The Legal Insider

November 2013

What Small Businesses Need to Know about Obamacare

The Affordable Care Act (Obamacare) imposes a number of requirements on small businesses, but many of these requirements have been changed or postponed due to glitches with the government’s website.

Obamacare was a confusing law before the October website fiasco, but the President’s efforts to administer the 10,535 page law will generate more confusion. The following are the major mandates, taxes, and requirements that Obamacare imposes on small businesses.

1. Small Businesses Must Provide Health Care for Their Workers

The Law: The mandate that employers provide health insurance for their employees only applies to employers with the equivalent of 50 full-time employees with annual wages above $250,000. Part-time employees working 30 hours count as 1 full-time employee. Businesses with less than 50 equivalent full time employees do not have to provide health-insurance, although they may still do so if they wish.

Status: The mandate has been delayed. The employer mandate to insure workers was supposed to take effect in 2014, but the White House will not be enforcing the mandate until 2015.

2. Small Businesses Must Inform Their Workers about Their Options under Obamacare

The Law: All employers, regardless of size, must notify their employees about the Obamacare Exchange Markets. Newly hired employees must be notified about Obamacare within 14 days of the employee’s hiring date. Employers who fail to mail or e-mail their employees about these exchange markets may be subject to penalties, although it is uncertain whether the President plans to enforce this provision at this time.

The Department of Labor has provided sample notices that can be found here: one for the businesses who plan to insure their employees and one for businesses who do not.

Beginning in 2015, employers must report whether they offered health insurance to their employees and if so, what kind of insurance was offered.

Status: The notice mandate is in effect, although it is uncertain if the White House will enforce it. Employer insurance reporting is still scheduled to begin in 2015.

3. Small Businesses Must Pay Extra Taxes

The Law: Obamacare levies two taxes on businesses. The first tax is a Medicaid tax hike of .9%. Businesses making less than $250,000 will be exempt from the tax hike. The second tax will be a “pre-existing insurance coverage” fee of $63 per employee in 2014. The fee will reduce to $40 in 2015, $28 in 2016, and then expire in 2017, assuming Congress does not vote to extend it. This fee covers all businesses, regardless of size.

Status: Despite the government shutdown, the IRS still plans to collect the new taxes in 2014.

4. Small Businesses Receive Tax Credits for Insuring Their Workers

The Law: Employers with 25 equivalent full-time employees earning less than $50,000 annually may receive tax credits for insuring their workers. These tax credits are applicable up to 35% of an employer’s contribution to employee premiums. Non-profit organizations can earn up to 25% in tax credits if they pay at least half their employee’s premiums.

If the employer does not have any tax credit, the credit will automatically be converted into a tax refund. Businesses can still claim a business expense deduction on top of the health care insurance credit.

To qualify, small businesses must pay at least half of their employee’s premiums, purchase insurance through the federal exchange market (SHOP), and attach a Form 8941 to their tax returns.

Status: Although small businesses must purchase insurance through the federal insurance market (the one with the broken website) to qualify, the tax credits are expected to happen on schedule in 2014.

5. Small Businesses Must Provide Insurance for Contraceptives

The Law: All health care insurers must provide plans which cover FDA approved birth control. Co-payments and other fees for birth control are illegal. Religious organizations such as churches are exempt from purchasing such insurance plans for their employees. Organizations connected to such religions, such as schools, hospitals, and businesses, are not exempt.

Status: Uncertain, although it is scheduled to take effect in 2014. The contraceptive mandate was originally suppose to go into effect in the summer of 2013, but the White House announced it would delay implementation. The Supreme Court may hear a case regarding the contraceptive mandate this term.


Tips for Buying Foreclosed Property

Bargain hunters may be tempted to buy property that has been foreclosed or is in the pre-foreclosure stage. While this practice has traditionally been limited to savvy real estate investors, the recent increase in foreclosures has made it an attractive option for some ordinary homebuyers.

There are certainly bargains to be had, if one knows where to look. However, there are also greater risks than buying a house on the open market.

