Highlights of the question and answer session from Attorney Frances B. Granquist’s 2004 presentation to the Hamden Chamber of Commerce Women in Business:

Topic:  Wills:

Question:  At what age should you have a will?

Answer:  Anyone who is at least 18 years of age and of sound mind can execute a will.  I suggest that any one owning assets have a will, no matter what your age.  If you do not have a will the State of Connecticut decides whom your assets will go to.  It is my opinion that you should make those decisions yourself.

Typical events in your life that seem to trigger the need for a will are:

• Marriage - You may think that if you’re married everything goes to your husband.  That is not always true.  If your parents are still alive, they will share in your assets with your spouse.  If you have children, they too will share in your assets.

• Divorce – You may not be aware that if you are divorced your will becomes null and void, so you must prepare a new one.  Also, if you are in the middle of a divorce you should change your Will so that if you pass away before it is finalized all your assets do not pass to your spouse.

• Children – Anyone who has children should choose guardians to take care of them, in the event that you and your spouse pass away, before any of your children reach the age of maturity (18).  The will is the document used for appointing guardians.  You also may wish to have a trust in your will for your children.  If you don’t, your children will get their inheritance at age 18.  I don’t know your children, but I can tell you that I wouldn’t want my children to have any significant amount of money at age 18.  While I am a proponent of higher education, my son may become a proponent of a Lamborghini.  You can decide when is the appropriate age.

• The Lottery – If you win the lottery or come into a large sum of money you should certainly execute a will and have an estate plan prepared for you to be certain that you have taken advantage of all of the tax laws and are not paying excess death taxes.

• Disabled Child -  If you have a disabled child, you will want to provide for them in some type of a trust, either within your will or provide in your will that assets be set aside for the specific child in a living trust.

 

Topic:  LLC  Formation:

Question: What paperwork is required when a new LLC is forming for both federal and state?

Question: What are typical costs for filing with and without the use of an attorney?

Question: What obstacles may one encounter if filing an LLC without an attorney?

Answer:  First, in order to form an LLC you must file with the Secretary of State of Connecticut.  There are no federal filings.  There are several forms you may wish to file:

• You may wish to reserve a name for your LLC.

Your name must include the words “limited liability company” or the abbreviations “L.L.C.” or “LLC.  The word “Limited” may be abbreviated as “Ltd.” And the word “Company” may be abbreviated as “Co.”

To reserve a name it is a $30.00 filing fee charge.

• You must file Articles of Organization at a cost of $60.00.  Within that filing you must designate a statutory agent for service of process.  This is basically an address on record for those who might want to sue your LLC.  You must also decide prior to filing if your LLC will be member managed or manager managed.  What this means is who will have the authority to make decisions on the management of the company.  Will it be all the members or a specific person or persons?

• You may want to file for Expedited Service at a cost of $25.00 because the documents are processed more quickly.  Expedited service usually takes about a week.  The LLC does not exist until it is processed by the Secretary of State.

• You may want to request a certified copy of the Articles of Organization so that you will know the specific date the LLC legally existed.  You may also request a Certificate of Legal Existence so that you can show others with whom you deal, that your entity is legal.  The cost of these two items is currently $50.00.

Do I need a lawyer to form an LLC?  The formation documents for an LLC are not difficult to fill out.  What may be difficult for a layperson is preparing the operating agreement.  The operating agreement is where you state how you are going to conduct your affairs.  It is very important to bind the members to an agreement so that if there is a problem the members know where they stand.  Examples of problems that can be sort out with a well-drafted operating agreement are what happens if a member dies or wants out of the LLC.  Does she have the right to leave her membership to her spouse or child?  Well what if we do not want to be in business with her spouse or child.  If one member wants to leave do the others have to pay her, well how much, and where will we get that money.  There are many issues that you might not think about which a lawyer can help you with in putting together an LLC.

You also must run an LLC as a corporation and have yearly meetings and minutes of what you have done or propose to do.  You must file an annual report with the Secretary of State, wherein you confirm and make changes to your filing status at a cost of $75.00.  There is also a yearly tax in the amount of $250.00 for your LLC.

