A revocable trust is an agreement made by an individual during his or her lifetime, naming a trustee and beneficiary. Trust assets must be moved to the trust with a change in title of ownership. The trustor has flexibility, though, and can amend or terminate the agreement at any time. A revocable trust does not protect trust assets from the trustor’s creditors.

An irrevocable trust moves trust assets irrevocably into a trust, and the trustor cannot amend or terminate the agreement once made. Some irrevocable trusts are life insurance trusts and testamentary trusts. Irrevocable trust assets are protected from creditors in certain circumstances. Furthermore, a revocable trust can become an irrevocable trust when the trustor or joint trustor dies. At this point, the trust asset is protected from trustor creditors. Both revocable and irrevocable trusts have their uses, each depending on the goal you wish to achieve by establishing the trust. The skilled trusts attorneys of Bjornson Jones Mungas aid clients in choosing and establishing the right trusts for their financial and estate planning goals.

The Low Income Housing Tax Credit (LIHTC), known in Montana as Montana Housing Tax Credit Program, provides a federal income tax credit meant to incentivize investment and development of affordable rental housing that qualifies under low income requirements. To qualify, in general, the property must be residential, it must satisfy and maintain minimum low income occupancy thresholds, it must maintain LIHTC affordability for a required period of time, and rent (including utilities costs) must not exceed LIHTC limits. These federal tax credits are awarded to developers of qualifying affordable apartments, and the developers are able to sell the tax credits to investors. This helps raise capital to fund the project. Investors can claim this credit, matching the invested amount dollar-for-dollar, every year over a period of 10 years.

The HOME Investment Partnership Program, although it is grant, not a tax credit, is directed by HUD and typically administered through the Montana Department of Commerce (MDOC). MDOC distributes the HOME grant to community housing development organizations (CHDOs), public housing authorities (PHAs), and local state governments (except Missoula, Billings, and Great Falls, which receive HOME funding from HUD directly). The HOME Program’s goal is to create better opportunities to develop and expand the availability of affordable housing options for the low-income households. Each client's needs and goals are unique, and the attorneys of Bjornson Jones Munga can help developers craft a funding plan that takes advantage of LIHTC, HOME, and other incentives that poise each specific client for success.

For real property purchases in Montana and Washington—as in other states—most lenders will not finance the purchase without title insurance. So, most buyers, whether residential or commercial, have to obtain title insurance as a matter of course. But title insurance directly benefits the purchaser as well.

Title insurance protects both the purchaser and any mortgage holders from financial losses due to certain undisclosed rights or claims to the property. In practice, this means that your title insurance policy should reimburse you if a claimant appears after the purchase and is able to establish a right to the property—for instance, a full or partial right of ownership, a lien on the property, or an easement—that affects the value or marketability of the property. Importantly, even a thorough, pre-purchase title search may fail to reveal claims on real property. A good example is that unknown or undisclosed heirs of a prior owner may assert rights following the settlement of an estate. It is also possible that fraudulent documents, which nonetheless initially appeared legitimate during a title search, were filed on the property in the past. Finally, errors can, and do, occur during title searches simply due to the complexity of real property records. Because real property is such a central asset for both families and business, protecting your investment through title insurance is well worth the cost of the insurance policy.

Unlike mandatory documents like bylaws or articles of incorporation, shareholder agreements are not technically required by Montana law. But shareholder agreements can be very beneficial for small corporations, and often include a number of common features. For example, they can: specify what happens in the event of the death or retirement of a shareholder; create rights and obligations for buying and selling shares; and give shareholders rights to approve any new shareholders. Although shareholder agreements may have some content in common, each agreement is unique to the shareholders who form it.

Shareholder agreements can be particularly helpful for small and family-owned businesses because they clearly set out duties and rights - ideally avoiding confusion or disagreement among families and close business associates. They can also be coordinated with estate planning documents, allowing families to smoothly determine business succession in the event that a family-member shareholder becomes ill or dies.

