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By Monica D. Moons
• 5 – 4 Supreme Court decision that same-sex couples nationwide have a constitutional right to marry
• All 50 states must recognize same-sex
marriages • Even where that state’s residents entered
into a same-sex marriage in another state where the marriage was previously legal
• Many Michigan statutes must now be updated
• “Spouse” vs “husband and wife”
• Family Law
• Many issues left unresolved
• Parent-Child Relationship • Must take affirmative steps to ensure
both parents have legal rights
• 2nd parent (step parent) adoption • Affidavit of Parentage • Order of Filiation
• Divorce • When marriage occurred
• Invasion of property • Custody and Parenting Time –
Best Interest Factors
• Open Questions • New and Controversial Law
• Ensure marriage recognized under
Federal and Michigan law • Obtain official evidence of marriage
• Be careful of probate and trust laws that are not gender neutral
• Use experts for adoptions
• PTAs could be problematic
• Probate and Estate Planning Implications
• Estate Planning Simplified
• No more need for “domestic
partner "documents
• Couples may now refer to each other as “spouse” in estate plan documents
• Prenuptial and postnuptial
agreements should now be an option for same-sex couples
• Estate and Tax Planning should be the same as for heterosexual couples
• Couples can now file joint
income tax returns in Michigan, as well as Federal returns
• Transfer of a home to a same-sex spouse should not lead to uncapping for property taxes
• Statutes terminating spousal rights on divorce should now apply
• Powers of Attorney and Patient Advocate Designations
• Though spouse now has priority to act as guardian and conservator, best advice is to have a durable power of attorney and patient advocate designation in any event
• Probate
• Priority to serve as Personal Representative
• Intestate succession, election rights and allowances
• Statutory default provisions may thwart intent
• Rights in wrongful death action
• Estate and Gift Taxes
• Unlimited material deduction now available
• Portability also available
• Social Security and Veterans Benefits
• Benefits should now apply to all married couples
• Domestic partner benefits
• May be eliminated now
• Michigan Income Tax Implications
• Can amend prior returns
• Not all couples would benefit, based on tax rates
• Federal Income Tax Advantages
• Joint Filing
• IRA rollover at death
Recent Developments in Typical Estate Planning
Circumstances
By: Mark G. Landau, Esq.
ADJUSTED 2016 FIGURES FOR ESTATE, GIFT AND GST TAX ITEMS
A. Unified estate and gift tax exclusion amount - $5,450,000.
B. Generation-skipping transfer (GST) tax exemption - $5,450,000.
C. Gift tax annual exclusion - $14,000.
ADJUSTED 2016 FIGURES FOR ESTATE, GIFT AND GST TAX ITEMS
D. Special use valuation reduction limit for farm or closely held business interests - $1,110,000.
E. Determining 2% portion for interest on deferred estate tax - $1,480,000.
F. Increased annual exclusion for gifts to non-citizen spouses - $148,000.
PORTABILITY OR NO? THE DEATH OF THE CREDIT SHELTER TRUST?
A. Portability of Deceased Spousal Unused Exclusion ("DSUE").
B. Last deceased spouse limitation. C. Making the election.
• Timely-filed and complete Form 706. D. Estates under exemption amount - certain
marital and charitable deduction property, estimate up to nearest $250,000.
E. Final Regulations effective June 12, 2015.
F. Portability Advantages.
1. Simplicity – Outright or Qtip Trust? Control.
2. Basis step-up – first death and second death.
3. IRD tax-efficiency – do not “waste” credit shelter trust.
PORTABILITY OR NO? THE DEATH OF THE CREDIT SHELTER TRUST?
4. Market declines – DSUE amount is not reduced.
5. Lower state exemption amount.
6. Avoidance of funding formulas.
PORTABILITY OR NO? THE DEATH OF THE CREDIT SHELTER TRUST?
G. Portability disadvantages.
1. GST exemption – not portable.
2. Creditors’ claims –if outright.
• Consider QTIP Trust. 3. Loss of control – if outright.
• Consider QTIP Trust. Control.
PORTABILITY OR NO? THE DEATH OF THE CREDIT SHELTER TRUST?
4. Lack of indexing – DSUE is fixed vs. growth in credit shelter trust.
5. Remarriage forfeiture. If surviving spouse remarries and survives a second spouse.
6. More audit risk. The statute of limitations on first death (3 years) runs until statute of limitations on second death.
PORTABILITY OR NO? THE DEATH OF THE CREDIT SHELTER TRUST?
