Posts in Las Vegas Attorney
Estate Planning

Are you a business owner and considering creating an Estate Plan?

If you want to prevent your business or businesses from being wrapped up in litigation, handicapped with tax liabilities or even run by people who have little understanding of what your goals are for the business then you should consider this when creating an estate plan.

You should plan for incapacity and avoid guardianship. Who would you want to run your business if you become unable to manage the day to day affairs? He or She should be designated through a power of attorney or revocable trust. If you do not designate someone in advance upon your incapacity you leave the decision-making power of your business to who the guardianship court appoints. Some very important business decisions may also require advance court approval. Planning to avoid guardianship can help ensure that the business will continue to be effectively managed if you are unable to do so.

One key component to creating an estate plan and considering your closely held business is to avoid probate. Any property in your name is generally subject to probate following your death. Assets which may be included in probate including their fair market values become public record. Being stuck in probate is long drawn out process which may take longer than a year or more before your business can be transferred to your loved ones.

What about your estate tax liability? Currently the law states that anyone with over 11.18 million will be subject to estate tax within nine months of death.  Several closely held businesses exceed that value, often triggering a substantial tax liability. Without advance planning your estate may need to borrow or sell assets to raise the funds.

Planning to minimize estate tax can involve many complex measures, including life insurance, buy-sell agreements, and sales or gifts to trusts. An attorney with experience should be involved when making these decisions.

What about my personal income tax? Death is difficult to go through, however, it also can bring income tax benefits. Planning may eliminate income tax benefits. Many high net worth individuals make gifts of business interests to the next generation in order to remove appreciating assets from the donor’s estate. The estate tax savings is generally expected to outweigh the loss of income tax savings.

To avoid the painstaking process of probate you should have an attorney create a revocable trust and transfer the title of your business to that trust. Therefore, your assets are now in a trust and are not public record and do not require the probate court to become involved.

Protect Your Business

Protect Your Closely Held Business

Lately, more and more clients ask what they can do to protect their closely held businesses. Most understand that corporations and limited liability companies (LLCs) may shield them from personal liability for the debts and other obligations of the business; however, they seem to be unclear as to how the law works in the opposition direction. How can an owner protect their small business from claims for their own personal liabilities?

Owners should start the legal planning for their businesses and asset transfers before they even form a company. Nevada law limits a person’s ability to transfer assets to businesses they own in an effort to avoid their personal creditor’s claims.1 A creditor may disgorge assets from a person’s business if the person transferred those assets “[w]ith actual intent to hinder, delay or defraud [the] creditor” or “[w]ithout receiving a reasonably equivalent value in exchange for the transfer.” 2 Creditors routinely file lawsuits against businesses that receive such transfers, although, as discussed below, certain types of trusts may impede creditors’ efforts.

Business owners must not operate their businesses as their own “alter egos.” An owner’s personal creditor may reach the business’s assets when an alter-ego situation, such as the following, exists: “(1) commingling of funds; (2) under capitalization; (3) unauthorized diversion of funds; (4) treatment of [business] assets as the individual’s own; and (5) failure to observe corporate formalities.” 3

In Nevada, barring fraudulent transfer or alter ego, a small business owner’s creditor generally may not touch the assets of the owner’s business, if it is an LLC or corporation. With respect to LLCs, the creditor is usually limited to a charging order—obtained after a judgment—which only allows for collection on distributions actually made.4 “A judgment creditor . . . is only entitled to the judgment debtor’s share of the profit and distributions, takes no interest in the LLC’s assets, and is not entitled to participate in the management or administration of the business.” 5 The result is the same for most small corporations; the creditor may generally only execute on the owner’s stock (ownership interest) if the corporation is publicly traded or has 100 or more shareholders.6 Although LLC and corporate assets are similarly protected, LLCs are often preferred for small businesses because corporations require various formalities, such as annual meetings, and the annual fees for Nevada corporate business licenses have recently increased to be $300 more than for other entities.

