Zaremba Center for Estate Planning & Elder Law

Getting Remarried? Review Your Estate Plan Before the Nuptials

There are some unforeseen ramifications of remarriage. Questions come up like, Who gets the personal belongings of a deceased parent or how do you prove title to personal property?

Without careful estate planning and periodic reviews of that plan, there could be unforeseen legal consequences when a widow or widower remarries leaving intended heirs disenfranchised and bitter.  After all, there’s no title to a family heirloom like grandpa's pipe collection. A parent can say that specific items should go to a particular child, but its proving that they actually belonged to the parent rather than a new spouse that's the difficulty.

If your parent dies before the new spouse, chances are that the tangible personal property will not go to your side of the family.  That’s why I encourage my clients to sign a prenuptial agreement.  These agreements are particularly useful when the marriage creates a blended family of adult children. A prenup is no longer a requirement of just the ‘Brangelina-type’ union; it's especially important if assets include 401K or other ESOP retirement plans because without the ability to put the proper beneficiary designation paperwork in place, these assets might well go to your new spouse instead of your children or grandchildren as you’d planned.

Be especially aware of how state laws can impact inheritances. There are some states that allow the surviving spouse to continue living in their deceased spouse's home. If the deceased had children by a prior marriage, they could be cooling their heels for some time before they receive their inheritance. This can create a dicey situation when most of the deceased client's wealth is tied up in the home.

Likewise, when folks move from one state to another, especially when it’s a second or third marriage, they should talk with a qualified estate planning attorney to understand what rights that spouse has attained because of the move. There could be surprises. For example, in Oklahoma the surviving spouse has a right to the family bible.

Reference: On Wall Street (Sept. 14, 2016) “Estate planning mishaps: How even the family bible is at stake”

 

Selling Your Company to Your Employees in Virginia

As more entrepreneurs like the gentleman in this article approach retirement many are choosing to sell their companies to their employees, rather than outside buyers—about 30% of the nation’s business owners are 55 or older, according to the U.S. Small Business Administration.

Sometimes the family business simply can’t stay in the family.  Maybe you are not enamored with handing it over to an outsider either. If this sounds like your dilemma, have you considered selling your business to your employees?

Often, the only ones who know and care enough about the company may be your employees.  If this is the case then you need to explore a win-win means through which your employees can become owners.  Have you ever heard of an Employee Stock-Ownership Plan, or ESOP?

ESOPs have been growing in popularity, especially when the market was down and outside buyers were scarce. That said, their popularity has not waned, although ESOPS can be a strange and complicated breed.

Essentially, an ESOP mixes a family exit strategy with a company retirement plan. There is a great deal to it with many layers of protection regarding the operations and management of the business.

Of course, there are some that are wary of the ESOP model. MarketWatch recently featured the ESOP and some criticisms of the approach in an article titled “When founder cash out, do workers lose?” Some of the criticisms are broad generalizations, especially as to the topic of valuation. Other criticisms are well taken.

As the article points out, this does affect the employees by opening them up to some of the risks of actual ownership. Is this a good thing? It can mean a whole new kind of motivation and source of innovation, as many have experienced, but it can also become a tricky game of all-your-eggs-in-one-basket for employees-turned-owners. There is a reason some people have the mettle to be owners and others are content to be employees.

From success stories to criticisms there are many voices talking about the ESOP. The original article is worth reading for due diligence purposes if you are on the employee side of the table. Regardless, an ESOP can be a very special tool for all parties at the table and one worth understanding and, just maybe, putting into force.

You can learn more about this topic as well as other strategies on our website under the tab entitled: business planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.

Reference: MarketWatch (May 17, 2013) “When founder cash out, do workers lose?”

 

Easing the Tax Bite When Selling Your Business in Virginia

A lot of small business owners accelerated sales of their companies into 2012 in anticipation of the new higher tax rates for 2013, but for those who are thinking of selling now, don’t despair. “There are things you can do to minimize—or with the right set of facts—eliminate taxes.”

Is any of your personal wealth tied up in your business? Well, for some people, the business is their current life, both in time and wealth. Consequently, it can be an especially rude shock to see so much of that wealth snatched away in taxes paid upon the sale of that business.

The tax bite is a bit bigger these days, too.

So, whatever you can do to shelter the business sale from taxation can mean a world of difference for your retirement and even for the whole family. Turns out there are more than a few important tools at your disposal.

First, why is the tax bite bigger these days? The American Taxpayer Relief Act of 2012 (ATRA) befriended a new surtax added through Obamacare and this friendship brought the capital gains tax up from last year’s 15% to 20%, or even a whopping 23.8% for some earners. But wait, there’s more.

An extra provision of ATRA is set to add yet another 1.2% as of the new year. Then add state taxes. It just adds up, and that is really bad math for you.

So what are some tools and ways to lessen the tax bite? Depending on your business, your needs, and your timeline, consider three tested tools discussed in a recent Forbes article titled “Selling Your Business? 3 Ways To Cut The Tax Bite.” 

While you will want to read the original article, here are the three ways:

• The ESOP Plan,
• The Qualified Small Business Stock Plan, and
• The C-to-S Corporation Conversion Plan.

Essentially, the plan (as far as capital gains taxes) is to either find a way to defer the taxation until you leave assets to your heirs (to secure the capital gains eliminating stepped-up basis), to fall under a discounted category, or to actually change the form of the business so as to skate right below that low ceiling.

There are a few more ways of doing any one or all of these steps cleanly and efficiently, especially with those with the foresight to plan well in advance.

You can learn more about this topic as well as other strategies on our website under the tab entitled: business planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.  

Reference: Forbes (September 6, 2013) “Selling Your Business? 3 Ways To Cut The Tax
Bite”