H. Planning.
1. Estates that will never exceed the “$5,000,000 exemption.”
a. No file.
b. Consider increase in assets/decrease in exemption.
PORTABILITY OR NO? THE DEATH OF THE CREDIT SHELTER TRUST?
2. Estates that may exceed the "$5,000,000 exemption.”
• Compare benefits vs. cost
3. Estates over the $5,000,000 exemption.
• File the election.
PORTABILITY OR NO? THE DEATH OF THE CREDIT SHELTER TRUST?
I. Tips on Filing the Election.
1. Obtain full supporting information to support basis - required for IRS reporting.
2. Deduction for claims and funeral expenses.
PORTABILITY OR NO? THE DEATH OF THE CREDIT SHELTER TRUST?
CONTINUING VIABILITY OF DISCOUNTING TECHNIQUES
A. Proposed regulations - Not yet issued under 2704(b) to limit/eliminate discounts of family owned equity interests in family companies.
B. IRC 2704(b)(4). C. Planning - Act Now.
1. Minority interest. 2. 20% interest – less than pro rata value. 3. Example: 4. Gift tax return – adequate disclosure.
PLANNING IMPLICATIONS
• Joint trust.
• Time or restricted distributions.
• Creditor protection.
• Income tax planning.
PLANNING IMPLICATIONS
Examples • Estates below $5,000,000 • Estates between $5,000,000-
$10,000,000 • Estates above $10,000,000 • 1st marriage / 2nd marriage • Adult children • House / IRAs / Investments
Factors Single Joint vs. 2 Separate Trust Trusts
Ease of Yes No (accounting, Administration tax return, residuary beneficiaries)
Control Surviving Spouse Decedent Spouse (Independent (Co)Trustee(s)) Distribution for Same Husband and Wife Beneficiaries Different
Factors Single Joint vs. 2 Separate Trust Trusts
Estate Tax 100% in survivor's estate Credit Shelter Trust - (Portability election - Survivor's Estate -
$10,860,000) Estate tax increase free - including increase in value
Creditor Protection No Yes-transfer assets for Client to less risky spouse Basis Step Up 50% 100%
$ 1 year rule
Factors Single Joint vs. 2 Separate Trust Trusts
Creditor Protection for Children (see chart) $ IRA Beneficiary In Trust In Trust
Avoid Probate Yes Yes
Discounting N/A IRS Regulations to be issued (Family passive assets)
GST - Avoid Estate Forfeit GST exemption Use GST exemption Tax (Children) (Not portable)
CURRENT CONCERNS
IN MEDICAID AND
SPECIAL NEEDS
PLANNING
By: Kathryn Gilson Sussman
1. Medicaid Estate Recovery
2. Currently, only probate assets can be recovered
3. Use Ladybird Deed for homestead.
4. Creditor Claim Rules under EPIC apply to Estate Recovery
5. Priority of Claims
6. Creditor Notice can bar claim for Estate Recovery
7. Protections for homestead
8. Estate Recovery deferred where certain relatives are residing in homestead
9. Hardship waiver may apply for homestead or income producing property
THIS IS A TRUE STORY.
At the request of the survivors, the names have been changed.
Out of respect for the dead, the rest has been told exactly as it occurred.
Approximately 90% of businesses in the U.S. are closely held businesses.
Closely held businesses employ approximately 52% of the U.S. labor force.
Approximately 90% of businesses in the U.S. are family owned businesses.
30% - Second Generation
12% - Third Generation
3% - Fourth Generation
Key Points:
1. Business succession affects a lot of people.
2. The odds are against a family business surviving into the next generation.
What can be done?
Business Succession Planning
Business Succession Plan:
A well-thought out strategy for transferring
which is implemented by business legal documents that support
ownership, management, and control of a business, practices and the plan.
Benefits:
Stability = Financial Rewards
Why don't owners have a business succession plan?
There are many reasons, but no good reasons.
How do you develop the business succession plan?
Step 1: You use experts, know what you don't know.
because you don't
Step 2: Fact gathering and evaluation, because the owner must evaluate the owner, the business, and successors.
Self-Evaluation:
1. Goals
2. Future financial needs
3. Estate plan
Business Evaluation:
The Company's trajectory today will dictate its destination tomorrow.
Successor Evaluation:
1. Relationship to the owner
2. Capabilities
3. Financial resources
4. Future plans for the business
Step 3: Contingency planning, because you can't predict the future.
How do you implement the business succession plan?
Step 1: Develop sound business practices that support the plan.