In sum. At this time the total cost to start up an LLC in Connecticut is $165.00 Additionally, there is a yearly cost of $325 to maintain its existence.  Attorney’s fees to prepare the documents, an operating agreement, waivers of Notice and Minutes for Organization and First Meetings are approximately $1,000.

It is my opinion that any business one starts whether it be you opening a cooking business in your home or a company with 20 employees that you should set up a separate entity to own the business.  An LLC is a great tool to limit your liability.  It separates your business from your personal assets.  This means that any one who sues your LLC can only get what assets are in your LLC and if they are not enough to satisfy their judgment they are not able to go beyond the LLC and take your house or your personal assets.

Topic:  Property Transfer:

Question:  I would like to know how to place property in trust for future generations to enjoy?

Answer:  Many people have beach houses or ski houses that have been in the family for years and they would like them to stay that way.  A trust can be set up to hold the real estate.  What that means is you draft a trust, get it a tax identification number that is like a social security number for the trust so it becomes its own entity and you then deed your real estate to the trust.  The trust can provide that it is for the use of certain individuals, such as lineal descendants.  However, you run into a problem having a trust go on forever.  There is an old rule which goes back to England called The Rule Against Perpetuities.  What this says is that no agreement can last for more than 21 years and a life in being.  This rule has confused plenty of law students and is always a favorite of law professors for exams.  What it means is that the agreement cannot last longer than your youngest descendant plus 21 years.

It may be more appropriate to set up an LLC for the property.  Members of the LLC can change and newly born descendants can be added down the road.  An LLC is an entity that can last forever.

If you choose to transfer your vacation home you should think out the problems of sharing a house.  Can all of the people in the group afford its upkeep, or do all of the people want the use of the house.  I always suggest that whatever entity you put the house in; you also put money in it, for the taxes, insurance and other maintenance costs.  If you truly want it to perpetuate you should have an agreement of what happens if some children don’t want to participate or can’t afford to.

Topic:  Property Transfer

Question:  My neighbor recently told me her parents transferred their house to the children is this something that all elderly people should be doing?

Answer:  The first thing we have to understand is that what is good for our neighbor is not always good for us.  Many people are trying to spend down their assets so that they can qualify for Title XIX benefits.  You should be very careful before gifting any assets contemplating Title XIX because, although the statute seems to remain the same, the policies seem to change everyday and the rules that apply are those in effect the day you apply and not the day you make a gift. 

If your parents are in a position to spend down their assets it may be something to consider.  Before you make any decisions on a transfer make certain your lawyer who will prepare the deed is familiar with tax issues and Medicaid issues.  Any lawyer can prepare a deed but you need to know all of the consequences of such transfer.  Not everyone, including some lawyers, are familiar with the Connecticut Gift Taxes even though they have been in effect since September of 1991.  And unless you tell your accountant what you have done with your lawyer, you cannot assume she will ask you about gifts when she prepares your yearly income tax return. 

First, be aware of the gift tax implication.  The transfer of a house or anything for less than full consideration is a gift.  Gift taxes are paid by the person giving the gift and are due the following year on April 15th, like income taxes. 

Second, be aware of capital gain taxes.  If you receive a gift of real estate you take it at a carryover basis.  What that means is that you take your parent’s basis.  A basis starts at the cost of the house plus capital improvements.  If your parents bought their house for $50,000 and today it is worth $250,000.  When you sell it, you will have a capital gain of $200,000 at 15%. Or $30,000.   If however, your parent left you the same house in their will after they died, you would get what we call a stepped-up basis and if you sold the house the next day you would have no gain and pay no tax.  A savings of $30,000 capital gain tax and $9,450 Connecticut Gift Tax.

Everyone’s situation is different; one little deed can trigger a large expense.  First you must decide what you are planning for and then you should seek the advise of an expert in that field to assist you.

For more information on any of the topics discussed above, please contact Attorney Frances B. Granquist at 203-787-2225