A perception exists, in Texas and elsewhere, that estate planning is about avoiding taxes, but in fact it goes beyond that into even more fundamental issues of how to preserve and protect one’s estate. With respect to federal estate taxes, currently a married couple must have a combined estate over $10.6 million before exposure to a federal estate tax. Additionally, an individual should worry about income taxes during life prior to considering estate planning for a death tax. Income tax rates for a business owner, for example, can be as much as 50 percent under certain circumstances.
For a business person, it is the business during life that is the number one concern – it must be preserved in several key ways, or there will be no estate to plan. Where a small business is dependent on its founder, his or her disability or inactivity can depreciate the value of the business quickly. Thus, it is vital in many cases for the person preparing an estate plan to first focus on insurance and risk management so that the estate corpus can be protected from destruction.
A business owner must make sure that the business will not become paralyzed by quarrels over ownership, valuation and ultimate control. A plan for business continuity can be instituted during life, with the result of having the business continue on, without needing drastic changes or psychic magic to know the future. Key man insurance coverage can fund a buyout agreement between partners or those business executives in a prime position to take over the business on the founder’s death. Additionally, the death of a founder or business owner can create other needs for liquidity.
This may involve paying creditors, settling accounts, supplementing lost revenue, funding a buyout and similar things that call for cash. This may put company assets in danger of wholesale liquidation. That crisis can, however, be prevented by estate planning that puts life insurance funding into place prior to death. A related problem is the struggle for control of the business by family members. In Texas and elsewhere, this can be eliminated by putting into effect a funded, iron-clad business succession plan during life.
Source: Forbes, “Worry About Your Estate Plan, Not The Taxes“, Steve Parrish, July 1, 2014