As with so many things in life, some of the same qualities that help small businesses succeed can also lead to their demise. Fortunately, much of that risk can be lessened through operational excellence.

For example, the owners and managers of small businesses often know each other before they go into business together. Sometimes, they’re even related. Preexisting relationships can help propel small businesses forward, especially when there are high levels of trust and competence.

Unfortunately, however, familiarity is sometimes accompanied by a lax attitude toward operational formalities. Owners and managers may skimp in critical areas such as:

  • Governing documents such as articles of incorporation, partnership agreements, and bylaws;
  • Solid or regular auditing and accounting practices; and
  • Shareholder meetings and minutes.

In worst-case scenarios, business and personal funds are commingled or used for improper purposes.

The good news is that if you are just starting out, it is easy to avoid all of these issues and the accompanying potential for lawsuits and tax problems. As your Family Business Lawyer®, we can provide trusted advice and help position a small business in the most favorable circumstances for that unique business.

Here are some examples of the services a trusted legal advisor can provide:

  • Assistance in identifying recordkeeping products and in establishing high quality recordkeeping practices;
  • Helping owners understand the potential consequences of a lack of proper documentation;
  • Ensuring that clients know the deadlines for business and tax filings; and
  • Explaining the importance of keeping personal and business finances separate.

Perhaps most importantly, a skilled business lawyer can help you structure your operational strategies properly. This can be invaluable in helping your business avoid pitfalls and liabilities along the path toward success. We like to begin with getting to know your whole business, not just the legal side; but, also truly understanding your revenue model, how it serves your life, your team, and your clients. Then, we can advise you on the best strategies for a business that meets not just your business objectives but serves your life as well. 

Schedule your LIFT Strategy Session with us today to get started!

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you

When you hear the words, “trust fund,” do you conjure up images of stately mansions and party yachts? A trust fund – or trust – is actually a great estate planning tool for many people with a wide range of incomes who want to accomplish a specific purpose with their money.

Simply put, a trust is just a vehicle used to transfer assets, and trusts are especially useful for parents of minor children as well as those who wish to spare their beneficiaries the hassle of going to Court in the event of their incapacity or death.

And why would you want to keep your family out of court (known as avoiding probate)?

Perhaps you’d like to keep private the details of the assets you are leaving your heirs. Leaving assets via a will that must go through probate to go into effect makes your estate a matter of public record. A trust is a private document and distributes assets upon your death without the need for probate, which can tie up assets for a long period of time in court.

The court process can take longer than is necessary and keep your family from getting access to your assets as quickly as they want or need them.

If you have minor children, you need to create a trust in order to leave your assets to them since minors cannot inherit directly. You will want to name a trustee to manage those assets for your children. Even if your children are adults, a trust can help protect assets you leave for them from creditors, legal judgments, divorce, or even their poor money management habits.

You can even establish a trust for yourself in case you become incapacitated and cannot manage your own finances at some future time. The trust assets are managed by a successor trustee, which avoids the need for a court-appointed conservator if you become incapacitated.

Trusts are also wonderful tools for those who are members of a blended family. If you are remarried and have children from a previous marriage, you can provide for your current spouse while ensuring your assets pass to your children from another marriage using a by-pass trust. 

With this kind of trust, the assets will pass to your children free of estate tax upon the death of your surviving spouse.

As you can see, there are many reasons to create a trust, and being rich isn’t necessarily one of them. You can learn more about how a trust might benefit you or your family by scheduling a Family Wealth Planning Session™, where we can identify the best strategies that are unique to you and your family.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

As we wrote last week, on September 13, 2021, Democrats in the House of Representatives released a new $3.5 trillion proposed spending plan that includes a wide array of changes to federal tax laws. Specifically, the Democrats proposed a number of significant tax increases and other changes to fund the plan, including increases to personal income tax rates and the capital gains tax rate, along with a major reduction to the federal estate and gift tax exclusion and and new restrictions on qualified business income (QBI) deductions.

While the proposed legislation is still under consideration and far from being finalized, given the broad-reaching impact these changes stand to have, we strongly encourage you to contact us now if you would be affected by the proposed legislation should it eventually pass. With the exception of capital gains rate increase, which could go into effect on transactions that occur on or after Sept. 13, 2021, most of the proposed changes would be effective after December 31, 2021, meaning that you do have time to plan now. 

Due to the time it takes to plan and execute some of the financial and estate planning actions we’d support you with, we suggest you start strategizing now. However, please note that we expect to be quite busy with those who do decide to take action before year’s end, so please contact us as soon as possible to get onto the calendar, if you intend to make changes to your business or estate planning this year. 


That way, you’ll have plenty of time to take appropriate action before the end of 2021. In addition, whether you will be impacted by any of these proposed changes or not, if you know that this is the time to get your affairs in order and have trusted guidance to do so, please contact us, your Family Business Lawyer™ as well, so we can get your planning handled before year’s end. Now is the time to get started.

Last week in part one, we discussed the new bill’s proposed changes to tax rates and estate planning vehicles, including several different types of trusts. Here, in part two, we’ll focus on what you should do now, given that the tax law is in flux and we may not have clear answers until close to the end of the year.

If you read last week’s article, or if you’ve been following the news about the coming changes, you know that none of us know what will ultimately happen—or even when we will know the final outcome. Given that the 2017 Tax Cuts and Jobs Act was not passed until December 2017, and the same thing could happen here, with some provisions potentially impacting your taxes this year, as well as provisions that could impact decisions you’d make for next year, but those decisions must be made now, what should you do?

This is exactly why we say it’s so important for you to have a relationship with a Family Business Lawyer™ who will support you on an ongoing, consistent basis and support you to get the guidance you need when you need it. As you likely well know, the one constant in life is change.

You acquire new assets. A child grows up and moves out. You change jobs, start a new business, or leave an old one. A parent needs more care than before and eventually dies.

In our book, life in motion is a life well-lived. And when you have a life in motion, you need ongoing direction, guidance, and support from a trusted advisor you can count on to be there for you through it all.

That’s us.

We are tracking the tax law changes, so you don’t need to—we know you’ve got far more important things to focus on in your life. We are consulting with financial advisors, CPAs, and our own mentors to ensure we’ve got our hearts and minds focused on the coming changes, so we can keep you informed and help you make the best decisions for yourself and the people you love.

That said, here’s what we know for sure—this last quarter of 2021 is going to be quite full, and it’s going to fly by. So if you have not already taken action to get your affairs in order, here’s what you should do now to be most prepared for whatever new changes eventually come down the pike:

  1. Engage with us as your Family Business Lawyer™ and get started by taking our LIFT 20-Point Assessment for free right now. (Email us for access, support@lizsmithlaw.com).
  1. By taking our free LIFT 20-Point Assessment, you’ll be able to identify any gaps or weak spots in your company’s legal, insurance, financial, and tax foundation that need the most attention.
  2. Additionally, by meeting with us, your Family Business Lawyer™, you’ll also get a clear view into what assets you have, where they are, and we will be on your team with clarity about what will be impacted by the new tax law changes, so we can get into action for you when the final bill is passed by the end of the year.
  3. If you have already done your planning with us, and you think you may be impacted by any of the tax law changes we wrote about last week—most notably if you have an estate valued over $5 million or you have a business that you think could grow to over $5 million before your death, you have retirement account assets valued in excess of $10 million, or you have retirement account assets that are invested in a self-directed IRA in non-registered investments—get in touch with us immediately, so we can schedule a meeting with you, your financial advisors, and your CPA to begin to plan strategic action now.
  4. NOTE: Even if the size of your estate or business is far less than this and you have not engaged in any tax planning yet, you might think you can continue to put it off. But here’s why you should not wait to plan, even if you have a fairly small business or estate.

Whether you will be impacted by the tax law changes or not, if you were to become incapacitated due to illness or injury today, or if you were to die tomorrow, your family would be left with a mess. Even if you have done your own estate planning with a DIY online service, your family would still be left with a mess. If you have yet to create a plan, no matter how the tax laws change, your family and business would be left with a mess. And it does not have to—and frankly should not—be that way. If you’ve ever experienced such events in your own family, you know the cost of such a mess.

If you haven’t already, consider what it is that is keeping you from getting your affairs in order. Then, think about the potential cost to you, your family, and your business if you don’t take the time to properly manage your affairs, and your loved ones are forced to do it for you.

