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”

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”

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 Happens to Digital Assets on Death?

You’ve probably thought about who will inherit your home, your great-grandmother’s jewelry collection and your collection of superhero comics. However,what about your digital assets, asks a recent article from Coast Reporter, “Make sure your estate plan considers your digital assets.”

Digital assets may have significant value. Digital assets include cryptocurrency, non-fungible tokens (NFTs), domain names, digital photos, digital rights to literary content, musical compositions, blog content, online video channels where your content is generating revenue, online gaming, digital online betting accounts, PayPal accounts or even prepaid subscriptions to online content or goods and services.

If your estate plan hasn’t adequately accounted for these assets, your heirs may be unable to access them. Do you and your executor even know what digital assets you own?

Having a list of your digital assets is a start. However, this doesn’t mean your executor can access the assets after your death. Photos and videos stored online may be inaccessible, social media accounts may stay online forever and heirs might not receive money or other assets you intended them to have.

The first hurdle is knowing the passwords for your accounts. Some can be accessed by cybersecurity professionals, like breaking into your phone or a laptop. However, others, like cryptocurrency keys, could be lost forever. Unless you’ve given explicit authorization to someone to access your accounts, they could violate data privacy laws, a criminal offense in most states.

Here’s a game plan for your digital assets and estate plan:

Document digital assets. Know what you own and understand that there’s a difference between owning a digital asset and owning a non-transferable license to use the asset.

Back up your digital assets. Ensure that all online documents, data and assets are backed up to the cloud and store them on a local computer or external hard drive, so your family can access them with fewer obstacles.

Leave digital assets to your spouse. This will avoid the assets being taxed and give the surviving spouse time to plan for the tax liabilities upon their death with an experienced estate planning attorney.

Provide authorization in your will. Update your will so your executor can bypass, reset or recover passwords. If your digital assets are significant enough, talk with your estate planning attorney about having a separate will to deal with digital assets and name an executor knowledgeable about digital assets for the second will.

Check-in regularly. Digital assets are still new for most people, so speak with your estate planning attorney to be sure your wills and powers of attorney reflect any changes in the law or your digital assets.

Reference: Coast Reporter (June 21, 2023) “Make sure your estate plan considers your digital assets”

What is the Purpose of a Blind Trust?

One type of trust offers a layer of separation between the person who created the trust and how the investments held in the trust are managed. The trust’s beneficiaries are also unable to access information regarding the investments, says the article “What is a Blind Trust?” from U.S. News & World Report.

The roles involved in a blind trust are the settlor—the person who creates the trust, the trustee—the person who manages the trust—and beneficiaries—those who receive the assets in a trust.

Blind trusts, typically created to avoid conflicts of interest, are where the settlor gives an independent trustee complete discretion over the assets in the trust to manage, invest and maintain them as the trustee determines.

This is quite different from most trusts, where the owner of the trust knows about investments and how they are managed. Beneficiaries often have insight into the holdings and the knowledge that they will eventually inherit the assets. In a blind trust, neither the beneficiaries nor the trust’s creator knows how funds are being used or what assets are held.

Blind trusts can be revocable or irrevocable. If the trust is revocable (also known as a living trust), the settlor can dissolve the trust at any time.

If the trust is irrevocable, it remains intact until the beneficiaries inherit the entire assets, although there are some exceptions.

In some instances, irrevocable trusts are used to move assets out of an estate. Settlors lose control over the holdings and may not terminate the trust or change the terms.

Blind trusts can be used in estate planning if the settlor wants to limit the beneficiaries’ knowledge of the trust assets and their ability to interfere with the management of the trust.’

People who win massive lump sums in a lottery might use a blind trust because some states allow lottery winners to preserve their anonymity using this type of trust. They draft and sign a trust deed and appoint a trustee, then fund the trust by donating the winning ticket to the trust prior to claiming the prize. By remaining anonymous, winners have some protection from unscrupulous people who prey on lottery winners.

One drawback to a blind trust is the lack of knowledge about how investments are being handled. The blind trust also poses the issue of less accountability by the trustee, since beneficiaries have no right to inspect whether or not assets are being managed properly.

Do you need a blind trust? Speak with an experienced estate planning attorney to discuss whether or not your estate would benefit from a blind trust. If you want to separate yourself from investment decisions or would rather beneficiaries don’t know about the holdings, it might make sense. However, if you have no concerns about privacy or conflict of interests, other types of trusts may make more sense.

Reference: U.S. News & World Report (June 1, 2023) “What is a Blind Trust?”

What are Five Keys to Estate Planning?

