Estate and Business Planning Legal Blog

Saturday, March 14, 2015

The Importance of Establishing A Supplemental Needs Trust


                       It is extremely important for the parents of a child with special needs to embark on estate planning early on in the child’s life. First, in order to permit the child to collect government benefits, assets should not be held in the child’s name.  Perhaps more importantly, the parents should establish a special needs trust, to enable them to leave monies to their child upon their death without jeopardizing those benefits.  The monies in the trust will also be available to the trustee in order to enhance the quality of the child’s life.  While many parents expect that their other family members will look after the special needs child, financially and otherwise, there can be adverse tax and other consequences if they provide financial assistance without the benefit of such a trust.














IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Saturday, February 28, 2015

Protecting Inherited and Gifted Assets in a Divorce


In New York, as in many other states, gifted and inherited assets are considered “separate” property for matrimonial purposes.  Essentially, this means that you need not share those assets with your spouse in the event of divorce.  However, it is extremely important that you keep those assets in your own name, and do not use them for marital purposes, mingle them with other assets, or add your spouse’s names to the titling of those assets.  If you do, they lose their separate character and are subject to equitable distribution in a divorce proceeding.

Thursday, January 29, 2015

Buying & Selling Commercial Real Estate: Some Practical Tips

More and more business owners are deciding that purchasing a building for their business use is a better option than leasing space.  While real estate prices are currently at a high level, there has been a renewed confidence in the strength of the real estate market in general. 

Once you have decided on a parcel of commercial property you are interested in buying, it is absolutely imperative that an environmental assessment be done and a professional engineer be engaged to inspect the building.  Ideally, these assessments should be done prior to contract, but the seller will typically insist on having a signed contract beforehand.  At a minimum, the contract of sale should provide the purchaser with a reasonable due diligence period, during which environmental and other assessments can be made.  Additionally, the purchaser should have the unqualified option to terminate the contract in the event these assessments uncover problems.  In the event unfavorable conditions are detected, you will at least be in a good position to negotiate a lower price if you should decide to proceed with the deal.  

It is likely that the purchaser of commercial real estate will find it necessary or desirable to finance the deal with a mortgage loan. It is important for the buyer’s attorney to negotiate a liberal mortgage contingency clause, so that if the loan application is not approved, you can get out of the deal without losing your contract deposit.  It is generally advisable to form a new corporation or limited liability company to take title to the commercial property, one which is separate from your operating company.  In the event someone is injured on your property, it is desirable to limit your liability to the value of the property and not subject the value of the business to any loss.

The seller of commercial real estate may wish to consider utilizing a 1031 exchange, in order to defer capital gains.  In order to defer the gains, you must purchase a like-kind piece of property within a limited period of time.  You need to employ the services of a 1031 intermediary in order to accomplish this objective.  

Even if you are not interested in purchasing commercial real estate for use in a business, you may wish to use the real estate as an investment vehicle.  In these instances, it is still imperative that the appropriate inspections and assessments be made.  Whether purchasing commercial property for use in your business or as an investment, one should retain experienced counsel in order to negotiate the real estate contract and provide guidance in due diligence matters.

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Tuesday, January 13, 2015

Living Trusts: Are They For Everyone?

The mere mention of the word “probate” usually instills fear in people, conjuring up images of estates dragging on for years and incurring enormous expense. Seminars and books promoting living trusts are pervasive and they foster the misconception that probate is always an evil to be avoided.  Living trusts are touted as devices which avoid estates taxes and protect assets from long term health care costs.

The truth is that living trusts do not generally avoid taxes, nor do they preserve assets. The only type of trusts which can serve this dual function are irrevocable trusts.  Establishing a living trust can accomplish the purpose of avoiding probate, if you are successful in transferring each and every of your assets into the trust.  If you forget or are unable to transfer an asset into the trust, probate will still be required.  Moreover, certain assets, such as items of personal property, furnishings, jewelry, and works of art cannot be placed into a living trust.  If you own a cooperative apartment, you will need to obtain the permission of the coop board in order to transfer the apartment, which permission is commonly denied.  Lastly, funding a living trust can be an arduous process.  The deeds to your real property will need to be changed, and your bank and brokerage accounts will have to be closed and re-opened in the name of the trust. 

While probate can be a long and costly process in some states, that is not generally the case in New York.  As long as the executor and attorney for the estate perform the work promptly, and there is no contest by a disgruntled family member, probate can be accomplished within weeks.  Much of the delay encountered in the administration of an estate is caused by the need to transfer assets into beneficiaries’ names, and by tax issues, neither of which can be avoided by having a living trust.

