Summer is here and everybody is out and about enjoying the great Southern California weather. You are cruising along in your classic 1960 fire engine red Corvette convertible along Pacific Coast Highway. You are going through the intersection on a green light and suddenly you are hit broadside by a Ford F-150 truck. Day’s ruined, car ruined, and body trashed. Now what do you do?

Once you are in a car or bicycle accident, you begin to worry not only about healing your body and fixing your car, but also how you are going to collect against the negligent driver who is responsible. As many of you know, for fourteen years I worked for a law firm that defended all kinds of lawsuits, many of which were vehicle accident cases. Now I represent the injured party, rather than the person who caused the accident, and I understand how the “other side” handles their cases and how best to gather evidence and present the case to maximize my client’s recovery.

In California, if an accident victim wishes to obtain compensation for their medical expenses, property damage, pain and suffering or loss of earnings, they must prove that the other person was at fault. However, the person from whom you are seeking damages need not be 100% at fault to enable you to collect damages. There can be comparative fault whereby one person is partially responsible as is the other party. For instance, if you are entering an intersection that has a speed limit of 40 miles per hour, but you are going 45, and suddenly a car going the opposite direction makes a left turn in front of you, you may be partially at fault. In such a case, say it is determined, by expert analysis, that you were 15% at fault and the other party was 85% at fault; you are entitled to recover 85% of your damages.

PROPERTY DAMAGES  IN CAR ACCIDENTS

Hopefully, you had insurance on your car, which is required by law. Included in your policy can be property damage coverage for your vehicle, although it is not legally required. This allows you to have your car repaired by your own insurance carrier; however, you will have to pay your deductible. If a claim is made against the party that caused the accident that the party’s insurance carrier will not charge you a deductible. Instead, they will pay in accordance with the percentage of fault of their insured. This determination of fault is made by the respective insurance carriers, but is not conclusive. In fact, most of the time, whomever has to pay is going to say that the other person is more at fault so that they can try and convince you to take less money. One carrier may say that fault is apportioned at 60/40, whereas the other may say it is 90/10, if not 100% adverse to you!

MEDICAL PAY IN CAR ACCIDENT

 Also, your own insurance policy may have what is called “med pay”. Med pay is benefits paid to you for your medical expenses and is irrespective of fault. Two things, however:

1. Not all policies have med pay as you pay extra for this coverage and some people do not get it (bad idea); and

2. If you make a claim against another person, your own insurance company has the right to be reimbursed what they paid you from what you collect from the other person. The amount of reimbursement is negotiable and this is where you really need an attorney to help you.

 UNINSURED MOTORIST IN CAR ACCIDENTS

What if the driver who caused the accident is uninsured? Another type of optional coverage is uninsured motorist coverage. This allows you to recover from your OWN carrier all of the damages caused by an uninsured driver. However, this coverage is not required to be given to you in your policy and is optional coverage offered at an additional cost. It is an absolute MUST to have this type of insurance on your policy!!

 RENTAL CAR

Rental car coverage is also an extra on your policy and should be obtained. If you have it, your own carrier provides you with a rental car while your car is being repaired. Without it, the other party’s insurance carrier may not voluntarily provide it to you or may significantly limit the time that you can get it.

 DAMAGES FOR YOUR INJURIES IN CAR ACCIDENTS

One of the most common questions I am asked is: “What is my case worth?” That is like asking a realtor “How much is it to buy a house?” The answer is it depends.

Obviously an accident that causes a sore neck for a few days is worth a lot less than one that breaks a leg. However, I tell people DO NOT WORRY ABOUT WHAT YOUR CASE IS WORTH, JUST GET HEALTHY. The most important thing is recovering from your injuries; let the legal issues take a back seat for now. Get the right treatment, follow your doctors instructions and recover; thereafter we can evaluate what to do and the value of your case.

 OTHER DAMAGES IN CAR ACCIDENTS

There are many aspects of an auto accident case that you may not think of such as:

- mileage to and from the doctors;

- taking time off to heal and use of your vacation time;

- losing a specific business opportunity;

- the need for future medical treatment; and

- the effect upon your spouse as a result of your injuries.

To receive the proper compensation for your injuries and damages, an accident case must be handled correctly from the very beginning. Let us know if you need some help!

 Losing a loved one is painful. Losing a loved one due to wrongful death can be even more difficult. If someone’s wrongful actions caused injuries that resulted in your loved one’s death, that is a wrongful death. In common law, there was no legal action that surviving family members could take. That changed, however, when governments began to make laws protecting survivors. Now, in every state in the U.S., the representative or heirs of a person lost to wrongful death may file a lawsuit for monetary damages.

Monetary Damages for Wrongful Death

The main method courts have for measuring loss in wrongful death lawsuits is pecuniary damages — that is, the court must determine the proper compensation for the financial loss that the death has caused. Though this may seem harsh or cold, money damages are the remedy that civil courts have at their disposal. Thus, when the courts measure loss, the first thing most of them turn to is quantifiable data:

* How much money did the deceased earn?

* How much money did the deceased save?

* How financially dependent were the survivors on the deceased?

The court will also take into consideration:

* Funeral expenses

* Medical expenses

A wrongful death lawsuit is meant to compensate certain surviving family members, not necessarily to punish the party responsible for the death. However, punitive damages are available in some states when the actions of the defendant were reckless or malicious.

Factors in Determining Economic Loss

Courts look at a number of elements when they determine the level of financial loss the plaintiff in a wrongful death lawsuit has suffered. Most of the considerations take into account characteristics of the person who has passed away:

* Earning potential

* Health

* Life expectancy

* Assets

Courts assess these factors when considering the financial dependence of the plaintiff on the deceased.

