October 21, 2016

Your Estate Planning Questions - Updating Your Will and Succession Planning for Business Owners

To round out our Estate Planning Awareness Week, we answer more client questions about wills and succession planning.
Shellie Kurek Peters, CFP®, ChFC®

I had a Will prepared years ago, why should I have it reviewed or updated now? 

Estate planning laws, estate tax exemptions and your own circumstances may change, and these could have a significant impact on a will you created years ago. A Will that made sense then for your spouse or heirs, may not be structured that way given today’s circumstances. 

As an example, a friend’s husband passed away and she came to me for help in handling all that she had to take care of on the financial front. Their Will was created many years ago based on the current exemption at that time that could pass to heirs free of federal estate tax.  It stated that $675,000 would pass outright to her as the surviving spouse and everything else would go into an Irrevocable Trust that set forth cumbersome rules to access income from the Trust. This put her in the position of having to justify things like her car purchase to the Trustee who had the power to question or even deny the request. 

Had she and her husband updated their Will with today’s exclusion amount of $5,450,000 (and further indexed for inflation), she could have avoided this difficult situation.

I have a verbal agreement with my business partners that if something was to happen to me, they would pay out my portion of the business to my spouse and family. I would like to have something more concrete in writing. What should I consider?

Many business owners have what is referred to as a Buy-Sell Agreement.  Within this document, the owners agree ahead of time on the details of the buyout in circumstances such as retirement, disability and even death.  It also provides for how the payout will occur such as timelines and amounts. If there is any chance that the business may not have enough assets or cash flow to make the payout, things like life insurance policies or disability insurance policies could be used to solidify your plan. 

A family business may own assets integral to the operation of the business, like cars or equipment used to make the products.  An unplanned event could put the owners in a position where it is necessary to sell key assets that could affect the business’ ability to continue to operate. 

Also, if a key person is lost, the company likely also needs to replace that person with another who can do the job within the company to keep the business going.  For all these reasons, proper time and thought must be given to design your contingency plan – before it’s necessary!


Shawn: Now you hear all kinds of deals about leasing cars, how can you negotiate a better deal if you want to lease?

Nina: Okay, well many people don't realize that they can actually negotiate the sticker price on a leased car in the same way that you would do that if you're buying a car. And since when you lease -- when you're, you know, your lease payments basically cover the depreciation, the difference between the sales price and the residual value. So it's definitely in your best interest to try to reduce that sales price as much as possible because then you'll pay you know, smaller dollars over the life of the lease. Make sure you pay attention to the down payment at the lease signing. And so here's an example, you might see an ad that says you know, lease payment is only 1.99 a month and that sounds like a great deal for thirty six months. The catch is, is that it might require a $3,600 down payment. So, if you amortize the down payment, then actually that 1.99 special, becomes 2.99. So, you really have to kind of look at total costs. 

And then lastly, dealerships use the term, money or lease factor, when they're calculating your financing costs and a lease factor is not the same as an interest rate. So, you have to make sure the dealer converts that lease factor into a comparable interest rate so you know what your financing charges are. 

Shawn: At the end of the day, does one method wind up being more expensive more often than the other, or can we tell that?

Nina: You know what, it really depends on how long, if you're going to hold the car for a long time, you're better off buying. But if you know, and if you're not, if you just really enjoy driving and you want to have a new car, then go ahead and lease. I mean, there's pros and cons to both, to be honest with you, it's not one size fits all.

Shawn: Alright Nina, great. Happy Thanksgiving to you. Alright, Nina Mitchell is with The Colony Group, for more go to wtop.com and search Her Wealth.

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Shellie Kurek Peters, CFP®, ChFC®

Shellie’s experience includes over 20 years of advising individuals, families and business owners.  Her wealth management and financial planning expertise provides strategies and insights in such areas as: cash flow analysis, risk management, estate and trust planning, investment management, and charitable planning.