This is exactly why we’ve structured our firm as we have: Our number-one goal is to make the planning process as affordable, effective, and easy for you while providing the most benefit beyond just dollars and cents.

Most of our clients leave their initial meeting with us saying, “Wow, I never expected to feel like this after talking about my estate planning.” Our process is designed to help you be a better parent, a better business owner, and a better citizen of our community—and that’s exactly how you’ll feel when you are done.

So again, we don’t know yet exactly what the government will do about the coming tax law changes. What we do know is there will be change. And with that in mind, we are reaching out directly to our clients who we already know will be impacted by that change.

If you are not yet a client, contact us to get started today. It’s going to be an incredibly busy few months until the year’s end, and that starts right now. As your Family Business Lawyer™, we would love to help you get your affairs in order, so you can be prepared for whatever happens.

Don’t Wait To Take Action

If your business or personal finances stand to be impacted by any of the new bill’s proposed changes, it’s crucial to take action as soon as possible to ensure that whatever changes to your planning that need to be made can be planned and executed before the end of the year—or in some cases, even sooner. Not only that, but given the number of proposed changes that are coming, financial advisors, CPAs, and estate planners are sure to be extremely busy in the coming months.

With such limited time, don’t wait to schedule an appointment with your Family Business Lawyer™. The sooner you meet with us, the sooner we can make certain that you can properly amend your planning strategies to minimize the impacts of this new bill on your business and personal planning.

And as we mentioned above, even if the value of your business or estate is relatively modest, and you know that you won’t be impacted by any of the new tax law changes, you still need to get your affairs in order to protect and provide for your family should something happen to you. If you’ve yet to put your estate plan in place, contact your Family Business Lawyer™ today, so you can finally take care of this vital task and do right by those you love. Don’t put it off any longer—contact us right away to get started.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you

On September 13, 2021, Democrats in the House of Representatives released a new $3.5 trillion proposed spending plan that includes a wide array of changes to federal tax laws. Specifically, the Democrats proposed a number of significant tax increases and other changes to fund the plan, including increases to personal income tax rates and the capital gains tax rate, along with a major reduction to the federal estate and gift tax exclusion and new restrictions on Grantor Trusts that would basically eliminate such trust’s ability to be used as planning vehicles.

While the proposed legislation is still under consideration and far from being finalized, given the broad-reaching impact these changes stand to have, we strongly encourage you to contact us now if you would be affected by the proposed legislation should it eventually pass. With the exception of capital gains rate increase, which could go into effect on transactions that occur on or after Sept. 13, 2021, most of the proposed changes would be effective after December 31, 2021, meaning that you do have time to plan now. 

Due to the time it takes to plan and execute some of the financial and estate planning actions we’d support you with, we suggest you start strategizing now. However, please note that we expect to be quite busy with those who do decide to take action before year’s end, so please contact us as soon as possible to get onto the calendar, if you intend to make changes to your estate plan this year. 

That way, you’ll have plenty of time to take appropriate action before the end of 2021. In addition, whether you will be impacted by any of these proposed changes or not, if you know that this is the time to get your affairs in order and have trusted guidance to do so, please contact us, your Personal Family Lawyer® as well, so we can get your planning handled before year’s end. Now is the time to get started.

Last week in part one, we discussed the new bill’s proposed changes to tax rates and estate planning vehicles, including several different types of trusts. Here, in part two, we’ll focus on what you should do now, given that the tax law is in flux and we may not have clear answers until close to the end of the year.

If you read last week’s article, or if you’ve been following the news about the coming changes, you know that none of us know what will ultimately happen—or even when we will know the final outcome. Given that the 2017 Tax Cuts and Jobs Act was not passed until December 2017, and the same thing could happen here, with some provisions potentially impacting your taxes this year, as well as provisions that could impact decisions you’d make for next year, but those decisions must be made now, what should you do?

This is exactly why we say it’s so important for you to have a relationship with a Personal Family Lawyer® that is ongoing, consistent, and allows you to get the support you need when you need it. As you likely well know, the one constant in life is change.

You acquire new assets. A child grows up and moves out. You change jobs, or start a new business, or leave an old one. A parent needs more care than before, and eventually dies.

In our book, life in motion is a life well-lived. And when you have a life in motion, you need ongoing direction, guidance, and support from a trusted advisor you can count on to be there for you through it all.

That’s us.

We are tracking the tax law changes, so you don’t need to—we know you’ve got far more important things to focus on in your life. We are consulting with financial advisors, CPAs, and our own mentors to ensure we’ve got our hearts and minds focused on the coming changes, so we can keep you informed and help you make the best decisions for yourself and the people you love.

That said, here’s what we know for sure—this last quarter of 2021 is going to be quite full, and it’s going to fly by. So if you have not already taken action to get your affairs in order, here’s what you should do now to be most prepared for whatever new changes eventually come down the pike:

  1. Engage with us as your Personal Family Lawyer®, and get started with our Family Wealth Planning Session (FWPS).
  2. By engaging with the FWPS process, you’ll get a clear view into what you have, where it is, and we will be on your team with clarity about what will be impacted by the new tax law changes, so we can get into action for you when the final bill is passed by the end of the year.
  3. If you have already done your planning with us, and you think you may be impacted by any of the tax law changes we wrote about last week—most notably if you have an estate valued over $5 million or you have a business that you think could grow to over $5 million before your death, you have retirement account assets valued in excess of $10 million, or you have retirement account assets that are invested in a self-directed IRA in non-registered investments—get in touch with us immediately, so we can schedule a meeting with you, your financial advisors, and your CPA to begin to plan strategic action now.
  4. NOTE: Even if the size of your estate is far less than this and you have not engaged in any tax planning yet, you might think you can continue to put it off. But here’s why you should not wait to plan, even if you have a small estate.

Whether you will be impacted by the tax law changes or not, if you were to become incapacitated due to illness or injury today, or if you were to die tomorrow, your family would be left with a mess. Even if you have done your own estate planning with a DIY online service, your family would still be left with a mess. No matter how the tax laws change, if you have not planned, your family would be left with a mess. And it does not have to—and frankly should not—be that way. If you’ve ever experienced such events in your own family, you know the cost of such a mess.

If you haven’t already, consider what it is that is keeping you from getting your affairs in order. Then, think about the potential cost to both you and your family if you don’t take the time to properly manage your affairs, and your loved ones are forced to do it for you.

This is exactly why we’ve structured our firm as we have: Our number-one goal is to make the planning process as affordable, effective, and easy for you, while providing the most benefit beyond just dollars and cents.

Most of our clients leave the initial Family Wealth Planning Session process saying, “Wow, I never expected to feel like this after estate planning.” Our process is designed to help you be a better parent, a better business owner (if you own a business), and a better citizen of our community—and that’s exactly how you’ll feel when you are done.

So again, we don’t know yet exactly what the government will do about the coming tax law changes. What we do know is there will be change. And with that in mind, we are reaching out directly to our clients who we already know will be impacted by that change.

If you are not yet a client, contact us to get started today. It’s going to be an incredibly busy few months until the year’s end, and that starts right now. We’d love to help you get your affairs in order, so you can be prepared for whatever happens.

Don’t Wait To Take Action

If your family stands to be impacted by any of the new bill’s proposed changes, it’s vital for you to take action as soon as possible to ensure that whatever changes to your planning that need to be made can be planned and executed before the end of the year—or in some cases, even sooner. Not only that, but given the number of proposed changes that are coming, financial advisors, CPAs, and estate planners are sure to be extremely busy in the coming months.

With such limited time, don’t wait to schedule an appointment with your Personal Family Lawyer®. The sooner you meet with us, the sooner we can make certain that you can properly amend your planning strategies to minimize the impacts of this new bill on your financial, retirement, and estate planning.

And as we mentioned above, even if you have a relatively modest estate, and you know that you won’t be impacted by any of the new tax law changes, you still need to get your affairs in order to protect and provide for your family should something happen to you. If that’s you, contact us, your Personal Family Lawyer® today to schedule a Family Wealth Planning Session, so you can finally take care of your estate planning and do right by those you love. Don’t put it off any longer—contact us today to get started.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

On September 13, 2021, Democrats in the House of Representatives released a new $3.5 trillion proposed spending plan that includes a wide array of changes to federal tax laws. Specifically, the Democrats have proposed a number of significant tax increases and other changes to fund the plan, including increases to personal income tax rates and the capital gains tax rate, along with a major reduction to the federal estate and gift tax exclusion and new restrictions on qualified business income (QBI) deductions.

