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Minneapolis Estate Planning and Probate Lawyer Blog

Monday, September 9, 2013

20 Costly Misconceptions About Wills and Trusts

Misconception #1: A Will avoids probate.  No.  A Will is the primary tool of the probate system. Your Will is like a letter to the Court telling the Court how you want your property distributed.  Then you must make sure that you prove to the Court that all your property is collected and appraised, and all your bills and taxes are paid, before your property can be distributed to your heirs.

Misconception #2: A Testamentary Trust avoids probate.  No.  A Testamentary Trust is a Trust contained within a Will that holds property for a specific purpose.  For example, one purpose would be to hold property until minor children turn 18, when they can legally own property -- or until children reach the age when you believe they are mature enough to responsibly handle the property.  A Testamentary Trust is not a Revocable Living Trust.  It is part of a Will and takes effect only when the Will is probated.

Misconception #3: Probate costs and the costs of administration of the estate are small.  Not necessarily.  Such costs can be very substantial.  The real problem is, no one can tell you how much the costs will be until the probate has been completed, which often can take several years.  The biggest portion of the costs are the fees charged by attorneys and personal representatives for their services for the estate, in addition to filing fees, costs of publication, fees for copies of death certificates, filing and recording fees, bond premiums, appraisal and accounting fees, and more.  Often the fees of personal representatives are based on an hourly rate, and while they can tell you what their hourly rate is, they cannot tell you the number of hours their services will take, so they cannot tell you what their total fees will be.  Like surgery, probate can be simple and easy, but frequently probate can have drastic and damaging results.  Accordingly, like surgery, because of its uncertainty in terms of both the potential for problems and high costs and fees, probate is something best to avoid if you can.

Misconception #4: Property can be distributed according to the terms of your Will in only a few weeks.  In Minnesota, the administration usually takes 12 to 15 months.  During this time, the deceased person’s property must be inventoried and appraised.  Heirs must be notified.  Estate and inheritance taxes, if any, must be paid.  Contested claims, if any, must be settled.  Creditors must be notified and paid.  If all of this is not done before the estate is distributed to the beneficiaries of the estate, the personal representative will be personally responsible for those claims.  As a result, most personal representatives won’t distribute property until they are sure all claims have been settled.

Misconception #5: Your Will and your assets remain private.  No.  Because probate is a public legal proceeding, your estate may become a matter of public record.  This means that anyone -- including nosy neighbors and salespeople -- can go to Court to find out the balance in your savings account, the value of your stocks, even the appraised value of your diamonds.

Misconception #6: A Will helps you avoid taxes.  No.  A simple Will does nothing to lower your taxes. A Will simply tells how you want your property distributed, and who you want to act as guardian for your minor children in case you and your spouse die in a common accident.  A skilled lawyer can use a Will to plan complicated estates that require tax planning, but the cost of the complex plan will be comparable to the cost of a Revocable Living Trust plan.  Plus, the Will-based plan will still have to go through probate.

Misconception #7: Your permanent family home and your vacation home can be handled through the same probate and qualification.  Yes, but only if they are in the same state.  If you own property in different states, a second probate, called an ancillary administration, will need to be opened, which means your estate may need to hire another attorney. This will increase the overall estate administration expense.  And if you own real estate in other states, probates will need to be opened in those states as well.

Misconception #8: A Will prevents quarrels over assets.  Wrong.  Wills are among the most contested legal documents in the United States.  Today, it is common for unhappy relatives to challenge a Will.  This results in higher attorneys’ fees and even more delays.  Wills actually encourage challenges over assets because a petition must be filed in Court to probate them, which is like filing a lawsuit.  As a result, since a lawsuit has already been filed to probate the Will, a contesting party can simply file their claim in Court without instigating their own lawsuit.

Misconception #9: Estranged family members do not need to be notified of a probate if the Will excludes them from an inheritance.  In Minnesota, the Court may require that all heirs be notified of the probate even if they are excluded from the Will.  Certain aspects of the probate process can be avoided and financial responsibility can be mitigated through the use of various trusts and other types of financial planning.

Misconception #10: A Will from one state is not legal in another state.  Wrong.  If the Will is legal in the state where it was prepared, it is legal in all 50 states.  However, Wills do not travel well from state to state and should be reviewed by an attorney and very likely changed whenever you move to a new state. This is because the Will’s language may not mean the same in other states as it did in the state where it was signed.  In addition, many states require witnesses to the Will signing.  If proper procedures are not followed, you may need to produce those witnesses in order to probate the Will.

