Considerations for Hiring Your Child as an Employee

Hiring your child to work in the family business can be a win-win situation for both you and your child. A child employee offers you tax advantages not available with other employees. There are also potential tax savings for the child employee, who can set aside that money for college or retirement. If you are thinking about hiring your child as a part-time worker or a full-time employee, you need to be aware of the applicable laws to reap the greatest benefits—and to avoid running afoul of the Internal Revenue Service (IRS).

Benefits of Hiring a Child Employee

Hiring your son or daughter has numerous benefits for both parent and child.

Work Experience

Developing good work habits during youth creates a foundation for the rest of life. When teenagers get a job, they learn strong work habits, improve their time management and organizational skills, and have an opportunity to earn and save money. Work can also build confidence and a sense of independence.

While parents might be hesitant to overburden their children, evidence suggests that work experience is beneficial for young people. Research indicates that teenage work is associated with higher earnings later in life, lower pregnancy and crime rates, and higher high school graduation rates.

Child Employee Tax Advantages

Children working for the family business get to keep more of the money they earn, as long as the business is a sole proprietorship, a partnership owned only by you and your spouse, or an LLC that is treated as a sole proprietorship or a husband-wife (only) partnership for tax purposes.

According to the IRS, if your child is under age eighteen and works for your unincorporated family business, their wages are exempt from Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) taxes. If your child  is under age twenty-one and works for your unincorporated family business, their wages are exempt from FUTA taxes (but they still have to pay Medicare and Social Security taxes). These payroll tax breaks are available for part-time and full-time child employees. However, payment for the services of a child employee, regardless of age, are subject to income tax withholding.

In addition, under the Tax Cuts and Jobs Act (TCJA), which nearly doubled the standard deduction through 2025, your child employee can use the standard deduction to shelter up to $12,500 of 2021 wages paid by your business from the federal income tax. In other words, unless your child has income from other sources, they owe no federal income tax on the first $12,500 they earn in wages from the family business this year.

Parent Employer Tax Advantages

Parents who hire their child qualify for a business tax deduction that reduces their federal income tax bill and may also lower their self-employment tax bill and state income tax bill (if either are applicable). The tax deduction, which is deducted as a business expense, equals the amount of wages you pay your child to work in the business. This deduction is available to incorporated and unincorporated businesses.

Fair Labor Standards Act Benefits of Hiring Your Child as an Employee

The Fair Labor Standards Act (FLSA) is a major United States labor law. It not only created the rights to minimum wage and overtime pay, but also includes a number of provisions related to child labor.

However, the FLSA exempts family businesses from several of these provisions. For example, minimum age restrictions and minimum age rates generally do not apply to children working in a parent-owned business, except in occupations where minors under age eighteen are not allowed to work. You can learn more about FLSA exemptions on the Department of Labor website. However, be sure to check state labor laws, which may impose stricter requirements.

Be Truthful When Claiming Child Employee Tax Benefits

Hiring children is a strong tax-saving strategy for parents and children alike. If you follow the rules, the family can come out ahead at the end of the year. At the same time, the tax breaks create an incentive that might inspire some to bend the rules.

The IRS knows this and is on the lookout for taxpayers that untruthfully claim the benefits of hiring child employees. Avoid the temptation to claim a benefit that does not correspond to reality. If you do hire a child, they must be a bona fide employee performing legitimate work at a reasonable rate of compensation. Fill out all of the necessary paperwork and comply with all legal requirements. Failure to do so could result in a loss of tax breaks and an IRS audit.

Running a small business is a big responsibility. You wear many hats in your business, but legal professional probably is not one of them. When in doubt about laws that affect small business owners, it is okay to get help. We are here. Please reach out to our office and schedule a meeting to get professional advice about a tax-saving strategy that could keep more money in your family.

Common Pitfalls in Family-Owned Businesses

Your family and your business are two of your top priorities. You would not do anything to compromise either of them. But working with family members in a family-owned business presents unique challenges that can cause lasting damage to both if not properly managed.

Family-owned businesses are capable of the same success as any other business. Walmart, Chick-fil-A, Comcast, Carnival, Dell, and Ford Motor Company are not only some of the most successful companies in the world—they are also family businesses. The key to successfully running a business with your family lies in not allowing interpersonal dynamics to interfere with sound decision-making.

This may be easier said than done, but an awareness of common mistakes in managing a family business is the first step. The next step is to create tools and strategies that keep family problems from derailing the business.

Work-Family Balance
Family-owned businesses are a driving force behind the nation’s economy. According to the U.S. Chamber of Commerce, there are 5.5 million family businesses in the United States. They account for 57 percent of gross domestic product and employ 63 percent of the workforce.

