The Covid-19 pandemic created an undesirable effect on many businesses. A lot of these unfavorable impacts are related to estate planning. Since the world is faced with many uncertainties today, you might want to consider taking action on it right now.
It is better to start planning before it gets too late. Without a proper estate plan, the heirs of your properties might incur additional legal fees that could have been avoided.
The rapid escalation of the pandemic led high-risk professionals, particularly health care providers, to update their existing insurance policies. They find it prudent to begin their estate plans so that their beneficiaries are protected.
Without clear plans, the decision on whom to appoint as the person responsible for the financial affairs of your estate will fall on state laws and probate courts. It is a lengthy process as the court needs to determine if it is the final instructions of the decedent. If there was a proper plan on estate successions, revocable, irrevocable living trust, this process is avoidable.
Why Preparing an Estate Plan Is Essential?
All individuals have an estate. It is not only the high-net-worth people who should consider planning for their estates, but also anyone who owns a house, car, stocks, bank accounts, life insurance, and other personal interests.
Middle-class families who are dependent on their family’s breadwinners need to prepare in case something happens to them. It is essential to discuss these plans concerning the impact of Covid-19 on their estate, especially when you were working hard to build a legacy for your family. If you are not prepared, what do you think would happen to your loved ones?
During your lifetime, you work on your wealth accumulation, ensuring that financial goals are met. However, upon decedent, it is all about wealth preservation and the efficient transfer of assets.
This is where estate planning comes in. It encompasses the accumulation, conservation, and distribution of an estate. The objective of this preparation is to avoid conflicts or at least reduce it, property conservation or protection, and distribution and transfer of wealth the way you want it.
How to Prepare for Estate Taxes?
Given today’s rapid escalation of the coronavirus, tax laws are more favorable. However, it does not mean that you do not require tax guidance. This year, the Internal Revenue Service announces a higher tax exemption for estates and gifts.
Compared to 2009, when tax exemption was at $3.5 million and a graduated tax rate of 77%, for 2020, the tax exemption is at $11.58 million per individual with a flat tax rate of 40%. If your wealth is more than the amount given for the tax exemption, your tax due is 40% of the value that has exceeded.
1. Know the Value of Your Estate
Know the value of your estate by evaluating and assessing its fair market value. You might also consider giving some of your assets to your family while the rate is low. Think about which properties you want to keep and the properties that you want to transfer. Benefit from favorable tax laws and transfer a large portion of your assets. Make sure you do not reach the 40% flat tax limit.
2. Know How Much Estate Tax Is Due
Aside from the federal estate tax, other states impose their estate tax laws as well as inheritance laws. You should know how much your gross estate is, total allowable deductions, and your net taxable estate. It will give you an idea of how much tax you are going to pay.
3. Start A Plan to Fund Your Estate Tax
To avoid estate tax liability, you need to prepare how much tax your heirs will b
e paying. Life insurance is one of the smartest tools in preserving your assets. It helps your family keep the value of your asset.
The Role of Estate Planning in Business Succession
For many business owners, business succession planning is the process of ensuring that their company survives in the event of the decedent or illness of the current owner. In the U.S., 80% to 90% of businesses are owned by families. Thus, estate planning strategies are common among business owners when it comes to the transfer of ownership.
It is crucial that protocol on business succession planning is first established, and not when they are nearing retirement. The lack of planning poses a threat to your business and putting your family at risk. To the person expected to be the successor, it might be problematic if there were no specific guidelines in place.
1. A Good Contingency Plan Can Avert Management Crisis
The importance of business succession planning can reap many benefits, particularly during this pandemic situation. It ensures a smooth transition, amid a global emergency. While coming up with strategies, the contingency plan needs to be flexible, and having a crisis management team ensures they stay prepared at all times.
2. Estate Planning and Business Succession Planning Goes Hand in Hand
The wealth of most business owners is likely to be tied up in their business. Without initiating proper estate planning steps, it might create future problems within the family, particularly when determining who the next successor is. A clear business plan establishes appropriate procedures for succession.
3. Early Transfer of Assets is Beneficial
Despite experiencing the Covid-19 crisis, it is ideal to start gifting a portion of your wealth to the members of your family, today. Take advantage of the higher tax exemption rate for estates and gifts. It can help minimize the potential tax liability of the business owner.
A well-crafted succession plan should include clear guidelines that determine the future of the business and the parties involved. For a smooth and effective transition, it should indicate procedures for transferring ownership. Planning for the future lessens the risks of probate and can provide clarity on how to address the systematic transfer of management.
Estate Planning Explained: Expectation vs. Reality
The world is facing uncertainty as to when this pandemic will end. Hence, it is always a good idea to prepare for those ambiguities. Unfortunately, not many individuals have an idea of the importance of constructing a comprehensive plan, not only to protect themselves but their families as well.
Valor Insurance, The Snipes Group, is an insurance brokerage that guides families for estate planning. Our company and affiliate network have offered counseling to business owners in terms of business succession planning for years.