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Man Looking At Tablet - iStockThe vast majority of us are not running international, Fortune 500 operations. We are leading, or working with, small to mid-sized businesses. With that comes the false sense of security that cyber thieves aren’t targeting us or our clients. I want to share with you why that presumption is false, and why we are actually at more risk than those Fortune 500 victims were.

The world of cybercrime is full of false presumptions. If you rewind 18 months ago, before we read about data breaches every other day in the news, you would have heard thoughts like this:

  • Cyber thieves are all overseas;
  • Cyber thieves only steal information & money online;
  • Cyber thieves are only focused on large businesses; and
  • Cybercrime will never happen to us.

If you fast forward to September of 2014, you’ll learn that we were vastly uneducated & naïve to believe that those assumptions were true. Today, we know the following:

  • Cyber thieves are all over the world. They prefer purchasing stolen credit cards that are local to their geographic location in order to not tip off the banks with the purchases they make. This tells us that the very same cyber criminals that are stealing our information are also attending our churches, grocery stores, schools and other local establishments.
  • One cyber expert (Brian Krebs) was quoted with saying, “People often ask if I worry about shopping online. These days, I worry more about shopping in main street stores.” Cyber criminals are loading malware and physical devices into POS systems at brick & mortar stores to capture credit card information.
  • No business is too small for a cyber-thief. Small businesses do not have as sophisticated of security measures and do not garner as much publicity when attacks occur. Cyber thieves are able to attack multiple small businesses in the time it takes to penetrate a large corporation. A 2012 study examined 855 data breaches. 71% of those breaches occurred in businesses with fewer than 100 employees. In 2013, this number rose 91%!
  • Approximately 15 million United States’ residents have their identities used fraudulently each year. Yes, it will happen to the majority of us!

Cyber criminals are more sophisticated than ever; however, so are the individuals fighting these crimes and the individuals who are victimized by these crimes. It’s our job to be educated on types of scams, prevention strategies and ultimately mitigation strategies once these attacks do happen to us. Look for future posts on how to protect yourself from cybercrimes and what to do if you are a victim of cybercrimes.

 

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Cabin LLCs: The Basics

by Jayne Sykora on September 25, 2014

Family at a pinic - iStockFor many, cabins provide an opportunity to get away from it all, to spend time with family and friends (maybe beside a body of water) and decompress from daily life. Unfortunately, cabins can also cause frustration and confusion as to how families (immediate and extended) will share it and how the cabin can be passed on to future generations. One way to alleviate this frustration and confusion is to form a cabin limited liability company (LLC).

As discussed in previous posts (see Jen Santini’s Limited Liability Company in Estate Planning, Kate Wells’ Basics of Business Formation), LLCs can be very useful tools. In this instance, an LLC can be created to own and manage a family cabin. The LLC and its owners (the LLC members) can create a Member Control Agreement for the LLC that clearly sets out the rules and responsibilities for managing the LLC and the cabin property over time. The main issues to consider with a cabin LLC are 1) management, 2) transfers of interest & valuation, 3) use of the cabin and 4) costs associated with the LLC.

Management

An LLC can be managed by the members directly (or, in some cases, a Board of Governors). In a member-managed LLC, members have a direct role in the management of the LLC and have the opportunity to vote on major issues associated with the LLC. Typically, some members are considered managers of the LLC and fill such rolls as Chief Manager or Treasurer. It is important to consider which members have the best qualifications and skills to act in the manager roles.

Transfer of Interest and Valuation

One of the main reasons that people often create cabin LLCs is to protect who can and cannot be members of the LLC. The Member Control Agreement generally lays out who can become members (usually family members of certain persons). Generally, spouses (in-laws) are not eligible to become members. However, each agreement is different and depends on the needs and wishes of the family. Another big reason to form a cabin LLC is to protect membership interests from creditors of members (often called a “prohibited transfer”). Again, the Member Control Agreement would spell out the terms of what is and is not a prohibited transfer.

For those prohibited transfers, the Agreement should address how other members of the LLC can buy those member interests that are transferred. Usually, one to three appraisals would be completed to determine the value. In some instances, the members could agree on a value for each interest annually, or utilize some other type of method (i.e., the property tax value of the cabin).

Use of the Cabin

Other important terms of a Member Control Agreement relate to who will use the cabin and for what periods of time.

Costs

A cabin, as any owner knows, generates cost each year. Therefore, once the cabin is an asset of the LLC, the LLC will be responsible for these costs and the members will be required to contribute funds to cover costs. The required annual contribution of each member should be sufficient to cover all expenses, both annual operating expenses and long-term costs. Again, the Member Control Agreement should lay out the method for determining the annual contribution by each member and address consequences for a member who fails to contribute.

