1. Immediately notify family, close friends, and attending physician;
2. Determine decedent’s expressed funeral and burial wishes, arrange for obituary and funeral arrangements, and order multiple death certificates;
3. Arrange care for pets, find and dispose of perishable property, secure residence and valuables, and forward mail;
4. Keep records of all payments for funeral and other expenses;
5. Locate safe deposit box, will, codicils, trust, and other estate-planning documents;
6. Locate life insurance policies, investment and bank account information;
7. Advise Social Security and other government agencies, as appropriate;
8. Investigate Social Security benefits; life insurance, union, veteran, and employee benefits; and business and retirement accounts;
9. Select and retain estate attorney;
10. Deal with fire, theft, liability, and auto insurance of the decedent;
11. Prepare inventory of assets, accounts and debts, and obtain valuations, if necessary;
12. Review credit cards for payment and cancellation; and
13. Arrange for final income tax return and estate tax return, as necessary.

Every trust has a creator or settlor, trust property, a trustee and a beneficiary. Any person legally capable of entering into an agreement or contract may create a trust. Any type of property that currently exists and is owned by the trust creator may be contributed to a trust. Anyone legally capable of holding title to, and dealing with, property may be a trustee.

The trustee has three primary duties: (1) to carry out the purpose of the trust, (2) to act with prudence and care in administering the trust, and (3) to exercise a high degree of loyalty to the beneficiary. No special skills are required of a trust under ordinary circumstances. There are very few restrictions on who can be the beneficiary. For example, a pet can be named as beneficiary.

The most common types of trusts are express trusts. An express trust is created by voluntary action by written document or, under some conditions, an oral statement. Trusts are all irrevocable unless the power of revocations is specifically reserved by the creator/settlor. Trusts are usually created for a defined span of time. Death of the creator, trustee or beneficiary does not result in termination of the trust unless such is part of the terms established at origination.

Living trusts are simply trusts designated to hold assets during an individual’s lifetime. They are most often used to avoid the public nature and expense of estate administration following death. Revocable trusts are more appropriate for this use than irrevocable trusts. In contrast, irrevocable trusts are often created by wealthy individuals who want their assets to be used for the benefit of a person who may need assistance in the management or administration of the assets.

Trusts can be expensive to administer and can cause major problems for those who enter into them without competent legal and financial advice from an experienced estate planning attorney or financial planner.

1. Give it outright.
2. Give it in a trust.
3. Give it by means of special guardianship.
4. Give it using a custodial account.

These options still exist, but each has limitations. For example, many parents are reluctant to give property outright to their children for fear they would squander it. Trusts offer parental control but can be costly to set up and manage. The special guardianship is often impractical and leaves overly broad powers with, and sometimes places a burdensome responsibility on, the guardian. For these reasons, the custodial account was long favored by parents and their advisors.

Custodial Account

Most state laws provide a way to establish a custodial account under either UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act). A custodial account is often referred to as a “poor man’s trust.” To set one up, all you need to do is open an account at your financial institution and tell it to set up a custodial account. It’s so easy, common and standardized now that few consult a lawyer.

But bear in mind that though the mechanics of setting up the account are simple, serious legal and tax consequences result once a parent funds a custodial account. For example, the account is irrevocable. Once funded, you can’t get the money or assets back. And the property in the account must be distributed to the child when he or she reaches the age of majority — typically either 18 or 21, although it can be extended to age 25 in some cases. None of the above-mentioned options offer tax shelter or deferral.

For the above-cited reasons, the new ESA and QTP/529 accounts have become preferred options. A big reason is their tax-sheltering and/or deferral characteristics.

Coverdell ESA vs. QTP/529

The Coverdell Education Savings Account (ESA) program and the Qualified Tuition Program (QTP/529) are similar in many ways. Both feature the ability to invest monies into accounts that allow tax-free growth and tax-free withdrawal for higher education expenses. Both allow contributions, considered gifts by the IRS, to be made by either individuals or companies, and neither offer federal tax deductibility of contributions. Both offer the ability for the donor/contributor to retain control of the funds if the account is set up in a way that provides for this. Both allow the designated beneficiary to be changed to members of the family of the original beneficiary.

So what are the differences? The ESA program has a few more restrictions. While the QTP has no restriction on who can contribute or how much can be contributed annually, the ESA excludes certain high-income earners and limits the annual contribution to any one beneficiary to $2,000. The ESA also does not allow contributions if the beneficiary is 18 years or older, and requires that all account funds be distributed by the time the beneficiary turns 30. The QTP does not have such restrictions. Some states allow for contributions to their state QTP plans to be deducted from state taxes. Finally, the QTP is unique in that it has a prepay option, which allows a contributor to prepay tuition.