Some activities that might not seem economic at first glance can be characterized as such by the court. This is because it would cost money to have someone besides the deceased perform the activities. They include:

* Child care

* Housekeeping

* Assistance with a family member’s medical or daily living needs

The plaintiff may wish to use expert testimony to establish the amount of loss.

Factors in Determining Emotional Loss

Not all of the emotional harm suffered by the plaintiff can be compensated by the court. Some aspects of what the decedent contributed to the family, however, are “calculated” by the court:

* Parental guidance

* Companionship

* Affection

In making this determination, the court will look at the strength of the relationship between the plaintiff and the decedent. The weight the court gives this type of loss changes based on the particular state’s laws.

Survival Action for the Injuries of the Deceased

Some courts will allow the plaintiff to sue for injuries sustained by the person who died. This is called a “survival action” because the legal claim survives after the injured person’s death. This claim could be presented at the same time as the wrongful death lawsuit. If this is allowed, the plaintiff may need to show that the injured person was aware of and emotionally affected by the injuries before passing away.

Contact Johnson & Associates for more information on wrongful death actions.

The most common business entities are: (1) Corporations; (2) Limited Liability Companies; (3) Limited Partnerships; (4) Partnerships; and (5) Sole Proprietorships (dba’s). It should go without saying that the selection of the proper form of business entity requires a careful analysis of numerous important factors, including tax considerations, compliance with required “corporate” formalities, potential personal liability/protection of personal assets, etc.

CORPORATIONS

A corporation is a legal “person” that is separate from the people who own, control, and manage it. Effectively, this means that the corporation can enter into contracts, take on debt, and pay taxes apart from its owners. Consequently, with some exceptions, the owners of the corporation are personally protected from the corporation’s liabilities and creditors. In most instances, therefore, an owner only stands to lose what he or she invested in the corporation.

Corporations require state filings (e.g., Articles and Statement of Information). Additionally, state law mandates strict compliance with corporate formalities.

Corporations have two main divisions: (1) regular “C” corporations; and (2) “S” corporations.

“C” Corporation Characteristics:

-Taxed as a separate entity;

-Can’t deduct dividend payments to shareholders; and

-Can result in “double” taxation i.e., taxed at corporate level   and again when dividends are distributed (doesn’t apply to close -corporations because shareholders are likely also employees –   and thus revenues can be distributed to employees/shareholders   as compensation and then deducted).

“S” Corporation Characteristics:

-Pass through taxation (no double taxation);

-Taxed as a partnership;

-Limited to domestic corporations with 100 or fewer shareholders   (all citizens or legal residents);

-One class of stock;

-May not hold more than 80% voting power of another corporate   stock (with some exceptions);

-May not allocate among shareholders or make disproportionate   distributions.

LIMITED LIABILITY COMPANIES (“LLC”)

Limited Liability Companies (“LLC”) are created by statute, and thus must be organized under relevant statutory provisions (Articles of Organization). LLC’s combine limited liability protection for all equity owners without sacrificing any owner participation and/or management rights. Statute contemplates, but does not require, the creation of an Operating Agreement and other documents to control operation and management of LLC. Management can take many forms: from direct management by members, to decentralized management via delegation to one or more “appointed” managers (i.e. “managing member”) who have responsibilities to manage the LLC.

PROS:

-No personal liability for debts or obligations of LLC;

-Member’s liability to the LLC itself is limited to the extent of   any unpaid capital contributions;

-May have one or more members;

-Continues upon death if other members exist and nothing in   papers state otherwise;

-Less complicated corporate formalities; and

-Can be treated like partnership for tax purposes (major   advantage over “C” and “S” corporations).

CONS:

-Must follow some corporate formalities to be eligible for   protections offered, and

-Certain professions cannot form LLCs (B&P “professions” like   law, medical, construction, accounting, etc.).

Additional advantages to the LLC:

-Some pass through taxation as “S” corporations, without the same   amount of corporate formalities, and

-No limitations on numbers of shareholders, etc. (no requirement    to call and conduct annual meetings to elect directors and   officers, etc.).

Additional disadvantages to the LLC:

-No “fringe” benefits (i.e. no tax free life insurance or medical   benefits);

-Restrictions to qualified retirement plans (in other words, no   borrowing); and

-Higher marginal tax rates.

Limited Partnerships

To create a limited partnership you must file a certificate with the state. The characteristics of a limited partnership are:

-Must be organized under relevant statutory provisions;

-Must strictly comply with corporate formalities; and

-Must consist of one or more “general partners” (“GPs”) and one   or more “limited partners” (“LPs”):

Also:

-General partners have same rights of control and legal exposure   as general partners of a General Partnership;

-Limited partners, however, are passive investors who provide       cash/assets for use in the running of the business, and       therefore an limited partners legal liability is restricted to   the amount of their investment in the business; and

-Limited partners have few rights to exercise any control over   day to day business; and

-Interests of limited partners are freely transferable and death,   withdrawal, etc. has no effect on the limited partnership.

PROS:

-For GPs, use of money/assets to get business going without   having to give up power or decision making to investors; and

-For LPs, ability to share in profits of a business without   having to run it.

CONS:

-For GPs, same as General Partnerships; and

-For LPs, no control over how money is spent, etc.

GENERAL PARTNERSHIPS

General partnerships are essentially a sole proprietorship, but with more than one owner. They may be created by oral agreement (NOT a good idea) and/or inferred from conduct. New general partners cannot be added without unanimous consent. All partners owe a fiduciary duty to each other and unless otherwise agreed in writing, will the partnership will terminate upon death of one of the partners. All owners may manage the partnership equally.

Partners are jointly and severally liable for all debts and obligations, including torts committed by owner’s “agents.”

