The succession plan for many owners of closely held businesses is a sale. So often, the due diligence period with a buyer will reveal issues that thwart or delay sales and result in higher transactional costs. In order to minimize the potential for such a result and have a successful sale, owners should proactively do a little spring cleaning before engaging with a buyer. These steps may include:
1. Consider tax and estate planning initiatives to minimize the tax impact of a sale and further the goals of your estate plan.
2. Conduct a self-audit of your human resources, tax and environmental (as applicable) compliance.
3. Assess the level to which you have secured the most valuable assets of your company whether that be key personnel through restrictive covenants or trademark, copyright and patent rights and whether additional efforts will increase value.
4. Evaluate the best approach to maximize value and position a sale – whether that be an asset or a stock sale.
As with preparing for any major transition, assemble a strong professional team to guide you through the process.
Planning
- Yasmeen S. Khaleel, Esq.
- Estates, Planning, Trusts, Estates and Succession
- Yasmeen S. Khaleel, Esq.
- Estates, Planning, Trusts, Estates and Succession
Life is full of transitions and the actions taken to prepare for such transitions. Parents spend time and money preparing for the transition of a child from infant to a toddler. We winterize our cars and our homes; preparing for the changes in seasons. And as our kids grow older and leave the nest, we transition from full-time parents into “empty nesters.” There are other transitions; inevitable ones which we often do not spend nearly enough time preparing for. This and the following two blog posts will address some of these transitions and provide, if nothing else, some good conversation starters for you and your loved ones.
This blog will address the transition of relevant information to allow for the proper care of your person and assets.
The second blog will address the transition from a single family/individual residential setting to a continuing care retirement community or other form of assisted living arrangement; whether facility based or with family.
The final blog in this series will address preparation for your final transition and the preparation of your loved ones to comply with your wishes.
Insofar as the transition of your relevant information, this is particularly important if you should experience a period of illness or disability resulting in your inability to manage your own personal financial affairs. Thereafter, upon your death, the proper transition of information can facilitate the administration of your estate, minimize delays and help avoid the potential for lost assets.
The methodology can vary from person to person and practitioner to practitioner, but many utilize a document called a “letter of instruction.” These are forms you can complete to facilitate this process, the goal being the creation of a blueprint for your loved ones to direct them to the most salient information. This will assist them in the prudent management of any medical issues and implementation of appropriate treatment plans, the orderly management of your assets and the proper payment of your liabilities.
- Capehart Scatchard
- Estates, Planning, Retirement Assets, Trusts, Estates and Succession
A few years ago, the Required Minimum Distribution (RMD) rule changed from requiring distributions at the age of 70-1/2 to 72 years. Life expectancies are increasing (sans Covid) and the Consolidated Appropriations Act of 2023 has extended the starting age for RMDs to the age of 73 for those who turn 72 after December 31, 2022. If you turn 72 in 2023, you can now delay the withdrawal until the tax year for 2024.
Looking to the future, if someone turns 74 in years 2033 or later, the beginning withdrawal age goes to 75 years.
But, do not despair and think that you must wait to withdraw from your retirement assets. Once you reach 59-1/2 years, there is no penalty/surcharge for early withdrawal and these assets are available to you.
Remember that prior laws have changed the time one has to withdraw from retirement-type assets they receive as a beneficiary to a maximum of ten (10) years, with a few exceptions. These withdrawal requirements are separate from a retirement asset you own and have access to during your lifetime.
It is likely that any withdrawals, whether from your own retirement assets or from retirement assets you inherited, will be subject to income tax (except for Roth IRAs) and you will need to provide for the additional income being reported on your income tax returns so that you will not be subject to underpayment penalties and/or interest, which can add up quickly.
If you need assistance with the decision of when and how to receive your RMDs, speak with your financial advisor or the plan administrator/financial institution. Don’t think that the distributions will automatically begin when you reach the “magic” age, for there will always be paperwork to be completed!
- Capehart Scatchard
- Estates, Planning, Trusts, Estates and Succession
Your spouse has passed – what do you need to do?