While the proposed legislation is still under consideration and far from being finalized, given the broad-reaching impact these changes stand to have, we strongly encourage you to take action now if you would be affected by the proposed legislation if it does pass. With the exception of the capital gains rate increase, which could  go into effect on transactions that occur on or after Sept. 13, 2021, most of the proposed changes would be effective after December 31, 2021, meaning that you have time to plan now.

That said, due to the time it takes to plan and execute some of the financial and estate planning actions we’d need to support you with, we suggest you start strategizing now. That way, you’ll have plenty of time to take the appropriate action before the end of the year. With that in mind, here we’ll outline the ways the proposed tax law changes stand to affect your business as well as your personal financial, tax, and estate planning, so you can contact us if you would be impacted if the bill does pass.  

1. Increase in Individual Income Tax Rates 

Proposed changes: Under the proposed legislation, the top personal income tax rate would increase from 37% to 39.6% for married individuals filing jointly with taxable income over $450,000; single taxpayers with taxable income over $400,000; and married individuals filing separate returns with income over $225,000. Additionally, this increase would also apply to trusts and estates with taxable income over $12,500.

The bill would also create a new 3% surcharge on individuals with modified adjusted gross income (AGI) exceeding $5 million (or $2.5 million for married individuals filing separately) as well as on trusts with AGI greater than $100,000.

Additionally, the net investment income tax (NIIT) would be extended to cover net investment income derived in the ordinary course of a trade or business for individuals with taxable income of greater than $400,000 for individuals or $500,000 for those filing jointly, as well as for trusts and estates. The NIIT tax does not apply to earnings already subject to FICA tax.

These proposed changes are set to be effective for tax years beginning after December 31, 2021. 

Potential planning solutions: Since these increases will apply to taxable years beginning after December 31, 2021, we suggest you earn as much as you can this year and consider pushing deductions into next year, while you can still take advantage of historically low tax rates. Keep in mind that if you have a high income and decide to put off planning, you may pay much more in income taxes because of the 3% surcharge on high income and the 3.8% NIIT that will now apply to active business income for high incomes.

Moreover, the increase in personal income tax rates, along with the new 3% surcharge and changes to the NIIT have critical importance to estate planning, since the highest rate applies to estates and trusts with taxable income over $12,500, which is a drastically lower income level at which the highest tax rates apply to individuals, such as beneficiaries of a trust. Given these changes, it may be worth accelerating income for estate and trusts in 2021, while rates are lower.

For so-called “complex” or “non-grantor trusts” that pay their own income tax, distributions may carry out income to the beneficiary in order to be taxed at a lower rate. That said, the benefits of a possibly lower tax rate should be weighed against the impact of an outright distribution of funds to a beneficiary and the inclusion of those funds in the beneficiary’s estate if the distributed funds are not spent. For example, would an outright distribution negatively impact a beneficiary with poor money-management skills or issues with substance abuse?

If you will earn more than these income limits this year, meet with your Family Business Lawyer® as soon as possible to discuss a plan to adapt your financial and estate planning to offset the impact of these changes.

2. Increase In Corporate Tax Rates
Proposed changes: The new bill would revert the current flat corporate tax rate of 21% to the pre-2017 system of graduated corporate taxes as follows: The bill increases the top corporate tax rate from 21% to 26.5% for C Corporations earning in excess of $5 million, but it would reduce the lowest rate to 18% for C Corporations with income less than $400,000. For Corporations earning between $400,000 and $5 million, the rate remains unchanged at 21%.

One notable exception—under the bill, corporations that are taxed as personal service corporations are not eligible for the graduated rates and instead are subject to a flat rate of 26.5%. Additionally, the bill would increase the minimum tax rate on overseas corporate income from 10.5% to roughly 16.5%. It also reduces the percentage of foreign income that can be excluded from the minimum tax to 5% from 10%.

These tax changes are proposed to be effective for taxable years beginning after December 31, 2021.

Potential planning solutions: If you have a C Corporation, contact us now to coordinate your planning with your CPA before the end of 2021. 

3. Restrictions On Section 199A Qualified Business Income Deduction

Proposed changes: The bill would add a cap to the 20% deduction for qualified business income (QBI) under Section 199A, which would limit the maximum deduction to $400,000 for individuals, $500,000 for joint returns, $250,000 for a married individual filing separately, and to a mere $10,000 for a trust or estate.

This change will apply to tax years beginning after December 31, 2021.

Potential planning solutions: This restriction will seriously limit 199A deductions for high-income taxpayers. And the cap amount for trusts and estates is particularly severe, and it will effectively eliminate the benefit for trust-owned real estate and other trust-owned qualifying business assets. Given this, you must consider what happens when evaluating gifts to trusts of real estate, rental property, or other business assets that would qualify for 199A deduction for QBI, since those assets will now be subject to the harsh $10,000 limitation.


Reach out to us, your Family Business Lawyer to find out the best ways to offset the negative impact this change stands to have on your business and/or estate.

4. Increase in Capital Gains Tax Rates
Proposed changes: The new bill would increase the long-term capital gains tax rate from 20% to 25% on individuals with taxable income over $400,000. The increase is set to be effective for the tax year ending after September 13, 2021, and it also applies to qualified dividends. However, the bill includes a transition rule that provides that any transactions completed on or before September 13, 2021—or subject to a binding written contract entered into on or before September 13, 2021 (even if the transaction closes after September 13)—are subject to the prior 20% tax rate.

Any capital gains recognized after September 13, 2021, would be subject to the new 25% rate. So, for example, if you entered into a contract to sell your business in May 2021, and the sale closes in November 2021 and exceeds your exemption, your transaction would be subject to the 20% rate. However, if the bill passes, and you enter into a contract after September 13, your tax rate will be 25%. This applies equally to sales of appreciated stock and other investments.

Potential planning solutions: While it may seem that it’s too late to do anything about your capital gains on sales at this point, it’s not, but it will require planning. This means if you are selling any assets this year that will result in significant capital gains tax to pay, contact us now to discuss your options. Once the sale happens, it’s too late. Don’t wait.

5. Restrictions On The Use Of Business Losses

Proposed changes: The bill would permanently disallow “excess business losses” (net business deductions in excess of business income) for noncorporate taxpayers. Under current law, the IRS limits pass-through business net losses which can offset non-business income to $250,000 for individuals or $500,000 for married taxpayers filing jointly. In light of this change, you will no longer be able to offset losses from one business with losses/gains from another business.

That said, the bill would allow taxpayers whose losses are disallowed to carry those losses forward to the next tax year. This change will apply to tax years beginning after December 31, 2021.

Potential planning solutions: Contact us now to coordinate your tax planning with your CPA before the end of 2021.

6. Reduction in Estate and Gift Tax Exclusion

Proposed changes: The bill would dramatically reduce the federal estate and gift tax exclusion from its current level of $11.7 million for individuals and $23.4 million for married couples to its 2010 level of $5 million per individual, adjusted for inflation, which would bring the estate and gift tax “coupon” to roughly $6 million.

The proposed reduction would apply to estates of decedents who die or make gifts after December 31, 2021. This reduction would expose estates and gifts above the exclusion amount to a 40% federal estate tax.  

Potential planning solutions: In light of the proposed reduction, individuals with assets in excess of $6 million (including life insurance) should take a “use it or lose it” approach to gifting, and make any gifts before the end of the year to qualify for the higher exclusion rate. That said, some families should consider making such gifts before the legislation is officially passed due to the changes to Grantor Trusts and other estate planning strategies described below. If your estate is already over the $6 million exemption, or you expect it to be in the future, contact us now. Again, do not wait.

7. Tax Savings For S Corporations That Convert to Partnerships

Proposed changes: Not every change proposed by the new legislation is negative, and this is one of them. This provision would allow S-Corporations that elected S-Corp status prior to May 13, 1996 to convert tax-free to a partnership at any time in the two years following passage of the bill. Under the current law, such a move would result in a deemed taxable sale of all of the S-Corporation’s assets at the time of conversion. 

