Final planning for contractors

Estate planning isn’t a popular topic, but it is a necessary one. This week on the Contractor Success Forum, find out what pieces you need to have in place to minimize the financial and mental burdens on your loved ones and business partners.

Topics we cover on this episode include:

  • First: get a will
  • Estate planning done right
  • Should you set up a trust?
  • Your final planning checklist
  • Final planning for estate taxes
  • Estate planning is important – especially in the construction industry

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Rob Williams, Profit Strategist |
Wade Carpenter, CPA, CGMA |
Stephen Brown, Bonding Expert |


[00:00:00] Rob Williams: Welcome to the Contractor Success Forum. Today, we’re talking about final planning for contractors. Because at the Contractor Success Forum, we discuss financial strategies for running a more profitable, successful construction business.

And with us we have Stephen Brown with McDaniel-Whitley bonding and insurance agency. And in the other corner from the beaches of somewhere, I don’t know. Daytona! We have Wade Carpenter, Carpenter and Company, CPAs. And I’m Rob Williams with IronGate Entrepreneurial Support Systems.

And final planning for contractors. You know, I bet most of the people don’t even know what the heck that means. What is final planning for contractors? Is that mean getting your final certificate of occupation or. Occupancy, not occupation. It might be a final certificate of occupation because you won’t be in your occupation anymore.

[00:01:06] Stephen Brown: Final planning is something that is just not an enjoyable thing to talk about. Who wants to

[00:01:11] Rob Williams: Final part of your life, right?

[00:01:13] Stephen Brown: Final planning is estate planning. It’s figuring out how best to position yourself that you don’t leave a huge headache to your coworkers and your family. Your spouse, and your family. It’s a very thoughtful thing to do. It’s something that good business people do. And we’re just gonna kind of touch on the basics. How does that sound? What you need to do, and who you need to talk to, to get it done.

We all have stories, guys. I’ve had clients pass away, something’s happened to them, and I’ve had to help their spouse and their key employees keep the company going. Because when a contractor dies and is a sole owner of a construction company, then it’s automatically in bond claims because you can say, well, I didn’t default on my contract. I just died. Well, when you’re not there to run the project, it doesn’t mean it’s automatically the bonding company comes and takes over it, but it means that they, according to the indemnity agreement, are actively involved. And the best way they want to be actively involved is through their agent and your agent, bonding agent. So, it’s a real headache.

And guys, first thing that I would beg everyone to do, if you haven’t done, you can just write it down on a piece of paper and have someone witness it, is a will. You’ve got attorneys. If you’re good contractors, you have attorneys. What do you guys think?

[00:02:35] Rob Williams: I’ll tell you, the biggest thing that we see on here is people go online and do a will, and what the probate judges have told me is so many of those get thrown out because it just takes one sentence. One thing that you don’t know the right answer in there. It seems that common sense would say, well, we know the intent because we’ve got this here, but they end up throwing them out for some reason on there where they’ve actually told me, like what you just said, that it’s better to write it on a piece of paper. Because at least the judge will know cause it’s in the person’s handwriting.

[00:03:11] Stephen Brown: Yeah, and know your intent.

[00:03:12] Rob Williams: Yeah, they would know your intent. But you don’t want it to go to probate and you don’t want it to go there. You want to do a will or actually even put your assets into trust is even better, but you’ve, but there’s a lot more work there. So most people just do the will. But I’ve been through this so many times. I’ve had multiple partners die and family members, things like this. So it’s you get

[00:03:34] Stephen Brown: Listeners, listeners, get a will. And if you haven’t updated your will just get it knocked out. Please.

[00:03:40] Rob Williams: Yeah. The biggest thing I’ve got people I’ve been working with for years and they know too much and they want to get this will perfect. Get a bad will first. Not bad, but just get a will that says, even if it just says everything goes to my wife and if she’s not here, that goes to my kids. Or if you don’t want it to go–

[00:03:58] Stephen Brown: Or your husband.

[00:03:59] Rob Williams: –have a wife, or the kids. But just get that there because there’s so many complicated things. I see people, they hear something from their friends so they want to do all these crazy things that just make small differences typically, because most of the people are not going to be in the estate tax situation because that’s, it’s over $20 million if you’re married.

[00:04:19] Stephen Brown: So what does it look like when you’ve got your act together, Wade?

[00:04:23] Wade Carpenter: Well, that’s where I was wanting to hopefully relate a story. Cause I think all three of us have horror stories that we’ve been through. But there was one story I was hoping to kind of tell. And like I said it was as positive of the outcome as could be. But I had a contractor nine months ago. He was a painting contractor, did bonded stuff for schools.