PROS:

-Complete control;

-Simple;

-No added formalities (other than those required by law, i.e. permits, dba, etc.);

-May have written agreements that spell out rights, limitations, and duties – open to limits of creativity;

-Not a taxable entity (pass through); and

-Losses may offset other income (same with sole proprietorship).

CONS:

-Same as sole proprietorship – except now you have to deal with   additional people.

SOLE PROPRIETORSHIPS (dba’s)

The typical sole proprietorship is a business entity with one owner. The owner manages all business decisions and is relatively uncomplicated to run. However, a sole proprietorship offers no protection from personal liability. Additionally, any conduct by the sole proprietor (or an employee) may expose the sole proprietor to personal liability. Lastly, the profits or losses from the business are reported on the owner’s personal tax return.

Other characteristics include, without limitation:

-It is the simplest form of business enterprise;

-Subject to minimal regulation;

-”Proprietor” owns all the assets of the business;

-Absolute control over management of business;

-Retains all profits of business;

-May enter into contracts;

-Terminates upon death or sale of underlying assets

- A proprietor is personally liable for all debts and obligations, including torts committed by owner’s “agents.”

PROS:

- Complete control;

- Simpler; and

- No added formalities (other than those required by law, i.e. permits, dba, etc.).

CONS:

-Personal liability (not necessarily a bad thing, especially if   you have sufficient insurance or engage in a business where it   is unlikely that any personal liability can result);

-Responsible for conduct of others; and

-Denied certain tax benefits (nonequal retirements plans, medical   and dental plans

The LLC is very desirable for situations in which business owners wish to have partnership-type flow-through tax treatment, along with protection from personal liability. These are the same features which attract business owners to the S corporation, but the S corporation form has many limitations which restrict its use. Many businesses which would like to use the S corporation form are not eligible for S corporation status. In addition, the S corporation rules have many prohibitions and conditions which make it less attractive, even when it is an option.

Since corporations and non-resident aliens cannot be shareholders of an S corporation, the S corporation structure is not an option for enterprises owned by foreigners or for joint ventures involving corporations.

The desirable flow-through tax treatment (passing the tax consequences of losses, investment tax credits and depreciation through to the individual owners) is regarded as “partnership” tax treatment, as opposed to “corporate” tax treatment. The tax return of the organization – the S corporation or LLC – shows the profits and losses, but the tax consequences of that informational return are prorated among the shareholders (or “members” in an LLC).

The key benefits of this flow-through of tax consequences are that profits and gains are taxed only once and taxed at the tax rate of each shareholder or member.

Tax Treatment of LLC’s

Until recently, in order to obtain the partnership tax treatment for federal tax purposes, an LLC had to be structured so that it did not have too many corporate features. If the entity had more than two corporate features, it would be taxed as a corporation.

Now the IRS and the state of California have both adopted a “check the box” system of allowing entities to select the type of tax treatment they wish to be subject to. As a result, it is no longer necessary for federal or California tax purposes to limit the number of corporate features an LLC has.

However, an LLC subject to tax in states which still look to the features of the LLC to determine whether it is subject to tax as a corporation or as a partnership, must still meet the tests in those states in order to obtain the desired flow-through tax treatment.

The old rule, which may affect taxation in some states, would require that an LLC have no more than two of the following four corporate characteristics in order to receive partnership tax treatment:

1. limited liability

2. continuity of life

3. centralization of management

4. free transferability of interests

Since the LLC form is usually desired in order to provide the participants with limited liability, it is two of the other three corporate characteristics which are usually given up in structuring an LLC in order to qualify for state partnership tax treatment.

If S corporations and LLC’s are taxed as partnerships, are there tax differences between the two forms? Yes, there are differences, but they may or may not be significant to a particular business since that depends upon the tax circumstances of the business.

Unlike the shareholders in an S corporation, but like partners in a partnership, the LLC members get to treat their share of all LLC liabilities as part of their tax basis. In an S corporation, a shareholder may only increase his or her tax basis by such entity debt if that shareholder is personally liable for the debt. In addition, an LLC is permitted to allocate income, gain, loss and deduction items among the members, provided such special allocations comply with applicable tax rules. S corporations are prohibited from making such special allocations because special allocations are considered a second class of stock, which is prohibited under the S corporation rules.

LLC tax treatment is better than S corporation tax treatment in other ways. LLC’s are not subject to the built-in gains tax or tax on excessive passive income that can apply to S corporations. S corporations which converted from C corporation status with certain tax circumstances are subject to built-in gains taxes on gains existing prior to the conversion and on passive income in excess of 25% of gross income.

Another difference that may not be meaningful to all businesses is that the conversion from an LLC to another legal form of entity, such as a corporation, is not subject to tax. Just as a partnership may be converted into a corporation without triggering taxes on capital gains or causing other taxable events, the LLC may also be converted into a corporation. If, instead, a corporation wishes to convert into an LLC, the corporation must first liquidate, subjecting both the corporation and the shareholders to potential taxes.

Formation of LLC

The creation of an LLC requires the filing of Articles of Organization and execution of an Operating Agreement among the members. The Articles of Organization for an LLC formed under California law must set forth the LLC’s name, a date for its organization, a statement of purpose, the agent for service of process and a statement indicating whether the LLC is to be managed by managers and not by all of its members or managed by only one manager.

The Operating Agreement is not a legal requirement under California law, but it is a necessity since the parties will find it necessary to define all the rights, privileges and obligations of the members of the LLC. The Operating Agreement should contain provisions addressing at least the following topics:

- The rights and duties of members;

- Contribution of cash, property, or services by members and other issues relating to capital structure;

- Maintenance of capital accounts, accounting records and financial information, and delivery of financial reports and tax information to the members;

- Distributions to the members;

- Allocations of profits and losses and other tax consequences of the LLC;

 - How the LLC is to be managed, whether by the members, by a management group of members, or by hired management;

- Meetings of members, meetings of managers, and voting requirements;

- Disposition of interests of members, termination of memberships, assignment of membership interests, admission of additional members, and withdrawal of members;

- Rights of the LLC or other members to buy out the interest of a deceased member;

- Rights of the LLC or other members to buy out the interest of a member under specified circumstances;

- Dissolution of the LLC; and

- Procedures for amending the operating agreement.

