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San Diego Business Lawyers and Contracts Attorneys providing a first class “one stop shop” for all your business, contract, will, tax, estate planning, and intellectual property legal needs.  Contact Kehr Law today: (619) 400-4942.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

Starting a new business can be a  daunting task.  There are many important decisions and regulations in place that must be considered when forming your new business.  Some common questions are: Where should I form my business? Should I be an LLC or a S-Corp? How do I file with the Secretary of State? How do I maintain my compliance with the Secretary of State?

Please contact Kehr Law today and we will be happy to assist you in your business formation. While there is no single source for all filing requirements, the following tips will be able to assist you in starting your business.

Tip 1

It is essential to start with a business plan.  A business plan is a blueprint of every aspect of your business.  Sales, Advertising, Promotion and Location are just some of the categories to consider when creating a plan.  A helpful tool is to go to the U.S. Small Business Administration website to find a tutorial on how to create a business plan.

Tip 2

Decide the location of your business. You may  contact the California Business Investment Services (CalBIS) unit of the Governor’s Office of Economic Development if you would like help deciding on a location for your California business.

Tip 3

Choose a business structure. Select a business entity type.  Private legal and tax advisors should be consulted before making a determination as to the type of business entity to form. Kehr Law can assist you in making this selection. Please call for a consultation today!

• Corporation
• Limited Liability Company
• Limited Partnership
• General Partnership
• Limited Liability Partnership
• Sole Proprietorship

Tip 4

Your next step will be to file your tax and employer identification documents.  Private legal and tax advisors should be consulted before making a determination as to the tax of your business.

Tip 5

Most businesses require licenses or permits in order to operate. The resources below may determine if your business requires any licenses or permits.

• CalGOLD (California Government: On-Line to Desktops)
• Department of Consumer Affairs

We hope these tips will provide you with some insight and reference for the business formation process.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

See other Kehr Law practice areas including: Business Law, Estate Planning, Real Estate, Wills, Trusts, Corporations, Contracts, and Asset Protection.

http://www.kehrlaw.com

http://www.yoursandiegobusinessattorney.com

http://www.yoursandiegobusinessattorneys.com

http://www.yoursandiegobusinesslawyer.com

http://www.yoursandiegobusinesslawyers.com

San Diego Business Lawyers and Contracts Attorneys providing a first class “one stop shop” for all your business, contract, will, tax, estate planning, and intellectual property legal needs. Contact Kehr Law today: (619) 400-4942.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

What is Business Succession Planning?

If you own a business of your own in San Diego, whether it is a partnership, a corporation, a limited liability company, or any other form of business entities, these next few questions are going to be of interest to you, your business, your financial planners, your family, and your legacy. Business Succession Planning refers to your plans laid out on paper, with the participation of your lawyer and financial planner, which documents how your business will continue to operate and thrive long after your death. This may be of interest to many people currently surrounding your life whether it be your life partner, your spouse, your children, your heirs, your business partners,  your office manager, your life insurance agent, your banker, your clients, your long term business affiliates, and a handful of other persons.

Business planning or succession planning intends to carry out your wishes and desires including mandatory provisions and requirements based on the number of contracts and agreements you sign during your lifetime. This includes buy-sell agreements, partnership agreement, shareholder agreements, and other corporate documents an average business requires.

When Do I Need To Start Business Succession Planning?

It’s never too early to start business succession planning as a business owner of a San Diego business of any size. Planning will ensure orderly business transitions in your business’ operations are carried out. It also ensures managerial plans, financial plans, general business plans, tax plans, and even business growth plans long after your passing.

Review the next set of questions. If you have ever asked yourself any of these questions, contact Kehr Law  at (619) 400-4942 to begin your Business Succession Planning. If you have an answer to any of these questions, contact Kehr Law at (619) 400-4942 now to begin your Business Succession Planning. Your business will appreciate it, but most of all your family members will appreciate such planning now and in the future.

Do I Need Business Succession Planning?

1. What is business succession planning?
   Business succession planning refers to the practice of using estate planning strategies to increase the chances for the survival of your family business when you retire or die unexpectedly.
2. How do I know if I need business succession planning?
   The following questions will help you decide if you need business succession planning?
3. If you die unexpectedly, can your family continue to run your business?
   If your family cannot run your business, who can?
4. If you die unexpectedly, will your family have sufficient liquid resources to hire someone to replace you?
   If your family cannot run your business without you, you should consider their liquidity needs. If there is no money to hire someone to run the business, perhaps life insurance is needed.
5. If you die unexpectedly, and have partners, will they pay your family a fair price for your business?
   When you are gone, you need a mechanism to ensure that your family is treated fairly by your partners.
6. How do you protect your family in the event of your early death?
   The most effective form of protection for your family, or you, if you survive to retirement, is a well prepared buy sell agreement.
7. How do you know if your buy sell agreement is well prepared?
   Does your buy sell agreement provide which events trigger the requirement that the remaining owners purchase the interest of the departing shareholder. These should include at least:
   1. 1. Death
      2. Disability
      3. Incapacity
      4. Bankruptcy
      5. Loss of a professional license
      6. Failure to properly carry out the owner’s expected duties
      7. Retirement
8. Does is your buy sell agreement require the remaining owners to purchase the departing owner’s interest when a “triggering” event occurs?
   There are two fundamental types of buy sell agreements, voluntary agreements and mandatory agreements. A voluntary agreement means that at your death or retirement, your partners will negotiate the purchase of your interest from your estate or you. A mandatory agreement mandates that the remaining owners purchase your interest. The problem with a voluntary agreement, is that it is merely an agreement to agree and does not adequately protect you or your family.
9. Is your buy sell agreement adequately funded?
   Every buy sell agreement should have provisions for the payment of the price of the departing owner’s interest by the remaining owners. The typical methods are:
   1. 1. Installment sale based on the current earnings of the business
      2. A sinking fund whereby a certain amount of funds from the business are invested to provide for a future purchase
      3. Cash from borrowings at the date of purchase
      4. Life insurance

   By far the safest method is the use of life insurance. The rest depend upon the financial solvency of the business or the other owners at the time that a purchase is mandated.

