Basic Estate Planning: Introduction

Fact Sheet 1
EP-1
Community Development
Date: 
07/06/2012
James C. Skeeles, Ph.D., Extension Educator Emeritus in Agriculture and Natural Resources and Community Development, skeeles.1@osu.edu
Russell N. Cunningham, Attorney and OSBA Certified Specialist in Estate Planning, Trusts, and Probate Law, Barrett, Easterday, Cunningham & Eselgroth, LLP, rcunningham@ohiocounsel.com

We, the authors of this fact sheet series, hope you will settle down in an easy chair, take one fact sheet at a time, read it, fill out the response sheet, then compare it with our answers at the end of the fact sheet. Please feel free to contact us if you have questions, concerns, or differ with our response.

A caution before we get started. This fact sheet series is intended to introduce you to the basic concepts needed to develop an estate plan. Therefore, these fact sheets are in no way, shape, or form intended to replace legal counsel. However, we hope you find each of the twelve fact sheets of benefit.

Part A: What is Estate Planning?

In this fact sheet series, estate planning objectives include arranging for the well-being of your loved ones and yourself while you are living and after your death.

For many, personal relationships are more important than financial considerations. In fact, for many of us in the United States, more money might not increase our happiness or well-being. The same might be true of your heirs when your estate is settled. Therefore, in these fact sheets, emphasis will be given not only to financial matters, but also to personal considerations. A successful estate plan not only provides for retirement while passing the largest possible estate to loved ones, but also does this in a way that the people involved are friends through the process and after the estate is settled.

An Ounce of Prevention is Worth a Pound of Cure

Why do so many of us not have a plan or a will? First, no one likes to think about death, and your loved ones definitely don't want to listen to you talk about your death. For many, our uneasiness with death prevents us from doing basic but necessary estate planning. If you don't have a will, the State of Ohio has laws that determine how your property will be distributed. Chances are, your will will be closer to your wishes than the laws of Ohio. Some recent changes to these laws have made it more likely that in certain circumstances these default laws will be closer in accordance with your wishes than before, but they still are not personally tailored to your wishes.

Many of us don't understand estate planning, which is a second reason a lot of us don't have an estate plan. This fact sheet series is an attempt to give you that basic understanding, so you are more comfortable working with those professionals who will assist in developing your plan.

Some people are uneasy when they are forced to depend on others, especially when they don't understand what is happening. They don't like to go to the doctor or dentist, partially because they don't understand the procedures. Hopefully your comfort level with estate planning will be higher after you read this fact sheet series.

Others may find it relatively easy to develop an estate plan according to their wishes, but they find the task to be nearly impossible when the wishes of everyone in the family and/or business are considered. Therefore, the concept "equal is not necessarily equitable" is discussed, and communication is stressed throughout the fact sheets.

Also, this fact sheet series will help you with your daily decisions. You are unconsciously forming your estate plan every time you fill out papers to designate title. In fact, every time you acquire property such as land, buildings, equipment, or a car, you form a piece of your estate plan. Whenever you fill out papers to open a bank account, buy stock or bonds, buy life insurance, or enroll in employment benefits, you are forming part of your estate plan.

An estate plan doesn't have to be complex or change the way you would have otherwise done things. Maybe all you need to do is change the wording on your certificate of deposit. Or maybe all that needs to be done is to draw up or change your will. Most people who have larger estates (those subject to federal estate taxes) choose more elaborate estate plans to avert a significant portion of their estate going to the federal government. People with more moderate estates might choose to try to minimize Ohio estate taxes. Values of individual estates subject to federal estate taxes are as follows.

Year of Death Exclusion
2004–2005 $1,500,000
2006–2008 $2,000,000
2009 $3,500,000
2010 Unlimited
2011 $5,000,000
2012 $5,120,000

Part A of this fact sheet is just an introduction. In Part B, you will begin to focus on estate planning objectives. Every person is different, so each of you will need to decide your objectives and the relative importance of each objective. These objectives will be the basis for your estate plan. You might wish to begin by filling out the attached response sheet for Part A.

