New York Estate Planning & Elder Law

Thinking Ahead for 2020 Elections / New York, NY & White Plains, NY

“Planning for changes to the estate tax and the valuation discount for small businesses can be challenging. Here’s how to take advantage of them now.”

Trying to anticipate changes in the tax codes is like trying to time the stock market—a nearly impossible task. Most tax pundits guessed right when they said that President Trump was going to cut corporate tax rates in 2017, but the doubling of estate and gift tax exemptions to more than $23 million was a surprise. So was the elimination of deductions for state and local taxes, as reported in The New York Times article “2 Strategies to Consider Ahead of the 2020 Election.”

With a presidential election coming up this fall, the challenge of predicting the impact of changes that may affect taxpayers and their estate planning has already begun. Candidates are talking about big changes, like health insurance, climate change and infrastructure. They are also talking about changes to the wealth tax, but what no one has covered yet are changes like lowering exemptions and raising rates for estate and gift taxes and ending the valuation discount for closely held family businesses. This is a tax break that lets families transfer their businesses for far less than they are worth.

This valuation can impact any small business that owners expect to transfer to heirs. The current exemption levels for estate and gift taxes are so high now that this tax applies to very few people. However, if the exemption levels and tax rates change, that could become a problem for business owners.

The estate tax is now in effect until 2025, with exemptions at $11.58 million for an individual, and  double that amount for a couple. Everything above that is taxed at a rate of 40%. Lowering the exemption and increasing the tax rate are on some candidate’s agendas, both to raise revenue and address income inequality.

The estate tax is a big target. This is because if the exemption were lowered, it would generate a good amount of income, and impact a relatively small group of Americans. The likelihood of this happening will depend on election results, both at the presidential and congressional levels.

The months before the election occurs may be a good time to take advantage of the high tax exemptions and valuation discounts, just in case they change. This would let business owners pass more of their wealth to heirs free of tax, and could also settle some business issues now, not later, when the owners die.

However, short and long-term goals should be identified before making any significant decisions. In some states, like Connecticut, it may not be necessary to plan so aggressively because the state’s estate and gift tax exemptions are lower than federal exemptions. It should be noted, however, that the exemptions are set to become equal in 2023.

Eliminating the valuation discount had been proposed by the Treasury Department and the IRS under President Obama, when these discounts were seen as being overly generous. A few months after taking office, President Trump issued an executive order for the Treasury to withdraw the regulation to eliminate the discount. However, the statute is still on the books and could be easily reinstated.

This is an example of the importance of reviewing estate plans on a regular basis and creating estate plans that have enough flexibility to withstand change. Speak with your estate planning attorney to ensure that your estate plan is prepared, whatever the results of the 2020 elections may be.

Reference: The New York Times (Feb. 14, 2020) “2 Strategies to Consider Ahead of the 2020 Election”

For more information on asset preservation and estate planning, please visit my estate planning website.

Small Business Owner? Don’t Hesitate on Estate Plan / New York, NY & White Plains, NY

So, what happens to your business after you are gone?

You have put a life’s work into developing your vision and building a successful business. What do you need now? An estate plan protects that life’s work, according to Bakersfield.com in “Estate planning tips for small business owners.”

It makes sense. You’ve likely spent decades building your business throughout your working life. You’re proud of what you have accomplished, and you should be. You should then protect it with a well thought out plan. Your estate planning attorney will be able to help you design a two-pronged plan for your business and your personal life. For business owners, these two are intertwined.

Can you avoid taxes? Reviewing your personal and business assets as part of an estate plan is the best way to minimize the tax exposure of your estate and facilitate an organized sale or succession plan for your business. You can’t completely avoid taxes, but good planning will help them from being excessive.

There are a number of IRS sections that can help, and your estate planning attorney will know them. For example, Section 6166 gives your loved ones more time to pay the tax, by paying in ten annual installments.  Section 303 lets your family redeem stock with few tax penalties. Talk with your attorney and CPA to find out if your business is eligible for either of these strategies. Create a plan and talk about it in detail with survivors to help them navigate the transition.

Do you have a buy-sell agreement in place? This is critical, if more than one person owns the business. The buy-sell agreement dictates how the partnership or LLC is distributed upon the death or incapacity of one of the owners. Without one, family members may be stuck owning a company they don’t want or know nothing about. Alternatively, your former partners may find themselves partnered with people with whom they never intended to go into business.