But the ESA does have one attribute not matched by the QTP. ESA funds can be used for elementary and secondary school expenses.

So which to choose? Well, you don’t really have to choose, as contributions can now be made to both an ESA and a QTP for the same beneficiary in the same year. But given that the QTP has almost all the attributes of the ESA and far fewer limitations, many will choose to convert existing ESA accounts to the QTP (which is easy and penalty-free), and set new accounts up as a QTP.

Coverdell Education Savings Account (“ESA”)

Anyone with a modified adjusted gross income less than $220,000 (married filing jointly) may contribute up to $2,000 per year to any person under the age of 18 (beneficiary) via a Coverdell Education Savings Account (ESA, formerly called an Education IRA). In fact, a qualifying contributor can donate, within these limits, to as many ESA beneficiaries as he or she wishes. Any business, regardless of its size or income, can similarly contribute to an ESA account.

If the distributed funds are used to pay qualifying higher education expenses of the beneficiary, no tax will be due. Otherwise, the earnings portion of withdrawals is taxed at the ordinary income rate of the beneficiary plus a 10 percent penalty (on the earnings portion only).

Monies in an ESA must be withdrawn before the beneficiary reaches the age of 30 and can be moved penalty-free to another ESA account of the same beneficiary or any relative of the beneficiary under the age of 30. Unused ESA monies cannot be rolled over into a retirement account, but ESA account monies can be rolled into a QTP account anytime without penalty. Talk to a bank or investment firm for more information or to set up a Coverdell ESA.

Qualified Tuition Program (QTP or 529 Plan)

Formerly known as the Qualified State Tuition Program (QSTP) and commonly referred to by the Internal Revenue Code section that brought it to life (Section 529), the QTP is a government program that allows you to either prepay a student’s tuition or contribute to an account established to pay a student’s higher education costs. The QTP is attractive in that it allows:

Prepayment Option: Guarantee higher education for a future student by purchasing vouchers or credits today that can be exchanged in the future for postsecondary school expenses.

Savings Option: Invest money today in a way that allows for tax-free growth and withdrawal if used to pay higher education expenses.

The ability to prepay tuition is attractive because it eliminates the uncertainty as to whether sufficient funds will be available to pay tuition when the beneficiary or future student is ready. The ability to invest tax-free is attractive, as invested funds will grow much faster without the “tax man” asking for a yearly donation.

Anyone may set up a QTP account, which is simply an investment account held by an approved administrator, such as Merrill Lynch, T. Rowe Price, TIAA-CREF or Alliance Capital. The person who sets up the account can name anyone he or she wants as the account owner and as the beneficiary, including himself or herself.

The account owner controls the account and decides how and where the funds will be invested and distributed. The account owner can change the beneficiary to any family member of the original beneficiary once per year. But if withdrawn funds are not used to pay higher education expenses of the designated beneficiary, the earnings on the invested funds will be taxed at the applicable rate of the person who received the distribution plus 10 percent.

The only limit to contribution is that QTP plan monies for a single beneficiary may not exceed the total estimated cost of higher education, which is estimated by the chosen QTP plan administrator. QTP plans currently use limits in the $225,000 to $300,000 range.

A person can invest in a state’s plan no matter where he or she lives. Monies in an account can be used to pay the expenses of virtually any public or private institution of higher education, regardless of which plan is chosen or where the beneficiary may live. Monies can be moved freely from one QTP account to another, without penalty. Some states allow for contributions to their QTP plan to be deducted from state income taxes. Finally, most state-sponsored plans provide that, if the beneficiary is a resident of the state the plan resides in, no state income tax is due on earnings or withdrawals.

Unlike the Coverdell, there are no income limits on who can contribute, and there is no age limit on when funds can be contributed or must be withdrawn. But QTP plans have more stringent restrictions on how funds can be invested. The choices are unique to each QTP plan and generally include a range of money market, bond fund or stock fund options. As such, before selecting a plan, you should consider the available investment choices, competency of the investment managers and the expense loads and fees.

The account owner of a QTP can be either an individual, a trust or a 501(c)(3). Monies can be moved from an ESA to a QTP account anytime without penalty.

