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. 

Unless you’ve created an estate plan that works to keep your family out of court, when you die (or become incapacitated) many of your assets must go through probate before those assets can be distributed to your heirs. Like most court proceedings, probate can be time-consuming, costly, and open to the public, and because of this, avoiding probate—and keeping your family out of court—is often a central goal of estate planning. 

To spare your loved one’s the time, cost, and stress inherent to probate, last week in part one of this series, we explained how the probate process works and what it would entail for your loved ones. Here in part two, we’ll discuss the major drawbacks of probate for your family, and outline the different ways you can help them avoid probate with wise planning.

What’s At Stake For Your Family
Probate court proceedings can take months, and sometimes even years, to complete. In the immediate aftermath of your death, that’s the last thing you likely want your loved ones to have to endure. And the cost of their time and emotional strain are just the start of the potentially devastating consequences your family could face if you don’t plan ahead.

Without easy and immediate access to your assets, your family could face serious financial hardship at a time when they need the most support. Not only that, but to help them navigate the legal proceedings, your loved ones will almost certainly need to hire a lawyer, which can result in hefty attorney’s fees and the real risk of them hiring a lawyer who is uncommunicative, which only creates more stress for them. All of that is on top of the court costs, executor’s compensation, and all of the various other administrative expenses related to probate. By the time all of those costs have been paid, your estate could be totally wiped out, or at the very least, seriously depleted. 

Another drawback of probate is the fact that it’s a public process. Whether you have a will or not, all of the proceedings that take place during probate become part of the public record. This means that anyone who’s interested can learn about the contents of your estate, who your beneficiaries are, and what they will inherit, which can set them up as potential targets for scammers and frauds.

Probate also has the potential to create conflict among your loved ones. This is particularly true if you have disinherited someone or plan to leave significantly more money to one relative than the others, in which case, a family member may contest your will. And even if those contests don’t succeed, such court fights will only increase the time, expense, and strife your family has to endure. 

How To Avoid Probate

Before we discuss the more advanced ways you can use estate planning to allow your loved ones to avoid probate, it’s important to point out that not all of your assets will have to go through the probate process—and that’s true even if you don’t have any estate plan at all.

Assets That Do Not Require Probate: Certain assets, such as those with beneficiary designations like 401(k)s, IRAs, and the proceeds from life insurance policies, will pass directly to the individuals or organizations you designated as your beneficiary, without the need for any additional planning. 

The following are some of the most common assets that use beneficiary designations and therefore, bypass probate:

• Retirement accounts, IRAs, 401(k)s, and pensions
• Life insurance or annuity proceeds
• Payable-on-death (POD) bank accounts
• Transfer-on-death (TOD) property, such as bonds, stocks, vehicles, and real estate

Outside of assets with beneficiary designations, other assets that do not go through probate include assets with a right of survivorship, such as property held in joint tenancy, tenancy by the entirety, and community property with the right of survivorship. These assets automatically pass to the surviving co-owner(s) when you die, without the need for probate. 

However, it’s critical to note here that if you name your “estate” as the beneficiary of any of these assets, those assets will go through probate before being distributed. The same goes if you overlook a beneficiary designation, or if you die at the same time as a joint property owner—each of those assets will also go through probate, even though they have beneficiary designations.

In addition, we generally recommend that you do not rely on beneficiary designations to handle the distribution of your assets. These designations give you little to no control over how your assets are distributed, and they can result in negative outcomes you did not intend, especially if you have a blended family with children from a prior marriage or if you have no children at all.

Although there are several different types of assets that automatically bypass probate, the majority of your assets will require slightly more advanced levels of planning to ensure your loved ones can immediately access them, without the need for any court proceedings in the event something happens to you. The primary estate planning tool for this purpose are trusts.

Avoiding Probate With A Revocable Living Trust
Trusts are a popular estate planning tool for avoiding probate. Although there are a variety of different types of trust, the most commonly used trust for probate avoidance is a revocable living trust, also called a “living trust.”

A trust is basically a legal agreement between the “grantor” (the person who puts assets into the trust) and the “trustee” (the person who agrees to manage those assets) to hold title to assets for the benefit of the “beneficiary.” With a revocable living trust, this agreement is typically made between you as the grantor and you as the trustee for the benefit of you as the beneficiary. You act as your own trustee during your lifetime, and then you name someone as a “successor trustee” to take over management of the trust when you die or in the event of your incapacity.

It might seem odd to make an agreement with yourself to hold title to assets for yourself in order to benefit yourself. Yet by doing so, you remove those assets from the court’s jurisdiction in the event of your incapacity or when you die. Instead, those assets transfer to your successor trustee, without any court intervention required.

