Estate Tax Portability represents the single biggest change in the Federal Estate Tax since 1986. Understanding the workings of Portability could have huge financial implications for your heirs – an impact just as significant - if not more so – than your previous estate planning prior to the advent of Portability. Portability was added to the Federal Tax Code in 2011 as a temporary measure that was made permanent in later legislation.
 
Portability comes into play upon the death of the first spouse to die. It is the ability of a surviving spouse to utilize the unused Federal Estate Tax Exclusion of his or her deceased spouse by filing a timely Federal Estate Tax Return (Form 706) for his or her deceased spouse. Practically speaking, the Personal Representative of the deceased spouse’s estate chooses whether to utilize the Federal Estate Tax exclusion amount for the deceased spouse ($5,450,000 in 2015), or transfer the Deceased Spouse’s Unused Exclusion (DSUE) amount to the surviving spouse.
 
It is very common for a spouse to die with an estate less that the Federal Estate Tax Exclusion amount, which is $5,450,000, indexed annually for inflation. In these situations, the surviving spouse will not normally file a Federal Estate Tax Return for his or her deceased spouse because there is no Federal Estate Tax payable. However, if there is a possibility that the surviving spouse will have in excess of the Federal Estate Tax Exclusion in the year of his or her death, it is imperative that the surviving spouse file a Federal Estate Tax Return for the deceased spouse by the deadline for filing the return.
 
The following situation highlights the need to file a Federal Estate Tax return upon the death of a spouse even when the estate is less that the Federal Estate Tax Exclusion amount:
John was killed in a tragic car accident in 2014 when a large truck rear ended him. An Estate was opened in the county Probate Court in the county John lived in at his death. John’s surviving spouse, Linda, had herself appointed Personal Representative by the county Probate Court. John’s Estate for Probate purposes was $400,000 and for Estate Tax Purposes was $610,000 because life insurance on John’s life is includible for Federal Estate Tax purposes.
 
Linda did not file a Federal Estate Tax return for John by the due date, which is nine months following John’s death. The reason that Linda did not file a Federal Estate Tax return is that there was no Federal Estate payable upon John’s Estate. Subsequent to John’s death, John’s Estate filed a wrongful death lawsuit against the driver of the truck. The case ultimately settled in 2016 for $12,000,000. Of the $12,000,000, $8,900,000 went to Linda as surviving spouse. It may be safely assumed that when Linda dies, her estate will well exceed the Estate Tax Exclusion in the year of her death. She will have John’s estate plus her own estate, which today equals approximately $9,510,000.
 
If John’s Estate had filed a Federal Estate Tax return, it would have automatically elected for Linda to utilize John’s unused Federal Estate Tax Exclusion up to the amount of portability needed, $4,820,000 ($5,430,000 - $610,000). In addition, Linda will have her own federal estate tax lifetime exclusion in the year of her death.
 
In the above example, filing a Federal Estate Tax return within nine months of John’s death would have saved the surviving spouse’s heirs at least $820,000.
 
* Names have been changed to protect confidentiality.

With the recent rise in popularity of microbreweries in Michigan, there has been an increase in small businesses/entrepreneurs entering the hospitality industry. In addition to other off-site distributors of alcoholic beverages, such as gas stations and liquor stores, many on-site providers of alcohol such as restaurants, bars and hotels rely on the ability to do so for a significant portion of their profits. Thus, in starting a hospitality business, it is necessary to have some background knowledge of liquor law and the licensing regulations with which to comply. The law in this area varies from state to state, so specific knowledge of Michigan law is necessary if the business operates in Michigan.
 
The Three-Tier System
In Michigan, distribution of liquor, beer, wine and other spirits is handled by three distinct parties: 1) the manufacturer; 2) the wholesaler; and 3) the retailer. The second party, the wholesaler, is the State of Michigan, which acts as a middleman between the manufacturer and the retailer. One reason for this is to prevent manufacturers from creating exclusivity agreements with bars or stores. Other reasons include the ability to regulate liquor prices for taxation and to ensure compliance with licensing requirements.
 
