My Blog

Estate Planning Mistakes and Failures

05/18/2012 13:34:00

Estate planning is absolutely crucial in planning for the future of your assets and your family. We frequently discuss the various advantages and ways to plan successfully. Today, we will look at some of the typical mistakes which are frequently made when planning for the future.

The most common mistake in estate planning is simply not having a plan. As obvious as this one seems, it certainly happens more often than you imagine. This also ties into another very common mistake which is having an Estate Plan which was made without the help of a qualified professional. These plans frequently end up as bad as not having one at all because they can include many mistakes and pitfalls.

Having inadequate life insurance and medical coverage can also be extremely detrimental to your future and that of your family. Having a plan but not reviewing it along with your financial situation cause trouble too. As your financial situation and lifestyle continues to change, you need to make sure that you recalculate and reevaluate how much life and medical coverage you will need in order to be able to replace your income. You also need to consider how your estate plan takes into account the changes that may have occurred in the law since you originally put the plan together.

Another common mistake, especially for people who are more affluent, is the illiquidity of their assets. Real estate holdings and other taxable property are harder to pass on to future generations. You wouldn’t want to pass debt on to your heirs, or to force them to borrow money to pay taxes on your assets so, you will need to keep that in mind when you draft your plan.

Simply not looking into all alternatives can create a series of mistakes as well. This ties back to the first point about using a professional to draft an estate plan. Without them (an attorney, financial planner, Insurance professional and/or accountant), you may never know about great alternatives to the common planning tools. Whether this includes taking advantage of current gift tax exemptions while they are still available, or potentially using an estate freezing technique, all alternatives should be out on the table.

As you can see, there are a number of fairly common mistakes which can be made when planning (or failing to plan) for the future. Your biggest take away from this should be the understanding that estate plans are never really done. Just as your personal and financial situations change your estate plan should evolve as well. Contact me for help figuring out what your first steps should be!

Please contact me at Nina@Stillmanllc.com or 763-568-2627 if you have further questions.

Estate Freezing Techniques

05/10/2012 15:54:00

Estate freezing techniques are tools which can be used by people to minimize certain gift and estate taxes by freezing the value of assets currently in their estate. These techniques are typically used to stop the growth of an estate when planning for the future. When an individual freezes the value of some of their assets, the tax liability that would arise on the death of the individual or the owner of the business would be locked in at the value the asset had at the time of the activity which froze the value. Freezing the value of assets in an estate has several other potential benefits. These may include a decrease in capital gains tax, an increase in available cash, and a structure which would facilitate the sale of an asset. Though in the past, several estate freezing techniques have been banned by the IRS, there are still a number of very beneficial strategies for clients to utilize.

While there are many ways to execute an estate freeze, the simplest would involve the use of gifting. One such method is called a Lifetime Gift. This very straightforward technique involves "gifting" an asset to an individual or entity and receiving no compensation for it. When using a Lifetime Gift strategy, an individual decreases the value of their estate and in turn gains tax benefits. Additional gifting related estate freezing methods include Qualified Personal Residence Trusts, Grantor Retained Unitrust Trusts, and Grantor Retained Annuity Trusts.

Other popular estate freezing strategies involve the sale of an asset to a beneficiary. One common technique would be an Installment Sale. This would involve selling an asset to a family member for payment installments. If the seller dies before all of the payments have been made, the value of any paid installments will not be included in their estate. Other estate freezing techniques involving the sale of assets include Private Annuities, Self-canceling Installment Notes, and Irrevocable trusts.

As you can see, there are countless ways to freeze an estate legally and effectively. Although some of the strategies may not apply to you all of these available methods are worth looking into because the benefits can be tremendous. If you have any specific questions regarding estate freezing techniques, feel free to give me a call or send me an e-mail, and I will be happy to answer them for you.

Please contact me at Nina@Stillmanllc.com or 763-568-2627 if you have further questions.