At that point, your successor trustee is responsible for managing the trust assets and eventually distributing them to your beneficiaries, according to the terms you spell out in the trust agreement. This is how a trust avoids probate, saving your family significant time, money, and headache.

The Key Benefits Of A Living Trust

Unlike a will, if your trust is properly set up and maintained, your loved ones won’t have to go to court to inherit your assets. Instead, your successor trustee can immediately transfer the assets held by the trust to your loved ones upon your death or in the event of your incapacity. And since you can include specific instructions in a trust’s terms for how and when the assets held by the trust are distributed to a beneficiary, a trust can offer greater control over how your assets are distributed compared to a will. 

For example, you could stipulate that the assets can only be distributed upon certain life events, such as the completion of college or marriage, or when the beneficiary reaches a certain age. In this way, you can help prevent your beneficiaries from blowing through their inheritance and offer incentives for them to demonstrate responsible behavior. And as long as the assets are held in trust, they’re protected from the beneficiaries’ creditors, lawsuits, and divorce—which is something else wills don’t provide. 

Finally, trusts remain private and are not part of the public record. So, with a properly funded trust, the entire process of transferring ownership of your assets can happen in the privacy of us, your Personal Family Lawyer®’s office, not a courtroom, and on your family’s time.

Transferring Assets Into A Living Trust

For a trust to function properly, it’s not enough to simply list the assets you want the trust to cover. When you create your trust, you must also transfer the legal title of any assets you want to be held by the trust from your name into the name of the trust. Retitling assets in this way is known as “funding” a trust.

Funding your trust properly is extremely important, because if any assets are not properly funded to the trust, the trust won’t work, and your family will have to go to court in order to take ownership of that property, even if you have a trust. In light of this, it’s critical to work with us, your Personal Family Lawyer® to ensure your trust works as intended.

While many lawyers will create a trust for you, few will ensure your assets are properly inventoried and funded into your trust, and then ensure the inventory of your assets is kept up-to-date as your life and assets change over time. As your Personal Family Lawyer®, we will not only make sure all of your assets are properly titled when you initially create your trust, but we will also ensure that any new assets you acquire over the course of your life are inventoried and properly funded to your trust. This will keep your assets from being lost, as well as prevent your family from being inadvertently forced into court because your plan was never fully completed. 

Living Trusts, Taxes, Creditors, & Lawsuits

When you create a revocable living trust, you are free to change the trust’s terms or even completely terminate the trust at any point during your lifetime. Because you retain control over the assets held by a living trust during your lifetime, those assets are still considered part of your estate for estate tax purposes. Similarly, assets held in a living trust are not protected from your creditors or lawsuits during your lifetime. This is an important and often misunderstood point.

Again, a revocable living trust does not protect your assets from creditors or lawsuits, and it has no impact on your income taxes. However, as mentioned earlier, as long as the assets are held by a living trust or a Lifetime Asset Protection Trust, those assets can be protected from your beneficiaries’ creditors, lawsuits, and even divorce settlements. Be sure to ask us about the different trust-based estate planning options we offer to find one that’s best suited for your particular situation.

The primary benefit of a living trust is to pass your assets to your loved ones without any need for court or government intervention, and to ensure your assets pass in the way you want to the people you want.

Life & Legacy Planning: Do Right By Those You Love Most
Although a living trust can be an ideal way to pass your wealth and assets to your loved ones, each family’s circumstances are different. This is why us, your local Personal Family Lawyer® will not create any documents until we know what you actually need and what will be the most affordable solution for you and your family—both now and in the future—based on your family dynamics, assets, and desires.

The best way for you to determine which estate planning strategies are best suited for your situation is to meet with us, your local Personal Family Lawyer® for a Family Wealth Planning Session, which is the first step in our Life & Legacy Planning Process. During this process, we’ll take you through an analysis of your assets, what’s most important to you, and what will happen to your loved ones when you die or if you become incapacitated.

Sitting down with us will empower you to feel 100% confident that you have the right combination of estate planning solutions to fit with your unique asset profile, family dynamics, and budget. As your Personal Family Lawyer® firm, we see estate planning as far more than simply planning for your death and passing on your “estate” and assets to your loved ones—it’s about planning for a life you love and a legacy worth leaving by the choices you make today—and this is why we call our services Life & Legacy Planning. 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.

Although cash is the lifeblood that sustains every business, far too many business owners fail to properly manage their cash flow. And this is despite the fact that statistics consistently show that running out of money is one of the main reasons new businesses go under.

