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What Do Farmers Need to Create an Estate Plan?

Planning for the end of life is intimidating for everyone, but when the plan includes a family business like a farm or ranch, things can get even more challenging. That’s why estate planning, that is, planning for the distribution of assets once you die, is especially important for aging farmers. The details are in the article “How farmers can start an estate plan” from Bangor Daily News.

Death and dying are not easy to talk about, but these conversations are necessary, especially if the family wants to continue as a farming or ranching family. For aging farmers and their families, here are a few tips to demystify the planning process and help get things started.

What are your goals? Think of estate planning as succession planning. This is about making decisions about retirement and handing down a business to the next generation. If you had a regular job, you’d have far less to consider. However, succession planning for a family business owner involves more resources and more people. Having a clear set of goals, makes that transition easier. Add to that list: your fears. What don’t you want to happen? If your children don’t know how much you want them to keep the farm in the family, they may take other actions after you die. Share your goals, hopes and yes, worst case scenarios.

Build a team of professionals. The number of moving pieces in a family farm means you’re going to need a strong team. That includes an estate planning attorney who has worked with other farm families, an accountant, a financial advisor and an insurance professional. Depending on your family’s communication skills, you might even consider bringing a counselor on board.

List out your assets. Don’t assume that anyone in the family knows the value of your assets. That includes deeds to land, titles of ownership for vehicles, information about any property mortgages or loans or leases. If you are leasing land to others, you’ll need the lease agreements as well as property titles. If your lease agreements are based on a handshake, your attorney may request that you formalize them. A verbal agreement may be fine while you are living, but if you should pass and your heirs don’t have the same relationship with your tenant, there could be trouble ahead.

Consider who will be in charge when you are not there. Whether you are planning to work until you die or making a retirement plan, one of the hardest decisions will be to name a successor. Inter-generational politics can be tricky. You’ll need an unbiased evaluation of who the best candidate will be to take things on. However, going into this now is better than hoping for the best. That’s when things go south.

Talk to your estate planning attorney. Just as people should start planning for their retirement as soon as they start working, planning for the transition of the family farm is something that should start when it is years in the future, not when the transition is a few months away. It’s a process that takes a long time to do right.

Reference: Bangor Daily News (March 5, 2020) “How farmers can start an estate plan”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Thinking Ahead for 2020 Elections

Trying to anticipate changes in the tax codes is like trying to time the stock market—a nearly impossible task. Most tax pundits guessed right, when they said that President Trump was going to cut corporate tax rates in 2017, but the doubling of estate and gift tax exemptions to more than $23 million was a surprise. So was the elimination of deductions for state and local taxes, as reported in The New York Times article “2 Strategies to Consider Ahead of the 2020 Election.”

With a presidential election coming up this fall, the challenge of predicting the impact of changes that may affect taxpayers and their estate planning has already begun. Candidates are talking about big changes, like health insurance, climate change and infrastructure. They are also talking about changes to wealth tax, but what no one has covered yet are changes like lowering exemptions and raising rates for estate and gift taxes and ending the valuation discount for closely held family businesses. This is a tax break that lets families transfer their businesses for far less than they are worth.

This valuation can impact any small business that owners expect to transfer to heirs. The current exemption levels for estate and gift taxes are so high now, that this tax only applies to very few people. However, if the exemption levels and tax rates change, that could become a problem for business owners.

The estate tax is now in effect until 2025, with exemptions at $11.58 million for an individual, and  double that amount for a couple. Everything above that is taxed at a rate of 40%. Lowering the exemption and increasing the tax rate are on some candidate’s agendas, both to raise revenue and address income inequality.

The estate tax is a big target. This is because if the exemption were lowered, it would generate a good amount of income, and impact a relatively small group of Americans. The likelihood of this happening will depend on election results, both at the presidential and congressional levels.

The months before the election occurs may be a good time to take advantage of the high tax exemptions and valuation discounts, just in case they change. This would let business owners pass more of their wealth to heirs free of tax, and could also settle some business issues now, not later, when the owners die.

However, identifying short and long-term goals should be done before making any significant decisions. In some states, like Connecticut, it may not be necessary to plan so aggressively, because the state’s estate and gift tax exemptions are lower than federal ones. It should be noted, however, that the exemptions are set to become equal in 2023.