Many times, there may be very little for you, as the surviving spouse, to do after the funeral. However, everyone is different and what your relative or neighbor may have experienced is not what is true for your situation.
The list below is but only a few thoughts for you to consider, but remember it is not exclusive and should not be relied upon for being legal advice – only for you to consider. The best advice is to contact your attorney for definitive actions to be taken.
- If you and your spouse owned assets jointly, most likely they were owned as tenants by the entireties – upon the death of one, the surviving spouse owns the entire asset. What action might be necessary to remove the deceased spouse’s name from the asset?
- However, there are other forms of ownership – tenants in common – in which each spouse owned one-half of the asset and upon a spouse’s death, their one-half interest is considered a probate asset and does not necessarily pass to the surviving spouse.
- If the deceased spouse owned assets jointly with someone other than the surviving spouse, be aware that the asset most likely passes by operation of law to the surviving owner. Determination must be made to determine ownership.
- What assets were owned by your spouse either individually, jointly or with a beneficiary designation? Some or all of the assets could be subject to estate tax – inheritance or estate tax.
- Does the deceased spouse’s Will need to be probated? The best answer comes only after speaking with an attorney.
- Social Security was most likely notified by the funeral director of the death but the surviving spouse needs to follow up with the SSA for determination of future benefits.
- Was the deceased spouse receiving benefits from a retirement-type plan or a former employer?
- Do you need to address medical insurance coverage?
- Is it necessary to prepare and file a state inheritance tax return?
- Is it advisable or necessary to prepare and file a federal estate tax return – especially to preserve the unused spousal federal estate tax exemption?
- What is the impact on your individual income tax returns?
- Does the surviving spouse need to update their estate planning documents?
Frequently upon the death of a spouse, the surviving spouse will visit a financial institution to notify them of the death. As the surviving spouse, you want to make certain that someone can help you in the event of your inability to handle your own affairs. When visiting the financial institution, it may be recommended that you add your child on the account. BEWARE: If you add your child as a joint owner, your assets could become subject to your child’s creditors. Is this your intention? OR, is it your intention to only grant permission for your child to have signatory permission on the account – but not be an owner? Has the financial institution recommended that you put a beneficiary designation on the asset(s)?
There is no one answer that fits all circumstances. Before you do anything with the financial institution, make certain that your wishes are being carried out. Often times financial institutions advise surviving spouses to put a child’s name on their account. And, what happens is that the child is made a joint owner and only discovered after the fact. And, sometimes when it is too late to protect the asset.
Your best bet is to contact an attorney for consulting on what the best direction is for your situation.
- Capehart Scatchard
- Estates, Planning, Trusts, Estates and Succession
As we move through the new year, we may have made resolutions, created a To Do list, or just have mentally thought about different things that might need attention. Regardless of your method, one very important item that you should give priority to is to address your estate planning and to determine if it needs to be updated. Or in some cases be prepared, as you don’t have any documents in place.
You may think that even if you have done your estate planning in the past that you needn’t think further about it, you are so wrong. Situations change in your life as well as in the lives of your beneficiaries. Illness, creditor issues, marital situations, disability, death – just to name a few. Tax laws change. Any one of these can have an impact on your estate planning.
Here are some thought-provoking questions for you to ponder:
- If your spouse has died since you prepared your estate planning, have you reviewed your documents to make certain that you are covered with fiduciary – executor, power of attorney and living will/health care directive agents – appointments?
- Are any of your beneficiaries experiencing creditor issues that you may want to protect any potential inheritance?
- Are any of your beneficiaries having marital difficulties? Even if they are in solid marriages, do you have specific feelings as to whether you would want the beneficiary’s spouse to benefit or would you prefer to ensure that the next generation benefit. For example, if you name your children as your beneficiaries but a child predeceases you, do you wish for your grandchildren to benefit or do you wish for your child-in-law to benefit?
- If any of your beneficiaries have stepchildren, do you wish for them to be considered a child? How about adopted children?
