When Should You Use a Stay Bonus Agreement?

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Do you have certain key employees who help make your family business a success? Keeping those employees may be essential to a successful transition of ownership and management to your children or another new owner when you retire or pass away. A “stay bonus” (also called a retention bonus) is a strategy that is frequently used by large companies during mergers and acquisitions but can also be used to facilitate a smooth transfer of small family businesses to the next generation or to new owners.

What Is a Stay Bonus Agreement?
A stay bonus agreement is a contract between the business and a key employee providing that the employee will not leave the company for a specified period of time after a particular triggering event, for example, the death of the business owner. At the end of that period, the key employee will receive a bonus. The amount of the stay bonus could increase over time: The longer the employee stays, the larger the bonus will be.
Why Is a Stay Bonus Necessary?
According to the 2019 PricewaterhouseCoopers Family Business Survey, 62% of business owners plan to pass the business on to the next generation. However, only about 18% have a formal, documented plan in place to achieve this transition. This is likely one of the main reasons why only 30% of family businesses survive the transition to the second generation.

A stay bonus can be a vital part of a business’s succession plan because retaining key employees may be a determining factor in whether the business succeeds or fails during and after a transition. The expertise and experience of essential personnel are especially necessary if the transition occurs as a result of the sudden death of a business owner, which could cause a transfer to occur earlier than expected.
A stay bonus can help:
(1) Retain talented people who are essential to the successful day-to-day operations of the business. If you have personnel, like managers or salespeople, who add a lot of value to your business, offering them a stay bonus can provide them with enough financial security to persuade them to stay during and after the transition, particularly if they are concerned that their future with the company may be in jeopardy.

(2) Preserve relationships with customers or clients. If your salespeople have long-term relationships with your customers, they could take those customers with them if they leave. Similarly, the loss of other important employees possessing extensive knowledge about your business and its operations could leave a substantial vacuum that could endanger the future of the company. This could be especially damaging if they go to work for a competitor.

(3) Prevent the interruption of critical functions. Retaining key employees will provide continuity, which is essential for avoiding disruption in the services offered to customers and for ensuring adequate cash flow for the business.

How Are Stay Bonuses Funded?
There are a variety of strategies for funding stay bonuses. Often, business owners plan to provide funding for stay bonuses by purchasing a life insurance policy with the business as the beneficiary. Then, upon the owner’s death, the death benefits from the life insurance policy can be used to fund the stay bonuses for key employees. Another strategy is to purchase life insurance on the key employees whose cash value could be used to pay for the stay bonuses.

Call Us Today
If you want your business to survive after you leave—whether your departure is because of retirement, illness, or death—it is important to develop a plan to retain your key employees during the transition period. A stay bonus is an incentive that could persuade them to remain with your company, increasing the likelihood of its continued success. We can help you develop a business succession plan, including stay bonus agreements for your essential personnel, tailored to your particular circumstances. Please contact us to set up a meeting; (888) 450 -7999 or email us at info@bellehlaw.com.

Kids Going Away To College? Why You Should Include Estate Planning in the Preparation

You may have been running around for weeks, getting your new college student off to school. It’s exhilarating, and your heart likely is bursting at the seams. You’re probably prouder than words can express, but you’re also a little afraid, too. How can you make sure your kid is going to be safe at school, their new home away from home? A new, matching Bed Bath and Beyond sheet set for the dorm sounds great, but it just doesn’t seem like quite enough, does it? So what else can you do?

Actually, there is something, probably not yet on your to-do list, that absolutely can make all the difference. Bring your child to a local estate planning attorney.

You’ve probably focused on the fact that, having graduated from high school, your child is an adult now—meaning that your child is going to spread her wings. But what is essential to remember: At 18, a college student may still want her mom and dad by her side if she gets sick. However, legally, decisions for medical care are hers alone now. If she were to be unconscious from a serious car accident, a parent couldn’t authorize medical care without first going to court. And it would be up to a judge to determine if her parent would be an appropriate guardian to make medical decisions.

We don’t want to worry you, but the unfortunate reality is that every year, a significant number of people between 18 and 25 wind up in the nation’s hospitals, and their parents are often locked out of critical decisions.

