Estate Planning Tips

Planning. It’s an important part of nearly everything we do in life. And if we’re smart, it will be a part of what we do before we die.

Planning for your eventual death means finding answers to such questions as:

  • How can you reduce your estate tax liability and avoid the costs, delays and publicity of probate?
  • How can you help ensure that your assets will be distributed according to your wishes?
  • Who should make financial and medical decisions in the event you become incapacitated?

Answering these kinds of questions beforehand is more than just being considerate—it’s also important to the people who depend on you: your family, your employees and your customers.

By making plans before you die, you can help ensure that your business, your assets, and the people who are important to you, are protected. And isn’t that how it should be?

Wills and Trusts

Wills and trusts are two of the most popular estate planning tools. Both allow you to spell out how and to whom you want your property distributed, but both can also go well beyond that.

A properly drawn will can allow you to determine how your property will be distributed, and can give you the opportunity to select an individual who will oversee that your wishes are carried out—your executor. Through your will, you can also name a guardian for your minor children. If you die without a valid will, or if you fail to make such designations through your will, the decision will probably be left to the courts. Bear in mind that property distributed through your will is subject to probate, which can be costly and time-consuming. What’s more, probate is public process. That means anyone, even if they aren’t related to you, can see how and to whom you left your estate.

Trusts differ from wills in that they are actual, legal entities. Like wills, trusts spell out how you want your property distributed. But trusts go a bit farther, letting you decide not just how, but when and in what form, your estate is distributed. Trusts also give you the added advantages of professional property management and avoidance of probate.

Wills and trusts are not mutually exclusive. While not everyone with a will needs a trust, individuals with a trust should almost always have a will.

Durable Power of Attorney

Incapacity brought on by sickness or age can pose as big a threat to your financial well being as death. Fortunately, there are tools that can help you deal with this threat.

A durable power of attorney is a legal agreement that enables you to designate who will make any legal and/or financial decisions affecting your finances should you become incapacitated. Unlike a standard power of attorney, a durable power of attorney remains valid even if you become incapacitated.

Health Care Proxies and Living Wills

Similar to a durable power of attorney, a health care proxy is a document that can allow you to designate someone who is authorized to make health care decisions on your behalf, again, should you become incapacitated. The person you designate can generally make decisions regarding medical facilities, medical treatments, surgery, and a variety of other health care issues. Much like a durable power of attorney, a health care proxy involves some important decision making. Take the utmost care when choosing someone to give this kind of authorization.

A related document, a living will, spells out the kinds of life-sustaining treatment you will (or as important, will not) permit in the event of your incapacity. The decision for or against life support is one that only you can make. That decision alone makes the living will a valuable estate planning tool. And you may use a living will in conjunction with a durable health care power of attorney.

Final Thoughts

Without proper planning, estate taxes and medical expenses could consume a substantial portion of everything you own. If you’ve been putting off this important planning until “time permits”, consider making the time now. You, and everyone who depends upon you, will be glad you did.

Estate Planning Tips

Keep all of your important financial and legal information in a central file for your executor. Be sure to include:

  • Letters of last instruction
  • Medical records
  • Bank/brokerage statements
  • Income and gift tax returns
  • Insurance policies
  • Titles and deeds
  • Wills and trust documents

Laws will vary from state to state. Please consult your tax advisor or financial advisor regarding your particular situation.

This information is for educational purposes and should not be considered specific financial, tax or legal advice. Always consult with a qualified advisor regarding your individual circumstances.

Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

Content prepared by Penn Mutual.

2316705JV_Nov20

©2018 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172 www.pennmutual.com


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  • Next up: How to Build Your Business's Financial Gameplan
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  • How to Build Your Business's Financial Gameplan

    With all of the day-to-day business operations entrepreneurs are faced with—product development, human resources issues, and business development to name just a few—it might be easy to lose track of a business’s balance sheet strategy.

    With all of the day-to-day business operations entrepreneurs are faced with—product development, human resources issues, and business development to name just a few—it might be easy to lose track of a business’s balance sheet strategy.

    “A lot of small business owners don’t understand their business’s costs,” says Brian Alquist, president of business consultancy 1Direction, Inc., in Brecksville. “Consequently, they’re really just focused in on the cash they have at the end of the month.”

    But operating a business requires a much more comprehensive plan than just focusing on what’s left over when the month comes to a close, experts say. It requires detailed thought around the best way to think about setting financial goals and KPIs, access to capital, accounting best practices and more.

    ‘Build backwards’

    One of the first things an owner needs to do is settle on what the organization’s goals are, says Michael Foss of Foss Business Solutions in Lyndhurst.

    “Build backwards,” he advises. “What are our current expenses? How do I want to grow? What do I need to do to achieve that?” Once those questions are answered, the business owner will begin to be able to form a clear picture of the sales (and gross profit margin) the business needs to obtain to achieve those goals.

