10 Small Business Bookkeeping Mistakes

Keeping your finances in order is crucial for the success of your business. Even if you’re running a small operation, bookkeeping is a critical component that cannot be overlooked. While it may not be the most exciting task, it’s important to ensure accuracy to avoid costly mistakes that could hurt your business in the long run. As the person responsible for completing these tasks, it’s important to recognize that you may not have the same level of accounting expertise as larger businesses that can afford to hire specialized professionals.

That’s why it’s crucial for you to educate yourself on the common bookkeeping mistakes that small business owners often make. By learning about these errors and taking proactive steps to avoid them, you can effectively manage your finances and set your business up for success. 

Not Keeping Low-Value Receipts

According to Business.org, one common bookkeeping pitfall is not keeping low-value receipts. While the IRS may not necessarily need these receipts, they can be helpful if the business undergoes an audit. This is particularly important for you if you run a small business, as many claimed deductions are likely to be the total of several smaller purchases. As a small business owner, you may either keep physical copies of these receipts in one safe location or scan and upload the receipts to a preferred digital accounting software.

Failing to Track Reimbursable Expenses

Failing to track your business’s reimbursable expenses can result in costly consequences. Your company may miss out on tax deductions and pay more in taxes. To prevent this mistake, consider using expense-tracking software and recording expenses as soon as the business accrues them.

Incorrectly Classifying Employees

If you hire various professionals, such as employees, consultants, contractors, or freelancers. you must correctly identify your employees, but classifying these professional can get confusing. Incorrectly classifying employees and contract workers may lead to severe negative consequences, including lawsuits and tax penalties.

Having Communication Issues

One of the keys to effective bookkeeping is regular communication between the person responsible for the bookkeeping duties and everyone else within the small business. A lack of clear and consistent communication can confuse and lead to errors. If, for instance, someone buys additional supplies or pays out a bonus without informing the bookkeeper, the resulting inaccuracies from the lack of communication can be costly to the business.

Failing To Complete Reconciliations

One way to identify your business’s financial well-being is to reconcile the company’s books with its bank statements. Reconciliation is a complex but crucial process that can help you determine your business’s available cash and identify most financial errors before problems escalate. A common bookkeeping mistake is avoiding reconciliations, completing them incorrectly, or failing to complete them regularly. You can avoid this issue by researching how to reconcile the books correctly and by regularly setting aside time to complete the reconciliations.

Not Storing Physical Financial Documents

Having paper records on hand can be a disadvantage if your business undergoes an audit. Keeping your business’s financial records on computer servers or in the cloud can help improve the company’s daily operations. However, this does not work well for audits, as tax authorities expect a physical paper trail. Due to this, you may want to store physical backups of your financial documents for a minimum of seven years, keeping these records well-organized to make audits as easy as possible.

 

 

 

Not Collecting or Deducting Sales Tax

Determining sales tax can cause issues for the majority of small businesses. One common mistake with sales tax involves forgetting to deduct the tax from your business’s sales, causing larger tax bills later. In addition, you might not be aware of the rules regarding collecting sales tax for online transactions. To avoid these errors and remain compliant, you should stay updated on the latest developments regarding sales tax collection.

Failing To Resolve Issues with Petty Cash

Most small businesses use petty cash for incidental purchases. One person handling all petty cash transactions can help ensure appropriate money management. This can also prevent theft, fraud, and abuse by improving accountability. In addition, you may want to implement clear petty cash policies for your employees to avoid confusion and to ensure that receipts are submitted for all petty cash transactions. These policies can make it easier for you to accurately declare your business’s deductions when completing or preparing your tax returns. Another way to help prevent mistakes is to set periodic limits for petty cash transactions and to review the transactions at the end of each period to ensure that the receipts and outstanding cash match the initial petty cash funds. If errors are found, there will be time to rectify the issue before taxes are due.

Incorrectly Categorizing Expenses

Keeping clear accounts is vital to efficient bookkeeping, and correctly categorizing expenses is an important part of this process. A common bookkeeping mistake for small business owners is placing expenses in the wrong category or using the same categories. You can avoid this common bookkeeping pitfall by limiting the number of categories used in your business accounts by only using standard categories to keep the books simple.

Not Seeking Assistance

As a small business owner, it’s likely that you wear a lot of hats in order to keep costs down. When it comes to bookkeeping, doing it all yourself can be counterproductive. If you lack the financial knowledge and attention to detail required, you might miss costly financial errors in the company’s books. To prevent this common bookkeeping pitfall, consider asking a trusted colleague or friend to check your work or delegate the task to a company employee with the skills required to complete the task effectively. Better yet, outsource your bookkeeping to an experienced professional.

Contact Us, Your Personal Family Lawyer® With Family Business Planning Expertise To Learn More About Bookkeeping and Legal Advice For Your Small Business

As a small business owner, we understand that you have a lot to juggle. That’s why we’re here to support you as your Personal Family Lawyer® with expertise in family business planning. We want to help you protect your legal and financial rights, so you can focus on running your business with confidence.

If you need additional advice and support in ensuring you have the right LIFT (Legal, Insurance, Financial, and Tax) systems in place, don’t hesitate to contact us. We have the expertise and experience to provide you with the legal guidance and answers you need to protect your business and achieve your goals.

Obtaining A Power Of Attorney For Elderly Parents

Making important decisions for aging parents can be a challenging task, but power of attorney (POA) can provide peace of mind and clarity in times of need. POA enables individuals to make crucial decisions on behalf of their parents, such as managing their finances or making medical decisions, when they are unable to do so themselves due to age or illness.

