May, 2013 | Shah & Associates, P.C. Estate Planning & Business Law Blog
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Estate Planning for Business Owners: Make it Salable

May 29, 2013

Filed under: Business Succession Planning,Estate Planning — Neel Shah @ 5:23 pm

Many business owners do not have a plan in place to sell their business. Therefore, when it comes time to sell the business, approximately 80 percent of businesses are not salable. As a recent article explains, businesses are not salable because “they offer no strategic fit to a buyer.”

It is therefore vital for business owners to put a strategy in place that will protect the business by ensuring that, when it is time to sell, the business is salable. The author suggests crafting such a plan at least five to seven years before you plan to sell the business.

Before considering whether your business will be salable, it is important to determine what personal goals you have for your life beyond the business, and determine how the business can help you reach these goals. For example, if you determine that you need $7 million to retire, but your business is only worth $4 million, you will need to determine a way to close that gap by increasing the value of the business. Increasing the value of the business may also make it more attractive to potential buyers.

If you decide that you want to transfer the business to a key employee or family member rather than sell it outright, the buyer may not have the funds necessary to purchase the business outright. In this case, you will need to have a plan in place that will assist the new owner in determining how they will get paid from the cash flow of the business.

Don’t Forget About State Estate Taxes

May 22, 2013

Filed under: Estate Taxes — Neel Shah @ 9:00 am

With the federal estate tax exemption set at $5.25 million, many people are resting easy knowing that their estate will likely not be subject to estate taxes. As a recent article points out, however, many individuals are quick to forget that their state may levy estate taxes, as well.

Currently, some type of death tax is imposed in 21 states, as well as the District of Columbia. Most of these taxes are applicable at a much lower rate than that at the federal level. New Jersey, for example, taxes estates that are worth over $675,000. In Rhode Island, estates are taxed when they are worth over $910,725. Finally, New York taxes estates that are worth an excess of $1 million.

English: The stone mansion at Deering Estate a...

(Photo credit: Wikipedia)

When considering whether state estate taxes will apply to your estate, remember to include the value of your home and retirement accounts. Depending on the specifics of your life insurance policy, the proceeds of this policy may be counted as well.

To further complicate matters, eight states – including New Jersey – impose inheritance taxes as well as estate taxes. Often, seniors consider state death taxes when determining which state they would like to retire in. Many senior citizens choose to retire in Florida, Arizona, and Texas, because these three states do not impose estate or inheritance taxes.

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Estate Planning May Assist Retail Investors

May 15, 2013

Filed under: Estate Planning — Neel Shah @ 8:00 am

Retail investors who have investable assets amounting to less than $100,000 often overlook an important aspect of financial planning. As a recent article explains, this part of financial planning is creating an estate plan.

According to attorney Michael Brennan, “The mistake these folks are making is assuming that an estate must consist of millions of dollars. But, the truth is that nearly everyone has an ‘estate’ for purposes of estate planning.” According to Brennan, pieces of an estate include personal residences, insurance policies, various accounts, and personal possessions. Often, these assets can add up to a sizable estate. Estate planning is further important to high net worth investors, because such investors are more sensitive to the changing tax and estate laws than the average American.

The many benefits of creating an estate plan include ensuring that assets are divided according to the owner’s wishes, as well as reducing the eventual estate tax burden. Although there are many benefits to estate planning, the article reports that 56 percent of retail investors die without any estate plan in place. In comparison, of investors with $5 million or more in investible assets, only 6% die without an estate plan.

Advantages Of An Irrevocable Life Insurance Trust

May 8, 2013

Filed under: Estate Planning,Estate Taxes,Inheritance,Irrevocable Life Insurance Trusts,Life Insurance,Trusts — Neel Shah @ 6:02 pm

Many Americans may be unaware of what an irrevocable life insurance trust (“ILIT”) is, let alone the benefits it may provide to them. A recent article discusses several of the benefits offered by ILITs.

Typically, life insurance policy proceeds are not subject to income taxation. However, they are included in the calculation of a person’s gross taxable estate. This is where the ILIT comes in. If a person puts their life insurance policy into an ILIT, the proceeds of the policy are kept out of his or her taxable estate. The proceeds will therefore be available to his or her heirs free of income and estate tax.

Additionally, ILITs are a great way to provide cash to help pay for the taxes that will be levied on your estate. Beneficiaries of your ILIT can use some of the proceeds to pay the taxes owed on your estate. By doing this, your actual estate is kept in tact. This strategy is especially beneficial to those whose estate consists largely of illiquid assets such as a business or real estate. Through setting up an ILIT, you can ensure that your family will not have to sell the illiquid assets in your estate in order to satisfy the estate taxes.

Estate Planning Oversight Will Cost Koch Estate 3 Million Dollars

May 1, 2013

Filed under: Current Events,Distribution of Assets,Estate Administration,Estate Planning,Estate Taxes,Inheritance,Trusts,Wills — Neel Shah @ 1:46 pm

After the death of New York City legend Ed Koch on February 1st, 2013, his estate plan became the topic of public conversation. A recent article discussing the plan suggests that he could have saved his estate 3 million dollars in taxes had he set up an irrevocable trust.

Edward I. Koch, mayor of New York City, sports a sailor’s cap at the commissioning ceremony for the guided missile cruiser USS LAKE CHAMPLAIN (CG 57). Location: NEW YORK, NEW YORK (NY) UNITED STATES OF AMERICA (USA) (Photo credit: Wikipedia)

Koch drafted his final estate plan in 2007. Through his will, he directed that his 10 million dollar estate be distributed mainly between his sister, three sons, and secretary of 40 years. His estate plan did not utilize any type of irrevocable trust in order to facilitate these distributions. According to Managing Director of Estate Street Partners, LLC, Rocco Beatrice, using such a trust could have eliminated the entire estate tax bill of 3 million.

Koch’s estate will be required to pay New York state taxes of 16% on the amount by which it exceeds $1 million, as well as federal estate tax of 40% on the amount by which the estate exceeds $5.25 million. Assuming his estate is worth $10 million, these taxes would amount to $1.44 million and $1.90 million, respectively.

According to Beatrice, “That is a lot of money in taxes which could have easily been avoided.” Beatrice explained that, had Koch set up irrevocable trusts, the $3 million could have gone to his family, rather than the government.

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