red amazon danbo on brown wooden surface

If You’re Going Through A Divorce, Do Your Homework

Divorce can be a scary, angry, and bitter time full of emotions. You joined your life with someone and it didn’t work out. What happens next? What if you lose your children, your home, or half of what you own? There are plenty of questions and the last thing you should do is approach the situation without understanding how it all works. That’s why you need to call a Family Law attorney in Kalamazoo today to help guide you through it all.

Most people who file for divorce have thought through it enough to realize it’s time to move on. Even if there’s been infidelity, there’s a time of separation and reflection on the whole situation. Even if it’s time to file, the process of doing the actual filing should be planned out so you’re not going into it unprepared for what’s about to happen. If you’re the spouse that receives the divorce papers, you might find yourself blindsided. But, what should you do? What actions should be taken? Let’s take a look.

The First Step After a Divorce is Decided Upon 

Even before you hire a lawyer to help you through the divorce process, the first thing you should do is to find all your financial statements and documents. What are all the details you have about your finances, assets, and money? What are all of your account numbers, retirement accounts, and where are your bank statements? Do you share credit cards or have a joint bank account? Your entire financial life will need to be examined, so it’s best to find all the paperwork you can regarding that, including all the bills you pay for.

Along with your financial information, you will need to look for your mortgage paperwork. Who owns the home? Did you sign the lease with your partner? Who has been making payments and how were those payments taken care of? What is the total balance remaining on your mortgage? Do you owe any property taxes? Write everything you can down explaining how all the bills are paid and taken care of.

Hiring a Lawyer

The next step in the process is to find your marriage certificate. They won’t let you get a divorce in the U.S. unless you have it. The only exception to the rule is if you were married outside of the country. Otherwise, you will need it. If you don’t have it or can’t find it, then it should be easy to obtain a copy for your records. Once you have everything together, it’s time to contact a family law attorney to help you through the rest.

The divorce process won’t be easy, so having a lawyer by your side and to defend your rights is a step in the right direction. With a lawyer, you’ll be able to create a plan and discuss any potential pitfalls or consequences you might face during the proceedings. This is especially important if you have children in the mix. There will be a lot of tasks before you accomplish. Separating two lives that have been united won’t be easy. To learn more about the divorce process and to get help, contact Herbert Machnik Law Firm here.

pathway between trees towards house

12 Point Estate and Wealth Protection Checklist For 2021

Note:  Our firm is dedicated to helping families protect their hard earned wealth regardless of size – We provide basic estate planning for families with modest savings and advanced planning for those with substantial wealth.

_____1.           Wealth Protection.  Do you have any rental real estate that is in your individual name or an S corporation?  Do you have a single member LLC?  This is low hanging fruit for any potential creditor, and likely needs to be protected by placing the property in a multi-member LLC (limited liability company) or LP (limited partnership).  Do you know which assets you own that are protected and which are exposed?   If not, we can help analyze this important issue. Schedule a Wealth Protection consultation by calling Ben at 269-459-1432.

Note:  While a living revocable trust is a powerful legal tool to avoid probate and keep legal control in your family, it does NOT protect your assets.  We have numerous legal strategies to help protect your wealth and make you an unattractive target for a lawsuit.

_____2.       Successor Trustee.  This is the person you have appointed to step into your legal shoes if you become incapacitated – in other words, one of the most important estate planning decisions you can make.  Who have you appointed to take charge if you are incapacitated? Do you trust this person 100%?  What is the order of succession of trustees?

_____3.       Family Transitions.  Has there been a marriage, divorce, or separation of anyone named in your will or trust?  Has there been a birth of a child or grandchild?  If so, your estate plan may need to be amended.

_____4.           Estate Tax Review.  For those families that may have around $3 million or more in total wealth you need to take special note.  As you all know the Democrats took control of the Senate and House following the November elections.  On March 21, 2021 Senator Bernie Sanders introduced the “For the 99.5% Act” that may increase estate taxes from 40% to 65% and impose a reduced estate tax exemption of $3.5 million (now $11.6 million but scheduled to drop to about $6 million in 2026) and reduce the gift tax exemption to $1 million.  The practical effect of this bill on families and small business owners is impossible to predict until actual legislation is passed – if at all – but all families with $3 million or more in total assets (including all life insurance) should consider scheduling an estate tax review with us.

