This article first appeared in the Union Leader in July 2021
Do you want to protect your wealth, ensure your family is secure, and enjoy your retirement years with peace of mind?
It is vital to start planning now. As a founder or entrepreneur, it is especially important to have a thoughtful financial plan that will build a solid foundation to support growth and protect assets, ensuring your financial success now and into the future.
The first consideration for estate planning is to gain clarity about your purpose and legacy. For many families, this part of planning can be challenging to tackle. It’s often easier to look at investments, understand tax strategies, make decisions and execute than it can be to define what success looks like for your family and focus on the steps that will support you to get there, particularly when most of your time and focus is on building your business.
The next, and possibly most important step in estate planning is ensuring that you have basic estate documents in place. As your wealth grows, the financial stakes become higher if something happens to you and you don’t have the appropriate documents. There are at least three estate planning documents that every entrepreneur should have in place and review periodically:
Power of attorney
This document appoints a trusted family member, friend, or advisor as your “attorney-in-fact” to handle financial items on your behalf, if needed. This can include signing tax returns, depositing checks, handling banking/credit accounts, etc. It is crucial that you trust the person you appoint in this document as they will have financial authority over your assets.
Health care proxy with a HIPAA provision
A health care proxy appoints a trusted family member or friend to make medical decisions on your behalf if you are unable. If it includes a living will, it can also indicate your preferences on treatment in various circumstances, but the ultimate decision is left in the agent’s hands.
Last will and testament
The last will and testament accomplishes a number of things:
• It appoints an executor (also called a personal representative) to handle the administration of the assets of your estate at your death.
• It states what should be done with your assets at your death. Often, the Will instructs that all assets be sent to your revocable trust, which contains the details about the ultimate disposition of your estate.
• If you have minor children, it names who should be responsible for them in your stead.
The consequences of not having a will are that your resident state’s intestate laws will dictate where your assets go (typically outright to your spouse, else your children, else your parents/siblings).
It is important to note that in order to avoid probate you will need to consider a different approach, such as a revocable trust.
Trusts come in several varieties, including revocable (changeable) and irrevocable (unchangeable). There are a number of benefits to establishing a trust rather than just a Will. First, assets titled in the name of a trust can avoid probate after your death, meaning your heirs can avoid spending a significant amount of time and money.
Second, a trust provides a measure of privacy that a Will cannot. Probate is a public process and probate documents are readily available to the public. However, if you have your estate administered through a trust, that information can remain private.
Lastly, trusts offer a greater degree of flexibility than just a Will. After probate, your heirs receive their share of your estate all at once. However, a trust allows you to name a trustee who can manage the assets of your trust until the time, you believe your beneficiaries should have access to the wealth.
Your business is your legacy and without an estate plan you are putting that legacy at risk. By failing to plan ahead, you may leave your family, business and assets unprotected.
For more information on this topic, please join partners from Lake Street Advisors, Melissa, Carolyn, and Joe for a webinar with New Hampshire Tech Alliance at 10 a.m. July 22, as they detail the essential estate planning documents, from wills, to health care proxies, to powers of attorney, to revocable and irrevocable trusts.
They’ll identify each document’s purpose, major components, and practical issues to consider. In addition, they will discuss common estate planning issues and opportunities unique to founders and entrepreneurs (such as funding Irrevocable Trusts, QSBS income tax planning techniques, etc.).
Register for the event at live.remo.co/e/essential-estate-planning-docume/register.
Melissa Olszak is a partner with Lake Street Advisors, a wealth management firm. She can be contacted at email@example.com.