Whether it’s to qualify for Medicaid, avoid probate, or reduce your tax burden, transferring ownership of your home to your adult child during your lifetime may seem like a smart move. But in nearly all cases, it’s actually a huge mistake, which can lead to dire consequences for everyone involved.

With this in mind, before you sign over the title to your family’s beloved homestead, consider the following potential risks.  

1. Your Eligibility For Medicaid Could Be Jeopardized

With the cost of long-term care skyrocketing, you may be worried about your (or your senior parents’) ability to pay for lengthy stays in an assisted-living facility or a nursing home. Such care can be extremely expensive, with the potential to overwhelm even those families with substantial wealth.

Since neither traditional health insurance nor Medicare will pay for long-term care, you may  look to Medicaid to help cover the costs of long-term care. To become eligible for Medicaid, however, you must first exhaust nearly every penny of your savings.

In light of this requirement, you may have heard that if you transfer your house to your adult children, you can avoid selling the home if you need to qualify for Medicaid. You may think transferring ownership of the house will help your eligibility for benefits, and this strategy may seem easier and less expensive than passing on your home (and other assets) through estate planning.

However, this tactic is a big mistake on several levels. It can not only delay—or even disqualify—your Medicaid eligibility, it can also lead to other serious problems. Here’s why: In February 2006, Congress passed the Deficit Reduction Act, which included a number of provisions aimed at reducing Medicaid abuse.

One of these provisions was a five-year “look-back” period for eligibility. This means that before you can qualify for Medicaid, your finances will be reviewed for any “uncompensated transfers” of your assets within the five years preceding your application. If such transfers are discovered, it can result in a penalty period that will delay your eligibility. Any transfers made beyond that five-year window will not be penalized.

The length of the penalty period is calculated by dividing the amount of the uncompensated transfer by the average cost of one month of private nursing home care in the state you live in. These days, the average cost of nursing home care is roughly $10,000 a month. Given these figures, this means that for every $10,000 worth of uncompensated transfers made within the five-year window, your Medicaid benefits will be delayed for one month. So if you transferred the title to a home worth $500,000 within the look-back period, your Medicaid benefits would be delayed for 50 months. 

In light of this, if you transfer your house to your children and then need long-term care within five years, it could significantly delay your qualification for Medicaid benefits—and possibly even prevent you from ever qualifying. Rather than taking such a risk, consult with us, your Personal Family Lawyer® to discuss safer and more efficient options to help cover the rising cost of long-term care, such as purchasing long-term care insurance.

2. Your Child Could Be Stuck With A Massive Tax Bill

Another drawback to transferring ownership of your home in this way is the potential tax liability for your child. If you’re elderly, you’ve probably owned your house for a long time, and its value has dramatically increased, leading you to believe that by transferring your home to your child, he or she can make a windfall by selling it. And by transferring the property before you die, you may think that you can save your child both time and money by avoiding the need for probate.

Probate is the court process used to distribute your assets according to the wishes outlined in your will or according to our state’s intestate succession laws if you don’t have a will. Depending on the complexity of your estate, probate can be a long and expensive process for your loved ones; however, that expense is likely to be relatively minor compared to the tax bill your heirs could face.

That’s because if you transfer your home to your child during your lifetime, he or she will have to pay capital gains tax on the difference between your home’s value when you purchased it and the home’s selling price at the time it’s sold by your child. Depending on your home’s value, that tax bill can be astronomical.

In contrast, by transferring your home at the time of your death via your estate plan, your child will receive what’s known as a “step-up in basis.” This tax savings is one of the only benefits of death, and it allows your child to pay capital gains taxes when he or she sells your home, based only on the difference between the value of the home at the time of inheritance and its sales price, rather than paying taxes based on the home’s value at the time you bought it.

For example, say you originally purchased your home for $80,000, and when you die, the home had appreciated in value to $250,000. Your daughter inherits the home upon your death, and then she sells it five years later for $300,000. With the step-up in basis in effect, she would only owe capital gains taxes on the $50,000 of difference between the home’s value when it was inherited and when it was sold.

However, if you transferred ownership of the home to her while you were still living, your daughter would lose the step-up in basis, and would face a capital gains tax bill of $220,000.

Capital gains tax is only one kind of tax that could be impacted by a transfer of your home during your lifetime. You may also destroy valuable property tax basis, which could cause a re-assessment of your home for property tax purposes, depending on the county or state your home is located in. 

There are much better ways to avoid probate using estate planning, such as by putting your home into a revocable living trust, in which case your home would immediately pass to your loved ones upon your death, without the need for any court intervention. As your Personal Family Lawyer®, we can help you choose the most advantageous estate planning strategies to minimize your beneficiaries’ tax liability and ensure they get the most out of their inheritance, all while allowing them to avoid court and conflict.

3. Your Home Could Be Vulnerable To Debt, Divorce, Disability, & Death

There are a number of other reasons why transferring ownership of your house to your child is a bad idea. If your child takes ownership of your home and has significant debt, for example, his or her creditors can make claims against the property to recoup what they’re owed, potentially forcing your child to sell the home to pay those debts.

Divorce is another potentially thorny issue. If your child goes through a divorce while the house is in his or her name, the home may be considered marital property. Depending on the outcome of the divorce, the settlement decree may force your child to sell the home or pay his or her ex spouse a share of the home’s value.

The disability or death of your child can also lead to trouble. If your child becomes disabled and seeks Medicaid or other government benefits, having the home in his or her name could compromise their eligibility, just like it would your own. And if your child dies before you and owns the house, the property could be considered part of your child’s estate and end up being passed on to your child’s heirs, leaving you homeless.

There’s Simply No Substitute For Proper Estate Planning

Given these potential risks, transferring ownership of your home to your adult child as a means of “poor-man’s estate planning” is almost never a good idea. Instead, you should consult with us, as your Personal Family Lawyer®, to find alternative solutions. We can help you find much better ways to qualify for Medicaid and other benefits to offset the hefty price tag of long-term care, and at the same time, we will keep your family out of court and conflict in the event of your death or incapacity.

As your Personal Family Lawyer®, we offer a variety of different estate planning packages at a variety of different price points as part of our Life & Legacy Planning Process. With our guidance and support, we will not only help you protect and pass on your home, but all of your family’s wealth and assets, while also enabling you to better afford whatever long-term healthcare services you might require. 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.

Of all the different choices you have to make when starting a new business, arguably none is more critical or has a more significant impact on your success or failure than your choice of business entity structure. The entity you choose will affect everything from the amount of taxes you pay and the type of records you are required to keep to how vulnerable your personal assets are to the legal and financial liabilities incurred by your company, and even your ability to finance your venture.

When choosing between the different entity types, you will be considering one of the following structures: a sole proprietorship or partnership (the default choices if you do nothing), a corporation or limited liability company (LLC). You may notice that we did not mention an S-corporation, B-corporation, public-benefit corporation, or nonprofit, or even a trust here. And that’s because S-corporations, B-corporations, public-benefit corporations and nonprofits are all types of corporations, and while a trust can be an owner of an entity, it is not the entity itself. 

You can think of the legal entity you choose for your business as the container for your business, which is distinct from how that container is owned (which could be through a trust), and it is also distinct from how that entity is taxed (which could be as an S-corporation or as a nonprofit).

Although you should meet with us, your Family Business Lawyer™ to help you make your final decision, in this two part series, we’ll discuss several key questions you should ask yourself when choosing the right legal entity for your particular business venture. 

1. How Many Owners Does Your Company Have?

The number of owners your business has is one factor that affects the entity structures available to you. For example, if you own the business by yourself, you can operate as a sole proprietorship, an LLC, or a corporation. If you choose an LLC, its owners are called “members,” and you would operate as a single-member LLC. If you choose a corporation, the owners are “shareholders,” and you would be the sole shareholder of your corporation.

