How did we ever make it without such modern-day conveniences? They save time, money, and headaches. Yet, a lot of people who wouldn’t be caught dead without those everyday appliances will be caught dead without the one simple document that preserves what they worked for all their lives.

How can the same people who’ve updated their kitchen, their communications system, and their typewriter continue to live in the dark ages with regards to their own life savings? Just as it doesn’t make sense to fire up the stove to warm a cup of coffee, or plunk quarters in a pay phone to call the office, or bang away at an old Smith-Corolla, the fact is, wills are obsolete.

Early into the new millenium, we’re all waiting with anticipation for what the 21st century will bring.

Frankly, I can’t think of a better wish for the new century than happiness and prosperity—and that means throw away your old will.

Unless your dream is to share your prosperity with Uncle Sam, towards the top of your New Year’s resolutions should be to draw up a living trust.

Occasionally a couple wants me to prepare wills for them, and of course, if that’s their desire, I will do it. But only after I have warned them of the dangers of a will and they sign a waiver stating that I have told them about the advantages of a revocable living trust.

Wills cost beneficiaries time and money, and I don’t want them suing me because I failed to disclose the truth to their parents. In fact, I think that it would constitute malpractice if I didn’t tell their parents about a revocable living trust. So if they still want a will and they sign the waiver, the kids have no recourse.As sad as it is, after Mom and Dad are gone, it’s too late.

They might as well have taken their life’s savings with them to the grave, because by the time the kids pay the enormous estate tax and the cost of probate, the inheritance is a fraction of what they should have received.

All I can offer is my sympathy and advice to protect their children from the same unfortunate outcome.

If people just spent twenty minutes reading or listening to the pros and cons of a will versus a living trust, there would be no argument. Sadly, too many people never take those critical twenty minutes to educate themselves.

In my experience, too many people don’t know when they drafted their will, who is the executor, or where the document is located. And yet, they will rely on that old relic to take care of their estate for the next generation. It’s a mystery to me how people who love their children, like their money, and hate giving it to Uncle Sam end up doing just that—without even blinking an eye.

We all are victims of human nature—while we’re alive, dying is not a priority!

Too bad we can’t reassess our priorities after we’re gone. But since we can’t, I can only advise you to think about them in advance. Here are a few facts to ponder while you have the opportunity:

• With a revocable living trust, your beneficiaries will not have to take your estate through probate in Arizona or any other state where you own assets.
  They won’t have to hire an attorney in Illinois or go to Minnesota to a probate hearing in the middle of February. With a living trust, a deed to the farm or the family’s summer home can be transferred to the beneficiaries through the mail. Since you are avoiding probate, you will save your beneficiaries several thousand dollars and a year or more of hassles. They won’t have to deal with an attorney.
• Married couples can reduce the estate taxes on their estate with a special type of revocable living trust.
  The tax savings on a 4-million dollar estate is approximately $1,000,000. My fee for a standard living trust package, which includes wills, powers of attorney, and other important documents, is $1,795.00. Where else can you get that kind of return on your money?
• You exclusively control and manage your trust and the assets held by your trust the same way you control and manage your assets now.
  Nothing changes.
  Because you are the trustee of your own trust, you have the exclusive control and management over those assets until you turn that control and management over to your spouse or your children, or if you become incapacitated or die.
• If you want your trust to buy or sell a house, a piece of land, stock, bond, mutual fund, business, or just about anything else, you as a trustee have the sole authority to do so.
  You simply buy or sell the asset in the name of the trust, and you sign the sales document as trustee to the trust.

Finally, please listen to my heartthrob, Shania. As you look forward to the new millenium, don’t be stupid.

Spend an hour with an attorney before it’s too late.

Conflict is inevitable in any relationship.
Yet few people have learned the critical life skill of conflict resolution. As a result, courts are overloaded with lawsuits which cost tens-to- hundreds of thousands dollars to litigate and often end in disappointment and bitterness. A rapidly growing alternative to litigation is mediation. This method of resolving disputes is much less expensive and time-consuming than court battles and offers far better odds of a win-win result. The parties to mediation control the outcome rather than leaving the final decision in the hands of a judge or a jury.

The key to successful mediation is an effective mediator.
This unbiased third party must have good negotiation skills and the ability to clearly see issues from different perspectives. An important task of the mediator is to open the flow of communication by helping the opposing parties understand each other’s needs, values, and emotions. A mediator wears many hats–as a listener, referee, negotiator, peacemaker, and coach. Some mediators work alone, while others prefer to work in teams.

In our law practice, Cheryl Parker, who is my wife and paralegal, and I work as co-mediators. It is particularly valuable in some disputes to have both male and female perspectives. I’m often amazed at how differently men and women view the same set of facts and circumstances!

