December 29

Five Reasons Business Owners Need Estate Plans

Business owners are notorious for engrossing themselves in the day-to-day management and functions of their businesses. As a business owner, you are likely the heart and soul of the company you lead. Your clients love you, and you have built unique relationships with your contractors and suppliers.

Suppose, however, that tragedy strikes: You, as the business owner, are in a car accident and are severely injured or killed, leaving you unable to make decisions or care for yourself and your family. What will happen to your business in such a situation? We do not know what tomorrow holds. Circumstances like this can happen to anyone at any time. Consequently, business owners must proactively develop robust estate plans. Here are five reasons why business owners need an estate plan


1. To ensure the continuity of your business. When there is no estate plan in place for a business owner, there is no plan for addressing how the business will continue without its key employee: the owner. In many instances, the business owner’s company is a primary source of income for the owner’s family. The absence of that income could be devastating for the individuals dependent upon the business. The impact could be far-reaching, as the business may also have employees who rely on its continuity. Without an estate plan, there is no clear indication as to whether the company should continue to operate, and if it does continue to operate, how it should function. Create an estate plan so that you, your family members, your employees, and your clients will not be severely impacted by the disruption that is likely to occur in your absence.

2. To protect the wealth you have created. A business owner’s endeavors are often extremely lucrative, resulting in significant wealth creation. If there is little to no estate planning in place, that wealth is exposed and becomes vulnerable to creditors and predators. If the business owner dies and leaves a simple will or, even worse, no will at all, the owner’s money and property will have to go through a probate court process. During the probate process, a judge decides how the deceased’s assets should be divided and approves the distribution of items. Probate is a public process that is reflected in court records that are accessible to anyone. This means that information about the money and property you own will become public information.

Additionally, without proper estate planning, what you have left to your loved ones could be exposed to creditors trying to satisfy debts or to predators interested in benefiting from the wealth you created. For example, a disgruntled spouse of your child could attempt to take portions of your child’s inherited wealth in divorce proceedings. A well-thought-out estate plan employs tools to protect against these situations. While a will can record your decisions, legal documents that are not available to the public such as trusts, buy-sell agreements, and personal and company agreements are often more beneficial for business owners.

3. To avoid default state laws. Particularly when it comes to limited liability companies (LLCs), there are default rules about what happens to a business in the event of a business owner’s death or incapacity that may not align with your goals. For example, under some states’ statutes, an LLC must be dissolved when the last surviving member of the LLC passes away. Some state laws allow a business owner’s economic rights to pass to the owner’s family members without management or decision-making authority. If a business owner does not want surviving family members to be hamstrung in this way, the owner can leave instructions for handling these situations in the owner’s estate and business planning documents.

4. To minimize estate and gift taxes. You may be subject to substantial estate and gift taxes if your business endeavors have produced a significant amount of wealth. Without a proper estate plan, your family members could lose out on a substantial portion of your wealth to satisfy these taxes. Business owners who have put a carefully considered estate plan into place can avoid this. The tax-saving strategies you employ will help you leave your wealth to the people you love without subjecting them to a significant tax burden.

5. To provide guidance and establish your legacy. Arguably the most important reason to complete your estate plan is to firmly establish your legacy for your loved ones by leaving guidance about how to run your business. For years, you built your business and guided your team by providing insight and inspiration. That guidance is what makes the real difference. The process of creating your estate plan can help you answer the following questions:

  • – What are the core principles and values that drive you?
  • – What is the business’s mission?
  • – Who will lead the charge next?
  • – What will happen to your clients?
  • – What will happen to your employees?
  • – Can the business be bought out?

Jim Collins, author of the book Good to Great, asserts that “core values are essential for enduring greatness.[1]” If you are a business owner who desires to leave an enduring legacy, you must prioritize estate planning.


Next Steps

If you would like to create an estate plan, we are here to help. We have a team of experienced attorneys who have helped many clients create estate plans that protect the people they love and the legacy they have created. Call our office to schedule an appointment to learn about our process and receive answers to any questions you may have.


[1] Jim Collins, Good to Great, 195 (2001).

November 16

Should I Use a Confidentiality Agreement?

Business owners often find it necessary or desirable to keep valuable and sensitive information private. In some instances, a business may have developed certain key elements that help distinguish it from its competitors. In other instances, a business owner may handle sensitive information that a client would not want exposed or that is protected by law. If your business develops products using proprietary information or handles sensitive information, it is imperative that you use a confidentiality agreement to prevent employees and contractors from disclosing it.

