Broker Check



Top 10 Estate and Business Planning Mistakes

Mistake #1

Forgetting to name successor agents, proxies, executors, and trustees in estate planning documents.

Forgetting to name successor agents is a common mistake in several essential estate planning documents. It is important to name successor agents in the estate planning documents that take effect during life, such as power of attorney, health care proxy, and lifetime trusts, as well as the documents that take effect at death, including a last will and testament and testamentary trusts. Successors allow for continued viability of the granted powers, even after the death or incapacity of the primary agent, necessity of a court proceeding, which results in the client losing control over the process.

Mistake #2

Neglecting to properly structure a business venture to protect personal assets from business creditors.

Business owners face risk and the threat of liability from every direction. Some of these risks include business failure, employee torts, product liability, and employee terminations. A business owner can distance himself or herself personally from business risks by forming the proper business entity under which to operate the business.

Mistake #3

A married couple not taking advantage of both estate tax exemption amounts ($3.5 million in 2009) that are available to them, due to inadequate wills and assets owned the wrong way.

Mistake #4

For businesses owned by more than one individual, neglecting to have an owners’ agreement and a binding buy-sell arrangement (with funding).

Much like dewy-eyed lovers forging a romantic relationship, many prospective "partners" in a business have high expectations for the future of that business. The last thing on anyone’s mind is the possibility of business "divorce." Yet a binding buy-sell agreement is arguably one of the most important documents a multi-owner business entity can have. A "buy-sell" agreement is an agreement between the owners of the business, or among the owners of the business and the entity, to purchase and sell interests of the business at a price set in the agreement on the occurrence of certain future events. Such events may include:

· Death

· Disability

· An offer by an outside party to purchase the owner’s interest

· Termination of employment

· Divorce

· Bankruptcy

Business owners who have buy-sell agreements are comforted in knowing that they have structured an orderly transition of ownership and management of a business, protected the business from internal conflicts, and restricted the future ownership of business interests. In addition, business owners can use buy-sell agreements to address estate planning and business planning concerns. For instance, the buy-sell agreement can establish estate value as well as improve estate liquidity by assuring a market for the business interest.

Mistake #5

Having inadequate beneficiary designations for retirement plans and IRAs that do not coordinate with the rest of the estate plan.

Mistake #6

Neglecting to hold regular shareholder/member/partner and board of directors meetings for a business entity, failing to prepare written minutes based on each meeting to include in the entity’s records, and ignoring other formalities to assure that the entity is respected for all purposes.

A "corporate veil" is terminology used to explain the layer of protection that separates the individuals involved in the business from the entity itself. The courts can "pierce the corporate (or business) veil" and hold the business owner personally liable for failure to conduct the business properly.

Mistake #7

Failing to properly plan for family business succession. In order to avoid this mistake, a family member’s desire to participate in the family business should be evaluated.

When planning for business succession, a client should consider types of entities that lend themselves to transfers of entity interests to family members with little or no loss of management or control to the patriarch. Examples of these entities are:

· Family limited partnerships (FLPs)

· Limited liability companies (LLCs)

· Subchapter S corporations (with voting and nonvoting stock interests).

Mistake #8

Failing to consider the income tax ramifications of each personal, investment, or business decision; and failing to take advantage of all available deductions, credits, and opportunities.

Mistake #9

Failing to incorporate trusts adequately for asset protection purposes (i.e., inability, disability, creditors, and predators of beneficiaries) in the estate plan.

One major benefit of having a trust is the asset protection it provides. Predator deterrence can be needed on account of future ex-spouses, in-laws, outlaws, and others who may notice that an heir is now worth millions. Trusts generally get the future victim out of the middle and serve as a controlled release of family wealth.

Mistake #10

Failing to consider the options available to finance long-term care needs. RIA Practical Alert, WG&C Practical Tax Strategies Journal 12/07

          As always, if you have any questions about these or any other matters, do not hesitate to call me.

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