Misconception #11: A Will helps you when you become physically or mentally incapacitated.  No.  A Will is totally ineffective until death, and, therefore, does nothing to help you through incapacity and disability.  Your family or friends may have to go to Court to start costly guardianship or conservatorship proceedings.

Misconception #12: You must name your attorney as your personal representative.  No.  You may name anyone you choose.

Misconception #13: The cost of your estate plan is only the cost of drawing up the documents.  No.  The cost of your estate plan is both the cost of drafting the documents and the cost of distributing property to your heirs.  Simple Wills are less expensive to set up, but potentially expensive when they go through probate and there is qualification on the estate and estate administration.  Revocable Living Trusts may initially cost more than a simple Will, but the overall cost of settling your estate is often substantially less.

Misconception #14: Revocable Living Trusts are only for large estates.  No.  Revocable Living Trusts are for anyone who wants to avoid costly conservatorship and probate proceedings.  In appropriate cases, people with small estates can benefit from a Revocable Living Trust.  People with larger estates can benefit even more.

Misconception #15: A Revocable Living Trust is a public document.  No.  Your Revocable Living Trust can remain private because it does not have to be recorded or published in any way.  The only people who will know about your Trust are the people you choose to tell.  However, some professionals may need to review your Trust to confirm that your trustee is authorized to take a particular action.  This review is for the protection of all beneficiaries of the Trust.

Misconception #16: A Revocable Living Trust cannot be changed.  Wrong.  You can change and even revoke your Revocable Living Trust any time you wish.  The decision is entirely up to you.

Misconception #17: A Revocable Living Trust must have a separate tax return.  No.  As long as you are a trustee or co-trustee of your Revocable Living Trust, it does not need a tax return of its own.  Your personal tax return, which uses your social security number, is sufficient for the IRS.

Misconception #18: When you set up a Revocable Living Trust, you lose control of your assets.  No. When you set up your Revocable Living Trust, you simply name yourself and/or your spouse as Trust managers, called “trustees.”  In this way, you never give up control.

Misconception #19: The best way to transfer assets to your Revocable Living Trust is through a pour-over Will.  No.  A pour-over Will can be used to clean up the transfer of any miscellaneous assets to your Revocable Living Trust, but in order for that to take place, the Will must be probated for the assets to be transferred to the Revocable Living Trust.  A better course of action is to transfer the assets to your Trust while you are still healthy and able.  Not only will you get the peace of mind that comes from knowing the transfer was made properly, you will also get an accurate inventory of your estate.

Misconception #20: There are no costs associated with administering a Trust at the death of the original settlor of the Trust.  Not true.  While people commonly think that only the probate system costs money and takes time, they fail to understand that administering a Trust, distributing Trust assets to beneficiaries named in the Trust, and terminating the Trust can result in fees and costs.  Trustees may also charge fees for their service, and many trustees hire attorneys and accountants.  These costs are paid by the Trust before beneficiaries receive their inheritances.

If you have any questions or concerns relating to a will or trust, please contact our office.


Monday, September 2, 2013

What To Do When Someone Dies, Part 4: Should You Choose an Informal or Formal Probate Proceeding?

A Minnesota Probate Attorney Explains the Difference Between Informal and Formal Probate

As stated in my prior posts, there are many different paths to choose when an estate needs to go through probate in Minnesota.  One key decision is whether to take the formal or informal path. The terms informal and formal refer to the type of procedure used to appoint a personal representative to handle the decedent’s affairs and to accept a Will for probate.

Informal probate is the most commonly used form, and is easiest for parties to use when the assets are straightforward and when everyone involved gets along.

You should consider filing for a formal probate proceeding if any of the following apply:

  • problems with the will
  • unknown heirs
  • missing will
  • minor heirs
  • high probability for dispute between heirs
  • when there are expected to be problems with the administration.
  • if the estate is insolvent (meaning there is more debt than assets)
  • no one is trustworthy enough to handle matters

The informal probate process

The informal probate process commences when an applicant presents an application to a registrar instead of a judge. The application asks the registrar to appoint the personal representative and accept the will, if there is one. The registrar then approves the estate to proceed informally and makes sure the paperwork (e.g the will, petition for informal probate, affidavit of acceptance by personal representative, list of interested persons) is complete. The registrar is not involved between when the estate is approved and when the final accounting is due. This process has less oversight by the court and additional costs from hearings are not incurred.