Trying to run a business without carefully managing your cash flow is like fighting a rising tide: Sooner or later you’re going to find yourself underwater. And even if your business generates healthy revenue, you can still experience the occasional cash crunch—which is especially true during your first few years of operation.

To avoid joining the ranks of bankrupt startups, get smart about boosting your cash flow by implementing these 5 strategies.

1. Get Professional Support

To save money, lots of new business owners try to manage their books on their own, but this is a major mistake. Managing cash flow is too time consuming, complex, and critical to your company’s survival for you to fit it in with all of your other responsibilities. In fact, the very first team member you hire should be a professional bookkeeper/financial manager.

Effective cash-flow management is the foundation upon which all of your company’s financial and tax strategies are built, and it needs to be done properly from the very beginning. With this in mind, even if you’ve yet to earn any revenue, you should consider paying for a bookkeeper out of your own pocket. 

Hiring a highly experienced bookkeeper with whom you can build a tight relationship might require an investment of time and money upfront, but the ultimate payoff in terms of your financial strategy and tax savings will more than make up for the initial effort and expense. 

If you need support in finding the right bookkeeper, work with us, your Family Business Lawyer™ for guidance. We can refer you to bookkeeping professionals in our area we trust most to ensure your company has the proper financial oversight from the start.

 2. Implement Financial Systems

Above all, effective cash-flow management requires sound systems. If your company’s financial systems and processes aren’t set up the right way from the start, even a skilled bookkeeper isn’t going to magically fix them.

As your Family Business Lawyer™, we  specialize in supporting startups to set up effective financial systems. We will help you put the proper systems in place to manage your cash flow and ensure your company has a rock-solid financial foundation that won’t suddenly collapse when the going gets rough. 

3. Closely Monitor Accounts Receivable

Many startups experience negative cash flow simply because they don’t stay on top of accounts receivable. You must ensure that your customers pay you on time and in full. Accounts receivable that go unpaid for too long are more likely to get overlooked and go uncollected.

Your bookkeeper should keep track of all accounts receivable and include them in the monthly financial reports that he or she submits to you. Having these details included in your reports will not only keep you apprised of your company’s financial health, but it can also allow us to better assist you if and when you ever need support with collections.

4. Get Paid Upfront

One easy way to boost your cash flow and eliminate headaches associated with accounts receivable is to have your customers pay their bills upfront whenever possible. This is especially true if you have clients who are consistently late with payment.

If full payment upfront isn’t feasible, even requiring partial payment as a deposit will improve cash flow. To encourage quick payment, consider offering discounts for upfront or early payment. At the same time, have a firm policy in place that penalizes late payments, and make sure your sale agreements clearly spell this policy out—and you consistently enforce it with all late paying clients.

5. Maintain A Cash Reserve

Just about every startup experiences revenue shortfalls. And your company’s survival will likely depend on how you handle these lean times. To shield your company from the inevitable slow periods and unforeseen emergencies, try to maintain a cash reserve—even if it’s just access to a line of credit.

Having a reserve to fall back on will not only protect your company’s financial health, it can also save you from the stress and desperation that comes from unexpectedly running out of money. Nothing will kill your team’s morale—and your company’s growth—more than finding yourself unable to cover payroll.

Keep The Cash Flowing
All the vision and passion in the world won’t keep your startup afloat if you fail to properly manage your cash flow. That said, you don’t have to be a financial genius to keep your revenue flowing freely—you just need the proper systems and support. As your Family Business Lawyer, we can support you with both. 

We will assess your current financial systems and advise you about additional ways you can shore up any weak spots in your company’s foundation. Getting a handle on your cash flow will prevent your startup from running out of money, and it will also free up your time and energy to focus on the big-picture responsibilities needed to ensure your business not only survives, but truly thrives. 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. 

Unless you’ve created a proper estate plan, when you die many of your assets must first pass through the court process known as probate before those assets can be distributed to your heirs. Like most court proceedings, probate can be time-consuming, costly, and open to the public, and because of this, avoiding probate—and keeping your family out of court—is a central goal of most estate plans. 

During probate, the court supervises a number of different legal actions, all of which are aimed at finalizing your affairs and settling your estate. Although we’ll discuss them more in-depth below, probate typically consists of the following processes:

• Determining the validity of your will (if you have one).
• Appointing an executor or administrator to manage the probate process and settle your estate.
• Locating and valuing all of your assets.
• Notifying & paying your creditors.
• Filing & paying your taxes.
• Distributing your assets to the appropriate beneficiaries.

