WILLS VS. TRUSTS – Key Differences

WILLS:

• Used for disposition of assets at death. Doesn’t plan for incapacity.

• Personal Representative must be approved/appointed by court.

• Will must be “proved” in probate court.

• Will becomes PUBLIC record.

• Validity of Will is state specific.

• More prone to contests due to public and legal notice requirements.

• Property in multiple states means probate must be filed in multiple states.

• Probate can be time-consuming and can be costly for loved one’s on the back end (post death).

• Wills do not have any funding requirements.

TRUSTS:

• Used during lifetime and at death. Sets forth instructions for incapacity.

• Successor Trustee takes over at death (or incapacity) without court involvement.

• Trust Agreement is a “contract” that speaks for itself.

• Trust remains private.

• Trusts are portable.

• Less prone to contests – can only be initiated by disgruntled heir/beneficiary.

• Little to no delays in making distributions.

• Funding is required which means that assets and accounts will need to be transferred into the Trust.

• Trusts tend to be more expensive, but no probate is necessary if it is properly funded (so you can avoid probate fees for loved one’s post death).

A deed is a legal document used in real property transfers. In a real estate transaction, sellers sign the deed as the Grantors transferring the property over to the buyers, or the Grantees. The deed includes the names of the grantors and grantees, the legal description of the property, the signatures of the Grantors, and other information regarding the transaction. The deed is then recorded in the land records where the property is located and becomes a public record.

Title can also be transferred for no monetary consideration at all, such as a transfer into a living trust, to an LLC, for divorcing spouses, or a gift to a family member or other beneficiary.

There are three main types of deeds:

1. General Warranty Deed: This deed offers the buyer the most protection. The seller promises that she holds clear title to the property (no liens, other owners, etc.) and has the right to sell it. A general warranty deed covers all problems when the seller owned the property and before the seller owned the property (as opposed to a special warranty deed which only promises that the seller herself has not created any problems to title of the property).

2. Special Warranty Deed: This deed offers the buyer limited protection. The seller warrants that only she has not created a title problem during the time that she owned the property. It does not cover any problems that were potentially created prior to the seller’s ownership of the property.

3. Quitclaim Deed: This deed offers the least amount of protection for the buyer. In a quitclaim deed, the seller offers no promises of clear title at all. They are often used to transfer ownership quickly without a traditional sale. Examples include when a property is transferred between family members, married spouses, divorcing spouses, when there has been a name change, and sometimes when a property is being transferred into an LLC or a living trust.

Note: Deed title warranties do not cover the condition of the property. Look to the sales contract for this coverage.

1. Tenants by the Entirety: This option provides an undivided interest in the whole property and is only available for married couples. It includes the right of survivorship, meaning that if one spouse dies, ownership of the property automatically goes directly to the other spouse without having to go through court or probate. It also has the added benefit of protection against creditors. If one spouse has a creditor judgment, that creditor cannot attach the judgment to the property. One owner cannot unilaterally convey his or her interest in the property, so both owners must sign off on a deed transfer to another owner. This option is generally recommended if a couple is married.

2. Joint Tenants: This option is when two or more people have an undivided interest in the whole property. It also includes the right of survivorship, meaning that if one owner dies, the ownership of the property automatically goes to the other owner without court or probate. There is no creditor protection. If one joint tenant decides to convey his or her interest in the property, that interest is conveyed and the joint tenancy is destroyed and reverts to tenants in common.

3. Tenants in Common: This option does not include the right of survivorship and allows two or more owners to own different percentage interests in the property. For example, one owner could own 60% while the other owner owns 40%. If one owner dies, that owner’s interest passes to his or her heirs (as defined by law or as set forth in any estate planning document). Neither owner requires the approval of the other owner to transfer his or her interest in the property.

When a company misclassifies a worker as an independent contractor, they are depriving the workers of the various benefits they are entitled to under the law. This can lead to claims for unpaid wages and penalties.

Employees may file lawsuits for worker’s compensation, wage, and hour minimums. The penalties for misclassification generally include back pay for unpaid wages and benefits, unpaid payroll taxes, etc. Here are some of the key differences between employees (E) and independent contractors (IC):

1. Benefits:

a. E: May be entitled to employee benefits (health insurance, vacation, holiday, and sick pay), overtime, and minimum wages, and to reimbursement for expenses.

b. IC’s: No participation in benefits programs and no entitlement to expense reimbursement.

2. Tax Reporting:

a. E: Report money paid to the employee during the tax year on a W-2

b. IC’s: Report payments on a Form 1099.

3. Employer Tax Withholdings:

E: Employer must pay federal and state income taxes, FICA taxes (Social Security and Medicare)

a. E: Employer must pay federal and state income taxes, FICA taxes (social security and Medicare)

b. IC: No federal or state income taxes or FICA taxes withheld

4. Employment Laws:

a. E: Covered by federal state employment and labor laws.

b. IC: Not covered by employment and labor laws.

This is not an exhaustive list. Companies should be careful in considering whether someone is an employee or an independent contractor and should always be mindful regarding the “degree of control” it has in the relationship with the person in order to avoid misclassification.

A power of attorney gives one or more people the power to act on your behalf as your agent or “attorney in fact.” The rules and requirements differ from state to state but are generally accepted in all states. The powers are flexible and can be tailored to your unique situation. Powers may be limited to one activity, such as closing on the sale or purchase of a home, or be a general application to allow full authority on your behalf for a variety of things.

Why would I give anyone such authority?

One answer is simply convenience. If you cannot appear for a settlement on your home, if one spouse travels a lot, or if you are responsible for someone who is unable to get around easily, it may be beneficial to use a power of attorney.

Another reason is to prepare for situations beyond your control, such as long absences or incapacity due to an illness.

If you become unable to manage your affairs and do not have a power of attorney in place, a court may appoint one or more people to act on your behalf. Being proactive allows you to avoid this type of situation.

Who should be my agent?

Your agent can be one person or multiple people and should be someone you trust to make decisions on your behalf. It is also recommended to appoint someone that is fully available. You should always let the person you designate know of their appointment. The only requirements are that the agent must not be a minor or otherwise incapacitated.

Everyone’s needs are different, but here is a general list that applies to many businesses:

1. Choose a business structure

2. Decide on a business name

3. Register your business

4. Obtain a federal tax ID

5. Obtain a state tax ID

6. Obtain required permits/licenses

7. Open a business bank account

8. Evaluate using trademarks, patents, copyright protection, etc.

Title companies will want to see the LLC’s Articles of Incorporation, Operating Agreements and any amendments, proof of good standing, Resolution by members for Sale/Purchase/Refinance of Property, the Tax ID (EIN) for the LLC, and a current membership roster.

A registered agent is an individual or company that accepts official paperwork on behalf of a company. Such paperwork includes service of process for lawsuits and annual registration fee notices. Every authorized business must maintain a registered agent in the jurisdiction in which they are located. Qualifications for registered agents differ from state to state, but generally, the agent must be a resident of the state, have a physical business address and registered office in the state of registration, and be available during normal business hours. While you may use a third-party business such as a law firm or service company to act as your registered agent, many states allow members of the business entity’s management to act as the company’s registered agent.