Going Private

The KC Star has this interesting article about the founders of Silpada Designs buying their company back from Avon. The founders started the jewelry company with $50 and built it into a fashion empire (with $230 million in annual revenue), selling it to Avon a few years ago. Avon has been struggling recently financially, so the founders were able to buy back Silpada for $85 million – quite a deal. Tom Kelly, Silpada’s CEO, explained the going private decision: the “business model is right and the fact that the founders are coming back on board will immediately give positive emotional traction on our revenue and profits.”

Going private is the business counterpart to an IPO – instead of seeking more capital from investors in the equity or bond markets, the founders buy back their company. Business executives can have many reasons for going private – they got bored of retirement, a new venture didn’t go well, changes are needed that require private, closely-held ownership (like Michael Dell’s $24.4 billion bid to go private with Dell), or some other reason.
If my law firm, Johnson Law KC LLC, can help you or your family with your small business, family farm, or estate planning needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation. My firm is passionate about serving your business and personal legal needs.
(c) 2013, Stephen M. Johnson, Esq.

Asset Protection 101

What does asset protection mean? Asset protection is about preserving and safeguarding your hard-earned money and other assets from creditors, divorcing spouses, or others. Asset protection is best done through a trust, an LLC, or a family limited partnership. The key to asset protection is (1) finding a good, protective place and (2) setting up an entity to hold the assets. Missouri was one of the 1st asset protection states in America. Kansas or Missouri residents can set up a Missouri asset protection trust to hold their assets. Kansas law doesn’t allow an asset protection trust, but does allow other trusts. An asset protection trust is irrevocable – a stand-alone entity that must file an annual income tax return. LLCs or family limited partnerships (FLPs) can be used to hold farm land, real estate, stock, the family business, or other assets. A family LLC or FLP must have a valid business purposes, but members or partners may be able to claim some discount off the value of contributed assets – e.g. if you put a minority (say 30%) interest in the family farm or business into a family LLC or FLP, you can claim a discount since your stake wouldn’t be easily marketable to outside buyers.

My law firm, Johnson Law KC LLC, is experienced counseling families and small business owners on using various asset protection tools. If I can help you or your family with your asset protection needs, call (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a convenient, free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Undue Influence?

This NY Times article discusses how a hospital manipulated a long term patient (net worth > $100 million) to obtain gifts, pledges, and other favors from her. Undue influence is a common probate or trust litigation issue. Wills in Kansas and Missouri are only valid if executed without undue influence. Most attorneys hear undue influence and think of a child or other prospective heir trying to persuade a family member to favor them over other relatives or heirs. But what about organizations, hospitals, and others looking for a piece of an individual’s or family’s inheritance? Food for thought.

If my law firm, Johnson Law KC LLC, can help you or your family with your estate planning needs, call (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a free, convenient consultation.

(c) 2013, Stephen M. Johnson, Esq.

Is New York “Offshore?”

The NY Times has this fascinating article about the recent corporate tax controversy of large global companies parking money in international holding companies that have domestic bank accounts or investments. But poof (now you see it; now you don’t) – by tax accounting magic, the money’s held internationally. America has the highest corporate tax rate in the developed world –  35%. Some other countries, like Ireland, have much lower tax rates, so having the money held by an Irish subsidiary in a New York bank account yields a substantially lower (say 13%) tax rate.

While offshore bank accounts (for individuals or corporations) are often discussed in political terms, they’re a bipartisan issue. While companies some might view as conservative do it (like oil and gas companies), so do seemingly more moderate or even liberal giants like Microsoft, Google, and Apple. (A few months back, Apple passed ExxonMobil as the biggest company by market cap – all those iPhones, iPads, and iPods everybody loves fueled its rise to the coolest big business on the planet.) And wealthy folks of all political stripes like Mitt Romney, Al Gore, Terry McAuliffe, and Penny Pritzer have offshore accounts or investments. Why? Lower tax bills. Whether you think offshore holdings are great or terrible, the math tells the story.