If your business has more than one owner, your choices of entity include a partnership, an LLC, or a corporation. If you have multiple owners as an LLC, your company would be considered a multi-member LLC. One highly important note: If your business has multiple owners, it is critical that you have a lawyer prepare your operating agreement (as an LLC) or corporate bylaws (as a corporation), and that you do not rely on an online document service like LegalZoom and Rocket Lawyer to create these vital governing documents. There are simply too many factors that go into multi-owner business entities that you will overlook if you try to handle this yourself, and even worse, you will not discover the cost of having done it wrong, until you are in a conflict, the sale of your business, or the incapacity or death of one of the members, and it’s too late to unwind the mess.

Navigating major business issues, such as ownership terms, transfer rights, what happens when a member or shareholder wants out, and what happens upon the death of an owner, all require serious consideration and involve decisions that simply cannot be addressed with a one-size-fits-all template document. If you try to wing it by creating your own business agreements without a lawyer’s assistance, you are likely to face extremely expensive and potentially ruinous surprises down the road when you sell the business, when one of the owners dies or wants to get out of the business, or when you go to raise capital.

In light of these risks, no matter what entity you choose, if you have a multi-owner structure, meet us, your Family Business Lawyer™ so we can assist you with getting your company’s key agreements in place. 

2. How Much Personal Liability Are You Willing To Face?

The second factor in your entity choice is protecting yourself from legal liability. In today’s highly litigious society, all businesses should expect (and be prepared) to face some type of legal dispute or conflict at some point. This could be something as minor as a refund request from a customer, or something as serious as an employee or vendor suing your company, or it could be something much worse. And if your business does get sued, unless you have the right entity set up and the corporate formalities properly maintained, you could lose your home, your car, and even your entire life savings to satisfy a judgment. 

You could face a similar situation if your company ever experiences a significant financial loss or goes out of business. Without the proper entity in place, your company’s creditors could seize your personal assets to satisfy your business debt. This risk comes from the fact that unless you have the correct entity in place, there’s no separation between your business and personal assets, so your personal assets could be up for grabs in the event your company ever gets sued or goes into serious debt.

For example, let’s say your company is a sole proprietorship or a partnership. In either case, you and the other owners are legally inseparable from your business—in the eyes of the law, your business and its owners are one in the same. For this reason, you and the other owners would be personally liable for any debt or court judgment incurred by your company.

However, if you set up your business as an LLC or a corporation and maintain the corporate formalities of these entities, you can shield your personal assets from your company’s legal liabilities, including lawsuits and debt. These two structures establish your company as a separate legal entity that’s distinct from you and the other owners as individuals, keeping you safe from being held personally liable for the company’s debt or legal judgments as long as they are properly maintained.

As your Family Business Lawyer™, we will not only help you choose the correct entity for your business, but we will also support you in setting up and maintaining your entity to ensure you have maximum personal liability protection during the life of your business. 

Next week, in part two, we’ll discuss the remaining risks you should consider when choosing your business entity.

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 are a mom or dad with children under the age of 18 at home, your number-one estate planning priority should be selecting and legally documenting both long and short-term guardians for your kids. Guardians are the people legally named to care for your children in the event something happens to you.

And if you’ve named guardians for your children in your will—even with the help of another lawyer—your kids could still be at risk of being taken into the care of strangers! 

One of the most disturbing aspects of this situation is that you probably have no idea just how vulnerable your kids are, since this is a blind spot inherent to the estate plan of countless parents around the world. Even many lawyers aren’t fully aware of this issue—and that’s because most lawyers simply don’t understand what’s necessary for planning and ensuring the well-being and care of minor children.

Why? Well, most estate planning over the years has been primarily focused on the elderly, not on young families. And until our mentor discovered this hole in the estate plan she had created for her own child, no one had thought about it. You can read all about her discovery, as well as a lot more detail on what to do about it in the book Wear Clean Underwear!: A Fast, Fun, Friendly, and Essential Guide to Legal Planning for Busy Parents.

Fortunately, whether you’ve named guardians for your kids in your will or have yet to take any action at all, you’ve come to the right place. As your Personal Family Lawyer® firm, we specialize in legal planning for the unique needs of families with minor children, and we can ensure that you have all of the proper legal safeguards in place to make sure that your kids will always be cared for by the people you would want, in exactly the way you would want, should anything ever happen to you.

A Far Too Common Problem

As you’ll learn here, unless you’ve worked with us, a specially trained Personal Family Lawyer® to name guardians for your kids, your children could be vulnerable to being taken out of your home and placed in the care of strangers. This might be temporary, while the authorities figure out what to do, or they could even end up being raised to adulthood by someone you’d never choose.

Even if you don’t have any minor children at home, please consider sharing this article with any friends or family who do—it’s that important. While it’s rare for something to happen to both parents of a minor child, it does occur, and the consequences are simply too severe to not take the few simple steps to select and legally name guardians the right way.

Regardless of whether you own any other assets or wealth, it’s vital to complete this process immediately, so you know the ones you care about most—your kids—will always be in the care of people you’ve chosen, no matter what. 

For a quick and easy way to get the legal guardian-naming process started, visit our free website shown below. It’ll only take you 15-20 minutes, and you’ll have legal documentation naming guardians for the long-term, and that’s a great place to start, because no matter what happens, you definitely need that.

Visit our website to go through these steps and create legal documents naming guardians for the long-term care of your children, absolutely free. Do it here now: https://lizsmithlaw.kidsprotectionplan.com/

What’s So Complicated About Naming Guardians?

Naming and legally documenting guardians for your kids might seem like a fairly straightforward process, but it entails a number of complexities most people simply do not think about. Even lawyers with decades of experience typically make at least one of six mistakes when naming long-term legal guardians.

If you named legal guardians for your kids in your will—whether on your own using a do-it-yourself (DIY) online document service or with the help of another lawyer—consider each of the following scenarios to see if you have a blind spot in your estate plan that would leave your kids at risk:

• Did you name back-up candidates in case your first choice of guardian is unable to serve? If so, how many back-ups did you name?
  
• If you named a married couple to serve and one of them is unavailable due to injury, death, or divorce, what happens then? Would it still be okay if only one of them can serve as your child’s guardian? And does it matter which one it is?

• What would happen if you become incapacitated by illness or injury and are unable to care for your kids? You might assume the guardians named in your will would automatically get custody, but did you know that a will only goes into effect upon your death and does nothing to protect your kids in the event of your incapacity? Have you created a guardianship plan that goes into affect if you become incapacitated?
  
• Do the guardians you named live far from your home? If so, how long would it take them to make it to your house to pick up your kids: a few hours, a few days, or even a few weeks? Who would care for your kids until those guardians arrive? Did you know that without legally binding arrangements for the immediate care of your children, your kids are likely to be taken into the care of strangers until those named guardians arrive?
  
• Would your care providers even know where to find your will and other legal documents if you didn’t make it home? If not, what would the authorities do while they tried to figure out who should care for your kids?
  
• If you named a family who live nearby as guardians, what happens if they are out of town or otherwise can’t get to your kids right away?
  
• Assuming the guardians you named can immediately get to your home to pick up your kids, do they even know where your will is located? How will they prove they are the people you wanted named as your children’s legal guardians if they can’t find your estate planning documents?

The Kids Protection Plan® 

These are just a few of the potential complications that can arise when naming legal guardians for your kids, whether in your will or as a stand-alone measure. And if just one of these contingencies were to occur, your children would more than likely be placed into the care of strangers, even if just for a short period of time.

If the idea of this is as frightening to you as it was to me when I discovered it, you need to put the Kids Protection Plan® in place to make sure this never happens to your family. The Kids Protection Plan® was created by a nationally recognized attorney, who is a mom herself, to make 100% certain that her kids would always remain in the loving care of people she knows and trusts and never be raised by anyone she didn’t want. And now, you can put this same plan in place for your kids. 

As your Personal Family Lawyer® firm, we have been personally trained by the creator of this plan and the author of the best-selling book, Wear Clean Underwear!: A Fast, Fun, Friendly, and Essential Guide to Legal Planning for Busy Parents, which was written to help parents address this very issue. As a result of this training, we’re one of the few lawyers in the world licensed to prepare the comprehensive Kids Protection Plan® for your family. In fact, the Kids Protection Plan® is included with every estate plan we prepare for families with young children.

