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Gianelli Nielsen News Blog

Monday, November 7, 2016

Is There Anyway a Disinherited Child Could Receive an Inheritance From an Estate?

If your estate plan and related documents are properly and carefully drafted, it is highly unlikely that the court will disregard your wishes and award the excluded child an inheritance.  As unlikely as it may be, there are certain situations where this child could end up receiving an inheritance depending upon a variety of factors.

To understand how a disinherited child could benefit, you must understand how assets pass after death.  How a particular asset passes at death depends upon the type of asset and how it is titled. For example, a jointly titled asset will pass to the surviving joint owner regardless of what a will or a trust says. So, in the unlikely event that the disinherited child was a joint owner, that child would still inherit the asset because of how it was titled.

Similarly, if you left that disinherited child as a named beneficiary on a life insurance policy or retirement plan asset, such as an IRA or 401k, that child would still receive some of the benefits as the named beneficiary even if your will stated they were to take nothing. Another way such a "disinherited" child might receive a benefit is if all other named beneficiaries died before you.

So, assume you have three children and you wish to disinherit one of them and you state you want all of your assets to go to the other two, and if they are not alive, then to their descendants.  If those other two children die before you and do not have any descendants, there may be a provision that in such a case your "heirs at law" are to take your entire estate and that would include the child you intended to disinherit.

If you wish to disinherit a child, all of these issues can be addressed with proper and careful drafting by a qualified estate planning lawyer.  


Monday, October 10, 2016

Preventing Will Contests

So, you have a will, but is it valid?  A will can be contested for a multitude of reasons after it is presented to a probate court.  It is in your best interest to have an attorney draft the will to prevent any ambiguity in the provisions of the document that others could dispute later. 

A will may be targeted on grounds of fraud, mental incapacity, validity, duress, or undue influence.  These objections can draw out the probate process and make it very time consuming and expensive.  More importantly, an attorney can help ensure that your property is put into the right hands, rather than distributed to unfamiliar people or organizations that you did not intend to provide for. 

At the time you executed the will, you must have been mentally competent, or of “sound mind.”  A court will inquire as to whether you had full awareness of what you were doing.   There will also be an inquiry into your understanding and knowledge of the assets in your name.  If, at the moment you executed the will, you were pressured or influenced by another individual to sign the document, it may be invalidated. 

If the document was signed under duress or undue influence, the provisions are likely to be against your intentions or requests.  Moreover, if you are trying to nullify a will on your own behalf, you are likely to need an attorney because it is very difficult and complicated to demonstrate the existence of duress, fraud, or undue influence.   If drafting a new will, counsel can ensure that your document abides by all of the validity requirements, so the will’s provisions can successfully carry out your intentions after your death.

For example, the will creator or “testator,” is usually required to sign the document before several witnesses who are over the age of eighteen, during a certain period of time.  A will or a certain bequest to a person could be deemed void if the beneficiary was also a witness.   In your state, you may be able to execute a “self-proving affidavit,” which may do away with some of the requirements in order to establish a valid will.  The testator should also designate a person to execute the document.  Consult your attorney to ensure that your will comports with your state’s particular laws and is sustainable against any future contests.  

 


Monday, September 26, 2016

The Revocable Living Trust


There are many benefits to a revocable living trust that are not available in a will.  An individual can choose to have one or both, and an attorney can best clarify the advantages of each.  If the person engaged in planning his or her estate wants to retain the ability to change or rescind the document, the living trust is probably the best option since it is revocable. 

The document is called a “living” trust because it is applicable throughout one's lifetime.  Another individual or entity, such as a bank, can be appointed as trustee to manage and protect assets and to distribute assets to beneficiaries upon one's death.
Read more . . .


Monday, September 5, 2016

The Federal Trade Commission Act and its Affect on Advertising

The law forbids businesses from including baseless statements or assertions in their advertisements.  According to the Federal Trade Commission Act (FTCA), a business must ensure that their representations are not misleading or unfair, and the entity must have data that supports all claims.  Evidence may, for example, be substantiated based by surveys, expert testimony, or scientific studies and tests. 

A “deceptive” advertisement, as described in the FTC's "Deception Policy Statement" is one that suggests or omits a critical fact in an attempt to mislead customers. Similarly, an “unfair” advertisement is categorized as one using a deceptive practice that may result, or has resulted in, significant customer harm. Typically, the harm caused could not be avoided by the customer, and minimal benefit is experienced by any of the clientele engaging in the same practice.

