RESOURCES

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CONTENTS (scroll down)

1. Establishing your Corporate Identity   

2. Is a Trust for You or Will a Will Simply Do?

3. Instructions for Funding a Revocable Trust

4. Strategies to Reduce Capital Gains Taxes

 Our firm is dedicated to helping our clients with several legal issues encountered in registering their corporate entities. In addition to preparing and ensuring timely and efficient filing of your organizational documents, We will ensure you establish the most advantageous corporate structure for tax and liability purposes, including statutory language in your Articles to protect your business and personal assets. The first thing any small business must do is determine the right structure for their business entity, such as a corporation or limited liability company.

A Corporation is considered by federal and state law to be an artificial legal entity that exists separately from the people who own, manage, control, and operate it. When you operate a business as a sole proprietorship, any liability is assumed by the owner of the company.  Therefore, the owners personal, as well as business assets, are vulnerable to litigation.  Incorporating your business, however, creates a separate entity from that of the owners or shareholders and therefore the personal liability is not exposed to any litigation.

A Limited Liability Company, or LLC, is similar to a partnership but has the legal protections of personal assets that a corporation offers without the burdensome formalities, paperwork and fees; however, the exact rules for forming an LLC vary by state. Forming an LLC may help a new business establish credibility with potential customers and provide tax benefits without the need to follow all the restrictions imposed on S corporations.

Our firm’s approach to corporate and business law practice involves assistance with nearly every aspect of business dealings:

1. Registering your business entity with your local jurisdiction by preparing and ensuring timely and efficient filing of Articles of Incorporation or Organization. 

2. Establishing your business entity’s Bylaws or Operating Agreement that details the business arrangement, including members’ percentage ownership, roles, rights and responsibilities.

3. Preparing the requisite tax documents to ensure proper registration with your local jurisdiction. We also secure your Federal Employer Identification Number (EIN) to comply with IRS regulations.

4. Establishing or serving as Registered Agent for your business entity, pursuant to your jurisdiction’s designation requirements.

5. Obtaining proper licensing or permits to ensure compliance with all applicable local, state and federal regulations, avoiding expensive fines and penalties that may jeopardize your entity.

We understand the legal issues involved with establishing your business entity and have the experience needed to help our clients with all areas of business operations. Making use of our extensive experience to incorporate applicable safeguards, we pay special attention to, and help our clients assess opportunities and assess applicable tax and other liability concerns, including the best methods of limiting the same.  

Typically the first question posed by clients interested in planning their estates is whether they need a trust or a will and what’s the difference. Wills and trusts are both intended to direct how to distribute assets after death. While trusts are currently a popular alternative to simply executing a traditional will, each instrument has its own advantages and disadvantages. Clients are advised to weigh these advantages and disadvantages before deciding on one or the other. Dying without a valid will or trust is known as dying intestate, which means that state law controls how your property is distributed, usually to spouses and closest heirs. The old yarn says that if you die without a will, the government has one that’s just right for you!

What is a Will? 

A will is a legal document that provides for orderly distribution of your property, both real (houses and land) and personal (money and things). Once you create a will, it does not come into play until you die, at which time the local probate court supervises execution of its terms. The essential elements of creating a valid include 1) identifying a “Personal Representative,” who will oversee the administration of your estate; 2) designating beneficiaries who will receive specific items, or bequests, from your estate; and 3) nominating guardians or conservators for minors or incapacitated individuals. And, of course, a will needs to be witnessed and executed properly, pursuant to local law.

What is a Living Trust?

Unlike a will, a living trust is a document that is in force during your lifetime, and it is not subject to the jurisdiction of the local probate court. While you are alive, the living trust is used to manage your property and any income generated by it to your benefit. After death, the trust is used to distribute the assets in a manner similar to that of a will. If you should become incapacitated or disabled, the trust also is used to manage your affairs, usually by a “successor” trustee whom you have identified in advance. A living trust is revocable, which means that you can make changes to it, or simply dissolve it. This mechanism allows you to transfer “ownership” of your assets into the trust, which is a separate legal entity, and usually with its own tax identification number. Typically, the most significant asset held in trust is the family home, and the way to achieve this is to deed the property to the trust and then record the new deed at the Recorder of Deeds. Living trusts may be individual or joint, although the latter should only be used after thorough consideration with legal and financial professionals.

The Pros and Cons of Trusts and Wills

So, how to choose?  Here are the advantages and disadvantages of each:

1. Probate. A will is subject to probate, while a living trust is not. With a will, your out-of-state weekend home requires probate proceedings in that state as well, while a living trust avoids probate in both jurisdictions. Court supervision of a will provides an automatic mechanism for handling beneficiary challenges and creditor disputes, while a living trust provides no such mechanism. Finally, a will becomes a public document at the time of death, while a living trust remains private.

