November, 2019 | KRS CPAs™

Myths and misconceptions about estate planning abound.

Here are the most common mistakes to avoid and help your family save thousands of dollars in unnecessary taxes and probate fees: How to Avoid the Top 10 Estate Planning Errors

How to Avoid the Top 10 Estate Planning Errors

Beneficiary omissions — Not naming contingent beneficiaries or failing to review beneficiaries often enough. This may subject your estate to probate, creditors and delays.

No stretch IRA — No contingent beneficiary on an IRA may mean there is no stretch IRA, a valuable tax break that enables someone who inherits an IRA to draw out distributions over his or her life expectancy if the original beneficiary has died.

Forgetting to change an ex-spouse on an IRA — Your new spouse becomes your beneficiary the day you get married, but not in an IRA. This can have disastrous consequences for your new spouse and family.

Leaving assets directly to a minor without dealing with guardianship issues — Who will handle their inheritance? The phrase “for their benefit” welcomes a whole host of potentially abusive interpretations.

Ownership mistakes and imbalances — If too many assets are in one spouse’s name, it could wreak havoc with tax planning. One spouse may have a much larger IRA and own a vacation house in his or her name only. By shifting the house or investment to the other spouse, the estate becomes more equalized, possibly reducing taxes.

Not having a residuary clause — A residuary clause covers items not named in a will or included in a trust. These can include items you don’t yet own but will before your death. Sometimes there are things you might not even know you own.

Not planning for the unexpected — There are a multitude of things that could happen, such as a sudden decline in your spouse’s health or a change in your assets. You can address this by having assets go to a trust. You can control how, to whom, and when money gets distributed.

Not dealing with your own mortality — Don’t leave your family ruined because you don’t want to admit to yourself you are going to die someday. Don’t make matters worse by failing to plan.

Not updating your will — Many changes take place within a family or business structure. Ensure the assets you leave behind are given to the people you intended to have them.

Not planning for disability — An unexpected long-term disability can affect your personal and financial affairs in many ways. Decisions such as who will handle your finances, raise your children, or make health care decisions on your behalf are essential. It may be necessary to appoint a power of attorney or create a living trust to work on your behalf if you’re unable to do it for yourself.

Estate plans maximize value

You can benefit from having an estate plan. Not only can it help maximize the actual value of the estate you pass on to your heirs and beneficiaries, but you’ll also have an opportunity to make informed decisions while you are still alive concerning how your assets should be handled when you pass.

KRS has your back on estate planning

It’s never too early to start thinking about estate planning. KRS CPAs offers unbiased financial and tax guidance to help you realize your specific goals and vision. Contact us today for a complimentary initial consultation.

KRSCPAS.com is accessible from your mobile device and is loaded with tax guides, blogs, and other resources to help you succeed. Check it out today!

How do you begin your search for a business loan?

Applying for a business loan
Many banks and alternative lenders are out there vying for your attention. Once you decide on a lender, what’s next?

Here are the steps to obtaining your business loan:

Step 1. Determine why you need the money.

This will drive your choice of lender and loan type. Different kinds of loans can be used to:

Cover the costs of launching a business.
Help you buy an existing business.
Purchase specialized equipment.
Provide working capital for payroll, marketing and hiring.
Resolve cash-flow problems — often needed for a seasonal business.
Help you expand your business.
Refinance an existing loan at more favorable terms.

Step 2. Calculate how much financing you can afford.

Determine your debt service coverage ratio by looking into your finances. Take the following steps:

Use a business loan calculator to find the monthly payment on your loan before you commit.
Check out your company’s profit and loss statement. Will incoming revenue be enough to cover the monthly payment?
Determine your debt service coverage ratio or DSCR. Take your average monthly net income and divide it by your monthly loan payment. It should be above one. If it’s below, maybe a smaller loan with a better interest rate will work.

Step 3. Consider different loan products.

Consider the following options:

Bank loans — The cheapest financing option. Interest rates can be as low as 5%. There are some hurdles: You’ll need a great personal credit score, your business should be profitable and you’ll need personal or business assets to use as collateral.
SBA loans — Slightly more expensive than bank loans and easier to qualify for. Rates range from 5% to 10%.
Medium-term alternative loans — A faster online counterpart to SBA loans or bank loans. Interest rates may be as high as 20%, but you can get approval in less than two weeks.
Short-term alternative loans — Just three to 18 months to be repaid with daily or weekly repayments. Interest rates can be very high, but you’re paying for convenience and quick approval. These may be the best (or only) alternative you have if you’ve been in business for less than a year or you have a weak credit score.

Step 4. Get your loan documents in order.

This includes all your financial statements and tax documents. (Depending on your situation, you may need an audit, review or compilation.) No matter which options you choose, you’ll need paperwork to move forward.

Be aware the more difficult it is to qualify for the loan, the more paperwork is required.
Expect to be asked for your credit score, your average bank balance, how long you’ve been in business, your annual revenue, a profit and loss statement and a balance sheet, as well as personal and business tax returns.
Take into account costs, which may include application fees, origination fees, guarantee fees for SBA loans, credit check fees, prepayment fees for paying back the loan early, and late payment fees.

A final tip

This is just an introduction to a complex process. Getting a business loan is a big step, so whatever you do, be sure to get the advice of a financial professional before moving forward.