Life Happens

Episode Transcript

(00:00):
Good morning, everyone, and welcometo Life Happens Radio, your weekly radio
broadcast brought to you by Piero,Connor and Strauss, and we're here live
every Saturday morning at eleven am onTalk Radio WGY. We try to bring
you information ideas that help you toplan, help you to prepare, help
you to protect your family, yourhard earned assets, your home. And

(00:21):
in today's show, we're going totalk about your home, but more importantly,
your second home, because very often, and this is the summer season.
We're into summer at this point,and June is already fleeting and will
be gone very very shortly. Nowwe'll be into July and August and the
summer, the dog days of summeras they are called. So if you

(00:44):
happen to have a summer home,a second home, whether it be in
the Alps or whether it be inLake George, how do you plan for
that? How do you make surethat your family has a good shot at
keeping that home, maintaining it,make sure that it stays within the family,
that everyone knows how they can usethe property, what their rights are,
what their obligations are. And we'regoing to talk about how families that

(01:07):
we've worked with have successfully set uptheir estates, including that second home.
We're going to talk more about generalbusiness issues as well. There are some
interesting things that have happened in theworld of business. And there's a crossover
here because the topic of your secondhome you may not think of as a
business, but the entity that weactually use is a business entity called a

(01:32):
limited liability company. So for today'sshow, I have here live in studio
with me Teresa Skain, who isour corporate attorney who does a lot of
work with our business clients and representswe'll talk about all the different things she
does in representing our clients, buthas a great background and experience in terms
of businesses, corporations and actually workswith the families on that summer home.

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LLC. Good morning, Teresa,Good morning, and we have Patricia Whelan
who is one of our newer associates. And Patricia comes to us having graduated
Albany Law School last year, admittedto the bar in January and is working
in a state planning and in businessalone with myself and Teresa. Good morning,
Patty, Good morning, and Patty, this is your first time on

(02:22):
Yes, my first time. SoPatty is a rookie, so we're gonna
pick it. No, we're notgoing to. We're going to try to
make it easy for her to fallinto the PCs routine. The team Aaron
Connor, Frank Heming, Kristin Peck, I had Richard Rothberg on, Peter
Strauss has been on Anthony Kachewi.So all of our attorneys have taken their

(02:46):
turn, and Patty's first day istoday, So I'm going to start with
you, Patty. Now I'm goingto start with Teresa. And Teresa the
the opportunities for people to plan aremany, and one of the things that
we talk to our clients about isif they have any entrepreneurial activity or spirit

(03:07):
to organize themselves and organize their businessin a way that number one protects them
from anything that could happen. Numbertwo gives them opportunities to enjoy and benefit
from that business in the best waypossible. And just talk a little bit
for our audience about your background.I know you're with one firm for twenty

(03:28):
two years doing this type of workand became the managing partner of that firm,
now part of the Pierre O'Connor andStrauss team. But tell our listeners
about your background in business and alsoall the awards that you've won in the
last three years. Thanks lou AsLu said, I've been practicing for I'm

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not going to say how many years, but quite a few, less than
me, less than low, thatis true, and I have concentrated my
practice in transactional work or corporate law, helping business owners create their entities,
work with them throughout the growth oftheir entities, everything from loans to commercial

(04:12):
real estate to secession planning, whichis what Leu and I work on a
lot together too. Now we're seeingmore and more and more of these vacation
homes and how do we plan forthe future. So I've been doing that
for quite a long time. Enjoyedthat kind of work and enjoy working with
business owners and people who want LLCsand want to understand how they work and

(04:36):
how they function. I'm not goingto get into all of the awards and
things, but I was just recognizedby Carrie Warner as one of her Women
of Distinction, which I'm very thankfulto Carrie for everything she does, but
for that program as well, becauseit's lovely talked about. The most recent
one, because that was just ayear or two ago, and that was

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the Capital Region. Yes, Womenof Distinction, Yes it was. I
was the Woman in the Professions.They have seven different categories, one of
which is women in the Profession.So I was honored to be singled out
as the woman a couple of yearsago by the Capital Region Chamber. So,
ladies and gentlemen, we have anaward winning corporate attorney here in studio

(05:18):
with us live this morning on talkradio WGI and Teresa. You also do
a lot of work in the charitableside of things, working with not for
profits, and just talk a littlebit about that because that you know,
not for profits drive a lot ofour economy and a lot of people don't
realize that absolutely, and people mayknow them better as sort of what we

(05:40):
call family foundations or charitable foundations.And I do a lot of work with
families, especially who may have losta loved one, or may have diseased
in their family, or may justwant to set up a scholarship program.
And so we create nonprofit organizations,We get a tax exemption from the IRS

(06:01):
for them, work through with themthrough sort of the processes with the Attorney
General's Office with the IRS, andsupport their events as well. That's part
of I think that's part of beinga counsel to them is understanding everything they're
doing and supporting them as much aswe can. So we do quite a
bit of that work as well.And I've been fortunate to be part of