Moving Monies from UGMA and UTMA to QTP/529

Luckily, most QTP plans allow assets held in UGMA and UTMA accounts to be transferred to a QTP. But be aware that resulting capital gains or losses may cause the account to incur commissions, fees and tax liabilities. In addition, although the UGMA/UTMA assets may be transferred to a QTP plan account, the UGMA/UTMA rules of the state where the original account was established will likely continue to apply.

This may limit some of the benefits that generally would be available to you when you contribute to a QTP plan account. For example, you usually can determine the age at which the beneficiary may access the funds in the QTP Plan account. But for QTP plan accounts funded with UGMA/UTMA assets, the beneficiary may become the account owner upon reaching the age of majority. To avoid this, you might want to consider leaving the funds in the UGMA/UTMA account and establish a QTP account for the same beneficiary. This way, you can continue funding your child’s or grandchild’s education, with the new funds enjoying the benefits of the QTP program. The assets in the UGMA/UTMA account can then be used for other expenses of your child, grandchild or other beneficiary.

Most successful business owners are good people. Caring people. I’ve worked with thousands of them.

Jerks tend to implode, eventually. Traits of care, honesty and integrity aid the business owner in surviving and succeeding over the long haul, so most who “make it” are “good folks,” as we say in the South.

Yes, most successful business owners are also driven to achieve material and financial success, but such is not the extent of who they are. They care about the people around them, such as their employees. They contribute to charitable causes.

When the time comes for business owners to sell their businesses, they worry a lot about the impact it will have on their employees. In most cases, I’ve found the owner’s “ideal exit” would have many of the following elements:

• maximum price
• confidential until closed
• all employees keep their jobs at same or better terms
• key manager or manager(s):

  assist in the sale, keep it confidential and earn a bonus at closing

  are hired by the buyer to continue running the business

  gain or increase their ownership in the business

  have a “good” experience with the new owners, who are committed to growing the business

• buyer is “good people” and succeeds in growing the business
• business continues to operate at its current facility or community
• seller retains an ownership stake in the ongoing business and such pays off handsomely

The amazing thing is, all off these are achievable for many business owner-sellers. Certainly, at least, when the business is stable and earning $1 million per year or more in annual profit. The buyers of businesses this size or greater are many, and most want the established management team to remain and continue to run the company.

The biggest barrier to making this happen for a business owner is — aside from finding the right M&A firm that has the knowledge, skill and staff to run the processes and put this type of deal — convincing him or her that it IS possible. That he/she can maximize the sale price AND secure these additional elements. The keys to making it happen are:

• Proper preparation and packaging
• Run a process that works the top buyer candidates simultaneously
• Skillfully communicate and negotiate the seller’s deal term desires
• “Sell” the skill of the management team and its desire to remain
• Negotiate on behalf of the management team

Buyers want to do business with good people. Buyers who trust that the person or persons whom they are buying out will pay more. Buyers who see that the selling owner cares about more than just money, such as the employees, view the seller as trustworthy. Of character. And this is why going for more than just money can result in an ideal sale. That is, a maximized sale price PLUS so much more. Everyone wins: the seller, buyer, employees and the community.

For more on this topic, go to AcquisitionAdvisors.com. Sign up for the free e-newsletter The Quiet Exit. It provides advice on how business owners can go about selling quietly, professionally, for absolute maximum.

What if your wishes change? Create a new will or amend your existing (by “codicil”). A codicil must conform to certain laws as to design and execution, just as the will must. You’ll want your attorney to assist you. Or just put your new wishes down on paper, then sign and date it. Actually, make three originals. Attach one to the copy of your will; give one to the attorney who created your will and one to the executor of your estate (as directed in the will).

The latter method is not as ironclad as the first, but it’s used regularly even by many attorneys. This is because it works in almost every case. The heart of probate law rests on a simple question: “What was the person’s intent?” If you use care in exercising this option, your intent should be clear and purposes should be served.

But bequests of assets with significant value, such as a business, should be made only in a will with the aid of an attorney experienced in such matters.

Of course, life insurance policy benefits are not paid out until the death of the insured. That’s why it’s called a death benefit. But with death comes the inevitable estate tax, commonly referred to by opponents of the tax as the “death tax”. Sure, the wealth of a deceased passes to his or her spouse tax-free, but this results in a mere delay of estate taxes because Uncle Sam will get his full cut when the surviving spouse dies. That means less for your children and grandchildren if the value of the estate exceeds certain thresholds.

The logical question, then, is why have a life insurance death benefit paid into an estate that is soon to be taxed? It’s a good question.

