Basis is Important in Estate Planning

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When choosing the direction to take in estate planning, it’s important to consider the impact on income tax basis. This article examines the nature of basis and follows an example from acquisition of property to death and looks how basis is adjusted along the way. Since the property is included at death, the basis receives a step-up to the value of the property at death. Upcoming articles will examine how common estate planning strategies impact income tax basis.

Basis is Important in Estate Planning

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Would You Prefer a Charitable Deduction This Year?

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Perhaps you would prefer to take a charitable deduction this year. Maybe you have higher income this year, or the reduced ability to take a deduction next year. A donor advised fund may make sense for you. A donor advised fund allows a deduction this year, even though distributions will be made to public charities in future years. Read on to learn more about a donor advised fund.

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Phoenix business succession planning

Why Is Phoenix Business Succession Planning Important?

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Phoenix business succession planningIf you are one of the millions of Americans who has struggled to get a small business off the ground, you likely have a small fortune invested in your business, in terms of money, time, energy, and concern. You probably went to the trouble and expense to purchase a variety of business insurance policies to protect your investment in the event of a natural disaster, theft, or accident. How will your business survive, though, if something happens to you?  Have you planned for the potential tax consequences of passing your business down to the next generation? Have you even assured that your business will pass to your desired beneficiaries?  If you prefer that the business be sold and the profits used to support your family when you are gone, are you certain your loved ones will receive a fair price for the business? All of these questions can be answered by including Phoenix business succession planning in your comprehensive estate plan.

Why Do I Need to Incorporate Business Succession Planning into My Estate Plan?

Business succession planning is necessary if you care to protect your financial – and even emotional – investment in your business, as well as to ensure that it makes a successful transition to the next generation. To illustrate the importance of business succession planning, ask yourself the following questions:

  • If you are incapacitated tomorrow in a tragic accident, who will take over the immediate day to day control of your business?
  • Is it clear to your employees, business associates, and family who will take over?
  • Does the individual designated to take over have the legal authority to do so?
  • Will your family continue to benefit from the business’s success in your absence?
  • If you become permanently disabled, or retire, who will take over your business?
  • Will your business be included in the probate of your estate?
  • If your business will be part of your estate, what will happen to the value of your interest in the business if it is sold?
  • If your business is a family owned business, have you prepared the next generation to take over?
  • Have you set up the proper legal structure for the business to facilitate the transfer to the next generation?
  • What will the tax implications be for your business should you die?
  • Does the business have sufficient liquid assets to cover any tax or other debt that might be owed when you die?

Common Strategies for Business Succession Planning

The best way to ensure that your business is protected if something happens to you, and that it is handled according to your wishes upon your death, is to include business succession strategies in your overall estate plan. Some common options include:

  • Gifting in your Last Will and Testament, or preferably your Living Trust – if your business is a sole proprietorship, you can simply gift the business and all the business assets to someone in your Will or Trust. There are a number of reasons why this is not the best option, as your attorney can explain, including the likely tax liability.
  • Family Limited Partnership – if you plan to keep the business in the family, a family limited partnership, or FLP, may be best for you and your family. You can maintain majority control and day-to-day management of the company for as long as you wish; however, your successor can also begin to learn the business while you are still around to provide guidance and advice. In addition, there are typically some significant tax advantages to creating an FLP.
  • Limited Liability Company – in addition to providing asset protection against creditors arising from business, and even outside, activities, an LLC can assist with proper and timely transition upon your retirement, disability or death.
  • Buy-Sell Agreement -- this option is often used when there are partners involved who are not family members. A buy-sell agreement allows you to determine ahead of time what your interest in the business is worth or, in the alternative, provides an agreed upon method of valuing the business when the time comes that you are no longer involved. Your partner(s) agrees to purchase your interest in the business should certain events occur. This ensures the continuation of the business and a fair price for the sale of your interest in the business, the proceeds of which will then become part of your estate or will go directly to your loved ones.