It goes without saying that Montana farm owners regularly face legal questions on a wide range of issues from land use and water rights, to loans and mortgages, to business and tax filings. The farm itself may be held by a family partnership or a corporation, and individual family members may consult lawyers about their rights and roles in the family-owned business.

Many families who own farms in Montana (and elsewhere) find it helpful and cost-effective to have a primary lawyer or law firm handle their regular legal and tax issues. The central benefit is this: your lawyer or law firm becomes familiar with your farm operation, your family, and the nature of your business, in order to efficiently advise you on a range of matters as they come up. Ideally, your lawyer will be experienced in each area of the law that commonly touches on your farm operation: business law, real estate law, tax and financial law and, particularly in the case of family farms, estate planning. Expertise in each of these areas allows your lawyer to coordinate your legal and financial needs as well as to jointly plan for the future of your farm and your family members. This kind of coordination should cut your costs for professional fees, give you peace of mind, and let you focus on why you're doing it all in the first place: farming and family.

The degree to which a small business is subject to income tax in Montana depends on its legal business form. For instance, a true corporation is subject to double taxation—the corporation must pay corporate income tax (called “corporate license tax” in Montana) as a legal corporate entity and shareholders must pay personal income tax on distributed dividends. S corporations, partnerships, and sole proprietorships, on the other hand, are not subject to double taxation—income tax is “passed through” to shareholders, partners, or sole proprietors as personal income tax only. Limited liability companies (LLCs) can choose to be taxed either as a corporation or as a partnership, so the LLC’s federal election determines how Montana will treat it. So for instance, if the LLC elects to be taxed as a partnership at the federal level, then it will be taxed as a partnership at the state level. Montana, unlike some other states, does not have a “franchise tax” or “privilege tax” just for doing business in the state. That means that unless you have a true corporation, the corporation as an entity will not be taxed.

Multistate businesses may be subject to additional taxes. If your business is formed in Montana, but you do business in another state as well, then you may be subject to that other state’s taxes if there is a sufficient “nexus” connecting your business and that state. If your business was formed outside of Montana, but you do business in Montana as well, then you may be subject to Montana’s income taxes if there is a sufficient nexus connecting your business and Montana. Contact Bjornson Jones Mungas to determine whether or not your out-of-state business dealings constitute a nexus sufficient to merit additional taxation. Careful tax planning is key to a successful business, and we are here to help.

Washington has neither corporate nor personal income tax. Washington does have a business and occupation (B&O) tax. B&O taxes gross receipts using a flat rate corresponding to the type of business you are in and applies the rate against value of products, gross proceeds of sales, or gross income of a business. So while legal business form is key in states with income tax, what matters in Washington is not form but function, so to speak. Washington publishes a rate schedule for all the taxable classifications of business from retailing to radioactive waste disposal. A business will need to file monthly, quarterly, or annually depending on estimated tax liability. Some types of business activity are exempt from B&O taxes. If a business activity is taxable, then it must be registered with the Department of Revenue. Also know that there is a Small Business Tax Credit available for businesses with a B&O liability below a threshold amount.

Multistate businesses may be subject to additional taxes. If your business is formed in Washington, but you do business in another state as well, then you may be subject to that other state’s taxes if there is a sufficient “nexus” connecting your business and that state. If your business was formed outside of Washington, but you do business in Washington as well, then even if you won’t be paying any extra income taxes, you may be subject to Washington’s B&O tax. Contact Bjornson Jones Mungas to determine whether or not your out-of-state business dealings constitute a nexus sufficient to merit additional taxation. Careful tax planning is key to a successful business, and we are here to help.

Business, especially small businesses, should consider whether to incorporate as C versus S corporations. Businesses file with the state of incorporation, for example Montana or Washington, but they must meet federal IRS standards. The most important difference between C and S corporations is tax treatment. C corporations are double-taxed, paying once at the entity level and once on shareholder dividend income. S corporations, however, are taxed only once at the shareholder level because all income, losses, deductions, and credits pass through to the shareholders. Avoiding double taxation is a huge benefit, especially for small businesses. 

