6 Tips on How to Handle the Responsibility and Potential Liability of Being a Trustee (Part 2) by Rob Cohen

Here are the additional tips continued from “BEING A TRUSTEE IS A THANKLESS JOB: Six Tips on How to Handle the Responsibility and Potential Liability (Part 1)” that might help make your trustee-ship progress more smoothly.

4) Examine the inventory. It is not uncommon for people to set up trusts and then do nothing, assuming that since the documents have been signed the trust is effective. This is not accurate; not only must the trust document be executed, but then the assets must be transferred into the trust, (you must “fund the trust”). Failure to fund the trust is especially common with do-it-yourself websites and computer programs; people mistakenly believe that just having a trust is sufficient. Before a trustee can administer the trust, he or she needs to have assets to administer. When examining the assets, here are some action items to consider.

• If the decedent had a safe deposit box, take possession of it and its contents.
• Consult with banking institutions in the area to find all accounts of the deceased.
• Check for cash and other valuables that may be hidden around the home.
• Locate and inventory all real estate deeds, mortgages, leases, and tax information.
• Provide immediate management for rental properties.
• Locate all household and personal effects and other personal property in order to inventory and protect them.
• Collect all life insurance proceeds payable to the estate.
• Find and safeguard all business interests, valuables, personal property, and important papers.

Ultimately, do your best to make sure that the trust’s assets are actually in the trust. If you identify assets that were not transferred to the trust, ascertain whether they should have been.

5) Take emotion out of the equation.In many situations you can be asked to be a trustee for clients, parents, brothers, sisters, and other family members or friends. When the emotional ties are close, you cannot play favorites. As a trustee you have a huge responsibility and significant exposure. Your actions will be scrutinized and challenged by those beneficiaries who feel they were treated unfairly. Your best bet to avoid personal liability is to be unbiased when dealing with trust matters. If you are not sure about your actions and whether they reflect any bias, ask your attorney.

6) Obtain adequate liability and fidelity insurance. No one is immune to lawsuits, and that includes you in your role as a trustee. To protect yourself, obtain errors and omissions insurance, which protects against claims by beneficiaries that you failed to fulfill your fiduciary duty in the management and administration of the trust. Without the protection of errors and omissions insurance, your personal assets could be “exposed” if a disgruntled beneficiary sues you. It is better to have insurance to protect you and your assets.

Being a trustee is not always an appreciated job, but it certainly is a job with tremendous responsibility. Just remember to be mindful of your duties and ask for advice when in doubt. Trusts contain valuable assets, and as dysfunctional families do not get better when someone passes away, trustees easily can become embroiled in nasty litigation. You may not be able to avoid it, but at least you’ll be able to protect yourself.

For more information on trusts, wills, probate, and the role of trustees, contact Rob Cohen at (818) 501-5800 or emal him at rcohen@ahslawyers.com.

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The Tax Benefits of Incorporation to the Entertainer (Part 1)

Tips in Applying for Business Tax ID
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This is the second section of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question” regarding the tax benefits of incorporation to the entertainer.

“In general, the tax benefits available to loan-out corporations compare favorably with those available to individuals under their two unincorporated alternatives:

  1. providing services as a direct employee of the unrelated party consuming the services
  2. providing services as a sole proprietor

“(La France, 1995)

The concepts employed to determine a corporation’s tax liability are the same broad principles of gross income, deductions, assignment of income, timing, and characterization of the income employed by the individual taxpayer. Taxable income is gross income less certain authorized deductions. Gross income is all income from whatever source derived. Internal Revenue Code § 61 provides a non-exclusive list of sources of income which qualify as gross income under that section, including compensation for services, gains derived from dealings in property interest, and dividends.

From gross income, deductions are made if specifically allowed by the Internal Revenue Code as properly deductible. Such deductions include those ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, deductions on interest paid during the taxable year and ordinary and necessary expenses paid or incurred during the taxable year for the production of income.