Here are ten tips to consider when buying foreclosed property:

1. Be Prepared for a Hunt

  • While there are bargains to be found, you may have to do a lot of searching and may have to make many offers before you successfully close on a quality bargain property. The foreclosure market can be competitive and spotted with defective properties, so you will need to be patient and persistent in your hunt.

2. Know the Market

  • When looking for a good deal on a property, you should know how much properties of the type you are looking for are generally worth. You should look to both the regular market as well as the foreclosure market for a full understanding of current property values of a certain property type in your desired location.
  • Preliminary investigative visits to sample properties can help you educate yourself how certain details effect the value of a property (e.g. construction date, square-footage, building materials, appliances, location, time on the market, defects).
  • These preliminary steps will help you be better able to spot a good deal when you find one and make a fair offer that is more likely to be accepted.

3. Know Who You’re Purchasing From

  • When you buy foreclosed property, you are generally purchasing the property from a bank and will need to either deal with the bank’s real estate broker or purchase the property through a real estate auction.

4. Know Where to Look for Foreclosure Properties

  • Foreclosure properties can be found on websites such as Foreclosure.com, Foreclosures.com, and RealtyTrac.com.
  • You may also find properties in regular real estate listings identified as “Real Estate Owned” (REO), which indicates that they are owned by a bank and being sold in foreclosure.
  • Additionally, bank real estate brokers can be helpful as they often know of a number of properties in foreclosure by the bank they represent.

5. Invest in Professionals

  • Hire an attorney or real estate agent experienced in foreclosure purchases. This investment can significantly help you find the right property and smoothly navigate the purchase while avoiding potential costly mistakes.

6. Prepare Your Finances

  • Get a pre-approval letter from a financial-lender ahead of time. Bargain deals on quality properties go fast, and if you aren’t prepared to quickly finalize your purchase, you may miss your opportunity.

7. Prepare for an Auction Purchase

  • Since foreclosed properties are often sold through an auction, you should familiarize yourself with the real estate auction process. Attending several preliminary auctions can be very helpful to prepare to competently conduct an auction purchase.

8. Get the Property Inspected

  • While it is always important to get a property properly inspected before making a purchase, it is particularly important in foreclosure purchases. In these situations, bank owners may not have any records of the properties’ condition and may not have been maintaining the property since the foreclosure.
  • The longer a property has been vacant, the more likely it is to have problems that need to be fixed.

9. Get Up-to-Date Titles

  • Whenever you purchase real estate property, it is important to get the most up-to-date titles to learn if any liens, encumbrances, or deed issues affect the property. Liens and other title issues are more prevalent when dealing with properties in foreclosure because homeowners whose homes fall into foreclosure are more likely to have other outstanding debts that may be secured by another debtor with an interest in the property.
  • If a lien, encumbrance, or deed issue affects the property, then the property may be less valuable or less desirable to purchase altogether.

10. Record Your Title

  • Finally, as with any real estate purchase, you should promptly record your deed with the county clerk’s office to declare and secure your ownership title.

3 Reasons to Write Your Will

Global warming, terrorist attacks, zombie apocalypses, and Miley Cyrus twerking are all signs that the end is near. Although we cannot take our property with us when we join the heavenly choir, we can give it to the people we value the most. However, most Americans still do not have a will. Here are three reasons why you should write a will today:

1. Avoid Intestacy

If you do not have a will when you pass away, the law assumes that you prefer your family to have your property over others. Although intestacy law differs from state to state, the order of estate preference is typically: spouse, children and other descendants (grandchildren), parents and other ancestors (grandparents and great aunts).

The family members who receive your estate, like your children, will typically receive your estate in equal shares. If you have three children and no spouse, most probate laws will split your estate into three equal shares for each of your children. However, a will is essential if you would prefer specific property to pass to a friend, a distant relative, a charity, or any other person or organization other than your immediate family. Likewise, if you prefer that certain people receive more than others, then you should write a will.

