Estate Planning and Tax Planning for Business Owners

Business owners who want long-term financial success must navigate an intricate web of taxes, estate planning and asset protection. Pre- and post-transactional tax strategies, combined with estate planning, can safeguard assets, optimize tax positions and help strategically pass wealth along to future generations or charitable organizations, as reported in a recent article from Forbes, “Strategic Tax and Estate Planning For Business Owners.”

Pre-transactional tax planning includes reviewing the business entity structure to align it with tax objectives. For example, converting to a Limited Liability Company (LLC) may be a better structure if it is currently a solo proprietorship.

Implementing qualified retirement plans, like 401(k)s and defined benefit plans, gives tax advantages for owners and is attractive to employees. Contributions are typically tax-deductible, offering immediate tax savings.

There are federal, state, and local tax credits and incentives to reduce tax liability, all requiring careful research to be sure they are legitimate tax planning strategies. Overly aggressive practices can lead to audits, penalties, and reputational damage.

After a transaction, shielding assets becomes even more critical. Establishing a limited liability entity, like a Family Limited Partnership (FLP), may be helpful to protect assets.

Remember to keep personal and business assets separate to avoid putting asset protection efforts at risk. Review and update asset protection strategies when there are changes in your personal or business life or new laws that may provide new opportunities.

Developing a succession plan is critical to ensure that the transition of a family business from one to the next. Be honest about family dynamics and individual capabilities. Start early and work with an experienced estate planning attorney to align the succession and tax plan with your overall estate plan.

Philanthropy positively impacts, establishes, or builds on an existing legacy and creates tax advantages. Donating appreciated assets, using charitable trusts, or creating a private foundation can all achieve personal goals while attaining tax benefits.

Estate taxes can erode the value of wealth when transferring it to the next generation. Gifting, trusts, or life insurance are all means of minimizing estate taxes and preserving wealth. Your estate planning attorney will know about estate tax exemption limits and changes coming soon. They will advise you about gifting assets during your lifetime, using annual gift exclusions, and determine if lifetime gifts should be used to generate estate tax benefits.

Reference: Forbes (Sep. 28, 2023) “Strategic Tax and Estate Planning For Business Owners”

What Is in Senator Dianne Feinstein’s Estate?

The properties demonstrate Feinstein and her husband’s expansive wealth and success in their respective fields, according to BNN’s recent article, “Feinstein’s Billionaire Legacy: Children to Inherit Prominent Properties Amid Disputes.”

Feinstein, who was raised with money, has been one of the wealthiest members of Congress for years. She was independently wealthy when she married Richard Blum in 1980. After her election to the Senate, she placed her securities into a blind trust valued between $5 million and $25 million.

The couple’s combined fortunes have thrived, surpassing even the senator’s previous standard of living. Her primary residence is a 9,500-square-foot mansion in the posh Pacific Heights neighborhood of San Francisco. Until recently, their vacation homes included the 36-acre Bear Paw Ranch in Aspen, Colorado, and a seven-bedroom Lake Tahoe compound. Current holdings include a property on the Hawaii island of Kauai and a home in Washington, D.C.

However, the battle over Blum’s estate raises questions about the extent of his wealth and the out-of-pocket cost of home health care that Senator Feinstein has received since her bout with shingles earlier this year. During his lifetime, Blum, a private equity magnate, was often publicly referred to as a billionaire. However, the pandemic reportedly significantly impacted his investments, particularly his extensive hotel holdings.

An ugly dispute has arisen among the couple’s children, casting a new light on their fortune, and hinting at a potential court battle over the estate. Feinstein’s daughter, Katherine, and Blum’s three daughters, Annette Blum, Heidi Blum Riley, and Eileen Blum Bourgarde, will split the estate equally. However, a dispute has come up concerning a waterfront house in Marin County, California, valued at $7.5 million, which was at the center of a dispute between Katherine and Blum’s daughters this year.

The couple’s wealth is largely attributed to his success as an investor. Feinstein’s daughter and three stepdaughters are set to inherit the late senator’s $102 million property portfolio and her $62 million private jet.

The distribution of the portfolio, estimated to be worth over $160 million, is now a big issue among the couple’s children.

Reference: BNN (Oct. 3, 2023) “Feinstein’s Billionaire Legacy: Children to Inherit Prominent Properties Amid Disputes”

Why You Need to Include Digital Assets in Your Estate Plan

A new form of wealth, with different ownership, storage, and transferability terms, has created a new challenge for estate planning from traditional forms of wealth. These are digital assets, electronic records in which an individual has a right or interest, as explained in a recent article, “Planning for Digital Assets 101,” from Wealth Management.

