Spendthrift Trusts

In plain English without the legalese, a spendthrift trust allows you to leave money to a loved one with supervision so that they don’t spend it all frivolously and so that it goes to their needs rather then their “wants or habits”.

A spendthrift trust’s purpose is to regulate a beneficiary’s access to the funds or assets held within the trust account. It’s an important tool that can help guarantee your beneficiaries are taken care of, while simultaneously ensuring your assets are distributed according to your specific wishes.

Spendthrift trusts are usually set out in the Grantor’s Will and become effective upon the Grantor’s death. The trust can be revocable (the grantor can change his mind) or irrevocable (the grantor cannot change his mind). Spendthrift trusts operate a bit differently than other trusts.

A spendthrift trust includes what’s called a spendthrift clause or spendthrift provision. This caveat permanently designates the trust itself as the sole owner of the assets held within it, rather than transferring ownership to your beneficiary upon your passing.

The beneficiary will still receive the assets, however — they’re released from the trust over time, on a schedule you (the grantor) and your trustee determine when you create the trust. This incremental release of assets can help protect your estate from any irresponsible spending habits while still providing your loved ones with the inheritance you’ve set aside for them.

The main benefit of a spendthrift trust is that it can protect your assets from a potentially unreliable beneficiary. It safeguards your estate without taking the beneficiary’s inheritance from them. 

In addition to asset protection, spendthrift trusts can help protect your beneficiaries from creditors. Because the assets included in a spendthrift trust are owned by the trust and managed by the trustee, they aren’t considered a part of your beneficiary’s assets.

Let’s say you plan to leave a $100,000 estate to your beneficiary, but you want to ensure the money is handled responsibly. By using a spendthrift trust, you can still leave that money to your beneficiary while portioning it out to encourage healthy financial habits. 

You schedule releases of money at a cadence that feels manageable to you and your beneficiary and in this way, you can guarantee that money will go to your beneficiaries in more manageable chunks, as opposed to distributing the entire $100,000 at once.

Setting up a spendthrift trust is similar to setting up any type of trust, but it includes a few extra steps. The biggest difference is that you’ll have to set the terms for how you’d like to release your assets. These terms can be as complicated or as simple as you’d like. 

 I’m happy to answer questions about creating a spendthrift trust as a part of your estate planning if you have a loved one whom you feel could use a little more attention in reagrds to their inheritance from you. You can schedule a complimentary consultation here.

Special Needs Trusts In Colorado

What Is A Special Needs Trust?

A special needs trust (also known as a supplemental care trust or supplemental needs trust) is a discretionary trust designed to provide for a disabled individual’s supplemental care (i.e., those things that are not provided under public benefit programs) while maintaining their eligibility for public benefits.

Its primary purpose is to preserve inheritances, personal injury settlements and awards, and other assets for use by an individual with special needs without disqualifying them from eligibility for public benefits.

Who Should Consider A Special Needs Trust?

Special needs trusts are very appropriate for parents of adults or minor children with disabilities who wish to leave their children more than $2,000 in countable assets. These parents are concerned about who will care for their child and how that child will be provided for once their parents pass away. If a parent leaves all their assets directly to the disabled child, that child will not be financially eligible for public benefits until the inheritance is spent down. Once spent down, public benefit programs may then provide for the basic needs of the child with a disability. There will not, however, be any funds available to supplement the child’s basic needs.

In essence, a special needs trust allows the disabled individual to keep both the inheritance as well as the public benefits. A special needs trust is a mechanism that provides for those extras that can make the difference between subsisting and thriving.

How Does A Special Needs Trust Preserve Eligibility For Public Benefits?

A trust is a separate legal entity. Funds are transferred into the trust to a person, called the trustee, who is responsible for managing, investing and distributing the assets or property of the trust. The trustee holds the funds for the benefit of the beneficiary of the trust. The person who establishes the trust and who initially transfers the property or causes the property to be transferred to the trust is called the grantor or settlor. This is often the parent.

In order to understand how the special needs trust can shelter inheritances and personal injury funds, it is necessary to understand the concept of availability. Availability is the standard used by governmental agencies to determine whether assets (including trust funds) will be counted for purposes of determining asset or resource eligibility for public benefits. As indicated above, an individual cannot have more than $2,000 in nonexempt assets to qualify for Supplemental Security Income (SSI) and most Medicaid programs. In general, if an applicant or recipient can gain access to an asset or resource, it will be deemed available to that individual for purposes of resource eligibility and, therefore, will be countable against the $2,000 maximum. If, however, access to such funds is restricted so that only the trustee, a court or a third person (and not the disabled child beneficiary) has authority to make distributions from the trust, then such funds are deemed legally unavailable to the beneficiary and are not counted for public benefit eligibility purposes. Simply put, special needs trusts are drafted so as to make the trust funds unavailable for purposes of Medicaid eligibility.

What Types Of Distributions May Be Made From Special Needs Trusts?

Special needs trusts are designed to supplement – rather than to supplant or replace – goods and services already provided under a public benefit program such as Medicaid. A properly drafted special needs trust should therefore make it clear that:

• Trust funds are not legally available to the beneficiary in the sense that the individual cannot compel or require a distribution.

• Trust funds should not be used for food or shelter-related items or for services already provided by a public or private benefit program. For third party-funded trusts (see discussion below), there may be more flexibility.

Examples of acceptable special or supplemental needs that can be paid for by the trustee of the special needs trust include but are not limited to the following:

• Support services, dental care, physical therapy, massage and other medical costs to the extent not covered by some other public benefit program

• Payments for tuition, books and supplies

• Transportation to and from school

• Health and life insurance premiums

• Books, magazines and video games

• Season tickets for plays, museums and sporting events

• Televisions, VCRs, CDs, sound systems and computers

• Hobbies

• Vacations

• Costs for travel companions

• Automobiles

• Automobile maintenance expenses, car insurance and gasoline

• Cleaning supplies and paper products

• Bus passes

• Telephone, cable television and internet

• A prepaid burial/cremation and funeral plan: If it’s $1,500 or less, it can be revocable; if it’s more than $1,500, it should be irrevocable

• Cost differentials between private and semi-private rooms in institutional settings

• Clothing

Examples of distributions from a special needs trust that can adversely affect public benefits include the following:

• Payment of rent, mortgage or real property taxes

• Heating and cooling bills

• Electricity, water, sewage and garbage collection

• Payments for groceries or meals

• Cash distributions directly to the beneficiary (with the exception of the $20 unearned income disregard under the SSI program).

Such items should usually be purchased by the beneficiary using their SSI payments or other public benefits such as food stamps.
Trustees of special needs trusts should be granted full discretion, meaning that they have the absolute right to decide whether to distribute funds. If the trustee is required to distribute income or principal rather than being granted the choice to do so, the amounts subject to mandatory distribution will be deemed countable regardless of whether they were actually distributed.

Types Of Supplemental Care Trusts

A third party-funded special needs trust is a trust that contains assets belonging to someone other than the beneficiary, such as a parent or other relative. This type of trust is typically established under the last will and testament of the parent.

The will provides that upon the parent’s death, any assets that are to go to the disabled child are to be held in a special needs trust, the terms of which are contained either within the will or in a separate trust document that is cross-referenced in the will. Third party-funded special needs trusts can be very flexible and, unlike the self-settled disability trusts (discussed below), they can contain provisions allowing funds remaining in the disabled child’s trust to pass to the parent’s other children or grandchildren upon the disabled child’s death. This is in contrast to the disability trust, which must provide that remaining funds first be used to repay Medicaid expenses incurred by the state.

A self-settled special needs trust is a trust that contains assets that the disabled child already owns or is legally entitled to. These assets include the disabled individuals’ own savings, personal injury settlement and, more commonly, inheritances that the disabled child is entitled to receive outright – for example, when the parent fails to set up a third party-funded special needs trust in their will and the inheritance goes directly to the disabled child.

In order to shelter assets that already belong to the disabled child or to which they are already legally entitled, there are only two types of trusts that can be used to maintain Medicaid eligibility: a disability trust, and a pooled trust, both of which are described in more detail below.

In order to be a qualified disability trust:

• The beneficiary must be disabled as that term is defined by Social Security law.

• The beneficiary must be under age 65.

• The state must be designated as the remainderman, thereby entitling it to any funds remaining in the trust at the beneficiary’s death.

• The trust must be established by the beneficiary, a parent, grandparent, legal guardian or court;

• The trust must be reviewed and approved by the Colorado Department of Health Care Policy and Financing (unless already approved by the federal Social Security Administration).

• The trust must be drafted as a special needs trust (i.e., funds must be legally unavailable to the beneficiary).

The second type of permissible self-settled trust is a pooled trust. This form of trust is very similar to the disability trust except that it is run by a nonprofit agency. In order to be a qualified pooled trust, the following requirements must be met:

• The beneficiary must be disabled as defined under the Social Security Act and, unless waived by the state, under the age of 65.

• The trust must maintain a separate subaccount for each beneficiary.

• The trust must be established and managed by a nonprofit association (e.g., Colorado Fund for People With Disabilities).

• The trust must be established by a parent, a grandparent, the court, a guardian or the individual.

• The state must be designated as the remainderman except to the extent that the pooled trust retains the funds (the trust will almost invariably retain.

