What are the primary goals of your firm vis-a-vis client representation?
Our most important goal is serve the client effectively. We cannot guarantee the success of any given program, but we shall strive to represent the client’s interests vigorously and efficiently.
As counselors, our goal is to listen to the wishes of the client and provide the best legal guidance possible. To this end, we strive to listen to the client’s statement of concerns and to the goals of the client. Based on our in-depth discussions with the client, on our experience, and on our extensive knowledge of the law, we make recommendations to the client that best suit his or her personal situation. Our recommendations may not always coincide with what the client expects or even wants to hear, but our advice is always based on the best interests of the client. How we move forward is unique to the wishes of each individual client.
Specifically, in the area of estate planning, we have found that the client’s primary concern is the protection of sufficient assets and cash flow to provide for the needs and wants of our client.
In other cases, the client’s principles are of primary importance in planning. For example, many of our clients have in place a long-standing tradition of giving in accordance with their religious affiliation or to their community, or to other charitable / medical organizations; however, many clients have not set in place a vehicle that would continue that tradition after their deaths, not because they do not think it important, but merely because they have not thought about the possibilities. With some planning, we can assist in following through with the client’s long-standing tradition.
As always, our goal is to counsel the client in a manner that assists him or her in reaching his or her goals.
Can you help me with an Offer-in-Compromise with the IRS?
We do provide assistance with offers in compromise; however, except in extraordinary circumstances, the cost of our assistance (or the cost of any professional’s assistance) will be greater than the value of the assistance received. As such, we cannot, in good conscience, encourage you to retain our services for this particular program – unless there are extraordinary circumstances.
Before you consider obtaining professional assistance of any sort in seeking an offer-in-compromise, you should review the IRS website on the Offer in Compromise program.
While we can assist in preparing and filing the necessary forms, the forms are relatively simple statements of income and expenses and balance sheets. One should read the instructions for IRS Form 656 (see Helpful Links) for a detailed description of the program and the steps in filling out the form.
Except in extraordinary circumstances, no professional assistance is necessary to apply for the program. In our experience, the first question that the IRS will ask is a variant of, “If you have several thousand dollars to pay a professional, why could you not have paid that against the taxes owed?”
For additional assistance, visit our Helpful Links page.
I am starting a business. I will be the sole owner. Should I make it a sole proprietorship, a limited liability company, a C-corporation, or an S-corporation?
This type of question receives the typical lawyer answer – it depends. A brief discussion of some of the issues to be considered follows:
The sole proprietorship is simplest and does not even require an additional tax return, as it files on the Schedule C of the individual 1040 income tax return. On the other hand, it is not an entity that can be bought or sold (only its assets can be bought or sold). You cannot give to an employee or a child an interest in a sole proprietorship, the transference of an interest in the business automatically creates a general partnership. The sole proprietor has unlimited liability for all acts of the business or of employees of the business. All of the income from a sole proprietorship is earned income subject to the unlimited Medicare tax on earnings as well as normal self-employment taxes; on the other hand, the total self-employment taxes are approximately 2/3 of the total FICA taxes paid by the normal employer-employee. The sole proprietor pays no unemployment tax on him/her-self, nor does (s)he require workers compensation insurance (but one should have disability and health insurance).
A single-owner limited liability company (LLC) is treated for all tax purposes as a sole proprietorship. Unlike the sole proprietorship, it does have ownership interests that can be given away or sold, upon which, it is immediately treated for tax purposes as a (limited) partnership; and the ownership interests can be structured into an unlimited variety of classes (with differing voting rights and preferred distribution rights). An LLC does provide some limitation of liability for non-contractual liabilities of the company. The treatment of the income of the company (as earned income subject to unlimited Medicare tax) is uncertain. It would appear that the IRS would treat all income as earned income to a general partner and thus subject to unlimited Medicare tax. Generally, if the earned income of the company is greater than $75,000, one should give serious consideration to the use of a corporation.
A C-corporation is not likely to be an attractive alternative for the small business, primarily because the earnings are subject to taxation at the corporate level and again at the shareholder level when the net earnings are distributed to the shareholder. Furthermore, with the repeal of the General Utilities doctrine, there is almost no way to get any assets out of a corporation without paying the double tax. On the other hand, for a larger corporation, there are some benefits that can be provided to employees (including the owner-employee) on a pre-tax basis. Shares, of course, can be given away or sold with no change in the structure of the company. The ownership can be structured in many different ways with different classes of shares, some voting, some with dividend preference, and some with liquidation preferences.