Therefore, experts recommend that everyone over the age of 18 have a basic estate plan that includes a will or trust, a financial power of attorney, and medical directives that would allow someone they trust to act on their behalf if they aren’t able to.

Here are some things to take care of before you drop your child off at college:

●     A FERPA Release: The Family Educational Rights and Privacy Act is designed to protect college students’ privacy, but it can leave parents locked out in an emergency. A properly worded release allows school officials to talk with you and release your child’s records to you.

●     A HIPAA Authorization: The Health Insurance Portability and Accountability Act was designed to protect a patient’s privacy. Consider having your child sign an authorization so that—just in case—any necessary doctors can talk to you about your child’s condition, care, and treatment.

●     A Durable Financial Power of Attorney: This is a legal document that allows you to take care of your child’s checking or savings accounts, pay bills, etc., if your child is unable to—whether due to illness or even just location (for example, if the school is on the other side of the country).

●     A Durable Power of Attorney for Healthcare: Like the financial version, this allows you to handle medical decisions for your child if your child is unable to do so.

●     A Will: At first glance, this may seem a little silly for the average broke college kid. In our digital age, there are some hidden complexities. For example, on average, an email account today is tied to 130 or more online accounts, each with their own username and password. Does your child have thoughts about who should manage their social media and email accounts, receive valuable gaming accounts, and close down other apps and accounts? It’s also a great time in your young adult child’s life to instill responsibility by encouraging them to think about planning in the long term.

We’ve been helping families attain peace of mind for years. Reach out to us today to protect your new college student and your family.

SPECIAL NEEDS TRUSTS: YOUR QUESTIONS, ANSWERED

“What are Special Needs Trusts (SNT)?”

Firstly, a trust is created when property (real estate, finances, tangible items) is managed by a person for another person’s benefit. The person managing the property is called the “trustee.” The person whose benefit it is for is called the “beneficiary”. The trust lasts as long as it is needed. This usually means the trust will go on until the beneficiary’s death or until the funds are expunged.

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Now, special needs trusts are made specifically for the benefit of those with physical and/or mental disabilities, including those with mental disabilities who lack the capacity to manage their own finances. The trust is created with the specific needs, lifestyle, and future of the beneficiary in mind.  Often, special needs trusts are established to receive assets from a legal settlement, especially if the recipient is a minor. Other special needs trusts are established via an estate plan when parents or other family members want to provide assets or life insurance proceeds at their own death as an inheritance for someone with special needs.

“Who Can Be A Trustee in A SNT?”

The trustees of special needs trusts can be family members or, if an appropriate and trustworthy family member is unavailable, a third party will be appointed by the court. Choosing the right trustee must be done very carefully, especially for special needs trusts that are used for the benefit of a younger person.

“Why Should We Have a SNT?”

Having a SNT means having the comfort and ease of mind knowing that your loved one has proper asset and income management, will have good financial and healthcare decisions made on their behalf, access to quality care, and most importantly, be able to continue to receive government benefits providing relief (SSI, SSDI, Medicaid/Medicare). Funds in this trust don’t count as beneficiary’s resources (Resource Test) and can provide continuing management when family is no longer available. Your loved one will have potential for greater independence by maximizing private and public resources. Other planning can lead to uncertain outcomes regarding a special needs beneficiary’s future.

By choosing to plan for yourself or a loved one now, you’ll avoid these costly mistakes, such as disinheriting the child, relying on your other children to provide for the child with special needs, failing to provide privacy, and choosing the wrong professionals.

“Will I or My Loved One Lose Governmental Benefits If I Have an SNT?”

SNTs allow you to benefit someone with special needs without disqualifying them for governmental benefits. Federal laws allow special needs beneficiaries to obtain benefits from a carefully crafted trust without defeating eligibility for government benefits.

“How Much Should I Put in the Trust?”

There are many variables that the family must take into account, such as life expectancy, changes in benefits, and housing needs. There are two important figures to keep in mind: (1) the amount needed to utilize government support for quality residential programs and services, and (2) the assumption that there will be fewer, if any acceptable services.

