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When LLC Members Pass Away: What Are Executor Rights?

September 18, 2014

Filed under: Business Law,Business Planning,Business Succession Planning,Estate Planning For Business Owners,LLCs — Tags: — Neel Shah @ 9:36 pm

A recent case highlights some of the questions surrounding the situation mentioned in the title. According to the default rule in New York, the death of a member doesn’t trigger a dissolution of the LLC unless the survivors vote to take action on dissolving.

There are a few important outcomes of this new default rule, known as 701b in the New York LLC law. First, executors only have limited powers in their ability to exercise member rights or to become members themselves. Second, family members who inherit a deceased member’s interests are not admitted for official membership unless those other members consent to this. Third, without such consent, the inheriting family member retains only economic interest, not management or voting powers. Finally, these individuals can be considered non-members and do not have any decision making authority when it comes to judicial dissolutions or mergers and consolidations.

One example of this rule in action is the Budis case. An executor-husband of his late wife had his case dismissed against other LLC members for lack of standing. The operating agreement stated that the death of a member was seen as a voluntary withdrawal, and the estate thus became an interest holder but not a member per se. The solution is to include something in the operating agreement stating that a family member or executor inheriting the deceased’s LLC interest should be treated as a member of the LLC with all rights and powers afforded to other LLC members. To learn more about protecting your interests in an LLC, contact us today info@lawesq.net or via phone at 732-521-9455

Self-Employment Tax and K-1 Income: What You Need to Know

September 16, 2014

Filed under: Business Law,Business Planning,Income Tax Planning,LLCs — Tags: — Neel Shah @ 9:21 pm

What happens if you receive a K-1 from an LLC and there are self-employment earnings listed on line 14? Are you responsible for reporting those as subject to the self-employment tax? The self-employment tax is an additional payment of 15.3% to account for Medicare and Social Security. We’re taking a page from the Tax Times blog today to talk about this issue. For the most part, a taxpayer’s portion of ordinary income from partnerships (including LLC’s) reported on a K-1 is indeed subject to the self-employment tax. There are, of course, exceptions. This requires the assistance of an experienced team of accountants and tax attorneys, since the solution for you likely depends on your individual circumstances, the state of formation for the LLC and whether the LLC is taxed as a pass-through entity. In any case, it could be worth your while to discuss this issue with a trained professional to learn whether you are liable for the self-employment tax or not. To learn more about complicated tax issues and reporting of self-employment income, contact our offices at 732-521-9455 or through email at info@lawesq.net. Self-Employment Tax and K-1 Income: What You Need to Know

Side Business? Silent Partner? What’s the Risk? Duties of non-manager members of LLCs

May 9, 2014

Filed under: Asset Protection,Asset Protection Planning,Estate Planning,LLCs — Tags: , , , , — Neel Shah @ 6:30 pm

If you are interested in creating a managed multi-member LLC, one of the most popular questions for individuals in this position is whether non-manager members are held to the same standards (or have the same liability) with regards to fiduciary duties like care and loyalty. The answer is “it depends”.

Side Business Silent Partner Whats the Risk Duties of nonmanager members of LLCs
(Photo Credit: serpent.com)

In the non-manager members are involved in some significant aspect of the business, the operating agreement should generally include an expression of such duties for these individuals. Looking at the landscape of typical non-manager member involvement in the business of these LLCs, significant duties are typically rare with smaller businesses that are closely held.

There are some cases where the operating agreement might not address this question specifically. In this scenario, the LLC act governs and can provide some important insight. A lot of these acts, however, are quiet when it comes to this particular question. Some agreements, however, do have specific information about these duties included. An example is the Delaware Limited Liability Company Act, which actually negatives any duties for the non-manager members unless an express clause in the LLC agreement states anything to the contrary.

LLC formation and agreement construction can be aided significantly with the watchful eye of an attorney. Call us at 732-521-9455 or send us an email to info@lawesq.net to discuss your needs.

Side Business? Silent Partner? What’s the Risk? Duties of non-manager members of LLCs

Filed under: Asset Protection,Asset Protection Planning,LLCs — Neel Shah @ 4:44 am

If you are interested in creating a managed multi-member LLC, one of the most popular questions for individuals in this position is whether non-manager members are held to the same standards with regards to fiduciary duties like care and loyalty. The answer is “it depends”, but with a few stipulations.

LLC practice - fiduciary duties of non-manager members of multi-member LLCs
(Photo Credit: serpent.com)

In the non-manager members are involved in some significant aspect of the business, the operating agreement should generally include an expression of such duties for these individuals. Looking at the landscape of typical non-manager member involvement in the business of these LLCs, significant duties are typically rare with smaller businesses that are closely held.

There are some cases where the operating agreement might not address this question specifically. In this scenario, the LLC act governs and can provide some important insight. A lot of these acts, however, are quiet when it comes to this particular question. Some agreements, however, do have specific information about these duties included. An example is the Delaware Limited Liability Company Act, which actually negatives any duties for the non-manager members unless an express clause in the LLC agreement states anything to the contrary.