Potential planning solutions: If you own shares in an S-Corp, this could be a great opportunity. S-Corps can typically convert tax-free to a C Corporation, but C Corporations don’t offer the level of flexibility in regards to the distribution and allocation of income compared to entities taxed as a partnership. If you are looking for greater flexibility in this regard and want to take advantage of the new tax savings provided by this provision, contact your Family Business Lawyer today for support and guidance on making such a conversion.

8. New Restrictions On Grantor Trusts

Proposed changes: The new bill targets Grantor Trusts and would effectively shut them down as planning vehicles. Currently, a Grantor Trust is a trust that can be considered separate and apart from the Grantor (individual who creates the trust) and contributor to the trust for estate tax purposes, but be considered as owned by the grantor for income tax purposes.

Since the grantor is considered the owner of the trust for income tax purposes, transactions between the trust and the grantor are “disregarded,” meaning that assets can be sold or exchanged with the trust, without triggering any income tax consequences. However, that same trust can be used to move assets outside of your estate for estate tax purposes, freezing the value of those assets at their current value, such that when you die any appreciation in the value of those assets is not taxed for estate tax purposes, saving your family 40% or more. 

The new bill provides that any Grantor Trust created on or after the date of the legislation’s enactment will now be included in your estate for estate tax purposes. Distributions from Grantor Trusts (other than to the grantor or the grantor’s spouse) would be treated as gifts made by the grantor, and therefore subject to the gift tax exemption. If the bill is enacted and Grantor Trust ceases to be treated as such during the grantor’s life, the grantor would be deemed to make a gift of the trust assets, and sales of assets between a grantor and the Grantor Trust would no longer be disregarded for income tax purposes.

The good news is that under the new bill Grantor Trusts established and funded before the enactment of the new law would be “grandfathered” in, as would promissory notes that are in place at the time of the law’s enactment. 

Potential planning solutions: Contact us if your assets are above the proposed estate tax exemption amount of approximately $6 million, or you anticipate they will be, so we can move some of your assets outside of your estate this year. 


9. Impact To Discounts & Other Estate Planning Vehicles

Proposed changes: The bill would not only affect the use of Grantor Trusts, but it would also eliminate valuation discounts, unless the asset gifted or sold is an “active trade or business.” Moreover, depending upon how the legislation is applied and interpreted, the new bill may also prevent planners from being able to use irrevocable life insurance trusts (ILITs)—at least to some degree (more about ILITs below)—as well as Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trusts (QPRTs), and Grantor Charitable Lead Annuity Trusts (CLATs).

Irrevocable life insurance trusts (ILITs) are among the most commonly used irrevocable trusts for estate planning, and since most ILITs have traditionally been structured as Grantor Trusts, these trusts will be largely undermined by the new bill. Since the trust would be included in your estate, new ILITs will no longer be feasible. As a workaround, new ILITs may need to be structured as non-Grantor Trusts to avoid estate inclusion.

However, this structure will create an array of problems. First, it will require the trust to expressly prohibit trust income from being used to pay life insurance premiums on your life as the creator of the trust. Second, for those existing trusts that are grandfathered in, no new gifts should be made to the ILIT, or a portion of the trust assets (including life insurance proceeds) will also be included in your estate. 

Potential planning solutions: If your estate plan includes any of these trusts or planning strategies, contact us right away for guidance in amending your estate plan to offset the impact of these changes.

As we approach the end of 2021, if your business or personal finances stand to be impacted by any of these changes, it’s imperative that you take action as quickly as possible to ensure that whatever actions need to be taken can be planned and executed before the end of the year. Not only that, but given the number of proposed changes that are coming, financial advisors and estate planners are sure to be extremely busy in the coming months.

Next week in part two, we’ll discuss the rest of the changes proposed in this new bill, with a primary focus on the bill’s impact on retirement planning.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you

On September 13, 2021, Democrats in the House of Representatives released a new $3.5 trillion proposed spending plan that includes a wide array of changes to federal tax laws. Specifically, the Democrats have proposed a number of significant tax increases and other changes to fund the plan, including increases to personal income tax rates and the capital gains tax rate, along with a major reduction to the federal estate and gift tax exclusion and new restrictions on Grantor Trusts that would basically eliminate such trust’s ability to be used as planning vehicles.

While the proposed legislation is still under consideration and far from being finalized, we think it is important to be aware of what could happen in case you want to take action now if you would be affected by the proposed legislation if it does pass. With the exception of capital gains rate increase, which could go into effect on transactions that occur on or after Sept. 13, 2021, most of the proposed changes would be effective after December 31, 2021, meaning that you have time to plan now.

That said, due to the time it takes to plan and execute some of the financial and estate planning actions we’d need to support you with, we suggest you start strategizing now. That way, you’ll have plenty of time to take the appropriate action before the end of the year. With that in mind, here we’ll outline how  the proposed tax law changes stand to affect your financial, tax, and estate planning, so you can contact us if you would be impacted if the new bill does pass. 

1. Increase in Individual Income Tax Rates 

Proposed changes: Under the proposed legislation, the top personal income tax rate would increase from 37% to 39.6% for married individuals filing jointly with taxable income over $450,000; single taxpayers with taxable income over $400,000; and married individuals filing separate returns with income over $225,000. Additionally, this increase would also apply to trusts and estates with taxable income over $12,500.

The bill would also create a new 3% surcharge on individuals with modified adjusted gross income (AGI) exceeding $5 million (or $2.5 million for married individuals filing separately) as well as on trusts with AGI greater than $100,000.

Additionally, the net investment income tax (NIIT) would be extended to cover net investment income derived in the ordinary course of a trade or business for individuals with taxable income of greater than $400,000 for individuals or $500,000 for those filing jointly, as well as for trusts and estates. The NIIT tax does not apply to earnings already subject to FICA tax.

These proposed changes are set to be effective for tax years beginning after December 31, 2021. 

Potential planning solutions: Since these increases will apply to taxable years beginning after December 31, 2021, we suggest you earn as much as you can this year and consider pushing deductions into next year, while you can still take advantage of historically low tax rates. Keep in mind that if you have a high income and decide to put off planning, you may pay much more in income taxes because of the 3% surcharge on high income and the 3.8% NIIT that will now apply to active business income for high incomes.

Moreover, the increase in personal income tax rates, along with the new 3% surcharge and changes to the NIIT have critical importance to estate planning, since the highest rate applies to estates and trusts with taxable income over $12,500, which is a drastically lower income level at which the highest tax rates apply to individuals, such as beneficiaries of a trust. Given these changes, it may be worth accelerating income for estate and trusts in 2021, while rates are lower.

For so-called “complex” or “non-grantor trusts” that pay their own income tax, distributions may carry out income to the beneficiary in order to be taxed at a lower rate. That said, the benefits of a possibly lower tax rate should be weighed against the impact of an outright distribution of funds to a beneficiary and the inclusion of those funds in the beneficiary’s estate if the distributed funds are not spent. For example, would an outright distribution negatively impact a beneficiary with poor money-management skills or issues with substance abuse?

If you will earn more than these income limits this year, meet with us, your Personal Family Lawyer® as soon as possible to discuss a plan to adapt your financial and estate planning to offset the impact of these changes.

2. Increase in Capital Gains Tax Rates
Proposed changes: The new bill would increase the long-term capital gains tax rate from 20% to 25% on individuals with taxable income over $400,000. The increase is set to be effective for the tax year ending after September 13, 2021, and it also applies to qualified dividends. However, the bill includes a transition rule that provides that any transactions completed on or before September 13, 2021—or subject to a binding written contract entered into on or before September 13, 2021 (even if the transaction closes after September 13)—are subject to the prior 20% tax rate.

Any capital gains recognized after September 13, 2021, would be subject to the new 25% rate. So, for example, if you entered into a contract to sell your home in May 2021, and the sale closes in November 2021 and exceeds your exemption, your transaction would be subject to the 20% rate. However, if the bill passes, and you enter into a contract after September 13, your tax rate will be 25%. This applies equally to sales of appreciated stock and other investments.

Potential planning solutions: While it may seem that it’s too late to do anything about your capital gains on sales at this point, it’s not, but it will require planning. This means if you are selling any assets this year that will result in significant capital gains tax to pay, contact us now to discuss your options. Once the sale happens, it’s too late. Don’t wait.