Part B: Estate Planning Objectives

Here we discuss what estate plans you should consider and accomplish. Providing for dependents and retirement is discussed first and is of primary importance. Maximizing the size of the estate distributed to heirs is discussed next to last. We consider this to be the least important of the stated objectives. Ironically, most emphasis spent in estate planning is on passing as many assets to heirs as possible.

Providing for Your Dependents

The primary function of life insurance is to ensure that dependents are financially provided for in the event of the death of a provider. Other uses for life insurance are to provide liquidity for a buy-sell agreement or to pay estate settlement costs. Life insurance benefits are so important that they are included in most benefit packages, including the social security benefit package.

Ironically, more life insurance is needed for dependent care when the young family is least able to afford it. When children are grown and the estate has grown, the need for life insurance (for dependent care) is usually less. The figure "Survivors' Income Needs," shows that the need for life insurance for dependent care declines after the birth of the last child.

Survivors' Income Needs

There are many types of life insurance. You should know your objective for life insurance so that you can obtain the best product for you.

Life insurance is less expensive when purchased as term insurance, which is purchased each year, usually for a fixed term of years. At the end of the term, the cost of the insurance usually goes up dramatically. Proportionately, very few term policies actually pay out any benefits, but if you know you only want insurance for the next twenty years while your children are still in school, this is probably the best and cheapest product.

Family businesses might wish to use life insurance for other purposes, such as to fund a buy-sell agreement or for the extra liquidity needed to continue the business through and after estate settlement. In these cases, the use of whole life or universal life insurance may be a better fit. They are typically more expensive because they are designed to provide death benefits for your lifetime.

However, single people and those without dependents or a business might wish to have only enough life insurance to cover immediate cash needs upon one's death, such as funeral, burial and estate settlement expenses. Indeed, if the following are all true, life insurance may not be needed.

  1. The Ohio estate taxes, estate settlement, funeral, and burial costs can be taken out of current assets without liquidating assets that the family wishes to keep.
  2. Dependents are self-supporting or can be provided for adequately by the estate.
  3. There are no other demands for liquidity at estate settlement time, such as the need for heirs to buy out the decedent's portion of a business.
  4. The estate is less than the exclusion amount listed in the table in Part A of this fact sheet, thus making federal tax planning unnecessary.

Providing Adequately for You and Your Spouse During Retirement

Estate planning and retirement planning should not be considered separately. There are two extremes in retirement and estate planning. One is to live for the moment and not save anything for an estate or retirement. This seems to be increasingly prevalent in today's society. The other extreme is to be a miser who never spends more than necessary, especially during retirement. You live poor but die rich. Most want to be somewhere in the middle.

Economists theorize that those who derive the most utility from money do not spend and save at the same rate all their lives. During retirement, these people use up the wealth accumulated during their working years. In fact, some think the ideal estate plan is to have nothing when one dies. This might be true for those with no children, those who are more daring, or those without a family business to continue. However, most of us want to have a considerable amount of wealth available, even during the last few days of our lives.

Retirement planning considers how much we will spend during retirement, and how long retirement will last. Estate planning considers disposal of assets at death. Both retirement and estate planning need to be done with the other in mind. For most of us, all resources are not fair game to be used up during our retirement. Better planning and better family relations could be obtained in most families by dialogue about what assets and how many of the assets will be used up during retirement. Small business people, especially farmers, might want business assets to stay intact, especially if there is a home farm. However, others might wish to sell or reverse mortgage the home property. The liquidity created from the sale or reverse mortgage of property could be used for the children's college education or for the parent's retirement. At the same time, a smaller home might be appropriate.

Treating All Children Equitably, Not Necessarily Equally

Equal distribution to children is easy and very common when estate planning. Equal distribution is appropriate if the children have equal future needs and have been treated more or less equally before the estate is distributed. Equal distribution might be appropriate even if each child has different financial needs at the time the estate is settled. In some instances, however, equal distribution is not appropriate.