______5.         Non-Resident or Not U.S. Citizen.   If a person is not a U.S. citizen or non-resident, the tax rate is 40% over the exemption of $60,000.  Foreign investors who are non-residents and own property in the U.S. need to do special planning to avoid this tax.

_____6.       Durable Power of Attorney.  Check the date of your Durable Power of Attorney (“DPA”) in your portfolio book.   

______7.       Trust Funding.  Funding is simply the transfer of your assets into your trust.  If our firm drafted your trust, immediately after you signed your trust, we reviewed how your assets are titled and gave you detailed Funding Notes.  Have you followed up on these instructions?  It is a good idea to annually review the funding of your trust.

______8.         Life Insurance.  When is the last time you checked (a) the owner of your life insurance policies; and (b) the beneficiary designations for those policies?  Some life insurance should be owned by an irrevocable life insurance trust to avoid the estate tax.

______9.       Corporate Minutes.  If you have an incorporated business, when is the last time that you updated your corporate minutes?  For S corporations, it is important to keep annual minutes for income tax and asset protection purposes.  It is just as important to make sure that your minutes and certificate of ownership match what you report on your corporate tax returns.  Remember, the corporate veil can be pierced and your personal assets attacked if you do not follow basic corporate formalities.

______10.       $15,000 Gift Allowance.  Do you wish to consider making gifts to family members to reduce your estate tax exposure?  Current law for 2021 allows you to make gifts of $15,000 per person per year ($30,000 if married) with little or no tax consequence to you or the recipient.  However, see the warning in Point #11 for gifts to minors

______11.     Gifting To Minors – Big Mistake!  Making outright gifts to minors or naming a minor the beneficiary of anything without a trust can raise a host of unintended legal issues that may be costly to remedy. 

______12.     Health Care Surrogate.  If you have a child over 18 who is now in college it is highly recommended that he/she give you legal authority to make medical decisions on their behalf. Remember, once your child turns 18, he/she is an adult, and you have no legal authority to make any legal decision on their behalf.

Estate Plan Review.  Has it been more than three years since we sat down and reviewed your estate plan?  If so, we recommend that you schedule a meeting as soon as convenient to assess whether your plan continues to meet all the needs of your family.

APPOINTMENT:

To schedule an appointment to review or update your estate plan or the funding of your trust, call us at 269-459-1432 or email Ben at benjamin@hmlf.law.   Now is the time to get this item off your 2021 Checklist!

aerial photo of buildings and roads

Mediation Is Often The First Step In Resolving Disputes

Many construction contracts have clauses that require disputes to be handled through alternative dispute resolution (ADR) methods. One of these is mediation. No matter which side of the matter you’re on, you need to fully understand what this means, so you’ll be prepared if you need to use it.

When you go through mediation, you and the other party work with each other to resolve the matter. There is a third-party mediator present to help you keep things moving in the right direction, but they don’t dictate the terms of the matter.

You need to go into the mediation session ready to negotiate. You should have an ideal solution in mind, but you must be willing to compromise. The other party will likely have their preferred resolution in mind, too. Finding the happy medium is the goal of this process.

Many people appreciate that mediation usually provides a faster and less expensive resolution to these matters. How long it takes depends on how much you and the other party are willing to work toward a mutually agreeable ending.

One thing that you must do in these cases is keep calm. Becoming upset will work against the ultimate goal, and it might mean you miss a good resolution.

In the event you can’t reach a mutually agreeable resolution, the case will move to either arbitration or the court will become involved. You have to chose one or the other because you can’t do one and then move onto the other if it doesn’t work.

Ultimately, you have to determine what’s in your best interests. Keeping that as your focus during the process may help you to get what you need.

adult affection baby child

Is Your Estate Plan Up To Date

We have heard from many of our clients that the current COVID-19 crisis has spurred them to reflect and rethink their priorities. These are some simple steps that you can take make sure your estate plan is up to date.