10. How is the price of the departing owner’s interest determined?
    Perhaps the most sensitive, and equally as important as the funding method, is the method to determine the price of the departing owner’s interest. The most frequently used methods are:<
    1. 1. By appraisal
       2. Book value
       3. A multiple of annual earnings
       4. Replacement cost of hard assets
       5. As agreed upon annually

    Book value, multiple or earnings, whatever “earnings” means, and replacement cost of hard assets are susceptible to manipulation, when you may no longer be around to protect your family, and are therefore risky. Appraisal and as agreed upon annually will generally aid in reducing the potential for conflict when a purchase is mandated.

11. Will you have enough income when you retire?
    As every financial professional will tell you, it is never to early to begin accumulating wealth for retirement. In family businesses, this is especially crucial because younger family members taking over the reins will resent the senior generation if they take and unreasonable amount of money from the business because they didn’t plan ahead.
12. Do you have a management succession plan in place?
    Family business owners are notorious for neglecting to have a management succession plan in place. By management succession plan is meant a realistic determination of who in the family is capable, if anyone is, of taking over the business when the senior generatio n retires.
13. Does your succession plan accommodate siblings with different skill levels or interest in the business.
    For a succession plan to be successful, it is necessary for the senior generation to take into account the differing skill levels, or interest in the business, of siblings. If there is a daughter who is clearly the one to take over, that does not mean the son who is interested in the business is ignored. Planning must be in place to avoid family conflict that could destroy the business.
14. Have you considered the impact of estate taxes on your family business?
    As the goal of business succession planning is to transfer the family business to the junior generation in a manner that increases the probability of success, estate taxes are a prime consideration.
15. Do you have an estate planning team familiar with business succession planning?
    Business succession planning is a very complex area, it involves accounting, insurance for liquidity, professional investment advice and the aid of an estate planning attorney.
16. Are you willing to pay the costs of protecting your business for your family?
    As with all things, “you get what you pay for.” It is without a doubt that the current costs of a business succession plan are greater than the costs of not planning. However, the current savings are likely minimal when you consider the costs of not planning. What are the costs of not planning? The costs include:
    1. 1. A loss of the family business to estate taxes
       2. A loss of the family business due to a lack of liquidity to tide the business through the period following an unexpected death
       3. A loss of the family business because there is no formalized arrangement to transfer
          ownership of a decedent’s interest to the decedent’s heirs d. A loss of the family business because no one has been trained to replace the senior generation
       4. A loss of the family business because the retiring owners demand too much from the business to allow the junior generation to earn a reasonable income for their services
       5. A loss of the family business because sibling rivalry was not planned for
17. Have planned how transfer your family business to your heirs?
    Imagine, you awake at 65 years of age and decide that you would like to turn over the reins to your children. Your business is worth in excess of $1,000,000. How do you now transfer it to your children? Transferring a family business is a very time sensitive matter. The earlier one starts, the lower the estate and gift tax risks.
18. Are you willing to make gifts of interests in the family business to your children, or trusts for their benefit, if you can maintain management control?
    Unfortunately, many family business owners do not appreciate the fact that they may begin transferring interests in the business when their children are four years old and still maintain absolute control. Estate planning attorneys have devised strategies that enable a parent to give it away, but control it absolutely. This is one of the circumstances where the question of, are you willing to pay the costs of business succession planning comes into play.
19. Do you know how to give it away, but still maintain control?
    Probably not, but your estate planning attorney does. There are various estate planning strategies that allow you to reduce your ultimate taxable estate yet retain control over family business decisions.
20. How does your estate planning attorney allow you to give it away but maintain control?
    That is a part of business succession planning that involves the choice of entity in which to operate the family business.
21. Do you know what the entity of choice is?
    Actually, there are two that are very similar to one another. They are the family limited partnership and the limited liability company. They are the entities of choice because of their superior asset protection characteristics and their income tax flexibility.
22. Do you know why a family limited partnership or a limited liability company has superior asset protection characteristics than a corporation?
    Assume you own stock in a corporation and are the general partner in a family limited partnership and you are successfully sued and the creditor obtains a judgment. If the creditor so desires, he or she can take your stock. However, all the creditor could do to your partnership interest, is to receive distributions that you would otherwise have received. The creditor may not vote, act as a general partner or even look at the partnership’s records. A somewhat hollow victory when compared to the loss of your stock.
23. How would your estate planning attorney use a partnership or limited liability company to enable you to give it away but maintain control?
    Your estate planning attorney would prepare an agreement, assume a family partnership, and have you transfer your financial and investment real estate into the partnership in return for 2% general partner interests and 98% limited partner interests. You would then begin the process of making gifts of the limited partnership units to your children or trusts for their benefit. But because you retain the 2% general partnership interest, you are in control. You can give it away but maintain control.
24. Do you have an overall estate plan in place?
    All of your estate planning documents must be carefully designed to fit together to create a business succession plan that works. In fact, it is likely that your revocable trust will be the owner of the general and limited partnership interests that you will own. In that manner, you, or your successor trustee in the event of your incapacity, are able to manage the partnership without the necessity of a conservator or guardian.
25. Do you know how your living trust will be designed to carry out your business succession plan?
    Assume your daughter is the one that should run the family business when you are unable to due to an early death or incapacity prior to your retirement. With the general partnership interests owned by your living trust, you daughter can be appointed by the terms of the trust as the successor trustee who is to take over as the general partner. In this method, sibling conflicts are reduced so as to protect the business.
26. Are you willing to give up some control over the business?
    It is very important that children who are to succeed to the management of the business be given increasing management authority in proportion to their skill and experience. It not only provides for trained management replacements, it gives them the knowledge that you have respect for them and confidence in their abilities.
27. Are you and your spouse in agreement as to the ultimate disposition of the family business?
    All too often, the spouse who performs most of the management of the family business fails to take into consideration the wishes of the inactive, or less visible, spouse. This may cause the business succession planning efforts to take longer, be more costly or perhaps even fail. One example is the management spouse schedules a business succession planning meeting with the estate planning attorney and does not invite the less active spouse.
28. Are you willing to face the reality that you will die or retire at some time?
    First generation family business owners are rare and unique breed of entrepreneur. Typically, both spouses have long and hard for the family business. They have sacrificed much to grow the family business so as to leave a legacy to their family. However, when it comes time to begin the planning, there are always too busy. It seems there is no sense of mortality and many plan “to die in the saddle.”
29. Are you willing to pay the costs of business succession planning?
    Business succession planning may entail more professional costs than the typical business owner is used to paying, other than litigation costs. One reason is that there needs to be a team of professionals working to design and implement a plan for you and your family that will be successful. This is not the time to be “penny wise and pound foolish.” A sound business succession plan is an investment that will pay off for you and your heirs for generations to come.
30. Are you willing to deal with a certain amount of complexity in your business succession planning?
    It is without question true, that there are tremendous estate and gift tax savings to be had from a more complex business succession plan than a simple one. However, in the final analysis, you must be comfortable with the business succession strategies that you adopt to protect your family. Otherwise, the plan will fail.
31. Are you willing to accept the advice of professionals?
    Owners of family businesses are the bedrock of the American economic system. They employ most of the employees in the country and are responsible for many innovations. Remember, Microsoft was a family owned business. However, entrepreneurs may also be difficult to counsel. They are typically confident and skilled decision makers. Unfortunately, the skills necessary for successful business successioin planning are likely somethibg the owner is unfamiliar with. It takes a leap of faith to accept the advice of others. It is also necessary to protect the family business.
32. Are you concerned enough to take action?
    The skills of your advisors or the importance to your family of business succession planning are meaningless, unless you take action. The most important aspect of business succession planning is for the owners to become convinced that they need to take positive steps or have their family business disappear due to a lack of planning. Do not let that happen to your family business.

