The Applicable Federal Rate (AFR) is a rate published monthly by the IRS for federal income tax purposes.
The IRS will treat any “loan” with a below market interest rate (below the AFR) as a gift of the foregone interest from the lender to the borrower. The amount of the foregone interest will be treated as though it was transferred from the lender to the borrower as a gift and retransferred from the borrower to lender as income on the last day of the calendar year.
Do you own a family business in Humboldt County? Be it in Eureka, Arcata or Southern Humboldt, succession planning for a family business raises a number of issues.
You should plan for the succession to your business over a long period. Primary concerns include determining your children’s interest in the business and their ability to run a business.
The California Legislature has proposed several Bills which if passed by both houses of the Legislature will have an impact on your estate planning.
1. Revocable Transfer on Death Deed (TOD). In Assembly Bill 699, the Assembly made another attempt to allow for the transfer of real property at death by the pre-death executing and recording of a deed. This is at least the fourth attempt by the Legislature to provide this opportunity for owners to transfer their property at death by way of a deed recorded prior to death. This estate planning tool could be very effective for persons whose primary asset is their family residence. This could eliminate the need for these persons to incur the expense of a revocable trust in order to avoid a probate upon death. Concerns that that this type of deed would be procured by fraud or undue influence have apparently kept the Legislature from providing this type of estate planning tool in its previous attempts.
When business and estate planning professionals discuss family businesses, discussions usually center on the challenges faced by the typical family business. In addition to the estate tax and income tax considerations, determining who should succeed to the ownership and management of the business, and when that succession should occur, we are also often discussing the potential for family conflicts within the business.
For those of you in Humboldt, Mendocino and Del Norte Counties who own family businesses, take heart. A new study finds that by dealing with these family issues, a family business may have a significant competitive advantage over a non-family business.
While concentrating on the uncertainty about estate tax thresholds for 2011, most Humboldt County residents have overlooked the income tax ramifications of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.
This legislation gave tax payers a 2-year income tax reprieve by extending into 2011 and 2012 the lower income tax rates and many of the other tax incentives that were enacted in 2001 and 2003. These were commonly called the Bush Tax Cuts.
If you are considering purchasing a business or selling a business in Humboldt County, there are a number of important questions that should be considered before you enter into the transaction:
1. What is the price and how was the price determined? Is the price based on the seller’s opinion? Is the price based on the opinion of a business valuation expert or accountant, and, if not, should one be hired or consulted regarding the sales price?
Please remember if you are the successor trustee of a decedent’s estate you will have the responsibility of filing the decedent’s final federal income tax return for the tax year ended on the date of the decedent’s death. If the decedent was married at the time of death, the successor trustee may file a joint return with the surviving spouse for the decedent and the surviving spouse. If the surviving spouse remarries before the end of the year of the decedent’s death, a joint final return may not be filed.
Do you run a small, closely held corporation, partnership, or limited liability company in Humboldt County, Trinity County, Del Norte County or Mendocino County?
If so, do you have a Buy-Sell Agreement that provides for the transfer of your ownership interest if you die, retire, become disabled, or want to sell your interest in the business?
The purpose of a Buy-Sell Agreement is to provide for an orderly transition of ownership interest on the occurrence of any number of events. In addition to those events mentioned above, a Buy-Sell Agreement can also be important when an owner files for bankruptcy, loses a required license or is voluntarily or involuntarily terminated from his or her employment in the business.
Humboldt County’s elderly and dependent adults need to be aware of the protections from elder abuse, including financial elder abuse, provided by California Law. The California Legislature, through the Elder Abuse and Dependent Adult Civil Protection Act (“EADACPA”) has provided the framework for protecting against the financial abuse of an elder or dependent adult.
An elder is defined as any person residing in California who is 65 years of age or older. A dependent adult is anyone residing in California between the ages of 18 and 64, whose physical or mental limitations restrict his or her ability to carry out normal activities or to protect his or her rights. This includes, but is not limited to, persons whose physical or developmental disabilities have diminished because of age.
Elderly and dependent adults are vulnerable for many reasons.
While Humboldt County residents should always periodically review their retirement plans and accounts as a part of their estate planning and business planning, now is a particularly good time to consider whether you should convert your traditional IRA into a Roth IRA.
As of January 1, 2010, a significant change occurred in the conversion rules for Roth Individual Retirement Accounts. The $100,000 adjusted gross income limit that has prevented many individuals from converting a traditional IRA to a Roth IRA has been lifted enabling all individuals to take advantage of conversion without any income or filing status limits.