Annuities Allowed in 401(k)s

From CNBC and Bank Rate comes this news that the Treasury Department is now allowing annuities in 401(k)s, at least in some circumstances. This may be a useful retirement, financial and/or estate planning tool for various Americans.

If my law firmJohnson 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) 2014, Stephen M. Johnson, Esq.

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Long Term Care Choices

Driving to a lunch appointment with a friend, I heard the wonderful Up to Date program Tuesday on KCUR (Kansas City’s NPR affiliate), an elder law attorney friend gave some great advice to families considering long term care and elder law issues. As our family members and loved ones age, we can support them by having open and honest conversations about long term care and elder law issues and helping ensure their legal affairs are in order to give care and dignity to the final years of life.

The long term care discussion reminded me of this WSJ article. Anecdotally and in my practice, I’ve seen a real mix of retirees selling their homes and downsizing. Some people want to downsize long before they have any serious physical ailments or health related issues. Others may insist on living in their homes until their 80s or 90s, including spending for in-home health care services as needed (an expensive option). Ultimately the question hinges on (1) how much a client wants to stay in their home as their health issues arise and youthful vigor deteriorates, (2) how much in-home care they can afford, and (3) the family’s comfort level with the decision (including proximity to the elderly relative). 

My firm’s estate planning documents (wills/trusts, living wills, and durable medical and financial powers of attorney) include elder law protections standard and can be custom tailored (for free) to reflect a client’s beliefs, convictions, and long term care wishes. Here’s a basic explanation of the core estate planning and elder law documents. If you or a loved one need to consider your estate plan or elder law issues, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient consultation. Our passion and expertise is serving you and your family’s legal needs.

(c) 2014, Stephen M. Johnson, Esq.

Protecting Your Business and Assets

The Kansas City Business Journal has this helpful article with strategies for protecting your business and assets if a divorce or other unpleasantness arises in your life.

While divorce or creditor lawsuits are never welcome developments in someone’s game plan, the best offense is a good defense. My firm has experience working with individuals and families throughout the business and estate planning processes. I’ve enjoyed working with clients ranging from single young professionals who want to plan for the future to business owners with complex trusts and tens of millions in assets. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment. I want to make business and estate planning simple and straightforward to serve your legal needs and help protect you and your business from lurking liabilities.

(c) 2014, Stephen M. Johnson, Esq.

 

Estate Planning and Relationships

About a month ago, I had the pleasure of attending a wedding of two dear friends. A month or so before the wedding, I shared some advice with the groom (I’ve shared the same advice with other friends over the years). Every bride and groom encounter various financial, tax, and legal questions in the busy and chaotic wedding planning time and after the honeymoon’s over and the new couple adjusts to life together. Good planning is crucial. Nobel Laureate T.S. Eliot memorably wrote, “What we call the beginning is often the end/And to make an end is to make a beginning./The end is where we start from.” (The Four Quartets, Little Gidding, V). True with estate planning as with many endeavors in life. So what’s the end game? Start from there to figure out how to get there. 

Pre-wedding tips:

  • Don’t buy your fiancé expensive gifts in his or her name. Whether a car, house/condo, jewelry, vacations, clothes, furniture, artwork, antiques, or other big ticket items, wait until you’re married. Federal law allows you to give your fiancé a gift of up to $14,000 tax free per year, but if the item costs $14,001, you’ll owe gift tax and have to file a gift tax return (not fun or romantic). The IRS says a gift is anything you receive without paying fair market value. (Kansas and Missouri don’t have state gift taxes.) Instead buy the item in your name and give it to your spouse once you’re married, as husbands and wives can give each other unlimited gifts without tax consequences.
  • Don’t add your fiancé to real estate deeds until you’re married. Again, any gift (like a house or farm) over $14,000 will cost you gift tax and require filing a return with the IRS.
  • Don’t pay off your fiancé’s credit cards, car or student loans before you’re married. Gifts are romantic, but gift taxes aren’t. Wait until you’re married.