2. Taxes. Wills and living trusts provide the same tax advantages and disadvantages.

3. Asset Management. A living trust allows you as the grantor and initial trustee to manage trust assets as long as you are both able and willing, with the role assumed by a successor trustee to take over should you resign or become incapacitated. Managing assets with a will in place usually requires a combination of powers of attorney and court-approved financial guardianships.

4. Costs.  Living trusts are more expensive to prepare, fund and manage than simply executing a traditional will in part because even if you create a living trust, you will need also to execute what’s called a “pour-over’ will, which provides a way for any assets not held in the trust at the time of death to be put into the trust. However, the cost of probating a will can be very high, while the living trust avoids probate altogether. 

In sum, each estate planning situation tends to be different and the right choice for a testamentary document needs to be tailored to individual needs. Regardless of whether one chooses a will or a living trust, it is crucially important to have an asset management and distribution plan in place.

Once you have executed your estate planning documents, you should take steps to fund your revocable living trust in order to maximize its usefulness as probate avoidance, estate planning and financial management tool.

Set forth below are general instructions regarding the manner in which you can fund your Trust with the various assets of your estate. We have attempted to cover all types of assets which you now own and can expect to own during your lifetime. In the event that an asset you may acquire in the future is not covered by these instructions, or should you have any questions regarding the funding of your Trust, please contact us.

Trust Name

For the purposes of funding your Trust, we recommend that your specific Trust name (on the Trust document itself and in your Certificate of Trust) and identifying information be supplied to the various institutions with which you will have contact in the funding process. For example:

"Michael R. Doe, Trustee, The John J. Smith Revocable Trust, dated September 1, 1945"

You may find that you or a particular depositary institution holding a trust account may want to present the name of your Trust on its records in a slightly different way than set forth above. As long as the Trust's name and the Trustee's name are clearly identified on the institution's records, a slight variation from our suggested language is no cause for concern.

Tax Identification Number

In all instances where a federal tax identification number is requested for your Trust, you may supply your own Social Security Number or you may apply for a separate number from the IRS. If the latter, we can accomplish this task on your behalf.

Tangible Personal Property

It is unusual to transfer certain types of tangible personal property to your Trust: furniture, household goods, personal effects, automobiles, boats. However, if you own or acquire a very valuable item of tangible personal property, it may well be desirable to place that item in your Trust in order to avoid probate of that asset at your death. Items that are titled through a government agency such as cars and boats, should be titled in the appropriate trust name. The two methods by which other items of tangible personal property can be transferred to your Trust are (1) written assignment of the item to your Trust (e.g., by Declaration of Gift, which we can prepare) or (2) placing the item in a safe deposit box in the name of your Trust (see the paragraph below captioned Gold, Silver, Other Precious Metals, Jewelry, Collectibles). If you feel you have an item of tangible personal property that you may want to put into the Trust, please advise us of this fact so that we can determine if that item should be placed in your Trust.

Cash Accounts (Checking, Savings, Certificate of Deposit, Moneymarket Funds, etc.)

You should open a bank account or a money market account at the institution of your choice titled in the name of the Trust (as set forth above), and transfer to that account the funds you are currently holding in various bank accounts.

Title to a bank account is normally indicated by a signature card which should be registered in the name of your Trust. You should be prepared to present a copy of the executed Trust Agreement to the bank official completing the signature card. The Bank official will want to assure himself that the Trust instrument creating your Trust has been properly drawn and executed before opening an account in the name of your Trust. All Trustees should sign the signature card so that any of them may sign checks. If you have a credit union account, the institution's policy might not permit the account to be registered in the name of a trust. In such event, you may inquire if your Trust can be listed as the beneficiary of the account. This designation is sometimes referred to as a "Pay on Death (P.O.D.)" designation. If the credit union account cannot be registered in the name of your Trust, you should also determine whether the credit union will honor your General Power of Attorney in the event access to the credit union account is necessary at a time when you may be incapacitated.

Gold, Silver, Other Precious Metals, Jewelry, Collectibles

Any gold, silver or other precious metals, jewelry or small collectibles can be transferred to your Trust by placing such metals, jewelry or collectibles in a safe deposit box titled in the name of your Trust as set forth above.

