Jaburg Wilk


Frequently Asked Questions about Estate Planning, Succession Planning, and Probate

FAQ estate planning

Why is it important for a business owner to have an estate plan? 

  • Transfers the business owners' assets to family members
  • Provides a mechanism for the sale of the business if there are no family members interested in continuing the business
  • Helps avoid probate and
  • Depending on the value of the estate, a plan may significantly reduce estate taxes.

Is a Will enough for someone with a business?

A business owner should have more than a Will as it only provides guidance as to who will receive assets, including the business, but won't avoid probate or help the business owner save estate taxes.

How can a business owner save estate taxes?

The estate tax system is confusing and we expect that the laws will be changing under the new administration. In 2009, a married couple can have a combined estate of $7,000,000 and avoid estate tax in a properly structured estate. In 2010, there is no estate tax. In 2011, a married couple can have an estate of $2,000,000 and avoid estate tax in a properly structured estate.

How do you calculate the value of an estate for estate tax purposes?

Fair market value of all property is included in the estate as well as proceeds of life insurance and the value of retirement and pension plans. The value of the estate is then reduced by liabilities.

What if the estate isn't large enough to trigger estate taxes?

Use a trust instead of a Will as it helps maintain privacy upon death and avoid the expense of probate. If assets, including business assets, are transferred to a trust, upon death, they will pass to heirs without probate. If incapacitated a successor trustee will manage assets, so conservatorship proceedings are not needed. The trust benefits the creator during their lifetime.

If there are estate taxes, how do you provide for enough cash to pay the taxes without selling the business at a fire sale?

This is an important reason to do a well thought out estate plan. There are a variety of tools used to protect the business and provide cash for estate tax payment.

There are two business owners who each own 50% of the business, what happens if one of them dies?

A buy-sell agreement provides for a buy-out of the ownership interest of the deceased shareholder. How a buy-sell is structured will depend on many factors unique to the situation. Many times, life insurance is utilized to fund the purchase.

What happens upon retirement or disability of one of the 50% business owners?

These cases can be very difficult. If the departing owner is a key employee, their services need to be replaced. Buy-sell agreements, with appropriate methods for determining the value of an owner's interest for a buy-out and, most importantly, how to fund the buy-out, are used.

Are life insurance proceeds income taxable?

Generally, life insurance is excluded, but if it is not structured correctly, the proceeds can be taxable income to the recipient. We recommend using an insurance agent.

These are such difficult economic times for business owners; can an estate plan help a business owner be protected from creditor's claims?

No. Asset protection is different from estate planning, however it can be done in conjunction with an estate plan. Certain entities can provide business owners with better protection against claims from personal as well as business creditors. One method is to structure entities as part of a gifting program.

Why is this a good time for someone with a larger estate to do an estate plan?

We anticipate that asset values will increase in the future. If a gifting program is combined with an estate plan, using today's lower values, future appreciation can be removed from an estate to help minimize future estate taxes.

This process sounds like it can get complicated; where does someone start?

Always start with the basics, which is a trust. A trust does not have to be overly complicated. It can range from standard to customized, depending on the personal circumstances. Many people procrastinate starting their estate plan, because they don't want to confront the subject of their eventual demise. Estate plans, health care directives and a power of attorney will help your family and business through an emotional and difficult time.

About the author: Beth Cohn is an Arizona attorney, a board certified specialist in tax law and a CPA. She is the head of the business group of the Phoenix law firm of Jaburg & Wilk.