I’ve been interviewing electrical
contractors and others in the construction business lately
about their perceptions of investing as it relates to working
with people like myself versus doing it on their on. I always
tell them how important it is to focus on their contracting
business. I tell them this because there is a lot more to
creating and preserving wealth than watching MSNBC while
competing for bids with competitors. The wealth you’ve built
really doesn’t mean much if Uncle Sam sticks his hand in at
your passing. Estate planning is extremely important for the
highly successful electrical contractor who owns several
pieces of real estate, retirement plans and other businesses.
When you develop your estate plans, you
might be surprised at all of the objectives you want to
accomplish. Of course, you want to leave your assets to your
family members in a way that’s fair and beneficial to
everyone. But while you’re at it, can’t you avoid the
drawbacks of probate? And how can you make sure your wishes
are carried out if you’re incapacitated? And can’t you
support your favorite charity without shortchanging your
heirs? Have your children learned your business, and are they
currently in a position to take over your contracting business
should you pass away?
Clearly, these are major goals. And if you’re
going to achieve them, you’ll need to employ the right
estate planning strategies—and you may find that trusts can
help.
Several different trusts are available. Let’s
look at a few of them, starting with a living trust.
Living Trust
When you create a living trust, you get some key
benefits, including the following:
You
may avoid probate. If you just have a
will, your assets may have to pass through the probate process—
which can be time-consuming, expensive and a matter of public
record. But with a properly established living trust, your
assets can pass directly to your beneficiaries, with no court
interference, no legal fees, no lengthy delays and no public
disclosure.
You can safeguard your children’s interests. When your will is probated, the court sets up a guardianship
for your minor children. You can name the guardian in your
will, but the court could still appoint someone else. Just as
importantly, the court, not the guardian, may control the
inheritance until your children reach legal age. At that time,
they may receive the entire inheritance. But with a living
trust, you determine when your children or grandchildren will
receive their inheritances. You can even have the money
distributed in installments, over a period of years.
You
can retain control of assets, even in cases of incapacity. When you establish a living trust, you designate a successor
trustee who can immediately step in for you if you become
incapacitated. And your trustee must follow your wishes as far
as providing funds for you, and later, for your beneficiaries.
Charitable
Remainder Trust
A living trust can help you deal with many issues that relate
to your family. But if you want to include a charitable
organization in your estate plans as well as make your
appreciated low-yield assets more productive, you may want to
consider a charitable remainder trust.
If you place appreciated stocks in a
charitable remainder trust, you’ll receive an immediate
income-tax deduction and later an estate tax deduction. The
trust can sell your appreciated stocks with no immediate
capital-gain taxation, purchase an income-producing vehicle
and pay you an income stream for life. Upon your death, the
trust will pay out the remaining funds to the charity or
charities you’ve chosen.
Irrevocable Life
Insurance Trust
But if you set up a charitable remainder trust and fund it
with appreciated stocks or other assets, won’t you be
depriving your family of those resources? Yes. But you could
use some of the income you receive from your trust to pay the
premiums on a life insurance policy on yourself, with your
heirs as beneficiaries. To keep this policy out of your estate
and avoid estate taxes, you may want to put it in another type
of trust—an irrevocable life insurance trust.
Trusts are not suitable for everyone. And
they can be quite complex instruments, so, before taking any
action, consult with your tax and legal advisers. But if your
trusts are correctly set up, they can go a long way toward
helping turn your estate plans into reality. Please see a
qualified professional to ensure that you aren’t paying
unnecessary taxes for the estate you’ve worked so hard to
build.
Jesse Abercrombie, an IEC Dallas
member, specializes in helping contractors manage their
money. For any questions or comments concerning this
article, please contact him at 972-241-8059 |