On the surface, it may seem that a family business offers the best of both worlds. You get to build a business you are passionate about and share your success with loved ones. Who would not want to combine entrepreneurial spirit with family fun?

There is no reason that your business and your family cannot coexist and even thrive. Historically, there has often been no boundary between family life and work life. In modern times, family businesses may have certain advantages over other businesses, including a focus on the future, a commitment to quality that reflects the family name, and added concern for employees. However, combining family and business also tends to raise a distinct set of management challenges, including those discussed below.

Lack of Defined Roles
Running a family business may require an all-hands-on-deck approach. Husbands and wives, children and parents, extended family members, and different generations may wear multiple hats, serving as employees, managers, shareholders, and advisors at various times. These overlapping and potentially unclear roles can be a source of conflict. Existing family dynamics and communication styles that are inappropriate in a work environment may worsen business conflicts.

Professionalism is key to any business and arguably more so in a family business. Family members involved in the business should occupy roles that best suit them, understand what is expected of them, and respect the boundaries of their duties. Clearly delineated responsibilities help to create ownership of—and respect for—business roles. It is nice to know that others are ready to jump in when needed, but when roles become too blurred, conflict can result.

Governance Structure
Clearly defined roles and expectations start at the top. That means having a board that is in charge of governance practices. According to a study reported in the Harvard Business Review, 94 percent of surveyed family firms were controlled by a supervisory or advisory board. A board can help separate the family from the business and ensure that business decisions are handled professionally.

To that end, it may be worth considering nonfamily board members. In the referenced study, family representation on such boards averaged about one-third. In other words, nonfamily representation tends to make up the majority of the board. This can improve the business’s prospects of managing and attracting both family and nonfamily talent. Your business may currently be a side hustle or part-time endeavor. Once it expands, however, a governance baseline should be established.

Motivating Nonfamily Workers
It is not just at the governance level that nonfamily members can play a stabilizing role in your business. You will probably also need to hire outside employees at some point, especially as the business grows.

Outsiders might have concerns about joining a family business because of the possibility of nepotism. If nonfamily workers are held to a different standard than family workers, they will be difficult to motivate and retain. A level playing field in terms of treatment and advancement is essential. Trust and loyalty tend to be stronger in family businesses and are important ingredients of growth. A merit-based culture that holds everyone to the same standards can motivate everyone, whether family or nonfamily, to achieve more.

Succession Planning
A family is a chain that stretches from generation to generation. Correctly managed, your business can become a part of your family legacy, enriching the current generation and generations to come. Unfortunately, the odds are not in favor of multigenerational family businesses. Only about 30 percent of family-owned businesses successfully transition to the second generation. By the third generation, that number drops to 12 percent, and into the fourth generation and beyond, it is only 3 percent.

Succession planning—determining who will assume leadership and ownership of the business when the current generation steps down or passes away—is crucial for any business. Being caught without a succession plan can throw the business into chaos if the current management team is suddenly no longer available to provide leadership. It could even lead to its demise. To avoid harm to the business, the plan should be in place years prior to the actual transition so that those stepping in have time to learn and prepare.

We Can Help
Do you need help navigating the risks involved in running a family business? Every part of a business affects every other part. Concerns in one area can quickly spread to another and reveal existing structural deficits. An experienced business attorney can work with you to develop policies that mitigate the risks inherent to family-owned businesses. Keep your family business running smoothly now and in the future: contact our office to schedule an appointment.

Mineral rights and the interest in them have been central to the plot of many a movie and book and for good reason.

Mineral rights can be one of the most complex inheritances for an heir, often due to their value, be it perceived or in black and white.

If a deceased loved one has left a will, the executor of the will may transfer mineral rights to heirs, making it possible to mine or sell resources yourself or enter into a mineral rights lease so others can remove them.

A title search should be done to confirm mineral rights ownership as mineral rights are frequently separated from surface in real estate transactions. This search will also determine the percentage of rights owned. If there is a current lease in place, the executor can transfer the interest in the lease to the heir so royalties are paid to the new owner.

If an owner splits mineral rights between heirs, the fragmented mineral rights may be owned by siblings or, if heirs sell or transfer mineral rights, the heirs may not even know one another. Oftentimes, oil companies will contact heirs when rights are transferred, and that transfer becomes record in the county where the rights are located.

