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Crowd Funding: The Rules of the Game

Imagine that you need to raise $100,000 for your business. With limited options, you seek the internet as source of funds. You place a campaign on a third party website that allows you to reach infinite amounts of people, who may want to donate to your cause in exchange for different types of creative gifts you offer in return. A California based company, Pebble Technology did just that and surpassed its $100k goal to set an incredible record of securing over $10 million dollars in just thirty days! Granted, this is probably the highest campaign to date; however, it begs the questions: How did they do it and what are the rules of the game?

Well, as most entrepreneurs know, access to capital has been increasingly difficult for small businesses, which in turn affects jobs, tax revenues, and a host of related areas.  Fortunately, on April 5, 2012, the Jumpstart Our Business Startups Act (JOBS) was signed into law, allowing crowd funding to exist as a way to infuse much needed capital into the business sector.  Crowd funding is a way for the "crowds" to invest online in ventures of their choosing in exchange for equity.  Currently this does not comport with securities laws; however, the Securities and Exchange Commission (SEC) is actively setting forth rules that implement the JOBS Act provisions on crowd funding, so that the balance between access to capital and reduction/prevention of fraud can effectively be balanced.  One of the key issues relates to third party websites that serve as a conduit between the entrepreneur and the investor. These portals are the subject of debate in terms of how their role will be shaped to effectuate that balance of providing access to capital and protecting from investor fraud.  While sites currently exist under the donative (gift) model, where causes, business, and various projects have sought funds in exchange for gifts, this area of business and law is about to propel to new levels, particularly once the SEC and FINRA (Financial Industry Regulatory Authority) rules are established.

Property Tax Relief for Seniors

A wise man once said, “the only two things certain in life are death and taxes.” Although we have very little control over when the first occurs, many of us go to great lengths to try to minimize the “ouch” factor of the second. When my parents turned 70, they felt the 3,000 square foot home they lived in for over 30 years was way too much for them. They knew they could sell their home for a lot of money and buy a smaller home very easily. However, my parents were worried about paying a much higher annual property tax bill year after year, since they believed that their new property tax would be based on the price they paid for another home.  Luckily, I found two constitutional amendments passed by California voters that provide property tax relief if you are 55 years and older.  If you live in a “principal residence” in California for at least 5 years, are 55 years or older, buy a replacement property of “equal or similar value” within 2 years of the sale of your principal residence, and timely file a form BOE-60-AH with the County Assessor’s Office you may be able to transfer the tax basis from the home you sell to your new home.  There are certain conditions that must be met to be eligible. My parents sold their home and bought a newer smaller home, with less maintenance, for about the same price.  As a bonus, they were able to transfer the property tax base of $3,000 a year from the home they sold to their new home, saving them approximately $7,000 per year.  Without the exemption, my parents’ property taxes would have increased to approximately $10,000 per year.

Tuition and Medical Expenses Gifts Aren’t Taxable

It’s been said, “It is better to give then to receive.” I think we can all agree it is much better to receive without worrying about paying taxes.  Under current federal law, most individuals can receive annual gifts of up to $13,000 without being subjected to a federal gift tax. This amount is set to increase to $14,000 in 2013.  While many may know about the $13,000 gift-tax exclusion amount, many may not know that there are two exceptions that provide for greater gifting opportunities without taxation.  One is when the gift is for tuition and the other is when the gift is for medical expenses.  Any amount paid for someone else’s tuition directly to a “qualifying” educational institution is excluded from the gift tax calculation.  “Qualifying” educational organizations include those where their primary function is formal instruction.  The organization must maintain a regular faculty and curriculum with students that attend where the educational activities are conducted.  Also, if the organization has non-educational activities, these must be incidental to the educational programs. A comprehensive definition of “qualified” medical expenses can be found in Internal Revenue Code Section 213, but includes payments for medical insurance and long-term care services such as cost of nursing homes or assisted living facilities, if provided by a licensed health care provider.  However, it should be noted that “qualified” medical expenses do not include cosmetic surgery, unless to correct a birth defect or disfigurement.

*This does not constitute tax or legal advise. Please contact your tax professional to make sure any such "gifts" qualify.
How Should You Take Title to Your Home?

We are often asked by clients “How should I take Title to My Home?”  It is important to make sure you have titled your home and any other real property correctly to insure that your real property passes to your heirs.  There are 3 common ways people hold title to their homes:

Joint tenancy: If real property is held in a joint tenancy, the owner who dies first does not control what happens to the property after his death.  A house will pass to the surviving joint tenant outright and the surviving joint tenant has discretion and control to leave the asset to whoever she wants.  And if the property is in the surviving joint tenant’s individual name at the time of her death, the property will need to go through probate before it is finally distributed.  Further, under current law, the surviving joint tenant only receives a one-half step-up in basis on the property and may end up paying capital gain on one-half of the property after the first joint tenant’s death.

