General and Limited Partnerships

General and Limited Partnerships

After the entity known as a sole proprietorship, general partnerships are the easiest type of business structure to form. Unlike corporations or limited liability companies (LLC), partnerships have no formal requirements or paperwork that needs to be filed. All you need to form a partnership is a business and a sharing of profits (there’s no such thing as a non-profit partnership). If you are considering starting a business in Utah, or if you already have a business venture going, you really should make sure that you have a business lawyer in Utah. Partnerships are a unique business relationship because they are so easy to form, and, as you’ll see below, potentially difficult to manage and dissolve.

Types of Partnerships

There are three types of partnerships that businesses can choose — general, limited or joint venture. In a general partnership, the partners equally divide management responsibilities, as well as profits.

Joint ventures operate as general partnerships, but are specifically formed for a limited purpose or a single project. If, however, the joint venture is repeated, it may be labeled a general partnership, at which point it must follow the rules for dissolution of a general partnership.

Small Business Partnership

In a limited partnership, there are managing partners and limited liability partners (who are essentially passive partners who just invest money). The managing partner(s) manage the business and assume all liability from the success or failure of the business, while the limited partners can only lose the money they invested. Limited partnerships are more complex and generally require paperwork that formally recognizes the structure.

For this article, we’ll focus on general partnerships, as they are the most common, with a few references to limited and joint venture partnerships, where relevant.

Utah Partnership Basics 

Because partnerships are so easily created, you’ll want to choose your partners carefully and, wherever possible, enter into a partnership with a written document that guides the behavior of all parties. Without a written agreement, partners are required to follow certain rules for partnerships.

Another reason to choose partners wisely is that all partners share equal authority to bind the partnership to business deals and debt obligations.

Liabilities to Creditors

Probably the most important thing to know about partnerships is that owners are personally liable for all of the partnership’s obligations. Creditors can go after the partners’ personal assets, including bank accounts, cars, and homes. It is a frightening proposition and is the main drawback to partnerships.

There is an exception to personal liability in the case of limited partners, who have only invested money into the partnership. Limited partners must file a limited partnership certificate that includes the names of all general partners. Without such a document filed, even if the intent by all parties is to have general partners who run the business and limited partners who only invest money, the limited partners may still be personally sued by creditors.

Any debt that is owed to creditors can be collected from a single partner. The legal term is joint and several liability, and it means that each partner is individually responsible for the entire debt. It’s a legal method that prevents passing the buck between defendants (or, here, partners). Of course, if one partner does end up paying for the entire debt, he can sue the other partners to collect his fair share.

Responsibilities to Other Partners

As in any marriage, you owe certain duties and bear responsibilities to your partner(s). These responsibilities include:

  • a duty of loyalty and fiduciary duty
  • equal profit sharing (unless there’s an agreement that says otherwise)
  • equal control and no salary (unless there’s an agreement)

The fiduciary duty and duty of loyalty that all partners owe each other simply mean that a partner must act in the best interest of the partnership and can’t act primarily to enrich himself. Partners must provide a proper financial accounting of their actions, and the partnership can sue individual partners for any financial wrongdoing.

Partnership Taxes in Utah

Because the partnership isn’t a special corporate entity (like an LLC), taxes on profits are paid through partners’ personal income tax. The partnership reports its profits to the IRS (though it doesn’t pay taxes on them), and this way the IRS can be sure it collects the proper amount.

Terminating a Utah Partnership

In the absence of a written agreement, a partnership ends when a partner gives notice of his express will to leave (dissociate). When there’s a written agreement, the partnership ends when an event outlined by the agreement occurs or when a majority of the partners decide to end the partnership after a single partner dissociates.

Whether there is a written agreement or not, it’s fairly easy to leave a partnership, though you’ll still be responsible for obligations that the partnership incurred while you were there. Terminating a partnership is more of a process than a single moment in time because there generally remains business that needs to be wound down (i.e., debts to be paid, obligations to be fulfilled).

Free Consultation with a Utah Business Lawyer

If you are here, you probably have a business law issue you need help with, call Ascent Law for your free business law consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

4.9 stars – based on 67 reviews


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Life Insurance Options

Life Insurance Options

Life insurance can be an important part of estate planning, especially for the parents of young children or a disabled child. The purpose of an insurance policy is to provide cash for the beneficiaries upon the premature death of the policyholder. For a person that does not receive regular income from investments or other assets, an insurance policy can replace lost earned income.

The following is an overview of some of the available life insurance options.

Term Life Insurance

Pros

  • It is relatively inexpensive
  • Various policy terms of coverage are available

Cons

  • It is subject to cancellation
  • Premiums become more expensive as the policyholder ages

The policyholder of term life insurance receives coverage for a certain amount of time specified in the policy. Because it only covers a specified period and the premium only pays for the insurance policy, this is the least expensive type of insurance available. Terms of coverage, for instance, may range from 5, 10, or 20 years. Once the term ends, the policyholder may have the option to renew the policy beyond the original term but the premium usually increases with each renewal.

Depending on the insurance company, a policyholder may have several options under term life insurance. For instance, many policies can be:

  • Renewed: Upon termination, a policyholder may continue coverage by paying a new premium and renewing coverage for a new term.
  • Converted: During the policy term, the policyholder may change from term life to a permanent life insurance option offered by the insurer.

Term insurance is not appropriate for all types of policyholders. For instance, term life insurance may be most beneficial to a person with young children or for a person with temporary expenses, such as a home mortgage or an auto loan. Term insurance is less desirable for a person living off investments and retirement income.

