How California Law Views Residential Substance Abuse Treatment Homes
As a property owner, at some point you might find yourself concerned about residential substance abuse treatment homes. Perhaps you’ve just learned that one of these facilities exists in your neighborhood, or you are considering leasing your own property for this purpose. Whatever your concern, it’s important to understand how California law defines and protects these group homes.
Number of residents is paramount. Two primary distinctions exist with regard to licensing such facilities, although many other complex types of licensing exist. For the purposes of this blog, the main distinction is this: All licensed facilities serving six or fewer individuals must be treated as single-family homes for zoning purposes.
In other words, if the home houses six or fewer residents, it will be treated as a single-family unit with regard to local zoning laws.
Disability laws will apply. Individuals who are undergoing treatment for drug or alcohol addiction are defined as “disabled”, per the Fair Housing Act. These laws apply to both detox centers and recovering individuals who reside in “sober living homes”.
Local governments must comply with state laws. Licensed group home facilities, housing six or fewer residents, must be treated by local governments as a single-family home in all residential zones. Local governments may not discriminate with regard to parking requirements, design standards, and so on. No special permits can be required of these homes.
Homeowners’ Associations must also comply. HOAs cannot enforce restrictive covenants to restrict group homes for the disabled, so long as those homes serve six or fewer residents. HOAs may impose all fines or other penalties normally applied to the rest of the community, so long as they do not discriminate between licensed group homes and other single-family homes.
Group homes serving more than six residents fall under different rules. When the group home serves more than six residents, different licensing laws will apply. In addition, these facilities are not considered, by law, a single-family residence. Therefore, such homes may not fall under the same protections as homes serving six or fewer residents.
Laws regarding group home facilities can become rather complicated, with regard to licensing, zoning, and so on. This blog is simply an overview of a few primary considerations. Consult with our real estate attorneys for more information on this subject, and we can explain California law as it relates to your specific concern.
What is Your Landlord’s Responsibility in the Case of a Fire?
In most cases, the responsibility for fire safety is split between landlord and tenant. However, because individual cities might enforce additional requirements, beyond those set forth at the state level, it would be impossible to determine each party’s exact obligations without taking a look at your lease. Having said that, the following general requirements apply in many, or most, situations.
Compliance with building codes. Before renting a space, commercial landlords must comply with all standards regarding habitability, accessibility, and safety. This includes fire safety. However, since building codes can change over time, this is not a “once and you’re done” proposition. When compliance standards change, commercial landlords must update their properties appropriately. Conducting regular inspections and making the necessary upgrades or repairs can keep buildings up to code.
Maintenance and repairs. Tenants are usually responsible for general maintenance and repairs, beyond those laid out by building codes. This would include things like removal of hazardous materials, plumbing repairs, maintenance of electrical and air conditioning systems, and so on. Smoke detectors and maintenance of sprinkler systems would fall into this category and, therefore, are the tenant’s responsibility.
Insurance requirements. Landlords should carry appropriate commercial property insurance on all of their buildings, to cover losses to the structure. These policies might also cover contents of the building, but since that coverage can be limited, tenants should also purchase their own insurance coverage for valuable business equipment. Most commercial leases require the tenant to maintain insurance.
On-site injuries. Landlords can be held responsible for on-site injuries only if the injury was caused by negligence to uphold their end of the lease agreement (and all applicable legal obligations).
In the case of wildfires, we are dealing with a natural disaster that is largely uncontrollable. However, both landlord and tenant should still take the time to review their lease, inspect the building, and ensure that both parties have complied with all legal responsibilities with regard to maintenance and safety.
If you need help with your commercial lease, or have any other questions about your rights and responsibilities, call our real estate attorneys for advice specifically geared to your situation.
How the Proposed Tax Plan Affects Businesses
As we head into December, Congress and President Trump continue to hash out the details of a comprehensive tax reform bill. While we certainly can’t promise that every proposition contained in that bill will become law, we can review some of the highlights and discuss how they might affect us all. In particular, businesses stand to gain the most from potential sweeping cuts.
Possibly the most meaningful proposal contained within the bill is a lowered tax rate that would affect the majority of American businesses. The so-called “pass-through” entities (e.g., partnerships, LLCs and S-Corporations) account more than 60 percent of the net business income in America. These businesses are taxed at the individual rates of their owners, but could be set at as low as 15 percent if the bill passes. For the vast majority of these smaller business owners, that would amount to a significant tax cut.
As for the non-pass-through corporate tax rate (e.g., C-Corporations), which generally affects large and publically traded businesses, the bill could lower their tax rate from the current 35 percent to a much more modest 20 percent. For reference, the average corporate tax rate in the industrialized world is 22.5 percent.
