Michigan Estate Planning Blog

Business Owners and Estate Planning: Special Concerns

 

Estate planning for business owners offers numerous opportunities for lifetime transfers to move value and future appreciation out of the taxable estate. An article from The National Law Review, “Estate Planning for the Business Owner, Part 1: The Business Owner as a New Client,” explains the information an estate planning attorney needs to know when helping a business owner create a plan addressing their business and personal assets.

First, how is the business structured? Is it a partnership or wholly owned by the founder? If it includes real estate, is the real property owned by the business or a separate entity? If more than one legal entity owns the business and its assets, all of those entities need to be considered when creating an estate plan. Some entities also have restrictions on their ownership, so this may need to be examined.

Are the proper business agreements in place already? This includes shareholder and operating agreements between equity owners. If the business is a corporation, are bylaws, limited liability companies, or partnerships in place? These may impact transfers of equity.

When was the last time a business valuation was performed? Income statements and balance sheets must be reviewed to create an estate plan. The estate planning attorney may benefit from meeting with the accountant.

Understanding the cash flow from the business is an integral part of building an estate plan. Does the business owner take a salary? Are net profits disbursed to equity holders at the end of the year, or are they plowed back into the business?

Is the business a new one, a family business passed down from many generations, or is it nearly time for the owner to retire? The stage of the business and projections for its future will have a major impact on the owner’s estate plan.

Finally, is there a succession plan? If there is one, the estate planning attorney will need to review it to ensure that the estate plan dovetails with the plan for the future. If there is no succession plan, this needs to be addressed.

Reference: The National Law Review (April 18, 2024) “Estate Planning for the Business Owner, Part 1: The Business Owner as a New Client”

Are You Neglecting Your Estate Planning?

 

Estate planning is about more than ensuring that assets are distributed according to your own wishes after you die. It’s also about what you’d like to have happen to your assets and who you want to be in charge of your health care decisions if you become incapacitated. A recent article from Go Banking Rates, “8 Key Signs You’re Neglecting Essential Estate Planning,” outlines the top signs showing that you need to take care of this critical task.

You don’t have a will? This is the biggest red flag of estate planning mistakes. A will, or last will and testament, is a critical legal document specifying how you want your assets to be distributed after you die. If you don’t have a will, the laws of your state will determine how everything in your estate will be given to heirs. If you have estranged family members, they may end up owning everything. There won’t be anything your beloved family members can do about it. All state’s laws are different, so speak with a local estate planning attorney to address this critical document.

How outdated are your beneficiary designations? Many people open accounts as young adults and forget to update them as the decades pass. If you’ve been married, divorced, had children, experienced loss, or if your beneficiaries are no longer part of your life, you will want to update your beneficiary designations. Your assets could very easily go to people like an ex-spouse or a former friend. Beneficiary information should be updated every few years to be sure that your current wishes are followed.

Do you have a Power of Attorney? Everyone of legal age should have a Power of Attorney. A Power of Attorney is a legal document giving a person of your choice the legal power to make decisions on your behalf if you cannot do so because of illness or an injury. Without a POA, your family will need to go to court to apply for guardianship to take care of various duties, like paying bills, managing investments, or maintaining your home.

Do you have an inventory of digital assets? If you pay bills online, are active on social media accounts, or own any digital assets like cryptocurrency, you need a plan for digital assets. Start by making a complete inventory of your accounts—you’ll be surprised at how much of your life is lived online. Some platforms have an option for naming a “legacy” contact—someone who can access your data and manage it after you pass. Your digital executor will also need usernames and passwords. Otherwise, they won’t be able to access your accounts.

Have you planned for taxes? Estate planning includes understanding the tax implications of assets. There may be estate taxes or state estate taxes due from your estate, and failing to plan could leave heirs with a smaller or no inheritance.

Do you need a trust? Trusts are valuable tools for addressing specific needs, from caring for a disabled family member to managing minor children's assets. Without trusts, these individuals could face unexpected complications that could otherwise be avoided.

If you own a business, do you have a succession plan? Business owners need a succession plan to protect their work and family. Planning for a smooth transition includes naming key employees, creating partnership or shareholder agreements and determining if the business can continue to operate and provide income to family members, including the retiring owner.

