AB TrustIf you’re married and would like to get the most out of your joint federal estate tax exemptions, one effective option is an AB trust. There is a common misconception that these types of trusts only benefit people who have large, valuable estates, but in actuality anyone who could owe estate tax may benefit from these types of trusts.

The primary benefit of an AB trust is that it helps avoid the estate being taxed before assets and property are passed on to beneficiaries. Each spouse places his or her property into an irrevocable trust. When the first spouse passes away, the beneficiaries of the trust receive that individual’s property to use it for the benefit of the surviving spouse.

The surviving spouse, meanwhile, does not own that property, but can use it and even spend principal in some cases. Once he or she dies, all of the property and rights related to the trust pass down in full to the surviving beneficiaries. Because the trust assets are technically owned by the trust and not the spouse, they are not subject to estate taxes.

Disadvantages associated with AB trusts

Clearly, the creation of an AB trust has some benefits, especially if you believe estate taxes could be a challenge. However, there are a few issues you will want to consider before deciding to go with an AB trust.

First and foremost, AB trusts are irrevocable. If a spouse dies, there can no longer be any changes to the trust. It has become a legally binding agreement. This could potentially cause difficulties for the surviving spouse and/or the trust beneficiaries, and could even create friction between the various parties involved.

Settling and distributing assets from an AB trust can also be an expensive and challenging process. You will definitely need the assistance of a skilled estate planning attorney, as there is a great deal of paperwork and bookkeeping involved. You may also need to work with an accountant to determine how to best distribute assets between the deceased spouse’s irrevocable trust and the surviving spouse’s living trust.

Every time you decide to distribute property from a trust, there are going to be tax issues you have to address. Having skilled legal and financial professionals working with you ensures you fully understand the implications of these tax issues.

To that end, while AB trusts are not necessarily right for everyone, they do pose some significant advantages in the right situations. If you are looking for more guidance on whether an AB trust is right for you and your spouse, speak with an experienced estate planning attorney.

 

Steve Hardy is Chair of BoltNag’s Corporate, Tax and Estate Planning Practice Group, BoltNagi is a widely respected and established estate planning law firm serving clients throughout the U.S. Virgin Islands.

Photo courtesy of flickr/Vox EfxBack in April, the U.S. Supreme Court ruled unanimously that states were allowed to count all of its residents—and not just those eligible to vote—when drawing their elective districts. The decision was a significant statement on the principle of “one person, one vote,” and marked the first time the Supreme Court had ever ruled on the issue directly.

The case in question was Evenwel v. Abbot, which involved two voters in Texas who were challenging how the state apportions its state senate districts. Evenwel argued that counting people ineligible to vote, such as children, convicted felons and the mentally disabled, diluted political power in suburban and rural areas, thereby violating the 14th Amendment to the U.S. Constitution.

Abbot made the exact opposite argument: that failing to count all persons violated their right to elected representation.

Political ramifications at stake

Generally, the court’s ruling to reject Evenwel’s argument could intensify political power in areas where there are large numbers of people who cannot vote. For the most part, these are urban areas that tend to support Democrats. Had the court ruled in the opposite direction, it would have strengthened power in more rural areas of the United States, where Republicans are more likely to receive support.

It is worth noting that the Supreme Court’s ruling does not mean that states and territories must use total population when drawing their districts, but rather that it’s an option they can use. Nearly all states and territories, including the U.S. Virgin Islands, use the total population method rather than looking at eligible voters alone.

In our territory, it appears as though legislative districts will continue to be apportioned based on total population in the foreseeable future, but all eyes are on the 2020 United States Census when it is predicted that the population for the District of St. Croix will dip substantially below that for the District of St. Thomas-St. John, which could jeopardize the current even split of senators between the districts.

Mapp moves to eliminate symbol voting

In other election news directly related to the U.S. Virgin Islands, Governor Kenneth E. Mapp took action to end “symbol voting,” which had caused a great deal of confusion during the 2014 elections. The reform would remove the option to vote for candidates using symbols on computerized voting machines. In 2014, some of these machines could not be used because they did not alert voters to errors that had occurred, thereby affecting those individuals’ votes.

 

Tom Bolt is Chair of the Government Relations Practice Group at BoltNagi PC,  a widely respected and well-established law firm serving clients throughout the U.S. Virgin Islands.