In most cases, going through all of these steps is a real pain for the people you love. It’s expensive, can take a long time, and be highly inconvenient, and sometimes, even downright messy.

By implementing the right estate planning strategies, however, you can help your loved ones avoid probate all together—or at least make the process extremely simple for them. To spare your family from the time, cost, and stress inherent to probate, here in this two-part series, we’ll first explain how the probate process works and what it would entail for your loved ones, and then we’ll outline the different ways you can avoid probate with wise planning.

When Probate Is Required

As mentioned previously, if you fail to put in place a proper estate plan, your assets must go through probate before they can be distributed to your heirs. In general, this includes those individuals who have no estate plan at all, those whose estate plan consists of a will alone, and those who have a will that’s deemed invalid by the court. 

It’s important to point out that even if you have a will in place, your loved ones will still be required to go through probate upon your death. Therefore, if you want to keep your family out of court and out of conflict when you die, you cannot rely solely on a will, and you’ll need to put in place additional estate planning vehicles, which we will cover in further detail later. 

If you die without a will, it’s known as dying intestate, and in such cases, probate is still required to pay your debts and distribute your assets. However, since you haven’t expressed how you wish your estate to be divided among your heirs, your assets will be distributed to your closest living relatives based on our state’s intestate succession laws. These laws typically give priority to spouses, children, and parents, followed by siblings and grandparents, and then more distant relatives. If no living heirs can be found, then your assets go to the state.

Some states allow estates with a relatively low value to bypass probate and use an abbreviated process to settle the estate. For example, Texas law allows estates with a total value of less than $75,000 to skip probate. In those cases, beneficiaries can claim the estate’s assets using simpler legal actions, such as by filing an affidavit or other form.

Additionally, when an individual’s debts exceed the value of their assets, or a person has no assets at all, probate is often not initiated, and the estate is settled using alternative legal processes.

How Probate Works

How probate plays out is largely determined by whether or not you had a valid will in place at the time of death. However, even in cases where no will exists, or the will is deemed invalid, the probate process is quite similar. Indeed, once the court appoints someone to oversee the probate process on your behalf, the process unfolds in a nearly identical manner, regardless if you had a will or not.

1. Authenticating The Validity Of Your Will: Following your death, your executor is responsible for filing your will and death certificate with the court, and this initiates the probate process. From there, the court must authenticate your will to ensure it was properly created and executed in accordance with state law, and this may involve a court hearing. 

Notice of the hearing must be given to all of the beneficiaries named in your will, along with all potential heirs who would stand to inherit under state law in the absence of a will. This hearing gives these individuals the opportunity to contest the validity of your will in order to prevent the document from being admitted to probate.

For example, someone might contest your will on the grounds that it was improperly executed (signed, witnessed, and/or notarized) as required by state law, or someone might claim that you were unduly influenced or coerced to change your will. If such a contest is successful, the court declares your will invalid, which effectively means the document never existed in the first place.

2. Appointing The Executor Or Administrator: If you created a will, the court must formally appoint the person you named in your will as your executor before they can legally act on your behalf. If you died without a will, the court will appoint someone—typically your closest living relative—to serve in this role, known as your personal representative or administrator.

In some cases, the court might require your executor to post a bond before they can serve. The bond functions as an insurance policy to reimburse the estate in the event the executor makes a serious error during probate that financially damages the estate.

3. Locating & Valuing Your Assets: Once probate begins, the executor must identify, locate, and take possession of all of your assets, so they can be appraised to determine the total value of your estate. This includes not only those assets listed in your will and other estate planning documents, but also those you may have not included in your estate plan. This is why keeping a regularly updated inventory of your assets is so important.

Any assets the executor is unable to locate will end up in our state’s Department of Unclaimed Property. Across the U.S., there is more than $58 billion (yes, that’s billion with a ‘b’) of assets stuck in state Departments of Unclaimed Property.  Fortunately, this is easy to prevent when you work with us. As your Personal Family Lawyer®, we will not only help you create a comprehensive asset inventory, we will make sure this inventory stays updated throughout your lifetime.

In the case of real estate, although the executor is not expected to actually move into your home or other residence, he or she is required to ensure that your mortgage, homeowners insurance, and property taxes are paid while probate is ongoing. These and all other debts can be paid from your estate. 

Once all of your assets have been located, the executor must determine their value, which is typically done using financial statements and/or appraisals. From there, the combined value of all of your assets is used to estimate the total value of your estate.