Eliminating the valuation discount had been proposed by the Treasury Department and the IRS under President Obama, when these discounts were seen as being overly generous. A few months after taking office, President Trump issued an executive order for the Treasury to withdraw the regulation to eliminate the discount. However, the statute is still on the books and could be easily reinstated.

This is an example of the importance of reviewing estate plans on a regular basis and creating estate plans that have enough flexibility to withstand change. Speak with your estate planning attorney to ensure that your estate plan is prepared, whatever the results of the 2020 elections may be.

Reference: The New York Times (Feb. 14, 2020)

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Not a Billionaire? Trusts Can Still Be Beneficial

You don’t have to be wealthy to benefit from the use of a trust. A trust is a legal arrangement by which one person transfers his or her assets to a trustee who will hold those assets in trust for third parties, explains the Stamford Advocate’s article “Trusts are not for the wealthy only.” As the person who created the trust, referred to as “the settlor,” you determine who the trustee is, as well as naming the beneficiaries.

There are many different types of trusts which serve different purposes. However, the two basic categories of trusts are revocable (also known as “living” trusts) and irrevocable trusts. Their names reflect two chief characteristics: the revocable trust can be changed and controlled by the settlor. The irrevocable trust cannot be changed, and the settlor gives up the control of the trust. However, it should be noted that the irrevocable trust has certain tax and other benefits not offered by the revocable trust.

A will is definitely necessary to pass assets on according to your wishes, but a trust can serve other purposes. Here’s a look at some common reasons why people use trusts:

• Protect assets from creditors
• Allow heirs to avoid probate of assets in the trusts
• Avoid, minimize or delay estate taxes, transfer taxes or income taxes
• Control how assets are disbursed or invested
• Facilitate business succession planning and manage business assets
• Shelter assets for descendants, if a spouse remarries
• Establish a family tradition of philanthropy

Trusts allow assets to be passed on quickly and privately, while eliminating some expenses for heirs. They also permit closer management of who will benefit from your assets.

The cost of setting up a trust depends on the complexity of the trust and the estate, as well as other factors, like the number of beneficiaries and how many generations are being planned for. Bear in mind that the cost of setting up a trust should be measured against the future cost of not just taxes, but any litigation that might occur if the estate is probated and becomes public knowledge, or if family members are dissatisfied with the distribution of assets.

Speak with an estate planning attorney to first determine what kind of trusts are needed for your estate plan to achieve your wishes. Discuss the role of a Special Needs trust, if any family members have mental or physical needs that make them eligible for public assistance. An experienced estate planning attorney will know which planning strategies are best in your unique circumstances.

Reference: Stamford Advocate (Jan. 19, 2020) “Trusts are not for the wealthy only”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Is There a Succession Plan for the Cleveland Cavaliers and Dan

Fifty-seven-year-old real estate billionaire Dan Gilbert may fully recover from a stroke and devote decades to running his businesses and enjoying the perks of owning an NBA basketball team. However, the founder and chairman of Quicken Loans also may struggle for years to recover. What will happen to his sports teams and his businesses?

Crain’s Cleveland Business’s reports in the recent article, “Dan Gilbert situation raises sports team estate planning question,” that as sports teams have grown into billion-dollar businesses, the stakes have dramatically increased over the fate of ownership.

Sometimes, it can be quite complex when an owner dies, since some of them aren’t very clear on what should happen to the team when they die. Other owners have made elaborate plans that are run aground by estate tax issues or family politics.

Gilbert is in charge of an investment group that paid $375 million for the LeBron James-led Cavaliers in 2005. That investment has paid off with an NBA championship in 2016 that likely endears him to the people of a city that had been without any pro sports championship since 1964. Gilbert has now poached the popular University of Michigan basketball coach John Beilein to coach the rebuilding Cavaliers to try for another title next year.

Gilbert hasn’t given any indication about what his succession plan is for the team is, although each of the major leagues requires owners to inform them of these plans. Placing a team in a trust is a frequent practice. This can protect an owner’s heirs from federal estate tax bills that can run into the hundreds of millions of dollars for pro sports franchises (spouses are exempt from estate taxes, but not children).

Entrusting an asset will freeze its value under federal gift tax law at the time it was placed in the trust—that’s a way an owner can decrease the eventual tax bill. However, because professional sports team values have been skyrocketing with huge TV deals and other revenue streams, the tax value of a team can be staggering, even for the wealthy.

