What is the Value of a JD/MBA? An Attorney’s Take on Dual Law and Business Degrees.

Before and after law school, many people consider attending business school, either at a different college or through a joint JD/MBA program (dual degree JD/MBA). Interest in dual JD and MBA degrees can be attributed to either career objectives or personal interests. In spite of this growing trend, I have heard many legal professionals criticize joint JD/MBA programs. But, as an attorney who has actually earned an MBA from the nation’s top business school, I wholeheartedly disagree. My experience at The University of Chicago Booth School of Business has proven one of the most pivotal points in my career.

I had the good fortune of starting Chicago Booth’s rigorous educational program with the background of an experienced professional. In the Executive MBA program, I worked alongside leaders from a multitude of industries. They taught me about fields outside my wheelhouse. The curriculum taught me how fundamental finance, strategy, and economic theories impact each of our professions.

Business school molded me as an attorney and equipped me with tools to evaluate cases from the business person’s perspective. Early in my legal career, I learned the importance of identifying and preventing risks. Although effective attorneys utilize both offensive and defensive tactics, perhaps the greatest value an attorney can bring to the table is issue recognition. Business leaders acknowledge issues but generally have a mind geared toward opportunity and forward movement. Apart, these skills might seem incongruous. Integrated, they ensure business success.

When interacting with a client, I harken from my business and financial strategy classes, as well as my corporate law and federal tax law courses. In business school, I learned how to read my client’s balance sheet. Together, my classmates and I produced financial models and valued corporations. Although I am not yet an expert in financial accounting and corporate valuations, business school gave me the tools to understand my client’s financial position and help identify opportunity as well as risk.

Perhaps most important, I gained a comprehensive network. The Executive MBA program at Chicago Booth is a global program with campuses in Chicago, Hong Kong, and London. In the first summer, students from all campuses are combined in separate cohorts and travel from one campus to the next. During my time at Booth, I opted to complete two quarters in Hong Kong and one quarter in London. Now, when my client has a problem with a Swiss bank, I can reach out to my classmate who is a Swiss banker and ask about banking practices in Switzerland. If another client has questions about venture capital in Shanghai, I email a classmate from the Hong Kong campus. When someone asks about a new venture or the tech industry, I ring classmates in Chicago and San Francisco.

In essence, my personal experience with business school has enhanced my work as an entrepreneur and an attorney. An MBA program can enlighten minds and open doors. I admit my experience may be defined by attending the business school ranked #1 in the Nation. However, the basic tools of an MBA program can empower the legal professional if properly leveraged. While not everyone is suited for an MBA program, I can personally attest that my time at Chicago Booth was a professional and educational experience that I will always value.

What is the Estate Tax Exemption? A Post-Tax Reform Look at Estate Planning

Perhaps unwittingly, President Benjamin Franklin best distilled the reason for estate planning when he said, “[N]othing can be said to be certain, except for death and taxes.” The estate tax exemption is a keen example of how these certainties collide.

Generally, one might think of death and tax as separate: one being after life and the other during. Certainly, estate planning can relate to each individually. At death, you specify who receives what and when. During life, you set up a charitable trust to optimize your tax position or irrevocable trust to provide for your children in a lower tax bracket.

However, when planning your estate, you should realize these two players can go hand in hand. Unsurprisingly, tax can be the unwanted gift that keeps on giving, even after death. Fortunately for your beneficiaries, the government offers a partial reprieve from this less than desirable package.

Also known as the “Death Tax,” estate tax affords the government nearly half of your estate upon death. Currently, the estate tax rate is 40 percent. Without an exemption, this tax can toll a hefty sum for the average taxpayer. The estate tax exemption protects a portion of the estate from this 40 percent tax.

Under the Tax Cuts and Jobs Act of 2017, the legislature expanded the exemption from $5.49 Million in tax year 2017 to $11.18 Million in tax year 2018. For 2019, the exemption increased yet again to $11.4 Million. Today, a married couple benefits from an exemption worth $22.8 Million. This estate tax exemption effectively protects the average taxpayer.

In all, the “Death Tax” appears to target the ultra-wealthy. However, do not be deceived. Even the average taxpayer can incur costs in the form of probate. In some states, such as California, probate is an expensive process but can be averted if you place your assets in a trust. Moreover a taxpayer who is on the cusp of the exemption may benefit from strategically gifting during her lifetime.

Whether preparing for death, taxes, or both, be proactive and speak with an expert who can help guide you through the ups and downs of estate planning. Our team is ready and willing to help. After discussing your specific situation and goals, we can sit down and craft an estate plan tailored to your individual needs. Whatever your individual scenario, take time to prepare for the certainties that President Franklin once so aptly identified.

