Let’s Talk About Public Speaking

Sam Speaking Two editI enjoy making presentations on legal topics for groups and organizations.   I’m a frequent guest on Insight on Business- the News Hour Radio show (1350AM 5-6PM weekdays), and I’ve traveled throughout the State of Iowa, sharing information on estate planning and business law. In addition to my “prepared” remarks, I always allow plenty of time for specific questions (think FREE legal advice).

Recently I spoke about estate planning as part of a pre-retirement seminar presented by the Iowa State Education Association.  Based on the evaluations from the 72 participants, I believe the sessions were successful, and the participants took home some valuable information.

I would look forward additional speaking opportunities on business law or estate matters.  If you are part of a chamber, or an association that wants to provide a useful and beneficial educational opportunity for members; let’s talk. And, no, I don’t charge a fee for my presentations (at least not yet!).

Listen to our Podcast

Recently, I was on the InSight on Business-The News Hour with Michael Libbie. Going on the radio is always a great experience with him, and being able to reach out to their audience with information that is useful to the community is something I look forward to each month.

In this video, Michael and I discuss Part One of my three-part series of What Happens to Your Business if Something Happens to You?

If you, or someone you know, has any questions on succession planning or protecting your business, please feel free to call us at  (515) 727-0900 or visit us at kreamerlaw.com

 

What Happens to Your Business if Something Happens to You: Part One

Owning a business can be very rewarding. It also can be very confusing when thinking about how to plan for the future. Before you read this post, there are a couple things you need to know:

  • THIS IS COMPLICATED. You need a PLAN to be developed with the guidance of an attorney who understands BOTH business issues and estate issues.
  • If own a business, you can control decision makers of ownership issues or you can leave them up to the court

Part 1-Who makes ownership decisions

  1. What are ownership decisions?
    • Sole proprietorships- EVERYTHING is an “ownership” decision. The sole proprietorship is indistinguishable from the owner.
    • Business entity
      • Corporation-shareholder decisions (governed by Bylaws and Iowa Code §490)
        1. Election or removal of Directors (Iowa Code §490.728(1))
        2. Derivative Actions against on behalf of the company- which could include a suit against the company’s officers or directors (Iowa Code §490.741)
        3. Amendment to Bylaws including change to number of directors (Iowa Code §490.1020(1))
        4. Accounting records and Minutes of meetings (Iowa Code §490.1601(2) and (Iowa Code §490.1620))
        5. Approval or rejection of dissolution of the Company (Iowa Code §490.1202)
        6. Approval or rejection of sale of assets of company (Iowa Code §490.1202)
        7. Approval or rejection of Merger with other company (Iowa Code §490.1104(2))Corporation-shareholder decisions (governed by Bylaws and Iowa Code §490)
      • Limited liability company (governed by Operating Agreement and Iowa Code §489)
        1. NOT admitted as a Member
          • There is NO requirement in Iowa law that the Estate or the Trustee be admitted as a member. Unless the Operating Agreement provides otherwise, the Estate or Trustee is only admitted with the consent of ALL other members ((Iowa Code §489.401(4))
          • If NOT admitted as a Member the transferee only obtains the ECONOMIC interest in the LLC. No right to participate in management or access to records EXCEPT as necessary to file taxes and court reports (Iowa Code §489.502, Iowa Code §489.410 and Iowa Code §490.504)
        2. ADMITTED as a Member
          • Member Managed- Each member has full and equal rights in ALL of company’s activities (Iowa Code §489.407(2)).
          • Manager Managed (unless otherwise specified in the Operating Agreement) Each admitted member has the right to
            1. Elect or remove managers by majority vote §489.407(e))Sale of assets of company (Iowa Code §489.407(d)(1))
            2. Consent of the Members is required for:
              • Sale of assets of a company (Iowa Code §489.407(d)(1))
              • Merger with other company (Iowa Code §489.407(d)(2))
              • Amendment to Operating Agreement including change to number of Managers (Iowa Code §489.407(d)(4))
              • Dissolution of the company (Iowa Code §489.701(1)(b))
            3. Accounting records and Minutes of meetings, PROVIDED they are related to a “member’s interest as a member” (Iowa Code §489.410(2)(b)) NOTE this is more limited than a shareholder’s rights to information.
  2. Who decides? IT DEPENDS ON WHO “OWNS” THE BUSINESS
    • Sole proprietorship- Holder of a power of attorney for business matters, or a personal representative (conservator, executor, or administrator) succeeds to “ownership” for the purposes of ownership decisions.
    • Business entity
      • If owned individually
        1. Power of Attorney- depends on the terms of the document issuing the power. In general a holder of a Power of Attorney has the right to exercise all voting and ownership rights of the Principal (Iowa Code §633B.206(1-5))
        2. Conservator-has the right to exercise all voting privileges (Iowa Code §633.646(3)) Appointment of a Conservator supersedes the Power of Attorney (Iowa Code 633B.108(2))
        3. Executor (if there’s a Will):
          • General Rule- The Executor is a fiduciary and must act in the best interests of the beneficiary. It is common practice to specify the powers of an Executor in the Will.
          • The Will determines who will be the ultimate owner of the business. In the absence of a provision to the contrary all property is required to be distributed pro rata.
          • Surviving spouse- Regardless of provisions of the Will to the contrary a Surviving Spouse gets 1/3 of the estate (Iowa Code §633.238). Determination of composition of the share of surviving spouse is by mutual consent or by court determination (Iowa Code §633.247)
        4. Administrator (if there’s NO Will)
          • Determination of WHO is Administrator is left to the determination of the court- any “qualified” person may be Administrator (Iowa Code §633.227).
          • Surviving Spouse gets everything (including stock) if there’s no children or if all the children are also children of the surviving spouse (Iowa Code §633.211)
          • Surviving Spouse gets HALF (including stock) if there’s children of the decedent who are NOT children of the surviving spouse (Iowa Code §633.212)
      • If owned by a Trust
        1. The Trustee makes all decisions on ownership issues (Iowa Code §633A.4402(3))
        2. The Trust continues even after the death of the grantor. Powers can be exercised by successor Trustees.
        3. The terms of the trust will designate future owners.
  3. Buy/Sell Agreements may control ownership and the transferring of a company, therefore controlling “ownership issues.”
  4. CONCLUSION:
    • THIS IS COMPLICATED. You need a PLAN to be developed with the guidance of an attorney who understands BOTH business issues and estate issues.
    • If own a business you can control ownership issues or you can leave them up to the court
      • You can appoint a power of attorney; or A COURT appointed conservator will make the decisions
      • You could appoint an Executor in a Will; or a COURT can appoint an administrator
      • You could establish a trust to own the business with the appointment of a successor trustee
      • You could establish a Buy/Sell agreement with an appropriate buyer.
    • If you have a co-owner in the business, BOTH/ALL of you should investigate these issues.

