If you use Facebook to share, track, and report on important life events, it can provide an  intimate snapshot of your life, and it can also serve as a key part of your legacy—and one you’ll likely want to protect following your death. With this in mind, as with any other digital asset you own, you should include your Facebook profile as part of your estate plan.

While you’ll want to include your Facebook profile in your plan’s inventory of digital assets, Facebook also offers a special function, known as a “legacy contact,” for managing your profile after death. Using a legacy contact, you can choose someone to look after your account and control the activities of your account once you’ve passed away.

If you are interested in preserving your digital legacy using Facebook’s legacy contact, here we’ll break down the basics of how this function works. To learn more about protecting and passing on the rest of your digital assets, meet with us, as your Personal Family Lawyer®, to discuss the different options available.

Managing Your Digital Afterlife

At the time of your death, Facebook allows your account to be “memorialized,” so friends and family can gather and share memories of you and your life. To have your account memorialized, Facebook requires proof of the account holder’s death using a special request form and evidence of death, such as an obituary. Facebook accounts can be memorialized regardless of whether or not a legacy contact has been selected.

Once your account has been memorialized, only confirmed friends can see your profile or find it in a search. Your memorialized profile will no longer appear in friend suggestions, nor will anyone receive birthday updates or other account notifications.

When your account is memorialized, the word “Remembering” will be added next to your profile name. Depending on your privacy settings, friends and family members can post content and share memories on your timeline. A memorialized account is locked, so its original content cannot be altered or deleted, even if someone has your password information.

What Your Legacy Contact Can Do

If you’ve designated a legacy contact, once your account has been memorialized, that individual will be able to manage your Facebook account based on the permissions you’ve granted him or her. As with any other person you select to manage your assets after your death, you’ll want to carefully consider who to name as your legacy contact, as this individual will have control over your memorialized Facebook account and therefore also control your legacy to some extent.

Your Facebook legacy contact can perform several functions, including:

• Write a pinned post for your profile to share a final message on your behalf or provide information about your memorial service.
• View posts, even if you had set your privacy to Only Me.
• Decide who can see and who can post tributes on your memorialized profile.
• Delete tribute posts.
• Change who can see posts that you’re tagged in.
• Remove tags of you that someone else has posted.
• Respond to new friend requests.
• Update your profile picture and cover photo.
• Request the removal of your account.
• Download a copy of what you’ve shared on Facebook, if you have this feature turned on.

What Your Legacy Contact Cannot Do

However, it’s important to point out that your legacy contact doesn’t have unlimited control over your account. To this end, your legacy contact cannot take the following actions:

• Log into your account as you.
• Read your direct messages.
• Remove any of your friends or make new friend requests.

Alternatively, if you’re not interested in having your Facebook account continue after your death, you can choose to have your account permanently deleted upon your passing. For instructions on choosing your legacy contact and to learn more about your options for managing your Facebook account after death, check out Facebook’s Help Center FAQs.

Preserve Your Digital Assets
Since social media and other digital assets play such a big role in our lives, you should work with us, as your Personal Family Lawyer®, to ensure that all of your digital property is protected by your estate plan. With our support, we will inventory your digital assets and include instructions on how you want them handled in your planning documents, so they can pass seamlessly to your loved ones upon your death.

What’s more, we can also help you name a digital executor, who will be in charge of managing your digital assets upon your passing, so that those assets can bring the most benefit to your heirs for generations to come. Contact us today to learn more.

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

Intellectual Property (IP) is an integral part of many of today’s companies’ overall value. Indeed, studies show that up to 80% of the value of a typical business is IP, and as of 2020, more than 84%—$19 trillion—of the S&P 500’s market cap is represented by intangible assets like IP.

However, even the biggest corporations aren’t properly valuing or protecting their most valuable intangible assets.

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

Seeing that even the biggest corporations aren’t properly protecting and leveraging their IP, we’re guessing that you probably aren’t either. This series is aimed at serving as a wake-up call for you to consider whether your business has IP that’s worth protecting and discussing the best ways to go about doing that.

Last week, in part one of this series, we discussed some of the strategies you can use to safeguard, value, and generate income from your IP assets. Namely, these strategies involved identifying, documenting, and registering these assets with the proper trademarks, copyrights, and patent protections, as well as using legal agreements to ensure that you fully own—and can financially benefit from—all of the intangible capital your company creates.

Here, in part two, we’re going to look at what can happen when you fail to secure the proper protections for your IP. In addition to addressing the disastrous results that can occur from not properly protecting your IP during your lifetime, we’re also going to discuss how you can further safeguard and leverage your IP, so that your loved ones can continue to benefit from these most valuable assets following your death or incapacity.

To demonstrate the crippling costs that can result from not properly safeguarding your company’s IP, read the following true story about how one up-and-coming blogger’s decision to go without a trademark cost her millions of dollars in potential revenue, stunted her ability to expand her business, and greatly reduced her ability to leave an inheritance for her heirs.

While the following events are entirely true, the names have been changed for privacy protection.

The Blogger Who Lost Her Own Name

Julie was a food blogger, who’d been in business for about 11 years, and she was making significant revenue from the blog—more than $300,000 in one quarter alone. She called John, an intellectual property lawyer, looking to get her name trademarked and asked him how much that would cost. John told her he charged a flat fee of $1,000 to get the trademark registered, but Julie thought that was too much money, and said, “No thanks,” even though John estimated that she probably made $1,000 from advertising just in the short time they had talked on the phone.

About six months later, Julie called John in a panic, telling him that she needed a trademark done that very day. When he asked her why, she told him that a big food company was selling frozen foods using her name. The company had changed her name just a little bit in order to get the trademark, and they now owned the trademark to her own name.

What’s more, the food company not only filed for a trademark using her name in the class of goods that included frozen foods, but they also filed for a trademark that allowed them to sell the packages online. It turns out that Julie wanted to start selling goods through her website, but now she couldn’t do that because the company had already registered a trademark using her name in the online retail class of goods.

Ultimately, Julie made two mistakes. First, she failed to trademark her name. The food company registered a trademark for the name she wanted, and even though she technically had a common-law trademark, in order for her to go after them for infringement, she’d have to take them to court. John’s firm charged $650 per hour to enter into litigation, and the case would likely take several years. In the end, not paying the $1,000 to get her name trademarked to begin with could now be a multi-six figure investment, if she decided to try to claim prior use of the mark.