If a landman contacts a new mineral rights owner to propose a new lease, it could be time to contact an attorney with experience in oil and gas leases. The landman, or representative of an oil company, often has information regarding the value of other surrounding rights, drilling history, future plans, and a general knowledge of the business many mineral rights owners without expertise rarely possess. An attorney can guide lease discussions and can help new owners avoid common mistakes, like a contractual clause to automatically renew a lease without renegotiating its value. An experience attorney can also study the county records to determine the mineral interest and check the Oil and Gas Conservation Commission website to determine the wells that have been drilled adjacent to the mineral interest. Information can be pulled from the website such as a drilling history, permit status, production records, and electric logs with various other information. A review of the county records will also reveal the companies that have entered into oil and gas leases in the area that may be candidates to take a lease from a mineral owner.

An experienced attorney can be a boon if mineral rights owners wish to sell their mineral rights. A landman is often tasked with providing accurate information to all parties, negotiating terms, and protecting the good reputation of the industry, but legal representation can help an owner navigate the valuable rights underfoot.

Selling a Deceased Loved One’s Real Estate: Things You Need to Know

After the death of a loved one, such as a parent, there are a variety of tasks that must be handled to wrap up your loved one’s final affairs. Selling your deceased loved one’s real estate is one of the more daunting ones. But before you call a real estate agent, you should take some time to get familiar with and consider a few of the key issues as you work through this process.

Who Owns the Property?

The first task is to understand who is, in fact, the legal owner of the property. Many families are surprised to learn that their family member was not the legal owner of the house where the relative had lived for years. Perhaps the family member was renting all along or owned the home jointly with another relative or a friend.

How do you find out whether your loved one was the actual owner? You must locate and examine the last vesting deed for that property. “Vesting” means that the ownership has become genuine and legal. The deed (the legal document that creates ownership of the property) contains the information needed to determine ownership of the land. When someone takes title to property, the previous owner signs a deed. Then the deed is recorded with the regional government office, often called the recorder, that keeps track of land ownership. In most cases, a deed must be recorded before the land will vest in the new owner. If you cannot find a copy of the recorded deed among your loved one’s important papers, you may need to go to the city or county recorder’s office, a title company, or an attorney with experience in real property transactions to get help searching for the deed in the property records and determining whether your loved one owned the property.

Once you have located the recorded deed, you will see the type of legal ownership. Each type of ownership has different legal implications, so understanding the differences is crucial, and you should get help where you need it to take the necessary steps to sell or transfer ownership of the property.

 Appraising the Property

It is a good idea to have the property appraised as soon as possible after your loved one’s death. An appraisal is beneficial for a variety of reasons: 

• If you sell the property to a family member or a friend, or even if you choose to purchase the property yourself, a professional appraisal will protect you as the trustee, personal representative, or executor should other heirs and beneficiaries claim that you sold the property in a self-dealing manner for less than full market value.
• If you sell to an unrelated third-party purchaser, an appraisal will help you determine whether you are getting a fair price for the real estate and protect you from accepting low-ball offers. It will also protect you as the trustee, personal representative, or executor from claims that you are not acting in the best interests of the beneficiaries.
• If your loved one’s estate could be subject to estate taxes, an appraisal will help you verify the value of the estate for tax purposes.
• If you intend to sell the property later, an appraisal will help you determine the new tax basis of the property, established upon the death of the previous owner, so you can accurately calculate the capital gain or loss when you ultimately sell the property.
• Documenting the proper value of the property can also help with obtaining insurance sufficient to cover any damage to the property while you are administering your loved one’s estate or trust.

Maintaining the Property

When you are handling the final affairs of a loved one, properly maintaining the property until it is ready to be sold is another important task. For instance, you must determine if the property still has a mortgage against it and whether there are sufficient funds in the estate or trust to continue making mortgage payments. If not, you could risk foreclosure, which can exponentially complicate your job. If funds are available, you should ensure that timely payments continue to be made.

In addition to maintaining any mortgage payments, you should also make sure that the property taxes and any other necessary payments such as water, electricity, natural gas, yard maintenance, security system, etc., are timely paid. With respect to phone, internet, and cable bills, you should determine whether those are necessary. Certain alarm systems require a phone line or internet connection to function properly.

A Seller’s Required Disclosures

Once you have listed the property for sale, you must be sure that you know what disclosures about the property the applicable laws and regulations require. In some states, you are required to disclose a variety of property conditions to potential buyers. Failing to do so can expose you to significant liability and even litigation in some cases. Some of the more common disclosures you should be aware of include

• asbestos, mold, water damage, or lead;
• mechanical or electrical problems or issues;
• structural problems;
• hauntings or deaths that occurred in the home, including natural deaths, murders, or suicides;
• boundary disputes;
• environmental and natural hazards, such as high radon levels, contaminated soil, electrical hazards, high water tables leading to frequent flooding, etc.; and
• drug-related hazards, e.g., meth labs.