What is a confidentiality agreement?

A confidentiality agreement, also known as a nondisclosure agreement, is a contract that requires that a party agree not to disclose certain information made available to the party. In most instances, the information that a business wants to keep confidential is either sensitive information, personal information, or information that affords the business a competitive edge. The latter type of information is often categorized as a trade secret. Trade secrets are proprietary processes, systems, technology, vendors, and other types of information that enable a business to maintain a competitive advantage. Confidentiality agreements are often used by employers when hiring employees and independent contractors to maintain the confidential nature of the information available to the employees and contractors.

When should you introduce a confidentiality agreement?

It is usually best to enter into a confidentiality agreement at the inception of the work that will involve the exchange of sensitive or proprietary information. Failure to execute a confidentiality agreement on the front end may later result in resentment and hostility—or even expensive litigation. If a party is resistant to being bound by a confidentiality agreement, this may indicate that the working relationship could encounter challenges. In other words, a confidentiality agreement can serve as a way to measure and secure trust between the parties to an agreement.

It is also important to note that even when a confidentiality agreement is introduced at the beginning of a working relationship, it can include terms that remain enforceable beyond the conclusion of the working relationship. For example, a confidentiality agreement entered into between a business owner and an independent contractor can remain in effect after the work contract has ended.

What should your confidentiality agreement include?

Confidentiality agreements should be clear and detailed. Confidential information should be explicitly identified and described in the agreement, as should the names of the parties that are bound by the agreement.

However, employers and business owners should exercise care in how they define confidential information within the agreement. Categories of information that are too broad or vague in the agreement may be considered unenforceable during a lawsuit if a dispute arises. Similarly, a nondisclosure agreement may protect confidential information only for a reasonable period of time, and this period varies for different types of confidential information. Failing to take the proper steps to protect your confidential information, such as entering into a confidentiality agreement, could result in defeat if you ever must prove that someone has violated your expectation that certain information not be disclosed.


Call Our Office

We are here to help you protect your business. Call us to schedule an appointment with one of our experienced attorneys. We will help you identify the confidential information you need to protect and develop the proper legal tools to help you achieve that goal.

October 29

Five Types of Risk Businesses Face

Pursuing a business venture naturally involves risk. Eliminating all risk is not an option—there are many factors beyond your control, and it is impossible to prevent every circumstance that might deviate from your plans. Nevertheless, you can decrease the degree of risk to which your business is exposed by identifying risks and taking proactive steps to mitigate them. The following five types of risk are the most common risks businesses face.


  1. Contractual Risk. A contractual risk arises from either the failure to document the rights, responsibilities, and obligations of the parties to an agreement, or a breakdown in an existing contractual relationship. Activities like hiring employees and independent contractors, working with vendors, and providing goods or services to clients can increase contractual risk. Business owners typically anticipate contractual issues. Despite the prevalence of breakdowns within contractual agreements, however, companies often fail to manage their contractual obligations effectively. As a result, business owners should seek the counsel of an experienced business attorney when drafting contracts and to create systems of review for every agreement they execute.
  1. Structural Risk. Structural risk arises from problems with how a business is structured. For example, selecting the wrong legal entity for a business—or never establishing a separate legal entity—creates a structural risk. It is common for business owners to start a business as a sole proprietorship. However, business owners often fail to timely transition to a separate legal entity that provides limited liability. Another structural risk arises when the business fails to properly identify and clarify ownership and management issues, such as how the business is managed, how ownership interests are transferred, and the degree to which owners are exposed to personal liability. Putting the proper legal structure in place is crucial to minimize the risk of disputes, lawsuits, and the personal liability of the business owners for claims against the business.
  1. Operational Risk. Operational risk involves the day-to-day activities and ongoing management of resources within a business. Operational risk has the potential to compound over time. In other words, a business’s failure to perform essential daily tasks like maintaining accurate books and records can eventually create a very significant risk. Solving operational risks can be very expensive and time-consuming. Moreover, this type of risk has a higher chance of negatively impacting the business on various levels. Another example of an operational risk is the failure to properly identify and protect intellectual property belonging to the business. Carefully considered plans and procedures should be implemented to ensure that the business’s day-to-day operations are carried out in a way that mitigates its risk.
  1. Compliance and Regulatory Risk. Managing compliance and regulatory risk is critical when a business is subject to government rules, laws, or regulations. Compliance risk arises when there is the potential to violate rules and regulations. Regulatory risk (a related term that is sometimes used interchangeably) involves the creation of rules applicable to the business. For example, a business can reduce its regulatory risk by ensuring that it complies with rules promulgated by the Internal Revenue Service. Failure to pay taxes on time or use the correct procedure results in negative consequences. Another example of a regulatory risk involves changes in the law applicable to a company—for example, a law increasing the minimum wage it must pay its employees. Noncompliance with such laws will likely result in substantial civil penalties. One important recent example is the General Data Protection Regulation, which mandates several changes to the way companies interact on a global level in order to avoid hefty fines. A business’s compliance risks vary depending on time, location, industry, and a host of other factors. Nevertheless, every business should take steps to ensure that it complies with the applicable laws, rules, and regulations applicable.
  1. Litigation Risk. The risk of litigation is significant in today’s litigious society. Litigation risk overlaps with many, if not all, of the other types of risk described above. When a risk becomes a reality, litigation is often proposed as a solution. Litigation is a time-intensive and resource-heavy process, however. In fact, the cost of litigation can rival the cost of the initial problem. In addition to depleting resources, litigation may also impact the reputation of a company, particularly if it does not prevail in the lawsuit. Consequently, business owners should exercise care to minimize the opportunity for litigation to arise.

