The Top Ten Estate And Business Planning Mistakes


by Matt Ottemann

Ottemann, Matthew
mottemann@mcgrathnorth.com
(402) 341-3070

The failure to plan, or the existence of an inadequate plan, can have disastrous consequences. Your assets may not pass according to your wishes; your business may not be prepared for your transition and may fail. You may need health care decisions made on your behalf, but no one is authorized to make those decisions. A significant portion of your assets may be lost to unnecessary estate taxes.

As you review these common estate and business planning mistakes, consider whether you may have committed any of the following mistakes:

1. Wasting Your Exemptions. Many married couples fail to use federal estate tax exemption amounts ($2,000,000 in 2008) due to inadequate Wills or assets held the wrong way. Admittedly, planning to avoid or reduce your estate taxes can be daunting. Wills and trusts need to be created; asset ownership must be balanced among the spouses. However, because the federal estate tax rate is 45%, a failure to properly plan can cost a significant portion of your assets – meaning your wealth goes to the government, not your family or charities.

2. Failure To Give. Individuals should strongly consider making lifetime gifts to reduce their taxable estates. We can structure a gifting program, which may include recapitalizing your business, a family LLC or LP, or other gift strategy that will fit your objectives.

3. Run Out Of Agents. You will not want your Wills, trusts or other estate planning documents to fail because you only named your spouse as a successor agent or trustee.

4. Losing Assets To Creditors.  You should structure your business to protect your personal assets from business creditors. Although it is simple to exist as a sole proprietorship or partnership, this structure could force you to  use personal assets to pay off business debts.

5. No Buy-Sell Or Operating Agreements.  Many businesses, which are owned by more than one person, do not have an operating agreement or a binding buy-sell arrangement. Failure to plan for one owner leaving a business has caused many businesses to go under and many business owners to lose their investment in the business when they want to get out.

6. Not Respecting Corporate Formalities. Some business owners fail to respect corporate formalities. Following corporate formalities will help to ensure that your corporate or limited liability entity will be respected. Courts may “pierce the veil” and hold business owners personally liable for the debts of their business, if they fail to respect the corporate or limited liability entity. This means holding regular meetings, recording those meetings, avoiding asset co-mingling, and following other statutory formalities.

7. No Plan For Successor. Business owners must have a plan to pass a business down to future generations. The failure to adequately plan for a founder’s departure is one of the most common reasons that businesses fail.

8. No Beneficiary Designation. Some people diligently plan their estates, but do not realize that many retirement plan assets and life insurance policies will pass according to the beneficiary designations made on the plan or policy. Many people have had their assets not pass according to their wishes because they simply did not designate (or update) beneficiaries for their retirement plans or life insurance policies.

9. No Long-Term Care Or Life Insurance. Many people have seen their net worth reduced to nothing by the costs of their long term care. Other people have failed to provide for their children, or had their business ventures failure, for want of adequate life insurance.

10. Failure To Prepare Business For Sale.  Amounts paid for closely-held businesses vary dramatically. Most experts agree that, to maximize the amount you will receive for your business, you should plan for your exit at least ten years before you intend to leave. This planning is complex and generally requires several advisors with different areas of expertise.

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