Plan for Yourself, Your Business and for Your Loved Ones

Estate Planning FAQs

“I am not rich. Why do I need an estate plan?”
This is a question I hear on a regular basis as an estate planning attorney. The answer is simple - everyone needs an estate plan! What “type” of estate plan you need depends on your unique situation. A customized estate plan should take into consideration your unique family situation - your assets, your goals, and the values you would like to pass on to your beneficiaries. One size does not fit all when it comes to creating an estate plan.

When we think about estate planning, we immediately think of death. However, a proper estate plan will help protect you and your family while you are alive as well. Thanks to modern health care, people are living longer. This means there is a greater likelihood that at some point in our lives (hopefully later than sooner) we may be impaired physically, mentally, or even incapacitated.

Think about it...what would happen if you were unable to make medical or financial decisions for yourself? Have you discussed your wishes with your family? Who would pay your bills? Who would run your business? Do they have access to your financial accounts? Would you want to be kept alive on life support? Who would you trust to take care of your children? All of these important questions can be addressed when you create your customized estate plan.

“What is typically included in an estate plan?”
Your unique family and financial situation will help determine which “tools” you will utilize to “build” your customized estate plan. Common “tools” include wills, trusts, financial powers of attorney, property agreements, medical authorizations, and advance health care directives. Regardless of your financial situation, everyone should have an advance health care directive.

“What is an advance health care directive?”
An advance health care directive provides directions as to actions that should be taken (or not taken) regarding your health in the event you are no longer able to make decisions due to illness or incapacity. The advance health care directive also appoints a trusted person to make such decisions on your behalf.

“What happens if I don’t have time to create an estate plan?”
If you don’t take action to create your own customized estate plan, California legislators have already created a plan for you! We refer to this “plan” as the California Probate Code. When you die without a customized estate plan, your assets will be distributed per the California Probate Code and may need to go through probate.

“What is probate?”
Probate is the process by which legal title of property is transferred from a decedent's estate to the beneficiaries.
California legislators have also determined how much it will cost your estate to go through probate. The California Probate Code sets the statutory fees for attorneys and executors of the estate. The fees are 4% of the first $100,000 of the estate, 3% of the next $100,000, 2% of the next $800,000, 1% percent of the next $9,000,000, and 0.5% of the next $15,000,000. For estates larger than $25,000,000.00, the court will determine a reasonable fee.

PROBATE ESTATE VALUE                      ATTORNEY & EXECUTOR FEES*

$100,000                                                      $8,000

200,000                                                        $14,000

500,000                                                        $26,000

1,000,000                                                     $46,000

3,000,000                                                     $86,000

5,000,000                                                     $126,000

*The attorney receives one-half of the probate fees and the executor receives the other one-half. In complicated probate cases, the court has the discretion to approve fees that are higher than those listed above.

Furthermore, the statutory probate fees are based on the fair market value of the estate. This fair market appraisal value does not take into consideration mortgages or other debts. Therefore, the probate estate value may be higher than the actual equity that the deceased owned in the property.

In addition to the fees paid to the attorney and the executor, the estate must also pay court filing fees, publishing fees, and other costs associated with administration of the estate. Yikes!

“Can a will avoid probate?”
No. A will does not avoid probate. Even if a person executes a valid will, the will must be admitted to probate at death. A will contains provisions as to who will inherit the decedent’s assets and who will be in charge of administering the estate (the executor). A will has no legal effect until death and assets passing pursuant to a Will require probate administration.

“How can I avoid probate?”
There are several ways to avoid probate. It is important to work with your attorney to create an estate plan that is customized for you and your family. One way to avoid probate is to create a revocable living trust.

“What is a revocable living trust?”
A revocable living trust is a trust created during a person’s lifetime. It is essentially a contract between the "grantor" (the person contributing the assets) and the "trustee"(the person or entity that is going to manage the assets). Often the grantor and trustee are one in the same. A trust can also be “revocable” which essentially means the trust can be changed, amended, or ultimately revoked at any time while the grantor is living. Once the grantor dies, the trust becomes irrevocable.

A revocable living trust is created for many reasons – to avoid probate, to provide for incapacity of the grantor, to safeguard assets for minor children, to save money on taxes, to protect an inheritance, to ensure financial privacy, or to set up long term asset management.

