When someone passes away, his or her property must somehow pass to another person. In the United States, any competent adult has the right to choose the manner in which his or her assets are distributed after his or her passing. (The main exception to this general rule involves what is called a spousal right of election which disallows the complete disinheritance of a spouse in most states.) A proper estate plan also involves strategies to minimize potential estate taxes and settlement costs as well as to coordinate what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as a 401K plan), and other property in the event of death or disability. On the personal side, a good estate plan should include directions to carry out your wishes regarding health care matters, so that if you ever are unable to give the directions yourself, someone you know and trust can do that for you.
Why is it important to establish an estate plan?
Sadly, many individuals don't engage in formal estate planning because they don't think that they have “a lot of assets” or mistakenly believe that their assets will be automatically shared among their children upon their passing. If you don't make proper legal arrangements for the management of your assets and affairs after your passing, the state's intestacy laws will take over upon your death or incapacity. This often results in the wrong people getting your assets as well as higher estate taxes.
If you pass away without establishing an estate plan, your estate would undergo probate, a public, court-supervised proceeding. Probate can be expensive and tie up the assets of the deceased for a prolonged period before beneficiaries can receive them. Even worse, your failure to outline your intentions through proper estate planning can tear apart your family as each person maneuvers to be appointed with the authority to manage your affairs. Further, it is not unusual for bitter family feuds to ensue over modest sums of money or a family heirloom.
What does my estate include?
Your estate is simply everything that you own, anywhere in the world, including:
Your home or any other real estate that you own
Your share of any joint accounts
The full value of your retirement accounts
Any life insurance policies that you own
Any property owned by a trust, over which you have a significant control
How do I name a guardian for my children?
If you have children under the age of eighteen, you should designate a person or persons to be appointed guardian(s) over their person and property. Of course, if a surviving parent lives with the minor children (and has custody over them) he or she automatically continues to remain their sole guardian. This is true despite the fact that others may be named as the guardian in your estate planning documents. You should name at least one alternate guardian in case the primary guardian cannot serve or is not appointed by the court.
What estate planning documents should I have?
A comprehensive estate plan should include the following documents, prepared by an attorney based on in-depth counseling which takes into account your particular family and financial situation:
A Living Trust can be used to hold legal title to and provide a mechanism to manage your property. You (and your spouse) are the Trustee(s) and beneficiaries of your trust during your lifetime. You also designate successor Trustees to carry out your instructions in case of death or incapacity. Unlike a will, a trust usually becomes effective immediately after incapacity or death. Your Living Trust is "revocable" which allows you to make changes and even to terminate it. One of the great benefits of a properly funded Living Trust is the fact that it will avoid or minimize the expense, delays and publicity associated with probate.
If you have a Living Trust-based estate plan, you also need a pour-over will. For those with minor children, the nomination of a guardian must be set forth in a will. The other major function of a pour-over will is that it allows the executor to transfer any assets owned by the decedent into the decedent's trust so that they are distributed according to its terms.
A Will, also referred to as a Last Will and Testament, is primarily designed to transfer your assets according to your wishes. A Will also typically names someone to be your Executor, who is the person you designate to carry out your instructions. If you have minor children, you should also name a Guardian as well as alternate Guardians in case your first choice is unable or unwilling to serve. A Will only becomes effective upon your death, and after it is admitted by a probate court.
A Durable Power of Attorney for Property allows you to carry on your financial affairs in the event that you become disabled. Unless you have a properly drafted power of attorney, it may be necessary to apply to a court to have a guardian or conservator appointed to make decisions for you during a period of incapacitation. This guardianship process is time-consuming, expensive, emotionally draining and often costs thousands of dollars.
There are generally two types of durable powers of attorney: a present durable power of attorney in which the power is immediately transferred to your agent (also known as your attorney in fact); and a springing or future durable power of attorney that only comes into effect upon your subsequent disability as determined by your doctor. Anyone can be designated, most commonly your spouse or domestic partner, a trusted family member, or friend. Appointing a power of attorney assures that your wishes are carried out exactly as you want them, allows you to decide who will make decisions for you, and is effective immediately upon subsequent disability.
