Don’t Wait for the Future
There’s a well-known quotation from Ernest Hemingway’s novel The Sun Also Rises that goes as follows: “How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly.”
The future always seems distant, until we find it’s here. That’s true of trust and estate planning. It’s easy to believe that there will always be time to handle this crucial duty later. Until, suddenly, it’s too late.
It’s tempting to put off this complicated challenge, and a lot of us do. According to senior-living advisory firm Caring.com’s 2023 estate-planning study, only one in three Americans have an estate plan. But if complex issues such as taxes and family dynamics aren’t anticipated, intergenerational wealth can be lost. So can entire businesses. Associated Bank notes that 57% of family-owned companies don’t have a succession plan in place.
We’ve rounded up trust and estate planning advice from five local experts. We can’t predict the future, but we can make it as prosperous as possible for those who follow us.
Eileen Bruckert
Vice President, Personal Trust Relationship Manager, Associated Bank Private Wealth
Chad Darr
Vice President, Personal Trust Relationship Manager and Lead Financial Planner, Associated Bank Private Wealth
How to succeed at business succession:
If there’s one thing that’s certain, it’s life’s uncertainty. While we all hope for the best, as a business owner, it’s important to be prepared for anything. Having an answer to life’s curveballs can help you stay in business, ensure that your legacy lives on, and that your business partners and family are taken care of.
According to the Conway Center for Family Business, family businesses account for 64% of the U.S. Gross Domestic Product (GDP), yet 57% of those businesses have no formal succession plan. Furthermore, many businesses are founded on a high degree of personal trust and loyalty, often a simple handshake agreement. However, these informal agreements are not enough to protect you against disagreements and damaged relationships—and can be a costly mistake. A lack of business succession planning can negatively impact both business owners, as well as their heirs and employees.
There are two key reasons business owners should consider a business succession structure sooner rather than later.
The first is taxes. Under current laws, the estate tax exemption is scheduled to sunset in 2025. This leaves business owners with a narrow window to take advantage of the planning opportunities around this exemption.
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Second, the absence of a succession structure may result in business disruption at a very emotional time for owners and employees.
Why are so many business owners unprepared? Many find it uncomfortable or daunting to have a discussion about succession planning or enacting formal agreements. Others fail to understand the importance of such discussions. And in other cases, it can be seen as a sign of disloyalty.
The good news is that if you handle this process the right way, with respect for everyone’s point of view and a willingness to listen, partnerships can be strengthened and fortified. In the end, you should come away from the discussion fully confident that everyone’s interests are secured. This allows you to focus on your business instead of being distracted by unspoken concerns.
Formal contingency plans help business partners clarify their vision for the future. We all get so busy with our lives, families, and work that we often don’t think about the impact of events that may be outside of our control. But these conversations help us think clearly about what we want in the future and what it will take to get there.
If the process is handled correctly, guided by the right advisors, the end result should be peace of mind and a higher degree of protection for partners and their families. Allow the Personal Trust Relationship Managers at Associated Bank Private Wealth to help you navigate the complexity of building a succession plan that’s right for your business.
Disclaimer: Associated Banc-Corp and its affiliates do not give tax, legal, or accounting advice. Please consult with your advisors regarding your individual situation. Not FDIC-insured. No bank guarantee. May lose value.
John Warneke
Senior Trust Officer, Huntington Private Bank
Common mistakes in tax and estate planning:
As life gets increasingly complex, it’s important, and easy, to avoid financial planning pitfalls that many people experience. Here are six.
1. Failing to plan or not planning early.
The sooner you start, the more options you’ll have. Some tax savings techniques can’t be accomplished right before or after death, so the best decisions are made when considering all implications.
2. Choosing advisors. Many people freeze when not knowing where to start. Ensure your advisor has the expertise for complicated plans.
3. Giving too much control too soon. Many trusts provide full access to assets when beneficiaries turn 21, 25, or 30. But can they wisely manage sizeable assets? Options exist that provide income without full, immediate access, while retaining estate and asset protection.
4. Underestimating what’s required. Everyone wants a simple estate plan, but yours should address all scenarios and implications.
5. Overestimating the burden. You don’t need every variable figured out before starting the process—don’t let the great get in the way of good.
6. Thinking your planning is done. With constant tax changes, continually review estate plans to ensure they’re relevant and optimized for current realities.
“Everyone wants a simple estate plan, but yours should address all scenarios and implications.”
—John Warneke, Senior Trust Officer, Huntington Private Bank
Mathew R. Korte
Partner, Ciresi Conlin LLP
Considerations around charitable trusts:
As you consider planning around charitable trusts, here are three lessons to take from the Otto Bremer trust case.
Settlor intent controls.
Absent extraordinary circumstances, trustees are obligated to follow the settlor’s intent. A court is unlikely to substitute its judgment for trustees’ discretionary acts and decisions unless it’s necessary to prevent an abuse of discretion constituting a breach of fiduciary duty.
Trustee grantmaking discretion.
The discretion of the trustees can extend to grantmaking decisions, if authorized.
In the case, the trust instrument gave its trustees complete discretion and control over the process for grantmaking, making use of strategic and responsive grants appropriate for the trust based on that discretion.
A conflict-of-interest policy aids administration.
A trustee conflict of interest can result from a financial interest or from a fiduciary relationship with an entity with which a trust is considering a transaction. Compliance with a conflict policy facilitates prudent and effective administration of trust assets.
Bill Ringham
Director of Wealth Strategies, RBC Wealth Management
Proactive estate management:
Ben Franklin once said that nothing is certain but death and taxes. One can’t avoid death, but Minnesotans can proactively manage their estate taxes.
Minnesota’s estate tax exemption for 2023 is $3 million per individual, or $6 million per married couple. Yet Minnesota disallows portability, meaning that married couples may lose the $6 million double exemption without proper planning.
In contrast, only the wealthiest Americans will owe federal estate taxes upon death. Unless a taxable estate exceeds the federal exemption of $12.92 million in 2023, or $25.84 million per married couple, an estate won’t need to pay the federal tax. And unlike Minnesota law, wealthy couples can share their federal exemption.
However, the current federal estate and gift tax exemption sunsets in 2026. The exemption amount then drops to the 2011 amount of $5 million, which is adjusted for inflation to an estimated $6.8 million in 2026.
What does this mean? Even if Minnesotans currently do not have a federal estate tax, those with estates over $3 million should review their estate plan now to minimize state estate taxes, as well as future federal estate taxes after the sunset by leveraging gifting strategies to capitalize on the current historically high federal exemption.
Disclaimer: RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC. RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in consultation with your independent tax or legal advisor.
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