Digital assets can be divided into two groups: sentimental digital assets and investment digital assets.

Sentimental digital assets are those with an emotional tie, like photos, videos, social media accounts, etc. For these assets, the goal is to provide access to loved ones after a person’s death. Some platforms allow settings to name a legacy contact. A list of accounts, usernames and passwords will be helpful for family members.

The IRS defines investment digital assets as “any digital representation of value which is recorded on a cryptographically secured distributed ledger, like a blockchain, or any similar technology as specified by the Secretary.” This type of asset includes cryptocurrency, stablecoins and non-fungible tokens.

The challenge of digital investment assets in estate planning centers on how they are owned and stored.

Digital assets are stored in digital wallets, web-based or hardware-based. “Hot wallets” are web-based and run on smartphones or computers. Many investors use them for small amounts of cryptocurrency and frequent trading. “Cold wallets” are hardware-based wallets stored on devices not connected to the internet, reducing the risk of unauthorized access. A cold wallet can only communicate with an internet-connected device when plugged in. An investor will have a seed phrase or backup code to access the cold wallet, which the owner must store in a secure place.

Understanding the storage system is essential for estate planning for two main reasons:

Beneficiary Access. The recipient of a gift or bequest of the digital asset must have access to the relevant storage device to access the actual investment. Sharing this information comes with an element of risk, as access is inherently tied to value.

Fiduciary Access. If only the owner has access, heirs will have no way to gain access to the digital assets when the owner dies. Digital exchanges don’t allow users to name a contact to access the investment information upon death. Most exchanges don’t have centralized entities to record information. If access is denied to the heir, the investment could be lost.

Transferring digital assets requires providing access to beneficiaries and/or fiduciaries. There are several ways to structure such a transfer while minimizing the risk of theft or loss.

Digital assets can be transferred to a Limited Liability Company, and subject to certain limitations, retain control of the digital assets’ management by serving as LLC manager. Transferred LLC interests can also provide a mechanism to discount the value of the transferred interest. In addition, LLCs can provide asset protection since, in most states, LLCs protect a member’s personal assets from an LLC’s liabilities.

A directed trust is another way to transfer digital assets, while maintaining control and decision-making with the owner. In some states, a directed trust can have an “investment trustee” or “investment trust director” to exclusively handle investment responsibilities, including managing and storing digital assets.

Even using these two methods, someone other than the original owner must be granted access to the digital assets. One way to do this is by naming a “digital fiduciary”—someone tasked with managing the digital assets.

Estate plans involving digital assets must clearly outline heirs for the digital investment and its tangible storage devices. The assets can pass with the residuary, and complexities can arise if the residuary beneficiaries differ from tangible property beneficiaries who will receive the storage device. Speak with an experienced estate planning attorney to be sure that your digital assets are included in your estate plan.

Reference: Wealth Management (Sep. 19, 2023) “Planning for Digital Assets 101”

Have Estate Plan Checkup before Heading to Warmer Winter

“Snowbirds” spend their winters somewhere warm, which usually means they own assets in more than one state. For them, special attention is needed to certain decisions in their estate planning documents, including Wills, Trusts, Power of Attorney, and Advanced Medical Directives, according to a recent article from Coeur d’Alene/Post Falls Press, “Headed South for the winter? Your estate plan may need some attention.”

If you live in multiple states at different times of the year or own assets like real estate in more than one state, your estate planning documents and overall estate planning strategy need to take this into account. Many people aren’t aware of the need for planning to avoid having their estate go through probate in every state where they own property.

Even if you don’t mind the idea of your estate being administered through probate, a formal court-controlled process, you probably don’t want your loved ones to go through this process in multiple states, which takes time and can be costly.

Another issue for Snowbirds concerns the Power of Attorney documents. Which state these are prepared in and which state’s laws govern the use of these POA documents is more complex than most people expect. There’s no one-size-fits-all answer, so having this discussion with your estate planning attorney before you travel for the season is critical. Don’t assume you have it all set up and can efficiently deal with it once you arrive at your winter home. The law is a little more complicated than that.

Any time you leave your home state for an extended period, you should bring copies of important legal documents. For most people, this includes your Financial Power of Attorney, Health Care Power of Attorney, Last Will and Testament, Living Trust, or any other Trusts you may have, Living Will, and a Physician’s Orders for Scope of Treatment Form. This last document is known by different names in different jurisdictions, which is another reason to review these documents with your estate planning attorney.

Will copies of these documents be accepted? This is another question to ask your estate planning attorney. In some cases, a copy will be sufficient for any purpose, while in others, the originals will be needed, regardless of how far away you are from them.

