BUSINESS SUCCESSION and ASSET PROTECTION / PRESERVATION STRATEGIES 2

·      Substantially all your assets, other than perhaps your home and a retirement account, are tied up in your business; and/or, none of your children are actively involved in the family business.

 

III.       Last Will and Testament (“LWT”):

 

Your Last Will and Testament is of course the most important document in your Estate Plan.  A Will is a revocable document that provides for the disposition of property at death.  In order to make a valid Will under Alabama law, you must be at least 18 years old and of sound mind.  Your Will is the written expression of your intentions regarding the ultimate disposition of your property following your death; and, to be a "complete" LWT, the document should dispose of all your property (generally by what is referred to as a residuary clause). 

 

Your LWT must be your “will” and not necessarily what your grandchildren or even spouse might wish (voluntarily signed) and your signature must be witnessed by at least two (2) people who preferably are not beneficiaries under your LWT.  The execution of your Will should also be “self-proved” by having the execution of your Will notarized at the time of execution for simplification of the probate process following your death.  Your LWT being “self-proved” avoids the expense and necessity of having one of the witnesses testify as to the proper execution of your Will.

 

IV.       Other Estate Planning Documents and Techniques:

 

A.        Will Substitutes (as to specific assets):

 

1.         Retirement Benefits Designations

 

Payment options and designation of beneficiaries are treated differently for tax purposes and you should ask your financial or tax adviser (or we will be happy to respond to any inquiries in this regard), how your choice(s) will impact both your future estate and income tax liabilities.

 

2.         Gifts

 

Currently the federal tax law currently permits each person to make an unlimited number of tax-free gifts per year, as long as gifts are not more than $14,000 per each done ($28,000 if a couple joins to make the gift).  However, there is an unlimited marital deduction for lifetime or transfers upon death to your spouse; but, the recipient spouse must be a U.S. citizen to qualify for the unlimited marital deduction.  If either you or your spouse are not a U.S. citizen, then you should consult your financial or tax advisor (or we will be happy to discuss this matter with you also) on the special rules applicable to your particular situation.

 

3.         Joint Ownership

 

Joint tenancy (sometimes called survivorship) can be a useful way to transfer property at death; such transfers do in fact avoid probate.  However, if you and your spouse's combined assets exceed (most recently for the Year 2013) $10,000,000, then holding title to all your property in joint tenancy is NOT a "tax-wise" ownership of that property; and, MORE IMPORTANTLY, such JTROS does not afford you or your spouse any lawsuit protections during lifetime. This personal estate tax exemption amount has now been made permanent at $5M effective January 1, 2013, but should be periodically reviewed since such amount would continue to be subject to future revisions by the Congress.

 

However, taxes should not be your sole consideration, since the legal tools that work so well for the super wealthy, can also be used by you to protect your assets and your family’s financial security and peace of mind by way of a comprehensive asset protection plan, regardless of whether your estate is over the $5M threshold or not!

 

4.         Trusts

 

A trust is a legal relationship created with a “trustee” (who may be an individual family member or a corporate fiduciary such as a bank or trust company) who holds property for the benefit of another.

 

Different Kinds of Trusts:

 

Charitable trusts are created to support some charitable or tax-exempt purpose.  You may receive a current income tax deduction and for those individuals wishing to make such charitable donations, gifts of appreciated property (instead of cash) are the wisest gifts from a tax standpoint. 

 

Discretionary trusts (commonly referred to as a “sprinkling” trust) permit the trustee to distribute income and principal among various beneficiaries and should be used cautiously to avoid unintended income or estate tax consequences, in the event a family member is designated as your trustee.

 

Insurance trusts are very important tools in any estate and asset protection strategy, and will permit up to three (3) generations of your family to avoid otherwise quite substantial estate taxes. These trusts may be utilized to buy a life insurance policy, the proceeds from which are then used to benefit the grantor’s beneficiaries after the death of the grantor (person establishing the trust). A life insurance policy is typically purchased on the life of the individual establishing the trust, who we refer to as the "grantor"; and, upon the death of the grantor, the insurance