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Exit Strategies for Small Businesses

business partnershipBecoming a small business owner is a big decision. People, for the most part, begin working on operating agreements and articles of incorporation, and then move on to working on the business to make it successful and profitable. Few, if any, ever work on their exit strategy for their business from its inception. Most only start to worry and think about their business exist strategy before its too late.

The reason why you should consider this early on is because you may need to plan and act differently depending on how you intend to proceed in the future. For example, if you desire the business to remain in the family after you retire or pass away, you will need to plan differently than if you intended to sell the business to the highest bidder to finance your retirement.

There are also different planning needed if the business is an “owner-dependent businesses.”  Those include professional practices like accountants and/or doctors, contractors, and others. These individuals are faced with another type of situation because their businesses may not be financially viable after they decide to stop working, so special planning is needed in these situations.

Another consideration is if the business is a partnership. If you are a partner in a small business,  you and your partner(s) must work together to devise a strategy that works for all the partners, and this often involves the execution of a buy-sell agreement.

Business planning is an important step in business formation, and seeking out legal help to make sure your are prepared to sell or pass on your business if the worst happens is very important. It is not as easy as simply stepping away when you decide to retire when you own a small business. Every situation is special and unique, and this is why personalized planning with the benefit of expert guidance is recommended.

To be sure that you are working within an informed framework that leads to the ideal exit, take action right now to set up an appointment to speak with an experienced and knowledgeable attorney who specializes in small business planning.

Important Considerations for Business Co-Founders to Consider

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New  businesses, or start-ups, often struggle later on its the business’s life due to how the business was originally set up or organized. This is more often a problem with businesses with more than one founder, since at one point or another, personalities and ideas will clash between the founders or later buy-ins. Too often, business co-founders will treat a new company like an exciting new relationship. The founders get excited about the new business, everyone seems to agree on everything, and then the business is founded without talking to an attorney, accountant, or any other business professional. The founders go out, start the business, and never discuss operating agreements, by-laws, or anything else that a professional would suggest. In the professional world, relationships that start in a frenzy, and without much consideration for the future, often end up in failure, and start-ups are no different.

First, before even consulting an attorney and/or accountant, it is very important for the co-founders to have a long and detailed conversations about their business, their working relationship, how to settle disputes in the future,and many other topics that they will have to deal with as the company grows. 

One of the people who knows this best is Dharmesh Shah, the successful entrepreneur and co-founder of HubSpot.  He recently published a list of the most important questions that co-founders need to resolve as soon as possible when starting a new business. 

 

After you talk to the other founders of the business, it is time for the business owners to consult an attorney and/or CPA. Every business and business owner is different, so a meeting with an attorney is important to discuss how to organize your business to fit your business present and future needs.. If you are in the process of starting a business, or have recently started one one (or never got around to creating an operating agreement), please call our office today for a free consultation about the needs to organize your business. 

If you are thinking about starting a business, these previous posts may interest you:

– Commingling of Business & Personal Funds (And Why It Is A Bad Idea

What is a Limited Liability Company?

What is a S Corporation?

What does the Fiscal Cliff Agreement mean for my estate?

What does the fiscal cliff agreement mean for my estate? The estate tax was a bit of a mixed bag – the $5 million dollar per person exemption was kept in place (and indexed for inflation continued) however the top rate is increased from 35% to 40% – effective yesterday. Other good news for estate planning – portability is kept in place and estate and gift remains unified – ie the $5 million stays in place for gift tax purposes as well. All are permanent law, so rejoice!

So, no real change for smaller estates worth under 5 million, however, if your estate is worth more than 5-10 million, the estate tax percentage increased.

Hope this helps! Please call the office of Skillern Law Firm if you have any questions or are ready to set up a trust or create a will.

It’s Important to Update your Estate Planning After A Divorce

Most couples, especially married couples, get their estate planning done together and draft them accordingly. Most of the time, married couples will get a Family Trust, rather than two individual Trusts, and all the beneficiaries/executors/trustees are listed as each other. After the unfortunate event of a divorce, it is extremely important to get your estate planning updated to reflect your life change. Most people’s wishes and ideas about who should receive and manage your property after your death changes after a divorce. The only way to effectively express that intent is to have a new estate plan drafted.

When you get divorced, you absolutely need to update your estate plan. Oklahoma law provides some safeguards for Wills, Trusts, and certain beneficiary designations. Under Oklahoma law, your former spouse does not benefit under your will or Trust, only if your Will or Trust follow the requirements of Oklahoma law. However, these few safeguards are incomplete and will not change your estate plan to exclude your ex-spouse in some situations. The default rule will not revoke any gifts to relatives of your ex-spouse, for example.

