Limited Liability Companies (LLCs)

An LLC will reduce liability for a part-time consulting business, or any full time business.

The simple definition of a limited liability company (LLC) is that it is a form of business entity that limits the liability of its owners from creditor claims (lawsuits) while allowing flexibility in operation and management and passing through its income to its members with no tax at the entity level.

Basic Features of an LLC

The basic features of a limited liability company are:
• Its owners have limited liability for the entity’s debts and obligations, similar to the status of shareholders in a corporation, and
• Its income and losses are normally passed through to the owners as if it were a partnership, avoiding double taxation.

The LLC is like a limited partnership, but without the requirement that there be at least one general partner liable for the debts and obligations of the partnership. An LLC is a statutory creation. That is, unlike general partnerships which developed under common law, an LLC, like a corporation, is created by filing a document (called Articles of Organization) with the Corporation Commision. As the LLC is a statutory entity, the laws governing the LLC set up a particular framework of rules for the operation and management of the LLC. Generally, most of the statutory rules are considered to be fallback provisions which take effect only if the LLC’s operating agreement doesn’t provide for guidance on a particular point. We will need to customize an operating agreement for you.

LLC Advantages

A limited liability company (LLC) has many advantages as a form of business entity:
• Pass-through taxation – under the default tax classification, profits are taxed at the member level, not at the LLC level (i.e., no double taxation).
• Limited liability – the owners of the LLC, called “members,” are protected from liability for acts and debts of the LLC.
• No requirement of an annual general meeting for shareholders.
• No loss of power to a board of directors
• LLCs are enduring legal business entities, with lives that extend beyond the illness or even death of their owners, thus avoiding problematic business termination or sole proprietor death.
• Much less administrative paperwork and recordkeeping than corporations or limited partnerships.
• Membership interests of LLCs can be assigned or transferred.

What is an Arizona Probate and When Is It Required?

What is an Arizona probate? Probate is the term that describes a superior court proceeding in which the court appoints a personal representative of the estate of a deceased person who is responsible, in simple language, for the following tasks:
1. Find, collect and make an inventory of the assets of the decedent.
2. Pay the last expenses of the decedent.
3. File income tax returns of the decedent.
4. Prepare an accounting and distribute the remaining assets to the beneficiaries of the decedent:
a. As provided in the deceased’s Will or Trust;
b. If there is no valid Will then as provided in the law of intestate succession.

How to Determine if a Probate is Required: Before we can determine if a probate for a decedent’s estate is required, we must review the value of the assets owned by the decedent at the time of death and how the assets are titled. There may be named beneficiaries on the assets. Assets may be titled in the name of the decedent’s revocable trust. There are small estate procedures available. Please contact me to discuss these questions.

Marriage Agreements

When entering into a marriage, few people contemplate the possibility that the relationship may eventually come to an end. However, couples should not overlook the importance of planning ahead to avoid or minimize adverse economic consequences in the event of termination of the relationship or death of one of the parties. Entering into a prenuptial or postnuptial agreement may save couples time, money, and inconvenience if their relationship should end.

A prenuptial agreement (prenup) is a contract created by two people before they marry that specifies how assets will be distributed if the marriage ends. A prenup can protect assets in case of divorce and ensure that a spouse’s wishes regarding distribution of property after death are respected.

Like a prenup, a postnuptial agreement (postnup) sets forth how assets will be distributed in the event of divorce or death, but a postnup is signed during the marriage as opposed to prior to the marriage. Prenups and Postnups are enforceable in Arizona.

Gift Giving Plans

If your estate exceeds $5.43 million, then you might consider doing the following:

Make sure to use your gift tax exclusion. This year and next, a single person can give $14,000 to a child, grandchild, or any other person without gift tax consequences. Married couples can give $28,000, making the total gift and estate tax exclusion from your estate approximately $5.45 million for a single person and $10.91 million for married couples during their lifetime. The amount of these gifts are not added back to your estate upon death, and future appreciation on them is out of your estate.

Direct tuition payments for students get several breaks. Tuition payments don’t count against the $14,000 gift tax exclusion and they reduce the size of your taxable estate. You can put as much as $70,000 per child free of gift tax this year, or $140,000 for married couples, into a 529 plan to help your children or grandchildren through college. Also, these are income tax advantaged.

Give away appreciated assets to charity, such as stocks. When you give away appreciated assets, the appreciation escapes capital gains tax and in most cases you get a deduction for the full value of the asset, as long as you’ve owned it for more than a year. However, don’t donate an asset that has declined in value. If you do so, the capital loss is wasted. You are better off tax-wise selling the asset and donating the proceeds to a charity, for example.

Retiring Soon? 5 Things to Do Now

1) Delay claiming your Social Security benefits, if possible. You can begin collecting Social Security at age 62, but your monthly benefits will be permanently reduced. It’s usually best to wait until full retirement age to claim un-reduced benefits. But if you can wait to claim until your full retirement age, your benefits will grow 8% a year, up until age 70.

2) If you don’t have a financial plan, get one done. If you have a financial plan, update it. It should have five areas: investments, income, tax, health care, and estate planning.

3) Start saving for an emergency fund that can be used approximately five years away. The reason for this is that by the time you retire you will have saved two years of expenses in cash (in your retirement plan). You should also consider having about three months’ worth of income liquid in a money account so it can be accessed in an emergency or an unexpected life event.

4) Max out your contributions to your retirement accounts. Consider maximizing your employer plan’s 401(k) prior to December 31. Please also consider maxing out the contributions into any IRAs, 401(b)s, or 529 plans. Take advantage of all tax-deferral vehicles, assuming you don’t need the assets in the near term.

5) Rebalance your portfolio. Sell some of the winners, and reallocate some of that cash. You want to rebalance so that you can get the most return for the amount of risk you want to take. If your portfolio is not rebalanced, you can be taking on more risk than you should. On the other hand, you may also want to try to invest so that you will maximize your retirement and take out more risks.

Long Term Care Insurance

As an estate planning attorney, I am often asked about how to protect assets from the government if long term care is needed. Long term care is expensive. Long term care insurance is an excellent alternative to having to spend down almost all of your assets to qualify for Medicaid or AHCCCS. Policies vary so you need to talk to a financial planner who works with long term care insurance.

The number one fear of many Americans, particularly retirees, is running out of money before they die. This is understandable, given the volatile economy and the specter of nursing home costs. Although you cannot control the economy, you can protect your hard-earned assets from the cost of round-the-clock care in a long-term care facility. In fact, you may insure the option to have your long-term care provided in your own home, but only if you obtain such coverage through a proper long-term care insurance contract while you are insurable.

Regardless, if you wait too long, your options may be very limited. In a worst case scenario, you could end up depleting your assets.