Small Business Gets Help

This subject is a bit removed from our usual estate planning, probate and Medicaid matters. Many of our readers are retired, but we also have professional advisors and CPA's on our distribution list. The occasion for our rambling into the business arena is the passage by the US Senate of HR 5297 Small Business Jobs and Credit Act.

One of the particular highlights of the new law, aimed at propping up small business and providing access to capital, is the expanded definition of a Small Business.

Media Attention on Small Businesses. Anyone reading the paper or watching TV is aware that all politicians are focused on helping "Small Business." We also know from media publicity that Small Business creates 70% of all new jobs. Over the past several months we have heard complaints that Small Business cannot get access to loans, because of the crisis in the financial sector.

This should change in the next few months. Professional advisors should be alert to the new opportunities for their small business clients. By customary definitions, many businesses would not qualify for SBA assistance because of a revenue cap of $6.0 million.

Now, in lieu of a $6.0 million revenue cap, the standard, as we understand the bill, will be tangible net worth of $15.0 million and two year average net income of $5.0 million or less.

We have read that approximately 90% of all companies in America will now qualify for SBA loan assistance. This can be a big deal, as explained below.

What Kind of Assistance Does SBA Give? SBA - Small Business Administration has typically arranged for government guarantees on loans made by banks to "small businesses." Limits on guaranteed loans to small businesses have been increased substantially:

1) General purpose working capital loans for existing or start-up small business, the 7(a) loan program, have been increased from $2.0 million to $5.0 million.
2) Express loans - turn around time 36 hours, have been increased from $350,000 to $1.0 million.
3) The second mortgage loan limit has been increased from $1.5 million to $5.0 million.

These are huge increases, some of which will expire December 31, 2010, unless Congress extends them.

Fee Reduction. The new law eliminates origination fees on all SBA loans through December 31, 2010. This is a huge saving for small businesses, as the up front fees have been a major deterrent to the use of SBA financing.

Increase in SBA Guarantee. While the percentage of SBA Guarantee may vary according to the size and amount of the loan, the former maximum 75% SBA Guarantee has now been increased to 90%. This reduction of risk for banks and other lenders should be a great incentive for them to make SBA loans.

Bottom Line. This advisory letter is not intended to be a thesis on SBA loan programs. This is an alert for all advisors that know business owners and entrepreneurs. If financing is a problem, the government is offering a new, much broader scope for relief. Supporting small business is a stated priority for both political parties!

Conclusion. Our firm is in contact with many active SBA lenders who are looking for business. Our business attorneys are skilled and experienced in expediting these matters. Any person you know who is interested in more facts, should call Doug Shepherd, Tom Pezzetti, or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional advice.

Is Your Estate Plan Bullet Proof?

What Do You Mean By Bulletproof? By "bulletproof" we mean the ability of others to change or challenge a trust or will. For example, a person makes a trust and transfers real estate and securities to the trust. Since the trust is revocable, the trustor (settlor or grantor) has not bothered to change the provisions regarding disposition of property at death. One of trustor's children moves in with him to provide care. The care giving child feels that there should be some special recompense for giving up part of her independent life to be a care giver.

Then comes the important question, whether the trust can be validly amended to change the provisions for equal distributions among all children?

Now What Happens? This scenario can be a perfect setting for a legal battle after Dad dies.

A couple of things often happen:

1) Care giver takes Dad to an attorney for a trust amendment, giving care giver the house or a larger share (sometimes everything).

2) Care giver has Dad sign over property during lifetime, with or without an attorney, or adds care givers name to bank accounts or securities.

We have covered in a prior newsletter the estate planning problems presented by joint accounts.

What Are The Legal Challenges In These Circumstances? The first challenges that are presented to a family and their legal counsel are Dad's legal competency and the question of undue influence. Questions in Michigan about the level of competency required to make or amend a trust have been resolved by Michigan's new trust law, which explicitly states that the legal standard for trusts is the same as the standard of capacity to make a will. This standard of competency is quite low. It does not require Dad to count backward by threes from 100. Dad merely has to understand what his property is, who the objects of his beneficence are, and the consequences of the action being taken. Nonetheless, the case law is replete with challenges to competency, conflicting evidence and testimony and, ultimately, decisions by a judge or jury.

Undue influence is also asserted in these circumstances. Care giving creates a presumption of undue influence that has to be initially overcome by credible evidence. Care giver has to support any favorable action by Dad with testimony from third parties, or sometimes writings. Care givers and counsel need to anticipate potential challenges and make sure that the case to support Dad's changes can be made after the fact.

Durable Power of Attorney. What authority does the agent named in a Durable Power of Attorney (DPOA) have to make changes? First, the DPOA cannot make a will. Second, a DPOA can often amend a trust. However, because a DPOA is a fiduciary, the validity of a trust amendment made by a DPOA will likely be subjected to the same challenges discussed above and will require supporting evidence that the changes were really Dad's wishes and directions.

The Case For the Care Giver. Our experience is that the services provided by a care giver are often unappreciated by other members of the family who are not providing the same time and effort. Sometimes the care giver is regarded is a free loader "living off Dad's money". Added to a care giver's frustration is a presumption by the Michigan Department of Human Services that family members are supposed to provide care giving service to a parent or spouse for free, absent a written care contract executed in advance.

Unfortunately, families usually do not address these issues ahead of time. Claims are made after Dad's death that he promised payment or promised a particular asset or extra share for services being rendered. Generally, these claims and legal battles are a continuation of early sibling rivalry, which surface after Dad is gone.

Equal Is Not Always Fair. This is an axiom that we often repeat to clients of both generations. A care giving child should have his or her time and effort recognized. It is usually best if other members of the family are both knowledgeable and approving of arrangements. Unfortunately, however, lack of communication, secrecy or procrastination are often present and contribute to legal battles and family disharmony.

Competent elder law attorneys can help lay the ground work and counsel Dad, care givers and other family members ahead of time to work out a fair and just solution to the dilemma of recognizing care giver's services without destroying family unity and good will.

If you or a friend are facing issues of care giving and their effect on estate plans, please contact Jim Modrall, Priscilla Hirt or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe and Nicole R. Graf at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional advice.