Dramatically, the Senate’s tax bill (as it is currently written) includes a territorial tax system. Large multi-national corporations currently keep foreign profits overseas, to avoid the high taxes triggered by repatriating the money. Under the new law, these corporations would be able to bring that money back to the United States, without the burden of any additional taxes.
Theoretically (although not supported historically), these changes would spur both small business owners and large corporations to re-invest in their companies, via infrastructure, improved technology, new hires, and so on.
We will continue to update our clients on any changes that might affect you. In the meantime, remember to call our business planning attorneys if you have any questions.
How Will the New Tax Plan Affect You?
A few weeks ago, the House passed a federal tax overhaul plan and sent it over to the Senate for approval. At the same time, the Senate approved their own similar plan, which the House will now consider. It is unclear at this time which plan will eventually prevail, but it entirely likely that one of these proposals will indeed amend our current federal income tax system. So, what’s changing?
Businesses. Central to the House bill is the reduction of corporate taxation, in an attempt to spur growth of industry and jobs. That plan would reduce corporate taxes from the current 35 percent, to 20 percent beginning in 2018. The Senate bill includes that same tax cut, but would delay it by one year.
Individuals. One of the largest changes included in the House bill will reduce the number of tax brackets from seven down to only four. Many popular deductions could also be eliminated.
The House plan eliminates the popular deduction for state and local taxes. However, property taxes will still be deductible, up to $10,000. This might be of interest to those of you in the real estate industry, or to those whose property taxes total more than $10,000 per year.
Perhaps most importantly, the Senate bill would eliminate federal subsidies that help individuals cover the cost of health insurance premiums. This is an issue we will watch closely here in California, as the subsidies carry significant importance within our own public healthcare system (Covered California). The bill also would eliminate the Affordable Care Act penalty on those who do not have health insurance.
The House plan increases the child tax credit from the current $1,000, to $1,600 per child. Meanwhile the Senate bill would bump the credit to $2,000 per child.
The House bill does not lower the top marginal tax rate of 39.6 percent, while the Senate bill would reduce it slightly to 39.6 percent.
Estate Tax. The Senate plan partially repeals the estate tax, while the House plan does away with it entirely. This could be good news for those of you who are at risk of estate taxes someday, whether from an inheritance or your own estate. Of course, it’s still too soon to say whether either of these bills will pass in their entirety, and the bill won’t affect state taxes, so continue to plan for for this tax when you meet with our estate planning attorney.
While the bills are similar in many ways, there is no way to tell whether the House or Senate tax plans will become law. We will continue to watch this issue closely, and notify our business or individual clients of changes that will affect them.
Does My Family-Owned Corporation Need to Document Meeting Minutes?
It would probably not go over well for a large corporation like Petco to hold meetings and fail to record minutes. However, when you’re running a smaller company, especially if the business is held solely by family, it can be tempting to skip this sometimes tedious detail. In fact, 80 percent of corporations in the US fail to record minutes. Yet, even though it’s a common mistake, that doesn’t make it any less disastrous!
There are three primary reasons you should diligently record your company’s minutes – no matter how small or closely held it might be.
- Protect the “corporate veil”. Incorporating your business can protect your private assets from liability lawsuits. That’s part of the reason you chose to incorporate in the first place. By failing to keep corporate meeting minutes, each owner named in a lawsuit could be held legally liable for any damages. This puts your personal bank accounts, home, car, and other private property at risk.
- Avoid higher taxes. In an audit, a lack of adequate corporate records could cause the IRS to view you as a self-employed individual rather than a business. In many cases, being taxed as an individual will result in the assessment of higher overall income taxes.
- Keeping minutes is required by law. According to the California Corporations Code, all incorporated businesses must keep adequate records. This requirement does include minutes from all stockholder meetings. Your own bylaws might even require annual meetings. At the very least, unanimous written consents (signed by all directors) should be kept in records to back up any actions taken in lieu of an actual meeting. Violations of these rules can result in harsh penalties from the Department of Corporations.
With regard to formal minutes, the main thing to remember is that often no one misses them until they’re needed. You might feel that failing to keep these records is “no big deal”, since the issue has never presented itself before. However, in the event a dispute does arise, or the IRS decides to audit your company, or in various other situations, you could find yourself wishing you had kept minutes. As the saying goes, hindsight is always 20/20. Instead, have the foresight to keep adequate corporate records now, and you can protect both yourself and all shareholders from liabilities, excess taxation, legal penalties, and more.
Please contact our small business attorneys to discuss your specific situation.
Medical Emergency Information for Parents of College Students
You send your kids off to college, young and healthy, with their whole lives ahead of them. It’s unlikely that you picture them enduring a serious medical emergency – or if you do, you write it off as normal parental anxiety. But the unfortunate truth is that, yes, anyone of any age could experience a life-threatening health crisis.