- If a potential beneficiary is disabled and receiving governmental benefits, special consideration should be given in your estate plan to ensure that the disabled beneficiary would not lose any governmental benefits they may be receiving.
- If your distributions are to be made to beneficiaries for whom inheritance tax may be assessed, who do you want to pay those inheritance taxes? Laws differ greatly by state.
- What is the impact between probate assets and non-probate assets (beneficiary designated assets/jointly owned assets) and your desired distribution?
- Depending on the size of your estate, might it be beneficial for you to engage in gifting of assets?
- If you are charitably inclined, based on the makeup of your wealth, are there options regarding charitable donations that could reduce your income taxes while you are living?
- If you have a child living with you who is providing care services, what are your thoughts about the child receiving compensation of some sort for their services? Do you need to have a care agreement in place?
More than anything, I caution you against using free forms found on the internet for estate planning purposes. Often times there may be discrepancies that you would not know about. A couple of examples are: Are they specific to your state of residence? Do they provide guidance on the necessary signature requirements and witness and notarial requirements? Have they addressed tax payments? Do they give you guidance on any specific situations for you or your estate (as mentioned above)?
Even if you think that your estate planning is simple, there is usually one little detail that can necessitate special attention that could have an impact.
Why not put your estate planning review (or preparation) on the same timing as preparing your income taxes? Why not get the burden of both off of your shoulders at the same time?
- Capehart Scatchard
- Estates, Planning, Trusts, Estates and Succession
October through December of each year is the open enrollment period for Medicare. Many people aged 65 and older are on auto-pilot and just continue with the plans they have in place without regard for investigating if there are other options that could be more beneficial.
First of all, Medicare is available when you attain the age of 65. In today’s world, many people over 65 are still working and may have benefits through their employer. But, even if you are covered by employer insurance, you must sign up for Medicare or risk being penalized for late enrollment.
Signing up for Medicare or looking at options can be very confusing. First, let us look at the different parts of Medicare: Part A covers hospital stays; Part B covers routine medical costs; Part C is a Medicaid Advantage Plan; and Part D is drug coverage (available as optional coverage).
Medicare Advantage Plans are not your standard Medicare and many people believe that the Advantage system offers a better portfolio of benefits and lower costs. Medicare Advantage plans are administered by private insurance companies while the standard Medicare is administered by the federal government. Medicare Advantage Plans are sold by insurance brokers who receive a commission for selling a plan. The coverage is based on specific areas – geographical, restricted to “in network” providers, include coverage for hospital, medical and, most likely, prescriptions as well as possibly extras such as vision, dental and hearing. However, Medicare Advantage Plans do not provide for services when you are out of your network. There is no coverage outside of the U.S., and no coverage to assist in the cost of your return to the U.S. for treatment.
Original Medicare covers hospitalizations, routine medical services – doctor visits, testing, etc. under Parts A and B. As mentioned above, if you wish to have prescription coverage under Part D, that is optional and available at an additional charge. You can obtain prescription coverage through outside insurance companies. You can add Medicare Supplement Insurance (Medigap) or you can use coverage from a former employer or union or Medicaid (if you qualify for the same). Under Original Medicare, you can use any doctor or hospital that takes Medicare anywhere in the U.S., even if traveling away from home.
So, what do you choose? Only you can be the judge of which plan you become a member of. There are various factors to be considered, including any existing health issues you may have experienced. Do your homework and investigate. Good luck in making the best choice for you. And, who said we don’t have options?
- Yasmeen S. Khaleel, Esq.
- Estates, Planning, Trusts, Estates and Succession
Planning for contingencies is typically one of our least favorite things to do. The onset of the pandemic changed that for many but still there are things we procrastinate with, such as planning for the later years in life. Many a client over the years has told me they simply can’t move out of their home because “their garage is packed to the rafters” or the “attic will take them years to clear out”.
