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Tuesday, January 10, 2017

Which Business Structure is Right for You?

Which Business Structure is Right for You?

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.


Sunday, December 11, 2016

Should I Transfer My Home to My Children?

Should I Transfer My Home to My Children?

Most people are aware that probate should be avoided if at all possible. It is an expensive, time-consuming process that exposes your family’s private matters to public scrutiny via the judicial system. It sounds simple enough to just gift your property to your children while you are still alive, so it is not subject to probate upon your death, or to preserve the asset in the event of significant end-of-life medical expenses.

This strategy may offer some potential benefits, but those benefits are far outweighed by the risks. And with other probate-avoidance tools available, such as living trusts, it makes sense to view the risks and benefits of transferring title to your property through a very critical lens.

Potential Advantages:

  • Property titled in the names of your heirs, or with your heirs as joint tenants, is not subject to probate upon your death.
  • If you do not need nursing home care for the first 60 months after the transfer, but later do need such care, the property in question will not be considered for Medicaid eligibility purposes.
  • If you are not named on the property’s title at the time of your death, creditors cannot make a claim against the property to satisfy the debt.
  • Your heirs may agree to pay a portion, or all, of the property’s expenses, including taxes, insurance and maintenance.

Potential Disadvantages:

  • It may jeopardize your ability to obtain nursing home care. If you need such care within 60 months of transferring the property, you can be penalized for the gift and may not be eligible for Medicaid for a period of months or years, or will have to find another source to cover the expenses.
  • You lose sole control over your property. Once you are no longer the legal owner, you must get approval from your children in order to sell or refinance the property.
  • If your child files for bankruptcy, or gets divorced, your child’s creditors or former spouse can obtain a legal ownership interest in the property.
  • If you outlive your child, the property may be transferred to your child’s heirs.
  • Potential negative tax consequences: If property is transferred to your child and is later sold, capital gains tax may be due, as your child will not be able to take advantage of the IRS’s primary residence exclusion. You may also lose property tax exemptions. Finally, when the child ultimately sells the property, he or she may pay a higher capital gains tax than if the property was inherited, since inherited property enjoys a stepped-up tax basis as of the date of death.

There is no one-size-fits-all approach to estate planning. Transferring ownership of your property to your children while you are still alive may be appropriate for your situation. However, for most this strategy is not recommended due to the significant risks. If your goal is to avoid probate, maximize tax benefits and provide for the seamless transfer of your property upon your death, a living trust is likely a far better option.


Tuesday, October 25, 2016

Can My Employer Enforce a Covenant Not to Compete?

Can My Employer Enforce a Covenant Not to Compete?

Many employers require their employees to sign agreements which contain covenants not to compete with the company.  The enforceability of these restrictive provisions varies from state-to-state and depends on a variety of factors. A former employee who violates an enforceable non-compete agreement may be ordered to cease competitive activity and pay damages to the former employer.  In other covenants, the restrictions may be deemed too restrictive and an undue restraint of trade.

A covenant not to compete is a promise by an employee that he or she will not compete with his or her employer for a specified period of time and/or within a particular geographic location. It may be contained within an employment agreement, or may be a separate contract. Agreements which prevent employees from competing with the employer while employed are enforceable in every jurisdiction. However, agreements which affect an employee’s conduct after employment termination are subject to stricter requirements regarding “reasonableness,” and are generally disallowed in some states, such as California which has enacted statutes against such agreements except in very narrow circumstances.

Even in states where such covenants are enforceable, courts generally disfavor them because they are anti-competitive. Nevertheless, such agreements will be enforced if the former employer can demonstrate the following:
 

  • The employee received consideration at the time the agreement was signed;
  • The agreement protects the employers legitimate business interest; and
  • The agreement is reasonable to protect the employer, but not unduly burdensome to the employee who has a right to make a living.

Consideration

Under the principles of contract law, all agreements must be supported by consideration in order to be enforceable. The employee signing the covenant not to compete must receive something of value in exchange for making the promise. If the agreement is signed prior to employment, the employment itself constitutes consideration. If, however, the agreement is signed after employment commences, the employee must receive something else of value in exchange for the agreement to be enforceable.

Legitimate Business Interest

Legitimate business interests can include protecting and preserving confidential information (trade secrets) and customer relationships. Most states recognize an employer’s right to prevent an employee from taking advantage of information acquired or relationships developed as a result of the employment arrangement, in order to later compete against the employer.

Reasonableness

Based on the circumstances, a covenant must be reasonably necessary. If the covenant is overly broad, or unduly burdensome on the employee, the court may refuse to enforce the agreement. Therefore, the covenant must be reasonable in both duration and scope. If a covenant is overly broad, the court may narrow its scope or duration and enforce it accordingly. But if a covenant is so broad that is clearly was designed to prevent lawful competition, as opposed to protecting legitimate business interests, the court may strike down the agreement in its entirety.