The process of mediation can vary, depending on the goal of the conflicting parties and the mediator’s style. Some mediators tend to be more facilitative while others are more evaluative. We prefer drawing from both disciplines. Cheryl’s skills as a former television investigative reporter, anchorwoman, and life coach complement the facilitative style, while my analytical skills as an attorney and negotiator support the evaluative, more direct approach.

Methods of mediation also vary. In the caucus method, the mediator meets privately with each party in an attempt to understand deep-seated issues which might not surface in a confrontational setting with both sides present. In some scenarios, the mediator may never speak separately with any party. Some mediators take a soft-pedal approach in encouraging settlement, while others play a stronger role in influencing or even forcing settlement. A good mediator doesn’t view settlement as the end of the process, however.

Along the way, significant effort is made to repair the damage and pave the way for rebuilding relationships after an agreement is reached.

The unique nature of mediation is that in most cases, it is entirely voluntary. The parties to the mediation can hammer away at the issues until they reach a compromise that both sides can live with or they can walk away at any time. It is important, however, to memorialize any settlement in the form of a written agreement and commit to accountability.

Mediation is not a magic solution to conflict. Some issues, particularly those with complex legal intricacies, are better left to the judicial process. But family disputes, business partnership issues, estate conflicts, and employer/employee disputes are often good candidates for mediation. When emotions are driving the conflict and/or there is hope of salvaging relationships, the process of mediation can be an effective, rewarding, and cost-effective pathway to peace.

Myth #1: S Corporations have favorable tax treatment over LLCs.
Fact: An LLC can have exactly the same tax treatment as an S Corporation.

Whether to form a company as an LLC or a corporation is NOT an either/or proposition. A company can be both—in effect, enjoying the liability protection offered by an LLC and the tax benefits of corporate status. An LLC is not a tax structure. It is simply a form of business entity which provides personal liability protection for the manager and members of the company, asset protection for the business itself, a simple management structure, and minimal reporting requirements and fees.

Myth #2: Single-owner LLCs must be taxed as sole proprietorships.
Fact: A single-owner LLC may elect S Corporation tax treatment.

Whether a company is owned by one person or a group of people, it can elect how it wants to be taxed; i.e. as a sole proprietorship, partnership, subchapter C corporation, or subchapter S corporation, depending on the specific tax issues involved. For an LLC that receives exempt income such as royalties, rental income, or investment income which is not subject to self-employment tax, it makes sense to have the company taxed as a “sole proprietorship.” As such, income would simply pass through to the individual owner, and filing a separate tax return would not be necessary. On the other hand, independent contractors such as landscapers, plumbers, and realtors usually should not file as sole proprietors. A real estate agent’s commission, for example, is considered “earned income” and is subject to self-employment tax. I advise realtors and others in service-related industries to form an LLC and elect S-corporation tax status, which may create a significant Social Security tax savings.

Myth #3: An LLC with two or more members must file a partnership tax return.
Fact: An LLC with two or more members may file as either an S- Corporation or a partnership.

In most cases, my clients who are members of multi-member LLCs opt to file as S Corporations rather than partnerships. They prefer the immediate gratification of approximately 40 percent savings in self-employment tax over the less-than- assured long-term advantage of higher retirement benefits. In a partnership, all of the income is subject to self-employment tax, which ultimately increases members’ retirement benefits. An important reminder: the tax election applies to the company—not to individual members—so it’s critical that members agree on the tax treatment before the company is formed.

Myth #4: An LLC provides no greater liability protection than a corporation.
Fact: Arizona’s LLC law is tougher than most and provides far greater asset protection than a corporation.

Arizona’s limited liability law, as amended in 1997, is one of the strongest LLC laws in the country. In fact, our act provides that the only remedy available to creditors of LLC members is a “charging order” issued by a court. Under a charging order, a creditor effectively becomes a member of an LLC and can receive distributions, if any, but has no right to the company’s assets. The problem is, the creditor has no voting rights. If other members vote to make no distributions, the creditor has no access to funds, either. To avoid the hassle, creditors often settle the case for pennies on the dollar.

Furthermore, if a member of an LLC is sued for a reason unrelated to the business of the LLC, only his or her personal assets held outside the LLC are at stake; whereas, a majority shareholder in a corporation is not asset-protected. A creditor with a judgment against a shareholder can attach those shares and force a liquidation of the company’s assets.

Myth #5: The corporate veil is hard to pierce.
Fact: Wrong. Because corporations often fail to follow the rules, they’re easy prey.

If a company is set up strictly as a corporation, without LLC entity protection, the company must meet strict requirements, including holding annual meetings, keeping minutes of meetings, and filing annual reports. If a creditor can prove that the debtor company did not adhere to these requirements and show that the corporate structure is nothing more than the company’s “alter ego,” a favorable judgment is likely. An LLC has none of these requirements, and enjoys far more favorable legal protection. It’s important to remember, however, that any business entity is vulnerable to creditors if damages are caused by fraud.

