New York Trusts & Estates

How to Value a Property Partnership Based Strictly on the Numbers in Yorktown Heights, NY

Ending a property partnership is often a lot like getting divorced. Most splits are the result of an irrevocable break in the personal relationship of the partners, the investment becoming a cash drain, or siblings who inherited property together and now want to sell. In a perfect world, property partnerships end when all partners are ready to sell and move on. But when that is not the case, being able to agree on the value of the property based on a rational evaluation can save all parties concerned a lot of wasted time and resources.

Taking a business-like approach to setting a value on property owned in a partnership is the best way to avoid costly litigation, according to "Splitting up property is hard to do," from The Orange County (CA) Register. Unfortunately, this is not always what happens when it becomes necessary to place a value on jointly owned property.

If you are really interested in getting to a fair property value for all concerned, there's a formula for the situation where one party wants to purchase the other party's share and keep the property. In that case, each party chooses one appraiser, and each conducts his or her own appraisals. Then the two appraisers agree on a third appraiser to do another appraisal. The final value is an average of the two appraised values closest to each other.

Here's an example of how this works. Partner A's appraiser determines that the value is $650,000, and Partner B's appraiser values the property at $745,000. Then, the mutually-chosen appraiser conducts her appraisal and determines that the value is $690,000. The closest value to the third appraiser's estimate is by Partner A's appraiser: $650,000. The average of the two is $670,000. Party B's appraisal is thrown out.

This type of methodology makes both appraisers reasonable so that their value isn't the one that's knocked out.

A qualified estate planning attorney can help shepherd this process and refer you to appraisers as needed.

For more information on Estate Planning, Asset Protection, Estate Planning Lawyer, Tax Planning, Probate Attorney, Valuation, Property Partnerships; please click to my website

Famous Musician Stevie Wonder’s Luck with Contracts is No Luck at All in Yorktown Heights, NY

 

The widow of eccentric entertainment lawyer Johanan Vigoda has sued legendary musician Stevie Wonder for millions in unpaid royalties. The dispute centers on a contractual provision in the contract. The irony: Vigoda was responsible for getting Wonder out of a bad contract early in his career.

When Stevie Wonder signed a contract with Motown Records, he joined the thousands of recording artists who signed documents that were better for the record companies than the artists themselves. Wonder was happy when his attorney, Johanan Vigoda, got him out of the contract with Motown.

Vigoda was also able to secure a lucrative new contract for Wonder that was considered to be one of the best in the industry. Vigoda passed away in 2011.

His widow now claims that Wonder has failed to live up to that contract. A provision in it gives 6% of Wonder’s royalties to Vigoda and to Vigoda’s heirs in perpetuity. The 6% is higher than music industry standards and the perpetuity clause is also irregular.

The Daily Beast reported on this lawsuit in “Is Stevie Wonder Cheating a Dead Man?”

As everyone knows, Stevie Wonder is blind. He never read the contract himself, but had it read to him. He claims that either the perpetuity provision was not read to him or that he failed to catch it when the contract was being read.

The great irony in this case is that the attorney who got Stevie Wonder out of a bad contract may have turned around and tricked Wonder into another one. That is at least the accusation. As of now, no court date is set in this case, so it may be quite a while before we know what happens.

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Prepare Now For Changes Coming to Family Partnership Rules in New City, NY

New regulations are coming from the IRS regarding family partnerships and limited liability companies. Perhaps in search of revenue, or trying to overcome a legally-permitted loophole, the IRS will soon make changes to capture some otherwise lost revenue on these entities, which have enjoyed tax discounts on assets that are otherwise easy to value.

Family partnerships and LLCs have been used for many years as a means of allowing family members to own assets jointly and to allow assets to be distributed in a relatively easy manner when one of the family members 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.

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Planning for Successful Business Transition? It’s Not the Same as Estate Planning in New City, NY

Owners who are personally and emotionally involved in their businesses, including farming operations, often consider what will happen to their businesses, farms and business assets when they are no longer involved. Planning for the disposition of a business is different than estate planning. While many think they are the same process, they are really very different.

