How ready are you to save thousands on your tax bill?

  • Wed Aug 29th, 2012 3:20pm

By Noni LaLone Moss Adams

If you’re like many people, you’ve probably put off creating an estate plan or think you don’t need one. After all, estate plans are only for really wealthy people, right?

Actually, no. And this is especially true for business owners and many executives, regardless of whether a will is already in place. Even if you don’t perceive yourself as wealthy, it’s extremely worthwhile to try to protect the wealth you do have. And now is the time to get started.

Why? Because under current law, individuals have an extraordinary opportunity to transfer up to $5 million of their estate, during their lifetime or at death, without incurring federal transfer taxes. This amount is scheduled to drop to $1 million on Jan. 1, 2013, when estate tax rates increase from 35 to 55 percent. It’s also important to note that there’s no Washington state transfer tax on lifetime gifts.

So this year it will pay, quite literally, to make estate planning a priority. Here are some questions that are often considered in the planning process.

How can I execute a gift plan and still maintain my cash flow? It’s critical to review the cash flow you’ll need to maintain your current lifestyle and the one you’ll want in retirement. To do this you should start by completing a comprehensive financial plan to ensure you can comfortably transfer assets to beneficiaries.

How can I retain some control and flexibility over my gifted assets? For many people, the idea of giving assets away can be disconcerting if they believe it means waiving the right to make future decisions regarding its use. However, many strategies allow you to retain some degree of control, such as gifting assets to trusts, selecting appropriate trustees and, in the case of a closely held business, considering permissible structures that allow flexibility for achieving this objective.

How will personal guarantees of my business loans impact my options? When assets are removed from your personal balance sheet and transferred to the next generation, lenders sometimes raise concerns over whether your personal guarantees will still provide the necessary security. Therefore, give appropriate consideration to what restrictions may be applicable to transfers of certain assets.

What impact would future tax increases have? Individual income tax rates are scheduled to rise dramatically in 2013, with the highest marginal rate increasing from 35 percent to 43.4 percent. A gift plan can help reduce some of your increased income tax burden by shifting assets and income to other family members in lower tax brackets.

How can I keep my children focused on their own success? Most parents want their children to find their own happiness and success, which raises the question of how to transfer wealth while still motivating them to build their own success. You can achieve these goals by establishing proper legal structures with appropriate mechanisms to reward children for entrepreneurial behaviors, charitable endeavors or other positive activities you would like to encourage.

How do I know what my company is worth? Knowing the value of your business is vital to understanding whether you’re on track to meet your cash-flow goals for retirement. Before implementing a gift or estate plan, you should have an independent appraisal completed so you know the value of your business holdings and can fully evaluate your options. A business valuation can also provide valuable information for improving the operational and financial performance of your business, thus creating more transferable value.

Get started now. You’ve worked hard to get where you are, and preserving what you’ve earned is a worthy goal. Your ability to keep more of what you’ve earned depends on understanding the estate and gift-tax landscape and coming up with a plan to navigate it effectively. The result? You, your heirs and your business end up better prepared to face the future.

Noni LaLone is a certified public accountant and a partner with Moss Adams LLP. She provides tax and consulting services to businesses and individuals. She can be reached at 425-317-3045 or