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5 Reasons Your LLC Needs an Operating Agreement

An Operating Agreement is a contract that controls your LLC’s operations as well as member interaction with each other and with the LLC.  You may think that an operating agreement is not necessary for your single-member LLC – after all – why make an agreement with yourself?  Most states don’t require an LLC to have an Operating Agreement to be filed with the Secretary of State; instead, the operating agreement is typically kept with other business records.  No matter what state you’re in, however, it’s always a good idea to create a formal, written Operating Agreement—even for a single-member LLC.  Here’s why:

REASON 1 – Avoid State-Imposed Default Rules

Without an operating agreement in place, your LLC is bound by the default rules of your state.  Most state laws governing LLCs allow some of the default rules to be overwritten in the LLC’s operating agreement.

REASON 2 – Maintain Control

As the business gains momentum, you may want to hire a manager to take care of the day-to-day business operations so you can shift your attention to business-development opportunities. An operating agreement can define the manager role—designating the authority and compensation and what happens if the manager leaves or competes with the company.

REASON 3 – Keep Business and Personal Identities Separate

An operating agreement helps distinguish the business from the owner for liability purposes. A major benefit of an LLC is that it limits liability going both ways: the LLC protects a member from business liabilities and the business assets from a member’s personal liabilities. Without an operating agreement in place, the business may look like a sole proprietorship. If a court doesn’t see your LLC as an entity separate from you, you could lose the liability protection that an LLC offers.

REASON 4 – Clarify Succession

An operating agreement can specify what happens if you die or become unable to run the business. Without this specific provision, your family may have a hard time continuing the business or winding it down.

REASON 5 – Scalability

Successful businesses grow. And growth requires capital. An operating agreement can specify how future investors will be treated. If you structure these terms in the operating agreement, the LLC will be better positioned in the investment negotiations.

Let’s Continue this Conversation

An operating agreement serves an important role, even for a single-member LLC. The operating agreement puts you in the driver’s seat and enables the LLC to perform its main task—to limit liability.  If you have an Operating Agreement in place, we’d be happy to review the agreement as well as your business needs to ensure the operating agreement and LLC are in sync. Or, if your single-member LLC doesn’t have an operating agreement in place, we’ll work with you to craft an appropriate agreement.

5 Things to Do to Get Ready for Tax Season

With the passage of the Tax Cuts and Jobs Act in December 2017 (effective January 1, 2018), the 2018 tax season is going to look a little different for many filers. In order to ensure you are not caught behind the eight ball, there are a few things you need to think about and do before you sit down to file your taxes.

1.  Gather Your Necessary Documents

In preparation of your return, it is wise to have supporting documentation for all items listed on your income tax return. These include your W-2s, 1099s, and receipts for any deductions. If you are a business owner looking to take advantage of the new Section 199A Deduction, it will be crucial that you have the appropriate documentation from your bookkeeper to accurately calculate your deduction. Section 199A is a fairly complex calculation, so work with a professional if you have questions.

2.  Consider Trust Distributions

If you are a beneficiary of a Trust, request information from the Trustee for information on any items of income that may carry out to you on any Form K-1 and visit with your accountant to ensure that he or she is aware of the forthcoming information.

3.  Rebalance Your Investment Portfolio

In coordination with your financial advisor, you should sit down and analyze your current investments to determine whether any rebalancing needs to be done based on the year’s past performance. Your financial advisor will be able to assist you in making sure that your financial objectives are being met and provide you with the best strategy for meeting your goals while minimizing taxes.

4.  Spend Money on Your Business

For business owners, if you are in need of additional business expense deductions, you may want to consider making some equipment investments or prepaying some expenses so that they will be deductible in 2018 instead of waiting until 2019. However, you should consult with a professional to ensure that all of the IRS requirements are met and that you’re properly reporting the transactions on your tax return. The last thing you want is for your tax planning to turn into an audit where you’re unprepared.

5.  Track and Review Your Charitable Contributions

With the standard deduction increasing as part of the Tax Cuts and Jobs Acts, fewer people are likely to itemize on their income taxes this year. However, if you find that your anticipated deductions, including your charitable gifts, is more than the standard deduction, it may still make sense for you to itemize. You will want to make sure that you are tracking your charitable contributions and have the appropriate documentation to substantiate whatever number you are placing on your return.

Preparing for tax season is never fun but we are here to help. If you have any questions or need any assistance, please feel free to give us a call.

Do your parents have an estate plan?

As the holidays approach and family gatherings abound, you may wish to set aside some time to discuss estate planning with your parents.  If you find yourself in the “sandwich generation” (someone who is caring for both your children as well as your parents simultaneously), you need to know whether or not your parents have put together an estate plan. While it is still your parent’s choice to make estate planning decisions, having a plan –no matter how late in life it is created –is an absolute must.  The thought of speaking with your parents about their finances and estate planning probably makes you want to run as fast as you can in the opposite direction.  Nonetheless, having this conversation is the key to helping make sure your parents are able to live their golden years without financial worries and that their wishes are carried out after their death.

