New Company Name

Exciting News:  Wilson Stoyanoff, PLC is now named Torus Law.

As a client-focused law firm dedicated to providing personalized service, we believe our new name more accurately reflects our firm’s goals and personality. For those who are not familiar with the concept, a torus is a geometric shape created by two circles interlocking one another on a parallel plane. We chose the torus because the circles’ connected relationship gives the torus its structure — and strength. By focusing on each of you, our clients, encircling and helping you to maneuver the challenges of operating a business, we help ensure you receive dependable legal guidance that parallels and supports the specific path you seek for your company’s success.

Look for an update to our website soon and a new blog site to go along with it.

Estate Planning With a Revocable Living Trust

A trust is a practical and flexible legal device by which one or more people you select (your “trustees”) manage assets for the benefit of others you name (the “beneficiaries”). The person who creates a trust is commonly called the “grantor.”

You can establish a trust during your lifetime (a “revocable living trust”) or upon your death (a “testamentary trust”). You can make a trust the beneficiary of your will, an insurance policy or retirement plan.

Is a revocable living trust right for you? If you wish to control your property while you are still alive, provide for your loved ones if you are disabled, give your property to whom you want, when you want, all while reducing administration hassles and high legal and administrative fees when you die, the answer is “yes.”

Your other estate planning documents, such as your will, power of attorney and advanced medical directive are very important. However, for people who want to accomplish the objectives listed above, a revocable living trust should be the foundation of their estate plan.

Trusts can serve a variety of purposes

• Tax reduction
• Spreading assets among different beneficiaries
• Managing assets for the convenience of minor or elderly beneficiaries
• Asset protection

Normally the trustee can be you alone, your spouse or another family member, or a corporate trustee (such as a bank trust department). Regardless of who you select, you as grantor can always change the trustee. Because the trust is revoable, you have this flexibility, as well as the ability to add or remove assets from the trust, amend the trust or terminate it completely.

Tune in for a future blog for more benefits of planning with revocable living trusts.

Estate Planning – Protecting Your Future

Writing your will and arranging your family’s financial affairs is the process commonly called estate planning. Estate planning assures you that your property passes to others just as you direct, as efficiently as possible.

Common goals of estate planning include reducing estate and gift taxes, assuring the financial security of minor children or elderly family members and asset protection

Despite its name, estate planning also can involve arranging your financial affairs during your lifetime, such as in the event you become disabled.

A typical estate plan will include the following documents:

• Will: written instructions for how assets will be distributed when you die.

If you die without a will, the state determines who gets a significant part of your property.

• Trust: a practical and flexible legal device by which people you select (your “Trustees”) manage assets for the benefit of others you name (the “beneficiaries”).
  • If you have minor children, a trust can manage and protect their inheritance until they are old enough to do it for themselves.
  • If you leave a large enough estate that it subject to the estate tax, a trust can help reduce or eliminate the tax.
  • If you have a blended family, a trust can help you provide for children or grandchildren and protect their assets.
• Power of Attorney: a written authorization to have someone (your “attorney-in-fact”) act for you in financial matters.

If you are incapacitated, you may need someone to write checks or sell some of your assets for you.

• Advance Medical Directive: a document that states your wishes about the use of life-prolonging medical care if you become terminally ill, and names an agent who will determine what medical treatments you will receive while you are alive but unable to decide for yourself.

This document expresses your wishes and can take pressure off of your family members who want to do the right thing.

To learn more about Estate Planning and other asset protection tools, please feel free to contact one of our attorneys.

How A Trust Can Help With Probate

Property held in Trust does not go through probate if the trust holds the assets on death of the grantor. However, if you name your trust as a beneficiary under your will, any assets that pass to your trust on your death are subject to probate. For this reason, many individuals transfer title on a significant portion of their assets to their revocable living trust (“RLT”) during their lifetimes. Keep in mind, there are significant estate tax considerations involved in transferring property to a revocable living trust.

How is it that assets transferred to a trust in your lifetime avoid probate, while assets transferred to the same trust via your will do not? Simply stated, when you transfer assets to a revocable living trust during your lifetime, you no longer own them individually, even if you are the trustee of the RLT, and even though you can get these assets back at any time.  So, when you die, the trustee of the trust (you) is replaced by the alternate trustee you have named, but the trust remains the owner of the trust assets. Actual ownership of the assets does not change.  Since these assets do not “pass” to another under your will, they avoid probate.  However, assets that pass under your will, even to your RLT, must be probated.

The probate process is time-consuming, expensive and public. On the other hand, assets passing outside of probate can be transferred to the beneficiaries quickly, inexpensively and privately. Planning to avoid probate can be done at your convenience, taking time to consider all of the options available to you. That is why many savvy individuals spend the time and money upfront using an experienced estate planning attorney, rather than leaving an expensive and time-consuming probate process to their family.

Estate planning is one of the issues you will need to work out with your family and your advisors. It is important that you have confidence that your attorney and the rest of your team know your situation and have the professional skills to work with you to develop and implement your estate plan.

What is Probate?