To enforce a covenant not to compete, the employer can file a court action seeking an injunction against the employee’s continued violations of the agreement. The company can also seek monetary damages to cover losses resulting from the employee’s breach.


Tuesday, September 13, 2016

6 Events Which May Require a Change in Your Estate Plan

6 Events Which May Require a Change in Your Estate Plan

Creating a Will is not a one-time event. You should review your will periodically, to ensure it is up to date, and make necessary changes if your personal situation, or that of your executor or beneficiaries, has changed. There are a number of life-changing events that require your Will to be revised, including:

Change in Marital Status: If you have gotten married or divorced, it is imperative that you review and modify your Will. With a new marriage, you must determine which assets you want to pass to your new spouse or step-children, and how that may relate to the beneficiary interest of your own children. Following a divorce it is a good idea to revise your Will, to formally remove the ex-spouse as a beneficiary, and also change your beneficiary on any life insurance policies, pensions, or retirement accounts.

Estate planning is complicated when there are children from multiple marriages, and an attorney can help you ensure everyone is protected, which may include establishing a trust in addition to the revised Will. Depending on jurisdiction, this may also apply to couples who have established or revoked a registered domestic partnership. If one of your Will’s beneficiaries experiences a change in marital status, that may also trigger a need to revise your Will.

Births: Upon the birth of a new child, the parents should amend their Wills immediately, to include the names of the guardians who will care for the child if both parents die. Also, parents or grandparents may wish to modify the distribution of assets provided in their Wills, to include the new addition to the family.

Deaths or Incapacity: If any of the named executors or beneficiaries of a Will, or the named guardians for your children, pass away or become incapacitated, your Will should be revised accordingly.

Change in Assets: Your Will may need to be changed if the value of your assets has significantly increased or decreased, or if you dispose of an asset. You may want to modify the distribution of other assets in your estate, to account for the changed value or disposition of the asset.

Change in Employment: A change in the amount and/or source of income means your Will should be examined to see if any changes must be made to that document. Retirement or changing jobs could entail moving to another state, thus subjecting your estate to the laws of that state when you die. If the change in income modifies your investing, saving or spending habits, it may be time to review your Will and make sure the distribution to your beneficiaries will be as you intended.

Changes in Probate or Tax Laws: Wills should be drafted to maximize tax benefits, and to ensure the decedent’s wishes are carried out. If the laws regarding taxation of the estate, distribution of assets, or provisions for minor children have changed, you should have your Will reviewed by an estate planning attorney to ensure your family is fully protected and your wishes will be fully carried out.


Tuesday, August 16, 2016

If you're 70 and have considerable assets, should you consider Medicaid Planning?

There are many factors to consider when deciding whether or not to implement Medicaid planning.  If you’re in good health, now would be the prime time to do this planning. The main reason is that any Medicaid planning may entail using an irrevocable trust, or perhaps gifts to your children, which would incur a five-year look back for Medicaid qualification purposes. The use of an irrevocable trust to receive these gifts would provide more protection and in some cases more control for you.

As an example, if you were to gift assets directly to a child, that child could be sued or could go through a divorce, and those assets could be lost to a creditor or a divorcing spouse even though the child had intended to hold those assets intact in case they needed to be returned to you. If instead, you had used an irrevocable trust to receive the gifted assets, those assets would not have been considered the child’s and therefore would not have been lost to the child’s creditor or a divorcing spouse. You need to understand that doing this type of planning, and using the irrevocable trust, may mean that those assets are not available to you and therefore you need to be comfortable with that structure.

Depending upon the size of your estate, and your sources of income, perhaps you have sufficient assets to pay for your own care for quite some time. You should work closely with an attorney knowledgeable about Medicaid planning as well as a financial planner that can help identify your sources of income should you need long-term care. Also, you should look into whether or not you could qualify for long-term care insurance, and how much the premiums would be on that type of insurance.


Tuesday, July 19, 2016

Do You Need Meeting Minutes?

Do You Need Meeting Minutes?

Regardless of the size of the business, corporations (including those organized under Subchapter S) must observe all of the required formalities in order to maximize the benefits of a corporation. Corporate meeting minutes document the decisions made by the company’s board of directors, and are necessary to preserve the “corporate veil” in the event of a lawsuit or other claim against the company. If corporate formalities are not observed, your own personal assets may be at risk.

One such formality is the maintenance of a corporate record book containing minutes of meetings conducted in accordance with the company’s bylaws. Even in a one-person corporation, board resolutions must be drafted, signed and kept in the corporate records. Every major decision that affects the life of the business must be ratified by a board resolution contained in the corporate records.

