In today’s post we’ll continue our review of the six common mistakes that can destroy businesses. The second mistake is failing to do estate planning, and specifically the failure to accurately estimate (and pay for) any tax liabilities that result from a business owner transferring ownership via a will or trust.
Answer the following questions to see if your company is vulnerable:
• Does the owner have a will or trust and is it up to date?
• Does the owner have a living will AKA “pull the plug” instructions?
• Does the owner have a plan to retain key employees if something happens to him or her?
• Has the owner reviewed his or her estate planning documents in the past three years?
• Has the owner identified and written down his or her trusted advisors?
The more “no” answers, the greater the risk. How does your company look?
Estate planning is important for stating who receives your property and other assets when you die. But it’s also about minimizing potential taxes. As we discussed last month, spouses typically get their portion of an estate tax-free, but children, friends, or business partners do not. The so-called “death tax” comes in two forms: federal (estates valued at more than $5,250,000) and state (Oregon’s inheritance tax applies to estates valued at more than $1,000,000).
Although it may not be possible to avoid an estate tax, life insurance or other investment vehicles may provide a source of funding to avoid a potentially crippling blow.
Running a successful business is time-consuming, but failure to plan is planning to fail. Business owners should take steps to preserve the value of the company for the next generation.