Kansas & Missouri Estate Planning

Charging Order Challenges In Overland Park, KS

The structure of your business is, in essence, not just about taxation. That is a given. You want a structure that protects you from liabilities of the business itself in Overland Park and elsewhere.

Since the very structure of your business is a means to protect both you and your business, it is worth understanding and maintaining this fortress.

Have you heard of “charging orders.” These are legal wedges creditors try to employ to try and drive a wedge between you and your business. If your business is an LLC (Limited Liability Company) or an LP (Limited Partnership), then there is more you should know about charging orders. This was addressed in a recent Forbes article titled “The Misunderstood Charging Order.”

While this is a complex subject, basically a “charging order” is a creditor’s first and last tool to extract your interests and capital from your business (assuming they do not try to "pierce the veil"). In a corporation, a charging order can allow a creditor to actually gain a debtor’s stock interests in the business. This can be disastrous. “Limited” company structures are specifically designed with “charging order protection” in mind and this is worth understanding.

The original article goes into greater detail, but essentially a “charging order protection” is a means by which a creditor can place a lien on your LLC membership interests and claim any distributions. Fortunately, however, a creditor cannot claim the membership interest itself and sabotage the business.

Certainly there is much more to know on the subject of asset protection, to include on the subject of company structures themselves. Although some this discussion tends toward the academic, only you know your personal needs and the corresponding needs of your business. Plan accordingly.

 

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

 

Reference: Forbes (April 30, 2013) “The Misunderstood Charging Order” 

Exiting Your Business On Your Own Terms In Overland Park, KS

Exit planning for your small business isn’t like a light switch – there is no simple on/off switch when it comes to control or ownership. It took time to build the business the right way and so it will also take proper time and planning to leave it on your own terms.

Fortunately, you can structure your exit in such a way so you can lay the foundations to flip the switch in the future while retaining management control in Overland Park today. A recent Forbes article titled “How To Retain Control, Even As You Exit” provides some practical advice.

At the most basic level you may want to adjust the structure of the business itself. Is it an LLC? If yes, then retain control by making it a “manager-managed” LLC and retain the management position. Is it a corporation? If yes, then there are more options. For instance, you could issue various types of stock, either by creating different "classes" of stock (voting vs. non-voting), or even offer "restricted" stock that becomes vested only upon certain conditions. The corporate structure also offers other powerful tools like Employee Stock Ownership Purchase (ESOP) arrangements.

Your approach and the timing of your exit will depend on other factors, not the least of which hinges on your successors. When will they be ready to assume more control? Even more important, when will you be ready to begin relinquishing control?

More often than not, you can structure an exit so both control and financial gain slowly adjust to everyone’s benefit, but you have to start with a plan.

Remember: When making your financial, tax and estate plans, don't go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Forbes (April 10, 2013) “How To Retain Control, Even As You Exit” 

How To Exit Your Overland Park, KS, Business In Style

Running a business is hard work. Period. Leaving it is not cakewalk either. Unfortunately, you usually have only one shot to get it right.

If you think about it, just about every exit plan can come down to three tools. A recent Forbes article titled "Three Ways To Exit Your Business" examined these tools: sale, capital transfer,and gifting.

While there are many ways to mix-n-match these tools depending on your unique circumstances, the biggest failure is to put your head in the sand. Is it any wonder two-thirds of all business fail to make it from the founders to the next owners and only half again make it from that second handoff to the third level owners?

The key teaching point is to engage the professional services of your accountant, financial advisor and attorney sooner rather than later. Like a good coach, make sure your "team" knows the end result you want to accomplish in your business transfer. Be sure to read the original Forbes article as part of your preparation.

When making your financial, tax and estate plans, don't go it alone.

For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Forbes (March 19, 2013) "Three Ways To Exit Your Business"

What's Your Business Worth?

What is your business worth to you? What is your business worth to a potential buyer? These are two entirely different questions.

As a business owner, you should be able to answer both questions fully and truthfully. In other words, you should know the value of your greatest asset and boldest venture, both personally and on the open market, because there may come a day when you need to sell or pass down the business. Knowing the numbers today can also help make you a better manager. 