If your trustee is a child, these figures can only be estimates at this point. As the Trustee gets older, you will be able to more precisely identify the actual costs. The Belleh Law Firm can assist you with this process.

“Are There Different Types of Special Needs Trusts?”

Yes, in fact, there are quite a few different types. You have revocable and irrevocable trusts, first (or “self-settled”) and third Party SNTs, and pooled trusts. They may be funded and managed by family, a third party, or yourself. There are different legal statutes and taxation laws governing these, and at our firm, we can help you determine what may be the best for you or your loved one’s situation.

“What about Taxes?”

First, benefits income is not the same as taxable income. This concept is often confused by Social Security and Medicare workers – you must be prepared to educate them about their own rules. For purposes of trusts and taxable income, distribution of income is either distribution directly to, or for the benefit of the beneficiary. For purposes of “needs based” benefits, income is cash, or anything that can be used for food/shelter. Many SNTSs are taxed incorrectly. If you can get a good tax result, as well as a good benefits result – you are providing superior services.

In Our Office

A special needs trust can provide an extra measure of safety and peace of mind knowing that your loved ones are taken care of. Now, more than ever, governmental programs providing assistance and benefits to those with special needs are being dismantled or their funds slashed. What’s more, having a SNT will allow you to have additional options, flexibility in changing circumstances, a focus on advocacy and asset protection, and assistance in managing your beneficiary’s funds.

Can I Make Estate Plans Without My Spouse?

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The average American family has changed a great deal over the last few decades. The assumption that a couple will share finances, tax obligations, and a last name is one that does not necessarily apply in the 21st century. There are more options than ever before to keep your finances, identity, and future plans separate. This sense of independence leads many married people to question: can I make estate planning decisions without involving my spouse? The answer can be more complicated than you might expect.

 

While it’s certainly possible to begin the estate planning process without your spouse, there are some things to consider. First, it is important to recognize that only assets you solely own can be controlled by your will or trust. Plans you make for certain personal retirement accounts (subject to some restrictions), savings accounts, and individually-owned property can be done without involving a spouse. Any accounts, deeds, or titles in both of your names, however, will need to be handled by both parties.

 

There are other considerations to take into account, too. For instance, if the planning spouse dies first, items owned by that individual will be distributed according to the plan. Any jointly owned property will go to the surviving spouse automatically. Should the non-planning spouse die first, his or her assets will be distributed according to state law. Depending upon the size of the estate and family circumstances, most, if not all of the assets will be distributed to the surviving spouse. Then, when the planning spouse dies, all of the assets will be distributed according to their estate plan.

 

This “default” planning can be especially dangerous for blended families. Without proper planning, the children of the first spouse to die may be inadvertently disinherited. For this reason, anyone with kids should involve their partner and co-parent in their estate planning process. Even if you keep other aspects of your lives separate from one another, it’s important to get on the same page about your legacy and the property you’ll leave behind.

 

There are certain aspects of estate planning that you can handle independently of your spouse. Executing powers of attorney for health care and financial decisions is crucial and can be done without involving your partner. Even if you would like to appoint your spouse as your agent under a financial power of attorney or proxy under a medical power of attorney, you need to properly execute the documents. Just because he or she is your spouse, does not give them the automatic right to make financial and medical decisions on your behalf. Should you become incapacitated, powers of attorney can help ensure that your wishes for your health and wealth are carried out.

 

Beyond powers of attorney, though, it’s advisable to get your spouse on board with estate planning. To get started, make a list of the assets you and your partner share. While you’re at it, outline individual retirement accounts, insurance policies, and approximate balances – this information will be necessary when meeting with an estate planning attorney. Simply involving your partner in the initial conversations about your joint assets can help ease anxiety surrounding the estate planning process.

 

We are here to help you with your estate planning needs. Give us a call and we can arrange a time to meet to discuss the importance of estate planning and help craft an overall estate plan that will protect everyone involved.

