Every small business owner has their own plan for an ownership transition. Maybe you intend to sell your business to fund your retirement. Perhaps you plan to pass your business on to your children. But there are no guarantees in life. Proper estate planning is a must to ensure your heirs receive the most benefit from their inheritance, whether it’s your wealth, business, or both. And proper estate planning that incorporates the latest strategies and tactics requires working with a qualified CPA and advisor.
Address the Basics
Failure to create an estate plan can result in your assets being distributed in accordance with your state’s probate laws rather than your own wishes. The first step in creating a comprehensive estate plan is a relatively simple one that many people neglect: creating a last will and testament. This document details how you’d like your assets distributed to your heirs and any charitable causes after your death.
On the personal side, estate planning includes naming a guardian for your minor children and determining a plan for your personal care if you become disabled, among other decisions. On the business side, an estate plan can facilitate a smooth transfer of your business ownership interests and responsibilities upon your death or disability, detail the role of life insurance to provide income for your family, and help transfer your business to partners or successor owners.
Another key aspect of estate planning is determining how to distribute your wealth in the most tax-advantaged way.
For 2022, the official estate and gift tax lifetime exemption is $12.06 million for individuals, up from $11.7 million in 2021. This means an individual can leave $12.06 million to heirs without paying any federal estate or gift tax, and a married couple can shield $24.12 million. For couples who have already maxed out their lifetime gifts, the increase allows them to give an additional $720,000.
The annual gift tax exclusion amount climbs to $16,000 for 2022, up from $15,000, where it’s been since 2018. This means a taxpayer can give up to $16,000 to as many individuals as desired with no federal gift tax due. Spouses can do the same, bringing the total to $32,000 per year per married couple. These annual exclusion gifts do not count toward the $12.06 million ($24.12 million for married couples) estate tax exemption amount.
These and other estate-planning tactics, like trusts, offer the chance to substantially reduce tax exposure. But there is no one-size-fits-all plan. Opportunities can vary depending on your assets, goals, and current financial situation. That’s why it’s so crucial to bring together your financial advisors and attorney to ensure the proper drafting of your will, living will, healthcare power of attorney, durable power of attorney, and trust documents.
Dembo Jones’ tax advisory team includes experts who specialize in the estate and succession planning needs of small business owners. We can ensure your wealth makes the most impact for the people and causes you hold dear. Call us today.