What about end-of-life care plans? Estate planning includes end-of-life care, including a living will or healthcare directives. Your family will be less stressed if you have documented your wishes for what kind of health care you want or don’t want if you become incapacitated.

Reference: Go Banking Rates (Nov. 25, 2023) “8 Key Signs You’re Neglecting Essential Estate Planning”

How to Protect Valuable Assets in Estate Planning

 

If you fail to take the necessary measures, you can lose your property, which might cause financial challenges when you will not be working in retirement.
Legal Reader’s recent article entitled “How to Legally Protect Your Assets” says there are different strategies you can use to protect your personal assets.
This will help you to prepare for any eventuality. Let’s look at some of them:
A Family Trust. This may be one of the best strategies to protect your personal assets. A trust will help protect your assets when you lose all your money. A family trust can also provide tax benefits to family members in lower tax brackets. However, talk to an experienced estate planning attorney before setting up the trust to make the right decisions.
Start a Company. This may be an alternative to setting up a family trust, since your property will be more secure than when operating a sole proprietorship or a partnership business. This gives you a more secure future, even when you face financial challenges. However, there are many legalities in starting a company, so talk to an attorney.
Register Your Most Valuable Assets in the Name of the Low-risk Spouse. This tactic will make it difficult for a trustee or liquidator to gain access to the property in case of bankruptcy. However, ask an attorney to help you to structure the purchase to make certain that the low-risk partner’s name appears on the legal documents. An experienced estate planning attorney can also help you access benefits, such as Social Security and Medicaid.
These laws keep changing. You might miss an opportunity of getting long-term care planning, if you keep postponing a review with an experienced estate planning attorney.
As you spend your hard-earned cash, take some time to learn how to protect what you buy. You should also use the legal strategies above to keep your property secure.
Reference: Legal Reader Jan. 26, 2022) “How to Legally Protect Your Assets”

Is Your Business Starting to Resemble a Partnership? Saginaw, Michigan

When it comes to structuring a business, you have many choices: LLCs, S Corps, C Corps, LPs, LLPs, etc. So how do you choose the best option? A golden rule for business is to do business the way your business is structured, and to structure your business entity in the way you need to be doing business! If you mix and match, it has an unfortunate tendency to create serious liabilities which often come with a fairly aggressive tax assessment. With liabilities and taxes in mind, consider reading a recent Forbes article titled “Beware Of Partnership Status Sneaking Up On Your Business Venture.” While this advice is nothing new, yet another tax court case has come down the pike to confirm this conventional wisdom. In the case a father and son operated a moderately large agricultural business. The father and son, however, each formed their own entities, worked together to do the work, split the income equally, but disproportionately split the expenses. The IRS determined that this juggling of the books didn’t compute, so the IRS slammed both father and son with the taxes that would have applied on a single “partnership.” You could say this was another case of “substance over form.” Teaching point: if there are two business entities, then they must act like two businesses in order to be separate businesses. Otherwise, there should be only one entity, if such is an accurate reflection of how the work is being done. So, if your business dynamic is changing from what you first structured it to be, you may need to restructure it in order to reflect the current business model it has become.

Reference: Forbes
(October 21, 2012) “Beware Of Partnership Status Sneaking Up On
Your Business Venture”

For more information, see www.jerryreiflawyer.com

 

Is Your Business Starting to Resemble a Partnership? Saginaw Michigan

When it comes to structuring a business, you have many choices: LLCs, S Corps, C Corps, LPs, LLPs, etc. So how do you choose the best option? A golden rule for business is to do business the way your business is structured, and to structure your business entity in the way you need to be doing business! If you mix and match, it has an unfortunate tendency to create serious liabilities which often come with a fairly aggressive tax assessment. With liabilities and taxes in mind, consider reading a recent Forbes article titled “Beware Of Partnership Status Sneaking Up On Your Business Venture.” While this advice is nothing new, yet another tax court case has come down the pike to confirm this conventional wisdom. In the case a father and son operated a moderately large agricultural business. The father and son, however, each formed their own entities, worked together to do the work, split the income equally, but disproportionately split the expenses. The IRS determined that this juggling of the books didn’t compute, so the IRS slammed both father and son with the taxes that would have applied on a single “partnership.” You could say this was another case of “substance over form.” Teaching point: if there are two business entities, then they must act like two businesses in order to be separate businesses. Otherwise, there should be only one entity, if such is an accurate reflection of how the work is being done. So, if your business dynamic is changing from what you first structured it to be, you may need to restructure it in order to reflect the current business model it has become.

