In this presentation called "The Care and Feeding of Your LLC," e4e partners Brian Rogers and Andy Magnus explain how creating a limited liability company (LLC) helps protect your business and personal assets. They discuss how a business owner transfers their current business into an LLC, common mistakes made when operating an LLC and some of the legal formalities that need to be considered.
Legal expert and attorney Brian Rogers raises awareness about how easy it is to unwittingly commit to agreements of many types with partners, employers and clients without your awareness. As you navigate through the process of crafting, conversing about, fine-tuning and committing to an agreement, make sure you have considered all necessary provisions to protect yourself from binding an agreement before you are ready and willing. Even when you have made such provisions, including those stipulating that contracts can only be modified in writing, sometimes the most casual, informal type of written communication can be legal and binding despite their unconventionality.
All business owners’ deal with risks of legal action from employees, customers, and other third parties, but by planning ahead for those risks with the right legal tools, you can keep your family’s personal assets safe from those business risks. If it is important to keep claims against your business separate from claims against your personal assets such as your home, vehicles and life savings, then implementing asset protection strategies combining limited liability entities such as corporations and LLCs with asset protection trusts is a must.
Don't Let This Happen To You
Would you be prepared for such an event? Years ago, our firm had a client who operated a bicycle repair shop. One of his employees failed to repair a bicycle properly. A screw in the bike came loose while being used by their customer. It caused that person to flip over their handlebars and hit their head on some pavement. Brain injuries left them with a lot of medical bills and a host of issues for the rest of their life.
The customer took legal action, holding the bike shop responsible. Even though his employee was the one at fault, the business owner was the one on the hook for the damages. Suddenly everything was on the table for the owner of that repair shop. His home, his car and his hard-earned life savings were all at risk.
Protect Yourself From These Four Liabilities
As a business owner you know you have to deal with risk. A number of scenarios can put your assets in grave danger. Claims can come from at least four different areas;
Planning ahead is the solution, and having insurance to satisfy a portion of these liabilities is only the start. Setting up the right legal vehiclesbefore claims arise limits the business claims to business assets. Your hard-earned personal assets are protected from liability.
Enhancing Your LLC is Mission Critical
Limited liability entities come in several different forms. The most common are corporations and limited liability companies (LLCs).Combining a trust with a limited liability entity offers better overall asset protection. Corporations and LLCs accomplish asset protection because they limit a creditor’s claims to only the assets of the corporation/company. However, this protection is only available if the corporation/company actually operates as a separate entity, and if appropriate insurance levels are maintained. If a creditor is able to show the entity is merely an alter-ego of its owners, and if there isn’t enough insurance in place to satisfy the creditor, the creditor may be able to “pierce the corporate veil” and reach beyond the corporation’s assets to the assets of the owners. This is why using additional asset protection tools, such as trusts, is vitally important.
Not All Trusts Are Created Equal
In many states, revocable trusts provide very limited asset protection and generally the limited assets protection offered is limited to a married couple while both the husband and wife are alive. Irrevocable trusts, however offer much stronger asset protection. Here's the rule of thumb; whatever you don’t want your creditors to have access to, you yourself also can’t have direct access to or direct control of. Depending on the type of asset (real estate and other non-liquid assets versus stocks, bonds and other liquid assets), different irrevocable trusts may be used for the best mixture of asset protection and control.
Plan Your Asset Protection Strategy Now
Planning ahead for protection from creditors, predators, lawsuits and bankruptcy is critically important for business owners. These strategies require planning before your issues arise as state laws allow creditors to satisfy claims from assets transferred to an asset protection vehicle while known claims are pending. If protection from creditors, predators, lawsuits and bankruptcy is important to you, consider combining trusts with limited liability entities now before it is too late.
Brian G. Quinn is an Attorney with the law firm of Quinn & Banton, L.L.P. in St. Louis, Missouri. If you are interested in learning more about protecting your business using legal strategies, please feel free to contact Brian at 636-394-7242 to schedule a consultation.
When a long-term care issue affects a loved one, that long-term care issue affects every member of the family. Unfortunately for a business owner, this means his or her employees are affected when one of their family members has a long-term care issue too. Recent studies have shown that any given individual has a 50% likelihood of being affected by long-term care in their lifetime, and 75% will be affected by a loved one’s long-term care issues.
An informal poll of our firm’s clients reflects the average costs for skilled nursing care in St. Louis, Missouri is $7,000.00 per month, or $84,000.00 per year. It is much higher than that in other areas of the country.
Given these costs, it’s no wonder an employee would devote more time to finding a solution to these issues than the job they have been hired to do. In fact, if they are also the ones providing care to their aging loved one, this is like your employee having another full time job. The ensuing decline in productivity costs a business owner money. According to the U.S. Bureau of Labor Statistics:
Unfortunately, this problem isn’t going away. It’s estimated that by 2020, one in three U.S. households will be involved in caring for elderly or disabled relatives, up from one in four today.
With the likelihood of a long-term care issue affecting a business owners employees, and the devastating costs associated with them, it makes sense to provide some solutions to employees in advance, but what can be done?
What is Long Term Care?
When someone has a long-term care issue it means they have issues with at least two activities of daily living or a cognitive impairment (such as dementia or Alzheimer’s). The activities of daily living are bathing, eating, dressing, toileting, continence, and transferring (getting in and out of bed or a chair). The care is considered “long-term” when the need for these activities is expected to continue for at least 90 days.
What Can a Business Owner Do?
