Should you own real estate through an LLC?

With the economy strong, more and more people are investing in real estate. I am getting plenty of questions about whether those properties should be held through a limited liability company — an LLC. So, should you own real estate through an LLC? Well, there are certainly plenty of advantages (and disadvantages) to setting up and LLC to protect your property investments.


Privacy — An LLC offers a layer of privacy since the only public information available is the entity name and number, agent of service process plus agent’s address. So looking for your LLC, a searcher might only find a name like Sagebrush Group, LLC, rather than your personal information.

Limit Personal Liability — Legal actions against the properties will be directed at the LLC, rather than the owners of the LLC. However, this is not an absolute rule (see below).

Taxes — If properly structured, the LLC can be set up as a “pass through” entity which allows for certain deductions and allows income tax at the individual rather than the corporate rate. While the new tax law makes changed they are complex and only apply to limited situations. For most homeowners, the new tax law makes no changes.

Management — Delegating management responsibilities is much easier than either the corporation or partnership structure. LLCs can be easily managed by owners or third-party managers.

Fees — In most states, LLCS pay a lower state registration and maintenance fees that corporations. An in Arizona, once your LLC is formed, there are no future filing fees unless you make changes to the basic structure such as new members or address changes.

Flexibility — LLCS offer a tremendous flexibility when distributing profits. Cash flow distributions do not have to be pro rata according to ownership like in an S corporation. That means owners can financially reward the sweat equity of select members through appropriate distributions of available cash flow.

Foreign Ownership — Foreign ownership and investment in U.S. real estate is possible through an LLC.

Transfer of Ownership — LCC owners can easily transfer ownership in real estate holdings by gifting interests in the membership of their heirs each year. Over time, it is possible to pass ownership to loved ones without have to execute a record a new deed on the property. That allows property owners to avoid transfer and recording taxes and fees.


Yes, there are a few:

“Piercing the Corporate Veil” Just because you set up an LLC does not mean you cannot lose the protection of the entity. Failing to follow corporate formalities (meetings, resolutions, minutes) or using the business bank account as your piggy bank might lead to a loss of the protection. Personal liability applies for negligence.

Your Own Negligence. If you are acting on your own and injury someone or property as a result of your own personal negligence, the LLC form may not help you. For example: failing to have adequate, failing to property conduct a background check on an onsite property manager, or failing to properly or timely repair a dangerous condition on the property.

Insolvency and Bankruptcy. If the LLC is becoming insolvent you cannot make distributions to yourself if that will leave creditors holding the bag. They may be able to come after you personally. Also, if the LLC files bankruptcy based on a 2003 Colorado case, you may lose the protection of the LLC when the Trustee takes over.

Mortgage Issues. Mortgages contain “due on sale” clauses. Transferring a property from your name to an LLC without the lender’s permission could trigger that clause and prompt a call on the loan.

Insurance Issues. If you owned the property in your own name and then transfer it to an LLC there may be an impact on your liability coverage. Some carriers will permit naming the LLC as an “additional insured” on your policy, but others may require the policy to be rated as a commercial policy which can be much more expensive.

Do the Advantages outweigh the Disadvantages? Well, here’s a lawyer’s answer: “it depends.” Probably the answer is yes, but each situation deserves its own analysis. Forming an LLC is easy. Doing it properly and complete is not.

Discussing the process with experienced business attorney is a good idea to avoid any unanticipated consequences.

If you wish to discuss how these issues apply to your investment properties, please call us any time!

About those Reverse Mortgages and Probate

Basic Stuff

Reverse mortgages have come to the forefront of many retirees’ minds in the past five years or so. Simply put, a reverse mortgage is a home equity loan. Unlike a conventional loan, the borrowed money can be received in a number of ways: a lump sum, a monthly payment amount, or a home equity line of credit. The mortgage is secured by a deed of trust or mortgage on the property for amount borrowed, as well as the amount necessary to cover the interest payments until the borrower dies. That could mean the borrower owes the reverse mortgage company or bank a significantly larger amount of money than was initially borrowed. The borrower is responsible for property taxes, insurance, any fees, and maintenance upkeep.

The Mortgage Comes Due:

The mortgage can become due if the property is sold or transferred.

The mortgage can become due if no longer used as a principal residence for 12 consecutive months.

The mortgage can become due if you don’t pay it or take care of other obligations like taxes, etc.

When You Die:
So what happens when the borrower passes away? Typically, the lender will make a request shortly after the borrower has passed and give a 30-day notice for the estate to elect one of four options to pay back the reverse mortgage. Those four options include:

  • Pay off – the estate can elect to pay off the reverse mortgage with proceeds from the estate.
  • Refinance – the estate can refinance out of the reverse mortgage and into a conventional loan
  • Sell – the estate can elect to sell the property and the reverse mortgage is paid off with proceeds from the sale.
  • Deed – the estate can issue a deed in lieu of foreclosure to the lender to avoid foreclosure proceedings

If a home with a reverse mortgage goes into probate, the mortgage is still a lien on the property. That means it follows the property as it changes ownership — in short, the heirs to the estate will now be responsible for satisfying the lender. Heirs may choose to sell the property to satisfy the terms of the reverse mortgage. Fortunately, if the amount due on the loan (including interest and fees) is greater than the amount the property will sell for, the heirs are NOT liable for the additional amount owed. If there is any equity left after paying off the mortgage, it belongs to the estate. Note: Heirs cannot sell the property to family member for less than the loan amount.

