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Tuesday, July 1, 2014

Cross Your Fingers and Fill in the Blanks

You’ve heard enough about estate planning from your family and friends. You’re finally convinced that you need to do something to protect yourself, your partner, your property. But, you say, “I’ll be darned if I’ll pay a high-priced attorney to fill out a few forms”. You saw an ad for a complete estate plan package for $995.00  -  just go on-line, down-load all the forms, fill them out and the job’s done. You don’t have to meet with an attorney, think about it, or even leave your home to do all the estate planning you need. 

Or you heard about a “document service” where a paralegal provides you with several forms, you fill them out, and she puts them in a nice, neat file folder for you. Cheap, over and done with.

And guess what? Your local office supply store sells pre-printed legal forms. Pick them up, fill in the blanks, and you’re good to go. Why not take advantage of these or other low-cost shortcuts to peace of mind? 

There are very strong reasons why most people should avoid these methods. Wills and Trusts require careful thought and sound legal advice. Tax planning is an important part of it, too. An estate plan isn’t just an assortment of forms and documents. It is a map for the future that considers all the aspects of your present life, requires decisions about what might happen to you and your family, and is crafted so the plan will continue to evolve as time goes by.

A recent court case illustrates one major hazard of do-it-yourself documents: 

A Florida lady filled out an “E-Z Legal Form” when she made out her Will. She wanted to leave all of her property to her sister, then to her brother, if her sister predeceased her. The sister did die first, and the brother claimed he was entitled to the entire estate. But the pre-printed Will stated that all “listed” items should go to the brother. Not all of the lady’s assets were listed. And the Will did not have a residuary clause (and not even any room on the form to add such a clause) providing for the disposition of property not listed in the document.

Two of the lady’s nieces (children of another brother, already deceased) brought action. After lengthy arguments on both sides, the court decided that the listed items must go to the brother, as the Will provided, but the unlisted assets must pass outside the Will, to the nieces, who were the next heirs in the line of succession.   Although it may have been the lady’s intent that her brother inherit all of her estate, the Will did not say so, and it did not provide any way for him to claim the unlisted items. Concurring Justice Barbara Pariente commented, “While I appreciate that there are many individuals in this state who might have difficulty affording a lawyer, this case does remind me of the old adage ‘penny-wise and pound foolish.’”

Pre-printed forms can’t possibly include all the language needed to cover the wide range of possibilities and probabilities that are part of our everyday lives. There is no single Will, Trust, Power of Attorney or any other pre-printed form or pre-written format that can meet the needs of everyone. How would you know if some essential language is missing, or certain statements can cause problems, or your intent is not truly reflected in the document? How do you know what you don’t know?

Attorneys have studied the laws (and the court cases) and get to know you and all the details of your particular situation. They recognize the hazards and pitfalls of missing or incorrect language, and draft comprehensive documents that fit you like a glove. You are not a John Doe, and your estate plan shouldn’t be, either.

For those of us in the LGBT community, it is even more crucial that our plans cover the  unique family, health and property issues we face because we still lack equality under most state and some federal laws. A properly crafted estate plan gives us the visibility and legal standing that is so essential to protect our families and our assets. Our special needs require special planning.

There should be ads and articles in the newspaper and magazines cautioning people against using pre-printed legal forms. But attorneys often chuckle about this. They don’t plan to run any ads. They get a lot of business from clients who tried the do-it-yourself approach and found the documents unusable when they were needed. Folks who wanted to save a little money bought a lot grief for themselves or their families.

In the court case, the lady may have tried to save herself a few dollars by filling in the blanks, but in the end her estate had huge attorneys’ fees and two years of wasted time. The nieces, of course, were delighted with the E-Z Legal Form she used. They came out over $100,000 ahead. Definitely not the result the lady wanted.


Monday, August 20, 2012

Setting Up and Operating Your Own Business

Are you thinking of starting a business, or do you operate a small business now? The legal structure of your firm and the care you take in setting it up can make a difference in your success down the road.

There are several forms of business organization, and each may have advantages and disadvantages, depending on your personal and/or family situation.  The legal structure will determine how your profits are taxed, and who is liable for business debts.

Sole Proprietorship  -  usually a business owned and operated by one person. You simply begin offering your products or services (obtaining any licenses or permits that might be required) and you are in business. You are personally liable for all of your business debts, and you pay personal income taxes on all income you receive from the business.

Partnership  -  an association of two or more people to run a business as co-owners. There is usually a partnership agreement (very important) which covers all of the aspects of the business operation and finances. The partners are personally liable for all debts of the business, and again, pay personal income taxes on all income.

Corporation  -  one or more individuals draw up Articles of Incorporation, identify a board of directors and issue shares of stock. In California, a corporation must be approved and certified by the Secretary of State. If the corporation does business in more than one state, it must comply with corporation laws in the other states, may have to pay taxes in those states, and must also comply with Federal Interstate Commerce and Securities regulations. In most instances, shareholders are not personally liable for corporation debts or lawsuits. The corporation pays taxes on its income. Shareholders pay taxes on the dividends they receive from the company.

Limited Liability Company (LLC)  -  one or more individuals draw up Articles of Organization and file them with the Secretary of State. An LLC combines some of the advantages of a corporation (limited liability for company debts or lawsuits) and of a partnership (flexible organization, no separate taxes on the business entity). Owners of an LLC are called members. Not all businesses are permitted to operate as an LLC. In California, banking, trust, insurance businesses, and professionals such as doctors, accountants, attorneys and licensed healthcare workers are prohibited from using the LLC structure.

Regardless of the type of business entity you choose, you must meet all federal, state, county and local regulations for operating a business. If you are a sole proprietorship or partnership, you will need a fictitious business name permit if you operate the business under anything other than your own name(s). Counties and cities often require business licenses, vendor permits, safety inspections and other things before you may legally do business there. If you set up a corporation, you must apply for a federal Employer Identification Number (EIN) from the Internal Revenue Service, since it will be taxed as a separate entity from the shareholders.

In partnerships and LLCs, it is crucial to have a business plan and an operating agreement. The agreement sets out rules for splitting up profits, how major business decisions will be made and the process for handling the departure and addition of partners or members. It helps prevent misunderstandings among the owners over finances and management. It shows that the business owners were careful and thoughtful about the security and details of business operation.

For sole proprietorships, partnerships and LLCs, a business plan or formal operating procedures should identify all the elements that will be needed to keep the business healthy if an owner should become incapacitated or pass away. The plan will detail who should succeed the owner or manager, and how the business will stay profitable if a key person is no longer around. It should also provide a process for buying out partners or members who want to leave the business.


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