The unfortunate moral of the story is the obscene complexity of America’s tax law – call it the lawyers’ and accountants’ full employment act. Most Americans, whether conservative or liberal, favor a less complex IRS Code. Meanwhile, if my law firm, Johnson Law KC LLC, can help you or your family with your personal estate planning or small business needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Talking to Family about Inheritances

CNBC has this article about a recent US Trust study about when parents should talk to their children (and grandchildren) about inheritances. As the article points out, many children of wealthy families realize they’re wealthy based on the lifestyle they enjoy. But there’s a big difference between knowing “My family’s wealthy and takes exotic vacations” and knowing “Mom & Dad have XYZ income each year, a house held in ABC trust, a controlling interest in Family Co LLC, a vacation home also held in trust, and a net worth of $_______.” When to tell family members specifics is an important question to consider in careful consultation with your family’s accountant, attorney, and other professional advisors. As the article suggests, maturity levels, financial acumen, and other factors come into play. But as the article rightly concludes, “even if parents don’t give their kids “the number” for their wealth, they should at least give them the skills and the values to manage it well.”

Beyond the tax and legal details of structuring entities that attorneys and other wealth advisors do, imparting skills and values to manage a legacy is vital. Without the skills and values, a child or grandchild may not know how a family member became wealthy, why a family member managed their lifestyle as they did, or what legacy the wealth should have. I encourage clients to be open and honest with their families when the time comes to discuss inheritance and legacy. But don’t just give your family the numbers, give them the context and share your values and passion and legacy with them.

If my law firm, Johnson Law KC LLC, can help you or your family with estate planning or asset protection needs, or give you ideas for spurring these important conversations with your family, please call (913-707-9220) or email me (steve@johnsonlawkc.com) for  a convenient free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Tax Like its 1972?

Bloomberg provides this interesting article on Summer Redstone’s appeal of the IRS arguing his 1972 transaction was a gift. Some might think that 41 years is a bit late (!) to be challenging a transaction (or collecting tax on it), and many of the lawyers quoted were surprised by the IRS’ claims. It will be fascinating to watch how this case plays out. If the IRS’ argument turns out to be merited (albeit 41 years late), this has ripple potential in the estate planning and tax communities, as attorneys, accountants, and advisors grapple with how to insulate clients (and themselves) from liability decades after the fact.

Stay tuned for updates from the recent 2013 KC Estate Planning Symposium, which I attended last week (25-26 April 2013). This year’s program featured a host of top speakers on topics ranging from grantor trust tax, FLP and other case law updates to special needs trusts, IRAs, asset protection, and Social Security planning.

If my office, Johnson Law KC LLC, can help you or your family with gift tax or other estate planning issues, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient free consultation.

(c) 2013, Stephen M. Johnson, Esq.

Intent, Trusts, and No Contest Clauses

The Kansas Supreme Court recently issued an interesting decision in Hamel v. Hamel, arising from Rooks County, Kansas (north central Kansas). Hamel teaches us 3 lessons: as you contemplate estate planning, business succession, and your wealth management goals, be sure (1) your estate planning documents clearly communicate your intent , (2) others (family members and professional advisors) understand your intent, and (3) your estate planning documents provide broad discretion and the necessary powers to handle various transactions. Intent matters and clearly communicating your intent makes all the difference.

Hamel involved Lawrence Hamel, a trust beneficiary and child of the decedent, Arthur Hamel, challenging his father’s trust, specifically whether the trustee had authority to sell farmland owned by the trust. Arthur’s trust said another son (who was a trustee of the trust), Dennis,  had priority (or first refusal rights) to buy the land owned by the trust, and that Dennis had 3 years to buy the land from the trust. Dennis signed an installment sale contract to buy the land over 6 years, paying 5% interest (no interest during the 6th year), funding the purchase with money from the trust with a mere $10,000 down payment, and for Dennis to get all the income and profit the land generated during the 6 years. So Dennis wanted to self deal with the trust on very favorable terms (he was a trustee in his fiduciary capacity and the buyer in his individual capacity, a conflict of interest which the trust waived), have a year of payments interest fee, minimal down payment, and get the land’s revenue before he owned the land. Not surprisingly, Dennis’ brother Lawrence objected. Lawrence pointed out that while their father had wanted Dennis to have the land and permitted favorable inter-family sale terms, the deal had to be done within 3 years, not 6. Enter the trust’s no contest clause, which said if you object to the sale or other trust administration aspects, you lose your inheritance.