DividendsOfficials in the U.S. Virgin Islands continue to watch closely the situation in Puerto Rico, where the territory has been unable to make service payments on its roughly $70 billion in debt. The crisis has become so severe that the Puerto Rican government has had to make drastic cuts to healthcare, public safety and education—and a high-ranking U.S. federal government official has warned that the situation could quickly become a humanitarian crisis, as well.

Puerto Rico defaulted on three different classes of bonds on May 1, failing to make most of a $422 million payment. The government must make an additional $2 billion in payments July 1, and it looks to be nowhere near a point at which it will be able to meet that obligation.

On May 19, Republicans in the U.S. House of Representatives finally struck a bipartisan deal with the Obama administration, possibly allowing Puerto Rico to restructure its debt in a way that resembles bankruptcy. As part of the deal, the territorial government will need to submit budget plans and financial statements to a federal panel. While the measure is promising, it’s yet to be seen whether lawmakers will actually pass it in the House—not to mention if and when the U.S. Senate may take action on its version of the bill.

It’s important to note that the government of Puerto Rico is currently not allowed to file for bankruptcy protection like an individual or business. And because it is a U.S. territory and not an independent nation, it cannot seek relief from the International Monetary Fund.

Effects on other US territories

The way Congress responds to the Puerto Rican debt crisis could have an impact on the U.S. Virgin Islands, a territory that often relies on tax-exempt bonds to help fund essential services and key infrastructure projects. This is common in U.S. territories, which often do not receive the same federal funding opportunities compared to states.

One of the proposals offered in recent months has been to allow Puerto Rico to file for what’s been referred to as “Super Chapter 9” bankruptcy. This would give the territory the ability to restructure all of its debts, including general obligation debt—something that’s not offered to states facing difficult financial circumstances.

If Super Chapter 9 were to be implemented, some worry it could negatively affect the ability of U.S. territories to offer attractive tax-exempt bonds and other incentives to the market, as there would be a new, substantial risk factor that investors would need to confront. Considering this risk, investors would likely demand higher interest rates and better returns.

While this measure could help Puerto Rico resolve its financial challenges, leaders in other U.S. territories have been vocal in their opposition to this “back door” bankruptcy option. Thus, government officials and business leaders in the U.S. Virgin Islands are keeping a close watch on the situation and how the U.S. federal government ultimately decides to handle it.

 

Tom Bolt is Chair of the Government Relations Practice Group at BoltNagi PC,  a widely respected and well-established law firm serving clients throughout the U.S. Virgin Islands.

Payroll tax picTo put it lightly, it can be difficult to keep up with all of the legal obligations you have as a small business owner.

One important thing to remember is that you must deduct payroll taxes from your employees’ salaries and wages. If you fail to do this properly, you could be forced to pay major fines—the last thing any business owner wants. How can you ensure you remain in compliance?

Business owner responsibility

You are only responsible for collecting payroll taxes from any workers who are classified as employees by the Internal Revenue Service. Although independent contractors do work for your company, they are responsible for filing their own taxes through form 1099. Therefore, you should keep up-to-date records of who works exclusively for your company and whether or not they are W2 employees. The IRS does have the ability to re-classify workers as employees and penalize business owners for not withholding those payroll taxes if the agency believes you are incorrectly paying your workers.

Some businesses may use the money they collect from payroll taxes to pay overdue bills or for use toward other purposes. However, doing this could land you in some personal financial trouble. The IRS has the right to take 100 percent of the taxes owed from a business owner’s personal assets if the agency is unable to collect payroll taxes. If this happens to you, you will not be able to get rid of your tax obligations through filing personal or business bankruptcy.

Collecting and submitting payroll taxes

The taxes collected from employees’ pay include federal, state and local income taxes, federal Medicare and Social Security taxes and state and federal unemployment taxes. The responsibility for paying these taxes is on both the employee and employer. Employers pay some of the taxes themselves, while deducting the rest from workers’ paychecks.

Employers must collect and submit these payroll taxes to the correct agency in a timely manner. Depending on the amount of payroll taxes you owe, you could be responsible for paying these taxes quarterly or monthly. You are required by the IRS to file several reports on your payroll taxes every year, including information on the amount of employees you have, the hours they work and the total amount they are getting paid.

All of this information can seem tough to understand, especially if you are a new business owner looking to bring on more employees. An experienced business and tax attorney can help you better understand payroll taxes and how you can meet your obligations, while still growing your business in a healthy, sustainable way.