You may want to meet with me as soon as you know a property with a reverse mortgage is going into probate court. I can help you understand your options to handle a home subject to a reverse mortgage.

The Benefits of a Reverse Mortgage

  • Gives you access to cash to supplement retirement income
  • Gives you tax-free use of the home’s equity which can be used to pay off other debts
  • Does not require a monthly mortgage payment to repay the loan
  • Can allow retirees to push back the date they start receiving social security
  • Receive counseling to understand the features and borrower responsibilities

Disadvantage of a Reverse Mortgage

  • Lenders charge fees to close and maintain reverse mortgage
  • If you go into a nursing home or assisted living and cannot return home, that triggers payment of the reverse mortgage
  • Your estate does incur the interest, fees and full payment on the reverse mortgage once you die
  • You must continue to pay your property taxes, maintenance, insurance, HOA fees, etc., or the lender can foreclose on the property
  • You may leave a smaller inheritance for your heirs since the mortgage must be repaid
  • A transfer of the residence to a trust may be a violation of the terms of the mortgage

The Requirements of a Reverse Mortgage

  • You must be at least 62 or older to qualify
  • The property must be your primary residence and you must be living in it
  • Home must be paid off or have low mortgage balance
  • You must be able to pay future housing costs, such as taxes, insurance, etc.
  • Have no delinquent federal debts
  • Not every property is eligible for a reverse mortgage – manufactured homes and condos can be eligible if they meet HUD requirements, special conditions apply for multifamily properties
  • Meet with a HUD-approved counselor to help you analyze your situation

A Neat Option to leave a legacy:
Often, parents want to leave their home equity as a legacy to their children. While that may be emotional because most kids won’t want your house. If you have equity in the house, but don’t need all of the cash, you might be able to take a portion of the proceeds and purchase a life insurance product with it then spend the money you were holding onto for them. Trust me, they’ll appreciate the cash and so will you. Just a thought.

Before taking the plunge, set up a meeting with me to see how a reverse mortgage might impact your estate and what obligations you will be passing on to your heirs.

Naming a Stand-Alone Retirement Legacy Trust as Beneficiary

Naming the right beneficiary for your tax-deferred retirement accounts may be one of the most important decisions you make with regards to your estate plan. You want to continue the growth of those accounts for as long as possible, while still protecting the financial future of your beneficiary(s). Naming a younger beneficiary, like a grandchild, can stretch the wealth-compounding potential of the accounts, but naming a beneficiary outright does have its risks.

The disadvantages of naming a beneficiary outright:
• Distributing fund to a minor means the distributions will be paid to a guardian and you must have faith in the guardian’s good intentions. In addition, when the child turns 18, the money is theirs to do with as they wish — depending on the child, this could be good or turn into a disaster.
• Your beneficiary may abuse the privilege and take larger distributions or even cash out the account, thus destroying your intentions for long-term growth of the account.
• If your beneficiary becomes incapacitated, the court may step in and interfere with your plan for fund growth.
• If your beneficiary has special needs, any additional income may cause him or her to lose their eligibility for valuable government benefits.
• A spouse is under no obligation to follow your wishes and can name a new beneficiary.

The solution to counter these problems is to name a Stand-Alone Retirement Trust as your beneficiary. It provides you with more control on what happens to the assets. A carefully crafted trust can meet all the IRS requirements for a qualified beneficiary. After you die, distributions are paid by the plan into the trust for the benefit of your heir or heirs. It can pass funds directly on to your heirs (a conduit trust) or the trust can accumulate and grow these funds (an accumulation trust). A trustee can then pay out the assets over time according to your instructions. A perfect example is allowing the trust to only pay for certain eventualities — college tuition, a home down payment, unexpected medical bills or any other event you might want to designate to trigger the advance of funds to your beneficiaries.

The advantages of a Stand-Alone Retirement Trust
• Since there is no named beneficiary other than the Trust itself, there is no risk of court interference should your beneficiary become incapacitated.
• The trustee makes the decisions on fund distribution on your behalf should something happen to your beneficiary.
• There is no risk of your heirs cashing out too soon and taking a huge tax hit. Your ongoing control assures the continuing power of long-term, asset-protected, tax-deferred growth of your requirement account.
• The trust protects your funds from becoming subject to creditor claims.
• The trust allows you to maintain a long-term relationship with your trusted financial advisor by appointing him or her as trustee and protecting your beneficiary from making the wrong choice of financial advisor.
• You maintain control of retirement plan proceeds even if your beneficiary unexpectedly dies before the accounts are paid out.

A Stand-Alone Retirement Plan Legacy Trust is a powerful estate planning technique that allows you to watch over your family and continue the growth of funds even after you are gone. To evaluate this strategy as part of your estate plan, you should consult with a qualified estate planning attorney who has experience in this type of planning.

You’re Dead. What about your single member LLC?