This Article used with permission and copyrighted by WealthCounsel, LLC and written by WealthCounsel Members.

All Business Owners Need Business Succession Planning

If you answered YES to any of these questions above, contact the San Diego business and contracts attorneys at Kehr Law to begin exploring your business succession planning. Unique planning is required for every business of any size and the lawyers at Kehr Law are prepared to assist you develop plans for the future of your business.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

See other Kehr Law practice areas including: Business Law, Estate Planning, Real Estate, Wills, Trusts, Corporations, Contracts, and Asset Protection.

http://www.kehrlaw.com

http://www.yoursandiegobusinessattorney.com

http://www.yoursandiegobusinessattorneys.com

http://www.yoursandiegobusinesslawyer.com

http://www.yoursandiegobusinesslawyers.com

San Diego Business Lawyers and Contracts Attorneys providing a first class “one stop shop” for all your business, contract, will, tax, estate planning, and intellectual property legal needs. Contact Kehr Law today: (619) 400-4942.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

What is a non-traditional family?

For the purposes of planning, a non-traditional family is any family unit that has at its center a partnership other than a legally married, opposite-sex couple. While we can imagine a whole host of family arrangements that may also be considered non-traditional (such as a single parent with children, siblings living together, separated couples who choose not to divorce, etc.), the following non-traditional families face particular challenges due to inconsistent and lacking legal recognition of their family status:
• same-sex or non-traditional gender partners who are prohibited by law from marrying;
• same-sex or non-traditional gender partners who are legally married according to a state’s law;
• opposite-sex partners who choose not to marry for any number of reasons.

How are non-traditional families taxed differently?

The single biggest difference in planning for non-traditional families is the unavailability of the marital deduction as a safety net. Married couples can give money to each other, combine their income and assets, name each other as life insurance and retirement plan beneficiaries, and hold property and bank accounts jointly with rights of survivorship, largely without consequence or concern. Unmarried partners are not allowed this benefit. This means that if one partner contributes more to the household than the other, and an effective plan is not in place, the IRS could look upon the one partner’s greater contribution as a gift to the other, possibly triggering a surprise gift tax bill. Another tax trap that awaits non-traditional families is the generation skipping transfer tax. Unmarried partners who are not close in age are more vulnerable to the GSTT. While married couples are considered to be in the same generation regardless of age, unmarried partners whose ages are more than 12.5 years apart are considered to be one generation removed from each other. If this non-traditional family also includes the younger partner’s children, any gift from the older partner to the child is treated as if it had skipped a generation and is subject to the GSTT. If the partners are more than 37.5 years apart, any gift from either partner to the other is subject to the GSTT, just as if the younger partner were the older partner’s grandchild.

How should non-traditional partners hold property?

Most non-traditional partners come to the table with the assumption

that joint tenancy with right of survivorship is the obvious and best way for them to hold title to their property to ensure efficient transfer of their jointly held property outside of probate. This is not always the best choice. For married couples who hold property as joint tenants with rights of survivorship, one half of the value of the property is included in the estate of the first partner to die.In contrast, for unmarried partners who hold property as Joint Tenants with Rights of Survivorship, the entire value of the property is included in the estate of the first partner to die, unless the surviving partner can prove his or her contribution in acquiring the property (consideration) or that the property was a gift to both partners equally. The burden of proving the origin of the funds that went into the down payment, mortgage payments, and improvements to the house is on the surviving partner and can be very difficult
to establish.
While this difference may sound like a disadvantage, there is an advantage that can sometimes outweigh the cost if the property is highly appreciated and the deceased partner supplied most or all of the consideration. This is because the surviving partner will receive a full step up in basis, resulting in 100% of the appreciation of the property between the time it was acquired until the deceased partner’s death not being subject to capital gains tax. However, the down side is that the surviving partner’s interest in the property is potentially exposed to estate tax twice: once due to inclusion in the deceased partner’s estate, and again when the surviving partner dies. How property is titled can also affect property taxes. For example, in Florida, the transfer of property between married
partners does not trigger reassessment for property tax purposes. However, the transfer of property between unmarried partners can trigger reassessment for property tax purposes. There is an exception if the property is held in joint tenancy and an original owner remains on the title. However, if one partner owns property and adds the other partner to the title, and the original owner dies first, the property will be subject to reassessment for property tax purposes even though the property was held in joint tenancy. There may also be homestead issues to consider in your particular state.
Determining the best way for unmarried partners to hold property depends on current federal and state laws, market conditions, and the partners’ individual circumstances, and is not the simple answer your clients probably assume it is. The special importance of living wills, health care directives and powers of attorney. If two people are not legally married, not related by blood, In contrast, for unmarried partners who hold property as Joint Tenants with Rights of Survivorship, the entire value of the property is included in the estate of the first partner to die, unless the surviving partner can prove his or her contribution in acquiring the property (consideration) or that the property was a gift to both partners equally. The burden of proving the origin of the funds that went into the down payment, mortgage payments, and improvements to the house is on the surviving partner and can be very difficult to establish.
While this difference may sound like a disadvantage, there is an advantage that can sometimes outweigh the cost if the property is highly appreciated and the deceased partner supplied most or all of the consideration. This is because the surviving partner will receive a full step up in basis, resulting in 100% of the appreciation of the property between the time it was acquired until the deceased partner’s death not being subject to capital gains tax. However, the down side is that the surviving partner’s interest in the property is potentially exposed to estate tax twice: once due to inclusion in the deceased partner’s estate, and again when the surviving partner dies.

