Updating Old Documents

Ok, here are the Top Three Reasons clients give for wanting to update their current (dare I say 'old') estate planning documents:

1. You moved. As I've written before in this blog, Florida courts will generally enforce out-of-state documents so long as they were correctly executed in the former state. Nonetheless, the laws of each state differ. For example, Michigan law may allow your best friend to be your executor, but Florida courts won't allow it if your friend isn't a Florida resident.

2. You've decided to change ... something. You've decided on a different executor, you want to divide your estate differently among your beneficiaries, you want to change the person who makes medical and financial decisions for you when you are unable to do so, or .... something. These changes are generally not a problem (so long as your 'old' documents are revocable), although the changes need to be correctly evidenced with proper documents.

3. The law changed. This one isn't even your fault. Tax laws, privacy laws, inheritance laws and other laws do change from time to time and may necessitate changes to your documents. For example, the federal estate tax exemption amount is scheduled to increase from $2 million to $3.5 million on January 1, 2009. On one hand, this means decedents are able to shelter additional amounts from the IRS. On the other hand, the additional exemption amount may substantially decrease the amounts distributable to your spouse upon your death if your trust was drafted with typical 'A-B' trust provisions (also referred to as marital and family trusts).

Remember, your estate planning documents don't have an inherent expiration date. So, pick a day each year - your anniversary, birthday, January 1, whatever you'll remember - and think about your estate plan. Should take about a minute and most years you won't be able to think of anything to change. This little exercise will help keep your estate plan fresh.

Business Succession Planning

I met with a client today to discuss business succession planning. This area of the law is of particular interest to small business owners, who want to be certain their designated 'heir' will be legally entitled to own and run the business after the owner passes away.

For example, the owner may want a child or sibling to receive all of the owner's stock, thereby receiving the right to own and run the business. Alternatively, the owner may want to divide ownership and control of the business among several family members, perhaps with some family members having greater day-to-day control and others receiving larger distributions of the net profits of the business. As may be apparent, there is a wide variety of planning possible.

While thinking about business succession planning, owners often consider 'key man' life insurance policies, which can provide liquidity to help the business cover debts on the death of the owner. Life insurance can also be used to fund a 'buy-sell' agreement, which would enable a surviving business partner to purchase the stock owned by a deceased partner; this allows the deceased partner's family to receive cash equal to the value of the partner's stock, while the surviving partner retains ownership and control of the business.

Finally, probate and taxes should also be considered. A properly-prepared business succession plan will help the owner sleep a little more soundly.