The formal probate process

The formal process starts with a probate attorney filing a petition with the court on behalf of a petitioner asking a judge to: 1) determine the heirs of the deceased; 2) verify the validity of the will; and 3) appoint a personal representative.  Counties differ on whether the petitioner and attorney in a formal probate must appear in front of a district court judge so check with a probate attorney to verify the requirements in your county. After deciding to file for formal probate, a petitioner must also determine whether the estate should be supervised, meaning the court must sign off on any distributions to heirs before they are made, or unsupervised, meaning the personal representative does not need the court to approve anything before closing the estate.

Upon receipt of the petition for formal probate, the court reviews the paperwork and approves the Personal Representative. At that point, the personal representative is able to work to resolve all outstanding issues in the estate. Keep in mind that commencing a formal probate proceeding provides the petitioner with access to the judge later on if a judge’s signature is required on matters subsequent to the appointment of a personal representative. The formal process is generally more expensive due to consistent attorney intervention in obtaining the court’s approval and signature and in attending any required hearings.

The probate process can be complicated and confusing so it is a good idea for family members to meet with an experienced probate attorney to assist with making a decision on which probate process to pursue. Further, to minimize court involvement and ensure your "stuff" goes to the people of your choice, you must have a will.  Don't leave things to chance - or the State - and don't leave your loved ones with the added stress, and expense, of trying to figure out what you wanted.  Protect your family with an estate plan designed to limit hassle, delay and expense so decisions like choosing informal versus formal probate are easy allowing those left to focus on more important matters.


Monday, August 26, 2013

What To Do When Someone Dies, Part 3: What Type of Proceeding Do You Need?

A Minnesota Probate Attorney Covers the Different Proceedings Available to Handle an Estate

As discussed in my prior post, the personal representative starts a probate proceeding by filing an application or petition with the probate court.  But, prior to commencing probate, the personal representative must make a decision on what type of probate process to pursue.  Minnesota provides several different types of probate proceedings to address the variety of issues and needs which might arise. The type of proceeding to commence depends on such issues as determining the decedent’s heirs, the validity of a will, the types of assets in the estate and their value, the potential for disputed claims, and the desire to have a court oversee the personal representative’s actions. When more than one type of proceeding is permissible, it is important to select the one that best fits the specific needs of the decedent’s estate. There are five common types of probate proceedings in Minnesota.  This post will discuss three of them and the next post will address the remaining two.

Collection by Affidavit for Small Estates

Where the probate assets in an estate are $50,000 or less (and do not include any real estate), Minnesota allows a special process for you to collect those assets.  Under this procedure, known as Collection by Affidavit, the person entitled to receive the property signs a legal form stating that he or she is legally entitled to receive the specific asset listed in the Affidavit. When the properly executed affidavit is presented to the person, or institution, in possession of the property, those holding the asset are then authorized to deliver the property and be fully discharged of any further responsibility. This process can be complicated by the existence of creditors’ claims and therefore should not be done without legal counsel. Because a Collection by Affidavit can’t be used for real estate, you should contact an attorney to properly transfer the property.

Determination of Descent

If a person died more than three years ago and no probate proceeding was ever started, you may need to initiate a Determination of Descent proceeding before you will be able to transfer the decedent’s probate property. No personal representative is appointed. Instead, an attorney files a Petition for Determination of Descent with the court who then issues a decree ordering the property to be transferred according to the decedent’s will or, if no will, by statutes. This procedure is commonly used where the decedent is still in title to real property long after his or her death and the property was never transferred to the appropriate individuals.

Summary Administration

Some probate assets are exempt from the claims of creditors. When all the probate assets of the estate are exempt from creditors and the value of the assets do not exceed certain limits specified by law, summary administration may be available. Summary administration avoids a lengthy administration as no one needs to give notice to creditors. The statutes authorizing summary administration are quite restrictive. Because of this, it is infrequently available for a decedent’s estate.

The next post will explain what is meant by formal vs. informal probate proceedings.


Monday, August 19, 2013

What To Do When Someone Dies, Part 2: Opening a Probate

As I have received an increasing number of calls to assist family members and heirs in working through a loved ones estate, I decided to draft a series of blog posts directed at assisting you with handling things for someone who has died.

