There are many different approaches that can be taken in the field of estate planning, so there is usually a solution to any situation that can arise. This is one of the reasons why it is important to speak with an estate planning attorney before you make any assumptions.
With this in mind, we will look at a couple of different scenarios that can seem challenging on the surface until you understand the relatively simple solutions that can be implemented.
Inheritance Balancing
The best way to explain the first situation is through the use of a simple example. Let’s say that you own one of the most popular restaurants in town. In addition to the considerable revenue that is generated on an ongoing basis, the property and the furnishings and equipment inside are quite valuable.
You have put all of your efforts into the business, working long hours, and it is your most valuable possession by a wide margin.
After graduating from high school, your son started working at the restaurant full time, and he has been totally invested throughout his adult life. Your only other child is a daughter that has gone in a different direction, and she has absolutely no interest in the hospitality field.
When you are planning your estate, you know for sure that you are going to leave the business in its entirety to your son. At the same time, you want to provide an equal inheritance to your daughter, but all of your other possessions combined do not equal the value of the restaurant.
Under these circumstances, you could balance inheritances through the purchase of life insurance. You determine how much the business is worth, and you take out a life insurance policy for that amount. After your death, your son would inherit the business, and your daughter would receive the insurance proceeds.
Buy-Sell Agreements
Another situation that can be addressed through the utilization of life insurance is a business partner succession scenario. Once again, we will explain by way of example.
In this instance, you own a restaurant along with one partner, and you are both devising estate plans. How do you account for the share that is held by each respective partner?
This can be done through the creation of a buy-sell agreement called the cross purchase plan. The first step will be for you and your partner to determine the value of each share in the business. You then take insurance policies out on one another that will pay out an amount that is equal to the value of a share.
After the death of one partner, the survivor would collect the proceeds. They would be used to purchase the share that was held by the deceased partner from their estate. Going forward, the business would be owned by the surviving partner. The family would have liquidity that would be distributed in accordance with the wishes of the decedent.
Schedule a Consultation!
If you would like to discuss your estate planning objectives with an attorney, there is no need to hesitate because you are keeping your physical distance from others. In light of the limitations that we are all experiencing due to the coronavirus, we are offering remote consultations.
It is important to facilitate effective asset transfers, but incapacity planning is a key element as well. You should name representatives to make medical and financial decisions on your behalf if you become unable to do so for any reason.
You can call us at 513-721-1513 to set up a meeting, and there is a contact form on this website that you can use to send us a message.
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