Transferring The Family Business, But To Which Child?

Posted July 27, 2015 in Business Law, Estate Planning by Michael Lonich.

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July 27, 2015
Transferring The Family Business, But To Which Child?
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After years spend building up a successful family business, many want to pass on their success to their next generation of family members. Unfortunately, conflicts in family businesses are likely to occur when the owner and other family members begin to consider and examine the transfer of the ownership and control of the business. One of the largest conflicts to result often rises in situations where there are two or more children in line to take charge and sibling rivalry erupts. However, in planning the succession of a business, the transition may go smoother with the creation of a trust outlining the steps to be taken in the succession.

The advantage of a business trust is that a plan would have been put in place in the case of an unexpected death. However, there is still a problem with choosing which child to take charge of the family business. One of the greatest challenges in choosing which child to take over is their lack of experience, though this issue can be addressed with the following tips.

  • First Option: Trial Run
    • You can give each child about six months or so to be in charge.
    • Objectively list the qualities that you are looking for before the trial begins.
    • Also, make sure to let the other employees know that the child is in charge.
  • Third Option: Leave It Up to the Children
    •  If there are several children, a good option may be to allow them to set up a board and let them choose who they believe would be the best successor.
    • This can even include outside advisors.
  • Fourth Option: Have a Trustee in Place
    • Put a Trust in place with a trustee running the business until he or she believes the children are ready to take over

The options above are just a few possibilities that a family business owner can try. Nevertheless, they may be able to help family business owners who are troubled by the fear that a child cannot develop the leadership qualities necessary to run the family business. But after getting through this first hurdle and putting these details in a trust, the owner will no longer have to worry about succession of the family business as they will be in capable hands.

Estate planning is a highly complex area of law. If you are interested in creating a trust for your family business or have any questions regarding your current estate plan, please contact the experienced estate planning attorneys at Lonich & Patton for further information. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters, including family business trusts, and we are happy to offer you a free consultation. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

 

Source: Charles D. Fox, Keeping It In The Family: Business Succession Planning, SS039 ALI-ABA (2011)

 

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Special Needs Trusts: What Are They?

Posted July 20, 2015 in Estate Planning by Jennifer Mispagel.

Special Needs Trusts are imperative for beneficiaries who are disabled and receive some form of government benefits. The beneficiaries of Special Needs Trusts may be either a developmentally or physically disabled minor or adult.

A standard Family Trust may not be appropriate for a Special Needs person because they do not address the specific necessities of the disabled beneficiary, such as governmental programs and benefits. In California, a Special Needs Trust is generally an irrevocable trust that “gives the trustee discretion to supplement… whatever is provided by government programs to the trust’s beneficiary.” Most commonly, Special Needs Trusts allow for an individual with disabilities to benefit from funds in the trust without the funds counting as a financial asset and interfering with the government benefits that the beneficiary may be receiving. Even in rare cases where a beneficiary never needs Federal or State public benefits and services, Special Needs Trusts may still be a valuable tool and can be used as part of a comprehensive plan to meet the special life management needs of the beneficiary.

While the trustee of the Special Needs Trust cannot give money directly to the beneficiary (as it will interfere with eligibility for Medicaid, subsidized housing, Social Security Income and other government services), the trustee may spend the trust assets on a wide variety of goods and services for the benefit of the beneficiary. Typically, trust assets are used to pay for personal care attendants, vacations, physical rehabilitation, and recreation.

Concerned families and people with disabilities no longer need to worry about limited options regarding estate planning. In the past few years, there has been increasing public awareness of the estate planning options available for families with loved ones with disabilities. There has also been an increase in professional advisors who are able to render competent advice and provide their clients with numerous estate planning options, including Special Needs Trusts.

Estate planning is a highly complex area of law. If you are interested in creating a Special Needs Trust or have any questions regarding your current estate plan, please contact the experienced estate planning attorneys at Lonich & Patton for further information. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters, including Special Needs Trusts, and we are happy to offer you a free consultation. Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

Source: http://www.nolo.com/legal-encyclopedia/special-needs-trusts-30315.html

Source:.http://www2.nami.org/Content/NavigationMenu/Find_Support/Legal_Support/Special_Needs_Estate_Planning/Special_Needs_Trust_Primer.htm

Source: Purpose of Special Needs Trust, 3 Cal. Transactions Forms- Est. Planning § 17:1 (2015)

Source:.http://www.americanbar.org/newsletter/publications/law_trends_news_practice_area_e_newsletter_home/0501_estate_financialplanning.html

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Question: What happens to your Facebook account when you die?

Posted February 20, 2015 in Estate Planning, Probate by Lonich and Patton.

Answer: Now, you can designate someone to control your Facebook account with the legacy contact option.