Health Care Directives and Why You Should Have One

05/04/2012 16:47:00

As you plan for the future, you take time to make sure that your assets are properly taken care of but, have you considered yourself? Have you thought about what may happen if you were unable to communicate your thoughts and wishes as they pertain to your health care? This is where a Health Care Directive would come to your assistance.

Health Care Directives (HCDs) are an integral part of planning for the future.Typically, they are documents which communicate your wishes about your own healthcare in the case where you would be unable to do it yourself. Here is a list from the Minnesota Department of Health, of what a HCD may include :

The person you trust as your agent to make healthcare decisions for you. You can name alternative agents in case the first agent is unavailable, or joint agents.
Your goals, values and preferences about health care.
The types of medical treatment you would want (or not want).
How you want your agent or agents to decide.
Where you want to receive care.
Instructions about artificial nutrition and hydration.
Mental health treatments that use electroshock therapy or neuroleptic medications.
Instructions if you are pregnant.
Donation of organs, tissues and eyes.
Funeral arrangements.
Who you would like as your guardian or conservator if there is a court action.

Though there are minor differences from state to state, these are typical items which your Health Care Directive may include. Looking through this list, you may already see situations in which such a document would be crucial. If you are injured, unable to speak, in an unresponsive state, or have a condition in which you aren’t in full capacity to make decisions, you will be taken care of.

Now it’s easy to imagine that HCDs are useful for older adults, but it may be very important to have HCDs for your children as well. When your kids leave for college or move to another city, an HCD can serve as a safety net in the case where you may need to make health care related decisions on their behalf. Although HCDs can only be made by those over the age of 18, you should take the initiative and have a conversation regarding your child’s wishes. This way, you will understand what your child thinks is important to them, and make sure that you are on the same page. The actual drafting should be done by an estate planning attorney to avoid issues and to produce a viable document. Although simple in theory, HCDs can be crucial in making sure that you and those you care most about have someone to rely on if the unexpected happens.

Please contact me at Nina@Stillmanllc.com or 763-568-2627 if you have further questions.

Succession Planning: Why it is Important for Small Business Owners

04/26/2012 15:00:00

Statistically in the U.S., less than 30% of small businesses keep their doors open into the second generation. A large cause of this disturbing statistic is the failure in succession planning by many small businesses. If you are unfamiliar with succession planning for a small business, a simple way to define it would be to say that succession planning includes the steps taken by businesses to make sure that they keep operating when the principal can no longer run the day to day operations.

Like a business plan or a business strategy, a succession plan acts as a framework. This framework dictates who will take over, what steps will occur in that process, and provides direction on how a company will operate once the current owner steps down. This sort of forward thinking removes many uncertainties associated with succession and allows for a road map that can be followed and/or altered to fit the needs of the organization, and those running it. Many businesses assume that family or management will take control of the business in the case where the owner isn’t around, but without a plan, they may not have a plan for how to go about those changes and may not know what to expect. Without a plan, the business may cease to exist shortly after the departure of the owner. Less obvious pitfalls associated with a lack of a plan include family conflicts, loss of direction, and departure from the original business model. It is clear that business owners close to retirement should definitely plan for succession, but it is something all business owners should think about in case the unforeseen happens.

Now that you understand the significance of having a succession plan for your small business, where do you start? A logical starting point would be to pick a successor. Whether you are considering a family member or a faithful employee, each potential successor must be evaluated. When doing this, it is imperative to try and keep emotion out of the decision and fairly evaluate every party, especially if you are considering family members. Once you analyze everyone’s strengths and weaknesses, you will have clearer insight into who will be the best choice for the position.

After choosing the succession party, the next step would be to calculate the full value of the business. This can be done with the help of a CPA, which will set a dollar value on the company. Once this is completed, you can create a document describing the succession plan. You will need the assistance of an attorney to make sure that everything is done correctly. Upon completion, a succession plan will give you and your family the peace of mind that in the case of your retirement or untimely departure, your business and family will continue into the future.

Please contact me at Nina@Stillmanllc.com or 763-568-2627 if you have further questions.