Community Property with Rights of Survivorship: Holding title as community property with rights of survivorship will take care of the capital gains issue.  However, like a joint tenancy property, he who dies last wins!  In other words, the property will pass outright to the surviving spouse, who can then distribute the property as she sees fit and may disregard the deceased spouse’s wishes.  Further, if the property is still in the surviving spouse’s name on her death, then the property will need to be probated.

Revocable Living Trust: Property titled in a revocable living trust will avoid the probate process.  Further, both spouses will have input into how the property passes.  Finally, if the transfer of the property to the Trust is done correctly, the surviving spouse will avoid paying capital gains on sale of the property.

Are you ready to Franchise your Business?

Do you have two or three restaurants with a signature look and feel? Or a specialty clothing store with a brand name, concept and systems for doing business? Or perhaps a service you provide that can be duplicated by others? You may already have other stores where you have licensed the trade name to another individual or entity and entered into distribution agreements for the specialty merchandise; however you may now be ready to franchise your business. Licensing and franchising are two different legal tools and you want to ensure you are using the right one to avoid unpleasant consequences. Franchising can be a great vehicle for driving your business forward, but you must ensure compliance with federal and state laws. They mandate that if you are offering or selling a concept, you must register with the appropriate state authorities, depending on the jurisdiction. You will need an experienced franchise attorney to guide you through the details of this process, so you can focus upon building your business dreams.


You May Not Always Be Your Own Trustee

The focus for many people when they create a Trust is the distribution of their assets at the time of their death. We are seeing more clients who are living past their ability to direct and maintain their own finances. Make sure your Estate Planning documents are clear as to what you want for yourself in the event that a Conservator is appointed for you or in the event your Successor Trustee takes control of your finances during your lifetime.  What care and level of living do you want? Do you want to remain in your home for as long as possible despite the cost of home healthcare? Do you want annual gifts that you make to continue during your lifetime? Remember your Agent for Power of Attorney does not have authority or control over your Trust assets. If a Lease needs to be renewed or a Certificate of Deposit needs to be renewed and the assets are in the Trust name it will take the power of your successor Trustee to direct those assets.


Balancing Act: How Attorneys Play a Key Role in an Entrepreneurs Vision

Entrepreneurs, you are indeed risk takers. You are "idea" people with creative minds constantly thinking outside of the box. Most of you do not know that there is a box. Attorneys, on the other hand, are trained to stay in the box and to spot the potential pitfalls that could cost a company time, money and possible lawsuits. While there is nothing wrong with thinking outside of the box, every business owner needs the right business attorney to balance your entrepreneurial spirit with the perimeters of the law. While this may sound confining to you, the visionary, a good business attorney allows a company to grow by keeping the impediments of a lawsuit or other disputes at bay. Entrepreneurs, we know you see attorneys as wardens, doling out warnings and restricting your ideas, but in actuality we share in your vision. We just help you minimize risk to get there and beyond.

How do we effectively combat international online piracy?


Article Published in the Los Angeles Daily Journal - Vol. 125, No. 021

Online piracy problem calls for global attack,

not US business-based approach

The power of the Internet continues to show its strength, whether it stems from intellectual property pirates or from mass online opposition to laws proposed to stop international online piracy. The online communities’ recent efforts in mobilizing millions to express opposition to the Stop Online Piracy Act are arguably unprecedented. Companies such as Google, Wikipedia and others rallied support to table Rep. Lamar Smith’s (R-Texas) online piracy bill. The bill’s goal is to curb international online piracy from foreign rogue sites. It’s alleged that these sites cheat U.S. companies out of millions of dollars in revenue and purportedly cost substantial U.S job loss, according to backers such as the Motion Picture Association of America and the U.S. Chamber of Commerce.

The two powerful groups involved in the controversy are the entertainment industry in Hollywood and technology companies. While Hollywood argues the legislation comports with the bill’s goals, the technology companies stress that, as written, the law places an undue burden on online businesses by forcing them to police the Internet, threatens Internet innovation and free speech, and blocks access to entire domain names if infringing material is placed on a blog or single webpage. Technology companies also contend that the bill’s ambiguous language creates the risk of unfettered online policing of companies without any real checks and balances. While this battle seems to have reduced to a simmer, another option has been introduced; one that is more palatable to the technology industry, but still not embraced by Hollywood and its supporters: the OPEN ACT (Online Protection and Enforcement of Digital Trade Act). This legislation aims to stop money transfers to foreign websites that “primarily” and “willfully” infringe upon the rights of U.S. intellectual property holders. Whereas the Stop Online Piracy Act (and also its cousin, PROTECT IP) sought to have an entire site taken down even if the infringement is contained in just one page or one blog.   ...<Continue Reading>