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Estate and Business Planning Legal Blog

Thursday, August 15, 2013

Is it Time to Review and Update Your Estate Plan?

It is a good idea to periodically review your will, health care proxy, living will, power of attorney and trust agreements to see if the contents of the documents still adequately reflect your wishes.

Typically, a change in family circumstances, such as a marriage, divorce, remarriage, or the birth of children, may necessitate revisions to your estate planning documents. If you have moved your residence or purchased property in another state, you should consult with an attorney in order to determine what modifications to your estate plan may be required as a result of the move and/or purchase.

It is also imperative that you keep a current inventory of your assets and that you review the titling of the assets and the beneficiary designations, if any. This is important for several reasons. For estate tax purposes, you need to know the total value of all your assets in order to determine if you have an estate tax problem. Additionally, if something happens to you, your heirs should be able to locate your assets fairly readily, without having to dig through papers and conduct time-consuming searches. Perhaps more importantly, you need to check the ownership of your assets. If you have made any provision for the creation of trusts under your will or pursuant to a revocable living trust, the assets should be titled so that they pass according to the terms of the trust. A common problem is that spouses fail to separate their assets in order to fund testamentary trusts, thus resulting in an estate tax problem.

You should look to see if any of your children are joint owners of any of your assets. If a child is a joint owner, the asset will automatically pass to that child upon your death, regardless of what your will says. Such a joint ownership necessarily means that the child has present ownership rights. If that child were to get involved in a divorce proceeding or other litigation, the asset might be at risk. Beneficiary designa-

tions on annuities, life insurance policies, IRAs and other types of retirement accounts should also be reviewed to make sure they are current and properly reflect your desires and estate planning goals. A frequent misunderstanding is that the terms of one’s will controls the disposition of one’s assets; however, that is not true if assets are jointly owned or list beneficiaries. In those instances, the beneficiary designation or form of ownership actually supersedes the terms of one’s will.

In summary, it is important to take the time to periodically review your estate plan, especially with the guidance of an attorney experienced in estate planning.

 

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IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.


Thursday, May 9, 2013

The Benefits of Establishing A Trust

Clients are often and understandably confused about the differences between irrevocable trusts and revocable living trusts, and the consequences they each have for asset protection, estate planning and taxes.

Those who advocate living trusts commonly lead people to believe that these trusts will reduce estate taxes and protect one’s assets in the event long-term health care is needed. While living trusts serve the purpose of avoiding probate, they do not protect your assets. Since you maintain control over the assets in your revocable trust, they are still considered available to pay for your health care needs. Similarly, unless a living trust creates certain types of irrevocable subtrusts, it does not reduce one’s taxable estate since the person creating the trust maintains complete control. Notwithstanding the foregoing, living trusts are extremely beneficial in certain instances, where, for example, the person creating the trust has disabled heirs, in situations where it is believed that some heirs are likely to protest the estate plan, or where the heirs are distant relatives. In these situations, having a living trust will have the effect of avoiding a more lengthy and costly probate process. Additionally, if one owns real property in another state(s), establishing a living trust will mean that your heirs won’t have to go through a second probate in the other state(s).

The only way to protect assets from long-term health care costs and creditors is to transfer assets to family members or to an irrevocable trust. Putting one’s home into such a trust can be quite beneficial. In most instances, one does not rely on one’s home as an income source with which to pay bills; therefore, transferring ownership to an irrevocable trust usually has no effect on one’s lifestyle. If properly drafted, an irrevocable medicaid trust can protect the home from long-term health care costs and from creditors, while at the same time provide great flexibility. One can retain the right to reside in the home for the rest of his or her life, and also direct that the home be sold and another be purchased in its place. The trust can also be designed to prevent capital gains tax problems and to preserve senior citizen and veterans tax exemptions. Lastly, by transferring your home to a trust you not only avoid probate (in connection with the home) but you also avoid the dangers inherent in transferring your home directly to your children.

Of course, one should consult with an experienced attorney with expertise in estate planning and taxes before embarking on the creation of any trust, and such a creation should be done in connection with developing a comprehensive estate plan.

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IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.


Thursday, May 9, 2013

Starting Your Own Business: The Basics

Embarking on a new business enterprise is indeed exciting. While it is tempting to move quickly to build the business, it is imperative that the owner/operator take care of certain details early on. Doing so will help to ensure eventual success.