• The trust must be reviewed and approved by the Colorado Department of Health Care Policy and Financing.

• The trust must be drafted as a special needs trust (i.e., funds must be legally unavailable to the beneficiary).

When Should You Set Up A Special Needs Trust?

If you are contemplating leaving anything to your loved one with special needs, then you need to set it up now. As discussed above, if you fail to do so, then the only choices left to your disabled child is to immediately spend down the inheritance or place it in a disability trust or pooled trust, which are less flexible and contain provisions that require any funds remaining in the trust at death to either be paid to the state or remain with the pooled trust, instead of passing it on to other heirs.

Mediation Works

Here is why:
Self Determination is the Key to Mediation. Resolve Conflict and Create Lasting Agreement with Mediation.

“There is peace even in the storm." ― Vincent van Gogh

Mediation is designed to help opposing parties reach a quiet, efficient, and amicable resolution to their case rather than deal with the unfortunate consequences of courtroom litigation. The most common cases I see involve divorcing spouses, but mediation can also be beneficial in probate cases and various civil litigation matters. Many Courts increasingly require mediation before trial, and statistics show it is highly effective in settling disputes.

As a seasoned mediator, I believe mediation works because the parties are able to reframe their conflict with new skills such as empathic listening and centered self expression. The result is an agreement crafted with self determination which is empowering and helpful for the parties to move forward.

Self Deteremination is the most important benefit to mediation. Rather than have a third party decide upon the agreement (which impacts the lives of the individuals involved) in Mediation the parties craft their own agreement. With a skilled mediator the parties can reach resolution. Further, when the resolution is crafted by the parties it usually has more staying power as the parties feel responsible for upholding and honoring it. After all, there is no way to predict how a judge or jury will resolve your matter, so choosing mediation is more likely to result in an agreement you and the other parties can live with.

That said, I understand that choosing the right option to resolve your unique dispute can be easier said than done. This is why i always go beyond the legal aspects of what i do to include practical, compassionate, and positive advice when you and your family need it most. It is important to me that you never feel unseen or unheard in this process. I am a certified integrative life coach, compassionate inquiry facilitator, meditation teacher, and I use many tools such as nonviolent communication and motivational interviewing. Mediation is the process of resolving conflict through compromise and communication. Most disputes are resolved by helping the parties learn a new way of expressing and listening which leads to understanding, empathy and compassionate resolution. Here are a few thought-provoking quotes about mediation to give you “food for thought.”

Inspirational Quotes About Mediation

‘Our differences don’t have to divide us” — Unknown

“Peace is not something you wish for, it is something you make, something you are, something you do and something you give away. ” ― Robert Fulghum

“You have peace," the old woman said, "when you make it with yourself.” ― Mitch Albom

“World peace must develop from inner peace. Peace is not just mere absence of violence. Peace is, I think, the manifestation of human compassion.” ― Dalai Lama XIV

“I still believe that peace and plenty and happiness can be worked out some way. I am a fool.” ― Kurt Vonnegut

“Better than a thousand hollow words is one word that brings peace.” ― Buddha

“Mediation is conflict’s way of looking at itself.” — Jeff Cohen.

“Discourage litigation. Persuade your neighbors to compromise whenever you can.” — Abraham Lincoln.

“Love your child more than you hate trying to communicate with the other parent.” — Unknown author.

“Peace is not the absence of conflict, but the ability to cope with it.” — Mahatma Gandhi.

“The courts of this country should not be the places where resolution of disputes begins. They should be the places where the disputes end after alternative methods of resolving disputes have been considered and tried.” — Sandra Day O’Connor.

“Conflict is inevitable but combat is optional.” — Max Lucado.

“Whenever you’re in conflict with someone, there is one factor that can make the difference between damaging your relationship and deepening it. That factor is attitude.” — William James.

“Never cut what you can untie.” — Joseph Joubert.

“Use soft words and hard arguments.” — English proverb.

“Nobody ever forgets where he buried the hatchet.” — Kin Hubbard.

“An ounce of mediation is worth a pound of arbitration and a ton of litigation!” — Joseph Grynbaum.

“When anger comes, wisdom goes.” — Hindi proverb.

if you’d like to explore hiring me as a mediator to help you resolve your dispute schedule a free consult here.

My legal and life experiences uniquely qualify me to serve as a mediator in your case. I serve as a mediator in Boulder, Longmont and the front range communities.

Owning Real Estate: LLC vs. Trust?

Owning Real Estate: LLC vs. Trust?

As with most other financial and tax planning strategies, the choice between holding rental property in an LLC or a trust depends on an investor’s unique situations, needs, and goals. 

An LLC for rental property may be a good way to protect other business and personal assets from creditor claims and to raise funds for group investing. By comparison, a real estate trust may be a good vehicle for investors seeking to avoid probate, reduce estate taxes, and pass real property to another family member. 

Both an LLC and a trust are pass-through entities for tax purposes. They will collect rental income and pay expenses, with any income or losses passed through to the individual members or owners and reported on personal tax returns. Investors also may defer capital gains when rental property held by an LLC or a trust is sold and a replacement property is purchased within a specific period of time.

See my preivous posts on LLC For Rental Property and Real Estate Trust for more information. Please reach out if you’d like to discuss these entities for your asset protection needs.

LLC for rental property - FAQ

LLC for rental property

An LLC is a separate business entity formed according to state statute.  While it functions as a legal company and if run correctly has the same asset protection as a regular corporation, it is much less cumbersome to operate in terms of statutory requirements. The individual owners of an LLC are called “members,” and most states do not restrict the type of ownership or the number of members. Members of an LLC can be corporations, other LLCs, foreign entities, and/or individuals. 

One of the most popular reason to form an LLC in Colorado is because you can create an LLC as a “single-member” LLC with just one owner. Many people who own rental property choose to house their investment in this legal structure. Rather than holding rental property as a sole proprietorship as an individual, a real estate investor may consider forming a single-member LLC to hold investment property. LLCs also allow more then one investor to buy or manage a property together with a simple operating agreement ( a must to avoid conflict) delineating the agreement.

The Pros of “housing” your rental property in an LLC structure:

·       LLCs are business entities distinct from the members and are easier and less expensive to create and manage compared to a corporation.

·       An LLC can generally have an unlimited number of members, which may make an LLC a good vehicle to consider for group investing.

·       Members of an LLC may provide equity capital, debt financing in the form of a loan to an LLC, or a combination of both.

·       Single-member LLCs may be formed to hold rental property as an alternative to owning property in a personal name or “doing business as” (DBA) name, thereby protecting the owner’s other assets from liability for the rental property.

·       Income or losses from a rental property held in an LLC are passed through to each member and reported on individual tax returns, with income taxes paid based on each member’s individual rate, avoiding the double taxation of corporate profits.

·       Other business and personal assets of each member are generally protected from legal liability or creditor claims in the event of a lawsuit or bankruptcy.

·       Members of an LLC also may buy and sell their individual shares without having to sell the actual rental property, based on the rules outlined in an LLC’s operating agreement.

The Cons of “housing” your rental property in an LLC structure:

·       LLCs must file annual tax returns (even though LLCs generally do not pay taxes) and provide each member with a Schedule K-1 to report each member’s share of income or losses, deductions, and credits.

·       Member liability protection from an LLC may be limited if an LLC is proven to have done something illegal or if the LLC does not adhere to recommended practices, such as not comingling personal funds.

·       While individual members of an LLC may be able to sell their shares, some states require an existing LLC to be dissolved and a new LLC to be formed if there is a change in membership (not Colorado).

·       Raising additional capital may also be more difficult with an LLC structure, compared to a corporation, such as an S Corporation, which may sell shares of additional stock rather than taking out a bank loan.

I enjoy helping start their businesses and am happy to consult about whether an LLC is a good fit for your business venture. It’s always exciting to hear about new companies and I am happy to discuss the legal requirements and answer questions. You can schedule a quick complimentary consult here.

Real estate trust for rental property

Real estate trusts are a way to house rental properties other then owning them as an company or individual. Trusts usually serve estate planning purposes to avoid estate taxes and probate and keep rental property within the family.

There are 2 types of real estate trusts for rental property: revocable and irrevocable. In both cases, rental property is transferred from the original owner (the grantor) into a trust, but the control that the grantor has is different.

A revocable trust allows the grantor to make changes to the trust during the grantor’s lifetime, to directly control and manage the assets in the trust, and to terminate the trust. However, once the grantor dies, a revocable trust becomes irrevocable.

In an irrevocable trust, the assets are overseen and managed by a trustee, and the grantor no longer has control over the trust assets. Instead, the trustee manages the assets according to the instructions in the trust. Upon the grantor’s death, assets are distributed by the trustee according to the trust instructions.

Pros of Creating a Real Estate Trust

·       After a trust is created, there are no recurring fees to maintain the trust, as there are with an LLC.

·       A real estate trust may be a good estate planning option for investors seeking to avoid estate taxes and pass along property to heirs.

·       A trust avoids a lengthy probate process because it, rather than an individual, has ownership rights to the rental property held in the trust.

·       Real estate trusts also may be used by multiple owners of a rental property as a way to document ownership interests and relationships.

·       Assets held in a trust are not treated as part of the grantor’s personal assets, which may help to lower an individual’s tax liability.

