New Tax Laws Encourage Estate Planning
Changes in federal law that went into effect this year will reduce or even eliminate death taxes for many Americans. Now federal estate taxes do not apply unless your estate totals at least $1 million, and the tax rates charged to estates have gone down dramatically. The new law sets rates and exemptions that are even more favorable in future years.
These changes are reason enough to consult your lawyer about possible revisions in your estate plan, but many other changes open up opportunities both to reduce taxes and save money for your own retirement and the education of your children or grandchildren.
Here’s a brief run-down on the most significant of the changes. Your lawyer can help you craft a long-range plan that fits the needs of your family.
Giving for Education
Federal tax law permits you to pay a student’s tuition directly to the institution and not have the payment be charged as a gift tax. New features in federal law give you a number of other attractive alternatives to reduce your tax liability while advancing someone’s education.
For a number of years now, states have offered prepaid tuition plans and college savings plans. The first of these permits you to make payments now toward the tuition of someone not yet enrolled in college. By paying for these tuition credits or certificates at today’s tuition rate, you protect yourself against tuition increases in the future. (Tuition has been increasing far more than the inflation rate for many years.)
Planning now can give you major savings on taxes
The second kind of state plan, the college savings plan, enables you to save for tuition and other expenses and use them at a wide range of colleges, in-state or out-of-state. Almost every state offers these plans now.
You can’t get a federal income tax deduction for your contributions to either of these plans (though you may get a state deduction), but Section 529 of the Federal Tax Code now gives you a lot of attractive, tax-saving options. Earnings on your contributions accumulate tax-free until they are withdrawn, a significant benefit, especially for high-income taxpayers. Earnings withdrawn to pay tuition and other expenses are now free from federal tax for state-sponsored programs. (In the past, these withdrawals were taxable to the beneficiaries, and even if they paid at the 15% rate the taxes generated could be considerable.)
In another attractive change, tax benefits are now extended to contributions you make to a qualified plan established by an education institution, along the same lines that they are available to state plans, except that earning withdrawals will not be tax-free until January 1, 2004.
Another great feature of the Section 529 plans is that you maintain control over the accounts you set up. If you set up an account under the Uniform Gifts to Minors Act, for example, the account is owned by the recipient, who can use the funds for any purpose once he or she comes of age. In a Section 529 plan, you can change beneficiaries or even have the plan balance refunded to you.
Savings on Estate and Gift Taxes
Even better, you can save on taxes through these plans. You can contribute up to $11,000 annually to each plan you set up and pay no taxes on the gift. Or you can make gifts of up to $55,000 to each plan in one year, excludable from taxation, as long as you make no other gifts to the plans for the next five years. This enables you to shelter more growth from taxation.
Other Attractive Possibilities
Changes to federal law also give you a number of other tax-friendly options. Now you can give as much as $2,000 to a Coverdell Education Savings Account in a single year for each beneficiary, up from just $500 a year. These accounts, which used to be known as Education IRAs, can now be used to cover expenses in elementary and secondary school, not just higher education. Money withdrawn for qualified expenses is exempt from federal taxes.
You can make contributions to a Section 529 plan and a Coverdell account in the same year for the same beneficiary. (Previously, you could only make contributions to one plan or the other.) However, you could have gift tax consequences if you contribute a total of more than $11,000 to a 529 plan and a Coverdell account in the same year.
Hope tax credits and Lifelong Learning credits are other tax benefits, though there are income limits to qualify. They enable you to claim credits of $1,500 a year in the first two years of your dependent’s college years, and up to $1,000 in subsequent years.
The new tax law opens up a wind variety of attractive options
You can claim one of these credits in the same year that you take a tax-free distribution from a Coverdell account, as long as you meet certain conditions.
Better Retirement Options
Most lawyers recommend that you try to coordinate retirement planning, planning for educational expenses, and estate planning. The changes to the federal tax laws make this a good time to look into the attractive possibilities for financing your own retirement.
The annual limits for contributions to both traditional and Roth IRAs have gone from $2,000 to $3,000 ($3,500 if you’re over 50) Moreover, there is now greater portability to move your retirement money between a variety of plans. This is a boon to employees who have worked for a variety of employers and have different kinds of plans. Now they can roll them over more easily to one employer’s plan or an IRA.
For self-employed workers and others using such retirement vehicles as SEP-IRAs and SIMPLE IRAs, restrictions have been lessened and the plans generally permit you to save more and have greater flexibility to roll the accounts over.
Conclusion
As usual with taxes, there may be requirements and exceptions that you and your lawyer ought to examine, but the bottom line is that there has never been a better time for planning. Whether you’re looking to save on estate taxes, help someone’s education, or plan for your own retirement, there are more possibilities—and more attractive possibilities—than ever before.
