Basic Estate and Financial Planning Tips – February 2009 Issue

In continuing with the basic estate and financial planning tips I pointed out in my January, 2009 Newsletter, I point out some additional things to consider:

1. Businesses owned by more than one individual (not in a family) should be sure and have a working understanding of and a knowledge of how business succession will be handled. Business owners should consider buy-sell arrangements, funding for buy-sell arrangements, and any restrictions on the operating business if the payments for a departing business owner are made in installments. If done at arms length, the value set in a Buy-Sell Agreement can establish an estate tax value for the business as well.

2. Each spouse should take as much benefit as possible in the Federal Estate Tax Exemptions. The Federal Estate Tax Exemption for 2009 is $3.5 million. The Tennessee Inheritance Tax Exemption for 2009 is $1 million. If all assets are left to the surviving spouse, the first spouse who passes away will lose the benefit of the Federal Estate Tax and Tennessee Tax exemptions. One simple method of getting the benefit of the exemptions is to make an outright bequest to the children. However, often those assets that might be left to children are necessary for the surviving spouse’s use and benefit for the remainder of his or her life. Planning that provides for income and principal benefits for the surviving spouse and yet passes assets to children for Estate and Inheritance Tax purposes can be accomplished through a Credit Shelter or By-Pass Trust. Because of the differences in the exemptions in Tennessee and the Federal tax laws, often specialized drafting of trusts is necessary in an estate plan in Tennessee to take into consideration the “Tennessee Gap.”

3. Asset protection planning for a business. If a business is a proprietorship or partnership, the proprietor or partners have personal liability for all business liabilities. However, by forming a corporation or limited liability company, the shareholders of a corporation or members of a limited liability company can avoid personal liability for business obligations (except those personally guaranteed). Business owners should consider the form of entity for the operation of their business, and business owners may consider separate entities for different businesses, depending upon the nature of the businesses, and the risk factors associated with each.

4. Regular record keeping. All business entities should maintain regular record keeping for their regular shareholders/members/partners/board of directors/governing body meetings. Having adequate records maintained timely can be a good defense to an IRS audit and also to creditors attempting to “pierce the corporate veil” to impose business liability on an individual shareholder.

RAINEY, KIZER, REVIERE & BELL, P.L.C.

William C. Bell, Jr.

For additional information on this Estates article, please contact:

William C. Bell, Jr.

(713) 423-2414

bell@raineykizer.com

Source: William C. Bell, Jr.

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