Second, not only did Julie fail to protect the IP she had at the moment, she also didn’t think down the road to anticipate how she might expand her business by selling goods on her website. So now Julie is stuck with just the blog, which brings in decent income, but she’s unable to expand her business into goods. Finally, if she ever decides to sell the company, she doesn’t even own the rights to her blog’s own name, so that could make the business unsellable, leaving her without intellectual property rights to pass on to her family outside of the blog.

Don’t let something like this happen to you or your business. While registering a trademark or copyright might cost you time and money, failing to register your brand can ultimately cost you exponentially more in legal fees and the lost value of your assets, especially if you end up in court, trying to fight for what you thought you owned.

Protecting Your IP Through Estate Planning

In addition to protecting your intellectual property during your lifetime, make sure your estate plan covers your intellectual property as well, so your heirs are able to continue to use your intangible assets in the event of your potential incapacity or upon your eventual death. To prevent your family from losing out on your most valuable assets, as well as ensuring they don’t get caught up in long, costly court battles over the ownership of these assets, it’s imperative that you invest the time and money to protect these assets now.

And just like any tangible asset you’d want to protect and pass on to your loved ones, you can achieve protection for your IP through your estate plan.

When it comes to protecting your IP in your estate plan, the first step is to review the operating agreement or bylaws of your business entity. And if you don’t have an operating agreement or bylaws, now is the time to put these essential legal agreements in place.

Who Gets What: Distributing Your IP Assets
When reviewing your governing documents, you’ll want to ensure that they properly address the ownership rights to your company’s IP upon an owner’s death or incapacity, as well as upon the sale or dissolution of the business. If your business has multiple owners, you’ll ultimately want to make certain that the governing documents equitably distribute the ownership rights to the IP between the owners.

As with tangible assets owned by the business, there are numerous different ways you can divide the ownership rights to the IP among its owners. To ensure these assets are fairly distributed and this distribution is properly spelled out in your governing documents, you should consult with an experienced business attorney like us, who has experience in both intellectual property and estate planning.

Once you’ve ensured the proper distribution of your IP assets through your company’s governing documents, you should use your estate plan to protect and pass on the ownership rights to your share of the IP. And at the heart of any estate plan that includes a business is a comprehensive business succession plan.

Succession Planning

As with the failure to properly protect their IP, far too few business owners take the time to prepare for their company’s continued success following their retirement, death, or incapacity. However, creating a comprehensive succession plan as part of your overall estate plan, is just as crucial as any other planning you do for your business, if not more so.

Leveraging Your IP For the Benefit of Future Generations

After you’ve decided how you want your business to be run in your absence and formally spelled this out in your succession plan, you’ll want to consider which estate planning vehicles are best suited for protecting and transferring ownership of your IP rights to your heirs. In most cases, the best planning vehicle for this purpose is going to be a trust, either a revocable living trust, an irrevocable trust, or a combination of the two.

Using a trust, you can spell out exactly how you’d like your IP assets distributed to your beneficiaries. In addition to considering the best way to distribute your IP to your beneficiaries, you’ll also want to consider which of your loved ones is best suited for owning and managing your intangible assets, as well as how you’d like those assets to be used for the benefit of your heirs.

For example, trademarks, copyrights, and patents, can be leveraged to create revenue in a number of different ways. Your beneficiaries could simply sell any of your IP assets outright, or they could use the IP as the collateral to take out a loan. But they could also decide to license the use of your IP to others, which can generate an ongoing revenue stream that can last indefinitely.

Protect and Leverage the Value of Your IP Assets

There are countless opportunities for leveraging your IP assets, which is one of the reasons such intangible property is so valuable. To this end, it’s vital that you consult with us to not only protect your intangible capital, but to also ensure that it provides the maximum benefit for your heirs following your death. With our guidance and support, we can ensure that your loved ones can benefit from these creations for generations to come.

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.

Within the past year, a combination of new legislation and the recent change of leadership in the White House and Congress stands to dramatically increase the income taxes your loved ones will have to pay on inherited retirement accounts as well as increasing the income taxes you owe on your taxable investments. However, purchasing life insurance may offer you the opportunity to minimize the effect of these developments.

To this end, if you hold assets in a retirement account, you need to review your financial plan and estate plan as soon as possible to determine if investing in life insurance or some other strategy may offer tax-saving benefits for you and your family. To help you with this process, here we’ll discuss how these new developments might affect the taxes owed by you and your heirs, and how investing in life insurance may help offset the tax impact of these new changes.

The SECURE Act

At the start of 2020, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect, and the new law effectively put an end to the so-called “stretch IRA.” Under prior law, beneficiaries of your retirement account could choose to stretch out distributions of an inherited retirement account over their own life expectancy to minimize the income taxes owed on those distributions.

For example, an 18-year-old beneficiary expected to live an additional 65 years could inherit an IRA and stretch out the distributions for 65 years, paying income tax on just the portion withdrawn each year. In that case, the income tax law would encourage the child not to withdraw and spend the inherited assets all at once.

Under the new law, however, most designated beneficiaries of inherited IRAs and similar tax-deferred qualified retirement accounts are now required to withdraw all of the assets from the inherited account—and pay income taxes on those withdrawals—within 10 years of the account owner’s death. Those who fail to withdraw funds within the 10-year window face a 50% tax penalty on the assets remaining in the account.

But this is just the first development that stands to affect the amount of taxes your heirs might face in the near future on inherited investments.

Democrats Take Control

As we highlighted in a previous article, the recent election of Joe Biden as President and subsequent Democratic takeover of the Senate will likely result in the passage of new tax legislation that could have a significant impact on your family’s financial and estate planning considerations.

Specifically, it’s likely that within the next two years Democrats will pass legislation aimed at eliminating many of the tax cuts enacted through the 2017 Tax Cuts and Jobs Act. As part of this legislation, we’re expected to see significantly lower federal estate tax exemptions, the elimination of the step-up in cost basis on inherited assets, as well as an increase in the top personal income and capital-gains tax rates.

One way you may be able to minimize the new taxes on both your tax-deferred retirement accounts and taxable investments is by investing in cash-value life insurance. Let’s break down exactly what this strategy might look like.