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Executing “Financial Powers of Attorney”​: Why It’ll Be The Best Decision You’ll Make

The wealth, property, and investments we accrue over a lifetime are often significant. While you have carefully managed your finances through the years, there may eventually come a time when you cannot handle such decisions. To plan for the likelihood that you are unable to manage your financial affairs, it’s important to have everything in order while you’re still of sound mind.

For starters, you’ll want to execute a financial power of attorney. It’s perhaps the most important estate planning decision to make while you’re healthy. Assigning the duty to a trusted relative, loved one, friend, or professional can help ensure your financial matters are taken care of and your wishes are respected. Financial powers of attorney give the designated agent the power to manage your money should you become incapacitated or pass away. Understanding the different types of financial powers of attorney can help you make an educated choice for yourself as to when and what type of assistance you may need.

Failing to properly designate someone to make your financial decisions prior to your incapacity could lead your loved ones to court to have someone appointed. As an adult, no one is automatically able to act for you, you must legally appoint them through the use of a financial power of attorney.

How Much Authority to Give?

A limited power of attorney allows someone else to act in your place for a very limited purpose. For example, you might opt to pursue this option if you need to sign a deed on a day you’re out of town. Arranging for someone to represent you and sign on your behalf is possible through a limited power of attorney. Other financial matters not outlined in the limited power of attorney documents cannot be handled by the person you choose.

A general power of attorney, on the other hand, is a good option for a comprehensive approach. The person you select, also known as your attorney-in-fact, can sign any and all documents on your behalf, whether or not you are incapacitated. They can also pay your bills, conduct financial transactions, and generally manage your property and money. Anyone who could use an extra set of eyes on their finances may find this option useful.

When Should My Attorney-In-Fact Act?

Just as there are different scopes of authority you can give your attorney-in-fact, you can also choose when you want the power of attorney to become effective. A durable power of attorney can be as general or as limited in scope as you’d like. This instrument goes into effect the moment you sign it and remains in effect until you pass away, unless you rescind it while you are of sound mind.

Springing powers of attorney, on the other hand, allow your attorney-in-fact to act on your behalf if and only if you become incapacitated. Criteria outlining what constitutes incapacitation should be properly addressed in the document when creating this type of power of attorney. It is important to note that this type of power of attorney can be cumbersome for your attorney-in-fact. In many cases, if he or she tries to transact business on your behalf using a springing power of attorney, the financial institution will want proof that you are incapacitated, which is often a tedious and time-consuming process.

Regardless of your priorities, there is a financial power of attorney right for your situation and goals. Determine your specific needs for an attorney-in-fact while you are of sound mind. Of course, nothing tops the advice and recommendations of an attorney experienced in these matters, so if you are wavering between your options, give us a call.

The Belleh Law Group, PLLC, (888) 450-7999, www.bellehlaw.com and email: info@bellehlaw.com

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Your 2018 Taxes – Get Started Now

4a283bcf-90e0-4357-8bc7-b865c6c65329While the end of the year is not quite here yet (but rapidly approaching), now is an opportune time to take a moment and start your year-end tax planning for 2018. This is particularly necessary this tax year because of the changes to the tax law that became effective in 2018. As a result of the significant changes in the law, your taxes may look different this year, so you should allow for some extra time in the preparation. Getting started early is even more essential if you are a business owner, have moved to another state, or plan to make charitable contributions before the year ends.

Things to Consider

Now is the best opportunity to make use of tax strategies to take advantage of tax-deferred growth opportunities, charitable-giving opportunities, as well as tax-advantaged investments among others. During this tax planning process, you will also want to make sure you maximize deductions and credits ahead of the busy tax season. As you consider your year-end options, make sure to sit down with your attorney or other advisors to review your investments to ensure they still align with your goals, the economic landscape, and the current tax law. This conversation can help you identify where adjustments may be necessary for the future.

What You Need

 Know that the “traditional” year-end planning we’ve recommended for years still applies to your 2018 taxes. Make sure you are harvesting losses to offset your gains, are contributing the appropriate amount to your Individual Retirement Account (IRA) and/or Health Savings (HSA) accounts, and have taken the necessary required minimum distribution from your IRA (if this applies to you). Other things to consider is fully funding employer-sponsored retirement plan contributions such as 401(k, 403(b) or 457 plans before the end of the year. The same rings true for college savings plans, such as 529 plans. You may even want to consider converting a traditional IRA to a Roth IRA.