We realize that this is a lot of information to take in. At Kreamer Law Firm, we can aid you in planning for the future of your business. Please feel free to contact us with any questions you have by visiting our website, http://www.kreamerlaw.com, or calling us at (515)727-0900.

Taking Charge: Estate Planning Considerations

I am very much looking forward to being able to speak next Saturday, November 8th, and again the following Saturday, November 15th, for the Iowa State Education Association. The topics for this seminar are all about life after retirement: the benefits you can look forward to receiving, financial help with investments, and important Social Security information. What I’ll be able to share during these two seminars is something that Kreamer Law Firm works on daily: Estate Planning. It’s such an important part of planning for the future and I want to answer some of the questions we get asked most and give advice on how to take charge of your retirement.

Upcoming Events: Be Sure to Tune In

Sam Kreamer will be appearing on Insight on Business the News Hour on Tuesday November 4, 2014 between 5 and 5:30 PM.

This will be the first of a 3 part series: “What happens to your business if something happens to you?”

Part 1- Who will make ownership decisions (scheduled for 11/4/2014)

Part 2- Who will make management decisions (scheduled for 12/8/2014)

Part 3- Post mortem transitioning  the ownership of the business: internally/externally (scheduled for 1/5/2015).

Types of Trusts Part Two: Testamentary Trusts

In a prior blog, I discussed trusts that can be established in a grantor’s lifetime. In this blog, I’ll discuss trusts which are established after the grantor dies: a testamentary trust. These trusts take their name from the fact that they are established by the grantor’s Last Will and Testament. The purposes of these trusts are to prevent a beneficiary from squandering their inheritance as well to make sure the beneficiary has access to the funds for reasons that the grantors specifies (like education or health care needs).

Choosing a trustee for a testamentary trust can be a tricky thing. Because they only come into existence after the grantor dies, the Will should specify who will act as trustee. Although our clients sometimes want family members to be trustee we recommend that they chose a financial institution (bank’s trust department) to act as trustee for several reasons:

  • Banks often have greater access to investments to increase the value of the trust than family members;
  • Banks often have greater financial expertise than family members;
  • Banks have insurance and bonding in place in the event there are problems in the administration of the trust;
  • In the event there is a disagreement between the beneficiary/beneficiaries and the Banks, there will still be harmony in the family (the children of a child are not mad at their Uncle).

As indicated above, a primary reason for establishing a testamentary trust is to protect/preserve a bequest until a beneficiary is capable of using good judgment. Accordingly, the beneficiaries are normally described by age. Example: if any beneficiary is under the age of 30 their share will be held in trust.