While it may be difficult to approach this topic with your parents, having these discussions early on can help ensure that you follow their wishes if their health changes over time. Starting the conversation with empathy and understanding can make all the difference.

In this article, we’ll explore how to obtain power of attorney for elderly parents and provide helpful tips on how to approach these discussions with warmth and care. After all, our ultimate goal is to ensure that your aging parents receive the best possible care and support.

What’s a POA? 

According to the American Bar Association, POAs are legal documents, which vary between states, that provide a person, or several individuals, with the power to perform actions on behalf of someone else. The individual with a POA is an agent, whereas the principal refers to the person who is having their affairs managed by other individuals. Agents can only perform actions outlined within the POA document. Moreover, if someone agrees to a POA, they can still make their own decisions, providing they can still do so coherently. This means the agent cannot make exclusive decisions on behalf of the principal.

POA Types

Below is more information regarding the different POA types:

• General: For this POA, the agent can manage the principal’s affairs for a specific period, and the principal may revoke this at any point. These automatically finish if the principal becomes incapacitated and are common when an individual can still see to their affairs but prefers that someone else does this for them.
• Durable: These POAs continue after the principal becomes incapacitated and are more common when someone cannot manage their affairs. They can conclude in many ways, including once the principal dies or if the agent completes the conditions within the POA document.
• Springing: The terms in this POA do not take effect unless the principal becomes incapacitated. For this POA, the principal remains in control of their affairs until they lose capacity.
• Medical: These POAs allow agents to make the principal’s medical decisions. They last until the principal is competent and might also expire after a certain period mentioned in the document.
• Limited: These limit the agent’s ability to make decisions regarding certain tasks as outlined in the POA document, such as paying bills or selling a house. Limited POAs are usually temporary and end when the principal loses capacity.

Why and When to Consider a POA For Your Aging Parents

Here are the common reasons why individuals may consider getting a POA:

• Finance issues: POAs enable individuals to continue paying their parents’ bills and manage their finances when their parents struggle to fulfill these obligations.
• Serious illness: Having a POA for an elderly parent can be helpful as it allows them to focus on getting better and reduces the stresses associated with managing their affairs.
• Memory issues: Individuals commonly obtain a POA to manage their parents’ affairs if they develop dementia. It is helpful to note that it is necessary to obtain the POA before the parent loses their capacity.
• Surgery: When an elderly parent is undergoing surgery, it might be a good idea to obtain a POA so individuals can make decisions on their parents’ behalf and manage their affairs until they have fully recovered.
• Frequent travel: Some elderly parents like to travel frequently, so POAs can be useful here for ensuring their affairs remain in order while they are away.

How Do I Choose a POA For My Parents?

When considering a POA for your aging parents, there are several things to keep in mind. The most crucial factor is trust – you must choose someone you can rely on to make decisions in your parents’ best interests and follow their wishes.

While family members are often chosen for this role, it’s important to consider whether they are the best fit. If you think an objective outsider may be better suited to the task, such as a lawyer, accountant, or financial institution, this is also an option, although it may come with additional costs.

Before agreeing to be a POA for your parents, it’s essential to have a thorough discussion with them to understand their needs and preferences. Different types of POAs have different levels of responsibility, and it’s important to clarify what your parents expect from you. If your parents need help with medical decisions, for example, this will require more involvement than if they only need assistance with financial decisions.

Finally, it’s essential to understand the financial implications of becoming a POA. You will need to keep your finances separate from your parents’ and be prepared to justify any decisions you make to avoid legal issues.

Choosing a POA for your aging parents is a significant decision, and it’s essential to approach it with care and sensitivity. By having open and honest discussions and seeking objective advice, you can ensure that your parents receive the best possible care and support.

Contact Us, Your Local Personal Family Lawyer® To Learn More About Obtaining A Power Of Attorney For Your Elderly Parents

If you have elderly parents, it’s understandable that discussing power of attorney (POA) may be a sensitive topic. However, starting these discussions as early as possible can bring peace of mind and clarity in the future.

When approaching these conversations, it’s important to consider your parents’ health and well-being. Let them know that you’re there to support them and that you will only use the POA powers if it’s absolutely necessary. It’s a promise that can help reassure your parents that you have their best interests at heart.

Additionally, it may be helpful to seek the guidance of an experienced estate planning attorney. They can provide objective advice and alleviate any concerns that your parents may have. We understand that this is a difficult process, but we’re here to help. Please feel free to contact us today to learn more about how we can assist you and your family.

What Needs To Be Included In A Client Contract

Client contracts, or agreements, refer to legal agreements between businesses and consumers. They help establish expectations for the individuals who use a business’s products or services. Additionally, they outline what customers can do if they have an issue with the product or service, including how they can complain. Businesses typically use client contracts to ensure their customers remain satisfied while also protecting the business’s interests. Understanding the essentials to include in a client contract can help business owners achieve this and develop clear, binding agreements.

Client and Company Details

Client contracts typically begin by outlining the parties involved in the agreement. This involves clearly stating the full name of the business, the business address, and any other names associated with the company. Alongside this, it is necessary to mention who the customer is by stating their full name on critical documents, such as passports and driving licenses. It is essential to avoid referring to the customer by any nicknames or other handles.

Project Scope and Terms

If the contract involves services, outline the exact scope and purpose of the service. When doing this, avoid jargon and technical terms. Remember that a client contract can be binding without the need for this language. The critical thing is to include as many details as possible about the service and to be clear about what the company is going to provide and for how much.

