Despite the fact that it happens to every single one of us and is as every bit as natural as birth, very few among us are properly prepared for death—whether our own death or the death of a loved one. 

Yet the pandemic might be changing this.

According to Census figures, the pandemic caused the U.S. death rate to spike by nearly 20% between 2019 and 2020, the largest increase in American mortality in 100 years. More than two years and 1 million deaths later, it’s more clear than ever that death is not only ever-present, but a central and inevitable part of all our lives.

Yet, in what may be one of its few positive outcomes, some in the end-of-life industry believe that the pandemic’s massive loss of life has created an opportunity to transform the way we face death, grief, and all of the other issues that arise when we lose someone we love dearly. In fact, this sentiment is the mission of the new startup Empathy, an AI-based platform designed to help families navigate the logistical and emotional challenges following the death of a loved one.

“For far too many, COVID-19 has been a terrible reminder that death and loss are all around us,” notes Empathy CEO and co-founder Ron Gura in a recent company report. “But it also represents an opportunity to shift public perception, to bring a topic that has been for far too long shrouded in darkness into the light of day, where we can fully examine it and figure out how best to help those who have to shoulder its burdens.”

As anyone who has personally dealt with loss knows, when a loved one dies, those left behind face major challenges, not only emotional and logistical, but financial as well. Empathy was designed to help manage and streamline these responsibilities for grieving families—and in the process, “change the way the world deals with loss.”

A Digital Assistant For Grieving Families

Empathy provides users with digital tools that offer step-by-step instructions detailing all of the administrative, legal, and financial tasks you need to manage in order to finalize a loved one’s affairs and settle their estate. To help users prioritize their work and avoid burnout, the Empathy app flags the most time-sensitive tasks.

In addition to the technology, Empathy also offers human-centered support in the form of live Care Specialists, who can be contacted via the app. The Care Specialists support you by answering questions, helping you locate services and providers, and even handling certain tasks for you if needed, such as calling funeral homes, contacting life insurance companies to speed up policy payouts, and helping executors file court petitions. 

Determining Dying’s True Cost

To further shed light on just how vastly unprepared most of us are when dealing with death, in March 2022 Empathy released its first-ever Cost of Dying Report. In partnership with Goldman Sachs, Empathy’s report surveyed more than 2,000 Americans—each of whom had lost a loved one in the last five years—to get a clearer picture of dying’s true cost to families—and as Gura says, “bust open the taboo that has for too long kept it out of the public consciousness.”

The report looked not only at the financial burden dying brings, but it also examined the cost “in time, in stress, in harmed productivity, and in strained interpersonal bonds.” Paired with the results of the research, the Cost of Dying includes a collection of insights from the study’s advisors, partners, and experts in the bereavement field. 

These contributors seek to clarify what we can learn from the study’s numbers and explain how we can use the figures to rethink how to best serve the bereaved, “as individuals, as organizations, and as a society.” While you can read the full report, which can be accessed for free on Empathy’s website, the following are some of the study’s most notable findings, along with corresponding insights from some of the report’s contributors.

THE FINANCIAL COST
Following a loved one’s death, the total bill—including the funeral and hiring all of the other professional support—cost families an average of $12,702. The average cost of a funeral was $7,267, and according to the National Funeral Directors Association, that cost has risen 7.6% in the last 5 years. 

On top of the funeral, families paid an average of $5,846 to hire additional professionals, such as lawyers, financial advisors, and realtors. The bill charged for these services include the following individual costs:

Professional Services 

• $3,910 lawyer fees
• $4,461 real estate professionals
• $2,456 accountants
• $1,637 therapists or social workers

Notably, the $3,910 in lawyer’s fees was nearly double for estates that required the court process of probate, which was the case for one-third of families surveyed. When you include lawyers, court costs, and all of the other related fees, the total cost to complete probate for families averaged $16,800.

Fortunately, by working with us, your local Personal Family Lawyer®, your family can avoid the time, expense, and emotional burden associated with probate. For example, by placing assets in a properly created and maintained revocable living trust, assets held by the trust will pass to your loved ones without the need for probate or any court intervention following your death or incapacity.

But that’s not the only way proactive planning can help your loved ones following your death. Using our Life & Legacy Planning Process, you can achieve a variety of other goals, including asset protection, avoiding family conflict, funding long-term care, estate tax mitigation, as well as family legacy creation and preservation, to name just a few. Sit down with us, as your Personal Family Lawyer®, for a Family Wealth Planning Session to find the most effective and affordable planning solutions for you and your family based on your family dynamics, assets, as well as your overall goals and desires. 

Paying The Final Bill
So how did families pay for all of these expenses? Only 1 in 7 families had any of the costs associated with their loved ones’ death paid in advance or were able to use payable-on-death funds. Additionally, more than 50% of families had to deal with estates that included debt. To foot the bill for these expenses, 36.1% of respondents used their own savings or investments, while 42.4% used their checking accounts or credit cards.

For most families, the financial costs associated with loss were exacerbated by a lack of information about exactly how much money they should expect to spend, notes internal medicine physician Shoshana Ungerleider, MD, in the report’s section on death’s financial cost. Compounding that stress, Ungerleider says, was the families’ fear of making a mistake that will make their financial burden even worse.

“A majority of families find themselves unprepared for and under-informed about the real financial costs of death, with few available resources for finding out,” writes Ungerleider. “They can spend months or years terrified that a wrong move will wipe out their inheritance or even their own savings.”

As an example of what such a mistake might look like, Ungerleider notes that a lack of proper estate planning can lead to the deceased’s home being seized after death “to pay off expenses incurred through Medicaid, even if the family member who was their primary caregiver is still living in the home.”

This is another area where thoughtful estate planning can be invaluable. As your Personal Family Lawyer®, we offer planning strategies that can help you and/or your senior parents qualify for Medicaid and other benefits, without putting the family home or other assets at risk. Moreover, we will serve as both you and your family’s trusted advisor at all times, so you never have to worry about anyone impacted by your plan being under-informed about death’s many responsibilities.

Next week, in part two of this series, we will discuss more of the Cost Of Dying’s most notable findings and detail other ways you can dramatically reduce the financial, logistical, and emotional burden for your loved one’s upon your death using our Life & Legacy Planning Process. Until then, if you are ready to create or update your estate plan, contact us, your Personal Family Lawyer® today.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

If you are thinking about hiring a lawyer to help with your business, you may be wondering why you should work with us, your Family Business Lawyer™ rather than a “traditional” business lawyer. What makes us so different from other lawyers?

The best way to explain how Family Business Lawyer™ firms are different requires an explanation of what it’s like to work with most business lawyers. If you’ve already worked with another lawyer to set up your business entity or prepare your entity incorporation documents, this experience will probably sound familiar.

The Traditional Business Lawyer Experience

During your first meeting with a traditional business lawyer, you’ll listen to the lawyer explain their services and things may sound complicated and confusing. But as a lawyer, you’ll assume the individual must be smart and knows what he or she is doing, so you’ll nod and answer questions, as if you understand everything. 

And because you want to do the right thing for your business, you’ll have the lawyer prepare incorporation documents for you, and you’ll sign those documents, feeling relieved that you’ve finally gotten that taken care of. The lawyer may even give you a corporate records binder to store your important documents in. 

From there, you’ll take your fancy business binder home, stick it on a shelf or in a drawer, and then cross “incorporate my business” off on your to-do list, and never look at it or think about it again… until something goes wrong, that is.

But Then What?

You might remember your lawyer saying something about the importance of having legal agreements with your clients, vendors, and partners. But since the matter never evolved beyond mere conversation, you realize your agreements are still incomplete. 

You may have even reached out to your lawyer for help. But when you call your lawyer’s office, you almost always get their voicemail, so you leave a message and wait for a call back, which takes several hours at least—and sometimes even days. But by that time, you’ve gotten busy with a bunch of other things, so you never get around to finishing your agreements.

And the same thing happens with all of the other legal and financial issues you thought about getting handled, but never found the time to do, including applying for trademarks and copyrights, purchasing insurance, and maybe even implementing financial systems and tax-saving strategies. 