 

Beyond these important points, also make sure to start gathering the necessary documentation you may need for any deductions that you are claiming. These may include copies of statements or receipts regarding your property taxes, medical expenses, dental expenses, child care expenses, education expenses, moving expenses, and heating/cooling expenses. For business owners, the new 199A deduction for business income will have additional paperwork requirements. It’s best to work with your bookkeeper and accountant at gathering those records now, rather than waiting until the hectic tax season.

Seek Professional Advice

 With changes to the U.S. tax code now in effect, it is especially important to make the right decisions when it comes to your year-end financial moves. A skilled tax attorney or financial advisor can help explain your options under the law and provide you with guidance so that you can make the best decisions for you, your family, and your future. If you have any questions, feel free to contact us.

Retirement Planning for Business Owners

business_maze_challengeFor many employees, saving for retirement is usually a matter of simply participating in their employer’s 401(k) plan and perhaps opening an IRA for some extra savings.

But, when you’re the owner of a business, planning for retirement requires proactivity and strategy. It’s not just the dizzying array of choices for retirement accounts, there’s also planning for the business itself. Who will run the business after your retirement? Additionally, your estate plan must integrate into your retirement and business transition strategy.

Owners of businesses (like employees and everyone else) want to make sure they will have enough money in retirement. Business owners recognize the value of their businesses, so they are often tempted to reinvest everything into the enterprise, thinking that will be their “retirement plan.” However, this might be a mistake.

Retirement Accounts for Business Owners

Rather than placing all your eggs in one basket, it makes sense to have some “backup” strategies in place. There are many retirement account options open to business owners. Although the number of options can make things confusing, a tax and financial professional can often quickly make a recommendation for you.

For example, you may consider opening a 401(k), SEP-IRA, SIMPLE, or pension plan. This can reduce your income taxes now, while simultaneously placing some of your wealth outside your business. From a financial perspective, these account are tax-deferred, so the investment growth avoids taxation until you retire, which greatly boosts returns. The “best” plan really depends on how much income your business earns, how stable your earnings are, how many employees you have, and how generous you want to be with those employees. You must consider how generous you’ll be with employees because the law requires most tax-deferred plans to be “fair” to all employees. For example, you can’t open a pension or 401(k) for yourself only and exclude all of your full-time employees. When making this decision, consider that many employees value being able to save for their retirement and your generosity may be repaid with harder work and loyalty from the employees.

Depending on how many employees you have, you may even consider “self-directed” investment options, which can allow you to invest some or all of your retirement funds into “alternative” investments, such as precious metals, private lending arrangements, real estate, other closely held businesses, etc. These self-directed accounts are not for everyone, but for the right person, they open up a wide world of investment opportunities. The tax rules surrounding self-directed tax-deferred accounts are very complex and penalties can be incredibly high. So, if you choose to do self-directed investments, always work with a qualified tax advisor.

Outside of your business, you can likely contribute to an IRA or a Roth IRA. This can allow you to add more money to your retirement basket, especially if you’ve maximized your 401(k), SEP, or SIMPLE plan. Like the other tax-deferred accounts, self-directed IRAs are also an option, opening up a broad world of investment options.

As a business owner, you likely have a great deal of control over your health insurance decisions. If you’re relatively young and healthy or otherwise an infrequent user of health care services, consider using a high deductible health plan (HDHP) and a health savings account (HSA) to add additional money to your savings. These plans let you set aside money in the HSA which can be invested in a manner similar to IRAs. At any time after you setup the account, you can withdraw your contributions and earnings, tax-free, to pay for qualified medical expenses. And, after you turn 65, the money can be used for whatever purpose you want, although income tax will need to be paid on the distributions.