While a living trust is not appropriate for everyone, it is advisable in certain instances.  If you own real property in more than one state, creating a living trust for that property will avoid the need for a second probate proceeding.  This is especially true if your property is located in a state where probate is a lengthy and expensive process.  If you are or become a resident of another state where probate is difficult, you may wish to create a living trust for all of your assets.  Moreover, if your only next of kin are distant relatives who may not be easily located, or where it is  expected that a family member may contest your will, having a living trust would be beneficial.

In short, if one is interested in avoiding delays in the settlement of one’s estate,  having your affairs in order is essential.  Selecting a responsible Executor and attorney who can handle matters competently and efficiently is an important part of the process.

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Friday, January 31, 2014

What to Do When Your Spouse Becomes Ill


Knowing what to do when a loved one becomes ill can alleviate some of the uncertainty and anxiety that normally follows. Oftentimes, people panic and start making changes to their estate plan without first consulting with an experienced attorney or tax advisor. Family, friends, and others who want to help, tend to give well-meaning advice. They may suggest putting assets into the name of the well spouse alone, transferring assets, and/or adding or changing beneficiaries to accounts. Following such advice without considering the tax and other consequences can have unintended, adverse consequences. One should not begin to make changes to bank accounts and other investments unless and until all of the tax implications have been examined.

One of the first steps one should take when a spouse becomes ill is to visit with an attorney experienced in the areas of estate planning, tax and elder law, to make sure that you have all of the legal documents which you may need. For example, a health care proxy/living will and power of attorney are essential legal instruments. Making a detailed list of all of the assets owned by you and your spouse, and locating important financial information is also essential, so that tax planning can be properly undertaken. If one has a safe deposit box, it may make sense to consider emptying the box in advance, if the illness is severe, or at least making sure a deputy is appointed and has access to the box.

In the event of death, surviving spouses should not begin to collect life insurance proceeds or the decedent’s IRA or other retirement funds, nor should the spouse begin to remove the decedent’s name from assets, until legal advice from an estate planning attorney has been obtained. If a potential estate tax problem exists, a surviving spouse may want to "renounce" his or her interest in certain assets (i.e., not accept them), thus allowing the assets to pass to children or into a credit shelter trust created under the decedent’s will. One may not renounce if one has already exerted some control over an asset; thus, it is very important not to take any action with respect to assets until one is certain that a renunciation is not beneficial. In order to be valid, a renunciation must be done within nine (9) months of death.

In short, there is much to do when faced with the illness and/or death of a loved one. Knowing what to do during these difficult times can reduce stress and uncertainty and provide some comfort to the family.

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IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Thursday, November 21, 2013

The Need for Written Agreements


While it would be wonderful if business could be conducted on a hand-shake, the unfortunate reality is that informality can often lead to disputes. Putting all of your deals in writing, no matter how insignificant they may appear, makes good legal and business sense.

It is essential that the most important elements of any business transaction be committed to writing.  First, the business owner’s insistence on a written agreement lends credibility to the transaction.  Put frankly, customers are more likely to take you seriously if you require the execution of an agreement and, where practicable, a down payment, prior to the delivery of goods and/or services.

Having an executed agreement which specifies the nature and quantity of the goods and services to be delivered and the prices to be charged is much more likely to prevent disputes, as both parties are keenly aware that a written contract is usually enforceable.  It is not uncommon for a customer to refuse to pay for services because of a "misunderstanding" as to the nature and extent of the services to be provided. In  the event a dispute turns into a litigation, having a contract, with the terms of the deal spelled out, is an absolute necessity in one’s effort to obtain a prompt and successful outcome.

While you probably do not need an attorney to prepare all of your agreements, it is helpful to employ an attorney for the purpose of preparing a relatively simple, generic form of contract which can be used in most of your dealings.  Of course, the generic form will need to be adapted for different situations, but the contract can be prepared with this in mind.  In most cases, the business owner can adapt the form to each situation without the need to consult the attorney in every instance.  If you currently have agreements, invoices, purchase orders, and similar types of documents which you use in your business, it is helpful to have them reviewed periodically by an attorney.  Often, the agreements can be improved significantly without a great expenditure of time or money.  These documents may also need to be revised to meet changing circum- stances.

In summary, while changing your business practices to require written agree-ments in your business dealings may be initially troublesome, using them will save you the time, inconvenience and cost that will be incurred if a dispute arises. For a relatively modest cost, you can limit the occasions for litigation.

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Thursday, August 15, 2013

Is it Time to Review and Update Your Estate Plan?

It is a good idea to periodically review your will, health care proxy, living will, power of attorney and trust agreements to see if the contents of the documents still adequately reflect your wishes.