The New Role of Life Insurance In Your Estate and Financial Planning

Given the new distribution requirements for inherited IRAs, you should consider whether it makes sense to withdraw funds from your retirement account now, pay the tax, and invest the remainder in cash-value life insurance. From there, you can access the accumulated cash-surrender value of the life insurance policy income-tax free during your lifetime via tax-free withdrawals and/or loans. And upon your death, the death benefit of your life insurance policy would be income-tax free for your heirs.

By annually investing what you would otherwise put into tax-deferred retirement accounts into a cash-value life insurance contract, or by taking taxable withdrawals from your tax-deferred retirement accounts over time and reinvesting them in cash-value life insurance, you can effectively move these funds into a tax-free, rather than tax-deferred, investment vehicle.

This strategy could not only minimize the income taxes you pay over your lifetime, but it could also significantly reduce the tax bill imposed on your designated beneficiaries after your death, since life insurance proceeds are income-tax free.

Additionally, by investing a portion of your investable assets in cash-value life insurance, you can offset the effects of the proposed loss of income tax basis step-up upon your death, which we’re likely to see enacted through Democrat-backed legislation. What’s more, this strategy would also minimize your current income taxes on what otherwise would have been taxable income from your investments, as growth on investments inside a life insurance policy are not subject to income tax, including any capital gains.

Finally, if you stand to be affected by the proposed decrease of the federal estate-tax exemption, which is currently set at $11.7 million, by placing the life insurance policy inside an irrevocable life insurance trust, you can remove the death benefit paid out to your beneficiaries from your taxable estate. In doing so, you would still be able to access the cash value of the insurance policy during your lifetime, either via a so-called “spousal access trust,” if you are married, or via a traditional irrevocable life insurance trust, if you are not married.

Rethink Your Planning

Although the SECURE Act and the proposed new legislation stands to have an adverse effect on the tax consequences for your retirement and estate planning, investing in life insurance may offer you a valuable tax-saving opportunity. That said, you can only take advantage of this opportunity if you plan for it.

If you fail to revise your plan to address the SECURE Act’s new requirements and/or the proposed legislation that’s likely to be passed by the Democratic administration, you and your family could face a significantly higher tax bill. To prevent this from happening, schedule a Family Wealth Planning Session™ or an existing estate-plan review today.

With us as your Personal Family Lawyer®, we’ll work with you and your financial advisor to analyze all of the ways your retirement accounts might be impacted by the SECURE Act and the new proposed legislation and come up with the most effective planning strategies for passing your assets to your loved ones in the most tax-advantaged manner possible, while ensuring your current tax liabilities are similarly minimized. To learn more, contact us right away.

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 Liz to call you at a time you choose.

Over the past two decades, the rise of smartphones, cloud computing, social media, and other internet-based technology has transformed how today’s largest companies are valued. In 2020, tech firms like Amazon, Facebook, and Apple dominated the list of the S&P 500’s top 10 largest companies by market capitalization, whereas back in 2000, that list was topped by businesses like General Electric, ExxonMobil, and Wal-Mart.

The reason for this shift? According to Aon, a leading global professional services firm, the shift is the result of intangible assets like intellectual property replacing more tangible assets as the primary source of value for today’s biggest corporations. In fact, according to Aon’s The One Brief, an online business news website, today more than 84%—$19 trillion—of the S&P 500’s market cap is represented by intangible assets.

However, it’s not just big corporations that own an increasing amount of intellectual property (IP); even the smallest of today’s companies hold a significant amount of IP. Indeed, studies show that up to 80% of the value of a typical business is IP.

Protecting Your Company’s Most Valuable Assets

Although IP is an integral part of many of today’s companies’ overall value, even the biggest corporations aren’t properly valuing or protecting their most valuable assets—and our guess is that you aren’t either.

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

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

One reason business owner’s fail to protect their IP is because unlike more tangible assets like real estate, vehicles, and office equipment, they don’t understand how to value and protect it.

Justin Johanson, a lawyer specializing in intellectual property at Luxor Law, said that for many of his business owner clients, there’s no sense of urgency surrounding their IP assets, which leads them to put off securing the necessary legal protections.

“They overlook their IP because they don’t see the value of it,” says Justin. “They don’t see the urgency to protect their business name and other intangible assets.”

Often, not recognizing your IP means you may not be paying attention to your business’ most valuable assets until something goes wrong. This might include receiving a cease-and-desist letter after another business claims your name, or a former independent contractor you used to work with begins selling services to your customers in competition with you, or you discover that you don’t actually own the source code of a website you paid to have created.

If you haven’t audited your IP recently, let this article be a wake-up call for you to consider whether you do have IP in your business that could be worth protecting.

Identifying and Registering Your IP

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

If you have not reviewed your IP and its value recently, call us and ask for an IP audit. In our IP audit, we will review your business model, the IP you have right now, the current value of that IP to your business, how your IP can increase in value, and finally, what would happen to your IP in the event of your incapacity or death.

Sadly, the lack of understanding among many small business owners regarding the value of their IP assets, coupled with their failure to take the steps to protect it through copyrights, patents, and trademarks, as well as through estate planning can be extremely costly. Let us help you not only avoid violations or surprises related to your IP, but proactively consider how you can enhance the value of your IP—and your business—today.

Next week, in part two of this series, we’ll look at how one business owner’s failure to secure a trademark for her business’ name ultimately cost her millions of dollars in potential revenue, stunted her ability to expand her business, and greatly reduced her ability to leave an inheritance for her heirs. 

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.

Although you likely won’t need to have an entirely new estate plan prepared for you, upon relocating to another state, you should definitely have your existing plan reviewed by an estate planning lawyer who is familiar with your new home state’s laws. Each state has its own laws governing estate planning, and those laws can differ significantly from one location to another.

Given this, you’ll want to make sure your planning documents all comply with the new state’s laws, and the terms of those documents still work as intended. Here, we’ll discuss how differing state laws can affect common planning documents and the steps you might want to take to ensure your documents are properly updated.