Step 1: Locate a will

This step in the journey begins with locating a will as the will contains the decedent’s instructions on the persons to be involved in the probate process.  Specifically, the will should nominate a personal representative to carry out the deceased’s wishes and provide the names of those chosen to receive assets.

Please note that these steps are largely the same whether or not a will is located.  What’s different then?  The difference is in the outcome.  With a will, the deceased’s stated wishes rule the day.  Without a will, the Minnesota State Legislature’s wishes trump any unwritten desires the deceased may have had.

Step 2: Choose the type of probate proceeding that’s most appropriate.

Next, a decision must be made as to the type of probate needed to carry out the person’s last wishes.  The types of probate are formal versus informal and supervised versus unsupervised.  We will discuss each of the types of probate in a later post in this series, but just know that the type of probate process chosen largely depends on how much court oversight may be needed in carrying out the decedent’s wishes. 

Step 3: Filing with the court

Once the decision is made as to whether to proceed formally or informally, an interested person (i.e. one who has a tangible interest in the outcome of the process) must file a petition/application with the probate registrar/court together with the original will.  Most likely, the person nominated as personal representative in the will files these documents. 

The  probate court will then review will to verify that it meets the requirements to be a valid legal will.  If there is doubt about the signature on the will, those who witnessed its execution may be forced to appear in court. As explained in prior posts, this can be avoided with the use of a self-proving affidavit.

The probate court will also look to the will to determine the deceased person’s choice for personal representative.  If there is no will, then the courts will appoint a personal representative.  The court will then issue a Notice of Probate.

 Step 4: Provide Notice of Probate

Upon receipt of the Notice from the court, the personal representative must provide that Notice to all heirs, regardless of whether they are named in the will, and to all those listed – individuals and charities – to receive assets.

The personal representative must also publish notice of the probate for two weeks in an approved newspaper. It is through this announcement that creditors are informed of the deceased’s death.  They have four months to announce claims to the monies belonging to the deceased.   Proof of publication and notice must be filed with the court. A later post will discuss claims and challenges to an estate.

Step 5: The Court Appoints a Personal Representative

Once the court accepts all the filings and verifies compliance with other requirements (e.g. notice and publication), the personal representative will be appointed with proof being provided by a document called the Letters Testamentary.  This document provide authorization to the personal representative – and reliance by institutions -  to move forward in handling the deceased’s legal and financial matters.

The next post will address the various types of probate proceedings and the factors involved in determining the best way to proceed.


Monday, August 12, 2013

You Took the Time to Draft Your Estate Plan, but Can Your Family Find the Essential Documents to Handle Things?

Minneapolis Estate Planning Attorney Explains the Need for Proper Storage of Your Estate Planning Documents

Think Treasure Hunts are Fun and Games? Think Again

You’ve had an attorney draft your estate planning documents, including your living trust and will. Probate avoidance and tax saving strategies have been implemented. Your documents are signed, notarized and witnessed in accordance with all applicable laws, and are stored in a location known to your chosen executor or estate administrator. Your work is done, right? Not exactly.

Although treasure hunts may be fun for youngsters, the fiduciaries of your estate will not find inventorying your assets to be nearly as exciting. When it comes time to settle your affairs, your estate representatives will be charged with the responsibility to gather and manage your assets, pay off debts and taxes, and distribute your assets to your named beneficiaries. This can be a tall order for an outsider who is likely unaware of the full scope of your assets.

If your fiduciaries cannot determine exactly what property you own, and its value and location, you are setting up your loved ones for a frustrating treasure hunt that can delay the settlement of your estate and rack up additional estate-related expenses. You may be remembered for the frustration of locating your assets, rather than the gifts made upon your death – not a legacy many wish to leave.

Instead, as you are establishing your estate plan take the extra time to record a comprehensive asset inventory and make sure those who will be responsible for settling your estate know where that inventory is stored. Do not presume that everything is handled once you meet with a lawyer and sign your documents. The legal instruments you have gone to the time, trouble and expense to prepare are practically worthless if your assets cannot be identified, located and transferred to your beneficiaries. However, creating a thoughtful asset inventory will aid your loved ones in closing your estate and honoring your memory.

Nobody knows better what assets you own than you. And who better than you to know an item’s value, age or location? Your fiduciaries may not have the benefit of tax or registration renewal notices for titled assets, and certainly won’t have copies of the titles or deeds – unless you provide them. It’s a good idea to include copies of the following items with your asset inventory:

  • Deeds to real property
  • Titles to personal property
  • Statements for bank, brokerage, credit card and retirement accounts
  • Stock certificates
  • Life insurance policy
  • Tax notices

For each of the above assets you should also list names and contact information for individuals who can assist with each the underlying assets, such as real estate attorneys, brokers, financial planners and accountants.