    This is where understanding your cash flow comes in, says Rion Safier of Rion Safier Accounting LLC in Beachwood. For a small business, cash flow is king and the company’s budget and cash flow forecast

    “There are companies that don’t have an accounting infrastructure and the business owner is just flying by the seat of their pants and using their bank balance as one of their key drivers,” he says. “That’s not a good way of looking at it. What if your receivables are delayed? Your cash might be depleted. Only looking at the cash balance is not an indicator of the health of a company.”

    Measure effectively

    What businesses should be paying attention to is working capital, or the capital a business uses in its day-to-day operations and calculated as current assets minus current liabilities, Alquist says.

    “That tells me how well they’re really managing the financial aspect of their business on a day-to-day basis,” he says. “If the company has some level of capital invested in the business, I would also look at the ratio of depreciation to expenses. That tells me if they are investing or reinvesting in the business.”

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  • Next up: Is it time to look for a CFO for your business?
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  • Is it time to look for a CFO for your business?


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  • Next up: Low-Rate Lending Options for Small Businesses
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  • Low-Rate Lending Options for Small Businesses

    Microloans and the Community Advantage Program are two ways you can potentially save on interest payments.

    You got through the holidays and made it back to your business.  Congratulations!  Now it’s time to give your business a gift by lowering your interest rates. The coldest months are a good time to hunker down and analyze how to squeeze more profitability out of your income statement. Reducing interest expense is probably the least painful way to do so.

    According to a study by the U.S. Small Business Administration Office of Advocacy, only 12% of businesses use a business loan for capital when they are starting out. Business and personal credit cards account for almost twice as much of entrepreneurs’ starting capital.  That’s a little surprising because most savvy business owners are aware that carrying balances on credit cards results in interest rates well over 16% these days, according to bankrate.com. Some “fintech” solutions may have effective interest rates that are even higher. The fintech industry includes names like OnDeck and Kabbage.

    Credit cards and fintech loans are easy and fast, and entrepreneurs love that combination. For many entrepreneurs, ease and speed are worth the extra expense, until they start adding up the cost. 

    Here are some options that might work for you.

    Microloans

    The SBA offers microloans to borrowers who, for whatever reason, cannot qualify for regular bank financing. When an entrepreneur gets started by running up credit card balances, it may adversely affect the personal credit score of the owner, a double hit because it locks out the entrepreneur from many typical routes of refinancing.  Enter the microloan.

    “Taking out too many credit cards will reduce personal credit scores and make it even more difficult for a traditional lender to offer a loan,” says Patty Ajdukiewicz, relationship manager for the Economic and Community Development Institute.

    The Economic and Community Development Institute (ECDI) provides SBA microloans to qualified individuals who can meet certain basic eligibility requirements and show repayment ability. Microloan rates range from 9% to 12%. That is more expensive than a traditional bank loan, but a fraction of the costs of credit cards and fintech.

    Ajdukiewicz notes entrepreneurs should anticipate having to pledge all available collateral when they refinance a credit card loan. While a credit card may leave fixed assets unencumbered, the lender is compensated for that lack of collateral with a high rate. An ECDI Microloan could cut the interest rate in half, but you should anticipate a lien against your business assets, and perhaps personal assets as well.

    Community advantage

    For slightly larger transactions, Growth Capital Corporation’s Community Advantage program is also available.

    “I’ve got one now that we’re approving today. They’re 13 years old and have revenues of $1.3 million.  They have over $100,000 in credit card debt. Thirteen years and they have never gotten good advice,” says Kate Kerr, program director.  She adds that most of the clients she works with have one or two credit cards, perhaps to take advantage of refund points or free travel. But some companies might end up with dozens of cards, and the debt load quickly becomes unmanageable. 

    A key difference between responsible term loans and credit card debt is the ease with which the transaction is completed. Credit cards are the easy path, but you pay for the convenience. Expect a much higher degree of due diligence from a lender like Kerr. The rate is much lower, but you must have your financial statements in order. 

    For example, businesses need to have their tax returns filed so that the loan can be underwritten, Kerr says. Your accountant may have the ability to get you an extension on your taxes, but if you’re in the process of applying for a loan, that is actually not at all helpful.  SBA-backed loans such as Community Advantage or microloan typically need financial statements current within 120 days of application.

    You can also refinance high-rate loans through most traditional banks. SBA’s loan guarantee programs are available to assist any participating lender, if there is not sufficient capital or time in business to justify a conventional loan. 

    If you must use fast credit, use the business name

    When the outstanding debt is in the name of the business, it is easier for a bank to refinance the higher rate debt. SBA only asks that the bank obtain the applicant’s certification that the debt incurred was exclusively for business purposes.  If the balance includes personal expenses as well, these amounts must be excluded.

    When the outstanding debt is in the name of the individual owner, it is much more difficult. Lenders must document the specific business purpose of the credit card debt and the applicant must certify that the loan proceeds are being used only to refinance business expenses. Documentation required will include a copy of the credit card statements and individual receipts of any expenses in excess of $250.