The full Kids Protection Plan® provides parents of minor children with a wide array of legal planning tools—including legal documents to name short- and long-term guardians, instructions for those guardians, medical powers of attorney for your minor children, an ID card for your wallet, and much more—to make sure there is never a question about who will take care of your kids if you are in an accident or suffer some other life-threatening incident. 

Get Started Right Away

While you should meet with us to put the full Kids Protection Plan® in place as soon as possible, protecting your children is such a critical and urgent issue, we’ve created the totally free website we mentioned earlier, where you can visit to get your plan started right now.

If you’ve yet to take any action at all, visit this easy-to-use and 100% FREE website, where you can take the first steps to create legal documents naming long-term guardians for your children. By doing this, you can ensure that should anything happen to you prior to creating your formal estate plan, your kids would be cared for by the people you would want in exactly the way you would want. Get started here now: https://lizsmithlaw.kidsprotectionplan.com/

After you’ve completed those initial actions, schedule a Family Wealth Planning Session™ with us, your local neighborhood Personal Family Lawyer®, so we can put the full Kids Protection Plan® in place. From there, we can determine if there is anything else your family might need to ensure the well-being and care of your children no matter what happens.

If you have already named long-term guardians in your will, either on your own or with a lawyer, we can review your existing legal documents to see whether you have made any of the six common mistakes that could leave your kids at risk, and then revise your plan to ensure your children are fully protected.

Comprehensive Protection For Those You Love Most

While selecting and naming guardians for your minor children should be at the top of your to-do list, when it comes to estate planning, that’s just the start. Once you’ve named guardians, you should seriously consider putting a variety of other estate planning tools, such as a revocable living trust, in place for your kids. 

These tools can help ensure that the wealth and assets you want your children to inherit will be passed on in the most effective and beneficial way possible for everyone involved. Meet with us, your neighborhood Personal Family Lawyer® to determine which planning strategies and tools are best suited for your family’s unique situation. Contact us today to get 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.

Along with websites, e-newsletters, and social media, in today’s digital-everything world, many companies now have their own mobile apps. In fact, some companies’ primary digital platform is their mobile app. And as smartphones, iPads, e-tablets, and other mobile devices become more popular, having an app may soon become as ubiquitous for businesses as having an email account.

While coming up with a unique idea for your company’s app and finding a developer who can bring that idea to life are among the most crucial aspects of app development, creating an app also involves several critical legal issues. Indeed, many of the legal issues related to app development are so important, if you don’t handle them properly, not only your app, but your entire business could be put in jeopardy.

While you should work with us, your Family Business Lawyer™ to help ensure you’ve covered all of your legal bases when developing an app,  here we’ll discuss a few of the most basic legal concerns related to app development. Keep in mind, depending on your business and the type of app you create, you may encounter many more legal issues than those covered here. 

Intellectual Property Protections

Depending on whether you do the work of building your app in-house or hire outside help, your company is likely to have a number of different types of intellectual property (IP) that will need protection. And given the variety of IP that’s likely to be at stake, you should consider securing a broad spectrum of IP protections, including some or all of the following protections: trademarks, copyrights, and patents.

Trademarks: Trademarks protect words, phrases, symbols, designs, and other distinguishing features that help identify a particular product or service as yours. To this end, you’ll almost certainly want to trademark your app’s name. And if your app features a logo, slogan, or other distinguishing brand identifiers, you’ll want to trademark each of those features as well. 

You can register for trademark protection with the U.S. Patent and Trademark Office (USPTO). Although you can register a trademark on your own or with the help of a cheap, do-it-yourself (DIY) trademark registration service, the registration process can be highly complex, and sometimes it can take up to a year or more to complete. Given this, you’d be much better off working with us, as your Family Business Lawyer™, to help you file your application for which we charge a flat fee, agreed to in advance, so there are no surprises.

Copyrights: Copyrights protect a wide array of original creative works of authorship. While most people associate copyrights with written works, art, films, photos, and music, your app will likely contain several different features that require copyright protection. For instance, you’ll definitely want to secure a copyright for the app’s source code, which is one of the app’s most crucial elements.

Additionally, you may also want to get copyrights for any unique graphics, videos, music, or other creative features contained by your app. To ensure you have the maximum level of copyright protection for your app, you should have us, your local Family Business Lawyer™  review your app’s design and specifications, so we can identify and help you secure all of the necessary copyrights.

Patents: Patents protect inventions, and while most of today’s mobile apps don’t qualify for a patent, it’s possible that your company’s might. This is especially true if your app performs some highly unique function or features some brand new technology. To determine whether or not your app is eligible for patent protection, consult with us, your Family Business Lawyer™ or a lawyer who specializes in patent law.

Secure IP Ownership With Legal Agreements
Depending on whether you hire an outside developer to create your app or have your own team do the work in-house, you’ll need to take steps to ensure you actually own all of the IP contained by the app. In either case, you’ll need to have legal agreements in place to secure IP ownership.

We’ve seen far too many incidents of business owners hiring friends to create their app without an agreement, and the subsequent loss of their source code, when it turns out the code was owned by the developer, not the business owner, is often a huge surprise for them. And yes, that’s what’s true—and what can happen to you—if you don’t secure your IP ownership with a legal agreement before you create your app.

Independent Contractors: If you hire an outside developer to help you create your app, it’s crucial that you work with an experienced business lawyer like us to help you create an app development agreement that gives you full ownership of all IP the developer creates for you. Unlike employees, with whom you generally own automatic copyrights to everything they produce while working for you, an outside developer will likely be considered an independent contractor, and as such, he or she will typically retain full copyrights to their work, unless they’ve signed an agreement stating otherwise.

To this end, if you don’t have a legal agreement in place or you use a generic, DIY agreement from an online document service, you could find that you don’t actually own the IP, such as the source code and other key components, contained in the app you paid the developer to create for you. Fortunately, with our support and guidance, it’s fairly easy to secure full ownership of the IP contained in your app using the proper agreements.

Just be sure to have the developer sign the agreement(s) before he or she starts any work on the app and even before you share any ideas about the app with anyone outside your organization. If not, it may be too late to acquire full ownership.

Employees: If you are using your own team to create your app, you generally own all of the IP employees create while working for you. However, you should still ensure that every team member working on the app has the proper work-for-hire, copyright-assignment, and invention-assignment provisions within their employee agreements. As your Family Business Lawyer™, we can help ensure your employment agreements offer you the maximum level of IP protection. Before you start working on your app, let us review your current employment agreements to make sure you have all of the proper provisions in place.

Finally, in addition to having legal agreements that give you full ownership of the IP contained by your app, you should also ensure that any confidential or proprietary information that comes up during the development of your app is also protected by the proper agreements. This will typically be accomplished by having employees, contractors, and any other parties who work on the app—or even have knowledge of the app’s design—sign confidentiality agreements and/or non-disclosure agreements.

As with the IP, these agreements should be signed before any work begins or you even share any sensitive information about the app and its design with others. As your Family Business Lawyer™, we can ensure you have the proper agreements to protect all of the sensitive information that might go into creating your company’s app.

End-User License Agreement

Most of today’s apps come with what’s known as an “end-user license agreement” (EULA), which is similar to a website’s terms of use. A EULA is a legally binding agreement between your company and the users of the app. Basically, a EULA outlines the scope of the license granted to the user, which is typically just a limited and non-exclusive right to download and use the app. The agreement also clarifies the terms and conditions under which the user may use the app, identifying what’s acceptable use and what’s not.

In addition to limiting your company’s liability, the primary purpose of the EULA is to help ensure users aren’t misusing the app, especially in ways that might jeopardize your ownership of the IP contained within the app or otherwise related to the app. Your EULA should make it clear that by downloading your app, the user is agreeing to be bound by the EULA. In short, users must be given notice of your EULA’s terms and then agree to them.