Services or Goods Description

Another essential thing to include in a client contract is a detailed description of all the goods and services the company intends to provide to the customer for which they have paid. If the client agreement involves services, it is an excellent idea to itemize these and present them as a list. For instance, freelance graphic designers may offer various services as part of a single package. Doing this is key in clarifying what the customer can expect. Moreover, it helps set limitations for the business concerning what they need to provide. In contrast, if the contract involves goods, simply mention what the business sells.

Payment Terms

It is also vital to mention how the customer plans to purchase the business’s services or goods. These payment terms may involve one-off payments, subscriptions, or installments. It is necessary to mention when the subscription started and the planned end date for businesses selling subscriptions. Additionally, good client contracts involving subscriptions include clauses concerning auto-renewals and advanced notification clauses.

Deadlines and Work Schedule

If the agreement involves services, it is good to outline a work schedule and a clear deadline. This ensures the company knows when to provide the service and prevents customers from withholding payment or filing a lawsuit. To ensure both parties are happy, the company and customer should negotiate the deadline and schedule beforehand. For the company, they must choose a deadline they can meet while also being able to provide a high-quality service.

Expiration Clause

These clauses outline what happens once the agreement concludes. Usually, this clause comes into effect after both parties fulfill their side of the agreement. Essentially, the agreement concludes once the customer receives their services or goods. Some agreements also include a specific expiration date to clarify when the contract is no longer binding.

Copyright Ownership

If the agreement involves the production of original materials, such as graphic design or writing, it is advisable to outline which party owns the copyright for the materials. Usually, the individual or entity providing the service owns these rights until the other party pays in full. After this, the client typically obtains these rights and may use these materials in any way they see fit. If one party has concerns regarding the copyright for these materials, including clauses in the client contract is essential.

Working Relationships

If the client contract involves one party acting as a contractor, it is a good idea to mention that it is that party’s responsibility to pay their taxes. This is crucial as businesses may encounter issues with tax authorities if they categorize contractors as employees. By including this type of language in the client contract, the company hiring the contractor will likely avoid these issues when filing their taxes.

Termination Clause

Termination clauses allow companies and customers to end the agreement whenever they want. That said, there are usually penalties or conditions to fulfill when one party breaches the contract or wants to cancel the agreement. For instance, some client agreements may state that the customer must provide a month’s notice to terminate the agreement to avoid an early cancellation fee.

Dispute Resolution

According to the American Bar Association, dispute resolution refers to several processes used for resolving claims, disputes, or conflicts that do not involve going to court. Many client contracts include dispute resolution agreements that aim to reduce lawsuits by mentioning the available methods for resolving any conflicts between the customer and the company. For instance, many of these agreements outline what the parties may do before resorting to legal action, such as requiring the customer to contact the company beforehand to negotiate. When including these clauses in a client contract, it is necessary to provide contact details for resolving conflicts.

Client and Company Signatures

Client contracts typically conclude with signatures from the customer and company, alongside dates. Including dates is key as it shows both parties agreed on the document’s terms as laid out on the date they signed the agreement. If the signature dates and the contract’s effective date vary, it is essential to include both.

Contact a Personal Family Lawyer® With Family Business Planning Expertise To Help With Your Client Contracts

As your Personal Family Lawyer® with family business planning expertise, we can help you by drafting and reviewing your client contracts. Through detailed and specific client contracts, business owners can create clear and thorough agreements that protect their companies. Even though this may not prevent disputes, having effective contracts can significantly reduce the chances of businesses encountering issues. Consider contacting us, an experienced Personal Family Lawyer® with family business planning expertise for additional advice and support regarding the client contracts you need for your business.

Will Your Estate Plan Work When Your Family Needs It?

Like most people, you likely think estate planning is just one more task to check off your life’s endless “to-do” list.

You can shop around and find a lawyer to create planning documents for you or create your own DIY plan using online documents. Then, you’ll put those documents into a drawer, mentally check estate planning off your to-do list, and forget about them.

The problem is, estate planning is more than just a one-and-done type of deal.

It will be worthless if your plan is not regularly updated when your assets, family situation, and laws change. Failing to update your plan can create problems that can leave your family worse off than if you’ve never created a plan.

The following story illustrates the consequences of not updating your plan, which happened to the founder and CEO of New Law Business Model, Ali Katz. Indeed, this experience was one of the leading catalysts for her to create the new, family-centered model of estate planning we use with all of our clients.

A Game Changing Realization

When Ali was in law school, her father-in-law died. He’d done his estate planning—or at least thought he had. He paid a Florida law firm roughly $3,000 to prepare an estate plan for him, so his family wouldn’t be stuck with the hassles and expense of probate court or drawn into needless conflict with his ex-wife.

And yet, after his death, that’s exactly what did happen. His family was forced to go to court to claim assets that were supposed to pass directly to them. And on top of that, they had to deal with his ex-wife and her attorneys.

Ali couldn’t understand it. If her father-in-law paid $3,000 for an estate plan, why were his loved ones dealing with the court and his ex-wife? His planning documents were not updated, and his assets were not even correctly titled.

Ali’s father-in-law created a Trust so that his assets would pass directly to his family when he died, and they wouldn’t have to endure probate. But some of his assets had never been transferred into the name of his Trust from the beginning. And since there was no updated inventory of his assets, there was no way for his family to even confirm everything he had when he died. To this day, one of his accounts is still stuck in the Florida Department of Unclaimed Property.