Typically, a business (or person involved in a business) that serves as a manufacturer cannot serve or even have an interest in a retailer, and vice versa. The result of this is to prevent large breweries from opening their own retail stores which only sell their products. At the small business level, however, this can cause unique problems when it comes to ownership or ownership interests in a manufacturer or retailer. For example, if a client was looking to open a bar (a retailer), but also leases a commercial building to a microbrewery (a manufacturer), the State of Michigan would likely deny this client a liquor license for their new bar because of this “three-tier” conflict of interest.
 
There are some exceptions to this three-tier rule built into the Michigan Liquor Code. Specific manufacturers such as microbreweries, micro-distilleries and small wineries are allowed to serve their own products to customers for on-site consumption at their brewing or distilling facilities. The rub here is that these business structures are subject to quota limits in terms of how much of their product they can produce under Michigan law.
 
Licensing Requirements
In order to operate as a manufacturer or retailer in the state of Michigan, a business must obtain the necessary license(s) from the Michigan Liquor Control Commission (“MLCC”). Depending on the type of business, the requisite license may be subject to a quota. The quota system limits the number of licenses that are available in each municipality, which is population-dependent. Most licenses in Michigan are also freely transferable. However, it is often very difficult to obtain these licenses. If all licenses in a municipality (up to the quota) have already been issued by the MLCC, purchasing one from an existing business is typically very expensive. A business may also hold any number of these licenses. These licenses include:
 
  1. Class C license - Permits a business such as a bar to sell beer, wine and spirits (including liquor) for on-premise consumption. There is one Class C license available per every 1,500 people in a given municipality.
  2. “Resort 550” – A transferable license for hotel resorts allowing the sale of beer, wine and spirits (including liquor) for on-premise consumption. The name commonly used for this type of license stems from the initial issuance of 550 of these licenses by the MLCC.
  3. Specially Designated Distributor (SDD) license – Allows a business such a gas station or grocery to sell packaged spirits (including liquor) for off-premise consumption. There is one SDD license available per every 3,000 people in a given municipality.
  4. Specially Designated Merchant (SDM) license – This is similar to an SDD license, but allows the business to sell beer or wine. SDM licenses are not subject to quota, and can be applied for by filling out an application with the MLCC. An SDM license is often held in conjunction with an SDD license, if the business can acquire one.
  5. There are also separate licenses for manufacturers, including breweries, microbreweries, small winemakers and small distilleries.
 
Action Step: Applying for a License
Whether the license is obtained from the MLCC directly or purchased from an existing business, the prospective license holder must file an application with the MLCC. Since this application could make or break your prospective business venture, it is very important to consult with a business attorney or a liquor law specialist before beginning to expend time and money in a business venture that will require a liquor license of any type. It is all too common for an entrepreneur to spend significant money and time to secure all the other facets of the business and then be denied a liquor license. Depending on the type of business and the license sought, there are many unique concerns that a business owner may face. Having an attorney with knowledge and experience in this area is very important.  It can mean the difference between acceptance or denial of your application.

The untimely and unforeseen death of music superstar Prince has brought a lot of attention to the basic question, “What happens when someone dies without a Will?”  As most of our readers have probably heard, Prince appears to have died without any estate planning documents in place.
 
Answering the question posed by this article is not as straightforward as one may assume and generally the answer is typically “it depends.”  How assets, accounts and policies are distributed after death depends on a variety of factors including whether the asset, account or policy had a joint owner or a designated beneficiary.  Additionally, estate planning and Probate law can also vary dramatically from state to state. This article will describe intestate succession in Michigan.  Intestate succession is the legal term for the process of distributing an individual’s assets through Probate upon death when there is no Last Will and Testament or Living Trust.
 
A Probate Estate must be opened in Probate Court. The Probate Estate distributes all property that is owned solely by the individual, meaning there is not a co-owner with rights of survivorship or a beneficiary. A few examples of property that would require Probate include real estate, bank accounts, and retirement accounts without designated living beneficiaries.  This list is by no means inclusive, but provides an idea of some of the types of assets that would end up in Probate Court.
 
Individuals often assume that if they are married, their entire estate will automatically be inherited by their spouse. In Michigan, this is not the case.  If the individual who died has children, grandchildren, or parents living at the time the individual dies, a portion of the individual’s estate will pass to the children of the individual.  If the individual has no children or grandchildren, but one or both parents are alive, the surviving parents inherit a portion of the estate.  If the individual does not have a surviving spouse, children, grandchildren, or parents, the distributions begin to get more complicated.  Generally speaking, the simplified version of the order of relatives who would inherit if there is no surviving spouse, children, grandchildren, or parents is as follows:
 
 
  • Siblings, or nieces and nephews if a sibling is no longer living;
  • Aunts and uncles, or cousins if the aunts and uncles are no longer living. 