Estate planning documents should be in a safe and secure location, like a fireproof safe or your estate planning attorney’s office. If you are traveling, a set of copies should always travel with you.

Before you head to the airport or pack up for your winter sojourn, call your estate planning attorney to be sure your estate planning documents are all in order. Hopefully, you won’t need any of them, but if you do, you’ll be glad to be prepared.

Reference: Coeur d’Alene/Post Falls Press (Sep. 13, 2023) “Headed South for the winter? Your estate plan may need some attention”

Social Security Cost of Living (COLA) Is Likely to Increase in 2024

Following two years when Social Security Cost of Living Adjustments (COLAs) soared to the highest levels in decades, beneficiaries should not be surprised by more modest increases in monthly payments in 2024, reports a recent article, “Social Security COLA 2024: How Much Will benefits Increase Next Year?” from AARP.

The inflation gauge used by the Social Security Administration (SSA) to set the annual COLA rose at a 2.6% annual rate for July and 3.4% for August. These are the first two of three months the SSA uses to determine the final increase, which will be announced more formally in October.

The August uptick was a bit higher than anticipated, and September’s inflation numbers are expected to rise to similar levels. Analysts expect a 2024 COLA of about 3 percent.

This may seem like a letdown for recipients. Still, COLA is calculated to exactly offset the price increases faced by consumers, measured by the Consumer Price Index, since the prior COLA was determined.

A 3 percent COLA indicates inflation is slowing down or getting under control, which is especially important for seniors living on a fixed income. While a higher COLA sounds nice, it reflects rising prices, which can be far more challenging for retirees who count on Social Security benefits to pay their household bills.

All forms of benefits are affected by the COLA, including retirement, disability, family, and survivor benefits. The adjustment starts with the December Social Security benefits, which most folks receive in January 2024.

Benefits are calculated by the CPI-W, a subset of the main Consumer Price Index, which measures a broad range of retail prices. The SSA compares the average CPI-W for July, August, and September of each year to the figure for the same period the year before to arrive at the COLA for the year to come.

For example, the year-over-year changes in the CPI-W for the three months in 2022 were 9.1%, 8.7%, and 8.5%, respectively. Over the entire quarter, the index was 8.7% higher than average for the same period in 2021, resulting in the COLA used at the start of 2023.

If projections hold, and there’s no reason to think they won’t, the 2024 adjustment will align more with the relatively low inflation pre-pandemic period. When there’s no inflation, there’s no COLA. This happened in 2010, 2011 and 2016. The most significant adjustment ever? 14.3 percent in 1980.

Studies by the Center for Retirement Research show Social Security benefits generally keep up with inflation in the long term but can lag during short-term periods of volatility, depending on whether or not the price index is trending up or down when the COLA is set.

Beneficiaries in 2021 and 2022 lost buying power when COLAs were outpaced by surging inflation, peaking around 9 percent in mid-2022. This year, inflation was cooling somewhat when the 8.7 increase took effect and remained below the COLA level.

Another factor impacting the COLA’s value is Medicare costs. A rise in Medicare Part B premiums in 2024 would offset a portion of the COLA increase for Social Security recipients who have premiums deducted directly from their benefits, which is about 70 percent of Medicare enrollees.

Reference: AARP (Sep. 13, 2023) “Social Security COLA 2024: How Much Will benefits Increase Next Year?”

Should I Consume Olive Oil Every Day?

A study presented at NUTRITION 2023, the annual meeting of the American Society of Nutrition, looked at how olive oil intake and dementia-related death could potentially be connected. Prevention’s recent article, “Olive Oil Linked to Lower Risk of Dying From Dementia, Study Shows,” reports that researchers looked at data from more than 90,000 Americans—60,582 women and 31,801 men. The study took place over 30 years in which 4,749 participants died from dementia.

Researchers found that participants who consumed more than ½ a tbsp of olive oil each day had a 28% lower risk of dying from dementia than individuals who never or rarely consumed olive oil. They also saw that switching 5 g (or about 1 tsp) a day of margarine or mayonnaise for olive oil was linked to an 8–14% lower risk of dementia-related death.

The study noted that those who died of dementia were more likely to be APOe4 carriers, a gene that increases the risk of Alzheimer’s disease. However, they said the results were still consistent after adjusting for the genetic risk factors.

These findings suggest that olive oil may have beneficial properties for brain health and may play a part in lowering the risk of dementia-related death.

With its antioxidants and powerful anti-inflammatory compounds, olive oil has many health-protective benefits. Generally, olive oil may help reduce the risk of heart disease, boosting gut health, protecting brain health, and improving health parameters, like A1C levels associated with type 2 diabetes.