After the wedding:

  • Execute living wills, and durable medical and financial powers of attorney. These are inexpensive, but vital documents that can last for decades. Your spouse can’t talk with your doctor, authorize surgery, or make financial decisions for you without these documents in place. My firm’s financial powers of attorney include cutting edge digital estate planning and elder law provisions, standard. My firm’s living wills and medical powers of attorney include HIPAA, HITECH, and Affordable Care Act (ObamaCare) privacy releases and can easily be custom tailored at no extra charge to reflect your beliefs and convictions about end of life treatment issues. (Having these done as a single person is wise, especially if you have health issues, travel frequently, or have various assets (family business stock or a small business, home mortgage, intellectual property, etc) – you can change your attorney in fact (or agent) quickly and inexpensively once you’re married.
  • Execute a will and/or trust. Simple, no-frills wills for a couple are economical. Wills that include a trust (testamentary trusts), or pourover wills that leave everything to a standalone trust are also affordable. Kansas law automatically invalidates an existing will when you get married and have a child. Missouri law is different. A will or trust allows you to leave specific instructions for how you want your financial affairs handled, how much your spouse and children receive, who cares for your child, and so on. Kansas and Missouri both allow a separate personal property list (highly recommended) to leave specific items to different family members or friends. Whether you’ve got $5,000 in student loans or $5 million in your stock portfolio, you need a will or trust. If you die intestate (without a will), your family will pay more for probate administration and endure a longer, more complex court process than if you have a will. And who wants the government to dictate how their things are distributed and who gets what? My firm has worked on dozens of probate estates in Kansas and Missouri, but it’s easier on everyone to plan ahead. Avoid LegalZoom, Rocket Lawyer, and other do-it-yourself books or websites – I’ve seen (and fixed) online/DIY documents for clients that any practicing attorney would’ve been embarrassed to have drafted. Like many other services, you get what you pay for – good planning requires expertise. My firm has the training and expertise to guide you through the process, leavened with friendly counsel.

A few other ideas for newlyweds:

  • Joint or separate bank accounts
  • Change IRA/retirement plan beneficiary to spouse
  • Change life insurance beneficiary to spouse
  • Car titles – joint or separate
  • Real estate – joint or separate – joint tenancy in Kansas or Missouri; tenancy by the entirety in Missouri
  • If you’re moving to another state once you’re married, you have about 30 days to change your driver’s license, legal name, etc

My firm has experience working with young professionals, young families, and newlyweds to make the estate planning simple, easy, and inexpensive. My firm also has experience working with high net worth individuals and families with tens of millions in assets, closely held businesses, real estate, and other issues. We provide reliable, easy to understand documents so you can rest easy and enjoy your life. Give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) to schedule a convenient, free consultation.

IRS CIRCULAR 230 Disclosure: Unless expressly stated otherwise, any U.S. federal tax advice contained in this blog post or links is not intended or written by Johnson Law KC LLC to be used to avoid IRS or other tax penalties, and any tax advice cannot be used to avoid penalties that may be imposed by the IRS.

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

Small Business Law 101

There are 3 stages in the business law cycle, all of which my law firm, Johnson Law KC LLC, can help you and your business by coming alongside to provide experienced, friendly counsel leavened with an understanding of business, economic, and financial issues. The 3 business stages are: (1) formation, (2) maintenance/compliance, and (3) succession.

(1) Formation – At the formation stage, choice of entity and other considerations arise. Should the business be a corporation (C corporation or S corporation), a partnership, a limited partnership (LP), a limited liability partnership (LLP), a limited liability company (LLC), a series LLC, a professional corporation or professional association, or a family limited partnership (FLP)/family LLC? How will the business’ owners and employees, and other players relate to each other?