You can obtain a user’s agreement to be bound by your EULA in a few different ways, but typically the most effective method is what’s known as a “Clickwrap.” In this method, you obtain the user’s assent by having them check a box or click an “I Accept” button to confirm they’ve read and agree to accept the terms of the EULA before they can download and use the app.  

Privacy Policy
If you collect any personal data from your app users, such as email addresses, phone numbers, or credit card information, you need to include a privacy policy that outlines what data you collect, how it’s collected, and how you plan to store, use, and protect the data. In some cases, your privacy policy may be included as part of your EULA or run as a separate, stand-alone agreement.

In certain cases, you may actually be legally required to have a privacy policy for your app, especially if you collect banking or credit card data. In any case, your privacy policy should not simply be a generic template form or one copied from another company; it should accurately describe exactly how your company collects, stores, uses, and protects your users’ information.

As your Family Business Lawyer™, we can help you create your app’s privacy policy or review any existing privacy policy you may have, even if it was drafted by another lawyer. We can also advise you on the different state and federal laws governing your privacy policy.

Don’t Do-It-Yourself

As mentioned earlier, these are just a few of the basic legal issues involved with app development. This is by no means an exhaustive list of every issue you might encounter. And whether it’s securing the necessary IP protections or creating the different legal agreements outlined here, it’s highly recommended that you don’t try to go it alone or rely on DIY legal documents you find online, and instead, always work with an experienced business lawyer like us.

As your Family Business Lawyer™, we will support and advise you step-by-step through the process of securing the different IP protections, like trademarks and copyrights. At the same time, we will also help you create all of the necessary legal agreements to ensure that you own all of the IP related to your app, and all sensitive or proprietary information associated with the app is as secure as possible. 

Finally, we can also help you enforce your ownership rights should your app’s IP ever be infringed upon. With the help of us, your local Family Business Lawyer™, you can rest assured that your IP will not only be well protected, but we can also support you to maximize the value of not just your mobile app’s IP, but all your company’s intellectual property assets. 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. 

In today’s highly litigious society you are at near-constant risk for costly lawsuits—even if you’ve done nothing wrong. This is especially true if you have substantial wealth, but even those with relatively few assets can find themselves in court facing a potentially devastating lawsuit.

If you are sued, your traditional homeowners or auto insurance will likely offer you some liability coverage, but those policies only cover you up to a certain dollar amount before they max out, and you can be held personally liable for anything beyond that limit. For this reason, you should consider adding an extra layer of protection by investing in personal liability umbrella insurance.

An Extra Level Of Protection
Umbrella insurance offers a secondary level of protection against lawsuits above and beyond what’s covered by your homeowners, auto, watercraft, and other personal insurance policies. Umbrella policies can cover a wide array of potentially ruinous costs related to a lawsuit, such as medical bills, legal fees, lost wages, court costs, and other expenses.

For example, say you cause a car accident in which multiple people are seriously injured. Their medical bills total $800,000, which exceeds the $250,000 in your auto insurance policy limits. This is where umbrella insurance kicks in. The umbrella policy will pay for the remaining $550,000 ,as well as your legal expenses if you lose the case. And whether you win or lose, your legal fees would be covered. 

But medical bills and legal expenses are only one potential expense you could face. In the above example, let’s say one of the injured parties is a highly paid executive who is unable to work for four months because of their injuries, so in addition to his or her medical bills, the person also sues you for lost wages totalling $80,000. With your auto insurance limits maxed out, you are now on the hook for $630,000, and unless you have umbrella coverage, your personal assets like your home and/or retirement savings could be at risk to cover those costs.

Who Should Have Umbrella Insurance

Umbrella insurance is valuable for anyone who can afford it. Anyone can be sued at any time for anything, which means it’s a particularly good idea if you are engaging in any activity that could leave you liable for a judgment in excess of your policy limits. 

If you are sued and a judgment is ordered against you for an amount that exceeds your insurance policy limits, the court can allow the plaintiff to go after your future earnings, potentially garnishing your wages for years. In this regard, umbrella insurance not only protects your current assets, but your future assets as well. Additionally, umbrella insurance is especially valuable if you fit into any of the following categories, which generally increases the likelihood of getting sued.

• You have a swimming pool, hot tub, trampoline, playground set, or other potentially hazardous recreational equipment.
• You have dogs, horses, cattle, or other large animals.
• You employ household staff.
• You frequently host large parties or other events in your home.
• You are a well-known public figure.

How Much Coverage Should You Have

Most people will be adequately covered with a $1 million umbrella policy. If you earn more than $100,000 a year or have more than $1 million in assets, you may want to invest in additional coverage. A good rule of thumb is to buy an umbrella policy with coverage limits that are at least equal to your net worth.

What’s more, as mentioned earlier, if you are involved in a particularly large lawsuit, your future income and assets could be a risk as well. So even if you have fairly limited income and assets now, you should consider your future earning potential when purchasing coverage. This is especially important if you plan to go into a highly paid career field, such as medicine, law, or financial management.

How Much Does Umbrella Insurance Cost

Umbrella insurance is fairly inexpensive, especially compared to other types of insurance and how much coverage it offers. Most people can buy a $1 million umbrella liability policy for between $150 and $300 per year, according to the Insurance Information Institute. An additional million in coverage will run you between $75 and $100, and then you are looking at roughly $50 for every million in coverage beyond that.

Umbrella policies are generally inexpensive because they only go into effect after your underlying homeowners, auto, watercraft, or other policy is exhausted. Given this, most insurers require you to have at least $250,000 in liability on your auto policy and $300,000 on your homeowners before they’ll sell you a $1 million umbrella policy.

How To Purchase Umbrella Insurance

You can buy an umbrella policy from the same insurance company you use for your other home and business policies. In fact, some companies require you to purchase all of your policies from them in order to obtain umbrella coverage. If your current insurance company offers umbrella coverage, you may qualify for a discount for bundling all of your policies. Of course, you can also purchase a stand-alone umbrella policy, so shop around for the best rates.

Better Safe Than Sorry

No matter how careful and responsible you may be, accidents happen all the time, and no one is immune to the threat of a potentially devastating lawsuit. To make certain your family’s current and future wealth has the maximum level of protection, consult with us, your Personal Family Lawyer® to determine if umbrella insurance is right for your particular situation. 

As your Personal Family Lawyer®, we will evaluate your assets, assess your level of risk, and analyze your current insurance coverage to be sure you have the optimal level of umbrella coverage in place to safeguard your family’s wealth from today’s lawsuit-crazy culture. Contact us today to schedule your appointment.

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.

Although intellectual property (IP) has always been an essential part of most companies’ overall value, with the rapid rise of internet-based technology and e-commerce over the last few decades, IP is increasingly becoming the primary source of value for businesses both large and small.

In fact, studies show that today up to 80% of the value of a typical business is IP. And as of 2020, more than 84%—$19 trillion—of the S&P 500’s market cap is represented by intangible assets like IP.

Despite the critical importance of these assets, even the largest corporations aren’t always properly valuing or protecting their IP.

“Very few companies recognize the value of their intellectual property, nor have they secured an IP strategy that mirrors their long-term corporate strategy in order to maximize this value,” said Brian Hinman, Chief Innovation Officer at Aon and Head of EMEA for Aon’s Intellectual Property Solutions.

Without legal protections like patents, trademarks, and copyrights, your IP is at serious risk of being stolen by your competitors, hackers, and even your own employees, vendors, independent contractors, or clients. Worse yet, if you don’t take your IP seriously, you are likely undervaluing your greatest assets, not capitalizing on the most valuable part of your business, and staying stuck in a model of getting paid only for the actual hours you work, rather than for the ideas and value you create.

Understanding The Value Of Your IP

If even the biggest corporations aren’t properly protecting and leveraging their IP, we’re guessing that you probably aren’t either. If this is the case, this article is aimed at serving as a wake-up call for you to start taking your company’s IP seriously and implementing strategies to ensure these highly valuable assets are protected and leveraged to the fullest extent possible.   

