Estate planning for business owners: The keys to success - Yahoo Finance

BNY Mellon Wealth Management Tax and Estate Planning Strategist Jere Doyle joins Wealth! to break down how business owners can best navigate estate planning.

Doyle stresses the importance of a succession plan to ensure a smooth transition in the event of retirement or a sale. For family businesses, he explains, "the big issue is you want to make sure that if your children are going to take over the business, that they are, in fact, competent to run the business. If they're not, a lot of businesses want to go out and get outside professional management."

On the tax side, Doyle says, "You got to think about the fact that the exemption is going to decrease. And maybe you want to be in a position where you use the exemption now maybe to transfer part or all of your business down to a lower generation before the exemption decreases... and we've been telling people for a couple of years now, use it or lose it."

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Melanie Riehl

Video Transcript

Being your own boss isn't always all it's cracked up to be, believe it or not, business owners face a lot of challenges.

Not only do you need a strategy for managing personal assets, but you also need to consider what will happen to your business in the long term.

And here to weigh in on the stressors and tips for navigating state planning is Jerry Doyle, who is the BNY wealth tax and estate planning strategist, Jerry.

Great to have you here with us today.

All right.

So as people are trying to figure out what small business they're gonna start, what industry they wanna take on and make their name known, how should they be thinking about their own business planning that sets them up best for a state planning as well or they should be thinking about overall is a succession plan who's gonna take over the business uh in the event they decide to retire.

The other thing they have to realize is that there are valuation issues with state planning in your business and there are also issues that you have to deal with, with tax considerations.

For example, if you want to sell your business, you're gonna have to pay income taxes.

If you wanna transfer your business during lifetime, there may be your Children.

There are gift tax issues.

And if you die with the business, the valuation and a state planning, a state tax issues, people all have to deal with.

In order to deal with all these things, people ought to have a team in place, uh, which would consist of an attorney CPA, an insurance advisor, a wealth advisor, an appraiser, things like that.

And the, and the most important thing is just to plan up ahead.

Um, keep planning in mind as you grow your business because eventually it's gonna be disposed of.

You know, we've heard in the past from other strategists and people who run some of this planning with small businesses that they should be hiring the family members, putting the family members on the payroll as there's a tax benefit there.

How, how often is that coming up in conversations on your end that comes up a lot?

And it's complicated because a lot of times people want to get their kids involved and the kids may not be competent to handle the business.

A lot of times the parent, the, uh, first generation has experience that grown the business, they know the business and the Children just think just because they're a relative that they have the competency to run that business.

And that's not necessarily so, uh, maybe what people want to do is get the Children involved early on, bring them up the learning curve, stop them at a lower position and have them gradually grow into the business so they can take it over at some point in time.

But I think the, the big issue is you want to make sure that if your Children are gonna take over the business that they are in fact competent to run the business, if they're not, a lot of businesses want to go out and get professional management.

Outside professional management.

Jerry, there's gonna be a, a critical time frame that people have to think about or at least an event in the near future in the sunset of the 2017 tax law changes there.

What do they need to know there?

Well, I think the big thing with the tax law change that's coming up the sunset is the fact that the estate and gift tax exemption is going to decrease from the current amount of 13 million $610,000 down to probably about 7 $7.5 million.

And a lot of people are thinking now, well, should I take advantage of the increase in the exemption?

Roughly almost $14 million exemption now, before potentially it sunsets at the end of 2020 five.

And we've been telling people, you gotta think about the fact that the exemption is gonna decrease and maybe you want to be in a position where you use the exemption now, maybe to transfer part or all of your business down to a large generation before the exemption decreases down to roughly that 7 $7.5 million amount that I talked about earlier.

And we've been telling people, uh, for a couple of years now, use it or lose it.

The problem is that back in 2012, we had the same issue.

The exemption was gonna decrease from about $5 million to 1 million.

It didn't happen.

A lot of people, uh, made gifts and when the exemption did not decrease, they had givers remorse, they wanted to take the gift back, which they couldn't do because it was irrevocable.

So, as a result, people are looking back at that now and they're saying, well, you know, I probably want to wait until, uh, next year, 2025 to see what's gonna happen before I pull the trigger and make it decision.

That may be bad advice because next year, everybody may be trying to do the exact same thing.

Attorneys and appraisers may all be very busy and they may not have time to, um, do any work for you.

The other thing, people have to worry about.

A lot of closely held businesses are what we refer to as flow through entities.

The income flows through, from them to the, from their business to their individual income tax return.

And what they have to worry about is right now, there's this 20% deduction called the section 199 A deduction.

That deduction is gonna go away if the sunset actually happens and that's gonna cause flow through entities to have a higher tax than regular c corporations which have a maximum tax rate of 21%.

So there's gonna be a big disparity between closely held businesses and how they're taxed and regular big C corporation businesses publicly traded stocks.

Jared Doyle, who is the BNY Wealth tax and estate planning strategist Jerry?

Thanks so much for taking the time here today.

Thank you.

Certainly.

Adblock test (Why?)