4. Notifying & Paying Your Creditors: To ensure all of your outstanding debts are paid before your assets are distributed, the executor must notify all of your creditors of your death. In most states, any unknown creditors can be notified by publishing a death notice with your local newspaper.

Creditors typically have a limited period of time—usually one year—after being notified to make claims against your estate. The executor can challenge any creditor claims he or she considers invalid, and in turn, the creditor can petition the court to rule on whether the claim must be paid.

From there, valid creditor claims are then paid. The executor will use your estate funds to pay all of your final bills, including any outstanding medical and funeral expenses.

5. Filing & Paying Your Taxes: In addition to paying all of your outstanding private debts, the executor is also responsible for filing and paying any outstanding taxes you owe to the government at the time of death. This includes personal income and capital-gains taxes, as well as state and federal estate taxes, if your estate is valuable enough to qualify. 

That said, the federal estate tax exemption is currently set at $11.7 million for individuals and $23.4 million for married couples, so most families won’t have to worry about estate taxes. And for those who do exceed that threshold, there are several strategies you can use to reduce the size of your estate to avoid these taxes.

Any taxes due are paid from estate funds. In some cases, this may require liquidating assets to raise the needed cash. As your Personal Family Lawyer®, we will not only support you during your lifetime to implement tax-saving strategies to minimize your tax bill, but we will also work with your loved ones following your death in the same capacity to ensure the wealth and legacy you’ve built provides the maximum benefit to those you leave behind.

6. Distribution Of Your Remaining Assets: Once the court confirms all of your debts and taxes have been paid—which typically requires the executor to file an accounting of all transactions he or she engaged in during the probate process—the executor can petition the court for authorization to distribute the remaining assets in your estate to the beneficiaries named in your will, or according to state intestate succession laws, if you didn’t have a will.

Once all assets have been distributed, the executor must file a petition with the court to close probate. If all creditors and taxes have been paid, your assets have been distributed, and there are no other outstanding issues to be addressed, the court will issue an order formally closing the estate and terminating the executor’s appointment.

Keep Your Family Out Of Court & Out Of Conflict

As your Personal Family Lawyer® firm, one of our primary goals when creating your estate plan is to keep your family out of court and out of conflict no matter what happens to you. Yet, as you can see, if your family has to go through probate, your estate plan falls woefully short of that goal, leaving those you love most stuck in an unnecessary, expensive, time-consuming, and public court process.

Fortunately, it’s easy for you to spare your family the burden of probate with proactive planning. Next week, we’ll look at the ways you can do just that in the second part of this series. Until then, if you haven’t put an estate plan in place or have one that would force your family to go through probate, work with us, your Personal Family Lawyer® for a Family Wealth Planning Session. 
Next week, in part two, we’ll discuss the estate planning strategies that you can use to avoid the need for your loved ones to go through probate.

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’ve ever had clients who were more trouble than they were worth, you know how stressful such toxic relationships can be. Yet, it can be difficult to drop a client, especially if your business is just getting off the ground or cash is tight. That said, when dealing with certain problem clients, sometimes the best thing you can do is end the relationship.

Keep in mind, not every client is actually worth working with. In the worst cases, you’d be better off having never done business with some clients at all. With this in mind, if you’ve experienced one or more of the following issues with your clients, that’s a serious red flag that you should seriously consider letting them go.

1. Consistently Late Payments

In most instances, having a client make one or two late payments is a simple oversight, rather than a blatant attempt to avoid paying you. In such situations, a quick email or phone call should be enough to resolve the issue.

But if failing to pay on time becomes more than the occasional slip-up, you should consider ending the relationship. Just think about what would happen if you paid your team a few weeks, or months, late. They’d probably quit—and with good reason.

One way to avoid late-payment issues is to include specific terms in your sales agreements outlining your payment schedule and detailing penalties and/or other methods of recourse for delayed payments. Or you might want to require clients to pay upfront or put down a deposit before starting work. No matter what you choose, you must require ALL clients to sign a sales agreement, including specific terms for payment, before you do any work.

As your Family Business Lawyer™, we can assist you in creating solid agreements to help ensure that late payments never become anything more than a minor oversight.

2. Getting Paid Too Little

It’s absolutely crucial to get the appropriate compensation for your work. Yet far too many business owners have an unhealthy relationship with money. This can lead you to undervalue your own time, energy, and attention when it comes to making money. As a result, you may feel uncomfortable, or even guilty, for charging clients the rates you actually deserve.

Much of this “money dysmorphia” can be traced back to ingrained fears and beliefs that have negatively conditioned your views about the role that money plays in your life. If you don’t face these false beliefs, it can wreck your health, business, and relationships—and this is particularly true with your client relationships.