And when you actually do get your lawyer on the phone to ask them questions, a couple of weeks later, you get a bill in the mail for $67.50 for 15 minutes of your lawyer’s time. After getting billed just for asking a few questions, you make a mental note: “Don’t call lawyer ever again unless absolutely necessary.”

After that incident, years go by without you talking to your lawyer. Your business will keep chugging along, and although you know these things are hanging out there incomplete, you are way too busy to worry about it. 

Leaving these issues unhandled may even affect your creativity, but you don’t want to call your lawyer, since you know you’ll get a bill in the mail a couple weeks later. Plus, your lawyer doesn’t seem very eager to move things forward, and you are simply too busy to deal with anything that doesn’t contribute to your company’s bottom line.

More time goes by, and then you hear something in the news about a change in the tax laws, but you figure your lawyer would surely contact you if it was something that affected you, so you don’t worry about it. Not to mention, you’d have to dig through several boxes to find your incorporation documents and locate your lawyer’s contact information, and who has time for that?

Then Something Goes Wrong

It’s only when something goes wrong (an employee lawsuit, a client demanding a refund, a vendor dispute, an IRS audit, or you need to borrow money) that you realize with a sinking feeling that not only are your legal agreements incomplete, but your lawyer never customized your operating agreement or bylaws. And you haven’t been holding annual meetings or documenting your meeting minutes, either.

You are at a total loss. You clearly see that you’ve wasted time by not having this all taken care of, and on top of everything else, you are an emotional wreck. And what you may not realize is that you’ve been losing money all along, or at the very least, you haven’t been generating anywhere close to the profits your business is capable of earning.

Don’t Learn This Lesson The Hard Way

Far too many business owners learn the hard way that having your company’s legal affairs properly handled is every bit as high a priority as having the right marketing plan or business model in place. This is one of the little-known secrets of the most successful companies—they were set up right from the start.

It’s no secret that the IRS audits unincorporated sole proprietors five- to seven-times more often than incorporated business entities. The reason? The IRS knows that if you don’t have your business set up right, you probably aren’t doing your taxes right, either. 

Without a lawyer who is always there to offer you expert advice, you are most likely not hiring and firing right, you likely don’t have enough—or too much—insurance, and your business is probably not structured with the right entity. All of this leads to your company being built on a house of cards, just one accident, audit, or lawsuit away from ruin. 

How Do I Know All This?
Not too long ago, my own business was set up this way as well, even though I’m a lawyer myself. But when I saw how much my business took off and thrived once I took care of its foundation, I swore I would never let this happen to any of my clients. And since then, I have worked with countless clients, who have all had this same experience.

Unfortunately, most people who hold themselves out as business lawyers, do nothing more for their clients than incorporate their entity or file their trademark and send them on their way. Yet, if that’s all your lawyer is going to do, you could get your business incorporated for a lot less money by using a do-it-yourself (DIY) online legal document service like LegalZoom or Rocket Lawyer. 

Your business lawyer should be your trusted counselor, not just a document preparer. As your Family Business Lawyer™ we focus on counseling, consulting, and “consigliere-ing” over creating documents—document creation simply becomes a useful byproduct of our professional relationship. And yet, if you prefer to DIY, we can even help you do that the right way, with a foundation of education beneath you that ensures your DIY plan will work when you need it.

What makes our firm different is that we were built with the needs of growing businesses in mind. Just because you can’t afford your own in-house legal counsel like Fortune 500 companies have on retainer, doesn’t mean you don’t need—or deserve—such counsel.

We Are That Counsel

We understand you are busy, you are growing, you are planning for prosperity, and you value ease, convenience, and efficiency. You want to know you’ve made the best decisions for your company, and all of the tedious parts of running a business—crunching numbers, negotiating contracts, dealing with insurance, and managing taxes—are properly handled, so you can focus your energy and passion on growing your business to the fullest extent possible.

That’s our focus as well. We’ve developed unique business systems for our clients that were previously available only to the likes of Google, Facebook, and Zappos. With us in your corner, you will have the guidance and support you need to build a business of true meaning and significance—as well as serious profitability.

Next week in part two of this series, we will detail all of the different ways us, your Family Business Lawyer™ will support, guide, and serve your business and how those services differ from other business lawyers. Meanwhile, if you’d like to learn more about our programs or schedule a visit to consult with us about your business, contact us, your local Family Business Lawyer™ today.

his article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

With divorce occurring in roughly 50% of all marriages in the U.S. and life expectancy increasing every day, second—and even third—marriages are becoming quite common. And when people get remarried in mid-life and beyond, they often bring children from prior marriages into the mix. Such unions are often referred to as a “blended” family or a “Brady Bunch” family.

But blended families can also take other forms. Whether you have stepchildren, adopted children, children from a previous relationship, or you have someone you consider “kin,” even though that individual might not be classified as your legal relative in the eyes of the law, these are also examples of a blended family.

Whenever you merge two families into one, you are naturally going to encounter some challenges and conflict. To this end, blended families present a number of particularly challenging legal and financial issues from an estate planning perspective. Indeed, though all families should have an estate plan, planning is absolutely essential for those with blended families. 

If you have a blended family and something happens to you, without a carefully considered estate plan, your loved ones are at risk for significant misunderstanding and conflict, and having your assets tied up in court, instead of passing to those you want to receive them. Unless you are okay with setting your loved ones up for heartache, confusion, and pain when something happens to you, you need an estate plan that’s intentionally designed by an experienced lawyer (not an online document service) to keep your loved ones out of court and out of conflict.

While you should meet with us, your Personal Family Lawyer® to plan for your particular family situation, here are a few of the most common issues blended families should keep in mind when creating or updating their estate plan.

1. Keeping Your Assets Separate

If you get remarried and have children from a previous marriage, you need to think about how you want to balance providing for your new spouse and ensuring the children from your previous marriage receive an inheritance from you, in the event of your incapacity or when you die.

If you intend to keep your assets separate, so each spouse can pass an inheritance to his or her own children, you’ll need to create and maintain separate financial accounts. For instance, one account contains the assets you want to pass on to your children, and the other can be either a separate or joint account that contains the assets you want to share with your new spouse.

Keep in mind, if you and your spouse commingle your income and assets, then the new spouse will have claim and control of those assets when you die, which can easily leave your kids with nothing. Moreover, joint accounts can be subject to claims from a former spouse and/or creditors, so unless you want your new spouse to share that risk, keep at least some of your assets separate.

And if you’re keeping assets separate, be sure to talk with us, your Personal Family Lawyer® about the best ways to do that, since it can get somewhat tricky, particularly when you are sharing some assets and buying new assets together with your new spouse.

2. Issues With Inheritance Timing
If you have children for whom you want to leave an inheritance, you need to consider how and when you want those assets to be passed on. For example, what would happen if you die prematurely or if your spouse is significantly younger than you? Do you want your kids to wait until your new spouse dies to receive their inheritance, or do you want them to receive it immediately following your death? Perhaps you desire to create a hybrid in which your children receive a small inheritance at the time of your death, and they receive the rest upon the death of your new spouse, which could be many years in the future.

Establishing trusts for each spouse’s children can protect those assets and stipulate when the kids receive their inheritance. You may want to provide your children with some of their inheritance, such as proceeds from a life insurance policy, upon your death, and then release the rest at some point in the future. Or if your kids are very young, you may decide to leave that decision up to your spouse or a third-party successor trustee, who can better determine the most advantageous time to pass on your children’s inheritance to them.

As your Personal Family Lawyer®, we will work with you, taking into account your unique family dynamics, assets, and potential areas of risk and conflict to help you determine the optimal time to pass on your wealth and other assets to your heirs to ensure it has the maximum benefit for everyone involved.

3. Carefully Consider Your Trustees

A common scenario for blended families is for one spouse to set up a revocable living trust that names themselves as the trustee during his or her lifetime, with the surviving spouse named as successor trustee once the first spouse dies. Yet, this would leave all decisions related to the trust assets to the surviving spouse, which could cause conflict with the children from your prior marriage. 

For example, the new spouse may choose to invest the trust assets conservatively, ensuring he or she has enough money to live comfortably for a few decades, instead of investing the assets for growth. On the other hand, the children—particularly if they are younger—might be better off having the assets placed into higher-risk investments, which can offer better returns in the long run, but leave less income for the surviving spouse.