If your business is incorporated or organized as a limited liability company (LLC), a living trust can help provide a smooth transition of the business in the event of your incapacity or death. In order for this to occur, the share certificates or membership certificates must be titled in the name of the trust. This is referred to as “funding” your trust. As a business owner, it is important to work with your attorney and CPA to coordinate your business succession plan with your individual estate plan.

A revocable living trust can also be an important “tool” if you have minor children. The California Probate Code states that children have full access to an inheritance once they reach the age of 18 – regardless of their maturity level or financial knowledge. A living trust can be designed in a manner that allows you to determine when they will receive their inheritance. For example, you may wish for your child to receive a partial inheritance at age 25 and the remainder at age 30. Or you may dictate to your trustee that the inheritance should be distributed only after your child reaches a certain milestone – like graduating college. These provisions can be as restrictive or as liberal as you feel is appropriate for your individual child. After all, you know them best!

Creating an estate plan will protect yourself, your business, and your loved ones from the dreaded unknown. Take action! Create a plan! Create peace of mind!
© 2011-Present Law Offices of Kimberly Lessing, APLC. All rights reserved.

Kimberly Lessing is an attorney dedicated to providing customized legal solutions to individuals, families, and businesses. Her practice areas include Estate Planning, Trust Administration, Probate, and Business Law. Ms. Lessing works with clients and their financial team to “plan, provide, and protect” their estates, businesses, and most importantly, the ones they love.
To learn more about creating your unique estate plan, please contact the Law Offices of Kimberly Lessing at (951) 279-6626 or visit http://www.lessinglaw.com/.

Awesome Event Tomorrow: Sales Coach Now Live 2011!

Are you Ready to Take a Quantum Leap in Your Sales in 2011?

February 4, 2011

8:00am to 7:00pm

The DoubleTree Hotel in Ontario, California

In ONE DAY, you will discover…

• The Five Steps you need to follow to take a Quantum Leap in your sales in 2011!
• Proven Sales Strategies to take your business to yet another level!
• The mindset and tools you need to grow your business!
• How to achieve RockStar status in your industry!
• Wealth Building Strategies so you can be in control of your future!
• Strategies from Ursula’s students who made Quantum Leaps in 2010!
• Facilitated networking opportunities! And MUCH MORE!

 

Guest speaker Loral Langemeier is one of today’s most dynamic and pioneering money experts. Craig Duswalt, creator of the RockStar System For Success – How to Achieve RockStar Status in Your Industry, will share tips to make YOU a rock star in your business. Plus a distinguished list of panelists who will reveal a wealth of information.

Register now at http://www.salescoachnowlive.com/

Top 5 Tips for Effective Time Management

One of the questions I am frequently asked is, “How do you get it all done?” Time management was not always one of my strengths, but over the years I have developed my time management muscle and you can do the same thing by applying the tips I am about to share!

But before I do that, I want you to take a quick assessment of yourself. How is a lack of time management negatively impacting your business? How is it holding you back? Write down your answers. What would your business and your life be like if you completed everything you wanted to complete every day?

My guess it is would be really different! Although time management feels like work, it is really the KEY to having more Freedom in your business. Christine Kloser, my former coach and author of The Freedom Formula, helped me understand that better time management would give me the time I desired to have the business of my dreams. And she was right!

My days don’t always go as planned, but by following the tips below, I am able to get my “to do’s” done so I can get to the things I love to do! And, I am able to sell MORE so I can live the life that I choose.

My Top 5 Time Management Tips Are:

• #1 Create your Ideal Schedule

You’ve heard me say it before, and I will say it again. You MUST have an Ideal Schedule. Without it, you are like a ship lost at sea, waiting for the next “thing” to beckon to you. An Ideal Schedule will allow you to take control of your sales results as well as your life. Most importantly, be sure to schedule time off as well as time to do business!

• #2 Make Selling a Priority

Once you have an Ideal Schedule, then you can make selling a priority. Selling is the first thing we like to procrastinate on because most people don’ t want to pick up the phone and make calls. But just by putting it on your schedule, you will be MUCH more likely to do it!

• #3 Turn E-Mail and the Internet Off

We all know this, so why do we keep our email open and our internet on? I think, deep down, we would rather be distracted then make sales calls or focus on what we need to do, so it is tempting to keep it all available. But if you want to increase your productivity, turn it off. Enough said.