Discussing Estate Planning With Your Parents

Talking about the future with your parents –including their estate matters, finances, and memorial wishes –is one of the most important conversations you can have with them.  And, the earlier you address this, the better off all of you will be.  Below are some key topics you need to discuss with your parents to make sure their estate planning is in proper order:

  • A team effort:  If your parents have legal and financial professionals that help with their matters, make sure to get a full list of these individuals’ contact information. You should also have the contact information of your parents’ doctors, in the event end-of-life decisions need to be made for them.
  • Last Will and Testament and a Trust:  If your parents do not have a will written up, they likely do not have any other estate planning documents. If they do have wills in place make sure to confirm how long ago they were drafted, who the executor will be, and where the original documents are located. A trust may also be appropriate depending on your parent’s circumstances and wishes. Stress to them that you do not need to read the terms, but that you should know where they are so you can help ensure their wishes are carried out.
  • Advanced Directives:  Make sure your parents have living wills and powersof attorney so that someone will be able to make decisions on their behalf if they are unable to do so. Also ensure you understand their respective feelings about end-of-life decisions, such as life support, and how their financial and medical affairs should be handled should they become incapacitated.
  • Insurance Policies:  Find out what insurance policies your parents have and where the policies are located in the event one or both become incapacitated. This includes knowing about health insurance (private or Medicare), life insurance, homeowners, auto insurance, disability insurance, and long-term care policies.
  • Financial and Investment Accounts:  Your parents should also consider compiling a list of their brokerage, bank, and mutual fund accounts as well as the account numbers. This will make things easier if someone needs to step in and assist with financial matters due to their death or incapacity.

Why Estate Planning Matters

Failing to put together an estate plan often leads to chaos, unnecessary costs and taxes, potential hurt feelings, delays in distribution of assets, and even unexpected outcomes after death. For example, if your parents hold some assets in joint tenancy with a child who lives nearby but does not include other children, the distribution of the asset becomes distorted. When joint tenancy is used instead of an estate planning tool like a trust, adult children left behind will be offended as a result of the parents’ asset distribution. Do not let fear or discomfort keep you from sitting down and having this important estate planning conversation with your parents.

The Lynn Law Firm, LLC can give you and your parents advice on what options are available to them so that their wishes are followed upon their death.  Contact us to schedule a no-obligation consultation.

What do the 2018 Midterm Elections Mean For Your Estate Plan?

Estate planning is meant to be an ongoing process, not a one-time transaction. In the same way that you never stop budgeting, saving, and investing as you go through life, it is also sensible to see estate planning as a lifelong project. Let’s look at some of the considerations you should make now that the 2018 midterm elections are in the history books.

Planning in a Fluctuating Political Climate

Estate plans must change when you experience any major life changes, such as marrying someone new or welcoming a child to the family. But you also need to respond effectively to large-scale changes that are external to your personal life, such as legislation that impacts the way your assets are taxed. Regardless of your political leanings, it’s safe to say the United States is continuing to experience a period of dramatic political and legal change. Elections like the 2018 midterms —and the resulting political change —often create fear and anxiety about how the impact of new laws and tax policy will affect your life. But you can offset that uncertainty by focusing on making the smartest estate planning decisions possible in light of the results. We’re watching the situation as it moves forward and will keep you informed of legal and tax changes that affect you and your loved ones.

The Midterm Split: Democrats Won the House, Republicans Kept the Senate

Before the midterm elections, it was unclear how legislation like the 2017 Tax Cuts and Jobs Act would be affected. Now that we know the House and Senate are split between Democratic and Republican control, it remains to be seen how well the parties will work together on a common agenda. So what does a divided federal government mean for you? The budget reconciliation strategy the Republicans used to pass theTax Act will no longer be as viable an option, which could slow additional legislation the Republican-controlled Senate proposes. According to Kiplinger, “What is likely off the table with a Democratic House and Republican Senate is tax reform 2.0, which would make certain provisions of the 2017 tax law permanent, locking in individual and small business tax cuts. Social Security and Medicare reforms, which might have helped offset the effect of the tax cuts, are also likely off the table.”  When the new Congress first convenes in January, we will continue to monitor proposed legislation so you are informed about potential risks and opportunities for your estate plan.

Some Things Are Constant, No Matter Who’s in Charge

Amid so much political uncertainty, it’s important to remember there are many foundational constants in estate planning that are important no matter who’s in charge politically or what the tax laws look like. As part of your financial wellness team, we’re staying informed and will be here to guide you in matters of estate planning. In order for you to grow and retain your wealth, careful estate planning is always a necessity —regardless of which party controls Congress. Many things may change, but a lot will remain the same: no one can legislate away irresponsible spending, divorce, lawsuits, bankruptcy, sibling rivalry, and the many non-tax reasons to utilize estate planning. An up-to-date comprehensive estate plan remains the best option for passing along your wealth and your values to the next generation.

Will your estate plan do what want it to do? Is it customized to help you thrive in the current U.S. legislative landscape?  Let’s take a look.  Give us a call today.