As estate planners, we see people each day who think about what happens to their personal effects when they pass away. We write wills in order to designate who should receive a client’s material possession upon their death and answer questions like; where do my assets go? Who will maintain control of my estate when I pass away? But more and more of us are starting to consider what happens to our digital possessions such as our Facebook accounts when we die. Facebook has responded by creating what they call a “Legacy Contact.”

Up till now, when Facebook learned that someone died, they would offer only a basic memorialized account that other people could view but couldn’t manage. It would be frozen, angering heirs who wanted to edit the deceased’s online presence. When Alison Atkins died in 2012 after a battle with a colon disease, her sister and parents wanted access to her digital assets. Slowly, these accounts began shutting down in order to protect Alison’s privacy, per the websites’’ terms of service. Later that year when her Facebook account disappeared, her family felt like they were losing another part of Alison.

However, starting this Thursday, you can assign a legacy contact who can have more room to manage an account when the user dies.

Your legacy contact will have limited control

There are limits, however, to what a legacy contact can do. A legacy contact can:

  • Write a pinned post for your profile (ex: to share a final message on your behalf or provide information about a memorial service)
  • Respond to new friend requests (ex: old friends or family members who weren’t yet on Facebook )
  • Update your profile picture and cover photo
  • Download a copy of what you’ve shared on Facebook (this is an additional option that you can add/decline)

There are several things your legacy contact cannot do, and you should be aware of them. A legacy contact cannot:

  • Remove or change past posts, photos and other things you’ve shared on your Timeline (regardless of how embarrassing they might be)
  • Read messages you’ve sent to other friends
  • Remove any of your friends

Choosing your legacy contact

Once you have decided who your legacy contact will be, selecting them is easy. A concern that is coming is what if you select your spouse but you both travel frequently together? What if you both die? At this point in time, you can only select one person with no back up.

Estate planning has always been a complex field and the digital era is adding new complexity to this process. Facebook and other tech companies are starting to realize this, prompting changes to their terms of service. In 2013, Google began allowing people to assign beneficiaries of their Google accounts as well.

Whether you are concerned with devising a plan for either a family estate or that of a business, it is important to get good advice. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters including business succession plans, wills, and living trusts. If you are interested in developing an estate plan or reviewing your current estate plan, contact the experienced estate planning attorneys at Lonich & Patton for further information as we are happy to offer you a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

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How will proposed tax reform affect your estate plan?

Posted January 30, 2015 in Business Law, Estate Planning, Probate by Jennifer Mispagel.

On January 20th, 2015, President Obama stood before a joint session of Congress and delivered the annual State of the Union address. Some of the topics discussed were the current State of the Union, College Savings Plan reform, his legislative agenda as well as several White House proposed tax reforms for the upcoming fiscal year.

While many of his new policies will affect all Americans in some way, several of his proposed tax increases will particularly affect upper-income persons and financial corporations. One in particular is a proposed change to the tax on appreciated estate property, otherwise referred to as the “trust-fund loophole.”

Taxation on Appreciated Estate Property

The term Capital Gain stands for the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale.  In the United States, individuals and corporations pay U.S. federal income tax on the net total of all their capital gains just as they do on other sorts of income. “Long term” capital gains are generally taxed at a preferential rate in comparison to ordinary income.

Currently, the law states that property which has appreciated in value that is owned by an estate is generally not subject to tax at death. Under this tax scheme, children and other heirs typically receive and sell property with little or no capital gains tax since most property receives an increase in basis to fair market value. For example, a parent who dies can pass along a valuable asset to their child or heir with no capital gains tax being due. When the child or heir eventually sells the asset, the current law limits the eventual tax bill by figuring the taxable gain only since the parent’s death. While this is a feature commonly known as a stepped-up basis the administration refers to this as the “trust fund loophole” and is looking to change it.

The White House proposal is to tax this appreciated estate property. The proposal states that the tax will be at 28% if the difference between the cost of the property and the fair market value at death exceeds $100,000 per person. There would be a separate exclusion for a personal residence of $250,000 per person. The proposal would not include clothes, furniture and most other personal items.

In arguing its case for revising this aspect of the tax code, the White House claims that all of the gain on valuable property or assets that occur prior to the death of a parent unfairly escapes tax. The White House claims it is in good company. Critics of the current tax code say that it is outdated. They claim that while the current policy reduces disputes over prices paid for assets long ago, they acknowledge that revision to the tax code would unlock capital by removing an incentive for holding valuable assets for generations.

Many experts, such as USC tax expert Edward Kleinbard, agree. Mr. Kleinbard notes that the capital gains tax is our only truly voluntary tax. Taxpayers can defer it for a considerable amount of time simply by withholding on the sale of their taxable assets. He argues that if you’re rich enough to hang onto your stocks and bonds, or can utilize financial strategies to enable you to exploit their value without selling them, you can defer paying capital gains tax your entire life.

