Why Protecting Your Assets with a Will Is a Smart Resolution for 2015

will-and-testament.jpgNote:  If you follow my blog you may remember that I first posted this at the beginning of 2014.  Because the information has not changed and the message is still as important today as it was then I am posting this again.  If you read it last year and don’t remember what it said, it is worth reading a second time.  If you have never read it, the information is relevant to everyone. 

No one likes to think about what would happen in the event of their untimely death; therefore many people delay their estate planning.   The beginning of a new year is a good time to address the important issues in our lives which should include your estate plan.

I stress to my estate-planning clients — and ensure that they understand it — that they do not draft an estate plan for themselves but for the family members they leave behind.

For those who die without a will, which we call intestate, the Commonwealth of Massachusetts  controls the ultimate distribution of your probate assets.   A probate asset is any asset that does not pass by operation of law.  What does that mean?  The easiest way to explain this concept is to provide a couple of examples.

Example 1.  If you own your home with your spouse and it is titled in both your names as “tenants by the entirety,” when one of you dies the ownership of the house transfers automatically to the surviving spouse.  There is no need to do anything else to transfer the ownership of the house because the title to the house passes by operation of law.   (It is extremely important to understand how real property is titled to know what will happen when you die.)

Example 2.  If you have a joint savings account with the right of survivorship, when one person dies, the other person whose name is on the savings account automatically becomes the owner of the savings account.  In both Examples 1 & 2, the asset would pass outside of probate and, even if you had a will, the will would not be used to determine who gets the asset.

So what is the problem for someone who does not have a will?  If an asset does not pass by operation of law, then your estate must be probated to determine who gets the legal ownership of your property.  If you executed a will then the terms of your will controls who will get your probate assets.  If you did not execute a will, the Commonwealth decides who gets your probate assets.

Another significant benefit that a will provides for people with children under 18 is to clearly define who will serve as the legal guardian of your minor children when you are no longer alive.  If you do not have a will, then the Probate Court will decide who should be the guardian of your children.

The bottom line is that one of the most important things you can do for those you care about is to meet with an experienced estate planning attorney and discuss your situation and the best way to take care of those you love.  An estate plan is not for you, it is for them.

I have been practicing law for more than 25 years and estate planning is one of my major areas of concentration.   If you would like to set up an appointment for an initial meeting to discuss your estate planning,  please call me at either 781-934-8200, 781-585-2900 or e-mail me at George@BoergerLaw.com.


Corporate Formalities – Do They Really Matter? Absolutely!

court case, corporate formalityI regularly meet with individuals who are starting a business and advise them regarding the formation of a separate legal entity to conduct their new business such as a corporation or a limited liability company (“LLC”).  The use of a separate legal entity is important because if done correctly, it provides a way to protect your personal assets.  I always stress that forming a legal entity (i.e. a corporation or a LLC) is the FIRST step in the process to protect your personal assets.

Having a legal entity and not operating it correctly can expose you to significant personal liability.  Simply put, you need to make sure the entity’s customers are aware they are dealing with a corporation or LLC (and not you as an individual).  Do all of your correspondence and contracts with your customers clearly identify your company?  Do you always sign documents in your capacity with the company (e.g. president of the corporation or manager of the LLC)?  Do your business cards and advertising identify the company or LLC to customers?

Does any of this really matter?  The answer is a resounding YES and a review of the a recent decision by the Massachusetts District Court Appellate Division in Keane, et al. v. Waggoner, et al. Massachusetts Appellate Division of the District Court, Docket No. 13-ADMS-10033 (2014) explains why.

The facts in Keane v. Waggoner case are not complicated.  The Waggoners were dog breeders and sold a dog to the Keanes.  The Keanes claimed the Waggoners deceived them over the dog’s pedigree and sued the Waggoners.  The Waggoners also sued (filed a counterclaim) against the  Keanes claiming the Keanes did not honor the breeding rights in the contract and for spreading lies to ruin the reputation for the Waggoners.  The Waggoners counterclaim was filed in the name of the LLC under which the Waggoners claimed to have operated their dog breeding business.  After a trial before the district court, the LLC owned by the Waggoners was awarded $60,000 in damages from the Keane’s.  The Keane’s claim for damages against the Waggoners individually was dismissed because the Waggoner’s operated their business under the LLC and thus they had no personal liability to the Keanes.