One reason business owners fail to protect their IP is because unlike more tangible assets like real estate, vehicles, and office equipment, most don’t understand how to properly value and protect their intangible capital. Many times, by overlooking your IP, you fail to pay attention to your business’ most valuable assets until something goes wrong.

This might include receiving a cease-and-desist letter after another business claims your name, or a former independent contractor you used to work with begins selling services to your customers in competition with you, or you discover that you don’t actually own the source code of a website you paid someone else to create for you.

Protecting your IP can begin with trademarking the name of your company, registering for copyright protection for the copy on your website and in your advertisements, ensuring that all of the agreements you have with independent contractors and vendors include work-for-hire provisions, and that all agreements with clients and customers have limitations-on-use provisions, ensuring your business owns what it creates.

Protect & Leverage The Value Of Your IP Assets

In order to ensure you are able to properly identify and protect your IP, you should have an experienced business lawyer like us perform an IP audit for your company. An IP audit is a comprehensive, systematic review that identifies all of your IP assets, and evaluates all of the potential risks and opportunities associated with those assets. 

An IP audit can not only identify your IP assets, it can also help ensure you have all of the necessary IP protections, such as trademarks and copyrights, and that you own the full spectrum of rights related to your IP in all of your legal agreements. Moreover, the audit can allow you to fully leverage your IP to ensure you are getting the maximum value possible from each of these assets.

At the same time, the audit can identify potential areas of risk related to your IP, such as instances where your company may be in danger of infringing upon another brand’s IP rights. From there, you will be better able to take the appropriate corrective actions, and implement more robust IP management strategies.  

Finally, conducting an IP audit can also help ensure that these assets are not only protected and leveraged during your lifetime, but that your heirs are also able to fully benefit from these intangible assets in the event of your potential incapacity or upon your eventual death. As with any tangible asset you’d seek to protect and pass on to your loved ones, you can achieve the same benefits for your IP by including these assets in your estate plan. And as your Family Business Lawyer™ firm, protecting and passing on your IP through estate planning is one of our specialties.

Maximize The Value Of Your Company’s IP
If you haven’t reviewed your IP and its value recently, reach out to us, your Family Business Lawyer™ and ask for an IP audit. When combined with our proprietary Life & Legacy estate planning services, our IP audit will give you the peace of mind that your company’s most valuable intangible capital is not only fully protected and leveraged during your lifetime, but that your loved ones will be able to benefit from these creations for generations to come. Contact us today to schedule an audit for your company.

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. 

As a parent, you’re likely hoping to leave your children an inheritance. In fact, doing so may be one of the primary factors motivating your life’s work. But without taking the proper precautions, the wealth you pass on is at serious risk of being accidentally lost or squandered due to common life events, such as divorce, serious debt, devastating illness, and unfortunate accidents. 

In some cases, a sudden inheritance windfall can even wind up doing your kids more harm than good.

Creating a will or a revocable living trust offers some protection for your kid’s inheritance, but in most cases, you’ll be guided to distribute assets through your will or trust to your children at specific ages and stages, such as one-third at age 25, half the balance at 30, and the rest at 35.

If you’ve created an estate plan, check to see if this is how your will or trust leaves assets to your children. If so, you may not have been told about another option that can give your children access, control, and airtight asset protection for whatever assets they inherit from you.

As your Personal Family Lawyer firm®, in our planning process, we always offer parents the option of creating a Lifetime Asset Protection Trust for their children’s inheritance. These unique trusts safeguard your kids’ inheritance from being lost to common life events, such as divorce, serious illness, lawsuits, or even bankruptcy.

But that’s not all they do.

Indeed, the best part of these trusts is that they offer your kids the best of both worlds: 1) airtight asset protection and 2) the ability to use and control their inheritance. You can even provide your heirs with a unique educational opportunity in which they gain valuable experience managing and growing their inheritance. More on all of this below.

Not Only For The Super Rich

Contrary to what you might think, Lifetime Asset Protection Trusts are not just for those with massive wealth. In fact, these trusts are even more useful if you’re leaving a relatively modest inheritance because they can be used to educate your children about how to grow your family wealth, instead of quickly blowing through it.

And without such guidance, most people blow through their inheritance very quickly. In fact, one study found that, on average, an inheritance is totally gone in about five years due to debt and poor investment. Another study found that one-third of people who receive an inheritance actually had a negative savings within just two years.

Not to mention, the smaller the inheritance, the more at risk it is of getting wiped out by a single unfortunate event like a medical emergency, lawsuit, or serious accident.

To demonstrate how Lifetime Asset Protection Trusts provide protection to families leaving behind a modest inheritance, here we’ll describe a true story involving a tragic accident. While the following events are entirely true, the individual’s name has been changed for privacy protection.

The Flooded Penthouse

Eric was staying at a friend’s apartment in New York City. The apartment was the penthouse of the building, and Eric decided to run himself a bath. While the bath was running, another friend called and invited Eric to go out with him, which he did.

At about 2 a.m., Eric came back to the apartment and discovered he made a  huge mistake and left the bath running when he left the apartment. The resulting flood caused more than $400,000 in damage to the apartment and the one below it.

While there was insurance to cover the damage, the insurance company sued Eric for what’s known as “subrogation,” meaning the company sought to collect the $400,000 they paid out to repair the damage Eric caused to the property. 

Because the flood was due to his negligence in leaving the bath running—a simple, but costly mistake—Eric was responsible for the damage. Now here’s where the inheritance piece comes into play and why it’s so important to leave whatever you’re passing on to your heirs in a protected trust. If Eric had received an inheritance outright in his own name, he would have lost $400,000 of it to this unfortunate mishap.

However, if Eric had received his inheritance in a Lifetime Asset Protection Trust, instead of an outright distribution, his money would be completely protected from such a lawsuit—and just about any other threat imaginable.

Don’t Take Any Chances
Regardless of how much financial wealth you have (or don’t have), if you plan to leave your kids anything at all, you should do everything you can to make it more likely that they grow what’s left behind, instead of losing it. This way, your resources can have a truly beneficial effect on their lives—and even the lives of future generations.

A Lifetime Asset Protection Trust can achieve each of those goals and so much more.

Not All Trusts Are Created Equal

When it comes to leaving an inheritance, most lawyers will advise you to place the money in a revocable living trust, which is the right thing to do. However, most lawyers would have you distribute the trust assets outright to your loved ones at specific ages, such as one-third at 25, half of the balance at 35, and the rest at 40. Check your own trust now to see if it does this or something similar. 

But giving outright ownership of the trust assets in this way puts everything you’ve worked so hard to leave behind at risk. While a living trust may protect your loved ones’ inheritance as long as the assets are held by the trust, once the assets are disbursed to the beneficiary, they can be lost to future creditors, a catastrophic accident or illness, divorce, bankruptcy—or as in Eric’s case, a major lawsuit. 

Rather than risking their inheritance by leaving it outright to your children at certain ages or following certain life events, such as graduating college, you can gift your assets to your children at the time of your death using a Lifetime Asset Protection Trust. When you gift the inheritance to your kids via a Lifetime Asset Protection Trust, the Trustee of the trust owns the assets, not your children.

Therefore, if your kids ever get divorced, file bankruptcy, have a major medical issue, or are ordered to pay damages in a lawsuit, they can’t lose their inheritance because they never owned it in the first place. A Lifetime Asset Protection Trust can be built into a revocable living trust, which becomes irrevocable at the time of your death and holds your loved one’s inheritance in continued protective trust for their lifetime.

Here’s how it works: A Trustee of your choice holds the trust assets upon your death for the benefit of your child or children. Because a Lifetime Asset Protection Trust is discretionary, the Trustee has the power to distribute the assets at their own discretion, instead of being required to release them in a rigid structure. This discretionary power enables the Trustee to control when and how your kids can access their inheritance, so they’re not only protected from outside threats like ex-spouses and creditors, but from their own poor judgment as well. 