Another strategy is for a sports team owner to buy an insurance policy. The proceeds can pay the estate taxes, so heirs don’t struggle with tax bills, which sometimes can force a team sale. This occurred when the estate tax bills from the IRS precipitated the sale of the NFL’s Miami Dolphins in 1993 and St. Louis Rams in 2008. The Lerner family had to sell 40% of its stake in credit card giant MBNA to pay its estate tax bill, when Cleveland Browns owner Al Lerner died in 2002.

Another Detroit businessman, Ralph Wilson, owned the Buffalo Bills. Upon his death at age 95 in 2014, he had arranged for the team to be sold by his estate to benefit the Ralph C. Wilson Jr. Foundation. Wilson’s decision was part of an overall estate plan that was done well.

Reference: Crain’s Cleveland Business (May 29, 2019) “Dan Gilbert situation raises sports team estate planning question”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Middle-Class People Need Estate Planning Just As Much, If Not More Than The Wealthy

When a billionaire loses half of his wealth in a divorce, they’re still wealthy. But when a middle-class person hasn’t planned for estate distribution or long-term health care, there’s more of a chance their retirement could be at risk. That’s part of what Forbes explains in “Why Estate Planners Aren’t Just for the Ultra-Rich,”

Although estate plans may be more complicated for larger estates, just about everyone can benefit from having one. Let’s examine the main reasons why:

Avoiding probate. This is a big reason why the importance of estate planning is for everyone. You don’t have to be part of the 1% to want to avoid putting your family through the stress and expense of probate. Creating a trust and strategically placing assets within its control, eliminates many headaches.

Maintaining control from the grave. Even after death, you can still impact how your assets are distributed, as well as to whom and when.

Protecting your legacy. When you consider leaving a legacy for the next generation, it may have lofty pursuits. However, those aren’t necessarily reasonable goals for everyone. Leaving a legacy can also mean making certain that heirs properly respect all the effort and sacrifice that it took to save and create a retirement fund—whatever its size.

Creating a business succession plan. Among the countless small businesses in the U.S., most will continue to remain viable after the legacy owner dies. A business owner can plan for this within an estate plan which details exactly what they want to happen, if they die unexpectedly. That could include outlining specific roles and responsibilities for surviving heirs or putting into place a buy-sell agreement with a business partner and directing the distribution the proceeds of the sale.

All estate plans need to be reviewed on a regular basis. That may be when tax season is over and you have a clear picture of your assets and liabilities, or when life’s big events occur. A birth of a child, the passing of a close relative, a divorce or an estrangement with a loved one.

Every estate planning attorney has stories of reviewing estate plans with clients and finding that they have left money to a person they no longer speak with or an ex-spouse is still their beneficiary. Another common error is giving someone an asset that the person no longer owns, like a share in a business or a piece of property.

The word “estate” does make it sound like something for people who live in mansions, but this kind of plan is for everyone. If you don’t have one, now is the time to get started.

Reference: Forbes (April 15, 2019) “Why Estate Planners Aren't Just For The Ultra-Rich”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

How to Make a Succession Plan for a Family Business that Succeeds

It’s hard not to have some kind of preferential treatment, if some members of the family are working the land, says North Bay Business Journal’s article, “How to plan for a smooth transition of your family business,” while others have left the area in pursuit of a different lifestyle. Does a non-farming adult child get an equal share in a family vote or inheritance? On the other hand, why should they be penalized for wanting a different life?

A crucial step in handling family dynamics is calling a meeting with everyone to discuss what’s going on with their business. A family meeting is an opportunity to discuss decisions with family members with reduced conflict and confusion.

To have a successful business succession plan, start with a business plan for the business. Next move to both financial planning and estate planning, especially estate planning for the current owner. You should then do tax planning around all of that.

Addressing the tax exposure is a challenge faced by those transferring assets. There are some tax issues with estate planning and asset transfer, unless it’s done during life. Transferring a business, or other assets when the owner is still alive, can be beneficial in the long run. Lifetime gifts can be a way to reduce estate taxes, because making a gift today before there’s been substantial appreciation is a way to leverage your gift and estate tax exemption.

A parent who transfers assets while still alive, would have to be willing to say goodbye to the income from an asset.

However, that doesn’t necessarily mean giving up control of the business. The process of transferring control of a business can benefit from a gradual approach. If you want to transfer the business to one or more of your children, but you want them to succeed on their own, you could bring them into the business as a manager and give them a little bit of ownership.

