In my years working as a Trust Officer, my clients would ask how often they needed to review and update their “estate plan”. For the wealthiest of that group, an estate plan could include a revocable trust, a Last Will and Testament, powers of attorney, a charitable trust, a family trust, a right to die declaration, etc. etc. Their estate plans may even have utilized gifting and asset freeze strategies like GRATS and Intentionally Defective Grantor trusts if their estates were especially large. This was especially the case prior to the increase in the federal estate and gift tax exemption to $5 million per individual, which occurred in 2011.
On the other end of the spectrum, there are those who freely admit their estate plan consists of winning the lottery!
Before being able to accurately respond to the question of updating (or creating) an estate plan, many issues need to be considered — especially for small business owners and leaders. First and foremost is an understanding of the current circumstances of the client and their estate plan. The vast majority of individuals do not of course fall into the “very wealthy” category described above and do not require advanced planning techniques. So just what does this term “estate plan” entail?
You already have an Estate Plan. Is it what you want??!?
First, whether you know it or not, everyone has an estate plan — even those small business owners who have done no planning at all. What happens if someone dies with no valid estate planning document that disposes of his or her property, including the business? Basically, the statutes of the state where the individual was domiciled would control the distribution of the deceased’s estate. Is that a horrible circumstance? That depends on the individual situation such as whether property held is separate or community, whether the individual is married, has children, has property held in joint tenancy, the type of corporate entity (if any), the structure of the business, any many other factors. In many instances, not having valid estate planning documents does not yield the results the decedent would have wanted had they gotten around to reviewing their estate plan.
How about a Will? Does everyone need a Will? There are few if any exceptions to the need for a Will, no matter how simple and straightforward the situation may seem. How about a single individual? A young married couple with children and not much else in terms of assets? In nearly all cases a Will is advisable. Most single individuals have particular people, charitable causes, business needs, etc, that may not receive assets from their estates without the execution of a valid Will. Married couples with minor children may want to control guardianship of their children and handling of the funds for the children’s benefit, should they meet an untimely demise. This can be handled through the execution of Wills. These are only a couple of examples—bottom line. A valid Last Will and Testament is necessary at a minimum for nearly everyone.
Powers of Attorney (financial, healthcare)? Trusts? Future articles will discuss these components of an estate plan and how they may apply to your particular situation. As to how often to update an estate plan? Like most estate planning matters—it depends.
As it relates to a small business, what would happen if the business owner were to become deceased or incapacitated? Would the business be able to meet the next payroll? Would the business have the leadership in place to continue operations without shutting down?
An estate plan is simply putting the legal pieces together to ensure that a deceased’s estate is distributed as they wish, and that the business continues to operate as intended. Whether simple or complex, every business leader owes it to his or her legacy to make sure their estate is handled the way they wish — before it’s too late.