Last Will and Testament
The good news is, most states will accept a will that was executed properly under another state’s laws. However, there could be differences in the new state’s laws that make certain provisions in your will invalid. Here are a few of the things you should pay the most attention to in your will when moving:

Your executor: Consider whether or not the executor or administrator you’ve chosen will be able to serve in that role in your new location. Every state will allow an out-of-state executor to serve, but some states have special requirements that those executors must meet, such as requiring them to post a bond before serving. Other states require non-resident executors to appoint an agent who lives within the state to accept legal documents on behalf of the estate.

Marital property: If you are married, give special consideration to how your new state treats marital property. While a common-law state might treat the property you own in your name alone as yours, community-property states treat all of your property as owned jointly with your spouse. If your new state treats marital property differently, you might need to draft a new will to ensure your wishes are honored.

Interested witnesses: Another important role under your will to consider when moving to a new state is an interested witness. An interested witness is someone who was a witness to your will who also receives a gift from your will. Some states allow interested witnesses to receive the gift, while other states do not allow such gifts. And still other states allow such gifts provided the witness is a family member.

Revocable Living Trust

A valid revocable living trust from one state should continue to be valid in your new state. However, you need to make certain that you transfer any new assets or property you acquire, such as your new home, to your trust, so that those assets can avoid the need to go through probate before being distributed to your heirs upon your death.

Power of Attorney
A valid power of attorney document, such as a durable power of attorney, medical power of attorney, or financial power of attorney, created in one state may be valid in your new state. However, you shouldn’t just assume it will be accepted, and you should check with a lawyer like us to make certain your document will work 100% as intended.

What’s more, in some cases, banks, financial institutions, and healthcare facilities in your new state may not accept a power of attorney document if it’s unfamiliar to them, which is another reason to have these documents reviewed by a professional. Finally, simply as a practical matter, it may be a good idea to have your power of attorney agent live in the same state you do, so keep that in mind as well.

Advance Directive/ Living Will

When it comes to advance directives, such as a living will and medical power of attorney, you’ll find that most states will accept documents that were created in other states, but this isn’t guaranteed. Some states, for example, don’t even have any laws governing these matters, so healthcare professionals may be hesitant to accept out-of-state documents.

Furthermore, the provisions, forms, and language used in advance directives can vary widely between states. For example, some states combine a medical power of attorney with a living will, so that you get to name the person in charge of making your medical decisions in the event of your incapacity and spell out your specific wishes for care all in one document. Yet, in other states the documents are separate. For these reasons, you should enlist the help of a lawyer to make sure your advance directives will be honored in your new locale.

While you are reviewing your directives for your new state, you should also review them to ensure they are clear on your wishes regarding how you should be given nutrition and hydration if hospitalized. Many directives aren’t specific enough in this area, and this is exactly what led to the lengthy battle over Terry Schiavo’s life. In addition, check to see if you want to add or change any provisions to account for the current realities of COVID-19.

Beneficiary Designations
If you have accounts with beneficiary designations, such as 401(k)s, life insurance policies, and payable-on-death bank accounts, these should be valid no matter which state you live in. That said, you should still review these documents when you move to ensure that your address and other personal information is updated.

Keep Your Plan Current
As with other major life events, such as births, deaths, and divorce, moving to a new state is the ideal time to have your plan reviewed by a professional. With us, as your Personal Family Lawyer®, we’ll not only support you in creating the planning documents that are best suited for your situation and asset profile, but we also have systems and processes in place to ensure your documents stay totally updated throughout your lifetime.

Additionally, for parents of minor children, we can also help you create the legal documents for naming both short and long-term guardians, who would care for your kids in the event of your death or incapacity. This is so important, we’ve developed a comprehensive system called the Kids Protection Plan® that guides you step-by-step through the process of creating the legal documents naming these guardians.

You can get the process of naming guardians started right now for free by visiting our user-friendly website: https://kidsprotectionplan.com.

If we have worked with you and you are moving, we are happy to help you find an attorney to review your plan in your new state!

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 Liz to call you at a time you choose.

It’s a popular myth that it’s always best to incorporate your business in a business-friendly state, like Delaware, Wyoming, or Nevada in order to save on taxes, benefit from increased privacy, and possibly have an easier time raising capital. However, for many businesses, incorporating in these states is completely unnecessary—and it may even cost your company in the long run. Let’s break it down here, so you can make the right choice for your next business venture.

Why Some Companies Incorporate Out-of-State

While it’s true that the vast majority of Fortune 500 companies are incorporated in Delaware, that’s because Wall Street underwriters frequently require them to do so. The rules for incorporation in this tiny state make it easier for large public companies with thousands of shareholders to comply with certain securities laws. But unless you have a plan to go public in the future, incorporating in Delaware likely holds little benefits for your business.

Another reason some businesses incorporate in these states is to save on taxes. While Nevada and Delaware do not have state personal or corporate-income taxes, that doesn’t mean your business will avoid state-level taxes entirely. The fact is, if you are a resident of or doing business in a state that has state income taxes and you are operating a pass-through entity, such as an LLC or an S-Corporation, in which the tax profits or losses are passed through to your personal tax return, you must still pay those taxes in the state in which you are a resident, even if you are incorporated elsewhere.

Not to mention, if you incorporate outside of the state where you live or conduct business, you must file as a foreign registrant in the state in which you are living and operating. Such double filings can result in extra filing fees and administrative expenses that make out-of-state incorporation financially unfeasible.

In most cases, you should incorporate your business in your home state or home country, because it’s simpler, easier, and you’re probably going to need to register to do business in your home state anyway, so you can set up your business bank accounts there.

When Incorporating Out-of-State Makes Sense

That said, there are a few instances where it might make sense to set up your business entity in a state (or even country) outside your own—but these are the exception, not the rule. For example, you may want to consider incorporating outside your home state for one of the following five reasons:

1. You live in California, your business is virtual, and you are seriously considering moving out of state to avoid wildfires, draconian independent contractor laws, and sky high state income taxes. In this case, you may want to incorporate outside California.

If this is you, you might want to incorporate in Wyoming, so you can easily leave California and not have a business that is still incorporated in California and subject to California laws and taxes.

Wyoming is very easy to incorporate in, but remember, if you are paid in California and you are the owner of a pass-through business entity, you’ll still be subject to California state tax laws. There are ways around this, but they require the assistance of an experienced business attorney like us, and you should never attempt to set up your entity out of state without seeking the advice of counsel first.