• #4 Take Breaks

Add breaks to your Ideal Schedule. If you don’t, it is easy to just work, work, work until you can’t work anymore. But that’s not healthy and you already know that. So, take breaks when you need them, just time them so you know when it is time to get started again!

• #5 Have a “To-Do” List

Statistically your productivity goes up 25% when you use a “to do” list. So, why wouldn’t you? It’s an easy way to begin managing your time and to get those things done that need to get done.

Action Item: Print this list out and keep it in a spot you will see it daily. Review it whenever you feel overwhelmed or are procrastinating!

Things aren’t always to go as planned. But if you don’t have a plan in the first place, then you are planning to fail. Create your Ideal Schedule and follow it. I also recommend that you share it with your family so they know what you are up to. I promise you it will make a big difference in your business—and in your life!

Ursula Mentjes, M.S., ACC is the founder of Sales Coach Now and the author of Selling with Intention and One Great Goal. Ms. Mentjes has helped clients double and triple their sales revenue in as short as two months! If you want to do the same, then visit her web-site at www.salescoachnow.com and subscribe to her e-zine by clicking on the sign up box and typing in your email address. You will receive a FREE downloadable MP3 recording, "7 Ways to Sell More in a Doom and Gloom Economy". Or, join her at Sales Coach Now—LIVE 2011 for the re-release of Selling with Intention through Morgan James publishing! She will be sharing the stage with Loral Langemier, Craig Duswalt and other experts. www.salescoachnowlive.com. Ursula currently serves as the NAWBO-CA Vice President of Corporate Partners and Economic Development, is Past President NAWBO-IE and Past President of NAWBO-U (Inland Empire).

How to Turn Your 2% Payroll Tax Holiday into Greater Tax Savings

The largest new tax break for individuals was enacted on December 17, 2010. The one-year payroll tax reduction is found in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The act provides a 2-percentage-point payroll/self-employment tax holiday for everyone subject to the Social Security tax.

How Social Security and Medicare are Calculated for an Employee

Social security is computed on the first $106,800 of the employee’s wages at 6.2%. Medicare is computed on the entire wage at 1.45%. The employer also pays into the system for each employee utilizing the same rates. Social security plus Medicare is known as FICA. The FICA tax totals 7.65% on wages up to $106,800 and then drops to 1.45% on wages in excess of $106,800.

Under the 2010 Tax Relief Act, for calendar year 2011 the employee (NOT the employer) social security rate will be reduced to 4.2% and the total FICA tax will be 5.65% on wages up to $106,800 and 1.45% on wages in excess.

For example, Louie has wages for 2011 of $50,000. If the Tax Relief Act was not enacted, Louie’s FICA tax for 2011 would be $3,825 (7.65% x $50,000). Under the Tax Relief Act, Louie’s FICA tax for 2011 is $2,825 (5.65% x $50,000). That is a savings of $1,000 ($3,825 - $2,825).

The maximum reduction in FICA tax is $2,136 ($106,800 x 2%). For a married couple, each with wages of $106,800 or more, their maximum reduction would be $4,272 ((106,800 x 2) x 2%).

Use the Tax Saving Calculator to calculate your potential tax savings.

How to Maximize the 2% Payroll Tax Holiday as an Employee

If you are not currently contributing the maximum into your 401K plan or any other defined contribution plan, this is a great opportunity to maximize the 2011 payroll tax holiday.

Let’s catch back up with Louie who earned $50,000 of wages in 2011. He has been contributing 6% of his wages to his 401K plan totaling $3,000 ($50,000 x .06). The contribution is not subject to federal (and possibly state) income tax, so Louie would only recognize $47,000 in income on his 2011 tax return. For 2011, Louie would be in the 25% marginal tax bracket (considering no other adjustments). His $3,000 contribution to his 401K would represent a $750 tax savings ($3,000 x 25% marginal tax rate).

What if Louie increased his 401K contribution by the 2% payroll tax savings to 8% (6% + 2%)? His 2011 401K contribution would total $4,000 ($50,000 x 8%). His $4,000 contribution would now represent a $1,000 tax savings ($4,000 x 25% marginal tax rate); an increase of $250 ($1,000 - $750). The $1,000 savings from the payroll tax holiday calculated above has now increased to a $1,250 in tax savings ($1,000 + $250).

Here is a link to that calculates 401K Tax Savings. You will want to have your tax return available.