Ravinder S. Nagi is Chair of the BoltNagi Labor & Employment Practice Group.  BoltNagi is a widely respected and well-established labor and employment law firm serving clients throughout the U.S. Virgin Islands.

Family Business picAfter you’ve worked so hard to build and grow your business, it’s important to know how to pass it on to your beneficiaries.

To do this, you need a sound succession plan in place that will guide the future of your business if you decide you no longer want to run it—or in the event that you pass away or become incapacitated.

Most business owners and entrepreneurs want to pass the family business down to children or grandchildren, if such an option exists. With this in mind, the following are some tips to help you create an effective business succession plan:

Begin planning early

If possible, you should begin your succession planning at least five years before you foresee yourself leaving the company. Obviously, you cannot anticipate a death or incapacitation, but if you foresee yourself departing for other ventures or retiring, then it’s best to get a head start on planning.

If you are still in the early phases of planning your business as a whole, it does not hurt to incorporate your exit strategy into your plan. Having your plan laid out in advance can give family members and employees a clear picture of what to expect should the day come when you decide to step away. This can also help you avoid unnecessary stress and hard feelings down the road.

Choose the most qualified successor

You need to be realistic about who is the most qualified person to run your business. If you have multiple children, for example, the fairest choice is not necessarily the oldest child or to split ownership equally among them. You need to choose someone you believe is best suited to follow in your footsteps and guide the company moving forward.

Keep in mind that approximately 70 percent of family businesses fail after being taken over by a child. You must appropriately train your successor or have them work in multiple areas of your company before you even consider passing on the business to them. Otherwise, the best decision might be to look outside of the family and go with a more qualified employee or partner.

Keep your family involved

Even if you are considering looking outside of the family for your successor, it’s important to keep the family notified. You do not want your loved ones to be blindsided by your decision should you suddenly pass away.

Remember, you can always amend your exit plan and succession decisions based on changing circumstances, but having a good plan in place will provide you with a great deal of peace of mind. Work with a skilled business law attorney for more information and guidance on drafting a sound succession plan for your company.

 

Steven K. Hardy is Chair of the BoltNagi Corporate, Tax and Estate Planning Practice Group.  BoltNagi is a well-respected, established business and corporate law firm serving a wide range of individuals and organizations throughout the U.S. Virgin Islands.

Small-Claims picThe dollar limits within the Small Claims Division of the Virgin Islands Superior Court has increased to $10,000, which has made the court a viable option for business owners to resolve disputes quickly, easily and, perhaps most importantly, at a lower expense than was previously possible.

These types of disputes often occur between business owners and suppliers, customers or subcontractors. The most common cases in small claims courts involve business owners either collecting overdue bills or resolving disputes.

What types of disputes occur?

It’s quite common to see contractual disputes occur between two small businesses or a business and a customer. Many of these cases involve a disagreement that the goods or services provided were of poor quality, were provided late or were not provided at all. Other claims could involve simple breaches of contract.

Finding success in small claims court

If the parties involved in a dispute fail to resolve the problem through their own negotiations or through mediation, they then have the opportunity to present their case in front of a small claims court judge. The judge will most likely side with the party that is better able to articulate its argument, so it is important to be prepared going into the hearing with a succinct, persuasive claim. It’s best to work with a civil litigation attorney to ensure you are ready for the hearing.

Part of this process is collecting as much evidence as you can to support your arguments in court. If, for example, your claim is primarily over a breach of contract, you should be able to produce that written contract and evidence of the other party’s breach. If you are involved in a case in which you are forced to defend the quality of your work, you might consider getting an industry expert to write a letter stating how your work met industry standards.

In cases centering on the timeliness of work, you should be able to produce evidence as to when the work was delivered and when it was expected to be delivered. This means documenting communications between you and the other party and producing copies of any contracts you both signed.

Although small claims court might not necessarily seem like a big deal, it’s still important to consult a lawyer to help you figure out exactly which arguments you need to make and the types of evidence you need to support your claims.

If you find yourself engaged in a business dispute that will likely head to small claims court, speak with a skilled civil litigation attorney to protect your best interests.

 

Adam Marinelli is an experience civil litigation attorney in the Litigation Practice Group of BoltNagi PC, an established and widely respected civil litigation law firm serving individuals, businesses and organizations throughout the U.S. Virgin Islands.

estate taxThe federal estate tax has been the subject of much debate in the United States for many years. Now, the federal government is facing pressure once again to repeal the tax for good—and the effort is generating a great deal of support.