Ugly title. I know. No one wants to think about dying, especially when just starting up a new LLC, but succession planning (who gets the business once you die) should actually be part of the startup process. An interest in an LLC is an asset. Even if it is a service business only, over time the LLC will have its own good will. Why would anyone want to let the value of asset just dissipate when the are gone?

As an example, let’s assume Jenny James owns a marketing company with two employees. She lives in Phoenix and is married to John James. Her accountant tells her to form an LLC to protect her personal assets from claims against her business if she or one of her employees does something to harm a client or other third party. Jenny wants her husband to inherit the LLC, but she failed to write that down anywhere. So now she has died. What happens to her LLC? If Jenny didn’t address this ahead of time John is either going to let the business also die or is going to end up going through a protracted probate.

Jenny could and should have taken some simple steps as she began setting up her LLC to ensure a smooth transition to John.

Three Possible Solutions

Solutions #1: The simplest and least expensive way for Jenny to secure the inheritance is to create an operating agreement. In the agreement, she would state that her LLC membership will pass to her husband, John, upon her death.

Solution #2: The second way Jenny could have approached the issue is to create a revocable trust. While that is more complex and more expensive, it does mean she doesn’t have to amend her LLC operating agreement if John dies before she does. It also covers many other assets besides the business.

Solution #3: The third way to handle the situation would be for Jenny to create a community property with right of survivorship membership. An LLC started during a marriage is considered community property so the spouse owns a ½ interest in the LLC. That however does not address what happens to Jenny’s half. So it make sense to draft the operating agreement so that it shows that upon Jennies death, John not only gets his half of the community but hers as well. This completely avoids probate upon her death and automatically transfers the business to John upon her death. The operating agreement should clearly state that Jenny will be entitled to manage the LLC as she wishes, and will protect her from having to share management with John unless she wants his involvement.

Note if Jenny does not want John to have any interest in her LLC she would have to get his signature on a disclaimer.

Oh. And don’t get us started about divorce and the LLC. That might be a topic for another post….

If you are concerned about your succession plan you should choose, your best bet is to ask an experience business attorney and have your situation reviewed.

Get Those Beneficiary’s Correct..or else.

Do you want to create absolute chaos or extensive problems and expenses for your heirs? Sure, you do. Not!

When we ask clients and their advisors whether client’s beneficiary designations are current, we either get a “sure” answer or an “I think so?” response. Not good.

What’s a simple way you can ensure that your inheritance passes to your designees in accordance with your wishes? Make sure your beneficiary designations are up to date! Most people fill out a form when they open an account and never think about it again. Except. Things change: people get married, divorced, have children, want to disinherit someone. All kinds of things can happen.

“But I have a will!”

Not all of your property is distributed by your Will or Trust. Many assets are passed on through a beneficiary designation, for example retirement accounts (IRA, DEP or 401(k), etc.), life insurance policies, annuities, employee benefit plans and stock options to name a few. These types of accounts will ask you to name a beneficiary when you open them. In other words, it is your responsibility to select the person(s) you want to inherit those assets. Your will or trust for that matter has no relevance here. Accounts with beneficiaries are not probate assets so your will does not control where they end up.

Clearly, you should periodically review your beneficiary designations to make sure they reflect your wishes. Additionally, when you designate a beneficiary, make sure the name is accurate. The insurance company will not release funds to “The John and Jane Doe Revocable Trust” if the name on the beneficiary form is “The Doe Family Trust”.

Even when our clients have beneficiary designations in place they are often outdated or fail to take into account what the beneficiary’s position is. Are they children? Does the person have special needs? What happens if there is more than one beneficiary and one dies – where does the benefit go?

What if your spouse dies and they have named someone else as beneficiary of their IRA or insurance policy? In some states such a designation, without the consent of the other spouse, is void as a fraud upon the spouse’s rights. But in Arizona a spouse has the right to dispose of his or her half of the community property as they see fit. In the case of an insurance policy or retirement account that designates a beneficiary other than the spouse, Arizona law presumes that the excluded spouse consented to the designation but the spouse is still entitled to their one-half share of the community property whether it comes from the insurance policy or other assets. If those other assets are less than the spouse’s share, the spouse may have a claim against the policy.

What if you named your spouse as a beneficiary, but then you later divorce? Well in that case, the Arizona Legislature has got your back! In 1996 they passed a statute that automatically revokes any disposition of property made by a divorced person to their former spouse or to a relative of the former spouse. In Estate of Lamarella, the ex-wife argued that her deceased ex didn’t change the beneficiary designation after their divorce because he wanted her to receive the proceeds of his life insurance policy. The Court of Appeals said “too bad” because the statue applies, and if he wanted his ex to remain on the policy, he should have redesignated her as beneficiary. Any time you have a life changing event, such as a death, a birth or a divorce, you may want to change your beneficiary designations.

Ah, but what if the retirement account plan (ERISA) beneficiary designation is not changed after the divorce? Arizona law suggests that the account be treated the same way as the life insurance policy. But ERISA is a federal law that should preempt state law. As least for now Arizona’s “revocation upon divorce” law applies. The divorced spouse is treated as if that spouse died first. This is not the rule in every state however.

Beneficiary designations are an important part of estate planning. Why leave this piece unattended? It is much better to review your status on a regular basis on your own or with your financial professional. We review these items as part of every estate plan we do.