Myth #6: Lack of Case Law Makes LLCs Too Great a Gamble.
Fact: The LLC is a relatively new entity and there are very few test cases. But LLCs are governed by asset protection law which has stood the test of time.

Arizona’s LLC act was derived from two main sources—general and limited partnership statutes and corporate statutes. The LLC asset protection provisions are based on existing case law as it applies to these business entities. Minimally, case law as it supports the strength of other asset protection vehicles provides precedence for LLC cases. Consequently, if and when LLC cases are eventually tested and Arizona statutes are upheld, case law will become more favorable—not less.

Myth #7: It’s difficult to convert a corporation to an LLC.
Fact: Converting to an LLC is relatively easy, inexpensive, and common.

A corporation can convert to LLC status in one of two ways: If you have already formed a corporation and a limited liability company, you can merge the corporation into the LLC. If you want to convert your corporation to a new LLC and maintain the same name, you must first dissolve the corporation, then form the limited liability company with the same name with the “LLC” designation replacing the “Inc.” Because this is considered a reorganization under IRC 368-F, it is not a taxable event. The LLC retains the corporation’s original tax ID number and continues to file a corporate tax return.

Conclusion

I would never assert that limited liability companies are bullet-proof. But from both a legal and tax perspective, they are the most effective business entity available to small companies. LLCs provide the best of both worlds—favorable tax status and the best possible asset protection. If your attorney or CPA doesn’t understand the advantages of an LLC, look elsewhere.

See Your Attorney

Although the forgoing applies to most cases, this information should not be deemed a legal opinion, because every client’s circumstances are different and could dictate varying applications of legal advice. Please consult an estate- planning attorney who specializes in asset protection regarding your individual needs.

DON’T OWN REAL ESTATE PERSONALLY
You can’t remove the risk, but you can build a wall of protection. The key is to avoid personal ownership of real estate. If you personally own a piece of property, you’re the fall guy and that property, as well as all of your other unprotected assets, can be seized by a judgment creditor. My strategy, as an asset protection attorney, is to place all of your assets out of the reach of creditors. Think of everything you own—each piece of real estate, your family business, stocks, bonds, and mutual funds, planes, boats, cars, and valuable collectibles as enemy targets. My job is to build a fortress that the enemy can’t invade.

BUILD WALLS OF PROTECTION
Imagine that you’ve hired me as your general contractor to build your fortress–a condominium project. First, we’ll build the foundation–a revocable living trust. Contrary to common belief, a living trust offers no creditor protection while you’re alive but it will protect your heirs from the hassles and expense of probate after you die and minimize or eliminate estate taxes. Once the foundation is laid, we’ll build separate condominiums–individual iron-clad rooms known as limited liability companies (LLCs) for your various assets. Each piece of real estate will be held in a separate room (LLC) for maximum protection. Next, we’ll create a space for your business down the hall in its own well-insulated LLC quarters. Your stocks, bonds, and mutual funds will get the room with a view. These investments have some exposure, but they’re unlikely to cause a lawsuit.

Upon completion of the project, you invite your friends over for a tour and celebration and they’re rightfully impressed with “your” fortress. If you’re honest, you’ll confess that the only part of the building you own is the foundation. Each LLC condo is owned either by your trust or another entity. Therein lies the structural soundness and strength of your fortress.

COMPARTMENTALIZE YOUR ASSETS
Under Arizona law, if someone is injured on a property owned by an LLC, the injured party’s exclusive remedy is to attach the assets owned by the LLC that caused the liability. Other assets are out of reach to the plaintiff. That’s why it’s important to compartmentalize your assets into separate LLC entities.

If you opt to protect only your assets that carry the highest liability, you’re embarking on a risky endeavor. If, for example, you cause a serious car accident that injures or kills someone, all of your unprotected assets are exposed and available to the plaintiff. I strongly advise my clients, even those with multiple LLCs, to purchase a large umbrella insurance policy to cover valid claims. But we’ve become such a litigious society, the courts are crawling with frivolous lawsuits filed by folks who hope to strike it rich. There is an ongoing outcry for tort reform to discourage invalid complaints and limit jury awards. Until that happens, limited liability companies provide the best alternative protection. LLCs are not bullet-proof, so don’t go around singing “Sue me, Sue me.” But you’ll sleep better knowing that your assets are locked in your fortress and you’ve thrown away the key.

Although the forgoing applies to most cases, this information should not be deemed a legal opinion, because every client’s circumstances are different and could dictate varying applications of legal advice. Please consult an attorney regarding your individual needs.