Planning Ideas for the Highly Compensated. Part 1: Non-Qualified Deferred Compensation Plans – The Basics

04/19/2012 10:49:00

A Non-Qualified Deferred Compensation (NQDC) Plan typically is an unfunded and unsecured promise by an employer to pay compensation to one or more of its employees in the future (usually beginning at retirement). The plan is “non-qualified” because it does not meet the requirements of IRC sections 401 to 417 (participation, vesting discrimination, etc) that are satisfied by a qualified pension or profit-sharing plan.

Under a NQDC plan, the employees may voluntarily elect to defer a part of their compensation, or the employer may defer “extra” compensation, or both the employee and employer may make contributions that will lead to distributions to the employee at some specified future date.

In order to generate a source of funds to satisfy its obligations under the NQDC plan, the employer will look at a variety of asset classes to fund the plan. They can buy bonds, stocks, mutual funds or any asset to cover plan benefits. All of these asset classes are taxed at the corporate level. Employers will frequently purchase corporate owned life insurance (COLI) on the lives of the participants. Life insurance provides several benefits that are not available with other assets: Generally the inside buildup of the cash-values grow tax free, withdrawals can be made income tax free to the extent of premiums paid (basis) and the death benefits will be received income tax free. This is known as “cost recovery”.

Reverse discrimination comes into play for the highly compensated executives of a company. If, for example, an employee retires with a salary of $50,000 per year once retired the amount of income they are allowed to receive between social security and the company‘s Qualified retirement plan is $30,000. This represents 60% of final salary. If an executive is making a salary of $400,000 at retirement, the income provided from social security and the company’s Qualified pension or retirement plan may only provide approximately $100,000.00 or 25% of final income. This is what is known has reverse discrimination. The only way to make the executive “whole” is to implement a non-qualified plan. There are many types of non-qualified plans that will be discussed in future blogs.

Paul Berlin is a standout in the field of independent life insurance professionals, with over 30 years of experience. During the course of his career he has been an industry leading producer for several life insurance carriers. He works with clients to utilize all types of life insurance planning from corporate deferred compensation issues to individuals using life insurance for wealth preservation and other creative uses. Mr. Berlin has offices in Chicago, Illinois. He can be reached at 312.664.5577

Why Use an Attorney When Starting a Business

04/12/2012 10:03:00

If you are considering starting a new business, you have probably started compiling a list of things and processes you will need to take care of before you even open your doors. Your list of things to do most likely includes setting up an office, getting business cards, and evaluating website options, but have you considered contacting an attorney?

Many small businesses hold off on consulting an attorney until they run into legal trouble. In many cases, this will be too late and will result in major repercussions for the business. The simple truth is that many legal issues can be avoided by hiring an attorney before the business is fully set up in the first place. Although setting up a new business may seem simple, there will be many issues which an attorney can help address before you are even out of the gate.

First, and foremost, you will need to choose a structure for your business such as a sole-proprietorship, LLC, C or S-corporation, or another type of business. Each of these options carries different liability and tax implications. These implications will have to be weighed to help dictate which structure is correct for your company. After a business structure is chosen, your business will need to be registered. Depending on the type of entity, additional licenses or permits may be needed.

Once your business is ready to go, it will start attracting clients and you will definitely need to have written agreements and contract created. These documents may need to cover anything from the scope of work your firm is doing, to the payment and conflict resolution terms. At this point, you may be thinking that it would be more economical to find sample contracts on the internet, or to base your contracts on some other companies’ but this is rarely a good idea. Because virtually no two businesses are identical, there will be no guarantee that you are adequately protected from potential pitfalls, or that all parts of your contract are even legal in your particular case.

Other reasons for consulting an attorney right away may exist depending on your situation. Will you be hiring employees or contractors? Do you have significant intellectual property which will need protection? Do you have vendors? Do you own or lease your office space or building? Are you a franchisee? Does the industry your have additional regulations (e.g., medical, financial)? As you can see, all of these seemingly simple questions begin to get complicated and will need to be addressed. Instead of taking chances with your new business, invest in its future by consulting a qualified attorney, and give your new initiative the extra boost it needs to become successful.

