Author: Kevin Eismann

Why Epiphany Law chose to partner with Lemonade Stand Economics

At Epiphany Law, we work with many entrepreneurs regarding legal issues. Whether it be writing or reviewing contracts, estate planning, employment law issues or straightforward legal advice about starting a new business, that’s what we do. What does our affinity for entrepreneurs have to do with Lemonade Stand Economics? I will tell you.

At Epiphany Law, we pride ourselves on being different. We are as skilled and talented as any lawyers you’ll find (I’d like to think more so), but we are different in our approach, in our attitude. We are real people who are knowledgeable about the law. We are not stuffy and uptight and will not drown you in legalese. We are different. This works well because as a whole, entrepreneurs and business owners are different. They think differently, they value different things.

Lemonade Stand Economics is different too. The vision is as simple as this. In the world of “make easy money” Lemonade Stand Economics introduces a radical idea. Work hard, work smart and pay for college with money you earn. If a student works, earns a substantial amount of money and pays for school semester by semester, no loans are necessary. It’s a concept totally contrary to current popular thinking, but it’s just that simple.

I’ve read Lemonade Stand Economics and I love the book. It’s written for real life and every teenager would benefit from reading it. College is important but also expensive. This book is focused on paying your way through college-it’s not about avoiding college. It’s about nurturing a new generation of educated, take charge entrepreneurs ready and willing to impact the world by first impacting their own financial well-being.

At Epiphany Law, we know there is nothing more exciting than encouraging young people – especially those brimming with entrepreneurial spirit. We are proud to partner with Lemonade Stand Economics to encourage student’s ideas and develop the latest and greatest group of young entrepreneurs.

Commercial Leases: Find the Right Space – Without Surprises

You have a lot of options when it comes to choosing a commercial space for your business. In fact, with the economic downturn, it’s definitely a buyer’s market.

But before you sign on the dotted line, there are a few things you should know. Legally speaking, commercial leases are extremely complicated documents often heavily weighted in the lessor’s (aka: landlord’s) favor. There are also a number of differences between commercial and residential leases.

For example, commercial leases are not subject to most consumer protection laws that govern residential leases. There is no “standard form” (despite what you might hear!), so a commercial lease is generally customized to fit the lessor’s needs – not the lessee’s (aka: tenant’s). That’s why it’s critical you understand the fine print for every commercial lease agreement you’re offered.

There are a number of issues that you should be concerned about with a lease. While each business’s needs are unique, there are a number of common problem areas that arise in commercial leases. A few examples include:

Maintenance & Repairs – If the $20,000 boiler goes out in the last month of your lease, do you   have to buy a new one?

Exclusive use – Can the landlord lease adjacent space to your competitor?

Calculation of Rent – Is rent based on rent-able or rented square footage? The difference could mean thousands of dollars.

Permitted Use – Will your business be able to expand its service offerings?

Personal Guarantee – As a business, you should have established a business entity (i.e. LLC, Corporation, etc.), so the lease should be in the name of the entity. Personal guarantees should be avoided or, at a minimum, limited to a reasonable time.

Options to Renew – What happens if the business is a success and you want to stay?

Notice Before Default – Make sure the landlord tells if a rent payment was inadvertently skipped or lost in the mail so you don’t end up in default without even knowing.

Common Area Maintenance (CAM) [charges in a multi-unit building] – Will the clothing store and hair salon share the water bill equally, or are the utilities separately metered?

  • Also, be aware of the difference between a “gross lease” and a “triple net lease”. A gross lease should mean that all expenses are included in the rent payment, and triple net leases require the lessee to pay a smaller rental amount and all additional charges separately. Either might work depending on the circumstances, but exactly which expenses will be yours is dependent on the precise language of the lease and can vary widely, regardless of what it is called.

Remember – a lease is a binding legal contract, so thoroughly review and understand the terms before signing!

Succession Planning Cheat Sheet

Succession planning can seem like an overwhelming process, especially when you’re in the early stages of considering the transition.  The following list of questions is designed to help you organize your thoughts as you determine the proper strategy for transitioning your business.