PUT ESTATE PLANNING ON YOUR TO-DO LIST

If you have been putting off getting your Will and Durable Powers of Attorney completed, now is a good time to get started. Most estate planning attorneys are able to help despite the COVID-19 restrictions. In our office, the initial work is done remotely. When it is time for documents to be signed, we work out a plan that is safe and appropriate for each client’s circumstances and comfort level.

IF YOU HAVE ALREADY COMPLETED ESTATE PLANNING DOCUMENTS, REVIEW WHERE YOU PUT THE ORIGINALS

We all know it is important to keep original estate planning documents in a safe place, but we sometimes forget where we put them. Review where you put your original documents and let those who are named as your Personal Representative or Agent under your Durable Powers of Attorney know where the originals are located. If you need to make notes, mark up a copy instead of the original document. If your documents are in a safe deposit box, make sure that someone besides you can access the box.

REVIEW YOUR EXISTING PLAN

Take a moment to review your documents to make sure that they reflect your current wishes. Have any life-changing events, such as births, deaths, marriage, or divorce taken place since you signed your documents? Have you named the persons or professionals that you would like to serve as your Personal Representative or Agent in the right order? Will you or your spouse need to apply for Medicaid in the next five years? It is a good idea to review your documents every three to five years to make sure they still meet your needs, and update them if necessary.

REVIEW YOUR ADVANCE HEALTH CARE DIRECTIVE AND POLST

Your Advance Health Care Directive indicates what types of treatment you would like to receive or decline if you are terminally ill or in a permanent unconscious condition. Your POLST (Physician’s Orders for Life Sustaining Treatment) indicates what treatments you would like to receive or decline now. An elder law attorney can help you understand these documents and how they may apply to treatment for the novel coronavirus.

These are uncertain and challenging times. Making sure that you have a Will and Durable Powers of Attorney that are complete, properly executed, and which reflect your current wishes can provide peace of mind to you and your loved ones.

Please call us at 269-459-1432 or contact us here. Herbert Machnik Law Firm is available for you to talk to one of our legal professionals. We are Estate Planning and Probate specialists who are here to help your family during any trying time.

WHAT IS THE DIFFERENCE BETWEEN A CORPORATE LAWYER AND A BUSINESS LAWYER?

The terms “corporate” and “business” seem to go hand in hand, but there’s a difference between corporate law and business law. These practice areas require specialty lawyers and specific experience. How do you know whether to hire a corporate lawyer or a business lawyer? Read on to find out!

CORPORATE LAWYERS

Sometimes, corporate lawyers work directly for specific companies. Other times, corporate law firms are hired by large companies for special purposes or to handle certain transactions. Corporate lawyers often work for larger companies and help write contracts, help with the behind the scenes corporate legal work, and help avoid litigation. Corporate lawyers also often specialize in compliance with local, state, national, and international laws that regulate businesses and transactions.

PCorporate lawyers also handle issues with the size and structure of companies, sometimes helping to set up new businesses, structure partnerships, and corporate mandates.

BUSINESS LAWYERS

Business lawyers, on the other hand, are generalists who provide legal advice on just about all aspects of a business. While the size of a company doesn’t necessarily determine if they need a corporate lawyer or a business lawyer, business lawyers are more commonly retained by small- to medium-sized businesses that need a wide range of services. A business lawyer might help your business navigate copyright or trademark concerns, handle tax issues or work with your CPA to mitigate tax burdens, and review your contracts and employee handbook all in a day’s work!

Business lawyers also help write business plans for potential investors and assist with employment laws.