(06:25):
several not for profits, served onthe boards of the Alzheimer's Association in different
groups, but one in particular thatwas created for a client of mine twenty
five years ago, and it wasa client who had a local company,
a trucking company called John R.Mott Trucking, which still exists. They'll

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see the trucks on the road.Mister Mott has passed, but he had
an idea that he wanted to helppeople, not just here, but to
help people in the country from whichhe came. And he was of Italian
origin. He was born in Italy, in a little town called Sera Diaillo
in Calabria, Italy, and misterMott wanted to give back because his parents

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used to bring him back to Italyand come to the United States and they
would work here, and they alwayswanted to try to make it in Calabria,
but the economy there was so badthat they ended up settling here,
he got educated in the States,got a college degree, master's degree,
and then opened up John Armott TruckingCompany, and that was done through a
buy sell agreement and the money fromthe by SLL his three key employees bought

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the business. The money went intothe foundation. And I just returned last
week Sunday from Italy where we hadour twenty fourth annual awards banquet. And
over the last twenty four years,the John Armott Scholarship Foundation has given out
twenty five hundred scholarships to students inCalabria, a very poor area of Italy,

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and it's been an amazing the journeythat we've had over those twenty four
years, all because of mister Mott'svision and his desire to give back.
Now, it could be your local, you know, rotary club, it
could be your local university, itcould be the hospital that you want to
benefit, whatever, but you couldalso have, in this case, a

(08:20):
private foundation that does its own workand we screen, you know, several
hundred scholarship applications a year and choosethe winners. And then we just met
with them over in Calabria and hada wonderful, wonderful time at that reception.
But not for profits, folks areone of the biggest employers in the

(08:41):
world. They employ Saint Peter's isa not for profit. Albany med is
a not for profit, and yousit on the board of Albany Medical Center.
I do. Yes. These areall not for profit organizations and they
fuel a huge part of our economyand something that we have some expertise in
here. So if you ever wantto try to set up that charity,

(09:01):
set up that foundation, there arereally interesting ways to do it, things
called donor advised funds and other waysthat you can create pools of money that
can go to charities. And Patty, you're new to the profession, so
we're going to talk about some ofthe things that you're working on now,
and then also something that I knowthat you did some research on and you

(09:24):
and Teresa have come up with amemo. But businesses have trouble in New
York, and they have trouble nowfederally because there's something that was just passed
called the Corporate Transparency Act. Sofor you business owners, listen up and
Patty just tell them a little bitabout what the Corporate Transparency Act or CTA
is. So This Act was passedby the federal government recently. It mandates

(09:46):
new reporting requirements for other businesses,including LLCs. They require business owners and
other entities that fall under this actto report information about their beneficial owners,
your owners that have a lot ofcontrol and management authority over the company,
whether it be directly or indirectly.So it requires these different business entities to

(10:09):
report different information about their owners toFinnsend. So this will typically include their
names, addresses, birth dates,things like that. For different corporations,
depending on when they were created,there's different requirements for reporting. So for
corporations, LLCs and other entities thatwere created before twenty twenty four, they

(10:33):
have until the end of the yearto submit this report. But for newer
entities that were formed in twenty twentyfour, they only have ninety days from
the date of their creation to submitthis report to the government. So,
Teresa, this is a PIA.Yes, that's pain in the neck for
business owners. And I'm one,you know, I have to report on

(10:56):
certain of my businesses and it's it'sreally just adding paperwork. And I wonder,
they said heard I went to aseminar once on this and they said
there are thirty two million businesses subjectto the reporting, which is really interesting
because one of there are lists ofexemptions of entities that do not have to
report. One of the exemptions isa large operating company that perhaps is otherwise

(11:24):
governed by the US government. Ifyou make five million or more and have
more than twenty employees, you areexempt. So it's really the small person.
It's really the mom and pop grocerystore. It's really the law firm
that's owned by one or two peoplethat these requirements are burdensome for. And

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that's an interesting way for the governmentto try to go about regulating. What
the purpose of the CTA is foris money laundering and anti terrorism. But
you know, so how many peoplethat are bringing money in from other countries
that are illicit funds, drug moneyor blood money or whatever you're bringing in

(12:07):
it's coming in illicitly. How manyof those people are going to voluntarily report
that they're running those dollars through anorganization that they own. I have not
come across any It's like the guythat robs a bank with his old football
jersey on that has his name onthe bank. I mean, that's it's
going to be a stupid criminal that'sgoing to get caught by the CTA exactly.

