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Estate and Business Planning Legal Blog

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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