Step 2: Select the transferee
and the method of transfer.
Family Members: Sale, Lifetime gifts, Stock Bonus Programs, and Estate Planning.
Other Owners: Cross-Purchase and Company redemptions.
Employees: Sale.
Competitors and Unrelated Third Parties: Sale or Merger.
Step 3: Use legal strategies to continue income to owner post-transfer, if needed.
Step 4: Use life insurance, if needed.
Step 5: Do a complete tax analysis of transfer options.
The goal is to minimize taxes by taking full advantage of the options available
Step 6: Use the appropriate legal documentation to facilitate the plan.
Remember the 3 C's:
1. Clear
2. Consistent
3. Comprehensive
Final Thoughts:
1. Create the business succession plan as early as possible.
2. Regularly review and update the plan.
Guidance for Dealing with Employees in the Closely
Held Business
By: David A. Lawrence
and
Sarah Heisler Gidley
Civil Rights/Anti-Discrimination
• Title VII • Americans with Disabilities Act • Equal Pay Act • Age Discrimination in Employment Act • Older Worker Benefit Protection Act • Elliot-Larsen Civil Rights Act • Persons with Disabilities Civil Rights Act • Whistleblowers' Protection Act
• In 2014, the EEOC received 88,788 charges of workplace discrimination - lowest number since 2007.
• 42.8% - Retaliation
• 35% - Race
• 29.3% - Sex (including pregnancy)
• 28.6% - Disability
• 23.2% - Age
• 23.2% - Age
• 10.8% - National origin
• 4.0% - Religion
• 3.1% - Color
• 1.1% - Equal pay
Disability and religious discrimination claims are on the rise.
The Hiring Process
• Immigration Reform and Control Act
• Personal Responsibility and Work Opportunity Act
• Fair Credit Reporting Act
Retirement and Health
• Employment Retirement Security Act
• Family Medical Leave Act
• Health Insurance Portability and Accountability Act
FMLA
Companies with 50 or more employees must provide up to 12 weeks of unpaid leave to eligible employees for specified family and medical reasons. FMLA claims are on the rise.
Wages and Overtime
• Fair Labor Standards Act
• Independent Contractor v. Employee
• Workforce Opportunity Wage Act
DOL Investigations
DOL is stepping up enforcement. From 2009-2014, agency-initiated investigations increased 23%, and there was a 20% increase in findings of violations. In 2014, 78% of agency-initiated investigations resulted in violation findings. The agency recovered $79 million in back wages in 2014.
FLSA
Establishes minimum wage and overtime pay. Most employees are nonexempt and must receive overtime pay for hours actually worked over 40 hours per workweek.
Misclassification
Department of Labor study found that 10-30% of audited employers misclassified workers.
Common FLSA Violations
Misclassifying employees as exempt, using unpaid "interns", paying incorrectly for travel time, not accurately tracking hours actually worked, providing comp time in lieu of overtime, misclassifying independent contractors.
FLSA Penalties
Employees may recover back pay, interest, attorneys' fees, court costs and liquidated damages. Employers - and individual officers or supervisors - may be assessed civil fines.
FLSA LAWSUITS
Private wage and hour litigation has increased significantly in recent years, including class and collective actions. Employees have recovered millions in verdicts and settlements.
Exempt v. Nonexempt
An exempt employee is paid at least $23,600 per year (or $455 per week), is paid on a salary basis and performs exempt job duties (executive, professional, administrative, outside sales), or is specifically defined as exempt (farm workers, seasonal workers, etc.) All other employees are nonexempt.
Independent Contractor vs. Employee
• The 1099 Form is not a magic shield!
Independent Contractor vs. Employee
• IRS uses a 20-factor test that focuses on whether the employer has the right to direct and control the work, including where, when and how the job is done.
• For purposes of FLSA, FMLA and civil rights statutes, an "economic reality test" is used. Considers the employer's degree of control over the worker and the degree to which the worker is economically dependent on the business.
Obergefell v. Hodges
Not an employment case and does not expand the protected classes under civil rights laws. No explicit protection for LGBT workers under federal or state anti-discrimination statutes.
HIPAA
Employers are not generally "covered entities" but may be if they provide a self-insured health plan or act as intermediary between employees and health care providers. No unauthorized disclosure of personally-identifiable health information.
Medical Marijuana
Use of medical marijuana is legal in Michigan, but employers may still enforce a zero-tolerance drug policy.