A Lifetime Of Guidance & Support

Given that distributions from a Lifetime Asset Protection Trust are 100% up to the Trustee, you may be concerned about the Trustee’s ability to know when to make distributions to your child and when to withhold them. Granting such power is vital for asset protection, but it also puts a lot of pressure on the Trustee, and you probably don’t want your named Trustee making these decisions in a vacuum.

To address this issue, you can write up guidelines to the Trustee, providing the Trustee with direction about how you’d like the trust assets to be used for your beneficiaries. This ensures the Trustee is aware of your values and wishes when making distributions, rather than simply guessing what you would’ve wanted, which often leads to problems down the road.

In fact, many of our clients add guidelines describing how they’d choose to make distributions in up to 10 different scenarios. These scenarios might involve the purchase of a home, a wedding, the start of a business, and/or travel. Some clients choose to provide guidelines around how they would make investment decisions, as well. This is something we can support you with if you decide to use a Lifetime Asset Protection Trust.

An Educational Opportunity

Beyond these benefits, a Lifetime Asset Protection Trust can also be set up to give your child hands-on experience managing financial matters, like investing, running a business, and charitable giving. And he or she will learn how to do these things with support from the Trustee you’ve chosen to guide them.

This is accomplished by adding provisions to the trust that allow your child to become a Co-Trustee at a predetermined age. Serving alongside the original Trustee, your child will have the opportunity to invest and manage the trust assets under the supervision and tutelage of a trusted mentor.

You can even allow your child to become Sole Trustee later in life, once he or she has gained enough experience and is ready to take full control. As Sole Trustee, your child would be able to resign and replace themselves with an independent trustee, if necessary, for continued asset protection.

Regardless of whether or not your child becomes Co-Trustee or Sole Trustee, a Lifetime Asset Protection Trust gives you the opportunity to turn your child’s inheritance into a valuable teaching tool. Do you want to give your child the ability to leave trust assets to a surviving spouse or a charity upon their death? Or would you prefer that the assets are only distributed to his or her biological or adopted children? You might even want your child to create their own Lifetime Asset Protection Trust for their heirs.

We offer you a wide variety of options that can be tailored to fit your particular values and family dynamics. Be sure to ask us which options might be best for your particular situation.

Find Out If A Lifetime Asset Protection Trust Is Right For Your Family

Of course, Lifetime Asset Protection Trusts aren’t for everyone. If your kids are going to spend the vast majority of their inheritance on everyday expenses and consumables, they probably don’t make much sense. But if you want the assets you are leaving behind to be invested and grown over the long term, even through their own business or investments, a Lifetime Asset Protection Trust can be immensely valuable.

When you meet with us, your Personal Family Lawyer®, we will work with you to look at  your family circumstances and your assets to decide together if a Lifetime Asset Protection Trust is the right option for your loved ones. In the end, it’s not about how much you’re leaving your heirs that matters. It’s about ensuring that what you do pass on is there when it’s needed most and put to the best use possible. Schedule a Family Wealth Planning Session 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.

In light of the pandemic, the rules and programs governing income taxes for businesses have changed numerous times over the last two years, which has caused confusion and headaches for more than a few business owners. And while many of the pandemic-inspired programs and tax breaks have already ended or will end soon, a few of these programs still stand to impact your taxes in 2021.

The good news is that even though many of these programs are ending, the impact on the overall taxes paid by most small businesses is not expected to be all that significant. Moreover, in some cases, business owners can still apply retroactively for certain pandemic-related benefits they might have missed out on when the tax breaks were first offered. 

With this in mind, here we’ll cover a few of the tax breaks left over from the pandemic-inspired programs that are still available to businesses in 2021. We’ll also outline some of the most valuable deductions and credits that are available to tax savvy business owners every year. 

Although the optimal time for tax planning is typically before the end of the year, there are still a number of ways you can reduce your company’s 2021 tax bill right up to this year’s filing deadline, which is April 18th for most taxpayers. While there are dozens of potential tax breaks you may qualify for, here are six last-minute moves you can make to save on your company’s 2021 tax return.

1. The Employee Retention Credit Is Still Available

First started under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, the Employee Retention Credit (ERC) is a fully refundable tax credit that was created to encourage businesses to keep employees on their payroll. The ERC has gone through multiple changes over the last two years, causing confusion among many business owners, which is one reason many companies didn’t apply for it.

However, the ERC can be extremely valuable, and while the program ended for most companies on Sept. 30, 2021, businesses may be able to retroactively claim the ERC. In order to qualify for the latest version of the ERC, a business must have experienced one of the following two circumstances:

1) Gross receipts declined more than 50% in any quarter of 2020 compared to the same quarter of 2019 or declined more than 20% in any quarter of 2021 compared to the same quarter of 2019; or

2) The company had to fully or partially suspend operations due to a government order related to COVID-19.

For companies who qualify, the expanded ERC comes with the following conditions:

• Can be applied retroactively to 2020.
• Can be claimed by Paycheck Protection Program (PPP) borrowers, as long as the PPP proceeds and the ERC covered different expenses.
• Can offset employment taxes equal to 50% of qualified wages (including employer paid health plan expenses) paid between March 13, 2020 and December 31, 2020 or 70% of qualified wages paid between January 1, 2021, and September 30, 2021.
• Has a maximum credit of $5,000 per employee per year for 2020 or $7,000 per employee per quarter for 2021.
• Companies with fewer than 500 employees may also be able to claim fully refundable tax credits to cover wages paid to employees who took paid sick or family leave related to COVID-19 from January 1, 2021 through September 30, 2021.
  

Although the ERC ended for most businesses on Sept 30,  2021, some new companies, known as “Recovery Startup Businesses” (RSB) can claim the ERC for the third and fourth quarters of 2021. To qualify as an RSB, a company must meet each of the following conditions:

• Started operations on or after Feb. 15, 2020;
• Maintains average annual gross receipts that do not exceed $1 million;
• Employs one or more employees (other than 50% owners); and
• Does not otherwise qualify for the ERC because the business’ operations were not fully or partially suspended due to government orders, and it did not experience a decline in gross receipts.

Businesses that want to apply for the ERC retroactively will need to amend prior years’ tax returns to adjust their payroll expenses. And even if you’ve already filed your taxes for 2021, you still have time to claim the credit. In fact, businesses have up to three years from the program’s end on Sept. 30, 2021 to determine if wages they paid after March 12, 2020 through the end of the program are eligible. 

For more information, visit the ERC FAQs on the IRS website. That said, because the ERC is so complex, you should consult with us, your local Family Business Lawyer™ or your CPA to gain clarification on the program and support you with your application to ensure your company gets the maximum benefit of the tax credit.

2. Forgiven Paycheck Protection Program (PPP) Loans Aren’t Taxable—At Least At The Federal Level

Forgiven Paycheck Protection Program (PPP) loans aren’t considered taxable income by the IRS, so they won’t affect your 2021 federal income taxes. Additionally, you can deduct eligible business expenses you paid with PPP funds on your federal tax return.

That said, not all states have adopted the federal rules on how PPP loans are taxed, so you should consult with us, your Family Business Lawyer™ or your CPA to determine our state’s law on the PPP’s taxability. 

3. Deduct 100% Of Business Meals From Restaurants

To spur growth in the hard-hit restaurant industry, a provision in the Consolidated Appropriations Act (CAA) passed in December 2020 makes the cost of business-related meals (food and beverages) served by a restaurant 100% deductible on your federal income taxes. As long it’s from a restaurant, meals served via takeout and delivery qualify too—you don’t have to actually eat on the premises.

This tax break is only for 2021 and 2022. Previously, deductions for business meals at restaurants were limited to 50%. 

4) Increased 179 Deductions For Equipment and Vehicle Purchases
If you purchased new or used business equipment in 2021, you could qualify for  a deduction of up to $1.05 million (up from $1.04 million in 2020). The deduction is available under Section 179, which allows you to write off the entire amount you pay for qualified business equipment in a single year, rather than depreciating it over multiple years.