Typically, a change in family circumstances, such as a marriage, divorce, remarriage, or the birth of children, may necessitate revisions to your estate planning documents. If you have moved your residence or purchased property in another state, you should consult with an attorney in order to determine what modifications to your estate plan may be required as a result of the move and/or purchase.

It is also imperative that you keep a current inventory of your assets and that you review the titling of the assets and the beneficiary designations, if any. This is important for several reasons. For estate tax purposes, you need to know the total value of all your assets in order to determine if you have an estate tax problem. Additionally, if something happens to you, your heirs should be able to locate your assets fairly readily, without having to dig through papers and conduct time-consuming searches. Perhaps more importantly, you need to check the ownership of your assets. If you have made any provision for the creation of trusts under your will or pursuant to a revocable living trust, the assets should be titled so that they pass according to the terms of the trust. A common problem is that spouses fail to separate their assets in order to fund testamentary trusts, thus resulting in an estate tax problem.

You should look to see if any of your children are joint owners of any of your assets. If a child is a joint owner, the asset will automatically pass to that child upon your death, regardless of what your will says. Such a joint ownership necessarily means that the child has present ownership rights. If that child were to get involved in a divorce proceeding or other litigation, the asset might be at risk. Beneficiary designa-

tions on annuities, life insurance policies, IRAs and other types of retirement accounts should also be reviewed to make sure they are current and properly reflect your desires and estate planning goals. A frequent misunderstanding is that the terms of one’s will controls the disposition of one’s assets; however, that is not true if assets are jointly owned or list beneficiaries. In those instances, the beneficiary designation or form of ownership actually supersedes the terms of one’s will.

In summary, it is important to take the time to periodically review your estate plan, especially with the guidance of an attorney experienced in estate planning.


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IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Thursday, May 9, 2013

The Benefits of Establishing A Trust

Clients are often and understandably confused about the differences between irrevocable trusts and revocable living trusts, and the consequences they each have for asset protection, estate planning and taxes.

Those who advocate living trusts commonly lead people to believe that these trusts will reduce estate taxes and protect one’s assets in the event long-term health care is needed. While living trusts serve the purpose of avoiding probate, they do not protect your assets. Since you maintain control over the assets in your revocable trust, they are still considered available to pay for your health care needs. Similarly, unless a living trust creates certain types of irrevocable subtrusts, it does not reduce one’s taxable estate since the person creating the trust maintains complete control. Notwithstanding the foregoing, living trusts are extremely beneficial in certain instances, where, for example, the person creating the trust has disabled heirs, in situations where it is believed that some heirs are likely to protest the estate plan, or where the heirs are distant relatives. In these situations, having a living trust will have the effect of avoiding a more lengthy and costly probate process. Additionally, if one owns real property in another state(s), establishing a living trust will mean that your heirs won’t have to go through a second probate in the other state(s).

The only way to protect assets from long-term health care costs and creditors is to transfer assets to family members or to an irrevocable trust. Putting one’s home into such a trust can be quite beneficial. In most instances, one does not rely on one’s home as an income source with which to pay bills; therefore, transferring ownership to an irrevocable trust usually has no effect on one’s lifestyle. If properly drafted, an irrevocable medicaid trust can protect the home from long-term health care costs and from creditors, while at the same time provide great flexibility. One can retain the right to reside in the home for the rest of his or her life, and also direct that the home be sold and another be purchased in its place. The trust can also be designed to prevent capital gains tax problems and to preserve senior citizen and veterans tax exemptions. Lastly, by transferring your home to a trust you not only avoid probate (in connection with the home) but you also avoid the dangers inherent in transferring your home directly to your children.

Of course, one should consult with an experienced attorney with expertise in estate planning and taxes before embarking on the creation of any trust, and such a creation should be done in connection with developing a comprehensive estate plan.

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IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Thursday, May 9, 2013

Starting Your Own Business: The Basics

Embarking on a new business enterprise is indeed exciting. While it is tempting to move quickly to build the business, it is imperative that the owner/operator take care of certain details early on. Doing so will help to ensure eventual success.

After initially setting up the corporation or limited liability company, it is important to turn one’s attention to the contract issues which typically confront businesses. Perhaps the first one which needs to be tackled is the commercial/office lease. It is essential that the terms of the lease be reviewed carefully. Many items, such as real estate tax escalations, the ability to sublet, and responsibility for repairs, are extremely important in determining the financial viability of the lease. Often, these types of issues can be negotiated successfully when handled by an experienced attorney.

