Friday, June 30, 2017

You have been named Executor/Executrix of a Will – What now?

Although it is still a widely used term, Executor/Executrix is the former name of the position that is now called Personal Representative in Massachusetts. When creating a Last Will a Testament, the Testator/Testatrix, or person creating the Will, must choose one or two trusted people to make sure that their wishes will be carried out. This trusted person is the Personal Representative. If you have been named as the Executor/Executrix in a Will and the Testator/Testatrix passes away, you are now the Personal Representative in charge of the Decedent’s estate; what do you do now?

First you need to determine if there are any probate assets, and if so, the value of those assets. Probate assets are any assets held in the Decedent’s name alone. This does not include any jointly held assets or assets that have contractual beneficiary designations such as a life insurance policy. If there are assets held in the Decedent’s name only, then you will have to file with the Probate Court of the county in which the Decedent resided. What needs to be filed depends on the value of the assets in the Decedent’s name. If the value of the Decedent’s assets is less than $25,000.00 plus one vehicle, then you can file an expedited Probate called Voluntary Administration. If there is more than $25,000.00 plus one car in probate assets, then you must file an Informal or Formal Petition for Probate. The difference between the two forms of filing is the amount of court oversight along the way. The more complicated the situation you find yourself in, or if there is real estate to be sold, you may want to file a Formal Petition.

As Personal Representative, you are responsible for paying the debts of the Decedent when claims are properly filed with the Probate Court. You are also responsible for filing the Decedent’s last Federal and State Income Tax Return, as well as any required Estate Tax Returns.

After one (1) year from the date of death of the Decedent, you can begin to think about closing the estate. This is done by ensuring that all assets that were to be liquidated have been cashed out, all proper claims of debt have been paid, and all items of the Decedent have been distributed to the appropriate people. If these tasks are completed, you can file a first and final account with the Probate Court detailing all the assets that came into the estate, all the debts that were paid out, and how much is being distributed to those taking under the Decedent’s Will. If these tasks are incomplete, you may want to consider filing a yearly account from year to year until the estate can be closed. Your liability to the estate as Personal Representative does not conclude until the Probate Court enters a decree approving your final account.

If you find yourself as the Personal Representative of an estate or if you are a beneficiary concerned about the manner in which an estate is being administered, contact one of the Estate Administration attorneys at Baker, Braverman & Barbadoro, P.C. to get the expert legal advice you need. – Elizabeth A. Caruso.



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Friday, June 16, 2017

SBA Small Business Loans in a Nutshell

Many business owners have heard the term “SBA”, particularly in relation to SBA loans, but are unsure of exactly what the SBA is, how it can help small businesses owners and the types of loan programs that the SBA offers. This article will provide an overview of the SBA, an explanation of typical SBA loans, a summary of the three key SBA loan programs and a description of important legal considerations involved in SBA financing.

What is the SBA?

Created in 1953 by President Eisenhower, the Small Business Administration (“SBA”) is an agency of the federal government whose purpose is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses”. SBA programs are designed to support small businesses and entrepreneurs by providing access to capital, contracts and counseling. The SBA is governed by an Administrator (who must be confirmed by the Senate) supported by a team of deputy and local administrators. The current SBA Administrator is Linda McMahon, the former co-founder of the World Wrestling Federation (WWF).  Although its loan programs are the SBA’s most visible feature the agency also offers business owners free entrepreneurial development programs through a series of centers, including Women’s Business Centers, the Service Corps of Retired Executives (SCORE) Centers and Veteran Business Outreach Centers. The Massachusetts SBA District has offices offering programs in both Boston and Springfield.

SBA Loans Small Business Loans Quincy South Shore Massachusetts

What is an SBA Loan?