(12:30):
And who is going to be administeringand reviewing thirty two million sets of
data from all of these companies.That's a great question because I as far
as I know, FinCEN is notan organization that has ten thousand employees that
are available to review these online twomillion regraustrations exactly. So it's government paperwork,

(12:50):
and it's it's things the government doeswhere they think they're going to get
one out of thirty two million,they're going to catch one big criminal,
the stupid one right that self reportson all of this, And so the
Corporate Transparency Act is something for nowthat you have to do. My guess
is it'll be three four years,there'll be a change in administration, and

(13:11):
the new administration will say, wejust got all this data, nobody's looking
at it. And the one agencythat we work with all the time that
you can't get to answer the phone, you can't get to answer an email,
you can't get to answer a letter, is the IRS, correct and
the Bot Foundation. Your name cameup at our board meeting because you filed

(13:33):
the application for a tax exempt statusto renew it, and that just you
don't get an answer. It's ina black hole at this point. Yes,
so we got to figure out whatto do about that. Folks,
here's how bad it is. Andremember that there is talk about defunding the
IRS, so cutting it even further, cutting the staff at the IRS even
further. So we have all ofthese laws. The legislature loves to pass

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laws that nobody's there to enforce.And so I had a client three years
ago, four years ago that hada very large estate. Mom passed and
they owed twelve point three million dollarsto the IRS and a state tax,
and they wrote a check. AndI was there when they wrote the check,
and that her hand was trembling.The daughter and you know, writing

(14:18):
a twelve point three million dollar checkto the Internal Revenue Service is no fun.
And so we send the check incertified mail, return, receipt requested,
all the things properly done. TheIRS gets the check, they cashed
the check, We get the check, She gets a check back with the
markings on the back that it hadbeen deposited in Kansas City, Missouri to

(14:41):
the Internal Revenue Service account. Anda month later she gets a notice from
the IRS that her that she's lateand deficient and that she owes the IRS
twelve point three million dollars and thatpenalty and interest is running on it.
Now, that's their mistake. Wehad the cancel check. I sent it
all back in. Did I geta response? No? Tried calling,

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sat on hold for about six hours. Nothing, sent faxes, send emails.
I was going to drive there,you know, just walk into the
office. Nothing. It took menine months and I finally she's getting all
these doning notices and she's scared todeath because they're saying that she hasn't paid.
And I said, no, here'sthe cancel check. It's the IRS
that's wrong. And so nine monthslater I had to file an appeal and

(15:26):
go through the whole formal and notcharging the client to do this. But
it's the IRS that caused the problem. We had to file an appeal and
once they got the appeal paperwork,oh yeah, we got paid and they
dismissed it. And that's how government, unfortunately sometimes word So we're going to
come back and talk about business formation. We're going to start at the very

(15:46):
beginning, and then we're going toget into that vacation property, So stay
tuned for that. Which of thesebusiness entities is best for your dental practice,
for your construction company, for yourfamily vacation property. It all depends
upon what you want to do,who's working with you, and what the
best structure is from a business andtax perspective. So we're going to unravel

(16:08):
all of that and to do it, we're lucky to have Teresa Skain and
Patricia Whalen. I'm Lupiro for thehost of today's program, and we're going
to be right back after this shortbreak. Welcome back. I'm Lupiro,
your host for this morning on LifeHappens Radio here on Talk Radio WGY.
Glad you could join us this morning, and we are in studio talking about

(16:30):
businesses, business formation and how itcan play out in your personal estate plan.
We do a lot of work withbusiness owners and creating their business structure
and then helping them to integrate itinto their estate plan. And one of
the assets that a lot of peoplewant to have in the family. And
we'll talk about all of the nuancesto this as we go. But how

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do you keep that vacation property upon Lake George Sacandaga Lake in Florida,
wherever you have your vacation home.How do you keep it in the family
so that you're three kids and they'reyour nine grandkids and all of the different
family members can know how that's goingto be used, who's going to be
responsible for it, and how it'sgoing to be maintained, so that it

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can be done and enjoyed as afamily for generations to come. But first,
Teresa, I want to talk aboutthe business selection entity selection. So
when people start looking at Okay,I have a DBA and I started this
business out of my garage. It'sApple Computer and I just started it out

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of my garage with my partner whatwas his name was, and Steve Yep
And so it may be the nextApple computer, or it may be one
of the other million businesses that fail. But what should I be looking at
if I want to take it fromme individually or me and another person partner

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or partners and ratchet up the letter, what are my considerations? Twenty percent
into people that we talked to thatask that question, I advise them to
look at a limited liability company.And we're going to talk more about the
nuances of that. But the limitedliability company started twenty years ago as kind

(18:15):
of suy twenty five, thirty yearsago. It's sort of a hybrid between
a corporation, which most people understandApple Computers is a corporation and a partnership.
And a partnership is a little bitlooser structure, but it doesn't have
the liability protection that a corporation has. So the LLC is a little bit

(18:38):
of a hybrid. It gives youa structure similar to a corporation, but
it's but it is more flexible,and it gives you the liability protection that
most people want. The only caveatto that is if somebody's an entrepreneur who
has an idea or a product thatthey think they want to have invests or

(19:00):
they may want to sell their businessin the future. Most investors, private
equity joint jvs, they look atcorporations. They want the corporate structure.
Yeah, and so let's just talkabout the kind of base level you have
corporations. You now have limited liabilitycompanies, you have partnerships, and you