And he got a diagnosis of pancreatic cancer. And he had a wife and a early teen son that was hoping to go to college. And essentially it was him and just a handful of other people. And they contacted us, being their accountant for a long time.

And there was some special situations. She was on disability. And so, we need to figure out what happened when he died. So we came and sat down and talked about what they needed to do. We got with an estate planning attorney that we trusted because we can’t always trust all of them. But you know, what eventually happened is we kind of worked it out to where he could shut down the business. They did everything they could, but we had a positive outlook. And when in the eventuality he died, it kind of went into a trust and it got orderly shutdown.

And unfortunately, about three months later, we got a call that he did die and we were able to shut it down very smoothly because his wife had absolutely nothing in the business. He did have some bonded jobs. He had talked to some of his friends and competitors in the business, but they actually helped him finish the job. There was no issue with the bonding company because of it. And there was money put aside. The contractors even gave all the money, they kept their own labor, but they gave all the money to the spouse. They put some money away for the son for college. So even though it was a bad outcome that the contractor died, it was as good of an outcome as we possibly could have had.

[00:06:19] Rob Williams: Financially. Yeah.

[00:06:20] Wade Carpenter: Financially. Well, obviously, yeah.

[00:06:22] Stephen Brown: That’s what we’re talking about. You can work to final planning now. And you keep tweaking a little bit. And also, I would say when we were talking about trust attorneys, ask a bunch of attorneys, who is the best estate planning attorney in town?

[00:06:39] Rob Williams: Yeah, because typically there’s only, there are probably fewer than 10 in a big city, that

[00:06:44] Stephen Brown: That’s all they do. That’s all they do. And they give you the best advice based on their many, many years of their clients passing away and having to deal with the aftermath of getting the ongoing business probated and shut down.

[00:06:59] Rob Williams: We talked about the lawyer, but who is the trustee is a very important thing on there. I kind of am a believer in one of the family members really being the trustee. There’s some people that feel like the trustee needs to be like some trust company, or something.

I really don’t feel that. Unless there’s a problem and an issue. I mean, I know there are addictions and things like that, that people don’t put certain people in there, or maybe they have a personal problem with somebody. They don’t want them to be family members.

[00:07:30] Stephen Brown: Explain Rob to our listeners, why someone might want to set up a trust. What are the reasons for that?

[00:07:37] Rob Williams: When you set up a trust it bypasses the whole probate situation. I’ve got some situations where they didn’t even have a will. So it’s unbelievable the amount of money and the amount of attorneys that the state will appoint. And huge sums of money.

I know one of them, all the money was gone by the time the attorneys were there because it appeared that he had a whole lot of money so they appointed this stuff. But by the time they paid off the debt and stuff, the attorney’s fees were more than the net assets that he had afterwards. Luckily some things fixed that with insurance and some other things that happened. But it’s unbelievable. I don’t want to quote amounts of money, but it could be hundreds of thousands of dollars to have the attorneys where if they had spent $5,000 or let’s say five to $15,000 on a trust or even a will in the beginning, because a will is a good thing.

A trust is even better because a will, it still has to go through probate and you still have to do things where a trust, think of it as a separate corporation, it’s already there. So when you die, the trust just keeps the money. No judge has to say it goes anywhere. It’s there. Especially if it’s already in the trust. But the reason people don’t do it is because you got to change the titles and things, and people set up the trust. And if you’re not going to follow through, know yourself, if you’re not gonna follow through and change the titles, and you don’t want your bank accounts to say trust, and your companies to be owned by the trust, even though you’re controlling it, then don’t do it because then you’ve just got a worthless piece of paper and none of the assets go in there. That’s actually what happens a lot.

And do people know what a trustee is, by the way? I just started talking about the trustee, but a lot of the people won’t understand that when you have a trust, or even if you don’t already have a trust, you can put a testamentary– testamenta ry trust– I’m having a problem with some words today. The trustee is the one that makes the decisions. Now you say in the trust, when you form that trust document, what happens. And they have to follow the rules. But the trustee’s the one that is doing it and calling the shots and making them– maybe they don’t follow the rules. That trustee is important to have happen.

So that’s why a lot of people, especially if there are a lot of family members that may fight over the thing, that’s probably one of the better use if you’ve got a big enough trust, which it’s gotta be over a couple of minutes. Well, I know most of these trust companies won’t even take a trust, like to manage it if it’s not over a million dollars, because there’s a minimum fee and then that would be too high, but if you’ve got million or a few million in there, you can set up the trust to have a trustee. Do it if you think the siblings might fight about it. You can pick an independent trustee that will get a fee every year, usually as a percent, but there’s a minimum amount. Let’s say, six to $10,000 is a minimum amount that they would charge to manage that every year. So that trustee can make those decisions. They’re actually not making the decisions. Typically they are the ones that are carrying out the wishes that you put down on the piece of paper when you formed–

[00:10:51] Stephen Brown: Okay. And your estate planning attorney is the one that advised you whether you need to trust or not, depending on what your wishes are.