The buy-sell agreement creates a plan so, when an owner passes, the shares of the company must be bought out by the other owners at a fair market price. The agreement can even establish a sale price, so family members will know exactly what they can expect to receive from the sale. In addition, a buy-sell agreement can be used to block certain individuals from taking a role in the business. For many family businesses, that’s enough of a reason to make sure to have a buy-sell agreement.

How are life insurance policies used by small business owners? Maybe you want the business to die with you. Some small businesses provide a stable income for the owner, but there’s no plan for the business to be passed to another family member or to survive the passing of the owner. If that is your situation, and you want your family to have income, you’ll need a life insurance policy.

A life insurance policy can also be used to help partners with the capital they’ll need to purchase your shares, if that is how your buy-sell agreement has been set up.

As a small business owner and a family breadwinner, you want to be sure your family and your business are prepared for your passing.  

Reference: Bakersfield.com (July 15, 2019) “Estate planning tips for small business owners”

For more information on asset preservation and estate planning, please visit my estate planning website.

Own a Small Business? Estate Planning Is Crucial / White Plains, NY & New York, NY

Plan needs to address the owner’s personal life and the future of the business.

Everyone needs an estate plan but small business owners need to take an additional step and plan for what they want to see happen to their business, according to grbj.com in “Estate planning for small businesses.”

Some of the steps recommended for small business owners are:

A will. A last will and testament allows you to name someone who will receive your assets, including your business, when you die. If you don’t have a will, you leave your heirs a series of problems, expenses and stress. In the absence of a will, everything you’ve worked to attain will be distributed based on the laws of the state. That includes your assets and your business. It’s far better to have a will, so you make these decisions.

A Living Trust. A living trust is similar to a will, in that it allows you to name who will receive your assets when you die. However, there are certain advantages to having a trust. For one thing, a trust is a private document, and assets controlled by the trust can bypass probate. Assets controlled by a will must first go through probate, which is a public proceeding. If you’ve ever had a family member die and wonder why all those companies seemed to know that your loved one had passed, it’s because they get the information that is available to the public through the probate process.

If your business is owned by a trust, the transition of ownership to your intended beneficiaries can be a much smoother process.

A financial durable power of attorney. This document lets you appoint an agent to act on your behalf if you are incapacitated by illness or injury. This is a powerful legal document, so take the time to consider to whom you want to give this power. Your agent can manage your finances, pay your bills and manage the day-to-day operations of your business.

A succession plan. Here is where many small business owners fall short in their planning. It takes a long time to create a succession plan for a business. Sometimes a buy-out agreement is part of a succession plan, or a partner in the business or key employee wishes to become the new owner. If a family member wishes to take over the business, will they inherit your entire ownership interest, or will there be a payment required? Will more than one family member take over the business? If a non-family member is going to take over the business, you’ll need an agreement documenting the obligation to purchase the business and the terms of the purchase.

If you would prefer to have the business sold upon your death, you’ll need to plan for that in advance so that family members will be able to receive the best possible price.

A buy-sell agreement. If you are not the sole owner, it’s important that you have a buy-sell agreement with your partners. This agreement requires your ownership interest to be purchased by the business or other owners, if and when a triggering event occurs, like death or disability. This document must set forth how the value of ownership interest is to be determined and how it is to be paid to your family. Without this kind of document, your ownership interest in the business will pass to your spouse or other family members. If that is not your intention, you’ll need to do prior planning.

The right type of life insurance. This is an important part of planning for the future for the small business owner. The death benefit may be needed to provide income to the family until a business is sold, if that is the ultimate goal. If a family member takes over the business, proceeds from the life insurance policy may be needed to cover payroll or other expenses, until the business gets going under new leadership. Life insurance proceeds also may be used to buy out the other partners in the business.

An estate planning attorney can advise you on creating an estate plan that fits your specific circumstances and can include the future of your business as well.

Reference: grbj.com (Grand Rapids Business Journal) (July 19, 2019) “Estate planning for small businesses”

For more information on asset preservation and estate planning, please visit my estate planning website.

Hot Market for Business Sales / White Plains, NY & Greenwich, CT

The last big M&A wave happened in the early 2000s, according to Ward. A very active M&A period is usually accompanied by a lot of debate, both within families, and at the policy level, about the pros and cons of having families or professional investors control businesses.

Your business is likely an inherent part of your life. The decision to part ways with your business is complicated. It can't be easy to hand over your life's work. Nevertheless, there comes a time when it’s worth selling the business and also a time when the market is right. The M&A market is heating up, so is the time right for you too?

The M&A market is fickle, but currently seems to be on an upward swing. A recent article in Forbes reports that this swing seems to be catching even middle market companies. The article has a catchy title, too: “Why More Entrepreneurs Will Get A Phone Call Worth Millions.” 