By: Dawn Yeaton
Two Recent Changes in Michigan Law
Affecting Real Property Ownership:
• Michigan real property ownership rights for married couples following the supreme court decision in Obergefell v. Hodges.
• P.A. 310 of 2014, Michigan's new "uncapping" with family member transfers statute.
Real Property Ownership
for
Same-Sex Married
Couples
There are two areas in real property law that vest rights in married persons as husband and wife that are unsettled:
(1) Tenancy by the entireties and
(2) Dower rights.
Real Property Ownership for
Same-Sex Married Couples
Tenancy by the Entireties: Under current Michigan law, when a husband and wife take title to real property, they do so as tenants by the entireties ("TBE").
Why does this matter?
Protections and benefits of TBE. • No unilateral action. • Both spouses have right to income. • Title automatically vests in surviving
spouse. • Creditor protection.
What is the reason for it?
Purpose of TBE • Protection of the marital estate. • Both spouses protected equally.
What happens next?
• Anticipated legislative resolution: it is likely that the statute will be re-written to apply to all spouses, regardless of gender.
What to do until then?
– We recommend the following language, as an example:
John Smith, husband, and Bill Jones,
husband, as a married couple and as
tenants by the entireties, unless such
tenancy by the entireties is deemed
invalid under the laws of Michigan, then
as joint tenants with full right of
survivorship.
Real Property Ownership for
Same-Sex Married Couples
Dower Rights: In Michigan, a widow has the statutory right to elect to take a one-third life estate interest in the real property owned by the husband during their marriage upon the husband’s death (MCL 558.1). Michigan is the only state that still has dower rights.
Why does this matter?
Protections and benefits of Dower • Alternative if husband leaves wife
nothing. • Not terminated if husband sells or
finances the property.
What is the reason for it?
Purpose of Dower. • Dower is a statutory right given to a
widow who is married to a husband. It is gender specific.
• To compensate for prior discrimination.
What happens next?
• Bills have been introduced in the Senate which, if enacted, will abolish dower rights. (Senate Bills 558, 559 and 560, 10-13-15)
What to do until then?
• Practical concerns if a same-sex married couple wishes to sell or finance real property title in the name of only one spouse. – The title-holding spouse should be
described as a married person. – The non-titled spouse should be
defined as a spouse and sign the deed or mortgage.
P.A. 310 OF 2014, MICHIGAN'S NEW
"UNCAPPING" WITH FAMILY MEMBER
TRANSFERS STATUTE
• Under Michigan law, a transfer of ownership causes the taxable value of the transferred property to be adjusted, which may cause an increase in real estate taxes after the transfer.
Exemption From "Uncapping" With
Family Member Transfers
• The statute was recently amended to exclude from the definition of "transfer of ownership" conveyances to a grantor's spouse, or grantor's or grantor's spouse's mother, father, brother, sister, son, daughter, adopted son, adopted daughter, grandson, or granddaughter ("Family Member") for transfers of residential real property (MCL 211.27a(7)(t)).
What Residential Real Property
Qualifies for the Exemption?
• The real property must be classified as residential for property tax assessment purposes under MCL 211.34c. It does not have to be homestead property.
What Other Transfers to Family
Members do not Result in Uncapping?
• Transfer of residential property to a trust where a Family Member is the sole present beneficiary (MCL 211.27a(6)(c)).
• Transfer distributing residential property from a trust where the distributee is a Family Member (MCL 211.27a(6)(d)).
• Change in the sole present beneficiaries of a trust where the substituted or added beneficiary is a Family Member (MCL 211.27a(6)(e)).
• Transfer distributing residential property to a Family Member by will or intestate succession (MCL 211.27a(6)(f)).
What Other Transfers to Family
Members do not Result in Uncapping?
What Intra-Family Transfers
Still Lead to Uncapping
of the Taxable Value?
• Transfer of ownership to a Family Member where the grantor retains a life estate (MCL 211.27a(7)(c)).
• Distribution from a Trust or Will to a Trust, even if the beneficiary or beneficiaries of the trust are Family Members.
• Conveyance into or from a Family Limited Liability Company.
What happens next?
• Bills have been introduced which, if enacted, would exempt from uncapping a conveyance of residential real property where:
– The transferor or transferee is an LLC with at least one member being a Family Member (House Bill 4645, 9-15-15).
– The transferee at the termination of a life estate held by the transferor is a Family member of the transferor (House Bill 4930, 10-27-15).