This family’s trust dispute wound up at the Kansas Supreme Court. The Justices, in an 8-1 opinion, agreed with Lawrence that the 6 year installment sale to Dennis was too long, since the trust only allowed for 3 years. Instead of enforcing the no contest clause (and disinherit Lawrence for his objections to the farm sale), the Court found that Lawrence had probable cause to challenge the sale of the farm from the trust to his brother. The Court found probable cause in the 3 year sale provision: “while the Trustees [Dennis and a sister] possessed broad authority to sell the Trust real estate, they were not authorized to enter into a contract for the sale of the farmland that extended beyond the 3-year period specifically provided by the Trust.” (Hamel, pg. 24) The installment sale could go far, but not that far. As the Court saw it, Lawrence was just looking out for the Trust’s best interests (the Trustee’s job and fiduciary duty), when the Trustees were cutting corners, so of course he could object and make the Trustees follow the Trust’s rules. The Court didn’t address it, but there may also have been tax traps lurking beneath the surface of this installment sale. The IRS looks closely at inter-family sale and transactions and asks: (1) was the farm properly valued (or did the family take too many discounts)? (2) is the buyer paying the seller a fair market rate of interest for the entire installment sale period? (interest free loans are gifts) (3) is the buyer a bona fide purchaser, or is the “sale” really just a gift wrapped in different paper?

Installment sales are an important technique for asset protection, estate planning, and business succession planning. But they have to be carefully structured and done right, or the result is a long, expensive, contentious, public mess. Installment sales are frequently used by serial entrepreneurs trying to transition a business; farmers, ranchers and landowners trying to pass the family farm on to the next generation, or business owners who are ready to retire from the day-to-day grind. When coupled with a Missouri inheritor’s trust (a beneficiary defective inheritor’s trust), grantor trust (an intentionally defective grantor trust), a FLP (family limited partnership), or a family LLC (family limited liability company), an installment sale can be an efficient, effective, and integral part of a complex estate plan. A good installment sale will freeze an asset’s value for tax purposes, get it off your balance sheet (for tax and asset protection purposes), and add value to the asset’s legacy for generations.

If my law firm, Johnson Law KC LLC, can serve you or your family’s legal needs, call (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient consultation.

(c) 2013, Stephen M. Johnson, Esq.

Gift Tax Traps

The WSJ has this helpful article, entitled “Gift Taxes: What Your CPA Doesn’t Know” about potential gift tax traps. The article helpfully recommends having your CPA and your attorney collaborate on gift tax returns. Specifically, the article zeroes in on reporting large gifts of real estate, business interests, or other non-routine gifts of stocks and bonds.

The gift tax and generation-skipping transfer (GST) tax are complex estate planning issues. If my office, Johnson Law KC LLC, can help you or your family navigate these challenges this tax season, or work with your CPA to review returns, call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient free consult.

(c) 2013, Stephen M. Johnson, Esq.

Business Succession Stories

My hometown paper, the Kansas City Star, has this news item about a local family-owned insurance company that was recently acquired by a global insurance company, also with a substantial local presence. One of the family members of the company that was sold described the sale as a “very emotional, but satisfying decision.” Many business owners and entrepreneurs would feel exactly the same way – we invest time, energy, and hard work in our companies much like we would in a family member. A business may continue in the family for generations, or it may transition to new ownership. Regardless, making things work smoothly and minimizing stress and anxiety for business owners, key executives, and employees is vital for a good business succession story.

If my law firm, Johnson Law KC LLC, can help you and your family with your business succession or transition needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient free consult.

(c) 2013, Stephen M. Johnson, Esq.

Kansas City Wealth

The Forbes annual billionaire list has many old names and a few fresh faces. This year, 4 Kansas City area residents made the list – Neal Patterson, of Cerner, Donald Hall, of Hallmark, and Min Kao and Gary Burrell, of Garmin. Congratulations to each of them on successfully building and preserving wealth amidst a challenging economic environment.

Most of us won’t be making the Forbes billionaire list any time soon. But most of us do have homes, cars, bank accounts, stocks, or a retirement plan. Everyone from Bill Gates to Joe Six Pack needs estate planning documents. Don’t bet on legal forms from the Internet or library. Two things to think about: (1) if you’re an adult, you need a will, living will, and durable medical and financial powers of attorney, and (2) if your family’s future well being is at stake, you want to be sure everything will work smoothly when it’s needed. If my firm, Johnson Law KC LLC, can serve your estate planning or business transition needs, call (913-707-9220) or email (steve@johnsonlawkc.com) me for a convenient, free consult.

(c) 2013, Stephen M. Johnson, Esq.