November 5th, 2011
We have previously reported to you about a window of opportunity for significant gifting and estate tax planning as part of the 2010 Tax Act (Click Here to Read). That opportunity is scheduled to expire at the end of 2012. But wait, it may be sooner than that.
As you probably already know, Congress recently formed a “Super Committee” (12 members of Congress evenly split between Democrats and Republicans). That Committee is charged with the task of finding $1.2 to $1.5 trillion in debt savings over a ten-year period. If reductions cannot be agreed upon by November 23, $1.2 trillion in spending cuts automatically kick in.
Word spread this week that some members of the Committee are suggesting changes to the estate and gift tax portions of the 2010 Tax Act effective January 1, 2012, including the following:
- Reducing the gift tax exemption from$5 Million to $1 Million.
- Reducing the estate and GST tax exemption from$5 Million to $3.5 Million.
- Increasing the maximum gift, GST and estate tax rates from 35% to 45%.
- Eliminating the use of several estate planning strategies, such as GRATs (Grantor Retained Annuity Trusts) and discounts for family transfers.
There are even rumors that some members of the Committee would like to make these changes effective November 23, 2011.
While it remains to be seen what actions the Committee will recommend and Congress will ultimately take, if you are intent on taking advantage of the previously reported “window of opportunity”, you may not want to wait until next year. Our attorneys continue to monitor these developments. Should you have questions about your planning needs or recommendations for year-end planning, please contact one of our estate planning attorneys: Craig W. Wendland, Mark E. Utz, David M. Pederson, or Christopher C. Wendland.
June 16th, 2011
Winning a judgment against an individual or entity is one thing. Actually collecting on that judgment can be an entirely different story. Minnesota law affords a person seeking to collect a judgment various avenues to first discover the debtor’s assets and then to collect their judgment from those assets. One commonly used tool is garnishment.
A creditor may use a garnishment to temporarily freeze and then permanently seize money held by a judgment debtor in that judgment debtor’s bank account. With some limited exceptions or exemptions, Minnesota law currently permits a creditor to freeze and seize all funds in a joint account; it does not matter whether all or any of the money was actually deposited there by the judgment debtor.
While the other joint account holder or holders can try to show that some or all of the money in the seized account is theirs, last April 2010, the Minnesota Supreme Court ruled that the presumption was that all of the money was the debtors until the other account holders proved otherwise. Savig v. First Nat’l Bank of Omaha, No. A-9-1221 (Minn. April 22, 2010)
This got the attention of many consumer advocates. And, in a similar case currently before the United States District Court for the District of Minnesota, Kristie Billiar v. Atlantic Credit & Finance, Inc., legal counsel for a plaintiff who held funds in a joint account with a judgment debtor are asking that Minnesota’s garnishment law be ruled unconstitutional. What they argue is that the law as applied deprives the non-debtor joint account holder of their property without due process, that is, prior notice and an opportunity to be heard in court.
The due process clause of the U.S. Constitution’s 14th Amendment provides that no state shall “deprive any person of life, liberty, or property, without due process of law.” But counsel for Ms. Billiar argues that enacting and enforcing a garnishment law that allows a non-debtor’s money to be frozen and seized for another’s debt, all without prior notice or a hearing, violates this due process right.
It is predicted that a decision in favor of Ms. Billiar will effectively end the use of garnishment as a means for collecting judgments. Judge Patrick J.Schlitz heard motions regarding the constitutionality of the Minnesota garnishment law on March 4, 2011. The decision is under advisement.
April 5th, 2011
Tax season is coming to a close. While many of us are focused on preparing our 1040’s, this is also the time of year to consider a property tax appeal. You should have recently received a property tax statement. With the recent decline in real estate values, it is prudent to examine your assessed value.