In return for the tax benefit, however, S corporations must meet formation requirements that are stricter than those for C corporations. In general, S corporation requirements promote small businesses by limiting the type, kind, and number of eligible shareholders. Our experienced business attorneys will help you determine which type of corporate status offers works best for your goals.

A Family Limited Partnership (FLP) is a limited partnership made up of family members. The advantages of this kind of partnership are tax savings, asset protection, and asset control. FLPs allow general partners to transfer limited partnership interests to children, while still holding onto decision-making and distribution control over assets. Come tax time, transferred interests in an FLP count toward annual gift tax exclusions, so many transfers are not subject to gift tax. Further, since gifts of limited partnership exclude decision-making and control of the everyday running of the partnership, the value of these transfers may be eligible for discounts for tax purposes. Transfers of limited partnership interests also reduce the amount of the transferors’ taxable estate upon death, helping heirs pay less in taxes on the remaining estate. 

FLPs also protect assets from future creditors and claims from former family members (such as ex-spouses). Creditors cannot control or access assets without the general partners’ consent, and the FLP agreement can require partnership interests to transfer back to the family in the event of divorce. In general, FLPs help families to build wealth and keep family businesses family controlled.

The JOBS Act is a boon for investors and Montana businesses, including start-ups in the high tech and biotech sectors. Montana Sen. Jon Tester played a big role in the inclusion of many elements that will make it easier for Montana businesses to raise much needed capital. More capital means more growth, more development, and more jobs. 

The JOBS Act raised the maximum yearly value of securities a company may offer while still benefitting from simplified regulations: the maximum is now $50 million, up from $5 million. In addition, private companies may have up to 2,000 investors, up from 500. This, combined with the change allowing general solicitation and advertising of some private stock offerings, helps raise significantly more capital for new companies. Before the JOBS Act, private companies publicly advertising to raise capital from investors outside of preexisting relationships was illegal, and only large public companies that could afford to be listed on stock exchanges could generally solicit for capital this way. Allowing general solicitation for private companies has the effect of democratizing raising capital in a way never before seen in our country, and this fuels start-up growth. The JOBS Act also addresses a very popular form of raising money, especially online: hello, “crowdfunding,” you’re here to stay. Via crowdfunding, private companies can now raise up to $1 million annually from an unlimited number of investors. Easing the restriction on general solicitation means that small businesses are freed up to use online solicitations, including crowdfunding, as a powerful, modern way to get off the ground. 

It is important to know that businesses seeking to generally solicit must comply with restrictions and requirements such as filing with the SEC to let them know you intend to generally solicit, accept only accredited investors, and disclose details on your general solicitation within the first 15 days of the first solicitation. A business in violation of these requirements will be banned from fundraising for a full year, which can spell doom for a fledgling company. The Missoula-based attorneys of Bjornson Jones Mungas we understand the benefits and pitfalls start-ups face, and we are your best asset in maneuvering the JOBS Act to your benefit.

Remember that the reason for disclosures is to enable investors to make decisions based on all the relevant information needed to assess risk and reward. All publicly owned companies must make detailed periodic disclosures on business operations and financial health to shareholders and the SEC. Private small businesses typically need not make detailed disclosures because the law assumes an investor knows enough about the private small business such that no additional protections are necessary. When a small business goes public, then it will be subject to the same disclosure rules as large publicly owned businesses. It’s a fact that disclosures are tougher for small businesses to handle, so the SEC provides ways to balance the public’s need for transparency against small businesses facing hardship in capital formation. For example, small issue exemptions, private placement exemptions, and less stringent filing parameters are some of the ways the SEC eases the burden of disclosure on qualifying small businesses.

To be on the safe side, small businesses should keep meticulous records and err on the side of accurate disclosure. Hashing out in court whether or not you needed to disclose more can be a headache. If a court finds your disclosures insufficient, you may be subject to rescission and other penalties. Not only that, but disclosing relevant financial information, even when the SEC does not absolutely require it, sows seeds of trust with your investors—that’s priceless. Giving proper disclosures, as expected by both SEC and best business practices, is a murky area for entrepreneurs, but the attorneys of Bjornson Jones Mungas provide experienced, tailored advice for each unique client.