Estate planning tips: ten suggestions to prepare for business after death.

WHILE MOST BUSINESS owners have grand plans for the future of their companies, they often find it difficult to consider that future when they are no longer around. That's why estate planning experts from around the state encourage business leaders to take some time now to plan for the impact of their death on both their families and businesses.

Greta Roemer Lewis, a partner with Barnes & Thornburg in South Bend and one of the state's initial class of Certified Estate Planning and Administration Specialists, says although people don't like to talk about death or taxes, estate planning is something that shouldn't be avoided.

1. Do something. "Do something, even if it won't be perfect," she encourages. "What I found is because things can be so complex, people get frozen into doing nothing."

And that can be a mistake, especially for business owners who pass on estates with high values that face up to a 45 percent federal estate tax on everything after the first $2 million. While Indiana estate taxes are lower, they can also reduce an estate's value depending on its size and recipients. Indiana estate taxes have varying rates from the most favored group, including parents and children, who have a $100,000 exemption and a maximum rate of 10 percent, to those who are not related at all and face a maximum rate of 20 percent with an exemption of only $100.

2. Understand the value of the estate. Putting a value on the estate and deciding to whom it will be passed is one of the first steps in the process, Lewis says. However, she points out that may not be a simple task. For example, families with several children are likely to have some who are more interested and involved in the business and others who would benefit more from an inheritance of cash.

3. How to treat the children. "Evaluate how to treat the children who are not active in the business," she advises, noting such decisions should be made carefully and can affect both the dynamics of the family and the company

Although it may seem "fair" to give each child an equal percentage of the business, that may not be the case if some have been more involved in building the value of the company At the same time, children may have differing needs and interests and considering those is no less "fair" than providing braces for a child who needs them while not spending an equal amount on other siblings.

4. Get a team of advisors. Lewis suggests taking advantage of the same professionals who regularly guide the business when making estate plans. "Get a team of advisors, use them during your lifetime and make sure they are available to your family at death," she says.

Lewis also encourages business owners to take the time to write a letter to their family that outlines the basic principles that guide the company and shape important decisions. Having such a document can be very helpful when children face major business decisions and ask themselves, "what would Dad have done in this situation?" she explains.

5. Consider trusts. Another estate planning tool is the use of trusts to hold assets and provide for lifetime giving. Although such transfers can be complex, there may be advantages to placing rapidly appreciating assets in such trusts and even having an irrevocable trust purchase life insurance or naming a trust as the beneficiary of an individual retirement account. Generally the process can be used to extend the transfer of assets and the payment of benefits to survivors and charities in order to take advantage of favorable tax and interest rates.

Tony Prasco, a partner with the Merrillville law firm of Burke Costanza & Cuppy, is also one of the newly Certified Estate Planning and Administration Specialists and a CPA as well. He agrees that one of the most important steps in estate planning is to be proactive and not avoid the subject.

6. Take the time. "My first piece of advice would be to take the time to get it done," Prasco says, noting many people postpone the process of planning for their death. "There's no better time to do it than right now."

Prasco suggests tackling the subject with a team effort that includes an attorney, a CPA and a financial planner. "Usually one of those team members will take the lead and guide the business owner through the process," he says, noting that decision often depends on the relationship the business owner has with each party

Once the team is organized and the parties start working together, Prasco says estate planning typically involves four main parts: a will, a revocable trust, a financial power of attorney and a medical power of attorney "Everything else is solely based on the clients needs," he says.

Prasco explains there are generally three goals to estate planning:

* reduce the amount of federal tax on the estate.

* increase liquidity for survivors at the time of death.

* facilitate the charitable intent of the person creating the estate.

Although each of those goals can be benefit from advance planning, Prasco notes the circumstances of each business and the needs of each family are unique and may need different strategies. A variety of different types of trusts can be set up to reduce the amount of federal estate tax, to increase the liquidity of the estate at the time of death or to make charitable gifts.

7. Review plan for tax changes. In addition, changes in law may require periodic review of the plans to make sure they are taking advantage of current programs and tax code changes.

For example, Prasco cites an opportunity for individual retirement account owners who are 70 1/2 and older to transfer up to $100,000 from their IRAs to eligible charities without paying taxes. The donation counts toward an individual's required minimum distribution and can be a great way to increase giving, but the tax code provision is set to expire this year.

8. Plan for incapacity. Another suggestion for being prepared is setting up a durable power of attorney and a patient advocate designation in case business owners are incapacitated through injury, sickness or old age. Doing so prevents the probate court from having to appoint someone to manage affairs and make health-care decisions, a process which can result in critical delays, additional expenses and inconveniences for families and businesses during a stressful time.

9. Succession plan for the company. James Koday, a partner at the law firm of Bewley & Koday in Fort Wayne, encourages business owners to consider not only tax consequences in their estate plans, but also succession Planning for the company

"If something happens to you, who will run the business?" he asks.

Typically business owners will have a stock purchase agreement allowing an owner's interest to be bought out, he explains. However, Koday notes that such agreements may not have clear valuations for private companies where there is no real market for the shares. "Liquidity is a big issue in every case," he says.

10. Gift shares over time. Koday says good estate planning can take advantage of that situation by gifting shares of a private company over a period of years when such illiquid shares have a discounted value. "If you want to save on taxes, you might be giving gifts of stock over the years," he points out.

For example, a father who wants his son to take over the business while also providing equally for his two daughters might set up a plan to gift shares in the company each year and begin a period of shifting owner ship. Current law provides an annual allowance of $12,000 per person that can be gifted without federal taxes. Separate classes of voting and nonvoting stock can be used to determine the balance of control and ownership that transfers according to the wishes and timetable of the father.

Koday says he generally sees business owners start thinking about estate planning when they turn 50 and then tend to make a plan that is reviewed and updated every five years.

"They usually like to see how their children are turning out and who is interested in the business," he says, noting that the earlier a family starts addressing those issues, the better the estate plan. "The really efficient families start these gifts early."