After initially setting up the corporation or limited liability company, it is important to turn one’s attention to the contract issues which typically confront businesses. Perhaps the first one which needs to be tackled is the commercial/office lease. It is essential that the terms of the lease be reviewed carefully. Many items, such as real estate tax escalations, the ability to sublet, and responsibility for repairs, are extremely important in determining the financial viability of the lease. Often, these types of issues can be negotiated successfully when handled by an experienced attorney.

If you are starting your business with one or more partners, then having a shareholder or operating agreement is absolutely necessary. Such an agreement serves to define the roles of the various parties, the division of profits, and the procedure to be followed if a partner dies, retires or otherwise wishes to leave the business.

When hiring employees, it is imperative to have a written confidentiality and non-compete agreement, to protect the company’s intellectual property, customer lists, and the like, and to prevent employees who leave from taking business with them. An employee handbook is also important in delineating what is expected of employees and what benefits they can expect to earn.

Depending on the type of business you have, you will likely need written agreements in place, ones which detail the services or products you supply, with the prices, delivery methods, and payment terms clearly specified. Having agreements memorialized in writing can prove quite effective in avoiding payment problems and other disputes.

In summary, starting a business can be a wonderful experience. It can be made less difficult and more productive if one knows in advance what legal and business issues are likely to arise and has a plan to resolve them at the outset. Having an experienced attorney guide you through the process can prove invaluable and save the business owner a great deal of time, trouble and money down the road.

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Friday, March 22, 2013

Planning for the Future of Your Business

It is extremely important, from time to time, to take a break from the rapid pace of business and devote some attention to the future and your long-term goals.  Whether you are at a stage in life where you are just beginning to grow your business, or you are at a point where you are looking to spend less time at work, putting together a plan is essential.

If your goal is to gradually spend less time working, then you will need to think about your personnel situation and how to attract and retain employees who will be able to provide leadership in your absence.  Perhaps you will need to offer financial and other incentives to employees in order to accomplish this goal.  A written employment agreement may be necessary or desirable, with profit participation provisions.  Alternatively, you may wish to consider finding a  business partner who can share some of the burdens of operating your company, and relieve you of responsibilities so that you can devote more time to your personal goals.  Of course, finding a partner will necessarily involve preparing a shareholder or partnership agreement which spells out each of the parties’ duties and responsibilities.  The agreement should also provide for a mechanism in the event a partner dies, becomes disabled, or wants to leave.

If you have mature children, you may wish to involve them in the business, with a view toward having them take eventual day-to-day control and responsibility.  Hopefully, this will allow you to enjoy more leisure time.  Passing on the business to them in a gradual fashion may serve the purpose of rewarding them for their work and devotion and providing them with incentives to succeed.  It can also serve the purpose of reducing future estate tax problems.

Regardless of age, one must make financial and other provisions for family in the event of death or disability.  At an absolute minimum, you need to prepare a will, making clear what should happen to the business, to real property, and to other assets which are owned.  It must be ascertained if an estate tax problem is likely, and if it is, planning needs to occur so that the problem will be reduced, if not eliminated entirely.  Funds need to be made readily available so that taxes can be paid in a timely fashion without family members having to sell off assets quickly in order to meet payment deadlines .

In summary, it is imperative that we all take some time to sit back and look at where our business is and where it’s going, so that we can achieve our business and personal goals. 

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Wednesday, February 13, 2013

Acquiring Computer Technology: The Need to Negotiate Your Contract

Many business owners and managers feel comfortable negotiating the general terms of computer agreements. Often, the purchase or rental of computer equipment or software seems like any other acquisition of office equipment. The stakes, however, are dramatically higher when computers are involved.

Whether you are leasing or purchasing the software or hardware, having software developed for you, or simply seeking a service contract for an existing system, one or more contracts will be offered for your review and signature. The contracts are often lengthy, detailed and technical, yet appear to be quite "standard". Generally, the company seeking to sell its product or service will give you the impression that the form of contract is one which is universally employed, that review and execution is a mere formality, and that the provisions are not negotiable. This may be especially true when the company offering the contract is a large and established one.

There are many reasons for seeking the advice of an attorney prior to the execution of a computer contract. Clearly, if your business depends or will depend heavily on computers, then any malfunctioning of the system will seriously affect your operations. Moreover, the acquisition of computers often entails a large outlay of capital.