WHEN TO HIRE A CORPORATE LAWYER

Corporate lawyers are sometimes called transactional lawyers – because they handle many issues surrounding the buying and selling of goods in the market and contract law. You might need a corporate lawyer when:

  • Your business is seeking to buy and sell goods internationally
  • Your business needs to negotiate contracts with other businesses or individuals
  • Your business is experiencing issues with a contractual relationship
  • Your business is looking to avoid litigation surrounding legal documents or processes
  • You want to start, buy, sell, or dissolve a corporate entity
  • You or your business needs an airtight contract or agreement drafted
  • You need to attract investors or partners to expand your business
  • You have questions about or need to change your business’s structure
  • You need advice on shareholder rights and obligations
  • You’re looking to mitigate risk in one or more areas of your business

WHEN TO HIRE A BUSINESS LAWYER

As opposed to corporate transactional lawyers, business lawyers provide general legal advice to businesses and represent businesses in legal proceedings and during litigation. That means a business lawyer will not only provide legal advice but also represent you and your business in a courtroom if negotiations or mediation fails. A business lawyer can also advise you and your business on contracts, but the best times to hire a business lawyer is when: ​

  • Your business needs advice or representation in employment disputes
  • Your business wants to avoid employment disputes with employee handbooks and contracts
  • Your business needs advice or representation in tax disputes
  • Your business needs advice on business tax law and tax burden mitigation
  • Your business is being audited or investigated by state or federal authorities
  • You’re planning your business or starting a new business
  • You need advice or representation on patents and other intellectual property
  • Your business is involved in a lawsuit or mediation procedure
  • Your business needs to file a lawsuit or enforce a contract

CALL HERBERT mACHNIK LAW FIRM FOR YOUR BUSINESS AND CORPORATE NEEDS

At Herbert Machnik Law Firm, we specialize in business law. Our experienced attorneys serve businesses of all sizes with expert advice and representation in banking, real estate, construction, small business, and employment law. We offer legal advice to drive your business forward and representation in the courtroom to protect the success you’ve worked so hard to achieve. Contact us today for a consultation and to see how we can meet all of your business law needs.​

Making the most of your time with your children

Going from seeing your children frequently to implementing a visitation schedule will take some adjustment. Considering the new time restraints, the opportunities you do have to spend time with your children may feel more important than ever before.

Abiding by the terms of your custody arrangement can provide stability for your children, as well as reinforce your love for them.

Be reliable

Adapting to a custody arrangement may only be a fraction of the changes happening in your life. Depending on the circumstances of your divorce, you may find yourself dealing with changes to your living situation, your career and your relationships. However, your custody arrangement is perhaps one of the most critical commitments you have currently.

Showing up consistently and on time may require sacrifice on your part. As you negotiate a custody agreement, be realistic about your availability. If your schedule changes and impacts your availability, try to enforce an immediate and consistent change to your visitation schedule. Your dedication to showing up will demonstrate your commitment, love and concern for your children.

Care for yourself

Caring for yourself with so much going on may seem impossible or unnecessary. However, according to The Mayo Clinic, one way to adjust to single parenting is to prioritize self-care. Socialize, eat a balanced diet, get enough rest and stay active. Taking good care of your physical and mental health will enable you to be emotionally available and physically motivated to spend time with your children.

Equally as important, find someone to vent your frustrations to. This could even be a counselor or therapist. Processing your emotions effectively may reduce the chances that you say something negative about your divorce or your children’s other parent in the presence of your children. Feeling in control of your emotions will allow you to focus your energy and thoughts on caring for your children and not fuming about your former relationship.

Irrevocable Life Insurance Trust

All estate plans share one fundamental goal: create a secure plan that puts beneficiaries in the best possible position. Irrevocable life insurance trusts, known as ILITs, further this goal by protecting your life insurance from the hands of creditors during your lifetime, exempting it from your estate, and reducing your potential estate tax liability. ILITs have many benefits, and very few drawbacks, making them a frequently sought out and powerful estate planning solution. In this article we will discuss the key benefits and drawbacks of ILITs, trustee’s duties, and other key factors.

LIFE INSURANCE & YOUR ESTATE

 To understand ILITs, it is important to review exactly what life insurance is, and how life insurance is treated for estate tax purposes. At its core, life insurance is a tool for shifting the financial risk associated with the insured’s death from the family and loved ones onto an insurance company. The mechanics of life insurance are straight forward: the policy owner pays a certain amount to the insurance company called a premium. The premium is often paid monthly, but it can be paid quarterly, annually, or even as a lump sum. In exchange, the insurance company promises to pay a sum to a beneficiary of your choice upon the death of the insured person. While in most cases the insured life and the policy owner are the same person, this is not always the case.