If your family has to sort out your affairs while also dealing with the emotional fallout from losing you, they will soon realize the importance of having an estate plan, whether you are wealthy or not. They’ll also feel the pain of your failing to create one for them.

CNBC’s recent article entitled “5 key things to know when you create a will and make other end-of-life plans” explains that your estate plan spells out whom you want to make decisions and who will inherit what you own. “Estate” refers to possessions and other assets. With that in mind, here are five key things to know if you start thinking about how you’d craft an estate plan.

A will may not cover all your bases. A will is a core component of an estate plan. A will states whom you want to have your assets and whom you want as a guardian for minor children. Without a will in place when you die, a judge will decide who gets what or who is appointed guardian.
Use care when naming an executor. When you create a will, you name an executor to carry out your wishes and handle your estate. This includes liquidating or closing accounts, ensuring your assets go to the proper beneficiaries and paying any liabilities. An estate plan should also include other end-of-life documents, like a living will that details the health care you want and don’t want if you become unable to communicate those desires yourself. You also can sign a power of attorney to an agent to make decisions on your behalf if you become incapacitated.
Some assets get a step-up in basis. If you have assets, such as the family home, and are thinking about giving them to your children while you’re alive, it might make more sense to wait. When these assets are sold, any increase from the so-called cost basis (the value when the asset was acquired), and the sale price is subject to capital gains taxes. However, at your death, your heirs who inherit receive a “step-up in basis.” This means that the market value of the asset at your death becomes the cost basis for the heir. As a result, any appreciation prior to that is untaxed. Therefore, when the heir sells the asset, any gains (or losses) are based on the new cost basis. In comparison, if you were to gift such appreciated assets to heirs before your death, they’d assume your original cost basis — which could translate into a large tax bill when the assets are sold.
You may want to consider a trust. If you want your children to receive money but don’t want to give a young adult or one with poor money management total access to a sudden windfall, consider creating a trust to be the beneficiary of a particular asset. A trust holds assets on behalf of your beneficiary. The assets are left to the trust instead of directly to your heirs. They can only receive money according to how (or when) you’ve stipulated in the trust documents. Ask an experienced estate planning attorney to help you with this.
You’ll need to review your estate plan. When you have a major life change, like the birth of a child or divorce, you need to review your estate plan. If you move to a new state, check to see if you need to update any part of your plan, so it follows that state’s laws.

Reference: CNBC (March 19, 2023) “5 key things to know when you create a will and make other end-of-life plans”

How Should I Handle Memorabilia in My Estate Planning?

Kiplinger’s recent article entitled “Estate Planning for Memorabilia Collectors: Don’t Leave Your Family in the Lurch” says the first step is to know what you have. Make a thorough and updated inventory to help your family understand the scale of the collection and where the items are located. Make sure the inventory is current and has detailed information about the items, like if a piece of memorabilia is signed or if it was game-used.

It’s also wise to log valuations along with the items’ description. You can try to stay on top of when comparable items sell at auction and follow industry publications to keep your valuations as current as possible. Every sector of collectible is different. Some items see their valuations fluctuate more than others. Even so, it’s helpful to have a ballpark idea of the total value of the collection. At some point, it might be worth hiring an appraiser to give you a formal valuation of the collection.

As far as authentication, many items need supporting paperwork to verify they’re legitimate. As you plan for your family to handle the sale of your items, they’ll need to know that those documents are an essential part of the collection and where they are.

When you’re walking them through your inventory, note where the items are identified as having separate certificates of authenticity and make sure they know where to find them. This can be as simple as using file folders.

When it comes time to sell, where does your family go Whether it’s sports memorabilia, coins, stamps, or just about anything else, there are dealers who are willing to purchase the collection. If you go into a collectibles shop that’s only buying items they plan to resell, you can expect to get about half of a collection’s actual value.

You can help your loved ones by making connections with auction houses that would be interested in bringing your collection up for sale. This can be a highly specialized area, so you’ll be saving your beneficiaries a big pain if you give them information about where they will get a fair price.

Reference: Kiplinger (Feb. 26, 2023) “Estate Planning for Memorabilia Collectors: Don’t Leave Your Family in the Lurch”

Who Inherits TV Broadcaster Barbara Walters’ Estate?

Vim Buzz’s recent article entitled titled “Who Will Inherit Barbara Walters’ Estate?” says American broadcast journalist and television personality Barbara Walters also rose to fame and received praise for speaking with people like Hugo Chavez, Fidel Castro, Anwar Sadat, Menachem Begin, Katharine Hepburn, Sean Connery, Monica Lewinsky and Vladimir Putin.

She hosted a number of television shows, including Today, the ABC Evening News, 20/20 and The View.

