The Benefits of Like-Kind Exchanges

Jun 04

Normally, when you sell real estate for more than you paid for it, you pay tax on the gain at the time of sale, even if you plan on reinvesting the proceeds in another property.  The payment of tax on the gain, however, may not be necessary if you instead choose to exchange your property for a similar property. Such exchanges, called like-kind exchanges, allow you to postpone paying tax on the gain until a later time.

Requirements

These exchanges must meet the formal requirements found in Section 1031 of the Internal Revenue Code, which is why they are sometimes referred to as 1031 exchanges.  The main requirements are as follows:

  • You must exchange your real estate, not sell it, for another one.
  • You must hold both the property traded and the property received for business or investment purposes.
  • The properties must be of similar nature, character, or class, regardless of quality or grade. For example, improved real estate can be traded for unimproved real estate.
  • The properties must not be held primarily for sale, such as inventory.

Benefit

Section 1031 allows you to postpone paying tax on the gain if you reinvest the proceeds in a similar property.  At the time of transfer, taxable gain and the consequent capital gains tax is deferred until a later sale.

Deferred-Exchange Example

If you purchased a tract of farmland for $100,000, and 15 years later you sold it for $150,000, you would typically have to pay capital gains tax on the $50,000 of built-in gain.  Instead, if you structured the sale as part of a 1031 like-kind exchange and purchased new farmland or pasture for $175,000, no tax would be paid.  Your new basis in the purchased property would be $125,000 – your $100,000 basis from the previous property plus the additional $25,000 cash paid.

The attorneys at Clark, Mize & Linville, Chartered can help you thoroughly understand like-kind exchanges and choose whether a “simultaneous” exchange, traditional “deferred” exchange, or a “reverse” exchange will best meet your needs.  Even though the structure of like-kind exchanges can be complex, the benefit of the tax deferral often makes the process worthwhile.

Written by:  Joshua C. Howard 

Related Practice Areas:   Business Formation and Governance and Real Estate Law

Clark, Mize & Linville Announces New Shareholder

Jan 02

Clark, Mize & Linville, Chartered is proud to announce that Jessica L. Stoppel has become a shareholder in the firm.  Please join us in congratulating her on this achievement!

Jessica concentrates her practice in the areas of estate planning, elder law, long-term care & Medicaid planning, probate & trust administration, real estate, and business law.  She attended Kansas State University where she graduated Magna Cum Laude with a B.S. degree in marketing and leadership studies, and she is a graduate of the University of Denver Sturm College of Law.  Prior to joining the firm in 2015, she practiced at Davis & McCann, PA in Dodge City, Kansas.

Jessica is active in the Salina community. She is a member Salina Professional Business Network, Salina Area Young Professionals, and Noon Network AMBUCS. She also volunteers her time by serving on several not-for-profit boards and committees.  Jessica is a member of the National Academy of Elder Law Attorneys and is an officer of the Kansas chapter of NAELA.  

Jessica and her husband, Blake, reside in Salina with their two young children, Colt and Chloe.

Four Selected for Inclusion in The Best Lawyers in America©

Aug 15

Clark, Mize & Linville, Chartered, 129 S. 8th Street, Salina, is pleased to announce that it has four attorneys named to the 2020 Edition of The Best Lawyers in America© publication.  Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence.  Best Lawyers lists are compiled based on an exhaustive peer-review evaluation.  Lawyers are reviewed on the basis of professional expertise, and undergo an authentication process to make sure they are in current practice and in good standing.  Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor.  The following attorneys were named:

Peter L. Peterson has been included since the publication’s inception in 1983 and currently is listed in the practice areas of Trusts and Estates, Non-Profit/Charities Law, Tax Law, and Employee Benefits (ERISA) Law.  Previously, Mr. Peterson was selected as the 2013 Best Lawyers in America Lawyer of the Year in the Wichita/Salina Area for the practice area of Trusts and Estates.

Eric N. Anderson has been listed since 2013 in the practice areas of Business Organizations (including LLCs and Partnerships) and Trusts and Estates.