Lost the Trust

Where, Oh Where, Has My Not So Little Trust Gone?

Lost the Trust
Once upon a time, an Arizona man with five children created a trust that provided for two of his adult children but explicitly disinherited the other three. Instead, their share was split among eight non-profit organizations. Before his death, he reconciled with his children, amended his trust to include them all and dropped the charities. But, after he died, the amended trust and his will could not be found. The non-profits, with dollar signs in their eyes, argued that he had thrown them out, and therefore the original trust was still in effect and they should get their money. (Keep reading to see how the story ends.)

Now where did I put my Trust?
So what do you do when your trust documents are lost, either intentionally or unintentionally?

And by the way, estate documents sometimes have a habit of walking away when someone dies if someone doesn’t like what they say and gets their hands on them first…..
Unfortunately, people lose trust papers all the time, especially the older documents. The people who set up the original trust are often the only ones to have a copy. The papers get lost when the person moves, closes out a safety deposit box, or forgets where the papers were stored.

A lost trust document is no big deal if the trust was never funded with assets. It is a very big deal, however, if there are bank accounts, real estate or investments that were actually titled into the trust.

How to track down the missing document for a family member
1. Your first step should be to contact the lawyer who helped create the trust. Hopefully the lawyer is still around. He or she might have a copy on file or a copy on his or her computer. If you need to track down the lawyer, a good place to start is the local Bar Association. Or, try calling several local lawyers in the town where the person may have lived for a long time. Ask those contacts to make a few more calls to fellow lawyers to get the ball rolling.

2. Tracking down lost trust papers becomes harder if the lawyer is no longer in the picture. Your next step should be to check with the banks, financial advisors or investment companies. These companies may have a copy of the trust if it was required to fund the trust. Another possibility, though remote, might be a CPA or tax preparer.

3. If that fails, other people may have seen or kept copies of the trust over the years. You should check with the life insurance agent, a favorite charity, a doctor, a family member or a trustee.

4. As a last resort, you might end up in court asking the Judge to decide what the trust might have said. Just because the trust is lost or destroyed, does not mean it was invalidated. Hopefully the contents of the documents can be shown by other evidence such as testimony of people who read it or discussed it.

If you’ve lost your own trust
If you lose your own trust and can’t track down a single copy, you’ll need hire a lawyer to revoke the lost trust. Then you need to create a new trust or a restatement trust to take the place of the old one.

An ounce of prevention
Once your trust is created, make several copies. Keep one at home, perhaps give one to your trustee and place one in a safety deposit box that someone else can access after your death. A digital version should be considered. That way, if you lose the hard copy at home, you’ve got backups out there.

The rest of the story
The court ruled that, just because a trust is missing doesn’t mean it has been revoked, and therefore it is still in effect. The five children had only to prove the contents of the trust. In contrast, the missing will was presumed to be revoked which means dad died intestate and everything gets divided between the children. So it’s a happy ending for the five children who inherit the estate despite the missing will and trust. But where, oh where, can it be?


You used my money for what!? – How to Leave Your Assets to Your Beneficiaries

True story … (well maybe since we heard it on the radio…) Since the day his precious daughter was born, a father worked and saved for her college tuition. Now a young woman, she is admitted to college, and he proudly sends her off with her first year’s tuition … only to later discover that she used the money for breast implants. What?!?

At least he was still around to argue about it, but what if it happens after he is gone?

We all want to give our children advantages that we did not enjoy. That is why we want to leave them a legacy. But keep in mind that for many kids (no matter their age) your legacy is their found money. While everyone says they “don’t want to control from the grave”, do you really want the assets you scrimped and saved for to be used for frivolous or meaningless things? Probably not.

The good news is, through your estate plan, you can exercise some level of control over how your children receive and spend your legacy. For some kids, no control is needed. For others, maybe a lot of control is needed. You might also have to consider what we call “creditors and predators.” So how do you do it?

Let’s look at three methods.

Outright Distribution
This method is pretty straightforward. Upon your death and after payment of expenses and debts, your beneficiaries get your stuff immediately. You can do this using a will or a trust. The advantage is that the assets are readily available to your child or they can be folded into their own estate plans. The disadvantages may include some rather serious tax consequences depending on the size of the estate. Also, outright distribution to a child with special needs can interfere with government benefits your child may be receiving. Of course, that irresponsible child (see above) may blow through your assets with the speed of light.

Staggered Distribution
This scenario allows you to make periodic distributions to your children and usually is done through a Trust. Your child can receive a percentage of their inheritance at certain ages, dates or when certain events happen. For instance, when your child turns 21, they receive 1/3 of the inheritance, another 1/3 when they marry, and the final 1/3 when they reach age 40. You can also build in distributions of principal and income for things like a down payment on a home, educational expenses or even a monthly stipend for living expenses. This method is essential if you have young children.

Or if your child is grown but still has some maturing to do, you can structure an “incentive-based “trust. You may have seen the movie with James Garner called The Ultimate Gift. In this film, a deceased billionaire leaves his spoiled adult grandson a series of tasks to perform to receive his inheritance. Similarly, this kind of trust can be used to motivate an immature beneficiary. For instance, your child will receive ½ the inheritance when he or she graduates from college and the other half when he or she retains a full-time job for at least two years. This method of staggered distribution allows you to prevent a beneficiary from having too much control of inherited assets until he or she is more capable of managing them. In addition, this is a good way to protect your child and your assets if he or she is having creditor issues or is going through a divorce.