The plan for successful succession begins by with a broader vision of what the desired outcome will be. An experienced estate planning attorney who has helped many families transition from one generation to the next, can be a major asset. They’ll be able to help you and your family create a plan that makes sense from a wealth transfer and tax planning perspective. Don’t be surprised if it takes several years to create and execute a plan.

Reference: North Bay Business Journal (April 9, 2019) “How to plan for a smooth transition of your family business”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

Amazon’s Billionaire Bezos Divorce: He’s Still Very Rich

When personal wealth is measured in billions, there are no lack of advisors and strategies that can be used to protect income, investments and shares of a business from the IRS or matrimonial attorneys. News about the divorce of Amazon’s Jeff Bezos reports that he’s handing over 25% of his controlling stake in Amazon.

According to this article from WealthAdvisor, “Bezos Besieged: Was $35 Billion Divorce The Most Expensive Wake-Up Call Ever?” Bezos never moved this company stock into a trust. The divorce settlement of 25% of Amazon with his ex-wife MacKenzie is really a bargain, despite the fact that it means whittling at least $35 billion off his net worth.

Bezos still has 59 million shares, a 12% stake in the company, as well as voting rights on all her stock, for as long as she owns it, which still gives him control.

Bezos’ mistress also recently just filed for divorce, so if he wants to protect his remaining $108 billion in Amazon stock and eliminate the risk of marital history repeating, he should make some plans. A prenuptial arrangement is definitely needed for any future marriage. And yet, he won’t be struggling, even if there is a second marriage and it too ends without a prenup.

Bezos could live an extravagant life, running through $1 billion a year and still have plenty of money to live on.

For now, the company continues to depend upon his vision. Amazon began as an out-of-the-box idea. He’s grown the company into a world-changing force, and the Amazon most of us deal with, is just a small part of it. There’s no doubt he’ll continue.

In addition to consideration of wealth protection and prenups, Bezos should start thinking about his legacy and a succession plan. At age 55, he’s far from done being a visionary, but it would be wise for him to make a plan to gradually remove himself from the day-to-day Amazon operations. He’ll want to develop the next generation of visionaries, who can continue his course.

Reference: Wealth Advisor (April 8, 2019) “Bezos Besieged: Was $35 Billion Divorce The Most Expensive Wake-Up Call Ever?”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

What Will Happen to Rapper Nipsey Hussle’s Children?

When Rapper Nipsey Hussle was killed in front of his store in Los Angeles, he left behind two minor children and a girlfriend. If he did not have an estate plan, he joins artists like Aretha Franklin and Prince who also died with no estate plans. He also created a problem for his children, because minors are not permitted to own more than a certain amount of assets, according to Rolling Out’s article, “RIP Nipsey Hussle: 5 reasons you need an estate plan.”

This means that a guardian or trustee must be appointed to manage the funds for them, until they reach the age of majority. If the deceased doesn’t have a will that instructs who that guardian shall be, they will be chosen by the court. In this case, Nipsey’s longtime girlfriend Lauren London would get nothing from Hussle’s estate (even though that may not have been his intention), because it looks like she wasn’t his spouse or an heir. Consider these important reasons for an estate plan:

Property transfer wishes. This is the primary objective of estate planning. Your estate consists of all your property (real, personal, and intellectual) minus your debts. Your estate plan will determine who gets what and when. Create clear goals, as to who should inherit your property and alternative beneficiaries, in case someone predeceases you.

Transfer costs and taxes. Another goal of estate planning is maximizing any available tax benefits. You can limit estate taxes by creating trusts, making charitable donations and by establishing a family limited partnership for a business.

More net assets to heirs. An estate plan will help avoid the expense and delays of probate.

Liquidity at death. Funds need to be available to satisfy the immediate needs of the family. This can be accomplished with life insurance policies, IRAs, stocks and bonds. If all of your property is being transferred by will or intestate succession, no one gets anything, until the estate is probated.

Personal wishes surrounding death. Write down all of your preferences concerning burial, cremation, and organ donation to help your family.

Since this article was first published, Rolling Out added an update that said that Nipsey Hussle and Lauren London may have been secretly married. If that’s the case, she would inherit part of the estate. Otherwise, his family will be busy trying to untangle his estate, seeking guardianship of his children and many other tasks, all during a difficult time.