  • A sole proprietorship is the simplest form of business, where the owner gets all the profits, but is liable for all debts and losses, and doesn’t enjoy any limited liability.
  • C corporations and S corporations take their names from respective IRS Code chapters. Corporations have to follow corporate formalities, but get limited liability for their actions in return. Kansas corporations are formed under the Kansas General Corporation Code (K.S.A. 17-6001 et seq.), patterned after Delaware corporate law, while Missouri corporations are formed under The General and Business Corporation Law of Missouri (V.A.M.S. 351.010 et seq.).
  • A partnership (a/k/a general partnership) is a joint business venture between 2 or more equal partners. Both partners are entitled to a share of the profits, but both are also liable for the partnership’s losses and debts. Since 1998, Kansas partnerships have been governed by the Kansas Uniform Partnership Act (K.S.A. 56a-101 et seq.), while since 1949, Missouri partnerships have been formed under the Uniform Partnership Law (V.A.M.S. 458.010 et seq.).
  • A limited partnership (LP) has a general partner (who has voting rights and is liable for the partnership’s losses and debts) and one or more limited partners (who have limited liability, but don’t have voting rights). Kansas LPs can be formed under the Kansas Revised Uniform Limited Partnership Act (1983) (RULPA) (K.S.A. 56-1a101 et seq.), while Missouri LPs trace their lineage to the Uniform Limited Partnership Law (1985) (V.A.M.S. 359.011 et seq.).
  • A limited liability partnership (LLP) is a group of limited partners who enjoy voting rights and limited liability – many law firms, accounting firms, and other professional organizations are organized as LLPs. Kansas LLPs are formed under the Kansas Uniform Partnership Act (1998) (K.S.A. 56a-1001 et seq.), while Missouri LLPs are formed under the Uniform Limited Partnership Law (1985) (V.A.M.S. 359.172 et seq.).
  • A limited liability company (LLC) has members who have an interest in the firm, where a corporation has shareholders who own shares of stock or a stake in the firm. An LLC can be a single member or have multiple members. Single member LLCs are usually disregarded for IRS tax purposes (and taxed as a sole proprietorship) unless they elect S corp tax treatment. LLCs with multiple members are taxed like partnerships (flow through to individual partners) but with the limited liability of a corporation. Kansas LLCs are formed under the Kansas Revised Limited Liability Company Act (1999), part of the Kansas General Corporation Code (K.S.A. 17-7662 et seq.), while Missouri LLCs are formed under the Missouri Limited Liability Company Act (1993) (V.A.M.S. 347.010 et seq.).
  • A series LLC is a new business form in Kansas and Missouri. A series LLC has a parent LLC that acts like an umbrella to consolidate administrative and tax treatment into 1 entity, and an unlimited number of daughter series under the parent LLC’s umbrella, which can each have distinct business purposes, ownership, and functions. My law firm, Johnson Law KC LLC, is on the cutting edge of counseling local companies, small businesses, and entrepreneurs on using series LLCs. Kansas series LLCs (2012) are governed under Kansas LLC law (K.S.A. 17-76,143), while Missouri series LLCs (2013) are governed by the Missouri LLC law (V.A.M.S. 347.186)
  • A professional association (Kansas) or professional corporation (Missouri) is a special corporate form for regulated professionals – accountants, attorneys, doctors, etc – in a particular state. PAs and PCs can have one or multiple members, but each member must be licensed in the particular profession that the PA or PC practices.
  • A family limited partnership (FLP) or family LLC is an LP or LLC often used among family members for various business purposes. A family may own land, a second home, or a business property in a FLP or family LLC. A FLP has a general partner (with voting rights and unlimited liability) and limited partners (no voting rights but limited liability). Many FLPs will have a parent or grandparent as the general partner owning 1% (or so) of the FLP and children or grandchildren as the limited partners owning a majority of the FLP. FLPs and family LLCs can be advantageous for business and estate planning purposes, but must have a valid business purposes and must be carefully designed and maintained to avoid audits and heightened IRS scrutiny.