Ali thought for sure this must be malpractice. But after working for one of the best law firms in the country and interviewing other top estate-planning lawyers across the country, she confirmed what happened to her father-in-law wasn’t malpractice at all. It was common practice.

This inspired Ali to take action. When she started her own law firm, she did so with the intention and commitment that she would ensure her clients’ plans would work when their families needed it and create a service model built around that mission.

Will Your Plan Work When Your Family Needs It? 

We hear similar stories from our clients all the time. In fact, outside of not creating any plan, one of the most common planning mistakes we encounter is when we get called by the loved ones of someone who has become incapacitated or died with a plan that no longer works. Yet by that point, it’s too late, and the loved ones left behind are forced to deal with the aftermath.

We recommend you review your plan annually to ensure it’s up to date and immediately amend it following events like divorce, deaths, births, and inheritances. This is so important we’ve created proprietary systems designed to ensure these updates are made for all of our clients. You don’t need to worry about whether you’ve overlooked anything as your family, the law, and your assets change over time.

Furthermore, because your plan is designed to protect and provide for your loved ones in the event of your death or incapacity, we aren’t just here to serve you—we’re here to serve your entire family. We take the time to get to know your family members and include them in the planning process so everyone affected by your plan is well aware of your latest planning strategies and why you made the choices you did.

Unfortunately, many estate planning firms only engage with a part of the family when creating estate plans, leaving the spouse and other loved ones primarily out of the loop. The planning process works best when your loved ones are educated and engaged. We can even facilitate regular family meetings to keep everyone up-to-date.

Built-In Systems To Keep Your Plan Current

Our legal services are designed to make estate planning as streamlined and worry-free as possible for you and your family. Unlike the lawyers who worked with Ali’s father-in-law, we don’t just create legal documents and put the onus on you to ensure they stay updated and function as intended—we take care of that on our end.

For example, our built-in systems and processes would’ve prevented two of the biggest mistakes made by the lawyers who created her father-in-law’s plan. These mistakes include: 1) not keeping his assets properly inventoried and 2) not correctly titling assets held by his Trust.

Maintaining a regularly updated inventory of all your assets is one of the most vital parts of keeping your plan current. We’ll not only help you create a comprehensive asset inventory, we’ll make sure the list stays consistently updated throughout your lifetime. 

Start creating an inventory of everything you own to ensure your loved ones know what you have, where it is, and how to access it if something happens to you. From there, meet with us to incorporate your inventory into a comprehensive set of planning strategies that we’ll keep updated throughout your lifetime.

To properly title assets held by a Trust, it’s not enough to list the assets you want to cover when you create a Trust. You have to transfer the legal title of certain assets—real estate, bank accounts, securities, brokerage accounts—to the Trust, known as “funding” the Trust, for them to be appropriately disbursed.

While most lawyers will create a Trust for you, only some will ensure your assets are properly funded. We’ll not only make sure your assets are properly titled when you initially create your Trust, we’ll also ensure that any new assets you acquire throughout your life are inventoried and properly funded to your Trust. This will keep your assets from being lost and prevent your family from being inadvertently forced into court because your plan was never fully completed.

For The Love Of Your Family

With us as your Personal Family Lawyer®, our planning services go far beyond simply creating documents and then never seeing you again. We’ll develop a relationship with your family that lasts not only for your lifetime but for the lifetime of your children and their children if that’s your wish.

We’ll support you in not only creating a plan that keeps your family out of court and out of conflict in the event of your death or incapacity, but we’ll also ensure your plan is regularly updated to make sure that it works and is there for your family when you cannot be. Contact us today to get started.

5 Ways Your Personal Assets Could Be at Risk From Your Business Activities 

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

In turn, if your business cannot pay its debts, creditors can go after your company’s assets, not your personal ones. However, there are several circumstances in which a business owner can be held personally liable for the debts of a business, and you need to understand how these potential pitfalls can leave you at risk and vulnerable.

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

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

Do Not Commingle Business & Personal Finances.

When running a small business, the most considerable risk to your business (and your personal assets) is commingling your finances with your business. It can be as benign as using a company bank account to pay your mortgage or depositing a check made out to your business into your personal account. If you are doing this now,  there’s no shame in it, but there could be a significant risk to you.

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

When we work together with you on an ongoing basis providing strategic counsel, we will regularly review your company’s financials with you and your bookkeeper to ensure you’re keeping all of your business finances and personal finances separate in the exact way required to protect your personal assets.

Do Not Personally Guarantee Business Debts

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

Do Not Use Personal Assets As Collateral

Since many small business owners don’t have much startup capital, you may be asked to use your personal property, such as your home or other assets, as collateral on a business loan. If so, the personal assets you pledged as collateral can be seized and sold off to pay your company’s creditors if your company fails to repay the loan. Only pledge personal assets as collateral for business debts if you have no other choice but to do so to obtain funding.

Do Not Commit Fraud 

If you make fraudulent representations or omissions to secure a business loan, you can be held personally liable for those debts. Similarly, suppose your corporation or LLC was created to further a fraudulent purpose, or you made business deals knowing the company couldn’t pay for them. In that case, you can be convicted of fraud, thereby voiding your personal liability protection. Or, if you fraudulently transfer assets to protect your assets when you know there is an outstanding risk of a judgment against you, you can be held liable for the judgment under the laws of fraudulent transfer. Bottom line: don’t commit fraud. If you aren’t sure if an action would be considered fraud, talk to us first.

