To help you avoid some of the mistakes some business leaders have made over the years, we’ve put together a few thoughts on the topic. 

What is Business Succession Planning? 

Just like it sounds, succession planning is getting the company ready for a leader’s transition out. This applies to large and small companies, as the leader generally plays a vital role in keeping the business moving in the right direction. 

Your goal should be to make the transition while preserving the company’s value and ensuring it is ready for continued growth and success. 

There are a few main pieces to succession planning that should be incorporated. 

Identify Potential Successors

The first step is identifying the best person to fill your shoes when you leave. Sometimes this is obvious, but it’s not always easy. 

For example, does it make sense for you to pass the baton to someone already in the company? The advantage here is that the internal candidate is already very knowledgeable about the business. They should also be well-liked and someone the business would be willing to follow. 

On the other hand, sometimes a company needs a new direction. Of course, bringing in a new CEO from the outside has its challenges. Still, they can breathe new life into the organization, which may be what the company needs. 

Developing a Business Transfer Plan

Another critical component is developing the business transfer plan. This lays out the overall strategy in a document that can be referenced by both the successor and other leadership within the organization. It will include things like responsibilities, legal considerations, and training. 

Passing on a business isn’t insignificant and doesn’t happen overnight. Creating this document will help you think through different parts of the company that your successor will need to handle once they come in. 

Legal and Financial Considerations

Passing on a business isn’t something where you hand over the keys and say, “good luck!” Instead, you need to take action on legal and financial tasks to ensure everything is in place before you head out the door. 

Here are a few examples of things to take care of. 

• Pass on legal ownership of the company to the successor – assuming it’s not a publicly traded company. 
• Ensure key stakeholders, such as the board of directors, agree with the plan. 
• Ensure financial paperwork is completed, such as bank account paperwork. 
• If the successor is buying the business, a licensed business attorney needs to handle the financing paperwork. 

What Happens if You Don’t Have a Good Succession Plan? 

Lastly, let’s talk about what may happen if you plan poorly. 

The short answer is that your company will suffer. The business you’ve spent years building up through blood, sweat, tears, and sleepless nights will struggle. 

For example, if you don’t bring in the right successor, they may make poor decisions that drive the company into the ground. 

Or even if you bring in the right successor, they may be set up to fail if the transition plan isn’t laid out well. 

If you want to have a third party take a look at your business succession plan, give us a call or send us an email. We’d be happy to work with you to lay out a plan to help ensure your company continues to do well and grow even after you step away. 

The post Understanding Succession Planning and Why It’s Important For Your Business To Plan Ahead appeared first on Hunsberger Law.

If you have real property as part of your estate plan, make sure you avoid these common mistakes we see with our clients. 

Mistake #1: The Wrong Title

The first mistake we see is tied to the deed of the property. Some people like to add their child to the deed, making them a co-owner of the property. While there are certainly upsides to doing this, there are also downsides. 

The first problem is that your child now owns the property, meaning creditors can come after it. So if your child gets divorced, their ex-spouse may come after the house. Or suppose your child finds themself in a position where they have a lot of debt. Then, they may come after the house if they need help to repay their bank, credit card company, or whoever else they owe money to. 

The second problem is related to capital gains. If the child did not own the property, when the parent passes away, the child benefits from a “step-up” in cost basis regarding the home’s value. But if your child is already on the deed and a co-owner of the house, they miss this opportunity. 

Mistake #2: Not Using an LLC for Rental Properties

This applies both to the estate planning world and the business planning world. If you have a rental property, we encourage our clients to consider having it owned by an LLC, not your own personal name. 

From an estate planning perspective, the LLC can keep living on even after you pass. It’s easy to transfer ownership of the LLC, so that is not a concern. 

From a liability perspective, the benefit to an LLC is that your personal assets are protected in case of loss. If a renter gets hurt on the rental property, they can only sue the LLC for the assets owned by the LLC – they can’t come after your personal assets. If the property was in your name, they could come after your personal property. 

Mistake #3: Trust Issues

Setting up trusts is an essential part of estate planning. Whether you have a complex estate plan or a simple one, setting up a trust or two can help ensure your assets and carried out to your wishes. Yes, there are other critical documents, such as your will and power of attorney. Still, we encourage our clients to consider trusts as well. 