·       Trusts may provide some anonymity, although it is becoming increasingly difficult to do so when deeds and tax information are available online from counties.

Cons of Creating a Real Estate Trust

·       Because a trust is not a business entity like an LLC, a trust does not protect other business and personal assets in the event of a lawsuit or creditor claim.

·       A trust also may be more complicated and expensive to set up compared to a will or an LLC, depending on the grantor’s personal situation and assets being transferred.

·       Creating a will may still be required to address property that is not held in a trust.

Frequently asked questions about starting a business

I often get calls from people in the creative flow of starting a business and they always have a myriad of questions.  Here are some brief answers to the most common questions I get asked.  These are general answers and not meant to be specific legal advice for any individual - for specific answers to your specific situation I strongly recommend you consult with an attorney before you get too far along with your business plan.  

Starting a business frequently asked questions for the entrepreneur.  

1. Do I need a lawyer to start a business?
No, but it's not a bad idea to get the legal advice when you're starting out. An attorney can help you decide what type of entity to form, whether the name you want to use is available, help negotiate or draft leases and contracts, etc.  Its much easier to start out on with legal plan in place as your foundation, then to try to fix these kinds of problems later on when the floor is pulled out from under you.  I am thinking of a client whose business name was not available but she didn't find out until her business was up and running and all of the signs and marketing documents were printed and released to her audience.  

2. Should I use a lawyer to draw up a contract or a lease?
Yes, if you do not feel confident about what you are agreeing to, or if you want a legal review of the terms and conditions. The time for the lawyer is before you sign something, not after.

3. What are the differences in organizational structure, and what legal structure should I choose?
There are three principal kinds of business structures: sole proprietorship, partnership, and corporation. 

Sole Proprietorship
A sole proprietorship is the simplest business structure to organize. A sole proprietorship is owned by one individual (not a married couple) who has complete control of the business. Revenues are considered personal income and are taxed at the owner's personal tax rate.

Partnership
A partnership involves two or more people conducting a business together. This business structure is also fairly simple to organize, but may be more costly than a sole proprietorship because it requires a separate tax return for each partner, as well as a partnership agreement.

Limited Partnership
A limited partnership is two or more individuals who jointly own a business. This form of business allows for general partners and limited partners. Limited partners are generally financially liable for debts only to the extent of their investment. They have limited or no control over management of the company. The general partners manage the company and have the greatest potential risk and reward from the operations of the business.

Limited Liability Partnership (LLP)
In this type of partnership, the liability of each partner can be limited to exclude obligations resulting from professional mistakes made by other partners, or malpractice actions against other partners. The partners do, however, continue to share liabilities resulting from all other activities of the partnership.

Corporation
A corporation can be complex and expensive to organize. Legal assistance in setting up a corporation is strongly advised. The corporation is recognized as a completely separate legal entity from the owners. A corporation can limit the liability exposure of the owners. However, there can be some tax disadvantages with a corporation.

Limited Liability Company (LLC)
A limited liability company can provide the liability protection of a corporation and the federal tax benefits of a partnership. It is formed in a similar manner to that of a corporation, although directors are called managers while shareholders are called members. The name of the company must include the words "Limited," "LLC," or "Ltd." In an LLC the individual members or managers are not personally liable for debts, obligation, or liabilities of the company. Articles of organization must be filed with the secretary of state's office.

4. What kind of registration and licenses are generally required to start my business?
There are specific requirements in each state, county, and locality. Basic licenses and registrations that a business may need include the following:

Local:  A business license from the city, town, or county, depending on your location, will usually be necessary. In addition, you'll have to meet zoning laws, building codes, and similar regulations.

State:  If your business isn't a corporation and your full name isn't in the name of the business, you'll have to register under what's called the Fictitious Name Act. You should also file for a Sales and Use Tax Number. In some lines of business (like restaurants, barbershops, and real estate offices), specific licenses are needed.

Federal:  You may need an Employer Identification Number (EIN).

5. How do I register my small business?
If you decide to incorporate or become a limited partnership or a limited liability company, you will need to register that entity with the secretary of state.  If you organize your business as a sole proprietorship (a business owned and operated by an individual) or a general partnership, you do not need to register your business entity with the state. However, there may be certain city or town permits/licenses that are required to operate your business.

6. I have a name for my company, is it unique enough?
It should be different enough to avoid confusion with other similar businesses. Your business name helps customers identify you and your brand. If your name is similar to others, this identification is made difficult. Avoid confusion by picking a name that is unique.

7. How do I determine if the name I choose is available for use?
You can look on the secretary of state’s web site to determine whether the name you have chosen is being used but keep in mind that there might be a federal trademark and or other problems that might not be readily apparent by such a search. 

8. What is a federal identification number, do I need one?
A sole proprietorship or single member LLC without employees can use the proprietor's Social Security number as its tax ID number. Forming any other business structure (partnership, LLC, corporation, or sole proprietorship with any employees requires obtaining a Federal Identification Number from the Internal Revenue Service

9. What are patents?
Patents are protections for inventions and discoveries. A patent is a property right that grants the owner an exclusive right to exclude others for a period of time (usually 20 years) from making, using, offering, selling, or importing anything that utilizes the intellectual property contained in the patent without the permission of the patent owner. Patents are expensive to obtain and generally require the use of an attorney who specializes in this field. In the United States, patents are handled by the U.S. Patent and Trademark Office.

10. What are trademarks and service marks?
Trademark and service mark registrations are protections for certain things that distinguish one source from another. This registration allows the holder to exclude others from using its mark, generally for as long as that mark remains in use by the owner. A trademark is a word, phrase, symbol, or design, or a combination of words, phrases, symbols, or designs, that identifies and distinguishes the source of the goods of one party from the sources of others. Slogans are registered as service marks. This provides trademark protection to a slogan that uniquely identifies your company or service. In essence, a service mark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product. Trademark and service mark registrations are sometimes expensive to obtain and often require the use of an attorney who specializes in this field. In the United States, trademarks and service marks are handled by the U.S. Patent and Trademark Office. 

11. What is a copyright?
Copyright is a form of protection provided to the authors of "original works of authorship," including literary, dramatic, musical, artistic, and certain other intellectual works. A copyright generally gives the owner, for a period of time (usually the life of the author plus 70 years, or up to 120 years for works for hire), the exclusive right to do, and to authorize others to do, the following: to reproduce the work, to prepare derivative works based upon the work; to distribute copies of the work to the public, to perform the work publicly, and to display the work publicly. A copyright exists immediately upon creation of a work; however, registering that copyright provides additional protections. Copyright registration is fairly inexpensive and easy to obtain. In the United States, copyright registration is handled by the U.S. Copyright Office.

11. I have an idea for a business – what are the first things to consider?

a.     In general, make sure your manufacturing process, service or business idea will work in the way you want it to by conducting market research

b.     Draft and continue to revise a business plan (the E-Myth by Micheal Gerber is an awesome tool for any business getting started). 

c.     Prepare a financial forecast to know what the start-up and initial operating budget will cost and discuss with partners, investors, accountant, family members, etc. 

d.     Determine where the money for the start up and day to day operations will come from

e.     Decide on what type of entity the business should be from a legal and tax perspective

12.   What are the primary concerns from a legal perspective?

a.     Who will be the other owners of the business and how will that work practically in the formation documents of the company, and going forward

b.     What type of business entity should be formed

c.     What type of legal documents must be filed to establish the business

d.     What are the tax implications the business entity chosen

13.  What are the advantages and disadvantages of the different types of business?

a.     Sole Proprietorship – advantage easy to form, disadvantage no personal liability protection

b.     Limited Partnership – ease of formation, only general partners are personally liable and can obtain capital from limited partner without their being liable so can obtain capital but management restrictions on limited partners

c.     Limited Liability Company – relatively new type of business entity known for flexibility, 95 percent of new businesses become LLCs.  The advantages are no personal liability for members, no strict ownership requirements as in corporations, flow through tax treatment (single level of taxation (goes on owners tax return rather then having to file as a separate entity) or can elect corporate tax treatment, very flexible for multiple classes.  LLCs do require some legal formalities in formation and thereafter.

d.     C Corporation - no liability for shareholders, ability to raise large amounts of capital, but double taxed, taxed on profits and on dividend distribution, very complex formation requirements, stringent legal formality requirements

e.     S Corporation - limited liability w/single layer of tax rather then double, but very strict requirements regarding number and type of shareholders, amount of passive income, and equity arrangements…

14.   What are the biggest mistake business owners make from a legal perspective?

a.     Not creating or maintaining properly a separate entity that will protect your personal assets from liability – it is not the company itself that gives you asset protection, it is how you treat the company.  If something goes wrong a litigant will sue both the business entity and the owner personally.  The judge performs an alter ego analysis to determine whether the company is separate from the owners thereby releasing them from personal liability – this includes whether the company was formed correctly – emphasis anyone can go on line and register articles of organization for an LLC – this in and of itself provides no personal protection against liability.  The judge is going too look to see if there is an operating agreement in place, if certificates of ownership have been executed for the members, whether annual meetings were held, whether funds were kept separate or comingled, etc, to determine whether the individual suing can pierce the corporate shield and go after personal assets, including personal savings, house, etc. 

b.     Not involving an attorney and accountant early on in business formation process – the accountant can explain and qualify pros and cons of tax consequences of business formation and the attorney can make sure your business is properly set up and that any contracts or leases that you sign or create are appropriate and fair for your business objectives – by bringing in these two professionals early you will save time, money and unnecessary heartache in the long run. 