Drawbacks of the LLC

The LLC is not the perfect entity for any business. All aspects of the LLC must be considered for each business situation.

An important limitation in California is that most licensed occupations are prohibited from using the LLC. If the business must hold any type of state license, check out the potential licensing limitations on the LLC first. The broad prohibition on using an LLC for state licensed activities has been an unwelcome surprise for many business people.

Another concern in California is that LLC’s are subject to the minimum franchise tax of $800, plus a gross receipts tax according to a schedule. The gross receipts tax kicks in at $900 on gross receipts of $250,000 and is a tax of $6,000 on gross receipts of $1,000,000 to $4,999,999. The tax on gross income of $5,000,000 or more is $11,790.

Another drawback is that banks, businesses and other institutions may be unfamiliar with LLC’s and reluctant to do business with an LLC. Similarly, the participants in an LLC will likely be unfamiliar with the entity and may be surprised, disappointed or uncomfortable with the way the entity operates.

One such surprise may be the personal taxes due on undistributed taxable income of the entity. Partners, members or shareholders of any entity that is subject to “flow-through” tax treatment are taxed on profits and other taxable items, whether or not any cash has been distributed to them. Profits that are reinvested in a growing company rather than distributed to the investors often boosts taxable income. An LLC member or S corporation shareholder is often surprised by the burden of taxes resulting from a growing business.

The flow-through income from an LLC is often regarded as “earned income” for tax purposes. Any taxpayer who does not want earned income must approach an LLC (and other flow-through entities) with caution.

In particular, non-U.S. citizens must determine whether this earned income presents a tax issue or immigration law issue for them. Foreign investors must not assume that the LLC is the way to go, since an S corporation may not have shareholders who are non-resident aliens.

Under U.S. tax law, the income distributed to members from small LLC’s will often be regarded as earned income. A non-U.S. citizen who wishes to become an LLC member must make certain that income from the LLC will not be treated as his or her earned income unless he or she has the necessary visa or immigration status to earn such income in the U.S.

Another aspect of the LLC which should be regarded as a drawback is the amount of effort required to create an LLC. The flexibility of the LLC means that it can take a great deal of time and effort to structure the entity to include all the features desired by the members.

If the individuals involved in the business have different tax situations, if the parties wish to take advantage of the ability to allocate tax consequences to different members or if the individuals disagree on some aspects of the business structure, it can take a great deal of time and effort to work out the details of the LLC.

In conclusion, the pros and cons of using an LLC should be considered for every new entity. It will frequently be the best choice for operating a business. It may be even more frequently the best choice for real estate partnerships, estate planning and joint ventures. Nevertheless, because of the flow-through tax treatment, each member must consider the positive and negative aspects of the LLC for that particular member’s financial and tax situation.

Contact Johnson & Associates to further discuss the advantages of having an LLC.

Suppose you die in a car wreck caused by a drunk driver. Even if you have no assets, your estate might have a wrongful death suit that produces a recovery of millions of dollars, all of which will be divvied up by the state if there’s no estate plan.

Dying intestate also triggers a little-known hassle in the form of an administrative bond. When someone dies without appointing an executor, the court appoints an administrator to disburse all property that wasn’t jointly owned with a survivor. The administrator must post a bond to ensure that he doesn’t loot the estate and vanish. The cost of that bond, usually about $100 per year for every $100,000 in the estate, is paid by the estate’s assets.

Just as domestic partners, pets and digital assets have made estate plans more important than ever, nearly half of all Americans, and almost three-quarters (71%) of adults under the age of 34, do not even have a will — putting the future of their families and loved ones at risk. And even 41% of aging Baby Boomers do not have one.

Most Americans don’t have a will because they think it is too expensive, they don’t have many assets to protect or are procrastinating. But what people don’t understand is with the right estate plan you are passing on your assets on to the right people, making sure they are taken care of and avoiding disputes. Some of the issues often ignored are:

•Pets: Most people want someone to care for their pets. But 61% of Americans don’t think it’s important to provide for a pet in their estate plan surveys found. Instead they may make an informal plan with a family member or friend. But things can change and if your plans are not in writing, your pet could end up at an animal shelter or worse.

•Digital assets. In the new era, digital assets are growing and include everything from online photos and bank statements to smartphones and tablets.

Americans place an average value of nearly $55,000 on their digital assets, a 2011 study by McAfee found, but more than a third of consumers lack protection for those devices. Very few people who already have a estate plan will have appointed an executor to handle their digital assets.

WHAT IS A TRUST?

The trust, also known as a living trust, is a written legal document similar to a will that sets forth your wishes and plans regarding matters during your life, such as your incapacity, and upon your death, such as who will inherit your estate and when.  Trust can be revocable, in that it can be changed or even revoked by you at any time, or irrevocable wherein it cannot be changed. The terms of your revocable trust can be changed by you during your lifetime as your circumstances change and during your life you have complete control over the assets placed into your trust.  By creating a customized estate plan, which includes a living trust, a will and a durable power of attorney, you will have peace of mind that your wishes will be fulfilled upon your death.

Unlike a will, a trust:

1. Avoids Probate:

Probate is a court proceeding that transfers title of your assets to others upon your death.  Probate is time consuming, taking months, if not years, to complete.  Probate is expensive costing approximately 4% of the gross value of your estate and is a public proceeding, which can subject your loved ones to the scrutiny of others.  A trust avoids probate and as a result minimizes court costs, legal and administrative fees, time delays and keeps matters private, without the burden of court involvement.