Estate planning concerns the transfer of assets, including wealth, of an individual from one individual to another or to an entity, such as a trust, and this occurs only when the person passes away. Ownership of a business and business assets, whether they are tangible or intangible, can be transferred to a legal entity, whenever the owner chooses. The Columbus (NE) Telegram’s article, “Estate planning and business transition quite different,” discusses these two different kinds of transactions.

Business transition is simply the transfer of a business asset or the entire entity from an existing owner who has decided to retire or move on. This usually occurs during the life of the existing owner. However, when a business transfer takes place after the death of the owner, it’s usually part of an existing or implied estate plan or asset transfer process.

The process of business transfer can be a very simple process, or it can be complex and dynamic with many steps, based upon the wishes of the existing owner. There is a valuation of the business and the resources that must take place. The transfer of the tangible and intangible assets can occur through the cash purchase of individual items, a purchase of share interest, and/or purchase of stock or certificates. A cash sale, just like when buying a house, is the quickest and cleanest. A larger company with stockholders and a corporate structure takes some time.

The article reminds us that there are a number of similarities between estate plans and transition plans, but the big difference is timing of the transfer. Estate plans deal with the transfer of tangible and intangible assets and interests after the owner has died. A business transfer plan typically happens when the owner is still alive.

Neither of these is designed to be a replacement for the other. They work together, to fulfill the wishes of the business owner.

A qualified estate planning attorney can help a business owner sort out the issues and create both plans according to the owner’s wishes.

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Are You Really in Control of Your Business? In New City, New York

Many business owners fear losing control. Before they’re willing to address exit or estate planning options, they must first be assured of complete dominion over their business. So let’s look at how to lock in ownership.

 

Are you worried about losing control of your business?

 

A recent Forbes article, “Control Freaks Take Heart: How To Maintain Control Of Your Business,” offers some ways to assure firm control of a closely-held company.

 

Take stock. Business owners can frequently breeze over legal decisions involved in incorporating their business, which can have lasting ramifications.

 

These decisions are critical in determining who is in control and over which aspect of the enterprise. One common way to share stock ownership without sacrificing control is by issuing non-voting stock. This gives individuals an equity interest in the business without voting rights as to the governance of the business. This can work with an S Corp, provided the stock rights are otherwise the same.

 

Close counts. Many states have corporate laws for closely-held companies, but many of these laws only apply if specifically provided for in the company’s articles of incorporation, bylaws, or other legal documents.

 

These provisions are good to consider and also may help lock in control. The original article provides some examples of closely-held corporation laws that can potentially impact shareholder control, to include:

 

• Permission to dispense with the annual Board of Directors meeting
• Allowing voting trusts
• Requiring straight voting versus cumulative voting
• Mandating that major corporate actions can only be undertaken with approval of a super majority of stockholders

 

Depending on how ownership of a closely-held business is set up, these types of terms allow owners a bit more control—both in running the business and determining future.

 

Rent versus own. Simply stated, if you want total control of the business as an owner, don’t give away stock. Stock options, in essence, are just delayed ownership of stock, and restricted or non-voting stock still entitles owners to demand corporate information and allow them to file derivative lawsuits.

 

If you want a key employee to share in the wealth of the company, but not in the direction of the business, the original article suggests that you use other incentives than stock. It gives the example of nonqualified deferred compensation arrangements like phantom stock and stock appreciation rights (SARs) that can mimic stock value without giving up the stock itself. Better yet, create a nonqualified plan that has defined metrics to target the desired behavior of key employees such as where: (i) the sales VP shares in a part of the sales success; and (ii) the CFO shares in a piece of the profit; however, (iii) neither share in the control. If you do this, then the business owner is “renting” the company’s success to fund incentives but isn’t giving up ownership.

 

Before taking any of the actions described in the Forbes article, consult an experienced estate planning attorney.

