Estate Planning for Special Assets: Family Business, Out of State Assets, Companion Animals, Trustee Duties

When we have previously discussed estate planning, we’ve primarily focused on situations that involve the basics of how to handle real estate or liquid assets like stocks and bonds, so your beneficiaries receive as much as possible of your estate and your Uncle Sam receives as little is legally possible.

We have also written a few times about “special assets,” such as overseas bank accounts and other offshore assets, which have prompted several aggressive Treasury Department initiatives in the last few years to collect back taxes.

Many types of special assets exist, each with its own unique set of circumstances that need to be considered in your estate plan. A few examples of special assets are a family business, out-of-state real estate, and your pets. We discussed these examples of special assets on our weekly radio and web broadcast on KDOW.

Though the IRS may not be scrutinizing other special assets as closely as they are offshore bank accounts these days, the agency is still very diligent in collecting the specific taxes that apply to all assets that fall outside the norm. Therefore, it is important to understand the nuances of properly accounting for these types of special assets when developing your estate plan.

A family business is a unique type of company when it comes to succession planning, not only because of the personal family dynamics that affect the organization, but also because of the different manner in which the government treats different types of business structures, such as a Family Limited Partnership (FLP) and a Limited Liability Corporation (LLC).

During the live radio and Web broadcast, we also spoke on the air with a listener who called in with a great question about the various possible options for setting up her family business. We mentioned that an asset protection trust has limited benefits in California, but may be appropriate if the assets can be moved.

Other points we mentioned to her are that an LLC can be appropriate for domestic asset protection, but there is an $800 set-up fee and a tax return must be filed annually, and that a main benefit of an FLP is that it provides a formal management structure to a family business.

Here are a few additional resources about family businesses:

Because a family business has so many unique characteristics and potential problems, we strongly suggest that families that do work together hire specific outside professionals to assist the business entity with related specific areas of the operation, to keep personal issues and business issues separated and to the ensure accuracy of the records and finances.

To facilitate a smooth transition from one generation to the next, succession planning is essential for a family business, because so many issues can exist between individuals whose roles and responsibilities are different within the business entity than they are within the family unit.

Certain types of professional practices, such as those of a dentist, an attorney, a farmer or a vineyard owner, can be considered a family business – each with its own unique issue regarding succession planning.

A dental practice may be the easiest of these special family businesses to transition to a new owner, because of the value of the equipment in the office, the existing customer base who continue to need dental care, and the existence of dental brokers to assist with finding a new dentist to purchase the practice.

Selling a legal practice is more difficult, because no physical assets exist and the needs of the client base are usually not constant. Certain specialty legal practices may be easier to sell, as well as as practices that may be involved in cases where large settlements may still be a possibility.

When it comes to succession planning, the owners of farms, ranches, and vineyards have the additional issue of trying to predict the future value of the land in relation to technological advances in each industry, the societal trends regarding food and beverage consumption, and potential real estate development in the region – all of which can have a big impact on the value of the property and the potential for it to support the current business format.

Go to Radio Show Podcast ArchiveIn regards to family business succession planning, it is very important to hire an experienced specialist to help you create a plan to pay any applicable inheritance taxes on your estate, so your heirs can afford to keep any properties in it.

If any of the properties in your estate are located outside of California, which has not had an inheritance tax since 1982, those out-of-state properties may be subject to another state’s estate tax laws, which can vary from the federal government’s current threshold of $5.12 million.

On this week’s radio show, we listed the various taxable thresholds for the states that still have inheritance taxes, so if you missed the original broadcast, you can listen to a podcast of this episode of Wealth Management and You with Connie Yi.

The final special asset we spoke about on the show was a companion animal trust, which we also wrote about in a previous article a few months ago: Plan For Your Pet’s Future With A Trust for Companion Animal.

We wrapped up this week’s edition of our show with a continuation of our discussion the previous week about the duties of a trustee. We mentioned quite a few additional points about both companion animals and trustee duties, which you can listen to in our podcast archive.

If you have questions about how to handle a special asset and would like a free consultation with Connie Yi, a California estate planning attorney, please contact us. We have four conveniently located offices around the Bay area: San Francisco, San Mateo, San Jose, and Pleasanton.

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