2. You are 100% nomadic (or as some of our friends like to say, “yesmadic”), and you have a choice as to where you are domiciled. In this case, you may want to establish your domicile in one of the states that have no state income tax and make it easy for you to live and work there. Currently, those states include Alaska, South Dakota, Nevada, Florida, and Texas.

While Wyoming is a great place to domicile your company, as it’s very friendly to businesses and easy to incorporate there, it’s not as easy for full-time nomads to establish residency there because you must live in Wyoming to get your drivers’ license, whereas you do not need to do so in South Dakota, Nevada, Florida, or Texas.

3. You are planning to raise venture capital; in which case you are likely going to want to incorporate as a C-Corporation in Delaware for a variety of reasons that you can discuss with us as part of your planning for your capital raise. And if you are seeking to raise venture capital, you are going to need the support of a business lawyer, ideally a lawyer who has worked with companies that have raised venture capital before and done so in your specific industry. Contact us, so we can support you with that, when you are ready.

4. You want the additional asset-protection benefits provided by Wyoming or Nevada state laws. Both Wyoming and Nevada provide an additional layer of asset protection called a “charging order” protection. This protection means that if you are sued personally and a judgment is obtained against you, the judgment creditor cannot take your business interests from you. Instead, the judgment creditor will only get profit distributions, when profit distributions are made, and cannot force those distributions, which can often make it more likely that the judgment creditor will settle for something less than full payment of the judgment.

5. You are not a U.S. citizen. In this case, you can set up a C-Corporation in Delaware or an LLC in Wyoming, depending on your long-term business goals and consultation with your tax strategist.

Don’t get scammed

The myth that it’s always best to incorporate in these states is so prevalent that scam artists have set up entire companies devoted to offering small business owners assistance incorporating out of state—and charging $3,000 to $5,000 for doing so. Even worse, once the unlucky owner realizes their mistake, they are forced to spend even more money paying to dissolve the out-of-state entity and set up a new one in their home state.

Don’t fall prey to such scams. In most cases, for the sake of simplicity, you’ll want to incorporate in your home state or home country. And in the instances when it would make sense to incorporate out of state, you’ll need to seek professional legal, financial, and tax guidance to ensure you do everything properly.

With us, as your Family Business Lawyer™, we can not only support you in choosing the business entity that’s best suited for your operation and location, but we can also help you set up and maintain the entity for the life of your business. Schedule an appointment with us today to get more information.

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.

While the quarantines, shutdowns, and social distancing measures related to the pandemic have been difficult for everyone, the elderly have been particularly hard hit. Since seniors face the most health risks from COVID-19, most of them have been careful to avoid close contact with their family members, and this has left many grandparents unable to visit with their grandchildren for close to a year now.

This loss of in-person connection for such an extended period of time can cause people to feel isolated and lonely, which can eventually lead to mental health issues like depression. At the same time, children who are unable to spend time with their grandparents may experience confusion and anxiety over their lost relationship.

Seeing that the pandemic currently seems to be getting worse, there’s no telling how long it will be before these social distancing restrictions will be lifted. With no end in sight, it’s important for grandparents and grandkids to find ways of staying connected during this period and not miss out on the beneficial effects a close relationship can engender.

With this in mind, here are a few tips for helping seniors maintain a connection with their grandchildren during the pandemic using web-based technology like FaceTime, email, and instant messaging (IM). And though video chats, texts, and IMs will never replace in-person visits, they offer one of the most effective ways of keeping those relationships—and everyone’s spirits—as strong as possible during these dark times.

1. Reading Stories

One way for grandparents to feel more connected with their grandkids is to read stories over video chat or smartphone. Choose a favorite book at the grandchild’s reading level, and take turns reading pages. This can give the grandchild the added benefits of improving reading skills, building their vocabulary, and helping them develop their speaking abilities. By picking a regular time to call and read together each week, it can also give both of them something to look forward to.

2. Playing Games

Even though in-person visits are too risky right now, family game night can still happen. Grandparents and grandkids have many options for online gaming, including even classic board games, such as Scrabble, Monopoly, and Clue. Like their traditional counterparts, online games also help children develop math and vocabulary skills while they are having fun.

3. Emailing, Texting, and Instant Messaging

Texts, emails, and IMs sent to one another on a regular basis can help grandparents stay connected and up-to-date with the latest developments in their grandkids’ lives. To catch up with one another, seniors can talk about what is happening in their lives and ask the grandkids to discuss the latest events in their own lives. When grandchildren use texts and emails, it also helps them practice writing out their thoughts and work on their spelling and grammar.

4. Mailing Letters or Postcards

These days, letter writing almost seems like lost art. But sending personal letters and postcards is a great way for grandparents and grandchildren to connect with one another. Handwritten letters and postcards can also be prized keepsakes that will help grandchildren remember their grandparents long after they are gone. When possible, children should be encouraged to hand-write letters and postcards instead of typing and printing them out. They can also decorate their letters or postcards with drawings and art.

5. Group Video Chats and Phone Calls

Tech-savvy grandparents can use video chat apps like Skype, FaceTime, and Google Duo to visit with the grandkids in a group setting, where everyone can see and interact with one another. Video chats also allow grandparents to see how their grandchildren age over time, which can be extremely rapid during their first few years of life. Even extremely young children like toddlers can participate in video chats, which can help them bond with their senior loved ones, even across vast distances.

And if video chats aren’t something a senior feels comfortable with, a similar experience can be achieved simply by using a cell phone or even a landline set to speaker mode. These video chats and phone calls can be scheduled, so they occur on an ongoing basis, such as every Sunday evening, which gives everyone something to look forward to. Even short, 15 to 20-minute calls made on a regular basis can help grandparents and grandkids feel more connected and less isolated.

For the Love of Your Family

With coronavirus infections and deaths currently surging to record levels, it’s more critical than ever for parents and grandparents to ensure their estate planning is complete and up-to-date, including naming both short and long-term guardians for your minor children. If you’ve yet to name guardians for your kids, you should do so immediately, and you can get this process started right now using our free online resource, known as the Kids Protection Plan®.

In addition to ensuring your kids will be protected and provided for no matter what, the estate planning process itself can offer a unique opportunity to enhance your connection with your children and grandchildren. Communicating clearly about what you want to happen in the event of your death or incapacity (and talking with your kids about what they want) can foster a deep bond and sense of intimacy.