Unfortunately for the Waggoners, the Appellate Division reversed the ruling of the lower court.  Specifically, the Appellate court held that the Waggoners did NOT operate their business as an LLC because the Court found that the Keanes did not know they were dealing with an LLC instead of the Waggoners individually.  As a result of this finding, the $60,000 judgment awarded in favor of the LLC was reversed.  In addition, the Appellate court remanded the case back to the District Court so that the Keane’s claim against the Waggoners personally could proceed.

The finding of the Appellate Division Court in the Keane v. Waggoner case illustrates why it is important for you to operate your legal entity properly to protect your personal assets.  The details matter.  Failure to pay attention to the details can have serious negative implications.    If you have any questions about how you are operating your corporation or LLC you should talk to your business lawyer.  If you don’t have a business lawyer, please call me at 781-585-2900 to schedule a no cost consultation.

Estate Planning Alert – Details Matter! (Or — You Don’t Know What You Don’t Know)

As we approach the holiday season many of us will attend family events.  We will be reminded of those we hold very dear and want to protect, and to be honest, some of us will realize that there are others we simply want to avoid.  Estate planning is something you do to protect those you care about and it is also done to make sure your bounty is not left to family members you don’t want to benefit from your passing.  A recent meeting with a prospective client highlights the risks of “do it yourself” estate planning and the importance of details.  Simply put – you don’t know what you don’t know.  Please read on.

I recently met with a prospective client who had questions about administering the estate of his long-time partner.  The two had lived together for many years and his now deceased partner used an on-line service to create a trust which left everything to the person sitting across the table from me.  The decedent had two main assets, a car and the home in which they lived.

After going to the registry of motor vehicles and attempting to transfer the car into his name, the surviving partner was told he needed to probate his partner’s estate to complete the transfer.  That is when the surviving partner came to see me.  Upon reviewing the trust I noticed that there was an attached Exhibit A which listed the “assets” held in the trust.  Exhibit A was completed in great detail with information about both the car and the home.   The only problem was that completing Exhibit A did not operate to legally transfer title to either asset into the trust.   There also was no will.  The partner mistakenly thought that all he needed was the trust.

A critical part of estate planning is not only preparing the required documents but also making sure that the title to any assets owned by the person who does the estate planning are appropriately titled.    If you want to transfer an asset into the trust you need to make sure the legal steps are taken to transfer the asset.  For example, if it is real property there needs to be a new deed drawn and also recorded at the registry of deeds.  If you fail to prepare this deed, the property is not in the trust, even if it is listed as an asset of the Trust on Exhibit A.

The bottom line is that unless the partner can find a deed transferring the property into the trust, the property is not in the trust and the terms of the trust will not control.    While there were certainly good intentions to leave his property to his long-time partner, the problem is that you don’t know what you don’t know.  The decedent thought that listing the property on Exhibit A as an asset of the trust was sufficient.  It was not.  Because they were not married and there was no will (just the trust), under the Massachusetts law of intestate succession, the assets will go to the decedent’s siblings, one of which was in a nursing home.

If you have questions about your own estate planning and want to confirm you assets will benefit those you desire (and not others), you should schedule an appointment to talk to your lawyer and make sure what you have done will actually accomplish what you want.  If you don’t have an attorney, call my office at 781-934-8200 for a no-cost initial consultation.

Employee or Independent Contractor – What does it all mean?

It seems that at least once a month I get a call from a business owner with questions about whether the business can or should classify someone as either an employee or an independent contractor.  Before I explain the factors that are used to determine the classification I always explain the significance of classifying someone as an employee versus an independent contractor.  If you treat an individual as an employee, the business must withhold the required employment taxes (federal, state, social security and Medicare withholding taxes) and pay any required unemployment or workers compensation insurance premiums.  In addition, if someone is considered an employee, the business would need to include that person when determining if  it is required to provide the mandated Massachusetts health insurance.  Classifying a person as an employee also has possible implications regarding liability for the actions of that person.

In contrast, if someone is classified as an independent contractor, then all that the business owner is required to do is pay the agreed upon price to the person and send them a 1099 form reporting income paid for the prior year.  The independent contract is responsible for paying all the required taxes and obtaining worker’s compensation insurance.   It is easy to see why businesses would prefer to classify individuals as independent contractors.  However, as you have probably guessed, both the Commonwealth of Massachusetts and the federal government prefer that individuals be classified as employees.  The reason is very simple, while the independent contractor is required to pay essentially the same taxes, the reality is that it is much simpler to collect the tax from one business owner versus all the individuals who may work for that business as independent contractors.