By: Gregg A. Nathanson
OVERVIEW OF MICHIGAN REAL
ESTATE OWNERSHIP
OPTIONS AND TECHNIQUES
I. Parents want to transfer Property/Home to their Son and Daughter (“Children”)
II. Parents own Property as tenants by the entireties, claim principal residence exemption (“PRE”)
III. Property has relatively low taxable value ("TV"). Parents purchased Property 40 years ago for $10,000; current fair market value is $1,000,000
FACTUAL ASSUMPTIONS
IV. Parents want to remain in Home for at least another 3 to 5 years; and want Children to own Property when they die
FACTUAL ASSUMPTIONS
I. Deed from Parents to Children
II. Deed creating Joint Tenancy with Full Rights of Survivorship
III. Deed Reserving Life Estate with Power of Sale (“Lady Bird” Deed)
OPTIONS FOR STRUCTURING
THE TRANSFER
IV. Transfer to Parents' Revocable Living Trust ("Trust")
V. Transfer to Family Limited Liability Company ("LLC")
VI. Transfer to Qualified Personal Residence Trust ("QPRT")
OPTIONS FOR STRUCTURING
THE TRANSFER
I. Deed 1. Advantages
a. Transfer is complete b. No uncapping of Taxable Value c. Avoid probate d. Property excluded from Parents’ estate
DEED FROM PARENTS
TO CHILDREN
2. Disadvantages a. Transfer is complete – Parents lose
control b. Parents lose PRE c. Children may decide to charge Parents
rent or even evict them d. Children receive Parents’ carry over tax
basis
DEED FROM PARENTS
TO CHILDREN
II. Joint Tenants with Full Rights of Survivorship 1. Overview
a. Parents transfer Property to themselves and their Children as JTWFROS
b. Assuming Children outlive Parents, when second Parent dies, Children will hold title to Property jointly
JTWFROS
2. Advantages
a. Parents keep PRE
b. No uncapping of Taxable Value
c. Children receive stepped-up tax basis to fair market value upon Parents' death
d. Avoid probate
JTWFROS
3. Disadvantages a. Parents lose some lifetime control b. Property automatically goes to Children
on second Parent's death and this cannot be changed
JTWFROS
c. Property included in Parents' estate for estate tax purposes
III. Deed Reserving Life Estate with Power of Sale (“Lady Bird” Deed) 1. Overview
a. Parents retain life estate b. Children receive contingent
remainder interest c. Parents retain right to change their
mind
LADY BIRD DEED
2. Advantages a. Parents retain lifetime
control b. Avoid probate c. Parents keep PRE d. Children receive
stepped-up tax basis
LADY BIRD DEED
3. Disadvantages a. Taxable Value will uncap upon Parents'
death (according to State Tax Commission) vs. lifetime transfer or transfer via trust or will/estate
LADY BIRD DEED
b. Note: Michigan House Bill 4930, if enacted, exempts transfer of residential property from uncapping taxable value for transfers to family members done via deed upon termination of life estate
c. Property included in Parents’ estate for estate tax purposes
LADY BIRD DEED
IV. Transfer to Parents' Revocable Living Trust (“Living Trust") 1. Overview
a. Parents transfer Property to their Living Trust
b. Parents are settlors, initial trustees, and sole present beneficiaries
c. Children are successor trustees and contingent beneficiaries
LIVING TRUST
2. Advantages
a. Parents retain control and can sell or mortgage Property or change beneficiaries
b. Parents keep PRE
c. No uncapping of Taxable Value
LIVING TRUST
Probate Court
d. Children receive stepped-up tax basis
e. Avoid probate
LIVING TRUST
3. Disadvantages Property included in Parents' estate for estate tax purposes
LIVING TRUST
V. Transfer into Family Limited Liability Company ("LLC")
1. Overview
a. Parents transfer Property into LLC where Parents and Children own membership interests
FAMILY LLC
b. Parents may be Managers, or there may be two classes of membership interest - voting and non-voting - with Parents owning all voting interests
c. Parents' estate plan would provide for transfer of their membership interests to Children upon death
FAMILY LLC
2. Advantages
a. Parents maintain control
b. Avoid probate
FAMILY LLC
3. Disadvantages a. Transfer into LLC would probably uncap
Taxable Value
b. When Parents die, Taxable Value could uncap again if Parents owned more than 50% of membership interests
FAMILY LLC
c. Note: Michigan House Bill 4645, if enacted, would exempt transfer of residential property from uncapping Taxable Value when transferor or transferee is an LLC and other party to transfer is "closely related" to at least one member of LLC
d. Property owned by LLC (or corporation) cannot qualify for PRE
FAMILY LLC
VI. Transfer to Irrevocable Qualified Personal Residence Trust ("QPRT") – to minimize estate taxes 1. Overview
a. Parent, age 75, creates QPRT with Children as beneficiaries
b. Parent retains right to use Property for 10-year Term, rent-free
QPRT