Valuations are difficult for business owners because there are so many variables to the process. That said, the ability of a business owner to fully understand their business from the outside – as the owner of an asset or as a prospector on the market – rather than from within the immediacy of running the business, is fundamentally important to managing the business well today and in the future.

According to The New York Times, business owners are increasingly coming to terms with these issues. Their recent article, "Do You Know What Your Business Is Worth? You Should," suggests that while most business owners put off getting a valuation until a sale is imminent, many are starting to treat the act of valuing their business as an integral part of running it.

For example, valuations -- whether performed by your accountant on an annual basis or with the assistance of sophisticated software tools -- can help business owners pinpoint management practices that may be undermining business value. Isolating those variables, and acting on them, can drive your valuation higher.

Tax time is a great opportunity for you as a business owner to crunch numbers with your tax adviser and start getting a handle on the true value of your business ... and some ideas for improvement.

Reference: The New York Times (January 30, 2013) "Do You Know What Your Business Is Worth? You Should"

Advanced Estate Planning Techniques - Renewed Tax Targets?

With the fiscal cliff standoff behind us, many Americans are content to rest and catch up on their sleep. Some professionals, however, have started to realize that there were some very real questions left on the fiscal cliff table.

[Spoiler alert: we are approaching a renewed fiscal debate and inevitable revenue-squeezing.]

While significant estate planning laws are settled, there remain more than a few important estate planning "tools" left hanging in the air. These tools likely will be low-hanging fruit in future discussions.

The American Taxpayer Relief Tax Act Of 2012 (ATRA) finally ended some 12 years of estate planning uncertainty (or so we can only hope). The certainty includes such matters as various tax rates and the exemptions amounts for the estate tax, gift tax, and generation-skipping tax. But ATRA didn't settle many technical questions raised in the past few years, both on and off the campaign trail.

So, what issues and devices should we watch? A recent Forbes article titled "Congress May Tighten The Belt On Cute Tax Tricks" lists some sore subjects and possible new areas of taxation. These include:

• Grantor Trusts: might just get added back into the Grantor’s estate.
• Dynasty Trusts: might just limit the extent of your dynasty.
• GRATs: “Grantor Retained Annuity Trusts” (GRATs) might become much more demanding and risky.
• Family Limited Partnerships: might become much less valuable as your ability to take discounts is curtailed.

The original article is worth your time, especially if you are concerned that future technical rules may swoop in and sully some well-designed estate planning. However, for those conversant with this subject, they will recognize that this talk is nothing new and these estate planning devices have been repeatedly targeted in the past.

The takeaway, as always, is to consult qualified legal counsel regarding how future changes in the law may impact your estate planning.

Reference: Forbes (January 16, 2013) "Congress May Tighten The Belt On Cute Tax Tricks"

Is Your (Business) Succession Secure?

"Succession" seems to be such an old concept – one that invoke kings, not necessarily entrepreneurs.

When it comes to business, however, succession is perhaps the most fundamental concept and object of planning. "In every end is the beginning." No truer words could be written when it comes to planning the successful succession of a small business.

If business succession is on your mind then you will want to read a recent Forbes article titled "How to Succeed At Succession." Before you read the original article, remember this – the questions are as important (if not more so) than the answers.

So, what kinds of questions should you be asking yourself? Here are a few to ponder: Do you want the business to live on past you? Who ought to lead it? What is the business in the context of your own estate or the estates of your partners? Do you have an exit strategy in the event of retirement, disability or death?

In the end, make sure you consult appropriate legal counsel. This area of planning is not a do-it-yourself project.

Reference: Forbes (January 15, 2013) "How to Succeed At Succession"

Keep Your Most Talented Employees

It's no secret that the men and women in today's workforce will change jobs frequently. Furthermore, it's no secret that training employees is costly and that good talent is hard to find.

Having stated the obvious, why don't more business owners and managers focus on retaining talent?

A recent Forbes article sheds some light on the disconnect and discusses the top 10 reasons why your talent will leave you. The abbreviated version includes:

1. You failed to unleash their passions.
2. You failed to challenge their intellect.
3. You failed to engage their creativity.
4. You failed to develop their skills.
5. You failed to give them a voice.
6. You failed to care.
7. You failed to lead.
8. You failed to recognize their contributions.
9. You failed to increase their responsibility.
10. You failed to keep your commitments.