Reference: Rolling Out (April 1, 2019) “RIP Nipsey Hussle: 5 reasons you need an estate plan”

∗ For more information about this and other similar topics, please visit: www.LambrosLawLLC.com or call us at: (401) 383-9899

What Is a Registered Agent?

Starting a new business requires attention to many details. You’ll make decisions about locations, business structure, and so on. As you register your business with the Rhode Island Secretary of State, you may be asked to name a registered agent. Your first reaction may be, “What is a registered agent?” This article will answer that question.

General Description

Most states require a business that registers as a legal entity to have a registered agent.

But, what is a registered agent?

Registered agent may be individuals or corporations. For some corporations, registered agent services are their primary business.

The agent receives legal documents and service of process (like a summons or subpoena) for the business. Registered agents might even file documents for the business or remind them of annual reports and filings the business needs to make. For example, The ABC Corporation is headquartered in Cranston, Rhode Island. When they register with the Rhode Island Secretary of State, they name RegisteredAgent, LLC, as their registered agent. If ABC Corporation is sued, the lawsuit and summons will be served on RegisteredAgent, LLC. It’s their job, then, to forward the summons and related papers to ABC Corporation.

Why Use a Registered Agent?

It is possible in most states to serve as your own registered agent. However, many companies hire a company that specializes in providing this service to companies. There are a number of reasons a business might hire a registered agent instead of handling it in-house:

• Official notices, subpoenas, and summons. After receipt, your registered agent will forward them to your company for processing.
• Official Deadlines. Depending on your business structure, you may have to file annual reports or quarterly returns. A registered agent typically tracks these dates for you.
• Physical Address. Web-based businesses may not have a physical address or may use your home address. Using a registered agent means you have an actual location for official papers to be sent and your home address stays out of it.
• Normal Business Hours. Some companies work odd hours. A registered agent is required to be open during normal business hours.
• Multi-State Business. Companies that operate in more than one state need to register in each state. It’s also typically required for foreign companies to have a physical address in each state of operation. Hiring a registered agent gives you that physical address.

Does Your Business Need a Registered Agent?

The attorneys at Lambros Law Offices have the skill and experience to help you start your business out on the right foot. To schedule an appointment, call us at 401-383-9899 or use our convenient Contact Form. Although located in Cranston, we assist clients throughout Providence and Kent Counties.

Legal Concerns for Startups

 

Startups face many decisions before getting the business 100% up and running. From choosing a name to hiring employees, decisions have to be made. Some of those decisions may have serious legal consequences if done without a firm knowledge of rules, regulations, and laws. If you are thinking of starting a business, or have already done so, read on to learn more about three legal concerns for startups.

Forming Startups

You’ll need to choose a business structure. The most common business entities in Rhode Island include corporation, benefit corporation, workers’ cooperative, limited liability company, general partnership, and sole proprietor. The entity you choose determines the paperwork that may have to be completed, how profits are handled, and how income is taxed. Understand the entities before choosing one.

Your company name must comply with the Rhode Island law and not already be in use by another company. After searching the Rhode Island Department of State Corporate Database and coming up with a distinguishable name for your startup, you may file a name reservation online on the Secretary of State’s website.

Some startups will need to file documents with the Rhode Island Secretary of State. Others will not. For example, a corporation must file an application for Articles of Incorporation, pay a filing fee, then submit an annual report. General partnerships and sole proprietors are not required to register with the state.

Management of Your Startup

Who will run your new business? If you’re a sole proprietorship, that question is easy to answer! However, if you have partners or co-founders, things can get a bit tricky.

Setting out the management details of your company makes sense. Everyone knows where they stand. Disagreements may be resolved more easily when you get everything in writing.

If you are hiring management or employees, you may run into another of the common legal concerns for startups.

Employment Agreements

Address employment agreement concerns early in the life of your business. Key employees may sign employment contracts. You may also consider having certain employees – top managers, sales people, and scientists, for example – sign non-disclosure agreements to protect your startup’s confidential information.

You may even have some employees sign a non-compete agreement. This may prevent them from taking clients and proprietary information if they leave to open a competing business or work for a competitor.

Take Care of Legal Concerns Before They Turn into Problems.

Making the wrong decision or using the wrong type of document may have serious consequences down the road. Our attorneys have the experience to assist with your business concerns. Call us at 401-383-9899. You may also use our convenient Contact Form to let us you know are ready to get started. We assist clients throughout Rhode Island, including Cranston, Providence, and Warwick.