An estate plan can encompass many
different financial and personal
details. Such a plan may seem overwhelming to individuals who may not
know how to approach the task of developing it. Business owners are so
entrenched in their day-to-day operations
that they may put the plan on the back
burner, says Douglas Price, vice president
and client adviser with FirstMerit Bank.
It is important to know that the estate
plan does not have to be perfect from the
beginning because the client’s circumstances are always changing. A business
owner’s assets and goals will evolve and
develop as a business continues to grow.
That means the estate plan will have to
change as well, says Price. The important
thing is to begin a process with a financial
consultant with whom you are comfortable and build from there.
Smart Business spoke with Price about
estate and succession planning and the
importance of developing a plan with the
appropriate team.
Does everyone need an estate plan?
Everyone, not just business owners,
should develop a plan for the future. Tax
and financial issues are important to any
business or personal plan, but the nontax
issues are crucial and may be avoided
because of the family and emotions
involved.
The goal for a business owner is to develop a business plan that meets the current
goals of the company and a succession
plan that will one day leave the business in
the hands of those people who can continue on the legacy that he or she has worked
to create.
It is important to identify what aspects of
the business plan are crucial to the success
of the business and goals for the succession of the company. A well-developed
estate plan includes a succession plan that
ensures a smooth transition when the
owner is ready to give up his or her part of
the business.
The estate plan also ensures all legal documents are accurate for either business or
personal plans. With documents such as a
power of attorney, individuals can choose the person or institution to make decisions
on their behalf if they are incapacitated for
any reason.
Should estate planning be part of a business
financial plan or a personal financial plan?
The distinction between personal assets
and business assets may be a gray area to
some business owners. The plan should be
looked at as a whole because often the
business is an owner’s largest personal
asset. To look at the overall picture, the
proper advisers should be brought in to
make decisions. A team of advisers should
consist of those who will compliment one
another and work together toward the
goals of the business owner in both personal and business plans.
The team should consist of an estate-planning attorney, a CPA, the insurance
provider and an individual familiar with the
owner’s financial assets. This team should
learn to communicate well and should
meet whenever there is a significant event
in the business owner’s life or every five
years. The business owner should provide
all the necessary documentation in order
to receive the most specific and useful
information possible from his or her team.
When should an estate plan be developed?
It is never too early to create a road map.
A business owner is going to have certain
business objectives from the onset. As
soon as the goals of the business are
defined, an estate plan and succession plan
should be developed to continue the business after the founding member of the
business leaves or retires. For personal
assets, there is no time like the present to
define your plan.
Without an estate plan and succession
plan, there may be unnecessary tension
between family members or business partners. If there is an unexpected tragedy and
the current owner cannot continue to run
the business, a succession plan would have
the desired chain of command defined.
Without this preparation, the business may
not continue on in a profitable manner or
may not be sold for profit. This could be
devastating to the legacy of the business as
well as the financial future of loved ones.
How does charitable giving fit in to an estate
plan?
Around 70 percent of people give to a
charity during their lifetime. Only 10 percent of people give to a charity in their will
or their trust. There are a lot of feel-good
reasons people give to a charity. It can help
leave a legacy of your family. There are also
tax benefits both current and into the
future that one can receive.
Advisers should ask individuals in the
planning stages the importance of charitable giving in their life and overall plan. If
they are contributing annually, they may
want to plan to provide a lump sum after
they are gone. The lump sum could be
invested into a charity’s endowment, if one
is available, to keep giving in perpetuity.
This kind of giving can be set up in an
estate plan.
DOUGLAS PRICE is vice president and client adviser with
FirstMerit Bank. Reach him at [email protected] or
(216) 694-5671.