* For specific inquiries regarding a tax planning legal matter that you may have, you are welcome to visit our Los Angeles Tax Planning Attorney services page.

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To Incorporate or Not to Incorporate? THAT is the Question (Part 6)

This is part 6 of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question”.

The tax implications for an LLC (limited liability corporation) are identical to that of a partnership. ” For federal income tax purposes, the LLC is not a separate taxpaying entity and is not subject to tax at the entity level. Instead, the LLC’s members report their respective distributive shares of LLC income, gain, loss, and deduction and credit on their individual federal income tax returns.” (Continuing Education of the Bar of California, 1999)

The tax treatment of an LLC by the state of California may also be problematic to the entertainer. Whereas the LLC and partnership will pay the same annual franchise tax that a corporation pays ($800), an LLC will be charged, pursuant to California Revenue & Taxation Code § 17942(a)-(b), an additional fee if there is net income exceeding $250,000. The additional fee is specified in the California Revenue and Tax Code and provides for the fee to be graduated at specified levels of income. Taking our earlier example of the partnership that has $1,000,000o taxable income, should this partnership be an LLC, there would be an additional fee of $5,190 assessed.

Other popular business entities include sole proprietorships, general partnerships, limited partnerships, and limited liability partnerships. It is not important that we analyze each of these entities with regard to the tax effects. What is important, though, is that we note that over time these entities have been regarded as being inappropriate for application to the entertainer. For example, the sole proprietorship provides no tax benefit insofar as taxes are assessed on the sole proprietor at the individual rate.

Furthermore, the purpose of this blog series is to assess the benefits and detriments of incorporation to the entertainer. An examination of all of the business entities and their utility to the entertainer would be of no use, for attorneys and accountants have long-held that an entertainer’s decision is solely whether to incorporate or remain a non-taxpayer. Therefore, the main consideration will be whether incorporation is beneficial to the entertainer as taxpayer.

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Los Angeles Business Attorney services page.

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To Incorporate or Not to Incorporate? THAT is the Question (Part 4)

DETROIT -  JANUARY 13:  Sergio Marcionne (L) C...
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This is part 4 of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question”.

“The desire to avoid employee classification, and to obtain the benefits of the corporate form and independent contractor status, often motivates workers to create an employee loan-out corporation.” (La France, 1995)

Primarily, though, an entertainer will be considering the formation of a business entity for the purpose of creating a more beneficial tax structure. By filtering income through a business entity and with proper Tax Planning advice, different tax advantages arise. Yet, the structures of a limited liability company (“LLC“) and a partnership will not provide the desired tax benefit to an entertainer.

A partnership includes a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a corporation or a trust or estate.

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Business Organization and Business Formation legal services page.

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To Incorporate or not to Incorporate? THAT is the Question (Part 3)

LAS VEGAS - MAY 21:  Entertainer Donny Osmond ...
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This is part 3 of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question”.

Which Business Entity Should the Entertainer Choose?

The analysis of which business entity will be most advantageous for an entertainer is no different from the analysis done with regard to which business entity will be optimal in any other industry. An analysis of the benefits and detriments with regard to liability, tax consequences, and control issues all factor in the decision of which business entity to employ. Over time, though, this analysis has been refined in that attorneys and accountants have recognized that certain business entities are more favorable in certain industries while other business entities more appropriately pertain to other industries.

The general analysis of the benefits and detriments of the various business entities have led attorneys and accountants to conclude that incorporating is more advantageous to an entertainer than forming a limited liability company, partnership, or other business entity. This is because the purposes for the formation of a business entity by an entertainer will not be served by any of the alternative business entities. The other attributes of incorporation, namely liability protection and control issues, become irrelevant.  Usually a corporation’s directors and shareholders will be shielded from liability in that a corporation and its owners are separate entities. This is untrue, though, when the shareholders have personally guaranteed the liability. This was a major teaching of the Basinger case, in that had Ms. Basinger signed the contract on her own behalf, this effectively would have been a personal guarantee of the contract. Additionally, the control issues are not important to analyze in that an entertainer is usually the sole shareholder of the loanout corporation.

