Estate Planning Articles

Wills & Trusts

A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his estate and provides for the transfer of his property at death. A will may also create a testamentary trust that is effective only after the death of the testator.

After the testator has died, a probate proceeding may be initiated in court to determine the validity of the will or wills that the testator may have created, i.e., which will satisfy the legal requirements, and to appoint an executor.

A trust is a relationship whereby property (real or personal, tangible or intangible) is held by one party for the benefit of another. A trust conventionally arises when property is transferred by one party to be held by another party for the benefit of a third party, although it is also possible for a legal owner to create a trust of property without transferring it to anyone else, simply by declaring that the property will henceforth be held for the benefit of the beneficiary.

Asset Distribution

One of the main objectives of estate planning is to control how assets are distributed upon the death of the estate being planned.  Because the sales of a business often generates significant assets that need to be incorporated into any estate planning process or because assets in the business may be included in a will or trust, it is important to determine how business assets included in the estate are distributed.

There are often important issues to be considered in defining asset distribution:

  1. How much is intended to be given to each recipient?
  2. Are there secondary recipients defined, if the primary recipient is no longer alive?
  3. Are there any restrictions on any asset being distributed?
  4. Are there different tax treatments for different distribution methods or for different recipients?
  5. Are any distributions being made that skip a generation?
  6. Are some assets more marketable than other?
  7. Will there be estate or gift taxes due?  How will these tax payments be funded?

Tax Minimization

Tax Minimization can refer to minimizing taxes paid as the result of the sale of a business or to minimizing estate and gift taxes when assets are transferred by will or trust driven actions. 

A tax specialist needs to be included in planning both for a business sale and in developing an estate plan.

Timing and Control

Often owners of businesses find that both business conditions and non-business circumstances accelerate their timing of a business sale or cause them to lose control of the process.  Business circumstances would include a sudden fall off of business levels, a fire that destroys the building, or an unwarranted take-over attempt.  Non-business circumstances would include family, personal financial, health or personal issues.

One of the major reasons for creating and properly executing an exit planning process is to be prepared for unexpected events and to keep control, as much as possible, and to generate the business sale on the timetable of the owner.

The result of this process will maximize the sales price of the business and allow the sale to occur in a controlled process.