[00:10:58] Rob Williams: Yeah. Cause he’ll put that trust document together. The estate planning attorney.

[00:11:02] Wade Carpenter: A trust is not always the right thing to do. Sometimes that is the wrong thing. And sometimes it can be shut down a lot cheaper and cleaner without it. But in the right cases, it can be the right move. It depends on the situation. And the purpose of my story I told a little while ago is, a lot of people don’t, you know, he had pancreatic cancer he foresaw that he needed to do something about it.

But most of us, a lot of times we don’t see that coming. We put this off as an unpleasant subject and it just hits us and things turn out really badly for our family and things like that. So, Stephen, if you would, I know you have a checklist of some things that you wanted to go over.

[00:11:45] Stephen Brown: Sure. And we’ll post it on our website too. The checklist is called getting started on final planning.

[00:11:50] Rob Williams: Yeah. I want to agree with Wade on that. Actually most cases probably are not for trusts. A will is probably the default. If we would look at–

[00:11:58] Stephen Brown: Well, that’s what I’ve got on the list. That’s number one, make a will. If there’s an ongoing business specify who will run the company, with details. Put salary and incentive bonus to the person that will run the company and how it will be communicated to the employees and customers. Specify who you are leaving your estate to and who will be the administrator or executor of that estate. That’s usually a good family friend, or your family attorney. It could also be your estate attorney if you hire one.

The first thing make a will. Second thing, make a list of things to do for your spouse. From burial requests to household reminders, professionals used and their contact information. The business accountants, tax accountants, attorneys, funeral home directors, banker, trust officers, who these people are. Have that listed out.

[00:12:50] Rob Williams: Let me add one thing to that. The number one thing are your passwords to your computer accounts. That has been the most difficult thing in most of these things. They don’t have access to the bank account passwords and things like that. So please have a password program or something that you can get your passwords to your spouse or–

[00:13:10] Stephen Brown: Great advice. That is great advice, Rob. Thank you. And then the next one, talking to your estate attorney, you might want to purchase life insurance, both personally and for business purposes. Implement a buy/sell contingency plan for your business. We’ve had podcasts on that and on the ESOPs but a contingency planning for your business is exactly final planning and what we’re trying to accomplish here.

Next issue, your power of attorney and living will. Guys, that just means if you’re incapacitated, who has the power of attorney to act on your behalf? And a living will just exercises your wishes if you’re incapacitated in the hospital.

[00:13:49] Rob Williams: Yeah. And on the power of attorney, there’s power of attorney financially, power returning medically. So you’ve got two of those. And then you have your living will that says what you stated that you want.

[00:14:02] Wade Carpenter: Who gets to pull the plug.

[00:14:03] Stephen Brown: Yeah,

[00:14:04] Rob Williams: Yeah. Or actually not even who, but it actually says whether to pull the plug, you might do not resuscitate or please resuscitate me.

[00:14:14] Stephen Brown: And the last one I’ve got on the list, guys, it’s just if you’ve got an estate worth more than 11 or $12 million and you don’t want Uncle Sam taking half of it upon your–

[00:14:24] Rob Williams: Or double that if your wife is there–

[00:14:26] Stephen Brown: Right, So there you go. Your accountant and your tax attorney can tell you what those limits are. But Wade, I would say good idea to have your accountant and your estate attorney working together on this, especially if you have a larger estate. And Rob, I appreciate you bringing up these trust situations because they get very complicated and I think you really hit home on a lot of the things that people don’t seem to understand.

[00:14:53] Rob Williams: One thing on the value, be careful. It could be the value of your company because I know one case that was a company, they only had a couple of million dollars. They didn’t think they had anything in their net worth. But the company was valued at tens of millions of dollars. It was getting close to $50 million. So they actually had a huge estate tax problem when they– this was a construction company, we’ve heard about this with farmers all the time. When they die, they’re not going to be able to keep the land because they’re not going to have this because the value of the land, even though they don’t have the cash. Well, the same thing can happen with a construction company or a supply company or something like this. It could be valued at tens of millions of dollars, even though you don’t–

[00:15:37] Stephen Brown: So Wade, what do you do to pay estate taxes when that happens?

