Sarah Stewart Legal Group, PLLC

Caring, Honest, Solutions to Your Legal Needs at Affordable Rates.

Month: June 2016

Why Do I Need a Business Entity?

I get questions, almost daily, from many people who want to be their own boss. They want to become entrepreneurs and run their own businesses.  And, most of them know that they need to do something to protect themselves, but they’re not sure what, exactly, that is.

One of the best ways to protect yourself is to establish a business entity.  A business entity can allow you to limit your personal liability. An entity essentially separates your personal assets and your business assets so that, in most cases, people cannot go after both if you were to be sued.

So, how do we do this?  How do we establish a business entity?  First, we need to decide what we want our business to be.  You have many options.  The ones who afford you  the greatest protection and limited liability are limited liability companies, corporations, and S-Corporations.

In my experience, limited liability companies are the most popular.  This is because they do not require Boards to run them and can have as many, or as few, owners as you want.  They are flexible.  Of course, you need to speak with a professional, or do your research, to determine what is best for your situation.

Once you decide what you want to be, you have to pick a name and register with the Secretary of State for the state(s) you are operating in.  In Oklahoma, all you have to do is go to the Secretary of State web site, choose Business forms, your type of entity, input your info, and pay- all online.

If you have more than one owner, you will want to seriously consider an agreement that outlines who owns what, who contributed what, and what happens if someone leaves or dies.  These documents are very important in helping you to minimize future risks to your business.  Of course, you’ll also want to consider any licenses and permits you’ll need to do business, and get yourself insured and possibly bonded.

You will also need to file for an Employer Identification Number (EIN) with the federal government for tax purposes.  This can be done entirely online at

Business ownership is an exciting, and stressful, time.  Be sure you have what you need to be successful and get yourself a business entity today!

Alphabet Soup

Have you spoken to a financial advisor or attorney lately regarding your estate and heard a lot of letters flying around?  Have you heard the terms GRAT and IDGT?  If you have, I imagine your head must be spinning!  What in the world do all those letters mean?  What is a Grantor Retained Annuity Trust?  What is an Intentionally Defective Grantor Trust?  Why do I care?

The truth is, most of us won’t really care.  These types of planning tools are better-suited for high-wealth clients.  What is a high-wealth client?  Currently, that is an individual who will very likely have assets of more than $5.4 million when they die ($10.8m for couples). Why that exact amount?  Mostly because the Federal Estate tax comes into play when someone passes that amount.

There are other considerations, of course, that may make your personal plan a good candidate for this type of planning.  For instance, does your state have estate tax? In Oklahoma, we currently do not.

Grantor Retained Annuity Trust

A GRAT is a way for you to leave large gifts without being subject to the annual gift tax.  Why is that important?  Well, mostly because the estate tax is reduced by annual gifts that you give annually.  The estate tax is tied to the gift tax.  If you give your allotted $14,000 each to your chosen people each year, your limit is $5.4 million.  Then, you have no estate exemption left.  So, we want to minimize those taxes as much as we possibly can.

A GRAT is a way to minimize those taxes without taking the benefits of the asset away from the Grantor (person establishing the trust). The Grantor is able to receive distributions (in the form of an “annuity”) at least annually. Then, the remainder passes to the heirs without estate taxes.  These trusts work best for income-producing and high appreciation assets.

Intentionally Defective Grantor Trust

An IDGT is purposefully drafted to invoke the Grantor trust rules of the Internal Revenue Code.  In this trust, the Grantor retains the power to recover the assets and benefit from the trust’s income.  The trust can be structured in a way where the asset is sold to the trust, or gifted to the trust.  If gifted, the estate tax exemption applies.  This trust works well for a family business.  The Grantor can retain business making decisions in regard to the business by keeping voting stock, but sell non-voting stock of the business to a trust with a promissory note.  Then, the asset is no longer owned by the Grantor for estate tax purposes, but the Grantor can still receive income from the promissory note.

The distributions must be pre-determined, and not related to the income of the business. The note can transfer to the spouse at death, or be self-canceling.

These tools are advanced considerations for an estate.  However, if you own your own, successful business, or assets that will exceed the Estate Tax exclusion, you should consider them for your estate.  Find a trusted advisor to help you in the planning.

Do You Need an Irrevocable Life Insurance Trust?



By: Sarah Stewart

For 2016, the estate tax exemption is $5.45 million.  That means an individual can leave assets valued at about $5.45 million to their heirs without their heirs having to pay an estate tax, which is a rather large amount. In the state of Oklahoma, there is currently not an estate tax amount, so for Oklahoma residents, at least you currently do not have to worry about paying additional estate taxes to the state. In other states, that may not be the case.