 

The specific percentage each relative would inherit depends specifically on the family composition of the individual on the date of his or her death.
 
The example of Prince’s estate is extreme and his estate will take many years to resolve.  We should keep in mind that estate planning is not only for the wealthy.  Probate can be very costly for the administration of an estate, and disagreements can dominate the process.  Additionally, having only a Will does not avoid Probate.  What is needed for a proper estate plan varies greatly based on individual circumstances. If you have questions regarding the estate planning process and how to avoid Probate, please do not hesitate to contact us directly. 

The legal requirements for the duties of directors and officers of a corporation in Michigan are not well understood by business owners. This article explains these requirements, known as fiduciary duty, and briefly details common requirements of directors or officers of corporations.  There are similar rules that apply to members and managers of limited liability companies in Michigan.
 
It is important to note that under Michigan law, all fiduciary duties are applicable to both officers and directors of the corporation.
 
What is a “Fiduciary?”
A corporate fiduciary is an individual who is employed as an officer of the corporation or has been elected by the shareholders as a director to hold and exercise power on behalf of the shareholders. Under Michigan law, officers and directors have a basic obligation to act only in the best interest of the shareholders.
 
What Duties Are Owed?
Although fiduciary duties stem from common law principles, they are found in Michigan’s corporation law, which is the Michigan Business Corporation Act. These duties include: 1) the duty of loyalty to shareholders to only act in their best interest; 2) the duty of care; and 3) the duty of good faith. Corporate fiduciaries are protected by the “Business Judgment Rule” in the absence of a breach of one of the above-mentioned duties in their day-to-day operation of the company.
 
The Business Judgment Rule
The fiduciary rules do not provide that a director or officer of a corporation will be liable for all bad decisions they make while serving the corporation, since this would produce an absurd result, making any risk-taking by officers or directors off limits. The solution to this is the Business Judgment Rule which states that when a corporation suffers a loss from a lawful transaction, a director or officer is not liable when he or she acted in good faith, on an informed basis, and under the honest belief that the action was taken in the best interest of the company.
 
Duty of Loyalty
The duty of loyalty is one of the most common fiduciary pitfalls for directors and is especially magnified in the case of a closely-held corporation where directors are often also shareholders. The duty of loyalty is most commonly breached when the director either: 1) engages in a transaction on behalf of the corporation that constitutes “self-dealing”; 2) engages in a transaction that constitutes self-interest; or 3) engages in a personal transaction that rightfully belongs to the corporation.
  • Self Dealing - Self-dealing occurs when a director has a financial interest in both sides of a transaction. An example of this would be having the corporation purchase another company that the director personally holds stock in. Self-dealing essentially creates automatic liability for the director unless his or her financial interest in the transaction is disclosed prior to its acceptance by the rest of the board of directors.
  • Self-Interest - A director engages in self-interest when he or she will receive a personal benefit from a transaction that is not equally shared by the shareholders. This is not the same as self-dealing. An example of self-interest would be a director obtaining a large bonus from the company every year the corporation is extremely profitable, but engaging in an extremely risky transaction to attempt to reach the profit goal. This is known as the “Enron Pattern”.
  • Corporate Opportunity - Under the Corporate Opportunity Doctrine, a director breaches his/her duty of loyalty when he or she personally seizes a business opportunity for personal gain, which the corporation could have taken. This includes any opportunity the director learns of from his/her position in the company or any opportunity to engage in a business in which the company is engaged or expects to engage. Again, disclosure is the solution to potential corporate opportunity issues.
 
 
Duty of Care
Generally, a director has a duty to keep him/herself informed of the activities of the corporation. The duty of care is not often included in a lawsuit against a director because a corporation may indemnify its directors for breach of the duty of care under Michigan corporate law.
 
 
Duty of Good Faith
Since the duty of care is often subject to indemnification, the duty of good faith has somewhat replaced it in lawsuits against directors. The duty of good faith may be breached either by objective or subjective bad faith. This means that an officer or director must either consciously disregard his or her responsibilities or act with an intent to harm the company or its shareholders.
 
