Washington Estate Planning Law Blog : Washington Estate Planning Lawyer & Attorney : John Hugg Law Firm : WA Elder Law, Wills, Trusts : Seattle, Woodinville, Bellevue

In its article Amid Debate, Business Owners Struggle with Estate-Tax Strategies, the Wall Street Journal reported that the federal estate tax is a significant concern for family business owners even though few actually wind up paying the tax. Family Businesses in Washington State should be even more concerned because the estate tax exemption in here is $2 million and not $3.5 million as with the federal estate tax exemption. However, one reason so few family business owners pay estate tax is most likely due to the use of various estate planning techniques. These techniques can include annual gifts, trusts, intra-family transactions, life insurance and even a properly drafted Will. But early planning is essential. The estate planning process can draw out for years given the many complexities facing a family business. These complexities include, among many others: selecting and grooming a successor, family dynamics and squabbles, excess cash flow to fund life insurance policies, the desire to have children earn the business rather than simply inherit it by birthright and many more. Since it’s almost certain the estate tax isn’t going away, neither will these issues for family businesses.

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Everyone has an estate plan, whether you know it or not. If you have a Will and/or related documents you know you have a plan. But even if you don’t have a Will, you still have a plan. That plan is set out by the government, and it is laid out in our laws of intestacy. Each state has its own laws of intestate succession. Generally those laws follow what the legislature thinks most people want. For instance, if you are married your property goes to your surviving spouse. If you are not married and have kids, your property goes to those kids in equal shares. If you are not married and have no kids, we look to parents, then siblings and so forth.

There are, however, major gaps in this “estate plan.” For instance, if you have a minor child, nothing says who will raise that child if both parents are deceased. Additionally, state laws leave property to a beneficiary outright even if a trust for such beneficiary would be more prudent (in the case of a minor child some form of conservatorship may be necessary). Another problem is a state’s laws of intestacy are not set up to deal with other major planning problems such as: estate tax issues, care for a disabled spouse or a special needs child and business succession issues for the self-employed.

This is where having a comprehensive Will that is tailored to your specific situation can be vital. Your Will sets out who will administer your estate, who will receive what property and in what percentages and who will raise your children. If you have a taxable estate, which in Washington today, is anyone whose estate is valued at more than $2 million, you can set up a trust for your spouse to make sure that you minimize or perhaps avoid estate taxes. If you don’t have a taxable estate, but think a surviving spouse may become disabled in his or her later years, a Will is one of the few tools that can be used to assist a loved one with care while not having to spend all your assets to qualify for assistance. In this instance we can often set up a trust for a surviving spouse or special needs child to assist with quality of life while allowing them to qualify or continue to qualify for Medicaid or other forms of assistance.

In short, your Will can accomplish many goals all at once. If you, like millions of other people, have put off making one, I encourage you to tackle this project in the new year.
 

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At some point most of us will have to step up and help our parents with their affairs. A recent Forbes article discusses how difficult it can be if your parents already have some memory loss or dementia when you first enquire about their situation. Since they may not be able to communicate with you effectively, it may take months to ascertain their financial situation because you won’t know what assets they have or where they are located. As the article mentions, a better way to go is to talk with your parents before it becomes necessary. Help get them organized. This task will also help you to find out what bank accounts, insurance policies and sources of income your parents have. And if your parents’ affairs are more complex, it will be even more important to know what’s happening in their financial lives. As with anything, if you prepare early and stay on top of things, you’ll be well served when you do have to help out.

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If you’re looking for a good informational article on variable annuities you may want to read Locking in Future Income. Leslie Scism does a good job explaining the ins and outs of these products. She covers their costs, benefits, gives an outline of how guaranteed variable annuities work and some of the companies that offer them. Anyone planning for retirement should give this a read.

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One thing I see frequently with clients who have existing businesses is many overlook basic recordkeeping tasks. Often there are no annual meeting minutes, no consents to corporate actions, no stock certificates and no other way to know who has an ownership interest; and sometimes I find clients haven’t even kept their licensing updated and the company no longer exists. Generally, the reason for forming a corporation or limited liability company is to receive limited liability. This normally means that only the business is responsible for its debts and obligations and an owner’s personal assets are not at risk. However, if you fail to respect the corporate entity, you can lose that limited liability protection. One way this occurs is to fail to maintain your business records. So be sure to hold an annual meeting, sign a corporate consent when you undertake a significant obligation such as an office lease, implementing an employee benefit plan, etc. and make sure you act in your representative capacity as an officer or member of the company. All this will go a long way to protecting your other assets in the event the trouble arises with the company.

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