3. Reduction in Estate and Gift Tax Exclusion

Proposed changes: The bill would dramatically reduce the federal estate and gift tax exclusion from its current level of $11.7 million for individuals and $23.4 million for married couples to its 2010 level of $5 million per individual, adjusted for inflation, which would bring the estate and gift tax “coupon” to roughly $6 million.

The proposed reduction would apply to estates of descendants who die or make gifts after December 31, 2021. This reduction would expose estates and gifts above the exclusion amount to a 40% federal estate tax.  

Potential planning solutions: In light of the proposed reduction, individuals with assets in excess of $6 million (including life insurance) should take a “use it or lose it” approach to gifting, and make any gifts before the end of the year to qualify for the higher exclusion rate. That said, some families should consider making such gifts before the legislation is officially passed due to the changes to Grantor Trusts and other estate planning strategies described below. If your estate is already over the $6 million exemption, or you expect it to be in the future, contact us now. Again, do not wait.

4. New Restrictions On Grantor Trusts

Proposed changes: The new bill targets Grantor Trusts and would effectively shut them down as planning vehicles. Currently, a Grantor Trust is a trust that can be considered separate and apart from the grantor (individual who creates the trust) and contributor to the trust for estate tax purposes, but be considered as owned by the grantor for income tax purposes.

Since the grantor is considered the owner of the trust for income tax purposes, transactions between the trust and the grantor are “disregarded,” meaning that assets can be sold or exchanged with the trust, without triggering any income tax consequences. However, that same trust can also be used to move assets outside of your estate for estate tax purposes, freezing the value of those assets at their current value, such that when you die, any appreciation in the value of those assets is not taxed for estate tax purposes, saving your family 40% or more. 

The new bill provides that any Grantor Trust created on or after the date of the legislation’s enactment will now be included in your estate for estate tax purposes. Distributions from Grantor Trusts (other than to the grantor or the grantor’s spouse) would be treated as gifts made by the grantor, and therefore subject to the gift tax exemption. If the bill is enacted and Grantor Trust ceases to be treated as such during the grantor’s life, the grantor would be deemed to make a gift of the trust assets, and sales of assets between a grantor and the Grantor Trust would no longer be disregarded for income tax purposes.

The good news is that under the new bill Grantor Trusts established and funded before the enactment of the new law would be “grandfathered” in, as would promissory notes that are in place at the time of the law’s enactment. 

Potential planning solutions: Contact us if your assets are above the proposed estate tax exemption amount of approximately $6 million, or you anticipate they will be, so we can move some of your assets outside of your estate this year. 


5. Impact To Discounts & Other Estate Planning Vehicles

Proposed changes: The bill would not only affect the use of Grantor Trusts, but it would also eliminate valuation discounts, unless the asset gifted or sold is an “active trade or business.” Moreover, depending upon how the legislation is applied and interpreted, the new bill may also prevent planners from being able to use irrevocable life insurance trusts (ILITs)—at least to some degree (more about ILITs below)—as well as Grantor Retained Annuity Trusts (GRATs), Qualified Personal Residence Trusts (QPRTs), and Grantor Charitable Lead Annuity Trusts (CLATs).

Irrevocable life insurance trusts (ILITs) are among the most commonly used irrevocable trusts for estate planning, and since most ILITs have traditionally been structured as Grantor Trusts, these trusts will be largely undermined by the new bill. Since the trust would be included in your estate, new ILITs will no longer be feasible. As a workaround, new ILITs may need to be structured as non-Grantor Trusts to avoid estate inclusion.

However, this structure will create an array of problems. First, it will require the trust to expressly prohibit trust income from being used to pay life insurance premiums on your life as the creator of the trust. Second, for those existing trusts that are grandfathered in, no new gifts should be made to the ILIT, or a portion of the trust assets (including life insurance proceeds) will also be included in your estate. 

Potential planning solutions: If your estate plan includes any of these trusts or planning strategies, contact us right away for guidance in amending your estate plan to offset the impact of these changes.

As we approach the end of 2021, if your family stands to be impacted by any of these changes, it’s imperative to take action as quickly as possible to ensure that whatever actions that need to be taken can be planned and executed before the end of the year. Not only that, but given the number of proposed changes that are coming, financial advisors and estate planners are sure to be extremely busy in the coming months.

Given this, don’t wait to schedule an appointment with us, your Personal Family Lawyer®. The sooner you meet with us, the sooner we can make certain that you can amend your planning strategies accordingly to minimize the impacts of this new bill on your financial and estate planning.

Next week in part two, we’ll discuss the rest of the changes proposed in this new bill, with a primary focus on the bill’s impact on retirement planning.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

Whether it’s your very first or your fifth company, if you’re looking to start a new business venture, you have two options: 1) build your own from scratch or 2) buy an existing one. And while many entrepreneurs dream of building their own company from the ground up, the reality is, launching a brand-new business can be incredibly difficult.

Building a business from scratch can involve years of working long hours for little to no financial reward. In fact, whether your company is ever able to generate a profit or not, starting your own business can consume your life like few other activities. What’s more, no matter how much you sacrifice, there’s no guarantee the venture still won’t fail miserably.

On the other hand, buying an existing business and successfully making it your own can be somewhat less stressful. After all, you’re buying an operation that has already proven successful, with an existing customer base, brand recognition, and cash flow.

That said, buying an existing business isn’t without its own challenges. It will also require hard work and sacrifice, and no matter how successful the company was under its former owner, there’s no guarantee you will experience the same prosperity. When buying an existing business, the difference between success and failure often comes down to your first major decision: purchasing the right company.

With so much riding on your decision, here are three big mistakes to avoid when shopping for and purchasing an existing business.

1. Not Doing Proper Research Before Buying
When purchasing an existing business, you need to go into the process with your eyes wide open to ensure that what you’re investing in is everything it’s claimed to be. Just because a business appears to be successful on the surface doesn’t mean there aren’t fatal flaws just below the waterline.

One of the first things you need to learn is why the business is being sold in the first place. The owner may claim to be retiring to spend more time with the family, but he or she might know that a competing operation is opening a megastore just down the street in a few months. You’ve got to gauge not only the company’s current success, but also its potential for future success and growth. To this end, you’ll need to get straight answers to a few essential questions:

  • What assets does the business own?
  • What debts or liabilities are associated with these assets?
  • Is the company involved in any ongoing or pending lawsuits?
  • Are there any liens against the business?
  • Are there any unpaid vendors, suppliers, and/or contractors?
  • Is the company’s particular industry thriving or in decline?

Such due diligence should be done well before you begin negotiations with the seller, not a few weeks before closing. The more you know about the operation, the stronger your position will be as a buyer. When it comes to investigating the company’s legal framework and liabilities, a Family Business Lawyer™ can help you learn everything you need to know to have the strongest position possible.

2. Buying a business using the wrong entity structure
Many budding entrepreneurs get so excited to own their own company, they fail to put the proper liability protections in place. For instance, if all of the contracts you’re signing when you buy the operation are in your own name as a sole proprietor, you’re putting everything you own at risk.

In fact, without the proper business entity in place to shield you from personal liability, you could end up losing your home, car, and savings to the company’s creditors if the venture suffers a major loss or gets hit with a lawsuit. To prevent this, you need to have the appropriate legal structure in place before buying.

Business entities, such as limited liability companies (LLCs) and corporations, often provide the best protection, so even if the company totally fails, its creditors will be legally unable to come after your personal assets. To figure out what’s best for your situation, you should meet with an experienced lawyer like us to help you select, put in place, and maintain the proper entity structure for the specific operation you’re purchasing.

3. Not Properly Valuing The Business
Although improperly valuing a company is technically a lack of due diligence, business valuation is such a complex and nuanced part of the purchasing process, it deserves its own category. Indeed, every single other factor about the business can be totally perfect, but if you pay the wrong price for it, you could be setting yourself up for disaster.

Besides, even if the business you buy doesn’t actually fail because of improper valuation, it makes zero sense to waste tens of thousands of dollars that could be used for much more valuable purposes over a simple mistake that’s fairly easy to avoid.

Many times, a seller will come up with a totally unsubstantiated sales price just to test the waters. Other sellers base the price on a hidden motive: to pay off their own debts, to pay for their kids’ college education, or as part of an upcoming divorce settlement. All of these factors have no bearing on the true value of the business.