The Federal Trade Commission (FTC) is charged with investigating national ads to determine whether they are fraudulent. Local advertising, on the other hand, is usually the domain of agencies of the county, state, or city, such as the Better Business Bureau (BBB). In both cases, certain criteria are used to evaluate the “words, phrases, and pictures” within the endorsement to identify potential deception. Deception is characterized as that which a “reasonable consumer” would falsely believe to be true.  All investigations are confidential until legal action is commenced or a claim is settled.   

There are several remedies available for deceptive claims, including the issuance of a cease and desist order.  Such an order prohibits a business from continuing to disseminate misleading or dishonest advertisements.  A cease and desist order is often combined with substantial fines or with a requirement that the offending company authenticate any and all future ads.  Other penalties may compel a business to notify its customers of the false ads, or to provide refunds for falsely advertised purchases.    

Unfair competition may also come into play in cases of deceptive advertising. Companies that feel they have been unfairly treated by competitors may have legal recourse. The National Advertising Division (NAD) is associated with the BBB, and an aggrieved party may file a cause of action against a competitor through NAD.  Depending on the specific circumstances, a business may have the legal authority to sue its rival for posting deceptive ads under the Lanham (Trademark) Act. Individuals who feel their businesses have been harmed by the false or deceptive advertising practices of a competitor may have remedies available to them. A reputable business attorney is in the best position to give advice about which course of action should be pursued.


Monday, August 29, 2016

Five Considerations For Starting a New Business

1.     Deciding on a Business Form

There are various business forms to choose from.  A sole proprietorship is the easiest to set up, manage, and maintain. There is minimal paperwork necessary to set up a sole proprietorship since there is no distinction between the business and the proprietor. Unfortunately, if a sole proprietorship faces a lawsuit, the owner’s personal assets are at stake.

This can be avoided by registering a Limited Liability Company (LLC) with the state. An LLC limits an owner’s liability to the investment in the company, but it requires filing separate taxes every year and can affect the business’s profit margin. Other common ways of organizing a business include corporations, partnerships, and 501c(3) nonprofit organizations. Partnerships, LLC’s, corporations or nonprofits all have advantages and disadvantages.  It is wise to discuss this matter with a qualified business law attorney who can lead you in the right direction when it comes to business form.

2. Deciding on an S Corp or a C Corp

If you decide that a corporation is the right form, it is important to understand the various types of corporations.  S- and C- corporate forms are available.  There are several differences between a C Corp and an S Corp.  The most significant is the way the two are treated for tax purposes. A C-Corp pays taxes on its profits and the principals pay taxes on the money they have received from the company. In an S-Corp, the business files a K-1 form and the profit from the business is included in the individual taxes of the principal. An S-Corp is permitted to shift some of its income from one year to the next. In addition, a C-Corp has more leeway in determining when its fiscal year starts and ends.

3. Securing an entity name and a tax ID number

Securing a tax ID number is a simple process, requiring only the filling out of forms either on the IRS website, by mail, by fax or by touchtone telephone. No fee is necessary for the application. A tax ID number may also referred to as an EIN (Employer Identification Number), is nine digits long.

4. Register with your state  

In order to ensure compliance with rules governing workers' compensation, unemployment insurance, local taxes and access to other government resources, it is important to notify the state in which you operate what you are doing.

5. Obtain necessary licenses and permits

Depending on the type of business you run, different permits may be required to operate.  For example, a restaurant not only requires approval by the board of health, but requires a liquor license in order to be legally permitted to serve alcohol.

A skilled business law attorney can help you decide what is necessary to start your business off on the right foot.


Monday, August 22, 2016

What are the powers and responsibilities of an executor?

An executor is responsible for the administration of an estate. The executor’s signature carries the same weight of the person whose estate is being administered. He or she must pay the deceased’s debts and then distribute the remaining assets of the estate. If any of the assets of the estate earn money, an executor must manage those assets responsibly. The process of doing so can be intimidating for an individual who has never done so before.

After a person passes away, the executor must locate the will and file it with the local probate office. Copies of the death certificate should be obtained and sent to banks, creditors, and relevant government agencies like social security. He or she should set up a new bank account in the name of the estate. All income received for the deceased, such as remaining paychecks, rents from investment properties, and the collection of outstanding loans receivable, should go into this separate bank account. Bills that need to be paid, like mortgage payments or tax bills, can be paid from this account. Assets should be maintained for the benefit of the estate’s heirs. An executor is under no obligation to contribute to an estate’s assets to pay the estate’s expenses.

