New Rules for Family Partnerships Coming Soon

All_together_nowThe IRS has long been upset that courts have allowed wealthy families to put their assets in family partnerships or limited liability companies and receive tax discounts on assets that have an easy to determine value. New regulations are expected soon that could put an end to the IRS's consternation.

The idea behind family partnerships and LLCs is rather simple. These vehicles allow families to jointly own assets and provide an easy way for those assets to be distributed if one of the family member owners passes away.

The practice began as a way to handle control of family-owned businesses. However, when a family-owned business is owned by a family legal entity, the only way anyone else could buy into the business is by becoming a member of the partnership or LLC.

For this reason difficult to value property, like businesses, have traditionally received a valuation discount for tax purposes. The theory was that because of the nature of the ownership situation, third-party buyers would expect a discounted price.

The IRS began to have problems however when wealthy people began putting easy to value property into the family partnerships, such as securities and even cash. Many people sought to get tax discounts on that property, and when challenged by the IRS, the wealthy people often won in court.

Now, backed by the Obama administration, new regulations are expected to put an end to the practice as reported recently by the New York Times in "Navigating Tougher I.R.S. Rules for Family Partnerships."

What precisely the new rules will contain is still unknown. However, if you use a family partnership, now would be a good time to speak with your estate planning attorney to see what, if any, changes you need to make.

For more information about estate planning, please visit my estate planning website.

Reference: New York Times (August 7, 2015) "Navigating Tougher I.R.S. Rules for Family Partnerships."


Business Owners and Rising Taxes / York, PA

Wills-trust-estates-bank-beneficiary-trust-trusteesAs changes to the American Taxpayer Relief Act and the Affordable Care Act of 2012 become effective, business owners are facing escalating tax rates. Insightful enterprises are employing wealth management strategies to counteract the cost. Continual planning is essential for finding opportunities that will reduce the financial burden. Several options exist to help corporations retain wealth and reduce taxes legally.

A recent article on theInsurance West website, titled Important Tax-Planning Tips for Business Owners In 2014,” states that retirement packages can decrease tax liabilities by deferring income. At the end of the business year, companies will be examining data to see if there are any tax savings available on defined contribution, benefit, cash balance and 401(k) plans.

The original article notes that gathering this data will allow business owners to make informed decisions about potentially accelerating deductions and deferring income into the next quarter. Compiling financial projections and reports is extremely important for proper tax planning.

The original article also reminds us that integrating personal tax planning into the company tax planning allows state income, real estate and mortgage taxes to offset business revenue. Your business planning and estate planning attorney will be able to suggest solutions such as legitimate tax shifting by employing children, who can start a Roth IRA, along with the tax benefits of continuing education.

There have also been two pieces of tax extender legislation passed by the Senate and the House which would extend provisions for businesses—bonus depreciation, generous donations for S corporations, smooth transitioning from C to S companies, and a $25,000 reduction on Section 179 expenses.

Next year the Affordable Care Act's employer mandate will go into effect for companies with more than 49 full-time employees. Appropriate health insurance for employees must be documented for compliance, and with this companies are looking into various tax options.

According to the original article, you need to integrate your estate planning into your corporate structure to reduce the size of your estate, and business owners may also consider giving shares to family members who are in a lower tax bracket.

An attorney experienced in business and estate planning can help you make the right strategic moves as the year comes to a close.

For more information about estate planning, please visit my estate planning website.

Reference: Insurance West (November 8, 2014) Important Tax-Planning Tips for Business Owners In 2014


Family Limited Partnerships: Are They as Good as They Seem? / York, PA

Draft_lens6229982module49470302photo_1249598396business-manFamily Limited Partnerships have become a popular vehicle to preserve family businesses as part of an estate plan. They provide a way to maintain control of the business and pass it on to family members. However, there are some drawbacks that you should be aware of before creating an FLP.

A Family Limited Partnership creates a separate entity in which you can place an almost unlimited amount of assets. This may help protect the assets from personal creditors and allow you to maintain control of the assets during your life. You can then give your family members limited partnership interests in the entity.