The good news is there are ways to “shelter” life insurance proceeds from death taxes. The common strategy is to hold the policy inside an irrevocable life insurance trust (ILIT) that has an independent trustee. When the insured dies and the policy pays the death benefit, such funds go into the trust and are invested as directed by the trustee (and the trustee invests the monies as stipulated by the trust document). Funds are then periodically distributed to the surviving spouse, once again as directed by the trust document. Then, upon the spouse’s death, the money that remains in the trust is distributed to his or her heirs.

Again, the purpose of an ILIT is to remove life insurance proceeds from the insured’s estate for federal estate tax purposes.

Ideally, the life insurance policy is taken out (i.e., purchased originally) by the trust itself. If the policy was purchased/originated before the trust is set up, it can be transferred into the trust, but there is a three-year rule, which stipulates that if the insured dies within three years of such a transfer, the death benefit will be taxed as if the trust did not exist. In addition, some life insurance policies – namely whole life policies – include a cash buildup feature. Transferring such a policy into an ILIT trust could trigger gift taxes. You don’t want this to happen, so consult your tax professional. He or she might suggest a remedy that entails the insured selling the policy to the ILIT in exchange for a promissory note. The terms of the note would call for the ILIT to repay the note with cash from future gifts by the insured to the ILIT or upon the death of the insured.

Tax and estate planning is complex. Always secure the aid of a skilled, experienced specialist.

Source: Hall Estill Tax and Estate Planning Newsletter (www.hallestill.com)

Matthew Henderson of Henderson Financial Group (www.GoHenderson.com) also contributed his expertise to this article.

In 2008, “excessive wealth” starts at $2.0 million. So if the value of your taxable estate (gross estate minus certain deductions) is under $2.0 million and you die in 2008, there will be no federal estate tax due on your estate. In 2009 the threshold is raised to $3.5 million. In 2010, it drops to $0 (yes, that’s right, under current tax law every single dollar of value in your estate will be taxed. That is, in 2010 there is no estate tax exemption amount at all). In 2011 and beyond, then, the exemption amount returns to $1,000,000. Truth is once again stranger than fiction. Congress is expected to re-visit current law in the coming years.

How much is the estate tax?

The IRS levies, upon your death, an estate tax on every dollar in value that your estate exceeds (at the time of your death) the exemption threshold in place for the year of your death ($2.0 million in 2008). Currently, the estate rate begins at 18 percent. The tax percentage (rate) increases steadily as the value of your estate rises beyond the exemption threshold until it hits 45 percent at the $2 million mark.  In other words, once the value of the taxable portion of your estate hits $2 million (for 2008 that’s a total estate value of $4.0 million), the tax rate becomes 45 percent. For every additional dollar in value, you’ll have to give 45 cents to the federal government.

Following with the above example, a $4.0 million estate in 2008 (with $2 million over the exemption threshold) would owe a total tax bill of $900,000. The effective tax rate would be 22.5 percent.

In addition to federal estate tax, there can also be a state estate tax. Check with your local advisor for details.

Unlimited Marital Deduction

Under federal tax law and most state tax laws, spouses can make gifts to each other during their life or at death with no tax liability. So, if you wish, all of your assets may pass to your surviving spouse, upon your death, completely free of estate taxes.

Who Can Help You With Your Estate Planning?

The field of estate planning is complex. There are professionals that specialize in assisting business owners and wealthy individuals in estate planning. It is best to use both an experienced tax attorney and a knowledgeable financial planner.

If you demand that the sale be effected by stock, buyers often will decline altogether or substantially reduce the price they’ll pay and require the seller to assume some ongoing liability. The May/June 2006 issue of this publication offered mitigating strategies. Here’s another: Sell by Employee Stock Ownership Plan (ESOP). No doubt you’ve heard of it. It’s a kind of management-led leveraged buyout with major tax advantages – and it’s always a stock sale. If your business has the size, cash flow and management depth necessary and you have confidence in the future of your business, it’s the knock-it-out-of-the-park solution for the C-corp seller. Not only do you avoid double taxation, you can darn near eliminate taxes.

Note: ESOP benefits are not just for C-corporations, but tax advantages of ESOP can be extra-valuable to owners of a C-corporation who face double taxation on an asset sale.

Most people retire in their early 60s. Millions dream of retiring into a life of leisure. But it’s your life. It’s your business. Do it your way. Don’t sell. Just make arrangements so that when something happens to you, the business will go on and the family will not be left with uncertainty. Do the following:

1.    Get out of management: How can you insulate the business from the risk of “something happening to you”? Make yourself unimportant. Get out of management. Remove yourself from the organizational chart. Get to where you can take two months off and the business does not miss a beat. Your quality of life will improve and you can spend your time focusing on leadership, vision and growth initiatives.