Let Us Help You

Actively working to reduce risks is a key component in achieving and maintaining business success. Call our office to schedule a virtual consultation to discuss how we can identify and manage the areas in which your business is most vulnerable.

October 27

Considerations for Forming a Limited Liability Company for Real Estate

For individuals who own real estate, it is important to consider the best way to structure your ownership. When you are just starting out as an investor in real estate, you may hold title to the real estate personally, but that may not be the most advantageous method of ownership. Another option is to create a limited liability company (LLC) for your real estate ventures. An LLC is a type of legal business structure organized under your state’s law.

There are many important considerations to keep in mind as you decide whether to form an LLC to hold your real estate. Here are a few things to think about to help you make the best decision for your unique circumstances.


  • Liability. One of the most significant characteristics of the LLC is the limited liability it provides its members (i.e., owners). LLCs allow you to separate your personal assets from your business assets. In doing so, the LLC separates the liability to which each set of assets may be subject. This separation means that if real estate owned by your LLC is at risk from litigation or creditors’ claims, your personal assets will not be at risk. There are limited exceptions to this rule. For example, if you did something negligent or intentionally wrong that led to litigation, even during the course of the LLC’s business, you may be personally liable. However, compliance with your state’s rules and careful steps aimed at distinguishing your personal property from that owned by your business will allow the LLC to provide greater protection against personal liability.
  • Taxes. Another factor you should consider is the tax impact of creating an LLC. Single-member and multimember LLCs that hold real estate can enjoy the benefit of pass-through taxation. In some cases, the transfer of your real estate into an LLC may not have a significant immediate effect. However, depending on how many owners your LLC has, whether you have a mortgage and how much (if anything) you owe on it,  and the value of the property, you may have significant tax issues to consider.
  • Privacy. Creating an LLC may provide greater opportunities to keep information about what you own private. This increased ability to keep your identity as an owner private varies by state. Different jurisdictions have different rules regarding how much disclosure is required to form and maintain an LLC. Popular states for LLC formation like Delaware and Wyoming allow for anonymity. As a result, you may be able to structure your business ownership so that the public at large does not have knowledge about what you own. This can be a helpful asset protection strategy if you could ever be involved in litigation or if any of your properties are exposed to risk. Opposing parties will not be able to discover properties or business interests held in your LLC to pursue in their lawsuits. In states whose LLC statutes do not offer as much opportunity for privacy, you may explore creative ways to increase your LLC’s privacy. However, they are not likely to provide as much privacy as the statutory anonymity provided in certain LLC-friendly states.
  • Tailor-made terms of ownership. Finally, one of the most significant benefits of the LLC is the opportunity to tailor the structure of your business. This means that you can define how you will split profits and losses in the real estate and how decisions will be made. These are two examples of ways you can enjoy the flexibility provided by an LLC, but there are many more. Some people create multiple entities, with one LLC focused on the management of the real estate while the other LLC or subsidiary LLC owns the assets. From determining your LLC’s tax structure to deciding whether to have annual meetings, you can design the company’s structure so that it will function in a way that makes sense for the specific assets it owns..

