Need help with milestone 3 ACC 630, the attached file includes rubric and guidelines.

\fRunning head: ESTATE PLANNING AND TRUSTS Estate planning and Trusts Prof: Piper ACC 630 Ismail Amar Southern New Hampshire University June 27, 2016 1 ESTATE PLANNING AND TRUSTS 2 Estate Planning There are quite a number of ways in which the tax liability for estate can be minimized through a proper estate planning. These ways differ in one way or another with the strategies used to minimize or reduce tax liability in partnerships and corporations. To begin with are the marital transfers. Unless a spouse is not a citizen, neither lifetime gifts nor bequests at death to one's spouse are subject to estate taxes. However, the estate of the spouse will have to pay estate taxes on the spouse's entire taxable estate, including the amount transferred to the spouse pursuant to the lifetime transfer, at the spouse's death. Accordingly, this tool merely defers estate taxes; it does not entirely eliminate them. Another important tool is the lifetime gifts to children and grandchildren. Each person can make annual gifts of $12,000 to any number of persons, typically children or grandchildren, without incurring a gift tax. If a husband and wife both engage in gifting, they can collectively give away $24,000 per year per recipient without incurring a gift tax. Over a period of several years the amount of money that can be transferred to a couple's intended beneficiaries under this method is substantial, thereby reducing the size of the taxable estate. Lastly, are the charitable transfers? Lifetime charitable transfers or gifts to charities upon death can reduce the size of the estate and thereby reduce estate taxes. Lifetime gifts provide the added benefit of an income tax deduction. Gifts can also be made in a manner that lets the donor retain the right to use the gifted asset or income there from until death. ESTATE PLANNING AND TRUSTS 3 Partnerships and corporations do not make use of such tools as they are structured in a way that may not allow them to reduce their tax liabilities. This occurs due to the distinct boundaries that exist among various business units. Advantages of Corporations over Partnership in Relation to Estate Planning An LLC offers a flexible form in comparison to partnerships, which makes it an attractive choice for use as an estate planning instrument. In addition the management of an LLC is not based on ownership, one generation can transfer the assets held by an LLC to the next generation without giving up control. Moreover, LLCs can use transfer restrictions in order to protect assets against potential creditors of members, and children's ex-spouses. In this case, the appreciation in the value of an LLC's assets is not includible in the taxable estate of the transferor; only the value of any retained interest in an LLC will be taxed. The company's succession plan is to transfer the assets or the business to the next generation while at the same time minimizing the tax liability. This is in line with the company's vision. The best strategy to minimize tax liability will be to transform the business into a limited liability company so as to enjoy the tax minimization and other benefits. Trusts The main purpose of trust is separating control from beneficial ownership, whereby the structure of a trust allows a business or asset to be put into the hands of a third party (trustee) who is given legal control and has a duty to operate that business or manage these assets to benefit someone else (beneficiaries). This is known as a 'fiduciary duty'. In this case, the ESTATE PLANNING AND TRUSTS 4 appreciation in the value of an LLC's assets is not includible in the taxable estate of the transferor; only the value of any retained interest in an LLC will be taxed. For the small business owner who will be the beneficiary of the trust may get expertise from the trustee for his business. In a trust the beneficiary has no control directly into the assets since they are controlled by the trustee. Similarly, in a corporation, the shareholders are not in control of the company assets, but the directors of the company. There exists a fiduciary relationship in both cases. Both also own both tangible and intangible assets. However, a difference between the two comes in the fact that a company can control the assets of other entities, as long as it holds the majority stocks of those companies, and has majority voting rights. Whereas, a trust can only manage the assets in accordance with the trust deed terms. ESTATE PLANNING AND TRUSTS 5 References: Veasey, Westray B.; Craig G. Dalton Jr.; Poyner Spruill LLP (May 24, 2013). "Why You Need an Estate Plan Post 2013 Tax Act". The National Law Review. Retrieved 26 May 2013. Estate Tax". IRS. Retrieved 27 May 2015. Beginner's Guide to Estate Planning". LegalNature.com. LealNature. Retrieved October 4, 2015. Running head: BUSINESS ENTITIES - PARTNERSHIPS AND CORPORATIONS Business entities - partnerships and corporations Prof: Piper ACC 630 Ismail Amar Southern New Hampshire University June 14, 2016 1 BUSINESS ENTITIES - PARTNERSHIPS AND CORPORATIONS 2 Loss in the Lawsuit Since there is an expected chance of loss in the lawsuit, both the corporation and partnership firm would have to create a provision for the lawsuit. This will lead to the reduction in the profit of the company. Therefore, for the Sears Company, the probable damages of $2000000 should be shown in the financial statement through reducing net income and increasing liabilities. This would further affect the Sears financial status which is constantly deteriorating on every financial reporting. This will scare investors because not many would be willing to invest in a non-profitable company due to fear of losing their investment. b) There exist differences between the two types of companies in the way it deals with public disclosure. For a public United States company that trades on a United States stock exchange is usually required to file periodic earnings reports with the Securities and Exchange Commission (Carney W. J, 2006). This information is also made available to shareholders and the public. Partnerships, on the other hand, are private companies and are not required to disclose their financial information to anyone since they do not trade stock on a stock exchange. The information required when reporting for a corporate company include the director's particular, shareholding pattern, public holding, corporate social responsibility as well as the accounting standard followed or not. On the other hand, the partnership firm should provide information on the particulars of partners, share in the partnership, salary and interest paid to partners and any change in Capital. Therefore, Sears been a public traded corporation should disclose the probable loss of $2000000 on account of the lawsuit and be given in the notes to accounts of the company depending on the circumstances of the cases as on the date of disclosure. BUSINESS ENTITIES - PARTNERSHIPS AND CORPORATIONS 3 c) Based on the company's profit and loss sharing agreement, the shareholders are only liable to the extent of the value of their shares and not more than that. Hence, if the company lawsuit damages of $2000000 exceed their shares, the shareholders will only pay the value equivalent to their shares while the remaining value would be paid by the company. d) Yes, the partners could be held personally liable, however, their liability will depend on the form of partnership and circumstances of the case. For example, in limited partnership general partners are personally responsible for the liabilities while limited partners can only lose their status and be held personally responsible for business liabilities if they are found to be actively involved in the management of the business (Ireland, P. 2010). BUSINESS ENTITIES - PARTNERSHIPS AND CORPORATIONS 4 References Carney W. J, & Emory L. J., (2006). Costs of Being Public after Sarbanes-Oxley: The Irony of Going Private. Ireland, P. (2010). Limited liability, shareholder rights and the problem of corporate irresponsibility. Cambridge Journal of Economics