In this case, it could be best to name a neutral third-party as successor trustee, so both your children and surviving spouse’s interests can be balanced fairly.

4. Preventing Conflict
If you are in a second (or more) marriage, with children from a prior marriage, the conflicting interests of your children and spouse can create serious strife between them in the event something happens to you. To reduce the likelihood of conflict, your estate plan needs to contain clear and unambiguous terms, spelling out the beneficiaries’ exact rights, along with the rights and responsibilities of executors and/or trustees. Such precise terms help ensure all parties know exactly what you intended.

Additionally, it’s essential that you meet with all affected parties within your blended family while you’re still alive (and of sound mind) to clearly explain your wishes directly, if you hope for your loved ones to love each other after you are gone. Sharing your intentions and hopes for the future with your new spouse and children from a prior marriage can go a long way in preventing disagreements over your wishes for each of them.

As your Personal Family Lawyer®, we can even facilitate these meetings to help ensure your blended family maintains a harmonious relationship no matter what happens to you.

5. Planning For Incapacity

In addition to planning for your eventual death, you must also plan for your potential incapacity. In this case, you’ll need to discuss how planning vehicles for your incapacity, such as a durable financial power of attorney, medical power of attorney, and a living will will be handled. 

For example, if you become incapacitated, who would you want making your legal, financial, and medical decisions for you? If your children are young, it’s best to leave those decisions up to your surviving spouse. However, if your children are older, you may want them included in the discussion of how such decisions will be made. Or you may prefer to name one of your adult children as your decision maker, or you might divide the different duties between your spouse and adult children.

Regardless of what you choose, we can support you to create an estate plan that ensures your incapacity will be managed exactly how you would want in every possible scenario.

Bringing Families Together
Along with other major life events like births, deaths, and divorce, entering into a second (or more) marriage requires you to carefully review and rework your estate plan. And updating your plan is exponentially more important when there are children involved.

As your Personal Family Lawyer®, we’ve been specially trained to counsel blended families on how to properly protect their assets in a manner that’s best for both the spouse and any children involved. We will ensure that you and your new spouse can clearly document and communicate your wishes to avoid any confusion or conflict over how assets and/or legal agency will be managed and passed on in the event of one spouse’s death or incapacity.

If you have a blended family, or are in the process of merging two families into one, sit down with us, your Personal Family Lawyer® to discuss your different planning options. Contact us today to schedule your visit.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

There are numerous advantages to running your own business: being your own boss, setting your own hours, getting to decide who you work with and what you work on. However, business ownership can also be one of the most stressful endeavors you’ll ever undertake in your life.

While running your own company will inevitably have its maddening moments no matter what, some of the major stressors can be successfully managed if you know how to effectively deal with them. Here are three of the most unnerving parts of owning your own business and how to handle them like a pro.

1. The Stressor: Lack Of Predictability

You’d think that running your own business would mean you’re in control of everything, with no one else telling you what to do, how to do it, or when to do it. And you’d be right—mostly. Paradoxically, when you go into business for yourself, you’re in control of everything and nothing both at the same time.

With a steady 9-5 gig, you can count on consistent paychecks, predictable hours, a stable office location, and even regular vacations. But when you’re your own boss, consistency and predictability go right out the window.

Dealing with inconsistent income can be a major stressor, as you never know if you’re going to be able to pay your bills. Not only that, but it’s often the case that if you’re not working, the business is not functioning, making things like days off and vacations seem like a fantasy.

The Solution: While you can never eliminate the unpredictability of your income when you have a business, what you can and should do is know exactly how much money you will need and how many clients or customers you will need to hit your financial goals at a base level. By establishing clear goals based in the actual reality of what you need, you will be able to keep your time, energy, and attention focused on taking the actions necessary to hit your goals, rather than wasting your time, energy, and attention worrying and wondering about what you need to be doing on any given day, week, or month. 

One of the things we do with our business owner clients is to support with a review and update of your financial needs regularly, and then we help you look at whether your business is structured to meet your financial needs. We call this Money Mapping. Give us a call if you’d like to discuss how we can help you here.

2. The Stressor: Not Having Enough Time

Unpredictability and time management go hand-in-hand. Without a structured and enforced schedule to adhere to, it’s easy to get sidetracked by the day-to-day minutiae that comes with running a business. As Stephen Covey reminds us, it’s so easy to get caught up in the urgent matters, and forget the important matters. 

We all have the same 24 hours in a day, 7 days a week, but if you use them wisely, by becoming the boss of your calendar, you’ll find that you actually do have plenty of time, always.

Time management is the most important skill for business owners to master, since not having enough time to handle key tasks will freak you out and wreck your business at the same time. To this end, it’s vital to establish an effective way to budget your time and then stick to a schedule as if your life depended on it (since it actually does).

And though it may be impossible to do in the very beginning, make hiring a robust support staff a top priority, so you can eventually take time off when planned—or unplanned—events require you to step away from your business. 

The Solution: For scheduling, we favor a process of time management called “time blocking,” based in our Money Map process, and we’d be happy to teach it to you, as it’s the number-one tool we use to get so much done, and do it in a way that allows us to love our lives and our business, too. Here’s a taste… 

Turn time on its head and prioritize self-care and family time first. Do this by making a list of all of the self-care items that are vital to your health and well-being, and how much time you desire to allocate to them on a weekly and monthly basis. Then, make a list of all of the time you desire to spend with family each day and week. Block all of those times off on your calendar first. 

Then, it’s time to block time for your top business priorities, including time for administration or leadership of your team, time for sales, time for marketing, time for continuing education, and of course, and finally… time to serve.

By doing this, you’ll likely discover that you have much less time to serve than you thought when you initially priced your services (if you are in a service-based business), and may need to raise your fees. By professionalizing your business, you can do this. Contact us for support. 

3. The Stressor: No Work/Life Balance

Even if you’re one of those people who live for their work, if you don’t devote enough time to rest and self-care, both your work and personal life will suffer. Ironically, many people start their own business specifically to have more time for themselves, but once you see what’s actually involved, you’ll often find the business is the one who owns you—not the other way around.

Having an effective work/life balance is the key not only to being effective at your job, but also staying healthy and happy. Running a business can take a toll on your mental and physical health like nothing else, and if you don’t find a proper balance, it can lead to literally fatal outcomes.

The Solution: One of the first steps to finding work/life balance is to set realistic work hours and adhere to them just like any other job. When you work from home or don’t have a regular office, it’s easy to let “work time” eat into your “me time,” until all you have is “work time.”

Consider personal time just like your other top business priorities—set aside blocks of time for it, and stick to that schedule religiously. In addition to scheduling time to spend with your family and friends, also make time for rejuvenating self-care activities like exercise, meditation, hobbies, and other things (don’t forget sleep) that allow you to relax and recharge your batteries. Rather than seeing these things as distractions from work, you’ll ultimately find they’re essential for maximizing performance and productivity.

Finally, another way to reduce stress is to implement effective business systems that streamline your day-to-day operations. As your Family Business Lawyer™, we offer a number of turnkey solutions to give you maximum control over your business—and your mental health. What’s more, we will guide you through your toughest decisions, so you can rest easy knowing you’ve done everything to ensure your company is as secure and successful as possible.

Don’t Forget Your Foundation

Running a business also involves setting up the proper legal, insurance, financial, and tax (LIFT) systems, which form your company’s foundation and support your goals and objectives.

As your Family Business Lawyer™, one of our primary missions is to help small business owners put these cornerstone systems in place, providing your company with an unshakable foundation. To see how stable your LIFT foundation is right now, contact us, your Family Business Lawyer™ to take our free LIFT 20-Point Assessment.

This assessment will highlight the gaps in your current LIFT foundation that need the most attention. From there, you can meet with us, your Family Business Lawyer™ to conduct a more thorough audit and implement the full LIFT Foundation System and Toolkit. Contact us today to learn more.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

If you’re looking to collect life insurance proceeds as the policy’s beneficiary, the process is fairly simple. However, during the emotional period immediately following a loved one’s death, it can feel as if your entire world is falling apart, so it’s helpful to understand exactly what steps you need to take to access the insurance funds as quickly and easily as possible.

