Safeguard Your Financial Legacy

Guy Holman has plans to keep his business in the family.

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By Carolyn M. Brown
Four years ago, Guy Holman decided to start his own business, a mortgage company that specialized in financing commercial properties. His wife of five years, Pamela, 36, joined him in the business in 1999. So far, business is good–the company had $1 million-plus in revenues last year–and the couple wants to keep it that way. They have given serious thought to the survivorship of the family-run business.

“Strategically, the short-term plan is that in the event of my demise, my wife would run the business and vice versa. There is a buy-sell agreement in place between our shareholders and us,” says the 33-year-old Holman. Such an agreement outlines how remaining business partners can buy out a deceased partner’s interest. “Because we don’t plan to work forever and assuming that my son, Avery, 12, has an interest in taking on the business, the long-term strategy is to slowly start transferring shares out of our beneficiary interests, which we keep inside of a living trust.” Created during a person’s lifetime, a living trust holds property–cash, securities, real estate and other assets–that is eventually transferred to a trustee on behalf of the grantor’s beneficiaries.

The Holmans also have put in place key-man life insurance policies, so that in the event of either’s death, $500,000 will be paid back into the company to replace any revenue shortfall. “A key-man policy provides working capital to a company as transition money,” he explains. The couple also has $500,000 each in term life insurance. The Holmans liquidated funds in their 401(k) accounts from previous employers to come up with more than $50,000 in start-up capital. They are now looking into tax-deductible, tax-deferred retirement plans for the self-employed, such as Keoghs and SEP-IRAs. The former lets you sock away 20% of earned income or no more than $35,000 a year; the latter allows owners to contribute up to 15% of income, or $30,000 per year.

It is still too soon to tell if Holman’s 12-year-old son will follow in dad’s footsteps, although he was a summer intern in the business doing clerical and office work. The Holman family understands the importance of DOFE principle No. 10, which is to ensure that your wealth is passed on to the next generation.

Of course, the transferring of wealth requires solid tax and estate planning. To help you safeguard your family legacy, start with these basic planning tools (see “What the New Tax Law Means to You,” this issue):

  • Assign a power of attorney. Your estate should include measures to protect you and your assets if you’re no longer able to manage your affairs. Power of attorney is a document that names an agent, someone who can take charge by signing checks, paying bills, and making other financial decisions on your behalf. Also, consider appointing a relative, attorney, or accountant as executor.
  • Estimate your estate, estate tax, and probate costs. What will be the value of your property when you die (e.g., equity investments, real estate, and personal property). What debts will you
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