Consider one child, Charles, who went to college and one, Billy, who stayed home. Mom and Dad paid for Charles' college education, and Charles now lives and works away from the farm. Billy has an off-farm job and also farms the home place. Billy has stayed with Mom and Dad all his life, and he took over the farming operation when Dad's health declined and eventually passed away. The estate includes the original farm, plus several new buildings, partially purchased by Billy from savings from his off-farm job. Billy also had some benefits that Charles didn't have—such as room, board, and free laundry facilities. Should Mom divide the estate equally? Only Mom knows.

One of Mom's first considerations should be to "make right" those things unfair. Mom might not have considered Billy's room, board, and laundry as bothersome. Billy might have repaired his parents' cars, been the house handyman, cared for them in their old age, and in general, done things for Mom and Dad to pay for his room and board. Thus, Mom might choose to penalize Billy for room and board, reward him for caring for her and Dad as they aged, or consider it all even.

Mom also needs to consider whether Billy took from the farm operation, or the farm took from Billy. If Billy hadn't stayed on the farm, would the estate have been larger or smaller? If Billy was paid a farm wage, he might "have coming" only the value of the assets that he purchased with off-farm income. However, if Billy wasn't compensated while contributing to the farming operation, his inheritance might be increased by 1) an accumulation of his appropriate wages, plus interest, or 2) the farm operation's increase in net worth as a result of his efforts. On the flip side, Charles' inheritance might be decreased by the cost of his college education, plus interest. Also if Mom and Dad helped in the purchase of Charles' home, his inheritance might be decreased by that amount, plus interest.

Need is another factor considered by many in the "equal is not necessarily equitable" issue. It is a given that minors need to be cared for, as do dependents with handicaps that restrict their ability to make a living. Special arrangements need to be made in estate planning for minors and dependents with disabilities. However, adjusting inheritance according to the needs of different children (or other heirs who are adults of able mind and body) is right for some but not for others. To do so complicates the decision process, but that doesn't make it wrong. Grantors must determine for themselves if the need of heirs should influence distribution of assets in their estate.

Maintaining the Business as an Efficient and Functioning Unit

Farm families and other family business members often wish to pass on to children the ongoing farm or business. Parents need to recognize that those children who make the family business their career might need to receive a larger portion of the inheritance in order to keep the business viable as a functioning unit. In some cases, the business is the entire estate and needs to be willed in whole to the children who stay with the business.

For a farming operation or other business to continue, not only do assets have to be transferred, but management skills also have to be transferred. This allows the owners to evaluate the interest and management ability of the successors. Sometimes children simply don't want to be in the business or don't have the ability to run the business, in which case the parents might actually be doing the children a favor by allowing those unwilling or not capable to weed themselves out.

Assuming the children want to and will "make it" in the business, the best way for parents to help is to simulate as much as possible "the world without Mom and Dad." One option is for the successors to buy the operation from the parents. This transfer option might be more expensive than inheritance, but the added cost might be less than the benefits. Parents are entitled to a retirement even if their children want to farm; by the same token, children are entitled to run the farm as they see fit if the parents are retired. Many parents are too kind to their children and/or unwilling to let go of the reins when they finally retire. As a result, the children never learn to be responsible adults until it is too late for them to change their ways.