Estate Planning After Divorce

The divorce process can be long and expensive. However, the work does not end once the divorce decree is signed.  Visiting another lawyer’s office may be the last thing you want to do, but we can help simplify the process for you.

In order to ensure that your assets and estate planning wishes are carried out in light of this major life change, there are three things you must do as soon as possible.

  • Change Beneficiary Designations on Life Insurance;
  • Change Beneficiary Designation on Retirement Plans;
  • Create or Revise your Estate Plan.

If you and your former spouse had a joint trust, you will need to have your own individual trust created to hold the assets that are now in your name only. In this new plan, you will need to think about who to name as the trustee and beneficiary. If you have minor children, you may also need to consider who is going to be the individual to manage those assets on behalf of your children. In many cases, you probably don’t want your ex-spouse in these roles. If you do not have any estate planning documents in place, now is the perfect time to get everything in order.

How a Trust Can Protect Your Children’s Inheritance after a Divorce

A trust protects your children’s inheritance in a few distinct ways:

  • Since you select the Trustee, you can choose someone other than your ex-spouse to manage the assets. In fact, you can even state that the ex-spouse can never be a Trustee, if you wish.
  • Since you select the Beneficiaries, you can determine how the trust assets can be used for them. You may have long-term goals for your beneficiaries, such as college, purchasing of a first home, or starting a business. When you share your intent, your Trustee can invest the assets appropriately and ensure your legacy is used the way you want, rather than the assets being potentially wasted or used in a thoughtless way.
  • A fully funded trust avoids probate, so your children do not have to deal with the cost, publicity, and delay that is all-too-common in probate cases. Although “plain” beneficiary designations, like the one that Beth used, also avoid probate, they may still open the door for a guardianship or conservatorship court case, especially when your children are minors. A fully funded trust avoids these guardianship and conservatorship cases. This means more money for your intended beneficiaries and less for the lawyers and courts.

Your estate plan is more than just a trust however. It can include documents such as a Financial Power of Attorney and Healthcare Directive and Power of Attorney. Whether you have them already or need to have ones executed, this is a crucial time to review them. Chances are you no longer want your ex-spouse to have the authority to sign documents on your behalf or make medical decisions for you. To avoid confusion by third parties as to who should be acting on your behalf, make sure to call us so we can update these essential documents.

Divorce can be a long process.  We can help you cross the finish line.  As you take those next steps into your new life, call us, so we can make sure that you cross the finish line with documents that are able to carry you and your wishes forward.

Estate Planning Considerations for Employee Open Enrollment

Early-November is generally the time when employers send out summaries of employee benefits offered by the company and give employees the option to enroll in these benefits. These can include retirement plan options, health care, dental, vision, disability, and life insurance coverage. Your employer may pay 100 percent of the premiums, split the costs with you, or you may be required to pay all of the premiums yourself. Below are several considerations you should keep in mind once open enrollment begins.

Benefits Explained

When considering any retirement plan offered through your employer such as a 401(k), 403(b), or 457 plan, you will need to consider: what percentage of income you choose to contribute and whether the contribution must be made pre-tax, after-tax, or to a Roth plan (if available). How much you can contribute, and whether pre-or post-tax, depends on your specific financial circumstances. Remember to also consider any “matching” contributions your employer may make since these contributions can help improve your overall retirement savings.Healthcare benefits may include the ability to enroll in a Health Savings Account (HSA), in addition to enrolling in the usual healthcare, vision, and/or dental coverage. HSAs allow plan participants to set funds aside, tax-free, for health care costs. Employer-provided life and disability insurance coverage will provide your beneficiary with a stated amount of money if you die while employed by your employer or become disabled. The coverage generally expires when you no longer work for that employer.Perhaps the most important thing to do during your employer’s open enrollment period is to review the employer-provided benefit package to determine what should remain and what should be changed. If you do not understand the options being provided to you, contact human resources right away for more information.

Beneficiary Designations

While you are reviewing your benefit package, you should consider your beneficiary elections or those who will inherit these assets upon your death or incapacity. A primary beneficiary is the first to inherit. Should he or she pass before you, or with you, assets would then go to any secondary beneficiary you have designated. These are often referred to as contingent beneficiaries. Even if you have previously enrolled, you must review your beneficiary designations on your employer-provided benefits to ensure they are still how you want them. Benefits that may require a beneficiary designation are life insurance policies, retirement accounts, health savings accounts (HSA), as well as disability insurance.

If there are any new providers for your employer-sponsored benefits, this means that the insurance company has changed. Keep in mind that your previously chosen beneficiaries, and possibly coverage, may not have carried over. It is always better to review these documents, even if you are not planning any changes.

Estate Planning Concerns

If you are contemplating any changes to your beneficiaries, give us a call so we can ensure your beneficiary designations work as expected with your current estate plan or so we can properly prepare a plan that carries out your ultimate goals for you and your family. Once you have updated your beneficiaries, make sure to obtain written confirmation of this from your employer’s human resources department and share this information with us. If you have any questions, contact us.  We’re here to help.