Celebrities in Need of Life Insurance: Part 3
Beyond his brief, failed and oft-mocked attempt to become the GOP candidate for the 2012 Presidential race, Donald Trump is something of an empire unto himself. Between lucrative real estate, a successful, prime-time television show, and various other fortunate dealings, Trump is wealthy, to say the least.
He has his family to support, which most certainly necessitates life insurance in our eyes. And though he may often find himself the butt of jokes, it isn’t due to risky behavior (such as drug use or alcohol abuse). He is older, but he is reasonably healthy. Securing a reasonable life insurance policy would not be too difficult for the iconic mogul.
What will be even more important for Trump is overall estate planning. Life insurance will offer a swift payout for family that can help take care of immediate costs such as funeral expenses and medical bills. Plus, the money they receive from life insurance will be given free of estate taxes. The real issue comes from sorting through Trumps many, very large assets.
Trump is an extreme example of how valuable extensive estate planning can be. This refers not only to the wealth accumulated during a person’s life, but also, after they have passed away (Elizabeth Taylor is a great example of how someone’s name and likeness can earn money even after their death).
So in addition to having an adequate policy, Trump is also a prime example of the importance of planning for the distribution of one’s entire estate after death.
How does one handle wealth accumulated after death occurs, in terms of inheritance?
However, few associate her name with concepts such as keen business sense and staggering wealth accumulation. And those masses would be mistaken in neglecting that aspect of her brilliance – Taylor’s work, name and legacy are a true, time-tested brand. In fact, her name earned $1 billion just last year for Elizabeth Arden through sales of her perfumes, “White Diamonds” and “Passion.”
And because of this fact, Taylor stands to make a great deal of money post mortem. It is true that the assets she accumulated during her life have been handled through her will (such as her request to have her extensive and world-renowned jewelry collection sold at auction, with the proceeds benefiting AIDS research). And as with anyone else who owns life insurance, the beneficiaries of her policy are specified by the policy owner (Taylor) before death.
But there is still a great deal of wealth her name and estate could still accumulate, even though she is now deceased. In the case of Taylor’s friend and fellow superstar Michael Jackson, whose estate has also earned a great deal of money after his passing, his money is being used to pay off this considerable debt. But if you don’t have such problems, what then happens to the generated revenue?
Generally speaking, profits are distributed among beneficiaries of the deceased party’s estate by the executor. However, without the person in question around to specify their desires, these negotiations can often dissolve into legal disputes, the resolutions of which are not often met easily. In fact, fighting over her post mortem funds has already begun, according to several reports.
So if you know that your business, likeness or name could potentially earn your estate money after you pass away, take the time to address such matters with your lawyer, and the executor of your estate. This way, when you pass on, these funds can be handled as easily as your life insurance benefit payout and distribution of your estate at the time of death.
Can a family limited partnership aid in reducing estate taxes?
Family limited partnerships (also referred to as FLPs), are generally entered into by two or more members of the same family, and controlled by the state government and law.
Generally speaking, there are two classes of ownership in a limited partnership – general partners and limited partners. General partners have control over everyday business operations, and are held personally responsible for any debt incurred by the business. Limited partners are not involved with operations, but do shoulder some of the debt liability, though it’s proportional to the amount that partner contributes.
FLPs can be powerful in regards to estate planning. First, they help reduce income and transfer taxes that could come with transferring business ownership. Also, they offer you control of the business while it’s transferred. In addition, you can be sure of continued family ownership and provide liability protection for limited partners through such a deal.
Members of an older generation tend to use FLPs to hand over business (and income-generating assets in general), gaining both general and limited partnership interests in the process. FLPs are often gifted (in part or entirely) to a younger generation. General partners don’t have to own a controlling majority of partnership interests – they can even own just 1%-2%, with the rest divided between limited partners.
How can I make sure my business stays in the family, no matter what?
You have several options that will ensure your family’s legacy in your business. The best fit depends on the kind of ownership you have in the business, and whether or not you wish to maintain control until you pass away. The type of business in and of itself may also dictate your options.
If you have a sole proprietorship, you have more options than you would if yours were, say, a partnership or corporation. If there’s a preexisting buy-sell agreement between multiple owners, this would also affect your ultimate decision. Each option available has tax implications, and no matter what, your estate planning ideals will have to come into play.
Should you maintain ownership until death, you can simply use your will to transfer your business to family members. Valuation discounts may be available to lower taxable values, but this option should be well-funded all the same (likely with a life insurance policy).