By appropriately valuing your work, you project confidence in both your business and yourself, which clients will respect. Not only that, but keeping even a few low-paying clients can not only impact your bottom line, it can also wreak havoc on your self-esteem. This can cause your passion to dwindle, your quality of work to suffer, and eventually manifest in professional and personal burnout.

As your Family Business Lawyer® firm, we have been specially trained to help you develop a healthy relationship with money. Using the highly successful Money Map to Freedom program, we’ll show you how you can take back your non-renewable resources of time, energy, and attention and create all the money you need to live a life of true freedom—a life in which you’ll never feel uncomfortable asking clients to pay you what you’re truly worth.  

3. Scope Creep

You’ve undoubtedly had clients who want you to go above and beyond the amount of work outlined in your agreement. At first, they might ask for small changes every now and then. But before you know it, you’re doing all kinds of extra work on every one of their projects, which is not only unfair to you, but to all of your other clients.

You should seriously reconsider your relationship with such clients—but don’t break things off right away. Clients who ask you to do extra work aren’t always bad actors. For one, if you set a precedent that you’re willing to do more work than you’re getting paid for and never say anything, what reason do they have to stop? They’re getting an incredible bargain!

Recognize your clients’ need for additional work, and ask them to pay for it. If you’ve ever done any remodeling to your house and decided to add anything on to your build, you know all about “change orders,” and if you aren’t using them yourself when scope creeps in your own business, you should start now. In the end, if you end the relationship without ever asking for more money, you could needlessly lose a loyal client, who would be more than happy to pay you whatever you request. Of course, if they’re not willing to pay for the extra work—or at least stick to what’s in the agreement—it’s time to end things.    

Establish Healthy Relationships With Your Clients

While it can be stressful to sever ties with problem clients, as with ending any dysfunctional relationship, you’ll be better off in the long run by ending things—and the sooner the better. You can always find new clients, but you can never recover the time, energy, and attention wasted by staying with a lousy client longer than you should have.

As your Family Business Lawyer™, we will support you when dealing with dysfunctional business relationships. Whether it’s creating airtight sales agreements, assisting you in overcoming your subconscious hang-ups over money, or helping convince late-paying clients to pay you what they’ve agreed upon, you can count on us to have your back. Schedule a visit with 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. 

Over just the last two years, we’ve seen historic levels of damage caused by natural disasters in the U.S. From blizzards in Texas and wildfires in California to hurricanes in Louisiana and tornados in the Midwest, few regions of the country are immune to such catastrophes. And based on the latest data from the United Nations World Meteorological Organization (WMO), things are only going to get worse.

The WMO found that climate change has helped drive a five-fold increase in the number of weather-related disasters in the last 50 years, and these calamities are getting more severe each year. As a result of climate change, weather records are being broken all the time, turning previously impossible events into deadly realities.

Despite this threat, a majority of homeowners lack the insurance coverage needed to protect their property and possessions from such calamities. Roughly 64% of homeowners don’t have enough insurance, according to a 2020 report from CoreLogic, the nation’s largest source of property and housing data. One major factor contributing to this lack of coverage is the mistaken belief that homeowners insurance offers adequate protection from natural disasters.

In truth, however, much of the damage caused by natural disasters is not covered by a standard homeowners policy. To fully protect your home and other property, you often need to purchase a separate policy or endorsement that covers specific types of natural disasters. To help you get the proper coverage, here we’ve highlighted the various types of insurance available and explained what these policies typically will—and won’t—cover.

Wildfires

Although homeowners insurance typically doesn’t pay for damage caused by natural disasters, most policies do cover fire damage, including wildfires like the recent ones that have devastated the West. Generally, the only instances of fire damage a homeowners policy won’t cover are fires caused by arson or when fire destroys a home that’s been vacant for at least 30 days when the fire occurred.

That said, not all homeowners policies are created equal, so you should review your policy to make certain that it includes enough coverage to do three things: replace your home’s structure, replace your belongings, and cover your living expenses while your home is being repaired, known as “loss-of-use” coverage. 

What’s more, in certain areas that are extremely high-risk for wildfires, it can be quite difficult to find a private company to insure your home. In such cases, you should look into state-sponsored fire insurance, such as California’s FAIR Plan.

Earthquakes

Unlike fires, earthquakes are typically not covered by homeowners policies. To protect your home against earthquakes, you will need a freestanding earthquake insurance policy. And contrary to popular belief, Californians aren’t the only ones who should have such coverage.