(19:22):
have limited partnerships. Yes, andwithin the corporate structure you get into different
taxation. Correct, But the basiclaw that governs corporations is the same,
and that's a box that you haveto fit in and follow the rules right
that are laid out in the law, which is the Business Corporation Law Wow

(19:42):
actually named so the BCL as welike to call it the Business Corporation Law.
And that has some rigidity to it, some formality it does, and
especially for as you mentioned, there'sdifferent tax categories for U S corporations which
are smaller corporations, different tax treatment, but very rigid rules. You can

(20:03):
only have a certain number of shareholders. You can't have shareholders who don't who
aren't US citizens, very rigid typethings. You have to have an annual
meeting and people have to show up. It's a strict set of rules around
a corp. But again most peopleknow those rules and are fairly comfortable with
them. So the S corp andthe C corp are taxed differently, correct,

(20:27):
And you can create what's called passthrough tax status so that you don't
have to pay tax twice. Correct, just talk a little bit about that.
In a C corporation, which areusually larger corporations, the corporation itself
is taxed and files its own taxreturn, has its own tax ID number,
files its own tax return is taxand that is what we call an

(20:49):
entity level tax. And got acorporate tax cut several years ago. Yes,
the rate was twenty eight percent.It's now twenty one percent, right
for a sea corporation, right.And then if there are profits that are
distributed to the shareholders, the shareholdershave to then pay tax on those profits.
So that's the second level that peopletalk about. There's an entity level

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and an individual level in an Scorporation that is that is what is called
a pass through entity. So thecorporation itself actually doesn't pay taxes. Everything
flows back to the shareholders and theypay taxes on whatever the profits of the
company are. So if the corporationpays tax on profits at twenty one percent

(21:32):
and then distributes to shareholders profits theypay at their own individual rate, which
could be assig as thirty seven percentfederally, then you've got New York on
top of that court, right,right, So you've got twenty one plus
thirty seven as opposed to escorp,which would just be the thirty seven or
whatever your individual rate is. Becausethese brackets are all graduated up right,
And then you go from that,and I call it the lump of Clay,

(21:53):
which is the limited liability company,which is okay, Yes, there
is a statute creating the LLC,but you get the kind of right your
own rules. You do you doother than a very certain, very few
specific things that LLCs have to abideby, such as in New York you
have to have an annual meeting likea corporation. But beyond a few things,

(22:14):
you can agree to almost anything inyour LLC what's called operating agreement,
kind of like bylaws for corporation,You and your partners, or if you're
by yourself, you can agree toalmost anything. And that's the beauty of
the limited liability company is you haveall that flexibility, but you still get
the protection from liability. And ifyou get sued. So if your rental

(22:38):
property somebody falls down the stairs,breaks their neck and sues you, what
happens. If you have an LLC, you're happy because the LLC becomes the
defendant in that lawsuit, and onlythe things that the LLC owns are subject
to a judgment. If you don'thave that rental property in some kind of

(23:00):
entity and you own it in yourname alone, any of your assets could
be subject to a judgment. Soyour house, your residents, if you
have other properties, if you havea very large brokerage account, anything that
you own in your name could besubject to a lawsuit. Yeah, if
you're doing contracting, oil drilling,you own a bar, you want to

(23:22):
have that liability protection so that theycan't pass that liability back to you.
And when we get to the secondhalf, we can play the second half.
The second half is going to talkabout how we take these rules and
apply them to different types of businesses, including something that's not a business at
all, and that is that vacationproperty. Because somebody falls off your dock

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and drowns, and you're liable becauseyou didn't fix the dock when you knew
it was broken. You can bepersonally liable correct for that kind of a
property as well. And we'll talka little bit about ensuring risk. But
this is how you keep that riskout of your personal assets. When we
come back, you're listening to LifeHappens Radio. Take the short break for

(24:06):
the news. We'll be right back, and we are back. I'm Loup
Piro, your host for today onLife Happens Radio. We hope that you
can stay with us for the restof the hour today and come back every
Saturday morning at eleven am where wetry to bring you information, ideas and
planning opportunities for you, your family, your business to make sure that you
got all the right pieces in placeand that you're doing the right things and

(24:30):
thinking about the right things that canprotect you, your loved ones, your
children, and all the way downthe line. And that's why we do
it here, and that's what ourlaw practice is. Pierre O'Connor and Strauss
is a practice that covers all typesof a state planning, elder law,
special needs planning, business, corporateplanning, and we come up with comprehensive
plans for clients that thread it alltogether. So we are a comprehensive law

(24:55):
firm. We have right now sixteenattorneys and a staff of another twenty four
people, so total of forty ofus. We have about thirty of us
here in Latham, New York,another ten in our Manhattan office down in
New York City. And so weare here for you, here to serve
you, and hopefully you're here withus every Saturday to talk about things that
are of interest. And we hopetoday's topic is interesting and it is I

(25:19):
know for a lot of our clientsand a lot of people from a business
perspective who just want to know moregenerally about businesses, but for others who
have activities that may turn into businessesand others that have thriving businesses. You
need to be diligent all along theway. And for today's topics, I
have with me Patricia Whalen, whois one of our newer associates at PCs,