Trademark Infringement - How to protect your original ideas and company ID

I recently shared a link to a New York Times article on a t-shirt company that was being very publicly “chastised” for creating and successfully marketing t-shirts with the text from some other gentleman’s twitter feed. Several clients have reached out to me since then wondering about their own trademarks and how to protect them. Every day, legally protected trademarks are used without authorization by a company's competitors and customers. The trademark owner has every right to want to protect their creative work.

Its important to protect your creative ideas and company identity by applying for and enforcing your trademarks.  

Trademark infringement is a serious legal and business concern in today's marketplace. Brand names, logos, domain names, and slogans tied to successful businesses are now all on the internet and readily copied and used by others with a simple cut and paste. This not only causes confusion in the marketplace but also dilutes the distinctiveness of the mark and the program or merchandise that the mark represents. 

Taking action to enforce trademark rights is now a cost of doing business, and it is required to maintain the integrity of the trademark and company that it represents. Trademarks receive legal protection primarily to prevent buyers from being confused about the source of goods or services. If a company that owns a trademark fails to control who uses the mark their underlying legal protection collapses. As a practical matter, the greater the use of the mark on related goods or services by persons other than the trademark owner, the less effective the mark becomes.

Creating and managing an enforcement program is vital to protecting these valuable intangible assets. The most obvious strategy is to send a C&D letter and, then if a satisfactory result is not obtained, resort to litigation.

A typical C&D letter will delineate the trademark owned; explain why the recipient is infringing on that right; and set forth legal claims for trademark infringement (such as: confusion in the marketplace, unfair competition, cybersquatting or dilution under federal and state laws). The letter concludes by requiring that the infringer send written assurances that the infringement will cease, under threat of further legal action. 

The greatest advantage of sending C&D letters is that it can be a relatively low-cost way to resolve trademark infringements. Infringers often recognize that it is in their own best interest to stop the offending activity and cooperate with the trademark owner to resolve the matter amicably. When infringement is questionable, a C&D may be the first step toward negotiating an agreement that keeps the dispute out of court.

For cases that require actual litigation, the C&D is an important first step. The C&D establishes actual notice of the infringement claim and may give rise to a claim of intentional infringement if the activity continues after receipt of the letter. Courts often look to whether the parties attempted to resolve the matter before asking for judicial intervention, and the C&D letter is evidence of such an attempt.

Another way of dealing with a trademark issue may be to send some kind of modified C&D letter. In some cases, a less legalistic or formal communication may better address the situation and avoid hard feelings and negative public perception.  

If the trademark infringement is not cut and dry, a C&D letter might not always be advised.  The infringer might go to court first, and seek a declaratory judgment that it is not infringing on the rights of the trademark owner, and that the trademark set forth in the C&D letter is invalid or otherwise unenforceable. Thus, the goal of the C&D, to cost effectively stop the infringing activity, is thwarted.

Another concern to consider before sending a C&D is to make sure that the recipient of the letter does not have superior rights in the mark. Sometimes when two parties are using the same or similar trademarks, it is not obvious who has better rights. This is true particularly when neither party has a federal trademark registration that carries a presumption of validity as to ownership of rights. In such a case, common law trademark rights must be analyzed to determine who has a priority of use. It is vital to avoid sending a C&D until these issues are sorted out to avoid the recipient of a C&D letter replying with proof of a better right to the mark.

If you would like more information in either applying for a trademark registration or enforcing your ideas or company identity give me a call or shoot me an email.  

Asset Protection- Irrevocable Trusts and Marital Agreements

Asset Protection- Irrevocable Trusts and Marital Agreements a Brief Overview

When I tell people that I am an estate planning attorney, they often ask about trust planning and wonder if they "need a trust." If a person is engaged in a high risk activity, where they risk having creditor's come after them I explore irrevocable trusts and marital agreements with them as a way to protect their assets.  

  Irrevocable trusts can provide asset protection by protecting the assets in the trust from the liabilities of trust beneficiaries and the trust creator (or settlor).  Assets placed in an irrevocable trust are protected from the liabilities of the beneficiaries if the beneficiaries do not have a certain and defined interest in the trust (the beneficiaries interest is contingent on a future event or subject to the discretion of the trustee); or the trust agreement includes a spendthrift provision which prevents creditors from making claims against the beneficiaries’ interest in the trust and prevents the beneficiaries from transferring or pledging their interests.  If the trust language includes these provisions, the only time assets would become subject to the beneficiaries' creditors is after the assets are distributed from the trust to the beneficiary.  As long as the trust assets are retained in the trust they are protected and can continue to provide for and benefit the beneficiaries beyond the reach of their creditors.

The irrevocable nature of a trust can also limit the reach of the trust settlor's creditors.  Since the trust is “irrevocable” the settlor cannot change his mind and either terminate the trust or take back the trust assets.  Upon transfer into the trust, the settlor has no power or authority to change the terms of the trust, use the trust assets or derive any benefit from the trust except as provided in the trust agreement.  As a result, in the absence of fraud, generally the creditors of a settlor cannot reach an asset within an irrevocable trust.   However, if the settlor retains any interest in the trust or the power to change the trust terms or dispositions, the settlor’s creditors may be able to reach the trust assets to the extent of the settlor’s retained power or interest.

 Off-Shore Trusts

Sounding quite glamorous and mysterious, off-shore trusts are trusts established outside the United States in a foreign jurisdiction.  These trusts attempt to provide the settlor asset protection, while still allowing the settlor control of the trust and the benefit of the trust assets.  Often the asset protection is derived from the fact that it is a difficult undertaking for a creditor to not only obtain a judgment against the settlor’s assets in a foreign jurisdiction but then also to collect against those assets.  In fact, some foreign jurisdictions implemented laws to make this process difficult for creditors to thereby encourage settlors to establish trusts in their jurisdictions (i.e., the Bahamas and the Cook Islands).  However, some of the same aspects that make these trusts unattractive to creditors also create risk for the settlor, as the assets are located in a foreign country and are subject to foreign laws and regulations.  The viability of off-shore trusts has been further eroded by increased reporting requirements for offshore trusts and holdings since 9/11 and recent court rulings such as the Anderson case, wherein the court held that the debtors could be jailed for failing to make assets held in an offshore trust available to the Anderson’s creditors. 

Self-Settled Spendthrift Trusts

A self-settled spendthrift trusts (“SSST”) is a form of irrevocable trust that offers greater creditor protection to the settlor while not requiring the settlor to give up absolute control and benefit from the trust assets.  Under a SSST, the settlor can be a beneficiary of the trust and can retain certain controls and authorities within the trust, such as the ability to direct investments or change the trust beneficiaries.  Once an asset is transferred to the trust, a creditor of the settlor has a limited period of time within which to challenge the transfer as an attempt to avoid a debt and assert a claim against the asset.  If the creditor does not make a claim within the proscribed time period, the asset is protected.  Even if the settlor later incurs a debt to the creditor, the creditor cannot reach the asset if the claim is not asserted within the proscribed time period.  The SSST is now authorized in Alaska, Delaware and Nevada.   

Marital Agreements:  Separation of Assets Between Spouses

A final technique asset protection technique that may be considered is the separation of assets and potential liabilities between spouses.  It may be possible to isolate the risks of one spouse (i.e., liabilities through a job or profession) to only that spouse’s separate assets, thereby gaining asset protection for the other spouse’s separate assets.  To achieve this separation, a written agreement between the spouses (a pre- or post-nuptial agreement) that clearly defines the separate property of each spouse is required.  Maintaining the separation of assets requires diligent management of assets and resources during the marriage to ensure that no marital property is created.  This technique would also only be effective to the extent that in the event of a creditor claim, the debtor spouse can show that the liability was incurred by the one spouse individually and not through a marital undertaking.  This type of asset protection planning also has additional ramifications.  In the event of divorce, the marital agreement would apply.  In addition, this technique could have estate tax consequences.  Careful planning is suggested when using this strategy.

Conclusion

When considering taking steps to protect your assets, it is important to keep in mind that no asset protection technique will shield assets from a creditor if the transfer is made in attempt to defraud or hide assets from a creditor with a potential claim.  In fact, such attempts may only compound the problem by turning a financial liability into a criminal liability.

It is also important to keep in mind that much like an estate plan, an asset protection plan must be carefully considered and tailored to meet each person’s individual circumstances.  With many life-legal planning techniques available and a myriad of ways to apply them, asset protection planning should only be done with the guidance of experienced professionals who can correctly analyze your situation and help you formulate a plan to best meet your needs.

Small Business Owners - Business Succession Planning

Business Succession Planning for the Small Business Entreprenuer

When you go on a vacation, you have a plan.  You decide where you are going, how much you have to spend, you buy your tickets, make reservations, and create an itinerary (or not) for your time away.  If you own a business, you also probably have a plan in place for your time away.  Who will be in charge, what needs to be done, and who will be responsible. 