Life insurance payouts received by beneficiaries are not taxed as income for the beneficiary. Rather, the policy is often taxed as part of the deceased’s estate as per I.R.C. § 2042, which states that life insurance is included in the deceased’s estate if the policy is paid to the probate estate, or if the deceased possessed an incident of ownership at death. What this means is that if the insured person was the policy owner, the life insurance payout is included in their taxable estate.

HOW ILITS WORK

Put simply, an ILIT is an irrevocable trust created for the sole purpose of holding a life insurance policy on the grantor. The trust is generally funded by annual gifts up to the annual gift exclusion ($15,000 in 2020), using the Crummey Letter Method. Once the grantor passes away, the trust collects the life insurance payout and distributes it to the beneficiaries of the trust. To put it within terms of the relevant section of the tax code, an ILIT removes the life insurance from the deceased’s estate because the deceased does not possess an incident of ownership at death.  Because the ILIT is irrevocable, the life insurance trust is exempt from your estate, is not accessible to creditors, and any money used to fund it is also removed from your estate, making it an incredibly attractive multi-pronged protective estate planning method.

Like with other irrevocable trusts, the grantor cannot be the trustee of an ILIT. The grantor may freely choose whom they want as their trustee, which can be anyone, including a bank, trust company, attorney, family member, or a trusted friend. One exception is that the grantor cannot choose their spouse as trustee if the life insurance is a survivorship policy, if the trust is funded by jointly held property, or if the gift is made jointly.

An ILIT can protect you and your beneficiaries from creditors or legal judgments against them while the policy is in the trust, since the trust itself is the owner. There can be more than one life insurance policy held in the trust and almost any type of life insurance policy can be held in the trust.

BENEFITS OF AN ILIT

estate tax letters with us money on the right side


ILITs are excellent estate planning solutions that can accomplish three major objectives for the grantor: Reducing your estate tax bill, protecting your life insurance proceeds from creditors, and protecting your beneficiaries’ inheritance from creditors. If these are goals you are considering as part of your estate plan, an ILIT may be the right solution for you.

AVOIDING ESTATE TAX

Your net estate is the value of your assets minus the value of your debts. Under current federal law, if your net estate is valued at more than $11.58 million per person, you are subject to an estate tax that can be up to 40% of your estate. Even if your estate does not meet the federal limit, you may be subject to a state estate tax. The states that have a state estate tax include:

  • Connecticut
  • District of Columbia
  • Hawaii
  • Illinois
  • Maine
  • Maryland
  • Massachusetts
  • Minnesota
  • New York
  • Oregon
  • Rhode Island
  • Vermont
  • Washington

Each of these states sets their own limit of assets excluded from the estate tax, ranging from $1 million to $5.74 million at the time this article was written.

If estate tax is a concern for you, an ILIT takes your life insurance policy and the money used to fund the policy out of your estate valuation, which may be the difference between going over the assets excluded limit under federal or state law.

PROTECTING BENEFICIARIES FROM CREDITORS

ILITs also protect your life insurance proceeds from the hands of creditors and legal judgments. Since the trust is the policyholder, neither the beneficiaries nor you are considered owners of the trust. This means that any of the beneficiaries of the life insurance policy will be secure knowing debts they owe, judgments against them, or any other creditors will not be able to reach the amount they are entitled to from the policy.

ADDITIONAL ADVANTAGES OF AN ILIT

Aside from potentially avoiding estate tax and taking your life insurance policy out of the reach of creditors, ILIT also offers the following benefits:

  • Avoid gift taxes – using the Crummey letter method, gift taxes can be avoided if they are at or under $15,000 per person.
  • Government benefits – an ILIT can protect a beneficiary who receives government benefits such as security disability income or Medicaid by controlling the payout amount as to not exceed the government limit.
  • Avoid generational taxing – if gifting grandchildren, you may be subject to a 40% generational gift tax. Since an ILIT takes the policy out of your net estate it may not be considered a gift and the payout may be disbursed to grandchildren.
  • Income tax considerations – the cash value that accumulates in the trust from the policy and the payout are free from taxation during the grantor’s life. However, once the payout is distributed, if it remains in the trust it may be taxed.