How property is titled can also affect property taxes.

For example, in Florida, the transfer of property between married partners does not trigger reassessment for property tax purposes. However, the transfer of property between unmarried partners can trigger  eassessment for property tax purposes. There is an exception if the property is held in joint tenancy and an original owner remains on the title. However, if one partner owns property and adds the other partner to the title, and the original owner dies first, the property will be subject to reassessment for property tax purposes even though the property was held in joint tenancy. There may also be homestead issues to consider in your particular state. Determining the best way for unmarried partners to hold property depends on current federal and state laws, market conditions, and the partners’ individual circumstances, and is not the simple answer your clients probably assume it is.

The special importance of living wills, health care directives and powers of attorney. If two people are not legally married, not related by blood, and not in a partnership that is legally recognized by the state where they live, or often in the state where they are travelling, then the partners are legal strangers in that state. The ongoing Florida case of Langbehn v. Jackson Memorial Hospital arose when a non-traditional family from Washington state suffered the tragic illness and death of one of the partners while vacationing in Florida, and the even greater tragedy of the Florida hospital not allowing the family to visit the dying partner and parent or even receive medical updates until a blood relative arrived. Traditionally, if a spouse dies or becomes mentally or physically incapacitated, state statutes allow the other spouse to make health care decisions and carry on the affairs of the family unit with minimal to no state intervention. In contrast, if an unmarried partner dies or becomes incapacitated, many states will look to the partner’s other relatives as the only legal family. This can have devastating consequences for the partners and any minor children. Estranged relatives may suddenly have complete control not only of health care decisions, but also of the children, the family home, the family property, and even the family pets. The partner will have little to no legal recourse to keep the family together. In many states, the partner doesn’t even have the right to temporarily possess the family home while things get sorted out.
Because of the legal uncertainty from state to state, it is essential that non-traditional families execute living wills, health care proxies, HIPAA authorizations, and durable financial powers of attorney, even if you practice in a state where non-traditional families are recognized. It is a very good idea for them to register their health care directives with Legal Directives, DocuBank, or a similar organization and carry their cards with them at all times, particularly if traveling out of state. Consent forms to authorize medical
care for children, to pick children up from school, etc., should also be on file with children’s schools. Domestic Partnership Agreements aren’t just for family law attorneys.
A Domestic Partnership or Life Partnership agreement can be very helpful in establishing the parameters of the partners’
non-traditional arrangement. This holds true whether they are a same-sex or opposite-sex couple, or even if two people are comingling their affairs in a non-romantic relationship If the partners are living together, own property or substantial assets together, or are comingling their finances, a Life Partnership Agreement will allow them to contractually establish
• how real property is owned and titled, who owns what percent of the property, and how additional contributions
or payment of expenses affect the balance of ownership;
• whether income, gifts or inheritance of one partner during
the partnership belong to that partner individually or to the partners together;
• how household expenses and duties will be handled;
• how financial support and division of property will be determined in the event the relationship ends;
• whether and how mediation can be used to settle disputes.
While no one wants to think about a relationship ending, a Life Partnership Agreement can be considered an “insurance
policy” – you hope they’ll never need it, but having such an agreement allows the partners to go about their lives with peace of mind that they have a plan in place.
Additionally, a Life Partnership Agreement is not just about planning for separation. A Life Partnership Agreement can serve as valuable evidence in court of the committed relationship in the event that it is ever questioned. It can document the partners’ intentions regarding property and income that may have important tax consequences. A Life Partnership Agreement can also be a valuable planning tool for the partners to think through the responsibilities of day-to-day living to avoid misunderstandings down the road.

Valuable planning tools for children in non-traditional families.

Just as a Life Partnership Agreement can document the partners’ relationship, a Parenting Agreement can serve as important evidence in court of how the partners and any biological parents have agreed to share the care and financial responsibilities of any children. It is important to counsel clients that in most states, courts are not bound by Parenting Agreements; they are bound by law to protect the If the partners are living together, own property or substantial assets together, or are comingling their finances, a Life Partnership Agreement will allow them to contractually establish
• how real property is owned and titled, who owns what percent of the property, and how additional contributions
or payment of expenses affect the balance of ownership;
• whether income, gifts or inheritance of one partner during
the partnership belong to that partner individually or to the partners together;
• how household expenses and duties will be handled;
• how financial support and division of property will be determined in the event the relationship ends;
• whether and how mediation can be used to settle disputes.

While no one wants to think about a relationship ending, a Life Partnership Agreement can be considered an “insurance
policy” – you hope they’ll never need it, but having such an agreement allows the partners to go about their lives with peace of mind that they have a plan in place. Additionally, a Life Partnership Agreement is not just about planning for separation. A Life Partnership Agreement can serve as valuable evidence in court of the committed relationship in the event that it is ever questioned. It can document the partners’ intentions regarding property and income that may have important tax consequences. A Life Partnership
Agreement can also be a valuable planning tool for the partners to think through the responsibilities of day-to-day living to avoid misunderstandings down the road.