The law allows you to appoint someone you trust to decide about medical treatment options if you lose the ability to decide for yourself. You can do this by using a Durable Power of Attorney for Health Care or Health Care Proxy where you designate the person or persons to make such decisions on your behalf. You can allow your health care agent to decide about all health care or only about certain treatments. You may also give your agent instructions that he or she has to follow. Your agent can then ensure that health care professionals follow your wishes. Hospitals, doctors and other health care providers must follow your agent's decisions as if they were your own.
A Living Will informs others of your preferred medical treatment should you become permanently unconscious, terminally ill, or otherwise unable to make or communicate decisions regarding treatment. In conjunction with other estate planning tools, it can bring peace of mind and security while avoiding unnecessary expense and delay in the event of future incapacity.
Some medical providers have refused to release information, even to spouses and adult children authorized by durable medical powers of attorney, on the grounds that the 1996 Health Insurance Portability and Accountability Act, or HIPAA, prohibits such releases. In addition to the above documents, you should also sign a HIPAA authorization form that allows the release of medical information to your agents, your successor trustees, your family and other people whom you designate.
What is business law?
Business law encompasses the many rules, statutes, codes, and regulations that are established which govern commercial relationships and provide a legal framework within which businesses may be conducted and managed. Business law is highly diverse and includes areas such as:
business formation and organization
transactional business law (contracts)
mergers and acquisition
What factors should be considered in choosing the type of business form for my business?
Although there are many important things to think about when choosing a business form, some of the main considerations include your preference of tax treatment, how you intend to capitalize the business, whether you plan to issue stock and trade it publicly, how you intend to structure the management of your business and issues surrounding the liability of the business owners, among other things. It is very important to plan your business and to work closely with someone who can help you choose the business form that will meet your needs.
What is the difference between a subchapter C and S corporation?
The Internal Revenue Code allows for two different levels of corporate tax treatment. Subchapters C and S of the code define the rules for applying corporate taxes.
Subchapter C corporations include most large, publicly-held businesses. These corporations face double taxation on their profits if they pay dividends: C corporations file their own tax returns and pay taxes on profits before paying dividends to shareholders, which are subsequently taxed on the shareholders' individual returns.
Subchapter S corporations meet certain requirements that allow the business to insulate shareholders from corporate debts but avoid the double taxation imposed by subchapter C. In order to qualify for subchapter S treatment, corporations must meet the following criteria:
Must be domestic
Must not be affiliated with a larger corporate group
Must have no more than one hundred shareholders
Must have only one class of stock
Must not have any corporate or partnership shareholders
Must not have any nonresident alien shareholders.
Additionally, after a business is incorporated, all shareholders must agree to subchapter S treatment prior to electing that option with the Internal Revenue Service.
What does it mean to “pierce the corporate veil?”
Sometimes, courts will allow plaintiffs and creditors to receive compensation from corporate officers, directors, or shareholders for damages rather than limiting recovery to corporate assets. This procedure bypasses the usual corporate immunity for organizational wrongdoing, and may be imposed in a variety of situations. The specific criteria for piercing the corporate veil vary somewhat from state to state and may include the following:
Courts may not allow owners to benefit from a corporation's limited liability if the underlying business is indistinguishable from its owners.
If a corporation is formed for fraudulent purposes.
Courts may impose liability on the individuals controlling the business if a business fails to follow certain corporate formalities in areas such as record-keeping.
What is the difference between a joint venture and a partnership?
Joint ventures and partnerships share certain characteristics. A joint venture is a sort of partnership where two or more entities join together for a particular "short term" purpose. In both partnerships and joint ventures, each partner has equal ability to legally bind the entire entity. A partner can represent the entire organization in the normal course of business and his or her legal actions on behalf of the joint venture or partnership create legal obligations.
Though the powers of individual partners in a partnership or joint venture can be limited by agreement, such agreements do not bind third parties. Because business contacts outside of the partnership may have no knowledge of the limitations, they may be entitled to rely on the apparent authority of an individual partner as determined by the usual course of dealing or customs in the trade.
