Estate planning is an important part of financial strategy for both individuals and businesses. By establishing a plan for what is to happen with assets and property after a person dies, we are able to maximize wealth and reduce stress for family members and business partners. Estate planning is the process of legally documenting what should happen to assets once a person’s life ends. When done correctly by a qualified professional, taxes, legal fees and court costs are minimal, therefore, maximizing the wealth that is passed forward. Your estate plan should be a living document that gets updated regularly to reflect the changes in your life and the changes in your business.
For individuals, estate planning includes:
The wealth of many small business owners is directly tied into their business. Likely, the ability to pass on wealth from the business is dependent on a succession plan. This means the business must either be passed down or sold, and the methodology for doing so should be fully explored in an estate plan. For small businesses owners, estate planning includes:
Medium to large businesses have a unique set of circumstances making it necessary to plan for how the business will continue to thrive in the event that a partner or owner dies. Failing to plan for this possibility is a huge financial risk. For medium to large business owners, estate planning should include:
The amount of wealth an individual or business has drives estate planning. An estate is essentially the sum of all of the assets a person owns before their death. This includes:
If there is no plan to handle these assets upon a person’s death, the laws of the state determine how the assets will be handled and distributed. If not outlined, this distribution may be drastically different than what a person would have wanted. Furthermore, the cost of going through probate and not planning well for estate and income taxes can significantly decrease the amount of wealth that is passed on. Should one or more of the heirs contest the distribution, the process to pass on an estate can take years and the size of the estate may dwindled due to legal fees. Having an estate plan in place eliminates theses risks.
Although there are a number of tools that can help an individual think about what they want for their estate, the implementation of that plan is best left to professionals. While a self-created plan may be suitable for simple estates, they are not equipped to deal with more complicated issues, such as succession planning, estate taxes and income taxes. Increasing this risk is the fact that errors on estate planning documents can render them invalid, thereby creating a situation where an estate will need to go through probate. In order to minimize expenses, an estate plan must consider ever evolving laws and tax codes, a process that is best done and monitored by a professional.
Finding the right professional to help with estate planning is an integral part of the planning process. It is important to find certified professionals with years of experience in estate planning. In addition to the technical aspect of estate planning, you should feel comfortable with the professional you select and feel as though they fully understand your specific needs before creating a plan. Often, a CPA firm is best equipped to handle estate planning. A firm eliminates the risk of dealing with only one person. Furthermore, a CPA firm with estate planning experience will have the depth of knowledge to look at the estate plan from a number of perspectives to ensure the plan is comprehensive and addresses all necessary items. When looking for an estate planning professional, be sure to consider the following:
The financial firm you choose will play an important role in passing wealth down to your heirs, so it is important that you not only find a firm that offers everything you seek, but that you also feel comfortable throughout the entire process.