C-Corporation versus Pass-Through Entity: How the Tax Cuts and Jobs Act Defines the Entrepreneur’s Decision

The Tax Cuts and Jobs Act (TCJA), tax reform legislation enacted in 2017, has altered the landscape for the entrepreneur and existing business owners. Before TCJA, the C-corporation faced a top combined federal income tax rate of 50.5%, comprised of a 35% corporate tax rate and 23.8% rate on dividends. In contrast, the pass-through entity[1]had a maximum U.S. federal tax rate of 39.6%.[2]

After the TCJA came into existence, the C-corporation federal income tax rate fell from 35% to 21%. Offering a comparatively lower tax rate for C-corporations, the TCJA has motivated business owners to convert their pass-through entities to C-corporations.

Despite the decreased tax rates for C-corporations, the C-corporation may not be the best option in every scenario. The choice of entity for tax-sensitive parties depends upon several factors, such as:

State Tax: Some states may apply higher tax rates to C-corporations. However, California’s 2018 tax rate for C-corporations is 8.84% while the maximum tax rate for individuals is 12.3%.

Character of Income: Individuals who earn investment income in dividends and capital gains are subject to a 20% long-term capital gains rate and 20% rate on qualifying dividends. For these business owners, pass-through entities may prove more tax-efficient.

Qualified Business Income Deduction: Unlike C-corporations, pass-through entities can be entitled to a 20% deduction on qualified business income.

Tax on Undistributed Earnings: The C-corporation tax treatment proves preferable for undistributed earnings, since the tax rate is 21% for a C-corporation and 29.6% to 40% for a pass-through entity. Still, for C-corporations, the double taxation effect on distributed earnings can be a detractor.

Even if the C-corporation tax treatment is currently preferable, certain TCJA tax provisions expire after 2025. Further, entity choices may be driven by other considerations, such as the number of shareholders, the need for alternate classes of stock, exit factors, and business formalities.

Ultimately, when deciding on the type of entity, the taxpayer should consult an attorney who can tailor the assessment to the taxpayer’s needs. Star Q. Lopez assists clients in making critical business decisions in light of current legislation. If you wish to schedule a consultation with the author, please call (949) 301-9443 or email star@businesslawoc.com.

[1]Businesses formed as S-corporations, partnerships, or LLCs qualify as pass-through entities.

[2]Before the TCJA, the U.S. federal income tax rate for a pass-through entity’s passive business income would reach 43.4%.

Love Lasting after Life: How and Why Community Property Trusts Trim Prices over Time

When your time ends, costs such as tax collection eat away at your family’s legacy. Preserving money for your family’s welfare, community property trusts can reduce the price of taxation and minimize the amount of money “donated” to the IRS.

How does a community property trust (CPT) work?

CPTs “step up” the basis of the entire property after death of a spouse. When you and your spouse invest in property jointly, the assets become community property if you live within one of nine applicable states, including California. However, two states, Alaska and Tennessee, permit the creation of a CPT, even if you do not live in a community property state.

When working on a CPT with an estate planning attorney, couples can take advantage of a double step- up on the property’s basis. The basis of the entire property, including both spouse’s halves, is stepped- up to its current value.

In contrast, jointly owned property only receives the step-up on one-half of the asset. Therefore, CPTs lower capital gains taxes by increasing the basis. When a spouse dies, community property can reduce income taxes for the decedent’s loved one.

Basic CPT Terms

To figure out whether or not a community property trust is right for you, you should know a few basic terms:

Community property: Assets a married couple acquires by joint effort during marriage if they live in one of the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Community property trust: A particular type of joint revocable trust designed for couples who own low- basis assets, enabling them to take advantage of a double step up. Tennessee or Alaska are the two places you can form these trusts.

Basis: The price you paid for an asset. The value is used to determine gain or loss for income tax purposes. A higher basis means less capital gains tax.

Stepped-up basis: When transferred by inheritance (through a will or trust), assets are revalued as of the date of the owner’s death and afforded a new basis. The new basis is called a stepped-up basis. When the new owner eventually sells the property, the stepped-up basis can save the seller a considerable amount of capital gains tax.

Double step-up: Under current tax law, community property receives a basis adjustment step-up on the entire property when one of the spouses dies. Therefore, if a surviving spouse later sells the community property, the capital gain is calculated using the increase in value between the time of the first spouse’s death to the value at the date of the sale. This adjustment saves the surviving spouse valuable income by decreasing capital gains tax liability.

Whether or not you use a CPT, taking time to plan your estate is a small price to pay for the invaluable peace of mind you and your family gain. Within a brief period of time, we can implement an estate plan that could save your loved ones tens of thousands of dollars down the road. To prepare for the future, an estate planning attorney can help you customize a plan that is right for you.

Disclaimer: All materials have been prepared for general information purposes only. The information presented is not legal advice, is not to be acted on as such, may not be current at the time of review, and is subject to change without notice. Further, the publication forms no attorney-client relationship and is not intended as a solicitation. If the information provided might apply to your situation, you should seek qualified professional counsel on your specific matter.