Until they reach the specified age(s) of distribution, the trustee is charged with investing the assets and spending the assets on behalf of the beneficiary in ways specified by the deceased grantor. Example: the Trustee shall expend such sums from the principal or income from the trust as shall be necessary to pay for the education, health care needs, and reasonable living expenses. This raises difficult questions and drafting problems. How much discretion should a trustee be authorized to exercise? Stated alternately, how should a testamentary trust be drafted so that it is unduly restrictive but provides sufficient guidance for the exercise of the trustee’s authority?  We attempt to ameliorate this problem by including a set of “principles” to provide direction to the trustee.

To quote the poet, sage and philosopher, the late, great, George Harrison: “all things must pass.” In the current context, this means that at some point the trust must terminate and distribute the principal to its beneficiary(ies). This can be any age, or any set of conditions. We recommend that there be at least two distributions at least several years apart. This allows a beneficiary to “mature” and/ or recover from a previous lapse of judgment.

Although testamentary trusts are often used to preserve a bequest for an underage/inexperienced beneficiary, it is also common for a testamentary trust to be established to protect a bequest to a surviving spouse. In these marital testamentary trusts, the surviving spouse receives all of the income of the trust for their life (distributed at least annually), and the right to distribution of principal in the event of need (health care, maintain standard of living), but any principal remaining at the surviving spouse’s death goes to the children.

We normally include a testamentary trust in every Will we draft for our clients. Jason Bourne, who created so many (fictional) widows and underage beneficiaries, wouldn’t need a testamentary trust, but if you have a “real life” spouse and/or children you should consider including a testamentary trust in your Will.

If you, or someone you know, are in need of legal services regarding estate planning please feel free to contact the Kreamer Law Firm, P.C. through our website or by calling 515-727-0900.

Types of Trusts Part One: Living Trusts

In the previous post, I described how trusts can be part of everyone’s estate planning (besides Jason Bourne). There are essentially two types of trusts: living trusts and testamentary trusts. In this post I’ll provide you with some information about certain types of living trusts.

Living trusts (also called inter-vivos trusts) are set up during the grantor’s lifetime. They can be either revocable (changeable by grantor) or irrevocable (cannot be changed by grantor).

The following are some examples of living trusts:

Revocable Trusts are a popular probate avoidance device. The grantor is the individual who contributes the assets to the trust, is the trustee, and the beneficiary of the trust during their lifetime. The terms of the trust directs the disposition of the assets of the trust after the grantor dies. The grantor reserves the right to amend or revoke the trust at any time. Because of the extensive controls and rights of the grantor, they are ignored for both income and estate tax purposes (i.e. they do not save or avoid any income taxes or estate taxes which the grantor would otherwise pay). The key advantage to these trusts are: (i) that the assets of the trust are not subject to the probate process or its attendant fees and costs; and (ii) they are “private” in that there is no requirement to file them with the Court when the grantor dies. Even if a grantor establishes a revocable trust they should still have a Will so that any of the assets which the grantor did not previously transfer to the trust would become part of the trust aftert the grantor’s death.

Irrevocable life insurance trusts (ILIT) can be established to remove the proceeds of life insurance from your taxable estate. Once established, an ILIT is generally not subject to change by the grantor. The ILIT itself owns the insurance policies (and all the incidents of ownership), receives the proceeds when the grantor dies, and distributes the proceeds in accordance with its terms. The grantor can transfer presently existing policies to the trust (which remain part of the grantor’s taxable estate for 3 years) or the trust itself can apply for, and buy, a “new” policy on the grantor (which are immediately excluded from the taxable estate). The funds or the insurance policies that the grantor contributes to establish this trust are considered to be a “gift” for gift tax purposes.

Charitable remainder trusts (CRT) present a unique opportunity for those with a charitable intent. The grantor retains a right to payment from the trust (either a fixed payment or a percentage of the assets) for a period of time or the death of the grantor (whichever comes first), and thereafter the assets go to charities designated by the grantor. Although the payments to the grantor MAY be subject to income tax (depending on the composition of the assets and the amount of the payments), the grantor gets a charitable deduction upon funding the trust, and any capital gains from the CRT’s sale of assets are attributed to the charity rather than the grantor (hence, these are often funded with appreciated which are promptly sold by the CRT and re-invested). Grantors of CRTs often use the tax savings from the charitable deduction to purchase a life insurance policy which “replaces” the assets transferred to the CRT.    

Look for our Part Two follow-up post on the second type of trusts: Testamentary trusts.

By their very nature, trusts are complicated. These blogs are designed to give you an overview which should not be construed as legal advice. If you would like more information on these matters, you can contact us at info@kreamerlaw.com or 515-727-0900 to arrange an appointment.