A Business Plan For Your Life (And Your Death)

A great estate plan is like a business plan for yourself and those most important to you.  Just as a business plan is a road map to long-term success, an estate plan is a road map to achieving peace of mind for your family and perhaps even your business partners.  As we have heard many times before, there is no escaping death and taxes, so we might as well plan for both.  And yet, when we work with founders, we often find that they are so consumed with running their businesses that their estate plans—their “personal” business plans—are in disarray or nonexistent.  Below are a few pointers to help you begin to chart a course in estate planning.

Why Is an Estate Plan Necessary?

A great estate plan is more than just a document that disposes of your assets at your death.  A great estate plan also provides guidance and protection during your life.  For example, a well-drafted power of attorney provides protection for you during your lifetime.  A financial power of attorney allows you to pick someone you trust to handle your financial affairs if you cannot do so yourself.  A health care power of attorney allows you to pick someone you trust to handle your medical decisions if you cannot do so yourself.  In either case, a power of attorney can provide you with peace of mind because you have selected the person of your choice to have the authority to act for you when you are not able to act for yourself.  In addition, a great estate plan allows you to thoughtfully transfer assets in a tax-efficient manner and in a way that best suits your family and your life circumstances.

A failure to plan can be expensive, time-consuming and add more burdens to your family, friends and business partners.  If you become incapacitated and you do not have a power of attorney, your family may have to go through an expensive and time-consuming court action to appoint a guardian to make decisions for you.  If you die without a will or trust detailing disposition of assets or who will be guardian of your children, the law will make those determinations for you.

It is never too early or too late to start work on your estate plan.  Several young billionaires have been featured in news articles regarding estate planning they have been implementing even before they have had children or, in some cases, even before they are married.  Whether you are just starting out, starting over or starting the next phase of life, a great estate plan allows you the opportunity to decide who should act for you if you cannot act for yourself, who should receive your assets, when they should receive your assets and who should watch over your loved ones.

Gathering Data and Discovering What Should Be in Your Plan

A great estate plan, like a great business plan, will provide a road map to success.  In order to develop your plan, you and your advisors should have a clear understanding of your current personal and financial situation.  For example, you may want to complete the Trust and Estate Planning Data Form.

Once you have gathered your personal and financial data, you should work with your advisors to develop your estate plan.  Your plan will be unique to your personal circumstances, although there are several basic documents that should be included in almost all plans:  (a) a will or trust detailing how your assets should be distributed and who should be guardians of any minor children, (b) a financial power of attorney detailing who should handle your financial affairs if you are unable to do so, (c) a health care power of attorney detailing who should handle your medical decisions if you are unable to do so, (d) a health care directive or living will setting forth your wishes regarding life-sustaining procedures if you are in a terminally ill condition, and (e) beneficiary designation forms for life insurance and retirement plans.

Implementing Your Plan

You now know why a great estate plan is important and you have done your research, gathered your data and become familiar with the basics; now it is time to implement your plan.  Work with your advisors to develop, review and execute your basic estate planning documents.  Consider sharing some or all parts of your plan with those persons who will be impacted by your plan.  Do the people you have named as attorneys-in-fact under your financial and health care powers of attorney know that you have selected them?  Do they understand how you would like them to make decisions?  Does your personal representative know what is expected?  Have you talked to the potential guardians of your children?  Now is the time to do so.  This does not need to be morbid or depressing.  This can be a life-affirming and thoughtful way to show your love and a great way to communicate what is important to you.  A tool that can aid you in your organizational objectives is the Estate Organizer.

Planning for Business Assets

You may want to consider extra planning when you have business assets.  Are you the founder of a startup?  Is your business going public?  Are you planning on your children continuing your business?  Is there a liquidity event in your future?  These are all great planning opportunities.  Some of the most effective gift planning can be done during startup stages.  For example, gift founder’s stock to a trust for your children at startup.  It is much better to let the appreciation grow in the trust rather than try and find cost-effective ways to transfer value to your children after the stock has appreciated.  If you have charitable objectives, consider a gift to a charity before a liquidity event.  You will not pay tax on the appreciation and more funds will end up with your charity of choice.  Beyond planning for liquidity events, you should also consider who will be responsible for management of the business if you are incapacitated or if you die prematurely.  Will your estate have sufficient liquidity to pay estate taxes?  Are there shareholders’ agreements or other business agreements that impact liquidity, management and even ownership of business interests?

Review, Revise and Update Your Plan

Just as you must periodically review, revise and update your business plan, your estate plan must also be periodically reviewed, revised and updated.  If circumstances change, your estate plan should be examined and updated as necessary.  Life events that might warrant a review of your estate plan include marriage, children, divorce, career changes, major liquidity events, a move to another state or a death of a spouse, to name just a few.  Even if there have not been major life changes, a periodic review is prudent to see if law changes (both state and federal) warrant an update to your plan.

A great estate plan serves as the business plan for your life.  The time you take planning now can provide peace of mind for your family, aid in the transition of your business interests while protecting both your family and your business partners and perhaps even provide more money to those you love and the charities you support while paying less in taxes to the federal and state governments.