Lifetime or Dynasty Trust
A third option is to leave assets to your beneficiaries through a lifetime or dynasty trust. In this method, your assets remain in trust for the beneficiary’s entire lifetime and perhaps for the next generation as well. For instance, your child would receive distributions from your trustee for health, education and living expenses. This means more administrative expenses, but it also provides solid asset protection from those creditors and predators. This is particularly useful tool if you have a special needs child. You can support their needs and yet not interfere with government benefits he or she may be receiving. It is also a good plan if you are concerned about a child’s marriage.

Whatever method you choose, you should start by discussing all options with an experienced estate planning attorney. Each method has pros and cons that should be carefully weighed to meet your goals for your family, and cater to the individual needs of your beneficiaries.

So, make an appointment and get these beneficiary worries off your chest (sorry I couldn’t resist).

Sole Proprietor? What Happens to Your Business Without You?

It’s All About You, Except when it about Them.

In a sole proprietorship, you and your business are the same.  If you die so does your business. Harsh? Sure, but it’s a fact. If you die your family will have to sell any assets of the business (if you have any), pay off debts and anything left will be distributed according to your will. You have a will or trust, right? There will be no more income to support your family and if your debts are substantial, your family gets nothing. That is a horrible result.

If you are like most small business owners all of your time. Really ALL of your time is spent trying to sustain, manage and hopefully grow the business. You are also most likely in a service business so you have few hard assets. You may have heard about “Succession Planning” but do not think about it because you believe that is for big companies. Bad thought. Even if you think that there is no business if you die, you are forgetting about the consequences to your family.

Many people avoid seeing an estate planning attorney because the need is not urgent (hopefully). Well, the same is true for most sole proprietors. You don’t think about this. Guess what? The issue won’t go away.

Well, there are things you can do that are not so onerous and that will make a big difference. Whether you choose to let your business end or find a way to continue it, you know what happens if you fail to plan at all. You have the ability to create a path that makes it easy or hard.

What Should your “Business Estate Plan” look like?

  1. Life insurance.  Your business is probably the sole or primary source of household income.  Life insurance can provide funds for your family to pay expenses and perhaps live on until they can find another source of income. If you have a partner, life insurance can pay for your partner to buy out your interest.
  2. Assembly your Important Documents.  To make it easier to sell or transition your business you should have your paper ducks in a row. The last question your family should be asking is “where are those documents” or “how did this get done.” Take the time to organize your paperwork. Include:
    1. An operations manual. That’s right. Memorialize how you do things. Hate to write? Dictate it electronically. Siri can help….
    2. Have an organized customer list and database.
    3. Make sure some has access to your passwords for banking and any websites you access. Think about using a password app like LastPass.
    4. Create a paper or electronic folder with your legal documents.
    5. Create another folder for your important business documents e.g. contracts, leases, operating agreement
    6. Make sure you have a Durable Financial Power of Attorney in case you become disabled.
    7. Finally. You knew this was coming….GET YOUR ESTATE PLAN DONE and seriously consider a trust. Putting a business through probate can be a nightmare.
  3. An Emergency Account.  Having access to cash to pay immediate bills and other needs would go a long way to provide comfort. This would give your family and advisors time to make decisions calmly without having to rush around trying to figure out how to keep things in place until decisions can be made about what to do with the business.
  4. Instructions. This may be the simplest thing to do, but the hardest to get done. Sit down and over time create an instruction document for your family. Tell them where your important documents are. Leave them information about what must be taken care of immediately. Avoid having your family in the dark about what to do at a time when they are in the middle of grieving. If they have such a document or checklist it will make it easier for them to step in and keep things running until they can get a handle on what to do.

What if you have an LLC?

LLCs should have an operating agreement, even if it is a single member LLC. In Arizona, if you do not have an operating agreement, the state provided one for your and that might not be what you want especially if the immediate dissolution and distribution of assets is required. The operating agreement should say what will have in the event you or another member if you are a multi member LLC.

Certainly, if your business is bigger than just you, the more effort you should be putting into your succession plan, but as pointed out even the sole proprietor has plans that can make a big difference.

If you have any questions, please feel free to schedule an initial call with Greg Poulos to discuss this and other business law concerns Schedule a Call.

This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

What if I don’t have someone to trust with my affairs?

We all know adults who are alone in the world. Perhaps the person is divorced, widowed or single. Perhaps he or she never had children or is estranged from them. Perhaps he or she has outlived siblings and other family members, or, as is unfortunately common in Arizona, a couple has no children, is alienated from them and their closest family members are far away. Or they don’t trust any of them to make the right decisions.

For whatever reason, it can be difficult for people in any of these situations to appoint someone as their executor, successor trustee, power of attorney or health care surrogate in the event they can’t make decisions due to accident or illness or upon their death. Unfortunately, these folks often avoid making any kind of decision and avoid completing necessary paperwork. When the worst happens and they lose their capacity to make decisions, they are out of luck.