Check with your real estate agent or attorney to determine what disclosures are required under state law.

Selling the property of your loved one does not have to be overly complicated, and it can often be done very quickly and efficiently. Now that you are armed with the above information, you will be far better prepared to handle this important aspect of your loved one’s final affairs. If you need help, we welcome the opportunity to visit with you about your specific needs. Call us today.

Estate Planning: Answering Common Questions of Senior Citizens

According to a study conducted by Caring.com, the percentage of people aged fifty-five and older who have created a will has fallen from 60 percent to 44 percent since 2019.^[1] Although creating or updating your estate planning may seem like a daunting task, a proper estate plan can help address the concerns you may face as a senior citizen. We are here to help you.

 Who can help me if I am unable to manage my own affairs?

According to a survey conducted by the US Census Bureau, approximately 69 percent of survey respondents who were age eighty-five and older had at least one type of disability.^[2] As you get older, it is more likely that you may need assistance in handling your financial and medical affairs.

 A financial power of attorney allows you to choose a trusted person (an agent or attorney-in-fact) to handle your financial matters (sign checks, pay bills, file taxes, etc.). Without a financial power of attorney, a court will need to appoint someone if you need someone to handle financial matters on your behalf. This can take time and money that may not be optimal in the midst of a crisis.

A medical power of attorney allows you to appoint a trusted person as your decision maker to communicate or make healthcare decisions on your behalf if you cannot do so. If you do not have a medical power of attorney, the court may be required to name someone to make these decisions for you, costing your loved ones time and money and infringing on your privacy.

Can someone help me if I am out of town?

A recent New York Times article explored the trend of individuals over age sixty-five traveling more now that a COVID-19 vaccine is available.^[3] Whether you are visiting loved ones in another state or crossing countries off your bucket list, you, too, may be traveling more now than you did before. However, the world does not stop just because you leave home for a period of time. A financial power of attorney can allow your agent to handle financial matters on your behalf while you are out of town. Although it may seem scary to allow another person to manage your financial affairs, take comfort in the fact that you can still act on your own behalf if you are able, and if your agent makes a decision you do not like, you can remove them as your agent. This means that you can go out of town and feel assured that your agent can handle your financial affairs, if necessary, while you are gone.

How do I protect my loved ones after I am gone?

Unfortunately, no one is immortal. At some point in time, you will pass away. Although you will no longer be with your family, you can still have a direct impact on your loved one’s financial future. A trust is a great tool to hold the money and property you want to give to your loved ones. Whether the trust is a revocable living trust or a part of your last will and testament, it allows you to set aside a portion of your accounts and property for the benefit of a loved one. You can name someone to oversee the money and property and instruct that person on when and how the money and property must be used. When establishing a trust, there are a few different options for how your loved one can receive the money and property:

• Outright distribution. The terms of the trust can instruct the trustee to distribute all of the money and property to your loved one or give your loved one the right to withdraw all of the money and property in their share of the trust at any time, without any strings attached.
• At certain ages. You can dictate in the terms of your trust that a certain percentage be distributed to your loved one at different ages, such as one-third at age forty, one-half at age forty-five, and the remainder at age fifty.
• After reaching certain milestones. If there are certain things you want your loved one to attain before receiving access to the money and property, you can instruct the trustee to distribute a certain percentage or amount once that milestone has been reached. Some milestones could include attaining a college degree or service in the military.
• Leave it up to the trustee. If you are concerned about what your loved one may do with the money or if your loved one has a high-risk job, creditor issues, an unhealthy marriage, or an addiction, allowing distributions to be made only at the trustee’s discretion is a good way to try to protect the money and property that you have set aside for your loved one. Provisions can be put in place so your loved one can receive enjoyment from the money and property, while protecting it from creditors and predators.

We want you to enjoy your golden years to the fullest. One way to make sure that you live a full and happy life is to address your concerns with a proper estate plan. To learn more about the ways in which we can help you and your loved ones, contact us at your earliest convenience

^[1] 2021 Wills and Estate Planning Study, Caring.com, https://www.caring.com/caregivers/estate-planning/wills-survey/ (last visited June 8, 2021).

^[2] Andrew W. Roberts, et al., Dep’t of Commerce, U.S. Census Bureau, The Population 65 Years and Older in the United States: 2016 (2018). https://www.census.gov/content/dam/Census/library/publications/2018/acs/ACS-38.pdf.

^[3] Debra Kamin, A Different Early-Bird Special: Have Vaccine, Will Travel, N.Y. Times, Mar. 22, 2021, https://www.nytimes.com/2021/02/17/travel/seniors-covid-vaccine-travel.html.