Do Follow Corporate Formalities

To maintain their status as a separate entity, corporations are legally required to follow certain administrative formalities and observe specific rules. If you fail to treat your business like a corporate entity by not abiding by these formalities—such as keeping detailed records (minutes) of meetings where vital business decisions are made or adopting corporate bylaws—the court can determine your company is nothing but a shell and remove the veil of protection shielding your personal assets.

Maintaining corporate formalities is among the most critical actions needed to keep you safe from business creditors. Most small business owners simply don’t do this because it’s the last thing on their priority list. As your Personal Family Lawyer® with business planning expertise, we will prioritize you with our corporate maintenance packages and systems specifically designed to help you abide by these formalities and keep your personal assets secure.

Keep Your Veil Intact

In light of all of the complexities surrounding corporations and LLCs, you should meet with us, your Personal Family Lawyer® with business planning expertise, to protect your personal assets from your business activities . We will not only help you decide which business entity structure is best suited for your operation.  We’ll also assist you in properly setting up and maintaining the entity, so your personal assets are always well protected. Call us today to get started.

Before You Agree to Be a Trustee, Read This! 

Being asked by a loved one to serve as Trustee for their Trust upon their death can be quite an honor, but it’s also a significant responsibility—and the role is not for everyone. Indeed, serving as a Trustee entails a broad array of duties, and you are both ethically and legally required to execute those duties or face potential liability.

Before you say yes, be sure you understand what it means to be a Trustee.

In the end, your responsibility as a Trustee will vary greatly depending on the size of the estate, the type of assets covered by the Trust, the type of Trust, how many beneficiaries there are, and the document’s terms. In light of this, you should carefully review the specifics of the Trust you would be managing before deciding to serve.

And remember, you don’t have to take the job.

Yet, depending on who nominated you, declining to serve may not be an easy or practical option. On the other hand, you might enjoy the opportunity to serve so long as you understand what’s expected.

To that end, this article offers a brief overview of what serving as a Trustee typically entails. If you are asked to serve as Trustee, feel free to contact us to support you in evaluating whether you can effectively carry out all the duties or if you should politely decline.

A Trustee’s Primary Responsibilities

Although every Trust is different, serving as a Trustee comes with a few core requirements: managing assets held in the name of the Trust, accounting for those assets, and following the terms of the Trust regarding distributions of income and/or principal to the beneficiaries of the Trust. 

Remember, a Trust is simply an agreement between the grantor and the distribution of assets. The Trust agreement directs distribution to a Trustee to hold and manage the assets “inside the Trust” for the benefit of the beneficiaries.

As a Trustee, you will be acting as a “fiduciary,” meaning that you must act in the best interests of the beneficiaries of the Trust. And if you fail to abide by your duties as a fiduciary, you can face legal liability. For this reason, if you are named as Trustee, you should hire us to review the Trust Agreement and provide an analysis of the specific duties and responsibilities required of you before you agree to serve. 

Regardless of the terms of the Trust or the assets it holds or will hold, some of your key responsibilities as Trustee include the following:

• Identifying and gathering the Trust assets
• Determining what the Trust’s terms require in terms of management and distribution of the assets
• Hiring and overseeing an accounting firm to file income and estate taxes for the Trust
• Communicating regularly with beneficiaries
• Being scrupulously honest, highly organized, and keeping detailed records of all transactions
• Closing the Trust when the Trust terms specify

No Experience Necessary

It’s important to point out that being a Trustee does NOT require you to be an expert in the law, finance, taxes, or any other field related to Trust administration. Trustees are not only allowed to seek outside support from professionals in these areas, but they’re also highly encouraged to do so, and the Trust estate will pay for you to hire these professionals.

So even though serving as a Trustee may seem daunting, you won’t have to handle the job alone. And you are also able to be paid to serve as a Trustee of a Trust.

That said, many Trustees, particularly close family members, often choose to forgo any payment beyond what’s required to cover the Trust expenses, if that’s possible. But how you are compensated will depend on your personal circumstances, your relationship with the Trust’s creator and beneficiaries, and the nature of the assets in the Trust.

We Can Help

Because serving as a Trustee involves such serious responsibility, you should meet with us, as your Personal Family Lawyer®, to help decide whether to accept the role. We can offer you a clear, unbiased assessment of what’s required of you based on the Trust’s terms, assets, and beneficiaries.

And if you choose to serve, it’s even more critical to have an experienced lawyer in estate planning to assist you with the Trust’s administration. As your Personal Family Lawyer®, we can guide you step-by-step throughout the entire process, ensuring you properly fulfill all of the Trust creator’s wishes without exposing the beneficiaries—or yourself—to any unnecessary risks. Contact us today to learn more.

The Benefits Of Employing Your Kids

Paying your children—whether they’re tweens, teens, or young adults—to work for your company is one of the greatest advantages of running a family business. By hiring your kids, you can help them develop a strong work ethic, give them experience managing money, and jumpstart their ability to save for their future, all while keeping more wealth in your family.

In return, you get employees who have a built-in sense of commitment, teamwork, loyalty, and you may even end up with a long-term succession plan. This sense of dedication is why so many business owners like to claim that their team is “just like family.”

On top of those benefits, hiring your kids also comes with significant tax-saving benefits. And with the passage of the Tax Cuts and Jobs Act (TCJA), those tax benefits are now even greater than ever before. That said, if you hire your kids, ensure they do legitimate work and you pay them reasonable wages, or you may attract unwanted attention from the IRS. More on this below.

