Pandemic Loans and Estate Planning

The Coronavirus pandemic has rocked businesses and families across the country. In Florida alone, as of September 2020, we’ve had more than 671,000 cases of the virus and more than 13,000 deaths. Since Governor Ron DeSantis urged Floridians to stay at home to help slow the virus’s spread on March 24, 2020, Orlando-area businesses have felt the pinch. With tourism slowed and many businesses closed, many business owners have turned to federal and other emergency relief loans to stay in business. But how will these loans affect your estate and business planning? In this blog post, we’ll discuss what you should know about emergency relief loans and how they should affect your plans.

Paycheck Protection Program Loans

As part of the $2.2 trillion CARES Act stimulus package, Congress authorized the Small Business Administration (SBA) to administer the Paycheck Protection Program (PPP). This program is one of the most popular emergency relief loans. If you used the funds to keep employees on the payroll, the SBA may convert PPP loans to grants and forgive them. To ensure that your small business qualifies for loan forgiveness, you must follow the SBA rules to use the funds.

  • Eligible expenses include payroll, mortgage interest, rent, and utilities as long as your mortgage, lease, and utilities began before February 15, 2020.

  • Eligible payroll expenses include salary; health benefits; vacation time; and sick, family, parental, or medical leave. You can’t cut salaries by more than 25% for employees that made less than $100,000 annually.

  • At least 60% of your expenses must be for payroll costs, not including independent contractors.

  • Eligible expenses incurred over 24 weeks from the date your lender made your first payment or eight weeks if you received the loan before June 5th. The cut-off date for eligible expenses is December 31, 2020.

The forgivable amount of your loan will be in proportion to the amount spent on payroll. There are more complicated rules regarding furloughed employees and rehiring, so it’s best to consult an attorney to ensure that your business complies. Some of the other available emergency loans include Economic Injury Disaster Loan (EIDL) advance payments, Section 7(a) SBA loans, and the Save Small Business Fund from the U.S. Chamber of Commerce.

Estate Planning for Your Small Business

Whether your business used a PPP loan, a traditional loan, or other emergency loan relief, you need to ensure that your company still pays the loan back if something happens to you. You also want to ensure that you leave your small business to your family precisely the way you want. Some things you should consider are:

  • Living Trust: A living trust transfers ownership of your shares of your business to a trust with no tax consequences or change of control unless you die or become incapacitated. A living trust can also allow you to choose a successor for your business and automatically transfer ownership upon death, avoiding probate.

  • Life Insurance: Unless your business generates significant cash flow and will continue to do so after your death, it may not entirely provide for your family, let alone pay off loans. You should consider life insurance for your family but also a life insurance policy that benefits your business.

  • Buy-Sell Agreements: A buy-sell agreement is useful if there are multiple owners of your business. If certain conditions are met, like the death or disability of an owner, the remaining owners have the right to purchase your shares of the company, or your shares will pass to your heirs.

Ensuring that you care for both your business and your family in the event of your death or incapacity can be a stressful burden. When you add in a global pandemic, trying to plan can be even more difficult. But if you have questions, we can help. Whether you are beginning the estate planning process or need to revise your plans, contact us. At Veliz Katz Law, we work hard to support our clients with the legal services despite these troubling times.


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