WHEN IS AN ILIT NOT THE RIGHT ANSWER?

ILITs offer many benefits; however, they are not for everyone. If you are not concerned about going over the excluded estate tax limit or creditors reaching your life insurance policy, you may be better off with a different type of trust that achieves your specific goals.

Additionally, if you already own a life insurance policy and are concerned about your health, you should be aware of the IRS look back period. This period applies if you transfer an existing life insurance policy into your ILIT. In this case, the IRS will apply a 3 year look back period, meaning that if you die within 3 years of transferring, the policy is still considered part of your taxable estate.

THE ILIT TRUSTEE’S DUTIES

There are three different types of trustees that can be used to administer a trust: individual, bank, and independent trustees. An individual trustee is generally a family member or a friend. A bank trustee is part of a bank trust department and is a professional trustee. An independent trustee is a professional trustee who is not attached to a bank. Independent and bank trustees are professional trustees and charge fees for providing trustee services. However, they are also held to a higher standard of fiduciary duty.

The trustee of an ILIT has five main responsibilities while administering an ILIT:

  1. Administering the trust
  2. Sending annual Crummey Letters to beneficiaries
  3. Payment of life insurance premiums using annual gift
  4. Filing ILIT tax returns
  5. Distributing life insurance proceeds upon death of the insured
irrevocable life insuracne trust administration chart


Deciding on the right approach to protect your assets, secure your estate, and ensure the security of your family is an important decision; one you should discuss with a trusted professional in the field. At Herbert Machinik Law Firm, we’ve helped countless clients protect their financial interests. If you’re ready to learn more about this unique legal arrangement, we are the perfect resource for you and your loved ones.

FREQUENTLY ASKED QUESTIONS ABOUT ILITS 

WHAT IS AN IRREVOCABLE TRUST?

An irrevocable trust is trust that cannot be revoked or modified by the grantor once it is created. Irrevocable trusts constitute completed transfers in most cases, and any assets held in an irrevocable trust are not considered part of the grantor’s estate (with some exceptions).

WHAT IS THE CRUMMEY LETTER METHOD?

When you fund your ILIT, you will do so by gifting a certain amount of cash to the trust each year to pay for the insurance premiums. Normally, such gifts would be subject to the gift tax. In order to avoid these gift taxes, your trustee can send out what is known as a “Crummey Letter.” This letter informs beneficiaries that they can ask for their share of the money put in for the premium payment within a certain amount of time. This letter must be sent to all beneficiaries each year letting them know they have immediate access to the money. This will avoid the premium payment being taxed as a gift up to the amount excluded by the federal government. At the time of this article, that is up to $15,000 per giftee.

Beneficiaries must be aware that they cannot actually take the money, otherwise there will not be sufficient funds to cover the premium and the policy will lapse. It is beneficial to let beneficiaries know this ahead of time, and be sure they are aware that the premium payment is minimal compared to what they will receive upon the policy’s payout.

WHAT REQUIREMENTS ARE NECESSARY TO KEEP THE ILIT IN FORCE?

Once your ILIT has been established and you have selected and purchased a life insurance policy, there are a few procedural steps that must be followed to maintain your ILIT. Each year, you will need to transfer cash to the ILIT. Your Trustee will need to notify the beneficiaries of your ILIT using the Crummey Letter method. After the Trustee has gone through the procedural steps necessary for the Crummey method, the Trustee will make the premium payment on the life insurance policy. It may be necessary for your trust to have a separate tax ID number and a separate bank account. It is also possible that your ILIT may require a tax return, though this is unlikely.

HOW DO YOU FUND AN ILIT?

