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Estate Planning and Repeal

Congress has voted. The bill has been signed. The death tax is repealed--slowly between now and 2010…assuming future Congresses don’t change their minds and the repeal is confirmed when the current bill sunsets in 2011. Ross Nager will provide details and strategy inside The Advisor.

On this historic occasion, we urge you to do the practical planning needed to cope with the new complexities of the phased repeal. But we also urge you to engage in an exercise that considers how you would plan your estate if repeal were complete today and if tax avoidance were not an issue.

How would you plan your estate and write your will if there were no taxes as a consequence of death?

Despite not being confronted with the need to minimize estate tax, people of means in the 18th and 19th centuries still took their last wills and testaments very seriously. They carefully and "planfully" distributed their assets to those deemed appropriate, usually seeking to assure that productive assets remained productive. They struggled with issues of fairness and equity.

Those who sought the fairness of equality left their families with circumstances that met no ones goals or needs -- as when already small farms were divided among several children creating units too small to be to economically viable.

While ones last “will” dealt with material assets, ones last "testament" was typically a narrative, a letter if you will, from beyond the grave, seeking one last time to summarize and pass on what wisdom one had gained during one's life. The last testament was what is now sometimes referred to as an "ethical will" -- an effort to pass on to one's family what is truly valuable-- the values and precepts that led to a meaningful and successful life.

Even if the estate tax were fully repealed today, planning your estate and passing it on to your heirs remains tremendously important. Without the preoccupation of the government's expatriation of your wealth, you may be freed to focus on truly planning your estate and providing a meaningful owners' manual to accompany your assets when they are passed across generations.

An estate plan is a plan, and as a plan it must have goals. Too often today, estate plans have a single goal-- reduce taxes--but in a family business, the goals of the estate plan should go much further. To do effective estate planning, you should gather your family to determine and articulate what you stand for and hope to accomplish as a family. Our readers know that we urge families to develop "Family Mission Statements," a practice also recommended by Steven Covey in his book, Seven Habits of Effective Families.

Once you've set your family's mission, you can think more clearly about how to distribute your assets in a manner most likely to help your family achieve its goals. If you've also had the opportunity to assess how your heirs relate with one another, you can make good judgments about your family's business for future generations. Is it your hope that the business will remain in your family for generations? Generation skipping bequests are not just for tax avoidance. Do you hope to manage your assets as a group? Family partnerships are not simply a device to beat the IRS.

How should company ownership and control be structured? Company stock can be divided into voting and non-voting shares to keep management accountable, and bequeathed to various heirs. Perhaps all will receive voting shares or perhaps only leaders in the business will receive shares to assure their ability to act. It all depends on how your family feels about managerial control, accountability, equity, fairness, openness, rewards for management and other issues.

Philanthropy should not be just a matter of you giving the money away rather than letting Uncle Sam do it. Pools of assets designated for charitable purposes may still be great ideas. Establishing a private foundation or a donor-advised account and how those entities are governed are matters that should be guided by family goals and family dynamics, not just by tax considerations. For that matter, you still may decide to just give it all away.

Thinking through your goals and mission as a family and planning your bequests as though death taxes were not an issue, will make your estate planning more meaningful and effective. Writing your "last testament" gives you one last opportunity to reinforce the values that your life represents. There are no greater gifts.




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