Most parts of the U.S. are at some risk for earthquakes. In fact, the U.S. Geological Survey found that between 1975 to 1995, earthquakes occurred in every state except Florida, Iowa, North Dakota, and Wisconsin. To gauge the risk in your region, consult with the Federal Emergency Management Agency’s (FEMA) earthquake hazard maps.

While earthquake insurance is available just about everywhere, policies in high-risk areas typically come with high deductibles, ranging from 10% to 15% of a home’s total value. Additionally, though earthquake insurance covers damage directly caused by the quake, some related damage, such as that caused by flooding, will likely not be covered. Carefully review your policy to see what’s included—and what’s not.

Floods

Though homeowners insurance generally covers flood damage caused by faulty infrastructure like leaky or broken pipes, nearly all policies exclude flood damage caused by natural events like heavy rain, overflowing rivers, and hurricanes. To protect your property and possessions from these events, you’ll need stand-alone flood insurance.

The threat from flooding is so widespread, Congress created the National Flood Insurance Program (NFIP) in 1968, which allows homeowners in flood-prone areas to purchase flood insurance backed by the federal government. In some coastal regions, especially where hurricanes are prevalent, you might even be required by law to have flood insurance for your home. To determine the risk for your property, consult FEMA’s Flood Maps.

Even if you live in a location where flood insurance isn’t required, you may want to consider buying it anyway. That’s because 90% of all natural disasters include some form of flooding, and more than 20% of flood-damage claims come from properties outside high-risk flood zones. Given how commonplace flood damage can be, you should carefully consider whether or not such coverage is warranted in your area.

Hurricanes & Tornadoes

Most homeowners policies do provide coverage for wind-related damage. However, whether or not a policy covers such claims often depends on the type of storm that caused the damage. For example, wind damage from tornadoes and even some tropical storms is typically covered, while wind damage from hurricanes generally requires a separate windstorm policy, or in some cases, a hurricane rider.

Because damage from hurricanes is often measured in the billions, windstorm policies usually have high deductibles, and they are frequently based on a percentage of your home’s value, instead of a fixed dollar amount. Some policies also come with a cap on coverage, so be sure to review exactly what type and amount of coverage your policy offers.

Of course, high winds aren’t the only threat posed by hurricanes. These tropical systems often cause severe flooding, which is typically the storm’s most damaging element. But as mentioned earlier, whether it’s caused by a hurricane or a tornado, flooding is generally not covered by homeowners insurance. For flood protection, you’ll need to purchase a separate flood insurance policy through the NFIP.

Be Ready To Go: Pack A Go-Bag

Beyond having the right insurance, if your family is forced to evacuate your home in the event of a natural disaster, you’ll need important documents and supplies on-hand to recover in the wake of the catastrophe. We recommend you take a cue from the U.S. military, which requires its members to always have a “go-bag” ready and packed with the essential items needed to survive for at least three days following a disaster or other emergency.

In addition to clothes, toiletries, medications, and food, your go-bag should include copies of your passport, birth certificate, driver’s license, state ID card, and/or other essential identification. Other documents to pack include the deed to your home if you have one on-hand, copies of your insurance policies, the original copy of your will (if your lawyer isn’t already storing it for you in a fireproof safe), vehicle titles/registration, and a recent family photo with faces clearly visible for easy identification.

While all of your estate planning documents should be included in your go-bag, having your medical power of attorney and living will readily accessible is especially critical for medical emergencies. Without these documents, doctors and other medical professionals won’t know your wishes for treatment or which of your loved ones should help them make decisions in the event of your incapacity from illness or injury, which is all the more likely during a disaster scenario.

To make everything as portable as possible, download your estate plan and other important documents to a flash drive you can carry in your go-bag, and upload additional copies to the cloud.

Finally, make sure your family knows about your go-bag and estate planning documents—as well as how to find them. Even if you have all of the necessary legal documents in place, they won’t do you any good if your loved ones don’t know about them or can’t quickly locate them during an emergency. You might even want to keep your go-bag near your home’s primary exit, so you or someone else can grab it on the way out the door.

Preserving Your Family’s Most Precious Mementos

Obviously, not all of your family’s belongings can be replaced, so you should take additional precautions to safeguard your most precious sentimental items: photo albums, home videos, old letters, family histories, and treasured cards from the past. Since you won’t have the time or space to pack these items in your go-bag, we recommend you make digital copies of these keepsakes and store them in the cloud.

