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@example.com or (216) 694-5671.