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Business Organization Formation legal services page.

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To Incorporate or not to Incorporate? THAT is the Question (Part 2)

Cover of "Boxing Helena"
Cover of Boxing Helena

This is part 2 of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question”.

“The ‘loanout’ company is a ‘Hollywood’ term for a device that has received wide acceptance among doctors and lawyers-the personal service corporation.”(Klinger, 1986) “In the typical loan-out, an individual service provider forms a corporation in which she is the sole or majority shareholder as well as the sole or principal employee. The corporation then negotiates with a third party-the ‘borrower’–to ‘lend’ the services of the controlling shareholder-employee for a price.” (LaFrance, 1995) The third party will then pay the amount of the contract to the loan-out corporation, which will then pay a salary to the shareholder/employee. A studio or production company will usually not contract with the loan-out company unless it specifically expresses that the contract is for the services of the entertainer and the entertainer has signed the contract on his or her own behalf. A lawsuit involving Kim Basinger and the producers of the feature film “Boxing Helena” addressed this issue.

The contract for Ms. Basinger’s services was between the production company, Main Line Pictures, Inc. and Ms. Basinger’s loan-out company, Mighty Wind Productions, Inc. Ms. Basinger signed the contract as an agent for her loan-out company, but nowhere did she sign on her own behalf.’ The contract was between Main Line and Mighty Wind; Ms. Basinger, as an individual, was not a party.’ Therefore, it appeared that it was not Ms. Basinger who was obligated to perform on the contract, but it was Mighty Wind who was so obligated.

In an unpublished opinion by the California Court of Appeal, it was stated, “If the contract is only with Mighty Wind, then only Mighty Wind can be liable for breach of the contract.”

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Business Disputes legal services page.

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To Incorporate or not to Incorporate? THAT is the Question (Part 1)

NASA Television 2009 Philo T. Farnsworth Prime...
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This is part 1 of Anker Reed HSC’s blog series entitled “To Incorporate or Not to Incorporate? That is the Question”.

This is the moment that you have been waiting for all of your life. The years of summer stock, off-off Broadway, and guest roles are over. You can smell it. You can taste it. Obscurity is a thing of the past-fame and fortune, here you come. Cha-ching! You are so close that you can see and smell the money and fame. A role in a television series or a part in a feature film. No more guest spots on “Friends” or “Home Improvement” or extra-work.

On those projects you were almost considered scenery. That was not really acting. One week of work; two lines of dialogue if you were lucky. Now you are going to be one of the stars. You have Emmy Awards and Oscars in your sights.

You have been around for a while in this business. You have made friends. And where there are friends, there is advice. Everyone has an idea. Everyone has a plan. Everyone knows the way to go. In the time that you have been a professional performer you have heard a lot of things. You have heard suggestions about hiring a personal manager or not hiring a personal manager. You have heard about this agent that is better than that agent. And you have heard about incorporating.

Everyone has been saying to incorporate. It seems that in Hollywood everyone in the entertainment industry has incorporated. One friend says to incorporate in California. Another friend says that Delaware is the place to incorporate. But what is the answer? Should you incorporate? What about other forms of business entities, such as a limited liability company or a partnership? And more importantly, what are the benefits and drawbacks to incorporating?

For answers to these questions you should see two people: an attorney and an accountant.

* For specific inquiries regarding a business legal matter that you may have, you are welcome to visit our Business Organization Formation legal services page.

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Welcome to Anker Reed HSC’s Blog

Hello and welcome to Anker Reed HSC’s Blog. Here we will be posting articles and commentary regarding various aspects of business, real estate, estate planning, probate, trusts, wills, intellectual property and civil litigation.

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