Estate Taxes

It comes as no surprise to anyone that action or inaction by Congress in 2012 will drastically alter the estate tax landscape.  The estate tax exemption (i.e., amount of assets not subject to estate tax at your death) will go from $5 million to $1 million in 2013 if Congress does not act.  Planning for this uncertainty can be challenging.  The best plan for many clients is to implement a “disclaimer” plan in which the surviving spouse gets to decide how much to “disclaim” in setting up estate tax avoidance trust.

Credit Benefit

Aside from asset protection and tax planning, another benefit to holding assets in a business entity is credit.  When structured properly, business entities allow you to keep business loans off of the owner’s personal credit history.  Business loans can drag down a credit score and result in an increase in the cost of borrowing – or depending on the debt-to-income ratios, can even result in losing credit opportunities.

Estate Planning

Estate planning is not just having a Last Will and Testament.  A common misconception among clients is that life insurance and retirement accounts are controlled by the Will.  In reality, the beneficiary designations on life insurance and retirement assets control ultimate distribution for those assets.  It is very important to ensure that the beneficiary designations compliment the Will.  For example, if the Will says your kids receive all assets through a trust until he/she is 30, then the beneficiary designation should name the trust as the beneficiary until the child is 30.  Note, additional provisions are required in the trust to facilitate tax deferral where a trust is the beneficiary of a retirement account.