Diets like the Mediterranean diet that are rich in unsaturated fats have been found to have cardiovascular health benefits. Plus, studies have found that this diet plays a role in reducing the risk of cognitive decline in individuals at risk of dementia.

“Because olive oil is a source of unsaturated fat and a major component of the Mediterranean diet, incorporating olive oil into a healthy lifestyle may provide additional cardiovascular and brain health benefits,” the article explained.

Compared with rarely or never enjoying olive oil, having more than 1½ tsp of olive oil a day may be linked with a 25% reduced risk of fatal dementia. So, keep a small bottle of extra-virgin olive oil on the table so it’s available for drizzling onto your meals for its various health-protective benefits.

Reference: Prevention (July 29, 2023) “Olive Oil Linked to Lower Risk of Dying From Dementia, Study Shows”

Where Should I Store My Will?

When you fail to plan for your demise, your heirs may end up fighting. With Aretha Franklin, three of her sons were battling in court over handwritten wills. The Queen of Soul, who died in 2018, had a few wills: one was dated and signed in 2010, which was found in a locked cabinet. Another, signed in 2014, was discovered in a spiral notebook under the cushions of a couch in her suburban Detroit home.

The Herald-Ledger’s recent article, “Aretha Franklin’s will was in her couch. Here’s where to keep yours,” says that a jury recently decided the couch-kept will is valid. However, Aretha didn’t clarify her final wishes. Her handwritten wills had notations that were hard to decipher, and she didn’t properly store the will she may have wanted to be executed upon her death.

The Herald-Ledger’s article gives some options for storing your will. First, don’t store your will in the couch.

You should keep your will where it is secure but easily located. Here are some options:

Safe-deposit box: The downside is that the box might be initially inaccessible when you die. If your will is in the box, that’s an issue. The executor may need a copy of the will to access the box. If so, and a court order is required, it could take some time before the executor can get the will from the safe deposit box. If you do this, include your executor or the person designated to handle your estate on the safe deposit box contract.
At home: Keep a copy of your will in a fireproof and waterproof safe, but make sure there’s a duplicate key, or you give the combination code to your executor or some other trusted person.
With an attorney: You could have a spare set of original documents and leave one with your attorney. But be sure your family knows the attorney’s name with the will.
Local court: Check with the local probate court about storing your will and tell someone that you’ve placed your will in the care of the court. For instance, in Maryland, you can keep your original last will and testament with an office called the Register of Wills. The will can then be released only to you or to a person you authorize in writing to retrieve it.
Electronic storage: You could store it online to keep your will safe. However, most states don’t yet recognize electronic wills. As a result, you’ll need to have the originally signed copy of your will even if you store a digital copy.

All options to store your will have pros and cons. Whatever you do, tell the person designated to handle your estate where to find your will.

Reference: The Herald-Ledger (July 19, 2023) “Aretha Franklin’s will was in her couch. Here’s where to keep yours.”

Can My Barber Help Me Live Longer?

Up to 1 in 5 Americans will develop skin cancer in their lifetime, notes the American Academy of Dermatology.

What’s more, the rates of melanoma, the deadliest form of skin cancer, have increased in recent decades, reports Livestrong’s recent article, “Want to Age Well? Do This the Next Time You Get a Haircut.”

If skin cancer is detected at an early stage, when the cancer cells remain localized to the skin, it can often be cured with a simple procedure like a minor skin surgery or even a prescription cream.

That’s where your hairdresser comes in. In addition to cutting your locks, they can help spot growths on your scalp, ears, or neck.

Your scalp, neck, and ears get extensive exposure to the sun’s UV rays every day. That puts them at high risk for potential skin cancers. However, it’s hard to see these parts of your own body, so a new or unusual growth might go unnoticed for several months.

Hairdressers see our scalps most closely and regularly. They can be the first to spot something growing on these sites.

Since they spend so much time looking at scalps, ears, and necks each day, they often have a keen sense about whether a growth seems out of the ordinary. You can bring up the topic casually at your next haircut.

Before sitting down, let your hairdresser know you’re trying to be more proactive about your skin health. Ask them to let you know if they notice any unusual moles or spots while they wash and cut your hair.

Remember that your hairdresser isn’t a skin expert. However, think of them as an additional tool in your skin cancer prevention tactics arsenal.

They aren’t a substitute for good skin-care habits like wearing sunscreen (and sun-protective clothing) and seeing a dermatologist for an annual skin check.