(2) Maintenance/Compliance – At the maintenance/compliance stage, the requirements for different kinds of business organizations are vastly different. Talk of maintenance or compliance often conjures up visions (or nightmares) of annual corporate minutes, annual reports, state and federal securities laws. Sole proprietorships have very little, if any, regular maintenance or compliance, but they also offer no liability protection – so no paperwork, no protection. C corporations and S corporations must file annual reports listing major shareholders and other relevant corporate data with the Secretary of State’s office in the state of incorporation (Topeka, Kansas or Jefferson City, Missouri). Likewise, C corporations and S corporations must have annual shareholder meetings, regular board of director meetings, and keep minutes from these meetings. Regular meetings and minutes ensures that the corporation is being honest and transparent with shareholders and giving them a chance to voice their approval (or concern) about the corporation’s leadership and governance direction. Many corporations must also comply with federal securities laws (primarily the Security Act of 1933 and Securities Exchange Act of 1934 and applicable SEC regulations) and state securities or Blue sky laws in the Kansas Uniform Securities Act (dating back to 1911) (K.S.A. 17-12a101 et seq.) and Missouri Uniform Securities Act (2003, dating back to 1956) (V.A.M.S. 409.107 et seq.). Corporations must also comply with applicable state and federal tax laws. Partnerships, LPs, LLPs, LLCs, series LLCs, and FLPs/family LLCs must file annual reports with the Secretary of State’s office and follow other applicable corporate, securities, and/or tax laws.

(3) Succession – at the succession stage, a business owner must decide whether to pursue a merger & acquisition (M&A), wind down, estate/tax planning for owners and/or key members, buy-sell agreements, installment sales, or other succession techniques. A business may be perpetual, but an individual’s ownership is not. Serial entrepreneurs may want to start their next business adventure. An entrepreneur who shepherded a business idea from the napkin drawing to sale to a large company may want to retire or embrace another phase of life. A business owner may want to hand the reins off to his children or her carefully chosen and groomed successors among the management or executive team. My law firm has experience counseling business owners and key executives on M&A issues, wind downs and dissolutions, estate and tax planning, asset protection, and other business succession issues.

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

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

Digital Estate Planning

In our digital age of laptops, smartphones, social media and digital photos and video, digital estate planning is a necessity. (You’re reading a digital asset written on a MacBook Pro.) What if a family member or business colleague needs access to your email and other digital assets when you’re alive but unavailable or incapacitated? What about after your death? This BBC article includes a good summary of the concerns and need for digital estate planning. My law firm, Johnson Law KC LLC, includes digital estate planning provisions in all powers of attorney, wills, and trusts – standard and at no extra charge – because we know how much our clients value their digital assets and want to preserve them for future generations.

If my law firm can help you or your family with your estate planning (digital and/or traditional), asset protection, elder law, or business needs, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, complimentary consultation. My firm relishes the opportunity to serve each client with reliable, friendly experience at an affordable cost.

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

Professional Accountability

The Daily Mail (UK) has this article about the circumstances surrounding the execution of Hughette Clark’s will. Hughette Clark was the reclusive daughter and heir of a wealthy U.S. Senator. (Ms. Clark died at 104 in 2011, having spent about the last 20 years of her life in a hospital room in New York, cut off from her family and friends (by her lawyer and accountant), while her large estates in various states sat unused for decades. Ms. Clark left an estimated fortune of $307 million.) According to papers filed in the New York probate court, where her will is being contested, she was “incoherent and barely able to hold the pen” while signing the documents. To make matters worse, her lawyer, accountant, and the hospital were conspiring to enrich themselves at her expense. Both her lawyer and accountant were to inherit large sums of money from her (her family being cut out entirely) and they apparently took the signed will with them to the local bar to celebrate their good fortune after convincing her to sign the document.

In Kansas and Missouri, lawyers are required to attend legal ethics courses as part of the continuing education requirements. If you don’t attend continuing education, you can’t keep your law license. For attorneys, there are at least 2 glaring ethical violations here: (1) you never allow an incapacitated client to sign a legal document (you always talk with the client first to be sure they know who they are, what they own, and who they want to give it to) and (2) you rarely, if ever, accept any gift in a will from a client. Kansas law says an interested witness (e.g. a lawyer who’s receiving a gift from his client) can’t inherit more than he would be entitled to if the client died without a will. Missouri law has similar provisions. Accepting a gift in a will from a deceased client raises serious ethical issues. Unfortunately, Ms. Clark’s lawyer and accountant did her a great disservice by not acting professionally and by not watching out for her best interests.