Not to mention, if you’ve been dependent on the person who died for financial support and/or you are responsible for paying for the funeral or other expenses, the need to access insurance money can be downright urgent. Plus, unlike other assets, an estate’s executor typically isn’t involved with collecting life insurance proceeds, since benefits pass directly to a beneficiary, so this is something you will need to handle yourself.  

With this in mind, we’ve outlined the typical procedure for claiming and collecting life insurance proceeds, along with discussing how beneficiaries can deal with common hiccups in the process. However, because all life insurance policies are different and some involve more complexities than others, consult with us, your Personal Family Lawyer® if you need any support or guidance.

Filing A Claim

Death benefits are not automatically paid out from a life insurance policy. In order to collect the proceeds, you must first file a claim with the life insurance company. But before you start the claims process, you must first identify the beneficiary of the policy: are you the beneficiary, or is the policy set up to be paid to a trust?

We often recommend that life insurance proceeds be paid to a trust, not outright to a beneficiary. This way, the life insurance proceeds are protected from lawsuits, creditors, and even a divorce that a beneficiary may be involved with at the time they collect the funds.

In the event a trust is the beneficiary, contact us, your Personal Family Lawyer®, so we can create a certificate of trust that you (or the trustee, if the trustee is someone other than you) can send to the life insurance company, along with a death certificate, when it becomes available.

In any case, you (or the trustee) will notify the insurance company of the policyholder’s death, either by contacting a local agent or by following the instructions on the insurance company’s website. If the policy was provided through an employer, you may need to contact the insured’s workplace first, so they can put you in touch with the appropriate insurance representative.

Many insurance companies allow you to report the death over the phone or by sending in a simple form and do not require the actual death certificate at this stage. Depending on the cause of death, it can sometimes take weeks for the death certificate to be available, so this simplified reporting option can dramatically speed up the process.

From there, the insurance company typically sends the beneficiary more detailed forms to fill out, along with further instructions about how to proceed. Some of the information you’re likely to be asked to provide during the claims process include the insured’s date of birth, date and place of death, their Social Security number, marital status, address, as well as other personal data.

Your state’s vital records office creates the death certificate, and it will either send the certificate directly to you or route it through your funeral/mortuary provider. Once you’ve received a certified copy of the death certificate, you’ll need to send it to the insurance company, along with all of the other forms the insurance company requires you to complete.

Multiple Beneficiaries

If more than one adult beneficiary was named, each person should provide his or her own signed and notarized claim form. If any of the primary beneficiaries died before the policyholder, an alternate/contingent beneficiary can claim the proceeds. In that case, however, he or she will need to send in the death certificates of both the policyholder and the primary beneficiary.

Minor Beneficiaries

Although policyholders are free to name anyone as a beneficiary, when minor children are named, it creates serious complications, since insurance companies will not allow a minor to receive life insurance benefits directly until they reach the age of majority, which varies between states—in some it’s 18, and others it’s 21.

If a minor child is named as a beneficiary, you would need to go to court to be named as the child’s legal guardian in order to manage the funds until the child comes of age—and this is the case even if you’re the child’s natural parent. This is because unless you are specifically named as the guardian of the minor’s estate, you are not automatically considered the guardian of the child’s financial assets, even as their parent.

 
This is why you should never name a minor child as a life insurance beneficiary, even as a backup to the primary beneficiary. Rather than naming a minor as the beneficiary, it’s often better to set up a trust to receive the proceeds. In that case, the proceeds are paid into the trust, and whomever is named as trustee will collect the insurance proceeds and manage the funds for the child’s benefit until he or she comes of age. 

Moreover, within the terms of the trust, you can also spell out exactly how you’d like the trustee to manage the money for the child and even how the child can use the funds once they’ve reached adulthood.

In any case, you should consult with us, your Personal Family Lawyer® to determine the best options for passing on your life insurance benefits and other assets to minor children. 

Insurance Claim Payments

Provided you fill out the forms properly and include a certified copy of the death certificate, insurance companies typically pay out life insurance claims fairly quickly. In fact, some claims are paid within one to two weeks of the start of the process, and rarely do claims take more than 60 days to be paid. Most insurance companies will offer you the option to collect the proceeds via a mailed check or transfer the funds electronically directly to your account.

Delayed Payouts

The payout of life insurance proceeds can be delayed for a number of reasons. Beneficiaries often face delays if the policyholder dies within two years of the policy being issued. This is due to the fact that most life insurance policies contain a contestability period. 

Most contestability periods are typically between one to two years, and if the insured dies during this period, the insurance company can investigate the claim to ensure that the policyholder didn’t commit fraud on the policy application by lying about underlying health problems, family medical history, or other conditions.

That said, provided the insurance company doesn’t discover fraud or other issues with the application, it will most likely pay the claim once the investigation is wrapped up. If problems with the application are discovered, the insurance company might pay a reduced benefit or even deny the claim, depending on what is uncovered.

Payout may also be delayed when homicide is determined to be the insured’s cause of death and the beneficiary is a suspect. In this case, the payout is typically delayed until the beneficiary is cleared of any involvement in the insured’s death.

A few other common reasons insurance payouts may be delayed include:

• The insured committed suicide within two years of the policy being issued.
• The insured died during the course of illegal or criminal activity, such as a robbery or driving while intoxicated.
• The insured omitted risky activities, such as smoking or skydiving, on the policy application.

Additional Information

Sometimes an insurance company will request you to send in a completed W-9 form (Request for Taxpayer Identification Number and Certification) from the IRS in order to process a claim. Most of the time, a W-9 is requested if there is some question or issue with the records, such as having an address provided in a claim form that doesn’t match the one on file.

That said, a W-9 is simply a way for the insurance company to verify certain information in order to prevent fraud, so don’t be alarmed if you’re asked for one. This is a common verification practice, and it doesn’t automatically mean the company suspects you of fraud or plans to deny your claim.

We’re Here To Help

While collecting life insurance proceeds is often a simple process, don’t hesitate to reach out to us if you have questions or need support in any way. As your Personal Family Lawyer®, we are here to ensure the process goes as smoothly as possible for you during what is likely to be an extremely trying time. Contact us today to learn more.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

Regardless of the industry you are in, the reality of being a business owner is that you open yourself up to a number of unique risks that most people don’t have to worry about—and the more successful your business is, the more risks you face. 

Unfortunately, most business owners aren’t fully aware of all the potential risks that can affect their company or the options they have available to protect their personal assets from the risks of doing business. This is where asset protection planning comes in.

Asset protection planning is designed to reduce or eliminate the risks of being in business by shielding your business and personal assets from lawsuits, creditors, and other potential threats to the fullest extent legally possible. And it’s absolutely crucial to have your asset protection strategies in place from the moment you open your doors, because once a claim or lawsuit is filed, it’s too late. 

In fact, if you take certain actions to protect your assets after a claim or lawsuit has been filed, you could be charged with fraud. With this in mind, the time to take action is now, while there is nothing to worry about and the full range of options to protect your assets are still available to you.

While the specific protections you require will largely depend on the specifics of your business and your personal assets, the following four vehicles form the foundation of most business owners’ asset-protection planning.

1. Business Entities

One of the most fundamental asset protection strategies is setting up the proper entity structure for your business from the start. Without the correct entity in place, your personal assets would be at risk if your business ever gets into debt that it cannot pay, or is hit with a lawsuit. 

For example, if your company is structured as a sole proprietorship or general partnership and you go out of business, creditors could come after your personal assets to pay off your business debts. Similarly, if your sole proprietorship or general partnership is hit with a lawsuit, your personal assets could be seized to satisfy a judgment.

By structuring your business as a limited liability company (LLC) or corporation, you can shield your personal assets from liabilities incurred by your business. These structures establish your company as a separate legal entity that’s distinct from you as an individual, which prevents you from being personally liable for the company’s debts or legal liabilities.

As long as you properly maintain your entity’s administrative formalities and keep your business and personal assets separate, both LLCs and corporations effectively create a barrier between you and the activities of your business. Creditors, clients, and other potentially litigious entities can go after your business assets, but not your personal assets. 