2. Provides for Your Incapacity:

Under your trust and the documents associated with the creation of a trust, you will choose an individual to manage your property and pay your bills if you are incapacitated.  If you do not plan who this individual will be, the court is required to appoint someone to manage your estate for you during your period of incapacity through a conservatorship proceeding.  Like the probate process, a conservatorship proceeding takes time, is expensive and is open to the public.

3. Covers Life Circumstances:

A trust deals with a variety of situations. It can provide for an inheritance for your children, including determining the ages and stages you want them to inherit, protecting them from creditors, divorce, or themselves, as well as setting up estates for minor children or those with special needs. In the cases of blended families a trust can ensure that the children of both spouses are properly addressed so that no one is unintentionally disinherited. It can also appoint the person who you want to handle your estate upon your incapacity or death rather than leaving such a decision to the courts.

4. Prevents an Unnecessary Payment of Estate Tax:

Separate from the expense and delay of probate, your estate may also be liable for estate tax, also known as the death tax.  Under a trust you have the ability to reduce or even eliminate your estate tax exposure.

A trust is a document which can be very instrumental in helping your family and loved ones at times of significant emotion or grief.  A trust provides them with your wishes and plans and can resolve potential disputes which could destroy relationships between your loved ones or even prevail over your true intentions.  Ultimately, a trust provides you with maximum flexibility and control over your property and peace of mind that your plans will be followed upon your death.

Many people say that they have a will and question why they need a trust. However, if you pass your estate on to your heirs using a will, as I have stated above, the will must go through the court process called probate to verify that the will is valid, settle any disputes over the estate before the will can be enforced and ensure that all of your last debts are paid. Further, probate fees paid to your attorney and/or executor are set by law at approximately 4% of the gross value of your estate. If you own property in more than one state, there may be a probate in each state. In California, typical probates last 9 months to 2 years during which time the assets are frozen; if your family needs money to live on, they must request a living allowance from the court which may be denied.

Additionally, a will is only effective when you die, it does nothing for you if you are alive or incapacitated. Without a proper estate plan in place your family will have to go to court to obtain a conservatorship over you to handle your affairs which is time consuming and expensive.

Also, if you lose your mental or physical capacity (due to Alzheimer’s, stroke, heart attack, etc.), without a trust and associated documents that go with it only a court appointee can sign documents for you – even if you have a will. Remember, a will only goes into effect when you die. Once the court gets involved it stays involved until you recover or die. The court, not your family, controls how your assets are used to care for you. This can be expensive, embarrassing, time consuming and difficult to end if you recover.

How Does a Living Trust Work?

When you set up a trust, you transfer assets from your name to the name of your trust, which you control. Legally, your trust (i.e. the Smith Family Trust) now owns your assets and you designate a back up trustee to handle your trust (according to your instructions) upon your incapacity or death. From a legal viewpoint, having a trust means that you do not hold title to anything; since your assets are inside the trust, the trust holds title to everything. However, even though you have relinquished ownership of your assets, you still retain control of those same assets.

A revocable living trust is considered a “disregarded” entity for tax purposes and asset protection.  What this means is that your trust does not have its own tax id number until your death; you simply use your own social security number.  Therefore, you pay your taxes the same way you always have.

Upon your death, since you have nothing titled in your own name, because your assets are titled in the trust, there is nothing to probate. If you are married, the surviving spouse typically becomes the sole trustee and continues to have control over the assets.

The property that is transferred to a trust becomes the trust estate. A trust estate consists of all of the property, rights and obligations that are transferred to the trust. The trust estate is managed in accordance with the terms and conditions of the document creating the trust.

When Should I Create a Trust?

The only time that you can prepare and implement a trust and an estate plan is while you are alive and have legal (“mental”) capacity to enter into a contract. If you should become unable to manage your own affairs or suffer from some other disability which affects your legal capacity, your trust may be effectively challenged by those who assert that you lacked capacity at the time the documents were created, that you were subjected to fraud, coercion or undue influence during the creation and implementation of your trust. The best time to discuss the need for a trust and its role as part of a comprehensive estate plan is now, while you have the capacity to do so.

Who Should Have a Trust?

You should consider the advantages of a trust over a will if: (1) you want to provide a mechanism for the distribution of your estate (2) you are the parent of minor children; (3) you wish to avoid conservatorship or probate; (4) you own real property; (5) you want to avoid estate tax; or (6) privacy is important to you, your business or your family.

 WHAT ASSET PROTECTION IS AVAILABLE BY A REVOCABLE “LIVING” TRUST?

 A revocable “living” trust is a vehicle that will avoid probate. During your lifetime, you can transfer ownership of your assets to the revocable trust so that it is owned by the trust at the time of your death, and thus not subject to probate. However, a revocable trust is not primarily an asset protection device – in certain circumstances assets that you transfer to the trust may remain available to your creditors. Most certainly having your assets in a trust makes it more difficult for creditors to access these assets in that before being able to access these assets the creditor must petition a court for a charging order to enable the creditor to get to the assets held in the trust.

In addition, in most cases a revocable trust becomes irrevocable upon the death of the grantor. Once it is irrevocable, a typical “anti-alienation clause” protects the assets held in the trust from being used as collateral by the trust beneficiaries. While you are alive and the assets are held in the trust, the beneficiaries do not have control over the property and any distributions are subject to the discretion of the Trustee, which is usually you. Creditors cannot force a Trustee to make a distribution to the trust Beneficiaries and thus, the assets held in a trust can remain outside the reach of the beneficiaries’ creditors until distributed into the hands of the Beneficiary.

What Other Documents Are Part of the Typical Estate Plan?