A few different types of trusts may make sense for real estate. For example, sometimes a revocable trust – also called a “living trust” – makes sense. The good thing about a living trust is that you can (usually) change them if you so choose. 

But sometimes, you may want to use an irrevocable trust with real estate. Of course, these can’t be changed once they’re set up, but they do have benefits vs. living trusts. It just depends on your situation, which is why we always recommend actually sitting down with an estate planning attorney and discussing your options. 

Your real estate makes up a large part of your estate. To ensure your beneficiaries get the most out of it when you pass, we recommend including it as part of your estate plan. 

But don’t go this path alone! Send us an email at https://hunsbergerlaw.com/contact/ or call at 714-663-8000 and we’ll help you through the whole process. 

The post Estate Planning for Real Estate Assets! appeared first on Hunsberger Law.

Review Your Will

As the most common – and arguably most important – part of your estate plan, your will is something, you should review regularly. Even though things don’t change from year to year for most people, you want to ensure that any changes that have occurred are accounted for. 

For example, let’s say you’re a Millennial. Millennials right now are young professionals with a lot going on, such as starting businesses, getting married, or having children. These are significant, life-changing events, and their wills should be updated to reflect those changes. 

Or maybe you’re a bit older and recently got divorced. You should ensure your will reflects your wishes now that you’ve separated from your spouse. For example, maybe you’d had all of your assets going to your spouse, but now you want to ensure everything passes on to your children and grandchildren. 

Go Over Your Revocable Trusts

Revocable trusts – also called living trusts – are another crucial part of your estate plan. Unlike irrevocable trusts, you can (usually) make changes to a living trust as long as you’re… well, living. 

If you still need to set up a trust because you’ve always thought they were only for the super wealthy – think again. We always advise our clients to at least consider opening a trust. 

Trusts can control the distribution of your assets, meaning your assets don’t get stuck in probate.

Trusts can provide tax protection benefits to your beneficiaries, so they can keep more of that hard-earned money you want to pass on. 

Now is a good time of year to ensure your trusts are set up or accurate. 

Check Your Power of Attorney

What’s going on with your power of attorney? Does it currently have your sister, who went a little crazy over the last few years, listed as your POA? Maybe it shows your now-ex as having power of attorney in case you’re unable to make financial or medical decisions yourself? 

Those types of things may sound silly, but they happen. Sometimes an estate plan is set up, but the power of attorney isn’t updated after a significant life event. Then when the person has a medical issue and can’t make decisions themselves, the POA is granted to someone who wouldn’t be their first choice. 

Review Your Retirement Assets

The last thing we’ll mention is your retirement assets. In fact, this is a good time of year to look at all of your assets in general. 

For example, you may realize there are things you can do to lower your tax bill if you take action before the end of the year. But you’ll never know if you don’t take a look!

Conclusion

Now is a great time to reflect on your estate plan. When you work with an expert estate planning attorney, it will be done thoroughly and quicker than you may think. Call us at 714-663-8000, and we’ll set up a time to discuss everything with you soon.  

The post Reflect On Your Estate Plan As We Close Out The Year! appeared first on Hunsberger Law.

While we can’t give you a blanket number, we can explain how the cost is calculated. 

Estate Planning Costs Depend on the Situation

We first want to point out that every person’s situation is different. This means every estate plan is a little different, so the costs and complexity will vary. 

For example, let’s say a single man with no dependents and less than $20,000 of assets wants to plan his estate. He wants assurance that if something happened to him, his assets would be distributed the way he’d like them to be. 

This is different from a couple in their late thirties with three children and $100,000 in assets. This couple’s situation is a bit more complex, so more paperwork should be done to thoroughly plan out their estate. 

Finally, the other extreme is a very wealthy business owner with three children, nine grandchildren, a wife, and over $5M in assets. While a few estate planning tips for small business owners will help, their estate plan will require a lot of time to ensure it’s complete and bulletproof. 

That said, let’s talk about the types of costs you’ll see. 

