Idaho Estate Planning

The LLC in Idaho - Powerful Asset Protection When Used Wisely

Business owners often focus on the tax consequences of business structure. But asset protection is a growing concern in these litigious times, leading to the rising popularity of “limited” forms of business such as the Limited Liability Company (LLC).

LLCs have a unique asset protection feature against charging orders. Maybe you have heard of these? A recent Forbes article titled “The Misunderstood Charging Order,” offers a basic explanation:

The charging order itself is not the lien; rather, the lien is what is placed by the charging order. Think of the charging order as a can of spray paint, and the paint is the lien. The charging order basically sprays the lien on the debtor/member’s interest. Stated differently, the charging order is the vehicle by which the lien is placed on the debtor/member’s interest — it is not the lien itself.

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 don’t 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, something that could be important to you as a business owner. 

The original article goes into greater detail, but essentially the charging order protection means that while a creditor can place a lien on your LLC membership interests and claim any distributions, a creditor cannot claim the membership interest itself and sabotage the business.

While a “limited” company structure does provide a level of asset protection, keep in mind it is not a panacea. Do not just presume that a creditor will see an LLC and run away or settle for pennies on the dollar (as LLCs are often marketed), as that is rarely the case.

At Idaho Estate Planning we are the experts you need to know and trust. Work with us and we'll put together a plan that works for you and your loved ones. Remember, good planning is no accident.

ESOP & Idaho Business Succession

Businesses are formed in many ways, and we have come to know those varying abbreviations (S-Corp, C-Corp, LLC, LLP, LP, LTD, and so on and so forth) that represent each varying business.  But when it comes to passing on your business, there is another acronym to consider: the ESOP.

So, what is an ESOP, what can it do, and is it right for your business?

ESOPs, or Employee Stock Ownership Plans, are a tricky breed. Essentially, an ESOP is a tool recently highlighted by Congress and featured by The Wall Street Journal in an article titled “Founders Cash Out, but Do Workers Gain?” Planning to exit a business is all about doing one of two things; either restructuring the business or selling it outright. With an ESOP you accomplish both goals and build the company around the very employees that compose the company in the first place.

Rather than going out and hunting for a buyer, the employees become vested in the stock ownership of their own company. In turn, the ownership stake simultaneously becomes a retirement asset while the ownership of the founder is bought out.

Now, if you are already familiar with this approach, it may be worth reading the original article since there are certain limitations affecting the employees-turned-owners. The article gives examples of how an ESOP can work a win-win for all concerned under the right circumstances. These examples include Bob’s Red Mill, for example, or, from a different industry, Manson Construction Co.

ESOPS have been a powerful tool in an otherwise soft market for business transfers. Accordingly, ESOPS are worth a good look, and then even a second look, as a unique and proven business succession strategy.

At Idaho Estate Planning we are the experts you need to know and trust. Work with us and we'll put together a plan that works for you and your loved ones. Remember, good planning is no accident.

Idaho Medical Professionals Consider Effective Health Care for Your Estate & Practice

Physicians and other medical professionals face a different set of requirements when passing on their practice. While they are business owners there are also licensing standars that have to be met. I recently came across an informative article by Jennifer F. Hillman and Leora A. Ardizzone on the Lexis Nexis website. It is worthwhile reading for anyone in the medical profession who is or wants to have their own practice whether by themselves or as a partner. The authors make some great points:

For licensed health care providers planning and protection of assets should begin from the time a practice is first established.  Nothing prevents a practitioner from establishing a practice as a sole proprietorship, but doing so makes all the practitioner's assets (including assets unrelated to the practice, i.e. a primary residence, securities or other valuables) vulnerable to judgment creditors of the practice.  Creating a professional corporation, limited liability company or limited liability partnership can shield such personal assets from certain creditors of the practitioner's health care business.  No corporate entity will shield the provider from liability arising under professional malpractice, personal guaranties, criminal activity, and/or certain tax related matters, but the corporate structure can certainly help in protecting the provider's personal assets from certain creditors.

At Idaho Estate Planning we are the experts you need to know and trust. Work with us and we'll put together a plan that works for you, your practice and your loved ones. Remember, good planning is no accident.

Treasure Valley Business Owners - Plan Your Exit Now

Business succession planning is an inevitable process, one of which needs to be addressed well before you are ready to “clock out” for good. And since it took time to build your business the right way, it will also take proper time and planning to leave it on your own terms. Luckily, you can start planning your exit in such a way that allows you to retain management control during the process.

So, how do you structure the business so that you can start succession while still sitting in the big chair? 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 in different classes (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. For more information on Business Planning & Succession, contact Idaho Estate Planning and schedule a consultation. Remember, good planning is no accident.

  

Luray Caverns Sibling Rivalry A Lesson For Idaho Family Estates

Family businesses have a tough time passing from generation to generation.  Some will make the transition …and some won’t.  Even some of the most sound businesses and families alike will face succession challenges, so you can imagine that family business involving quarrels between family members have slim chances of survival.

For one of those all-too-possible horror stories of succession and family business gone awry, consider the case of the Luray Caverns and the Graves family. The Washington Post recently recounted the story in an article titled “The rift — a family dynasty fights over the future of Luray Caverns.”

The business of the Graves family was really an empire of various tourist businesses surrounding the Luray Caverns – the largest privately held cave system and tourism hotspot since the late 1800s. The family business apparently had been on a downward slope for some time. To make matters worse, this four generation family business has been in and out of litigation for the last ten years. In the end, not only has this discord threatened the family fortune and the business that built it, but the entire town associated with the family and the business.

More than a sad tale, this case is an object lesson for other family businesses and the original article is worth reading. If you are considering multi generational/legacy planning or are concerned about passing on the family business you need to schedule a consultaion today. 