That said, you can be held personally liable in certain situations, such as if your entity isn’t maintained properly or you mistakenly commingle your personal and business finances. In that case, a court will hold you personally liable for the debts and liabilities of your business. When this happens, it’s known as “piercing the corporate veil.” 

This is exactly why it’s so important to work with a lawyer to set up and maintain your business entity, and not try to handle this on your own. The consequences of not maintaining your business entity are just too high, and by the time you are facing those consequences, it’s too late to do anything about it.

We offer you a number of legal and financial systems that make keeping up with your entity’s administrative and compliance formalities a snap. Meet with us, your Family Business Lawyer™ to find out what entity structure is best suited for your business and how we can ensure you have the maximum liability protection possible.

2. Business Insurance

While setting up a separate legal entity can safeguard your personal assets from your company’s liabilities, an entity will not protect the assets of your business—that’s what business insurance is designed to cover. And since a single catastrophic event or lawsuit can wipe out your company, it’s vital to have the proper insurance coverage in place from the very start of your business.

The type and amount of coverage your company needs will largely depend on your particular company and its assets. However, most businesses can benefit from the following forms of insurance: general liability insurance, professional liability insurance, property insurance, cyber insurance, and employment practices insurance. Additionally, you should also consider investing in umbrella insurance, which would cover you for any damages in excess of your other individual policies.

Finally, if you are considering letting insurance wait, or not making insurance a priority, remember this: anyone can sue anyone at any time for anything. You don’t even have to have done anything wrong to get sued. Yet whether you are in the wrong or in the right, if you do get sued, you’ll need to pay big money to hire a lawyer to defend you. With the right insurance in place, your insurance will cover paying that lawyer to defend you—and that could be the most important reason to get insurance.

Before you sit down with an insurance agent, meet with us, your Family Business Lawyer™. We’ll look at your business assets and underlying risks to identify the optimal levels of coverage you should have in place.

3. Legal Agreements

Legal agreements are very likely the most important part of your asset protection plan. Legal agreements protect your company’s most essential elements: your personal liability, personal and professional relationships, intellectual property, and trade secrets, to name just a few.

In addition, legal agreements govern the rights and responsibilities of every party you do business with, from clients and vendors to employees and contractors. Given the importance of such documents, you should never rely on generic legal forms you find online when creating your business agreements. Instead, reach out to us, your local Family Business Lawyer™ to support you in creating, reviewing, and updating your company’s legal documents to ensure you have the most robust legal protections in place at all times.

When creating legal agreements, remember this: the most important part of your legal agreements are the process by which you reach agreement as well as the clarity of the documented terms, so if there is a later dispute you’ve already established how you will handle and resolve conflict. Template form documents, or “cheap legal” in the form of a lawyer who really doesn’t understand the relational aspects of your business simply won’t cut it. You want to work with a relational lawyer who understands how to keep businesses out of court and conflict.

If you are going it alone with legal agreements, be sure that you enter into all agreements in the name of your business entity, not in your personal name. And whenever possible, be sure that your legal agreements include provisions requiring conflict resolution through mediation and arbitration before litigation, which should always be a last resort.

Furthermore, in certain cases, the terms of your business agreements can be designed to limit the level of liability and potential damages your business would face should a dispute arise. However, when it comes to limiting liability through legal agreements, state law varies widely, so your agreements should be prepared and reviewed by a business attorney licensed in our state like us, your Family Business Lawyer™.

4. Trusts

Business entities protect your personal assets from the activities of your business, but by using a specially designed irrevocable trust, you can protect your business from your personal activities. Such trusts are set up so your business is owned by the trust, not you, and since you can’t lose what you don’t own, your company and its assets can’t be reached by your creditors or any lawsuits against you due to your personal activities, such as a serious accident, bankruptcy, or divorce.

To be clear, asset protection trusts are not the same as living trusts designed to protect the inheritance you want to leave for your family and avoid the court process of probate in the event of your death or incapacity. Living trusts are revocable, meaning you still own the assets held by the trust while you’re alive, and as such, you can dissolve the trust or change its terms at any point during your lifetime. 

Since you retain ownership of assets held by revocable living trusts, a revocable living trust does not provide your business with any asset protection from creditors or lawsuits. Asset protection trusts, however, are irrevocable.

The most airtight asset protection is provided when you never own your business to begin with, and when the business is started by you as the trustee of an irrevocable trust set up for you by a parent, grandparent, or other relative. Additionally, if you anticipate growing the value of the business significantly, this kind of trust can also protect you from estate taxes. 

The one hitch with such trusts is that you have to have parents or grandparents who thought ahead and left you an inheritance inside an irrevocable trust at their death, or who are willing to set up an asset protection trust for you during their lifetime, so you can start your business with this level of protection.

On the other hand, if your business is already up and running and you want to protect it using asset-protection trusts, you can transfer your business into a creditor-shielded asset protection trust. However, in this case, there are many restrictions, and your protections will only begin after several years, depending on the state in which the trust is established. 

In either case, if an asset protection trust is something you’d like to consider for your business, contact us, your Family Business Lawyer™ to discuss your options.

Get Professional Support From a Family Business Lawyer™

To make certain that your asset protection strategies are put in place and maintained properly, working with an experienced business lawyer like us is a must. Whatever you do, don’t try to handle your asset protection planning yourself by using online incorporation services, do-it-yourself online legal documents, or by purchasing a prepackaged asset-protection plan. These options are a recipe for disaster; asset protection requires complex planning and real legal experience, and you could lose both your business and personal assets if you get things wrong.

Rather than trying to go it alone, get professional support by having us develop your asset protection plan. As your Family Business Lawyer™, we will support you to create, implement, and enforce a full array of asset protection strategies at every stage of your company’s evolution. Call today to schedule an analysis of your business’ current risk exposure, so we can ensure your company’s legal foundation is strong enough to withstand whatever threats you might face both now and in the future.

his article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

As we are about to wrap up another Pride Month, the LGBTQ+ community faces an increasingly uncertain legal landscape. In the wake of the Supreme Court overturning Roe v. Wade, ending the recognition of a constitutional right to abortion, many are worried that other rights, especially those enjoyed by same-gender couples, might also be under threat. 

In fact, with Roe overturned, legal experts warn that the Supreme Court’s new Republican majority may come for landmark LGBTQ-rights decisions next, including marriage equality established by Obergefell v. Hodges. In light of this potential challenge, it’s critical that same-gender couples ensure their estate plans are carefully reviewed and updated by an estate planning lawyer who understands the special needs of LGBTQ+ planning to address any such developments.  

Although we will have to wait and see whether the Supreme Court ultimately decides to rule on marriage equality, same gender couples can act right now to put in place a number of proactive estate planning measures to ensure their relationships have the maximum legal protections. 

While you should meet with us, your Personal Family Lawyer® to address your specific circumstances, here are answers to some frequently asked questions related to LGBTQ+ estate planning.

Q: My partner and I are in a registered domestic partnership in our state, but we are not married. Do we qualify for the same rights and benefits available to married couples?

A: No, domestic partnerships, civil unions, and other alternative legal relationships to marriage only offer rights and protections in the states that recognize them. Marriage is the only relationship that is recognized by the federal government. 

Moreover, the rights and protections offered by domestic partnerships and civil unions can vary widely from state to state. In some states, for example, domestic partnerships and civil unions do not affect property rights between the two partners, while in other states they do. 

If you want all of the rights and protections that come with having your relationship recognized by the federal government, marriage is your only option.

However, you can replicate almost all of the benefits of marriage through a comprehensive estate plan—what we call a Life & Legacy Plan—so give us a call and let’s discuss how we can support you in getting the right legal documents and plan in place for you and your partner.

Q: My partner and I have been living together for 10 years, but we are not married and have no desire to get married. I’ve created a will, but my partner has no estate plan at all. What would happen to me in the event my partner dies or becomes incapacitated?

A: If you are unmarried and your partner dies without any estate plan, your partner’s assets will be distributed to his or her surviving family members according to our state’s intestate succession laws. Those laws only apply to relatives in the eyes of the law, so you would have no right to inherit any of your partner’s assets.

