By Attorney Kelly Jesson
The Supreme Court has issued many newsworthy rulings recently, but one you might not be familiar with is the Connelly Case. In Connelly v. United States, the Supreme Court held that the value of life insurance proceeds paid out to a business after the death of one of its owners must be included in the date of death valuation of the business. For the past twenty years, life insurance paid to a business as the result of an owner’s death has not been included in the business valuation if the business had an obligation to purchase the deceased owner’s interest in the business back. The reasoning was that this was a liability that the business owed. If a business was paid $3 million dollars in life insurance but it was obligated to pay the deceased owner’s family $3 million dollars, then it’s a wash. The implications of this ruling are significant. A business that is the beneficiary of life insurance proceeds may be valued much higher than it “really” is. For example, let’s say there are two owners of Widget Corp. The business is worth $5 million, so the owners each had $2.5 million dollars in insurance taken out by the corporation. At the death of one of the owners, the corporation was to redeem the deceased owner’s shares, which were worth $2.5 million prior to death. After the Supreme Court ruling, the business is actually worth $7.5 million ($5 million + life insurance). If the agreement was to pay half the value, the corporation would owe the family $3.75 million but only have $2.5 million in cash to do so. For people who may have to pay estate taxes (oftentimes business owners!), the difference in a few million dollar valuation can result in huge tax payments. And to add insult to injury, the family could end up paying taxes on assets they didn’t really get. In the above example, the true value of the business interests was $2.5 million but they would have to pay tax on the $3.75 million valuation if it was a taxable estate. The ruling requires business owners to carefully review their buy-sell and operating agreements to see how valuations will be determined. Is it the date of death value, or the value put on the business at the beginning of the year, or the value of the life insurance? While you can’t exclude life insurance for IRS purposes, you may be able to for buy-out valuation purposes. One way around this ruling is to use cross-purchase agreements. Instead of the business owning the life insurance policy, the individual owners will own life insurance policies on each other. When one owner dies, the life insurance is paid out to the other owners, not the business. Also, more people may utilize LLCs to own life insurance policies. The problem with cross-purchase agreements is that if you have a lot of owners, you have a lot of policies. If there are three owners, for example, there are six policies. If you set up an LLC to own the insurance policies (and then the LLC uses the money to buy the deceased owner’s interest), there are fewer policies. In this example, there would be three instead of six. If you would like additional information, or if you need a review of your business’s insurance and operating agreements, please don’t hesitate to contact the attorneys at Jesson & Rains.
0 Comments
By Attorney Kelly Jesson
Last month, the Department of Labor issued its final rule regarding changes in the overtime laws for “white collar” exempt employees. Before discussing this change, here is some background on the law. Federal law states that every employee must be paid at least minimum wage and overtime if they work more than 40 hours per week unless they fall under an exemption. The two types of exemptions we discuss here are: (1) bona fide executive, administrative, professional, or computer employee capacity; and (2) highly compensated employees. Outside sales rules were not touched. To fall under the bona fide executive, administrative, or professional, the worker must: (1) be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed; (2) be paid at least $684 per week (equivalent to $35,568 per year); and (3) primarily perform executive, administrative, or professional duties. These duties are not what you might think! Administrative does not mean clerical. For the administrative exemption to apply, the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. For the executive exemption to apply, the employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise; the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and the employee must have the authority to hire or fire other employees or make recommendations as to the hiring or firing of others. For the professional exemption to apply, the employee’s primary duty must be the performance of work requiring advanced knowledge, predominantly intellectual in character which requires the consistent exercise of discretion and judgment; the advanced knowledge must be in a field of science or learning; and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. For the computer employee exemption to apply, the employee must be a computer systems analyst, computer programmer, software engineer or other similarly skilled worker whose primary duties consist of the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or the design, documentation, testing, creation or modification of computer programs related to machine operating systems. Prior to July 1, 2024, if you are or have an executive, administrative, professional, or