Typically we prepare the trust which has attached to it Schedules of Assets. Real property is transferred into the trust by way of a deed and other assets may have to be physically transferred into the trust. However, the majority of your assets will be transferred into the trust by identifying them in the Schedules.

However, we also prepare a pour-over will whereby all of your assets that are not identified in the Schedules are designated, by will, to be transferred or “poured-over” into your trust as the designated beneficiary of your will. This ensures that all of the assets in your possession at the time of your death are properly accounted for. However, assets that are not identified in your trust may be subject to probate which is why we often contact our clients on a fairly regular basis to inquire about assets acquired after we create their trust which have not been included in their Schedules.

We also prepare a durable power of attorney in which you designate an agent to handle a variety of tasks, including managing your medical care, upon your incapacity.

If necessary we can also prepare guardianship agreements for the care of your minor children or even family pets.

Estate planning is something many people believe they do not need in that we all would like to believe that death or incapacity will not happen to us. However, most certainly our demise is inevitable and we want our family to be protected from excess taxation, court intervention and the misuse or misapplication of our assets. The time to prepare our estate is when we are healthy and able to make informed intelligent decisions. Take the time to prepare  for your families future. You and your family will be glad you did.

]]> http://www.johnson4law.com/need-trust/feed/ 0 http://www.johnson4law.com/corporation/?utm_source=rss&utm_medium=rss&utm_campaign=corporation http://www.johnson4law.com/corporation/#comments Mon, 11 Jun 2012 18:14:43 +0000 Randy http://www.johnson4law.com/?p=263 What Is a Corporation?

You don’t need a large business to have a corporation. Even the owners of home-based businesses may find incorporation quite advantageous. This article will discuss the characteristics, advantages and disadvantages of conducting your business as a corporation.

What is a Corporation?

A corporation is an entity in and of itself. Instead, corporations exist because it is a creature of the law. The most important feature of a corporation is that it exists entirely separate and apart from its owners. Virtually all the legal and tax advantages associated with corporations flow from this essential element.

Corporations must have at least one owner, but there is no upper limit. The owners are called shareholders or stockholders. The ownership interests of the shareholders in a corporation are divided into units called stock, shares, or shares of stock. The rules governing corporations along with the advantages and disadvantages apply equally to corporations owned by one or more than one shareholder.

A corporation comes into existence when the prospective shareholders file a paper with the Secretary of State known as Articles of Incorporation. Among other things, the Articles of Incorporation require the prospective shareholders to determine the number of shares the corporation will be authorized to issue.

The total number of shares a corporation may issue is arbitrary, and there is no upper limit. However, the corporation must issue at least one share of stock for each shareholder. If the corporation will have more than one shareholder, the corporation should issue shares to each stockholder in proportion to their ownership interests. The proportion of the shareholders’ ownership interests may vary from a fraction of one percent to a fraction over ninety-nine percent, depending on the deal the shareholders make when they decide to go into business together.

For example, if you are the sole shareholder, it makes no difference whether you own one share or one million shares. In each case, you own one hundred percent of the corporation. Likewise, if two people have decided to go into business on a sixty-forty basis, it makes no difference whether one owns six shares or six million and the other owns four shares or four million. In each case, their respective interests would be sixty-forty.

How Does a Corporation Conduct Business?

A corporation conducts business through a chain of authorized representatives. The shareholders are at the top of the chain. The shareholders, however, do not directly manage the corporation’s daily affairs. Instead, the shareholders meet at least once each year to elect a Board of Directors.

Corporations must have at least one director, but there is no upper limit. The directors’ job is to make general business decisions for the corporation. Their decisions are then implemented by the corporation’s officers, who are appointed by the directors each year at a directors’ meeting.

The officers consist of at least the following: president, treasurer, and secretary. The president is responsible for managing the corporation’s daily operations. The treasurer manages the corporation’s money, while the secretary maintains the corporation’s nonfinancial books and records. Corporations may also have one or more vice presidents. A vice president’s duties may vary, depending on the corporation’s needs. For example, the corporation may have vice presidents for sales, marketing, operations, personnel, and so on.

The shareholders may elect themselves as the directors. In their capacity as directors, they may then appoint themselves as one or more of the officers. If you are a sole shareholder, you may elect yourself as the sole director and, as the sole director, you may appoint yourself as president, treasurer, and secretary. This arrangement is not considered a conflict of interest and is permitted by law. Indeed, who else would you want to run your business?

What Are the Advantages of Corporations?

You may recall that the essential element of corporations is their existence entirely separate and apart from the shareholders. This feature gives rise to the principal advantage of corporations–limited liability protection.

Because a corporation exists apart from the shareholders, the corporation alone is liable for its debts. Even though they own and manage the corporation, the shareholders are not personally liable for its debts.

For example, let’s suppose that I am the sole shareholder of EZ Flush, Inc., a corporation through which I conduct my plumbing business. While attempting to fix a pipe, I accidentally flood my customer’s basement with sewage. The corporation alone is liable for the damages caused by the flooding. I am not personally liable. This means that my customer can only look to my corporation’s assets to pay for the damages. All my personal assets, such as my house, my car, and my savings are protected from my customer’s claim.

The result might be different if I had intentionally damaged my customer’s pipe or if my corporation had no equipment, bank account, receivables, insurance, or any other assets. Then, I might be personally liable. I might also be personally liable if I do not conduct annual shareholder’s and director’s meetings and if I do not keep my corporation’s property, such as its bank account, separate from my own.

In addition to limited liability protection, corporations offer two tax advantages. First, under the present tax code, a corporation may claim a one hundred percent deduction for health insurance the corporation purchases for the shareholders’ benefit. Second, a corporation may deduct the cost of life insurance, up to a $50,000 policy, the corporation purchases for the shareholders.

