How Entrepreneurs and Business Owners Can Structure Their Estate Plan

Below is the transcript of the video and is only being provided as a matter of convenience, but we highly encourage people to watch the video.

hello it's a pleasure to be with you here today i am attorney christopher nudo and i serve the chicago community uh specifically with offices in arlington heights and elgin illinois

my practice focuses mainly on estate planning real estate and business transaction law which is essentially the support of businesses from the legal community today i am gonna address the benefits and the nuances that entrepreneurs and business owners should consider when doing their estate plan and how their estate plan is interwoven with their business so uh let me give you a little background on why this topic was so important for me today many self-employed professionals seek the same guidance as regular w-2 employees with regard to estate planning but yet there are a number of distinctions those of which we're going to go over today that that i want business owners to be aware of and take advantage of the different planning techniques that are available a lot of questions revolve around whether or not you are a corporation a partnership and a limited liability company or just a sole proprietor and um we are going to try and touch on all of those as we go through our material today

so let's jump right in and talk about what our agenda is going to look like for the day we're going to talk about how estate planning and financial planning differ for the self-employed professional um because often people will confuse financial planning and estate planning and while they're for sure interwoven they are different we're going to talk about when it makes sense to form a separate entity like a limited liability company or a corporation um we're going to touch on how a trust can own these entities and why it is important um if there's any tax advantages we're going to touch on those and

when oh and then uh what types of investments make sense and by far i'm going to tell you that uh the investment part of this uh talk today is going to be extremely limited because i am not an investment advisor but i will tell you from personal experience how certain investments with a self-employed person like myself for estate planning and how the different vehicles that we've taken advantage of impact what we do so how about we jump right in shall we so first of all how does estate planning differ from financial planning well first of all estate planning is the endeavor to plan for when you're gonna die so you are either a single person or you're married and uh you are gonna die someday and i know that as a certainty and so when you die what happens and if you own your own business when you die what happens to that business but let's go one step further estate planning also can be about planning for what happens if you become disabled many people today suffer from uh debilitating incapacities such as dementia or alzheimer's before they die and they can't manage their business so how does the or i should say that is also part of the estate planning process now similarly yet different financial planning is about looking at what assets you have and looking at your financial net worth and looking at your risk aversion and looking at your continued earning capacity and a number of other things and deciding how today should your estate look from a an investment outlook note they're they're similar but yet very different financial planners uh uh i am not a financial planner i do not sell you investments i do not suggest investments um i do not look at your portfolio and assess whether or not you're invested properly my job is to look at what does your investment portfolio look like today and what do other assets that you own look like including your small business and when you die what's going to happen to it and how will that impact your children or your heirs or the your favorite charity that you want to bless so all of this by the way is very different than the w-2 employee the w-2 employee um goes to work receives a paycheck and uh and and having to plan for the succession or the winding up of their small business doesn't exist where a small business owner might have employees have vendor relationships have continuing contracts with uh clientele and so those things need to be addressed when they die

so what i want to say today regarding estate planning and the small business owner is we need to first look at what you have if you come to me as a sole proprietor that's fine that's easy that means there's no entity and so the way we treat you is the way we're gonna treat your estate so if i'm meeting with you and i suggest that a living trust is the proper planning tool to ensure that your estate transfers nice and easily to your heirs without probate and privately and quick and efficiently and without a lot of cost then whatever i've done for you will also apply to your small business now you come to me and say but chris i am a corporation as a matter of fact i'm an s corporation and let me tell you for purposes of today's conversation there's no distinction between an s corporation and a c corporation from an estate planning perspective now i understand there are many distinctions between the two entities and an accountant would have lots to say about the pros and cons benefits and burdens and all of the things between a c corp and an s corp but for purposes of this discussion today there is no distinction because a corporation is made up of its shareholders directors and officers shareholders of a corporation are the owners of a corporation and entrepreneurs most entrepreneurs like 99.9 of them are small business owners who own their 100 of their company and it's very common for husbands and wives to own the company together or they own it with their best friends and so as it relates to estate planning what we want to do is make sure that the ownership of the corporation is properly held or titled in the name of the trust for your family thereby upon your death that stock transfers to the your beneficiaries under the terms of your trust now there are some particular instances where you cannot have uh shares of a small corporation held by a trust such as doctors doctors who own medical practices the state of illinois says that only licensed physicians can be the owner of i believe 90 of the stock i believe 10 percent or less or some very small percentage can be owned it might be five percent now that i'm thinking about it can be owned by a non-licensed physician so uh doctor uh uh mr and mrs or i should say doctor and mrs or doctor and mr so i want to be politically correct come to my office and they sit down and they say um he or she doctor owns their own medical practice they want to do a living trust estate plan because again they want to they want their estate to avoid probate uh be very simple for their children when they die um avoid probate and um have it cost very little money so they say what do we do with the doctor's practice and i say we create a stock certificate that says doctor owns the stock tod transfer on death to either the surviving spouse or their living trust and in most instances it's going to be their living trust now you say but chris as soon as the doctor dies and it transfers to the living trust aren't you violating illinois law because the living trust does not own the uh is not a licensed physician and i would say you're right but the medical community has thought this through and what they say is um there is a period of one year where a non-licensed physician can own the shares of a medical practice if in that time frame they are making an effort towards either selling the practice or winding it up and shutting it down so that at the end of the year a licensed physician either will own the practice or the practice will cease to exist

