Articles

Your Estate Plan
Planning Ideas You Can Really Use

Planning for the Young Entrepreneur
By Earl H. Cohen, Attorney
Mansfield Tanick & Cohen, P.A.

Estate planning has taken on an expanded and very important meaning for all of us during this economic downturn. Many clients have come to recognize that it is not enough to be thinking of who will inherit assets when they die and how will they minimize state and federal estate tax. Many have come to understand that if they don't design and implement their own plan, the state has a plan for them-the Intestate Estate. Estate planning continues to be a process and not merely an event. The process includes important aspects of financial planning as well: dealing with children's education, funding for retirement, providing adequate financial means for a surviving wife or husband. Our firm's dedication to entrepreneurs through our INCubation Center® ® has allowed us to give a great deal of thought to the entrepreneur's specific estate planning needs. The need for planning is especially true for young entrepreneurs with families. The young entrepreneurs (we'll call them the YEs) have so many important issues in the early years of their enterprise that some issues get placed in the bottom of the file cabinet until there is time and money to deal with something other than building revenues and profits.

What are the YE's special planning needs? YEs are generally operating independently and not part of a larger organization. This means that their income may be sporadic, and they have not had the ability to build a benefit system of health, life, and disability insurance. They may be operating virtually, without employees, and may not have seen the need to install a retirement plan. They may not have developed a succession plan for their business, thinking that since there is no one to buy their business, there is no need for planning. This thinking often results in delaying the estate and succession planning process. Delaying the process denies the YE's family important security for the future.

What should YEs do? There are a number of economical solutions that should be considered very early in the planning process including:

1. In developing their business plans, YEs should include the provisions and budget for Business and Personal Security.
   1. Business Security: This would include a basic package of property, casualty and liability insurance and product or service coverage unique to the business, such as product liability or errors and omissions coverage. Additional coverage can be added as employees are hired that would include the required workers' compensation and employee dishonesty.
   2. Personal Security: This would include a portfolio of health, disability and life insurance as part of an early stage benefit plan for their enterprise. Careful planning and the use of co-pays and deductibles for the health portion and extending waiting periods for the disability portion can help reduce initial costs. We have found that "stuff happens" and as Murphy proclaimed, "Whatever can go wrong, will." Without this basic coverage even a short illness or accident can force a business to close. Keep in mind that health care costs and disability rank among the top reasons for bankruptcy filings. Term life insurance has become very economical and is an ideal solution for early stage businesses. We'll discuss more about how very inexpensive life insurance can be used to insure a variety of issues.
   3. Build a security fund: More than ever, YEs need to have financial reserves to cover six months or more of living expenses. Historically, many YEs have tried to use a series of credit cards to provide that reserve. With the changes in the credit industry that becomes difficult and financially dangerous.
2. Develop a practical estate plan. A practical estate plan will focus on providing, financially, for surviving wife or husband and children as well as the minimization of tax. The plan should provide a means for assuring strong financial management of the financial estate through the use of trusts and appointment of trustees appropriate to the family's circumstance. Few lay individuals are prepared to manage significant sums of life insurance proceeds or retirement funds to adequately stretch the proceeds. More importantly, if parents die leaving young children surviving, a trust for the children with professional trustees becomes a must. Statistics show that without the family's use of a trust, the financial benefits for the children are dissipated in unnecessary legal and accounting expenses and unrestrained spending making less available for the children's education, purchasing a home or entering a business or profession.
3. Develop a practical business succession plan. A successful succession plan does not require an identified successor to the business. Often the primary need for a succession plan is to provide value out of the business for the owner's family whether or not the business is sold or continued. It is possible to provide a plan that provides a financial benefit for the YE's family and that plan can be designed very economically without any federal or estate tax being imposed at death.

Our firm is dedicated to the success of YEs (of all ages) and to their planning needs, and we have developed solutions to meet those needs in an affordable manner. For more information on how we can help you achieve your business and personal planning needs, including your financial planning needs through our extensive network of financial professionals, call Earl H. Cohen or Jeffrey C. O'Brien at 800-4016-194.