If an employee of an LLC causes a liability while on the job, any judgment awarded to a plaintiff is limited to the assets the LLC owns. The plaintiff cannot go after other assets held by the owner of the LLC. For example, Mr. and Mrs. John Doe own $1,000,000 in assets, including real estate, securities, and the J.D. Landscaping Company. An employee of J.D. Landscaping causes a serious accident, killing a man. The deceased man’s wife retains an attorney to sue Mr. and Mrs. Doe. After some preliminary research, the attorney informs the widow that the situation looks grim because Mr. and Mrs. Doe had done some prudent estate planning.

Strategy for Protection
Several years before the accident, the Does formed the John Doe Living Trust, which owns their personal residence. Next, they formed the Cool Pines LLC to own their mountain cabin. Another limited liability company called Doe Family Investments, LLC was set up to own all of their stocks, bonds, and mutual funds. Finally, they formed J.D. Landscaping, LLC, which owns two trucks and yard equipment used by the landscaping company, valued at $100,000. The John Doe Living Trust—not Mr. and Mrs. Doe—owns Doe Family Investments, LLC, Cool Pines, LLC, and J.D. Landscaping, LLC.

Disappointed Plaintiff
The widow’s lawyer files suit against J.D. Landscaping, LLC, takes the case to trial, and wins a $1,000,000 judgment. However, what looks good on paper is devastating to the widow. As noted above, Arizona’s limited liability law, ARS 29-
655, states that an injured party’s exclusive remedy is to attach the assets owned by the LLC that caused the liability. The most the widow can collect is $100,000 worth of trucks and equipment that J.D. Landscaping, LLC owns. She cannot collect the remaining $900,000 from Mr. and Mrs. Doe, because their other assets are protected.

Extra Layer of Protection
The Does’ estate planning could have been better, however. If they had formed two limited liability companies for their landscaping company, they could have had bulletproof asset protection. LLC #1 would own the trucks and equipment and lease them to LLC #2, which would perform the landscaping service, but own no assets. Because LLC #1, the leasing company, is not involved in the daily operations of the landscaping business, it would be highly unlikely for any of its employees to cause a liability. Employees of LLC #2 could cause liabilities, but since the company owns no assets, any judgment it incurred would not be collectable. In no way is this strategy meant to encourage injurious parties to abdicate their responsibilities. But it does take advantage of Arizona’s LLC law which is designed to restrict liability and encourage reasonable settlements.

Protecting Investments
The Doe Family Investments, LLC is smart strategy for anyone with even a modest securities portfolio. If, for example, Mr. and Mrs. Doe cause a car accident, they can be personally sued and the injured can get a judgment against them. The Plaintiff can pursue any equity in the Doe’s home that exceeds $150,000, but he cannot collect a dime from the Doe Family Investments, LLC, Cool Pines, LLC, or J.D. Landscaping, LLC. Since none of these companies caused the liability, Arizona law protects their assets. On the other hand, if the assets were simply held in the John Doe Living Trust and not protected by an LLC, they would be subject to the judgment.

Double Plate of Armor
So don’t settle for a little protection when the law allows you to have much more. Start with a basic revocable living trust, and assign it ownership of one or more limited liability companies which hold your assets. A revocable living trust is still the best vehicle for leaving your estate to the beneficiaries you designate. A trust will enable your heirs to avoid the long and costly process of probate. Probate often takes twelve months or more and costs the estate thousands of dollars. A living trust may also reduce your estate taxes significantly for the next eight years. The new federal estate tax law passed this year provides for total repeal of estate taxes in 2010, but it’s anybody’s guess what bite estate taxes will take the following year.

One of the most significant advantages of a living trust, with or without estate taxes, is that it allows married couples to protect assets from creditors after the first spouse dies. In the year 2002, a living trust will protect and preserve at least half of a $2,000,000 estate for the surviving spouse and children after the first spouse dies. The amount that can be protected grows to $3.5 million in 2009. In 2010, when there is a one-year window of no estate taxes, living trusts will be able to protect half of any size estate after the first spouse dies.

Living trusts provide for a smooth transfer of your estate without the interference of the courts, lawyers, or unhappy beneficiaries and descendants. You can dictate who receives your assets, when the assets are received, and under what circumstances. This is especially important if one or more of your heirs is chemically dependent, in trouble with the law, has creditor problems, or faces bankruptcy. Owners of very small estates may consider beneficiary deeds or transfers on death if they do not have special wishes or circumstances to be addressed. But these methods allow for none of the protection or advantages outlined above.

In today’s litigious society, you’re taking a huge risk if you fail to protect your estate. Limited liability companies and revocable living trusts go together like love and marriage, chips and salsa, and the Diamondbacks and the World Series.