Tag: Assets

Have You Looked at Your Estate Plan Documents Lately?

Does this sound familiar?

“John and Mary kept delaying any discussions about preparing estate planning. After they had their first child, Jack, they finally decided it was time to discuss their estate plan with a lawyer. They set up a trust for Jack if anything happened to John and Mary and designated John’s parents, who were then 65, as Jack’s guardian and the trustee of the trust. Since they had meager assets, they left everything outright to him at age 25. John and Mary ignored these documents and made none of the transfers recommended by their lawyer to avoid probate.

Ten years passed by. They now have three children, Jack, (10) Jackie (7) and Maureen (4). Jack’s parents have moved away to enjoy warmer climates.

John and Mary should revisit their estate planning desires. Are his parents still capable of raising their children? When Maureen is 16, Jack’s parents will be 87. Have Jack and Mary considered planning possibilities for their digital assets? What about their business? Can it operate after they are no longer able to manage it? Are their children able to handle their inheritance as originally planned? Are John and Mary’s health care powers and living will directions up-to-date? Have they considered the effect that taxes and probate might have on their plan? Are there any other special circumstances they need to plan for?

We recommend you review your estate plan every 2-3 years or more often based upon your changes in family and your finances. Isn’t it time you reviewed your estate plan??

To discuss any questions you have regarding your estate plan or for a complimentary estate plan review, please contact:

Morris Saunders at:

msaunders@lgattorneys.com or (312) 368-0100.

Selling Your Business?

John Smith owned a small manufacturing business.  One day he received a call from one of his competitors who said he was interested in buying John’s business.  John was now 75 and this seemed like the perfect opportunity for him to retire and have that “nest egg” for him live comfortably in retirement.

John met with the buyer and they discussed, in general, John’s business.  After the meeting, the buyer presented a letter of intent to John, which proposed a purchase price of $10,000,000, subject to the buyer’s due diligence investigation of John’s business.  John felt pleased with the letter of intent and signed and returned it to the buyer.

During a long and protracted (and quite thorough) due diligence, the buyer and his accountants and lawyers examined the business and its books and records.  Based upon their examination, they advised the buyer of various legal and financial risks that John’s business was exposed to and which could become issues that the buyer would have to face.

John could not produce all of his current contracts with his customers.  The contracts which he had contained provisions which could cause the contracts to be terminated upon a sale of the business or a transfer of the ownership of the business.  Their key employees had no employment agreements and could compete with the business once they terminated employment.  The leases for the business’s facilities could not be assigned.

Despite the issues with the business, the buyer was still interested in purchasing the business.  The bad news was that the revised purchase price was to be $8,500,000 with a significant portion to be held in escrow pending resolution of various legal issues.

The above scenario is very common with small business owners.  Bigger companies who regularly acquire smaller companies are “professionals” in the acquisition business.  They know exactly what to look for and they know how to “string the seller along” until they present a reduced offer which most sellers feel they have to accept.

If you are thinking of selling your business, make sure that your business is ready to be sold and that you have copies of all contracts and leases and that you understand what they provide and how they will be affected upon a sale.  Have written employment agreements with all your “key employees.”  Pay attention to your inventory, your accounts receivable and other assets which “drive the sales price.”  Protect your intellectual property by obtaining patents, to the extent applicable, and trademarks.

If you are considering selling your business and would like a “legal check-up,” please do not hesitate to contact:

Morris Saunders at:

msaunders@lgattorneys.com or 312-368-0100.

Have You Planned For The Disposition Of Your Digital Assets?

Many of us have accounts with Facebook, Twitter, Instagram, Google Mail, and similar accounts, digital files such as photos, music, movies, and also online accounts with banks, merchants and others. These types of files and accounts are often referred to as digital assets. Have you ever thought about what would happen to those digital assets upon the disability or death of the owner? Does anyone have the right of access? Does anyone have the right to keep the asset or to destroy (discontinue) it? If nothing is done, the keeper (“custodian”) of those digital assets may eventually terminate the asset and delete them.

Digital assets are generally governed by a complex set of Terms of Service, which are drafted to protect the provider of the service – not the user.

