LIVING TRUSTS 101

Living trusts are becoming more and more popular—an AARP study says that almost a quarter of Americans aged 50 and over has one, almost double the percentage of 10 years ago. Nonetheless, there is still a lot of misinformation and confusion about them. Your lawyer is your best source of information on whether a living trust is right for you, but this article, the first of a series, tries to give you an overall picture of what their advantages and disadvantages.

What They Are - Advantages - Disadvantages - Weighing The Pro's And Cons
Starting Your Own Business - Licenses And Permits - Tax Requirements
Some Final Words Of Advice - Your Rights - What Can Go Wrong
Seeking Internal Review - Seeking External Review - Some Other Options
Prevention Is Better Then Cure

What They Are

A living trust--an inter vivos trust if you want to be formal--allows you to put your assets in a trust while you’re still alive. If your living trust is revocable, as almost all are, it gives you great flexibility. You or someone in whom you have confidence manage the property, usually for the benefit of you or your family. Most people name themselves as trustees, and find there is no difference between managing the trust and managing their own property--they have the right to buy, sell, or give property as before, though the property is in the trust’s name rather than their own.

Advantages

Helps in managing your affairs. A living trust provides a way to care for you and your property in case you become disabled. You’d typically set up a revocable living trust, fund it adequately, and name a reliable alternative trustee (often an adult child) to manage it should you become ill. This avoids the delay and red tape of expensive, court-ordered guardianship. And at the same time the trustee can take over any duties you had of providing for other family members.

Of course, living trusts can help even if you’re not disabled. For example, if you have a trustee, a living trust can manage your property. Say you rent out condos; your trustee can take over the management, while you receive the income, minus the trustee’s fees.

Protects your privacy. Living trusts maintain your privacy more than wills, since there’s typically no public record required.

Easy to create and change. For most simple estates, it’s not that hard for a lawyer to create a living trust tailored to your estate objectives, and you don’t have to go through the formalities required to execute or change wills. Some states require that your living trust be registered with the state, but that’s a simple procedure. Most states require no witnesses to execute the living trust or an amendment to it. Just have your lawyer write it and sign your name.

More flexible than wills. Living trusts give you wide flexibility in distributing your property. For example, the trust agreement could say “at my death, my trustee is to give my car to my son Cain, my coat to my son Jacob” and so on. Your instructions can tell the trustee to continue managing assets for the benefit of someone else, distribute them to any beneficiaries you choose, or perform some combination of these actions.

And, unlike a will, you can use your living trust to make gifts over a period of time. In fact, living trusts can extend long after you die. If you want the trust to benefit your infant grandchildren, for example, you might specify that the trustee make gifts to them as needed until they are fully grown.

Good for far-flung family and assets. Say you want your estate administered by someone who doesn’t live in your state (usually a child who’s grown up and moved away). A living trust might be better than a will because the trustee probably won’t have to meet the residency requirements some state laws impose upon executors.

If you have property in another state, many lawyers recommend setting up a living trust to hold the title to that property. This helps you avoid time-consuming, complicated ancillary probate procedures.

Avoids probate. This used to be a main reason for having a living will, but probate is now far less burdensome than it was in most states (see sidebar). And, unless you have all of your property in the trust, you would need a will, and your estate would have to go through probate in any event, though only for the property left out of the trust.

Disadvantages

Title problems. People often neglect to put all of their assets in the name of the trust. And not all items may be easily transferred into a trust. Jewelry can be a problem, and if you transfer title to your car into the trust, you may have trouble getting insurance on it, since you don’t own it anymore.

Burdensome to maintain. Trusts often spawn administrative chores that need to be attended to from time to time – and it’s easy to forget to keep them up to date. For example, revocable trusts may not be automatically revoked or amended on divorce, unlike wills. If you don’t amend the trust, your ex could end up being the beneficiary. And running a business that’s in a trust can be cumbersome after the owner dies.

Could undermine other legal benefits. If you’re in certain specialized situations, you might ask your lawyer whether a living trust is a good idea. It can, if not properly drafted, jeopardize Medicaid qualifications. Depending on the state the property is located in, putting your home in a revocable trust might jeopardize a homestead exemption, might require a transfer fee, or might cause your property to be re-evaluated for property tax purposes.