Certain topics covered by the typical computer contract are crucial, and the manner in which they are handled can either save you a good deal of money, time and anxiety, or they can cost you dearly. For example, the commencement date of the contract or the time at which the system is "accepted" by you should not occur unless and until the system has been installed and is operating properly. The time period for implementing the system should be specified, as well as your recourse if the schedule is delayed. Perhaps more importantly, you should be assured that technical assistance will be provided. If you should experience a problem with the system, you do not want to rely on a company which simply offers telephone assistance that is offered on a "best efforts" basis. You want to know that you will receive assistance within a 24-hour or 48-hour period.

In summary, computer contracts are not as standard nor simplistic as they may first appear.  Even a cursory review by an attorney knowledgeable about computer contracts can save the business owner a great deal of money, time and trouble.

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Tuesday, January 22, 2013

Buying or Selling A Business: The Basics

Both the purchase and sale of a business can be quite an emotional experience. Leaving the business which you have started and/or spent many years building may be quite difficult. You may believe that it is more valuable than most would appreciate. On the other hand, if you are buying a business, the excitement of the new endeavor may make it difficult to remain completely objective. Also, inex-perience in these matters may cause some anxiety.

The purchaser of a business must conduct due diligence. This entails a thorough review and check of financial statements and books and records, as well as searches for liens, judgments, litigations, and disclosed and undisclosed liabilities. In order to minimize liabilities, the purchaser will insist on buying just the assets of the seller entity, and not the entity itself. For tax reasons, the seller will want the purchaser to buy the stock of the corporation.

The seller of a business has different concerns than the buyer, namely, in the payment of the purchase price. Of course, every seller wants an all-cash deal, but it is unlikely that will occur, unless the purchaser is obtaining a loan to finance the transaction. In that case, the seller will likely be concerned about the ability of the buyer to obtain financing. In the event the seller is taking back a promissory note, he or she may justifiably be worried about the buyer’s ability to pay the obligation and about obtaining some security in order to ensure payment. Additionally, the buyer will ordinarily require the seller to enter into a non-compete agreement, so that the seller will not start a new venture in a similar business, and a consulting agreement, wherein the seller will be obligated to assist the buyer during a transition period.

The single most important thing one can do to alleviate some of the afore-mentioned difficulties is to hire professionals to provide advice and assistance in the transaction. A qualified accountant can prove invaluable in properly valuing the business and in preparing or reviewing financial statements. Similarly, having an experienced attorney prepare, review and negotiate the terms of the purchase agreement and other documents needed to consummate the transaction is essential.

In summary, buying or selling a business can be made easier, and more personally and financially rewarding, if the seller and buyer obtain the support of qualified professionals who work together as a team.


Thursday, January 10, 2013

Leasing Space in a Changing Economy

Economic fluctuations may present tenants of commercial or office space with bargaining power which they might not otherwise have. While it may not be possible to obtain rent concessions in a strong real estate market, it still makes sense to spend some time and energy negotiating the terms of one’s lease. Hiring an attorney to assist in this endeavor may make a great deal of financial sense.

First, the involvement of an attorney in the negotiating process provides credibility and leverage with the landlord. In short, landlords tend to take tenants more seriously when the tenants have legal representation. Acting as the intermediary, the attorney may be able to obtain better lease terms without jeopardizing the landlord-tenant relationship. The attorney can act as a buffer, so that the tenant is not directly viewed as the adversarial party.

One of the most important legal issues which may arise in connection with commercial leases is whether the tenant should have the right to assign or sublet all or a portion of the leased premises, and under what terms and circumstances. The ability to assign or sublet, especially in the event of an economic downturn, may be crucial to the financial health of one’s business. Certainly, the landlord also has an interest in seeing the tenant remain financially viable over the long-term; therefore, during changing economic times the landlord may be more willing to permit assignment and/or subletting.

If the poor performance of the economy also softens the real estate market, tenants may become more successful in negotiating lower rents. Often overlooked, however, are rent and tax escalation clauses. These must be reviewed carefully, as the precise wording of such clauses can have great financial consequences. Tenants in Nassau County must be especially careful with respect to tax escalation clauses in light of recent property reassessment initiatives.

Of practical concern always is the landlord’s willingness to make represen-tations regarding the condition of the roof, fire sprinkler system plumbing, heating, ventilation and air conditioning systems. If the tenant is responsible for such items, the cost of repair or replacement can be prohibitive.

In summary, retaining a knowledgeable and experienced attorney to negotiate the terms of one’s lease may prove quite valuable and cost-efficient.