A recent article in Life Health Pro, titled 6 Pitfalls That Clients Eyeing an FLP Need to Consider,” points out the potential drawbacks of an FLP:

  • Expense – Creating an FLP can be very expensive as anything placed into the FLP will need to be appraised.
  • Limitation on Asset Types – Some assets are not well-suited for an FLP, including residential property and some types of securities.
  • Puts Conflicts Off – Just putting a family business into an FLP does not necessarily end any conflicts of the next generation over that business. You will still need a business succession plan.
  • Control of Assets – While you can control FLP assets, there are limits. You cannot use them for personal expenses.
  • Expensive for Children – Having part ownership of the FLP may subject your children to capital gains taxes they cannot afford.
  • Minor Children – You cannot give minors an interest in the FLP directly. You have to give them a share through a parent or guardian.

Family Limited Partnerships can be an excellent tool to pass on your business. However, you should consider them as only part of your estate plan and you should talk to an estate planning attorney about whether an FLP is right for you and your family.

For more information about family limited partnerships, please visit my estate planning website.

Reference: Life Health Pro (July 9, 2014) 6 Pitfalls That Clients Eyeing an FLP Need to Consider”


Business Succession: Planning for the Short-Term and the Long-Term / York, PA

Bigstock-Extended-Family-Outside-Modern-13915094Where family businesses are concerned, succession planning receives a deserved amount of focus – but that focus tends to be on deciding who will take over and ensuring they are ready. But if you own a business, what happens if you pass away or are incapacitated due to illness or injury?

There are really two situations you have to plan for when it comes to the future of the business. On the one hand: What will happen way down the line when I’m ready to give up the business (to sell it or to set up a successor, whichever I decide)? And, on the other hand, there is the more immediate question: What will happen to the family business if I pass away tonight? These are entirely different questions, and likely there are entirely different answers. So how do you plan?

What is needed is a tiered approach as explored in a recent Forbes article titled “Don't Let Your Family Business Die With You.” This may require both short-term plans and long-term plans.

Essentially, these are the same kinds of thoughts and approaches you should begin with in all aspects of your life, property and estate. However, there is a special difficulty when it comes to a business. Proper planning has, at all times, one foot in the future and one foot in the present because you never know when the unthinkable could happen.

Do you have a plan in place? If you do, does it take everything into consideration? If you don't, now is the time to start putting the pieces into place. Even if you have not yet gotten your thoughts together for a long-term plan, you absolutely must have the short-term plan safely in place.

For more information about estate planning and business succession, please visit my estate planning website.

Reference: Forbes (June 11, 2014) “Don't Let Your Family Business Die With You


Intellectual Property and Selling Your Business / York, PA

MP900387639Picture yourself at the table negotiating the sale of your company. Are you worried about any intellectual property(IP) skeletons in your closet?

In every beginning there is an end, and in every planning for the beginning of your company there should also be a plan for the end. Whether all goes well or all goes south, how does your business fit into your plan and how might it fit into your overall assets or estate? That is a heady issue, but increasingly in this information economy the most vital aspect is intellectual property.

Have you planned to structure the sale of both your business and your intellectual property? To what degree are the products of your company products of an intellectual property? Who owns the property, you or the company? Just as likely, is it possible that a previous employer has claim to your intellectual property?

Heed some advice given in a recent Forbes article titled “Start With The End In Mind: Four Must-Dos For Intellectual Property.

The simple fact is that with a personal business, so much of your own life – your blood, sweat, tears and ideas – go into the business. Accordingly, that planning for the business is truly a bit of life planning for yourself.

So how can you protect your intellectual property and what is your property in the first place? And, if you are already at the point of sale, how do you go about protecting and valuing that intellectual property?

For more information about estate planning and business, please visit my estate planning website.

Reference:  Forbes (June 9, 2014) “Start With The End In Mind: Four Must-Dos For Intellectual Property

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