Reference: Forbes (October 21, 2012) “Beware Of Partnership Status Sneaking Up On Your Business Venture”

For more information see www.jerryreiflawyer.com

 

Is Your Business Starting to Resemble a Partnership? Saginaw Michigan

When it comes to structuring a business, you have many choices: LLCs, S Corps, C Corps, LPs, LLPs, etc. So how do you choose the best option? A golden rule for business is to do business the way your business is structured, and to structure your business entity in the way you need to be doing business! If you mix and match, it has an unfortunate tendency to create serious liabilities which often come with a fairly aggressive tax assessment. With liabilities and taxes in mind, consider reading a recent Forbes article titled “Beware Of Partnership Status Sneaking Up On Your Business Venture.” While this advice is nothing new, yet another tax court case has come down the pike to confirm this conventional wisdom. In the case a father and son operated a moderately large agricultural business. The father and son, however, each formed their own entities, worked together to do the work, split the income equally, but disproportionately split the expenses. The IRS determined that this juggling of the books didn’t compute, so the IRS slammed both father and son with the taxes that would have applied on a single “partnership.” You could say this was another case of “substance over form.” Teaching point: if there are two business entities, then they must act like two businesses in order to be separate businesses. Otherwise, there should be only one entity, if such is an accurate reflection of how the work is being done. So, if your business dynamic is changing from what you first structured it to be, you may need to restructure it in order to reflect the current business model it has become.

Reference: Forbes (October 21, 2012) “Beware Of Partnership Status Sneaking Up On Your Business Venture”

For more information see www.jerryreiflawyer.com

 

Charging Order Challenge Successful

Most business owners seek to protect their personal assets from problems arising from their business activities. They do this by creating business entities like a partnership or LLC. Unfortunately, sometimes these personal and business worlds collide, and that can be an asset protection nightmare. Usually, when these two worlds collide, there is an attempt to attack personal assets by piercing the corporate veil. However, as a recent case illustrates, an attack can come through the personal world to attack the business assets … even when that business interest is in a partnership or LLC. Forbes recently reported on just such a case in an article titled “Webb & Carey: When Control Is Bad -- Receiver Uses Debtors' Controlling Interests In Partnerships To Get At Partnership Assets.” There’s a new trick in which a creditor can access assets within a partnership by pairing the often created “charging order” with the powers of a “receiver” who, in return, takes up the powers of a debtor with controlling interests in the partnership. Whew! Teaching point: if you have a controlling interest in a partnership or LLC, be aware. A creditor may seek to take control over your interest and thereby for distributions or even the sale of the business. As a result, if you are working to protect your assets and the assets of your company, it is worth handing off control and closing that back door before the creditors come.

Reference: Forbes (June 3, 2012) “Webb & Carey: When Control Is Bad -- Receiver Uses Debtors' Controlling Interests In Partnerships To Get At Partnership Assets”

Charging Order Challenge Successful

Wrong. Most business owners seek to protect their personal assets from problems arising from their business activities. They do this by creating business entities like a partnership or LLC. Unfortunately, sometimes these personal and business worlds collide, and that can be an asset protection nightmare. Usually, when these two worlds collide, there is an attempt to attack personal assets by piercing the corporate veil. However, as a recent case illustrates, an attack can come through the personal world to attack the business assets … even when that business interest is in a partnership or LLC. Forbes recently reported on just such a case in an article titled “Webb & Carey: When Control Is Bad -- Receiver Uses Debtors' Controlling Interests In Partnerships To Get At Partnership Assets.” There’s a new trick in which a creditor can access assets within a partnership by pairing the often created “charging order” with the powers of a “receiver” who, in return, takes up the powers of a debtor with controlling interests in the partnership. Whew! Teaching point: if you have a controlling interest in a partnership or LLC, be aware. A creditor may seek to take control over your interest and thereby for distributions or even the sale of the business. As a result, if you are working to protect your assets and the assets of your company, it is worth handing off control and closing that back door before the creditors come.

Reference: Forbes (June 3, 2012) “Webb & Carey: When Control Is Bad -- Receiver Uses Debtors' Controlling Interests In Partnerships To Get At Partnership Assets”