Please contact me at Nina@Stillmanllc.com or 763-568-2627 if you have further questions.

Benefits, Risks and Legal Dangers of Outsourcing for Small Businesses

04/05/2012 14:50:00

At some point there will come a time when your business will need to bring in help. Maybe your company has grown to the point where the workload is too big for you and your employees to handle, or you just landed a large project which temporarily needs extra attention. It might even be the case where you need to delegate certain tasks and processes to others so that you can concentrate on sales or management. One of the increasingly popular options would be to outsource the work to another company or individual.

As with the other options in any of these situations, outsourcing has various advantages and risks. One of the biggest benefits is the cost savings. Instead of paying a salary and providing benefits to a new employee, your business can use a contractor's services as needed. This can also help you save on any associated capital costs (office space, etc.). By outsourcing, you are tapping into an established talent pool which means that the tasks at hand can be done quicker and more efficiently as compared to doing them internally, or hiring and training a new employee. Additionally, hiring out lets your business concentrate on what it does best while freeing up resources which can be used more effectively elsewhere. I myself outsource some of my work to Red Elixir Business Solutions and have reaped the benefit of having more time to work in my business.

Disadvantages of outsourcing include additional time to manage the contractors and their allocated projects. Some task, especially the ones that need someone’s physical presence, can be difficult for a small business to outsource. Further, the quality of work provided will be a risk you will have to control and manage. If outsourcing abroad, simple differences in language and culture can also complicate the way the work gets done.

Apart from organization risks, outsourcing also has several legal risks for a small business. A major risk is the sharing of internal information from intellectual property to trade secrets and processes. Although many contractors will have agreements regarding these concerns, you will always have to make sure that your business’s information is safeguarded properly. This also leads to questions of intellectual property ownership after the work is complete.

When deciding whether to outsource, a small business will have to address questions regarding legal compliance. This can be a major issue when outsourcing various task. For example, if your business outsourced human resource tasks, your business needs to be cognisant of hiring laws and regulations. IT processes can have legal implications as well because in many cases, your contractor may have access to your clients’ personal information.

Although some of the risks with outsourcing seem imposing, it is an option which many small businesses should consider. Because outsourcing can be fairly complex and will frequently carry legal implications, your company should always consult a qualified attorney before choosing to outsource work.

Please contact me at Nina@Stillmanllc.com or 763-568-2627 if you have further questions.

Estate Tax Changes Under Obama’s Budget

03/30/2012 15:17:00

Last week, we took a look at President Obama’s proposal for the 2013 budget and its implications for small businesses. Today, we will examine Estate Tax changes the new budget may have in store for us.

The first and possibly most important change in the Estate Tax is the return to 2009’s tax rates. Currently, the estate tax exemption is $5 million. Anything over that amount in your estate would be taxed at a 35% rate federally. Going back to the 2009 parameters, the exemption would decrease to $3.5 million and a federal estate tax rate of 45%.

The Gift Tax rate (currently at 35%) would also go up to 45% with a Gift Tax exclusion of $1 million dollars. Like the Estate Tax exemption, the current Gift Tax exemption is $5 million – you can give away up to $5 million of your assets either during your lifetime or at passing. (The Gift Tax exclusion is included in the Estate Tax exclusion and is not a separate amount). What the changes would mean under the Obama budget plan is that you would be limited to giving away $1 million during your lifetime without incurring the Gift Tax. You could give away an additional $2.5 million upon your death also without incurring estate tax. That means that you will have to pay 10% higher taxes after an exception which has been cut by over $1.5 million dollars!

The Generation Skipping Tax (GST) exemption amount would be limited to $3.5 million at a 45% tax rate, as opposed to the current exemption which is $5 million at a 35% tax rate. This is also included within the Estate Tax limit, but this affects any portion of your estate that you pass to your grandchildren or grandnieces and grandnephews and their descendants.