Contact a Phoenix Business Succession Planning Lawyer

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about business succession planning , contact an experienced Phoenix estate planning lawyer at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.


Legal Expenses Climb for Arizona Man Seeking Guardianship Over Wife with Dementia

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incapacityCaring for a spouse with dementia can be emotionally, physically, and financially draining. As one, Arizona man found out, it can also lead to a frustrating and expensive battle in probate court if you did not plan ahead for the possibility of incapacity. The good news is that with proper advanced planning, you can avoid finding yourself in the same situation at some point in the future.

Bob’s Story

According to an interview conducted by, Bob McGuire and his wife Linda moved to Surprise, Arizona a few years ago after Bob retired from the Navy. After Linda was diagnosed with dementia about a year ago, the medical expenses began to add up. To help cover those expenses, Bob attempted to access a modest Individual Retirement Account (IRA) of Linda’s; however, Bob was denied access because the account was in her name only. Given that Linda is no longer able to give her legal consent due to dementia, Bob’s only recourse was to petition for guardianship and conservatorship over his wife, a process he thought would be fairly simple and straightforward. Thousands of dollars in court costs and legal fees later, Bob may end up losing one-fourth of the value of the IRA in his attempt to get access to it.

Navigating Probate Court

Probate court handles the administration of Wills and estates, but also oversees adult guardianship and conservatorship. Currently, Maricopa County probate court has about 22,000 active cases and the court has seen an annual increase of six to seven percent a year in recent years. As part of the guardianship process, the law requires the court to appoint an attorney to represent the interests of the proposed ward (the incapacitated person). That attorney is entitled to a fee for his/her services. That fee, along with all the other legal costs and fees associated with the process, can make petitioning for guardianship an expensive, and time consuming, endeavor.

Could the Need for Guardianship to Access the IRA Have Been Avoided?

Given the amount of time and money Mr. McGuire has been forced to invest in the guardianship process, the obvious question is “Could the need for guardianship to access the IRA have been avoided?” The simple answer is “yes.”

A well thought out and properly drafted estate plan typically includes an incapacity planning component because the reality is that incapacity can strike anyone at any time. Although every incapacity plan is unique, some common incapacity planning tools and strategies that could have helped Mr. McGuire’s access the IRA without the need to petition for guardianship include:

  • Durable power of attorney – a power of attorney allows you to appoint an Agent to whom you can grant as much, or as little, legal authority to act on your behalf as you wish. By making the power of attorney durable, your Agent’s authority survives your incapacity. Had Linda McGuire executed a durable power of attorney prior to her diagnosis of dementia, her husband would have had the authority necessary to access the IRA without the need to petition for guardianship.
  • Revocable living trust – a revocable living trust works as an excellent incapacity planning tool by allowing you to appoint yourself as the Trustee of the trust and someone you would want to take over control of your assets as the successor Trustee. In the alternative, married couples can appoint themselves as Co-Trustees. Assets are then transferred into the trust and you retain control over them as long as you have the capacity to do so. In the event of your incapacity, however, the successor Trustee or Co-Trustee takes over automatically without the need for court intervention. Had Bob and Linda established a revocable living trust prior to Linda’s dementia diagnosis, Bob would already have the legal right to control the IRA if it was a trust asset. Another important advantage to creating a trust is that trust assets bypass the probate process that is required to administer the estate of a decedent. Consequently, assets held in a trust can be distributed immediately after a decedent’s death instead of remaining inaccessible until the conclusion of the probate process as is the case with assets gifted in a Will.

Contact an Arizona Estate Planning Lawyer

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about guardianship, incapacity planning, or probate avoidance, contact the experienced estate planning lawyers at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.

Estate Planning: Simple is not Always Better

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Clients often want the simplest estate planning solution possible. While keeping it simple is an understandable goal, the simplest solutions are not often the best. This article shows a couple simple solutions for estate planning and why, in most circumstances, a living trust is at the center of a more robust estate plan and more likely to provide the desired protections.

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