LLC formation and agreement construction can be aided significantly with the watchful eye of an attorney. Call us at 732-521-9455 or send us an email to info@lawesq.net to discuss your needs.

Are You a Sitting Duck? Four Asset Protection Strategies to Consider

February 25, 2014

Filed under: Asset Protection Planning,Asset Protector,Estate Planning,Insurance,LLCs — Neel Shah @ 10:00 am

Many investors are so focused on their return on investment that they fail to consider or implement asset protection strategies. As a recent article explains, an investor who has not protected his investments is a mere sitting duck. If you haven’t considered asset protection for your investments, below are four strategies you should consider:

Duck

(Photo credit: Wikipedia)

    1. Insurance: This is an important part of any asset protection plan because it shifts the risk of loss to somebody else. Insurance can be purchased for almost any asset or activity.

    2. Wait for Social Security: Social security is an important safety net for an individual or couple as they age. By waiting as long as possible before withdrawing benefits, an individual or couple can increase their ultimate return.

    3. Execute and Update an Estate Plan: An estate plan accomplishes many tasks. Not only does it provide for your loved ones after your death, but it can also utilize various tools to reduce the tax liability on your estate and your heirs.

    4. Consider Business Ownership for a Favorable Tax Rate: Ownership of assets by a business entity rather than an individual often means a lower tax liability on the assets. If you have a home business or simply a large amount of assets, consider forming a corporate entity to lower your tax liability.

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Keeping up with the Jones? How the Wealthiest Families are Protecting Themselves

January 28, 2014

Filed under: Asset Protection,LLCs,Wealth — Neel Shah @ 9:00 am

While asset protection is important for many individuals, it is particularly important for high net worth families. Asset protection strategies for these families should account for the fact that there is often much at stake. A recent article discusses how the wealthiest families are protecting their assets.

In order to begin the process of asset protection planning, a family must first consider the range of risks that they may face. Often, wealthy families are threatened by business liability, personal liability, risks to assets, and health care risks. Many become targets because they are perceived to have “deep” pockets.

One common way wealthy families protect themselves is through the creation of business entities to hold valuable assets. Families who own investment properties, for example, often create a separate business entity for each investment property. If a person slips and falls in one of the investment properties held by a limited liability company (LLC), the person would only be able to pursue the assets located in the limited liability company, rather than the individual’s personal assets.

 

Four of a Kind: Four Asset Protection Strategies

November 5, 2013

Filed under: Asset Protection,LLCs — Neel Shah @ 5:33 pm

Those who have substantial assets are often the targets of lawsuits. It is therefore vital that high net worth individuals and families practice asset protection strategies. A recent article discusses several of these strategies:

  1. Increase Your Liability Insurance: Liability insurance is often an individual’s first line of defense against litigation. Check with your insurance broker periodically to ensure that you have the correct amount and types of coverage.
  2. Consider Separate Assets: Imagine that you receive a windfall inheritance. In many states, if you deposit the money in a separate account, it remains 100% yours. However, if you put the money in a joint account, half of it instantly belongs to your spouse.   It is strongly recommended that you consult with your advisor as to state law, separating assets may also have the counter effect of destroying asset protection for marital assets.
  3. Protect Yourself From Renters: If you own any rental property, it is vital to shield your personal assets against the claims of a disgruntled tenant. Consider creating an LLC or corporation to hold the rental property, with a trust to own the LLC or corporate interests.
  4. Review all Joint Accounts: Money in a joint account may be at risk because it is subject to the risks associated with the other people on the account. Periodically review all joint accounts to ensure that it is still a wise decision. When reviewing these accounts, remember that divorce, a tax lien, or a lawsuit judgment may wipe out the entire account.

Insurance Considerations When Transferring An Asset To A Trust or LLC

March 27, 2013

Filed under: Asset Protection Planning,Estate Planning,Estate Taxes,Insurance,LLCs,Trusts — Neel Shah @ 1:55 pm

Two popular and time-tested methods of wealth transfer are the trust account and limited liability company. While both of these options can provide an excellent vehicle for the transfer of assets, it is important that the creator consider all the related details. One such detail that must be addressed is insurance.

Without addressing insurance considerations while forming a trust or limited liability company, a person may face an unexpected and catastrophic loss of insurance coverage. All insurance policies, no matter what type, are written to provide the owner or titleholder of an asset with coverage. Problems may occur, therefore, when assets are transferred to a trust or LLC.

For example, a person may transfer ownership in their home to a trust fund, LLC for various reasons including estate planning, tax considerations, or protection from creditors. Upon making such a transfer, the homeowner must be sure to change the homeowner’s insurance policy to reflect the fact that the home is now owned by the trust or LLC. Should the previous homeowner fail to make this change and the home is damaged, the insurance company may question the ownership change. Without making the appropriate changes, therefore, a homeowner could become potentially liable to pay any arising damages out-of-pocket.