Providing long-term care insurance to the business owner, executives and key employees is one piece of the puzzle. In many businesses, especially small to medium size businesses, if long-term care were to prevent a business owner or key employee from being able to work, the business would go under quickly. Providing long-term care insurance to a select group of employees is a great way to hedge your exposure to the risks of long-term care directly affecting your business, plus there are tax incentives associated with providing this insurance.
Premium payments made by an individual are included as a personal medical expense if you itemize on your taxes. Medical expenses exceeding 10% of your adjusted gross income (AGI) are deductible. However, self-employed individuals (including those in sole proprietorships, partnerships, LLCs, and S-Corporations) can write off 100% of the individual limit regardless of the 10% AGI limit, as a reasonable and necessary business expense.
This treatment is similar to traditional health insurance premiums. Likewise, for C-corporations, premium payments are also fully deductible as a reasonable and necessary business expense. This can apply to owners, their spouses, their dependents, and all employees. Tax treatment for benefits received from the policy for employees is very favorable as well. Employer-paid long-term care insurance is excluded from an employee’s gross income and the benefits received are tax free.
But what about the indirect consequences of an employee’s loved one needing long term care that a business owner can’t insure against? Start by providing education to your employees about the risks of long-term care and give them resources to seek out for professional guidance. Long-term care solutions are one of the most misunderstood set of legal and financial rules that exist, and without proper education, it can take years to figure out how to plan appropriately. Inviting a local elder law attorney or a qualified financial professional to speak to employees about these issues can avoid hours of lost productivity.
Long-term care issues are something that can be planned for in advance. A business owner should encourage his or her employees to seek guidance from a legal professional to pre-plan for any issues that may arise with their loved ones. Like most legal and financial issues, advance planning leads to the best (and least stressful) solution when those issues arise.
Brian G. Quinn is an Attorney with the law firm of Quinn & Banton, L.L.P. in St. Louis, Missouri. If you are interested in learning more about protecting yourself, your family, or your business using legal strategies, please contact Brian at 636-394-7242 to schedule a consultation.
On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 into law, addressing lingering concerns about the expiring Bush era tax rates, estate and gift tax rates, and many other tax related concerns. This bill impacts nearly every American citizen in some aspect of his or her life. Here is a summary of what it means for you and your estate.
What It Means for Income Earners
Current tax rates continue for individuals earning less than $400,000 and couples earning less than $450,000. For those individuals making more than $400,000, and families earning more than $450,000, federal income tax rates will rise to 39.6%, up from 35% in 2012. Taxes on capital gains and dividends will increase to 20%, up from 15% in 2012. Married couples earning more than $300,000 and individuals earning at least $250,000 will face a phase-out of the personal exemption. Payroll taxes will also rise in 2013 to 6.2%, up from 4.2% in 2012.
What It Means for Your Estate
For those interested in transmitting their wealth to beneficiaries, both after their death or by a gift during their lifetime, some rules remain the same and some rules change in 2013. The estate tax exemption will remain at $5.12 million per person, and will be indexed for inflation in the future. However, for those individuals who pass away with more than $5.12 million (or couples passing away with more than $10.24 million in their estate subject to tax) the top estate tax rate will increase to 40%, up from 35% in 2012. Portability of a spouse’s exemption is also extended, meaning that if one spouse passes away without using their full estate tax exemption, the second spouse to die gets to use other spouse’s unused exemption, potentially transferring more wealth tax free with the right estate planning.
As for the taxes on gifts to others, the lifetime gift tax exemption will remain at $5 million. However, the annual per donee exclusion (how much you can gift to one person during the year without the lifetime gift tax exemption being affected) rises to $14,000 per donee.
What It Means for Older and Disabled Americans
The bill establishes the Commission on Long-Term Care, which will “develop a plan for the establishment, implementation, and financing of a comprehensive, coordinated, and high-quality system that ensures the availability of long-term services and supports.” The commission will investigate the interaction between Medicare, Medicaid, and private long-term care insurance. The commission will try to make recommendation to address the growing long-term care problems facing our country and the budget problems from government spending on long-term care. The bill also extends Medicare programs for older Americans and specialized Medicare Advantage plans for those with special needs.
Other Provisions
Automatic spending cuts slated to take effect immediately were delayed by two months until March 1, 2013, with the current spending levels to be paid equally by tax increases and later spending cuts. What happens on March 1, 2013 will be an ongoing issue in January and February of 2013.
Medicare physicians are happy with the “doc fix” portion of the bill because it prevents the scheduled 27% reimbursement cuts to Medicare physicians.
The deduction of state and local general sales taxes, the above-the-line deduction for qualified tuition, the research credit, and the credit for energy-efficient appliances are all extended. Federal unemployment benefits and some other related services are extended for a year. Also included was a one-year extension of many agricultural programs.
Remaining Challenges
While this bill contains fixes for many lingering issues, it does not contain a solution for the debt ceiling debate. The United States reached its borrowing limit at the end of 2012, and the debt issuance suspension period will last through February 28, 2013, meaning that Congress will again be faced with the challenge of raising the debt ceiling.
Perhaps the most important concerns to watch, for those with estate planning concerns, are the deficit reduction discussions that will remain an issue through 2013. These discussions could impact retirement accounts, charitable giving arrangements, and certain types of trusts. Additionally, Medicare and Medicaid programs, as well as VA benefits for disabled and elderly veterans, could be affected.
If these changes or any others come about which affect you or your estate, please consult your professionals as soon as possible.
About the Author
Brian G. Quinn is an Attorney with the law firm of Quinn & Banton, L.L.P. in St. Louis, Missouri. If you are interested in learning more about protecting yourself, your family, or your business using legal strategies, please contact Brian at 636-394-7242 to schedule a consultation.