Selling or Transferring the Business

Many business owners dream of a financially lucrative “exit” when a business is sold, taken public, or otherwise transferred at a significant profit for the owner. This does not happen by accident – a business owner must first create and sustain a profitable enterprise that can be sold. Then, legal and tax strategies must be coordinated to minimize the burdensome hit of taxes and avoid the common legal risks that can happen when businesses are sold. When a business is sold, the net proceeds can form a significant component of the owner’s retirement. When supplemented by one or more of the retirement accounts discussed above, this can be a great outcome for a business owner.

On the other hand, other businesses are “family” businesses where children or grandchildren will one day become owners. Like their counterparts who will sell their businesses, these business owners must also focus on creating and sustaining a profitable enterprise, but the source of retirement money is a little less clear. In these cases, clearly thinking through the transition plan to the next generation is essential. Although the business can be given to the next generation through a trust or outright, there are also transition options to allow for children, grandchildren, or even employees to gradually buy-out the owner, if the owner needs or wants to obtain a portion of the retirement nest egg from the business.

The Importance of Estate Planning

Regardless of which retirement accounts (401(k), SEP, SIMPLE, IRAs, HSAs) you select, it is wise to integrate them into your estate planning. You’ve probably already considered who you want to take over your business after you retire (perhaps a son or daughter or a sale to a third party). For your retirement accounts, an IRA trust is a special trust designed to maximize the financial benefit, minimize the income tax burden, and provide robust asset protection for your family. These trusts integrate with the rest of your comprehensive estate plan to fully protect your family, provide privacy, all while minimizing taxes and costs.

Leverage the Team Approach

Let us work with you, your business advisors or consultants, your tax advisor, and your financial advisor to develop a comprehensive retirement, business transition, and estate planning strategy. When we work collaboratively, we can focus on setting aside assets for retirement, saving as much tax possible, while freeing you to do what you do best – build your business!

Give us a call today so we can help you craft a retirement, business transition, and estate planning strategy. The Belleh Law Group, PLLC, (888) 450-7999, visit our website at www.bellehlaw.com or email us at info@bellehlaw.com.

WHY ONLINE, “COOKIE-CUTTER” OR “CUT-AND-PASTE” ESTATE PLANNING DOCUMENTS ARE A REALLY BAD IDEA

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Penny Wise and Pound Foolish

In all but the simplest scenarios, do-it-yourself estate planning is risky and can become a costly substitute for comprehensive in-person planning with a professional legal advisor. Typically, these online programs and services have significant limitations when it comes to gathering information needed to properly craft an estate plan. This can result in crucial defects that, sadly, won’t become apparent until the situation becomes a legal and financial nightmare for your loved ones.

Creating your own estate plan without professional advice can also have unintended consequences. Bad or thoughtless documents can be invalid and/or useless when they are needed. For example, you can create a plan that has no instructions for when a beneficiary passes away or when a specific asset left to a loved one no longer exists. You may create a trust on your own but fail to fund it, resulting in your assets being tied up in probate courts, potentially for years. Worse yet, what you leave behind may then pass to those you did not intend.

Your family situation and assets are unique. Plus, each state has its own laws governing what happens when someone becomes incapacitated or dies. These nuances may not be adequately addressed in an off-the-shelf document. In addition, non-traditional families, or those with a complicated family arrangement, require more thorough estate planning. The options available in a do-it-yourself system may not provide the solutions that are necessary. A computer program or website cannot replicate the intricate knowledge a qualified local estate planning attorney will have and use to apply to your particular circumstances.

If you’re a person of significant wealth, then concerns about income and estate taxes enter the picture too. In addition to the federal estate tax, some states have a separate estate tax systems with significantly different tax thresholds. An online estate planning website or program that prepares basic wills without taking into account the size of the estate can result in hundreds of thousands of dollars in increased (and usually completely avoidable) tax liability. A qualified estate planning attorney will know how to structure your legal affairs to properly manage – or, in many cases, even avoid – the burden of the death tax as well as minimize the impact of ongoing income taxes.

One important aspect of estate planning is protecting adult children from the negative financial consequences of divorce, bankruptcy, lawsuits, or illness. An online planning tool will not take these additional steps into account when putting together what is usually a basic estate plan. Similarly, parents who have children or adult loved ones with special needs must take extra caution when planning. There are complicated rules regarding government benefits that these loved ones may receive that must be considered, so that valuable benefits are not lost due to an inheritance.