An S-corporation can be an attractive alternative if the annual earned income of the company is expected to exceed $75,000, because the company can employ the principal for a fixed salary (which will be subject to the full payroll taxes) and pay out the balance in the form of a dividend (not subject to the tax). On the other hand, it can have only one class of shares (it can have non-voting shares), and all distributions to shareholders must be made pro-rata in a timely manner. Furthermore, there are a limited number of shareholders permitted and only certain persons can be shareholders.
What are the different types of partnerships? What is the difference between a GP, an LP, an LLP, and an LLLP?
A General Partnership (GP) is one in which two or more people share in the ownership and operating control of a business. Each owner / partner is liable to any outsider for 100% of all partnership obligations or liabilities, even if the partnership agreement makes one a 10% and another a 90% partner.
A Limited Partnership (LP) is one in which one or more owners are general partners and one or more other owners are limited partners. The general partners have all of the operating control of the partnership. The limited partners have a very limited participation in the control of the business. The general partners have unlimited liability. The limited partners have no liability beyond the capital invested.
A Limited Liability Partnership (LLP) is a general partnership for which an election has been made and a certificate filed causing the partners’ liability to third parties to be limited as to the acts of anyone but the individual owner. That is, partner A has unlimited liability for his own acts, but no liability for the acts of partner B, and neither has any liability for the general contractual liability of the partnership.
A Limited Liability Limited Partnership (LLLP) is a limited partnership for which an election has been made and a certificate filed causing the general partners’ liability to third parties to be limited as to the acts of anyone but the individual general partner. That is, general partner A has unlimited liability for his own acts, but no liability for the acts of general partner B, and neither has any liability for the general contractual liability of the partnership.
Liability Limitation: I have been told that I should incorporate or form an LLC in order to limit my liability. Is this reasonable?
It depends. It is a common assumption that incorporating or forming an LLC will limit liability; however, it does not always work that way. In the first place, most contractual liability (borrowing money or establishing a credit account) will require a personal guarantee, and the fact that the borrowing company has limited liability will not limit the liability of the guarantor. Furthermore, the acts of an individual are not limited by a corporate structure.
For example, if the company has an employee involved in an accident, it is true that the owner of the company may limit his/her personal liability if the company is a corporation or other entity with limited liability; however, the personal liability of the employee who is at fault in the accident is not limited. Should the owner of the company be personally at fault in an accident, (s)he is personally liable, and that liability is not limited because the owner was operating in the form of a corporation.
In short, the limited liability structure may protect you against liability for the acts of employees and other owners, but the choice of form of doing business cannot protect you from your own acts.
Whether forming an entity with limited liability is appropriate for your circumstances is something that you should discuss with your legal counselor.
I have a Will executed when I was a resident of another state. I have just moved to Colorado. Should I execute a new Will?
If you were a resident of another state and the Will was validly executed in that state while you were a resident, the Will will be given full faith and credit in Colorado, even though you have changed your residency to Colorado.
HOWEVER (there is always at least one “however”), there are some tricks in the seemingly simple answer. The first premise is that you were a resident of the state in which you executed the Will. Merely living in a state does not make you a resident. For example, if you were born and raised in Colorado and attended school in Iowa and, while pursuing a Masters Degree, got a job in Iowa, got married in Iowa, and had a child and thus pursued the execution of a Will, then moved back to Colorado to take a permanent position teaching, you may have always been a resident of Colorado, and the Will may be invalid. Residency is a state of mind, but it affects material legal consequences.
FURTHERMORE, there may be other changes (additional children, a significant inheritance, divorce, etc.) that should dictate that your Will be reviewed.
Whether or not you should have prepared and executed new wills depends on your circumstances and should be discussed with your counselor.
What can I do to avoid probate?
The question assumes a fact, not in evidence, that probate is an evil to be avoided. Historically, back East, where the laws were generally antiquated and cumbersome, probate may have been something to be avoided (we cannot specifically comment on that); but, generally, in most states today, with modern probate laws, probate is not an evil that should be avoided at all costs. The question for you to answer is, “Why do you want to avoid probate?”
Having said that, probate can be avoided, at least with most of your assets. They can be placed into a “Living Trust” which will act in place of your Will and avoid probate. Depending on your reason for avoiding probate, however, the cost of transferring the assets and the cumbersome management of the trust may outweigh the benefits of avoiding probate. Furthermore, it is almost certain that not all assets will be included in the Living Trust, and a probate estate will have to be opened in any event.
A Living Trust may, nevertheless, be appropriate and useful to maintain privacy as regards the disposition of your assets and to provide for the management of your assets should you become disabled.