There are actually solutions to these situations including trust companies or professional fiduciaries.

What is a professional fiduciary?
A fiduciary is a person who assumes responsibility as money managers, trustees or agents under financial or health care powers of attorney. Fiduciaries can serve by court appointment or by private agreement. If appointed by the court, fiduciaries are known as guardians or conservators.

A professional fiduciary can also be an individual or corporate entity like a bank or financial institution’s trust department or a trust company. Each of these specializes in being a trustee of various kinds of trusts and in managing estates. When you die, the corporation takes the places of your executor with powers of attorney and has the power to collect debts, settle claims for debt and taxes, detailing your assets for the courts and distributing wealth to your beneficiaries.

The next step up is a professional fiduciary who serves as an agent for power of attorney or health care surrogate, or as a trustee. In this instance, the professional fiduciary carries out instructions in any written documents like trusts, powers or attorney or advanced health care directives. In addition, where the law allows, this type of professional fiduciary can use their own best judgment to handle the incapacitated person’s affairs. This type of fiduciary must be selected and arrangements made in writing while the adult still has the legal capacity to make such decisions. The services of the fiduciary will not kick in until the individual lacks the capacity to make decisions for him or herself.

Last but not least, the most restrictive type of professional fiduciary is appointed by the court and is known as a guardian or conservator. The guardian is legally appointed to manage the incapacitated person (the ward’s) property or person and everything is overseen by the court.

Don’t wait
We all want control over our lives, so it makes sense to bite the bullet and make decisions in advance for our own care should something happen. By taking steps now, we can screen professional fiduciaries and select the person or organization we believe will manage our affairs in the manner we would like. Talking to an estate planning attorney is a good first step. The attorney can suggest ways for us to explore professional fiduciaries in the area in which we live until we find the right person to fit out needs.

Estate Planning for DINKS

The face of America is changing. Once upon a time, the nuclear family was the most prevalent “model” in American society (does anyone remember the Donna Reed show?). These days, however, as the population becomes increasingly more educated and career focused and for other personal reasons, fewer couples are having kids. These couples are sometimes referred to as “DINKs”) (Dual Income, No Kids). Foregoing parenting doesn’t mean couples should forego estate planning. In fact, without the added expense of raising and educating children, DINKs may have more assets to pass on which raises several unique issues.

If you are DINK couple (sorry, it makes me laugh), you may have several estate planning objectives. (1) you want to make sure your surviving spouse is taken care of if you die; (2) you want to make sure there is a plan in the event either or both of you become incapacitated; (3) maybe you want to make sure your pets (more than once pets have been referred to as the “children”); (4) perhaps you are a supporter of a charity or two and want to make a donation; and (3) you want to express your end of life wishes.

So whether you’re a young couple starting out, or a retired couple tying up loose ends, there are some things you need to know about.

 Wills
If you die without a will, your state will have to figure out whom to give your money and property to. How does that sound? A simple will could only cost you a few hundred bucks. For a married couple with no children, it doesn’t need to be very complicated. Have them done once and you’ll be good for years. You will also want to name your personal representative (executor in some states). You want to choose who that will be and not leave the chore to some unlucky relative.

 Beneficiaries
Designating beneficiaries is something you can do if you have very simple financials. Be careful though because using beneficiaries will take precedence over any other estate planning. Make sure you have them and it is current.

 Living Trusts?
A living trust is when you put your assets – money, home, car – into a trust while you are still alive, and keep using them. When you pass away, the assets in a very efficient way transfers to whoever the beneficiary is. Trust are an excellent means to address incapacity privately without the need for guardianships or conservatorships. If you have a trust or have one created, make sure you actually put your assets in the trust – something often overlooked.

 Leaving Money to Charity
Do you want to leave behind a charitable legacy? You can do this in your will, trust or in a charitable trust. Most people create a charitable remainder trust that allows you to live off of the assets while you are alive. When you die, what’s left goes to the charity. A charitable lead trust works the opposite way.

 Power of Attorney
You must have one. Period. And, it better be a good one that a financial institution cannot challenge. It must also be current – no older than two years. There is lots of flexibility on how and when they come into play.

 Living Will and Health Care Proxy
You know you need these even if you are a DINK couple. A living will says what your wishes are if you are in a vegetative state and doctors need a directive on whether to prolong your life with medical care. A health care proxy is the person you’ve designated to tell the doctors what to do in these situations and others. Do not rely on doctor’s deferring to your spouse. Have it in writing.

 Review your Existing Documents.
If you already have documents in place, it makes sense to pull them out from time to time to make sure they are consistent with your current circumstances. Estate Planning is a process not a transaction.

4 Steps to Protect Your Business Name

Your brand is everything … your reputation, your recognition value for your customers, your product, image, service, etc.

So how do you protect your brand and business if a competitor sets up a company that is similar, or even identical to yours? There are 5 steps you should think about to help ensure that your good name will stay that way!

Step 1: Form and File a Business Entity
One of the best ways to protect your business name is to form a business entity (LLC or Corp) and file the entity in your state. No state will allow two businesses with the same name to be filed, and some states won’t allow even similar names. Before getting your heart set on a name, check business name availability. Many states allow you to search for business names online. You should also consider a national search just in case you will be doing business outside of your state.