Valuable planning tools for children in non-traditional families.

Just as a Life Partnership Agreement can document the partners’ relationship, a Parenting Agreement can serve as important evidence in court of how the partners and any biological parents have agreed to share the care and financial responsibilities of any children. It is important to counsel clients that in most states, courts are not bound by Parenting Agreements; they are bound by law to protect the best interest of the child. However, if a surviving partner can present the court with a parenting agreement that shows that two or more interested parents have considered the best interest of the child and have a plan in place, the court will likely be more inclined to consider the partners’ wishes. Also, like a Life Partnership Agreement, a Parenting Agreement can be a valuable tool to help the partners to think through the multitude of day-to-day issues that surround the care and responsibilities of raising children.

This Article used with permission and copyrighted by WealthCounsel, LLC and written by WealthCounsel Members Tanya Simpson.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

See other Kehr Law practice areas including: Business Law, Estate Planning, Real Estate, Wills, Trusts, Corporations, Contracts, and Asset Protection.

http://www.kehrlaw.com

http://www.yoursandiegobusinessattorney.com

http://www.yoursandiegobusinessattorneys.com

http://www.yoursandiegobusinesslawyer.com

http://www.yoursandiegobusinesslawyers.com

San Diego Business Lawyers and Contracts Attorneys providing a first class “one stop shop” for all your business, contract, will, tax, estate planning, and intellectual property legal needs. Contact Kehr Law today: (619) 400-4942.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

San Diego Attorney’s Participation

Managing Attorney Dan W. Kehr, a San Diego business lawyer, and his staff and family members participated in the third annual San Diego Miracle Babies Walk this past Sunday, November 13, 2011.

“MiracleBabies is a charitable, nationwide organization made up of volunteers to provide education, support and financial assistance to families with newborns in the NICU. Parents submit an application provided to them by their social worker and assistance is provided to qualified families. Amount of assistance provided is based on the families income, debt and length of stay in the NICU. Majority of our donations are from individuals. We hold three main fundraising events: Casino Night, Golf tournament and a 5K walk/Run. Cities currently involved in fundraising are San Diego and Atlanta.”

Visit the San Diego page for additional information about this event.

To view additional information about San Diego business lawyer, Dan W. Kehr, visit his page at KehrLaw.com

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

See other Kehr Law practice areas including: Business Law, Estate Planning, Real Estate, Wills, Trusts, Corporations, Contracts, and Asset Protection.

http://www.kehrlaw.com

http://www.yoursandiegobusinessattorney.com

http://www.yoursandiegobusinessattorneys.com

http://www.yoursandiegobusinesslawyer.com

http://www.yoursandiegobusinesslawyers.com

San Diego Business Lawyers and Contracts Attorneys providing a first class “one stop shop” for all your business, contract, will, tax, estate planning, and intellectual property legal needs. Contact Kehr Law today: (619) 400-4942.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

Protection Considerations for Business Owners | Kehr Law

Many business owners devote much time and energy “working in” their business to improve business operations and profitability; however, they often neglect to “work on” their business by not addressing certain asset protection issues. Business owners, particularly those owning their business in corporate form, should consider the following:
1) how to own C corporation or S corporation stock to minimize exposure to creditors, an “outside” asset protection issue; and,
2) whether to implement several basic business agreements designed to protect and even enhance business  alue from the “inside” of the corporation.

Stock Ownership

Generally, a creditor of a corporate shareholder may seize the shareholder’s stock and thus have the same management and liquidation rights as the debtor shareholder. Charging order protection (described below), normally applicable to limited liability entities, does not apply to S corporations or C corporations. S corporation owners may have additional concerns if a creditor is an ineligible S corporation shareholder thereby causing the corporation to lose its S election. As a result the corporation will be treated as a C corporation and exposed to double taxation.

A business owner who owns S corporation or C corporation stock should consider the asset protection benefits of converting or merging the corporation to a new Limited Liability Company (“LLC”). There are several limited liability organizations that can protect business assets from the personal liabilities of the owner. However, entities such as limited partnerships, or limited liability limited partnerships,
are treated as partnerships for federal tax purposes and therefore cannot own S corporation stock; whereas, an LLC electing to be taxed as a corporation may. Generally, the asset protection benefit of an LLC is a judicial remedy as known as a “charging order” which protects the owner’s interest in the LLC from his or her personalliabilities. If a creditor obtains a charging order, the creditor is limited to the rights of an assignee of a membership interest in the LLC. If a distribution is made from the LLC, the creditor is entitled to receive a proportionate distribution. However, the creditor has no voting rights and thus, cannot force a distribution, liquidate the LLC, or otherwise manage the business.
With proper planning, both C corporation and S corporation owners may be able to avail themselves of the LLC asset protection benefi ts by converting the corporation to an LLC taxed as a corporation. Generally, such conversions are treated as nontaxable “F”  organizations under IRC Section 368(a)(1)(F). However, potential income tax consequences and individual state law considerations should be carefully evaluated. For instance, C corporations considering conversion should analyze potential exposure to the “built-in-gains tax” under IRC Section 1374. Also, the strength of the charging order protection provided by an LLC varies depending upon state law.

Business Agreements to Protect Value “Inside” the Business

Among the basic business agreements or legal documents that should be considered by business owners to protect business value include a Non-Compete and Confidentiality Agreement, Buy-Sell Agreement, and perhaps even a Deferred Compensation or Bonus Plan for key employees. Few events can sap the value of a small business like a key employee or associate leaving the business and starting a similar enterprise, especially if such an employee departs with trade secrets, confi dential information or even customer lists. Business owners should require their employees to sign Non-Compete and Confidentiality Agreements to prevent this from occurring. If the terms of such an agreement are considered reasonable under state law, the agreement should be enforceable.