A letter sent March 15 by the Family Business Coalition to Senate Majority Leader Mitch McConnell included the signatures of more than 100 organizations and business groups throughout the country. It calls for the Senate to take action to end the estate tax once and for all.

One of the key points made in the letter is that the House of Representatives already voted last April to repeal the tax, and that similar legislation to the House bill Sen. John Thune of South Dakota proposed has already received substantial support from lawmakers.

The state of the estate tax

Until 2012, estates paid a 35 percent tax if they were valued at more than $5 million. The estate tax, also commonly referred to as the “death tax,” was originally scheduled to revert to 2001 tax law in 2013, which would have meant a $1 million exemption and a 55 percent tax rate. However, the enactment of the American Taxpayer Relief Act of 2012 indexed the $5 million exemption cap for inflation and set tax rates to 40 percent instead.

One of the primary topics of discussion as the House worked through the issue was the burden that estate taxes place on family-run farms and businesses. The coalition argues in its letter that the estate tax is unfair—so much so that permanent repealing of the tax is the only option moving forward to adequately protect business owners.

The coalition is using an emotional argument here, stating that it’s in poor taste to force families who have recently lost a loved one to pay a tax on that person’s assets and savings. In many cases, the coalition claims, this tax is paid by selling off family assets, including business and farms, while in other cases, employees must be paid off and payrolls must be cut to ensure the business is able to continue operating.

Challenges to overcome

Despite the coalition’s urgings and Republican support, there appears to be some significant hurdles in getting the estate tax repealed. For one, repealing the tax is largely opposed by members of the Democratic minority in both houses of Congress. For another, President Barack Obama has already made it known that he would veto the bill if it reached his desk.

All that’s known for sure is that this will continue to be a hotly debated issue in Congress, and the pressure will likely continue to mount from organizations like the Family Business Coalition. Meet with an experienced U.S. Virgin Islands tax and estate planning attorney to learn more about how you can best protect your loved ones, your business and your assets.

 

Steven K. Hardy is Chair of the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC. BoltNagi is a highly respected and well-established business and tax planning law firm serving clients throughout the U.S. Virgin Islands.

Trademark logoHaving an idea for a new company, product or service is incredibly exciting. You may wish to get your idea off the ground as quickly as possible—but there are few things you must do to make sure you’re not infringing on anyone else’s intellectual property.

Your first step is to make sure the name you have in mind has not already been trademarked by a different individual, business or organization. To do this, there are a number of state and federal databanks that list registered trademarks that you can search. You will also want to conduct general internet searches to make sure you are not violating any common law standards for marks that are not registered, but would still be protected under U.S. trademark laws.

The following are a few specific tips to keep in mind as you begin your trademark search:

  • Matches don’t have to be exact: Trademarks do not only protect against exact name matches. They also protect against similar names. You should be on the lookout for trademarks that use purposeful misspellings or phonetic spellings, as a similar name spelled differently could still be considered infringement. If any matches occur, figure out what type of brand or products it protects, as you still might be able to use your name if it is a different enough industry or product.
  • Browse federal trademarks: Your first place for searching for conflicts should be the Trademark Electronic Search System provided by the U.S. Patent and Trademark Office. This will provide you with both exact matches and similar terms. It will also give you information like when the mark was filed, what its purpose is and who owns it.
  • Browse state trademarks: You are also able to file trademarks with the state or territorial office. If your business is located in the U.S. Virgin Islands, you may file to have your trademark protected only in the territory. As with federal trademarks, you should be on the lookout for any trademarks that are exactly the same or similar to the one for which you’re searching.
  • “Common law” marks: Trademarks do not necessarily have to be registered before they are able to be enforced. This can add some additional challenges if someone has a “common law” trademark, as there is no database for such marks. Your best bet when searching for existing common law marks is to perform thorough web searches. “Thorough” is the key word here—you’ll likely need to go beyond the first few pages of search results.

In addition to all of these steps, you should also seek the assistance of an intellectual property attorney to perform searches for trademarks on your behalf. These attorneys have significant experience in searching for and finding potentially conflicting marks, and will give you or your business an added level of protection and assurance.