On the bright side, the President wants to make portability permanent. This allows a person to use their deceased spouse's estate tax exemptions if the exemptions were not used at the passing of the first spouse.

Under the proposed budget, Grantor Retained Annuity Trusts (GRATs) will be forced to have a term of at least ten years. This would increase the chances of a grantor passing away during the term, which in turn could result in the loss of potential tax benefits from the GRAT.

Other changes, which as of right now are less defined, are also expected. Valuation discounts would have more restrictions, possibly decreasing their usability. New rules requiring consistency in value for transfer and income tax purposes will also be put in place.

From what is apparent so far, many of these changes have been in place in the past or at the very least proposed by the Obama administration in the past. As the budget battle between the President and Congress ensues, all we can now do is wait and see which changes actually take place. If some of these changes do stay, we as individuals and small business owners may have to consider available alternatives in estate tax planning.

Please contact me at Nina@Stillmanllc.com or 763-568-2627 if you have further questions.

Wins and Losses for Small Business Under Obama’s Budget

03/22/2012 16:50:00

As small business owners, we are always concerned about how the decisions our elected officials make will effect us and our businesses. As we get closer to Washington’s 2013 fiscal year, which starts in October, we are left to wonder how the President’s new budget will effect us. Regardless of which side of the aisle you prefer, it is important to examine the positives and negatives of the new budget as they relate to us.

As part of the President’s new budget, the payroll tax cut is extended. Though it will decrease the tax burden on employees, the employer will see no change in this tax. Depending on how you compensate yourself and your employees, this may or may not decrease the overall amount of tax which you will need to pay. The new budget also continues provisions which allow businesses to write off the full amount of new business investments and a new tax credit is added to help small businesses which will help create jobs. Additionally, the President’s budget calls for an expanded Small Business Health Care Tax Credit to help simplify and reduce costs of covering employee benefits for small businesses

With the new budget, there are a few drawbacks. The President is attempting to remove tax cuts for those who make over $250,000 a year. Since the majority of small businesses are pass-through entities in which profits and losses are taxed through personal income, those earning more than the threshold will see higher taxes and less money to put back into their business. The President is also talking about potential raises in corporate tax levels which will affect small businesses that are set up as S corporations or C Corporations.

As always, before any changes and provisions actually take effect, the U.S. Congress will have to pass the President’s budget request. In the coming weeks, it will be interesting to see what changes are made to the budget and how they may effect small businesses across the country.

Resources for Small Businesses in Minnesota

03/19/2012 10:22:00

Whether your small business is just starting out of the gate or has already established itself, chances are that you’re always looking for great resources to help you grow your business. We may already be surrounded by quality business acquaintances and have years of experience but we all run into various situations in which we need additional direction and information. A great resource which many savvy business owners tend to overlook is the public library. Other than the usual books and periodicals, many libraries have additional resources specifically added to be at the disposal of small businesses. In fact, many of the public libraries in Hennepin County have “Jobs and Small Business Centers” designed for your business needs. These are a great place to find information specific to Minnesota and can be an especially good resource for new businesses. Some of the local public libraries even have business experts on site for consultation on various topics!

There is good news for those who prefer to do their research on the internet . The government comes through again with a very handy website: www.sba.gov. There, a potential or new business owner can find help with everything from writing a business plan to finding a mentor. Existing businesses on the other hand can get help with business expansion and various intricacies which can sometimes elude small business owners.

The James J. Hill Reference Library in St. Paul is a magnificent resource aimed at helping businesses and business professionals find practical business information. They house an impressive amount of information on everything from business strategies to various research guides and publications. You can search online or visit the Library in person.

Minnesota has some great local magazines and newspapers which can be great resources for any local business owner. Here are a few great periodicals which you might find useful, informative, and even entertaining from time to time:

Twin Cities Business http://www.tcbmag.com/
Minneapolis-St. Paul Business Journal http://www.bizjournals.com/twincities/
Minnesota Business http://www.minnesotabusiness.com/