What is a non-profit corporation?
A non-profit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit corporation doesn't pay federal or state income taxes on profits it makes from activities in which it engages to carry out its objectives. This is because the IRS and state tax agencies believe that the benefits the public derives from these organizations' activities entitle them to a special tax-exempt status.
The most common federal tax exemption for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called 501(c)(3) corporations.
How often should a corporation hold meetings and update its minutes?
Any time a corporation undertakes a major change or transaction, it should be reflected in its minutes. In addition, meetings of shareholders and directors should take place at least annually if for no other reason than to elect new officers and directors. Failure to adhere to the formality of regular meetings can jeopardize the corporation's ability to shield its officers, directors and shareholders from personal liability for the corporation's actions.
Is it a good idea to have a Buy-Sell Agreement?
Corporations with more than one shareholder should seriously consider a buy-sell agreement. A shareholder's death, divorce, disability or termination of employment can create serious problems for a corporation and its other shareholders. A buy-sell agreement can help minimize these problems by providing for an orderly succession in such plans. Similar provisions are recommended for partnership.
What is involved in a corporate merger?
Like most corporate law, mergers are regulated at the state level. While these laws vary by jurisdiction, many aspects of the merger process are the same across the nation. Generally, the board of directors for each entity must initially approve a resolution adopting a plan of merger that specifies the names of the entities involved, the name of the proposed merged company, the manner of converting shares of both entities, and any other legal provisions to which the corporations agree. Each entity notifies all of its shareholders that a meeting will be held to approve the merger. If the proper number of shareholders approves the plan, the directors sign the papers and file them with the state. The secretary of state issues a certificate of merger to authorize the new corporation.
Each state has its own corporate statutes that govern the procedure for mergers. Furthermore, state or federal agencies may wish to investigate the potential anticompetitive effects of a proposed merger. Because of the requirements and variables involved in merging, a corporation considering a merger should consult a lawyer who is experienced in mergers and acquisitions law.
How long may a foreign national stay and work in the United States with an H-1B Visa?
The duration of stay with the H-1B Visa is three years, however, in many cases it may be extended for an additional three years. After the maximum period of six years has passed, the foreign national must leave and remain out of the United States for a full year before a petition for a second H-1B Visa may be approved.
How can a properly established business entity such as a corporation shield me from personal liability for business debts and obligations?
Personal liability arising from business obligations can devastate the accumulated wealth of a lifetime of work. Personal liability may extend to business losses, but other obligations may also reach individuals, including:
Damage awards in lawsuits
Back wages and benefit payments
Limited liability offered by corporations and other business entities shelters business owners from personal liability. Nonetheless, if an owner or director performs certain personal acts, behaves illegally, or fails to uphold statutory requirements for corporate status, he or she may face personal liability despite the corporate shelter.
What are some common issues that lead to disputes among co-owners of a business?
Disputes between business owners, whether they be LLC members, shareholders or partners are a common occurrence. They can involve accusations of breach of fiduciary duty, self-dealing rather than acting in the best interests of the company or issues related to the rights of minority owners. Our firm represents parties involved in all such disputes including conflict over poorly-drafted buyout agreements, executive/management compensation, appraisal rights and rights to dividends paid by the company.
What are some types of commercial litigation cases you handle?
Our firm represents clients involved in a wide range of commercial and business disputes including issues related to business torts, real estate transactions, shareholder disputes, employment law and generally, breach of contract cases. A breach occurs when one party fails to fulfill the duties under the terms of a legally binding agreement. This can happen for example when one party does not perform as promised, does something that makes it impossible for the other party to perform, or makes it clear that it does not intend to perform it's required duties.
What are some of the damages and remedies available to me in a commercial dispute?
Depending on the circumstances of your case, the following remedies may be available to you if you prevail in your action:
Compensatory Damages - Money damages to reimburse you for financial losses incurred as a direct result of the breach or tort.