Dustin J. Denning has been listed since 2018 in the practice areas of Medical Malpractice – Defendants and Personal Injury Litigation – Defendants.

Peter S. Johnston has been listed since 2016 in the practice areas of Medical Malpractice – Defendants, Personal Injury Litigation – Defendants, and Insurance Law.

What You Need to Know About LLCs

May 10

New business ventures can be structured in many different forms, including as a sole proprietorship, partnership, or corporations. With that being said, limited liability companies (“LLCs”) have become one of the most common forms in Kansas. An LLC can limit the liability of the owners, so they are not liable for the debts of the entity. Members of an LLC are generally only at risk to the extent of their investment in the LLC, and their other personal assets are protected.

One of the biggest advantages of LLCs is that they can be a bit more simple and flexible than corporations. Some formalities, such as annual minutes, are not required of all LLCs unlike other entities in Kansas. The members of the LLC often actively participate in the management of the business. The use of an LLC is a good choice for many business types with a limited number of owners.

Although LLCs can be used in myriad different contexts, a common usage is for rental real estate. In this case, once the LLC is properly established, the rental real estate can be transferred into the LLC. If an accident subsequently occurred on the real estate premises, the liability may be limited to the assets of the LLC and not reach the other assets of the owner.

To form an LLC, Articles of Organization must be prepared and filed with the Kansas Secretary of State. Next, internal documents controlling the LLC are prepared including an operating agreement, organizational minutes, and a membership certificate. LLCs in most cases also receive a taxpayer identification number that is used for tax purposes.

LLCs are most commonly taxed as partnerships for federal tax purposes. Accordingly, LLCs are not subject to two layers of tax. Instead, income or loss from the LLC flows from the LLC to the members and is reported on the member’s individual tax returns. LLCs with only a single member are a bit different, however, and are treated as sole proprietorships, which means that the single-member LLC’s income is reported directly on the member’s tax return.

An often overlooked benefit of LLCs is that they can provide for ongoing and centralized management of assets. For example, some families create LLCs to allow for inherited or family assets to remain jointly owned with a management structure in place.

Please contact the lawyers at Clark, Mize & Linville, Chartered to discuss the formation of a limited liability company to protect your assets.

Written by:      Joshua C. Howard

Related Practice Area:            Business Formation and Governance

 

Clark, Mize & Linville Named a Tier 1 Law Firm by U.S. News and Best Lawyers®

Nov 09

Clark, Mize & Linville, Chartered, is once again pleased to announce that it has been named a Tier 1 law firm, the highest ranking level, for the Salina/Wichita Metropolitan regions in the 2019 Edition of the U.S. News – Best Lawyers® “Best Law Firms.” Firms included in the 2019 “Best Law Firms” list are recognized for professional excellence with persistently impressive ratings from clients and peers. Achieving a tiered ranking signals a unique combination of quality law practice and breadth of legal expertise.

The firm’s Tier 1 rankings are in the areas of Health Care Law, Trusts & Estates Law and Personal Injury Litigation – Defendants. In addition, the firm received a Tier 2 ranking in the practice areas of Medical Malpractice Law – Defendants, Insurance Law, Non-Profit/Charities Law and Tax Law, and a Tier 3 ranking in Business Organizations (including LLC’s and Partnerships) and Employee Benefits (ERISA) Law.

Receiving a tier designation reflects the high level of respect a firm has earned among other leading lawyers and clients in the same communities and the same practice areas for their abilities, their professionalism and their integrity.  The U.S. News – Best Lawyers® “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process.

Ancillary Administrations

Nov 09

When an out-of-state individual dies owning Kansas real estate, Kansas probate proceedings are necessary to transfer the real estate. Depending on the facts and circumstances involving the assets, beneficiaries, and planning, the necessary probate proceedings may take a number of different forms.

If less than six months have passed since the date of death, then a full administration in Kansas would be necessary.  If, however, a probate administration has already been started in the decedent’s state of residence and more than six months have passed, an expedited ancillary administration in Kansas can be used to transfer the real estate.  Accordingly, if the immediate sale or use of the Kansas property is not required, the most efficient method of transferring it often is waiting six months.