Most businesses find it necessary to expand as children enter the business. As people live longer, more return is needed from businesses to support additional households. It is common for businesses to support at least three households: the grandparents, the sons and/or daughters, and the grandchildren. As changes and expansion take place, the adult children should fund the expansion as much as possible and, therefore, own an increasing portion of the business. Granted, this is often not possible, especially in farm situations, but it should be done as much as possible. However, if this is in fact not possible, the ability for the business to continue during the children's and grandchildren's lifetime needs to be questioned. In fact, those heirs might be better off if the business did not continue beyond the life of the grandparents. In the case where some children stay and some leave, an alternative business agreement—such as a limited liability company—might be appropriate, where those who stay manage the farm but ownership is shared among all children. Children need to buy/replace equipment and chattels if they are going to take over the farm business. If the adult children stay on the farm and are contributing more and more to the business, more of the business income should be allocated to them for investment into the business, resulting in a larger share of ownership in the business. If adult children aren't contributing more and more to the business, turning the operation over to them—even at the retirement or death of the parents—needs to be critically evaluated. For more information, refer to OSU Extension Bulletin 862, Transferring Your Farm Business to the Next Generation.

Providing Liquidity to Settle the Estate

Estate settlement can be expensive, especially with large estates. Subsequent fact sheets will discuss the amount of estate settlement costs. Even with excellent planning, estate settlement costs exist. Debts might be present as well. The executor might need to liquidate assets in the estate to pay these expenses. Savings accounts and life insurance policy proceeds are examples of liquid assets that can be easily used to pay estate settlement costs.

If there are assets in your estate that you intend to pass directly to heirs (such as a family home, family farm, or family business), other liquid assets need to be available to pay estate settlement costs and debts. For a family business to continue into the next generation, liquidity needs to be available when the estate is settled.

Maximizing the Amount Remaining for Distribution After Estate Settlement Costs

Most people wish to plan their estate in order to minimize estate taxes. In fact, many estate planning seminars, books, and discussions center around avoiding federal estate taxes. Even this fact sheet series will place emphasis on estimating and saving estate settlement costs. Remember, the overriding financial consideration should be to maximize the amount left over; however, it is even more important to maximize the well-being of everyone. Minimizing taxes and/or attorney fees should not be the priority, as having a few more dollars go to heirs might not be worth additional conflict.

Maximizing Total Family Satisfaction

We all wish to pay the government as little as possible, but the overall well-being of the entire family, before and after estate settlement, is of primary concern for most people. Several attorneys have mentioned that in half the estates they deal with, it is the desire of all children to carry out the parents' wishes. However, even if the children and their spouses agree with and support the parents' estate plan, the parents' job is not done. Parents have a responsibility to communicate to all children, in a similar manner, their plans for their estate. This is true regardless of whether each child will continue in the family business, and regardless of the amount of each child's inheritance. Parents have the responsibility to make sure all children know and interpret their wishes in a similar manner. Many families are split during the estate settlement process because different children interpret parents' wishes in a different way. Even if wishes seem unfair to certain children, the children will more likely accept that distribution if the parents have made their wishes crystal clear to everyone involved. Any doubt about the intent of parents may cause conflict even in the closest of families.

However, if family relations aren't good, communication to all children might not be appropriate. Some children can make their parents' lives miserable if they know ahead of time that they will not be treated in the will as they think they should be. In that instance, maybe the wishes should not be communicated to any of the children. At least from the point of view of being informed, no one child would have been treated more favorably.

Even if family relations are not the best, estate planning should be conducted in a loving, considerate, and respectful manner. Parents wish to be remembered fondly and, in general, want more than anything else the well-being of their children after they are gone. The gifts of love, respect, and the parents' blessing is more important to most children than the amount of their inheritance.

In order to plan your estate, look through the objectives discussed above. Add any objectives that have been left out. Then, prioritize the objectives, and use them as the basis for estate planning. The plan is the easy part. Prioritizing the above objectives is the hard part. Most parents would like to give everything to each child, but that just isn't possible. Communication about why things are divided as they are is just as important as how they are divided. Also, remember that communication is most important to those most likely to feel slighted.

Retirement Planning Considerations

Why is retirement planning included in an estate planning fact sheet? As mentioned before, estate and retirement planning should be done together, as each impacts the other. The more spent during retirement, the smaller the estate. Likewise, spending too much during the early years of retirement might result in few or no assets left for the later years of retirement.