As a business owner it’s important to think of the business as a business and (again) maybe your life’s work. On the other hand, it is also just as important to think of it as a marketable asset when it comes time to exit. After all, the business is likely to be your greatest asset and the cornerstone to your retirement, in one form or another. In addition, your business likely is part of your legacy to your children, whether as a family business succeeded into or as wealth transferred.

How will you choose to exit and when? How does this fit into your overall plan? Whether you pull the trigger or not, it’s worth watching the M&A market and ensuring that the business is appropriately structured for sale or succession.

Reference: Forbes (May 31, 2014) “Why More Entrepreneurs Will Get A Phone Call Worth Millions”

For more information on business succession planning and estate planning, please visit my estate planning website.

Seniors Learning Technology Soar to New Heights! / Greenwich, CT & White Plains, NY

Here is an excellent video demonstrating how my mother in her 70s, learned to use technology to transform her love for teaching into the next chapter of her life!  She authored a new children's book, "Grandma Needs a Nap" under her Publishing Company "Grandma Press" which teaches our young children and their caregivers incredible life lessons.  Nothing like a solid foundation for our youth!  Here's the link on how the Jacob Burns Center helped her to achieve her vision: https://www.youtube.com/watch?v=iuMkugm8U1Q&feature=youtu.be

Preserving The Family Business / Greenwich, CT & Rye Brook, NY

Family businesses account for much of this country’s domestic product and are core to the American Dream. Whether it is a century-old international automobile manufacturer or a group of local dry-cleaners, family involvement in the business is a common goal. Like anything worth keeping, it takes work to preserve.

A business is not merely a thing. No, a business is a mindset, an activity and, oftentimes, even a lifestyle. It can get complicated. If your legacy is the family business, then with great responsibility comes the need for equally careful planning, preparation and dialogue.

Because every business is different, as every family is different and every individual is unique, what is right for a family business is something to be figured out and understood. That said, businesses have been coming and going for generations. Some have transferred successfully and others less so. Consequently, there are some tried and true strategies to consider when planning for your own family business succession.

Whether your objective is a sale, windup or succession, Forbes has provided a practical roadmap in a recent article titled “Six Steps For Making Your Business A Family Legacy.”

Here are the six steps by heading alone:

1. Give the family a reason to continue the family business
2. Develop a management team
3. Structure a business succession plan
4. Fund the business succession plan
5. Wealth replacement for other family members
6. Have a successful business

So what is right for you, your family and your business? I recommend reading the original article and then consulting with your team of professional advisors. Your attorney, accountant, financial planner and insurance agent will each bring a valuable and unique skill set to the table.

Reference: Forbes (February 3, 2014) “Six Steps For Making Your Business A Family Legacy”

For more information on business succession and estate planning, please visit my estate planning website.

Selling Your Business - Employee Stock Option Plan / Greenwich, CT & Rye Brook, NY

For business owners that have also established their business as a corporation (not an option for partnerships), an Employee Stock Ownership Plan (or ESOP) may provide a better retirement option.

How you go about selling your business is completely up to you.  And for most, that moment is bittersweet. Bitter because you may say goodbye to the business forever.  Or bitter because you may sell yourself as an “employee” to the company you no longer own for those last years leading up to retirement. So where's the sweet part?

Alternatively, an ESOP may be an interesting option to consider to sweeten up that bittersweet decision. Curious? Take a look at a recent article in Forbes titled “How ESOPs Let Employees Take Stock In Your Retirement.”

The first question for the uninitiated (quite forgivably) is what is an ESOP? An ESOP, or “Employee Stock Option Plan,” is technically a retirement plan. However, unlike most retirement plans an ESOP effectively works to balance the retirement of the owner and the employees by balancing ownership and control.

Here is how it works: The owner essentially sells the stock of the corporation to the employees, but retains much of the corporate structure to control and run the business. In the meantime, the stock itself becomes the retirement plan for the employees who are now working to build the business that is their retirement.

Now, clearly there are some important moving pieces to consider regarding whether your business is suitable for an ESOP. When an ESOP is right, it can be a hole-in-one for all concerned. Take a look at the original article for a review of some of those “moving parts” that can make an ESOP right for a business, or a business right for an ESOP.

If an ESOP sounds like a good fit for you and your business, then be sure to get competent counsel. This is not a do-it-yourself project.

Reference: Forbes (December 27, 2013) “How ESOPs Let Employees Take Stock In Your Retirement”

For more information on asset preservation and estate planning, please visit my estate planning website.

