Friday, October 05, 2012
Do I Really Need Advance Directives for Health Care?
Many people are confused by advance directives. They are unsure what type of directives are out there, and whether they even need directives at all, especially if they are young. There are several types of advance directives. One is a living will, which communicates what type of life support and medical treatments, such as ventilators or a feeding tube, you wish to receive. Another type is called a health care power of attorney. In a health care power of attorney, you give someone the power to make health care decisions for you in the event are unable to do so for yourself. A third type of advance directive for health care is a do not resuscitate order. A DNR order is a request that you not receive CPR if your heart stops beating or you stop breathing. Depending on the laws in your state, the health care form you execute could include all three types of health care directives, or you may do each individually.
If you are 18 or over, it’s time to establish your health care directives. Although no one thinks they will be in a medical situation requiring a directive at such a young age, it happens every day in the United States. People of all ages are involved in tragic accidents that couldn’t be foreseen and could result in life support being used. If you plan in advance, you can make sure you receive the type of medical care you wish, and you can avoid a lot of heartache to your family, who may be forced to guess what you would want done.
Many people do not want to do health care directives because they may believe some of the common misperceptions that exist about them. People are often frightened to name someone to make health care decisions for them, because they fear they will give up the right to make decisions for themselves. However, an individual always has the right, if he or she is competent, to revoke the directive or make his or her own decisions. Some also fear they will not be treated if they have a health care directive. This is also a common myth – the directive simply informs caregivers of the person you designate to make health care decisions and the type of treatment you’d like to receive in various situations. Planning ahead can ensure that your treatment preferences are carried out while providing some peace of mind to your loved ones who are in a position to direct them.
Thursday, September 27, 2012
Umbrella Insurance: What It Is and Why You Need It
Lawsuits are everywhere. What happens when you are found to be at fault in an accident, and a significant judgment is entered against you? A child dives head-first into the shallow end of your swimming pool, becomes paralyzed, and needs in-home medical care for the rest of his or her lifetime. Or, you accidentally rear-end a high-income executive, whose injuries prevent him or her from returning to work. Either of these situations could easily result in judgments or settlements that far exceed the limits of your primary home or auto insurance policies. Without additional coverage, your life savings could be wiped out with the stroke of a judge’s pen.
Typical liability insurance coverage is included as part of your home or auto policy to cover an injured person’s medical expenses, rehabilitation or lost wages due to negligence on your part. The liability coverage contained in your policy also cover expenses associated with your legal defense, should you find yourself on the receiving end of a lawsuit. Once all of these expenses are added together, the total may exceed the liability limits on the home or auto insurance policy. Once insurance coverage is exhausted, your personal assets could be seized to satisfy the judgment.
However, there is an affordable option that provides you with added liability protection. Umbrella insurance is a type of liability insurance policy that provides coverage above and beyond the standard limits of your primary home, auto or other liability insurance policies. The term “umbrella” refers to the manner in which these insurance policies shield your assets more broadly than the primary insurance coverage, by covering liability claims from all policies “underneath” it, such as your primary home or auto coverage.
With an umbrella insurance policy, you can add an addition $1 million to $5 million – or more – in liability coverage to defend you in negligence actions. The umbrella coverage kicks in when the liability limits on your primary policies has been exhausted. This additional liability insurance is often relatively inexpensive in comparison to the cost of the primary insurance policies and potential for loss if the unthinkable happens.
Generally, umbrella insurance is pure liability coverage over and above your regular policies. It is typically sold in million-dollar increments. These types of policies are also broader than traditional auto or home policies, affording coverage for claims typically excluded by primary insurance policies, such as claims for defamation, false arrest or invasion of privacy.
Saturday, April 25, 2009
WealthCounsel Nor-Cal Forum
Yesterday I met with some fellow WealthCounsel attorneys in Palo Alto to discuss advanced Wealth Transfer options for our clients. WealthCounsel is a collaborative organization of more than 1,000 law firms, WealthCounsel’s practice-building resources help attorneys efficiently draft sophisticated estate plans; gain competence through collegiality with other members; and learn new strategies to increase revenue opportunities.