c. At end of Term, title transfers (out of the Parent’s estate) to Children
d. If Parent remains in the house, they must pay FMV rent to Children
e. If Parent dies during Term, value of Property is included in Parent's estate
QPRT
Example – Values at time QPRT set up:
Property FMV $ 1,000,000 Parent’s right to remain in house for Term $ 560,000 Taxable Gift to children $ 440,000
Property FMV at end of QPRT Term $ 1,800,000 Tax on appreciation $ 0
QPRT
2. Advantages a. Gift tax is based on discounted
valuation b. If Parent survives Term, Property is
excluded from Parent’s estate and has been transferred at discounted valuation
QPRT
c. If Parent leases Property after Term, rent payments move funds out of Parent’s taxable estate, further decreasing estate taxes
d. During Term, Parent keeps PRE
QPRT
e. No uncapping of Taxable Value
QPRT
3. Disadvantages a. Children have to pay income tax on
rent amounts received (but that tax may be less than estate tax they would pay if that same amount were inherited)
b. After Term, Parent loses PRE
QPRT
By: Kathryn Gilson Sussman
1. Automatic allocation of GST exemption.
2. Applies to transfers made after 12/31/2000 to a GST Trust.
3. GST Trust = Trust which could have a future generation skipping transfer.
4. Example: ILIT with
life use for children, then to grandchildren.
5. To avoid automatic allocation, opt out on Gift Tax Return.
6. Automatic allocation of GST impacts final allocation of GST exemption on 706.
7. Annual exclusion gifts to IT non-taxable for GST only if: (a) IT has only one skip person beneficiary and (b) assets of IT includable in beneficiary’s gross estate.
8. Applies to gifts made after 3/31/1988.
9. Example: IT for grandchild where grandchild has general power.
10. Crummey Notices.
11. Written notice needs to be sent to Trust beneficiaries given withdrawal rights in IT.
12. Copies of Notices sent should be retained for potential 706 audit.
13. Basis consistency – IRC Section 6035.
14. Requirement imposed on executor required to file 706 for 706 filed after 7/31/2015.
15. Statement must be furnished to IRS and person acquiring decedent’s property identifying value of property reported on 706.
17. Statement due date postponed until 2/29/2016.
18. Beneficiary must use 706 value to report gain or loss on his or her income tax return.
16. Statement Due Date: Earlier of (a) 30 days after 706 required to be filed (including extensions), or (b) 30 days after 706 filed.
19. Exception where property received does not increase estate tax liability.
20. Exception examples:
a. Marital deduction property. b. Gross estate < exclusion amount.
21. 706 Closing Letter will not be issued unless requested for 706s filed after 6/1/2015.
22. Wait at least 4 months from filing date, then contact IRS by phone.
Lawrence F. Schiller
Top Things Clients
Must Know
Regarding the
Affordable Care Act
NEW PROHIBITIONS FOR HEALTH
PLANS:
Lifetime and annual dollar limits
Pre-existing condition exclusions
Waiting periods exceeding 90
days
IMPACT OF AFFORDABLE
CARE ACT
Discrimination in insured health plans
Discrimination based on:
• Health status, genetic information, disability, evidence of insurability, wages
MANDATORY FOR HEALTH
PLANS:
Dependent child coverage until age 26
Coverage for children's pre-existing conditions
Insurers must disclose administrative and executive expenses
Guaranteed availability and renewability
Must cover preventive care, immunizations and vaccinations
No cost coverage of certain preventive services
Individual mandate
Employer shared responsibility
TAX:
Reduction of itemized
medical deductions
Additional Medicare Tax
Increased penalty on nonqualified HSA and MSA withdrawals
Sales tax on indoor
tanning
Simple Cafeteria Plans
Limit on employee deferrals to FSAs (cafeteria plans)
Rx required for FSA over-the-counter drugs
Small employer health
insurance tax credit
Cadillac plan excise tax (40%
of premium in excess of
certain thresholds)
APPLICABLE LARGE EMPLOYER
(“ALE”)
Shared responsibility obligation
(employer mandate)
Employers with 50 or more
employees (100 or more in 2015)
Based on the average number of
employees per month in prior
year
Includes full-time equivalents
(“FTEs”)
Includes all members of
controlled group
Count all common law (with some exclusions)
• Full-time employees (at least 30 hours of service per week)
• Part-time employees (determine FTEs)
Add all hours of service during month (up to 120 per employee) Divide by 120
• Add FT employees and FTEs for each month during the year
• Then divide by 12 (round down)
Hours of service are same as for tax-qualified plans
• Includes hours paid for performing services
• Includes hours paid for not performing services (vacation, jury duty, etc.)