Even though we do not know when our last day will be, actuarial tables give us an educated guess. For example, if a man retires at 62, he can expect to live about 20 more years. Assuming his wife is also 62, she can expect to live about 3 more years than her husband.

The joint life expectancy of both spouses is generally 3 more years than the life expectancy of the longest living spouse. Also, the last spouse generally lives about 26 years after the first spouse's retirement. Chances are, the wife will outlive the husband, but that is not always the case.

Investing Liquid Assets During Retirement

Our finance instructors in college drummed into our heads that higher rates of return (interest or dividends) accompany higher risk, and conversely, lower rates of return accompany lower risk. Everything else is equal. Therefore, if there is risk of losing some or all of your principal investment, you can expect higher rental fees for your money (interest or dividends) than if there is no risk of losing any of your principal investment.

The finance instructors suggested that very high risk (high return) or very low risk (low return) is seldom a good strategy for the majority of one's assets. They suggested a small percentage of assets be in very high risk investments (commodities, junk stock or bonds, speculation, etc.) or in very low risk investments (savings accounts or certificates of deposit); however, the majority of investment should be somewhere in the middle. However, many people maintain the majority of their liquid assets in savings accounts or in certificates of deposit, which are extremely low risk investments.

Why is this? Most of us feel more comfortable with what we consider to be no risk investments, so that is where our money goes. However, even with low rates of inflation, returns from low risk investments are still less than medium risk investments. Thus, our overall rate of return would be higher with higher risk. Probably most of us will be ahead in the long term with investments like stocks and/or bonds, especially if we spread our risk by using a portfolio or mutual funds.

Mutual funds are very popular because their fund manager invests each investor's dollar in a diversified portfolio. Some might wish to do their own investing, and create a diversified portfolio on their own. Another way to diversify is to invest in both stocks and bonds, and to vary the maturity dates of the bonds.

However, financial advisors do not suggest stocks and bonds as good investments unless one will not need the money for a long enough time for the market to go back up, if it goes down. They suggest that it might take as long as ten years for stocks and bonds to cycle. If investors need their money sooner than that, it might be best to put the money in CDs or other investments where the principal amount invested will never be at risk. For that reason, those who do invest in stocks or bonds should expect a time during the investment period in which they would have to take a loss if their stocks or bonds were liquidated. They need adequate financial resources to be able to wait until the market goes back up. The reward for being willing to take this risk will be a higher long term return. After all, even though we might need some of our money in the next ten years, few of us plan to spend all of our money in the next ten years. Perhaps the portion that we will not spend in the next ten years should be in stock and/or bonds, even if we are retired.

Most retirees have some liquid assets that won't be needed for quite some time. Since the funds are long term, there will be ample opportunity to cash in the variable funds at a high price and convert them to CDs or savings accounts. In theory, a portion of liquid assets should be in stocks and bonds. However, if you are uncomfortable with any of your money being worth less than it was before at any given time, or you are not comfortable with the idea that the money could be worth less at some point in the future, the grief caused by stocks and bonds might not be worth the extra dollars returned.

These fact sheets should in no manner be considered as a replacement for consulting with estate planning professionals, nor should the general principles in these fact sheets be applied to specific situations without consulting with an attorney. 


Your Response

Fact Sheet 1: Part A

First read the accompanying fact sheet, and then fill out this response sheet. Make one copy of this response sheet for you to fill out, and make another copy for your spouse. If you don't have a spouse, give the other response sheet to your executor. You might even wish to share your response sheet, especially this initial one, with all heirs. Later fact sheets will discuss communication with heirs.