Though a living trust you write while living in one state remains valid if you move to another, it’s a good idea to check with a lawyer familiar with the statutes of your new state to see whether the trust should be revised to account for differences in the law. This is especially so if you’re moving from a community property state to a common-law state or vice-versa.

Less protection in the administration process. Because administrating trust estates (that is, wrapping them up after death) have fewer formalities, abuses have occurred. In other words, what you may gain in speed and flexibility may be outweighed by what you could lose.

Less protection generally. If you have a will and your estate goes through probate, it is before a court, which has its advantages. In a trust administration, you are not in court with an expedited way for the court to settle disputes or issues of facts regarding status of beneficiaries. If a court is to determine those issues in a trust administration, a separate legal case needs to be filed – which entails a summons, related costs and time delay. In contentious situations, an estate administration is best.

Tax problems. The federal estate tax allows an estate to use a year other than a calendar year as the “taxable year” used in tax deadlines. Trusts don’t receive the same flexibility. If you have a large estate and timing is a consideration, it might save you money to pass your assets via will instead of trust. Also, trusts are required to make estimated tax payments, while estates are exempt from this requirement for the first two years. There may be state tax considerations, too. Some states charge income taxes on trusts but not estates. Check your state law for such traps before setting up a living trust.

Cost. It can cost more to draft a living trust than a will. Though there may be some eventual savings in reduced or eliminated probate costs, registration fees and other incidental costs of the trust are incurred up front, while the savings generally don’t accrue until after death.

Weighing the Pros and Cons

Living trusts can be a useful, simple, and relatively inexpensive way to plan your estate, but they do not magically solve all your problems. And though they’re great for some people, you can’t assume they’re great for you.

Deciding whether a living trust is right for you depends on the size of your estate, what kinds of assets it contains, and what plans you have for yourself and your family. You and your lawyer will have to weigh all the factors and decide if one is right for you.

Starting Your Own Business: Playing by the Rules

Are you thinking about starting your own business? You probably have a million things to do, from drafting a business plan and raising capital to registering a business name. It’s easy to forget about the important legal and accounting hoops you have to jump through before starting your business.

We’ll take a look at how government and its rules affect the whole start-up process. This is a complex area, so if in any doubt you should contact your lawyer to help you get it right.

Licenses and Permits

The licenses and permits you need depend on the type and location of your business. In many states, finding out what you need is simple: if you contact the state business development office (or comparable agency), they will send you a packet of information that covers the licenses and permits that apply to your business.

Some businesses that are exempt from state licensing regulations are required to obtain a license or permit from a county or city to perform certain operations. Building contractors, for example, usually have to get a city or county building permit to build or remodel a house or commercial building.

Most cities and many counties also require businesses located in their jurisdiction to have a business license. In reality, this is a tax based on the gross receipts of the business rather than a regulatory license designed to protect the public against shoddy work and incompetence. Avoiding this tax can be an important factor in choosing the location of a business.

Tax Requirements

You should be aware of several federal and state tax requirements.

Federal Tax Identification Number
All businesses must obtain a Federal Employer Tax Identification Number (EIN) before beginning to operate. Each state also requires tax registration by a new business. In most cases the state will use the Federal Employer Tax Identification Number.

You get your EIN by filing an IRS form SS4. You can get one from any office that has IRS forms, or online through the IRS website (see sidebar). If you mail the form, you’ll get your EIN in four to six weeks. You can get it more quickly if you fax the form or call direct.

State Sales Tax Registration
All states that have sales taxes also require any business not exempt from the tax to register with the appropriate state agency. You’ll be required to collect the tax and remit it to the state regularly. To avoid paying taxes on the materials you buy from wholesalers and subsequently sell to the public, you should get a resale tax certificate from the state tax authorities.

Withholding Requirements
If you have employees (including yourself if your business is a corporation), you’ll be required to withhold federal and state income taxes and FICA (Social Security and Medicare) taxes from their wages. You have to regularly remit these funds to the IRS and the applicable state tax agency.