Whether the White House prevails in passing this legislation remains to be seen. It seems clear, however, that negotiations on tax policy will continue in attempts by the current administration to eliminate tax loop-holes. Eliminating the lock-in effect, where holders of appreciated assets avoid selling because of the taxes imposed on the sale, could have a major impact on estate planning strategies and should prompt concerned individuals to look more closely at their estate plans, which should be revised periodically to ensure the best treatment of ones assets.

These are issues that make estate planning a complex field. Whether you are concerned with devising a plan for either a family estate or that of a business, it is important to get good advice. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters including business succession plans, wills, and living trusts. If you are interested in developing an estate plan or reviewing your current estate plan, contact the experienced estate planning attorneys at Lonich & Patton for further information as we are happy to offer you a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

 

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Who gets the family pet in a divorce?

Posted October 27, 2014 in Estate Planning, Family Law by Lonich and Patton.

If I had to ask you to put a price on your dog, cat or your pet hermit crab, could you? For some, perhaps they could but the vast majority would likely agree that their pets are priceless. However, disputes regarding who gets the family pet in divorce proceedings has become commonplace in family law.

Earlier this year, Melanie Griffith and Antonio Banderas made a statement that they were ending their two-decade marriage but vowed to remain friends and to move forward lovingly. However, shortly after, reports surfaced that a custody battle was flaring up – not over their 17 year old daughter, but over the couple’s three dogs.

Although these days some people treat their pets better than their own children, in the eyes of the law pets are still only considered the property of their owners, much like their furniture is[1]. Legal experts agree that pet owners invest hundreds sometimes thousands of dollars and hours researching proper training, good food choices, and the perfect toys, groomers and veterinarians for their pets. Those same individuals might also take precautions with their estate by writing a prenuptial agreement. But how often do those pet owners think about legal issues associated with pet ownership?

Family law attorneys agree that the best way to handle a situation with a pet is to put it in a prenup. If you came into your relationship with Maxwell, put it in writing that if you are to leave the relationship Maxwell is coming with you. If you and your significant other purchased a pet together during the relationship, but you both agree that one of you should have the pet in the event of a breakup, a post-nuptial agreement would make sure that in the event of a divorce or separation the pet would go with the spouse more bonded with the animal.

Without something in writing, trouble could land you arguing in court. Last year a New York judge granted a divorcing couple the right to engage in oral arguments over pet custody for the first time in the state’s judicial history. The landmark legal showdown was ultimately averted. The couple settled out of court.

In the event of a heated breakup, pets can be protected.  If a party feels that he/she and the pet is in danger at the hands of the other party, California law provides for the family pet to be included on a protective order. Since 2008, courts have had the ability to make an order that the restrained person stay away from the pet. Family Code Section 6320 provides that upon a showing of good cause, the court may include in a protective order a grant of the exclusive care, possession, or control of any animal owned, possessed, leased, kept, or held by the spouse or minor child resident in the residence.

Family Code section 6320 makes strides toward addressing the established connection between animal abuse and family violence commonly referred to as the “Link.”[2] One of the first studies that described this Link found that of a survey of women with pets who had entered a shelter in northern Utah, seventy-one percent reported that their partner had threatened or actually hurt or killed one or more of their pets.[3]Another study of fifty of the largest shelters in the United States found that eighty-five percent of battered women and sixty-three percent of children with pets had experienced incidents of pet abuse.[4] An alarming consequence of these studies is that victims may feel that they cannot leave their abuser because they worry for the safety of their pets.

The Certified Family Law Specialists at Lonich & Patton have decades of experience handling complex family law matters.  If you are interested in learning more about prenuptial or post-nuptial agreements, please contact the Certified Family Law Specialists at Lonich & Patton for further information.  Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may include legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.


[1] Kimes v. Grosser (2011) 195 Cal.App.4th 1556

[2] Am. Humane Ass’n, Learn About the Link, http://www.americanhumane.org/site/PageServer?pagename=lk_about (last visited Aug. 4, 2007); see also Senate Judiciary Committee, Committee Analysis of SB 353, at 2-5 (Mar. 27, 2007) (explaining the connection between animal abuse and family violence). There are also several studies that report that children who witness abuse, or are abused themselves, tend to, in turn, abuse animals. See Phil Arkow & Tracy Coppola, Expanding Protective Orders to Include Companion Animals 5 (2007), http://www.americanhumane.org/site/DocServer/PetsinPO2007.pdf? docID=5061 (describing the harmful effects upon children of witnessing domestic violence).

[3] Frank R. Ascione, Battered Women’s Reports of Their Partners’ and Their Children’s Cruelty to Animals, 1 J. Emotional Abuse 119, 125 (1998).

[4] Frank R. Ascione et al., The Abuse of Animals and Domestic Violence: A National Survey of Shelters for Women Who are Battered, 5 Soc’y & Animals 205, 211-12 tbl.1 (1997), available at http:// www.syeta.org/sa/sa5.3/Ascione.html.

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