computer employee and they are NOT making $684 per week ($35,568 annually), they are NOT exempt and you must pay them overtime. Computer employees can satisfy the salary test if they are paid $27.63. Employers can satisfy up to 10% of the salary level through the payment of nondiscretionary bonuses and incentive payments (including commission) paid annually or more frequently. Starting July 1, 2024, that threshold number is increasing to $844 per week ($43,888 annually). That means if you are a business owner and you are classifying employees as exempt based on this exemption, you need to evaluate what you are paying them and potentially start paying overtime or provide them with a raise to remove the overtime requirement. Starting January 1, 2025, the minimum salary threshold will increase again to $1,128 per week ($58,656 annually)! This is a huge jump in less than a year! But remember, this exemption does not apply to clerical workers because they are not exempt from overtime anyway. The $27.63 still applies to computer employees, and employers can still satisfy the salaries with qualifying commissions and bonuses. Currently, highly compensated employees performing office or non-manual work and paid total annual compensation of $107,432 or more (which must include at least $684 per week paid on a salary or fee basis) are exempt if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption. On July 1, 2024, the threshold for this exemption will rise to $132,964! January 1, 2025, it goes up to $151,164. Lastly, starting July 1, 2027, the salary thresholds will update every three years using current wage data to determine new salary levels. These are the general rules. There are exceptions for certain blue collar workers, teachers, academics, lawyers, doctors, etc. and also exceptions for certain U.S. territories. Please contact Jesson & Rains to discuss how this law change might affect you. By Attorney Kelly Jesson
But don’t panic because it is already being challenged. The first lawsuit was filed within hours, and other businesses and the U.S. Chamber of Commerce have vowed to challenge the law on the grounds that the Federal Trade Commission (“FTC”) lacks the legal authority to promulgate such a rule. If any of these parties get an injunction, the implementation of the rule may be delayed. The rule will go into effect 120 days after it is published in the Federal Register. Unfortunately, we don’t know what that date is yet, but we will pass that along when we know (and it should be soon). Assuming the rule goes into effect as the FTC plans, here are the important points:
By Attorney Edward Jesson - Updated 3/2/2024 (Originally Published 3/2/2023)
There are numerous to-do items and deadlines business owners must keep up with to successfully run a business. However, many business owners forget that they must file an Annual Report with the North Carolina Secretary of State to keep their business in active and good standing with the state. The Annual Report is used to keep the business records up to date with the Secretary of State. Most businesses formalized with the Secretary of State’s Office need to file an Annual Report, such as Business Corporations, Limited Liability Companies (LLC), Limited Liability Partnerships (LLP), and Limited Liability Limited Partnerships (LLLP). Non-Profits, Limited Partnerships, Professional Corporations (PCs), and Professional Limited Liability Companies (PLLC’s) do not have to file an Annual Report. There is also a filing fee due with the Annual Report. For LLC’s and partnerships, the fee is $200, and for corporations, the fee is $25. The due date for your business’s annual report depends upon the type of business, but generally April 15th is the deadline for most businesses. For corporations and partnerships, the annual report is due to the Secretary of State’s Office the 15th day of the fourth month following the entity’s fiscal year’s end. For example, if your fiscal year ends on December 31, your annual report for that year is due on April 15th. Jesson & Rains offers a yearly plan for businesses that includes filing the annual report, among other things. This plan helps to ensure your privacy (if your business is ever sued, the lawsuit will be delivered to our office’s address); you will be less likely to fall victim to a scam (we will sort through and destroy junk mail); you will be more organized and have less paper (we will scan and forward your mail immediately to your attention after sorting); and we will ensure that corporate records and Secretary of State records are kept up to date. As a part of this plan, Jesson & Rains will also assist in filing the necessary documents in response to the new Corporate Transparency Act (“CTA”), which requires companies to disclose beneficial owner information to the U.S. Department of Treasury’s financial crimes agency “FinCEN”. We also offer an upgraded yearly plan that includes unlimited telephone access to attorneys throughout the year. The consequence for not filing an Annual Report and/or paying the fee is that the Secretary of State can administratively dissolve your business. This means that you can lose the liability protection you enjoy by being a business, and a creditor may be able to come after your personal assets. If you have questions about filing your Annual Report or want to learn more about the annual plan services offered by our firm, you can click HERE, or feel free to reach out to Jesson & Rains directly! By Attorney Kelly Jesson