If your estate includes unique objects or valuable family heirlooms, a professional appraisal can help you plan your estate, and help your representatives settle your estate. If you have any property appraised, include a copy of the report with your asset inventory.

Care should be taken to continually update your asset inventory as things change. There will likely be many years between the time your estate plan is created and the day your fiduciaries must step in and settle your estate. Properties may be bought or sold, and these changes should be reflected in your asset inventory on an ongoing basis.
 


Monday, August 5, 2013

Minnesota Gay Marriage and the Fall of DOMA: Should My Partner and I Get Married?

A Minneapolis Estate Planning Attorney Discusses Minnesota's New Law Allowing Gay Couples to Legally Married

Gay Couples Can Legally Marry in Minnesota

On August 1 Minnesota will become the thirtheenth state to legally recognize same-sex marriages.  Gay couples who decide to tie knot here will gain a variety of financial benefits and legal rights.

Some of the changes will be significant. Couples who marry and live in Minnesota will be able to file their state tax returns jointly. Couples who decide to marry will also be first in line to inherit their spouses’ assets, even in the absence of a will. They’ll gain an array of smaller benefits as well, down to the ability to jointly apply for a fishing license.

The Supreme Court Declares DOMA Unconstitutional

Further, the Supreme Court held that the section of the Defense of Marriage Act ("DOMA') withholding federal benefits from legally married same-sex couples was unconstitutional.  What does that mean?

This means that same-sex couple who are able to legally marry may not be denied the federal benefits provided to married heterosexual couples.

If you are thinking about getting married in Minnesota, or in one of the other jurisdictions in which gay marriage is legal, you need to think about how your new status as a married couple may affect your family with regard to both obligations and benefits.  Further, if you are already legally married in another jurisdiction, that marriage will automatically be recognized here in Minnesota. In other words, if you got married in Canada but live here, that marriage became legally valid in Minnesota at 12:01am on August 1, 2013.

I have a client who was legally married in Canada a few years ago and she said to me, "So, basically I just have to wake up on August 1 and we are legally married, right?"

I think that's a great way to phrase it.

But what does it mean

Many clients have called me to ask about how getting married may affect their estate plans - or other issues related to their day-to-day lives. This is, for our community, unchartered territory and so many people are filled with questions. These new laws affect, in part, the following things:

  • Responsibility for financial support for a spouse
  • Responsibility for decisions relating to medical care and treatment
  • Priority for appointment as conservator, guardian, or personal representative for a spouse
  • Inheritance rights upon the death of a spouse
  • The ability to designate a spouse automatically as a beneficiary to retirement
  • The ability to insure a spouse through most insurance policies (except for those governed by federal law – see next question below)
  • Survivor benefits under workers compensation laws and state or local government pensions
  • Presumptions of parentage for children born during the marriage
  • Marriage also provides for an orderly process for dissolution, spousal maintenance, parenting time, and other protections granted through the divorce process

If you have questions on these, or any other issues, related to the new gay marriage laws, feel free to contact Unique Estate Law to discuss them at your convenience.


Monday, June 24, 2013

8 Reasons Young People Should Write a Last Will and Testament

 

A Minneapolis Estate Planning Attorney Discusses the Reason Young People Should Think About Their Estate Plans

Imagine if writing a last will and testament were a pre-requisite to graduating from high school.  The graduate walks across the stage, hands the completed will to the principal, and gets the diploma in return.   It might sound strange because most 18 year olds have little in terms of assets but it’s a good idea for all adults to draft a last will and testament.

Graduation from college is another good milestone to use as a reminder to create an estate plan.  If you haven’t created a will by the time you marry – or are living with a partner in a committed relationship – then it’s fair to say you are overdue.

Think you don’t need an estate plan because you’re broke?  Not true.  Here are eight excellent reasons for young people to complete a last will and testament.  And they have very little to do with money.

You are entering the military.  Anyone entering the military, at 18 or any other age, should make sure his or her affairs are in order.  Even for an 18-year-old, that means creating a will and other basic estate planning documents like a health care directive and powers of attorney.

