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Ultra Vires Back to Top

An ultra vires act is an act by a corporation that is not permitted. An ultra vires act is an act beyond the power and authority of the corporation as granted under its certificate of incorporation (charter) and the laws of the state of incorporation. An action is ultra vires if the corporation has no authority to perform it in any circumstance or for any purpose. If a contract is made beyond the scope of corporate powers that contract would be unlawful.

Unearned income Back to Top

Unearned income is income that you did not generate from providing services. For example, interest and dividends are unearned income. This concept can be important for tax considerations like the Kiddie Tax (how income of children under 18, or 24 if full time students) is taxed. A child may avoid the Kiddie tax if their earned income exceeds 1/2 of the amount of their support. The Kiddie Tax won't apply to the first tier of unearned income. In 2008 this tier was $1,700, but this will change over time.

Uni-Trust Payment Back to Top

A payment from a trust based on a percentage of the trust assets. For example, instead of paying out income from a trust the trust could be structured to pay say 4% of the value of the trust to a current beneficiary. This approach can enable a trustee to invest trust assets for total return and more readily treat current beneficiaries (analogous to an income beneficiary) and a remainder beneficiary (who receives trust assets when the current/income beneficiary interest ends) more fairly. If a trust does not provide for a uni-trust payment an election may be made if state law permits to convert a trust structured to pay income to a uni-trust approach. This approach to structuring a trust distribution standard comports with modern portfolio theory, and in appropriate circumstances can provide considerable advantage over the "older" approach of paying income to a current beneficiary.

Unified Credit Back to Top

The amount of assets you can bequeath without incurring an estate tax was referred to as the "unified credit" under prior tax laws. It is now referred to as the "applicable exclusion amount" (see separate definition). The amount had been $600,000, was raised over several years and in 2007 is $2 million. It is scheduled to increase further in future years but the various proposals in Congress may change this. You should exercise caution in light of this uncertainty and the fact that many states have lower levels of assets you can transfer without tax. A common planning technique to protect this tax benefit is called a "by pass" trust.

Uniform Gifts (Transfers) to Minors Act (UGMA or UTMA) Back to Top

A method to hold property for the benefit of another person, such as your child, which is similar to a trust, but is governed by state law. It is simpler and much cheaper to establish and administer, but is far less flexible.

Uniform Limited Liability Company Act, or ULLCA Back to Top

A uniform act proposed for LLC laws. Many states have, or will eventually enact some version of this. Be careful not to assume that any particular state follows the ULLCA in all respects. There are often subtle, if not significant, differences between the statutes in different states, even where those statutes are based on the same uniform act.

Unrealized Receivables Back to Top

In certain cases, the sale of your interest in a partnership or an LLC will be taxed as ordinary income and not the more favorably taxed capital gains. This may occur where the LLC has realized substantial income (and met other complex and rigid mechanical tests) from unrealized receivables. The objective of this tax concept is to prevent you from using an LLC (or other entity) to convert Ordinary Income (taxed at rates of up to 39.6%) to capital gains (taxed at 28%). For example, if your LLC manufactured widgets to sell in the ordinary course of its business, ordinary income would be realized. However, if just before making the sales, you sold all your LLC interests to someone else who would then sell the widgets, you would appear to have capital gains on the sale of your interests (since Membership interests in an LLC are generally a capital asset producing capital gains). However, the widgets may be characterized as unrealized receivables, and you may have to report some or all of the gain on selling your LLC as ordinary income.

Unrelated Business Taxable Income (UBTI) Back to Top

Certain income earned by otherwise tax-exempt organizations from activities unrelated to their tax-exempt purpose can be subject to taxation.

Usury Back to Top

Usury laws, which differ from state to state, provide restrictions on the amount of interest that can be charged on a loan. When engaging in various types of loan transactions and structures care should be taken to ascertain whether or not the usury laws of the state law which govern the transaction will be violated. If there is a risk of violating a usury law the implications of that should be carefully weighed. The usury laws could limit the interest that can be charged, eliminate all interest or have other implications. Some usury statutes provide exceptions if the borrower is a corporation (presumably not needing the protection of the statute), etc. Some loan/note/debt forms address the usury rules by stating that if the interest rate exceeds the maximum interest rate allowed by law that only the maximum rate may be charged. While such a clause to save the transaction (called a "savings provision") may be used as a precaution, it should not be relied up to the exclusion of having a local attorney review and explain the implications of the statute to your transaction. Usury rules can sometimes be triggered in unexpected circumstances. For example, a Graegin loan (a special structure of note used to loan money to an estate to pay estate tax that is intended to provide a large deduction to the estate for all interest over the life of the loan) may inadvertently trigger usury rules if interest rate for the entire loan is paid after an early default. Interest rate charges as well as usury rules should also be considered in the context of any religious restrictions that may apply to the charging of interest in the particular transaction. Both Islamic and Jewish law provide restrictions on interest.