An inventory of assets should be compiled and maintained by the executor at all times. An accounting of the estate’s assets, debts, income, and expenses should also be available upon request. If probate is not necessary to distribute the assets of an estate, the executor can elect not to enter probate. Assets may need to be sold in order to be distributed to the heirs. Only the executor can transfer title on behalf of an estate. If an estate becomes insolvent, the executor must declare bankruptcy on behalf of the estate. After debts are paid and assets are distributed, an executor must dispose of any property remaining. He or she may be required to hire an attorney and appear in court on behalf of the estate if the will is challenged. For all of this trouble, an executor is permitted to take a fee from the estate’s assets. However, because the executor of an estate is usually a close family member, it is not uncommon for the executor to waive this fee. If any of these responsibilities are overwhelming for an executor, he or she may elect not to accept the position, or, if he or she has already accepted, may resign at any time.


Monday, August 15, 2016

What is a 501(c)(3)?


A 501(c)(3) nonprofit is one of a class of 29 different types of tax-exempt, nonprofit organizations under section 501(c) of the tax code. Most charitable organizations that receive donations from individuals in the United States are organized as 501(c)(3) nonprofits. The 501(c)(3) status is the most coveted type of nonprofit status because donations to these organizations can be deducted from income for tax purposes by the donors.
Read more . . .


Friday, August 5, 2016

TAXATION OF TRANSFERS OF FAMILY BUSINESS INTERESTS


On Tuesday the Treasury proposed new tax Regulations which will dramatically increase the value of family business interests for gift and estate tax purposes and for family sales.

The Regulations propose eliminating discounts for lack of marketability and lack of control on intra-family transfers of interests in family controlled entities.

The Regulations will be effective when published in final form, which we expect to be early 2017.

To the extent that your plans include passing the family business to the next generation through gifts or sales, it may have significant financial benefit if you complete the transaction this year, before the Regulations become final.

We urge you to contact your professional advisors to determine how these changes will impact your family.
Read more . . .


Monday, July 25, 2016

How to calculate estate tax

In order to predict how much your estate will have to pay in taxes, one must first determine the value of the estate. To determine this, many assets might have to be appraised at fair market value. The estate includes all assets including real estate, cash, securities, stocks, bonds, business interests, loans receivable, furnishings, jewelry, and other valuables.

Once your net worth is established, you can subtract liabilities like mortgages, credit cards, other legitimate debts, funeral expenses, medical bills, and the administrative cost to settle your estate including attorney, accounting and appraisal fees, storage and shipping fees, insurances, and court fees. The administrative expenses will likely total roughly 5% of the total estate. Any assets that is bequeathed to charity through a trust escapes taxation, and the value of those assets must be subtracted from the total. Any assets transferred to a surviving spouse are not subject to taxation as long as your spouse is a US citizen.

If the net worth of an estate is less than the Federal and state exemptions, no taxes must be paid. However, the value of assets over the exemptions will be taxed. The amount over the exemptions is referred to as the taxable estate. A testator’s assets are taxed by the state in which the will is probated. Taxes paid by the estate to the state may be deducted for Federal tax purposes. The Federal exemption was $5.43 million in 2015 and is slated to increase in 2016. The top Federal estate tax rate in 2015 was 40%.

If an estate earns money while it is being administered and distributed, for example, if real estate is rented or businesses continue to operate, it will be necessary for the estate to complete a tax return and pay taxes on the income it receives. The net income of the estate can be added to the taxable portion of the estate if it is over the federal or state exemption. It is important to be aware that the laws surrounding estate taxes change frequently and require seasoned professionals to navigate, and to notify you if changes in the laws will affect your estate plan. 


Monday, July 11, 2016

Investment Strategies for Minority Investors

As a minority business investor, it is essential to have an investment strategy that will maximize your returns. Once an investment decision is made, it is critical that a target business will enhance value of a broader investment portfolio.  At the same time, many minority investors are also business owners who know what makes for a successful enterprise. This post is a discussion of what minority investors should look for in a privately held business.

What makes for a great minority investment?

Since a minority investor has a significant but non-controlling ownership interest in a business, the first rule of thumb is to invest in business enterprises that you understand and with which you are comfortable. At the same time, great investments can also be found outside your business comfort zone provided that you have good management skills and the acuity to understand your target's business model.

Investing in a small business starts at the top,  that is with the owners. Accordingly, getting to know the owner and understanding how they do business is critical in your decision-making process. One key attribute you should look for in an entrepreneur is passion. Without it, he or she will lack the vision to steer the company toward success. It is also wise that you exercise caution by conducting background checks particularly with an eye toward ascertaining any legal actions in which the owner and other key people have been involved.