Friday, April 24, 2009
How to choose between California S-Corp and LLC
So you decided that you would like to protect your personal assets from that new or existing business you operate. But now you cannot decide between a corporation (most likely an S Corporation for smaller businesses) or a limited liability company.
Of course, once you choose a form of entity your work is not finished, as strict formalities are required and compliance is crucial to preserve any protection the entity provides. But the following advantages and disadvantages should help you decide. As always, you may want to consult an attorney to decide which factors are more important for your particular situation.
S Corporation Advantages
Shareholders enjoy limited liability. Ownership interests are freely transferable (subject to S Corporation restrictions). Existence unaffected by the death of shareholders or transfer of shares. Centralized management. Pass through tax treatment (as opposed to double taxation of C Corporations) Losses are available on the shareholders' personal income tax returns and can offset other income (subject to the "at risk" and passive loss rules).
Disadvantages: Formalities are required for organization and operation, more so than LLC Qualification is required for doing business in other states. Regular reporting is required. Strict qualification rules must be met on a continuing basis, which among other things limit the number and types of shareholders. The distribution of property by an S corporation to its shareholders is generally a taxable event for income tax purposes. Transfers of shares may be subject so securities regulations.
Limited Liability Company Advantages
Members enjoy limited liability. More flexible than S Corporations No limitation on the number or types of members. Centralized management is available if an LLC is manager managed. Assuming LLC is taxed as a partnership, pass through taxation. Losses are available on the members' personal income tax returns and can offset other income (subject to the "at risk" and passive loss rules). Special allocations may be made for income tax purposes. Disproportionate distributions may be made to members.
Disadvantages: Formalities are required however they are less onerous than S Corporations Regular reporting is required. Termination results from the death, disability, or withdrawal of a member under the laws of some states. Interests are not freely transferable. Business profits are taxed as income to the individual members and, as a result, may be subject to self-employment tax as well as income tax. Transfer of interests may be subject to securities law regulation.
Wednesday, April 22, 2009
Why Should I Incorporate My Business?
I get this question all the time from new business owners, friends and family.
Intro: Incorporation means taking your business to a new level that can provide numerous benefits. Essentially, when you incorporate a business, instead of remaining in a partnership or a sole proprietorship, you establish the business as an entity separate from you.As a corporation, you may get tax benefits, reduce your liability toward the business’ debts, be able to more appropriately value your company if you plan to sell it, and may be able to more effectively raise money.
Limited Liability: Typically, the number one reason for choosing incorporation is that it limits your personal liability. Provided you do not commit illegal or negligent acts while running the business, you are not staking your personal property if you find yourself with debts you can’t handle or a lawsuit that threatens your personal assets. Incorporation provides protection. People can sue your business, or they can attempt to collect debts from your business, but in most cases, whatever you personally own cannot be taken for debt collection or to pay off lawsuits. Since incorporation provides you with an entity, which is the business, many people like the feeling of asset protection. The business is not you, even if you run it, and therefore you are not in most cases liable if the business fails.
Tax Benefits: By establishing a business through incorporation, particularly a small to mid-size one, you may be eligible for a variety of tax breaks. These may not be the same or available to you if you run a non-incorporated business from your home or have a sole proprietorship. A good accountant can help you weigh which tax benefits might be available to you if you incorporate.
Group Rates / Plans: Further, a corporation, even a small one, may be eligible for cheaper rates on things like health insurance. With more and more states requiring that all full-time employees be insured, having corporation status may help ease the pain of high health insurance costs. When you have a public, for profit, corporation, one of the ways you can raise money is by selling shares. A single owner of a business does not have this money-raising potential. If you’ve got a great idea for a business, offering shares in your company allows for you to raise more money to fund your efforts. You can benefit not only yourself but investors in your corporation should your business become successful.