Buy-Sell Agreements

A Buy-Sell Agreement is another key document that if properly structured, funded, and updated will protect the value of both the exiting and remaining business owner’s interest in the business. The Buy-Sell Agreement accompanied by proper planning should provide the exiting owner a fair value for his or her ownership interest and provide the remaining owner a means to purchase the exiting owner’s interest without depleting the business of cash flow and its value. A Buy-Sell Agreement is designed to establish a
predetermined and agreed-upon business value (or method of arriving at the value) at the occurrence of certain trigger events such as the death, disability, voluntary or involuntary termination, or retirement of a shareholder or partner.
It is crucial that planning be done to ensure there are sufficient funds available to implement the buy-sell provisions when triggered. Funding at an owner’s death with life insurance may be the easy part. More problematic may be how to buy-out a departing owner’s interest in the event of disability, retirement or voluntary termination, especially if a portion of the business’ cash fl ow must be devoted to that purpose. Further, once in place a Buy-Sell Agreement should periodically be updated to refl ect changes in the business value and the owners’ objectives. Finally, business owners should consider putting into place a deferred compensation or bonus plan designed to reward key employees who meet certain performance targets. A properly planned deferred compensation or bonus arrangement can serve two purposes which will work toward protecting the value of the business. First, the plan should be designed so that employees are rewarded for achieving benchmarks that not only protect but increase the business value. Second, such agreements, for example through gradual vesting schedules, should place “golden handcuffs” on valuable employees by making it diffi cult for a key employee to leave the business and forfeit certain benefi ts. A detailed discussion of the aforesaid legal documents is beyond the scope of this article. The point here is that when considering asset protection strategies for business owners, protecting the internal value of the business through a few important but often overlooked documents can be just as important as the legal wrapper placed on the ownership of the business. It should also be noted that implementing such agreements not only protects the value of the business but also enhances its value and makes the business a more attractive target to a potential buyer when the owner eventually exits.

This Article used with permission and copyrighted by WealthCounsel, LLC and written by WealthCounsel Members Ryland F. Mahathey and Brad Milhauser.

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Email: dan@kehrlaw.com

See other Kehr Law practice areas including: Business Law, Estate Planning, Real Estate, Wills, Trusts, Corporations, Contracts, and Asset Protection.

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San Diego Business Lawyers and Contracts Attorneys providing a first class “one stop shop” for all your business, contract, will, tax, estate planning, and intellectual property legal needs. Contact Kehr Law today: (619) 400-4942.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

What Every Business Owner and Professional Needs To Know About Asset Protection

As we are all aware, over the last few decades expanding theories of liability and the proliferation of litigation has given increased emphasis to Asset Protection Planning to the extent that it is now a well recognized area of practice. However, traditional Estate Planning has always encompassed the concepts of asset preservation and protection. Accordingly, all of us who have business owners, physicians and other professionals as clients need to be able to integrate our Estate and Business Planning with Asset Protection Planning in order to properly serve the needs of our clients. Certainly the area of Asset Protection Planning is a concern for all of these types of clients.

Liability Exposures

Why has there been such an increase liability exposure over the past thirty years? There are several reasons, the principal ones of which are as follows:

1. Plaintiffs’ lawyers have made huge contingency fees on malpractice and other kinds of claims and class action lawsuits. Obviously, the financial reward drives this kind of legal action.
2. The deep pocket theory where those who are “have nots” want a piece of the assets of those “who have”.
3. We live in a victim-oriented society where everyone tries to place blame with financial remuneration attached
to it on someone who has the financial resources to pay.
4. The increase media and society awareness of claims results in high notoriety for these types of lawsuits and creates a ready and willing audience of plaintiffs.

Business owners, physicians and other professionals are especially high profile targets because of the public perception
of wealth of these types of individuals. The job of the lawyer is to assist these types of clients in setting up and arranging their assets and affairs in a manner that will successfully transfer their legacy to their heirs in the most orderly and tax saving manner while at the same time preserving and protecting their property during lifetime.
I like to talk about implementing the three “Ps”:
• Preserve assets for their heirs and family by structuring the proper Estate Plan and by reducing death taxes.
• Protect assets during their lifetime by creating liability shielded entities and lowering financial profiles
• Process the plan by properly designing and implementing strategies in the most practical and skillful manner.
After several discussions and meetings with my Wealth Counsel colleagues and other attorneys, I have devised a significant and fundamental approach to addressing all the legal and tax concerns of business owners, physicians and other professionals by implementing the three “Ps” in a systemic tiered approach which I call “The Ladder of Success”.

Each step on the ladder or level of strategy provides immediate asset protection and estate planning benefits. Some or all levels of the complete ladder will be applicable to every business owner, physician and professional depending on the individual state of their career development and net worth. The steps on the ladder and the levels of strategy are as follows:
Level One: The Business Entity Itself:
This is the entity that must shield and protect the business owner or professional from direct claims against the operating
business. There are also several tax and management issues that have to be addressed at this level dealing with the operation of the client’s business.

Level Two: Basic Estate Planning:
This is the fundamentals of Estate Planning involving the Revocable Trust, Pour Over Wills, Durable Powers of Attorney,
Healthcare Directives and Medical Record Release Forms. This level has to be integrated with all the other levels so that the entire plan is cohesive and well coordinated.

Level Three: Exemptions and Marital Planning:
At this level, we examine and review exemptions such as ERISA Plans, homesteads, insurance and annuities. Many of these exemptions are state law driven and have to be analyzed on the state of residence basis. Marital planning can be very important with respect to the division of assets between the working and non-working spouse and in some states it is critical as to the manner of how property title is held with respect to the married couple.

Level Four: Liability Protected Entities for Investment Assets:
It is especially critical that real estate be protected from claims that may well be either beyond the limits or outside the coverage of insurance and the limited liability company seems to be the best vehicle for this purpose. Other types of investments can also be placed in LLCs for additional protection.

Level Five: Domestic Modular Planning with Asset Protection Trusts:
As we are all aware, many states have now adopted favorable
Asset Protection Trust legislation such as Nevada, Delaware and Alaska. This means that the Domestic Asset Protection Trust can be utilized to hold title to the member interests of LLCs that hold the underlying investment assets.