(25:40):
Pierre o Connor and Strauss, Teresascan who has been our corporate attorney
now going on seven years. Ibelieve I think so, Yeah, I
think so. And you know,we couldn't pass the bar, which is
where we met. At the bar, which is at a bar association meeting.
Folks, don't get the wrong idea. We were at the New York

(26:02):
State Bar meeting in New York Cityand struck up a conversation and lo and
behold, here we are. Herewe are seven years later, seven years
later. So I also want tolet you know about an educational opportunity because
at PCs we tried to bring informationnot just through life Happens, but also
through a series of webinars, seminarsand other types of educational events that we've

(26:23):
been able to produce over the lastseveral years, twenty years, and the
one coming up is on July eighth, and this is something that has become
a very important endeavor for our lawfirm because it's given us the opportunity to
once a month get in front ofpeople for thirty minutes. And this is

(26:45):
a crowd that comes from literally allover New York State. Now because it
is a webinar and you can doit from the comfort of your home.
You can be in your office,you can be in your jammies, and
you can watch Frank Heming, myself, Aaron Connor do Medicaid Mondays. So
it's the second Monday of each month, this time July eighth, and it's
from noon to twelve thirty and we'regoing to be talking about home care applications

(27:10):
for Medicaid and becoming financially eligible.And we draw about two to three hundred
people from across New York State foreach of these Medicaid mondays. We hope
you can join us if you haveinterest in Medicaid and you want to just
learn more about it, or youhave someone who you think might be able
or eligible. Trust me, thereis more bad information out there about Medicaid
than almost any other topic. Misinformation, disinformation and who might give you that

(27:33):
disinformation the government, maybe a nursinghome. So make sure that you get
true, accurate information that you canmake your decision. You can sign up
for July eighth's Medicaid Monday webinar atinfo at pyrolaw dot com. That's info
at PI E R R l aW dot com. Or you can give
us a call and our phone numberis five one eight four five nine twenty

(27:57):
one hundred again July eighth, twelvenoon, Medicaid Monday, Medicaid home care
applications. Get the real deal,the real facts. Aaron Connor Frank Hemming
will be your hosts for that presentation. So back to business and the business
of business today is business and we'regoing to talk about how to use a

(28:19):
business in a non traditional setting.But before we go down the family vacation
home path, Theresa, we startedtalking a little bit about how people can
start their business. The entity selectiona corporation which has the business corporation law
very rigid. I've litigated out ofthe BCL. And also you then have

(28:44):
partnership law which has been around avery long time, and people have used
limited partnerships in the past because ofthe flexibility, but you still needed to
have somebody else be the general partner. So just distinguish that structure because they
were very, very popular until LLCs. Exactly, the limited partnership structure does
give the limited partners that liability protectionthat we talk about that a corporation has

(29:11):
and now that an LLC has,but lose right, you had to have
at least one person called the generalpartner, who was still subject to liability
on behalf of anything that that entitydid. So they those structures became very
popular for people who didn't want therigidity of a corporation but still wanted most

(29:36):
people to have that liability protection.And then when the LLCs came along and
everyone could get liability protection, thelimited partnerships have been a lot less popular
over the past twenty years. Sothis is under the broad realm of asset
protection. Correct an asset protection planning? And how important is asset protection planning?

(30:00):
And when does it become important fromday one? Well, we know
that yes, but for most clients, when does asset protection? I get
calls all the time, Hey,can you do a trust for me that
I can put my assets in wheremy creditors can't. Oh, when did
you get sued? Right? Youknow when you get that lawsuit, boom,

(30:21):
you've got it in your hand.Uh. Oh, they're looking for
five million dollars, but I don'thave five million dollars, so they're going
to take everything I've got. Howdo I defend myself? And the answer
is yeah, you don't. Youdon't because it's too late. You've already
been sued that the you know,cows are out of the barn. And
so how do you get people todo this upfront and to maintain it over

(30:44):
time, to make sure that whatthey set up is right to start with,
but that it stays fresh. BecauseI've done this and I've talked about
this on the show and sold it. It's long enough ago that I can
talk about it. But why hada law firm? This goes back forty
plus years, forty one years andit was a litigation firm and we'd represented

(31:06):
bar owners strampshop litigation they called it. And the bar owners didn't have a
corporate book. They you know,some lawyer filed a certificate of incorporation for
them. They never did another thingwith it, and twenty years passed,
and sure enough, somebody leaves theirbar, gets in an accident, kills
somebody and gets a big lawsuit,and who they sue because the driver of
the car is woefully under insured,they sue the bar that overserved the patron

(31:32):
that went out and hurt someone.Right, So the bar owners would come
to us, and the insurance companywould call us up because they had an
insurance policy that they paid for andsay, okay, where's the corporate book?
And what do? They say?We don't have one? And I
say, okay, so where's yourcertificate of incorporation? And they say,
I think my lawyer has it,but I'm not really sure. You're dead.