What Are the Disadvantages of Corporations?

Doing business through a corporation carries several tax disadvantages. Because a corporation has its own existence, it pays taxes on its own income. However, if a corporation has losses, only the corporation, and not the shareholders, can claim those losses as a tax deduction.

Most businesses lose money at some time or other. This often occurs during their start-up phase, when cash is tightest. If you are conducting your business through a corporation, you will be unable to deduct business losses until the corporation makes a profit, even if you have personal income from other sources. This delay can be particularly painful for new business owners with limited resources.

After your corporation becomes profitable, you will face another disadvantage, “double tax.” Double tax occurs when you and your corporation pay tax twice on the same dollar of income, a terrible fate indeed. Double tax can best be explained by an example.

Double tax can also occur if you decide to sell your business. If the buyer purchases the corporation’s assets, the profits from the sale may be subject to double tax. First, your corporation may pay tax on the gain. Next, you may pay tax on the money when you take it out of the corporation.

Double tax on income can be avoided to some extent through a mechanism known as “zeroing out.” However, zeroing out has its limits. The Internal Revenue Service may not allow deductions for compensation that it deems to be “excessive.” Leaving “excessive” amounts in your corporation can also cause tax problems. These situations generally do not arise unless you are earning well into six figures or unless you have accumulated above six figures in your business. However, they can become real headaches for successful entrepreneurs. Fortunately, the Internal Revenue Code provides some relief in the form of S Corporations.

What Are S Corporations?

The specter of delayed deductions for losses, double tax, excess earnings tax, and excess accumulations tax has led many business owners to form “S” corporations. S corporations have the same structure and limited liability protection as regular (also known as “C”) corporations. However, due to a section of the Internal Revenue Code known as Subchapter S, the shareholders of corporations that qualify for Subchapter S status are able to deduct losses in proportion with and to the extent of their investment in the business. S corporation shareholders are also free from double tax, excess earnings tax, and excess accumulations tax. Unlike C Corporations, in which income is taxed to the corporation, all the income of S corporations, whether from earnings or the sale of assets, is taxed directly to the shareholders in proportion to their ownership interest.

Of course, S corporations have some disadvantages, too. Unlike the shareholders of C corporations, shareholders owning more than two percent of an S corporation only receive a partial deduction on health insurance purchased for them by the corporation. Also, as the top tax rates are higher for individuals than for corporations, S corporation shareholders may pay more income tax than C corporation shareholders who leave “non-excessive” amounts in their corporation.

Planning is the key depending on the degree of personal liability that you risk in your business and your need for health or life insurance, a corporation can offer terrific benefits. Proper planning, however is essential to avoiding the pitfalls.

If you would like more information about corporations please contact Johnson & Associates today.

If you have been involved in a car accident and were injured as a result, you are probably concerned about how you will pay for necessary medical treatment, repairs to your vehicle and other expenses. If your loved one was catastrophically or fatally injured in an accident, you need to know what benefits you may be entitled to and how to pursue those benefits under the law.

 At Johnson & Associates, our attorneys understand the stress and confusion that a car or other motor vehicle accident can bring about for victims and their families. We have spent years litigating car and motor vehicle accident cases, including head-on collisions and hit-and-run accidents, and have recovered millions of dollars for our clients. Your claim will be handled in a proactive and timely manner that helps to get the results that you deserve.

No-Fault Law in California Motor Vehicle Accidents

In California, no-fault law can provide motor vehicle accident victims with compensation for medical expenses, time away from work and other incidental expenses. This compensation may be obtained without proof of fault or negligence on the part of the other drivers involved.

However, if an accident victim wishes to bring a lawsuit for pain and suffering or disability, fault must be proven. Since the precise cause of an automobile accident is not always apparent, it is important for an experienced attorney to thoroughly investigate the claim.

In any accident, it is important to report it to the police and your insurance company, exchange information with the other driver and speak with a lawyer. Do not attempt to negotiate a settlement with the insurance company or sign anything that will give up your rights to the benefits you need.

If you have been seriously injured in a car accident, or a loved one has been disabled or fatally injured, contact Johnson & Associates to learn more about your rights in personal injury claims. Johnson & Associates has represented thousands of injured people in California, as well as in multiple other states. Contact us today if you have been injured in an auto accident.

It is a fine Saturday morning and you are sitting at home getting ready for a day away from the toils and trouble of the workweek when there is a knock on the door. You look out and see a stranger with a clip board standing outside. Hoping that it is a lottery official coming to tell you some great news you anxiously open the door. The man asks you your name which your name which you willing give. He hands you a stack of papers and advises: “You have been served.” Welcome to the world of litigation, you are being sued.

Being an attorney for over 30 years, I have no heart palpitations when I see a lawsuit come across my desk. Of course this is largely due not only to the fact that I have seen literally thousands of lawsuits in my career, both against my clients and those I have drafted, but also because it is not me that is the target of the lawsuit. However, many people who receive a lawsuit are being sued for the first time in their life, and understandably, it is a traumatic event.

What Is a Complaint?

All litigation begins with the filing of a complaint which is filed with the court by the person initiating the lawsuit, called the Plaintiff, and served on the parties being sued, called the Defendants. It is extremely important that the complaint is handled in a timely manner in that you only have 30 days AFTER the date you are served to file a response with the court. The 30 days includes weekend days. If the last day falls on a day that the court is closed, you have until the next day that the court is open.

If you were served by substituted service, meaning the summons and complaint were given to someone else in your household or place of business, and another copy was mailed to you, you have 40 days from the date of the mailing to file your response. BUT before you count on these extra 10 days, make sure the plaintiff’s proof of service says you were substitute served and not personally served.

What is a Summons?