Four Business Succession Questions To Ask Yourself / Greenwich, CT & Rye Brook, NY

While your goal might be to attract the most qualified buyer that will pay the asking price and lead the company on a path of continued success, it is what you expect of your life post-sale that should constitute how you execute the deal.

Done right, a business succession or sale requires the ability to ask the right questions, let alone have the right answers. And there is no shortage of good questions to ask of yourself, your company, your family, and of course, the potential buyer.

Fortunately, a recent article in The Business Journals titled “Key questions to ask when planning to sell your business” will give you a head start on the questions, but you must supply the answers.

While you can tailor the questions to fit your unique circumstances, here are the four questions the author of the article thinks you need to ponder:

1. Is seller financing feasible in accomplishing my future endeavors?
2. How involved do I really plan on being post-sale?
3. How should I mitigate the emotional connection to my business and my employees?
4. Should I sign that non-compete?

Obviously, these four questions are not all-inclusive. However, they are a good start.

In the end, the most prudent course of action may be to gather counsel from all of those who have a stake in what may be one of the most significant life event they and you may ever face. Consider soliciting the input of your loved ones, your leadership team, and your employees.  Then, once you have determined the best outcome for all concerned, meet with your professional advisors to help you get there.

Reference: The Business Journals (December 2, 2013) “Key questions to ask when planning to sell your business”

For more information on asset preservation and estate planning, please visit my estate planning website.

Passing The Torch - Five Business Succession Tips / White Plains, NY & Greenwich, CT

To ensure your exit goals are met and your family relationships remain intact, it's important to clarify the family succession process right from the start.

When you are a family business owner looking to pass the torch, the business is typically your greatest asset and likely the center of the family's wellbeing. You cannot afford to mess this up.

Succession planning is unique because business is business, and so a successful succession is a careful one.

There are a great number of moving pieces to your business and to your family. Nevertheless, there are some basic guiding principles to help tie it all together. A recent article in The Business Journals offers “5 tips for a successful family succession.”

While you should consult the original article for the details, here are the “five tips”:

1.     Be Transparent

2.     Clarify Ownership Values

3.     Plan Ahead

4.     Consider Financial and Tax Ramifications

5.     Stay Connected

Essentially, respect the family as family and the business as business. Family is here to stay and everyone has to come out on top, while the business requires leadership, sharp decision-making, and a business mindset. It pays dividends to work with the family and maintain transparency regarding your plans to make the “handoff” and their plans to receive.

Ownership is a big issue to clarify, since ownership and a voice in the company straddles that fine line between merely family-owner and head-honcho decision-maker. These may be roles some loved ones are designed to occupy.

What are the issues that most directly affect you and your family? How can or will you work through them to pass on the business?

These are not simple questions by any stretch. More to the point, succession is more a process of working out the solution than just offering up the plan. You might say that succession is always a process unique to each family and family business, but one during which it is essential to have a steady hand guiding the process.

Reference: The Business Journals (December 9, 2013) “5 tips for a successful family succession”

Prep Your Business Sale With These 10 Tips / White Plains, NY

An estimated 70% of businesses don’t have a family member capable or willing to assume responsibility. What are you doing to plan for the sale?

A certain reality will eventually set in when it comes to the future of your business.  And that reality is that some day you are not going to be there to run it. It is just a matter of time, and there may simply be no family member there to step up to the task, which is something even further from your control. For many a business, and for the betterment of the family, this means a sale. So what are you doing to prepare the business for sale?

It is, indeed, a hard math, and not something that comes easy to most of us. Nor does selling the business you worked so hard to create. Nevertheless, when so much of the family wealth is locked into the business, be sure to consider proven, practical tips for preparing it for a sale.

To get you started, consider a recent Forbes article titled “10 Simple Tips To Make Your Business Acquirable.”

The problem shared by most sales is that a business is only valuable if it is “acquirable.”  The 10 tips largely speak for themselves, but you will want to read the description of each in the original article.

Here they are:

1. Check Your Ego
2. Be Irrelevant [aka, do not personally be the “value” to the business]
3. Become Known
4. Develop Great Systems
5. Clean Up the Financials
6. Make a Profit
7. Develop Reasonable Expectations
8. Focus on Continuity
9. Be Transparent
10. Maintain Perspective

Remember: selling the business is crucial to your own retirement and the future of your family. Approach the process realistically and early.

Reference: Forbes (November 13, 2013) “10 Simple Tips To Make Your Business Acquirable”

For more information on asset preservation and estate planning, please visit my estate planning website.