As your Personal Family Lawyer®, we are keenly aware of the priceless value these items represent, and we believe safely storing your sentimentals online is so important we offer this as a service to all of our clients. Be sure to ask us how we can help you preserve your family’s most precious mementos.

Protect Your Home & Family Today

To make certain that you have the proper insurance and other estate planning documents in place to protect your home, family, and belongings from the ever-increasing threat posed by natural disasters, consult with us, your Personal Family Lawyer®. We’ll help you evaluate the specific risks for your area, assess the value of your home and other assets, and support you to obtain the proper insurance and estate planning vehicles to fully safeguard you and your loved ones from every possible emergency. Call 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.

One of the main reasons for setting up your business as a corporation or limited liability company (LLC) is to shield your personal assets from debts and other liabilities incurred by your business. Corporations and LLCs exist as separate legal entities from their owners, which allows the business itself to acquire assets, enter into contracts, and take on debt. 

In turn, if your business is unable to pay its debts, creditors are typically allowed to only go after your company’s assets, not your personal assets. However, there are several circumstances in which business owners can be held personally liable, and you should understand how these potential pitfalls can leave you vulnerable.

In some cases, business owners simply make innocent mistakes when running their business, and these errors leave them personally liable. Other times, when business owners take certain improper actions, such as using the corporation to promote fraud, failing to observe corporate formalities, or even just inadvertently commingling business and personal assets, a court can hold the owners personally liable for the debts and liabilities of the business. When this happens, it’s known as “piercing the corporate veil.”

If you’re thinking of incorporating your business, or if you already own a corporation or LLC, you should become familiar with the following scenarios that can leave you personally on the hook for your business debts.

Commingling Business & Personal Finances
The biggest risk to your business (and your personal assets) when running a small business is commingling your personal finances with those of your business. It can be something as benign as using a company bank account to pay your mortgage or depositing a check made out to your business into your personal account. If this is happening to you now—and we bet it is, because it happens to almost every business owner we serve—there’s no shame in it, but there could be major risk to you.

Commingling your business and personal finances means that if you are ever in a lawsuit related to your business and a judgment is obtained against your business, a court can decide that you’re using your company as an extension of yourself, and therefore you should be held personally liable for its debts. In that case, everything you’ve read or believed about your business entity protecting your personal assets just goes right out the window, and you lose all the protections of having that entity. On top of that, commingling business and personal finances means you will not be able to make wise strategic decisions based on the financials of your business, and that’s actually your biggest risk, bar none.

To prevent this kind of thing, when you work with us, as your Family Business Lawyer™, we regularly review your company’s financials with you and your accountant to ensure you’re keeping all of your finances separate in the exact way required to protect your personal assets.

Making Personal Guarantees

If you cosign a business loan or personally guarantee a financial obligation for your corporation or LLC, you share responsibility with the company for paying it back. And if your business defaults on a loan you’ve personally guaranteed, your company’s creditors can come after your personal assets, even if you have a business entity in place.

Using Personal Assets As Collateral
Since many small business owners don’t have a lot of startup capital, you may be asked to use your personal property, such as your home or other assets, as collateral on a business loan. If so, the personal assets you pledged as collateral can be seized and sold off to pay your company’s creditors in the event your company fails to pay back the loan.

Committing Fraudulent Actions
Of course, if you make fraudulent representations or omissions to secure a business loan, you can be held personally liable for those debts. Similarly, if your corporation or LLC was created to further a fraudulent purpose or you made business deals knowing the company wasn’t able to pay for them, you can be convicted of fraud, thereby voiding your personal liability protection.

Failing To Follow Corporate Formalities
Corporations and LLCs are legally required to follow certain administrative formalities and observe certain rules. If you fail to treat your business like a corporate entity by not abiding by these formalities—such as keeping detailed records (minutes) of meetings where important business decisions are made or adopting corporate bylaws—the court can rule your company is nothing but a shell and remove the veil of protection shielding your personal assets.

In fact, maintaining corporate formalities is among the most important actions needed to keep you safe from business creditors, and most small business owners simply don’t do this because it’s the last thing on their priority list. As your Family Business Lawyer™, we will put you top of our priority list, with our corporate  maintenance packages and systems that are specifically designed to help you abide by these formalities and keep your personal assets secure.Keep Your Veil Intact
In light of all of the complexities surrounding corporations and LLCs, you should meet with us, your Family Business Lawyer™ to make sure you’re not opening yourself up to be personally liable for your business debts. We will not only help you decide which business entity structure is best suited for your operation, we’ll also assist you in properly setting up and maintaining the entity, so your personal assets are always well protected. Call 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.