An ILIT is different from many other irrevocable trusts in that it is funded on an ongoing basis. You fund an ILIT by making annual cash gifts using the Crummey Letter Method. The gifts are used to pay the premium on the insurance policy held by the trust.

CAN YOU CHANGE THE BENEFICIARY OF ILIT?

No. An ILIT is an irrevocable trust, and as such the beneficiary cannot be changed by the grantor.

CAN YOU TERMINATE AN ILIT?

An ILIT is an irrevocable trust and therefore it is not possible to terminate it outright. However, there is nothing that compels you to continue funding the ILIT. Thus if you wish to terminate your ILIT, stopping making contributions will achieve the same result, as the trust will be unable to make premium payments on the insurance policy, and the policies will lapse.

CAN YOU FUND AN ILIT WITH AN EXISTING LIFE INSURANCE POLICY?

Yes, although you should be wary of the IRS lookback rule. If you fund an ILIT with an existing policy, the IRS will look back three years, meaning that if you die within three years of funding the ILIT, the policy will be considered part of your estate rather than the ILIT.

WHAT TYPE OF INSURANCE POLICY SHOULD YOU HOLD IN YOUR ILIT?

The most commonly used type of insurance policy will be an individual life policy or a survivorship policy. An individual life policy is simply any policy that insures the life of only one individual. A survivorship policy (also referred to as a second-to-die policy) can only be used if both you and your spouse are still living. A survivorship policy will only pay out a death benefit after both spouses have passed away.

american dollar bills and vintage light box with inscription

Planning for Federal Estate Taxes

One important element of the estate planning process in Michigan involves recognizing those opportunities where one can limit the liabilities facing their estates. Most assume, however, that taxes are one expense they cannot avoid.

Yet that may not be the case. First and foremost, Michigan does impose a local estate tax on its residents. This means that there may be additional potential tax liabilities facing Michigan residents’ estates outside of the federal level. However, one might be able to limit that expense or even avoid those federal taxes entirely.

Understanding the federal estate tax exemption

A federal estate tax exemption exists that limits the tax liability estates may face. According to information shared by the website SmartAsset.com, the estate tax exemption threshold for 2021 is $11.7 million. This means that those estates whose total taxable value does not exceed that amount will not be subject to tax.

Leveraging estate tax portability

Married couples might be able to extend their exemption amounts even further. Tax portability allows eligible parties to share their tax benefits. In regards to estate taxes, one can claim the unused portion of their deceased spouse’s exemption.

To make the most of this benefit, one must plan to leave their entire estate to their spouse upon their death. This takes advantage of the unlimited marital deduction (which allows one to pass an unlimited amount to their spouse tax-free). This preserves their entire estate tax exemption, which (per the Internal Revenue Service) their ex-spouse can then claim by filing an estate tax return within nine months of their death electing portability.

One must remember to plan for this final step (as portability does not occur automatically). A failure to do so could inadvertently push the values of the surviving spouse’s estate above the threshold (making it subject to tax when it otherwise would not have been).

How Does LLC Ownership Work?

The limited liability company (LLC) is a popular business structure for new businesses, but what does it really mean to own an LLC? LLCs provide unique opportunities to customize business ownership to fit the particular needs and circumstances of the owners. Here is what you should know about LLC ownership.

The Basics

The owners of LLCs are often called members. If a single person or a single business entity owns an LLC, it is called a single-member LLC. If multiple people or entities own an LLC, it is called a multimember LLC. LLCs can have an unlimited number of members. When ownership is established, the membership interests are usually expressed in one of two ways: 

●     by membership units similar to corporate shares

●     by percentage

The terminology you choose to use for a membership interest should correspond to your vision for the company. For example, if the business is owned primarily by your family, identifying the membership interests by percentages may keep things clear and straightforward. However, if you intend to seek funding from individuals outside of the family, you may find that labeling the ownership interests as membership units facilitates the easy transfer of ownership rights. 