But what happens if you pass away or become incapacitated? You also need a plan for your business should something happen to you.   If a business owner dies without a clearly thought out plan, the partners, employees and family members of the deceased are left without direction and as a result potential conflict. Administering someone's affairs after their death can be a difficult, confusing, and conflict-ridden process if there is no plan in place, especially if there is a business involved.  Communicating with your family and business associates to come up with a plan and then implementing a plan that is clear and concise can help avoid this.

There are several strategies that can be implemented as part of a business owner’s estate planning. 

Companies with more than one owner. 

A buy-sell agreement is a contract between LLC members, shareholders or partners which establishes a plan for the business in case one of the owners dies or becomes incapacitated. The principal benefit of a buy-sell agreement is that it establishes a sale price for the business (or how such a price will be established) and what your share of the business is. A buy-sell lets you document whether you want your partners to buy out your share, if you want to avoid certain individuals from having a role in the business, or if you want your heirs to sell your portion outright, either to co-owners or to the public. Since the business price has been established or a method to establish the price has been predetermined, family members know they are receiving a fair price.

As part of this buy-sell agreement, if the business assets are not liquid, partners often get the capital to buy out a deceased partner's shares from life insurance. A common business practice, each partner takes out a life insurance policy which names the other owners as beneficiaries. This strategy gives surviving owners tax-free proceeds to purchase the deceased's portion of the business from his or her estate.

In a family-run enterprise, you may have some beneficiaries who are involved in the business and others who are not.  You may want to create a buy-sell agreement between the heirs; leave the business ownership to all heirs equally; or leave the business to the heirs that are involved and provide other assets for the ones who are not.  There are many ways to plan for this scenario.  Not planning for it is almost sure to lead to sibling strife,  

Good business planning anticipates the future.   A buy-sell agreement is a very simple, concrete way to ensure that your wishes for your business and estate beneficiaries are implemented without confusion or conflict.

Sole Proprietors

If you're a sole proprietor, your business is you. You need a clear plan of action for what should take place after you're gone. Choose and prepare your successor if you want to pass on the business to another person. If you want your heirs to sell the business, make sure you communicate these wishes and provide a plan for the process.  As with any small business owner, the key to successful estate planning is communication and implementation. You want to communicate with your family about your wishes for your business and you want to implement whatever documents are necessary to facilitate this process. 

Estate Planning Must Dos Before Summer Vacation

Get your estate planning done so that you can enjoy your vacation knowing your life legal plan is in place!

Summer is fast approaching and most of us have already made plans for our vacations, whether it be a trip home to see family, a trip to an exotic country, or camping in our own home state.

Understandably, most of us put more time into planning our adventures then we do in our estate planning. Its a lot more fun!  I can’t tell you how many times clients have reached out just before they take off for a big trip with what I now call the “estate planning itch." Their bags are almost packed, house sitter on board, etc., then the phone call:

“We are leaving next week and are wondering about an estate plan – can you help us quickly get this done.”

Estate planning is a daunting topic to think about. What if something were to happen and one of your family members were to get seriously injured on the trip? What if catastrophe struck? It’s natural to shelve these thoughts and also natural to have them “itch” a little bit.  Why not be proactive and address this now.  Estate planning itself, is actually not that daunting and can be an important tool in not only getting your affairs in order but also in understanding where you are right now in terms of your life planning.  In just a few conversations I can help you sort out and complete your estate planning and almost always clients inform me that it was much easier than they had imagined with great relief. 

Here are seven estate planning tasks that you might want to take care of before you go anywhere this summer.  That way wherever you go you won’t have to worry about the inevitable estate planning itch. 

1. Make a Will

Have you been putting off making a will? Perhaps you don’t think you need one-you do. Or perhaps you don’t think you have enough assets to require one-you still do. These are a few of the many common excuses that could cause turmoil and uncertainty for your family and loved ones were something unforeseen happen to you or a loved one.

Another misunderstanding is that a will is not necessary because the state makes a will for you. True, (these “wills” are actually called intestacy statutes), leaving your final wishes up to the state is fool hardy.  The state decides based on order of relation and not on individual and personal circumstances. 

I’m not even going to try to touch the tip of the iceberg with reasons for why you need a will. The point is, making a will before you go on your summer holiday will let you rest easier while you’re on vacation knowing your life plan is in place.

2. Check Beneficiary Designations

Almost always, a will is not enough to distribute your assets. Some of your largest assets, such as your IRAs, 401(k) plans or life insurance will be distributed outside of your estate to your named contractual beneficiaries. 

Each major financial account lets you designate a beneficiary. Usually you’ll designate the beneficiary on the spot and in a rush while setting up your account. Sometimes your snap decision will be the right one but other times, you might be making your assets more available to certain people than you’d like. For example, do you want your 18-year-old child to have access to your entire retirement savings? Are you certain s/he will spend that large sum of money in the way you’d like him/her to?

It’s worth revisiting who your beneficiaries are in case something happens to you before you travel.  This can be achieved via a simple phone call to your agent or representative.

3. If You Have Children, Please Name a Guardian or Guardians

Regardless of whether or not you make a will, you should always name a guardian (or guardians) for your children. 

It’s devastating to think about something happening to you before your children grow up, but it’s important to name the friends or relatives who can take care of your children according to your values and beliefs.   In Colorado, you can name a guardian to take care of the children and a guardian to take care of the finances if that is appropriate.  If you do not name a guardian it will be up to the Court and relatives to decide who will care for your children. 

You can also create a Pet Trust to care for any animals that you have, providing funds for their care.   

4. Complete your Medical Power of Attorney/Living Will

Sometimes, catastrophe doesn’t mean death. Sometimes, a person is left incapacitated and unable to make decisions about his/her healthcare (being in a coma or otherwise unable to communicate). Who would make the decisions for you if you were incapacitated? If you don't name an agent your loved ones will have to resort to the Court in order to speak to medical personnel on your behalf.  

Signing a medical power of attorney and living will also allows you to specify what type of medical treatment you want and don’t want if you are unable to communicate your wishes.

Why is this necessary? Because without this, your family will have to resort to the the court, who will then appoint a guardian to make those decisions for you. That’s costly both in terms of finances and emotional trauma to your loved ones; and you risk that your wishes won’t be adhered to.

5. Make a General Power of Attorney

Your health care power of attorney allows other people to help make medical decisions for you if you’re incapacitated, in conjunction with the wishes you can specify in a living will. A durable general power of attorney is equally important. This person makes decisions about what happens with your assets and other interests when you are unable to manage them yourself.  Again, if you don't name an agent your loved one's will have to petition the court to appoint a conservator for you.

6.  If your estate plan is complete

Review your fiduciary and beneficiary designations and update them if needed.   Are your choices still appropriate?  If not make the changes now.

7.  If you have children over 18

Once your minor child turns 18, you need to be named as their agent in powers of attorney in order to speak to medical personnel and/or banking and financial institutions, etc.  Whether your child is going off to college or you are just simply trying to schedule a vaccine for travel, it’s important to have these documents in place so that you can be there for them if needed.  

Your Summer Vacation Awaits You….

Think about how good it would feel to have these legal documents completed.   Although chances are good that nothing will happen to you or your loved ones, you don’t want to take the risk that your life plan will be decided by someone other than yourself. 

Hoping that your family makes many happy memories this summer!

How to protect your personal assets from your business liability - five keys.

Five key steps to keep your business separate and protect you personally.

If your business has its legal planning in place – your personal assets will most likely be protected from any liability that might occur as a result of your business operations.   Following the five key guidelines below will help to create and maintain your business as a separate entity- protecting your family, home, and other personal assets from being “up for grabs“ should someone sue your business.

A properly formed business in Colorado is legally created and regulated by state laws and thus legally separate from the individuals who own them. To retain this separation, certain legal requirements and formalities regarding the maintenance and operation of the business must be followed. If these requirements are not met, the separation may be disregarded, with disastrous consequences.

The following is a brief summary of some of the benefits of having a properly formed legal entity for your business, no matter how large or small it is:

• Protection of Limited Liability:  If you treat your business as an entity, separate from yourself, it is highly unlikely that the business entity will be disregarded by a court or government agency like the IRS. If it were disregarded, the result could be financially devastating. If the business entity cannot pay its debts, whether from regular operations or from liability attaching as a result of lawsuit or government action, your personal assets would be made available to the creditors of the business entity.
• Continual / Perpetual Existence: If businesses are properly planned for the death or disability of the owner does not mean that the business is dissolved (in the case of death) or unable to conduct business (in the case of disability). Changes in ownership and management are specifically addressed in the by-laws of corporations, in the operating agreements of LLCs, and in the partnership agreements of LPs.
• Access to capital: A business entity is a more attractive vehicle for investors than a sole proprietorship. Private investors are able to invest in business entities with confidence. This confidence comes from being able to invest and receive either a debt obligation (which may be convertible into equity under certain circumstances) or a portion of the ownership of the entity.
• Potential tax benefits: The owners of corporations and LLCs taxed as corporations may be able to receive tax benefits by sheltering business income in the entity—thus reducing the owners’ overall tax liability.
• Commercial credibility: American consumers are more accustomed to purchasing goods and services from businesses than sole proprietors. This instant reputability is another leading reason individuals use a legally separate entity as the business vehicle of choice.
• Employee benefits: Under certain circumstances, the ability to offer more comprehensive and deductible fringe benefits may result from the use of a business entity.