2.    Automate ownership transition: Selling a business on the open market is a real chore. You probably don’t want to pass this job on to your heirs. A better solution is to determine, in advance, whom you want to succeed you as owners. Certainly, you’ll want to discuss this with the recipient as well as your legal and financial advisors. Typically, it’s a spouse, child or employee. You’ll want built-in mechanisms that deal with financial and tax implications of your structure. Insurance can be a tremendous tool for dealing with timing uncertainties and contingent financial obligations. Given ample time and skilled planning, almost anything is possible. Just be sure your plan does not cause undue hardship (financial, tax, legal or otherwise) and that there is no dispute over control.

3.    Establish who will step in if you become incapacitated: You’ll want to provide, in writing, a clear protocol for when and if you may be deemed unable to manage your own affairs (and those of the business); who will step in to take your place; and any limits to that person’s authority.

4.    Provide for your family: Often, the business is the main source of wealth for a family. How will your plans for your business impact your family? Will they lose their source of income? Inherit financial or managerial obligations? Inherit wealth that could cause problems? Unleash disappointment or jealousy? These are critical issues for any family. You’ll want to investigate the various scenarios; talk to experts; and likely prepare your family, in advance, for what the future holds.

Laying the groundwork to “do it your way” will take a lot of time, work, thought and the assistance of experienced experts. Nothing new to you. Nothing good comes without hard work and sustained effort.

For most of us, the only questions are when and how.

To be sure, timing is critical. The time to sell is when your business is on a good run of consecutive annual profits. The best time to sell is when your revenue and profits have been growing, the economy is hot and times are good in your industry.

That’s right. Buyers want companies that have established growth and profits, and the price they’ll pay will be some multiple of annual profit. Before you spend time trying to find a buyer, focus on building a proven profit engine. Then, remove all of the following from your company. They sap value and turn away buyers:

Customer concentration: No customer should account for more than 10% of annual revenue.

Vendor concentration: If your primary vendor “went away,” would it have an effect on your business?

Owner dependence: Do you play a vital role in your business? If so, you have a problem.

Site Dependence: Does your business depend on a particular site or facility? Can the buyer be sure that he or she will continue to be able to control the site? At a predictable price?

Product or Service Concentration: Are you a one-trick pony? If you have just one product or service, your business may need to diversify before you try to sell it.

Concentration of talent: Does your business depend on one or two key people who would be difficult to replace? Buyers will shy away from businesses that could be badly hurt by the loss of a single relationship, be it an employee, representative, vendor, customer, et al.

Lack of Growth: If your business isn’t growing, you will have a hard time selling it for an attractive price.

If your business suffers from any of the above limitations, you’ll likely be disappointed by what buyers are willing to pay. You might be disappointed regardless, because private companies often don’t sell for substantial premiums, but the listed limitations will substantially deflate sale price and terms.

So get the business ready. Then, when the timing is right, what next? How do you go about it?

First, understand this: Selling a business is a complex, time-consuming and risky endeavor. And to get an honest price, you’ll need more than one buyer. Locating and working multiple buyers takes time and savvy. Even if you could handle it, you’ll risk looking desperate, greedy, flighty, or all three. Sure, we’ve all heard about the sellers who represented themselves and “did just fine.” But I guess you’ll know if the pot of gold seems to be coming in for a landing. If it’s not, I suggest you find an experienced, educated, honest, diligent and confidential person (or firm) to make it happen. Not just anyone. One who’s in the top 5%. If your business is small and likely will sell to an individual, hire a local business broker. If your business can legitimately attract large corporate or investment group buyers, find a merger and acquisitions intermediary (or firm) with those kinds of connections and experience. Find one and then, once you start, get it done. The word eventually will get out on the street, despite your best efforts. The best protection is to move fast and get a deal done – before your offering goes stale and the economy weakens.

Note: There are a few national “merger and acquisitions” firms that put on a great show (typically a local seminar), use all the buzzwords, and tell you they can sell you for big money if you will just pay them $20,000 to $50,000 up-front. Don’t do this! No matter what they’ve said and how pretty their fancy charts are, they’re in the up-front fee collection business – not the business-selling business. They prey on the hopes and dreams of the honest and trusting business owner (and they make a lot of money doing it).