The Importance of Estate Planning

Through our lives, we spend so much time worrying about making a decent living. Many of us worked a lifetime to build wealth. Have you considered what will happen to it in the future? Have you ever shifted your focus away from taking care of yourself, to ensuring your loved ones are cared for after you're gone? That's what estate planning is all about.

You can plan the related arrangement to ensuring your assets are transferred to your loved ones exactly as you wish. As you plan to protect your hard-earned assets, you can also plan to care for your family, friends, and favorite charities, now and in the future.

Estate planning is crucial if you want to:

	distribute the maximum amount possible to your designated beneficiaries with minimum delay;
	be sure that each beneficiary's specific needs met;
	decide who will manage your estate;
	reduce unnecessary estate duty and administrative expenses;
	select a guardian for your child; and
	ensure that a family business stays in the family.

Adequate estate planning can ensure the estate to be taken safely over the financial risks which are posed by probate, creditors, lawsuits, and estate duty.

There are a variety of tools from which you can construct your estate plan, including wills, trusts, life insurance, buy-sell arrangement, etc. Wills are the primary documents for transferring wealth upon death. If you die without one, government law controls the disposition of your property, and settling most estates can be more troublesome - and more costly - for beneficiaries.

The higher net worth may find it cost-effective to set up a trust to gain the control of how, when, and under what circumstances your assets are used and distributed. With a thorough, well-crafted trust as part of your estate plan, you can ensure your assets be managed as you wish after your death, minimize taxes, avoid the cost and delays of probate, provide financial confidentiality, and manage and be protected in the events of your incapacity.

Life Insurance

Life insurance has long been an essential part of estate planning, and it can be very useful, especially for parents of young children and those who support a spouse or a disabled adult or child. Life insurance coverage could ensure enough income to support the dependents in case of premature death. The ownership of your life insurance policy is an important estate planning consideration, as the proceeds are free of estate duty and can provide immediate cash at death. Insurance proceeds are a handy source of cash to pay the deceased's debts and funeral expenses. As life insurance proceeds are not included in the probate estate, they can be quickly transferred to survivors with little red tape, cost or delay. If an estate includes a family-owned business, real estate, or other non-monetary assets, life insurance proceeds can provide desirable liquidity to eliminate the need to sell all or a portion of those assets.

Protecting Your Business With Buy-Sell Agreements

What will happen to your business if something happens to you or your business partners? Many business partners overlook a critical element of their partnership agreement that can save them both money and angst: buy-sell agreement. Such arrangement can provide a stable continuance of the business by avoiding unnecessary disagreements between existing and new (beneficiaries) shareholders.

A buy-sell agreement guarantees a buyer for a retiring or deceased owner's interest in a business, thereby allowing the owner (or the owner's heirs) to recover his or her investment. The agreement also fosters the continuation of the business by not allowing the departing owner's interest to fall into the hands of outsiders - persons who may not be qualified to run the business or who may be incompatible with the remaining owners.

A buy-sell agreement is a binding contract between business partners that control the following business decisions:

	who can buy a departing partner's share of the business (this may include outsiders or be limited to other partners);
	what events will trigger a buyout; and
	what price will be paid for a partner's interest in the partnership.

Typically, the events that trigger a buyout of a partner's interest under a buy-sell agreement are:

	an attractive offer from an outsider to purchase a partner's interest in the company;
	a divorce settlement in which a partner's ex-spouse stands to receive an ownership interest in the company;
	the foreclosure of a debt secured by an ownership interest;
	the personal bankruptcy of a partner; or
	the disability, death or incapacity of a partner.

Without an agreement, your partnership might be forced to dissolve; you might have to work with the spouse or other family member of a deceased, disabled or divorced owner who are inexperienced in the business; or your partner sells his or her share to a stranger or to someone you know well and can't stand. It should be obvious that if you don't anticipate and plan for circumstances like these, you're risking serious personal and business discord － perhaps even court battles and the loss of your business.

Using Life Insurance to Fund a Business Buy-Sell Arrangement

Many successful businesses are closely held with only a few owners. In case one of the principal owners dies, it is quite often that the remaining owners can manage the business quite successfully. Their problem is the financial ability to buy the deceased owner's share of the business from the estate or heirs. A solution might be a buy-sell arrangement funded with life insurance.

A buy-sell arrangement for co-owners to purchase each other's business property is often suggested for closely held businesses. Upon the death of an owner, the mechanism is in place for an orderly transfer of ownership to the remaining owners, since contract negotiations had previously occurred when the arrangement was drawn. Buy-sell arrangements typically include details concerning who has the option to buy from a seller (including an estate), how the sales price is established, and how the transfer may be financed. If the buy-sell is written for the death of an owner, then life insurance becomes a financing option.

When to Update Your Estate Plan

Since you first structured your estate plan:

	Have tax laws changed?
	Have you married or divorced? Have you had children or grandchildren?
	Have you received a promotion or a raise? Has your net worth changed?
	Have you emigrated to a different country? Different countries have different rules governing estates.
	Have any special circumstances occurred? For example, do you have a child with special needs, or has your spouse's ability to earn a living changed due to a disability?

If you answered "yes" to any of the above, you should update your estate plan to reflect these important events. It could make all the difference in ensuring your affairs are carried out in an orderly fashion that coincides with your wishes.

For more information about Estate Planning, please contact us.