Types of Estate Planning Costs

Flat fees are those involved with the most common types of estate plans. For example, an attorney may have a certain amount they always quote for a plan that includes 

• A simple will
• A POA for property and finances
• A POA for medical issues and decisions
• A living will
• Guardianship appointments

Billable hours are exactly what they sound like. This is the hourly rate they charge you for every hour they spend working on your case. This involves all aspects of the work:

• Thinking about your plan
• Working on the paperwork for your plan
• Meeting with you

Billable hours are common, especially if the attorney thinks your plan will be complicated and take a lot of time. 

Two Big Questions to Ask

When you meet with your attorney, we want to make sure you ask these two questions. 

1. “Can I get it in writing?”

Before your attorney starts working on your plan, make sure you get it in writing! When something is documented, it can provide evidence of how the original agreement was worded. 

1. “Who does the work?”

We’ve talked on and on about why estate planning is essential. If you’ve read a few of our articles, hopefully, we’ve convinced you to go through this process.

But even after we’ve helped our clients understand why they should plan their estate, the how is where they get caught up sometimes. Specifically the how much does estate planning cost question.

While we can’t give you a blanket number, we can explain how the cost is calculated.
Estate Planning Costs Depend on the Situation
We first want to point out that every person’s situation is different. This means every estate plan is a little different, so the costs and complexity will vary.

For example, let’s say a single man with no dependents and less than $20,000 of assets wants to plan his estate. He wants assurance that if something happened to him, his assets would be distributed the way he’d like them to be.

This is different from a couple in their late thirties with three children and $100,000 in assets. This couple’s situation is a bit more complex, so more paperwork should be done to thoroughly plan out their estate.

Finally, the other extreme is a very wealthy business owner with three children, nine grandchildren, a wife, and over $5M in assets. While a few estate planning tips for small business owners will help, their estate plan will require a lot of time to ensure it’s complete and bulletproof.

That said, let’s talk about the types of costs you’ll see.
Types of Estate Planning Costs

Flat fees are those involved with the most common types of estate plans. For example, an attorney may have a certain amount they always quote for a plan that includes
A simple will
A POA for property and finances
A POA for medical issues and decisions
A living will
Guardianship appointments

Billable hours are exactly what they sound like. This is the hourly rate they charge you for every hour they spend working on your case. This involves all aspects of the work:
Thinking about your plan
Working on the paperwork for your plan
Meeting with you

Billable hours are common, especially if the attorney thinks your plan will be complicated and take a lot of time.
Two Big Questions to Ask
When you meet with your attorney, we want to make sure you ask these two questions.

“Can I get it in writing?”

Before your attorney starts working on your plan, make sure you get it in writing! When something is documented, it can provide evidence of how the original agreement was worded.

“Who does the work?”

Just because you meet with an attorney doesn’t mean an attorney will be doing the actual work. If you work with a one-person operation, it would be whom you met with. But if you work with a larger firm, most of the work may be done by a junior attorney or paralegal.

The good news is that those staff members typically have lower rates!

Hopefully, this short article helped you understand how estate planning costs are calculated. If you have any questions, send us an email or give us a call at 714-663-8000, and we’ll be in touch soon!

Just because you meet with an attorney doesn’t mean an attorney will be doing the actual work. If you work with a one-person operation, it would be whom you met with. But if you work with a larger firm, most of the work may be done by a junior attorney or paralegal. 

The good news is that those staff members typically have lower rates!

Hopefully, this short article helped you understand how estate planning costs are calculated. If you have any questions, send us an email or give us a call at 714-663-8000, and we’ll be in touch soon!

The post Estate Planning Costs: What You Need To Know appeared first on Hunsberger Law.

Here is why life insurance is an essential part of your estate plan. 

Life Insurance Provides Immediate Cash

When someone with a life insurance policy passes on, the policy will provide a cash payout to the beneficiaries of the policy. These are people who most likely had a very close relationship with the deceased, so they are going through a hard time. This cash can help them through the situation. 