Reference: Livestrong (June 25, 2023) “Want to Age Well? Do This the Next Time You Get a Haircut”

Now Is the Time for Estate Planning

Individuals in their twenties are usually focused on their careers, acquiring assets and enjoying life—death is one of the last things on their minds, according to a recent article from The National Law Review, “Don’t Wait until Time Is Up.” However, unexpected things happen, even to healthy young people.

Estate planning documents, including Power of Attorney, Healthcare Proxy and Living Will, should be prepared because they go into effect as soon as they are executed, allowing others to carry out legal, financial and health wishes in case of incapacity.

Thirty-somethings may have reached various milestones, such as marriage, having children, owning property, starting a business, or working in the family business. This is also a time when life-changing events occur, such as divorce, death in the family, inheritance, moving to another state and more. Estate planning documents should be in place now, including a will and ancillary documents. This may also be the time to establish trusts to accomplish estate planning goals.

If you are getting married, already married, divorced, or remarried, it’s time to call your estate planning attorney. Estate planning is often negotiated as part of prenuptial, postnuptial and separation agreements. Upon getting married or remarried, your estate plan must be updated to include your new spouse and/or remove your ex-spouse. A new spouse may have elective rights to a portion of their spouse’s estate if they remain married at death and the deceased spouse has failed to provide for their surviving spouse.

One of the most important provisions of a will is the designation of a guardian of minor children. The guardian will take legal custody and responsibility for minor children if both natural parents die while the child is under legal age. Any new parent must execute a will or update their will to designate a guardian. Within the will, you may also request guidelines for guardians to file while raising minor children. The court must find and appoint a guardian if there is no will or the will does not designate a guardian.

If you die without a will, the state laws of intestacy control, which means your spouse and nearest heirs will inherit your estate. If this is not your intention and you want to leave assets to friends, charities, or other relatives, then you need a will.

An estate plan is also needed to streamline the probate and administrative process of the estate. An estate plan can be designed to effectively minimize the expense, delay, and loss of privacy of the probate process. This is typically done by establishing a Living Revocable Trust in addition to the will. The trust can be funded during your lifetime and controlled by you before death. Assets don’t pass through the will, avoiding the need for probate.

One of the first steps of probate is filing the will with the appropriate court when the will becomes part of the public record, and anyone can access it. Probate varies from state to state, and courts experiencing back-ups can delay admitting the will and appointing an executor to manage and distribute the assets. This process can take up to a year in some New York Surrogate courts.

Having an estate plan in place and updating it regularly can help protect assets and beneficiaries. If you haven’t already implemented it, now is the best time to begin.

Reference: The National Law Review (Sep. 12, 2023) “Don’t Wait until Time Is Up”

What Should I Know about Falls?

Over 25% of adults age 65 or older fall each year, and thousands of older adults break a bone, according to Very Well Health’s recent article, “Managing Pain as You Age.” Falls and fractures are common concerns for older adults, especially women with osteoarthritis. About a third of women over age 50 will break a bone related to osteoarthritis.

In addition to injury, this is a major issue for older adults, as people age 70+ have an increased risk of death after a fall. In one study, 4.5% of people 70 or older died after a ground-level fall compared to 1.5% of a younger population. Falls, if not deadly, also affect long-term mobility, overall health, and independence. In the same study, people 70 and older had longer hospital and intensive care unit (ICU) stays than their younger counterparts. Only 22% could function independently once released vs. 41% of the younger adults who had fallen.

However, there are ways to reduce the risks of serious, long-term effects from a fall. After a fall, staying calm and preventing further injury is essential. These include:

Relaxing by taking deep, calming breaths;
Staying still where you land and giving yourself time to recover from any shock the fall may have caused;
Assessing your condition and checking for possible injuries before moving; and
Calling 911 or ask someone nearby to help if there are any injuries.

If there are no injuries, you can roll to one side, rest, move to your hands and knees and transition to a chair. Even if you can get up on your own after a fall, seeing a healthcare provider is important. They can identify possible unnoticed injuries and determine health concerns that may have caused the fall.

If you have a fracture from a fall, treating it depends on the location of the break, the severity and other factors related to the individual and their injury. For example, a hip fracture is a common injury in older adults that may or may not require surgery. Traction is sometimes used to pull different parts of the body to help stretch the area around the broken bone for healing. With most fractures, it’s also important to use a splint or cast to keep the area from moving.

Reference: Very Well Health (Oct. 25, 2022) “Managing Pain as You Age”

Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

Estate Planning and Tax Planning for Business Owners

What Is in Senator Dianne Feinstein’s Estate?

Why You Need to Include Digital Assets in Your Estate Plan