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 canseem challenging on the surface until you understand the relatively simplesolutions that can be implemented.
Inheritance Balancing
The best way to explain the first situation is through the use of a simpleexample. Let’s say that you own one of the most popular restaurants in town. Inaddition to the considerable revenue that is generated on an ongoing basis, theproperty and the furnishings and equipment inside are quite valuable.
You have put all of your efforts into the business, working long hours, andit is your most valuable possession by a wide margin.
After graduating from high school, your son started working at therestaurant full time, and he has been totally invested throughout his adultlife. Your only other child is a daughter that has gone in a differentdirection, and she has absolutely no interest in the hospitality field.
When you are planning your estate, you know for sure that you are going toleave the business in its entirety to your son. At the same time, you want toprovide an equal inheritance to your daughter, but all of your otherpossessions combined do not equal the value of the restaurant.
Under these circumstances, you could balance inheritances through thepurchase of life insurance. You determine how much the business is worth, andyou take out a life insurance policy for that amount. After your death, yourson would inherit the business, and your daughter would receive the insuranceproceeds.
Buy-Sell Agreements
Another situation that can be addressed through the utilization of lifeinsurance is a business partner succession scenario. Once again, we willexplain by way of example.
In this instance, you own a restaurant along with one partner, and you areboth devising estate plans. How do you account for the share that is held byeach respective partner?
This can be done through the creation of a buy-sell agreement called thecross purchase plan. The first step will be for you and your partner todetermine the value of each share in the business. You then take insurancepolicies out on one another that will pay out an amount that is equal to thevalue 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 partnerfrom their estate. Going forward, the business would be owned by the survivingpartner. The family would have liquidity that would be distributed inaccordance with the wishes of the decedent.
Schedule a Consultation!
If you would like to discuss your estate planning objectives with anattorney, there is no need to hesitate because you are keeping your physicaldistance from others. In light of the limitations that we are all experiencingdue to the coronavirus, we are offering remote consultations.
It is important to facilitate effective asset transfers, but incapacityplanning is a key element as well. You should name representatives to makemedical and financial decisions on your behalf if you become unable to do sofor any reason.
You can call us at 513-721-1513 to set up a meeting, and there is a contact form on this websitethat you can use to send us a message.
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