Step 2: File a DBA or Register Your Business Name
Some organizations have one official name and then a “trade name” they use for their business. For Instance, Tom Smith Pool Cleaning, LLC might have a shop called The Pool Whisperer. That trade name is often called a DBA, which is short for “doing business as.” Registering a DBA lets people know who owns the business and creates a public record of your use of your business name.

Step 3: Trademarks
You can trademark your business name with the U.S. Patent and Trademark Office for nationwide protection if you meet two criteria:
• The name must be distinctive
• It must not cause confusion with other registered trademarks.

Note that while copyrights protect original works of authorship, names and business names are not considered works of authorship and are not eligible for copyright protection.

Step 4: Secure Your Online Identity
You can protect your business name online by registering it as a domain name. That’s the address you type into your internet browser. So is a domain name. Even if you don’t plan on creating a website immediately, buy the name before someone else does. Generally, original names should cost between $8 – $10 to reserve each year. You might consider buying variations on your domain name as well to cover all the bases. So, or, for example, are viable options. In addition, register social media accounts under your business name to prevent someone else from establishing a Facebook, LinkedIn, Twitter, Pinterest or other account with your business name.

If you are concerned that you might be treading on another name, you may want to consider an attorney who specialized in this area.

Can you get out of a contract?

What happens if you’ve signed a contract for your small business that you probably shouldn’t have? Or if the circumstances have changed and are you are being asked to perform tasks that you didn’t agree to or are grossly unfair? Is there any way to get out of a contract?

Review the Contract
The first step is to read the contract and study it closely. Does the contract actually obligate you to do what the other party is asking or demanding? Is there a way to terminate the contract? What are the conditions of the contract? Is the other party meeting their side of the contractual agreement?
Read the contract from beginning to end. Have an experienced business attorney review the contract with you and help you understand exactly what is in it and what is required of you.

Is it Enforceable?
The next thing your attorney should do is check to see if the contract is enforceable. In order to be enforceable, a contract must be an agreement between at least two people exchanging something of value (consideration). No consideration, no contract. This is often a legal issue. In addition, the language should be clear and concise. If the language is so muddy or ambiguous that you can’t tell what it means, then the enforcement of the contract is a serious concern.

Is it illegal?
A contract to provide illegal services is void. In addition, there may be something in the contract that is against your state’s public policy, in which case, you can void the contract. Again, a good business attorney will know the details.

Is it unconscionable?
Courts don’t usually uphold contracts that are grossly unfair to one party. A good example is an energy provider who asks you to sign the contract as-is with no negotiation or you can’t have service. If the provider is the only one in the area and charges you three times the national rate, then likely the contract will be considered unfair (unconscionable) because one party has all the power and the other has none. Keep in mind that this mostly protects consumers. Business people are supposed to read and understand their contracts.

Is the other party backing out?
If the other party gives you some indication that he or she is not going to uphold his or her end of the agreement, that is called an anticipatory breach of contract. With the help of an attorney, you may be able to void the contract.

Is it executed correctly?
In some cases, another party may have forged your signature on a contract, in which case, you are not obligated to hold to the contract.

Is it fraudulent?
In general, both parties must understand what they are agreeing to and each side must perform and deliver as promised. For example, you buy a used car and the dealer tells you the vehicle is in excellent condition. However, when you get it home and the motor mount breaks because it has been broken and soldered back together. The dealer has misrepresented and failed to deliver as promised, so you can get out of the contract and hopefully get your money back. In the business context, if the other party made statements or representations that were not true and they knew it and you can prove that, you have a stronger case for getting out of the contract. Proving fraud is not so easy however. You must have “clean and convincing” evidence which is way beyond a hunch that they lied.

I’ve moved to a new state…should I review my estate plan?

Yes! If you’ve moved to a new state and are all settled in, there are some financial aspects of your move you need to take care of. Moving is a good excuse to consult an attorney to make sure your estate plan in general is up to date.

Will, trusts, powers of attorney and health care directives remain valid even if they were signed in a different state, however, certain provisions might conflict with the laws of your new state.

If your new state imposes income, inheritance or estate taxes (while your previous state didn’t) or vice versa, you should review the implications with your attorney and see how you could minimize your tax exposure.

In the case of a Will, if you are married and move from a community property state to a common law state or vice versa, the rules about what you and your spouse own will likely change. In addition, the rules about executors of your Will may change from state to state. Generally, a Will that is valid in the state where you resided, it will probably be valid in your new state.

Living Trust
Generally, living trusts should be valid in any state. However, it is a good idea to use an estate review to also review the terms of a living trust. This is particularly true for a community property state, like Arizona, because there can be a capital gains tax advantage commonly known as a “double step in basis.”

Advance Medial Directive/Powers of Attorney
Every state has its own forms for advance directive (living wills) and powers of attorney, so have your attorney make sure you are in compliance. Without getting these up to date, a healthcare provider might balk at accepting out-of-state documents just when you really need to use them most.

Beneficiaries you’ve named on insurance policies, bank accounts, IRAs, retirement plans or other assets should be valid wherever you live. However, it is a good idea to make sure the institution that controls the assets has your current contact information.