THE CHALLENGE
All too often, the requirements of just keeping a small business running leave little time for the owner or owners to engage in corporate/LLC/LP “housekeeping” and “maintenance.” Without some level of diligence on the part of the owners, a gradual merger of the life of the business and the life of one or more of the owners or managers may begin. When this happens, the separate legal status of the business entity begins to fade.

WHAT YOU NEED TO DO TO PROTECT YOURSELF AND YOUR BUSINESS
The following  five key steps should be taken by all business entities, even those owned and managed by only one person.

1.  Compliance with the Secretary of State:

As an initial matter, you should ensure that your business entity is in good standing at all times with the Colorado Secretary of State. You will receive an annual report from the Colorado Secretary of State each year (for entities other than Limited Partnerships). It is important that you complete and return this annual report with the required fee. Even if your entity is delinquent in annual filings or other matters, it is usually very easy to bring your entity into compliance with the Secretary of State. Typically, this will involve the filing of a delinquent annual statement or, possibly, reinstating your entity if it has been deemed dormant or inactive.

2.  Internal Governance in Compliance with State Law:

It is important to keep your internal entity governance up to date. This step can not be over emphasized in its importance. Being in good standing with the Secretary of State is only the initial step in having your business entity recognized as separate from you (as the owner) at some future time whether in court or by a government agency.

3.  Corporate Book
The most important action item is to ensure that your business document binder remains up to date. (This binder is universally referred to as the “Corporate Book” irrespective of whether you own a corporation, LLC or LP.) The binder should contain your entity’s organizing documents (articles of incorporation or articles of organization), the operating documents (by-laws, operating agreement, or partnership agreement), evidence of ownership (signed stock certificates, membership certificates, or partnership certificates), transfer ledgers, resolutions and agreements to extraordinary actions (opening bank accounts, signing a lease, making tax decisions, appointing officers, etc.), minutes of each annual meeting (discussed further below), tax documents (such as the Request for Employer Identification Number on Form SS-4 [the tax identification number for domestic business entities], S-Corporation Election on Form 2553, Tax Returns on the applicable forms [1065, 1120, 1120-S, etc.]), required permits and licenses for your type of business, leases, loan documents, and any other documentation that is evidence of your respect for the separation of the business entity from yourself.

4.  Annual Meeting

Reviewing the actions of the entity and planning for any upcoming changes on an annual basis is important. The documentation of this annual review/meeting in the Corporate Book is one of the first items a future judge will review if ever asked to disregard your entity.

5.  Keeping It Separate - Day to Day

You should also make sure the following tasks are accomplished and used in the daily running of your company:

• Open a bank account (usually a checking account) in the name of your entity.
• Ensure that you can document all moneys put into your entity in return for your ownership.
• In any interactions your entity has with other commercial enterprises or individuals, make certain that it is clear that you are acting on behalf of your entity and not as an individual.
• Use letterhead on all of your correspondence and contracts.
• Include the entity designation (“Inc.,” “Limited,” “Ltd.,” “LLC”) whenever possible on business identifiers such as business cards, advertisements, etc.
• Always sign documents in your representative capacity, and not as an individual:

YOUR ENTITY NAME

______________________________________________
by: YOUR NAME, YOUR TITLE (Manger, President, Owner, etc.)

• Ensure that all assets that are meant to be owned by your company are titled in the name of your entity and not in your name personally.
• Never commingle the funds or assets of your entity with your personal funds and assets. If you need to fund the operations of your company with your personal assets, document the transfer as either a loan or a contribution to the capital of your entity. If you need to use assets of the company for personal reasons, distribute the assets out of the company to yourself first as income, profit distributions, or a return of your capital contribution.

Medical Power of Attorney - Choosing Your Agent

In completing your POAs its important to choose an appropriate agent. Here are five criteria to think about in relation to choosing an agent for your medical power of attorney.

1.  Personal belief:  Since the concept of withholding artificial-life support runs contrary to the teachings of some religions and is a very personal decision, it is helpful to find a healthcare agent who understands your feelings in this regard and whose own beliefs are not contrary to your own.

2. Communication: It is important to choose someone you are comfortable speaking with about your health care wishes and it should be clear to you that not only do they understand them but they will be able to communicate these to your health care providers and family members if necessary.

3. Practical reality:  Its critical that the person you choose is willing to accept responsibility and agree to act as your agent - "ready and able to serve".

4.  Voice:  In choosing an agent be sure that they will be able to speak up and stand firm on your behalf - even if faced with physicians who are advising otherwise or other close family members who disagree.

5.  Availability: Make sure this person is likely to be accessible and capable of serving as your agent well into the future.

Pet Trusts in Colorado

Clients often ask me if they can provide for their pets in their estate plans. The answer is yes – Colorado does allow for pet trusts – and many people use these as a means to ensure that their beloved companions are provided for if they are either disabled or upon their death.

My dear sweet Master Luke.

Pet trusts are extremely useful in a number of situations. For most household pets, pet trusts are used as just-in-case planning, very similar to naming a guardian in your will for minor children. This ensures that your pets are provided for without burdening your loved ones.  For pets with a long lifespan, such as tropical birds, pet trusts may be viewed as a necessity so that pet owners can provide certainty of care for pets that will almost certainly outlive their human companions. 

In general, trusts need certain types of beneficiaries before they will be recognized and upheld by the law. Typically, these types of beneficiaries have been either ascertainable individuals or charities. Therefore, historically, it was difficult to provide for the continuing care of pets after death. In the past, estate planning to care for pets involved leaving assets to a trusted friend or family member with the understanding that they would use the assets to care for the pet. Although this method has certainly worked, there have undoubtedly been times when the pets have not been taken care of in the way that their human counterparts would have expected or the pets have not been cared for at all, with the trusted friend or family member using the assets for self-benefit instead of the benefit of the pet. Finally, the most obvious person to care for a pets physical needs may not be the best choice to manage the assets placed in the trust for the benefit of the pet.  Pet trusts can accommodate this practical reality. 

PET TRUSTS IN COLORADO

Many Colorado estate planners draft their pet trusts to allow pet owners to leave assets for the benefit of their pets as well as to allow the pet owners to designate both a pet guardian to manage the care of the pet and a trustee to manage the assets in the trust and make appropriate distributions to the guardian. Because of this separation of duties, the creator of the pet trust can ensure that the best person is selected to care for the pet and the best person is selected to manage the assets funding the trust for the pet.

SPECIFICS OF THE COLORADO PET TRUST

Under Colorado law, pet trusts operate in the following manner:

• Assets can be placed in trust for the benefit of a pet.
• The trust can be written so that if the pet is pregnant at the time the trust goes into effect, the trust will remain in force to provide care for the offspring of the pet.
• The trust will remain in effect until there is no living animal covered by it, unless an earlier termination is provided for in the trust itself.
• The trustee is not allowed to use any portion of the principal or income of the pet trust for the trustee’s benefit or in any way that is not for the benefit of the animals covered by the trust.
• The creator of the trust has complete freedom to designate where any assets left in the trust upon its termination should go.
• The appropriate use of the trust funds can be enforced by a trust protector designated in the trust instrument, by any person having custody of an animal for which care is provided by the trust, by any beneficiary designated by the trust creator to receive assets at the termination of the trust, or, if none of the above, by an individual appointed by a court if someone makes an application to the court to review the use of the funds.
• If there is ever a situation in which a pet trust comes into effect but there is no trustee able or willing to serve, a court has the authority to designate a trustee and make other orders and determinations so that the intent of the creator of the pet trust will be carried out.

WHEN TO SET UP A PET TRUST

• Pet trusts can be set up at death, at disability, or immediately upon signing a trust instrument.
• Pet trusts are typically set up in a last will so that upon the death of the creator of the will, the pet trust is established and funded.
• However, pet trusts can also be established in a revocable living trust so that upon the disability of the creator of the revocable living trust, a pet trust will be established to provide for continuity of care of the pet or pets.
• Additionally, at any other time, any individual can set up a stand-alone pet trust to establish a trustee and fund a trust for the benefit of a pet.

Pre and Post Nuptial Agreements in Colorado

What is a Marital Agreement?
Pre- and postnuptial agreements (marital agreements) are important tools for couples to manage their assets and avoid conflict, both before and during their marriage and as part of the process of separating if the marriage ends. Prenuptial agreements are contracts executed prior to marriage and post-nuptial agreements are contracts made between the spouses during the marriage, that allow the parties to agree to and delineate the division of assets should a legal separation, divorce or death occur. These agreements are legally binding contracts which can protect both parties by creating a plan that if conscionable will be enforceable and predictable – thereby taking the potential conflict out of the difficult process of separating.

Every couple should consider a marital agreement as a potential tool to enable them to plan for the future, protect their assets and avoid conflict. Couples who do not have a marital agreement are subject to the provisions of the Colorado Uniform Dissolution of Marriage Act, which will determine their rights in the case of separation or divorce; and the Colorado Probate Code, which will determine the rights of the surviving spouse and other heirs, upon death if proper estate planning has not been completed.