Level Six: Offshore Modular Planning with Foreign Asset Protection Trusts (or International Asset Protection Trust):
For those clients who have sufficient liquidity and preferably
some international connections or attributes, the Offshore
Asset Protection Trust can be utilized as the owner of offshore LLCs into which investments and capital can be placed. Because of the jurisdictional limitations involved, this approach maximizes the Asset Protection potential for the client.

Level Seven: Advance Estate Planning Techniques:
This level examines more advanced Estate and Asset Protection Planning techniques such as GRATS, Private Annuities and QPRTS as well as certain types of insurance vehicles.

In conclusion, by addressing the concerns of professional and business owner clients in this tiered analysis program, the Preservation, Protection and Processing of Estate and Asset Protection Planning can all be accomplished.

This Article used with permission and copyrighted by WealthCounsel, LLC and written by WealthCounsel Member Jeffrey Matsen.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

See other Kehr Law practice areas including: Business Law, Estate Planning, Real Estate, Wills, Trusts, Corporations, Contracts, and Asset Protection.

http://www.kehrlaw.com

http://www.yoursandiegobusinessattorney.com

http://www.yoursandiegobusinessattorneys.com

http://www.yoursandiegobusinesslawyer.com

http://www.yoursandiegobusinesslawyers.com

San Diego Business Lawyers and Contracts Attorneys providing a first class “one stop shop” for all your business, contract, will, tax, estate planning, and intellectual property legal needs. Contact Kehr Law today: (619) 400-4942.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

HOW TO HANDLE TRUST ADMINISTRATION

After the death of a spouse or a parent, I often find that the surviving beneficiary/trustee has no idea that they need to “do anything” with the trust or the assets.  When the trustee is the same person as the beneficiary, whether it is the surviving spouse or the adult child, they will just leave things “as is” and take no action.  They may be overwhelmed, or reluctant to contact an attorney for fear of what it will cost, or they may suspect that there will be legal or tax consequences that they would rather not face.  So they do nothing.  Time will pass, sometimes even many years, before they bump into some obstacle that leads them to our office and we need to discuss a Trust Administration.

As a Trust Lawyer, it’s our job to set proper expectations with our clients on the front end, when they are doing their initial estate planning.  This means communicating that while it is true that the administration and distribution of assets held in trust following the death of the trust owner is considerably easier and much less time consuming than having to deal with probate, there are still many things that need to be done by the successor trustee before the assets of the trust can be distributed to heirs.

With the rise in blended families and non traditional families, it is even more important to let clients know that contacting a lawyer after a death is really not optional, it is the trustee’s fiduciary duty to take certain required actions.  And on a practical level, they should know that burying their head in the sand or pleading ignorance is only going to hurt them in the long run.

THE TRUST ADMINISTRATION PROCESS IN GENERAL:

Here are just a few things that are the responsibility of the trust administrator:

1.    Notifying beneficiaries

2.    Valuations and liquidation of assets

3.    Paying debts and taxes of the trust

4.    Distribution of remaining assets to beneficiaries

5.    Filing tax returns

6.    Reporting and accounting requirements of the state and courts

7.    Defending the trust against claims of creditors or excluded heirs

This is a lot to handle, especially for someone who is grieving the loss of a loved one.

LAWYERS ASSISTANCE

An experienced trusts lawyer can help those responsible for trust administration through this difficult time by preparing appropriate documents and guiding them through their fiduciary duties.

But they need to at least be aware that they need professional advice to help them through these responsibilities and how important these duties are.  They will then be motivated to find a trusts lawyer experienced in trust administration who will be able to provide sound legal advice and strategies that will reduce the risks and burdens that will be faced.

This Article used with permission and copyrighted by WealthCounsel, LLC and written by WealthCounsel Member Darlynn Morgan.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

See other Kehr Law practice areas including: Business Law, Estate Planning, Real Estate, Wills, Trusts, Corporations, Contracts, and Asset Protection.

http://www.kehrlaw.com

http://www.yoursandiegobusinessattorney.com

http://www.yoursandiegobusinessattorneys.com

http://www.yoursandiegobusinesslawyer.com

http://www.yoursandiegobusinesslawyers.com

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

REVOCABLE LIVING TRUSTS: NOT JUST FOR THE RICH

“They’re too young to have a trust.”

“They don’t own enough for a trust.”

Some attorneys have even said that recommending a trust-based plan for young families is tantamount to malpractice. I’m certain that not only is it not malpractice to recommend a trust for some families, it’s potentially malpractice not to.

Many practitioners believe young families with kids don’t need trust-based planning. It’s more accurate to say they don’t believe they can afford it.

But nothing could be farther from the truth. Families with children at home and any assets at all cannot afford not to plan properly. Here’s an example:

A (Non-Fiction) Story

Seventeen years ago, my cousin, a young mother, became an instant widow. Her husband along with her brother, both pilots, died in a plane crash in the mid-South.

If that weren’t tragic enough, my cousin has been sub­jected to ongoing court proceedings over the assets her son inherited. She’s had to appear in court each year to account for every penny of the assets she herself should be managing, and she has to pay a financial guardian and bond fees to boot.

My cousin has raised her son alone, while dealing with ongoing legal proceedings. And when her son reached sixteen and a half, they got into an argument typical of that age and he left. He moved out because he knew he’d be getting his inheritance.

She has no control over how her son uses that money, if he’ll do something productive with it or fall into traps kids encounter—peer pressure, thinking they know it all, believing that the first hit of meth won’t hurt them.

She said, “If you can prevent that for even one family, you will have done a great service.”

The Scary Reality

Kids instinctively separate from parents in the early teen years. The main leverage we have to continue to encour­age kids is financial. Ordinarily, kids are willing to stay close to the nest until they’ve acquired the skills they need to go out and make their own way. Whenever the financial balance is upset, kids may be harmed by the assets they acquire. I don’t need to list the umpteen teenage stars or heirs that have let money get the better of them.

Preventing kids from receiving assets at 18, creating certainty in who will raise our kids, and responsibly providing for them and our guardians are worthy goals for families that trust-based planning, and kids’ protection planning, are perfectly suited to achieve. Avoiding the financial burden and emotional gauntlet of a conservator­ship is a more compelling reason to plan than avoiding estate taxes or passing on wealth to our heirs. Those goals take on more importance as we age.