Their First $12,550 Worth Of Earnings Are Tax Free

The TCJA nearly doubled the standard deduction, which increased from $6,300 to $12,550 starting in 2018. This means your children will pay zero federal income tax on anything they earn up to $12,550. This tax break alone can save you thousands each year, and applies to both minors and those kids over age 18.

And even if your kids do earn more than $12,550 for the year, they will pay taxes at the reduced rates established by the TCJA, so they’ll still be reducing your family’s tax bill. Plus, as with other employees, you can deduct your child’s salary as a business expense, reducing your taxable income even further.

Even if your child earns less than $12,550 for the year, you should still have them file a tax return, especially if they are over age 18. Teaching them to file a tax return not only gives them experience managing their finances, but it also allows them to start establishing a credit history.

And depending on your business structure, you may be able to save serious money on your child’s payroll taxes, too.

Payroll Tax Exemption

If your business is a sole proprietorship, a husband-wife partnership, a single-member LLC taxed as a sole proprietorship, or an LLC taxed as a husband-wife partnership, you might not be required to withhold or pay any Social Security and Medicare tax (FICA) or federal unemployment tax (FUTA) on your kid’s wages.

This payroll tax exemption applies to parents who employ their children for either part-time or full-time work. The FICA exemption covers parents who employ kids under age 18, while the FUTA exemption lasts until they reach 21.

This exemption can be used to shift some of the income from your own tax rate to your child’s rate, which is most likely significantly lower than yours.

Work-Around For Corporations

If your business is set up as an S or C corporation, you don’t qualify for the payroll tax exemption, which means you can still pay your child through your corporation, but you’ll have to withhold taxes from their pay, and they’ll have to file a tax return to get a refund. However, there are ways to get around this restriction by using some creative—yet 100% legal—tax strategies.

For example, instead of paying your kids directly from your corporation, you can create a family management company and pay them from that business. By setting up this new company as a sole proprietorship separate from your primary business and paying your children from it, you won’t have to withhold payroll taxes.

If you own an S or C corporation, meet with us, your Personal Family Lawyer® with business planning expertise to learn more about the different work-arounds that allow you to pay your kids in your business and still save on your taxes.

Stay In Compliance With The IRS

With such hefty savings on the table, it’s inevitable that some people will try to abuse these provisions by claiming the tax savings without having their kids do any actual work, or by vastly inflating their wages. To prevent this, the IRS requires your children to meet a few criteria in order to qualify for these tax benefits:

• They must perform legitimate work appropriate to their age and skill set.
• Their work must exceed the normal household chores they already do.
• They must be paid the going rate for their services and not be over-compensated.
• Good records must be kept, including filing W-2s.
• Their services, work conditions, and hours must be in compliance with federal and state child-labor laws.

There are numerous different jobs your kids can handle for you, which can not only give them valuable work experience, but also provide your business with much needed support. If you are going to pay your kids, at least make them earn it. Here are a few jobs your kids can take over for your business.

• Serve as models in your advertising
• Answer incoming calls
• Cleaning your office
• Washing company cars
• Updating customer lists
• Stuffing mailers and making trips to the post office
• Updating your company’s social media posts

If you employ your kids (or want to do so), meet with us, your local Personal Family Lawyer® with business planning expertise to ensure you’re doing everything by the book, and your business isn’t in danger of attracting unwanted attention from the IRS.

Maximize Your Company’s Tax Savings

With such significant tax savings available, there’s never been a better time to put your kids to work in the family business. However, hiring your children is just one way you can reduce your yearly tax bill—there are numerous other tax-saving opportunities you might not be aware of. Consult with us your Personal Family Lawyer® with business planning expertise to make sure you don’t miss out on a single one.

4 Common Mistakes Made On Life Insurance Beneficiary Designations 

Investing in life insurance is a foundational part of estate planning, and when done right it’s a primary way to say “I love you” to your loved ones after you are gone. However, when naming your policy’s beneficiaries, several mistakes can lead to potentially dire consequences for the people you’re investing  to protect and support.

The following four mistakes are among the most common we see clients make when selecting life insurance beneficiaries. If you’ve made any of these errors, contact us immediately, so we can support you to change your beneficiary designations on  your policy and  ensure the proceeds provide the maximum benefit for those you love most.

01 – Failing To Name A Beneficiary

Although it would seem common sense, whether intentional or not, far too many people fail to name any beneficiary on their life insurance policies or inadvertently name their “estate” as beneficiary. Both of these errors will mean your insurance proceeds must go through the court process known as probate.

During probate, a judge will determine who gets your insurance death benefits. This process can tie the benefits up in court for months or even years, depending on who the beneficiaries of your estate are under the law. Moreover, probate opens up the proceeds to creditors, which can seriously deplete—or even totally wipe out—the funds.

To keep your insurance proceeds out of court , make certain you designate—at the very least— one primary adult beneficiary. In case your primary beneficiary dies before you, you should also name a contingent (alternate) beneficiary. Name more than one contingent beneficiary for maximum protection in case your primary and secondary choices die before you.

Ideally, we often recommend that the primary beneficiary of your life insurance is the Trustee of a well-considered and thoughtful Trust Agreement to provide maximum benefit and protection for your heirs. 

02 – Forgetting To Update Beneficiaries 

While failing to name any beneficiary is a huge mistake, not keeping your beneficiary designations up to date can be even worse. This is particularly true if you are in a second (or more) marriage and fail to remove an ex-spouse as beneficiary, which can leave your current spouse with nothing when you die.