Personal Goals

  • What are your goals for retirement and how much money will you need on an annual basis to achieve these goals?
  • Besides your retirement savings, what sources of income will you have in retirement (e.g. rents, social security, pension, etc.)?  Will these sources be sufficient to meet your retirement goals?
  • If not, how much additional retirement savings will you need to ensure that you can meet your goals?  -Do you already have a sufficient nest egg or, if not, how far short are you?
  • Are you comfortable spending a portion of the principal of your retirement savings each year or do you desire to simply let earnings on those savings make up the shortfall?
  • When do you want the succession planning process to begin?  When should it be completed?

Business Goals

-Do you know how much your business is worth?  Do you have an independent estimate of value?  When was it completed?

-How important is it to you that, after your retirement, your business remains an independent entity?  Is that an emotional or perceived financial issue?  Do you want your business to remain in your family?

-If your deisre is for the business to remain independent:

-Who are your successors (managers and owners)?

-What roles will they play?

-What training will be required?

-Will you remain involved?  In what capacity?  For how long?

Estate Planning

-Is your estate plan updated (i.e. living trust, powers of attorney, etc.)? Does it ensure your that your estate will avoid probate?

-If there are other owners in your business, do you have a buy-sell agreement?  When was it last reviewed?

-If you have a family owned business, are there family members who are not active in the business?  If so, will they inherit an equitable share of assets?

Tax Considerations

-How will the transfer of the business affect your taxes? The business’ taxes? The successors’ taxes?

-Will you run into estate tax issues upon your death?  If so, have you figured out how to pay for those, or how to avoid them?

Method of Transfer

-If you’re planning to sell the business to a third party, will you sell the actual stock or the assets of the business?  How will the buyer finance the purchase?

-If you’re planning to retain the business, can you take advantage of gifts?  Bequest?  Discounted sales?  Options?  Combination of choices?

You don’t have to have all the answers before you start putting your plan in place, but the more you consider these issues, the easier the process will be.  Ultimately, a proper succession plan will: 1) leave you in control for as long as you wish, 2) set expectations for all involved, and 3) avoid unnecessary taxes on the transfer.

Navigating the New Law of the Land: How Concealed Carry Affects Your Business

On July 8, 2011, Governor Scott Walker signed Senate Bill 93 (“Concealed Carry Bill”) into law, meaning the law will likely go into effect on November 1, 2011.  Though it may not seem like it, this new law will affect every business in Wisconsin, from bars to doctor’s offices and everything in between.  Now is the time to re-examine the policies in place at your business as choosing whether to prohibit weapons may impact your liability.

Anatomy of the Concealed Carry Bill

Under the Concealed Carry Bill, a weapon is defined as “A handgun, an electric weapon […], a knife other than a switchblade knife […] or a billy club.”   Anyone who wants to carry a concealed weapon may apply for a license, which is good for a period of five (5) years, as long as he or she meets the following criteria: 1) At least 21 years old, 2) Not prohibited under State or Federal law from possessing firearms, 3) Not prohibited by a court from possessing firearms, 4) Is a resident of the State of Wisconsin, and 5) Has provided proof of adequate training.   Anyone carrying a concealed weapon on property that is not owned, leased or otherwise legally occupied by that person must have a valid license and photo identification on his or her person.

The Concealed Carry Bill specifically prohibits weapons, concealed or not, in the following places:  1) A police station, sheriff’s office, state patrol station, or the office of a criminal investigation special agent, 2) A prison, jail, or other correctional facility, 3) A mental health facility, 4) A county, state or federal courthouse, 5) A municipal courtroom if court is in session, and 6) Beyond the security checkpoint in an airport.  Violators are subject to a fine of up to Five Hundred Dollars ($500.00), imprisonment for up to thirty (30) days or both.

The Effect of the Concealed Carry Bill on Liability

Business owners must now decide whether to allow concealed weapons on their property.  As a business owner, if you decide to allow concealed weapons on your property, you are immune from any liability stemming from that decision.   Therefore, if a customer or employee is carrying a handgun that accidently discharges, causing an injury, you cannot be held liable simply because you allowed concealed weapons on your property.