A summons is just that — a notice from the court summoning you to court. It will set forth certain basic information: what court is involved (e.g. Orange Superior Court), the name of the case (the parties suing each other), a direction to file a written response with the court within thirty (30) days, a warning that if no response is filed, a default judgment will be entered and an admonition to consult an attorney.

What Should You Do?

Of course the easiest answer is to CALL ME and tell me you have been sued. As I said before, I have been involved in literally thousands of lawsuits of every type imaginable. I have represented businesses, foreign and domestic, and individuals in many different countries, states and jurisdictions. However, there are a few things you should also do:

1. Write down what day you were served.

This is a seemingly small item, but it is important for determining when your response is due. A variety of responses are possible. The most common is an Answer, which sets forth general or specific denials of the claims. However, it is also possible to challenge the court’s jurisdiction, to challenge the validity of the service of the complaint or to challenge the complaint as not setting forth a viable cause of action. These options need to be evaluated before filing an answer.

2. Collect all of your documents.

Gather together all of the documents relating to the issues related to the lawsuit. In a typical business litigation dispute, such as a breach of contract lawsuit, you will need to get together the contract, any invoices and payment records and all correspondence relating to the relationship. You must also obtain documents that are on the company’s servers and computers, including emails and calendars. If it involves an accident gather all of your insurance documents to see if you are covered for the loss alleged. This would be either your automobile or general liability policies for your home or business. What a lot of people do not know is that these policies can provide you coverage in situations that you would not expect. For instance, did you know that your homeowners policy may provide you coverage for hitting someone with a golf ball while playing golf? A thorough review of these policies is critical.

3. Write down what happened.

All of our memories fade once you are aware that you are being sued. Sit down and write down the facts as you remember them. However, if you are going to retain an attorney please consult the attorney FIRST before writing anything down as anything that you do write that is not requested by your attorney may be evidence in your case and required to be turned over to the opposing party.

4. Do not speak to the opposing attorney, party or insurance company.

It is very common for someone to call you to try to get information from you. I would not recommend that you do so without first speaking to an attorney. Anything you say to them can be used as evidence against you later.

Though the majority of lawsuits are settled prior to trial, they can be very complicated. This is particularly true in federal  court where the court may be applying state law or vice versa, or one state applying the law of another. Lawsuits become additionally complicated as more parties become involved. Within a single lawsuit there can be any number of claims and defenses between any number of plaintiffs or defendants and as a Defendant you can assert a cross-claim against the Plaintiff and even bring additional parties into the suit.

As I often tell my clients, being sued will not kill you. However, if you let it, the stress from being sued can kill you. My advice: don’t panic, hire a good lawyer and let them do their job. It WILL work out, it may just take some time and effort.

‘As Is’ Sales in Real Estate

Most homes are sold ‘as is.” In fact, the form Residential Purchase Agreement used by most brokers has a pre-printed ‘as is’ clause stating that the property is sold ‘as is’ without any warranty and in its present physical condition. In a recent purchase, my client provided me a special lawyer-prepared document which the seller asked that he sign. This document reiterated that the property was being sold ‘as is.’ My client’s reaction was to ask: What is wrong with this property and am I losing all of my rights by agreeing to buy it ‘as is?

There is no clear-cut answer but a quick explanation of the law should put your mind at ease when buying a property ‘as is.’

WHAT IS WRONG WITH THIS PROPERTY?

As the Agreement notes, ‘as is’ means that the Seller is not making any warranties about the condition of the property. Selling ‘as is’ does not necessarily mean that anything is wrong with the property. The Buyer, however, should have a professional inspector look at the property and accompany the inspector as he examines the property. The inspector’s trained eye will catch items that you may not notice.

AM I LOSING ALL OF MY RIGHTS?

If it turns out that a problem arises with the property after the deal has been closed, what remedy does a Buyer have in an ‘as is’ sale? The ‘as is’ clause works in concert with other laws, most notably California Civil Code §1102. This section requires that the Seller provide the Buyer with a detailed Real Estate Transfer Disclosure Statement.

The Disclosure Statement addresses almost every conceivable defect with the property—from the presence of contaminants to lawsuits against the property. In general, the Seller is under a duty to disclose any and all facts materially affecting the value or desirability of the property which are known only to him and which he knows are not known to, or reasonably discoverable by, the Buyer. Even loud or obnoxious neighbors must be disclosed.

If the problem has been disclosed by the Seller, the Buyer has no cause to complain at a later date. He could have walked away from the deal or renegotiated. However, if the Seller knew about the problem but did not disclose it, the Buyer may have a claim against the Seller.

In a recent case, our client purchased a multi-million dollar home only to find that the winter rains brought extensive leaking. The professional inspection had noted that the roof should be maintained yearly and would have to be replaced in three years. However, it had not uncovered any leaking, and the Seller made no mention of roof leaks in the Disclosure Statement. However, the gardener and housekeeper, both of whom had worked for the Seller, remembered numerous roof leaks while the Seller lived in the house.

The Seller argued that (1) the house was being sold ‘as is’ and (2) the inspection put the Buyer on notice that the roof was in bad shape, thereby absolving her of any liability. In any event, she also claimed to have repaired the leaks and thought that they had been fixed.

While the inspector may have noted the limited life of the roof, the Seller was still required to disclose the leaking. The leaks were a material fact affecting the value and habitability of the home. In this case, neither the Buyer nor the inspector could have discovered the leaks in a visual inspection of the property. We were able to convince the seller that they had liability for this non-disclosure and he paid damages equal to a new roof and attorneys fees and costs.

So, rest assured, although you may be buying the house ‘as is,’ the Seller is not excused from disclosing material problems in the Disclosure Statement. And in the event the Seller fails to make these required disclosures, the Buyer has a legal remedy, despite the ‘as is’ provisions of the Agreement.