Though such conversations can feel awkward, with us as your Personal Family Lawyer®, we can help guide and support you in having these intimate discussions in an age-and-stage appropriate way with your children. In fact, our clients consistently share that after undergoing our estate planning process, they feel a deeper sense of connection with their children. Schedule an appointment with 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 Liz to call you at a time you choose.

The Consolidated Appropriations Act 2021, which was signed into law on December 27th, 2020, provides another $900 billion in funding for coronavirus relief for individuals and business owners. The new bill serves as an expansion of the 2020 CARES Act, offering additional funding and a number of key changes to both the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program.

Although the rules for the new PPP and EIDL are similar to the original programs, there are some significant differences that you should be aware of as a business owner. The changes include new eligibility requirements, clarification of the tax implications of the legislation, and beneficial changes related to loan forgiveness.

While additional clarification and updates on the new programs are set to be released in the next few weeks, in this two-part series we’ll cover some of the most critical highlights you should know about. Last week, in the first part of the series, we discussed the new loans available under the PPP, and here in part two, we’ll look at the new funding available under the EIDL program.

If you are unfamiliar with the PPP and/or the EIDL, you should first read this post on the original stimulus funding in March 2020, which established the initial rules and funding for these programs.

New $10,000 EIDL Grants

The CARES Act passed in March 2020 included a grant (or advance) of up to $10,000 for business owners. However, the SBA later determined those grants would only cover $1,000 per employee, and many business owners who didn’t get the full $10,000 felt cheated. What’s more, the funds available for the grants ran out before all eligible businesses received them. This new legislation appears to help remedy some of those issues.

The new legislation includes new targeted EIDL grants designed to assist businesses that were hardest hit by the economic impacts of the coronavirus, and Congress has allocated $20 billion for these grants. While these new grants are an extension of the emergency EIDL grants passed under the CARES Act, the eligibility requirements are a bit different than the initial program.

Eligibility Qualifications For the New EIDL Grants

To qualify for the full targeted $10,000 EIDL grant, your business must meet the following three requirements:

• Be located in a low-income community
• Have suffered an economic loss greater than 30%
• Not employ more than 300 employees

Additionally, your business must qualify as an “eligible entity” as defined in the CARES Act: 

• A small business, cooperative, ESOP Tribal concern, with fewer than 500 employees (Note: It’s not clear yet if this requirement will be reduced to 300 employees for new EIDL grant applicants.)
• An individual who operates as a sole proprietorship, with or without employees, or as an independent contractor
• A private non-profit or small agricultural cooperative
• The business must have been in operation by January 31, 2020
• The business must be directly affected by COVID-19

For the purpose of the grants, an economic loss is defined as “the amount by which the gross receipts of the covered entity declined during an 8-week period between March 2, 2020, and December 17, 2021, relative to a comparable 8-week period immediately preceding March 2, 2020, or during 2019.” 

At this point, it’s unclear how the SBA will require those who apply for the grants to document their economic loss, but we’ll update this as more clarifications are issued.

What Qualifies as a Low-Income Community?

In the text of the stimulus act, it uses a definition from the Internal Revenue Code to clarify what would qualify as a low-income community. In Section 45D(e)(1) of the IRS Code of 1986, a low-income community is defined as follows:

“The term ‘low-income community’ means any population census tract if (A) the poverty rate for such tract is at least 20 percent, or (B)(i) in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or (ii) in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income.”

In other words, you live in a low-income community if you meet any of the following three standards:

1. If more than 20% of families in your community are below the poverty level.
2. If the median family income in your community is 80% of that of your metro area or lower.
3. If the median family income in your community is 80% of that of your state or lower.

For help determining whether or not your business is located in a low-income community under the EIDL rules, these instructions may prove helpful.

This mapping tool from the Census Bureau may also help you determine if your business is located in a low-income community. However, we recommend you do not rely on these outside resources to determine if you qualify for a grant, and instead wait for additional guidance from the SBA.

Tax Implications of the New EIDL Grants
The new legislation specifies that the EIDL grants are not taxable and that businesses who receive them will not be denied a tax deduction for qualified expenses paid for with the funds.

Repeal of PPP forgiveness penalty: Moreover, the new law repeals the CARES Act provision that required PPP borrowers to deduct the amount of their EIDL advance grant from their PPP forgiveness amount. Therefore, EIDL grants will not be deducted from PPP for loan forgiveness purposes, and this applies to all EIDL grants, including those already received.

Applying For the New EIDL Grants

Under the legislation, a qualified business may submit a request to the SBA and receive the full $10,000 EIDL grant regardless of whether their application for an EIDL “is or was approved,” they accepted an EIDL loan, or they previously received a PPP loan. Any EIDL grant (not loan) previously received will be subtracted from the $10,000 EIDL grant.

The SBA is required to notify anyone who received a previous EIDL grant, or who applied but did not receive one because funding was exhausted, that they may be able to apply for the full $10,000 grant. It’s not yet clear how this contact will be initiated.

If a business requests an EIDL grant, the SBA has 21 days after receiving the request to verify whether the business is eligible. If eligible, the grant will be issued, and if not, the applicant must be notified why the SBA rejected their request. The legislation does not spell out the verification procedure other than to state that the SBA may request any documentation necessary, including tax records, even if that information has been requested before.

The legislation states the SBA will process applications in the order received, except that priority will be given to those who previously received an EIDL grant under the CARES Act, followed by those who did not receive a grant because funding was exhausted.

We do not yet know the procedure for requesting the full grant. However, the SBA has indicated that a new EIDL application portal will be available by January 17, 2021. For more information, you should monitor news from the SBA website, and stay tuned to our weekly blog for updates.

Deadline: The legislation extends the EIDL program through December 31, 2021.

EIDL Loans Are Still Available

Note that the new legislation allocates additional funding and makes eligibility changes to the EIDL emergency advance program, but not the loans themselves. While the new EIDL emergency grants won’t be available until January 17, 2021, the SBA is still accepting applications for its loans.