(31:53):
So we would go through this danceand then okay, so you have
a corporation, you don't have abook, you don't have it any shares,
you don't have any evidence of ownership. And when is the last meeting
you had? Because every year?What's the requirement? One annual meeting per
year? And it's shareholders and directors, correct, because you have to have

(32:13):
directors in a corporation. It's oneof those BCL things. Correct, So
three directors unless there's less than threeshareholders minimum. Yes, and they have
to have annual meetings, correct,So I'd be typing up annual meeting minutes
for the last twenty years sitting thereand there were no word processes, right,
So we actually kept boxes of stationarythat the law firm had year over

(32:36):
year so we could go on acurrent years. I didn't say, no,
you didn't. So this is whypeople want to do asset protection.
And we do ASCID protection trusts inNevada and offshore Cook Islands nevs and people
pay a lot of money to dovery sophisticated as protection and that's necessary if
you're in high risk occupation. Wehave a client we just did all of

(32:58):
this for who is in just thatkind of a partnership. And the reason
I brought all that up is thathe is the general partner in these limited
partnerships who is personally responsible for hAnd this was a requirement for the type
of entity and the business that hewas in. You had to have a
general partner that was personally liable,right, And so we have done some

(33:22):
planning for him to make sure thathe is protected. But that general partnership
is a problem in what most peopledid was they set up a corporation to
be the general partner. Right now, you have a limited partnership with a
corporation as the general partner, whichto me is redundant exactly, But the

(33:45):
limited liability company gives you the flexibilityit does. So let's jump right into
the LLC and Patty, you've beenworking on LLCs now for that you started
with us even as a law clerk, Yes, I have, and that
have you found them in terms ofunderstanding the LLC and the way that the

(34:07):
entity gets formed and what clients' responsibilitiesare well. Like Teresa said earlier,
the reason why LLCs are a goodtool for you know, putting your rental
properties in and vacation homes is becausethey provide a much clearer and you know,
more flexible way to manage and theneventually transfer the property. I think

(34:27):
this is mostly because the LLC operatingagreements, like Teresa said, can be
very flexible. You can put differentroles and provisions in them, including,
you know, for vacation homes,for example, scheduling when family members are
going to be there, or youknow, who's going to have to pay
when repairs need to be done,things like that and you've been working with
me as part of the crossover betweenTeresa and myself, because we do a

(34:52):
lot of work for business owners whoare now setting up their estate plan and
how do the LLCs fit into theestate planning. So when we do a
state planning for clients that also havedifferent properties that they want to put into
an LLC, typically we form atrust with them. So then at that
point we would have the trust bethe owner of the LLC. Typically,

(35:14):
this would make the LLC be asingle member, so the trust would be
the main owner of the LLC andthe people who are creating the trust,
the grand hours, would then becomethe managers of the trust, so they
would retain ownership and control over theirproperty, but the real title would you
belong to the trust. And weuse them in a lot of different trust

(35:37):
contexts. And sometimes the LLC isdriven by the asset, which is what
we're going to talk about with thevacation home. But other times the LLC
is driven by the trust and oneparticular type of trust that we do called
the Medicaid Asset Protection Trust. Anda lot of clients might think, and
people out there listening, if you'relistening, might think, what does a

(36:00):
LLC have to do with a Medicaidtrust where you're going to put assets in
to protect them for Medicaid purposes.Well, you don't get general protection in
a trust. The public policy ofNew York State is that you cannot create
a trust for yourself that shields yourassets from your creditors. The one exception

(36:21):
to that in this case is Medicaidbecause you follow federal rules that allows for
the Medicaid benefits to be paid eventhough your assets are held in a trust
that you have income from that youcan live in the house. All the
things we do to shield assets forMedicaid purposes, But the one catch to
this is that you cannot be yourown trustee. So the way we jump

(36:44):
that hurdle is we say, okay, so we're going to create your Medicaid
Asset Detection Trust. Your children aregoing to be trustees, but we're going
to take all of your assets andwe're going to bundle them up into a
limited liability company. And how doyou structure that so that my client dad,
who wants to collect the rent checksfrom the rental properties and manage everything

(37:06):
and pay the bills and talk tohis brokers, so he can trade all
of his brokers accounts. How dowe structure that LLC? And like Patty
said that that Dad becomes the managerof the LLC. So in New York,
you can have your LLC be managedby the members or by the managers,
which are again getting back to thecorporate structure like board of directors,
but it's simpler. But it's simplerexactly. And the managers handle all of

(37:30):
the day to day operations of theLLC. So Dad can still collect the
rent shacks, he can still havethe books and records. He's still quote
unquote in charge, but he's notthe owner, and that's the important distinction.
He's not the owner. The kidstechnically as trustees of the trust,
are the owner of those assets,but he's controlling them and he's making day

(37:53):
to day decisions. So our workfor the day is bifurcation. So if
you buy for Kate, the ownershipwhich is if Medicaid comes knocking on the
door and says you have assets andyou say, well, I don't own
anything. My trust does, right, So the trust is the owner,

(38:15):
which is the member. Then theygo to the operating agreement, which they
never do because all they want tolook at is ownership, and you get
to the operating agreement and Patty whatdoes that say. It says that technically
he's the one that maintains the managementand control of those assets even though they're
in the trust. So it's alittle bit tricky, but it allows people

(38:37):
to have all of the Medicaid assetprotection of a trust, but still have
the ability to have management control overall of their own assets, to do
all the things they want to dowith those assets. And the only thing
they can't do is make distributions.Correct. They could distribute into the trust,
but the trustee then has the powercorrect to make the ultimate distributions.