 

 

 

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Monday, December 31, 2012

The Uncertainty of Taxes: How to Plan Your Estate

We are all tired of hearing about the "fiscal cliff" and Congress's inability to come to agreement on the issue of taxes.  How does one plan one's estate in the midst of such uncertainty?  While estate taxes are, and should be, an integral consideration in the development of an estate plan, there are still important components of an estate plan which can be assembled regardless of the tax laws.  It is essential that people don't put all of their planning on hold, waiting for some clarity on taxes.  It is certainly better to have a partial plan, rather than none at all. 

So what can be done now, in the wake of the uncertainty?  Simple basics.  For example, your will (or living trust) should be reviewed to see if it needs to be updated.  You  should make sure you have an adequate health care proxy/living will and power of attorney in place, in the event you should become disabled.  Do you need a living trust, or is having a will adequate for you? Consider how your assets are structured.  Do you have designated beneficiaries on your accounts?  If so, are these beneficiary designations current?  Have you considered the consequences of having designated beneficiaries in the first place?  Often, clients have beneficiary designations without considering what monies will be available at death in order to pay taxes,  funeral and other expenses.  If there are no funds in the estate, it will be up to individual beneficiaries to contribute monies, something you might not want to rely on.  Additionally, the designated beneficiary designations may result, inadevertently, in some beneficiaries receiving more than others.  Remember that IRAs, 401ks and other retirement accounts should have individual beneficiaries listed, in order to avoid adverse income tax consequences.

For those who have children and no will in place, now would certainly be the time to get started on developing an estate plan. At a minimum, guardians should be appointed for minors, so that a court does not have to step in to name someone to raise your child.  Also, you will likely want to make provision for monies to be held in trust for the minors, until they attain stipulated ages, in order to avoid having a child inherit monies when he/she is too young.  Since minors can not legally own money on their own behalf, one should make sure not to list a minor as a beneficiary on one's accounts; otherwise, legally proceedings will need to be commenced upon your death in order for someone to be able to control these funds for the minor.   It would certainly be a better idea to prepare a will, nominating a person of your own choice for this role.

In summary, while we are waiting for their to be some certainty with the tax laws, we should devote our time and energy to making sure that we have some form of a comprehensive estate plan in place.

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IRS Circular 230 disclosure:  We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by you or or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code. 

 


Sunday, December 16, 2012

Changing Residency From New York to Florida

Are you trying to decide whether or not to become a Florida resident?  There are many factors to consider. Most people want to give up their residency in New York and change to Florida in order to avoid income taxes and the New York State estate tax.   People also make the change in order to qualify for the homestead exemption and keep their Florida real estate taxes down.  However, there are a number of factors one needs to consider before making the switch.

First, if you continue to maintain real property in the State of New York, you will still need to file a New York estate tax return and you may owe estate taxes as a result of the ownership, notwithstanding Florida residency.  In addition, if you move to Florida, you will lose your STAR exemption, assuming you continue to own real property in New York, and you may also lose your $250,000 per person capital gains tax exclusion on the sale of your New York property, depending on when you sell it. The reason for this is that the STAR exemption only applies if you are a New York resident and the capital gains tax exclusion only applies to the sale of property which is your principal residence.  One certainly can not claim a homestead exemption as a Florida resident and then a STAR exemption as a New York resident. You can only have one residency. In order to avoid the tax exclusion, it is recommended you sell the New York property either before or promptly after moving to Florida. 

One should also take note that New York State is quite aggressive in auditing people who switch their residency to Florida, so you should be prepared for an audit, keeping careful records of the time you spend in Florida and your trips back and forth to New York.  At a minimum, you should get a Florida drivers license, register to vote in Florida, and show that most of your associations and contacts are in Florida, all in addition to showing that the majority of your time is spent in Florida.     

If you decide to change your residency to Florida, you will need to have new health care proxies, living wills and powers of attorney prepared, as the New York documents are generally not accepted in Florida.  While any will you have created will likely be valid, you may want to consider the creation of a revocable trust, since Florida probate is much more time consuming and expensive than it is in New York.

As a last point, if you have any additional insurance, such as long-term insurance, you need to check to see if the same benefits will be available if you become a Florida resident.

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IRS CIrcular DIsclosure:  Any tax advice contained in this communication is not intended or written to be used, and may not be used by you or anyone else, for the purpose of avoiding penalties imposed under the Internal Revenue Code.


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