If not remedied immediately, this could have catastrophic effects for you. For example, if your partner dies, and you are not named on the deed to a home you live in together, you could even be left homeless should the family member who inherits the house decide to kick you out.

Similarly, in the event of your partner’s incapacity, you would have no automatic right to make medical decisions on their behalf, nor would you be able to access any financial accounts that are solely in their name. Your partner’s family could even prevent you from visiting your partner in the hospital.

In light of these facts, if you are in an unmarried relationship and you want your partner to inherit any of your assets upon your death or have any say in how your healthcare and/or finances are managed in the event of your incapacity, it’s absolutely crucial that each of you create a Life & Legacy Plan that addresses both death and incapacity.

Q: What kind of estate planning tools typically make up an effective incapacity plan for LGBTQ+ or any unmarried couple?

A: Estate planning isn’t just about planning for your eventual death; it’s also about planning for your potential incapacity due to serious injury or illness. Creating an effective incapacity plan allows you to name the person (or persons) you would want to make your healthcare, legal, and financial decisions for you if you are incapacitated and unable to make such decisions yourself.

If you haven’t planned for incapacity, the choice is left up to the court to appoint a legal guardian to make these decisions on your behalf. If you are unmarried and the court appoints one of your relatives as your guardian, your family could leave your partner totally out of the medical decision-making process and even deny him or her the right to visit you in the hospital. And even if you are married, it’s not guaranteed that your spouse would have the ultimate legal authority to make such decisions.

Though the court typically gives spouses priority as guardians, this isn’t always the case, especially if unsupportive family members challenge the issue in court. To ensure your partner/spouse has the ability to make these decisions for you, you must grant him or her the legal authority to do so using medical power of attorney and durable financial power of attorney.

A medical power of attorney gives your partner/spouse the authority to make healthcare decisions for you if you’re incapacitated and unable to do so yourself. Similarly, a durable financial power of attorney gives your partner/spouse the authority to manage your financial, legal, and business affairs, including paying your bills and taxes, running your business, selling your home, as well as managing your banking and investment accounts.

Additionally, you should also create a living will, so that your partner/spouse will know exactly how you want your medical care managed in the event of your incapacity, particularly at the end of life. Finally, don’t forget to provide your partner/spouse with HIPAA authorization within the medical power of attorney, so they will have access to your medical records to make educated decisions about your medical treatment.

As your Personal Family Lawyer®, we will support you in putting in place a robust estate plan that will ensure that your partner/spouse has the maximum rights possible if you are ever struck by a debilitating accident or illness.

Q: My partner and I are married, and we both have a will. Is this a sufficient level of planning?

A: Although a will is a foundational part of nearly every adult’s estate plan, we recommend that couples who have assets—even those who are married—create both a will and a trust, if you want to ensure your loved ones stay out of court upon your incapacity or death.

A will does not work in the event of your incapacity, which could happen at any time before your death. Should you become incapacitated with only a will in place, your spouse may not have access to needed funds to pay bills, or they might even be forced to leave your home by a family member appointed as your guardian during your incapacity.

Furthermore, upon your death, a will is required to go through the often long, costly, and potentially conflict-ridden court process known as probate. In contrast, assets that are properly titled in the name of your trust would pass directly to your spouse upon your death, without the need for probate or any court intervention.

If your relationship is not supported by one or both families, avoiding court is especially important. If a family member doesn’t support your relationship, they are more likely to contest your will during probate. If your will is successfully contested, this could prevent your spouse from receiving assets you left in your will. Not only that, but the process of contesting a will is extremely time-consuming, costly, and emotionally draining for your surviving spouse.

Finally, when an attorney drafts your will, it is typically not set up to protect your assets after they are passed to your spouse from creditors or lawsuits. However, leaving your assets in a trust that your spouse can control would ensure the assets are protected from creditors, future relationships, and/or unexpected lawsuits.

Q: How can I ensure that my unmarried partner is able to carry out my wishes for my funeral arrangements?

A: To make certain that your partner has the legal authority to control your funeral arrangements, you should create a funeral directive, also known as a disposition of remains directive. This directive, which describes how you want your funeral or cremation arrangements carried out, can be included as part of your will, or it can be a separate stand-alone document.

Absent any estate planning, state law dictates who has the right to dispose of your remains and control your funeral, and if you are unmarried, this authority is typically given to your surviving family members. However, a properly drafted funeral directive allows LGTBQ+ couples to opt out of this default and designate the person you want to control your final arrangements.

Q: How can the non-biological parent in an LGTBQ+ relationship gain parental rights and avoid custody battles in the event of the biological parent’s death?

A: To ensure the full rights of a non-biological parent, many legal experts advise same-gender couples to undergo second-parent adoption. But in many states, it can be extremely difficult for same-gender couples to adopt. Some states even permit employees of state-licensed adoption agencies to refuse to grant an adoption if doing so violates their religious beliefs. And given the Supreme Court’s new conservative majority, such legal discrimation is likely to continue.

However, using a variety of estate planning strategies, as your local  Personal Family Lawyer® we can provide non-biological, same-gender parents with some protection of their parental rights. Starting with our Kids Protection Plan®, LGBTQ couples can name the non-biological parent as the child’s legal guardian, both for the short-term and the long-term, while confidentially excluding anyone the biological parent thinks may challenge their wishes.

By doing so, if the biological parent becomes incapacitated or dies, his or her wishes are clearly stated, so the court can do what the parent would have wanted and keep the child in the non-biological parent’s care.

Beyond that, there are several other estate planning vehicles—living trusts, power of attorney, and advance healthcare directives—we can use to grant the non-biological parent additional rights. We can also create “co-parenting agreements,” which are legal agreements that stipulate exactly how the child will be raised, what responsibility each partner has toward the child, and what kind of rights would exist if the couple splits or gets divorced.

An Advocate For LGTBQ+ Rights

Given these uncertain times, it’s more important than ever for LGBTQ+ couples, especially those with children, to have a carefully prepared estate plan that’s been created by a lawyer with experience dealing with these issues, and avoid using online document services at all costs. As your Personal Family Lawyer®, you can trust us to create an estate plan that’s specifically designed to prevent court challenges by family members who disagree with your relationship, and provide your partner/spouse with the maximum legal and financial benefits possible.

Using our Life & Legacy Planning Process, us, your Personal Family Lawyer® can ensure that no matter what happens to you, your beloved will be protected and provided for in the exact manner you wish, rather than being stuck in a financial and legal nightmare. Furthermore, we can help ensure that non-biological parents in same-gender partnerships have as many parental rights as possible, without resorting to second-parent adoption. Contact us, your Personal Family Lawyer® today to learn more and get your plan started.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

Outside of personal liability protection, one of the primary advantages of setting your business up as a Limited Liability Company (LLC) is flexibility in how your company is taxed. And many business owners elect to have their LLC taxed as an S Corporation (S-Corp) to save money on payroll taxes. 

By choosing to be taxed as an S Corporation, you only pay payroll taxes on your salary, not on your profit distributions from the company, so you would save roughly 15% in payroll taxes on distributions taken as profits. Conversely, if your LLC is taxed as a sole proprietorship or partnership, all profits are subject to payroll taxes. 

However, before you decide to have your LLC taxed as an S Corporation, you should understand the different requirements for such an election. One requirement is you must pay all owners of the company“reasonable compensation,” according to the IRS’s standards. Before we discuss what constitutes reasonable compensation, let’s first look at what it means to become an S Corporation. 

What Is An S Corporation?

An S Corporation is not a business entity in and of itself. Rather, the S Corporation designation is simply a special tax election made by a corporation or an LLC. Unless you elect for your LLC to be taxed as an S Corporation, single-member LLCs are automatically taxed as sole proprietorships, while multiple-member LLCs are taxed as partnerships. 

C Corporations also have the option to elect to be taxed as an S Corporation or as a C corporation. If you are set up as a C corporation and don’t elect to be taxed as an S Corporation, the corporation pays taxes at the new flat corporate tax rate of 21% established by the Tax Cuts and Jobs Act. Then, after-tax profits are distributed to the shareholders, and those profits are taxed at the personal rate of each of the shareholders. 