2. More Flexibility than Life Insurance

One of the reasons Americans do not have wills is that many of them have some kind of will substitute. The name is a misnomer, however, because will substitutes cannot actually replace what a will does. Life insurance, for instance, can only transfer a pot of money to certain beneficiaries upon death. Life insurance cannot determine the fate of bank accounts. Insurance policies cannot transfer personal or real property either.

The other major issue with life insurance is that you have to deal with insurance companies. Life insurance, like other insurance companies, will often charge an arm and a leg if you lose an arm or a leg. Insurance companies often have rigid sets of procedures in place. You can’t change beneficiaries without following a set of procedures nor can you change the terms of your insurance without bargaining with an insurance agent.

3. No Trust Issues

Trusts are also popular will substitutes. Similar to life insurance policies, trusts are not 100% replacements for a will. Unlike wills, trusts require that you place your property in the hands of a trustee, even while you’re alive. Although most professional trustees are insured and private trustees tend to be close friends and family, the possibility of incompetence or misuse is always present. Trust laws often require that the trustee hold the property or the deed of the property. If delivery of property or deed is an issue, then the trust may be at risk.

Many trust creators sidestep this problem by appointing themselves as trustee. This solution solves the delivery problem, but trust creators as trustees can still fail to manage the assets properly. With wills, many states protect the beneficiary by replacing or giving the beneficiary the cash value of the missing property.

The other major advantage of wills over trusts is that wills typically have residue clauses and are governed by omission laws. If you forget to include your signed baseball from Babe Ruth in your will, or acquired it after you executed the will, a will’s residue clause will give the ball to the person you designated as your residue collector. Likewise, if you have a child after executing your will and you forget to update the will, most states will protect your newborn’s interest in your will (unless you desire otherwise). Trusts, on the other hand, are restricted solely to the terms and beneficiaries you created for it.

The goal is not to replace your life insurance policy or your living trust with a will, but your estate planning might be incomplete if you rely on will substitutes alone.


The Dangers of Debt Settlement Companies

Debt settlement companies (DSC) routinely advertise that they can eliminate 50% of your debt, stop harassing phone calls from debt collectors, and help you pay off your debt for pennies on the dollar. Despite these fabulous claims, debt settlement companies often leave clients financially worse off.

What Are Debt Settlement Companies?

Debt settlement companies, also known as debt consolidation companies, are companies that promise to negotiate for a settlement payment with your credit card company in order to clear your credit card debt. If you sign up for debt settlement services, you stop paying the credit card company and instead pay the DSC a monthly fee. Debt settlement companies take that monthly fee and usually put it into a savings account, while also taking a percentage for service charges. They then start using the amount in the savings account to try to negotiate with your creditors. Sometimes, companies are able to get debts settled, but more often than not they are unsuccessful.

What Are Some Dangers of Signing Up with a Debt Settlement Company?

  • Your Credit Card Company Can Still Sue You: Since you are not paying your creditor while waiting for the debt settlement company to come to an agreement with them, most likely your bill is past due. As such, you might receive collection calls and letters. This contact can be stopped by the form letter debt settlement companies usually give out to stop you from being harassed by collectors, but those letters will not prevent you from being sued in court. If you are sued in court and do not appear, a judge might issue a default judgment that might result in your wages being garnished or a lien being placed on your house.
  • Your Credit Rating Can Be Severely Damaged: While your credit card company is waiting to be paid, they can report your late payments to a credit report agency, which can severely hurt your credit score. Additionally, debts that have been “charged off settled” (debts that have been settled through negotiation by a DSC) are not as beneficial to your credit as a “Paid Off” designation.
  • You Can Still Be in Debt: If your credit card company refuses to settle, there is nothing the DSC can do and you will still remain in debt in spite of the money you have paid the DSC.

How Can You Protect Yourself from Credit Card Companies without Going to a DSC?

Perhaps the biggest lie that DSC tells is that you need them in order to stop collectors and to settle with credit card companies. In fact, you can take these steps yourself without paying a cent to a DSC. Creditors are obligated to stop harassing you once you send them a cease and desist letter. You can find these letters for free online.

In the event of a lawsuit from a credit card company, you should speak to an attorney with experience handling credit issues and bankruptcy.


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