Under Federal and some state laws, life insurance proceeds can be taxed to the decedent’s estate when the decedent has an ownership interest in the policy.  That means, if the Decedent pays the premiums, changes beneficiaries, or has the ability to withdraw cash from his/her life insurance accounts, the value of the policy may be included for estate tax purposes. So, if we have an individual with an ownership interest in $2 million of life insurance and $3.5 million dollars in other assets, including real estate, business interests, and personal accounts, without proper planning, the estate would be subject to the high federal estate tax, and depending on the state, additional state estate taxes.

If you are in the fortunate situation where that may be a concern for your family, you can avoid having life insurance included in the estate value if you execute an Irrevocable Life Insurance Trust (“ILIT”). Though this type of trust is complex, the general idea is that you are turning over your control and ownership of the policy to a third-party trustee.  Because of the complicated issues included in this type of trust, it is best to have a corporate, or extremely tax-savvy, trustee.  The insured will make gifts each year to the trustee to pay the life insurance policy premiums.

In order to keep your gift tax exemption (currently $14,000 in 2016) intact, there are certain notices and precautions that must be taken.  This includes sending notices to beneficiaries and allowing beneficiaries the, often unexercised, option to withdraw their annual gifts from the trust.

If you do have a large estate that will be subject to estate taxes, the ILIT may also be an option for helping to pay some of those taxes and estate costs.  However, if the payment is made outright, there is a chance the payment may be counted as estate income.  There are ways to use the trust to make loans and provide liquidity to the estate, such as purchasing estate assets, without having tax ramifications.

If you are in a position to have assets that are over $5.45 million when you die, you may want to consider an ILIT.  Also, you may want to keep an eye on the federal and state estate tax laws to make sure this amount does not change with time.

Legislators are continuously updating the tax code.  So, though you may feel comfortable where you are now, there may be a change to lower the amount of the estate tax exemption at any given time and you will need to be aware of those changes to protect your estate from high federal, and possibly state, taxes. In those times, remember the ILIT as an estate planning option.

ABLE Accounts

a0e750092c88eb98b2d515dc400e52759e1aa6e232273a049cfda55aeb4bf8c1-hXDWH5Do you have a loved one who qualified for Social Security Income  (SSI or SSD) prior to the age of 26?  If so, an Achieving a Better Life Experience (ABLE) Account may be a great resource for your family.  The ABLE Law allows people to create Accounts similar to 529 Plan accounts, for loved ones with special needs.  These accounts receive tax and Social Security eligibility benefits that other accounts cannot provide.

According to the law, each individual can only have one account, and yearly contributions are limited to the annual gift tax exclusion amount. Funds in the account can be used for “Qualified disability expenses.” This term is more lenient than its Medicaid counterpart, but it is a very important definition to know. If the account is not used for qualified expenses, it will lose its tax benefits, be included in the beneficiary’s gross income, and receive a 10% penalty.

One major benefit of the account is its possible size. Up to $100,000 can be held in an ABLE account before it is counted as income for Social Security purposes.  If the account grows beyond $100,000, the account will be counted as income for Social Security purposes, but your loved one may still qualify for state Medicaid benefits. The beneficiary can have access to and control of the account.

Some risks may be associated with the accounts, including the possibility state Medicaid may claim the accounts after the beneficiary’s death, even if third parties have contributed.  Since the law was only established in 2014, these questions remain unclear.  However, if you have a loved one with a disability, this may be a wonderful tool to add to your Special Needs planning.

It’s Never too Early to Plan

I heard a statistic recently that is startling.  Did you know only 40% of Americans have Wills or Trusts in place? Even well-known, wealthy celebrities have neglected their estate plans.  Have you seen the news lately about Prince?  He didn’t have any plans in place.  So now, his sizeable estate will likely go to estranged family members.

This is one area where you definitely want to be in the minority.  Think about it. What happens to your assets if something happens to you?  Is your family protected?

So, what do you need for your estate plan?  Well, that depends on what you want to accomplish and where you are in your life. There are two documents you can use to plan for your family if you die.  One is a Will, the other is a Trust.


A Will allows you to decide who will receive what if you die.  However, a Will requires your family to go through a Court process called probate to make transfers of any property not owned jointly.  Additionally, Wills are required to be filed during the court process, so they are public record.  Wills also do not allow you to put restrictions on your assets after your death.  What does that mean?  That means you cannot tell someone how your money is to be spent, or held for your children. You just get to pick who gets the money. Then, they get to go to court and possibly, fight it out.


With a trust, things are different.  Your family can allocate assets privately, without having to go to court or file your estate records publicly. They will also be saved the costs of going through the court process of probate after your death.  This can mean thousands of dollars to your heirs.  You can choose how people will spend, or receive, your assets. You can use your trust to plan for your incapacity and give others the right to access and manage your assets if you are unable to, without having to give your manager joint ownership of your assets.  And, in some cases, you can realize tax benefits.

Once you decide what’s important to you, who you want to receive what, who you want to help manage your assets, and what, if any, restrictions you want on how your assets are used, you’re ready to put a plan in place.  The sooner the better.  In fact, it is never too early to plan!


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