The EIDL program pre-dates the coronavirus pandemic, but the CARES Act relaxed its requirements, expanded eligibility, and authorized the $10,000 grants. The loans come with a 3.75% interest rate for small businesses (2.75% for non-profits), with a 30-year maturity and an automatic deferment of one year before monthly payments begin. Businesses can use the loan for working capital and operating expenses, including the continuation of healthcare benefits, rent, utilities, and fixed debt payments.

If you have not previously applied for an EIDL loan, you can do so by filling out an online application at the SBA website. When you complete the loan application, you will be given the option to check a box to be considered for the emergency EIDL grant. If you check that box, you may get a grant of $1,000 per employee. Additionally, we anticipate you may be considered for the full $10,000 targeted EIDL grant, but we do not have details on that process as of yet.

Keep in mind, if you just want an EIDL grant but not a loan, and you have not yet applied for either, you do not have to accept an EIDL loan. Some business owners choose to accept the grant, but not the loan, and that is perfectly acceptable.

Enlist Our Support

With new updates and clarifications being released all the time, it can be confusing trying to figure out your best course of action under these new programs. Contact us, as your Family Business Lawyer™, if you need help reviewing your options under either the EIDL or PPP program. Schedule your appointment today to learn more.

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

With people living longer than ever before, more and more seniors require long-term healthcare services in nursing homes and assisted living facilities. However, such care is extremely expensive, especially when it’s needed for extended periods of time.

Traditional healthcare insurance doesn’t cover such services, and though Medicare does pay for some long-term care, it’s quite limited, difficult to qualify for, and requires you to deplete nearly all of our assets before being eligible (or do proactive planning to shield your assets, which we can support you with). To address this gap in coverage, long-term care insurance was created.

Intensive Care

First introduced as “nursing home insurance” in the 1980s, long-term care insurance is designed to cover expenses associated with long-term skilled nursing services delivered in a nursing home, assisted living facility, or other senior care setting, though some of today’s policies cover care delivered in your own home as well.

Such intensive care is required when you are no longer able to care for yourself, often at the end of your life. These policies cover the cost of skilled nursing services that support you with basic self-care tasks, such as bathing, feeding, and using the bathroom. 

These are known as activities of daily living (ADLs) and generally include:

• Ambulating (walking or getting around)
• Feeding
• Bathing
• Dressing and grooming
• Using the toilet
• Continence management
• Getting in and out of bed or a chair

Before your coverage kicks in, most policies require that you demonstrate you have lost the ability to engage in at least two or three ADLs. Most policies also have a deductible, or elimination period, which is a set number of days that must elapse between the time you become disabled (eligible for benefits) and the time your coverage kicks in.

Many policies offer a 90-day elimination period, but others can be longer, shorter, or even have no elimination period at all. Of course, the shorter the elimination period, the more expensive the premium.

Additionally, long-term care policies typically come with a predetermined benefit period, which is the number of years of care it will pay for. A benefit period of three to five years, for example, is a quite common duration for such policies. Most policies also come with a cap on the dollar amount of coverage that will be paid for care on a daily basis, known as a daily benefit amount.

Getting Covered

Obviously, the younger and healthier you are when you buy the policy, the cheaper the premiums will be, so the sooner you invest in coverage, the better. In fact, most policies exclude certain pre-existing conditions, so if you wait until you become ill, it can be impossible to find coverage.

For example, if you have any of the following conditions, it generally disqualifies you from obtaining coverage:

• You already need help with ADLs
• You have AIDS or AIDS-Related Complex (ARC)
• You have Alzheimer’s Disease or any form of dementia or cognitive dysfunction
• You have a neurological disease, such as multiple sclerosis or Parkinson’s Disease
• You had a stroke within the past year to two years or have a history of strokes
• You have metastatic cancer
• You have kidney failure

Increasing Premiums, Decreasing Benefits
With the elderly population booming, there has been a surge in demand for long-term care services, which has led to a marked increase in the cost of such policies. At the same time, many insurers have been cutting back on the benefits their policies offer. 

Given this, other types of hybrid policies are springing up. One increasingly popular type of hybrid policy combines long-term care insurance with life insurance. With this type of policy, if you don’t use the long-term care benefits, the policy pays a death benefit to your family when you pass away.

If you are looking to purchase long-term care insurance, you should speak with multiple insurance providers and compare their benefits, care options, and premiums. Different companies may offer the same coverage and benefits, but they can vary dramatically in price. Always ask about the insurance company’s history of rate increases, including the amount of the most recent increase.

Choose Wisely

For the best chances of success when shopping for a policy, get help from a fee-only planner, who is not compensated based on your choice of coverage. Or, if you are working with a commissioned agent, meet with a lawyer like us with experience in elder law, who can review the policy terms to ensure it’s a good fit for you before you sign on the dotted line.

When meeting with an insurance provider, you must get answers to following three questions about your policy:

1. How long is the elimination period before the policy begins paying benefits?
2. What capacities, or ADLs, must you lose before coverage kicks in?
3. How many years of care are covered?

Buying long-term care insurance should be a family affair, because you are going to need your family members to advocate for you and file a claim for the policy when you need to use it. Given this, make sure your family knows what kind of policy you have, who your agent is, and how to make a claim.

What’s more, you should pre-authorize the right person to speak to the insurance company on your behalf, and not just rely on a power of attorney. That said, you should definitely have a well-drafted, updated, and regularly reviewed power of attorney on file as well.

Keep Your Policy Updated

Once you are in your 40s, your long-term care policy should be reviewed annually to evaluate new insurance products on the market and update your policy based on your changing needs. Whatever you do, once you have a policy in place, make sure you don’t miss a premium payment, because if you stop paying, even for a short period of time, you’ll lose all of the money you invested and will have no access to the benefits when you need them.

Reach out to us, as your Personal Family Lawyer®, for support in finding the right long-term care policy for your particular situation. Long-term care insurance, along with life insurance, are key components in your estate plan. When combined with the right estate planning vehicles, you can rest assured your family will be protected and provided for no matter what happens to you. Contact us today to learn more.

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

The Consolidated Appropriations Act 2021, which was signed into law on December 27th, 2020, provides another $900 million in funding for coronavirus relief for individuals and business owners. The new bill serves as an expansion of the 2020 CARES Act, offering additional funding and a number of key changes to both the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program.