There is no specific required format for meeting minutes, but the document should include any important decision made regarding the company, its policies and operations. Minutes should include, at a minimum:

  • Date, time and location of the meeting
  • Names of all officers, directors and others in attendance
  • Brief description of issues discussed and actions taken
  • Record of how each person voted, whether the vote was unanimous and whether anyone abstained from voting
  • Vote and approval of the prior meeting’s minutes

How do you know whether a decision needs to be documented in the meeting minutes? Generally, if a transaction is within the scope of the company’s ordinary course of business, it need not be addressed in the minutes. On the other hand, major decisions should be documented in the minutes, such as:

  • Significant contracts
  • Leases
  • Loans
  • Marketing campaigns
  • Reorganizations and mergers
  • Employee benefit plans
  • Elections of directors or officers

Non-incorporated entities such as limited liability companies are generally exempt from performing such formalities.
 


Tuesday, July 5, 2016

What is an Estate Tax? Is it the Same as an Inheritance Tax?

While the terms "estate tax" and "inheritance tax" are often used interchangeably, they are not synonymous. Let's try to clarify the difference.

Estate Tax

Estate tax is based on the net value of the deceased owner's property.  An estate tax is applied to these assets when they are transferred to the beneficiary. It is important to remember that an estate tax doesn't have anything to do with the beneficiary or that person's resources.

Federal estate tax only affects individuals who die with more than $5.45[s1]  million in assets and individuals with such large estates can leave that amount to their beneficiaries without being subjected to a  tax liability. Ninety-nine percent of the population will not owe federal estate tax upon their death.

In most circumstances, no federal estate tax is levied against spouses. As of the Supreme Court's recent ruling, this includes gay married couples as well as heterosexual couples. Federal estate taxes can, however, be charged if the spouse who is the beneficiary is not a citizen of the U.S. In such cases, though, a personal estate tax exemption can be used.  Even where remaining spouses have no liability for federal estate tax, they may be charged with state taxes in some states, taxes which cannot be avoided unless the couple relocates.

Inheritance Tax

Inheritance tax, as distinguished from estate tax, is imposed by state governments and the tax rate depends on the person receiving the property, and, in some locations, on how much that person receives. Inheritance tax can also vary depending upon the relationship between the testator and the benefactor. In Pennsylvania, for example, a spouse is not taxed at all; a lineal descendant (the child of the deceased) is taxed at 4.5 percent; a sibling is taxed at 12 percent, and anyone else must pay 15 percent.

Exemptions

There are exemptions that can reduce the amount of inheritance tax owed by significant amounts, but it is important that there be proper documentation of such exemptions for them to be applicable. Any part of the inheritance that is donated to charity does not require inheritance tax payment on the part of the beneficiary. Because of the inherent complexities of tax law and the variations from state to state, working with a tax attorney who has expertise with state tax laws s the best way to make sure you take advantage of any possible tax exemptions or avoidance.

 

Tuesday, June 21, 2016

Issues to Consider When Gifting to Grandchildren

Issues to Consider When Gifting to Grandchildren

Many grandparents who are financially stable love the idea of making gifts to their grandchildren. However, they are usually not aware of the many issues related to what many consider to be a simple gift. If you are considering making a significant gift to a grandchild, you should consult with a qualified attorney to guide you through the legal and tax issues that are involved.

Making a Lifetime Gift or a Bequest:  Before making a gift, you should consider whether you want to make the gift during your lifetime or leave the gift in your will. If you make the gift as a bequest in your will, you will not experience the joy of seeing your grandchild’s appreciation and use of the gift. However, there’s always the possibility that you will need the money to live on during your lifetime, and in reality, once a gift is made it cannot be taken back. Also, if you anticipate needing Medicaid or other government programs to pay for a nursing home or other benefits at some point in your life, any gifts you make in the prior five years can be considered as part of your assets when determining your eligibility.

What Form Gift Should Take:  You may consider making a gift outright to a grandchild. However, once such a gift is made, you give up control over how the funds can be used. If your grandchild decides to purchase a brand-new sports car or take an extravagant vacation, you will have no legal right to stop the grandchild. The grandchild’s parents could also in some cases access the money without your approval.

You could consider making a gift under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA), depending on which state you live in. The accounts are easy to open, but once the grandchild reaches the age of majority, he or she will have unfettered access to the funds. You could also consider depositing money into a 529 plan, which is specifically designed for education purposes. Finally, you could consider establishing a trust with an estate planning attorney, which can be more expensive to set up, but can be customized to fit your needs. Such a trust can provide for spendthrift, divorce and creditor protection while allowing for more flexibility for expenditures such as education or purchase of a first home.