In order to begin this process, an “authenticated” (referred to as “exemplified” in some states) copy of the will and order admitting the will to probate is required.  The next step is the preparation of the petition, order for hearing, and published and actual notice in Kansas.  At the hearing, the Court would enter a journal entry transferring all the Kansas property to the beneficiaries.  Once initiated, this process takes approximately a month and a half.

If the decedent owned additional real estate in other Kansas counties, authenticated pleadings from the first Kansas court would then need to be filed with the courts in the other counties to ensure clear title.  Under the expedited probate process, the title in the properties would vest directly in the beneficiaries.  Therefore, if the beneficiaries wished to sell the properties, they could do so in their own names following the completion of the probate matters.

While these procedures can be used for any Kansas property owned at death by a non-resident, they are most common for the transfer of family farmland and mineral interests. The attorneys at Clark, Mize & Linville, Chartered have assisted numerous families and out-of-state attorneys with these probate actions.

Written by:   Joshua C. Howard

Related Practice Area:   Probate and Estate Settlement

Five CML Attorneys Selected as Best Lawyers©

Aug 16

Five Selected for Inclusion in The Best Lawyers in America©

Clark, Mize & Linville, Chartered, 129 S. 8th Street, Salina, is pleased to announce that five of its attorneys have been selected for inclusion in the 2019 Edition of The Best Lawyers in America©.  Inclusion in The Best Lawyers in America© is based entirely on peer review and recommendations of lawyers with experience working in the same practice areas as those receiving recognition.

Peter L. Peterson has been included since the publication’s inception in 1983 and currently is listed in the practice areas of Trusts and Estates, Non-Profit/Charities Law, Tax Law, and Employee Benefits (ERISA) Law.  Previously, Mr. Peterson was selected as the 2013 Best Lawyers in America Lawyer of the Year in the Wichita/Salina Area for the practice area of Trusts and Estates.

John W. Mize has been listed since 1995 in the practice area of Health Care Law. Previously, Mr. Mize was selected as the 2018 Best Lawyers in America Lawyer of the Year in the Wichita/Salina Area for the practice area of Health Care Law.

Eric N. Anderson has been listed since 2013 in the practice areas of Business Organizations (including LLCs and Partnerships) and Trusts and Estates. Mr. Anderson has also been selected as the 2019 Best Lawyers in America Lawyer of the Year in the Wichita/Salina Area for the practice area of Business Organizations (including LLCs and Partnerships).

Dustin J. Denning has been listed since 2018 in the practice areas of Medical Malpractice – Defendants and Personal Injury Litigation – Defendants.

Peter S. Johnston has been listed since 2016 in the practice areas of Medical Malpractice – Defendants, Personal Injury Litigation – Defendants, and Insurance Law.

Eric N. Anderson Obtains AV Preeminent Rating from Martindale-Hubbell

Aug 07

Clark, Mize & Linville, Chartered, is pleased to announce that Eric N. Anderson has obtained his “AV® Preeminent™” peer review rating by Martindale-Hubbell Law Directory, which is its highest rating for lawyers who have obtained a reputation among their peers for exemplary professional expertise, experience, stature, and high ethical standards.

Eric focuses his practice primarily on tax, estate, and business planning for both individuals and businesses.

Goals of Estate Planning

Apr 27

Estate planning is the process of planning for the eventual distribution of assets upon death. Although there are many different reasons to plan an estate, the following general goals are applicable to everyone:

  1. People want to give what they want. They want the flexibility to decide what to give.
  2. People want to give their property to whom they want. They do not like being told that they must include or exclude certain proposed beneficiaries.
  3. People want to distribute their property how they want. They want the freedom to choose the manner in which they make distributions of their property.
  4. People want to distribute their property when they want. They want the flexibility to make decisions for themselves based on the circumstances existing at the time.
  5. People want to accomplish these goals as conveniently as possible and at the lowest possible cost. People generally do not want the asset transfer process to be more difficult than necessary. Nor do they want to pay any more in taxes than is minimally necessary. Thus, the goal is to develop an estate plan that streamlines the transfer process and maximizes the value of property passing to the decedent’s family.