The LLC provides a host of options for individuals interested in maximizing their protection against personal liability and determining effective tax, ownership, and management plans.


We Can Help

If you are interested in exploring the use of an LLC for your real estate, we can help. Having an experienced team of attorneys ready to help you assess the best way to create an LLC and structure it in a way that provides the most protection for you and your assets is critical. Schedule a virtual meeting with us today.

October 22

How to Own Your Real Estate

Real estate encompasses not only one’s primary residence but also other real estate such as a vacation home or a rental property. The ideal form of ownership varies depending on the type of real estate you own. Below, we take a look at the different types of real estate and offer advice about the best form of ownership for each.


Primary Residence

Because your primary residence receives special tax treatment, you should carefully consider how your home is owned. In some states, tenancy by the entirety offers married couples creditor protection from the creditors of one of the spouses (with a possible exception for federal tax liens) while still preserving relevant tax benefits. It also allows automatic transfer of ownership to the surviving spouse upon the death of the first spouse without court involvement. Transferring ownership of the primary residence to a joint revocable trust may also be an option if you live in a state that allows the tenancy of the entirety protection to transfer to the joint revocable trust. Ownership by the trust also means that the real estate will not go through the lengthy, expensive, and public probate process but will instead be handled according to your wishes as specified in the trust document.

If you are single, owning the property in your name allows you to take advantage of tax benefits for primary residences. Transferring ownership to a revocable living trust may also allow you to retain the applicable tax benefits with the added benefit of avoiding the probate process. If asset protection is a major concern during your lifetime, certain types of irrevocable trusts are best suited for your needs but may require you to give up some control of the property.

The bankruptcy code may provide additional protections for a primary residence (e.g., your state may have a homestead exemption). However, in some states, transferring your primary residence to a trust may eliminate the homestead exemption because the trust rather than you (the debtor) will be deemed to be the owner of the residence. If this situation could apply to you, it is important that you meet with a knowledgeable estate planning attorney before transferring your primary residence to a trust.


Vacation Home

For some families, their vacation home has not only high monetary value but also significant emotional value. Ownership of a vacation home by a trust or limited liability company (LLC) can be advantageous because it addresses two main priorities: ease of transfer to the next generation and asset protection.

With a trust or LLC, you are able to establish rules for how the property is to be used and maintained, as well as designate what is to happen to the vacation home once you pass away. This can be a great solution if you want to ensure that the vacation home stays in the family for generations with minimal family conflicts.

An additional benefit of having an LLC own your vacation home is that it provides limited liability from outside claims. If a judgment is entered against the LLC, the creditor is limited to the accounts or property owned by the LLC to satisfy the creditor’s claims and cannot look to your personal accounts or property or those of the other members. Also, if a judgment is entered against you or another member for a claim unrelated to the LLC, it will be harder for a creditor to force a sale of the vacation home. This can be incredibly helpful if you wish to pass the vacation home on to the next generation without worrying about the individual financial situation of each new member.

Note: In some states, a single-member LLC (an LLC in which you are the only member) does not enjoy the same protection from your personal creditors. The rationale of these laws is that your creditors should be able to seek relief through your LLC interests to satisfy their claims because there are no other members that will be negatively impacted by seizure of money and property owned by the LLC.

If the vacation home has been in the family for many years, it is important to consult with us and your tax advisor to make sure that transferring your vacation home to a trust or LLC will not cause an increase in your property taxes or other unintended consequences.


Rental Property

Because rental property is an income stream rather than a residence, asset protection is usually the primary concern. As a landlord and owner of rental property, you face a higher probability of lawsuits arising in connection with the property because the occupants can change over time. Transferring ownership of the rental property to an LLC is a great option. If a renter gets injured on the property, sues the LLC that owns the property, and obtains a judgment that exceeds any property insurance you have, the renter can seek satisfaction of any claims only from the accounts and property owned by the LLC, not from your personal accounts and property or those of any other owners of the LLC.

In addition, ownership by the LLC may protect the rental property from your personal creditors. However, if you are forming a single-member LLC, it is important to have us check state law to make sure creditor protection is available.


Give Us a Call Today!

Whether you are concerned about your primary residence, family cabin, or rental property, we are here to assist you in protecting your valuable property. Given the various considerations for selecting a form of ownership, it is important to have the right advisors helping you along the way. Give us a call for your free consultation and we can discuss your current and future real estate ventures and the best way to protect them for generations to come.

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