At my firm, Johnson Law KC LLC, we work hard to serve every client’s needs with integrity and clarity. If I can help you or a loved one with estate planning, asset protection, elder law, or small business needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation.

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

Bad Estate Planning: Celebrity Edition

According to this Daily Mail (UK) article, James Gandolfini’s will (following “The Sopranos” star’s recent death in Rome from a heart attack) distributes his $70 million estate so that massive estate taxes (about $30 million) are likely to be owed. One estate planning attorney remarked on the will that ‘It’s a nightmare from a tax standpoint,’ and the will’s segregation of assets was a ‘big mistake’ and the will itself ‘a disaster.’ To be fair, Mr. Gandolfini’s will hasn’t been published yet and it’s not clear whether he had trusts or other entities that held assets. But it sounds like his estate plan may not have been well done, not complex enough for his level of wealth or portfolio structure.

We can learn from the bad estate planning of celebrities and tragic deaths that happen far too early is the importance of good planning. If my law firm, Johnson Law KC LLC, can help you or your family with your estate planning, elder law, asset protection, small business, or probate needs, give me a call (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient consultation.

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

 

Offshore Banking

Costco’s member magazine has this interesting discussion about offshore bank accounts in its July 2013 issue. (I also recommend this interview with noted author Tom Wolfe, which explores his life and writing.)  They ask various members whether offshore bank accounts are ethical, should be legal, or should be taxed differently than American bank accounts. We know that many celebrities and politicians have offshore bank accounts – see this blog post for more details.

Ethical questions about offshore banking center on whether the account owner is paying a “fair” level of tax on the account. Complicating matters is that the IRS Code treats Americans’ investments abroad differently from other countries – the IRS collects tax on an American’s accounts or investments anywhere in the world, while many other countries only collect tax on accounts their citizens hold domestically (e.g. a Briton who holds an account in London and an account in New York would only pay British taxes on the London account).

Offshore banking may be unavoidable, even inevitable, for many professionals and business owners. If you have a factory or business colleagues or partners overseas or offices around the globe, you may have to use offshore banking accounts. And many companies, mutual funds, IRAs, and other investment vehicles have extensive overseas holdings, which can be a good thing to diversify accounts, invest in emerging markets, and collaborate with business partners around the world.

What do you think? Should offshore accounts and banking and tax havens be allowed or outlawed? Are they ethical? If so, when? Should they be taxed differently than American accounts or investments?

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

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

British or American English?

British or American English? Tea or coffee? Whether you’re a fan of the Brits (as I am) or not, check out this interesting article  in Wealth Management about the differences between English and American per stripes. Many lawyers will recall this discussion from their law school days studying estates and trusts. “Per stirpes” is a Latin term that means “by the stocks” and refers to who inherits your estate if you die without a will (intestate). Most wills include the term “per stirpes” or “taking by rights of representation” in their definitions section (although those terms aren’t always used in the Kansas or Missouri probate code). This article is a good reminder to attorneys and clients alike: be sure your estate planning and other legal documents say what you want them to say. Using Latin or French or other “legalese” is dangerous if you’re not certain what the terms mean, and if your attorney can’t explain a document to you in plain English, (1) tell him or her to rewrite it or (2) hire an attorney who’s more knowledgeable.

Some lawyers use big words and convoluted sentences in documents because they rely on old forms (from the 1970s or 80s or even older). My law firm, Johnson Law KC LLC, has a personal service, client-centered approach – I personally craft and review every document for a client to make sure it’s readable and that my client understands what it says and does. You get the best of both worlds – big firm expertise with small firm personal attention. I often review and revise my firm’s documents based on the latest developments in the law, business, and taxes, with an eye towards improving readability and organization. I invite you to experience the difference. If I can serve your legal needs, call (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation. On a personal note, thanks for being a part of this conversation for 100 posts and counting – I look forward to sharing many more posts and conversations.

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