The role of an estate planning attorney is to help the client accomplish their goals. An experienced attorney has various tools at his or her disposal, and an estate can be transferred at death using the following methods:

  1. Last Will and Testament – The benefit of a will is that the testator can direct how he or she would like the assets to be distributed. Within a will, guardians for minor children can be named and language can be included to provide for children until they are old enough to manage assets. Wills, however, require a probate administration for transferring assets.
  2. Joint Tenancy – This type of ownership is one of the most common forms. The benefit of joint tenancy is that assets are transferred automatically to the joint owner upon the first death. However, the assets are then held in the survivor’s name alone and are subject to probate. Also, joint tenancy often does not work well outside of a marriage relationship.
  3. Transfer-on-Death and Beneficiary Designations – These types of designations can be used for various assets, including bank accounts, investment accounts, retirement accounts, life insurance, and real estate. Naming beneficiaries allows for assets to be distributed without the need for probate. Unfortunately, these designations sometimes lack the flexibility that is often necessary in estate plans.
  4. Revocable Living Trusts – Trusts are a time-honored method of avoiding probate. A properly established and funded trust provides all the benefits of avoiding probate and at the same time allows the necessary flexibility to leave assets in the desired manner. For example, trusts can be used to hold assets until children become older and protects assets from the beneficiaries’ creditors.

None of these tools are right in every circumstance. The estate planning attorneys at Clark, Mize & Linville, Chartered would welcome the opportunity to discuss your individual circumstances with you to tailor a plan to meet your needs.

Written by:     Joshua C. Howard

Related Practice Area:            Wills, Trusts and Estate Planning

Significant Changes of the 2017 Tax Reform

Mar 15

Major tax reform legislation was signed into law at the end of 2017 and resulted in sweeping changes to the tax code for both individuals and businesses. The legislation impacts not only federal income taxes but also the estate, gift, and generation-skipping transfer taxes.

Individuals

The tax act implemented seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These brackets also have higher income breakpoints, which are intended to lower the tax assessed. The standard deductions were nearly doubled; however, the law eliminated the $4,050 per person personal exemptions. State and local tax deductions are now capped at $10,000. Given these facts, far fewer taxpayers will be itemizing their mortgage interest, state and local taxes, charitable contributions, and other deductions, instead relying on the standard deduction.

Additional changes include (i) the child tax credit being doubled to $2,000 and made partially refundable; (ii) mortgage interest deductions being limited to $750,000 of new debt; and (iii) home equity loans being deductible only if used to build or improve a home.

Estate Planning

The law doubles the estate, gift, and GST tax exclusion amounts to $10 million (to be adjusted for inflation from a base year of 2010). For 2018, the inflation-adjusted amount will be $11.2 million. Effective as of December 31, 2025, the increased exclusion amounts will sunset, returning to a $5 million inflation-adjusted amount.

Businesses

Businesses should be aware of the provisions that have changed and plan now for how they affect the business moving forward. The corporate rate cuts are significant as the 2017 tax act provides for a 21% flat C corporation tax rate. In addition, no special tax rate is applicable to personal service corporations.

Businesses conducted as sole proprietorships, partnerships, or S corporations are subject to a special deduction under the 2017 legislation, generally equal to 20% of the qualified business income received by the individual from a pass-through business. Congress, however, placed income limits and conditions that affect the receipt of the deduction in certain circumstances.

The tax changes under the new law are far reaching and stretch beyond the coverage in this article. Please contact the attorneys at Clark, Mize & Linville, Chartered to schedule a convenient time to discuss your planning if you believe that the tax laws changes might impact you, your family, or your business.

Written by:      Joshua C. Howard

Related Practice Area:

Wills, Trusts and Estate Planning

Probate and Estate Settlement

Business Formation and Governance