Real Property

Real property titled jointly will pass to the surviving joint tenant at death outside of probate. In most states an interest in real estate owned by an individual in his or her sole name will be subject to probate, and real estate outside your state of domicile will be subject to an ancillary probate in that state. You may, if you want to, put a real estate interest, including a partial interest in the form of a tenancy in common, into your Trust. Under Federal law this transfer cannot be deemed to trigger a due-on-sale clause in any secured financing on the property if it is personal use property, i.e., a primary residence or vacation home. If you leave real property held in your sole name outside your Trust, however, you will be relying on your General Power of Attorney for the management of this property should you become incapacitated during your life. (We have attempted to list in your General Power of Attorney all freehold real property investments you own, either in fee simple, tenancy by the entirety, joint tenancy, or tenancy in common, but not interests in partnerships or corporations holding real estate. This is important because your attorney-in-fact will probably not be able to convey insurable title in real estate unless it is specifically listed in the Power of Attorney). Please let us know if we failed to list any real estate interests in your Power of Attorney. By adding your principal residence to your Trust, and assuming you are the sole owner of the property, you will be able to avoid drawn-out and potentially costly probate proceedings. If you have any out-of-state properties that you plan to sell in the foreseeable future, it may not be worth the trouble and expense at this point of putting those properties into your Trust. However, if you have or acquire real estate outside of your state of domicile that you plan to hold on to, you should seriously consider titling it in the trust name.

The transfer to your Trust of real property can only be accomplished by executing and recording a deed. The deed should be prepared and recorded by an attorney in the state in which the property is located. If you request, we will be happy to arrange for the preparation of any necessary deeds by an attorney in the state in which your property is located. Before the transfer of the real property to the Trust is made, you should be aware of any transfer of title or recording fees which may be assessed and you should be sure your title insurance will not be impaired by the transfer. Although this is usually not the case, a new endorsement of your title policy may be required.

Stocks, Bonds, Securities, Street Accounts, Promissory Notes, etc.

Marketable securities held in a street account with a stock broker can be transferred to your Trust by establishing a street account in the name of your Trust as set forth above and then transferring the securities to that account, or by retitling your existing account. We recommend that you hold trust securities in a trust brokerage account to facilitate transfers and record-keeping.

Any stock or bond certificate can be transferred to your Trust by registering the certificate to reflect the name of your Trust as set forth above. One method to reregister the certificate is to take it to the stockbroker with whom you do business and request that the stockbroker have the certificate reregistered. The broker may want to review a copy of the Trust Agreement. The stock broker will send the certificate to the transfer agent for cancellation of the old certificate and reissuance of a new certificate in the name of your Trust. You may also deal directly with the transfer agent, but if the certificate is lost in the mail, you will have to obtain a lost certificate bond in order to have a new certificate issued. Whether you go through a broker, or deal directly with the transfer agent, the back of the certificate, or an irrevocable stock power identifying the certificate, must be signed by you and your signature must be guaranteed by a bank, trust company, or a New York Stock Exchange firm, before surrendering it for reissuance. Before you sign the certificate or irrevocable stock power, you should fill in the name of your Trust as the transferee. A promissory note can be transferred to your Trust by assigning the beneficial interest in the note to your Trust. If the note is secured, the security should also be assigned. Bearer bonds can be transferred to your Trust by a written assignment, or by placing the bonds in a safe deposit box titled in the name of your Trust (see Gold, Silver, Other Precious Metals, Jewelry and Collectibles above).

Limited Partnerships

To transfer a limited partnership interest to your Trust, title to a Certificate of Limited Partnership should be reregistered to reflect the name of your Trust as set out above. The certificate can usually be reissued by the General Partner upon surrendering the present certificate with a request that it be reregistered. If the partnership interest is expressed in the Articles of the Limited Partnership, the General Partner should be requested to issue an addendum to the Articles, reflecting ownership in your Trust. Some limited partnerships restrict the ability of a limited partner to assign his or her interest. Consent of the General Partner may be required. If the Limited Partnership purports to own real estate, but in fact your individual name appears in the recorded deed, then you should have a deed prepared to reregister the recorded title, in addition to the change of the partnership interest. Once again, you should inquire as to whether this will cause any transfer or recordation fees to be assessed.

Oil, Mineral and Gas Interests

Oil, mineral and gas interests can be quitclaimed to your Trust, and any existing leases can be assigned to your Trust. Title should reflect the name of your Trust to which the interest or lease is transferred as set forth above. We can prepare these documents. You can expect us to request that you furnish us with a copy of the present title and any such lease. If these are partnership interests, the General Partner's consent may be required.