However, if you want to prohibit weapons, there are a number of factors to take into consideration.  The first factor is that by prohibiting concealed weapons, you, as the business owner, lose your immunity.  That’s right- if you choose not to allow weapons on your property, you could be held liable for an action occurring on your property.

The second consideration is that an establishment that prohibits weapons must effectively put customers and employees on notice by posting signs on the premises or in the building.  The sign should 1) Be at least 5” x 7”, 2) State that weapons are prohibited on the premises or in the building, 3) Identify the portion of the building or premises on which weapons are prohibited (if applicable), 4) Include the name of the individual giving the notice and 5) Include the word “owner” or “occupant” after the name of the individual giving notice.  This sign must be prominently posted near all entrances and/or access points to the restricted building or premises.

Another factor to consider is your employees.  If you decide to prohibit weapons in your building or on your property, we strongly recommend changing your policies and employee handbook to reflect that prohibition.  Any change in policy should state which specific weapons are prohibited, where weapons are prohibited and the consequences of violating the policy.  However, you cannot, as a condition of employment, prohibit an employee from carrying or storing a concealed weapon or ammunition in his or her car, even if the car is used for work.

The final aspect to take into account is consistency.  If you want to prohibit weapons on your property or in your building, you cannot disregard employee violations of the prohibition.  A violation must result in the same disciplinary action across the board, each and every time.  Since employers prohibiting concealed weapons have no immunity to liability, being consistent will lessen the likelihood that an employee will disobey the policy and reduce potential liability.

Making the Decision

No matter how you feel about the Concealed Carry Bill, it will have impact your business.  Whichever way you decide to go, now is the perfect time to revisit your employment policies and make sure you have measures in place to protect your business, customers and employees.  For more information on the Concealed Carry Bill or your employment policies, contact our office at (920) 996-0000

Giving Property to Children or Adding Them to Title

An extremely common mistake people make with regard to estate planning is the assumption that you can avoid estate taxes and probate simply by retitling your property in the name of your children or loved ones – i.e., giving it away.  Or, if you don’t want to give the property away, the idea of adding children as joint tenants or even adding them as joint bank account holders seems like it could solve the problem.

Don’t give your property away during your lifetime

Let’s clear this up.  It’s inevitable that at some point your property will not be yours any longer.  That is the nature of things.  But if you are reading about estate planning, chances are that you care about what happens to your property when you pass away.  And if you care about what happens to your property, you care that it benefits the people you want it to go to.

If you give your property away while you are alive, there are a number of risks that could strike.  First, there is the issue of taxes.  If you have held a piece of property for a number of years, it is likely that the property has appreciated in value.  If you die, your heirs won’t be taxed on how much your home has increased in value.  But, if you transfer your house to someone else other than your spouse during your life, when they sell the house they will be taxed on the difference between how much you paid and the fair market value at the time of the sale.

For example, imagine that you purchased a home 30 years ago for $30,000.  The house is now worth $330,000.  If you transferred title to your children during life and then your children sold the house, they would pay taxes on $300,000 worth of gain – or $60,000 when the capital gains rates are 20%.  If you transfer the house at death, the basis would “step up” to $330,000, so the gain and the tax would be zero.

Another obvious problem is that when you change title to your property, it is no longer yours.  If your children have money troubles, divorce or enter bankruptcy, their creditors could take the property.  The same problem exists if your children are joint tenants.

Don’t add children to your property deeds or bank accounts

The other common estate planning “solution” is to add children to bank accounts or as joint tenants (where property passes automatically upon death).  Although there are circumstances where this could be appropriate, those situations are rare.  You should consult with an estate planning attorney before retitling any of your property.

One problem with joint tenancy is that you have effectively given a share of the property away.  So bankruptcy, divorce and other creditor issues could arise even if your child is a joint tenant and not 100% owner.  If the child doesn’t have money to pay the creditors, it is possible that the creditors could have the house sold off to pay their debts.  You would get your half of the proceeds, but lose the house.