okay so we talked about corporations and the fact that we would have uh to make sure that the shareholders of the corporation either have a transfer on death designation or are re-titled in the name of the family trust what if you have a limited liability company well it's very similar as we know with limited liability companies they don't have shareholders they have members now members today are very much like shareholders from an ownership standpoint they are actually very different depending on how your limited liability company is structured but for purposes of today's conversation if you own limited liability companies and the most common is the real estate investor people come in they have uh they own a number of pieces a number of rental properties the rental properties are held by individual limited liability companies and they want to make sure that upon the uh the clients want to make sure that upon their death their investments in these limited liability companies get properly transferred to their children and the answer is we assign the membership interest of the limited liability company from the client as an individual to their trust so then their trust owns the interest in the limited liability company in both of these situations the limited liability company and the corporation the client keeps all the benefits of the entity they have and receives the benefit of when they die their entity is properly transferred to their heirs avoiding probate and it's done in a very quick and inexpensive fashion


so we kind of touched on our next topic which was um uh what types of assets can be owned by a limited liability one of those limited liability company or a corporation associated with a trust so we're gonna kind of keep moving i didn't realize i kind of blended those together which is very cool so we can move on to the next topic which is what tax advantages come from certain types of estate plan structures and trust okay this is a very very lengthy topic and we're not going to dive super deep in it we're going to stay right on the surface of it um so there are lots of different trusts that can create many different tax advantage structures a lot of them require that is a husband and wife and but there are charitable means in which we can take care take advantage of taxes um and uh there's different different gifting strategies um but let's talk about how does this uh relate to the business owner because that's kind of the overarching topic of today's conversation and uh one of the things that business owners should be taking advantage of is expensing uh user usual and customary expenses in their business and uh per the internal revenue code and so when uh your living trust owns your business you are allowed to continue taking advantage of these business expense deductions which reduce income to your entity um and um there are benefits to uh different trust uh setups one being uh individual trusts versus joint trusts now most of the clientele that i sit with qualifies or fits nicely into what's called a joint trust a joint trust is one trust for husband and wife uh we and the reason i like the joint trust is because it really mimics the husband and wife relationship very well husbands and wives tend to blend all of their assets together as one and they treat the assets as one owned by two people a joint trust accomplishes that same goal however it doesn't always work nicely with business owners because if the wife is the business owner and the husband is the w-2 employee

not necessarily working for the wife in this illustration then what we like to do is set up individual trusts because we like to take the wife's business and keep it separate from

the other assets of the family now if a husband and wife own the business together then we can still go back to the joint trust analysis but when couples own businesses separately it often makes sense to do separate trusts now that is not an absolute there have been many instances where i have done a joint trust for people who individually own their own business but today

there are uh different advantages that we can take advantage of if we do individual trusts now pros and cons of individual trusts are pros are that we have more flexibility in our planning khan is it requires more work more expense and does not mimic well the uh relationship typically between a husband and wife also in our physician analysis earlier if the physician has his own trust and he is the grantor the trustee and the beneficiary which are the three main elements of a trust and it's an individual trust then the physician can own his practice or the shares of his practice in his medical corporation by his trust so that's a benefit i shouldn't say his his his or her you understand that in uh this discussion here um everything i say is uh and supposed to be taken gender neutral