Consequential and Incidental Damages - Money damages to reimburse you for financial losses you incurred as foreseeable, but indirect result of the breach.
Liquidated Damages - Money damages agreed-to and written into a contract that would be payable in the event of breach.
Punitive Damages - Money damages awarded with the intention of punishing the party who acted in an offensive manner in an effort to deter others from engaging in the same wrongdoing.
Attorney fees and costs - These fees are generally only recoverable if the terms of the agreement specifically provided for them.
Rescission - A contract is canceled and both parties are excused from further performance.
Reformation - The terms of a contract are modified to reflect the original intention of the parties.
Specific Performance - A court order requiring a party to perform as set forth in the contract.
What is the difference between arbitration and mediation?
Arbitration and mediation are both means through which disputes can be settled outside of a traditional court setting. Mediation is a process that enables parties in a dispute to resolve their differences with the aid of a mediator instead of resorting to a lawsuit. The mediator is neutral third party that has been trained to assist people with the discussion of their differences. Mediators are not like judges and do not decide which party “wins”. The mediator instead helps the parties come to a solution on their own using communication between the parties and helping them focus on the real issues. Mediation permits the parties to have some control over the outcome, even though it doesn't guarantee a final resolution. Arbitration on the other hand relies on a neutral arbiter to hear the evidence from the parties and render a decision that is binding. Arbitration may be more desirable when the parties require a definitive outcome in a time frame that is often shorter and less expensive than conventional litigation.
Who is responsible for the court and attorney costs in my business dispute?
The losing side in a commercial litigation matter generally does not have to pay the winning side's attorneys' fees. This enables parties to initiate lawsuits without the fear of incurring excessive costs if they lose the case. There are a few exceptions to this general rule. Courts often have discretion in awarding attorneys' fees if they believe it will advance justice or if it is in the interest of fairness, such as when a party has started a flagrantly frivolous case with no factual or legal merit. More commonly, parties are liable for attorneys' fees if they agreed to it in a contract. Nonetheless, even in such cases, courts have discretion as to whether and to what extent such provisions are to be enforced.
What are the differences between some common forms of property ownership?
There are a variety of ways that one can hold title to property:
Sole Ownership: owned entirely by one person. Words in the deed such as "Bill, a single man" establish title as sole ownership.
Tenants in Common: a form of co-ownership where property is owned by two or more persons at the same time. The proportionate interests and right to possess the property between the tenants in common need not be equal. Upon death, the decedent's interest passes to his or her heirs named in the will who then become new tenants in common with the other tenants in common. Words in the deed such as "Bill, John and Mary as tenants in common" establish tenancy in common.
Joint Tenancy: a form of co-ownership where property is owned by two or more persons at the same time in equal shares. Each joint owner has an undivided right to possess the whole property and a proportionate right of equal ownership interest. When one joint tenant dies, his/her interest automatically passes on to the surviving joint tenant(s). Words in the deed such as "Bill and Mary, as joint tenants with right of survivorship" establish title in joint tenancy. This form of ownership is not available in all states.
Tenancy by the Entirety: a special form of joint tenancy when the joint tenants are husband and wife -- with each owning one-half. Neither spouse can sell the property without the consent of the other. Words in the deed such as "Bill and Mary, husband and wife as tenancy in the entirety" establish title in tenancy by the entireties. This form of ownership is not available in all states.
Community Property: this special form of ownership between spouses is only available in “community property” states. Upon death, the decedent's interest passes in a manner similar to tenants in common. Words in the deed such as "Bill and Mary, husband and wife as community property" establish community property ownership.
Trusts: While not technically a form of ownership, you may own real property through your Living Trust. Upon your passing, your interest would pass to successor trustees and/or beneficiaries you have designated in your trust.
What is the difference between a cooperative and a condominium?
In a "condo" arrangement, you legally own a particular unit in a multiple unit structure of the building. Under a typical arrangement, you have a share and a right to use common areas such as hallways, elevators, gardens, swimming pools, and club house within that structure. You pay monthly payment to an "association" for maintenance expenses the common areas. The association is typically run like a corporation with complaint and appeal processes to protect individual rights of owners and to provide a mechanism for resolving disputes within the community.