Keep in mind that the seller’s initial asking price has nothing to do with a proper valuation—that’s on you. We can help you figure out how the company’s tax and legal liabilities fit into the value equation, and then we can refer you to valuation experts we know and trust to help with the other areas.

Get Professional Support
Owning a business is a huge responsibility no matter how you look at it. And when buying an existing operation, your first—and often most critical—responsibility is to make sure the company you purchase is actually worth the money, time, and energy you’ll be investing. With so much on the line, you shouldn’t try to do everything on your own.

If you want to do things the right way, we recommend that you hire a team of experts to help with the purchase of the business. As your Family Business Lawyer, we can assist you with all of the legal issues related to purchasing the business, and we can put you in touch with other professionals we trust to help round out the rest of your support team. Schedule an appointment with us today to get started.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you

As the host of the wildly popular The Joy of Painting TV series on PBS, Bob Ross became a pop-culture icon, who was equally famous for his giant head of hair, soothing baritone voice, and folksy demeanor as he was for his iconic landscape paintings. And like so many other artists, Bob’s artwork and image would become even more popular following Bob’s death in 1995.

Bob’s philosophy in both painting and life was that there “were no mistakes in life… just happy little accidents.” Sadly, as detailed in the recent Netflix documentary Bob Ross: Happy Accidents, Betrayal & Greed, Bob’s failure to coordinate his business agreements with his estate plan was anything but happy, leaving his only son largely unable to benefit from his father’s fame and fortune. 

Bob’s planning failures led to an ugly court battle between his former business partners and his family, who were fighting for control of the lucrative intellectual property rights to the Bob Ross brand. And while Bob’s son Steve ultimately lost his fight to benefit from the business empire built on his father’s persona and painting skills, here in part two, we’ll explain the steps you can take to ensure that your loved ones don’t suffer the same fate and are able to fully benefit from all of your business assets following your death.

Ensure Your Business Agreements Are In Accord With Your Estate Plan

As we learned last week, although Bob intended to leave all of his intellectual property rights to his son, Steve, and half-brother, Jimmie Cox, and he even changed his estate plan to transfer those rights to them, the court ruled that Bob couldn’t transfer those rights because Bob didn’t own those rights to begin with. The court ruled that Bob had transferred all rights to his intellectual property to Bob Ross Inc. (BRI) during his lifetime via oral contracts, and therefore it didn’t matter what his estate plan said, because those rights weren’t Bob’s to give away.


Bob started BRI in 1985, with his wife Jane Ross, along with husband and wife Walter and Annette Kowalski. The four were initially equal partners in the corporation, but following Jane’s death in 1992, the bylaws of BRI required that Jane’s share in the company be divided equally among the surviving three partners. As a result, Bob was reduced to owning just one-third of the company that bore his name and likeness, and this was the structure in place upon Bob’s death in 1995.

Bob’s situation is fairly common among business owners. When business owners first create their governing documents—operating agreements, bylaws, partnership agreements, etc.—they often aren’t thinking ahead about what would happen to their business and its assets when they die or if they become incapacitated. And because of this, they don’t take the proper precautions to ensure that their business assets are properly protected by their estate plan should something happen to them.

In other cases—and as we saw with Bob—business owners falsely assume that their estate plan will override any business agreements they are party to, and therefore any assets they pass to their loved ones via their will or trust will transfer to their intended beneficiaries regardless of what’s in their business agreements. However, this is false, and in fact, the very opposite is true. Whether it’s a partnership, LLC, corporation, or some other business structure, your estate plan does not have the power to modify, undo, or override any business agreements to which you are a party.

The bottom line: When it comes to the ownership of business assets, the legal agreements governing the ownership rights of a business are what determines who owns the business and its assets upon the death of an owner, regardless of what your estate plan says. This is why it’s essential that you make certain that any business agreements you enter into are in coordination with your estate plan. We can help you do this as long as we know about all of your business holdings, including your intellectual property and business entities when we handle your estate planning with you.

As we saw with Bob’s case, failing to properly coordinate your business agreements with your estate plan can lead to disastrous consequences. Fortunately, as your Personal Family Lawyer®, we can ensure that your business agreements are fully coordinated and integrated with your estate plan, so all of your business assets, including any intellectual property you own, will pass seamlessly to your loved ones in the event of your death or incapacity.

Whether your business is just getting started or you’ve been in business for years, here are the steps you need to take to avoid making the same not-so-happy mistakes that affected Bob Ross and his family.


The Right Way To Plan

The ideal time to coordinate your business agreements with your estate plan is when you first launch your business. This way you can address the ownership rights to all of your business assets, including any intellectual property, from the very start and incorporate those ownership rights into your company’s governing documents.

If your business has multiple owners, you’ll want to enter into the process of making agreements with your partners, and not just rely on form documents, or sign documents you have not fully understood. All too often, business agreements are created via form or template documents that do not give any real consideration to your most valuable assets. If that’s the case for you, now is not too late to make a change—but tomorrow might be.

Make certain that the governing documents address the ownership rights to all of the company’s assets, including any intellectual property, intentionally. And be sure to consider what happens to the company, and its assets, upon a sale, death, or disability of each owner of the company. 


To ensure your intellectual property (and all of the assets of your business) are properly considered in your governing documents, you should consult with a trusted attorney like me, your Personal Family Lawyer®, who has experience in both intellectual property and estate planning (or can bring in the proper intellectual property advisors), to ensure that everything is documented and in alignment with your wishes, and your most valuable assets are properly handled.

If you are like Bob and many other business owners and you failed to coordinate your company’s governing documents with your estate plan at the start of your business, you’ll need to hire a lawyer like us to review your company’s existing governing documents to determine how the documents address the ownership and succession of the company’s assets. And if you haven’t created your company’s governing documents yet, now is the time to put these essential legal agreements in place.

When reviewing your governing documents, you’ll want to ensure that they properly address the ownership rights to your company’s intellectual property and other assets upon an owner’s death or incapacity, as well as upon the sale or dissolution of the business. If upon reviewing the governing documents, you find that the ownership rights are not in alignment with your estate planning goals, it may be possible to renegotiate the agreement with the other owners and amend the documents to better fit with your aims.


If renegotiating the ownership rights proves infeasible, at least your Personal Family Lawyer® will be aware of this fact, and we may be able to come up with an alternative solution to transfer ownership of these assets to your heirs. It’s certainly not the ideal situation, but it’s far better to learn this now while you are still alive, rather than learning it after your death as happened with Bob’s son Steve.


Succession Planning
Once you’ve ensured the proper distribution of your intellectual property and other business assets through your company’s governing documents, you must then use your estate plan to protect and pass on the ownership rights to your share of the business interests you own. This often takes place through a coordinated business succession planning process.

Unfortunately, far too few business owners take the time to prepare for their company’s continued success following their retirement, death, or incapacity. Yet, creating a comprehensive succession plan as part of your overall estate plan is just as crucial as any other planning you do for your business, if not more so.

As we saw with Bob Ross, not planning for the future of your business after you are no longer in the picture can have terrible consequences for your family if (and when) something should happen to you. Whether you exit your business with a sale, your retirement, your incapacity, or as a result of your death, there will come a point when it’s time for you to exit your business. And a succession plan is designed to ensure that your company will continue to prosper once you are no longer running the show.

A Road Map For The Future Of Your Business
That said, when it comes to estate and succession planning, it can be difficult to even identify clear goals for a future that doesn’t involve you. This is just natural. If planning were simply another operations issue that needed solving, you’d have a plan in place in no time flat. However, multi-generational planning is by default something you’re almost certainly unfamiliar with.

In fact, business strategies that worked for your grandfather and father might not have worked for you. And by the same token, what worked for you may not work for coming generations. This can make it feel impossible to even know where to begin with your plan, much less identify what problems might arise and how to address them. But start you must.

This is where experienced estate planning lawyers like us come in. We can guide and support you to create a comprehensive estate plan to ensure the company and wealth you’ve worked so hard to build will last for generations to come. In particular, this includes putting in place a long-term business succession plan that not only names your successor but also provides a detailed roadmap for him or her to follow when you’re no longer around to offer your wisdom and advice.