How Colorado Law Works for Couples without a Marital Agreement
Individuals that are married and living in Colorado have statutory rights if the marriage terminates by divorce. Colorado law defines two types of property that can exist during the marriage. Separate property is the property owned prior to the marriage, and all property received by gift or inheritance during the marriage. Marital property includes all property earned by either spouse during the marriage, including deferred compensation; and all income and appreciation on separate property, whether realized or not – regardless of how the property is titled.
When a couple divorces in Colorado, each party keeps his or her separate property – if it was kept separate during the marriage and not co-mingled with marital property. If the parties cannot reach an agreement about the division of property during a divorce, the court is directed to divide the marital property in the proportion that it deems just after considering all relevant factors.

In addition to dividing marital property, a divorce court can award maintenance if it finds that one of the parties lacks sufficient income or property to provide for his or her reasonable needs. The amount and length of a maintenance order is determined by the court’s just determination after considering all relevant factors. Colorado courts have been unpredictable in awarding maintenance and thus it could have a significant financial impact on both parties.
Why Should Couples Consider Marital Agreements
Marital agreements can be used to define the parties’ rights in regards to the appreciation of separate property and all marital property accrued during the marriage. Couples who have children from previous marriages are able to provide for these children and protect their inheritance in the event of a divorce from a subsequent spouse. If one of the spouses owns a business, a marital agreement can ensure that the new spouse does not become entangled in the company should a separation occur.
Marital agreements identify, define, and resolve legitimate issues related to the couples’ finances, estate plans and business interests – while the parties are free of the emotional turmoil created during a separation process. Advantages of premarital agreements for both parties include:
Avoiding litigation costs
Protecting against fears of family members such as children from previous marriages
Protecting family assets
Protecting business assets
Protecting against creditors
Predetermined and thus predictable disposition of property

Contents of a Colorado Prenuptial Agreement
A marital agreement may address the following issues:
1. Spousal Maintenance: whether it is waived, set at a predetermined amount, based on years of marriage, etc.
2. Division of property and debts: whether assets acquired after the marriage are kept separate; whether future appreciation on existing assets are separate property; how to apportion pension funds, retirement benefits or other intangible assets.
3. Inheritance: a spouse may agree to waive his or ability to take an elective share of the estate thereby protecting children from a previous marriages’ legacy.
4. Rights and obligations under insurance policies, employee benefit plans, and other assets such as these.
5. Waiver of Rights Upon Death: a common provision in prenuptial or postnuptial agreements designed to prevent probate laws or prior wills from trumping the terms of the prenuptial or postnuptial agreement.
6. Alternative Dispute Resolution: a provision requiring the complaining party to mediate or arbitrate any dispute and preventing him or her from filing a costly lawsuit.
7. Attorney’s fees: who pays for attorney’s fees if the parties are unable to abide by the terms of the agreement.
If the parties have children during the marriage, a marital agreement cannot legally bind either party to agreements made regarding child support, physical custody, parenting time and decision-making authority. The parties may agree on proposed terms for these issues but these terms would be subject to the court’s later approval.

What does a Marital Agreement do?
A marital agreement allows the engaged or married couple to negotiate around Colorado law in order to define separate property and marital property. By means of a marital agreement you can define separate property to include all income from and appreciation on your separate property. You can also protect your earned income by defining that as separate property, so that assets purchased or investments made with your earned income will remain your separate property upon divorce. Thus, by altering the definitions of separate property and marital property from those provided by statute, you can protect not only the core of your separate property which you amassed prior to your marriage, but also the earnings from and appreciation on that property. If you wish to restrict your spouse’s rights upon divorce to your earned income, including retirement benefits, you can do that as well.
Spouses can waive their rights to maintenance payments in a marital agreement or they can agree to a certain amount of maintenance to be paid to the less wealthy spouse in the event of a divorce. However, if at the time of a divorce, the court determines that the spousal maintenance terms in the agreement are unconscionable, the court can render that portion of the prenuptial null and void.

Finally, a marital agreement can allow couples to determine what rights a surviving spouse will have upon the first spouse’s death. For example, in many marital agreements, each spouse waives his or her right to reject the terms of the others’ will and elect to take up to half of the estate outright (depending on the length of the marriage). Such a waiver ensures that the estate plan of the first spouse to die will be honored by the surviving spouse.

Why Couples Choose to Alter Spousal Rights Provided by Law.
Couples choose to alter their statutory rights for a number of reasons. Some people simply wish to have certainty as to property rights and maintenance payments upon a potential divorce. By entering into a marital agreement, they eliminate much of the financial uncertainty associated with a divorce. A fairly negotiated marital agreement can provide some assurance to the wealthier spouse as to the extent of the financial impact of a divorce and provide the less wealthy spouse with some guarantee to his or her entitlement to property distribution and maintenance.

People who have children from a previous marriage may wish to protect their assets for these children’s benefit. A marital agreement that addresses the rights of a surviving spouse can protect the deceased spouse’s estate for the benefit of children from a previous marriage as well.

Sometimes parents encourage their adult children to enter into a marital agreement in order to protect assets owned by the child that were accumulated by previous generations. Usually, a wealthy family wants to ensure that assets that have been gifted to adult children do not become vulnerable to the spouse in a divorce situation.

Enforceability of a Marital Agreement.
Colorado adopted the Colorado Marital Agreement Act in 1986. This statute allows the waiver of statutory property and maintenance rights of spouses either before or during a marriage. Thus, the general statutory rule is that marital agreements are valid and binding contracts. However, one party can have the agreement voided if he or she did not sign it voluntarily or if the other party did not provide a fair and reasonable disclosure of his or her property and financial obligations.

When one spouse challenges the validity of a prenuptial, the court will look at several factors to determine whether the agreement should be enforced. The two most important factors the court considers are the adequacy of the financial disclosure and whether either party was under duress when signing the agreement. Full and complete disclosure of all assets is required prior to the signing of the prenuptial agreement because a party cannot knowingly waive rights unless he or she has sufficient information about the potential value of those rights. Duress is reviewed as a question of fact and the court may consider factors such as the timing of the agreement (i.e., was the spouse forced to sign it right before the wedding, etc.) and whether each spouse had
independent counsel. It is extremely important that both parties have their own legal adviser during the preparation and execution of a marital agreement.

Revocable Living Trusts In Your Estate Plan

Estate Planning: The Use of a Last Will versus a Revocable Living Trust

Many clients come in asking about setting up a Trust rather then a Will for their estate planning. Trusts are very trendy right now, especially in states like California where the probate process is expensive and complicated.

Each of these estate-planning tools has pros and cons. The following information is meant to make sure you understand the differences and enable you to make an informed decision about which estate-planning method is right for you.

When a Last Will is used, it does not become an effective document until death. A Last Will requires the property of the decedent to go through the probate process prior to being distributed. Probate is the process by which a Last Will is presented to the court, the court authorizes the representative of the estate to take possession of the decedent’s assets, the creditors of the decedent are notified, and, approximately four months later, the representative pays the creditors and then distributes the assets to the intended beneficiaries.

When a Revocable Living Trust is used, the assets titled in the name of the trust are not part of the decedent’s estate, and do not need to go through the probate process. As soon as the individual who set up the trust dies, the alternate trustee named in the trust is entitled to take control of the assets without any court involvement. Importantly, this process also happens when the person who set up the trust becomes incapacitated.

Colorado has an informal probate process. The probate court is minimally involved with the process, and thus most probates here are both inexpensive and efficient. However, as noted above it does take about four months to complete the process.  In a Revocable Living Trust based plan, the immediate ability of the alternate trustee to access the assets in the trust upon the incapacity or death of the settlor of the trust is definitely an advantage if time is a consideration.

If you choose to use a revocable-living trust based estate plan, your personal residence, vacation home, and investment accounts and other types of property are usually transferred into the name of the trust, requiring retitling of these assets, but tax advantaged retirement accounts are usually not. This process of retitling the assets is one of the two disadvantages of using a Revocable Living Trust when compared to a Last Will-based estate plan. The second disadvantage to the Revocable Living Trust is that it is typically more expensive than a Last Will based plan.

I generally recommend a Last Will based estate plan here in Colorado because of our informal probate process. I recommend a Revocable Living Trust based plan to my clients who meet any of the following criteria:

➢ complex asset management needs or diverse types of investment assets since Revocable Living Trusts provide a very strong asset management tool;
➢ property outside the state of Colorado (since such property can be placed in the Trust, no additional probate proceeding will need to be opened in the other states);
➢ the need for privacy (Wills are filed at death and become pseudo-public documents) or the wish that their at-death disposition not be public; and
➢ impending disability (at the disability of the individual, the alternate trustee will be able to take control of the assets in the trust).

Feel free to call or email me if you have further questions regarding the differences between these two types of plans.

Colorado Advance Directives and Do Not Resuscitate Orders FAQs

Medical Power of Attorneys, Living Wills, DNRs, CPR Directives. Many clients want to make sure their medical choices are adhered to if they are unable to speak for themselves. To help them understand the basics - what are these documents and what do they do - I have written a brief summary, below.  I strongly recommend that all of my clients, friends, and family have these documents completed so that their choices are honored about the care and control of their health care treatment if they cannot speak for themselves.  This also avoids the terrible and onerous burden of having their close family members or friends have to go to court to obtain an order allowing them access to the care and treatment of their loved ones, should something happen, if these documents are not complete.

