When our parents
retired, living to 75 amounted to a nice long life, and Social Security was
often supplemented by a pension. The Social Security Administration estimates
that today’s average 65-year-old woman will live to age 86½. Given these
projections, it appears that a retirement of 20 years or longer might be in
your future.[i],[ii]
Are you prepared for a 20-year retirement? How about a 30-year or even 40-year retirement? Don’t laugh; it could happen. The SSA projects that about 33% of today’s 65-year-olds will live past 90, with approximately 14% living to be older than 95.2
Start with good questions. How can you draw retirement income from what you’ve saved? How might you create other income streams to complement Social Security? And what are some ways you can protect your retirement savings and other financial assets?
Enlist a financial professional. The right person, one who understands the challenges women face in saving for retirement, can give you some good ideas. These may how include income inequality or time out of the workforce due to childcare or eldercare affect you. It could also mean helping you maintain financial equilibrium in the wake of divorce or death of a spouse.
Invest strategically. If you are in your fifties, you have less time to make back any big investment losses than you once did. So, protecting what you have may be a priority. At the same time, the possibility of a retirement lasting up to 30 or 40 years will likely require a growing retirement fund.
Consider extended care coverage. Women have longer average life expectancies than men and can require significant periods of eldercare. Medicare is no substitute for extended care insurance; it only covers a few weeks of nursing home care, and that may only apply under special circumstances. Extended care coverage can provide a huge financial relief if the need arises.1,[iii]
Claim Social Security benefits carefully. If your career and health permit, delaying Social Security can be a wise move. If you wait until full retirement age to claim your benefits, you could receive larger Social Security payments as a result. For every year you wait to claim Social Security, your monthly payments get about 8% larger.[iv]
Retire with a strategy. As you face retirement, a financial professional who understands your unique goals can help you design a wealth management approach that might serve you well for years to come.
To learn more about CapSouth Wealth Management and our retirement planning services, call 800.929.1001 or visit our website at www.capsouthwm.com
Investment
advisory services are offered through CapSouth Partners, Inc., dba CapSouth
Wealth Management, an independent registered Investment Advisory firm.
Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or
completeness of the information. This
material has been prepared for planning purposes only and is not intended as
specific tax or legal advice. Tax and
legal laws are often complex and frequently change. Please consult your tax or legal advisor to
discuss your specific situation before making any decisions that may have tax
or legal consequences.
This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.
CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.