Unemployment Insurance Tax
Most states require your business to register or periodically file with the state agency that administers the state unemployment insurance tax. This is a tax based on the business’ payroll. A business must also periodically pay the federal Unemployment Insurance Tax, which is also based on its total payroll.

Federal and State Income Tax Returns
All businesses must also file annual federal and state income tax returns. The applicable forms vary with the type of business. Your lawyer can brief you on various types of business organizations and how they are taxed.

Some Final Words of Advice

• There are a lot of places that can help you work out which licenses and permits you need. Find out your obligations early, and plan accordingly.
• Be sure to know your taxation requirements and follow them, since there may be heavy penalties for late payment. Remember that the principal officers of the company may be personally liable for payroll taxes that are not paid to the IRS. You may find it pays to use a payroll tax service for this job.
• If in doubt, consult a professional. Your lawyer can help you with these issues. And any business, no matter its size, should consult a tax advisor.

Your Rights Under Your Health Care Plan

What’s worse than being sick and needing health care? Being sick and not able to get the care you think you need, or being sick and finding out that you’ll have to bear way more of the cost than you had planned. As a result of managed care, this happens much more frequently than it used to.

Thanks to the laws and regulations in many states, you now have the right to complain to your managed care provider and get a hearing. If all else fails, you may also have the right to file suit against the company.

Your lawyer can fill you in on your options in your particular case. Here is some general information that will illustrate the range of options you may have.

What Can Go Wrong

Imagine the kind of disputes that might arise. You might disagree with your plan about whether certain services are covered, what treatments should be followed, which providers should be used, or how much a service should cost. You might even have a dispute over billing and administrative mistakes.

If you have a dispute with your health care fund, you have a few options to assert your rights and seek redress.

Seeking Internal Review

Health plans are required to establish rules and procedures for handling complaints and grievances internally. Utilizing these procedures is an important first step in seeking resolution of a dispute. You can start an internal review with a phone call to a complaints hotline. You may need to follow it up with a complaints form or a written complaint.

Some sample letters seeking review can be found at: http://www.healthcarerights.org/letters/lettersindex.html

Check your plan to see how long a review is likely to take – it can be anything from one business day to thirty days. If your dispute concerns the medical necessity of services to be provided and your health would be seriously jeopardized by waiting for a standard review, you may be eligible for an expedited review and the plan will evaluate your dispute sooner.

Seeking External Review

External review allows your case to be reviewed by a third party independent of the health care plan. Most states have external review procedures, which can be pursued once internal review has been exhausted. Your health care plan may automatically refer your dispute to external review if your internal review is unsuccessful; or you may need to request external review in writing within a certain time period after internal review.

In most states, not every dispute can be reviewed, only those involving “medical necessity.” That means that there must be a dispute between you and your health plan over whether a particular procedure, treatment, or pharmaceutical is essential for your health and recovery.

The external review procedures are different in each state, but are usually free or available for a small fee. You can find a useful summary of the procedures involved in each state at: http://www.kff.org/consumerguide/states.html

Some Other Options

Complain to the accrediting organization. Most HMOs are accredited with non-government groups such as National Committee for Quality Assurance [www.ncqa.org], American Accreditation HealthCare Commission/URAC [www.urac.org] and the Joint Commission on Accreditation of Health Care Organizations [www.jcaho.org]. HMOs rely on their accreditation by these organizations in their marketing to employers and unions. Making a well-documented complaint to the relevant organization and copying in your HMO might have results.

Make a complaint about your doctor – and seek a second opinion. If you think your doctor is withholding treatment, then talk to your doctor about it. You might want to seek a second opinion about whether treatment is necessary. And if you believe your doctor is withholding treatment for his or her own pecuniary gain, you can file a complaint with your state’s medical board.

Prevention Is Better Than Cure

One last bit of advice. Disputes with your health care plan are likely to come at the worst possible time – when you’re seeking medical help. It’s a good idea to minimize the chance of a dispute developing by becoming familiar with the details of your plan and understanding your coverage. It’s also worth reading details of your plan’s review procedure, so that if a dispute arises that needs urgent resolution you will know what your options are.