1. A successful estate planner generally passes the largest possible estate to heirs. However, it is important that this is done with the least hassle possible, and in a way that heirs and family are friends throughout and after the process. If any of the three below responses "jump out" as more important to you, circle them. (There is no right answer.)

a. Pass on the largest possible estate

b. Minimize hassle

c. Good family relations

2. Do you need to spend more time on your estate plan? _____yes _____no

3. If you answered yes to question 2 above, indicate why progress is not being made on the plan.

4. More complex estate plans are generally needed for estates over $ __________________ in 2012.


Fact Sheet 1: Part B

Please note that there are three columns below for responses. In the event that your spouse is with you, each of you should respond individually. Then, you should sit down together to compare answers and complete the remaining column, which is to be used with a professional estate planning team. Calculate the Combined Objectives column on the right by adding the numbers for that line for both Husband and Wife.

Prioritizing objectives for estate planning is the most difficult part of the plan. The following will be valuable information for your estate planning team.

Put numbers from 1 to 8 in the following objectives, with 1 indicating the most important. The ranking of each spouse might be different, and your ranking might change with time.

1.

Husband Wife   Combined Objectives
    a. provide for dependents  
    b. provide for retirement  
    c. treat children equitably   
    d. heirs take over a viable family business    
    e. maximum value of estate going to heirs   
    f. family conflicts minimized  
    g. minimize estate planning and execution hassles  
    h. other (write out)   

2. Considering only your objectives, are there any that conflict with each other for your money or time? List those that do.

a. _______________________________           b. ______________________________

3. If filled out by husband and wife, objectives might be different or have different priority. If there are differences, what are they?

4. Which assets, if any, do you not want to be liquidated (sold) during your retirement or when your estate is settled?

5. Which assets, if any, may be liquidated (sold) during retirement or when your estate is settled?

6. Who do you want to own the assets that should not be liquidated

7. Do you feel that any of your children have been treated more favorably than others?

_____Yes        _____No

a. If so, who, how, and when? 

b. If so, place a dollar value on the favorable treatment if you feel you can. 

c. Do you feel that this favorable treatment is significant enough to be considered in your estate plan? 

8. Have any of your children been treated less fairly, in comparison with the rest of your children?

_____Yes        _____No

a. If so, who, how, and when? 

b. If so, place a dollar value on the less favorable treatment if you feel you can. 

c. Do you feel that this less favorable treatment is significant enough to be considered in your estate plan? 

9. Do you want to pass on to heirs a viable business?  _____Yes  _____No

a. If so, to whom? 

b. Do those above want to continue in the business? _____Yes  _____No

c. If so, are those above capable to continue the business? _____Yes  _____No

d. If so, what are you doing to transfer management skills to the above? 

e. If so, what are you doing to transfer assets to the above? 

10. How will you communicate the above information to your heirs?


Answers

Fact Sheet 1: Part A

1. A successful estate planner generally passes the largest possible estate to heirs. However, it is important that this is done with the least hassle possible, and in a way that heirs and family are friends throughout and after the process. If any of the three below responses "jump out" as more important to you, circle them. (There is no right answer.)

a. Pass on the largest possible estate 

b. Minimize hassle

c. Good family relations

There is no right answer. For some, it will be impossible to choose only one. However, the objectives often are in direct conflict. Prioritizing these will help you make your decision. 

2. Do you need to spend more time on your estate plan?       yes      no

3. If you answered yes to question 2 above, indicate why progress is not being made on the plan.

Again, different answers here are correct. There are valid reasons for not spending more time on your plan. Perhaps your plan is done and up-to-date. Or maybe your will is sufficient, and a more complicated plan wouldn't reduce settlement costs enough for the bother. However, if you answered yes to question 2, let's get started!

4. More complex estate plans are generally needed for estates over $ _____________ in 2012.

The estate size where federal estate tax is charged in 2012 is $5,120,000 for a single person, and $10.24 million for a couple. If your estate is near these levels, estate planning needs to be done, especially if assets will appreciate.


Answers

Fact Sheet 1: Part B 

1.

