Estate planning can help to minimize estate taxes and equally distribute wealth. Hotel Management recently published an article entitled “How to handle estate planning for continued business growth” that says it is important to create an estate plan for several reasons.
One reason is that it lets the owner maintain control of the business beyond his or her lifespan. Estate plans can also insulate owners against lawsuits and divorce. They direct the distribution of assets, communicate owners’ health-care wishes, decrease estate tax liability at the state and federal levels and help create a legacy, for your loved ones.
A primary reason to implement estate planning in any business, is to limit estate tax exposure. Paying for or decreasing federal and state taxes are two key reasons for estate planning.
The new tax law says the federal estate tax threshold is $11.2 million per person. That means owners can pass a total of $11.2 million to their beneficiaries tax-free, on the federal level. Any amount over that cut-off is taxed at 40% on the federal level. (remember that, absent future political action, this exemption will revert to $5 million per person indexed for inflation after 2025).
Estates can also be taxed on the state level, which can create some complications.
Some states have estate taxes, and some have inheritance taxes. A few have both estate and inheritance taxes, like New Jersey and Maryland. Tax thresholds and percentages vary based in each state.
Establishing a will or revocable living trust is important, because these legal tools allow you to designate assets to certain heirs and helps to avoid probate judges making decisions on an owner’s behalf.
In some states, if you own an asset when you pass away, and if it’s not clearly written in a will or a revocable living trust that it goes to your intended heir (your daughter or grandson, for example), the probate judge will determine who will get the asset based on state intestacy law.
In addition, a will or revocable living trust can allow for equalization of the estate. For instance, if one child wants to continue the business, but another wants to do something else, then their parents can make sure they are both treated equally in the will or revocable living trust.
Finally, be certain that you update and review your estate plan on a regular basis, to ensure your plan is current with federal and state laws and that all financial, business, and life changes are addressed.
Reference: Hotel Management (February 13, 2018) “How to handle estate planning for continued business growth”