 

For more information about Estate Planning, Asset Protection, Estate Planning Lawyer, Tax Planning, Probate Attorney, Estate Tax, Retirement Planning, Business Succession; click to my website

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Reference: Forbes (December 22, 2014) “Control Freaks Take Heart: How To Maintain Control Of Your Business

Short-Term and Long-Term Plans for Business Succession in New City, New York

Succession planning where company ownership is concerned can be fairly complicated, but at a simple level every plan is based on two basic issues. You’ve probably thought a lot about who will take over for you; that’s one. But, just as importantly, how can you make sure what you want to happen will happen? Without the right short- and long-term plans in place, it won’t.

Business succession planning focuses on two main concerns. On the one hand, what will happen way down the line when you're ready to give up the business? And, on the other hand, what will happen to the family business if you pass away tonight?

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 on Small Business; Business Succession; and Estate Planning; click to my website 

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

The Market is Heating Up for Business Sales in New City, New York

While valuations aren’t out of hand now, offers may climb as competition heats up.

Your business is likely an inherent part of your life. The decision to part ways with your business is complicated. It can't be easy to hand over your life's work. Nevertheless, there comes a time when it’s worth selling the business and also a time when the market is right. The M&A market is heating up, so is the time right for you too?

The M&A market is fickle, but currently seems to be on an upward swing. A recent article in Forbes reports that this swing seems to be catching even middle market companies. The article has a catchy title, too: “Why More Entrepreneurs Will Get A Phone Call Worth Millions.” 

As a business owner it’s important to think of the business as a business and (again) maybe your life’s work. On the other hand, it is also just as important to think of it as a marketable asset when it comes time to exit. After all, the business is likely to be your greatest asset and the cornerstone to your retirement, in one form or another. In addition, your business likely is part of your legacy to your children, whether as a family business succeeded into or as wealth transferred.

How will you choose to exit and when? How does this fit into your overall plan? Whether you pull the trigger or not, it’s worth watching the M&A market and ensuring that the business is appropriately structured for sale or succession.

For more information on Small Business; Estate Panning; Business Sale; Business Succession; Family Business; or Business Valuation; click to my website.

 

Reference: Forbes (May 31, 2014) “Why More Entrepreneurs Will Get A Phone Call Worth Millions”

The Family Limited Partnership: Your Key To Control in New City, New York

FLPs offer multi-layered benefits by providing senior family members with several advantages—all without ceding control of the assets to junior family members.

Estate Planning is often a game of give and take. So what if you want to give away your assets, but not just yet?

As is so often the case, where there’s a need there’s a tool. A particularly powerful tool in this case is the Family Limited Partnership (FLP). An FLP can do double duty as a tool for asset protection as well as for estate planning.

Family Limited Partnerships have long been a useful tool for many, but Forbes recently offered a helpful perspective in an article titled “How To Protect Your Assets Without Giving Up Control.”

You see, the FLP represents a way to separate control from direct ownership of assets. Those in business will understand the benefit of indirect ownership quite clearly. Indirect ownership is the essence of forming an entity to structure a business – an LLC or a corporation, for example – which protects the owner(s) from liabilities, creditors and the like, and often vice versa.

A Family Limited Partnership is, in reality, a form of a Limited Partnership. The distinction? You just use it for family assets like a house, individual assets, and anything you’d want to control even as you protect it and slowly gift it away.

Well, how does that work?

Limited partnerships allow for different types of partnership stakes: general partnership interests are vested with all the control, while limited partnership interests just represent ownership without control. Even if the limited partnership interests outweigh the general partnership interests 99 to 1, the general interest retains control.

This arrangement has a business use, but in a family it means that the parents can own all of the general partnership interests while granting out limited interests to the Family Limited Partnership that owns all of the assets. The parents keep control, the children slowly/eventually take on ownership, and creditors or claimants have a hard time touching the assets.

As you might have guessed, there are even tax benefits when it comes to bequeathing or gifting the FLP assets.

There is a great deal of finesse required to make an FLP arrangement work. Nevertheless, in its basic form the benefits are clear. Both in determining the structure of the FLP and in actually setting it up, competent counsel can mean all of the difference between a fully balanced and solid plan, and a potential mess.

For more information about Estate Planning and Asset Protection see my website.

Reference: Forbes (March 18, 2014) “How To Protect Your Assets Without Giving Up Control”

Things Tend Toward Chaos, So Plan Accordingly in Yorktown, New York

Asset protection is the process of employing risk management products and legally acceptable solutions to ensure a person’s wealth is not unjustly taken.