Action Step:
In order to ensure you are meeting your duties as a director or officer, or as a member of a limited liability company, you should ensure your business has a corporate/business attorney to advise you and make sure you understand your fiduciary duties in the context of your particular situation. In addition, you should consult with your insurance agent to make sure you have directors and officers liability coverage under your business general liability insurance policy.

In Michigan, individuals and businesses engaged in residential building and residential improvement or maintenance work need to be mindful of the licensing requirements for specific trades.   
 
This article will provide a brief overview of some of the issues surrounding licensing requirements, including examples of some of the “less obvious” trades that require licensing in Michigan, the consequences of engaging in a trade without a proper license, and the steps to take to obtain the required license. 
 
Does My Trade Require a License?
In general, a person or business who contracts with a property owner to do residential construction or remodeling on a project with a total value is $600 or more (including material and labor) is required to be licensed as either a Residential Builder or a Maintenance & Alteration Contractor under Michigan law.  The definitions of a Residential Builder and a Maintenance & Alteration Contractor are very broad in terms of what falls under each license. The differences between the two types of licenses are as follows:
 
Residential Builder License
A residential building license is required to operate as what most people think of as the typical construction contractor.  A residential builder may build a new home or do any kind of repair work.  It is important to note that even if a residential builder contracts for the whole job, there are separate licensing requirements for certain specialty areas included in such work, such as plumbing, electrical, heating and cooling, and ventilation work.  If the residential builder contracts for the entire job, the builder may use licensed subcontractors for the other areas of work.
 
Maintenance and Alteration Contractor License
A maintenance and alteration contractor need only be licensed for a specific trade(s) and may only accept contracts for completion of services in which they are licensed.  This requirement exists whether or not the building being worked on is a new build or a remodel.  The definition of a maintenance and alteration contractor is very broad and generally includes any repairs and most improvements or changes to a residential structure.   Some of the unique types of activities that require licensing are:
 
  • painting and decorating;
  • siding;
  • gutters;
  • tile and marble;
  • swimming pools; and
  • laying wood floors. 
 
Please note that this list is not comprehensive.  If you are unsure whether your trade requires a license, please contact us.   
 
What Are the Consequences if I or My Business Engages in a Licensed Trade Without the Required License?
The consequences of failing to obtain the proper license are harsh. In fact, engaging in a licensed trade without a license is a criminal offense.  In the case of a first offense, failing to be licensed when necessary is a misdemeanor punishable by a fine of not less than $5,000.00 or more than $25,000.00, or imprisonment for not more than one year, or both. 
In addition, an unlicensed builder or maintenance and alteration contractor cannot collect monies if they are not paid by a customer.  Examples of collection measures afforded to licensed builders are the use of construction liens, foreclosure, and the potential to obtain money damages through a collection lawsuit.  If an unlicensed builder or contractor attempts to use these measures, the contractor and their business may not only be subject themselves to the criminal consequences above, but may also be liable for civil damages and restitution.
 
How Do I Obtain a License?
Generally, the licenses discussed above require at least sixty hours of approved education courses and that the contractor must take and pass a required examination for the specific type of license.  It is important to remember that each profession, trade, and business entity has different license requirements.  If you have questions regarding licensure requirements, whether your profession requires a license, or the steps you need to take to become licensed, please, do not hesitate to contact us directly regarding your specific situation.  
 
 

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The Firm, deeply rooted in Livingston County, has its origins in 1994 when it was founded by Tim Williams.  After having practiced predominantly in tax law for many years with larger firms, Tim decided to start a new firm that centered around working with people rather than with only highly complex tax issues. The Firm is centered in working with entrepreneurs and individuals with a personal touch.  The goal of the Firm has always been to create a relationship-driven rapport with its clients to establish long-lasting, personal relationships.  From the time it was founded, the Firm has specialized in business law and estate planning and probate practice.  Many of the Firm’s clients rely upon its attorneys for business guidance as well as legal counselling. The Firm has always made it a priority to devote time to giving back to the Livingston County community and its residents by working with and giving to charitable and service organizations.  The firm plans to continue to grow its client base in Livingston County and the surrounding areas.

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