It should be noted that the use of a Living Trust DOES NOT avoid estate taxes. All assets of a Living Trust will be included in the estate of the deceased who set up the trust and benefitted from it during his/her lifetime.
Whether it would be appropriate for you to take steps to avoid probate is something that should be discussed with your legal counselor.
We might note that, a small estate owning no real estate can avoid probate altogether with a simple “Small Estate Affidavit.” The size of a “small estate” varies from year to year. Call us and we can let you know if the estate in which you are involved qualifies.
What are the benefits / drawbacks of a Living Trust?
A Living Trust provides a level of privacy not available with a regularly-probated Will. It allows for the management of the assets before death but after the disability of the person creating the trust (known as the trustor / settlor) in a manner that is simpler than the use of a durable power of attorney. A funded Living Trust provides for a more rapid ability to distribute proceeds after the death of the trustor than may available to the beneficiary of a Will.
The assets of a probated estate can be protected against the claims of a creditor who fails to make a proper claim within the time allowed. Assets in a Living Trust may not be so protected. There is some up-front cost to the set-up, funding, and operation of a Living Trust.
The benefits and drawbacks should be reviewed with your legal counselor in the context of the specific situation of each client. There is no “one size fits all” answer.
Everything we own is in joint tenancy. Do we need Wills?
If your combined total assets do not exceed the single exemption equivalent (in 2016 $5.45 Million), then you may not need a Will, unless you are in a second marriage, or you have children and the surviving spouse might remarry after your death, or there are any of the other factors that might cause you to want to maintain some control over where the assets wind up after the death of the second of you to die.
If joint tenants are a married couple and their combined total assets do not exceed the double exemption equivalent ($10.9 Million in 2016), they can avoid estate taxes; but the ability to utilize both of the exemptions is only available if the proper forms are filed with the appropriate election, failing which the estate of the second to die might incur a tax of approximately $0.40 on every dollar over the single exemption equivalent.
Even if joint tenancy adequately handles the transfer as it relates to the two joint tenants for the death of the first to die, one should consider the eventual disposition upon the death of the second to die. Upon the death of the second to die, all of the assets will pass to the heirs at law of the second to die under the laws of intestacy or in accord with the Will established by the second to die, meaning that the children or other desired beneficiaries of the first to die would be left without receiving anything.
The proper use of joint tenancy is not always simple to determine. In counseling on the proper use of joint tenancy, one must consider all of the facts and circumstances.
I am single. My principal asset is an IRA worth $500,000. I regularly give to charities (including my church), but I want to leave as much as possible to my children, the youngest of which is 40 years old. What do you suggest?
One should note that there is no estate tax due, so that issue does not affect the discussion.
Based solely on the facts presented, we might suggest that you establish a Charitable Remainder Unitrust (CRUT) and make that trust the beneficiary of your IRA. The trust could give between 3% and 5% of the value of the trust (determined annually) each year to your children. Should the trust continue to grow at the rate in excess of the fixed percentage, then the income to your children would increase each year. At the death of your children the trust would devolve to the charities named by you or by your children.
There are other forms of charitable planning. Whether this or any other form of planning is appropriate for you would depend on all of the facts and circumstances and should be explored with your legal counselor.
I have an asset worth $500,000 that is paying no dividend at this time. I bought it many years ago for $25,000. I am nearing retirement and should like to give something to charity and to convert this into something that will start paying me a dividend. What do you suggest?
Based solely on the facts presented, we might suggest that you establish a Charitable Remainder Unitrust (CRUT) and contribute the asset to the CRUT. You will receive a modest current income tax charitable deduction and a lifetime income of between 3% and 5% of the value of the asset (determined annually). Should the trust continue to grow at the rate in excess of the fixed percentage, then the income to you would increase each year. As the CRUT sells assets in the course of managing its investments, it would have no taxes to pay on the sales, preserving the overall value of the corpus. At your death, the trust would devolve to the charities named by you or by your trustee.
If you, in the alternative, simply sold the asset, you would have to pay approximately 20% capital gains tax (15% federal and 5% state – up to 25% after 2008), netting only $400,000. Assuming that you received the same 3% – 5% in income each year, your income stream would be approximately $5,000 less each year than it would be from the CRUT; furthermore, as you sold assets, you would be subject to the loss of value as you paid the capital gains tax on the sales. If you made a charitable contribution from the asset, either before or after the sale, you would net even less income.
There are other forms of charitable remainder trusts. Whether this or any other form of planning is appropriate for you would depend on all of the facts and circumstances and should be discussed with your legal counselor.