When a business owner reaches a certain level of success in his or her business, it becomes important to begin the process of succession planning.
Many business owners avoid succession planning, fearing it will take too much additional energy or create unnecessary expense.
Many business owners avoid succession planning, fearing it will take too much additional energy or create unnecessary expense. But without a good succession plan, a business owner stands to lose a lot if he decides to retire. In fact, some business owners simply can’t afford to retire without a well thought out plan in place.
Depending on the type of business, a succession plan may involve a transfer of assets, a buy-out by a key employee, or a structured gift to the next generation of family members. One thing is certain: planning ahead is important. Many succession plans take 3 to 5 years from the time the plan is put in place until the business owner has successfully transitioned out of the business.
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The tax implications of dying are becoming ever important in a world where parents are struggling to equip their children with a college education and enough financial stability to move out of the family home. In Maine, estates valued over $2 million are subject to estate tax at a minimum rate of 8%. That may not sound like much, but that means an estate valued at $3 million dollars will pay $80,000 in estate tax in Maine.
With proper planning, an attorney may be able to help you avoid estate tax entirely, even if you have more than $2 million in assets.
Many people don’t realize that, unlike the federal estate tax, Maine does not use portability to calculate estate tax exemptions. That means that the estate tax exemption is not doubled for a married couple unless the proper trust planning is done. If a married couple has $3 million in assets and the first spouse dies, leaving all of the family assets to the second spouse, then the second spouse will pay $80,000 in estate tax on a $3 million estate. With proper planning, an attorney may be able to help you avoid estate tax entirely, even if you have more than $2 million in assets.
It’s also important to consider what assets are included in calculating the value of your estate for estate tax purposes. Many people forget that real estate (at the date-of-death fair market value, not the purchase price) and life insurance are both included. A family that doesn’t feel rich may have more assets than they think. A couple of life insurance policies, a family camp or summer home, a personal residence, and a small retirement account can easily add up to millions of dollars. If you’re not sure whether the Maine estate tax may apply to you, give us a call. We can help you figure out the size of your taxable estate and whether you can avoid any estate tax.