Illinois recently passed The Revised Uniform Fiduciary Access to Digital Assets Act, which may provide certain fiduciaries with access to your digital assets. This Act, while appearing to provide access to a deceased user’s digital assets, may not provide complete access. So, what should you do?

  1. Make an inventory of your digital assets and make sure it is accessible to those whom you trust. Include the name of the internet site, your user name and your password, and if applicable your account number and other relevant information.
  1. Provide in your estate planning documents that your trustee, executor or other fiduciary has the power to be granted access to your digital assets. OR, perhaps you do not want anyone else to be granted access. In that event you should expressly prohibit access to anyone else.

If you would like to discuss your estate planning, including the disposition of your digital assets, please contact:

Morris R. Saunders at:

312-368-0100 or at msaunders@lgattorneys.com.

 

If You Sell Stock In Your Start-Up Business Can You Exclude the Gain From Income?

You started your business and it grew beyond your wildest dreams. Now, a potential purchaser has approached you to acquire your business. Your first thought after, “I’m going to be rich!”, is “How much of my money will the IRS want from me?”

If your stock qualifies as “qualified small business stock” (QSBS) then that big payoff could escape income tax. Prior to 2015, Internal Revenue Code Section 1202 provided a tax free benefit in certain situations for stock acquired after September 27, 2010, but before 2015. The “Protecting Americans from Tax Hikes Act of 2015” (PATH Act) restored the QSBS provisions for stock acquired in 2015 and thereafter.

Now, subject to certain limits, you may exclude from gross income 100% of any gain realized on the sale or exchange of QSBS held for more than five years. Also, the excluded portion of the gain from eligible QSBS is not treated as an alternative minimum tax preference item.

Stock qualifies as QSBS only if it meets all of the following tests:

  1. it must be stock originally issued after Aug. 10, 1993;
  2. as of the date the stock was issued, the corporation was a domestic C corporation with total gross assets of $50 million or less (a) at all times after Aug. 9, 1993 and before the stock was issued, and (b) immediately after the stock was issued;
  3. in general, you must have acquired the stock from the corporation, either in exchange for money or other property or as pay for services to the corporation; and,
  4. during substantially all the time you held the stock:  the corporation was a C corporation; at least 80% (by value) of the corporation’s assets are used in the active conduct of one or more qualified businesses; and the corporation was not a foreign corporation, or certain other types of companies.

A qualified business cannot be: a business involving services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services or a business whose principal asset is the reputation or skill of one or more employees; a banking, insurance, financing, leasing, investing, or similar business; a farming business (including the raising or harvesting of trees); a business involving the production of products for which percentage depletion can be claimed; or a business of operating a hotel, motel, restaurant, or similar business.

For each tax year, the amount of gain eligible for the exclusion is limited to the greater of: $10 million ($5 million for married persons filing separately), or 10 times your total adjusted basis in QSBS of the corporation disposed of by you in the tax year.

The above is a brief synopsis of the rules regarding QSBS. If you’d like to discuss these rules or any other business issue you might have, please contact:

Morris R. Saunders at:

msaunders@lgattorneys.com or (312)368-0100

IRS Announces Attack on Family Business Transfers

On August 2, 2016, the U.S. Department of the Treasury announced a new regulatory proposal to “close a tax loophole that certain taxpayers have long used to understate the fair market value of their assets for estate and gift tax purposes.”

It is common for wealthy taxpayers and their advisors to use certain tax planning tools to take into account “discounts” for such things as lack of marketability and minority interests to effectively lower the taxable value of their transferred assets. These planning tools have been, until now, approved by the IRS and the courts. By taking advantage of these tactics, certain taxpayers or their estates owning closely held businesses or other entities can end up paying less in estate or gift taxes. Treasury’s action will significantly reduce the ability of these taxpayers and their estates to use such techniques solely for the purpose of lowering their estate and gift taxes. These proposed regulations are subject to a 90-day public comment period. The regulations themselves will not go into effect until the comments are carefully considered and then 30 days after the regulations are finalized.

If you were planning to make transfers of closely held business interests, you should consider whether it is appropriate to expedite making those transfers ahead of the effective date of the proposed regulations.

If you have any questions, please contact:

Morris R. Saunders at:

(312) 368-0100 or msaunders@lgattorneys.com.

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