An Ounce of Prevention

Because of the statistical reality that some parents do die and become incapacitated—three times in my own large family—kids of parents who do not plan are at risk both of becoming involved in lengthy court proceedings or worse, getting lost, temporarily or permanently, in the foster care system.

We have the opportunity to prevent that—by helping parents understand the stakes in plain English, sharing stories like my cousin’s and making planning financially accessible.

Financial Accessibility

We can make our services accessible by offering an automatic payment program (ACH debit) and let them pay over time interest free. Local banks that want your business will allow small-batch debits. Offering ACH debits, we can help families make that investment, earn their trust, and create clients for life. After all, they are going to be the older and wealthy families of the future. Often, they’ll decide not to use an ACH payment but the mere fact that they could use it helps them make the leap of faith.

When parents understand trust-based planning, they ask why their friends don’t have them, but their parents do. I tell them, as a profession, we don’t make a concerted effort to educate families. If we did, far more would have trusts in place for the long term.

Parents know they need to “do something.” But they don’t know what or where to turn. They don’t want to hire a large law firm for fear of getting billed in six-minute in­crements or getting lost in the shuffle. They want someone they can turn to, someone who means something to them, who’s earned their trust, who will be there to guide their family through tragedy and back into life.

This  Article is copyrighted and permitted for use by WealthCounsel, LLC and written by WealthCounsel Member Martha J. Harney, Esq.

The Wealthcounsel Quarterly July 2011, Vol. 5 No.3

San Diego Business Lawyers and Contracts Attorneys providing a first class “one stop shop” for all your business, contract, will, tax, estate planning, and intellectual property legal needs. Contact us today: (619) 400-4942.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

STRATEGIES TO PROTECT YOUR HOME

Protecting one’s home from lawsuits and creditors has always been one of the most difficult planning situa­tions we face as estate planning and asset protection attorneys.

Below is our analysis of the steps our clients can/should take to protect their home.

1. Liability Insurance. We recommend to our clients that they purchase as much liability insurance as they can afford. A large umbrella policy may be just what it takes to settle a creditor’s claim.

2. Tenancy by the Entireties (T/E). In some states, a home owned jointly by a husband and wife is deemed to be T/E. Under this law, if one spouse is sued, the other spouse can claim to own 100% of the house; thus, a judgment creditor is unable to seize the house. However, T/E has its limitations. The protection may be lost if both spouses are sued, if one spouse dies leaving the home to the debtor spouse, or if the home is sold.

3. LLCs. For many, the LLC is the entity of choice to pro­tect one’s assets from a future lawsuit or creditor. Only a handful of states have LLCs that are worthy to use for asset protection purposes. Wyoming, in our opinion is the best state in which to form an LLC.

However, LLCs should have a business purpose. It may be difficult to conger up a business purpose to fund a personal residence into an LLC unless it is structured as a rental property. In addition, by putting a residence into an LLC, our clients may loose some tax benefits.

4. Qualified Personal Residence Trusts. The QPRT is a trust blessed by the Internal Revenue Code and tradi­tionally has been used as a way to transfer a personal resi­dence to children with little or no transfer taxes. However, there is much to be said for incorporating a QPRT into a strategy for protecting one’s home from lawsuits and credi­tors. The QPRT works this way: The Grantor is Dad who transfers his home into a QPRT. The QPRT is structured to allow Dad to live rent-free in the home for a certain term of years. The children receive the remainder interest after the term expires. The value of the gift to the children is reduced by the value of Dad’s retained interest. This results in a gift of the home to the children substantially less than the actual fair market value of the home. If Dad gets sued, the question arises whether the creditor can take Dad’s retained interest and force a sale of the home. If such a sale were to occur, the Trustee of the QPRT must pay Dad annuity payments for the remaining term. Conceivably, the creditor could attach those annuity payments. Although this strategy makes it more difficult for the creditor, the QPRT does not completely protect Dad. This leads us to the next step.

5. LLC to Own the Retained Interest. After form­ing and funding the QPRT, Dad would form an LLC and assign his retained interest in the home to the LLC. If the LLC is owned by the same individual(s) who owned the house originally, there will be no adverse tax consequences to the assignment of the retained interest to the LLC. After this strategy is implemented (#4 & #5 combined), Dad owns nothing that can be seized by the creditor. There is, however, a limitation. If the home is sold by the Trustee of the QPRT, and if the sale proceeds are not used to purchase another home, the sale proceeds must be annuitized and annuity payments must be paid to the owner of the re­tained interest (i.e. the LLC). This stream of income may be trapped inside the LLC if Dad has a judgment against him. If the LLC makes a distribution to Dad, his judgment creditor will be able to seize it, or the court may allow the judgment creditor to have a charging order against Dad’s interest in the LLC. The creditor can take the income stream from the LLC away from Dad. If that is a concern, we go to the next step.

6. DAPTs. Instead of Dad owning the LLC, one more Domestic Asset Protection Trusts can own the LLC. A DAPT can be formed in only 13 states, one of which is Wyoming. The beneficiaries of the DAPT can be Dad and his family. Under this arrangement, if the house is ever sold and the sales proceeds are converted into an annuity for the owner of the retained interest (i.e. the LLC), and if the LLC makes a distribution to the member of the LLC, the member would be the DAPT and under Wyoming law is not subject to seizure. Thus the home is now truly protected.

By: Cecil Smith, J.D.  & Carol Gonnella, J.D.
Reprinted with permission from The Wealthcounsel Quarterly copyright 2011, Wealthcounsel LLC

For additional information on any of the above topics such as asset protection, estate planning, or real estate and property law, contact attorneys at Kehr Law in San Diego, California.

Contact Kehr Law today
Phone: (619)400-4942
Text Message: (619)823-8230
Email: dan@kehrlaw.com

See other Kehr Law practice areas including: Business Law, Estate Planning, Real Estate, Wills, Trusts, Corporations, Contracts, and Asset Protection.