It is important to update your Will and/or Trust after a divorce, because the default Oklahoma rules that may or may not apply, and an experienced estate planning attorney will know which ones need updating. One of the best ways to express your new wishes after the divorce is to create or amend your estate plan. This way, you are able to accurately express your new intent with your estate, since divorce usually changes your intent (i.e. leaving the ex-spouse out), and this will ensure that your wishes are clearly communicated.

One important thing to update after a divorce is beneficiary designations on accounts. When you select beneficiaries for life insurance, retirement plans, or bank accounts, you are making a legally significant decision. After you pass away, the institution holding the account will look at your account information, including the death beneficiary, and distribute accordingly. Ex-spouses, if not changed on the account, have a strong chance of benefiting from the account.  Divorce has an very limited effect, if any, on these beneficiary type arrangements.

For example, most people hold a lot of assets in their IRA, 401(k), or other retirement plan. Most people do not realize that these retirement plans are governed by Federal law, and no state (including Oklahoma) can use a divorce decree/order to overcome the beneficiary designation on your retirement plan. This means your ex-spouse will benefit if the beneficiary is not changed. You absolutely have to change the beneficiaries after a divorce decree is final to express your new intent.

Most people have many other things on their minds if they have just gone through a divorce, but it is very important to contact an estate planning attorney, or be active in keeping your estate plan up-to-date. Please contact the Skillern Law Firm, PLLC if you need your estate plan updated or created.

Holiday Open House

Plan on attending the Skillern Law Firm’s Holiday Open House. NO RSVP required. Food and refreshments provided. If you would like to discuss your estate planning needs, or just come for some good conversation, feel free to attend!

 

 

Why Does My Will Need To Be Probated?

A lot of clients seem to be under the misconception that, if your will is valid, self-explanatory, and clear as to your intent, then it does not need to be probated. However, your Last Will and Testament is not effective until it goes through probate. It does not matter if it is clear and unambiguous! The deceased persons’ assets and liabilities cannot legally pass to the beneficiaries named in the will until after the Probate Court enters an Order that shows that the assets pass to the beneficiaries.

For example,many people that own a home in their name and may leave it to their children in a will. During the life of the owner, in order to be able to sell the home, they would need to sign a deed over to the new buyer in the closing process. After they pass away, a buyer will not accept a signed deed from the deceased children since there has been no legal determination or court order granting them the legal right to sign over the deed, since it is still in the deceased person’s name. It will not work to simply provide the buyer  with a copy of the will, since it does not solve ownership problem and they cannot be assured that the will is valid until the probate court has reviewed it. Therefore, only until an Oklahoma Probate Court has reviewed and decreed the will to be a valid Last Will and Testament of the deceased, and that the will legally passes the home onto the children, the children have no legal authority to sign a deed, sell the house, or have any ownership to the house. As a result, there is no will that is effective until it has been probated and through the probate process.

Many people are flustered and upset that their estate has to go through probate when they have a valid will, but they can solve this problem by establishing and funding a Revocable Living Trust. Let Skillern Law Firm help you in this process by calling the law office today.

A Common Error to Avoid Probate

One common scenario that estate planning attorneys encounter is clients who believe that deeding their home to their children solves the problem of avoiding probate. Most retired individual’s main asset is their home, which many have paid their mortgage off.

Such a situation is common for many of our clients, and the attorneys at Skillern Law Firm almost always advise against it. There are several practical and legal reasons to keep your home in your name, some of which are discussed in this article  in the Huffington Post. The two main points that this article relates are property taxes and your child’s liabilities.

There are several more important reasons to avoid transferring your property rights to your child to avoid probate. These include:

  • The relationship with your child could go south, or change once you transfer all your property rights to him/her. It’s amazing how a relationship can change once money or any inheritance is involve. Once the house is in their name, they have all the legal right to the home, and there is no obligation for them to let you live in it or transfer it back to you if you ever change your mind.
  • If you have more than one child, this can put complications on some of your relationships with the other children, and it can create rifts between siblings. Putting your house in the name of one child can create relationship complications, but putting the house into all of your children’s names’ can create paperwork headaches, errors, and inheritance complications.
  • There are other ways to avoid probate. One of the easiest ways to avoid probate is to create a Revocable Living Trust.  You can read more about trusts on a previous post here.  Essentially, a Revocable Living Trust are flexible, customizable depending on your situation, and usually cheaper than what probate will cost your heirs.

Do not make a common estate planning mistake that could possibly cost you to lose your home and cause problems within your family. Contact Skillern Law to discuss how they can assist you to protect your family and heirs, as well as your assets, from probate, liabilities, and common misconceptions about avoiding probate.

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