Husband Wife   Combined Objectives
    a. provide for dependents  
    b. provide for retirement  
    c. treat children equitably   
    d. heirs take over a viable family business    
    e. maximum value of estate going to heirs   
    f. family conflicts minimized  
    g. minimize estate planning and execution hassles  
    h. other (write out)   

There is no right answer, and each response will likely be different between you and your spouse. The discussion between you is imperative! If you are single, this will be simpler. In any case, this information is imperative for a professional to create the best plan for you! If you are married, don't forget to add the Husband and Wife numbers on the left to equal the Combined Objectives number on the right.

2. Considering only your objectives, are there any that conflict with each other for your money or time? List those that do.

Your answer is unique. This thought process is important, as all the objectives compete for your time and money.

3. If filled out by husband and wife, objectives might be different or have different priority. If there are differences, what are they?

The objectives of two or more people might be quite similar or quite different. However, determining which objectives are similar and different, and discussing those that differ, is the first and basic step necessary for an effective estate plan.

4. Which assets, if any, do you not want to be liquidated (sold) during your retirement or when your estate is settled?

This is an individual answer and will vary, even between spouses. If the majority of the estate is not to be liquidated, more liquidity is needed to pay settlement costs.

5. Which assets, if any, may be liquidated (sold) during retirement or when your estate is settled?

This question asks for the assets that may be sold to pay estate settlement costs. Estate plans are simpler if assets can be sold.

6. Who do you want to own the assets that should not be liquidated?

A major decision in estate planning is deciding which heir will get the valued assets. Often, these are desired by more than one heir, and only the original owner can decide their disposition.

7. Do you feel that any of your children have been treated more favorably than others?    Yes      No

a. If so, who, how, and when?

b. If so, place a dollar value on the favorable treatment if you feel you can.

c. Do you feel that this favorable treatment is significant enough to be considered in your estate plan?

This is part of the thought process that is necessary to decide the disposition of assets. If you have no children, your obligation to heirs is not as direct, and you might have more latitude.

8. Have any of your children been treated less fairly, in comparison with the rest of your children?

   Yes    No

a. If so, who, how, and when?

b. If so, place a dollar value on the less favorable treatment if you feel you can.

c. Do you feel that this less favorable treatment is significant enough to be considered in your estate plan? 

This is the negative side of question 7. Accounting for inequitable treatment is necessary to allocate assets equitably.

9. Do you want to pass on to heirs a viable business?      Yes      No

a. If so, to whom?

Passing on a viable business is much more difficult than passing on assets. Management ability of those to take over, cash flow during transition, transfer of assets to those to continue, and equitable treatment of others are just some of the difficult issues.

b. Do those above want to continue in the business?      Yes      No

 If heirs don't wish to continue, don't force it on them!

c. If so, are those above capable to continue the business?      Yes      No

If heirs aren't capable, you will do them a favor by counseling them away from the business.

d. If so, what are you doing to transfer management skills to the above?

If heirs are to continue in the business, one of the best things you can do is transfer management skills, not just assets.

e. If so, what are you doing to transfer assets to the above?

Transferring real estate contained in a business has unique challenges. Taxation might be more if transferred before the real estate passes through the estate. Yet, the younger generation needs to feel as if they are investing in their future, not building their parent's estate. Therefore, use professionals in developing a plan to transfer assets, and consider asset transfer before and after death.

10. How will you communicate the above information to your heirs?

Even if you have bequests your heirs don't want to hear, it's still your responsibility to tell them.

We have experienced three scenarios. First, all heirs (and possibly spouses) are told at approximately the same time and in the same manner. No one is left out, even if not in the business. This is done at a special designated meeting with all heirs present, even if they are not to continue in the business. This is not a social function, so it should not be conducted at a family get together. Also, grandchildren should likely not be invited. This is the best scenario in our opinion.

Another scenario is that some heirs are informed and others are not. This scenario, in our opinion, is the most problematic, as those heirs "left out" might feel slighted.

The last scenario is one where heirs are informed at the reading of the will. This might be necessary in certain situations, but should also be avoided if possible. 

Program Area(s): 
Ohioline http://ohioline.osu.edu