What if you are not eligible to contribute to a defined contribution plan or your employer does not offer a plan? You may be eligible to set up a traditional IRA and receive the maximizing benefit.

How Social Security and Medicare are Calculated for the Self Employed

The Self-Employment Contributions Act (SECA) imposes two taxes on the self-employed as mentioned above. SECA taxes apply to “net earnings from self-employment” greater than $400. Social security is computed on the first $106,800 of the net earnings at 12.4%. Medicare is computed on the total net earnings at 2.9%. Social security plus Medicare is known as SECA and the total SECA tax on net earnings up to wages $106,800 is 15.3% and drops to 2.9% on net earnings in excess of $106,800.

Under the 2010 Tax Relief Act, for calendar year 2011, the social security portion of the SECA tax will be reduced to 10.5%. This will reduce the total SECA tax to 13.3% (15.3% - 2%) on net earnings up to $106,800 and 2.9% on net earnings in excess of $106,800.

For example, Buddy has net earnings for 2011 of $50,000. If the Tax Relief Act was not enacted, Buddy’s SECA tax for 2011 is $7,650 (15.3% x $50,000). Under the Tax Relief Act, Buddy’s SECA tax for 2011 is $6,650 (13.3% x $50,000). That is a savings of $1,000 ($7,650-6,650).

The maximum deduction in SECA tax is $2,136 ($106,800 x 2%).

To receive the benefit of the SECA tax rate reduction throughout 2011, the self employed individual must apply the reduction in figuring his or her quarterly estimated tax payments because the IRS will presumably reflect the reduction in 2011 Form 1040ES, Estimated Tax Voucher Coupon for Individuals.

Use the Tax Saving Calculator to calculate your potential tax savings. Instead of entering “Annual Salary,” project your 2011 net earnings from self employment.

How to Maximize the 2% Payroll Tax Holiday as Self Employed

If you are not currently contributing the maximum into your business’s 401K plan/Solo 401K plan or SEP-IRA, this is a great opportunity to maximize the 2% SECA tax holiday.

Let’s catch back up with Buddy who had net earnings of $50,000 in 2011. Buddy has been contributing 6% of his net earnings to his solo 401K plan totaling $3,000 ($50,000 x .06). The contribution is not subject to federal income tax and is an “adjustment to income,” which lowers adjusted gross income (AGI). For 2011, Louie would be in the 25% marginal tax bracket (considering no other adjustments). His $3,000 contribution to his SEP IRA would represent a $750 tax savings ($3,000 x 25% marginal tax rate).

What if he increased his SEP IRA contribution by the 2% SECA tax savings to 8% (6% + 2%)? His 2011 SEP IRA contribution would total $4,000 ($50,000 x 8%). His $4,000 contribution would now represent a $1,000 tax savings ($4,000 x 25% marginal tax rate); an increase of $250 ($1,000 - $750). The $1,000 savings from the 2 % SECA tax holiday calculated above has now increased to a $1,250 tax savings ($1,000 + $250).

Here is a link to that calculates 401K Tax Savings. You will want to have your tax return available.

Other Maximizing Ideas

The payroll tax or SECA tax savings can also be used to pay down credit cards or a mortgage. This would reduce interest paid.

Or, you can go out and buy something and do your part in boosting economic growth, which is the full intention of this new tax savings provision.

Beth Bockenhauer is the owner of Beth Bockenhauer, CPA, a boutique accounting and CPA practice based in southern California. She started her career with five years of military service. She then worked for ten years as a small business owner, and holds a Bachelor of Science degree in accounting. Beth has worked in public accounting for the past seven years. For more information, visit www.bethbcpa.com

1099 MISC – Reporting Requirements & How-to in QuickBooks

On December 15th the Senate passed the 2010 Tax Relief Act and extended the Bush-era tax cuts. However, the House still needs to knock heads for approval. So, I am holding off on presenting the effects of the Tax Relief Act until it has “officially” passed.


Since I get a lot of calls in January about 1099’s MISC, I decided that this would be a great topic for year end. For those who don’t know, a 1099 MISC is a tax form used to report miscellaneous income, including income earned as an independent contractor.

To begin the process, you must obtain a completed W9 from the individual who will be receiving the income. Ensure that the name is the individual’s name, not the business name. The business name has a separate line. However, the business would be correct for a partnership, limited liability company or corporation.

Who gets a 1099? Individuals, partnerships and most limited liability companies would be candidates if they meet the income criteria. S-Corporations and C-Corporations do not generally receive 1099s.