As always, given all of the above, it is always smart to consult an attorney or CPA in your area to discuss the pros and cons of a cabin LLC for your particular situation.

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Tax return check - iStockIf you are a U.S. citizen, resident alien, or certain nonresident alien, you are required to report any foreign financial assets that meet the reporting threshold to the IRS. There are different filing requirements and it just depends on the type of assets and the reporting thresholds to determine the filings an individual is required to complete. Failure to complete the required filings can carry significant penalties.

Form 8938 – Statement of Specified Foreign Financial Assets

On an individual’s income tax return, Schedule B asks whether the individual owns any foreign accounts. If the assets exceed a certain threshold, which (for individuals) is $50,000 on the last day of the tax year or $75,000 at any time during the tax year, the individual is required to file with their return Form 8938. If you fail to file Form 8938, the penalty can be up to $10,000 plus an additional $10,000 for each period of 30 days of non-filing. The maximum penalty is $60,000, however, criminal penalties may also apply.

Form 114 – Report of Foreign Bank and Financial Accounts (FBAR)

This report may also be required if the individual owns foreign accounts that exceed $10,000 (as an aggregate value) at any time during the year. The penalty for failing to complete this report can be up to $10,000 if noncompliance is “non-willful” and the greater of $100,000 or 50% of the account balances if noncompliance is “willful.” Criminal penalties may also apply in this instance as well.

For a chart on the difference between the Form 8938 and FBAR filings, click here.

Offshore Voluntary Disclosure Programs

In 2009, 2011 and again in 2012, the IRS offered offshore voluntary disclosure programs to encourage individuals to disclose their foreign financial assets and any undisclosed income from offshore accounts. While the programs do not exempt the individual from any potential penalties, the programs allowed for individuals to get current on any delinquent taxes incurred from offshore funds. In June 2014, the IRS modified the 2012 program. The modifications became effective on July 1, 2014. For frequently asked questions on the program and more information the submission requirements, click here and here.

If you have offshore funds and are unsure whether you meet the reporting thresholds, have not disclosed your foreign accounts or need more information on the reporting requirements and disclosure program, be sure to seek advice from the proper legal counsel and/or tax professional.

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What are a surviving spouse’s debt obligations?

by Jamie Held September 11, 2014 Probate

Awhile back, an article in the Star Tribune discussed the egregious practices used by some credit card companies and banks to collect debts owed by deceased persons, often targeting surviving family members who may or […]

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Dividing Up Your Estate at Your Death

by Jayne Sykora September 9, 2014 Estate Planning 101

For some, as they prepare their Wills, it is a pretty clear cut decision on who will receive what and how much. For example, most married couples with children will first leave everything to each […]

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After Hours with Diana Ringuette

by Jayne Sykora September 3, 2014 After Hours

Name: Diana (Marianetti) Ringuette Employer: Maslon Edelman Borman & Brand, LLP Position: Attorney Location: Minneapolis Education: Hamline University School of Law (J.D., cum laude), Macalester College (B.A.) How long have you been practicing? I’ve been […]

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After Hours with Philip J. Ruce

by Jennifer Santini August 28, 2014 After Hours

Name: Philip J. Ruce Employer: Stone Arch Law Office, PLLC Position: Attorney Location: Minneapolis Education: University of Minnesota (B.A.), William Mitchell College of Law (J.D.), Thomas Jefferson School of Law (LL.M.) How long have you […]

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Godparents & Guardians: Two Different Roles

by Jayne Sykora August 22, 2014 Estate Planning 101

I often hear in conversation (and I once believed this too!) that if a minor child has godparents, then the same people will be legal guardians of the child if something happens to the child’s […]

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Robin Williams’ Estate: Subject to California Probate?

by Kim Prchal August 19, 2014 Estate Planning 101

As everyone mourns the death of Robin Williams and reflects on his tremendous talents, we estate planning attorneys can’t help but wonder, did Robin Williams do any estate planning? It is apparent that Robin Williams […]

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Designating Authority for Business Owners

by Jennifer Santini August 12, 2014 Business

I know, I know… you have read it over and over again here on Epilawg that it is important to have documents in place for times of incapacity. Yet, as Jayne Sykora and I just […]

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Non-Compete Agreements

by Jayne Sykora August 1, 2014 Business

One item that many employers have begun to use extensively with employees is a non-compete agreement. The main goal of a non-compete agreement (“non-compete”) is for an employer to protect its goodwill, trade secrets and […]

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