To prevent this, you should review your beneficiary designations annually as part of an overall review of your estate plan and immediately update your beneficiaries upon events like divorce, deaths, and births. When you are our client, we have built-in systems to ensure your beneficiary designations (along with all other documents and decisions  in your plan) are regularly reviewed and updated.

 

03 – Naming A Minor (Or Their Guardian) As Beneficiary

You are technically permitted  to name a minor child as a beneficiary of your life insurance , but it’s never a good idea. Minor children cannot receive insurance benefits until they reach the age of maturity—which can be as old as 21 in some states. In the event a minor is listed as beneficiary, the proceeds of your insurance will be distributed to a court-appointed custodian, who will manage the funds (often for a not insignificant fee) until the child reaches the age of maturity. At that point, all benefits are distributed to the beneficiary outright and unprotected.

This is true even if the minor has a living parent. A child’s living parent could petition to the court to be appointed custodian. Still, there is no guarantee that a parent would be appointed custodian, especially if the parent cannot qualify or pay for a bond. In many cases, a court could deem a parent unsuitable (if they have poor credit, for example) and instead appoint a paid fiduciary to control the funds.

Rather than naming a minor as a beneficiary, you may think to name the person you have chosen as guardian of your child. But that’s not the right answer either. In that case, all insurance would pay outright to the named guardian and could be used in any way they choose, or even be at risk of being taken in a divorce or by a judgment creditor of the guardian. 

Instead,  the right answer is to  set up a trust to receive the insurance proceeds and name a trustee to hold and distribute the funds to a minor child you would want to benefit from your insurance proceeds, when and how you determine, or even hold them protected for your beneficiary to control but safe from divorce and creditors if you choose. 

04 – Naming An Individual With Special Needs As Beneficiary

Although a loved one with special needs is likely one of the first people you’d consider naming as beneficiary of your life insurance policy, doing so can have tragic consequences. Leaving insurance directly to someone with special needs could disqualify that individual from receiving much-needed government benefits.

Rather than naming someone with special needs as a beneficiary, you should create a “special needs trust” to receive the insurance proceeds. This way, the money won’t go directly to the beneficiary upon your death. Still, it would be managed by the trustee you name and dispersed according to the trust’s terms without affecting benefit eligibility.

The rules governing special needs trusts are complicated and vary greatly from state to state, so if you have a child with special needs, meet with us today to discuss your options. In the end, special needs planning involves much more than just life insurance—it’s about providing a lifetime of care and protection.

Eliminate Future Problems Now

While naming life insurance beneficiaries might seem simple, if you’re not careful, you can create major problems for the loved ones you’re doing your best to benefit. Meet with us, your Personal Family Lawyer® today to ensure you’ve done everything properly.

We can also support you in planning tools like trusts—special needs or otherwise—to ensure your  insurance proceeds provide the maximum benefit for your beneficiaries without negatively affecting them. Schedule a Family Wealth Planning Session to get started.

5 Tips For Creating A Business Plan That Works

Far too many aspiring entrepreneurs jump-start their businesses without taking the time to plan properly. Just as a builder uses a blueprint to ensure a new construction project will be structurally sound, a carefully researched and well-thought-out business plan allows you to determine whether or not your business concept will succeed and make money.

A solid business plan can not only serve as a roadmap to guide your company’s progress, but it can also allow you to test the validity of your business model, research the market, understand your competition, and avoid potential pitfalls. And if you are applying for a loan or seeking investors, a business plan is a must-have to demonstrate that you’ve thoroughly vetted your business’ financial feasibility.

In the end, developing a solid business plan can be the difference between the success or failure of your business. While you should consult with your Family Business Lawyer™ before you open your doors to ensure your company has the needed legal, insurance, financial, and tax (LIFT) foundation needed to survive and thrive, here are seven tips for creating a winning business plan.

01 – Communicate Your Company’s Purpose And Vision

Developing a plan to make money is essential, but it’s not the only—nor most crucial—factor. In identifying how you will generate revenue, you must also clarify and communicate why your company exists (its purpose) and what you intend to accomplish (its vision) with your brand.

Your company’s purpose and vision will serve as your organization’s compass for making future decisions at all levels and provide a framework for hiring a team, marketing and selling your services or products, and running your operations. Once you’ve come up with your business’ purpose and vision, you can more easily define what makes your business unique from competitors and how you plan to deliver your product or service to the public.

02 – Identify Your Competition

When creating your plan, it’s vital to understand who else serves the market you plan to serve. While these people are often considered competitors, you may be able to turn them into collaborators. The best part of clarifying your “competition” is that if there is a healthy market for the services or products you want, you’ll likely know that there is a need and desire for your services or products. 

Document your research on the competition, identifying the market size, the market share you need, and what will make your product or service better and different from the others. 

03 – Outline Your Business Model

While your business plan narrative is a broad overview of your company’s purpose and how you plan to fulfill your goals, your “business model” focuses on the specific ways in which you plan to generate revenue. In other words, what are you going to sell, how much are you going to sell it for, and who is going to buy it? This is a critical part of your business plan if you seek financing or investors.

That said, outlining your business model is necessary even if you are funding the business yourself, as you want to ensure that you’re clear on how your investment of time, energy, attention, and money (TEAM resources) will result in returns for you. Indeed, developing financial projections, including an estimate of start-up costs, a break-even analysis, a profit-and-loss forecast, and a cash-flow projection, will help you decide if your business is worth starting or if you need to rethink your concept. We call this process the development of a “Money Map” that doesn’t just take into account your financial outlays and objectives but your time outlays and objectives.

