WARNING!

Your business entities may be in jeopardy.

The Internal Revenue Service has recently hired as many as 3,000 new agents. Their purpose is to create more revenue for the government. A primary intention is to audit small business and capture more unpaid tax.

They believe that many small businesses, dbas, partnerships, limited liability companies (LLCs), and even corporations, are not following accepted business practices. And if they aren’t, then they are not entitled to business deductions. And that means they owe more tax.

Accepted business practices means keeping good accounting records, such as receipts, checks, invoices, company resolutions for major purposes, etc. They are also looking for company minutes for annual meetings, special meetings, decisions to make special purchases or to take business trips.

Yes, if you are in business, you must keep not only accounting records, but also legal records, especially meeting minutes. They must be in writing and be organized. This applies to you if you are in business, whether as a DBA, an LLC, a corporation, or a partnership. Yes, it even applies to Family Limited Partnerships. If you have any questions or concerns about this, it may be a time for a sit down meeting with your attorney.

You may want to review my “Use and Care Book” for small business. READ IT. Underline it. Put it to use. Protect your business from audit, and at the same time from possible creditors, predators, and lawsuits. You can find it at my website; www.estateplanningdr.com.

It’s not too late to correct things. If you don’t keep annual minutes, call me now. If you don’t have a minute book, call me now. If your business entity isn’t linked to your revocable living trust, call me now. If you don’t know what you need to do, call me now. Get yourself together.

Let this be a WARNING to you. Act now.

This came up just this morning at the office. A client wants to give a portion of his interest in an investment to his children. He wants to put the title in the children’s names. The asset is actually an interest in a Family Limited Partnership. Two of these children are minor children. I told him, “Don’t do it.”

If you have children who are under the age of 18, they are minors. As far as the law is concerned they are incapacitated. They don’t have the legal capacity to enter into a legally binding contract. If you put something of value in the name of your minor child, then who really owns it? The child can’t. This opens up a can of worms.

When you want your children to own something of value, you should name someone to act on their behalf and have them own the asset in a trust. Preferrably an irrevocable children’s trust. As their guardian you can also be the trustee of their irrevocable children’s trust. The trust owns the asset. You control it on their behalf.

In this case, I recommended that the client establish an irrevocale children’s trust. He can be the trustee. He still controls the asset.

The Children’s Trust has a new taxpayer identification number, so the income from the child’s share is reported for tax purposes as if it were the child’s. It’s passed through to the child and he would pay tax on it at his current tax rate. His tax rate is presumably lower than the parent’s. So it may save some tax.

The asset is owned by the Children’s Trust. It will not be subject to any claim, lawsuit, judgment or demand to the parent, as it would be if the parent still owned it.

The asset is not in the parent’s estate. If the parent should die, there is no transfer to be made. The Children’s Trust has a successor trustee. This person would then control the asset for the benefit of the child.

This asset now is effectively owned by the child. Because it is in the Trust it is protected from judgments, lawsuits, creditors and lpredators. It is taxed at a lower rate than if it were owned by the parents. And will not be subject to probate upon the death of the parents.

Irrevocable Children’s Trusts are the most underutilized asset protection and estate planning tool around.

Do you have a larger estate? This is the entity that will protect your assets, provide tax benefits for your heirs and allow you to retain control. A Family Limited Partnership is becoming one of the most popular methods to pass the equity in a larger estate to the heirs at a discounted tax rate, while retaining control, and at the same time, protecting the assets from lawsuits. read more >>

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