Consult an Estate Planning Attorney

No matter how good a do-it-yourself estate planning document may seem, it is no substitute for personalized advice. Estate planning is more than just document production. In many cases, the right legal solution to your situation may not be addressed by these do-it-yourself products – affecting not just you, but generations to come. To make sure you are fully protecting your family, contact us today. The Belleh Law Group, PLLC – (888) 450-7999, info@bellehlaw.com.

How You Can Build an Estate Plan that Includes Asset Protection

business1Much of estate planning has to do with the way a person’s assets will be distributed upon their death. But that’s only the tip of the iceberg. From smart incapacity planning to diligent probate avoidance, there is a lot that goes into crafting a comprehensive estate plan. One important factor to consider is asset protection.

One of the most important things to understand about asset protection is that not much good can come from trying to protect your assets reactively when surprised by situations like bankruptcy or divorce. The best way to take full advantage of estate planning in regards to asset protection is to prepare proactively long before these things ever come to pass — and hopefully many of them won’t. First, let’s cover the two main types of asset protection:

Asset protection for yourself:

This is the kind that has to be done long in advance of any proceedings that might threaten your assets, such as bankruptcy, divorce, or judgement. As there are many highly-detailed rules and regulations surrounding this type of asset protection, it’s important to lean on your estate planning attorney’s expertise.

Asset protection for your heirs:

This type of asset protection involves setting up discretionary lifetime trusts rather than outright inheritance, staggered distributions, mandatory income trusts, or other less protective forms of inheritance. There are varying grades of protection offered by different strategies. For example, a trust that has an independent distribution trustee who is the only person empowered to make discretionary distributions offers much better protection than a trust that allows for so-called ascertainable standards distributions. Don’t worry about the complexity – we are here to help you best protect your heirs and their inheritance.

This complex area of estate planning is full of potential miscalculation, so it’s crucial to obtain qualified advice and not solely rely on common knowledge about what’s possible and what isn’t. But as a general outline, let’s take a look at three critical junctures when asset protection can help, along with the estate planning strategies we can build together that can set you up for success.

Bankruptcy

It’s entirely possible that you’ll never need asset protection, but it’s much better to be ready for whatever life throws your way. You’ve worked hard to get where you are in life, and just a little strategic planning will help you hold onto what you have so you can live well and eventually pass your estate’s assets on to future beneficiaries. But experiencing an unexpected illness or even a large-scale economic recession could mean you wind up bankrupt.

 Bankruptcy asset protection strategy: Asset protection trusts

bankAsset protection trusts hold on to more than just liquid cash. You can fund this type of trust with real estate, investments, personal belongings, and more. Due to the nature of trusts, the person controlling those assets will be a trustee of your choosing. Now that the assets within the trust aren’t technically in your possession, they can stay out of creditors’ reach — so long as the trust is irrevocable, properly funded, and operated in accordance with all the asset protection law’s requirements. In fact, asset protections trusts must be formed and funded well in advance of any potential bankruptcy and have numerous initial and ongoing requirements. They are not for everyone, but can be a great fit for the right type of person.

Divorce

One of the last things you want to have happen to the nest egg you’ve saved is for your children to lose it in a divorce. In order to make sure your beneficiaries get the parts of your estate that you want to pass onto them — regardless of how their marriage develops — is a discretionary trust.

 Divorce asset protection strategy: Discretionary trusts

When you create a trust, the property it holds doesn’t officially belong to the beneficiary, making trusts a great way to protect your assets in a divorce. Discretionary trusts allow for distribution to the beneficiary but do not mandate any distributions. As a result, they can provide access to assets but reduce (or even eliminate) the risk that your child’s inheritance could be seized by a divorcing spouse. There are a number of ways to designate your trustee and beneficiaries, who may be the same person, and, like with many legal issues, there are some other decisions that need to be made. Discretionary trusts, rather than outright distributions, are one of the best ways you can provide robust asset protection for your children.