Retirement Plans

An account under a pension plan, IRA, Keogh, etc., may reflect your Trust as primary or alternative beneficiary. You should contact the benefits department of your employer, the account holder or the plan administrator, to confirm your presently designated beneficiaries or to secure the proper form for designating new beneficiaries. You may designate one or more individuals as beneficiaries of your retirement plans, or you may designate your Trust as beneficiary so that the plan proceeds will be distributed as part of your overall estate plan. You should not name your estate as beneficiary because in that event the plans will be subject to probate. There are a few common reasons for naming a trust as beneficiary of an IRA. One is to maintain control -- to ensure that the assets of the IRA are distributed according to the same plan that is set up in your trust. Such control may be important if, for example, the beneficiary is a child or has special needs. Another reason is to fund a bypass trust -- that is, to make sure that you can make optimum use of your estate tax exemption amount.

However, there are plenty of disadvantages to naming a trust as beneficiary. For one thing, you will be funding the trust with pretax money. If you direct $500,000 of IRA money into the trust, the trust will not actually be funded with $500,000. It will be $500,000 minus the taxes owed on the IRA when the money is distributed. By contrast, if you put $500,000 of cash in the trust, the trust is funded with the full $500,000, because the cash is after-tax money.

If you are married, another risk in naming a trust as beneficiary is that your spouse cannot automatically roll over your IRA into an IRA in his or her own name when you die. For a spouse to be able to do that, the spouse -- not the trust -- must be the beneficiary. Being able to roll over a deceased spouse's IRA often is a huge advantage and one that should be discussed with your accountant before giving it up.

Life Insurance

Life insurance policies may reflect your Trust as the primary or alternate beneficiary using your Trust's name as set forth above. Changing the beneficiary designation should be done through the agent handling the insurance or account, or through the benefits department of your employer. You may designate one or more individuals as beneficiaries of your life insurance, or you may designate your Trust as beneficiary so that the insurance proceeds will be distributed as part of your overall estate plan. You should not name your estate as beneficiary because in that event the insurance will be subject to probate.

Avoidance of Probate

Assets titled in the name of your Trust at the time of your death will not be subject to the legal and other expenses, public disclosure and delays of probate. Neither will retirement plans or life insurance proceeds payable to your Trust be subject to probate. Neither will assets held as joint tenants with right of survivorship be subject to probate. Only assets held in your own name alone will be subject to probate.

You’ve worked hard and made smart financial choices in building equity over a lifetime. When it’s time to liquidate an asset or investment, you can reduce capital gains taxes by claiming specific expenses related to the acquisition, improvement, and sale of your property or investment. These deductions help lower your taxable gain and can significantly reduce your tax liability.

What are they?

1. Acquisition Costs

These are some of the expenses that often are in play when purchasing the asset and can be added to the cost basis:

• Purchase price of the asset
• Stamp duty, recordation and transfer taxes
• Legal fees related to the acquisition
• Survey and appraisal fees
• Title insurance premiums
• Broker or agent commissions paid at acquisition

2. Capital Improvements

Only improvements that add value, prolong the asset’s life, or adapt it to new uses qualify. Routine maintenance does not.

• Major renovations (e.g., new roof, room additions)
• Upgrades (e.g., kitchen remodeling, HVAC installation)
• Landscaping projects
• Accessibility modifications (e.g., ramps, widened doorways)

Note: Keep detailed records and receipts to substantiate these improvements.

3. Selling Expenses

These are costs directly related to the sale of the asset and can be deducted from the sale price:

• Real estate agent commissions
• Advertising and marketing costs
• Legal fees for closing
• Escrow and transfer fees
• Home staging or inspection costs
• Repairs made to facilitate the sale (if not considered capital improvements)

4. Depreciation Recapture (for rental property)

While depreciation itself isn’t deductible, it affects the adjusted basis. You must account for depreciation recapture when calculating gains, but prior depreciation reduces your taxable gain.

5. Losses from Other Investments

Capital losses from other investments can offset capital gains:

• Short-term and long-term capital losses
• Unused carry forward losses from previous years. 

The IRS allows up to $3,000 of net capital losses to offset ordinary income annually, with the remainder carried forward.

6. FSBO Selling Costs (For Sale by Owner)

Even if you sell without an agent, you can deduct:

• Listing fees
• Photography and virtual tour costs
• Legal document preparation

THIS INFORMATION IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE DO NOT ACT OR REFRAIN FROM ACTING BASED ON THIS DOCUMENT. ACCESSING THIS INFORMATION DOES NOT FORM AN ATTORNEY/CLIENT RELATIONSHIP. THIS DOCUMENT IS SIMPLY FOR INFORMATIONAL AND LEGAL ADVERTISING PURPOSES. CONSUMERS OF THIS INFORMATION ARE ENCOURAGED TO CONSULT WITH TAX AND LEGAL PROFESSIONALS.