Permanent Life Insurance

Pros

  • It is not subject to cancellation unless the premium is not paid
  • It endures for the life of the policyholder
  • It is a type of investment
  • Tax benefits may apply

Cons

  • It is expensive
  • Commissions and fees may be high
  • Policies are complex

Permanent life insurance is more expensive than term life insurance because it is effective during the entire life of the policyholder (as long as the premiums are paid) and the excess paid into the policy is invested. In general, the premium remains the same over the entire length of the policy. The excess that accumulates from the premium may yield dividends or interest; the policyholder will receive some of this return. The policyholder can choose to apply the investment income to the reserves, borrow against the cash value, or terminate the insurance policy and receive the cash surrender value. The growth in the value of the reserve is tax deferred under federal tax law, unless the policyholder receives the money. In some cases, a partial withdrawal will escape tax liability. In making these determinations, you should always speak with an estate planning lawyer so all of your needs can be addressed and you can be on the right track.

Permanent life insurance is beneficial for someone with a child with special needs or for someone that expects estate taxes to be high.

The following are the various types of permanent life insurance options:

Whole Life Insurance

Whole life insurance provides the policyholder with lifelong coverage as long as they pay the fixed premium amount throughout their life. In general, the younger the policyholder is when beginning coverage, the less expensive the annual premiums will be. As the policyholder pays into the life insurance policy, the cash reserve continues to build. The policyholder may borrow from the cash reserve at the current policy loan interest rate or surrender the policy and receive the cash value of it.

Universal Life Insurance

Universal life insurance combines flexibility with the accumulation of investment income. The following are the benefits of universal life insurance:

  • Can change the amount of life insurance
  • Can adjust the death benefit and premium payments within the limitations of the policy
  • The account value earns tax-deferred interest
  • The net cost of the policy is less than whole life insurance
  • Can borrow or withdraw money from the cash reserve

Variable Life Insurance

A variable life insurance policy allows the policyholder to invest cash reserves into stocks, bonds, and securities. The policyholder will bear some of the risk, but the insurance company will guarantee a certain return on the investment. Consequently, the death benefit depends on how well the investments perform.

Variable Universal Life Insurance

Variable universal life insurance is a combination of the flexibility of universal life insurance with the investment strategy and the risk factor of variable life insurance.

Single Premium Life Insurance

The policyholder of single premium life insurance will pay the entire premium amount in one up-front payment. The benefits include the immediate accumulation of cash value, the elimination of cancellation, and the distribution of tax-free proceeds to the beneficiaries.

Survivorship Life Insurance

Survivorship life insurance, also referred to as “second to die” insurance, is a single policy that insures two people, usually spouses, for a single insurance benefit. When the first person on the policy dies, the survivor continues making payments on the premium. Only after the survivor dies does the insurance company pay the beneficiaries of the policy.

This insurance policy is appropriate for wealthy couples that expect substantial estate taxes or for people with non-liquid assets like a family business. In this situation, the proceeds from the insurance policy can be used to buyout an ownership interest.

Free Consultation with a Utah Estate Lawyer

If you are here, you probably have an estate issue you need help with, call Ascent Law for your free estate law consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

Ascent Law LLC

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Estate Administration Law

Estate Administration Law

When a person dies, all of his or her possessions – real estate, money, stocks, personal belongings, etc. – become a part of his or her estate. This really isn’t a part of estate planning but it may be a part of probate law, if the person who passed away didn’t leave a will or a trust.

Estate administration refers to the process of collecting and managing the estate, paying any debts and taxes, and distributing the remaining property to the heirs of the estate. The heirs of an estate are determined by will, and if there isn’t a will, by the intestacy (which means dying without a will) laws of each state.

What Is the Process for Administering an Estate?

Put simply, estate administration is collecting, managing, and distributing a deceased person’s estate. Each state has its own probate laws, which govern the requirements and process for administering an estate. In some cases, an estate may need to be administered in more than one state. Generally, the state in which the person lived in at the time of death is where the estate goes through probate. However, real estate is governed by state law, so real estate in another state might have to be probated in that state. Several states have adopted a version of the Uniform Probate Code, which is designed to simplify the estate administration process and provide similarity among probate laws from state to state.

The Duties of an Executor

The executor is responsible for locating and collecting all of the deceased’s property, making sure any debts and taxes are paid off, and distributing the remaining property and money to the entitled parties. Although anyone can be an executor, the executor must perform with diligence and in good faith. Usually the executor is designated in a will. If the deceased didn’t leave a will, an administrator is appointed by the probate court. If the probate process is complicated, the executor is entitled to hire an attorney – at the expense of the estate – to help him or her with the process. While the executor is not entitled to any proceeds from the sale of property of the estate, generally he or she is entitled to a fee as compensation for administering the estate.

Who Is Responsible for a Deceased Person’s Debts?

Generally speaking, once a person dies, his or her debts are paid off from his or her estate, and if there isn’t enough money to repay the debt, the debt dies with the person. Relatives or beneficiaries of the will are usually not responsible to pay the deceased person’s debts. However, if the relative or beneficiary owned part of the debt or received substantial benefits from the debt, he or she would be responsible for repaying the debt. For example, credit card debt belongs to the account holder. If, however, a relative co-signed on a loan or the credit card was from a joint account, the co-signor or other account holder would have to pay the debt. It’s important to note that in community property states – where property acquired during marriage is considered jointly owned – the surviving spouse may be liable for the debt.

Hiring an Attorney

If you’re in charge of administering an estate and have questions about it, you may want consult with an estate planning attorney. It would also be a good idea to contact an estate planning attorney if you have questions or concerns regarding the debt left by a person who has passed away.

Free Consultation with a Utah Estate Lawyer

If you are here, you probably have an estate issue you need help with. Whether you need to probate an estate, do your own estate planning, or administer a trust, call Ascent Law for your free estate law consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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4.9 stars – based on 67 reviews


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