Establishing Ownership Rights

To be an LLC member, some form of contribution is required; however, the contribution need not be cash, which is called a capital contribution. LLC members can also contribute property or services. Additionally, unlike contributions to a corporation, when an LLC member makes a capital contribution, the concomitant ownership rights and distributions can be customized. For example, if one member were to contribute 40 percent of the capital in an LLC, that member and the other LLC members may still choose to split profits fifty-fifty.

Generally, LLC members are entitled to share in the company’s profits and losses, vote regarding key LLC matters, inspect and review the books, and enjoy a host of other rights.; however, they may be customized through contractual agreements. The contractual agreement that typically governs LLC ownership rights is commonly known as an “operating agreement.” Operating agreements may include the following common customizations:

●     distributing profits and losses in a way that does not match the members’ capital contributions

●     Who will manage Company Day-to-day Affairs

●     Voting

●     How additional members are added

●     Loans

●     Who is authorized to sign contracts

Management

LLC members can choose to be managed either by the LLC members (a member-managed LLC), or by nonowners or certain members designated as managers (a manager-managed LLC). When an LLC is managed, it is vital to identify and articulate the decisions for which the members bear responsibility and the decisions the managers must make. If the decision-making authority is not clear, the resulting uncertainty can hinder effective management of the LLC. 

Payment

LLC members can pay themselves in several ways, such as

●     receiving income in the form of distributions of profits at the end of the year, 

●     receiving draws, which are periodic payments based on the estimated profits for the year, or

●     receiving periodic payments as employees of the business.

These three methods are not mutually exclusive—a member can take advantage of more than one option. However, members must remember that each option has unique tax consequences. LLC members should account for Social Security and Medicare taxes. When LLC members pay themselves as employees, the LLC is expected to withhold taxes as it would for any other employee. Conversely, when members pay themselves based on their profits, they must pay self-employment taxes. Either way, LLC members must be mindful of the tax consequences of the payment methods they choose.

Next Steps

If you are considering creating an LLC, I can help you develop the right ownership structure for your business. Call Herbert Machnik to schedule an in person or virtual meeting soon.

the denver post office and federal court house

HOW TO PREPARE FOR AN ESTATE PLANNING MEETING

Setting up an appointment with an estate planner is a great first step to take when creating an estate plan, but what comes next? The legal industry can be confusing, and it’s hard to know how to prepare for your appointment. While your attorney should be available to answer any questions you have, it never hurts to prepare on your own. Utilize the following tips to ensure your first estate planning meeting goes smoothly.

LOCATE IMPORTANT DOCUMENTS

Bringing important documents to your first appointment helps your estate planner structure the financial and personal aspects of your estate plan. Documents and information you should bring with you include:

  • Financial documents, including retirement accounts, life insurance policies, and a list of assets
  • The legal names and addresses of all heirs or institutions you plan to name in your documents
  • A list of items, such as family heirlooms, you plan to leave to specific individuals

MAKE SOME DECISIONS IN ADVANCE

Making decisions before you meet with your estate planner can speed up the process of creating your documents. A large component of estate planning involves naming individuals to fill different roles in your estate plan. Deciding who you’d like those people to be in advance means you’ll be ready to go when your attorney asks who you have in mind for certain tasks, such as:

  • A legal guardian for any children who are minors
  • A personal representative to shepherd your estate through the probate process when you die
  • Medical and durable powers of attorney to make medical and financial decisions on your behalf in the event of a medical emergency or incapacitatation

TALK TO LOVED ONES AND THOSE LISTED IN YOUR ESTATE PLAN

Talking to the individuals listed in your documents is an important pre-meeting task to complete for several reasons. One, sharing that you’re working on your estate plan gives you the chance to explain the reasoning behind the decisions you’ve made. This can prevent family conflicts from occurring. Two, talking to the individuals you plan to have fill roles in your plan prevents those individuals from being blindsided when you need them. Being a legal guardian or personal representative requires taking on a lot of responsibility. It’s important to make sure the person you plan to name is up to the task.

HOW CAN Herbert machnik law FIRM HELP YOU?

Herbert Machnik Law Firm can help you with your estate planning, Medicaid planning and probate law needs. To contact Herbert Machnik Law, click here.