But if you’re looking to transfer ownership while you’re alive (for example, if you wish to retire, or are rendered disabled) you can still structure the transfer while maintaining control, until the transition reaches a point where you can remove yourself entirely from the business. Lifetime gifts of interest to family members are an option. The amount of the gift, and the recipient, may mandate a state and/or federal gift tax. You could also combine gifting with outright sale of your interests (a sale that could take place while you’re alive, or after your demise). A trust could facilitate a transfer, as well as family limited partnership.
If the aforementioned buy-sell agreement applies to your situation, you can simply establish in it that your portion of the business be transferred to one or more family members. Be careful who you choose, however – a buy-sell agreement is binding, and you cannot option your portion of the company to an outsider once it is set (with few exceptions, depending on the terms under which the agreement was made).
Talk with a tax attorney for specific information about your situation, and the tax implications of each of your options.
BeamaLife can help you save thousands of dollars in your income and estate tax through pension plan and life insurance strategies now.
What are the advantages – if any – to organizing a business as a family limited partnership?
There are several benefits to making your business a family limited partnership, or FLP.
For starters, the interests in a family limited partnership can be gifted at values falling lower than the full market value of their underlying assets. Through this (as opposed to a direct transfer), you could stand to save big on gift and estate taxes. And in the event of your death, your interest in the partnership can be included in your overall estate.
An FLP offers you control of the business during the transfer, and allows you to even shift income and future appreciation to other members of the family, with similar tax benefits.
Lastly, you may be restrictions applied to limit a partner’s ability to transfer interest, so that if you want, you can maintain your family’s control of your business.
BeamaLife can help you save thousands of dollars in your income and estate tax through pension plan and life insurance strategies now.
Can I hand over my business after I pass away through my will?
Your will can, in fact, be used to transfer business interests after you pass away. Your will can also be used to dictate long-term plans and instructions for your business. For example, if you wish to see one of your children take over, especially if they are presently involved in how your business is run, you may specify how you wish for their assumption of control to be handled. If you don’t outline such things, your business could be distributed evenly amongst your children, even if that is not your ultimate wish or desire for your business.
The downside to including your business in your will is that the full value of your interests could be taxed as part of your taxable estate. If you’ve planned and accounted for additional liquidity – by, for example, having a life insurance policy in place – you won’t have to worry. But if not, your heirs may have to sell your business just to handle the taxes.
Any assets dealt with by means of a will are subject to probate. Probate is the court-supervised process that administers a will, and can be both time-consuming and expensive, as far as processes go. Also, the probate process could cause interruptions in the business itself, which may parlay itself into loss of both employees and customers if too much confusion and inefficiency in the transition of power. Ambiguity regarding who handles what, and how operations are handled going forward, could also create a clientele/staffing hemorrhage. Probates are public, which would not only potentially add to the commotion, but would air everything for the world to see – even matters which you would prefer to keep confidential.
Speak with your lawyer, and a trusted financial professional, about your business interests, and how best to handle your affairs after your demise. There are other ways to handle a transition of power beyond using your will and risking the probate process. However, all of your options require time and careful planning, so the sooner you start the process, the better it will be for all concerned parties.
BeamaLife can help you save thousands of dollars in your income and estate tax through pension plan and life insurance strategies now.
I’m trying to figure out the worth of my business, as it pertains to my estate (as well as for gift tax purposes). How can I calculate this?
To begin, you should not try to figure this out on your own, without the help of a trusted financial advisor. One of the main reasons is that the IRS could opt to challenge your results, and they concede themselves that there is no true fair market value (FMV) in existence for a business. There are, however, appraisers whose job it is to determine the value of a given business. Talk with your CPA, as they may be one. If not, they may be able to recommend someone who is, and having a reference from someone you trust will make this process that much easier on you.
An FMV, according to federal estate and gift tax regulations, is (to greatly simplify their official definition) the price a potential buyer or seller would come to together, not the one that the owner would agree to or the buyer would be willing to put forth for the business independently.
There are many factors that contribute to the value of a business. The RIS identifies some as particularly significant, including the nature of the business, the company’s history, the economic outlook (both on a general level, and in relation to your business’ industry), earnings capacity, book value, the general financial condition of the company, and several others.
Since these factors are ever-changing, don’t rely upon older appraisals for newer transactions.
Since it is such a nuanced and complex amount to arrive at, only an appraiser is truly qualified to examine all of these factors, to arrive upon a fair and researched FMV for your business.
BeamaLife can help you save thousands of dollars in your income and estate tax through pension plan and life insurance strategies now.
Three Ways To Turn Today’s Down Market To Blessing For Estate Planning!