Due dates for the 1099-Misc are:

To the Recipient – File Copy B is due January 31. This due date is extended if you are reporting payments in boxes 8 or 14.

To the IRS – File Copy A is due February 28. If you file electronically, the due date is March 31. To file electronically you must have the appropriate software.

You can order 1099 forms from the IRS and they are FREE!

Box 1 – Rents $600.00 or More:

For real estate rentals paid for office space, machine rentals.

Box 2 – Royalties $10 or More:

For gross royalty payments made, which are usage-based payments made by the Licensee to the Licensor for use of intangible property (music, intellectual property, franchise payments).

Box 3 – Other Income $600 or More:

For award money or merchandise (report at fair market value), sweepstakes prizes or game show winnings received. This would not be used for reporting gambling winnings; a W2G is the form used to report those winnings.

Other Income would also include monies received for participating in medical research studies, punitive damages. There is actually a comprehensive list on the IRS web site..

DO NOT include in box three payments made for services received. This is considered non-employee compensation and would be reported in box 7.

Box 7 – Nonemployee Compensation $600 or more

For someone who is not your employee that you paid for services in the course of your business. This non-employee can be a sole proprietor, a partnership, a limited liability company (LLC) or an attorney. Examples of payments made that would be subject to non-employee compensation reporting would include:

Professional Services: This is your independent contractor: accountants, architects, consultants, computer guy/gal, cleaning person, coach, etc.

Travel reimbursements: Paid to an independent contractor (IC) and IC did not report the expenses under an accountable plan. An accountable plan is when an expense report is completed and receipts are presented for reimbursement.

Bartering of services between individuals in the course of their business: For example, I hired my client, ABC Flooring to install a new floor in my office. In exchange I will prepare his/her tax return. No money is exchanged, but this still holds as a reportable event.

Fringe Benefits to ICs: This may include a company car, health insurance, life insurance, free services, etc.

Legal Services: All attorney fees are reported regardless if the attorney is a corporation.

I only listed a few of the many reasons why you would report non-employee compensation on a 1099. Here is a complete list.

Box 14 – Gross Proceeds Paid to an Attorney

Report all gross proceeds made to an attorney during the course of your business even if the attorney is a corporation. Gross proceeds are different than fees in that gross proceeds are paid when a lawyer wins a settlement (the attorney’s cut).
As you can see, I did not cover every box on the 1099. For comprehensive instructions, visit the IRS web site.

Beth Bockenhauer is the owner of Beth Bockenhauer, CPA, a boutique accounting and CPA practice based in southern California. She started her career with five years of military service. She then worked for ten years as a small business owner, and holds a Bachelor of Science degree in accounting. Beth has worked in public accounting for the past seven years. For more information, visit www.bethbcpa.com

The I's Have It: Inform Referral Sources

One of the things that happens when people establish a referral network is that they don’t receive enough referrals. These people often believe that others aren’t doing their job. Sorry, but the truth is that if your referral network is not working the way you want or expect it to, it's your responsibility.

Have you informed people in your network about all of the products or services you have available? Have you provided them with your business cards, brochures, and other information? What are you doing to compel them to refer you? Your referral sources need to be informed so that they may educate those in their networks and refer the perfect prospects for your business.

Now, here’s the curve ball… Referral marketing is a two-way street. Do you make sure your referral sources know that you are interested in what they do, rather than just worry about how interested they are in what you do? Are you helping them in the same way you want them to help you? Are you really? Are you genuinely interested in their business? Do you know how to properly refer them? Are you referring them? Are you following up with each other on a regular basis?

It is your responsibility to inform your referral sources on what a good referral is for you and to make sure that you are trained on how to refer them. Responsibility is something people are sometimes reluctant to take. You're responsible for the actions other people take on your behalf. It's up to you to choose the right people, to set the tone for your business, to educate your referral sources about what you do, to demonstrate competence and integrity, and to maintain the effectiveness and strength of your referral relationships.

Only those individuals who recognize that they have to take responsibility are the ones who make this process work for them. What are you doing to properly inform and train your referral sources?

Laura Bruno is a trainer, speaker, referral expert, and a Certified Professional Behavioral Analyst. She is the owner of the Referral Institute SoCal. She can be reached at 951-699-2558 or visit http://www.referralinstitutesocal.com/

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