• Includes on-call hours
Seasonal worker exception to
ALE determination
• Employer exceeds 50 employees
for no more than 120 days
and
• Employees in excess of 50 were
seasonal employees
Example of Seasonal
Employee Exception
January through April, 2015
May through August
September through December
(8 x 40) + (4 x 90) = 680/12 = 56.67
FT Seasonal Total
40 0 40
40 50 90
40 0 40
ALE NON-COMPLIANCE
PENALTIES:
IRC Section 4980H(a)
• No offer of coverage to full-time
employees (and dependents), and
• Any full-time employee receives premium tax credit or cost sharing reduction
• For each month:
1/12 X $2,000 X number of full-
time employees (exceeding
30)
IRC Section 4980H(b)
• Coverage offered to full-time
employees
• Coverage is not affordable (i.e.,
employee pays more than 9.5% of family income), and
• Any full-time employee receives tax credit or cost sharing reduction
• For each month:
1/12 X $3,000 X number of full-time
employees receiving assistance
HEALTH REIMBURSEMENT AND
SIMILAR ARRANGEMENTS
Health reimbursement arrangements (“HRAs”)
• Funded solely by an employer
• Reimburses for employee medical care expenses
• Includes so-called medical
expense reimbursement plans
(“MERPs”)
• Reimbursements excluded from
the employee’s income
Employer payment plans
• Employer reimburses for employee
individual health insurance premiums
• Employer payments excluded from
the employee’s income
Health flexible spending accounts
(“Health FSAs”)
• Part of a Section 125 Cafeteria
Plan
• Employee reduces compensation
on a pre-tax basis
• Employer can add additional
employer funds
• Amounts not included in
employee’s income
• All are considered group health plans
• Must meet market reforms
Annual dollar limit prohibition
Preventative services requirement
• Non-compliance excise tax of $100
per day per individual
HRA
• Cannot meet market reforms, unless integrated with group plan:
Employee offered group health plan
Group plan not just excepted benefits (e.g., dental and vision)
Employee in HRA is enrolled in group
health plan (can be non-employer)
HRA available only to employees
enrolled in group coverage
HRA reimbursement limited to:
deductibles, group health premiums,
non-essential health benefits
Employer payment plan
• Cannot be integrated with another
health care plan
• Will not meet market reforms
Health FSA not subject to market reforms if only excepted benefits are offered
• Treated as offering excepted benefits
if:
Employer offers group health plan
coverage
Health FSA benefit limited to two times salary reduction
SMALL BUSINESS HEALTH
OPTIONS PROGRAM (“SHOP”)
MARKETPLACE
Intended to assist small employers
in obtaining lower-cost coverage
Available to employers with 50 or
fewer employees (100 in 2016).
Employer must offer coverage to
all full-time employees.
NON-DISCRIMINATION
REQUIREMENTS
No regulations yet issued
GUIDANCE ON AFFORDABLE
CARE ACT IMPLEMENTATION
Go to Department of Labor/EBSA
website
NEW TAX RETURNS
IRS Forms 1094-C and 1095-C
• Due for first time in 2016, covering
2015)
• For ALEs
• Due by February 28 (or March 31
if filed electronically)
• ALEs required to furnish a
statement to full-time employees
by January 31
IRS Form 720
• For plan sponsors of applicable self-insured health plans
• Research fee is currently $2.08 per covered individual.
HELPING CLIENTS FOLLOW NEEDED
BUSINESS FORMALITIES
By: Gary Schwarcz
When a corporation is established and maintained properly, a corporation is treated under the law as an independent entity, with many of the rights afforded individuals.
As a separate and distinct entity from its shareholders, only a corporation's assets can be seized to pay judgments or satisfy other debts owed by the Corporation if corporate formalities are followed.
I. PURPOSE OF FORMALITIES
• Incorporating a business is only the first step in protecting your client's assets from creditors.
• Failure of the corporation to hold meetings, adopt resolutions, maintain minutes, comingling corporate assets with personal assets, or failing to sign documents in the appropriate corporate form, could void the benefits and protections associated with a corporate entity.