Most
Lawsuits Settled by Negotiations
The vast majority of lawsuits aren’t resolved by the decision of a judge or jury, but rather are settled as a result of negotiations between the parties involved in the suit.
In this article, we’ll examine the settlement process and provide some general guidance. Of course, if you’re involved in any litigation, your attorney is in the best position to advise you as to your particular case.
In examining pre-trial procedures in civil cases, let’s look at probably the most common kind of case seeking personal injury damages—a lawsuit filed by someone who claims to have been hurt in an auto collision as a result of the negligence of the other driver.
The Settlement Process
Settling a personal injury case means that the plaintiff—the person filing the suit and seeking damages—agrees to accept money in return for dropping the action against the defendant (in this example, the driver of the other vehicle and his insurance company). The plaintiff will sign a release absolving the other side of any further liability.
If you were the plaintiff in our hypothetical case, you probably should not enter into settlement negotiations till you have a good idea of the extent of your injuries. Future medical bills are a consideration, but so is the quality of your life—your ability to work, enjoy your leisure activities—and any long-term pain and suffering you may experience.
Determining What to Settle For
Many factors go into determining what monetary settlement is appropriate for a particular injury. Experienced lawyers have a good sense of how particular injuries have been compensated in their jurisdiction, and there are jury research databases that compile information from courts all over the country about verdict results and monetary damages for all kinds of injuries.
Among the factors are:
Severity of injury, particularly its permanence
Age of the victim (younger people would usually be compensated more for a permanent injury)
Duration of needed treatment and size of medical bills
Pain and suffering
Loss of wages, loss of future economic opportunity
Scarring and disfigurement
Should You Settle?
Settlement can take place at any point before a lawsuit is filed, or at any time after one is filed, including before trial or even after a case has been tried, but before a jury reaches a verdict. (Occasionally, settlement may even come after a verdict, as when the winning party agrees to accept a settlement in return for the losing party’s agreement not to appeal the case.) Nonetheless, most settlements take place before trial.
If you’re the plaintiff in a personal injury case, your lawyer will be heavily involved in the negotiation with the other side, and will be able to provide advice to you on whether you should agree to a settlement offer. However, the decision to accept or refuse it is yours and yours alone. Your lawyer can advise, based on an assessment of whether your suit will be successful, the amount you will likely recover, etc., but you will have to decide whether or not to settle the dispute or go to trial.
Courts Encourage Settlements
To speed justice and reduce the number of cases waiting to be tried, courts have devised several methods of encouraging settlements.
Pre-Trial Conferences. Judges use pre-trial conferences with lawyers for many purposes, among them encouraging the settlement of cases. One type of conference gaining popularity is the status conference (sometimes called the early conference). This conference--held after all initial pleadings have been filed—helps the judge manage the case. Judges use it to establish a time frame for concluding all pre-trial activities and may set a tentative trial date at this time.
Judges also use such pre-trial conferences to encourage settling cases. At the conference, the judge and the lawyers can review the evidence and clarify the issues in dispute.
Third-Party Help. In some jurisdictions, certain kinds of disputes must be referred to a third party that will try to facilitate a settlement. If the jurisdiction has such court-annexed alternative dispute resolution (for example, arbitration or mediation), the judge may refer the case to that program at the status conference. Arbitration involves submitting the dispute to a neutral third party who renders a decision after hearing arguments and reviewing evidence. It’s generally quicker and less expensive than a full-fledged trial. In mediation, a third-party mediator who is neutral assists the parties to reach a negotiated settlement of their differences. The mediator uses a variety of techniques to help them come to agreement, but he or she is not empowered to decide the case. Both arbitration and mediation are typically private, so they have the added benefit of helping the parties avoid publicity.
In at least 28 states, court-annexed arbitration or mediation is automatic for many cases, for example those under a certain dollar amount.
How Law
Affects Business Start-Ups
Every year, millions of Americans begin their own businesses. It all starts with a good business plan, and continues with attempts to raise capital. Let’s say you’ve taken these steps. Are you ready to open your doors? Not quite. You should dot some legal i’s and cross some legal t’s at this stage. Talking to your lawyer and taking steps now will make it far less likely that you’ll incur trouble and expense later. Now is the time to look into the legal status of your business name and the regulations that affect your business.
We’ll look at other first steps, such as the various licenses and permits you might need and dealing with taxes and tax ID numbers, in a later article.
What’s in a Name?