A down market can mean tough times and the loss of value of investments, but it can also present unique opportunities to minimize property transfer (gift and estate) taxes. While owning assets that are losing value might seem like a bad thing, it may actually be a great time to reduce your taxable estate by giving those assets away. That’s because current low asset values and interest rates enable you to make gifts at a lower gift tax cost. When the market rebounds, those assets will be growing in your next generation’s estate and not in yours. Following are three gift-giving techniques that take advantage of today’s depressing economic climate:
1) Basic gifting: You can give away up to $13,000 to anyone you want, to as many people as you like, each year gift-tax free. This is known as the annual gift tax exclusion. You can give away twice that amount (split gift) if both you and your spouse make the gifts together. And, you can give away even more if you pay tuition or medical bills on behalf of another person (you must make these payments directly to the school or health-care provider).
2) Family loans: You can lend money to your children at the current IRS minimum interest rate, and then forgive an amount equal to the gift tax exclusion each year (the gift tax exclusion amount is adjusted annually for inflation; $13,000 is the figure for 2009).
3) Grantor retained annuity trust (GRAT): A GRAT is a trust into which you put assets that you expect will increase in value over time. The value of the gift is determined using the IRS’s current interest rate. The trust must terminate at a specified time for example 10 years. You receive annuity payments during the term of the trust, and at the end, your children receive the property. Hopefully, the assets will appreciate beyond the IRS’s interest rate, allowing the excess to pass tax free.
These great strategies, and others, can turn this current economic downturn into a mixed blessing.
Please call (877) 972-3262 now for your Estate Plan and Pension Plan.
Isn’t Estate Planning only for the rich & famous people?
Estate planning allows you or anyone to implement certain tools now to ensure that your concerns and goals are fulfilled after you die. Your objective may be to simply make sure that your loved ones are provided for. Or you may have more complex goals, such as avoiding probate or reducing those dreaded estate taxes.
Estate planning can be as simple as implementing a will and purchasing life insurance, or as complicated as executing trusts and exploring other sophisticated tax and estate planning techniques. Therefore, estate planning is important whether you are wealthy or whether you have only a small estate. In fact, estate planning may be more important if you have a smaller estate because final expenses will have a greater impact on your estate. Wasting even a single asset may cause your loved ones to suffer from lack of financial resources.
You may also want to plan your estate if you have special circumstances such as any of the following:
• You have minor or special needs children
• Your spouse is uncomfortable with or incapable of handling financial matters
• You have property in more than one state
• You have special property, such as artwork or collectibles
Estate Taxes…they aren’t going anywhere anytime soon!
The Wall Street journal published an estate tax article on the top fold of the paper two days ago highlighting President-Elect Obama’s intent to retain the tax. Both chambers of Congress have debated the merits of seemingly inevitable stimulus legislation. Obama has met resistance from members of his own party regarding his intent to include tax breaks to businesses for employee retention efforts as well as payroll tax credits for low wage earners. It is easy to overlook the fallout from increased government expenditures or reduced revenue, but when discussing tax reform, it is essential to put into context the current fiscal realities that constrain the debates.
A recent CBO report projects that the 2009 deficit will total $1.2 trillion, or 8.3 percent of GDP, without any changes in current laws and policies. Enactment of the American Recovery and Reinvestment Plan, “the stimulus package,” would add to that deficit by roughly $800 billion over two years, without incorporating tax cut extensions. Additional tax cuts, should they be included in the stimulus or a separate bill, would cost approximately $100-$200 trillion for this year alone.
The President-Elect’s proposed tax plan contains numerous cuts and refundable credits. Obama has proposed making permanent the EGTRRA rates up to the $250 K threshold, while restoring the 36/39.6% rates for those who exceed this threshold. Tax credits include, but are not limited to, a mandate for automatic 401(k)s and IRAs, expanding the saver’s credit, a senior income tax exemption, extension and indexing of the 2007 AMT patch, a freeze of 2009 estate tax levels (45% top rate, $3.5 million exemption level), and a host of business credits. If enacted, the decrease in government revenue as a result of this tax package could reach nearly $3 trillion.
These figures are daunting, but our nation has faced worse, so it is important for us to keep our eyes on the light at the end of the tunnel. Consumers have responded to this crisis by changing their risk appetites to fixed and universal life products that are much more secure. A recent report from the Bureau of Labor Statistics indicates that despite the negative savings rate which has plagued the country for the past two years, savings as a portion of disposable income rose from 2.4 percent in October to 2.8 percent in November 2008.