Steven K. Hardy is Chair of the BoltNagi Intellectual Property Practice Group. BoltNagi is a widely respected and well-established intellectual property and business law firm proudly serving individuals, businesses and organizations throughout the U.S. Virgin Islands.

employee-disciplineAs an employer, you handle some very sensitive information regarding the people who work for you.  Employee personnel files often contain private information, including everything from Social Security numbers to medical records and bank account information. There are some very stringent federal and territorial laws regarding who is able to access these records and why.

However, despite all of the reasons why employers might feel most comfortable keeping these records under lock and key, there are certain circumstances in which employees might need to access personnel records in the scope of their duties. So how can employers be sure that this information stays private—even when there’s the potential that people will be looking at it?

The following are a few tips that can help you ensure all personal information stays confidential:

  • Know the laws: Make sure you are completely familiar with all of the applicable territorial and federal laws that deal with employee records, and have processes in place internally to follow them. The law requires you, for example, to keep employee medical records in separate confidential files.
  • Embrace security: All personnel files containing sensitive information should be kept in secure locations. Physical files should be locked away in filing cabinets that are not accessible by other employees—potentially in an offsite facility. Digital files should be encrypted and password protected, and should be kept behind a number of security systems. Again, they should never be available to the general public.
  • Keep access restricted: The number of people who have the authority to access personnel records should be kept as low as possible. Only those who have a legitimate need should be able to access them. Examples of people with a legitimate need include employees attempting to access their own records, HR personnel and certain managers.
  • Have a written privacy policy: This policy should explain who will be able to access employee files, how employees may go about obtaining copies of their own files and how the company will handle medical documents and other special records with sensitive information. This privacy policy should be distributed to all employees, and there should be an open-door policy to ensure anyone with questions is comfortable with the process.

As an employer, you should also make it a point to occasionally review all personnel files to make sure all of the pertinent information is included and up to date, and to make sure you are abiding by all rules and regulations regarding this information. Reviewing documents and correcting any errors is an important aspect of compliance in this area.

Consult an experienced labor and employment lawyer for more information about how you can protect your employees’ privacy and abide by all relevant privacy laws.

Ravinder S. Nagi is Chair of the BoltNagi Labor & Employment Practice Group.  BoltNagi is a widely respected and well-established labor and employment firm proudly representing management clients throughout the U.S. Virgin Islands.

via Flickr Creative CommonsEstate tax laws in the United States and its territories are constantly in a state of flux, so it might seem difficult to create an estate plan that avoids or minimizes the amount of taxes to which your estate will be subject. However, keep in mind that the minimum estate value for paying estate taxes to the U.S. government is very high as it is, as they only apply when the estate is worth more than $5.45 million.

If you do have a large, valuable estate, here are some tips that can help you to increase the amount of assets you can pass to your beneficiaries without having to worry about costly estate taxes:

  • Leave all of your assets to your spouse: The exemption amount excludes any assets you leave behind to your spouse. You are allowed to leave your entire estate to your spouse under federal law without being subject to taxes. However, once your spouse dies, the exemption amount still applies, so this tactic is more used as a means to delay these estate taxes than to entirely avoid or minimize them. Still, it can be a sensible “first line of defense” against estate taxes.
  • Put assets into irrevocable trusts: Assets placed into revocable trusts are still taxable if they exceed the exemption amount, as a revocable trust is merely an extension of the grantor. Irrevocable trusts are different because the grantor gives up control of the trust assets, as ownership is technically passed to the trust. This means that any assets placed in that trust go to beneficiaries without being subject to taxes.
  • Being smart with beneficiary choices: Estate taxes depend entirely on your estate’s value. Retirement accounts and insurance policies could impact your estate taxes, so you might consider designating beneficiaries aside from your estate for these types of accounts.
  • Downsize: You may effectively decrease your estate’s value to minimize estate taxes or get your estate below the exemption limit. Keep in mind that the Internal Revenue Service has rules governing how much you can give to beneficiaries within a given year, so you if you are not aware of these rules, you could still be subject to gift taxes.
  • Look into other trusts: There are a number of other types of trusts that can help you protect your assets and avoid estate taxes. A knowledgeable attorney will provide you with more information on the options available to you based on your personal circumstances and objectives.

Every individual’s estate is different, which means it’s best to seek the assistance of an experienced estate planning attorney to help you decide the best ways to minimize or avoid estate taxes for you and your loved ones.

 

Steven K. Hardy is Chair of the BoltNagi Corporate, Tax and Estate Planning Practice Group. BoltNagi is a respected and well-established tax and estate planning law firm serving clients throughout the U.S. Virgin Islands.