In a "co-op", the ownership structure is quite different: you do not own your own specific unit in the building but own stock in the corporation that actually owns the building and all the apartments. You lease your apartment from the corporation according to a formula based on the unit's size. As a shareholder, you have a say in electing the Board of Directors who manage the cooperative.
What is the purpose of “recording” a deed?
When you purchase real property, you receive a written document called "the deed" which transfers the ownership of the property from the buyer to you as the purchaser. The deed gives you formal title in exchange usually for a specified amount of money. The transfer of interest in real property is not complete until the deed is delivered to you. The deed should be recorded immediately with the county clerk in the county where the property is located. By recording the deed, you give notice to all future potential buyers of that property that you now have an ownership interest in that particular piece of real property. Recording also tracks the chronological chain of ownership from a series of buyers and sellers. Before you purchase real property, a search is conducted at the county clerk's recording office to confirm that the seller (as well as all previous sellers) has legal title to the property in question. Title insurance typically performs this function to determine whether any defects occurred in prior conveyances and transfers. If so, such defects may then be pointed out and excluded from their coverage.
What tax advantage do I get by owning real property?
Mortgage interest deduction: The major advantage to owning real property comes from the deductibility of the interest of a home mortgage or a home equity loan. In order to qualify for an income tax deduction, the loan must be for your home or a vacation home that is not rented to others. The deduction must be taken as an itemized deduction in Schedule A of your federal tax return.
Property tax deduction: real estate taxes paid to any state or local governments are also deductible on your federal return. Generally, the taxes must be based on the assessed value of the real property and must be charged uniformly against all property under the jurisdiction of the taxing authority.
Capital gains exemption: Once you sell your residence, you may exclude up to $250,000 ($500,000 for married couples) from any realized capital gains. In order to qualify, you must meet certain requirements: among other things, you must have lived in that home for at least two of the five years prior to the sale, and not have excluded gain from the sale of another home two years prior to the sale.
What is a quitclaim deed?
A quitclaim deed transfers or "releases" to the person acquiring the property whatever present interest the grantor has in that property. Unlike a grant deed, a quitclaim deed carries with it no express or implied covenants or guarantees. Therefore, if the grantor has no interest in the property, a quitclaim deed conveys nothing.
Since my spouse passed away, I want to re-title my house so I own it jointly with my adult children. Is this a good idea?
While sharing title to property may avoid probate after your death, naming "joint tenants" may have a number of adverse consequences. In effect, adding a joint tenant to your home deed means that you have now gifted a portion of that property to those named. And when you make gifts in excess of $14,000 in value within a calendar year to someone other than a spouse, the IRS requires you to file a gift tax return, and in some cases pay gift taxes. When gifting an interest in your home to anyone, you also are endangering your own financial security. If your new co-owners have creditors or are involved in a divorce, your assets will be at risk. Furthermore, such a transfer may jeopardize certain property tax and other exemptions you enjoy as a senior, veteran, or homesteader.
A better idea is to create a Living Trust and name your children as beneficiaries of the Trust after you die. This has the advantage of avoiding probate, yet it gives you total control of your house prior to transferring ownership. You can also change beneficiaries if you so desire, and also provide for the circumstance if one child predeceases you.
What is the “Closing”?
The closing is a final meeting of all the parties involved in the real estate transaction. Attorneys for buyer, seller and bank convene with sellers and buyers to sign and officially transfer title to the buyers. A representative of the title insurance company will also be present to facilitate the transfer of title. The title company is also responsible for recording the new deed.
Before arriving at the closing, the buyer should visit the property to assure that everything is in working order. That means turning on the heat and air conditioning and checking for leaks and other problems. After the closing any problem is the buyer's responsibility. The buyer should also have all the necessary paperwork and certified checks for the seller and for various closing costs. Otherwise, if the mortgage, title, homeowner's insurance and other documents required by law are not completed and brought to the closing table, the closing may be delayed.