[00:15:40] Wade Carpenter: A lot of times, unfortunately comes down to liquidating everything you own. Kind of what Rob was saying. One comment real quick, for 2022, it’s like $12.06 million per person estate. And yes, you have double that amount for a husband and wife, but if one dies and leaves it to their spouse, they can leave all that tax-free.

But the other point of that is, so one spouse dies, it goes to the other spouse. Well, they still only have 12.06 million in 22. It’s indexed every year. But so if they don’t die at the same time, you don’t necessarily have double that amount. So you have to be careful about how that works. And I don’t want to get in a deep discussion about estate taxes, but they can be very expensive. So.

[00:16:29] Rob Williams: And I mean, most of them are funded by life insurance, something like that. Because they don’t have that much liquidity. Or that could be funded by a buy/sell agreement that didn’t have a partner. So then they get the cash and then that out of that match that buy/sell, but you better make sure that buy/sell agreement from the other partner is funded.

[00:16:47] Stephen Brown: And guys, it’s like a catch 22. I would tell you, get your life insurance when you’re young and it’s less expensive. But then when you’re young, it’s something you can’t afford. So I mean, as you get older, the insurance premiums are higher, but they’re covering you for a shorter period of time.

So I think it’s important that the sooner you can start making some of these plannings the easier it will be on you and everyone else. But hey, if you haven’t started, now’s a good time to start, right guys?

[00:17:16] Rob Williams: That’s right.

[00:17:18] Wade Carpenter: Nobody perceives this stuff coming and nobody really wants to deal with it. And nobody wants to talk about life insurance or dying. We all think we’re going to live forever. And unfortunately too often, in spite of what we say on this podcast, there’s a lot of people who are gonna listen to it and still not do anything.

[00:17:35] Rob Williams: I’ve had some people say well, I’m not worried about, because I won’t be here anyway. You know, we’ll just let them worry about it. And maybe they don’t care, but there’s another thing of just a good feeling that you get while you’re here, that you’ve taken care of it. You’re a great responsible person that’s taking care of your stuff.

[00:17:54] Stephen Brown: Well, I think if you listen to this podcast this far along you’re not that kind of person. But

[00:17:59] Rob Williams: Yeah, that’s true. You haven’t turned it off.

[00:18:02] Stephen Brown: And guys, yeah. I just wanted to tell you, my uncle fell and broke his neck and was a quadriplegic. Yet he had his act together so beautifully that it did not cost my aunt a penny. And he was in intensive care for almost a year. He talked the talk and walked the walk. I was very proud of him and it was a beautiful thing to see. There’s enough stress going on when you’re terminally ill or you’ve had something like this happen in the family and everything that happened had already been decided and put to bed.

So I just like to point that out, like Wade said, there’s some happy endings here if you plan it. And if you want, we could do a whole podcast on unhappy endings. If that’s what you want, listeners.

Okay. Hey, sorry about all this tough love type stuff coming out of me, but I’m passionate about it. You’ve just got to do it.

[00:18:55] Rob Williams: Yeah. That’s great. So yeah, give us a call. You know, if y’all want to talk about any of this. You can have discussions with us on go to ContractorSuccessForum.Com, or look us up on the LinkedIn. Go to our page there. Ask us questions. Post comments. Doesn’t have to be questions. Just tell us some stories on there. Anything to share. It’s a great place to participate and have discussions. This is probably one of the best topics to discuss. It can get really deep.

So, contact us. Post on there. So we’re here. We love discussing it. You can tell, cause we just, we talk. So keep the Contractor Success Forum in mind when it comes to this. And anything else y’all got any other points, Wade?

[00:19:37] Wade Carpenter: Well, I mean, we could all sit there and go on for an hour easily on this topic, but. Just the same message. A lot of times you’re not going to see it coming like the guy I was talking about. And don’t wait until it’s too late.

[00:19:49] Rob Williams: Yeah. I’ve been there. I’ve had partners die. I’ve had partners, usually they’ve, I’ve had a lot of former partners, like after the companies, die and I’m just seeing so much of this. I just, it’s unbelievable in our industry, how many people die early? The construction business is not good statistically for longevity. So, it happens a lot. So see if you can take care of it. Think about this stuff in advance.

[00:20:15] Stephen Brown: Not only is that a dangerous business on the job site, but you’re doing a ton of traveling.

[00:20:19] Rob Williams: Yeah. On the stress levels and things like that.

[00:20:21] Stephen Brown: Okay.

[00:20:23] Rob Williams: All right. Well, good. Well, I appreciate it. Thanks for coming to the Contractor Success Forum and listen to our next show. We’ll see you there.

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