Nevada residents (and even non-residents) may also protect their businesses by transferring ownership to a Nevada Asset Protection Trust (NAPT).7 NAPTs allow a trust’s creator to be the beneficiary.8 The creator may manage and invest the NAPT’s assets, including business entities transferred to the NAPT, so long as a Nevada resident trustee has the unfettered discretion to approve trust distributions to the creator (as a beneficiary).9 An NAPT may also cut short the time that a creditor has to bring an action for alleged fraudulent transfers, and such a trust may prevent the creator’s creditor from obtaining any trust distributions.10 Assets transferred to the NAPT should be located in Nevada. Nevada law protects NAPT property and assets located in Nevada, including real estate, from judgment collection.11 These protections do not extend to any property or businesses located in another state.

While it has become easier to form a business without the assistance of an attorney, taking advantage of the laws protecting a business (from formation on) have never been more complex. Business owners should always consult an attorney to take full advantage of these laws.

By R. Duane Frizell, partner and Jonathan C. Callister, partner, Callister & Frizell

 

Balancing the Future

The future for our young people today is more important than ever.  When I think of the state of Social Security, the high expense of student loans, the limitations of employment and the lack of retirement our children might unfortunately see.  I ask the question, how are my children going to have any golden years? The only golden years they may see will be as children.  Our loved ones should be able to be on their own and establish their own way in life.  As parents we want for them to be self sufficient, not to pave their way, but to show them what we learned along the way as well as the ethics many of our parents taught us.  Essentially, we should teach, but to not coddle.

Thoughts of this keep me up at night for my own children.  As an Estate Planning attorney I listen to these same concerns with my clients.  This unforeseen future for our children, is it going to be harder for them than it was for me?  What if I was given more opportunity because my parents setup a trust for me. How would it have changed my life?  Would I have struggled the way I needed to struggle to find my way, or would it have changed who I became in a more  positive way and allowed me to better provide for my children.

These are the thoughts that come to mind when we as parents try to create some balance for our children's future. When we are thinking in these terms it maybe a good time to start planning ahead. We may not be in a position at this time, but realize the need for a plan.  We maybe at a point in our lives that this maybe at the top of a long list of goals we need to accomplish.  No matter what the situation entails estate planning needs to be contemplated. 

For many of us our loved ones may not have the ability to fend for themselves, they maybe compromised in some form.  Who will look out for them when I am gone?  How will my partner be financially?  What if my child already feels some form of entitlement and he or she needs to learn more in this life than to just expect or take.  How do I setup a plan for my kids educational needs?  What about my grandchildren who I love so dearly?  Where do I start in creating a plan for the future that bares these different needs and goals in mind?  

Many of my clients are genuinely surprised of the cost of creating an estate plan many believed the cost would be much greater.  When balancing the cost of creating a comprehensive estate plan there are many questions one needs to ask. How do I avoid the mess of creditors and protecting my beneficiaries?  I have read Probate is a nightmare and how do I avoid it?  How do I reduce my estate taxes?

 When considering these questions and the cost of hiring an attorney to create an estate plan, you will find it is much smaller of an expense than even just the estate tax liability if one is not created. 

There is a lot of valuable information available on the internet, one should always start with researching the elements of Estate Planning, Where do I start?  Do I need just a will, or do I also need a trust, or a combination of both?  What type of trusts do I set up to better protect my hard earned assets.

With many of these questions in mind, talking with an attorney, for many as a free consultation, can help with your questions or concerns.  An attorney can navigate you through your options, and you will have a better idea of what to expect, allowing you the piece of mind of what you need to do for the future of your family and loved ones.  

The clients or prospective clients I visit with always leave with a better sense of their situation and we develop the plan that best fits their needs, not just today, but for the future.

Balancing your finances today, your beneficiaries needs and an improving economy, It might be a good decision to create an Estate Plan to better protect your assets and have a more influential future for your loved ones.