    If you must start your business on a credit card, at least try to get a card that is in the business name.  That will make a future refinance request much easier for the lender to process.

    Ray Graves works in lender relations in the SBA’s Cleveland office.

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  • Next up: New Audit Rules for Partnerships, LLCs Taxed as Partnerships
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  • New Audit Rules for Partnerships, LLCs Taxed as Partnerships

    New rules have been introduced governing the auditing of auditing partnerships and LLCs that are taxed as partnerships. Here's what you need to know.

    The Bipartisan Budget Act of 2015 (the “BBA”), which implements new rules for auditing partnerships and LLCs taxed as partnerships (1) went into effect in January 2018. Under the new BBA procedures, if selected for an audit, any adjustment for a partnership tax year is determined at the partnership level. If the adjustment results in an underpayment of tax, the IRS will assess and collect the imputed underpayment, interest and penalties from the partnershipnot from the individual partners, and the payment will be determined using the highest individual or corporate rate of tax.

    While any IRS adjustments will relate to the tax year reviewed, the imputed underpayment will be assessed in the adjustment year when the audit is completed. As a result, the remaining (or new) partners during the adjustment year may bear the underpayment liability, not the individuals who were partners during the reviewed tax year. The BBA allows partnerships to annually opt out of the BBA audit procedures. 

    This can be accomplished by making an annual opt-out election on a timely-filed partnership tax return. Because the partnership’s decision to elect out of the audit regime will be subject to IRS review, partners should consider including opt-out provisions within the tax matters provisions of their partnership or LLC operating agreements.

    In addition, every partnership subject to the BBA audit procedures will have a “partnership representative” for years beginning Jan. 1, 2018. A partnership representative has increased authority, as compared to the designation of the “tax matters partner” under the old regime. For instance, a partnership representative has the exclusive authority to represent a partnership during a tax audit and negotiate a settlement with the IRS.  

    The IRS has the right to designate the partnership representative if the partnership fails to do so in advance. Accordingly, it is advisable to update the tax matters provisions of the partners’ agreement to include the necessary designation.

    With the recent changes in tax laws effecting partnerships (including LLCs taxed as partnerships), business owners should consult with their tax advisors and legal counsel with respect to amending their partnership or LLC operating agreements.

    [1] Single-member LLCs and LLCs that have elected to be taxed as S-Corporations are not impacted by this change.

    This article is meant to be utilized as a general guideline for IRS rules for partnerships. Nothing in this blog is intended to create an attorney-client relationship or to provide legal advice on which you should rely without talking to your own retained attorney first.  If you have questions about your particular legal situation, you should contact a legal professional.

    Alex and the attorneys of The Gertsburg Law Firm now offer Cover My Six, a one-stop legal audit for your business, led by award-winning litigators and in-house counsel. CM6 minimizes your exposure to lawsuits, investigations, disgruntled employees and customers, and all the damage that comes with them. Visit www.covermysix.com to learn more about how to protect your business from lawsuits with this brand-new service.


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  • Next up: Online Lending: 3 Perspectives from the Cleveland Fed
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  • Online Lending: 3 Perspectives from the Cleveland Fed

    In a recent report, The Federal Reserve Board and Federal Reserve Bank of Cleveland gauged the perception and understanding small business owners have of online lenders. Read on below for a summary of what the report found.

    The Federal Reserve Board and the Federal Reserve Bank of Cleveland recently published “Browsing to Borrow: “Mom & Pop” Small Business Perspectives on Online Lenders.” The study follows the release of a 2015 report, Alternative Lending through the Eyes of “Mom & Pop” Small-Business Owners: Findings from Online Focus Groups.

    The report aims to gauge small business owners’ perceptions of online lenders, as well as their understanding and interpretation of the information that online lenders use to describe their credit products.

    There were three key takeaways from this study:

    Takeaway No. 1: Many participants were familiar with online lending. Most were familiar with at least one or two lenders on a list of the more prominent firms. Some had positive views of online lenders, the bulk of participants had negative thoughts about the industry. These negative impressions appear to be based, in part, on sales calls from lenders or brokers and frequent email and mail solicitations.

    Takeaway No. 2: Participants want to see websites with detailed product information: They want details about products and their costs, because the more info the better. When websites made you enter contact information before they provided information, users felt skeptical.

    Takeaway No. 3: Participants found sample online products confusing. Participants were given three sample online products, and they found the descriptions difficult to understand because of the lack of details. When features such as interest rate, payment amount, fees, etc., were displayed in an orderly manner, participants were pleased.

    Opportunity for online lenders?

    Nearly all participants agreed in their want for clear disclosure of product costs and terms, and the findings suggest that improved disclosures could benefit both lenders and borrowers. This presents an opportunity for online lenders to earn customers’ trust and grow their customer base. Borrowers could evaluate competing products based not only on the costs and features offered, but also the degree to which the lender is up front about important details.

    Click here to read the full report.

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