Trouble is, you cannot plan for every possibility incident to aging. A sudden onset illness or health crisis can result in the immediate need to re-think your living arrangements. At that point, the decision-making might be out of your hands. If left in the hands of children or fiduciaries, those persons are left struggling with the question of what would you want. As among children, this can result in disagreements, ill-will and in the worst cases, legal disputes.
So, while I would never force someone to clean the attic or garage (except for maybe my own spouse), I would suggest that you ask yourself “what if” and make some decisions. To that end, the menu of alternatives is diverse. Every few miles you will see a senior living opportunity: over 55 communities, senior apartment complexes, assisted living and different care communities. When thinking about this, consider what you really want. Moreover, consider what options you can afford and what options your family may provide.
Some of the relevant issues that warrant contemplation in this scenario are:
- Do you want to go from one free-standing home to another in an over 55 community wherein you have to maintain the yard, roof and all that comes with home ownership?
- Is it better to rent?
- Could/should you move in with a child and would such move include an improvement to their residence to make your residency more palatable and comfortable for all?
- If you move in with a child, how does that impact your estate and the potential inheritance for your other children?
- What happens if you are hospitalized and need interim help for a period of time?
- Did your past service in the armed forces afford you any opportunities or was your tenure as a volunteer emergency worker sufficient to entitle you to a valuable benefit insofar as long term care costs are concerned?
Of all the residential settings outside of a family home for those dependent on others for care or who do not wish to depend on family to provide care, a continuing care retirement community is often a better solution. A CCRC offers a range of health care services for its residents, including sub-acute care which is often needed on an interim basis post illness or hospitalization as we age.
Moreover, a CCRC will typically provide quality residential and social opportunities to maintain a quality of life for the aging. With a CCRC, as a resident’s need for care increases, the services provided correspondingly increase.
Each one of us is different and unique. What worked for your neighbor, sibling or friend might not be a good fit for you. So, even if you procrastinate on cleaning the attic or garage and put off moving, at least consider what you would want for yourself and make a plan. That way, your family or fiduciaries are simply carrying out your wishes instead of arguing among themselves and possibly souring relations.
- Kay Sowa
- Estates, Planning, Trusts, Trusts, Estates and Succession
Are you on spouse number 2 or 3 and you have a retirement account? If so, there are certain things to keep in mind.
First of all, if you have had your estate planning completed by an estate planner or have a financial advisor/planner, you have most likely addressed this issue. But if you are not certain, be proactive and look into the issue as this area requires special considerations. Think about these scenarios:
- You and your present spouse (not your first spouse) may desire that each of your respective children benefit from the retirement funds you have accumulated.
- You may wish to benefit your current spouse from your retirement assets but don’t want to disinherit your children from a prior marriage/relationship.
- You have a former spouse listed as the beneficiary of your retirement account and have never changed the beneficiary designation to reflect the parties you wish to benefit.
Each of the three scenarios have their own considerations.
In situation 1 above, there may be federal laws in place that would prevent the distribution of your retirement assets to your children rather than to your current spouse. Certain types of plans have mandatory distribution clauses that go to the surviving spouse. If it is your desire to benefit respective spouse’s children, you must seek the guidance from your estate planner or financial advisor/planner as to whether there is a method to carry out this intent.
As for situation 2 above, a trust can most likely accomplish your desire to benefit your spouse for their lifetime with the remaining retirement assets passing to your children upon your spouse’s death. This is something that your estate planner can draft for you.
Finally, situation 3, in which if the proper steps are not taken before your passing, your former spouse just might inherit. Some states have laws that disinherit former spouses, but others do not afford that protection. Since this varies by state, you should make certain that you address this with your estate planner.
A proactive step you can take is to obtain a designation of beneficiary confirmation from the retirement plan administrator or, if it is an IRA, from the financial institution holding the account. This will enable you to confirm the beneficiary and determine if any changes are necessary. If you find that changes are in order and tackle the changes on your own, you should keep a copy of the new beneficiary designation you submit. If you submit the same by USPS, then send it by certified mail, return receipt requested. Regardless of how the beneficiary designation is submitted, do so in a way that you get a receipt for the submission. It is also advisable that you ask for confirmation of the change of beneficiary to be placed in your records.