You received an inheritance.  You may not think of the inheritance as your asset, especially if it is held in trust for you.  But, without an estate plan, the disposition of that money will be a slow and complicated process for your surviving family members.

You own an animal.  It is common for people to include plans for their pets in their wills.  If the unthinkable were to happen and you died unexpectedly, what would happen to your beloved pet?  Better to plan ahead for your animals in the event of your death.  You can even direct the sale of specific assets, with the proceeds going to your pet’s new guardian for upkeep expenses.

You want to protect your family from red tape.  If you die without a will, your family will have to take your “estate” (whatever money and possessions you have at the time of your death) through a long court process known as probate. If you had life insurance, for example, your family would not be able to access those funds until the probate process was complete.  A couple of basic estate planning documents can keep your estate out of the probate court and get your assets into the hands of your chosen beneficiaries much more quickly.

You have social media accounts.  Many people spend a great deal of time online, conversing with friends, storing important photos and documents and even managing finances. Without instructions from you, will your family know what to do with your Facebook account, your LinkedIn account, and so forth?

You want to give money or possessions to friends or charities.  When someone dies without a will, there are laws that dictate who will receive any assets.  These recipients will include immediate family members like parents, siblings, and a spouse.  If you want to give assets to friends or to a charity, you must protect your wishes with a will.

You care about what happens to you if you are in a coma or persistent vegetative state.  We all see the stories on the news – ugly fights within families over the prostrate bodies of critically ill children or siblings or spouses.  When you write your will, write a health care directive (also called a living will) and a financial power of attorney as well.  This is especially important if you have a life partner to whom you are not married so they can make decisions on your behalf.


Monday, May 13, 2013

Overview: Buy-Sell Agreements and Your Small Business

Minneapolis Business Lawyer Explains Why Your Small Business Needs a Buy-Sell Agreement

If you co-own a business, you need a buy-sell agreement. Also called a buyout agreement, this document is essentially the business world’s equivalent of a prenup. An effective buy-sell agreement helps prevent conflict between the company’s owners, while also preserving the company’s closely held status. Any business with more than one owner should address this issue upfront, before problems arise.

With a proper buy-sell agreement, all business owners are protected in the event one of the owners wishes to leave the company. The buy-sell agreement establishes clear procedures that must be followed if an owner retires, sells his or her shares, divorces his or her spouse, becomes disabled, or dies. The agreement will establish the price and terms of a buyout, ensuring the company continues in the absence of the departing owner.

A properly drafted buy-sell agreement takes into consideration exactly what the owners wish to happen if one owner departs, whether voluntarily or involuntarily.  Do the owners want to permit a new, unknown partner, should the departing owner wish to sell to an uninvolved third party? What happens if an owner’s spouse is involved in the business and that owner gets a divorce or passes away? How are interests valued when a triggering event occurs?

In crafting your buy-sell agreement, consider the following issues:

  • Triggering Events - What events trigger the provisions of the agreement?  These normally include death, disability, bankruptcy, divorce and retirement.
     
  • Business Valuation - How will the value of shares being transferred be determined? Owners may determine the value of shares annually, by agreement, appraisal or formula.  The agreement may require that the appraisal be performed by a business valuation expert at the time of the triggering event.  Some agreements may also include a “shotgun provision” in which one party proposes a price, giving the other party the obligation to accept or counter with a new offer.
     
  • Funding - How will the departing owner be paid?  Many business owners will obtain insurance coverage, including life, disability, or business continuation insurance on the life or disability of the other owners.  With respect to life insurance, the agreement may provide that the company redeem the departing owner’s shares (“redemption”).  Alternatively, each of the owners may purchase life insurance on the lives of the other owners to provide the liquidity needed to purchase the departing owner’s shares (“cross purchase agreement”).   The agreement may also authorize the company to use it’s cash reserves to buy-out the departing owners.  
     

Wednesday, May 8, 2013

Family Business: Preserving Your Legacy for Generations to Come

A Twin Cities Business Lawyer Discusses How You Can Protect Your Family Business

Your family-owned business is not just one of your most significant assets, it is also your legacy. Both must be protected by implementing a transition plan to arrange for transfer to your children or other loved ones upon your retirement or death.


More than 70 percent of family businesses do not survive the transition to the next generation. Ensuring your family does not fall victim to the same fate requires a unique combination of proper estate and tax planning, business acumen and common-sense communication with those closest to you. Below are some steps you can take today to make sure your family business continues from generation to generation.