Rather than providing direct capital to small businesses, the SBA partners with lenders (typically commercial banks and credit unions) to guarantee portions of eligible loans against default. By receiving the SBA’s guarantee, the lender has more flexibility to provide loans to small businesses they may otherwise deny as the bank no longer fears 100% exposure if the SBA loan ends up defaulting. As a result, when considering a loan to a small business that is SBA eligible, the lender can have less stringent underwriting requirements, the loan can have longer repayment periods and better interest rates, and the down payment required to purchase commercial property can be reduced. SBA loans can be for up to a maximum of $5 million, although the typical loan is much smaller – $375,000 was the average loan amount in 2016.

It should be noted that the word “small” in the context of “small business” does not mean the business has to be a start-up or be not financially valuable to qualify for an SBA loan. In fact, the restrictions on financial eligibility are quite broad: the business must have a tangible net worth of less than $15 million and an average net income of less than $5 million after taxes in the two years prior to applying for financing. For more information on eligibility requirements, visit the SBA’s website: http://ift.tt/2tuyjTf

  How Do the SBA Loan Programs Differ?

There are three key SBA loan programs: the 7(a) program, the 504 program and the SBA Express program.

  • 7(a) Loans: The most common SBA loan program, 7(a) loans can be used to start a business, purchase a business or assist in the acquisition, operation or expansion of an existing business. They can also be used for equipment or commercial real estate. The SBA can offer guarantees of up to 85% on 7(a) loans under $150,000, and up to 75% on 7(a) loans over $150,000. The typical repayment period on a 7(a) loan is 25 years for real estate, 10 years for equipment and seven years for other business purposes. As of May 2017, the maximum interest rate on a 7(a) loan of more than $50,000 with a repayment term of 7 years or more was 2.25% over the prime rate.
  • 504 Loans: Businesses looking to purchase or refinance commercial property or equipment usually chose the 504 loan program. In the 504 program, the SBA utilizes a Certified Development Company (“CDC”) to partner with the Lender on the loan. Typically, the lender loans the business 50% of the total cost, the CDC funds 40% of the total cost and the business contributes 10% as a down payment. This structure allows for 90% financing (significantly lower than the 20% typically required in a commercial property loan), as well as longer loan amortizations and the option of fixed interest rates. Repayment periods are usually 10 or 20 years and interest rates are correlated with the prime rate for 5 and 10 year rates issued by the U.S. Treasury.
  • Express Loans: The Express loan program offers an expedited process and is a very convenient choice for business looking to establish a line of credit. The maximum amount of an Express loan is $350,000 and the SBA guarantee is 50%. The maximum interest rate for loans over $50,000 is 4.5% over prime (which is significantly higher than a traditional 7(a) loan maximum of 2.25% over prime). The benefit here is the quick turnaround and ability to establish a line of credit.

What are the Legal Issues involved in SBA Loans?

Whenever a business seeks to obtain financing, there will always be a variety of legal issues that will surface. With SBA loans, it is particularly important that the business owner retains an experienced attorney to guide them through the process and ensure that the business owner understands the impact of certain elements of the transaction. Below is a list of some of the key legal considerations:

  • Corporate Records and Authorizations: In order to close and fund an SBA loan, the business will need to provide corporate records certifying ownership of the business, the business organizational documents and structure, and a good standing certificate. The business will also need to produce correct authorizations to show that the transaction is being entered into lawfully by the business. Finally, a legal opinion will need to be issued by an attorney attesting to the good standing of the business entity and due authorization of the documents by the business. Waiting until the last minute to consult with a business lawyer to ensure all of the corporate records and authorizations are in order can significantly delay the closing and funding of the loan.
  • Prepayment Penalties: Depending on the loan program and the lender, the Promissory Note may contain prepayment penalties that would result in a fee if the business owner paid the loan off or refinanced it within five years. Depending on the projected growth of the business, assessing the implications of a prepayment penalty is important.
  • Financial Covenants: In certain SBA transactions, the lender may seek to include particular financial covenants in the Loan Agreement that the business owner must comply with or risk being in default. For example, a “debt service coverage ratio” covenant will require the borrower to have a certain ratio of available liquidity sufficient to cover the annual debts. Recognizing and understanding financial covenants is critical to helping the business stays in compliance with its obligations.
  • Asset Liens: The lender and the SBA will seek to obtain collateral for the loan, which almost always includes a lien on the assets of the business. Understanding and assessing the impact of the asset lien is important as the business plots their growth strategy and may require more credit or seek to purchase additional equipment or real estate in the future.
  • Commercial Mortgage: If the loan is being used to purchase real estate, a commercial mortgage and assignment of leases and rents will be recorded against the property. The business owner must know and comprehend the terms of the mortgage and how the assignment of leases and rents works.
  • Personal Guarantees: All SBA loans require that the principal owners of the business provide a personal guaranty in the event that the business stops paying the loan. Business owners need to understand the implications of a personal guaranty and how it affects their personal finances and credit.
  • Personal Residence Mortgages: In some instances, the business collateral is not sufficient for the lender to agree to make the loan unless the business owners agree to allow a mortgage on their personal residence in favor of the lender. Again, this warrants careful consideration and if the home is owned jointly with a spouse, the spouse will also be required to enter into certain legal documents.