04 – Set Specific, Time-Based Goals For Your Business

Be specific with your goals for yourself and your company, including time-based benchmarks you feel confident you can meet. 

Setting defined goals sharpens your focus and allows you to track your company’s progress as you grow your operation.

Look out three years into the future, document the vision — both big picture and micro down to the numbers — and then walk that back to 1-year goals that will assure your 3-year success. And finally, walk that one-year vision back to quarterly actions that will get you to your one-year goals. We call this “practical magic” because each time we’ve walked our clients through it, we’ve seen them create magic. 

05 – Get Help From Outside Professionals

While you may be a whiz at delivering your core product or service, you are likely too close to all of it to create your plans on your own. We can help you use “practical magic” like a 3-year strategic vision planning process and a “money map” to create a business plan that will give you the confidence to know what you need to do, when you need to do it, how you need to fund it, and the next steps you need to take from quarter to quarter to achieve your big vision.

Then, we can help you design your legal, insurance, financial, and tax (LIFT) structures to match and support your vision. 

Don’t Neglect Your Foundation

From setting up your financials and creating solid agreements to managing taxes and buying insurance, we can support you. As your Family Business Lawyer™, we can ensure you have the foundational legal, insurance, tax, and financial (LIFT) systems in place, so you can focus your time and energy on growing your new business. Schedule a LIFT Start-Up Session with us before launching your new company, and then, as your operation grows, meet with us again to implement the full suite of systems offered in our LIFT Foundation System and Toolkit. Contact us today to get started.

Why Every Adult Needs A Living Will

When it comes to estate planning and wills, you have a variety of options for legal documents. The most common of these options is a “last will and testament,” which is also known simply as a “will.” But you may have also heard people talk about a “living will” and wonder what that is, and whether you need a living will in addition to a regular last will and testament.

Both terms describe important legal documents used in estate planning, but their purpose and function differ significantly. In this article, we will review some of the most critical things you need to know about living wills and why having a living will is essential to every adult’s estate plan. And it may be that a living will is even more important than a last will and testament.

What Is A Living Will?

A living will, also called an advance healthcare directive, is a legal document that tells your loved ones and doctors how you would want your medical care handled if you become incapacitated and cannot make such decisions yourself, particularly at the end of life.  Specifically, a living will outlines the procedures, medications, and treatments you would want and would not want to prolong your life if you cannot make such decisions yourself.

For example, within the terms of your living will, you can articulate certain decisions, such as if and when you would want life support removed should you ever require it and whether you would want hydration and nutrition supplied to prolong your life.

Beyond instructions about your medical care, a living will can even describe what type of food you want and who can visit you in the hospital. These are critical considerations for your well-being at a time of greatest need for you. And if you haven’t provided any specific instructions, decisions will be made on your behalf that you likely will not want.

Living Will vs. Last Will And Testament

Upon death, a last will and testament ensure your assets are distributed as you choose. Note that your last will only deals with your assets and only operates upon your death.  In contrast, a living will is about you, not your assets. And it operates in the event of your incapacity, not your death.

In other words, a last will tells others what you want to happen to your wealth and property after you die, while a living will tells others how you want your medical treatment managed while you are still alive. And that’s really important for you and your care!

Living Will vs. Medical Power of Attorney

Medical power of attorney is the part of an advance healthcare directive that allows you to name a person, known as your “agent,” to make healthcare decisions for you if you are incapacitated and unable to make those decisions yourself.

Simply put, medical power of attorney names those who can make medical decisions in the event of your incapacity, while a living will explains how you would want your medical care handled during your incapacity.

Why Having A Living Will Is So Important

A living will is a vital part of every adult’s estate plan, as it can ensure your medical treatment is handled exactly the way you want if you cannot communicate your needs and wishes. Additionally, a living will can prevent your family from undergoing needless trauma and conflict during an already trying time.

Without a living will, your family would have to guess what treatments you might want, and your loved ones are likely to experience stress and guilt over the decisions they make on your behalf. In worst cases, your family members could even end up battling one another in court over who should manage your medical care and how.

Should You Rely On A Living Will Created Online?

While there is a wide selection of living wills, medical power of attorney, and other advance directive documents online, you likely want more guidance and peace of mind than is available through an online service to support you to address such critical decisions adequately. Regarding your medical treatment and end-of-life care, you have unique needs and wishes that cannot be anticipated or adequately addressed by generic documents or without the counseling and guidance we can provide through your decision-making process.

To ensure your directives are tailored to suit your unique situation, work with experienced estate planning professionals like us, your local Personal Family Lawyer® to support you to create and/or review your living will.

How We Can Help

Even if you have a professionally prepared and well-thought-out living will, it won’t be worth the paper it’s printed on if nobody knows about it. A living will comes into effect the second you sign it, so you should immediately deliver copies to your agent, alternate agents, primary care physician, and other medical specialists.

Additionally, don’t forget to give those folks new versions whenever you update those documents and have them destroy the old documents. As your Personal Family Lawyer®, delivering the latest copies of your living will and other estate planning documents is a standard part of our Life & Legacy Planning Process. We ensure that everyone who needs your documents always has the latest version.

And since unforeseen illness or injury could strike at any time. Don’t wait to plan your will. Contact us to get this critical document in place. Call us today to schedule an appointment.