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Gene (00:08):

Hey everybody, this is Gene Marks, and welcome to another episode of the Hartford Small Biz Ahead Podcast. I’m so glad you can join me this week. Let’s talk about estate planning this week and some things that you need to know. The biggest thing you need to know as a business owner about estate planning is to start a trust, and I’m gonna get to that in a minute, but it is absolutely critical. Listen, as a business owner, you’re building up hopefully, value in your business. Hopefully you’ve got customers, equipment, inventory, property, things of value that you’re building over the years. And as you know, anything can happen at any time. So I’ve done episodes before on succession planning, and I’ve got more to talk about there. I’ve also done episodes before about employee stock ownership plans and moving your business to selling your business to a third party.

Gene (00:59):

But really, guys, it is all about your estate planning. We all need to have an estate plan, right? And we all need to have a will that’s set up. So, first of all, lemme just say to you that in this podcast, this episode, I wanna give you some of my thoughts on what you should be doing. And then when you’re done listening, I want you to go to an estate planning attorney, to get some specific guidance for you and to help you set up the right plan for you. And by the way, if you need any advice or recommendations for estate planning attorneys, I can definitely provide that as well. So just reach out to me separately. So let’s first of all talk about some of the basics on estate planning. Okay? When you die and your assets are passed to the next generation, did you know that they are taxed at a 40% rate?

Gene (01:46):

That is the estate planning rate. So imagine if you have, if you’ve built up a million dollars in assets without any estate plan, you might be, you might be liable for 40% of that to go to federal taxes. And that’s just federal taxes. Now, the good news is there is some exemptions, and they’re pretty huge right now. In fact, if you’re an individual, you can exclude like almost $12 million from estate taxes this year or up to $24 million, about $24 million. It’s a little bit less than that. If you are married, filing jointly. So again, those assets are excluded from your estate when you die. So that’s a lot. So hopefully, that would cover what your assets are, but I need you to be aware of something.

Gene (02:36):

That number is going to go down. This expires at the end of 2025. So beginning in 2026, you are going to be looking at a much more reduced estate tax exclusion. The exclusion is gonna go down to 5.5 million for an individual and $11 million for those that are married. So still, relatively high, but nowhere near as high as they are right now. And they might throw a lot of businesses into this estate planning problem. Now, if you have any unrealized capital gains, they’re not taxed, but your assets are stepped up to that fair market value and they pass the beneficiaries and that’s how they’re subject to that estate planning tax. If you do have any capital gains, like you have to, your estate has to sell anything to pay off expenses or whatnot. Right now, the capital gains tax rate is about 23.8%.

Gene (03:32):

It’s a 20% rate plus a 3.8% net investment income tax, and you are available to gift. People always ask me about gifting their assets. Every year, you can gift up to $15,000 to anybody you want, really, it doesn’t necessarily have to be a family member. And every year that $15,000 is excluded from that person’s income. So, if you are looking ahead and you’re starting to build up assets and you’ve got children, for example. You can start gifting some of your assets to your children, and that will help, reduce the value of your estate and help pass down some of those assets to them tax free. So that’s really important. Now, the most important thing I want you to do though, is I want you to start a trust. And there’s a lot of reasons to have trusts.

Gene (04:20):

If you put your assets in a trust, it’s protected against outside creditors or divorces or other liabilities. You can define your executors and beneficiaries in a trust. They can be used potentially as a vehicle for generation skipping. You transfer your assets at your current values, not necessarily market values, but any appreciation in that trust is not subject to that estate tax, to those estate taxes. So what that means is that if you’ve got a, say 10 million in assets and you move it up into a trust, if those assets increased to $20 million in the next 20 years, that appreciation is not subject to estate taxes. So that’s like a really big deal. It’s an appreciation thing because you would still have to… the original amount would be subject to that estate tax is subject to the exclusion, but the appreciation on those assets would not be subject to those estate taxes.