Walters was well known for her interviewing skills and popularity with viewers.

Her “coming out of retirement” for a special 20/20 interview with Peter Rodger, the father of the murderer of the 2014 Isla Vista shootings, Elliot Rodger, was announced on June 10, 2014.

She spoke in-depth with presidents and their wives, like Richard and Pat Nixon and Barack and Michelle Obama. In fact, she spoke with every sitting president and first lady of the United States during her tenure.

She also spoke with Joe Biden and Donald Trump, but not when they were president.

The newscaster’s estate will be inherited by her family. Chief among her assets was a Florida retreat she purchased in 2014. That was the same year she announced her retirement.

However, the property was placed on the market shortly after her dementia diagnosis took a turn for the worse.

She purchased the three-bedroom, four-bath waterfront condo in Naples for $3.4 million.

Just two years later, in April 2016, she transferred the unit to her daughter, Jaqueline Dena Guber.

The 54-year-old Guber subsequently listed the home three months later for $6.78 million. The home spent time on and off the market until September 2018, when it sold for $5.35 million.

The complex is called Moraya Bay. This luxury building has a concierge service, a private beach club, a large state-of-the-art fitness center and full security.

However, in New York City, Walters had lived in the same Upper East Side apartment overlooking Central Park since 1989.

An ABC program titled “Our Barbara” aired on January 1, 2023, and a 20/20 senior producer remarked, “For a lot of years, we maintained a close eye on Barbara.

Her final public appearance was in 2016, and her final on-air interview was with Donald Trump for ABC News in December 2015.

Reference: Vim Buzz (Jan. 3, 2022) “Who Will Inherit Barbara Walters’ Estate?”

What Is Needed in Estate Plan Besides a Will?

Having a will is especially important if you have young children, says FedWeek’s recent article entitled “Estate Planning Doesn’t Stop with Making a Will.” In your will, you can nominate guardians, who would raise your children in the event neither you nor your spouse is able to do so.

When designating a guardian, try to be practical.

Remember, your closest relatives—like your brother and his wife—may not necessarily be the best choice.

And keep in mind that you’re acting in the best interests of your children.

Be sure to obtain the consent of your guardians before nominating them in your will.

Also make sure there’s sufficient life insurance in place, so the guardians can comfortably afford to raise your children.

Your estate planning isn’t complete at this point. Here are some of the other components to consider:

Placing assets in trust will help your heirs avoid the hassle and expense of probate.
Power of Attorney. This lets a person you name act on your behalf. A “durable” power will remain in effect, even if you become incompetent.
Life insurance, retirement accounts and payable-on-death bank accounts will pass to the people you designate on beneficiary forms and won’t pass through probate.
Health care proxy. This authorizes a designated agent to make medical decisions for you, if you can’t make them yourself.
Living will. This document says whether you want life-sustaining efforts at life’s end.

Be sure to review all of these documents every few years to make certain they’re up to date and reflect your current wishes.

Reference: FedWeek (Dec. 28, 2022) “Estate Planning Doesn’t Stop with Making a Will”

Does My Estate Plan Need an ‘ePlan’?

Modern estate plans should include what’s known as an “ePlan” to manage online accounts and online data. There are four specific steps to creating an effective ePlan, says American Legion’s recent article entitled “Estate planning and online accounts.”

Create a List of Accounts and How to Access Them. Your list should specify the username, password account number and a description of what’s included in each account. Make sure to keep this list up to date.
Store and Protect Your Info. Develop a plan for storing information, including saving the list you compiled and backing up important data files and account information. Since an ePlan account list contains sensitive information, such as usernames and passwords, it’s important to maintain the security and confidentiality of this list.
Designate a Digital Executor. The laws of many states give access to online accounts to the executor of an estate. However, in some cases, state law may restrict access, if the executor doesn’t have the password or an estate plan does not clearly grant powers to the executor to access these accounts.
Give Your Executor “Digital Directions.” Draft a letter of instruction to the digital executor and tell him or her how to manage your online accounts and digital assets. It may also include suggestions on the distribution of accounts, assets, files and information to family.

Note that Google, Facebook, Twitter, Apple and other companies have policies for when an account holder dies. These policies may permit an account holder to designate a “Legacy Contact” to manage the account; require specific documentation before a deceased person’s account can be closed, such as a copy of a death certificate; or automatically close an account after an extended period of inactivity, such as three months.

Digital estate planning is a new and dynamic field. By adding an ePlan to your estate plan, you can be certain your executor will take the right steps to preserve and protect these accounts and that valuable and sentimental data can be passed on to family and loved ones.

Reference: American Legion (Dec. 13, 2022) “Estate planning and online accounts”

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