Tax Consequences: If you have a large estate, giving gifts to grandchildren may be a great way to get money out of your estate in order to reduce your future estate tax liability. In 2016, a single person can pass $5.45 million at death free of estate tax, and a couple can pass a combined $10 million without paying estate taxes. In addition, a person can give $14,000 in 2016 to any number of individuals without incurring any gift taxes. A grandparent with 10 grandchildren could give $140,000 per year to all grandchildren (and a married couple could give $280,000), thereby removing that property from his or her estate.


Wednesday, June 15, 2016

Lancaster Scheduled to Speak at CLE: Business Law Bootcamp


Program Description

Learn Current Procedures and Best Practices

In order to successfully advise your business clients, it's essential that you remain up to date on best practices and the latest developments. At this fast-paced program you will learn practical tips and techniques from experienced practitioners on a variety of matters ranging from contracts to taxes; and at the end of the day you will return to your desk with a handy resource and the know-how to effectively represent any business client. Don't miss this opportunity to hone your skills. Register today!

  • Learn the latest procedures and best practices regarding business law so you can confidently represent your clients.
  • Secure your clients' business interests: utilize practical tips for drafting LLCs.
    Read more . . .


Thursday, March 31, 2016

Planning Pitfall: Probate vs. Non-Probate Property

Planning Pitfall: Probate vs. Non-Probate Property

Transfer of property at death can be rather complex.  Many are under the impression that instructions provided in a valid will are sufficient to transfer their assets to the individuals named in the will.   However, there are a myriad of rules that affect how different types of assets transfer to heirs and beneficiaries, often in direct contradiction of what may be clearly stated in one’s will.

The legal process of administering property owned by someone who has passed away with a will is called probate.  Prior to his passing, a deceased person, or decedent, usually names an executor to oversee the process by which his wishes, outlined in his Will, are to be carried out. Probate property, generally consists of everything in a decedent’s estate that was directly in his name. For example, a house, vehicle, monies, stocks or any other asset in the decedent’s name is probate property. Any real or personal property that was in the decedent’s name can be defined as probate property.  

The difference between non-probate property and probate centers around whose name is listed as owner. Non-probate property consists of property that lists both the decedent and another as the joint owner (with right of survivorship) or where someone else has already been designated as a beneficiary, such as life insurance or a retirement account.  In these cases, the joint owners and designated beneficiaries supersede conflicting instructions in one’s will. Other examples of non-probate property include property owned by trusts, which also have beneficiaries designated. At the decedent’s passing, the non-probate items pass automatically to whoever is the joint owner or designated beneficiary.

Why do you need to know the difference? Simply put, the categories of probate and non-probate property will have a serious effect on how plan your estate.  If you own property jointly with right of survivorship with another individual, that individual will inherit your share, regardless of what it states in your will.  Estate and probate law can be different from state-to-state, so it’s best to have an attorney handle your estate plan and property ownership records to ensure that your assets go to the intended beneficiaries.


Wednesday, March 16, 2016

Lancaster Scheduled to Speak at CLE: The Probate Process from Start to Finish

Program Description

Your Fundamental Guide to Probate

So your client wants you to handle a probate case - do you know where to start? Do you know the proper procedures to use, as well as the law? At this seminar, our experienced faculty will give you detailed, step-by-step information to confidently and ably navigate the system. Gain the confidence you need to reach a favorable outcome for your client when litigating in probate court. Enroll today!

  • Get a step-by-step walkthrough of a probate case complete with practice tips from seasoned practitioners.
  • Implement a complete estate timetable in order to know what needs to be done - and when.
  • Effectively guide the executor and the administrator through their various duties.
  • Avoid problems arising from creditors' claims and insolvency with our powerful strategies.
  • Know the secrets to confidently handling a spouse's elective share.
  • Forestall disagreements between beneficiaries: adhere to the guidelines of precedence in case of intestacy.
  • Get results for your client! Explore successful strategies for litigating in probate court.
  • Follow thorough closing procedures so accounting is complete before distribution takes place.

Who Should Attend

This basic level seminar will provide those who have limited probate experience with tips on successfully handling a probate case. This comprehensive seminar will benefit:

  • Attorneys
  • Paralegals
  • Accountants
  • Trust officers
  • Financial planners
  • Estate planners

 For information about registration go the following website:

http://www.nbi-sems.com/Details.aspx/R-72262ER%7C?ctname=SPKEM

 


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Lancaster Law Firm, PLLC assists clients throughout North Mississippi including Aberdeen, Amory, Batesville, Booneville, Columbus, Corinth, Fulton, Hernando, Holly Springs, Houston, Iuka, New Albany, Olive Branch, Oxford, Pontotoc, Ripley, Saltillo, Southaven, Starkville, Tupelo and West Point.



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336 N. Green Street, Tupelo, MS 38802
| Phone: 662.823.2679
710 Main Street, Second Floor, Columbus, MS 39701
| Phone: 662.823.2679

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