Of course, it's not only a matter of the people, it's about the numbers. The onus is on you to do your own due diligence, perform your own research and undertake an analysis of the proposed business plan. An investment proposal can be filled with numbers that amount to nothing more than smoke and mirrors. It's your job to ensure the numbers add up.

Level of Investment

Once you've done your homework on the target business, you need to decide how much to invest and how closely you will be aligned with the entity. Determining how much to invest is really a matter of risk management. In order to safeguard your investment, it is critical to negotiate a deal that is mutually beneficial. In particular, you should consider having an exit strategy with an understanding that your investment will be repaid by a certain date at an agreed upon rate of return.

You must also decide whether you will have no active participation in the decision-making and operations of the business or if you will be involved in the management of the entity. Even as a minority investor, your stake in the business may be significant enough to warrant having a seat at the table in order to advise on policy and evaluate management's performance.

Business Categories

As a minority investor, there are many business categories to consider that depend on your investment strategy. For example, investing in a start-up tends to be high-risk since management may not have a track record of success or a proven business model. Nonetheless, start-ups can also offer great rewards if they are breaking ground in a new business method or technology. The caveat is that the majority of start-ups are short-lived and destined for failure within the first 5 years.

If you are looking for a growth opportunity, there are business enterprises that have successfully launched but need another infusion of capital to grow. These businesses have an initial track record that will allow you to determine if your investment will be rewarded, even if it is subordinated to original investors. On the other hand, opportunities can also be found in companies that have stopped growing because of insufficient capital but still have a solid business plan.

For investors with a greater appetite for risk, companies that are failing can be ripe for a turn- around, provided that your stake comes with a hand in the decision-making and that the business fundamentals remain sound. Even bankrupt entities with cash flow potential offer investment opportunities for investors who are willing to have a high level of involvement.

The Bottom Line

For the minority investor, the nature of investing is high-risk, and every opportunity is unique - some offer greater rewards as well as higher risks. Your ability to make a decision on the merits of a business plan depends on your capacity to be a good business manager as well as a shrewd dealmaker. Investing in a privately held business requires a lot of up-front sweat equity in researching your target company, analyzing financial reports, evaluating the businesses track record, and ascertaining management's skills.

In particular, investing in a closely held business is an investment in the owners as well as the business. These entrepreneurs need to be innovative and have the ingenuity and passion to grow the business. In the final analysis, investors and owners need to be honest partners and strike a deal that is a win-win. The goal for both parties is to ensure the enterprise is successful and offers a worthwhile return on investment.

If you do your homework, your investment in privately-held businesses can be quite lucrative. That being said, it's always in your best interest as a minority investor to have a lawyer on your side of the table to craft an investment agreement, advise you of your responsibilities and shield you from potential litigation.


Monday, July 4, 2016

When is a person unfit to make a will?

Testamentary capacity refers to a person’s ability to understand and execute a will. As a general rule, most people who are over the age of eighteen are thought to be competent to make and sign the will. They must be able to understand that they are signing the will, they must understand the nature of the property being affected by the will, and they must remember and understand who is affected by the will. These are simple burdens to meet. However, there are a number of reasons a person might challenge a will based on testamentary capacity.

If the testator of a will suffers from paranoid delusions, he or she may make changes to a testamentary document based on beliefs that have no basis in reality. If a disinherited heir can show that a testator suffered from such insane delusions when the changes were made, he or she can have the will invalidated. Similarly a person suffering from dementia or Alzheimer’s disease may be declared unfit to make a will. If a person suffers from a mental or physical disability that prevents them from understanding from understanding that a will is an instrument that is meant to direct how assets are to be distributed in the event of his or her death, that person is not capable of executing a valid will.

It is not entirely uncommon that disinherited heirs complain that a caretaker or a new acquaintance brainwashed the testator into changing his or her will. This is not an accusation of incapacity to make the will, but rather a claim of undue influence. If the third party suggested making the changes, if the third party threatened to withhold care if the will was not changed, or if the third party did anything at all to produce a will that would not be the testator’s intent absent that influence, the will may be set aside for undue influence. Regardless of the reason for the challenge, these determinations will only be made after the testator’s death if the will is presented to a court and challenged. For this reason, it is especially important for the testator to be as thorough as possible in making an estate plan and making sure that any changes are made with the assistance of an experienced estate planning attorney.


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