The Difference Between an LLP and LLC

In order to transfer assets to the next generation, some people may choose to use an LLP or LLC. Both of these are legal business arrangements that can be implemented into any estate plan.  A recent article discussed the differences between the two.

An LLP, or limited liability partnership, is a general partnership. In this type of partnership, ownership of the business is split between the partners. Profits from the business are distributed based upon the percentage ownership of each owner. An LLC, or limited liability company, is a partnership wherein owners are issued shares of stock. Profits from the business are split between the owners based on their share of the stock.

The use of an LLC or LLP may be beneficial for those Americans who have estates valued above the federal estate tax exemption, are seeking asset protection, or both. This is because these devices lower the value of the entire estate by dividing ownership of the business between yourself and your children. Moreover, if you gift a portion of your LLC or LLP to a child, that gift can be discounted by 20 percent or more for purposes of the federal gift tax exemption. By giving such gifts, you increase the value of your allowed $14,000 gift by 20 percent.

Protecting Your Inventions with a Patent: Recent Change in U.S. Patent Law

According to a recent change in U.S. patent law, specifically the Leahy-Smith America Invents Act, or AIA, the system has been switched from first-to-invent to first-to file. This revision means that your invention may be at risk if another entity is able to file an application before you with a similar idea or product. A recent article discusses some tips that will help you navigate these new guidelines.

To determine if you have a new invention, you will need to search internationally. During the application process, your invention will be judged against global inventions before you are able to win the patent. You can also consider filing a provisional application rather than a full application, which holds your patent for a year. This translates to a more affordable application fee and less required information. However, it is important to keep in mind that your provisional application should be consistent with future claims. In addition, a full application needs to be submitted within a year from the filing of your provisional application.

Under the new patent law, confidentiality agreements are more important. If you publicly disclose an invention, you have one year to file for a patent or you risk losing your rights to that invention. Finally, if you can qualify as a microentity by having fewer than four patent applications on record, filing fees for a full application will be dramatically reduced.

Million Dollar Babies: Leaving Assets to a Minor

Can you imagine receiving a few hundred thousand dollars in your account when you were 18 years of age? Typically, parents wish to leave their assets to their children or grandchildren. Although many people simply leave their assets to their children and grandchildren outright, a recent article discussed why it might be best to leave gifts to minor children and grandchildren in trust accounts.

If a parent leaves an inheritance to a minor child outright, the inheritance must go through the process of probate. Because a minor cannot legally hold property in his or her own name, a probate judge must appoint a guardian to hold the property until the child reaches the age of 18. The court-appointed guardian may not be a person that the parent or grandparent would have chosen. Moreover, the cost of compensating the guardian may diminish the inheritance.

Creating a trust for your minor child is the only way to remain in control of the assets. Through the trust, you can dictate how the funds may be used, and when they may be distributed to the beneficiary. Moreover, through creation of the trust you can select a trustworthy person to serve as trustee. Finally, a trust will take effect immediately. Therefore, the beneficiary will not be forced to submit to the probate proceedings.

Surprise! You Now Own a Business! When There Is No Succession Plan

By creating a succession plan, a business owner can determine what will happen to his or her business once he retires, becomes incapacitated, or dies. Often, succession plans can mean the life or death of a family business. A recent article discussed the story of clothing company Bari Jay, which was passed on to the owner’s daughters without the benefit of a succession plan.

The article profiles Susan Parker and Erica Rosenberg, who are co-owners of Bari Jay. The two sisters became owners of the business suddenly when their father unexpectedly died. According to Parker, their father never even informed them that they would be inheriting the business. Moreover, the sisters did not work at the company at the time of their father’s death.

The sisters faced many problems when they took over the business. Not only was it in the red, but they also lost a key employee who was not willing to partner with the girls. Rumors quickly spread around the company that, soon, it would no longer exist. Although the transition was rocky, the business continues to thrive. Too often, however, this is not the case.

If you own a family business that you plan to pass on to your children, take time to create a succession plan. Be sure to discuss the succession plan with your heirs, as well.

When the Conference Table Meets the Family Dinner Table

Often, succession plans for family businesses only consider the technical aspects of the business. However, it is just as important to consider the softer sides of the business. A recent article discussed the importance of creating a succession plan that considers the technical, as well as soft aspects of a family business.

When engaged in succession planning, most family business owners focus on the technical elements of business planning. This is important, as business transfers carry significant tax and legal implications. However, the technical elements of the transfer should not be the business owner’s sole concern. Business owners need to also consider the “qualitative aspects of leadership, communication, and control over decision making.”

One business owner set his company up for failure when he ignored these considerations when he passed his company evenly on to his five sons. The owner left no outline for a decision making structure between the sons. The business quickly fell apart, as the sons had no clear sense of direction and engaged in a power struggle.

In order to plan for the softer side of a business transfer, it is important to create a plan that will manage family relationships. Through this type of plan, the business owner can dictate a decision making structure for his or her successor children to follow. Such a plan can help avert disaster when successor children disagree about leadership and direction.

Some String Attached: Protection Through a Spendthrift Trust

Under the terms of a trust, a trustee holds legal title to the trust assets for the beneficiary. The trust documents dictate how and when the trustee may distribute the trust assets to the beneficiary. There are many types of trusts that can be used to serve various purposes in estate planning. A recent article discussed the purpose and benefits of a spendthrift trust.

A spendthrift trust is essentially a trust with a spendthrift clause. A spendthrift clause prohibits the beneficiary from accessing the assets within the trust. This clause thereby prevents creditors of the beneficiary from intercepting payments meant for the beneficiary. Once the beneficiary receives a distribution, however, his or her creditors may then reach the distributed assets. Spendthrift clauses may also prevent beneficiaries from voluntarily or involuntarily transferring their interest in the trust.

Spendthrift trusts may protect a variety of people. They are a popular choice among parents who want to leave money to their children but are worried that their children will spend it quickly and irresponsibly. Spendthrift trusts may also protect a person against an unexpected creditor, such as the victim of a car accident, a future ex-spouse, or a business creditor.