I. PURPOSE OF FORMALITIES
Small family run businesses often disregard corporate formalities as being unnecessary administrative work.
I. PURPOSE OF FORMALITIES
Reasons for documenting a corporation’s actions include:
• Following corporate formalities creates
defenses against law suits attempting to establish personal liability of directors or officers for exercising board of director business adjustments and specific authorizations.
II. CORPORATE MINUTES
• Documentation of transactions between shareholders and a corporation helps protect the shareholders from liability to third parties by maintaining the limited liability shield.
II. CORPORATE MINUTES
• Landlords and banks often demand documentation of corporate approval as a condition into entering into certain business transactions.
• Documentation can provide evidence of
certain elements of desired tax treatments, such as providing the reasoning behind "reasonable compensation" to support its deduction.
II. CORPORATE MINUTES
• Documentation can provide important
evidence bearing on employment relations, such as reason for employee discipline or discharge.
II. CORPORATE MINUTES
Documentation of corporate minutes will substantiate limited liability for corporate debt obligations, document and substantiate income and loss positions for the Internal Revenue Service in the event of an Internal Revenue Service audit, and document authorization of contracts and obligations executed by the Corporation.
II. CORPORATE MINUTES
Where possible, minutes often include the following: • Election of the directors and officers.
• Declaration of dividends or distributions.
• Authorization of contracts.
II. CORPORATE MINUTES
• Compensation of officers and key
employees.
• Adoption and changes in contributions to employee benefit plans.
II. CORPORATE MINUTES
• Loan and guarantee transactions.
• Authorization of employee contracts.
• Acquisition of property.
II. CORPORATE MINUTES
• Issuance of shares. • Approval of financial statements and audit
reports.
II. CORPORATE MINUTES
Will the failure to keep corporate minutes in and of itself result in piercing the corporate veil? Most likely the answer is no. But it is one of the factors that the Internal Revenue Service or a court would consider before piercing the corporate veil.
II. CORPORATE MINUTES
The following corporate formalities should always be followed:
• The corporation and shareholders must
treat themselves as separate entities and thus the corporation must have its own bank account which should not be used for personal expenditures.
• The corporation must be fully capitalized.
Even a single shareholder corporation must be appropriately capitalized.
III. OTHER CORPORATE FORMALITIES
• The corporation should pay dividends if
appropriate.
• Failure to properly document a loan made by a shareholder to the corporation could result in the Internal Revenue Service or a court re-characterizing the loan as a capital contribution. If the corporation borrows money from a shareholder, have the corporation sign a promissory note with a stated due date and interest rate.
III. OTHER CORPORATE FORMALITIES
• Every signature on behalf of the corporation
should include the corporation's name, the officer's signature and words showing that the officer is signing on behalf of the corporation.
• If the corporation has more than one
shareholder, the shareholders should have a written agreement restricting share transfers and addressing buyouts on a shareholder's death and for other triggering events.
III. OTHER CORPORATE FORMALITIES
• Owners receiving loans must properly
record the loan. o If the loan is not properly
documented, it may be deemed to be a constructive dividend.
III. OTHER CORPORATE FORMALITIES
Once corporate formalities are not strictly observed, whoever is suing can "pierce the corporate veil" and the protection available to shareholders for corporate liabilities may no longer exist.
• Creditors will try to attach individual
liability for debts to shareholders.
IV. PIERCING THE CORPORATE VEIL
• Courts often look at the following factors in determining whether it is appropriate to pierce the corporate veil: o Has the corporation failed to follow
corporate formalities, such as having by-laws, minutes of shareholder and board of director meetings;
o The absence of corporate records;
IV. PIERCING THE CORPORATE VEIL
o Whether the shareholders are syphoning money from the corporation for personal use; This means that corporate income
should be deposited into corporate bank accounts not in the shareholders' bank accounts.
IV. PIERCING THE CORPORATE VEIL
o Inadequate capitalization; o Failure to issue stock;
IV. PIERCING THE CORPORATE VEIL
o Failure to observe corporate formalities; o Non-payment of dividends;
o Insolvency; o Diversion of assets from the corporation
by a shareholder;
IV. PIERCING THE CORPORATE VEIL
o Failure to maintain arms-length relationships among related entities; and
o Whether in fact the corporation is a mere façade for the operation of the majority owner.
IV. PIERCING THE CORPORATE VEIL
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Thank you for
attending!