Exit Strategy: Selling your business is difficult to do without shareholders, since it may be hard to gauge the value of the business. An incorporated business tends to be easier to evaluate from a price standard, since you can not only show earnings, but also the investment opportunities and interest of shareholders. Generally, a business that incorporates may sell for a higher price than would a partnership or solely owned business.
Drawbacks: There are some disadvantages to incorporation. You’ll have to spend time to solicit and answer to shareholders, have a fully operational board of directors, and you’ll have less power in your company. In large very profitable businesses, sometimes people who originally started the business can lose their jobs as directors if the shareholders or board members vote them out. People who prefer to work alone, don’t hire employees, and don’t have significant assets outside the business may not want to go the incorporation route because to do so means they won’t have total control over their business. If you don’t play well with others, and don’t mind risking your assets, incorporation may not be right for you.
Call us to help you decide if it is in your bes interests to incorporate or form an LLC or other business structure. 408-371-6000
Tuesday, April 14, 2009
Taxes and your Family Owned Business
The SBA Office of Advocacy released a report where they examined the effective tax rates faced by small businesses. It found that the effective tax rate faced by small businesses varied by the form of organization of the company. The effective tax rate is calculated by totaling all income and dividing it by all taxes paid. So if your income was $100,000 and you paid $34,000 in taxes, total, your effective rate was 34%. Sole proprietorship's faced the lowest effective rate at 13.3%. Small business partnerships have an average effective tax rate of 23.6%, small S corporations have a rate of 26.9%. I think the numbers reveal a couple things. First, do not assume that choice of entity causes the different variation in rates. It's just that the distribution of the different form of entities follows a certain pattern. Sole proprietorship's tend to be smaller companies with less income, while larger enterprises tend to be partnerships and S corporations. The study just goes to show that progressivity in the tax code, at least in terms of small businesses, is alive and well.
Sunday, April 12, 2009
Treating your LLC like an S-Corp
You are probably wondering, why would I want my limited liability company to elect to be treated as an S-Corporation? Wouldn't I be better off forming an S-Corp right from the beginning? The answer is, it depends.
LLCs are more flexible in regards to structure, and do carry less formalities when it comes to corporate governance. You still have to be compliant, or California may come after you, but for the most part less corporate governance and compliance is required. So why would you make the election to treat your LLC as an S-Corp? If you find the flexibility and ease of corporate governance for LLCs attractive, yet find that the tax advantages of S-Corps applies to your company, you can go ahead and combine the two.
Of course, you will still have to satisfy the requirements of S-Corporation: Domestic corporation or eligible domestic entity (LLCs are) No more than 100 shareholders Shareholders must be individuals, estates, certain trusts and exempt organizations No non-resident alien shareholders Only one class of shares Cannot be: A bank or thrift institution that uses the reserve method of accounting for bad debts under section 585, An insurance company subject to tax under subchapter L of the Code, A corporation that has elected to be treated as a possessions corporation under section 936, A domestic international sales corporation (DISC) or former DISC. Tax year ending 12/31, a natural business year, an ownership tax year, a tax year selected under section 444, 52-53 tax year based on any of the above, or any tax year for which the corporation establishes a business purpose Each shareholder consents in writing If you satisfy all these requirements, then you should look into possibly electing S Corporation treatment for your LLC, which is done by completing Form 2553 (Instructions) and possibly Form 8832. For California, you are no longer required to send in any forms to report, elect or terminate S corporation status. Federal S election and termination are binding for California.
The lawyers at Sowards Law Firm assist clients with Estate Planning, Wills, Living Trusts, Probate, Estate Administration, Medi-Cal Planning, Business Law and LLC Preparation throughout California, including clients located in and around, Oakland, Palo Alto, Petaluma, Pleasanton, Point Reyes, Redwood City, Richmond, Salinas, San Carlos, San Francisco, San Jose, San Leandro, San Rafael, San Ramon, Santa Clara, Santa Cruz, Santa Rosa, South San Francisco, Sunnyvale, Union City and Vallejo.