The most significant part of estate administration is the probate process. Probate is the process of administering your estate through the court system after you die. It is set up to pay the debts you owe and distribute the remaining assets to your beneficiaries.  In Virginia, probate is handled in the circuit court of the county or city where you last lived.

During probate, a personal representative is appointed by the court. This will be an executor (if you die with a will) or administrator (if you don’t have a will). Notice of probate will then be filed, your property inventories, your debts paid and your remaining assets distributed.

Beneficiaries must be patient. Distributions from the probate estate cannot be compelled until six months after the appointment of the representative. An accounting must be filed by your personal representative no later than 16 months after appointment. Typically probate takes 9 months to two years to complete. If your will is contested, this process could take years to resolve.

In addition to probate filing fees, your personal representative is entitled to reasonable compensation for the administration of your estate, to be approved by the court. Under Virginia’s guidelines, the fees are calculated on a sliding scale, starting at 5% of the first $400,000. All of this is a matter of public record, available to anyone who is interested.

Not all of your assets are included in the probate process. Assets that pass by operation of law, rather than via your will are called non-probate assets. Non-probate assets include property owned as joint tenants with right of survivorship (typically real estate, but often including joint bank accounts or brokerage accounts). In Virginia, married couples can own property as tenants by the entireties. This form of ownership has the advantage of survivorship and in addition, the creditors of one spouse cannot reach this property.  In either case, on death of one tenant (owner), the survivor owns these assets outright.

Other non-probate assets include life insurance, annuities and retirement accounts such as 401(k) and IRA plans, where you name a beneficiary in the contract.  Other financial assets may be designated as “pay on death” or “transfer on death,” and will also pass outside of probate.

New Employment Poster Requirement

The United States Department of Labor recently published a final rule implementing changes to the H-2A program effective March 15, 2010. One of the requirements in the rule is for employers who employ H-2A workers to display a new H-2A poster where employees can readily see it. The poster is also available in Spanish. It will be made available in other languages in the coming months.

For information on small business requirements, visit their website at http://www.dol.gov/elaws/. If you have questions on laws affecting your business, feel free to contact our office at 804-622-6888.

Things to Consider When Selling A Business

If you have reached the point where you are considering the possibility of selling your business, there are a number of things you can do to make the process go as well as possible and maximize the sale price.  Proper planning at the beginning of the process can help you avoid many of the potential pitfalls and save you significant time and money.

How Do I Determine the Value?

This can be tricky for a small business.  You need to be realistic, and understand that values are subjective.  Some of the factors that can influence price are the value of the assets, the annual cash flow of the business and the sale price of any similar businesses.  Try to come up with a reasonable asking price, neither so high that buyers aren’t interested nor so low you cheat yourself.  Know what your bottom line is – if you have a bank loan to pay off make sure you are getting enough cash up front to pay off the loan.  Decide whether you will only accept cash offers, or whether you are willing to extend financing to the buyer (i.e., let the buyer pay off part of the purchase price over time).  In today’s credit market, it can sometimes be difficult for buyers to obtain loans to purchase a small business, so seller financing makes a business more attractive to buyers.

How Do I Find a Buyer? Consider whether you might already know a potential buyer, such as a family member, an employee, a customer or someone else in the same industry that may be looking to expand.  Most sellers decide to keep the sales process confidential in order not to alarm employees, customers and so forth, but this makes finding potential buyers more difficult.  If you are not sure how to find buyers, you should consider whether it would be beneficial to work with a reputable business broker.  If you do not know one, often your attorney, banker or accountant may be able to make a recommendation.  You will pay the broker a commission, typically a percentage of the purchase price, but a good broker can assist in determining reasonable value for the business, put together a “package” for interested parties, help you find potential buyers while maintaining the confidentiality of the sale process and provide many other services.  Before engaging a broker, make sure you understand what services the broker will be providing and what your obligation to the broker will be.

When Should I Consult an Attorney?

Selling your business will probably be one of the biggest financial matters in your life.  It is important that you have an experienced business lawyer making sure you are protected.  The things an attorney can do to assist you include reviewing any agreement with a business broker, making sure you have appropriate agreements with any potential buyers that protect the confidentiality of the sale process and your business information, reviewing and helping negotiate any letters of intent and reviewing and helping finalize the closing documents for the sale.  An attorney can also help you decide on the best structure for the sale, as the sale of the assets of the business or a sale of your ownership interest.  Your attorney may also be able to assist with ideas for helping the buyer to obtain necessary financing.

What Other Things Should I Be Thinking About?

Get Your Financials in Order.  Any buyer is going to want to see reliable financial information about your business.  Make sure all your tax returns are available, and work with your bookkeeper/accountant to produce statements that are easy to read and understand.  You will want to adjust these statements to take out whatever compensation you (and any family members who are not staying with the business) are receiving, to give the buyer an indication of how much money will be available to the buyer.  This includes both your salary and any fringe benefits (insurance, vehicles, travel and entertaining, etc.)  paid for by the company. 