Ever heard of the rule of entropy? Roughly, it says that things tend toward chaos. So it is with business and the chaos of litigation.

If you are a small business owner, then you simply cannot have your greatest personal asset, the greatest family asset, and the activity you are most proud of eroded, chipped away or swallowed whole by litigants or creditors. You need a plan to protect the business as an asset.

Whenever an asset is important it is also worth your time to protect it. Businesses are a unique kind of asset. Protecting them requires a certain kind of thinking and planning. Unfortunately, most business owners simply have not done their due diligence with asset protection planning. However, even if you’re in the know, it is worth reading the recent Private Wealth article addressing this important topic, “Asset Protection For Business Owners.”

Asset protection is always about assessing the risks to the asset. The primary risks to any successful business are litigants and creditors seeking a piece of the pie. No one really likes or trusts creditors, but far and away it is litigation that can take down a thriving operation. It doesn’t even have to be a “legitimate” lawsuit if it's litigation against the business itself. While we are at it, let’s not forget about personal litigation or divorce.

Nevertheless, structuring the assets of the business and the business itself is a tremendously powerful way of shielding you, your family, and the wealth tied up in the business from being taken down. But here’s the rub: a plan in place is often a saving grace where the plan left on the chalkboard is always just wishful thinking.

Here is a funny bit of math the article pulls out of a recent study by Price Associates: “About 89.7% of these business owners said they are concerned about such lawsuits, but only 26.9% have an asset-protection plan.” Why so few?

Whatever the source of risk to the business as an asset, there are a wide variety of strategies that can be employed to limit or eliminate the risk. A powerful protection might even stop a suit dead in its tracks long before a plaintiff engages the court! To do the most good the plan must be developed with all the variables in mind and by a seasoned professional. Above all, however, this essential planning must be completed before it’s really needed. So don’t put it off and leave your business at risk.

For more information on Asset Protection, and Small Business, click on my website.

 

Reference: Private Wealth (March 7, 2014) “Asset Protection For Business Owners”

Corporations 101: Structure And Taxes in Yorktown, New York

For many years, when an individual outgrew a proprietorship, a corporation was the norm. Today, limited liability companies (LLCs) are popular. But despite the inroads of the LLC, corporations persist. But there are key differences between S and C status.

If you own a business or are chosen to inherit one, it is important to know how the business is structured. Is it a C Corp or an S Corp? Are there other alternatives?

There is a significant difference between the C Corporation and the S Corporation. Fortunately, Forbes helps clarify the distinction in an article titled “Key Facts About Corporations, S Elections & Buy-Sell Agreements.” If nothing else, it might dissuade you from a “corporation” at all.

Essentially, a corporation is always a corporation, but they do come in two flavors based on how you will be taxed. With an S corporation, the corporation will be “disregarded” and your personal profits from it will be taxed to you personally. On the other hand, a C corporation (generally larger in size) will be taxed as a separate entity all on its own before and in addition to any tax paid by owners.

When you are doing business this taxation is clearly important (you hope to make some money, no?). However, when you are planning for the future and longevity of the business this is no less important. Perhaps some different business structures are worth considering. For example, you might jump for the newer, stylish and (maybe) more agile LLC or Limited Liability Company.

If you have a corporation, then make sure you have a buy-sell agreement. The buy-sell agreement allows shareholders to agree how their shares will pass if one or more of them become disabled, retire or die. Otherwise, letting shares loose or in the wrong hands can even threaten the tax structure, never mind the health and longevity of the business in all regards. Then again, maybe you have a different plan for how ownership should transition.

These are a few key facts worth knowing, and if you own or may soon inherit a business then there is much to learn about business ownership and business structure. There are many more key facts to know, and maybe there is work to be done in restructuring the business itself.

For more information on Small Business, Corporations, Estate Planning, Tax Planning, and S-Corp Election, click to my website.

 

Reference: Forbes (March 18, 2014) “Key Facts About Corporations, S Elections & Buy-Sell Agreements”