- Kay Sowa
- Estates, Planning, Taxes, Trusts, Estates and Succession
Tax season is pretty much history unless your returns are on extension. For most people, once our tax returns are filed, we tend to not give them another thought until the beginning of the next year.
To minimize your tax liability, you need to think about taxes all year round. Thinking about deductions and credits will help in this regard. Waiting until you are ready to prepare and file your taxes could result in your not taking full advantage of allowable credits and deductions.
Here are some things to consider:
- Standard or itemized deductions – which is better? Well, it depends upon your situation. And, you may not know which is most beneficial until your taxes are prepared. So, it is helpful to accumulate information throughout the year for:
- Medical expenses – doctors, dentists, eyeglasses/contacts, hearing aids, physical therapy, medications, medical devices, etc.
- Medical insurance premiums include long-term care premiums
- Property taxes
- Charitable contributions both cash and in kind. If you donate goods to a charity, keep the receipt and a description of what you donated. (During the past couple of years, a credit for those taking the standard deduction has been allowed in a limited amount. However, you are required to have receipts to support even those deductions.)
- Mortgage interest
- Credits don’t just include the amount of taxes you have paid in throughout the year. There are credits for:
- Child care
- Elderly care
- Learning
- Child tax
- Earned income tax credit
- Recovery rebate credit
These credits and deductions can reduce taxes owed or boost the amount of your refund. Some of the tax credits are refundable, which means that if you are eligible, you can get money refunded even if you don’t owe any taxes.
Remember, to properly claim these credits and deductions, you MUST have records to show your eligibility. So, don’t just think about income taxes during tax season. Keep them in mind all year long.
- Kay Sowa
- Estates, Planning, The Basics, Trusts, Estates and Succession
The Fourth of July is behind us and the start of a new school year will be here before we know it. If you are a parent with children going to school – including those headed off to college – you are probably already starting your “school” shopping.
If you have a child headed for college, here are a few items to add to your list of “school” shopping:
- A college age child is likely to be 18 years old. As a parent, you no longer have the parental authority to act on the child’s behalf. If your child is unable to make medical decisions for themselves – and yes, at the age of 18 you no longer have the say – does your child have a medical power of attorney or health care directive? This is important whether your child is going away to college or perhaps staying in the home area.
- Also, at the age of 18, your child is deemed to be able to make financial decisions. In today’s world, many financial accounts are virtual and we don’t have any paper to identify these assets. Do you know where your child’s assets are and how to access their accounts? And, more importantly, do you have authority under a power of attorney to do so? If you don’t have a power of attorney, you have no right to access this information.
It is very easy for parents to overlook these two very important documents when their children reach the age of 18. After all, you have been making decisions for 18 years for them, so why do you need to change that now?
Here are but a few situations that your child not having the above documents could create problems:
- Natural parents are divorced. Regardless of which parent a child lives with, does one parent have more authority than the other? Those child custody agreements may not be effective any longer once a child reaches the age of 18.
- Child without a health care directive/power of attorney has not designated who will be responsible for making medical decisions in the event the child is unable to do so. Child has suddenly sustained an illness or injuries and is unlikely to recover. Each parent has different views on whether to continue with life support or end life support. Which parent governs?
- Same situation as above but child’s email account is needed to be accessed and no one knows the password. Who has authority to gain access?
- Same situation but access to child’s bank account is needed. No power of attorney was signed. How would you go about gaining access to account?
I don’t mean to be doom and gloom, for a child going off to college is an exciting time in their life (and a big adjustment for mom and dad). But, these documents are very important to have in place as soon as your child reaches the age of 18. Because once they do, mom and dad, they are considered an adult and in charge of themselves – regardless of whether they still live under your roof and you provide for their support. Have a discussion with your child and make an appointment to have these documents prepared sooner rather than later – just as an ounce of prevention.