If you’ve yet to create an estate plan that includes a comprehensive succession plan for your business’s future, meet with your Personal Family Lawyer® right away to take care of this vital responsibility. And even if you already have a plan in place, you should have us review it to make certain you’ve covered all your bases, as this is one of the areas we see most often overlooked in estate planning. Taking these actions will not only help shield your company and family from unforeseen tragedy but also give you the peace of mind needed to take your business to the next level. 

Leveraging Your Intellectual Property For Future Generations

After you’ve decided how you want your business to be run in your absence and formally spelled this out in your succession plan, you may want to consider separating your operating activities and your intellectual property into separate entities. In that case, you’ll want to consider which estate planning vehicles are best suited for protecting and transferring the ownership of your intellectual property rights to your heirs. In most cases, the best planning vehicle for this purpose is going to be a trust, either a revocable living trust, an irrevocable trust, or a combination of the two.

Using a trust, you can spell out exactly how you’d like your intellectual property distributed to your beneficiaries. In addition to considering the best way to distribute your intellectual property to your beneficiaries, you’ll also want to consider which of your loved ones is best suited for owning and managing these intangible assets, as well as how you’d like those assets to be used for the benefit of your loved ones.

Intellectual property, such as trademarks, copyrights, and patents, can be leveraged to create revenue in a number of different ways. Your beneficiaries could simply sell your intellectual property assets outright, or they could use the intellectual property as collateral to take out a loan. Or they could decide to license the use of your intellectual property to others, which can generate an ongoing revenue stream that can last indefinitely. Indeed, as we saw with Bob Ross’s case when properly managed, the licensing fees for a company’s intellectual property can generate millions in revenue, and that income stream has the potential to continue for generations to come.

Avoiding A Not-So-Happy Accident
Don’t let what happened to Bob Ross’s family happen to yours. If you own a business, it’s absolutely crucial that you put in place an effective estate plan, including a comprehensive succession plan, to ensure that all of the wealth and assets you’ve worked so hard to build will be properly passed on to your loved ones in the event of your death or incapacity.

Furthermore, you must also ensure that your estate plan is properly coordinated with your business agreements, or your estate plan may not work as intended. And in that case, your loved ones may find themselves in the same situation as Bob’s son Steve, who was left with virtually nothing, while the business built on his father’s name and persona continues to bring in millions of dollars every year.

As your Personal Family Lawyer®, we know that your business is one of your family’s most precious assets, and with our support and guidance, we can ensure that it will continue to provide the maximum benefit for your loved ones following your death or incapacity. If you haven’t taken the time to put proper estate planning in place, consult with us, your Personal Family Lawyer® today, so we can help you find the estate planning strategies best suited for your asset profile and family dynamics.

And if you already have an estate plan—even one created by another lawyer—you should have us review your plan to ensure it will work as intended and that it’s properly coordinated with your business agreements. Contact us today to get started.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

One of the biggest benefits of running a family business is being able to employ your minor children. By hiring your kids, you have the opportunity to teach them the value of hard work, give them experience managing money, and support them to save for their future.

In return, you get employees who have a built-in sense of commitment, teamwork, and loyalty that can’t be found anywhere else. This sense of loyalty and dedication is why so many business owners like to claim that their team is “just like family.”

On top of that, employing your minor children also comes with some substantial tax-saving benefits. And with the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, those benefits are now better than ever.

Earn Up to $12,000 Tax Free

Starting in 2018, the TCJA practically doubled the standard deduction, which increased from $6,300 to $12,000. This means your children will pay zero federal income tax on anything they earn up to $12,000. This alone can save you thousands each year.

And even if your kids do earn more than $12,000 for the year, they will pay taxes at the reduced rates established by the TCJA, so they’ll still be reducing your family’s tax bill. Plus, you can deduct their salaries as a business expense, reducing your taxable income even further.

But there are even more savings to be had. Depending on your business structure, you may be able to save serious money on your child’s payroll taxes, too.

Payroll Tax Exemption

If your business is a sole proprietorship, a married couple partnership, a single-member LLC taxed as a sole proprietorship, or an LLC taxed as a married couple partnership, you might not be required to withhold or pay any Social Security and Medicare tax (FICA) or federal unemployment tax (FUTA) on your kid’s wages.

This payroll tax exemption applies to parents who employ their children for either part-time or full-time work. The FICA exemption covers those kids under age 18, while the FUTA exemption lasts until they reach 21. This exemption can be used to shift some of the income from your own tax rate to your child’s rate, which is most likely significantly lower than yours.

Alternatives For Corporations

If your business is set up as an S or C corporation, you don’t qualify for the payroll tax exemption. However, there are ways to get around this restriction by using some creative—yet totally legal—tax strategies.

For example, instead of paying your kids directly from your corporation, you can create a family management company and pay them from that business. By setting up this new company as a sole proprietorship separate from your primary business and paying your children from it, you won’t have to withhold payroll taxes.

If you own an S or C corporation, meet with us, as your Family Business Lawyer, to learn more about such creative tax-saving strategies.

Remain In Compliance

With such significant savings on the table, it’s inevitable that some people will try to abuse these provisions by claiming the benefits without having their kids do any legitimate work, or by vastly inflating their wages. To prevent this, the IRS requires your children to meet a few criteria in order to qualify for these tax benefits:

  • They must perform legitimate work appropriate to their age and skill set.
  • Their work must exceed the normal household chores they already do.
  • They must be paid the going rate for their services and not be over-compensated. 
  • Good records must be kept, including filing W-2s.
  • Their services, work conditions, and hours must be in compliance with federal and state child-labor laws.

Consider that your children can get paid to be models in your advertising, stuff mailers for you, or when they are old enough, even learn how to field incoming phone calls for your business or manage your social media. With creativity, there is a vast array of work your children can do in your business. 

If you employ your kids (or want to do so), meet with us to ensure you’re doing everything by the book, and your business isn’t in danger of attracting unwanted attention from the IRS.

Maximize Your Tax Savings

With these new benefits, there’s never been a better time to put your kids to work in the family business. That said, hiring your children is just one way you can reduce your yearly tax bill—there are numerous other tax-saving opportunities you might not be aware of. Consult us, your Family Business Lawyer to make sure you don’t miss out on a single one. 

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you

As the host of the wildly popular The Joy of Painting TV series on PBS, Bob Ross became a pop-culture icon, who was equally famous for his giant head of hair, soothing baritone voice, and folksy demeanor as he was for his iconic landscape paintings. And like so many other artists, Bob’s artwork and image would become even more popular following Bob’s death in 1995.

Bob’s philosophy in both painting and life was that there “were no mistakes in life… just happy little accidents.” Sadly, as detailed in the recent Netflix documentary Bob Ross: Happy Accidents, Betrayal & Greed, Bob’s failure to coordinate his business agreements with his estate plan was anything but happy, leaving his only son largely unable to benefit from his father’s fame and fortune. 

As we’ll discuss in this series, Bob’s planning failures have led to an ugly court battle between his former business partners and his family, who were fighting for control of the lucrative intellectual property rights to the Bob Ross brand. And while Bob’s son Steve ultimately lost his fight to benefit from the business empire built on his father’s persona and painting skills, we’ll explain the steps you can take to ensure that your loved ones don’t suffer the same fate and are able to fully benefit from all of your business assets following your death.

Building Bob Ross

After meeting Bob at one of his early in-person painting classes, husband and wife duo Walter and Annette Kowalski convinced Bob to go into business with them, launching Bob Ross Inc. (BRI) in 1985. According to the Daily Beast, the corporation, which was formed in Virginia, initially consisted of four equal partners: Bob Ross and his wife Jane Ross, along with Walter and Annette.

With the Kowalski’s financial backing, BRI’s initial business model had Bob teaching a series of in-person painting classes up and down the U.S. east coast at which they sold painting supplies and art instruction manuals. But after signing on with PBS for The Joy of Painting series and launching their own line of Bob Ross-brand painting and art supplies, business began to take off.  

From 1986 through 1994, BRI registered several trademarks using Bob Ross’ name and likeness, and the company also signed several licensing agreements with third parties, all with Bob’s consent. All four individuals—Bob, Jane, Walter, and Annette—were technically equal partners in the corporation, but it was widely acknowledged that Bob was the one in charge, as well as the one with the talent and the face of the brand.