Protect the Value of the Business.  It is important during the sale process to make sure the business continues to retain its value; don’t let the sale process distract you from normal sales, marketing and customer service.  You will never know when a potential buyer may be watching and evaluating, so keep the business running smoothly and keep the office looking good.  Like selling a house, it might be a good idea to “fix up” the business location, vehicles and/or other key assets so they look their best for potential buyers.

Develop the Story.  You need to have a good story to tell the potential buyers that includes both why the business is valuable and why you are willing to sell it.  Make sure you don’t communicate anything negative about the business, the industry, your employees and so forth that will turn off buyers.

Using 401(K) Money to Fund Your Business

The use of qualified retirement plan money is a common way for start-ups to fund their businesses.  But for the entrepreneur under age 59 ½, taking a distribution from the plan can be costly.  That’s because, in addition to federal and state income taxes on the distribution, the IRS collects an early-withdrawal penalty of 10% of the distribution.  Add all of these taxes up, and the business owner may be left with half of what he takes out of the plan.  In other words, if the owner needs $200,000 to fund his venture, he would need to take a distribution of close to $400,000 to raise the needed cash.

Some companies have devised a way to avoid the tax by funding a start-up without ‘cashing out” of the plan.  The strategy involves setting up a C corporation, which establishes a corporate retirement plan.  The business owner then rolls money from his outside retirement accounts into the corporate plan, which invests in company stock.  In this example, the entrepreneur needs only $200,000 of plan money, plus set-up fees which run $4000-$5000.  The rest of his retirement money stays invested in stocks, bonds, mutual funds, just as before.

The IRS has issued favorable rulings on many of these plans.  Still, according to the article, there is no IRS ruling authorizing the full process, which is a “gray area” of the tax law.  The IRS is continuing to study the issue.  Also keep in mind that with set-up costs plus annual administrative fees of about $800, this option may not make financial sense for investments less than $50,000.

At Wilson Stoyanoff, PLC, we have helped several of our clients implement this type of business financing arrangement.  We have found this to be one of several alternatives that entrepreneurs want to consider, especially those who are leaving corporate jobs to go into business for themselves.  If you would like to know more about this innovative financing technique, please feel free to contact one of our attorneys at 804.622.6888.

Seminar Opportunity for New Businesses

How do I choose the correct legal structure for my Small Business?

Date:              Tuesday, April 27, 2010

Time:             12:15-2:00 pm

Location:     Retail Merchant’s Association – Henrico Room        5101 Monument Avenue, Richmond, VA

Description

Come join us for an educational lunch workshop sponsored by Ledo’s Pizza at Willow Lawn Shopping Center. Our Guest Speakers are Jim Wilson of Wilson Stoyanoff PLC and Jorge Ortiz of Papa, Kane and Ortiz PLLC.

This presentation will not only educate participants about what kinds of entities are available to use to operate a business and how to set one up, but also how to use the entity correctly in a business. Participant will also learn about choices they can make and the effect of those choices on the taxes they pay. The presentation will be conducted in both Spanish and English, so make sure you invite your Hispanic Business Owner Contacts.

“Business owners often realize or hear that they should use a business entity (corporation or limited liability company) for their businesses. What they also need to know is the proper way to use the entity after it is formed to keep the protections of the entity in place while operating. Jorge Otiz and I will cover that topic specifically as well as look at some issues that should be considered regarding taxes.” – Jim Wilson

The Business Owners’ Estate Plan

Like most small business owners, you are probably so consumed with the day-to-day operations of your business that you have not had the time to focus on your exit strategy.  The process of planning your orderly exit from your business is called succession planning.

Your succession plan is essentially who will take over running your business and under what circumstances.  For example, you may wish to pass the business on to your children, but what if one child decides she doesn’t want any part of it?  If you do give the equity in the business to the children, will you do it over time or all at once?  Do you want to sell your business instead of passing it on?  You may decide you want to work until you drop!  Each of these potential decisions would require unique planning considerations to execute.

Succession planning for the business owner is a complex process involving financial and estate planning considerations.  Key considerations in succession planning include what happens when an owner dies or becomes disabled.  Will the business have to be sold to settle the liabilities or the estate?  Can the business go on without that person?

There are special considerations for business partners – if your partner dies or becomes disabled, what will happen to the business?  You may end up in business with a member of his family you don’t particularly get along with, or who has limited skill and knowledge of your business.

A critical aspect of succession planning is the buy-sell agreement.  You may be faced with the unexpected need to buy out your partner, either because of death, illness, retirement, or simply their desire to do something else.  Buy-sell decisions can also be triggered by an offer from a third party to buy the business, divorce, bankruptcy or the loss of an owner’s necessary professional license.

A typical buy-sell agreement may provide that if you die while actively involved in the business, the remaining owners must buy your interest from your estate at a predetermined sales price or formula.  The agreement may also provide a right of first refusal if you retire or want to sell out to an outsider.  You may want to consider the use of life insurance to fund the business buy-out in the event of death or possible even on retirement.

These are just a few of the issues you will need to work out with your family and your advisors.  It is important that you, as a business owner, have a confidence that your legal, financial and investment advisors have the knowledge of your business and the professional skills work with you and as a team to help you develop and implement your succession plan.