Family LLCs or partnerships are another way to keep your assets safe in divorce proceedings. Although discretionary trusts are advisable for people across a wide spectrum of financial means, family LLCs or partnership are typically only a good fit for very well-off people.

 Judgment

moneyWhen an upset customer or employee sues a company, the business owner’s personal assets can be threatened by the lawsuit. Even for non-business owners, injury from something as small as a stranger tripping on the sidewalk outside your house can end up draining the wealth you’ve worked so hard for. Although insurance is often the first line of defense, it is often worth exploring other strategies to comprehensively protect against this risk.

Judgment asset protection strategy: Incorporation

Operating your small business as a limited liability company (commonly referred to as an LLC) can help protect your personal assets from business-related lawsuits. As mentioned above, malpractice and other types of liability insurance can also protect you from damaging suits. Risk management using insurance and business entities is a complex discipline, even for small businesses, so don’t only rely on what you’ve heard online or “common sense.” You owe it to your family to work with a group of qualified professionals, such as us as your estate planning attorney and an insurance advisor, to develop a comprehensive asset protection strategy for your business.

 These are just a few ways we can optimize your estate plan in order to keep your assets protected, but every plan should be tailored to an individual’s exact circumstances. Give us a call today to discuss your estate plan’s asset protection strategies.

Small Business Owner? Know What Can Happen to Your Business If You Become Incapacitated or Pass Away

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Preparing your company for your incapacity or death is vital to the survival of the enterprise. Otherwise, your business will be disrupted, harming your customers, employees, vendors, and ultimately, your family. For this reason, proactive financial planning — including your business and your estate plan — is key. Below are some tips on how to protect your company and keep the business on track and operating day-to-day in your absence.

Preparing for the Unexpected

If you are a small business owner, your focus is likely on keeping the company running on a daily basis. While this is important, looking beyond today to what will happen if you can’t run your business should be on the top of your to-do list. If you die or become incapacitated without a plan in place, you will leave your heirs without clear instructions on how to run your company. This can jeopardize the business you worked so hard to build. The right plan along with adequate insurance can help keep your business running regardless of what happens.

Execute the Proper Business Documents

If your company has several owners, a buy-sell agreement is a must. This contract will outline the agreed upon plan for the business should an owner become incapacitated or die. Provisions in the buy-sell agreement will include:

  • how the sale price for the business and an owner’s interest are determined,
  • whether the remaining owners will have the option to buy the incapacitated or deceased member’s interest, and
  • whether certain individuals can be blocked from participating in the business.

Execute the Proper Estate Planning Documents

A properly executed will or trust will allow you to state how you would like your assets to be transferred — and who will receive these assets — at your death. A will or a trust also lets you identify who will take charge of the assets and manage their disbursement (including your business accounts) according to your wishes.

Although a will can be used to pass assets at death, creating and properly funding a trust allows any assets owned by the trust to bypass the probate process making distribution of assets to heirs much faster, private, and may reduce the legal fees and estate taxes your heirs will owe.

Additionally, a trust can help your loved ones manage your trust assets if you become incapacitated. While you are alive and well, you typically act as the trustee of the trust, so you can manage your business and assets with little change from the way you do now. But unlike a will, a trust allows your successor trustee to step in manage things if you become incapacitated. This process avoids court involvement, allows for a smooth transition of trust management (which can be very important if your business is an asset of your trust), and proper continuing care for you in your time of need. Although having a will can be a great way to start, most business owners are much better off with a trust-based estate plan.

Purchase Additional Insurance

Whether you own the business by yourself or are a co-owner, it is important to have separate term life insurance and a disability policy that names your spouse and children as beneficiaries. The money from these policies will help avoid financial hardship while the buyout procedures of buy-sell agreement are being carried out.

Contact an Estate Planning Attorney

Having a plan for your business in the event you are unable to continue managing the company is essential to keep the company going. An attorney can explain the many options you have to protect your enterprise so that you can focus on what you do best — running your company. Give us a call today to get started protecting your business, (888) 450-7999 or  info@bellehlaw.com.