• If there are significant estate taxes to be paid, beneficiaries can use the cash from the life insurance policy to pay the taxes. 
• The money can be used to pay for funeral and burial costs, which are not insignificant. 
• If the beneficiary struggles with living expenses, it can help them pay their bills. 
• The beneficiary may have accumulated debt, and the cash can help them pay off the debts and breathe easier.
• The cash may make it easier to divide everything up among loved ones. 
• If you have some final income taxes, the cash can help pay that off. 

The point is that cash is almost always welcome and can be used by your beneficiaries. 

Life Insurance is Straightforward

Another reason why life insurance and estate planning go hand in hand as part of your estate plan is that it’s relatively simple and straightforward. 

Some things can be more complex. For example, suppose you have a lot of assets in your name. In that case, deciding how to divide them among your beneficiaries may take time. Likewise, with business owner estate planning, there are a few more things to consider, like how the business’s ownership will be managed when the current owner passes away. 

Life insurance is different. You go through some upfront work, such as going to your doctor for a medical exam- which you’re (hopefully) already doing – and signing up with your life insurance company. Then, you pay into it until you pass on, and your beneficiaries receive the payout. 

Life Insurance Avoids Probate

In the estate planning world, a lot revolves around doing what you can to avoid a lengthy California probate process. 

One great thing about merging estate planning and life insurance is that it will not have to go through probate. There is no court process for determining how life insurance pays out. It is paid to the beneficiaries, and everything is done. 

Your loved ones will be thankful to have one less thing to deal with as part of the probate process. They’ll get the cash quickly so it can be used to do what they need to do. 

Conclusion

As you consider combining estate planning and life insurance, one thing to consider is what’s called an irrevocable life insurance trust, or ILIT. Why is this a smart move? Because it has tax benefits – a typical policy’s payout is included as part of your estate when estate taxes are estimated. With an ILIT, it’s not factored into your estate. 

Call us at 714-663-8000 or send us an email. We’d be happy to explain more about trusts, life insurance, and any other aspect of estate planning you have questions about. 

The post Life Insurance and Estate Planning appeared first on Hunsberger Law.

So what are they, and why are they so important? Let’s take a look.

What are Beneficiary Designations? 

When someone passes away, their assets will go to beneficiaries. These are people or organizations that are previously designated to be the entity to receive that asset. 

A beneficiary designation is an official act of naming who will receive those assets when the person passes. Remember that most people will do multiple beneficiary designations based on whom they want to receive assets. 

For example, let’s say that Joe wants his son to receive his 401K portfolio and his daughter to receive his ROTH IRA when he passes away. He would use beneficiary designations to set that up. 

Another thing to remember is that you can assign your estate as the beneficiary. The asset would then be treated as part of the estate, which would be distributed according to your will or trust. 

The last thing we want to point out is that according to the SECURE Act of 2019, several categories of people are not eligible to be designated beneficiaries. Those groups include

• A surviving spouse
• Children under 18
• Individuals with disabilities
• Individuals who are chronically ill
• Someone within 10 years of the deceased

So, for example, if your child is 17, they would not be considered eligible. But if they’re 25 and in good health, they could be. 

Beneficiary Designations and Wills

Based on what you’ve read, you may think this sounds a lot like a will. After all, isn’t a major point of having a will the ability to designate how your estate gets managed when you pass away?

The short answer is yes. But a beneficiary designation is essentially something that takes precedence over your will. 

• Your will determines how your estate will be distributed
• Your estate is essentially what’s leftover after designated beneficiaries get their parts

For example, let’s say you have three assets: an IRA, $10K in your savings account, and a house.

Well, maybe you decide you want to pass on the stocks to your adult daughter. You may decide to do a beneficiary designation to ensure she gets the portfolio. Your estate – the $10K and house – are then distributed as your will instructs.

This is an oversimplification to help explain the general relationship between wills and beneficiary designations. 

Why is a Beneficiary Designation Important?

The short answer is that it helps guarantee that your assets get distributed how you want them to. 

Going back to our last example, maybe you have certain assets that you definitely want going to certain people. By designating those people as beneficiaries, you ensure that happens. Just make sure this doesn’t conflict with your will!