Joint bank accounts are another problem area, especially in families with multiple siblings.  In some families, a parent chooses one sibling as joint bank account holder.  This sibling then has the “expectation” to distribute the bank account evenly to the others when the parent passes away.

I wouldn’t want to be that sibling!  Not only is there potential income taxation on the entire bank account, there might be gift taxes on the transfer as well.  That is, of course, assuming that the sibling doesn’t just decide to keep the bank account for him or herself.  It happens.

The moral today is that you should not transfer title or add children to joint bank accounts for the purposes of estate planning without the advice from an experienced estate planning attorney.  While these transfers and changes might seem like a good idea at first glance, there are simply too many risks behind the scenes.

Having a Will Does Not Avoid Probate

Creating a will does not avoid probate!  The opposite is actually true: A will is a document that speaks directly to a probate court.  Probate is the legal process of transferring assets from your estate to your heirs.  This process is required whenever a death occurs and there is no other mechanism that automatically transfers the assets.  Those mechanisms can include beneficiary designations, “transfer on death” or “payable on death” designations, and marital property laws, to name a few.  In Wisconsin, if you have $50,000 or more of assets that don’t automatically transfer through such a mechanism, probate will be required.

So what’s so bad about that?  Probate has been described as “a lawsuit that you file against yourself for the benefit of your creditors”.  Even the most straightforward of estates can become cumbersome to the family and /or personal representatives during this process.  And, of course, the probate court charges a fee based on the value of the asset that are transferred.  AND, it’s a public court process so your creditors, or your kids’ creditors, or Nosy Neighbor Nelly can see who gets what when all is said and done.

Having said that, a will is better than nothing, since at least it provides direction to your loved ones about guardianship for your kids and where you want things distributed when you die.  Otherwise, the court gets to pick.  Also, there are lots of opportunities these days to use designations like the ones mentioned above to keep many assets from going through the probate process.

If probate doesn’t sound like much fun to you, there are common ways to avoid it, like setting up a revocable living trust and funding it with your property.

Bottom line: Get something in writing and make sure you know how/if it’s all going to work when you’re gone.  It’s pretty simple to do, and it takes a big burden off your loved ones.

No Estate Planning

If you have ever spun a roulette wheel, you know what it feels like as the wheel slows and the roulette ball finally comes to rest.  And you surely know that where the ball ends up is of its own making.

In many cases, estate planning is like calling your color and number, then walking over and placing your ball correctly without ever spinning the wheel.  It accomplishes your goals without any stressful uncertainty.

Most people in America, however, don’t have any estate planning.  Like roulette, if you don’t plan, you never know where the ball will land.  You don’t know that your wishes will be respected.  But there’s a big difference between not planning for your future and the game of roulette:  When you play roulette, you get to see where the ball lands, even if you chose incorrectly.  When you don’t plan, you never get to see what happens when the wheel stops because you have passed on.

Estate planning is about documenting your wishes so that when you become incapacitated or pass away, your loved ones will know how you wanted things to be handled.  State governments have also created default plans for people who have not documented their instructions.  In essence, if you don’t have a will or trust, the state makes one for you based on what it thinks is best.
Each state has its own rules for people who die without a will.  There are fifty different ways of handling the same issue.

So which one is right?  You are.  You are the only one who knows how you want your things to be distributed.

Will the state know who you want to raise your children?  Will it know which property or asset you want to go to whom?  What if you are remarried: Will your new spouse receive your entire estate, or will your children?

Sometimes the system works, and the ball falls on the right color and number.  But other times it doesn’t.  It is too easy to lose control over your assets and your property and your legacy if you let the state make decisions for you.

No estate planning is a large pitfall indeed.

Great Gifts in 2010

It’s not too late yet.  For many wealthy parents, grandparents or business owners, giving lifetime gifts is a valuable way to decrease your taxable estate.  And 2010 is a great year to give those planned lifetime gifts.