This system of “double taxation” means the corporation first pays tax at its rate, and then the shareholders pay tax at their own individual tax rates. To avoid this, some C Corporations elect to be taxed as an S Corporation. However, due to the expense and complexity of creating and maintaining a traditional corporation, very few small or mid-sized businesses are set up as C corporations. 

If your LLC is taxed as a sole proprietorship or partnership, you will pay payroll taxes (FICA) and income taxes (both state and federal) on all income earned by the business, less deductions. That means all income earned by you via a 1099 or paid to your LLC is reported on Schedule C of your personal tax return. After expenses are deducted, all of the remaining income is subject to payroll taxes (FICA taxes are 15.3%) as well as federal and state income taxes.

This is why many business owners who have LLCs and don’t elect to be taxed as S-Corp often find themselves surprised by a big tax bill that doesn’t seem to make sense, given their total earnings.

After you elect to be taxed as an S-Corporation, you will file Form 1120-S with the IRS on behalf of the corporation, reporting all income and expenses on that return. But the entity will not pay taxes. Instead, the business will issue you a K-1, indicating the net profit of the business, which will be reported and taxed as ordinary income on your personal return at your personal income tax rate. [FBL: INSERT HYPERLINK BEHIND HIGHLIGHTED TEXT TO https://www.irs.gov/forms-pubs/about-form-1120-s#:~:text=Use%20Form%201120%2DS%20to,to%20be%20an%20S%20corporation.]

And you will only pay the 15.3% FICA taxes on the amount paid to you as a salary via payroll, but you will not have to pay the 15.3% on the rest of the money you take out of the business in the form of profit distributions. In addition, the audit risk for S Corporations that file their own returns is typically less than the audit risk for companies taxed as sole proprietorships, where income and expenses are reported on your personal Schedule C.

Qualifications for S Corp Election

Not all LLCs can elect S Corp status. In order to file for the S Corp tax election, your business must meet the following requirements:

• Must be filed as a U.S. corporation
• Can maintain only one class of stock
• Limited to 100 shareholders or less
• Shareholders must be individuals, estates, or certain qualified trusts
• Each shareholder must be a US Citizen or permanent resident alien with a valid Social Security Number
• All shareholders must consent in writing to the S Corporation election

Note: In addition to these requirements, for an S Corporation election to make sense financially, you’ll want to have at least $60,000 or so of net income per year.  

Reasonable Compensation

To prevent business owners from avoiding payroll taxes by taking disproportionately large profit distributions, the IRS requires S-Corp owners to pay themselves “reasonable compensation” in exchange for their services. What constitutes reasonable compensation, however, is a highly subjective matter that has created an intense debate among business owners and tax authorities.  

Indeed, the CPA Journal contends that, “The contested subject of reasonableness of compensation is one of the most frequently debated issues between business taxpayers and the IRS.”

If the IRS were to determine that an owner’s compensation was unreasonable, it could reclassify S corporation distribution payments as wage payments subject to employment taxes, which could leave you on the hook for a massive back tax bill. On top of that, you could face tax penalties of up to 100%, plus negligence penalties.

What Is Reasonable?

Although you should consult with us, your Family Business Lawyer™ and your tax advisor to ensure you’re paying yourself an appropriate amount, here are a few basic guidelines to follow.

The IRS defines reasonable compensation as “the value that would ordinarily be paid for like services by like enterprises under like circumstances.” Obviously, that definition doesn’t provide much guidance and is extremely vague. Basically the IRS is saying that your company’s owners should be paid what other businesses in your industry pay for similar services. 

In determining reasonableness, the IRS looks at the company’s gross receipts and at the tasks the owner performed to help generate the company’s gross income. Additionally, the IRS takes the following factors into consideration to determine reasonable compensation:

• The duties performed
• The volume of business handled
• The character of the job and amount of responsibility
• Complexities of your business
• Time required to do the job
• Cost of living in the area
• The use of a formula for determining compensation
• Ability and achievements of the individual performing the service
• Amounts paid out as salary compared with the amount distributed as profits
• Your policy regarding wages for all employees
• The history of salaries for each employee

One helpful resource is the U.S. Department of Labor’s Bureau of Labor Statistics, which provides detailed wage data for more than 800 occupations with comparable wages by state, region, and city. You can also check out employer-review sites, like Salary, Glassdoor, and PayScale, which crowdsource compensation information by company, position, industry, and location. [FBL: INSERT HYPERLINK BEHIND HIGHLIGHTED TEXT TO https://www.bls.gov/bls/blswage.htm]
 

We Can Help
Determining reasonable compensation can be a tricky proposition. Contact us for support, and we’ll help you to determine and document your compensation, so if you are audited, we can prove that you engaged in an analysis to choose the right number for your salary. With proper planning, guidance, and documentation from us, your Family Business Lawyer™, even if you are audited, you don’t have to worry because you’ll have done the work upfront to prepare for it. 

Whether you need assistance determining how much to pay yourself, help filing your S Corporation election, or you need support keeping up with your LLC’s administrative formalities, we’re here for you. As your Family Business Lawyer™, we offer you trusted guidance and support to ensure your LLC is properly set up and maintained, with all of the necessary legal agreements and other resources in place. We can also provide you with a variety of business systems, which will not only make your operation more efficient, but also establish a clear separation between your business and personal finances, which is a vital part of maintaining your entity’s liability protection.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

These days, more and more young people are delaying—if not totally foregoing—a life that involves marriage and parenting. The lack of jobs, crushing student debt, multiple recessions, and the pandemic have pushed many young people into a life path that leaves little room for settling down with a partner and getting married—and even less room for having children.

Yet, for other young adults, staying single and childless is simply a matter of choice. Regardless of the reason, as more young adults opt for non-traditional lifestyles, the number of single childless households is likely to steadily increase in the coming years.

While most adults don’t take estate planning as seriously as they should, if you are single with no children, you might think that there’s really no need for you to worry about creating an estate plan. But this is a huge mistake. In fact, it can be even MORE important to have an estate plan if you are single and childless.

If you are single without kids, you face several potential estate planning complications that aren’t an issue for those who are married with children. And this is true whether you’re wealthy or have very limited assets. Indeed, without proper estate planning, you’re not only jeopardizing your wealth and assets, but you’re putting your life at risk, too. And that’s not even mentioning the potential conflict, mess, and expense you’re leaving for your surviving family and friends to deal with when something unexpected happens to you. 

With this in mind, if you’re single and childless, consider these three inconvenient truths before you decide to forego estate planning.

1. Someone Will Have to Handle Your Stuff

Whether you’re rich, poor, or somewhere in between, in the event of your death, everything you own will need to be located, managed, and passed on to someone, which can be a massive undertaking in itself—one that few families are properly prepared for. 

In fact, following a loved one’s death, American families spend an average of 500 hours and $12,700 over the course of 13 months (20 month if probate is required) to finalize the person’s affairs and settle their estate, according to the first annual Cost Of Dying report released this March by tech startup Empathy in partnership with Goldman Sachs. Look for additional articles in the coming weeks covering the Cost Of Dying and the new role Empathy is playing in the end-of-life industry.  

On top of the logistical complications involved with finalizing your affairs, without a clear estate plan, including a will or trust, your assets will go through the court process of probate, where a judge and state law will decide who gets everything you own. In the event no family steps forward, your assets will become property of the state.

Why give the state everything you worked to build? And even if you have little financial wealth, you undoubtedly own a few sentimental items, maybe even including pets, that you’d like to pass to a close friend or favorite charity.

However, it’s rare for someone to die without any family members stepping forward. It’s far more likely that some relative you haven’t spoken with in years will come out of the woodwork to stake a claim. Without a will or trust, state intestacy laws establish which family member has the priority inheritance. If you’re unmarried with no children, this hierarchy typically puts parents first, then siblings, then more distant relatives like nieces, nephews, uncles, aunts, and cousins.

Depending on your family, this could have a potentially troubling—and even deadly—outcome. For instance, what if your closest living relative is your estranged brother with serious addiction issues? Or what if your assets are passed on to a niece with poor money-management skills, who is likely to squander her inheritance?