(39:00):
And that's how we shield it forMedicaid purposes, but keep underlying control for
the people who want to have accessto their broker and to their rental property
their tenants and collect the checks anddo all the things that they need to
do. So this has been avery popular structure. And I want to
just take sixty seconds to introduce thelast topic that we're going to talk about.

(39:22):
Then we're going to take a quickbreak and come back to finish it.
And that is all the things we'retalking about with businesses with assets,
whether it's trusts that are dictating youuse an LLC or the type of business
that you have that says, okay, I should have a corporation, I
should be an escorp, I shouldbe a c corp, I should be
a limited partnership or the entity DJUREwhich is the limited liability company. When

(39:45):
it comes to family owned assets,we don't usually use business structures for that.
But how did this kind of comeup and how does that work for
that vacation property. I think itworks because again of the flexible ability that
we can build into that operating agreement. We can have different generations of a

(40:07):
family have different weighted votes on howthe property is used, whether the property
is sold, does the roof needto be repaired, all of those decisions
that come about with a family camp, let's or family property. We can
tailor the operating agreements so that everybodyhas to agree. Mom and dad get

(40:30):
to make the decision because it wastheir property to begin with. It's so
flexible, but it also gives anoutline of what is going to happen when
mom and dad are no longer withus, and then who steps into their
shoes? When does eight year old, Jenny become an owner of the camp

(40:50):
if she had eight years old,or does it happen when she's thirty.
All of these things we can bakeinto the operating agreement, which makes it
really attractive. That's a great segueto the next section, because folks,
when we practice law, we don'tdo it in a vacuum. We're not
in a room with a set ofbooks, and we're not just saying,
oh, there's a limited liability company, I'm going to do X, Y
or Z. We're sitting around atable with a family or with individual clients,

(41:15):
and it's the individual clients that setthe goals and set the tenor for
what that plan is going to looklike going forward. So how's your family?
Are they as crazy as mine?You know, we all have different
idiosyncrasies, and we all have familiesthat add to that fund. And we're

(41:36):
going to come back and talk abouthow the family LLC is a vehicle that
can really accommodate a lot of differentpersonalities, different interests, different abilities and
mold them into a plan that allowsyour family to hold on to the assets
that you have earned and that youhave built, that vacation home being one

(42:00):
of those assets. Other assets playin as well, and when we come
back, we're going to sort itall out and show you how you can
create this entity, this family businessentity, to make all of those issues
resolved. We'll be back. You'relistening to Life Happens Radio Talk Radio WGY.
Thanks for joining us, stay withus. We'll be back after the

(42:22):
short break. Welcome back, andthanks for staying with us. I'm Lupiro,
your host for this morning on LifeHappens Radio in studio with Teresa Skain
Patricia Whelan, three lawyers, justhanging out on a Saturday morning and talking
about business, business entities, businessformation, and a use for businesses that
is a non traditional use. AndI read a book once, probably thirty

(42:44):
years ago, how to Save theFamily Cottage, And the author of that
book has since passed, but Idid have that book and gave it out
to my clients at times, andit was a great recitation of all the
concerns and considerations that families have intrying to make it work for the next
generation, let alone for the thirdgeneration or fourth generation. And Patty you've

(43:09):
you've I think it's good to havea fresh view of the law and the
practice of law, because you're notas jaded as Teresa and I we've been
around a long time, nay morethan her. But when when you see
these kinds of situations and you havefamilies that you're working with and clients that

(43:30):
you're working with, what comes toyour mind in terms of the things they
should be thinking about. I thinkfor a lot of our clients, they
need to be thinking about what theywant to happen long term and after they're
gone. I think they need tothink about how the things they do now
will impact their family and their propertiesand their assets in the future. You

(43:52):
know, we see that a lotwith family vacation properties and camps. You
know, a lot of times they'llput this property in which trust with you
know, strict terms in the trust. But then what happens when they pass
away, and how do they managethe property now that it's in a trust
that you know you can no longeralter or mend in any way. So

(44:13):
I think things like that are goodconsiderations and you know, good things to
think about when deciding on what planis best for you and your family in
the future. And I think toadd on to that, the two biggest
areas we see the family members haveconcerns or have issues. Quite honestly,

(44:35):
are who makes decisions and who paysthe bills going forward? Right? Those
are the two areas that we see. And which child is just crazy,
which one has a crazy spouse that'smore the problem or the problem in many
cases, which one's drinking too much, and which one's gambling too much?
And I mean this is not apicture. Is still picture, folks,