If you are starting your business with one or more partners, then having a shareholder or operating agreement is absolutely necessary. Such an agreement serves to define the roles of the various parties, the division of profits, and the procedure to be followed if a partner dies, retires or otherwise wishes to leave the business.

When hiring employees, it is imperative to have a written confidentiality and non-compete agreement, to protect the company’s intellectual property, customer lists, and the like, and to prevent employees who leave from taking business with them. An employee handbook is also important in delineating what is expected of employees and what benefits they can expect to earn.

Depending on the type of business you have, you will likely need written agreements in place, ones which detail the services or products you supply, with the prices, delivery methods, and payment terms clearly specified. Having agreements memorialized in writing can prove quite effective in avoiding payment problems and other disputes.

In summary, starting a business can be a wonderful experience. It can be made less difficult and more productive if one knows in advance what legal and business issues are likely to arise and has a plan to resolve them at the outset. Having an experienced attorney guide you through the process can prove invaluable and save the business owner a great deal of time, trouble and money down the road.

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Friday, March 22, 2013

Planning for the Future of Your Business

It is extremely important, from time to time, to take a break from the rapid pace of business and devote some attention to the future and your long-term goals.  Whether you are at a stage in life where you are just beginning to grow your business, or you are at a point where you are looking to spend less time at work, putting together a plan is essential.

If your goal is to gradually spend less time working, then you will need to think about your personnel situation and how to attract and retain employees who will be able to provide leadership in your absence.  Perhaps you will need to offer financial and other incentives to employees in order to accomplish this goal.  A written employment agreement may be necessary or desirable, with profit participation provisions.  Alternatively, you may wish to consider finding a  business partner who can share some of the burdens of operating your company, and relieve you of responsibilities so that you can devote more time to your personal goals.  Of course, finding a partner will necessarily involve preparing a shareholder or partnership agreement which spells out each of the parties’ duties and responsibilities.  The agreement should also provide for a mechanism in the event a partner dies, becomes disabled, or wants to leave.

If you have mature children, you may wish to involve them in the business, with a view toward having them take eventual day-to-day control and responsibility.  Hopefully, this will allow you to enjoy more leisure time.  Passing on the business to them in a gradual fashion may serve the purpose of rewarding them for their work and devotion and providing them with incentives to succeed.  It can also serve the purpose of reducing future estate tax problems.

Regardless of age, one must make financial and other provisions for family in the event of death or disability.  At an absolute minimum, you need to prepare a will, making clear what should happen to the business, to real property, and to other assets which are owned.  It must be ascertained if an estate tax problem is likely, and if it is, planning needs to occur so that the problem will be reduced, if not eliminated entirely.  Funds need to be made readily available so that taxes can be paid in a timely fashion without family members having to sell off assets quickly in order to meet payment deadlines .

In summary, it is imperative that we all take some time to sit back and look at where our business is and where it’s going, so that we can achieve our business and personal goals. 

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Wednesday, February 13, 2013

Acquiring Computer Technology: The Need to Negotiate Your Contract

Many business owners and managers feel comfortable negotiating the general terms of computer agreements. Often, the purchase or rental of computer equipment or software seems like any other acquisition of office equipment. The stakes, however, are dramatically higher when computers are involved.

Whether you are leasing or purchasing the software or hardware, having software developed for you, or simply seeking a service contract for an existing system, one or more contracts will be offered for your review and signature. The contracts are often lengthy, detailed and technical, yet appear to be quite "standard". Generally, the company seeking to sell its product or service will give you the impression that the form of contract is one which is universally employed, that review and execution is a mere formality, and that the provisions are not negotiable. This may be especially true when the company offering the contract is a large and established one.

There are many reasons for seeking the advice of an attorney prior to the execution of a computer contract. Clearly, if your business depends or will depend heavily on computers, then any malfunctioning of the system will seriously affect your operations. Moreover, the acquisition of computers often entails a large outlay of capital.

Certain topics covered by the typical computer contract are crucial, and the manner in which they are handled can either save you a good deal of money, time and anxiety, or they can cost you dearly. For example, the commencement date of the contract or the time at which the system is "accepted" by you should not occur unless and until the system has been installed and is operating properly. The time period for implementing the system should be specified, as well as your recourse if the schedule is delayed. Perhaps more importantly, you should be assured that technical assistance will be provided. If you should experience a problem with the system, you do not want to rely on a company which simply offers telephone assistance that is offered on a "best efforts" basis. You want to know that you will receive assistance within a 24-hour or 48-hour period.

In summary, computer contracts are not as standard nor simplistic as they may first appear.  Even a cursory review by an attorney knowledgeable about computer contracts can save the business owner a great deal of money, time and trouble.

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