And if your estate does contain significant wealth and assets, this could lead to a costly and contentious court battle, with all of your relatives hiring expensive lawyers to fight over your estate. In the end, this could tear your family apart, while making their lawyers rich—all because you didn’t think you needed an estate plan.

As your Personal Family Lawyer®, we will work with you to create an estate plan that ensures that your assets will pass to the proper people, while avoiding both unnecessary court proceedings and family conflict.

2. Someone Will Have Power Over Your Healthcare

Estate planning isn’t just about passing on your assets when you die. In fact, some of the most critical aspects of estate planning have nothing to do with your money at all, but are aimed at protecting you while you’re still very much alive.

Proactive planning allows you to name the person you want to make healthcare decisions for you in the event you are incapacitated and unable to make such decisions yourself. This is done using an estate planning tool known as a medical power of attorney.

For example, if you’re incapacitated due to a serious accident or illness and unable to give doctors permission to perform a potentially risky medical treatment, it would be left up to a judge to decide who gets to make that decision on your behalf.

If you have a romantic partner but aren’t married and haven’t granted him or her medical power of attorney, the court will likely have a family member, not your partner, make those decisions. Depending on your family, that person may make decisions contrary to what you or your partner would want.

And if you don’t want your estranged brother to inherit your assets, you probably don’t want him to have the power to make life-and-death decisions about your medical care, either. But that’s exactly what could happen if you don’t put a plan in place.

Furthermore, your family members who have priority to make decisions for you could keep your dearest friends away from your bedside in the event of your hospitalization. Or family members who don’t share your values about the type of food you eat, or the types of medical care you receive, could be the one’s making decisions about how you’ll be cared for.

To address these issues, you need to implement an estate planning tool that provides specific guidelines detailing exactly how you want your medical care to be managed during your incapacity, including critical end-of-life decisions. This is done using an estate planning vehicle known as a living will.

Bottom line: If you are single with no kids, you need to create an estate plan in order to name healthcare decisions-makers for yourself and provide instructions on how you want those decisions made should you ever become incapacitated and unable to make those decisions yourself.

3. Someone Will Get Power Over Your Finances

As with healthcare decisions, if you become incapacitated and haven’t legally named someone to handle your finances while you’re unable to do so, the court will pick someone for you. The way to avoid this is by granting someone you trust durable financial power of attorney.

A durable financial power of attorney is an estate planning vehicle that gives the person you choose the immediate authority to manage your financial, legal, and business affairs if you’re incapacitated. This agent will have a broad range of powers to handle things like paying your bills and taxes, running your business, collecting your Social Security benefits, selling your home, as well as managing your banking and investment accounts.

Without a signed durable financial power of attorney, your family and friends will have to go to court to get access to your finances, which not only takes time, but it could lead to the mismanagement—and even the loss—of your assets should the court grant this authority to the wrong person.

What’s more, the person you name doesn’t have to be a lawyer or financial professional; it can be anybody you choose, including both family and friends. The most important aspect of your choice is selecting someone who’s imminently trustworthy, since they will have nearly complete control over your finances while you remain incapacitated. And besides, with us as your Personal Family Lawyer®, your agent will have access to our team as their trusted counsel should they need guidance or help.

Don’t Leave So Much At Risk
Given these potential risks and costs for yourself and  those you care about, it would be foolhardy if you are single without kids to ignore or put off these basic estate planning strategies. Identifying the right estate planning tools is easy to do, and it begins with a Family Wealth Planning Session. During this session, us,  your local Personal Family Lawyer® will consider everything you own and everyone you love, and guide you to make informed, educated, and empowered choices for yourself and your loved ones.

In the end, it will likely take just a few hours of your time to make certain that your assets, healthcare, and finances will be managed in the most effective and affordable manner possible in the event of your death or incapacity. Don’t leave your life and assets at risk or leave a mess for the people you love; contact us, your Personal Family Lawyer® to get your estate planning handled today.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

If you are thinking of starting a business, you’ll find all sorts of advice about how to go about getting your new venture off the ground. Indeed, there are entire websites devoted to the topic. Yet, with so much information out there, it’s hard to know what you should heed and what you can ignore.

To make things simple, we’ve compiled a list of six essential strategies for getting your new business up and running with the least amount of hassle and risk. 

1. Solve A Problem
One of the best ways to come up with a winning business idea is to design your product or service to solve a specific problem. By fixing a problem, you’ll have a solid customer base right out of the gate, who won’t need much selling, provided your solution actually works.

If possible, create your business around a problem you’ve faced yourself, so you thoroughly understand and trust the value your company offers. If your business truly helps improve people’s lives, your success is virtually guaranteed.

2. Stop Waiting & Start Doing
While it may seem counterintuitive, it’s often better to launch your business before you feel like your product is 100% perfect. Delaying your start is often an unconscious way of procrastinating, and besides, you’ll probably never feel like your business concept is totally perfect.

Best to launch fast before anyone else beats you to the market—or before you second-guess yourself out of launching at all. From there, you can adapt and perfect your solution with a small group of paying customers, to whom you should give special attention in order to guarantee their happiness and loyalty. The most effective way to learn is to get your product into people’s hands or your service into people’s lives and see how they like it.

Just keep in mind, you should be prepared to fail, learn from your mistakes, and keep iterating until you get things right.

3. Keep It Simple
When you come up with a great business idea, it’s tempting to imagine all of the possibilities of where it might go, and try to add all of those things into your launch. But you should narrow your focus and costs by making your solution as effective as possible, without getting too elaborate or complicated.

Consider the minimum viable product, or MVP, often talked about in the tech sector. What’s the minimum you can offer and get the results you envision for the people you serve? Offer that first, and build upon it from there.

Once your company is up and running and you’ve got some income and customers, it will be much easier and affordable to add additional features.

4. Be Passionate But Self-Aware
The most successful business ideas are ones that are near and dear to your heart. Focusing on something you’re passionate about will help keep you motivated to do whatever it takes to succeed.

That said, just being passionate won’t guarantee success. It takes a certain mindset to endure the rigors of entrepreneurship, so unless you’re comfortable taking risks, learning from failure, and working harder than you ever have before, you might want to rethink things.

When things get challenging—and they definitely will—this mix of passion and fortitude will allow you to stay the course.

5. Cover Your Assets
Although a sole proprietorship is the quickest, easiest, and least expensive way to structure your business, these entities provide zero protection for your personal assets. If your business is set up as a sole proprietorship and your company goes into serious debt or gets hit with a costly lawsuit, your home and life savings could be at risk.

Rather than taking the easy route, invest the time and money to set your business up as a limited liability company (LLC) or corporation. Both entities not only offer you liability protection for your personal assets, but they also come with significant tax-savings benefits as well.

6. Establish A Solid Foundation
Starting a business involves establishing the proper legal, insurance, financial, and tax foundation to support your vision and goals. At the very minimum, you need a legal entity (in the right state and of the right type), some basic legal agreements, and intellectual property protections like copyrights and trademarks. You also need basic insurance coverage, financial tracking and reporting systems, and tax planning.

You may be able to do some of this yourself, but to ensure you get things 100% correct, consult with us, your Family Business Lawyer™.  We offer exactly this kind of support with our LIFT Start-Up Session. Whether you’ve yet to open your doors, have started a company but haven’t set up your LIFT systems yet, or have some systems in place but you aren’t sure they’ve been set up correctly, contact us to schedule your session. 

Your Very Own In-House Legal Counsel
Most small business owners don’t think they need to hire a lawyer, and perhaps this is why roughly half of all businesses fail within the first five years. On the other hand, the most successful companies wouldn’t dream of not having a lawyer on their team.

These companies typically employ one or more in-house lawyers, who proactively identify missed opportunities for the company, spot potential risks, create plans to mitigate risks and build on opportunities. Even if you don’t run a big company, your business still deserves—and frankly requires—this kind of relationship in order to reach its full potential. And by working with us, your local Family Business Lawyer™, you will have your very own in-house legal counsel to offer you this kind of trusted guidance.

Startups can be risky ventures, but with the proper planning and support, you can beat the odds. Contact us, your Family Business Lawyer™ today to get your new venture started off on the right track.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you.