Of course, you want your business name to be catchy and compelling, hard to ignore and impossible to forget. We can’t help you there, but we can suggest a few steps that will help you avoid hard-hitting letters from somebody else’s lawyer or being forced to trash signs and stationery you can no longer use.
Do Some Research. There’s no point in launching a business and finding out too late that someone nearby is using the same name, or one that’s very similar. Your lawyer can help you by doing a search in business directories and checking with the county or city clerk in your area, who probably maintains a list of business names that have been filed
Register Your Name. If you plan to do business under your name--and your full, legal name--then you may not need to register your business name with the authorities.
However, if you plan to use a business name that has no part of your name ("Comet Café") or only a part of it ("Cory’s Creations") then you need to file what’s known as a fictitious business name, assumed business name, or doing business as (DBA) name with the clerk in your county or city.
This filing--sometimes coupled with the requirement that you publish the fact that you are doing business under this name in a newspaper in your area--puts the world on notice that "Cory’s Creations" is your company. This gives you the right to conduct business under that name—including advertising under that name, using it when filing for permits, billing customers, paying taxes, etc. In legal terms, it’s your trade name.
But that doesn’t mean you’re totally off the hook. Even if your name really is Wendy, and there are no restaurants with "Wendy" in their name in your area, and you register "Wendy’s Burgers" with the county clerk, you’re still going to draw the attention of the Wendy’s Corporation. That’s because they own the trademark of "Wendy’s" and can very probably force you to change your business name. If you want a trademark for your business name, which gives you protection for it all over the country, your lawyer can take care of the necessary filings.
You May Have to Register Your Name Several Times. If you take no steps to formally organize your business, you’ll be a sole proprietorship, and probably face no other registration requirements. If, however, you organize your business as a corporation, you’re required to formally incorporate. Incorporation involves going through a formal process whose difficulty varies by state. Part of the process is getting approval of the name of your corporation.
Once again, your lawyer will do a search to determine if your preferred business name is already being used, but this time the search will be with the official list of corporate names in your state. This is usually done through the Secretary of State’s office. If the name you want to use has not been taken, you can move to register it. Sometimes registration is good for only a set number of years, after which you must renew the registration.
Rules, Rules, Rules...
It’s impossible to know exactly what regulations might apply to your particular business. Regulations vary by state and locality. And they vary depending on the type of business. Some businesses, for example those that are involved in health care or food service, face complex regulation by many federal, state, and local agencies. Other businesses, on the other hand, may only be minimally regulated.
Businesses that face specific regulations because of the particular products or services they offer usually need to get permits or licenses, so we’ll discuss the special rules they must follow in a future article.
Other kinds of regulations affect--or potentially affect--all businesses.
Businesses open to the public must comply with the Americans with Disabilities Act. Your lawyer can explain the requirements, or you may be able to get information about them through your city or state’s economic development office.
Many types of business might have to be concerned with environmental regulations, including rules on air and water pollution, disposal of toxic materials, use of certain products (i.e., the gas Freon, used in air conditioning systems).
Building codes set certain standards that construction must meet; they may also require you to get a permit if you do renovations. You can get information from your locality’s Department of Building or Department of Safety.
Zoning ordinances regulate which types of business are permitted in certain areas. Your lawyer can help you determine if your business qualifies in the location you’ve chosen, or if you need a variance from the zoning board that will enable you to operate there.
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Consumer LawBankruptcies May Soon Be RestrictedCongress is considering changes in the federal bankruptcy law that would make it more difficult for people to void debts and shield assets in bankruptcy. If these changes become law, fewer people will be able to escape their debts in bankruptcy court. Bankruptcies have soared in recent years, in good times and bad. Since 1984, bankruptcy filings have grown five-fold. In 2001 alone, bankruptcy filings grew by almost 20%. If the changes become law, consumers with incomes above the median for their state would be subject to a means tests, and might be unable to wipe out all of their eligible debt in bankruptcy, but rather have to pay a portion of the debt over time. New restrictions would limit in some cases the amount of home equity that can be shielded in bankruptcy (some states now permit debtors to shield all of their equity, even in million-dollar mansions). For the latest information on bankruptcy law, consult your lawyer, who will be able to advise you on a course of action that fits your personal circumstances. |
Consumer LawTelemarketers on the Run?
The proposed regulations, which could become effective within six months, would replace the current system in which telemarketers maintain their own voluntary "do not call" list, and some states maintain statewide lists, many of which have significant exceptions that permit as many as 70 % of telemarketing calls.
|
telemarketing
that already forbid late-night calls and deceptive tactics. The FTC is
proposing the creation of a national "do not call" registry that would
stop all telemarketing calls with a single request. Telemarketers who do
not comply could face fines of up to $11,000 per violation.