Generally speaking, properly planned lifetime gifts can help lower your taxable estate over the course of years, so that your assets are distributed to whom you want with less going to the tax man.  Each year, you can give gifts of a certain amount to other individuals without having to pay gift tax.  In 2010, for instance, you may give up to $13,000 (or $26,000 if you give as a married couple) to other individuals.  If you have two nephews, you could give each $13,000 without tax.  You could give another gift of a similar amount next year to the same individual, and so on through the years.

Many individuals want to give more than the allowed annual amount.  If you fall into this category, it is important to talk to a professional who understands the intricacies of gift taxation before making large gifts.  If you are thinking about larger planned gifts, there is still a small window in 2010 to complete the gift. And it is a great year to do it.

Why?  At least three reasons.  First, at 35%, the current gift tax rate is the lowest it’s been since the 1930’s.  Second, when the 2011 bell tolls, there are sure to be a myriad of tax changes, and one of the expected changes is that the gift tax will rise to 55%.  For those giving large gifts, a 20% increase is quite a hit.  Third, the values of many key assets are still depressed.  If you gift those assets now, there will be less there to tax than if they were significantly appreciated.

All in all, by giving a gift in 2010 with a depressed asset, you can potentially save on the value of the gift while being taxed at historically low rates.  While no one can predict the future, the gifting climate is excellent for persons with the right assets.

Zen and the Art of Estate Planning

Physical health and peace of mind work together for a reason.

Defying long odds in modern society, we continue to better our heath, wealth and, often consequently, our peace of mind.

The hope, of course, is to have good habits pay off. By passing over the doughnut (most days) for an orange, we come to expect the Vitamin C to keep us running strong. Many of us have learned to do a few exercises before turning on the television soap opera. These decisions keep us happier and stronger. They also help us live longer to see our children and grandchildren grow and succeed.

It doesn’t stop with physical well-being. That nest egg you have created in your home or other investments have given you options that our ancestors could never fathom. These assets will hopefully grow despite numerous dips and will certainly allow more options to you and loved ones.

Unfortunately, despite our best efforts, our physical bodies don’t last forever. No, eventually the Vitamin C runs out.

But our children and grandchildren live on. And the assets that we nurtured can continue to grow with them. When we are pulled away to our higher and better place, we want assurance that we have properly passed our legacy to our loved ones rather than Uncle Sam or other undeserving relatives.

Zen is achieved by having your things passed to those who will value them the most and that isn’t the government. Complete peace, health and security can only be achieved by ensuring that you are prepared for the future.

Everyone asks the question, “What will happen to everything accumulated in life?” The answer is: “Whatever is written in your will or trust.”

When did you last review and update your will or trust? If you are forced to think back over years, or worse, have not yet worked with someone to create your plan, read on.

A plan made for you

Estate planning is for everyone. It is not a mechanism for the uber-rich. Estate planning is the process of documenting your wishes so that when you become incapacitated or pass on, your loved ones will know how you wanted things to be handled. It includes instructions on how to distribute and protect your assets but it also passes on peace of mind to your loved ones.

You have worked hard to live a healthy, active lifestyle by making the right decisions. It is only fitting to pass on those decisions as instructions. Explain things like: (1) who should make medical or financial decisions on your behalf, (2) declaring a guardian for your minor children, and (3) how you want to provide for your loved ones and protect what you have earned.

Each individual has different needs and wishes, and so it is important to have an estate plan tailored to you. Some individuals are concerned with the cost or publicity of the probate process and choose a Living Trust. Others have specific wishes on how and when their children and grandchildren should receive assets.

The options are endless and even simple needs require careful attention to changing state and federal laws. While Internet “wills” might seem attractive, the only way to truly protect your wishes is to work with an attorney familiar with the complexities of estate planning.

As we enter 2011, the death tax will likely be reinstated. That means many relatively modest estates could be surprised with high tax rates. Without planning, children could find that a significant portion of their inheritance transferred to Uncle Sam’s coffers instead of their own.

Have you updated your estate plan in the past five years to account for changing laws? If not, consider setting up an appointment now with a knowledgeable estate planning attorney. A simple consultation can help secure the peace of mind so important to a healthy life, for you and those who follow you.