PACE - Law Presentation: Estate Planning for a Business Owner

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<ul><li> 1. Estate Planning for the Business OwnerPACE Conference October 8, 2013Prescott B. Pohl 602.382.6515 | ppohl@swlaw.com DENVERLAS VEGASLOS ANGELESLOS CABOSORANGE COUNTYPHOENIXRENOSALTLAKECITYTUCSON</li></ul> <p> 2. Outline of Presentation Estate Planning 101 Basic Goals and DocumentsEstate Planning 102 Revocable Trust TipsEstate Planning 103 Beneficiary DesignationsEstate Planning 201 Estate and Gift TaxesEstate Planning 202 Advanced Estate PlanningSummary 2013 Snell &amp; Wilmer L.L.P.2 3. EP 101 -- Basic Goals Allow others to make financial and health care decisions on your behalf if you are incapacitatedProvide for the disposition of your assets upon your deathAvoid probate 2013 Snell &amp; Wilmer L.L.P.3 4. How to accomplish first goal: Allow others to make health care and financial decisions on your behalf if you are incapacitated Health Care Power of Attorney and Living Will (referred to as an Advanced Health Care Directive in some jurisdictions)Durable (i.e., financial) Power of Attorney (referred to as a General Power of Attorney in some jurisdictions)2013 Snell &amp; Wilmer L.L.P.4 5. Health Care Power of Attorney &amp; Living Will Health Care Power of Attorney Appoints other individuals (i.e., agents) to make healthcare decisions for you if you are unable to do so yourself Living Will Primarily addresses whether you want to be kept on life support. In some jurisdictions, also addresses your wishes concerning autopsy and organ donation. 2013 Snell &amp; Wilmer L.L.P.5 6. Durable Power of AttorneyAppoint other individuals (i.e., agents) to make financial decisions for you if you are unable to do so yourself.2013 Snell &amp; Wilmer L.L.P.6 7. How to accomplish second goal: Provide for the disposition of your property upon your death Last Will &amp; TestamentRevocable Trust2013 Snell &amp; Wilmer L.L.P.7 8. Last Will &amp; TestamentControl disposition of property held in your name at your death that does not otherwise transfer by operation of law (i.e., the probate estate)Designate guardians for your minor childrenWhen used with a Revocable Trust, typically transfers property not already held by your Revocable Trust to your Revocable Trust (i.e., pour over Will)2013 Snell &amp; Wilmer L.L.P.8 9. Revocable Trust Part 1 Created by trust agreement, which is simply a contract between three parties: settlor, trustee and beneficiary during your life you are all three partiesIn community property States, typically H and W have joint Revocable TrustCan be changed at any time prior to your deathPrivate document not filed anywhereInvisible for purposes of federal income tax 2013 Snell &amp; Wilmer L.L.P.9 10. Revocable Trust Part 2 Allows you to prevent monies from being paid to your beneficiaries at age 18 or 21Helps prevent need for conservatorship in event of your incapacityProperty held in Revocable Trust administered pursuant to terms of trust agreementwhich leads to third basic goal of estate planning 2013 Snell &amp; Wilmer L.L.P.10 11. How to accomplish third goal: Avoid Probate Part 1What is probate? Process by which State oversees transfer of property in your name at your death that does not otherwise transfer by operation of law. Why avoid probate? Public, time-consuming, costly and burden for surviving family. How do you avoid probate? operation of law.Transfers by2013 Snell &amp; Wilmer L.L.P.11 12. How to accomplish third goal: Avoid Probate Part 2 Examples of transfers by operation of law: Property held in joint ownership with rights of survivorship (e.g., JTWRS)Property subject to a beneficiary designation (e.g., life insurance policy)Property subject to POD designation (e.g., bank account)Property held in a Revocable Trust2013 Snell &amp; Wilmer L.L.P.12 13. EP 101 Review: Basic Estate Planning Documents1. 2. 3. 4.Health Care Power of Attorney / Living Will* Durable Power of Attorney* Last Will &amp; Testament Revocable Trust Remember:These documents can be amended or revoked by you at any time before your death, except during incapacity *Different jurisdictions may employ different names 2013 Snell &amp; Wilmer L.L.P.13 14. EP 102 -- Revocable Trust Tips Not everything you own must be held in your Revocable Trust to avoid probate; remember other ways to transfer by operation of lawDont forget about your interests in your businessMortgage on house does not prevent transfer to Revocable Trustownership2013 Snell &amp; Wilmer L.L.P.14 15. EP 103 -- Beneficiary Designations Retirement Accounts: make surviving spouse primary beneficiary and Revocable Trust contingent beneficiaryLife Insurance Policies: make Revocable Trust primary beneficiary2013 Snell &amp; Wilmer L.L.P.15 16. Estate Planning 201 Estate and Gift Tax Estate Tax: tax on your right to transfer assets at your deathGift Tax: tax on your right to transfer assets by gift during your life2013 Snell &amp; Wilmer L.L.P.16 17. Estate and Gift Tax Exemptions and Rates 2013 Estate Tax Exemption Estate Tax Rate Gift Tax Exemption Gift Tax Rate$5.25 million 40% $5.25 million 40%*discuss unification and portability 2013 Snell &amp; Wilmer L.L.P.17 18. Reporting and Paying Estate and Gift Tax Estate Tax IRS Form 706Gift Tax IRS Form 7092013 Snell &amp; Wilmer L.L.P.18 19. EP 202 Advanced Estate Planning Reducing exposure to estate and gift taxBusiness succession planningAsset protection planning2013 Snell &amp; Wilmer L.L.P.19 20. Reducing Exposure to Estate and Gift Tax Give assets away as soon as reasonably possibleDiscount asset value$14,000 annual exclusionUnlimited tuition and medical expenses paid directly to the service provider 2013 Snell &amp; Wilmer L.L.P.20 21. Business Succession Planning Part 1 Gauge interest in succession and develop planDivide economic rights and voting rightsDivide core business assets from other assetsWhen possible make gifts in trust 2013 Snell &amp; Wilmer L.L.P.21 22. Business Succession Planning Part 2 What if no interest in succession?Prepare business for saleUnderstand significance of selling assets vs. selling equityConsider related matters including earn outs, non-compete agreements, and consulting arrangements 2013 Snell &amp; Wilmer L.L.P.22 23. Business Succession Planning Part 3 Possible approach: recapitalize company into voting and non-voting and/or supervoting, and begin transferring non-voting to trustsOver time transfer remaining interestsWhats accomplished: retain control while transferring wealth and training next generation 2013 Snell &amp; Wilmer L.L.P.23 24. Asset Protection Planning Part 1 Basics make assets exempt from or unattractive to future creditors claimsHomestead exemption important in certain statesIRAs typically exemptLife insurance often exempt 2013 Snell &amp; Wilmer L.L.P.24 25. Asset Protection Planning Part 2 Trusts typically offer best protection for non-exempt assetsSuperiority of third-party settled trustsSelf-settled spendthrift domestic vs. offshoretrusts:2013 Snell &amp; Wilmer L.L.P.25 26. Summary Have basic estate planning documents in place and review periodicallyTransfer property to Revocable Trust now e.g., your partnership interest and your house(s)If estate and gift tax exposure a concern, begin planning processDevelop plan for business successionRemember that good estate planning addresses many overlapping considerations including distribution of assets upon death, minimizing taxes, business succession and protecting assets 2013 Snell &amp; Wilmer L.L.P.26 </p>

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