If you believe your property is overvalued by the county, you can informally request that the county assessor lower the assessed value for 2011 (which sets the basis for taxes payable in 2012). A good first step is to give the county assessor specific information regarding your property and compare basic facts about the property to the assessor’s record. If that does not work, or if you want to appeal the 2010 tax value (which is used for taxes payable in 2011) you may also file a petition in tax court. To begin the tax appeal process, you must file a petition by April 30, 2011.
If you believe that your property has been overvalued or have questions about the process, we would be happy to assist you.
February 8th, 2011
One area of concern that we frequently help our small business clients with is succession planning. It is never too soon to begin considering your exist strategies, as some aspects of a comprehensive succession plan can take years to develop. Here are some excerpts from a letter we recently sent to one of our successful small business owners who, though just 40 years old, is wisely considering his options regarding succession:
One of the elements in any complete business succession plan is personal estate planning. The two are so related that we really cannot address one without also thinking about the other. As a first step in the business succession plan, therefore, we need to make a start on your personal estate plan.
Life Insurance is another element in the succession plan that you should consider. This plays a role in a number of separate areas. First, adequate life insurance will provide short term liquidity to pay possible estate tax (state and federal) liabilities resulting from your passing. Second, it provides additional assets for your family – replacing income that may otherwise have come from your work. Third, the right type of policy (a key person policy) provides additional, immediate capital to your business in order to find and replace your role in the company. What constitutes the right amount of coverage is something you should research further (there are lots of opinions) and discuss with an insurance agent that you trust. Similarly, the type of policy or policies that you purchase (term, universal, whole life) is also the subject of lots of opinions and should be approached and answered. Finally, do not forget to consider life insurance on your spouse as well – married couples with one employed spouse tend to under-insure the spouse who is not working outside of the home.
We also talked about your long-term goals for your current business. It was evident that, in the near future (5-10 years) you would like to see the business sold. This kind of a strategic goal needs a strategy in order to make your wish a reality, so we discussed several options, all of which focused on the potential buyer.
There are two basic categories of buyers to be thinking about with your business; an internal/succession buyer or an external/strategic buyer. Generally, an internal/succession buyer would be a family member or key employee (or group of employees). Obviously, the family member/purchaser is not an immediate likelihood now (this could change as the children grow, of course), and you have not yet identified any current employee having the interest or capacity to become a viable purchaser. I recommended that you take some time to reflect on what qualities, experience, characteristics, skills/training and aptitudes someone would need to have to be a viable, internal/succession buyer. This exercise will be helpful for you in hiring future employees – not so much for necessarily going out and looking to hire that person, but in recognizing such a possible buyer in someone who you were otherwise interviewing or hiring.
The external/strategic buyer will most likely be another company that does what you do, whether a local competitor or another company looking to expand into this market. It is possible that someone with no prior experience in your business could be a purchaser as well; this circumstance is pretty rare however. There are a number of ways to go about exploring this avenue, including formally listing the business with a broker. Under your circumstances, the best approach will be discreet and direct discussions with other companies that you select and approach about a possible sale.
In that regard, you should bear in mind that you are negotiating from a position of strength right now, as the business is currently doing well and you have no immediate need to sell. Nevertheless, as I noted above, you do want discussions that develop beyond a preliminary stage to be discreet and should therefore be covered by a written non-disclosure agreement (“NDA”). This will help protect your business in at least three areas: (i) non-disclosure of your financials, (ii) erosion of customer base that can arise when word of a possible sale is leaked, and (iii) unease or flight of employees who believe their continued employment is at risk. I can provide you with a form of NDA to use if discussions progress as well as advice on when in that process the NDA is important.
Finally, the item that started this whole line of discussion was the phantom stock plan that I had put together for you last year. This project still has a role to play in your long-term strategy, even if that role is not immediately evident or necessary. The fundamental usefulness of a deferred compensation plan such as the phantom stock plan is that it builds loyalty by creating an incentive for key employees to stay with the company and to work hard to increase its value. So as key employees are hired or developed over time, the phantom stock plan is available as a means to retain those employees, whether or not they might also be or become internal/succession buyers.