What is an advance directive?

An advance directive tells your doctor what kind of care you would like to have if you become unable to make medical decisions (for example, if you are in a coma). If you are admitted to the hospital, the hospital staff will probably talk to you about advance directives.  If you are not hospitalized these documents are still important to have on hand.

A good advance directive describes the kind of treatment you would want depending on how sick you are. For example, the directives would describe what kind of care you want if you have an terminal condition or illness that you are unlikely to recover from, or if you are permanently unconscious. Advance directives usually tell your doctor that you don’t want certain kinds of treatment. However, they can also say that you want a certain treatment no matter how ill you are.

Colorado’s advanced directives are called Medical Powers of Attorney. The signer is making statements in advance about his or her preferences for medical care should he or she be unable to speak for themselves.

What is a medical power of attorney?

A medical power of attorney (POA) for health care states whom you have chosen to make health care decisions for you by allowing you to name an agent to step into your shoes and also allows you to express legally binding decisions about end of life choices. It usually becomes active any time you are unconscious or unable to make medical decisions. A POA is legally binding, so long as the named agent is present. If the agent is not present then the medical personnel will look to the language and wishes expressed in the living will and most likely adhere to the wishes expressed therein.

What is a living will?

A living will is another type of advance directive. It is a written, legal document that describes the kind of medical treatments or life-sustaining treatments you would want if you were seriously or terminally ill.

If your agent for medical power of attorney is not available to speak on your behalf the medical personnel will generally adhere to the wishes expressed in a living will, so long as it is properly executed per Colorado statute.

What is a do not resuscitate order?

A do not resuscitate (DNR) order is another kind of advance directive. A DNR is a request not to have cardiopulmonary resuscitation (CPR) if your heart stops or if you stop breathing. Unless given other instructions, hospital staff will try to help any patient whose heart has stopped or who has stopped breathing. You can use an advance directive form or tell your doctor that you do not want to be resuscitated. Your doctor will put the DNR order in your medical chart. You both must sign this form in advance.

A medical ID allows you to communicate your choice when you cannot speak for yourself. A DNR request is usually made by the patient via a valid form, bracelet or agent named in the medical power of attorney, and allows the medical teams taking care of them to honor and adhere to the patient’s wishes.

In Colorado, CPR and advanced cardiac life support (ACLS) will not be performed if a valid written DNR order or CPR directive form is present. In Colorado, it is typical for emergency medical services personnel who are presented with a valid DNR form, signed by your doctor, or who identify a standard DNR bracelet on you, to comply with the DNR order.

Advanced Directives are an important part of your life planning necessities.

 What is a CPR Directive

A CPR directive is similar to a DNR order.  The Colorado CPR directive must be signed by both the individual  and his/her physician.  CPR directives must be immediately visible to emergency personnel. At home, the best locations are right by the front door, on the refrigerator, or by the bedside of a home-bound individual.

For more active clients with strong feelings about CPR directives, I recommend a special no-CPR bracelet or necklace that can be purchased from the Award and Sign Connection or MedicAlert Foundation.

Should you complete your advance directives?

By completing your advance directives, you are making your preferences about your medical care known before its too late. This will spare your loved ones the stress of trying to make decisions about your care and you receiving care against your wishes or beliefs. Any person 18 years of age or older can and should prepare their advance directives. Parents who send their children off to college should make sure the kids have medical POAs completed, so that should something happen they can make medical decisions for their children without having to get a court order for guardianship or conservatorship – same with adults with elderly parents, spouses, and single people.

Review your estate plan to make sure it still fits your life plan.

Many clients have an estate plan in place - but for these documents to really serve the purposes they were created for they sometimes need to be updated as life circumstances change and time marches on.  

Periodically reviewing your plan estate plan ensures it accurately reflects your current life plan - both your present needs and your goals going forward.   Make sure you review and update your estate plan if your personal or financial situation changes or if a number of years have gone by and for instance your minor children now have children of their own.

Some of the most important triggers for updating your estate plan include:

Divorce. Once your divorce is finalized, your plan should be revised as quickly as possible to reflect your current situation.   In addition, you can take steps to protect your heirs from potential future relationships that might impact their legacy unintentionally.

Re-Marriage. If you and your new spouse both have children from a previous marriage or relationship, working with an estate planning attorney is essential to navigate the complexities of providing for the children of both parents.   

Birth or Adoption of Children. In addition to providing for your children’s financial future, any good estate plan will also allow you to appoint a legal guardian (both for finances and physical care) in the event you and your spouse die or are incapacitated.  The guardian designation should be updated as needed depending on circumstances and should always reflect the best interests of the child/children NOW.

Illness or Injury. If you or one of your family members becomes seriously ill, you may want to consider changing your plan to reflect increased needs and or the creation of trusts for special needs, etc.

Changes in Tax Laws. Tax laws are constantly changing and can dramatically affect your estate plan.   An estate lawyer can  help ensure that your plan takes advantage of new legislation and makes sure you have a viable, current asset protection plan in place so that your estate avoids taxes as much as possible.

Inheritance. If you receive a large inheritance, this could shift your estate planning considerably.   The increased value of your estate may cause you to change how your assets are distributed upon your death, as you might want or need to add trusts for your beneficiaries and or more charitable contributions or both.

These are just a few examples of when a meeting with your estate planning attorney is in order to make sure your estate plan meets your life plan.  I am happy to discuss my client's current plans with them any time they feel the need for such a review: and always available to review a new client's "old plan" as part of my complimentary initial consultation.  

Estate Planning and Personal Effects

Who gets mom's wedding ring?! When clients hire me to create their estate planning documents, we have a thorough conversation about their assets, how they are held, and to whom they want them to go to. This conversation is focused primarily on the large assets, such as the family home, retirement accounts, insurance policies, other properties and investment accounts. Part of the initial estate planning process is to really look at these and then clearly designate beneficiaries.

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Inevitably during this discussion, the client’s personal effects come up. In Colorado, personal effects, such as grandmother’s antique ring, grandfather’s favorite chair, mom’s jewelry, dad’s watch, etc., can be designated in a separate Memorandum of Personal Effects that is incorporated into the Will by reference. This allows my clients to keep a running inventory of bequests and beneficiaries for personal times that can be changed over time.

I provide this memorandum as part of the estate planning notebook I create for my clients. The Memorandum, referenced in the Will, is binding and it simply has to be dated and signed. This allows the personal representative or family members peace of mind and ease. It avoids the stress and conflict of having to figure out who gets what. An analogy I recently read about in the New York Times is that without this Memorandum, its like waking up to a house full of kids on Christmas morning and having no name tags on any of the wrapped gifts – chaos!  To read this article click here.

The article, references a workbook called Who Gets Grandma’s Yellow Pie Plate, by Marlene Stum. She says that the process starts with recognizing that dividing up a loved ones’ belongings is laden with emotions and can be a real mine field for family members and friends. The workbook helps sort out the process by helping people:

• Determine what you want to accomplish, decide what's fair to your family.
• Understand belongings have different meanings to different individuals.
• Consider distribution options and consequences
• Agree to manage conflicts if they arise.

To learn more about this workbook, click here.

In representing my probate clients, I have seen sibling relationships torn apart because they don’t agree about how to divide up the personal property of the deceased.   My clients that are appointed as personal representatives really struggle, during a time of personal grieving, to try to figure out how to divvy up personal effects fairly, without hurt feelings.

All of this can be avoided with an estate plan that provides for a Memorandum of Personal Effects. I advise my clients to use this Memorandum as a living, breathing document that they can continue to add to and change as time goes by. So when a loved one expresses a sentimental attachment to a certain item, my client can simply add that to their Memorandum and know that that beneficiary will receive that heirloom.

On Gratitude

Luke at 9 weeks old in 2003.

I recently lost my 14-year-old, yellow lab, Master Luke. After many days of tears and grief, I woke up this morning feeling soothed by a deep sense of love and gratitude.  My aching heart, my sadness, and my sense of loss are being gently transformed by my appreciation for the great gift I have received in having this incredible being of light and love in my life for so many years and through so much change.

Since gratitude is such an important and healing thread in all of our lives I thought to pay it forward a little by reminding us all of some simple ways that we can express our appreciation and gratitude to those who touch our lives.  There are many ways to say thanks and it is always nice to reach out to those who have touched us or made a difference.

Some simple ways to express gratitude include:

• Bake some cookies or other special treat or buy some from a bakery and deliver them or have them delivered.
• Send a handwritten card or thank you note via snail mail.
• Brighten someone’s day by sending or delivering flowers or a nice plant.
• Give a small but useful gift or gift card to someone as an expression of appreciation.
• Make a donation to a charity in someone's name who has touched our life as a way of saying thanks.
• Chocolate, specialty coffee, a nice tea, healthy treats that can be enjoyed are always appreciated!
• Give them a shout out on social media and let others chime in as to how special they are as well.  

These might seem a bit old fashioned, but when was the last time you got a card in the mail or flowers delivered as an expression of appreciation? Life is precious and our connections to each other are a big part of that so why not reach out to say thanks now and then without using the strokes on the keyboard.  If you have a special way of expressing gratitude please share here by posting a comment.