As with any legal transaction, having an experienced attorney review and negotiate the financial documents, evaluate the potential risks and rewards of each aspect of the deal and discuss how the transaction fits in with the growth strategy of the business is invaluable.  The SBA attorneys at Baker, Braverman & Barbadoro, P.C. have represented both business owners and lenders in all manner of SBA loan transactions. Our SBA lawyers are here to guide you through the process and ensure a smooth transaction so that you can focus on growing your business! – Theresa Barbadoro Koppanati.

 



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Tuesday, June 13, 2017

Minimize the Pain of Capital Gain

Many people are vaguely aware that if they sell their primary residence they will get some sort of tax break, however many are not sure what the tax break is, how it is calculated or when it applies.  Given the frequent changes to the rules regarding the taxation of capital gain, particularly in regard to one’s home, it is no surprise that there is confusion regarding this topic.

Capital Gain Tax Attorneys South Shore Massachusetts

Generally when a single person sells their primary residence they can exclude up to $250,000.00 in equity from capital gain (for couples who are married and filing jointly the exclusion is up to $500,000.00).  In other words you do not have to pay any taxes on the first $250,000.00 (again $500,000.00 for married couples) in profit from the sale of your primary residence.  Of course to qualify for this exclusion the homeowner must have lived in the house as their primary residence for 2 out of the last 5 years immediately preceding the sale.  Some complications arise if you have more than one residence or if the property was used as rental property in that time frame.

There is also some confusion as to how exactly the gain portion of the sale is calculated.  Capital gain is the difference between your tax basis in the property and the sale price or fair market value of the property upon disposition.  Your tax basis in real property is your original cost of the property plus the costs of any capital improvements made to the property over the course of your ownership less any depreciation taken on the property on your tax returns.  It is these costs of capital improvements that most people do not track and do not account for in determining their capital gain liability.

In this region, where families own houses for generations and real estate values are skyrocketing, oftentimes your primary residence exclusion will not encompass all of your capital gain.  It is therefore very important to keep track of expenses you have incurred improving the property over the course of your ownership.  For example, both the new roof that was put on in 1970 and the replacement for that roof completed in 2005 are capital improvements.  Oftentimes tracking these expenses is difficult or impossible resulting in an inaccurate and artificially low tax basis in the property.  In that case you end up paying more capital gain taxes than you otherwise would have if you were able to accurately track these costs.

If you are considering selling your property that has appreciated significantly over the years, prepare for your capital gain liability ahead of time.  If you are unable to locate records, contracts, receipts or any other evidence you can find of expenses you have made, such records can be rebuilt with a little extra time and investigation.  This time spent locating or recreating these records will make sure you are not leaving anything out that can increase your tax basis and decrease your tax liability at the end of the year.   Do not let yourself be caught unaware and end up paying more than you need to come tax time.  The tax attorneys at Baker, Braverman & Barbadoro, P.C. are ready to assist you to ensure that you are maximizing your tax savings. – Brandi S. Cerasuolo.



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