Conclusion

While beneficiary designations are great, they can also be tricky in a way. You have to stay on top of them and keep them current. It may be that when you first set up your 401k, you were married but have since divorced. If your ex-wife is still the designated beneficiary, she will get the money when you pass – not your kids. 

That’s why we always recommend that clients work with us. We will help you think through your designations and ensure everything, including your beneficiaries, will, and trust, are buttoned up so you can sleep better at night. 

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Here are a few things you can do to lessen your estate taxes.

How to Take Advantage of Gift Tax Exclusions

As of 2022, you can give someone up to $16,000 free and clear. No tax implications at all. If it’s a married couple, you can give them up to $32,000. 

So think about it like this – let’s say you have two grown children. Each one is grown and married with two kids of their own, meaning you have two children, two in-laws, and four grandchildren. 

If you give $16,000 to each of those eight people annually, you’re reducing your overall assets by $16,000 x 8 = $128,000! And that’s just your children and grandchildren. You may also want to give money to other people like your siblings, nieces, nephews, or friends. 

The good news is that this isn’t your only way of reducing taxes with lifetime gifts. You can also take advantage of exemptions. 

What is the Gift and Estate Tax Exemption

There’s a law called the Tax Cuts and Jobs Act that affected gift and estate tax exemptions. Essentially, it lifted the limits to be much more than before the law passed. 

There used to be an exemption of up to $5.49M. With the passage of TCJA, that limit is now up to $12.06M. This expires in 2025, but it’s something to keep in mind over the next few years. 

There are two ways for you to take advantage of the exemption. 

1. If you give your assets to your friends and family now, you can see them benefit from the gifts now. Pay off debt, go to college, get great cars, and more. 
2. Giving your assets allows the assets to grow for your loved ones and reduces your taxable estate. 

If you don’t give the money to your loved ones now, what happens if your assets grow over the $12.06M and you pass away? The excess will get taxed. But if you had given the assets to your loved ones now, the asset growth wouldn’t get taxed. 

How to Take Advantage of Educational or Medical Tax Exemptions

Suppose you pay an educational or medical institution on behalf of someone else. In that case, it doesn’t count towards your annual $16,000 gift limit. 

For example, let’s say you have three grandchildren in college. The tuition for each is $20,000 a year, bringing the total tuition to $60,000 per year. So you can actually pay the entire $60,000 plus gift each one $16,000. 

Or let’s say your sibling had surgery and ended up with $50,000 in medical bills. You can pay off their debt and give them $16,000 to help them stay afloat as they recover. 

How do these types of things help from a tax perspective? It lowers your estate and how many assets you’ll pass on to your loved ones. Using these examples, you would’ve reduced your estate by

• $60,000 due to the educational payments
• $48,000 due to gifting money to your grandchildren
• $50,000 due to your sibling’s medical bill
• $16,000 due to gifting your sibling

That comes out to $174,000. That’s a significant reduction in an estate that won’t have to be taxed now. 

Conclusion

Do you have other questions about lowering your estate tax with lifetime gifting? Send us an email or call us at 714-663-8000. We’d love to answer any questions you have. 

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If this is something you’re considering, here are a few things to keep in mind.

What is a Transfer on Death Account?

A transfer on death account is a type of beneficiary designation. Yes, similar to what you do when signing up with a new life insurance policy.

The idea behind a TOD is that it lets you name beneficiaries that can receive your assets at the time of your death. The assets do not need to go through probate, so it’s both fast and more reliable because you never know what may happen during the probate period. 

A TOD is similar to a payable on death (POD) account. The difference is that TOD deals with investment assets such as stocks or mutual funds. A POD is only tied to bank assets. 

Pros of a Transfer on Death Account

The first pro to keep in mind is that setting up a TOD is free. Most institutions will allow investors to name beneficiaries without any kind of charge. Considering the current economy, anything free is good news, right? 

A TOD also tends to work quickly. When someone passes away and the beneficiary wants to receive the assets, the process doesn’t take very long. The main things needed are

1. The death certificate of the account holder, and
2. The beneficiary’s account information

That’s it. 

The third advantage to a transfer on death account is that it’s easy to set up. You just have to fill out a little paperwork or an online form. It usually only takes a few minutes, and then you can sleep well at night, knowing your TOD is all set up. 

