Information
LAST WILL & TESTAMENTS
General Information on Last Wills & Testaments
Each state has formal requirements for preparing and executing a Will. Generally, the testator must declare that the document that is being signed is the testator’s Will. The signature must be witnessed by a minimum of two or three witnesses, who must also sign the Will in the presence of the other witnesses. Each state has slightly different wording for the testator’s and the witnesses’ signatures.
A self-proving Will is one that has been witnessed, executed with all the formalities required by the state’s laws, and also signed and witnessed in the presence of a notary public. The benefit of a self-proving Will is that it is not necessary to obtain statements from the witnesses at the time that the Will is probated. A self-proving Will saves a great deal of time and effort where it turns out that one or more witnesses cannot be located or are themselves deceased.
Based upon its contents, a Will may be categorized as one of the following:
- a simple Will
- a tax-planned Will
- a pour-over Will
A simple Will leaves the entire estate to one or more named beneficiaries. No portion of the estate is left in trust. A tax-planned Will generally disposes of all or a portion of the estate to one or more testamentary trusts, and not directly to the beneficiaries. The trusts are used to avoid or minimize death taxes. A pour-over Will generally leaves assets to an inter vivos trust – one that was created by the testator during their lifetime.
A living Will is not used to dispose of property after death, but rather it is an expression of one’s personal position on the administration of artificial life support techniques and procedures. A living Will is needed when you are no longer competent to make these decisions and become terminally ill or permanently unconscious. A health care proxy gives another individual the right to make these decisions for you. Living Wills and health care proxies are often signed at the same time that a Will is executed.
Picking Your Executor
The same considerations that are important in choosing a trustee should be used when deciding upon the executor of your estate. First and foremost, you should choose an individual or institution that you trust. An executor needs to gather assets, pay debts and expenses, and distribute assets to beneficiaries. The executor does not need to invest assets other than on a temporary basis but, on the other hand, a major role of the trustee is to prudently invest the trust assets so as to be fair to all of the beneficiaries. The role of an executor is limited in duration while a trustee might serve for many generations.
Where to Keep Your Will
A Will should be kept in a safe place such as a bank safe deposit box or fireproof safe at home where it can be easily located after your death. . If the Will is kept in a safe deposit box, you must arrange for the executor to have access to the box after your death. Some states put a freeze on a safe deposit box at death, which makes it more difficult to retrieve the Will.
Reviewing an Estate Plan
There are a number of occasions that justify the review of the provisions in your Will and your estate plan in general:
- when you get married or divorced
- the birth or adoption of a child
- the death of a family member or other beneficiary of your estate
- when an individual named as executor, trustee, or guardian dies or is unable to act as such
- when you decide to name someone else as your executor, trustee, or guardian
Your Will should be reviewed if:
- the size of your estate changes significantly
- you move to another state
- there are changes in federal or state laws that could affect your estate
Revising a Will
A Will may be revised in three ways:
- Minor changes can be made to a Will by preparing an amendment called a “codicil.” A codicil needs to be executed with all the formalities required for signing a Will but need not restate all of the unchanged provisions in the Will.
- A Will may also be changed by preparing a new Will revoking the prior Will or by destroying the old Will. Care must be taken when destroying a Will to avoid intestacy (death without a Will).
- A Will may also be changed by independent events such as divorce or adoption. In certain states, a divorce automatically revokes any bequest to the former spouse. In other states, laws provide that a divorce revokes the Will entirely. A new Will should be prepared in order to remove the spouse as a beneficiary and/or fiduciary. The beneficiary designations on life insurance policies and retirement benefits should also be reviewed.
BUSINESS ENTITIES
TYPES OF BUSINESS ENTITIES
There are 4 main forms of business entities that most small and home business owners operate as:
- Sole Proprietorship
- Partnership
- Corporation
- Limited Liability Company (LLC)
Sole Proprietorship
- A single-person operation that files no formal start-up documents with the state (unless your state or county requires a business or professional license).
- Business itself doesn’t file a tax return (all profits or losses are reported on Schedule C, attached to your Form 1040).
- Does not limit the business owner’s personal liability for the debts of the business (unless you purchase errors & omissions insurance and/or other types of business liability insurance).
Partnership
- Similar to a sole proprietorship, but involves more than one person.
- You will need to draft some type of partnership agreement (usually involves hiring a lawyer).
- The partnership doesn’t file a tax return itself, but does file a federal informational return, Form 1065, and provides a Schedule K-1 statement to each partner so that each partner can prepare his/her Form 1040.
- Does not limit the partners’ liability for the debts and obligations of the business or debts incurred by one or more of the partners on behalf of the business.
- Partnerships have no benefits of incorporation.
C-Corporation
- This is the traditional form of a corporation (unless a corporation elects to be an S-Corporation, it is automatically a C-Corporation).
- In order to have the stock of your corporation publicly traded on a stock exchange, you must be a C-Corporation.
- Shares of a C-Corporation may be owned by another corporate entity and/or by a non-U.S. citizen or non-resident alien.
- The number of shareholders is unlimited.
- There can be more than one class of stock (i.e. voting stock, non-voting stock, etc.)
- C-Corporations are double-taxed (i.e. if a corporation has a $10,000 profit at the end of the year, it will pay tax on that amount, 33%. When the remaining $6,667 is distributed to the shareholders, they will pay personal income tax on that amount).
S-Corporation
- Profit is taxed only once, otherwise known as pass-through taxation. The shareholders pay personal income tax on any income/profit the corporation earns. The corporation itself doesn’t pay any tax.
- Ownership of an S-Corporation’s stock is limited to U.S. citizens and resident aliens in the U.S. The stock cannot be owned by other business entities (i.e. a C-Corporation, S-Corporation, or LLC cannot own stock in another S-Corporation) or by non-U.S. citizens / resident aliens.
- There can be no more than 75 shareholders.
- There is only one class of stock.
- Within the first 75 days from the date of incorporation, you must file IRS Form 2553 in order to elect S-Corporation treatment by the IRS (meaning: income of the corporation is only taxed at the individual shareholder level, and not at the corporate level).
Limited Liability Companies (LLCs)
- An LLC is a hybrid of a corporation and a partnership.
- The owners are generally not liable for the debts and obligations of the corporation.
- The entity is taxed like a partnership-income and losses of the LLC are accounted for on the owner’s individual tax returns.
- Can be owned by non-U.S. citizens / resident aliens and other business entities (i.e. one LLC can own some or all of another LLC or C-Corporation).
- Can have an unlimited number of members (shareholders of an LLC are known as members).
- Less formal than a corporation (no minutes, corporate resolutions, etc. are required, although in order to maintain corporate formalities they are recommended).
