Copyright Earl G. Graves Publishing Company, Inc. Nov 2008| [Headnote] |
| [ MANAGEMENT ADVICE ] |
| Not having an estate plan can be costly |
WHILE MANY ENTREPRENEURS ARE BUSY RUNNING THEIR day-to-day operations, they seldom take the time to consider who will take over the reins when they retire, or how their wealth will be passed on to family members in the event of their untimely death or disability.
"In my experience, the more hands-on an entrepreneur is, the more myopic their vision tends to be," says Richard Tomlinson, a CPA and partner of the tax and accounting firm Willis & Tomlinson L.L.P. in Pittsburg, California. "But small business owners really must consider the bigger picture, which includes designing and implementing a succession and estate plan."
Research supports Tomlinson's concerns. According to the 2007 American Family Business Survey, nearly a third (31.4%) of family-owned businesses have no estate plan beyond a will, and only 53.5% of business owners have a good understanding of the estate tax, also called the death tax. The estate tax is assessed on the net value of a decedent's estate before distribution to his or her heirs. Today, the estate tax rate is 45% with a $2 million exemption. Current law calls for the exemption to increase to $3.5 million in 2009, and the tax will be repealed for one year in 2010. But in 201 1 the exemption will decrease to just $1 million. At that rate, it's estimated that 122,000 estates will file estate tax returns, and that about 60,000 of those will pay taxes totaling $41.4 billion.
"If you're over the age of 50 and the total value of your estate, including your business, principal residence, stock portfolio, insurance policies, and pension plan, equals $2 million or more; or if your business is consistently netting more than $100,000 a year," warns Tomlinson, "you really must decide right now who will succeed you and how you will transfer ownership of your business and wealth."
An adequate succession and estate plan will prepare your business for managerial and ownership succession. "More often than not businesses fail in the transfer from one generation to another because of lack of planning," says Lori Anne Douglass, a wealth preservation expert and partner at Moses & Singer L.L.P in New York City. Failing to implement such plans could be quite costly, Tomlinson adds.
A few strategies to discuss with a financial expert:
* Sell or gift your business assets to your children, a key employee, or an outside third party:
Requires relinquishing control of the business during your lifetime, but you can receive money through lease payments, consulting fees, and royalty payments-they are deductible to the business and can supplement your retirement income.
* Give your money away:
An individual can make an annual gift of $12,000 to someone else without incurring a gift tax ($24,000 for couples). If you make this a regular practice, it can greatly reduce the size of your taxable estate.
* Set up a trust:
The income beneficiary does not actually own the assets, the trust does, so the value of the trust assets isn't considered for estate tax purposes.
Together a qualified CPA, estate planning attorney, and financial adviser can help you create the succession and estate plan that's right for you; however, you should also educate yourself as much as possible. For more information, consult the 
American Bar Association, www.abanet.org/rppt/public/home.html, or the American College of Trust & Estate Counsel, www.actec.org. Or read Plan Your Estate, 9th Edition (NOLO; $44.99) by Denis Clifford or The Living Trust Advisor: Everything You Need to Know About Your Living Trust (Wiley; $39.95) by Jeffrey L. Condon.
-Ayana Dixon
For more information on estate planning for your business, visit www.blackenterprise.com.
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