Although the rules for the new PPP and EIDL are similar to the original programs, there are some significant differences that you should be aware of as a business owner. Among these include new eligibility requirements, clarification of the tax implications of the legislation, and beneficial changes related to loan forgiveness.

While additional clarification and updates on the new programs are set to be released in the next few weeks, in this two-part series we’ll cover some of the most critical highlights you should know about. Here in the first part of the series, we’ll discuss the new loans available under the PPP.

A New Round of PPP Loans

The original PPP program from March 2020 included $349 billion in its initial funding. That money was gone within two weeks, which led to a second round of funding totaling $320 billion. The second round of loans ended in August 2020. This new legislation marks the third round of PPP funding, and it includes another $284 billion in loans to business owners to help cover their payroll and other basic operating costs during the pandemic.

The new PPP funding allows you to apply for a loan whether you received an initial PPP loan or not. The eligibility rules for the loans are somewhat different than before and are based on whether you are borrowing for the first time or already received money in the first two rounds. To be eligible for any of the new loans, a business must have been in operation by Feb. 15, 2020.

First Time Borrowers

If you did not receive a PPP loan in the first two rounds of funding, you can apply for this third round of funding and potentially qualify for up to $10 million as a new applicant. The program rules are essentially the same as during the first round, and the eligibility requirements include:

• Any business categorized under “Accommodation or Food Services,” such as restaurants and hotels with 500 or fewer employees per location
• Tribal businesses
• Independently owned franchises
• Self-employed workers, independent contractors, gig workers, and sole proprietors

Unlike the initial rounds, during this third round of funding, business owners in bankruptcy are now eligible for PPP loans, and the loans will be treated as administrative expenses.

Second Time Borrowers

If you previously received PPP funding in the first two rounds, you may be eligible for round three funding using what’s known as a “second draw loan,” provided you’ve used all of your previous funds or will use them.

Second-draw loans are capped at a maximum of $2 million, and to qualify your business must have 300 or fewer employees, down from the original 500 employee maximum. You must also demonstrate that you experienced a loss of at least 25% of revenue in any quarter in 2020 compared to that same quarter in 2019. This is a big difference from the original PPP guidelines that simply required you to state that economic uncertainty made the loan necessary.

This new round of loans is designed to fund 2.5 months of your payroll expenses. To determine how much you would qualify for under the second draw loans, take your average monthly payroll for 2019 and multiply it by 2.5. The bill has a special calculation for restaurants and other food service industries and provides those businesses a larger loan amount of 3.5 months of average monthly payroll.

For example, if you had an average monthly payroll in 2019 of $100,000, then your business would qualify for $250,000. If you were a restaurant or other qualifying food business, you would qualify for $350,000.

New Qualified Expenses

Like the first round of loans, the amount of funding you spend on eligible payroll costs—along with covered mortgage interest, rent, and utility payments—is eligible for forgiveness. The new bill also adds several new non-payroll expenses to the list of qualifying expenses for forgiveness, and these include:

• Covered operations expenses: This includes money spent on software, cloud computing, and other human resources and accounting needs.
• Covered property damage costs: This includes expenses related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
• Covered supplier costs: This includes expenditures to a supplier that are related to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the borrower’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
• Covered worker protection expenses: This includes money spent on PPE and other adaptive measures to help comply with health and safety guidelines at the federal, state, and local level related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.

60% of PPP Loan Must be Spent of Payroll

The second draw loans are eligible to be forgiven provided that 60% of the funds are spent on payroll costs. The PPP’s existing safe harbors on restoring full-time equivalent employees and salaries and wages also continue to apply to the new loans.

Tax Treatment of New PPP Loans

Under the new legislation, forgiven PPP loans will not be taxable to business owners. This applies to all existing PPP loans under the original rounds of funding as well as the new second draw PPP loans. Previously, the IRS had ruled that you could not deduct your wages and other qualifying expenses that you used your PPP funds on if your PPP loan was forgiven—which effectively created a tax on the loan.

There had been much confusion and debate on this part of the legislation, as it seemed to contradict the intent of the CARES Act, but this new legislation officially clears that up. This means you can have your PPP loan forgiven and still be able to deduct your payroll and other qualifying business expenses paid with your PPP money. Additionally, any income tax basis increase that results from your PPP loan will remain even if the PPP loan is eventually forgiven

PPP Loan Forgiveness

The SBA plans to create a simplified PPP loan forgiveness application for businesses whose PPP loans were less than $150,000.  This simplified application will fit on one page and include loan information as well as certification from you that the funds were used properly and are eligible for forgiveness, but it will not include calculations or other additional information.

The SBA already has a simplified one-page PPP forgiveness application for borrowers of $50,000 or less. It is likely that the SBA will utilize a similar application for borrowers with loans of less than $150,000.

Keep in mind that even though the loan forgiveness form will be simplified, the funds must still be spent properly to qualify for forgiveness, and the SBA may audit these applications. With this in mind, be sure to keep careful documentation of how you spent these funds in case your loan is audited.

New PPP Loans Deadline

The new bill extends the PPP loans through March 31, 2021, or until funds are depleted.

Choose Your PPP Loan Covered Period

The first two rounds of PPP loans required that the time during which you had to use your loan funds (covered period) would be the eight-week period beginning on the date you received your loan proceeds. That was later expanded to 24 weeks.

However, this new round allows you to choose any length period between 8 weeks and 24 weeks, giving you more control in handling reductions to your staff, if needed, once PPP funds are depleted.

How to Apply

Like the first rounds of funding, the new round of PPP loans will be administered by SBA-approved lenders using a new version of the existing SBA 7(a) loan program. You can apply for your PPP loan through any of the 1,800 participating SBA approved 7(a) lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution (meaning your local bank).

If you have trouble finding a lender, you can use the SBA’s PPP lender search tool.  

At the time this article was posted, the SBA had yet to provide the new applications for the latest round of PPP loans, but the organization is expected to do so at some point in the next few weeks. Until then, your best bet is to check the PPP program website on a daily basis and stay tuned to our blog for weekly updates.

Don’t Wait To Apply

Contact us, as your Family Business Lawyer™, if you need help reviewing your options under the PPP program. Since there is only a finite amount of funding available, the sooner you apply, the better. Schedule an appointment with us today to learn more.

Next week in part two, we’ll discuss the new funding and changes to the EIDL program for 2021.

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.