Estate Planning for Business OwnersMidwest Trust and Wealth Management Conference

Overview of Presentation• Define the scope and perspective of the

presentation• Discuss how to educate and articulate the need

for estate planning• Explain various ways to collaborate throughout

the planning process• Cover how to help maintain the estate plan• Finish with trends and hot topics

Scope and Perspective• Will not be discussing “how” to structure or

draft an estate plan• Will be talking about how to be a vital part of

the planning process• Focus on ways to demonstrate you care for

the business owner client

• Earn trust with the client

• Dedicate yourself to solving their problems

• Find ways to “serve” the client

Scope and Perspective

A MUST READ David H. Maister and Charles H. Green

• Will talk about clients who own companies valued at $10 million or less (“small business”)

• Have retirement accounts (401(k) plan and IRAs)

• Likely have a cottage or cabin in addition to their principal residence

• Are married (could be first or subsequent marriage) and have children (potentially a blended family)

Scope and Perspective

Case Study

Tim Allen and Jane Hajduk

Case Study• Tim has a construction

company in Detroit called “Tool Time”

• Have two children (one with Jane and one from a previous marriage)

• Have a house in Northville, cottage in Glen Arbor, and $2 million in retirement accounts

Educating about the Need• Identify what is important to Tim and Jane• Is Jane worried about what she will have to live

on if Tim passes unexpectedly?• Do they want to avoid paying Uncle Sam?• Are they worried about their estate being tied up

in a “public” probate process?• Does Tim care about his employees and the

impact his company has in the community?

Educating about the Need• Have Tim or Jane’s parents had health issues?• Has a business owner who is in a similar situation

to Tim had health issues?• Are Tim and Jane going on vacation soon?

Educating about the Process• Be able to generally describe the estate

planning process to Tim and Jane• Describe the approximate time commitment

and find out a range for the cost• Be able to make the referral to an estate

planning attorney in the Detroit area• Wealth planners would have a more extensive

role than this

Collaborating through the Process• Tim is not an organized businessman• Help Tim and Jane by gathering information

for the planning process• This includes: goals, information on their

children, asset ownership and values, income and retirement needs, and tax information for them personally and the business

• Very likely that you have similar information from your investment and other planning

Collaborating throughout the Process• Show you care about the process by offering to

attend the first estate planning meeting• If appropriate, be ready to offer insights that Tim

and Jane forget to talk about• Listen to what options are presented and

comment on your experience with the planning• Give your perspective on issues like: titling,

naming beneficiaries, and the administration process,

Collaborating throughout the Process• Assist in gathering beneficiary forms• Determine how you can help retitle assets• Run investment and tax projections• Help in developing “visuals” for the more

complicated aspects of the planning• Explore whether life insurance, long term care

insurance, or other products are appropriate

Collaborating throughout the Process• Review buy-sell agreements to determine

triggering events • Determine the buy-out terms and what options

there are to fund it (life and disability insurance) • Analyze the consequences of any life insurance

on estate tax liability• Determine if the entity interest can be transferred

to the particular trust that is being established

Collaborating throughout the Process• Determine if asset protection is important to the

business owner client• Analyze the current ownership of assets (i.e.

what protection “already” exists)• Review potential “inside” and “outside” creditor

exposures• What options are available to provide additional

protection

Collaborating throughout the Process• Have philanthropic goals

to keep their charitable bequest in Southeast Michigan

• Offer to connect Tim and Jane with the Community Foundation about establishing a donor advised fund

Collaborating throughout the Process• Jane is concerned about

what would happen to “Tool Time” if Tim unexpected passed away

• Talk with him about a “business advisory board” (Al, Pamela, and Tim’s CPA) to stabilize and likely sell the company

Collaborating throughout the Process• Jane is concerned about

unexpectedly passing and Tim remarrying (i.e. he leaves everything to Debbie)

• Talk with them about a post-nuptial agreement limiting Tim’s right to amend his trust