On Friday, March 1, 2024, a federal judge in Alabama ruled that the Corporate Transparency Act (“CTA”) is unconstitutional because Congress lacks the authority to require companies to disclose personal beneficial owner information (“BOI”) to the U.S. Department of Treasury’s financial crimes agency “FinCEN”. A beneficial owner is defined as a person who, either directly or indirectly, exercises “substantial control” over the business or who owns or controls at least 25% of the ownership interests in a business, such as stocks, voting rights, or interests in profits. A beneficial owner also includes a person in their individual capacity as managing the business, such as an LLC Manager, Board Member, or CEO. The required filing includes the individual’s full legal name, date of birth, current residential address, an identifying number from a non-expired government ID like a US passport or US driver’s license, and a copy of the ID document. There are certain entities that are exempt from the CTA’s reporting requirements, such as nonprofits and large operating companies that are already subject to regulatory oversight such as publicly traded companies, insurance companies, and registered investment companies. What does the court’s ruling mean for you? Unfortunately, the court limited its ruling to apply only to the specific plaintiffs in its case. However, this ruling has opened the door for many other lawsuits of its type, and they are sure to follow. If a court issues a ruling that the CTA is unconstitutional as applied to all businesses, then you may not have to comply with the CTA in the future. However, for now, it is the law. So, for new businesses that are formed this year, BOI must be reported to FinCEN report within 90 days of the business’s formation. We take care of this for our clients. Businesses that were formed before January 1, 2024, have the entire year to submit their first report to FinCEN. Given the uncertainty of the law, we are waiting to submit BOI to FinCEN until late 2024 (in case we don’t have to do it at all). We are submitting this information to FinCEN on behalf of our annual plan clients, as well. If you are interested in having us handle your business’s reporting requirements, including the Secretary of State’s annual report which is due April 15, and the FinCEN report, please let us know! More information is included here. By Attorney Edward Jesson - Updated 2/29/2024 (Originally Published 3/27/2019)
People and businesses get sued every day, and while no one enjoys being on the receiving end of a lawsuit, there are certain things that should be done to try and make the experience as painless as possible. In North Carolina, a lawsuit is generally started when an individual or a business (also called the “plaintiff”) files a complaint. The clerk of court issues a summons, which must be served on the defendant (the party being sued). This can generally be done by mailing it certified mail, return receipt requested, sending via FedEx or UPS, or having the county sheriff personally deliver a copy of the summons and complaint. Once the summons and complaint have been served, the defendant has 30 days to respond to the complaint in district and superior courts. In small claims court, when a defendant is served (in some instances this can be achieved by the sheriff leaving a copy of the complaint taped to the front door), they will usually receive a notice of hearing along with the complaint. Here is the first point that I would like to make clear: if you are served with a lawsuit, please do not wait until day 29 to contact an attorney. Evaluating your position as a defendant in a lawsuit and preparing the correct response takes time. While you can usually get a 30-day extension of time to respond, doing so at the last minute is not always possible, and the extension likely won’t be granted if it is after day 30. If you fail to respond to the complaint in time, the plaintiff may be entitled to a default judgment. It is exactly what it sounds like— they will automatically win “by default”! A default judgment can be hard to overcome once it is entered, and the excuse that you simply “forgot” to respond is usually not enough. Point number two: Do not answer the complaint without first consulting with an attorney. In an answer, you will generally just admit or deny the allegations to the complaint, but that is not the only response that is available. There are several ways that you may be able to get the lawsuit dismissed (meaning the case is thrown out), but that option is not available if you admit or deny allegations in the answer first. By doing that yourself, you may be preventing an attorney from later dismissing the lawsuit. For most people who are sued, it is for the first time in their lives (and hopefully the only time). Once the shock, confusion, and anger has worn off, it is important not to bury your head in the sand. Contact a litigation attorney who can help you navigate through the civil system and, hopefully, get your case resolved in the most efficient way possible. If done correctly, you may save a lot of money; however, trying to handle it yourself oftentimes results in the expenditure of more money. If you or anyone you know has been sued, please give the attorneys at Jesson & Rains a call. |
Subscribe to our newsletter.AuthorKelly Rains Jesson Categories
All
Archives
July 2024
|