(44:58):
This is life right right right,And when life happens, you need to
be prepared. And this is oneof the places that you can do that
by setting up this structure and puttingthe right people in charge and having a
mechanism where a family camp. Youknow, I have clients that bought that
property hundred feet of lake frontage,and they bought that property in nineteen sixty

(45:22):
for one hundred thousand dollars. Ohmy god, I'm spending one hundred thousand
dollars. Well, that one hundredfoot parcel now is probably a teardown that's
going to sell for a couple millionbucks exactly, And so you it's a
valuable asset. But if you've donethe work on that camp where it's whatever
lake, it's on, or oceanit's on, or planet it's on.
But you've done the work on thatcamp, and you want it to be

(45:43):
there because the family has spent theirvacations there, they've spent their summers or
winters there, the kids have grownup there. There is an enormous emotional
attachment to that type of a property, and you've got all the crazy family
members they want to muck it up. So when you start with the clients,

(46:05):
what's the first thing that you givethem to kind of start thinking about
all of the issues that could comeup. We actually have a checklist of
the basic categories of questions that weuse the answers to to create the operating
agreement. So it's a checklist likeany other checklist might be. You know

(46:28):
who owns the property now, howmany children do you have, how many
grandchildren? How are expenses paid now? Who you know? Who's making decisions
now? All of these kind ofthings, and then we talk with the
clients based on those answers. Okay, if you two are making the decisions
now and you have four kids,do you want all four kids to make

(46:50):
decisions in the next generation or arethere two that you like better than the
other two and are smarter and infinance. Whatever the answer is, So
we start with sort of a basictemplate and then go from there based on
the circumstances. Yeah, and ifyou think about it, you have the
typical family two or three kids,and maybe they have two or three kids

(47:13):
of their own. So let's sayit's a three times three situation. So
now, when that next generation isgone, do you want nine decision makers
exactly? Or do you want eachfamily to choose one representative and keep it
at three decision makers? Right?And that's what we typically advise clients is

(47:36):
to you know, take the branchesof their kids and each one is a
separate and distinct kind of little capsule, and they each get to elect a
manager, so that you only havethree at any given time. The other
thing that comes up a lot,and we talked about crazy people, and
we talked about you know, favoritesand non favorites. But what if one

(47:58):
of the kids is in Texas andthe camp is in the Adirondacks and they
don't want to fly up every yearand use it. Do they still have
to pay? Do they still geta vote? You know, there's those
there's those considerations as well and notjust you know who's crazy, or if
they just don't want to pay,or if they just don't want to pay,
which is, hey, I canget milk for free, while why

(48:22):
do I need to pay for thecamp? I can just go to the
house. It's in the family LLC. Hey I'm a member of this LLC.
I can just use it. Sohow do you draft that in?
Yeah, that is one of themore difficult conversations that we have with with
our family camp clients is what ifsomeone doesn't pay and we go everywhere from
the other the other family members makeup the difference, and it turns into

(48:46):
a loan to The most recent onewe did was the person doesn't pay for
two years consecutively and they're out forfeittheir their interests. Yeah, so those
are things that are hard pills toswallow, absolutely, and that's why when
we do this, you probably wantto bring the kids into the conversation.

(49:08):
You don't want to just throw thisat them. So right when you conduct
that meeting, maybe not the firstmeeting because you're getting this through to the
client and just introducing it, butwho do you bring to the next meeting
where they're going to take that questionnaire, that checklist and go through each of
these issues. We do encourage ourclients to have that conversation with their kids

(49:29):
first, and then the kids aregenerally involved in a lot of the meetings
we have. As funny as itsounds, we don't always encourage the kids'
spouses to be involved in those conversationsbecause a lot of people want lineal descendants
only to be able to have votesregarding the property, and that's a little

(49:52):
uncomfortable conversation for us to have witha spouse in the room for the first
time, so we kind of spouseis not to be in that first or
second meeting and Patty, those gohand in hand with a lot of the
trust planning that we do something calleda beneficiary control trust. Yes, so
we have a similar vehicle in thetrust world where if parents create a trust

(50:14):
for their kids, what they cando is they can create sub trust under
this trust, what we refer toas a beneficiary control trust. And this
beneficiary control trust can be structured intwo ways. The one way that we're
discussing now is we can call ita bloodline trust where the only people that'll
be entitled to the trust one dayor where I will have any assets from

(50:37):
it will be someone that's in thebloodline, So this kind of excludes spouses
from ever being a part of it. So here's the confluence once again of
business planning and state planning, usinga business asset or a business entity for
a personal asset. We do businessesfor other things, but bring it together
for the family is the key.And I want to thank both both of

(51:00):
you for being here this morning withme. Teresa Skain, Patricia Raylan from
Pierre o'connoran Strauss. I'm Lupiro,your host for this morning, and thank
you all for listening to Life HappensRadio. We hope you can join us
next week back here on talk radioWGY.