Due to HIPAA regulations, you could be shocked to discover that the hospital will not discuss your child’s treatment, nor allow you to make certain decisions regarding their medical care if he or she has reached age 18. This is true even if your child is still covered by your family health insurance plan.
If your son or daughter is conscious and able to sign a document, they can give authorization to share details of their treatment with you (or with anyone else of their choosing). This obviously isn’t an option if your child is unconscious, in too much pain, or sedated for surgical treatment. You all might find yourselves wishing this authorization could have been given at some prior time.
With proper planning you can do exactly that.
HIPAA Authorization. Your son or daughter can sign this form, and file it with their primary medical provider. Some universities even ask students to fill out these forms in case of emergencies. If your child names you on the document, doctors and nurses can discuss their medical care with you. If your child is nervous about privacy issues, remind them that only information pertinent to the emergency will be discussed. A HIPAA authorization does not necessarily grant you free access to their entire medical file. Your child can specify that sensitive information about their sex life or mental health treatment, for example, are not to be shared.
Advance Health Care Directive. An Advance Health Care Directive provides a medical power of attorney means that you will be able to make medical decisions on your child’s behalf, in the event that he or she is incapacitated. This document also states the individual’s wishes regarding life-sustaining interventions and organ donor wishes.
Durable power of attorney. Durable power of attorney extends rights a bit further, allowing you to take care of financial matters and other non-medical matters during your child’s illness. A power of attorney is also a good idea in the event that your son or daughter wishes to study abroad. You can take care of certain important matters, like filing taxes, pay bills, manage student loan money, and so on.
If you have a son or daughter headed off to college soon, or just turning 18, discuss the importance of these matters. No one, especially a teenager, wants to find themselves hundreds of miles from home, injured, and in the care of strangers. By meeting with an estate planning attorney now, you can prevent these difficulties in the event that they arise.
What is Cost Segregation and How Can It Help You?
Income tax season can be rough on everyone, but it’s particularly complicated for commercial or residential real estate owners. Thanks to a system of complicated procedures, it is possible to classify various real estate holdings according to their most tax-friendly status. For example, reallocating a real property to personal property can allow for substantially shorter depreciation times and therefore an accelerated depreciation method.
We call this cost segregation, and it’s essentially the process of identifying various assets and their costs, and classifying them according to the most beneficial federal income tax status. For example, a commercial building with a 39-year depreciable life, or a residential building with a 27.5-year depreciable life could be reclassified as personal property or a land improvement. Now that asset could boast a 5, 7, or 15-year rate of depreciation.
Using an engineering-based study, a building owner can depreciate that property in the shortest time period allowed by tax laws.
Benefits of a Cost Segregation can include:
- Reduction in current income tax liability
- Deferral of taxes
- Ability to claim missed depreciation deductions from prior years (without having to file amended returns)
- Immediate boost in cash flow
What’s the catch? In order to perform a cost segregation, the IRS requires that an engineering-based study be performed. The study allows all building components, such as electrical, mechanical, and plumbing systems to be reclassed into shorter-lived asset classes. This lends the CPA the information needed to meet strict regulations and requirements.
Why perform cost segregation? Have you heard the old phrase, “A dollar today is worth more than a dollar tomorrow”? We can apply that same principle to tax deductions. The money you free up from taxes this year, can be applied to other investments.
Virtually all commercial real estate owners can benefit from cost segregation. Give us a call and speak to our real estate attorney, and we can explain more about how this strategy can benefit you.
6 Smart Tax-Planning Moves to Make by the End of the Year
Unless you’re the most dedicated accountant ever, no one enjoys tax season each spring. But, since income taxes are unavoidable, planning ahead is the best way to make the process tolerable. If you take the time for these year-end planning steps now, your tax filing process can be much simpler and smoother next April.
As we said, taxes are unavoidable. However, a large part of tax planning revolves around reducing your taxable income. Less taxable income equals lower taxes, but many strategies must be implemented in the year ahead of each tax season.
Adjust your portfolio. No one is saying that you should make investment decisions based solely upon taxes (which might be a bad idea). But if you’ve already considered selling certain appreciated assets, it makes sense to do so at the end of a year in which your overall income is lower than usual. On the other hand, selling when you’re earning in a higher tax bracket could mean an additional tax burden. So this is an issue to plan carefully with your tax professional.
Max out retirement plan contributions. Certain types of retirement plan contributions are tax deductible, so know your limits and try to reach them before the end of the year. This also applies to business owners who utilize certain types of retirement plans for their employees or themselves.