Most business property, such as office furniture, computers, software, machinery, and office equipment, will qualify. The deduction can also be applied to SUVs, pickups, vans, and other vehicles weighing more than 6,000 pounds. Section 179 now also includes building improvements like HVAC, elevators, and security systems, Real estate, however, does not qualify.

To take the deduction, the property must be purchased and put into use during 2021, and it must be used more than 50% of the time for business purposes. The provision caps total equipment purchases for the year at $2.62 million (up from $2.59 million in 2020). Once you spend $2.62 million, the deduction is phased out on a dollar-for-dollar basis, and it totally phases out once you hit $3.67 million.

That said, if you made equipment purchases in 2021 that exceeded the $3.67 million limit, you may still use bonus depreciation on the amount above the Section 179 cap. Bonus depreciation remains at 100% through 2022. From there, bonus depreciation decreases by 20% each year until it totally phases out at the end of 2026.

If you made significant equipment purchases in 2021 or plan to make them in 2022, meet with us, your Family Business Lawyer™ , so we can work with you and your CPA to ensure you are maximizing all of your deductions for such major capital investments. 

5. Deduct The Cost Of Your Business Insurance Policies
Most every business takes out some form of business insurance to protect against a variety of threats and liabilities. Yet, many business owners don’t realize or simply forget that you can deduct 100% of the cost of most types of business insurance from your federal income taxes. The most common forms of business insurance that qualify for the 100% deduction include the following: 

• Health insurance 
• General liability insurance 
• Commercial property insurance 
• Business interruption insurance 
• Professional liability/Malpractice insurance

• Cybersecurity insurance
• Worker’s compensation insurance 
• Vehicle insurance

Note that while most forms of business insurance are tax deductible, life insurance premiums are generally not deductible. There are a few exceptions, such as when you pay for your employee’s life insurance premiums, which can be written off as a business expense, but even this comes with limitations

In this case, deductions can only be applied to premiums paid for the first $50,000 of coverage for each employee, and you are not permitted to deduct the premiums if you or the company benefit from the policy. Since it can be tricky to figure out when life insurance is deductible, meet with us, your Family Business Lawyer™ to find out whether or not your policies would qualify.

6. QBI Deduction For Pass-Through Income Still Available—And With Higher Income Limits

The Section 199A Qualified Business Income (QBI) Deduction is still available for 2021. Starting in 2018 and running through 2025, this provision allows qualifying business owners to take a straight 20% deduction on their net business income for the year. And this deduction is in addition to any ordinary business-expense deductions you might have.

To qualify, your business must be set up as a “pass-through” entity, meaning your company’s taxes pass through and are paid at your personal income tax rate. This business structure includes sole proprietorships, partnerships, limited liability companies (LLC), and S corporations—basically all businesses except C corporations and LLCs taxed as corporations.

The deduction does have some restrictions, including for specific types of service businesses like law practices and accounting firms, and it begins to phase out at higher income levels. For 2021, the deduction begins to phase out once your taxable income surpasses $164,900 if single and $329,800 if married and filing jointly. The tax break completely phases out once your income reaches $214,900 for individuals and $429,800 for joint filers.

Given these restrictions, meet with us, your Family Business Lawyer™ or your CPA to see if your company qualifies.

Maximize Your Company’s Tax Savings For 2021

In addition to the tax breaks highlighted here, there are numerous other potential tax-saving opportunities that your company might qualify for. So even if you don’t qualify for any of these, it’s likely that there are others you can benefit from.

As your Family Business Lawyer™, we will work with you and your CPA to help you choose the tax breaks best suited for your business, and ensure you get the maximum benefit from the ones you qualify for during the 2021 tax season and beyond. Contact us today to get started.

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. 

Although many strategies to save on your income taxes must be locked in before the end of the year, there are still numerous ways you can reduce your tax bill right up until the filing deadline, which has been pushed back to Monday April 18th due to a holiday on April 15th.

Some of these strategies are time tested and available every year, but with all of the legislative changes made during the past two years to deal with the pandemic, there are also a few opportunities that won’t be around much longer, with some only available this year. While there are dozens of potential tax breaks you may qualify for, here are 7 of the leading moves you can make to save big on your 2021 tax return.

1. Max Out Your Retirement Account Contributions

The lower your income is, the lower your taxes will be, and tax-advantaged retirement plans, such as 401(k)s, 403(b)s, and individual retirement accounts (IRAs), are a great way to reduce your taxable income and save for retirement at the same time. And you have until the April tax-filing deadline to add money to your plan for the previous tax year, so you still have time to contribute.

For those with workplace retirement plans, such as a 401(k), 403(b), and most 457 plans, you can contribute up to $20,500 in 2022, up from $19,500 in 2021. For those 50 and older, you can make an extra catch-up contribution up to $6,500 in 2022 (no change from 2021) for a total contribution of $27,000.

For those with IRAs, both traditional IRAs and Roth IRAs, you can contribute up to $6,000 in both 2021 and 2022, or $7,000 for those 50 or older. However, the ability to deduct your traditional IRA contributions from your taxes comes with certain limitations, depending on whether you or your spouse is covered by a retirement plan at work and your adjusted gross income (AGI). Roth contributions are not tax deductible, since they are made after taxes are taken out; however, withdrawals from a Roth in retirement are tax-free.  

Note: RMDs Reinstated For 2021

Although you are typically required to take an annual required minimum distribution (RMD) from your traditional IRA, 401(k), or other tax-advantaged retirement account starting in the year you turn 72, the CARES Act waived the RMD requirement for 2020 due to the pandemic. The waiver also applied if you reached age 70 ½ in 2019, but waited to take your first RMD until 2020.

However, RMDs were reinstated in 2021, so if you are 72 or older, you were required to make a withdrawal from your retirement account before the end of 2021. Similarly, if you reached age 70 ½ in 2019 and your RMD in 2020 was waived, your 2021 RMD was also required to occur by Dec. 31, 2021. And if you reached age 72 in 2021, your 2021 RMD is required to occur by April 1, 2022. 

If you failed to distribute the RMD, you may owe a 50% penalty on the amount not distributed. That said, you may be able to avoid the penalty by requesting a waiver from the IRS. You can request a waiver if your failure to take the RMD is due to a reasonable error, and you take steps to make the required distribution. To request a waiver,  submit Form 5329 to the IRS, with a statement explaining the error and the steps you are taking to correct it.  

2. Contribute To A Health Savings Account
As with tax advantaged retirement plans, if you have a high-deductible health insurance plan, you may be able to reduce your taxable income by contributing to a health savings account (HSA), which is a tax-exempt account you can use to pay medical expenses. The deadline for making a 2021 contribution to your HSA is April 15, 2022.

HSAs offer three different tax breaks: Contributions are tax-deductible, they allow for tax-free growth, and withdrawals are tax-free if they are used to pay for qualified medical expenses. 

For 2021, if you had self-only health coverage, you could have contributed up to $3,600. For 2022, the individual coverage contribution limit is $3,650. If you have family coverage, the limit was $7,200 in 2021 and is $7,300 in 2022. And if you’re 55 or older, you can add an extra $1,000 catch-up contribution to your HSA.

To be eligible, you must have a high-deductible health insurance plan with a minimum deductible of $1,400 for self-only coverage or $2,800 for family coverage. The maximum out-of-pocket expenses cannot exceed $7,000 for a self-only plan or $14,000 for a family plan.

3. Claim The New Expanded Child Credit

The American Rescue Plan’s expanded child tax credit was made fully refundable in 2021, and it was increased up to $3,600 per child through age 5, and up to $3,000 per child aged 6 to 17. Dependents who are 18 can qualify for $500 each. Dependents aged 19 to 24 may also qualify, but they must be enrolled in college full-time. 

Eligible families automatically received half the total of the payments in advance monthly payments between July and December 2021, unless they opted out. When eligible parents file their taxes in 2022, they’ll get the remainder of the benefit they didn’t receive through advance monthly payments. If you did not receive the advance payments because you opted out or didn’t receive them for some other reason, you can claim the full credit when you file in April.