Collaborating throughout the Process• Tim is also concerned about

Jane being 13 years younger and passing unexpectedly (i.e. marries and leaves out his first daughter)

• Talk with them about a QTIP trust and investment options to generate enough income for Jane

Collaborating throughout the Process• The Glen Arbor cottage

is very important to Tim and Jane

• Talk with them about whether it is feasible for “their” child and Tim’s other daughter to own it together and share the expenses

Collaborating throughout the Process• Offer to review a draft of the estate planning

documents • Would be particularly appropriate for trust

officers and wealth planners• However, a financial advisor could give Tim and

Jane “peace of mind” by offering to do this because they will likely not have a longstanding relationship with the estate planning attorney

Collaborating throughout the Process• Assist with retitling of assets and naming

beneficiaries (or have other team members at the bank help in that process)

• Consider assisting with other assets to show you care about the “big picture” and helping Tim and Jane with the overall process

Maintaining the Estate Plan• Estate planning for business owners can

oftentimes include gifting strategies (which require annual gifts)

• The planning will vary in large part based on the purpose of the gifts

• This could include: minimizing estate taxes, allowing children to benefit currently for a client’s wealth, charitable goals, succession planning, etc.

Maintaining the Estate Plan• Tim and Jane will need this planning for “Tool

Time” because it is growing 30%/year and their net worth is over $10.86 million

• They also want to gift to their donor advised fund at the Community Foundation

• This planning will include coordinating: valuations, gifting stock, gift tax returns, and having children sign legal documents

Trends and Hot Topics• Business owners are establishing advisory

boards• The primary purpose is to provide expertise

that the company does not have internally and to provide more accountability

• As mentioned previously, these boards can be an important part of transition planning if the business owner is not able to run the company

Trends and Hot Topics• Business owners may be able to simplify their

planning by having one “joint” trust (as opposed to separate trusts for the husband and wife)

• This also offers income tax benefits (a “second” step-up in basis) and ease of funding the trust and administration

• A joint trust is not appropriate for Tim and Jane due to the second marriage and their higher net worth

Trends and Hot Topics• Separate A-B trusts offer important estate tax

benefits• However, “family” or credit shelter trusts have

a disadvantage with those assets not being able to get a “second” step-up in basis

• This issue is important as assets have had significant appreciation post-financial crisis

• Estate planners are incorporating this into the structure of the planning

Trends and Hot Topics• The population is experiencing higher rates of

cognitive diseases (i.e. Alzheimer’s and dementia)

• This is also occurring to business owners• Business owners often have more illiquid

assets (operating business and/or real estate) so this creates challenges with paying for expensive assisted living and nursing home costs

Trends and Hot Topics• Divorce continues to be very prevalent in our

society• The threat of a lawsuit or life/business

circumstances changing unexpectedly leading to exposures to liability is also very real

• Business owner clients often want to protect their children’s inheritance from these risks

• This can be achieved through dynasty trusts

Trends and Hot Topics• As baby boomers age (including Tim Allen),

they will need to exit plans• Many companies are “family” businesses and

their owners have a desire to transition them to the next generation

• Succession planning is a very multi-faceted planning process and requires a collaborative effort among advisors

Trends and Hot Topics• For those baby boomers who do not have a

“family” business, they need to be able to sell their companies

• Since balance sheets of companies have recovered from the financial crisis, there has been a significant amount of mergers and acquisitions in the last couple of years

• Advisers should be thinking about planning opportunities for business owner clients

Trends and Hot Topics• Business owners (including Tim Allen) have

cottages and their families have enjoyed them over the years

• They want their children to be able to continue those experiences

• One of the most significant barriers is affordability and property taxes

• Michigan law has more options now to cost effectively transfer cottages to children

• Hopefully, you will not have to say this too often to your clients

• Also, I hope these planning “tools” will be helpful to you and your clients

P. Haans Mulder, J.D. M.S.T., CFP® Cunningham Dalman, P.C.321 Settlers RoadHolland, MI 49423(616) 392-1821phmulder@holland-law.com

Questions….