Consider an IRA rollover. If your income has declined this year and you’re eyeing retirement, it’s time to investigate your IRA rollover options. For some people, it makes sense to convert some traditional IRA funds to a Roth account, and take a one-time tax hit in exchange for tax-free income in the future. But the only way to know the best route for you is to consult with a skilled tax professional.
Donate to charity. Donations to qualified charities are deductible on your income tax return, but you have to make all donations before the end of the year. You also need to keep proof of these donations; a receipt will suffice, or you can use your credit card statements.
Gift securities wisely. Depending upon your tax bracket, you could owe considerable taxes when you sell securities. However, you can gift them to someone in the 10 or 15 percent tax bracket, who then will not owe long-term capital gains taxes on the investment (adult children or elderly parents, for example). This is a complicated maneuver, however, so we caution you not to attempt it without consulting a professional.
Send invoices late in the year. If you’re self-employed and have enjoyed a good year, you can reduce taxable income a bit by sending December’s invoices late in the month. Payments that arrive on or after January 1 won’t be counted as income until next year.
These are just a few of many potential opportunities to reduce income tax liability for 2017. But remember, plan all complicated tax maneuvers only after seeking advice from a skilled tax professional.
What is a Trust and Why Does Every Family Need One?
In our blog, we often discuss the value of various types of trusts. These are often presented as solutions to unique estate planning problems, which might lead you to believe that a trust is something “other people” establish. In truth, you might be in need of a trust yourself, without even knowing it. There are numerous reasons that establishing a trust is a smart move for most families.
First of all, it will help to understand what a trust actually is. In simplest terms, a trust is a legal agreement that helps you manage your assets. Obviously, this can be done in a number of ways, but the basic idea is that you place assets (money, in particular) into a trust. Then the Trustee, whom you have appointed, manages those assets according to rules that you created. If the trust is revocable, you can change the rules at any time. If it’s irrevocable, the trust is permanent and its rules must be followed precisely.
In the context of a family, you can establish a trust to manage your money, and distribute payments to beneficiaries whom you have named. Families establish trusts for a variety of reasons, including, but not limited to the following situations:
- You are worth more than 5 million dollars, and need to consider the impact of estate taxes
- You own considerable amounts of life insurance
- You want to ensure that your assets are managed as you would wish, in the event that you are incapacitated
- You worry that your surviving spouse or children might not be able to responsibly manage the money that you leave them (for whatever reason)
- You have children, and believe your spouse might remarry if you pass away
- You want to help your heirs avoid the cost, delays, and complications of proceeding through probate court after your death
- A child is disabled, and will need financial support into adulthood and after your passing
- You hope to leave a significant sum of money to a favorite charity
- You want to leave money for a specific purpose, such as your grandchildren’s education
These are just some of the potential situations in which a trust might be a smart move. But since there are numerous types of trusts, each with their own rules and even tax structures, call our estate planning attorney to discuss your particular needs in more detail. We can help you decide if a trust will benefit your specific situation, and guide you through the process of establishing it.
Protecting Your Heirs from Creditors and More
We all want as much time as possible with our families. But if and when the inevitable happens, and we pass away, we hope that our assets pass smoothly to our surviving spouse, children, or other heirs. That’s why the following scenarios often surprise those who inherit Individual Retirement Accounts (IRAs) or other assets.
Robert passed away three months ago, and left his IRA to his wife Debra. Since then, the phone hasn’t stopped ringing, and threatening letters are arriving in the mail. Creditors want “their share” of the money, and Debra would be left with very little if they get their way. Now she has to fight these creditors, possibly in court.
Jane, a widow, passes away not long after her husband. Their IRA passes to their only child, Kaitlyn. It just so happens that Kaitlyn’s marriage is on the rocks, and her husband files for divorce six months later. Now he’s trying to claim half of her inheritance! Surely a judge will see through this greedy ploy, but in the meantime Kaitlyn must spend thousands of dollars on legal fees to defend herself.
These are just two possible pitfalls of passing your unused IRA funds directly to your heirs. Creditors, greedy former spouses, and other dangers can happen to anyone. Fortunately, there is a way to protect your heirs’ inheritance, and it’s a simple step you can take with an estate planning attorney right now.
By placing your IRA into a Retirement Protector Trust, you can place a barrier between the funds and any nefarious individuals who might wish to take advantage of your beneficiary. This option is available to those who opt to stretch out retirement plan distributions over their expected lifetimes. There are unique tax advantages to taking this approach as well, and stretching out distributions can actually mean that your heirs receive much more money over the course of their lifetimes.
Of course, stretching out IRA distributions, along with the Trust itself, are both subject to numerous rules. Before making any big decisions, schedule a meeting with our estate planning attorney to discuss your concerns and possible solutions.