um so

let's talk about investments that entrepreneurs should consider so there are um again i am not a financial planner and i don't do uh in investment counseling but this is what i know about a lot of small business owners they don't have the uh they don't have the ability typically to take advantage of some things that bigger corporations have such as 401ks um group health insurance and things of that nature the true small business owner um the administrative costs of these types of programs tend to be cost prohibitive so things that i have seen small business owners do is open annuities or sep programs or other vehicles that you put money into and produce an income stream later and these are extremely valuable when planning your estate uh we need to when when planning your estate you want to look at not only to whom is your assets going to go when you die and and are they going to go efficiently are they going to avoid probate are they going to um is your estate set up in a manner that if there's some unintentional deaths in your family meaning

children die before parents die this these are unplanned uh unintended results and so is your estate um set up in a way that if these unintended results occur then uh your estate gets still administered in a cost-effective way and benefits the people you want to benefit and the the small business owner really needs to focus on these things because in most families the fan if if husband or wife owns a family business they usually can look at their children and say one of the children is interested in the business that i own and the other one is not so planning appropriately to who is going to take over that business when you die is very important that translates very clearly into your estate plan and how we draft it because we don't want to leave your business to uh both your daughter and your son if your son really has no interest in the business and your daughter is really the heir apparent to your business so these are discussions we need to have we need to look at the type of entity that you own your business in corporation or limited liability company sole proprietor partnership etc and we need to plan accordingly so that when you die the business transfers quickly it avoids probate it has low cost of administration and again not to beat a dead horse but living trusts are the necessary vehicle most of the time to accomplish these goals so um how do you how can you ensure that you're working with a qualified estate planning lawyer well that's super simple you have taken the last oh i don't know um x number of minutes 24 minutes and six seconds to be exact to listen to everything i've had to say if you meet with an estate planning lawyer that intelligently talks about the items that i have raised here and focuses on solutions that are consistent with what i've said so far then you know you are working with a good estate planning lawyer if your estate planning lawyer you're meeting with kind of rolls their eyes and has no idea uh what the appropriate way and more importantly not only the appropriate way but why it is they should be doing what they're doing to help you with your small business in your estate if they cannot do that then my recommendation is that you shop for another lawyer so let's do a quick recap let's answer some questions and uh let's call it a day how about that um so my name is christopher nudo and i am the founding partner of my law firm and we focus on estate planning real estate and small businesses we are located in illinois and we serve the chicago community include with offices in arlington heights and elgin our topic that we've been talking about for the last 25 minutes is how entrepreneurs and business owners can structure their estate plan uh if you missed our last session i uh encourage you to watch the video right here on facebook um this is where i explained how parents with children from two different marriages can handle the distribution of their assets so if you have children from two different marriages um uh it might interest you to go back and watch that program an overview for anyone unfamiliar with the benefits of estate plan um here we share uh tips and legal guidance for parents guardians and other professionals and we welcome you here every friday that we broadcast live so we have a number of questions lots of people have uh joined us this morning and um we're just gonna take the uh see how many questions we can get done here in a little short period of time and then we can all enjoy the rest of our day so good first question i've started a business when is it really time to start thinking about estate planning that's a very simple answer as soon as you have the money to not only run your business but think about what happens if you die what happens to the business that is the time to meet with a good estate planning lawyer because you don't want to wait too long and run the risk of dying and you've taken a lot of time energy and money to get this business up and running and then you failed to plan effectively and you die and your business ends up as a probate asset in illinois that would be a shame so the moment that your business is up running and you're not feeling the incredible drain of the business but yet you're making money that's the time to sit down with an estate planning lawyer and get this done