At Idaho Estate Planning, we have the experience and expertise to help you maintain your options and protect yourself as well as your loved ones now and into the future. Remember, good planning is no accident.

Treasure Valley Business Owner Transfer Tips

Owning and running a business in Idaho is tough stuff, and at times you feel the weight of the world on your shoulders. But leaving your business can be just as challenging, considering you generally only have 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 hand off to the third level owner?

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.

Call Idaho Estate Planning to set up an Estate Plan Review and Business Consultation. 

Visit our website for more information where you'll find videos like the one below on a variety of subjects, this one happens to be about Business Succession. Remember, good planning is no accident.

 

Can Spouses Own A Business Together?

While there are many who would suggest keeping business and family separate there are many who find joy in working with their spouse. I came across a good article on the Forbes website on this very subject.The author, Allie Siarto, suggests there are "8 Rules For Starting A Business With Your Spouse". 

The 8 rules suggeste by Allie are as follows:

1. Have an emergency fund in place.
2. Get an office as soon as possible.
3. Know your personality types.
4. Define your roles.
5. Make a point to engage in separate hobbies.
6. Discuss your tolerance for risk.
7. Balance praise and constructive criticism. 
8. Have a sense of humor.

If you are considering starting a business there are many things to consider beyond picking a partner. At Idaho Estate Planning we are the experts you can count on when putting your plan together. Remember, good planning is no accident.

Does Your Business Succession Plan Involve a Holding Company?

Business succession plans take a great deal of thought, as there are several ways to plan for transferring a family business. How do you know which plan is right for you? Let’s explore some important considerations.

Businesses exist on paper. Lots of it.

Stationary letterhead, marketing materials, and the accounting books are the papers that may come to mind first. Nevertheless, don’t forget the all-too-often ignored “company books!” They provide the foundation and the structure of the business itself.

Considering the form and structure of the business can be vitally important when planning to give the business to the next generation. In addition, you should be mindful of its current operations and even the value of the business.

None other than The New York Times took up this issue in a recent article titled “Modern Safeguards for a Family-Owned Business.” The article offers an excellent introduction to the time-honored idea of a holding company. In short, a family can own a company by owning the company that owns that very company. Did you follow that?

Said another way, while professional management can take care of the day-to-day operations of the business, the owning family can come together to exercise control over the higher entity – the holding company.

If you’re no stranger to corporate structuring, then this is a familiar idea. Regardless, you never may have considered its application in terms of your own business and the family ownership.

For many, this kind of structuring can be a first step in an overall succession plan for the business without finalizing the precise terms of the succession. Be sure to call us for a consultation, as this is not a do-it-yourself project.

Estate Tax For Business Owners Could Pack a Wallop!

Over the past several years, we’ve seen estate taxes go through many alterations. We’ve seen changed exemption amounts, a one-year repeal, and “band-aid” fixes to name a few. In fact, the only thing certain about the federal estate tax was its uncertainty.

Until now.

Congress finally gave us permanent estate tax rules; and by permanent, I mean that except for a built in inflation factor for the estate and gift exclusion, the provisions don’t expire or change with the passage of time.

Interestingly, despite its potentially onerous tax bite, the federal estate tax remains largely a voluntary tax. As Forbes points out in a recent column, “Want to Avoid the Estate Tax Cliff? Five Ways to Help,” the new provisions still allow savvy planners to substantially reduce, or even eliminate, federal estate taxes -- even on estates that far surpass the $5.25 million exemption.

Forbes goes on to list five powerful strategies for reducing federal estate taxes:

      Gifting. The new provisions allow you to make tax-free lifetime gifts up to an amount equal to the federal estate tax exemption, currently $5.25 million. Straightforward gifting of assets while you are alive removes them -- and their future growth or appreciation -- from your estate tax-free.

      Discounting. There are still a myriad of techniques that can be used to discount the value of stock for transfer purposes. These techniques center on lack of control/minority interest and/or lack of marketability, and can create a substantial valuation discount.

      Loans. Family business owners can take advantage of historically low interest rates for loans used to execute sales of stock. As Forbes points out, “currently, a parent can sell shares of the family-owned business to the child for a fixed long term interest rate as low as 2.52%, and not incur a gift tax because of the loan rate.”

      Insurance. Properly purchased and owned, life insurance can be used to provide the cash needed to pay any federal estate taxes that may remain after other planning strategies are exhausted. Remember, the cash-call on federal estate taxes is due within nine months of the business owner's death.

      Charitable Giving. If the family is not interested in the business, but is interested in the wealth it has generated, a charitable gift of a business interest may be a savvy way to dispose of the business while also saving on taxes. As Forbes points out, “there are still a number of tax-smart ways to transfer the business to a nonprofit organization, and fulfill your estate planning goals.”

What we love about the new estate tax rules is their permanence, but what we don’t like is their sting -- in the form of 40 percent on the first dollar over the exemption amount (currently $5.25 million). Be sure to plan wisely for your estate tax liability, or risk being “stung” by the rules.

Of course the way to avoid that terrible sting is to plan now and avoid the punishment later. Remember, good planning is no accident.

Succession Plan - A Business Must in Idaho

When it comes to business, succession is perhaps the most fundamental concept and object of planning. So, even though we realize that all beginnings will inevitably have an end, why is it so hard to talk about?

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?

Make sure you consult legal counsel with all parties involved in your business. In order to have peace of mind about “the end” of your business, you must take appropriate planning steps in “the beginning.”

At Idaho Estate Planning we are the experts you need to know and trust. Work with us and we'll put together a plan that works for you and your loved ones. Remember, good planning is no accident.