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Foundation #5 - Exit Planning:  Protect Your Wealth

The purpose of protecting your wealth is to protect the lifestyle you worked so hard to create for yourself and your family.  Money can’t buy you happiness, but a lack of money can certainly make you miserable. Business owners in the 2% Club don’t take unnecessary risks with their wealth because they don’t want to jeopardize their lifestyle, their happiness, and their sense of well-being. The successful 2% Club have four central wealth protection concerns:
  • Understanding your entrepreneurial appetite for risk
  • Taking steps to realize the value from your business
  • Protecting yourself against theft from people in positions of trust
  • Creating an estate plan that accomplishes the three P’s

Understanding your entrepreneurial appetite for risk
When it comes to financial security, the rule for entrepreneurs is “don’t mess it up.” The risk-taking nature of entrepreneurs often makes them their own worst enemy when it comes to their financial assets. Entrepreneurs have no trouble at all putting all their assets at risk. Successful members of the 2% Club set aside enough financial assets to maintain financial security and use other designated assets for risk-taking. This keeps them from losing financial security once established. Your spouse will love you for taking this step, especially if your spouse values fi nancial security more than you do.

Taking steps to realize the value from your business
What will happen to your business if you die or are unable to work? Business contingency planning can be as simple as a one-page contingency plan stating your wishes. A buy/sell agreement is an important document, especially if you have co-owners. More importantly, the buy/sell agreement should be funded and based on a frequently updated valuation or valuation formula, because small business values vary more than the stock market.

Protecting yourself against theft from people in positions of trust
Each year, a significant number of business owners suffer significant wealth loss, through no fault of their own, when a trusted employee takes advantage of them. There are simple steps you can take to help prevent problems such as inventory theft, embezzlement, business conversion, forgery, and other employee and non-employee means of unjustly taking your business assets. Your CPA can help you put safeguards in place for your business and spot common warning signs of potential problems.

Creating an estate plan that accomplishes the three P’s
For most people, estate planning is not about minimizing estate taxes, because most people will not have enough wealth to be subject to the federal estate tax. As a result, estate planning is typically about three things:
  • What Property do you have?
  • What People do you want to give it to?
  • What Process do we use to make that happen?
As a starting point, it’s a good idea for everyone to have a will, as well as the standard healthcare directives and powers of attorney that accompany it. If you’re an entrepreneur who is financially fi t, it can also be a good idea to consider a living trust as part of your overall estate plan.
A living trust helps your estate avoid probate which, in many cases, can take about three years and cost significant legal fees. So even though federal estate taxes are not an issue, avoiding probate of your estate through a living trust can be highly beneficial to your family members who survive you. A living trust is completely revocable, and therefore changes nothing when it comes to your taxes. However, any assets that are placed in the trust are not subject to probate. The trustee of the living trust can simply go about his or her business, without judges or attorneys being involved, and wrap up the affairs of the estate according to your wishes. A key with living trusts is designating a trustee whom you feel confi dent will distribute the assets according to your wishes. There are other probate-avoiding mechanisms such as pay on death accounts for your bank accounts, transfer on death accounts for marketable securities, transfer on death car registrations, transfer on death deeds for real estate, and deferred tax retirement accounts.
In many cases a standard will that creates a testamentary trust and has the accompanying healthcare directives and powers of attorney is sufficient to meet your estate planning needs.  Your CPA’s annual review of your estate planning can help you avoid the common pitfalls that happen due to changing circumstances and assure that your estate planning meets your people, property and process wishes.  
How we help: Role of Your Investment Advisory Representative
  • Helps you protect the value of your business against theft from people in positions of trust
  • Offers tips on increasing the value of your business through a sound exit plan
  • Reviews your estate planning to assure that it will meet your objectives and that the designed process will transfer your property to the people you wish
  • Assists you in protecting the lifestyle and financial security that you have worked so hard to establish 

Review and learn more about all Five Strategies in Griffiths, Dreher & Evans PS, CPAs 
Wealth Management Edge

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