if i am barely paying myself should i really worry about creating a will that's a great question so you know when people start uh their own business uh it always costs more money than you're making but if you are if you plan and do well and create a good business eventually the tide turns and the business pays you and if your business is paying you that means it is a positive asset that potentially could be sold and so the answer is yes now there are instances where your business isn't really a business but rather a glorified hobby and we really need to analyze what you're doing and um if you were to disappear off the face of the earth because you have died what would be the consequence of that as it relates to your business and that analysis will tell us whether or not it is a good idea for you to do your stay plan but let's remember that doing your estate plan could have nothing to do with your business and it could have everything to do with everything else in your life such as you have small children and you need to care for them in the event you die regardless of whether or not your business is barely paying you so as you can see we need to take a real holistic approach and decide when is and what is the right estate plan for you how can i protect the ownership of my company when i get married well um boy that is a loaded question isn't it and we're not gonna dive into probably the dark crevices of that question um but i kind of understand it and this is where to keep i always say if you're coming to a marriage and you already have your business established and you want to keep it separate wonderful let's do individual trust estate planning where we create a bucket a trust that's just for you and that's what controls and owns your business thereby you can dictate exactly what happens to your business when you die regardless of your spouse so you and your spouse are maintain your assets separately and uh now that not all of your assets have to be maintained separately if you just want to keep the business separate fantastic and again that goes back to our conversation we had earlier about how is your business owned is it a corporation a limited liability company partnership sole proprietorship etc and then the the nuances of the type of business structure will dictate how best your individual trust interfaces with your business excellent question thank you all right next is it better to have a separate corporation that owns my real estate assets good question can i if you don't mind please forgive me i am going to rephrase your question the the question should be should individual entities own real estate as it interfaces with my trust the answers yes yes yes yes i say this all the time if you are a real estate investor i advise that each piece of real estate that you own is owned by a separate limited liability company not a corporation a limited liability company and that will properly give you all of the benefits of expensing your expenses for tax purposes it'll give you the benefit of limited protection through the limited liability company and when we make your trust your individual trust or joint trust depending on if these are husband and wife investments or individual investments the owner of the limited liability companies we have done a wonderful job we have ensured that your investments will transfer appropriately quickly they will avoid probate and the administration will be very inexpensive when you die this is what i consider to be the proper planning for the real estate investor

how much does it cost to work with an estate planning lawyer you know costs vary and what i would say is this um you know simple wills for simple people

where we don't have to be concerned with probate and we don't have to be concerned with guardianship is going to be a lesser form of estate planning the typical estate plan with a will is a will a healthcare power of attorney a durable power of attorney and sometimes a document called a transfer on death instrument which addresses uh the principal residence real estate in the family however most people will do uh living trust estate plans and today the living trust estate plan for a husband and wife varies between three thousand and four thousand dollars for um the average family it does go up from there for families that have more wealth um and uh but uh the living trust estate plan really is designed to uh make sure that uh your estate stays out of probate uh tran uh we avoid guardianship in the event of incapacity of one or both of the husband and wife uh we make sure that proper health directives and property directives known as healthcare and property powers of attorney are part of the plan and this is the most typical way most estates are planned today

so what is really the difference between uh working with a lawyer and doing it yourself well if you're working with a good estate planning lawyer the benefits are number one you'll be receiving um excellent documentation that is a hundred percent appropriate for your circumstances and you have the assurance of knowing that also a good estate planning lawyer has knowledge of you as an entrepreneur and all of the different endeavors you're involved in he or she attorney is able to intertwine your business life into your estate planning properly sure can you do it yourself maybe but what assurance do you have that when you do it yourself you've done it thoroughly and appropriately and so if you're an entrepreneur my suggestion is you stick to the business creation running and development that you have been gifted to those talents with and that you hire a good estate planning lawyer to bring that all together for your ultimate estate plan

all right um so do we do you offer virtual appointments on uh or on-site visits the answer is yes we do everything so you can come to us in elgin or arlington heights we can set up a virtual meeting and uh we do that with like microsoft teams we do it with uh we're going to start doing google meets here in the future um we're just gonna be available as you're available um can i can i come to you well sure i can come to you um if it's appropriate and if it makes sense i get in my car and i come to you sometimes i say it's easier for me to come to you than from to you to come to me but again that's very uh fact specific and circumstance uh specific but know that that is available finally um where can i contact you to set up a consultation well here um right on my screen boom look at that call me text me i always say to people send me smoke signals i really don't know if i could read them but i think it would be pretty cool if somebody tried they'd be like did you get my message how's that why lit a fire i don't know um i i think it works i don't know anyway but use the phone numbers um they're more effective than smoke signals richard will answer the phone he'll help you he is super smart and intelligent and he will make sure that we can assist you in every way possible there's also i think my addresses are available my email all of that stuff uh you can take that stuff down it'll also be uh somewhere in uh the facebook information so listen it's been awesome uh being here with you this morning i hope you took away some little nuggets it's always my goal to just leave the day with you knowing more than you started with so you just have a fantastic day god bless see you next week.

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