CASE #10. DATE: June 27, 2021
FACT PATTERN:
Bob started his business- a drill machine shop, with himself and one other worker-10 years ago. Currently, the business has 11 employees and is remarkably busy and receiving orders constantly and the future is bright. Half of the business comes from the state government as they have done work for the agency for many years. Bob has taken out loans for the growth of his business and has refinanced his home. He has an attorney and accountant. The company has a 401k plan and a good health plan. After we went through the Blueprint Issues[1] , the owner admittedly has concerns that he has neglected his financial planning, putting most of his focus on his business.
One Page Problem:
- At death, his estate is responsible for the debt; over $256,000– his estate is stuck with a business loan since he signed personally- this is now his spouse’s problem.
- The business does not have a succession plan- this is a problem at death
- No evaluation of the business: For Estate and State taxation, and ultimate sale- This can mean a piece meal sell off. Competitors are not motivated to pay higher than discounted rates for assets affecting the ultimate value the asset will receive on liquidation
- The owner has no will or distribution plan- 2nd marriage, 2 children and 2 stepchildren- Intestate law distribution. Spouse would be sharing assets with children- Client wants spouse to receive property.
- Other issues- to work on in the future. These were the priority currently
One Page Solution: [2]
Based on the above issues we suggested the following to work on:
- Updated estate plan: Estate attorney to draft and execute wills, a bypass trust, healthcare directives, durable power along with other important documents.
- Apply for life insurance for the following purpose:
- Family income and capital debt payment
- Business key person life insurance
- Based on the value of the business, the trust may end up being an irrevocable trust in which the trust will own the life insurance
- Start the process of getting a business valuation complete since one has never been done- for the purpose of future business succession planning
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[1] Set up 16 major areas of concern for business owner which we address to see if there are issues to attend to.
[2] This was the beginning of the planning. There were other issues to work on. These are the issues currently being planned.
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