Because the IRS based these payments on your 2020 tax return, a change in income or the number of qualifying dependents in 2021 could have resulted in an overpayment. If so, you’ll have to pay that back when you file in April.

Even if you made little to no income, you are still eligible for the child tax credit, though payments begin to phase out when your AGI reaches $75,000 for single filers, and $150,000 for joint filers. To find out where you stand with this credit, visit the Child Tax Credit Update Portal on the IRS website.  

4. Take The Increased Deduction For Charitable Donations

The CARES Act allowed for up to a $300 deduction per tax return for charitable donations in 2020, even for those taxpayers who don’t itemize. For 2021, this benefit expanded to up to $300 per person.

This means if you are a married couple filing jointly, you could be eligible for up to a $600 deduction for your charitable giving last year, even if you take the standard deduction, which increased to $12,550 for single filers and $25,100 for joint filers in 2021. 

5. Claim The Increased Child & Dependent Care Credit 

If you care for a child under age 13, or a spouse, parent, or another adult dependent who is unable to care for themselves, you may be able to get up to 50% back as a tax break or refund for your care-related expenses. For 2021, the amount you can claim maxes out at $8,000 for one dependent and $16,000 for two or more. 

For 2021 only, this credit is fully refundable, meaning that you can receive money even if you don’t owe taxes. Note that this credit is different from the child tax credit mentioned above, and qualifying for the child tax credit does not affect your eligibility for this credit and vice versa. Learn more about the requirements for the Child and Dependent Care Credit on the IRS website.

6. Claim The American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) provides undergraduate college students or their parents with an annual tax credit up to $2,500 for eligible education expenses incurred during the first four years of college. The credit can be used to cover 100% of the first $2,000 spent on tuition, books, school fees, and other supplies (excluding living expenses or transportation) plus 25% of the next $2,000 for a total of $2,500.

To qualify, the student must be pursuing a degree or credential and be enrolled at least half-time for one academic period (semester, trimester, or quarter) beginning in 2021 or the first three months of 2022. The credit can be claimed for a maximum of four years, and it can be claimed by the student or their parents provided they paid the expenses and the student is listed as a dependent on their tax return.

The full credit is available for individual filers with an AGI of $80,000 or less or $160,000 or less for joint filers. A reduced credit is available for individuals with an AGI over $80,000 but less than $90,000 or over $160,000 but less than $180,000 for joint filers. Taxpayers who earn more than that can’t claim the credit. The credit is partially refundable, so you can still receive 40% of the credit (up to $1,000) even if you had no income or owed no taxes.

7. Claim The Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is another tax credit for qualifying educational expenses, but it’s slightly different from the American Opportunity Credit. The credit can be used to cover 20% of the first $10,000 spent on tuition and school fees for a maximum of $2,000. Unlike the AOTC, the LLC does not generally cover books or other supplies (unless those books or supplies were required to be purchased to take the course), and it also does not cover living expenses or transportation. 

The LLC is not just for undergraduates; it applies to undergraduate, graduate, and non-degree or vocational students, and there’s no limit on the number of years you can claim it. To qualify for the LLC, the student must be enrolled in at least one course for an academic period beginning in 2021 or the first three months of 2022. The credit can be claimed by the student or their parents provided they paid the expenses and the student is listed as a dependent on their tax return.

The full credit is available for individual filers with an AGI of less than $59,000 or less than $118,000 for joint filers. A reduced credit is available for individuals with an AGI between $59,000 and $69,000 or between $118,000 to $138,000 for joint filers. Those who earn more than $69,000 or $138,000 can’t claim the credit. 

The LLC is not refundable, so you can use the credit to pay any taxes you owe, but you won’t get any of the credit back as a refund. Additionally, you can’t claim both the American Opportunity Tax Credit and the Lifetime Learning Credit in the same year.
Maximize Your Tax Savings for 2021
These are just a few of the tax breaks available for 2021. There are plenty of other deductions and credits that your family might qualify for depending on your circumstances. Meet with us, your Personal Family Lawyer®, to make certain you don’t miss out on a single one. Contact us today to schedule your appointment.

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.

When you are just starting your business, it’s easy to lose sight of just how many potential risks your company faces. Yet a single accident or lawsuit can wipe out your company before it even has the chance to get off the ground. While setting up a business entity like a limited liability company (LLC) or corporation can protect your personal assets from liabilities incurred by your business, it won’t protect your business assets—that’s where business insurance comes in. 

You can’t protect your business 100% from every single threat, but you can greatly improve your chances of surviving by having the proper insurance coverage in place. That said, there are many types of business insurance out there, and some policies can be extraordinarily expensive, so it’s critical to know the specific risks your company faces and what types of insurance will best cover those risks.

Outside of mandatory coverage, such as worker’s compensation, there are several types of insurance that practically every new business owner should invest in. Depending on whether you have employees, use office space, provide services, or manufacture products, you’ll likely need some or all of the following policies.

General Liability Insurance

All businesses need general liability insurance, which covers lawsuits initiated by third parties (non-employees) for bodily injuries and/or property damage that are directly or indirectly related to your business. It’s important to note that such coverage—and indeed most coverage listed here—is needed even if you aren’t at fault. Keep in mind anyone can sue you for anything, and the lawyer’s fees can cripple your business, even if you win the case. The right insurance will cover your legal fees.

Commercial Property Insurance
Regardless whether you own or lease your office space, property insurance is a must. Such policies cover damage to equipment, furniture, and signage from events like fires, storms, and theft. Some natural disasters, like floods and earthquakes, may not be covered, so be sure to check with your agent to add additional coverage if you live in a disaster-prone region.

Professional Liability/ Malpractice Insurance
Also known as errors and omission insurance, this covers lawsuits alleging your professional services caused a client to suffer damages, arising from actions like negligence, mistakes, and violation of contract. Such coverage can be essential for a wide range of businesses—accountants, lawyers, real-estate agents, consultants, IT firms, and others. Check with us, your Family Business Lawyer™  to find out if you should have such coverage.

Vehicle Insurance

If your employees use a company-owned vehicle to conduct business, those vehicles  should have comprehensive commercial auto insurance to protect against liability as well as any injury/damage to your employees, vehicles, products, and equipment. If your employees use their own vehicles, their personal insurance often covers them. But it’s a good idea to purchase “non-owned auto liability coverage” in case an employee fails to renew their insurance or has inadequate coverage.

Employment Practices Insurance
This type of policy provides protection for lawsuits initiated by your employees. While this is an often-overlooked coverage, it’s actually one of the most important, since employment claims are the most serious threat to your business, even if you think you are the best boss on the block. In fact, studies show that nearly one in every five small businesses will get sued by a team member at some point in their lifecycle.

Cyber Insurance

From websites and social media to e-newsletters and mobile apps, virtually every business has a digital presence of some type. Cyber insurance protects against damages from threats to your computer systems and databases, such as data breaches, hacking, and network failures. If your data is lost, stolen, or compromised, the cost to recover and restore this information can be exorbitant. Such coverage also protects you from lawsuits by customers, vendors, and others whose data is stolen from your system. It can also cover the cost of notifying affected parties of a breach, which is typically required by law; paying regulatory fines; as well covering lawyer fees, judgments, and settlement costs resulting from a lawsuit.

Umbrella Insurance
Umbrella insurance offers an extra layer of coverage which would pay for any claims that exceed the payout limit of your other policies. Note that umbrella insurance is not offered as stand-alone coverage, and you must first have an appropriate underlying policy in place to qualify for it. In fact, you may not qualify for umbrella insurance if your underlying policy doesn’t offer high-enough payout limits.

Get Your Startup Covered Today

Every business has its own unique risks and assets, so there’s no way to know exactly what coverage your company needs without an evaluation. Before you sit down with an insurance agent, meet with us, your Family Business Lawyer™ for an insurance audit.

We can support you by evaluating the specific risks your company faces at each stage of growth to determine exactly what kind of insurance you need and what levels of coverage will best protect your business assets both now and in the future. Contact us, your local Family Business Lawyer™ today to get started.

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.