Cons of a Transfer on Death Account

There are two main disadvantages to a TOD account. 

First, if you set it up and your beneficiary passes away before you do, you’ll need to adjust your TOD accordingly. If you pass away before updating it, your assets will stay within your estate and go through the probate period. 

Changing your TOD probably isn’t the first thing you think about upon hearing that your beneficiary – most likely someone you loved very much – has passed away. But, obviously, it doesn’t have to be the first thing you do. Just keep in mind that you should update it before too long. 

The second disadvantage to a TOD or POD is that if all of your assets are given away upon your death, there may not be enough assets in your name left to cover final expenses. 

Yes, there are expenses when you pass away. 

• Leftover bills, such as utility bills or a mortgage
• Your burial or cremation
• The funeral
• Tax payments

All of these things can add up. If you have assets in your name, those assets can be used to pay for these things. But suppose all of your assets were given to a beneficiary as part of a POD or TOD. In that case, your executor will be left scratching their head trying to figure out how to pay for these things. 

What We Recommend

While a transfer on death account is useful, we recommend that our clients go a different path. Using something like a trust gives you the best of both worlds. It lets your beneficiaries skip probate while at the same time making sure your final wishes are carried out. As a result, your bills will be paid, your assets will be distributed how you want, and things won’t be tied up and contested in court for months and months. 

Give us a call at 714-663-8000, or send us an email, and we’ll help you get started. 

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Here are a few small business owner estate planning tips to help. 

Start with a Will and Estate Plan

The first and most important thing you can do is work with an estate planning lawyer. There are many reasons why estate planning is important, but the main reason is to make sure your wishes are carried out. 

Several things will probably come into play as you build out your estate plan. 

Will – your will is the foundation of an estate plan. It is a great start, but it usually isn’t able to do everything on its own. 

Trusts – trusts are great for protecting your financial assets and passing them on to the right people. 

Power of Attorney  – this document outlines someone who can step in and take the reigns of your finances if you get incapacitated. This is especially important for small business owners because you need someone to keep the ship afloat. 

Health Care Directive – this helps people understand what kind of care you want if you have a grave illness, and it will take extreme measures to keep you alive. It also names someone to be able to speak for you. 

Create Your Business Succession Plan

As a small business owner, your loss will be a significant hit to the company. Therefore, it’s essential to outline your business succession plan ahead of time. 

Your succession plan is crucial because it outlines how your business will succeed when you leave the company. Once created, it should be re-evaluated once a year – just like your estate plan – to make sure it still reflects the best path forward. 

Just thinking through your succession plan will help guide decisions around recruiting, promoting, and training within the company. You’ll realize that not everything lasts forever. Hence, it’s a good idea to train your employees to fill critical roles if something happens. This is true for all companies, but especially a small company where each person plays such a pivotal role. 

Check Your Insurance

When you own a small business, your life insurance should be high enough to assist your loved ones in resolving any business affairs with those funds. For example, what if the company has been struggling to pay the bills lately but still has a 9 months lease when you pass on. The money received from your life insurance can help pay the lease until it ends, which gives the business and your loved ones time to figure out what to do with the company. 

This could be issued with the lease, payroll, paying lenders, you name it. The point is that the business may need to tap into your life insurance funds to help cover costs for a while when you pass. 

That’s why it’s essential to make sure you have a solid policy with enough funds to help your loved ones weather the storm. 

Keep Records and Let People Know Where They Are

Don’t create a will or estate plan and then not tell anyone where they are! Make sure it’s documented where these things are kept. A great place is with your estate planning lawyer. The key is to ensure your family and business associates have your lawyer’s contact info. 

Draft a Buy-Sell Agreement if You are a Co-Owner

The last piece of advice is oriented towards small business owners with partners. A buy-sell agreement is what outlines what will happen if you pass on. For example, it may say that your business partners can purchase your share of the business. 

Conclusion

A lot goes into estate planning in general, but it’s especially true if you’re a small business owner. The good news is you don’t have to do this alone! Send us an email or call us at 714-663-8000, and we’ll help walk you through the estate planning process. 

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