In fact, when The Joy of Painting became one of PBS’s top-ranked shows at the close of the 1980s, the frizzy-headed artist grew into a bona-fide celebrity. Bob made appearances on popular talk shows of the day like Regis and Kathy Lee and Donahue, and Bob was also a featured star at the Grand Ole Opry in Nashville. At the peak of his fame, Bob even had plans to launch his own musical based on his TV show.

The success of the show and Bob’s fame boosted sales of Bob Ross art supplies, which branched out to include books and videos in addition to the paints and brushes adorned with Bob’s name and likeness. BRI eventually started offering painting workshops around the U.S., with teachers trained in Bob’s method doing the instruction.

All of this translated to significant financial success for the company. Based on records made public during the lawsuits over Bob’s estate, BRI was bringing in roughly a half-million dollars each year for the four partners to share, according to the Daily Beast. But the good times wouldn’t last. 

Things Fall Apart
Things started to go downhill in 1992 when Bob’s wife Jane passed away from cancer. Following her death, the structure of BRI required that Jane’s share in the company be divided equally among the surviving three partners. As a result, Bob was reduced to owning just one-third of the company that bore his name and likeness. This was likely not understood by the Ross’s when they signed their partnership agreements.

Shortly after Jane’s death, Bob developed lymphoma. In 1994, while battling cancer, the Kowalskis offered Bob a deal. They reportedly faxed him an agreement that would give them all of Bob’s intellectual property rights as well as all of his artistic works. In return, the Kowalskis would pay Ross or his surviving heirs 10% of BRI’s profits,  but only for the next 10 years.  After 10 years was up, the Kowalskis would own all income from Bob Ross, Inc—forever.

Not surprisingly, Bob refused to sign the agreement, and he was reportedly infuriated that the Kowalskis would even ask him to sign such a one-sided deal. In an attempt to protect his rights to his business and intellectual property assets, Bob made several last-minute changes to his estate plan. The most notable change was made to Bob’s trust just two months before his death.

In the amendment to the Bob Ross Trust, Bob added a clause that specified

that all intellectual property rights to Bob’s “name, likeness, voice, and visual, written, or otherwise recorded work” would pass to his son, Steve, and Bob’s half-brother, Jimmie Cox. Specifically, Bob assigned 51% of the interest to all of his intellectual property to Jimmie and 49% to Steve. 

Oddly, though Bob’s estate plan specifically left his intellectual property to Steve and Jimmie, Jimmie apparently never shared this fact with Steve, who would only learn of the changes to his father’s estate plan some two decades later.

Grand Theft Bob 

Bob Ross died on July 4, 1995, at age 52. Upon his death, his estate was valued at $1.3 million, half of which was his one-third share in BRI. Unable to gain full control over Bob’s share of BRI while Bob was alive, the Kowalski’s decided to sue Bob’s estate after his death. In addition to seeking all of his intellectual property rights in their lawsuit, the Kowalski’s also wanted all of Bob’s finished paintings—and even all of Bob’s art tools and paints down to his easel and brushes.

The Kowalski’s lawsuit was so expansive and their legal tactics so brutal that one of Bob’s old friends took to calling their efforts “Grand Theft Bob.” In the end, Kowalski’s legal strategy was designed to gain complete control of Bob’s afterlife, despite Bob’s clear wishes to the contrary. 

Without the financial means to sustain a prolonged legal battle, the estate’s executor, Jimmie Cox, settled with the Kowalskis in 1997. The settlement agreement was accompanied by an assignment of all of Bob’s intellectual property rights, which stated that “To the extent, if any, any such rights or incidents of ownership are somehow vested in Estate, Estate hereby conveys, transfers and assigns all such rights and incidents of ownership and ownership itself to BRI.” 

Additionally, both the estate and the Bob Ross Trust also signed separate mutual releases with BRI which state that the parties and their heirs, assigns, successors in interest, etc., “do, now and forever, absolutely and irrevocably, hereby release each other in and from any and all claims, suits, liabilities, complaints, losses, damages, and charges of every kind and character arising prior to the date of execution hereof.” 

Bob Ross Reboot

As with so many other artists, Bob Ross’s fame reached its zenith in the years following his death. Although The Joy of Painting’s last episode aired in 1995, as the years went by, more and more people would discover the iconic artist’s work and persona via the Internet. And when Annette and Walt Kowalski handed control of BRI to their daughter Joan in 2012, the Bob Ross brand would reach dizzying new heights.

Things really began to take off in 2015, when Joan was approached by the licensing company Janson Media, which wanted to add The Joy of Painting to a new online streaming platform called Twitch. With 403 episodes to pull from, Twitch launched a Bob Ross marathon, and the Bob Ross brand soon reached millions of new fans. 

Joan discussed the Bob Ross reboot with the online journal Vocativ in 2015: “Twitch. TV woke up the world,” said Joan. “They made everybody remember their childhood again even though we’ve always been here… We are freakin’ out.”

Following the Twitch broadcast, Joan was approached by another brand-management firm known as Firefly, and that’s when the money really started pouring in. Today, you can find everything from Bob Ross bobbleheads and Bob Ross chia pets to Bob Ross Christmas ornaments and even action figures. Both Netflix and Twitch stream The Joy Of Painting series, and there’s a Bob Ross sleep app available through the Calm meditation app platform.

All of these licensing opportunities translated to major money for BRI. According to the Daily Beast, in 2012, when Joan took over, BRI brought less than $200 in licensing revenue outside of its paint products. But by 2016, that figure had grown to  $460,000, and by 2017, Bob Ross-branded products were bringing more than a million dollars in licensing fees to BRI each year.

Steve Sues BRI

Although shortly before his death, Bob amended his estate plan to transfer all of his intellectual property rights to his son, Steve, and half-brother, Jimmie Cox, Steve claimed that he never knew his father made such a move. In fact, it would be more than 20 years after his father’s death before Steve claims he found out about the clause in his father’s trust.

Based on this knowledge, Steve sued BRI, alleging that all of the licensing deals and products that used his father’s name and likeness were unauthorized. In his lawsuit, Steve demanded compensation for the years of unauthorized use of the intellectual property rights Steve claims to own based on his father’s estate plan.

Sadly for Steve, the court didn’t agree with his claim. In 2019, the court ruled that Bob Ross’s trust could not have assigned the intellectual property rights to Steve and Jimmie because the Trust did not own those rights to begin with. Specifically, the court stated in its ruling, “Plaintiff would not own the intellectual property at issue because the Trust never owned it. Similarly, because Bob Ross gave BRI his right to publicity during his lifetime, it could not have transferred to his son on his death.”

In other words, it didn’t matter that the Bob Ross Trust left Steve his father’s intellectual property rights because the Trust never owned those rights. Instead, the court found 

Bob had transferred all of his intellectual property to BRI during his lifetime via oral contracts. Therefore, the amendment to Bob’s trust was irrelevant, since Bob Ross had already given all of the rights to his intellectual property to BRI.

Although Steve thought he could win an appeal of his case, he didn’t have the money to continue to fight BRI, so he ended up settling with the Kowalski family. In exchange for a modest payment, Steve gave up his claims to his father’s intellectual property. However, in the settlement, Steve did win the right to move forward with a business using his own name. 

Since then, Steve has launched his own business teaching painting workshops in the very same studio where his father began his career more than 25 years earlier. Steve was joined in his new venture by his father’s old friend Dana Jester, and they held their first workshop together in September 2019, when several dozen artists gathered to learn from the two most talented masters of the Bob Ross painting technique still alive today.

In the end, although Bob Ross clearly intended to leave his intellectual property rights to his son, because Bob failed to coordinate his business agreements with his estate plan, his son Steve will never share in the fortune that has been made by the vast business empire built on his father’s name, likeness, and persona.

Learn From Bob’s Mistakes
Fortunately, you can easily prevent your loved ones from suffering the same fate as Steve using proper estate planning. Next week in part two of this series, we’ll discuss how you can use estate planning to ensure that all of your business assets, including any intellectual property you own, are protected and passed on to your family following your death or incapacity.


Until then, if you have a business, intellectual property, or any other type of asset that you want to include in your estate plan, meet with us as your Personal Family Lawyer®. With our support and guidance, we can ensure that your loved ones will always be provided for and stay out of court and out of conflict no matter what happens to you. 

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.