News for Small Businesses
March 2016
Nationwide SB Survey Stats

In February 2016, Nationwide Insurance announced some of its findings from a recent survey of small business owners. Click here

Small Business Owners make up 97.5% off all employers.  SBOs employ nearly half of all private sector employees.

84% of Small Business Owners believe that there is a retirement readiness crisis among American workers. Although 60% believe: "My workers are ready."

63% of Small Business Owners believe it is important for a business owner to offer retirement benefits. The percent of Small Business Owners that actually do?  34%

Read about Retirement Accounts for Small Businesses in our 
next issue!

"Planning is bringing the future into the present so you can do something about it now."
 -Alan Lakein-
Small Businesses 
and Trusts

Many small business owners devote their lives to the growth of their company. In these instances the business is not just their "baby" and their passion, but it is often their primary source of wealth.

Business owners, especially small business owners are notorious for having small cash or investment account balances, even when their business is highly successful.  As a result, the business owner's wealth can be tied up in the equity of the business rather than in the checkbook balance.

Unfortunately, this can create huge problems for heirs after the owner's death; especially when a non-liquid business is subject to estate taxes and the estate does not have enough cash to satisfy the resulting tax liabilities.

Scheduling an appointment to evaluate your situation with Sobel & Co.'s Trust & Estate Group may be one the best things you can do to protect your estate for your family.

What Kind of Trusts do Small Business Owners Need?

As with so many financial or legal questions, the answer to this question is: "that depends on your situation."

However, while most people would not hesitate in saying they would rather leave their money to their family or charity rather than the government; few people feel comfortable talking
about things that will happen after 
they are gone.

As a result, trusts are an area that many business owners are vaguely aware of but not really sure how they apply to a given situation.

The following is a brief primer on some popular types of trusts for business owners.

Trusts 101: Where do you want your assets to go? 

People understand the value trusts add when they help reduce or even eliminate estate taxes. However, things become more complex when trusts are used as an integral part of an estate planning strategy to give more control to people in deciding how distribute their assets after death.

Grantor Trust - The grantor pays tax on all income but the assets and all appreciation of those assets are out of the estate.

Credit Shelter or Bypass Trust - Even though portability of the estate tax exemption is now permitted, this trust may still be critical if you are married. The surviving spouse controls these assets and can receive income from them. All appreciation of these assets and the undistributed income grows estate tax free. After the second spouse dies, the estate gets the remaining assets free from estate taxes.

Grantor Retained Annuity Trust - This is a popular trust for shielding a business or other assets expected to appreciate. A GRAT is an irrevocable trust that provides income from the assets during your lifetime and the beneficiaries receive a discounted value of the business assets at the end of the trust's term. 

Life Insurance Trust - Perhaps the most common estate planning tool used with business owners, this trust is the owner of one or more life insurance policies. While life insurance proceeds are not subject to federal income taxes, the IRS does consider the proceeds an estate-taxable asset. A life insurance trust removes those proceeds out of your estate and gives your beneficiaries a source of tax-free cash that they can then use to either pay the estate taxes or purchase a business interest. If your business is successful and typically short of cash flow, this trust should be at the top of the list for your estate planning discussions.

Charitable Trusts - There are a couple of options for trusts that would satisfy a person's desire to give money for a philanthropic purpose while also providing for individual(s) named in the trust. A Charitable Remainder Trust gives the named person income from the assets for a fixed term, after which the remainder of the assets goes to charity. With a Charitable Lead Trust, the opposite occurs. Income from the assets is donated to charity during the trust creator's lifetime and, upon termination of the trust, the remainder goes to the beneficiaries. In both cases, the grantor is supporting altruistic goals while also reducing estate tax.

While these are five of the most popular trust options, other types of trusts exist that may be more useful in your specific situation.  To schedule a free one-hour consultation with Ken Hydock, Member-In-Charge of our Trust & Estate Practice Group, send a request to:

Call our office for more information 
(973) 994-9494

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