What is estate planning and how can it help you? If you've never considered the question, think of it this way: You're not going to be around forever. Plan on it. If you haven't yet made a will, do it today. You can download a "No-Frills" will at Nolo.com, but that's only a temporary measure. It doesn't deal with complex distribution of assets, joint holdings or your (hopefully) multimillion-dollar start-up. Those and other details are covered by estate planning.
Estate planning can be summarized in three words: Who gets what? "When you die, something will happen to all your stuff: investments, real estate, business assets, clothing, jewelry and cars," explains Ric Edelman, financial advisor and founder of Edelman Financial Services Inc. in Fairfax, Virginia. "You have the opportunity now to dictate what will happen to [those things]."
For most Americans, a comprehensive estate plan is a will, often including a medical directive and durable power of attorney. "But if you own a business, there's an extra wrinkle," Edelman points out. "A business is a separate legal entity. It has a life of its own, it can own assets, it hires staff, and it has financial and legal obligations. But it's dumb. So it needs you to tell it what to do." That's where estate planning is particularly important. A business owner has obligations to vendors, customers and employees. Arrangements must be made for the succession of the business upon your death, disability or retirement. Otherwise, employees, customers and vendors are left in the lurch, and your family may suffer inordinate tax consequences. Estate planning is largely driven by a desire to avoid taxes at rates of 37 to 55 percent.
As you establish your business, "get good financial, tax and legal advice," says Edelman, who is also author of The Truth About Money. And the sooner you do an estate plan-irrespective of your age or your financial situation-the better off you will be. "Too often, budding entrepreneurs are focused on the excitement of their businesses and are not interested in the more mundane elements," adds Edelman. "That's a big mistake, especially if there are partners, because when the business is new and the future is ahead of you, it's easy to make decisions with your partner. But if you don't make an agreement as friends in the early days, you'll reach agreement in the end as enemies in a court of law."
Paul DeCeglie, a freelance business writer based in Los Angeles, is a former staff reporter for American Banker and Journal of Commerce.