Gene (05:26):

So the earlier you do this, the better. Now, when you talk about a trust, a trust doesn’t mean that you’re putting your assets into something and then you can never touch them. That’s not the case. What you do is you actually start up three trusts. So let me walk you through this. Let’s assume you’ve got a spouse and you’ve got three children, okay? The first trust that gets set up is called a revocable trust. It’s just an umbrella. It’s there to provide instructions for future trust. It’s like a triggering trust. It’s an umbrella. So when you die, the revocable trust, automatically, triggers into action and it automatically creates what’s called a credit shelter trust. And a survivor trust. So in the end, there’s gonna be three trusts. The revocable trust, again, it’s just that umbrella. The credit shelter trust is set up for your surviving spouse.

Gene (06:23):

All of your co-owned assets go under this, automatically go there with no federal tax effect into that credit shelter trust. It’s huge. So if you co-owned your assets, if you leave your shares of your company to, as part of your will to your spouse that’s considered to be co-owned. Any of your insurance, your homes, your whatever, they go, that… all that goes into that credit shelter trust for your spouse. So even though you’ve set up these trusts, you are the beneficiaries of these trusts. So you get full access and use of all the assets. When you die, the trust goes into a credit shelter trust, which means your spouse still has full use of the assets. He or she is the beneficiary of it. But then you can have more trusts, which are called survivor trusts.

Gene (07:14):

Each one is created for your children. So after your spouse dies, then the remaining assets go into those individual survivor trusts. Now remember, assets in these trusts are not taxes. They appreciate, and even when the trustee decides to transfer ownership of some of these assets, such as like stocks to a beneficiary, no taxes paid on the gains until the beneficiary actually sells the asset. So the whole point of these trusts is to take your, your money and to say, listen, whatever money I have in my possession, personal and business, according to my estate, is actually going to this trust, this big revocable trust. So, and you’re the beneficiary of it with your spouse. So you can do whatever you want with that money. But then when you die, remember that money then goes to this credit shelter trust, which means that your spouse has full access to the money and can do anything he or she wants with it.

Gene (08:14):

But then when your spouse dies, the remaining money according to your will, goes into these survivor trusts for your kids. And again, the assets themselves, they are taxed on their value if they’re over that exclusion amount when they go to the trusts. But if you’re under the value, you can slip that money in without having to pay any estate taxes. And as your assets appreciate over time, let’s say your business appreciates in value over the next 10, 20, 30 years, it’s that appreciation never gets taxed. So therefore it’s, you’re literally skipping that estate tax because it’s in that trust that’s separate entity. I hope that makes sense because having an estate plan and having a trust is essential for you as a small business owner to ensure that even as you grow your business and grow your assets, it’s protected to a certain amount from any, any taxation.

Gene (09:11):

So let’s just make sure that we’re clear on this. You wanna talk to an estate planning attorney, you wanna have a will. You wanna make sure that right now, while these exemptions are so high, you want to slip your assets in under these exclusions, into these trusts. So therefore, as they grow over time, it’s tax free. They are not gonna get subject to any estate tax. So if you die, the money goes to your spouse without any tax, and then when your spouse dies, it goes to your kids without any tax as well. Trusts are a great way to avoid unnecessary estate taxes. It will still be there if the value of your assets are over that exclusion amount, but if not, you really could have the ability to hand down all of your assets without being subject to that 40% estate tax.

Gene (10:00):

It’s pretty enormous. So again, talk to an estate tax attorney, set up your will, make sure you’ve got that going and set up these trusts. There’s three trusts. Very, very important for you going forward. I hope this makes sense. If you have any questions, you can always contact me separately. Of course. My name is Gene Marks. You’ve been listening to the Small Biz Ahead Podcast. If you need any other tips or advice or help in running your business, please visit us That’s or I appreciate you listening. I’ll be back next week with another tip to help you run your business. Take care.

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