  • Meet with an estate planning attorney to develop a comprehensive plan that includes a will and/or living trust. Your estate plan should account for issues related to both the transfer of your assets, including the family business and estate taxes.
  • Communicate with all family members about their wishes concerning the business. Enlist their involvement in establishing a business succession plan to transfer ownership and control to the younger generation. Include in-laws or other non-blood relatives in these discussions. They offer a fresh perspective and may have talents and skills that will help the company.
  • Make sure your succession plan includes:  preserving and enhancing “institutional memory”, who will own the company, advisors who can aid the transition team and ensure continuity, who will oversee day-to-day operations, provisions for heirs who are not directly involved in the business, tax saving strategies, education and training of family members who will take over the company and key employees.
  • Discuss your estate plan and business succession plan with your family members and key employees. Make sure everyone shares the same basic understanding.
  • Plan for liquidity. Establish measures to ensure the business has enough cash flow to pay taxes or buy out a deceased owner’s share of the company. Estate taxes are based on the full value of your estate. If your estate is asset-rich and cash-poor, your heirs may be forced to liquidate assets in order to cover the taxes, thus removing your “family” from the business.
  • Implement a family employment plan to establish policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.
  • Have a buy-sell agreement in place to govern the future sale or transfer of shares of stock held by employees or family members.
  • Add independent professionals to your board of directors.

You’ve worked very hard over your lifetime to build your family-owned enterprise. However, you should resist the temptation to retain total control of your business well into your golden years. There comes a time to retire and focus your priorities on ensuring a smooth transition that preserves your legacy – and your investment – for generations to come.


Monday, April 15, 2013

Which Business Structure is Right for You?

Minneapolis Small Business Attorney Explains the Different Types of Business Entities

Which entity is best for your business depends on many factors, and the decision can have a significant impact on both profitability and asset protection afforded to its owners. Below is an overview of the most common business structures.

Sole Proprietorship
The sole proprietorship is the simplest and least regulated of all business structures. For legal and tax purposes, the sole proprietorship’s owner and the business are one and the same. The liabilities of the business are personal to the owner, and the business terminates when the owner dies. On the other hand, all of the profits are also personal to the owner and the sole owner has full control of the business.

General Partnership
A partnership consists of two or more persons who agree to share profits and losses. It is simple to establish and maintain; no formal, written document is required in order to create a partnership. If no formal agreement is signed, the partnership will be subject to state laws governing partnerships. However, to clarify the rights and responsibilities of each partner, and to be certain of the tax status of the partnership, it is important to have a written partnership agreement.

Each partner’s personal assets are at risk. Any partner may obligate the partnership, and each individual partner is liable for all of the debts of the partnership. General partners also face potential personal legal liability for the negligence of another partner.

Limited Partnership
A limited partnership is similar to a general partnership, but has two types of partners: general partners and limited partners. General partners have broad powers to obligate the partnership (as in a general partnership), and are personally liable for the debts of the partnership. If there is more than one general partner, each of them is liable for the acts of the remaining general partners. Limited partners, however, are “limited” to their contribution of capital to the business, and must not become actively involved in running the company. As with a general partnership, limited partnerships are flow-through tax entities.

Limited Liability Company (LLC)
The LLC is a hybrid type of business structure. An LLC consists of one or more owners (“members”) who actively manage the company’s business affairs. The LLC contains elements of both a traditional partnership and a corporation, offering the liability protection of a corporation, with the tax structure of a sole proprietorship (if it has only one member), or a partnership (if the LLC has two or more members). Its important to note that in certain states, single-member LLCs are not afforded limited liability protection.

Corporation
Corporations are more complex than either a sole proprietorship or partnership and are subject to more state regulations regarding their formation and operation. There are two basic types of corporations:  C-corporations and S-corporations. There are significant differences in the tax treatment of these two types of corporations, however, they are both generally organized and operated in a similar manner.

Technical formalities must be strictly observed in order to reap the benefits of corporate existence. For this reason, there is an additional burden of detailed recordkeeping. Corporate decisions must be documented in writing. Corporate meetings, both at the shareholder and director levels, must be formally documented.

Corporations limit the owners’ personal liability for company debts. Depending on your situation, there may be significant tax advantages to incorporating.


Tuesday, April 2, 2013

Should I Incorporate My Business?

Minneapolis small business attorney discuss the pros and cons of incorporating your business


Read more . . .


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