If you have seen a high rate of turnover within your company, this article may be worth reading. But once you've read the article, follow through with its suggestions or else you may continue to lose your most talented employees.

Reference:  Forbes December 13, 2012 "10 Reasons Your Top Talent Will Leave You"

If It Walks Like A Partnership And Quacks Like A Partnership…

There are quite a few ways of structuring a business entity. But how do you choose between the veritable alphabet soup of LLCs, S Corps, C Corps, LPs, LLPs, and so on and so forth? This can be quite a headache, since not all of them do the same thing.

A golden rule for business is to do business the way your business is structured, and to structure your business entity in the way you need to be doing business! If you mix and match it has an unfortunate tendency to create serious liabilities which often come with a fairly aggressive tax assessment.

With liabilities and taxes in mind, consider reading a recent Forbes article titled "Beware Of Partnership Status Sneaking Up On Your Business Venture."

While this advice is nothing new, yet another tax court case has come down the pike to confirm this conventional wisdom. In the case a father and son operated a moderately large agricultural business. The father and son, however, each formed their own entities, worked together to do the work, and split the income equally, but disproportionately split the expenses. The IRS determined that this juggling of the books didn’t compute, so the IRS slammed both father and son with the taxes that would have applied on a single "partnership."

You could say this was another case of "substance over form."

Teaching point: if there are two business entities, then they must act like two businesses in order to be separate businesses. Otherwise, there should be only one entity, if such is an accurate reflection of how the work is being done.

Of course, the accidental partnership is not the only pitfall...

Be sure to read the original article for the full scoop.

Reference: Forbes (October 21, 2012) "Beware Of Partnership Status Sneaking Up On Your Business Venture"

When (Business) Partners “Divorce”

In every end there is a beginning. When it comes to the founders of a business, there also ought to be an end. An amicable end.

As Stephen Covey noted so adroitely, one of the keys to effectiveness is to "begin with the end in mind." Accordingly, the founders of a business should structure and run the business with a clear commitment to their shared ultimate goals for themselves and their business. In the vernacular of business planning this oftentimes is called "exit planning."

If you fail to "begin with the end in mind" and make legal plans to memorialize the end game for your personal and business relationships, then you likely will only enrich lawyers. So, when it comes time to part ways down the road, what steps should you be taking now?

The Wall Street Journal recently addressed this subject in an article titled "Breaking Up (With a Co-Founder) Is Hard to Do."

One key takeaway from the article is the "when and how" of exit planning. The best time to address the issue is when the business is founded. Consequently, the best way to memorialize the exit strategy in the event of the disability, retirement or death of a founder is through various fundamental legal documents created when the business is founded. For example, an Limited Liability Company (LLC) can use the LLC Operating Agreement, while a corporation may use its Bylaws or various Shareholder Agreements.

Regardless, one thing is clear: do not bury your head in the sand. For every business, an "exit" will be required. As a result, you can either make plans now, or leave it up to lawyers to clean up (literally) later.

Reference: The Wall Street Journal (September 22, 2012) "Breaking Up (With a Co-Founder) Is Hard to Do"

Family Business Non-Succession?

Succession of the family business can be a fairly difficult transition for just about everyone involved. This can be especially true for the heir apparent.

What happens when the heir pulls away or even outright rejects the business? Well, the transition gets tougher still.

If you are a family business owner, are you intending to keep the business in the family even as you step down from control? Have you consider the possibility of designating an heir who does not want the family business and do you have a "Plan B" to adjust your succession plans accordingly? The reasons why an heir may resist taking up the reins to the family business are many facetted, but that necessarily doesn’t mean they are making a final, informed decision. No, it may take time, talk, and some understanding, and there are lessons to be gleaned from a recent Forbes article on the subject titled "5 Ways Family Business Founders Can Change A "Made Up" Mind."

Perhaps it's best to think of it this way: when it comes to succession, your estate planning is simply no longer just about your wishes, your hopes, or your dreams. Even if they are selfless, everyone else has to do his or her own thinking and planning. This can take patience, time and understanding.

Reference: Forbes (September 10, 2012) "5 Ways Family Business Founders Can Change A "Made Up" Mind"