Massachusetts General Laws, c. 149 §149B sets forth a 3-prong test to determine when an individual is considered an independent contractor and states in part as follows:

§ 148B. Persons performing service not authorized under this chapter deemed employees; exception

(a) For the purpose of this chapter and chapter 151, an individual performing any service, except as authorized under this chapter, shall be considered to be an employee under those chapters unless:

(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

(2) the service is performed outside the usual course of the business of the employer; and,

(3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

Under this three prong test, very strict criteria must be satisfied to classify someone as an independent contractor.  The presumption is that someone is an employee unless the exceptions apply.  An example of someone who would “probably” be considered an independent contractor is a bookkeeper who works for many different business.  As long as the business that hires the bookkeeper is not in the bookkeeping business, then the bookkeeper should be classified as an independent contractor (e.g. a lawyer hires a bookkeeper).  However, if the bookkeeper only does work for that one business, then the outcome may be uncertain.  I said the person would “probably” be classified as an independent contractor because the determination is always very fact specific and every case could be different.

What is clear, is that the Commonwealth is taking an aggressive stand in classifying individuals as employees.  If you are treating an individual as an independent contractor you should carefully review all the facts with your attorney to determine if your classification is defensible and to make sure you create and maintain documentation to support your treatment if you are ever audited.   If you don’t have a business attorney, I would welcome the opportunity to meet with you for an initial no cost consultation.

Business Check-Up – Six Essential Areas to Review

The beginning of the year is a great time to stop and evaluate the operation of your business. The failure to pay attention to the legal details of any business operation can lead to some very expensive consequences. The following are six essential areas you should not neglect.

1. Are your annual reports up to date?
If you are operating your business as a corporation or limited liability company (“LLC”) in the Commonwealth you are required to file an annual report. The annual report for a corporation is due on the 15th day of the third month following the close of the accounting year for your company (i.e. March 15 for a calendar year taxpayer). Annual reports for an LLC are due on the date the LLC was organized with the Commonwealth. If your company fails to file its annual report its charter may be cancelled. Make sure your company’s annual reports are current.

2. Are your corporate documents in order?
Do you know if your corporate documents are organized and up to date? Do you know where your minute book is located? (If you don’t know what a minute book is then you should schedule a consultation with your attorney as soon as possible.) If you had a change in ownership (e.g. did your co-owner leave the company or did a new person buy into your company) – do your corporate stock records reflect this change? Do you have minutes of your annual meetings or minutes which approve major activities over the past year? These are just a few of the items you should review to make sure your corporate records are both current and accurate.

3. Are there any lurking employment issues?
If there are others working in your business do you classify them as employees or do you treat them as independent contractors? The classification of an individual as an independent contractor instead of an employee is an area which has generated a fair amount of controversy over the past few years. If you treat an employee as an independent contractor and are audited by the Commonwealth, you could face significant back tax liability and fines if the Commonwealth asserts that the individual should be classified as an employee.  Do your key employees have non-disclosure or non-compete agreements with your company? If not, do you think they are needed? What would happen if your top salesperson quit tomorrow and went to work for your biggest competitor? A non-compete agreement could help protect you if this were to happen.

4. Have you updated your customer agreements? Do you have one?
If you have an agreement with your customers now is a good time to review the agreement to make sure it addresses all of your key concerns. If you don’t have a customer agreement do you need one? Have you had issues with any customers this past year? If so, are there terms in your agreement which can help address and hopefully prevent these issues from recurring? You may have an agreement that is working very well – and if that is the case – great. However, it is always a good idea to review your agreement or have it reviewed by your attorney to help prevent potential problems.

5. Does your current business structure still make sense?
How do you operate your business? Are you a corporation, a limited liability company, a limited partnership, a general partnership or a sole proprietor? If you have not thought about the business structure of your company within the last few years it is good to make sure your organizational structure provides you with the protection you need.

6. What will happen to your business if you die this year? Will your business survive?
If you want your business to continue after your death it is very important to have an effective estate plan in place. This is very important if you have a child working in the business and want that child to continue with operations after you are no longer around. If you have other children who do not work in the business, it is even more important to have an estate plan in place.

The above six areas are some of the more important points you should address to keep your business running smoothly this year. Taking the time to pay attention to the legal needs of your business is important. If you have a business lawyer you should speak with him or her about these issues. If you don’t have a business lawyer, call me for a no cost initial consultation.