Another thing that should be taken care of are any guardianship papers. You’ll need to file new paperwork with the local probate court, and since each state has different laws pertaining to guardianship, finding an experienced attorney will make the process easier.

Succession Planning for Businesses

For business owners, figuring out how to pass a business on to heirs can be a tricky business. We’ve all heard stories about business owners who failed to plan and the family ends up embroiled in endless court battles for control of the company.

Let’s look at a hypothetical situation to see some problems that might occur. You own XYZ Widget Company. Your heirs are your wife and three children. The first question you must ask is if your family is capable of taking over the business (and running it) when you leave.
• If you have no heir who is competent to take over running your business, then how to you arrange your estate so your family still receives proceeds from the business, but a competent manager actually runs everything?
• If you have a family member capable of running the business (let’s say your son), how do set up your estate so your wife and daughters still receive a fair share, but perhaps not as much as your son, who will do the actual work.
• It can become even more complicated. In your opinion, your son has the ability to run your business, but your daughters don’t, although they believe they do. They’ll contest the Will or Estate for control of the business.
• In addition, how do your protect and reward valuable employees in the business when someone else is running things.
• What happens if you have a partner or several partners in the business? Should your partners buy out your shares in the company and the proceeds go to the family? Should your child become a partner?
• Should your ownership in the company transfer to a legal entity like a trust?
• What happens to your business if you retire, die, become disabled or incapacitated? What happens if the business goes into bankruptcy or loses its professional license?

Business Succession Steps:
• Find and hire a good business attorney to help with all the legal and paperwork necessary. It is particularly handy if you can find a skilled attorney who can handle both business law and estate planning. Incidentally, at Poulos Law Firm we can handle both aspects.
• Engage your financial advisors and CPA’s in the process.
• Ask yourself lots of hard questions about what you want to see happen to your business, who should inherit, how you want it run, etc.
• Consult with any partners or valuable employees and get their take on what should happen.
• Ask your attorney and CPA about all the relevant laws and tax consequences as you plan.
• Have a valuation completed on your business and the resources.
• Engage a business broker early in the process to help you make changes that will make the business be worth more in a sale.
• Figure out how to transfer to tangible and intangible assets and create a succession plan.

To sue or not to sue, that is the question.

As a business owner, before you sue someone, you need to figure out what you are trying to accomplish. For instance, is this a one-time situation that is unlikely to be repeated? Will your lawsuit discourage others from doing the same thing? Or is this a larger moral issue where your lawsuit will affect others and prevent further damage?

Knowing your goal is important because litigation is time-consuming, expensive and the outcome can be uncertain. The various steps include:
• Creating initial court papers
• Getting the answers from the defendant
• The discovery phase – investigation of each party’s evidence
• The deposition phase – pre-trial testimony
• Special pre-trial requests to make decisions about motions
• Numerous meetings and conference before the trial
• And finally, the trial

The process can take over a year, so is it really worth your time to proceed?

Let’s take a case in point. Someone has breached a contract with you that causes you a financial loss or damage of around $5,000. It was a one-time situation and won’t be repeated. The cost of litigation will be around $15,000. Is it really worth pursuing?

In another instance, someone has breached a contract and is causing on-going harm to your business, and possibly to other businesses. In this instance, you may have no choice but to sue, even if the cost is prohibitive.
There are really 10 steps you should follow when considering pursuing legal action:
• Good Case — do you have a genuine legal claim that the courts will support?
• Final demand — have you taken the time to make a final demand to allow the person or business at fault to make the situation right, rather than going to court?
• Compromise — try looking at the case from the other party’s point of view. Do they have a valid argument? Can you adjust your own position? Can you reduce the damages and reach a compromise?
• Collect Damages — can you actually collect a financial settlement from the party you are you going to sue. If the other party doesn’t have the financial wherewithal the pay damages, what is the point of a lawsuit.
• Finances — do you have the money to pay for an attorney and handle the expenses related to filing a law suit? It may be cheaper to settle.
• Time and Resources — Do you have the time and resources to pursue a lawsuit?
• Statute of Limitations — are you within the statute of limitations (time frame) to pursue a lawsuit?
• Location — if you are suing someone from a different state, which state will have jurisdiction over your case? Suing someone in another state under their jurisdiction will probably be more expensive for you.
• Small Claims Court — can you take your case to small claims court. Many states have small claims courts that will only hear disputes under a certain amount (generally $5,000 or less).
• Represent yourself — you may be able to represent yourself in small claims court (but not if you are a corporation). While you may save attorney’s fees, you still probably want to pay an attorney to coach you how to prepare for the case.

Some of these issues can be resolved by having good contracts that are specific to you in the first place. A good contract does not mean there will be no problems, but they can limit or control what the effect of a breach of contract is and what it will cost to pursue the other party.

Assuming you do not have a helpful clause in your contract the issue of whether to sue or not is balancing the risk of losing or spending the time, money and emotion on a case versus what you will gain if you go forward.

Finally, if you are pursuing “justice” in a civil case, you better have provable substantial damages because otherwise you are probably “tilting at windmills” (Cervantes’ Don Quixote”) and are unlikely to find what you are looking for.