Do It Yourself Estate Planning Pitfalls

The pros and cons of DIY estate planning are discussed in yesterday's article in US New and World Report:

"Unless you are single and have absolutely no money," says Brooklyn-based estate planning and tax lawyer Hani Sarji, you need an estate planner, because people tend to make mistakes when they fill out their own forms online. "People might get a false sense of security from DIY estate planning," Sarji adds, and answering one question incorrectly or overlooking something such as appointing a guardian for children can lead to major problems down the road.

On her blog, estate planning lawyer Leanna Hamill writes about a colleague who had a client who used an online do-it-yourself will that he failed to update after some of his beneficiaries died and he opened new bank accounts that weren't mentioned on the form. "That is the reason to have an attorney assist you with this process. We know the questions to ask, and we know what to do with the answers," she writes.

"Without a lawyer, you might not understand the terms," says Deborah Jacobs, author of Estate Planning Smarts. Therefore, you could inadvertently give someone more power than you want to when creating a "durable power of attorney" document, for example. That document essentially gives someone else the power to take care of your finances if you become incapacitated. Jacobs says that if that person isn't trustworthy, he or she could steal from you. She also warns that if the document isn't executed properly—in some states you need witnesses to your signature—then it might not even be valid.

Another risk, says Jacobs, is that when it comes to transferring your money to family members after you pass away, a self-written will might contain holes that lead to errors.

As with other areas of the law, other lawyers, who don't practice estate planning law, have hired me to assist them with their estate plan; if they know they can't tackle an incorporation or an estate plan without some advice and counsel, do you believe you can do better?

LegalZoom.com Faces California Class Action Over Estate Planning Documents

Legalzoom.com has been accused in California of the unauthorized practice of law, as well as providing ineffective estate planning documents.

January 8, 2012 Update: The case now has apparently settled, as most class actions and indeed most lawsuits of any kind are.

Tax Audit Risk Among Reasons to Incorporate Side Business

CPA Michael Hanley, who specializes in working with small business, advises:

"The #1 most overlooked tip by people running side businesses is that they fail to setup a business entity because they still view their business as a little side business that they will incorporate when things take off."

Sole Proprietorships (the business structure you default to if you fail to setup a Corporation, LLC, etc) are subject to the highest audit risk out of all the business structures. The reason for this high audit risk is that all Sole Proprietorships report their business income and expenses on Schedule C (the second most highly audited form that you can attach to your tax return). By setting up an S Corporation, you become nine times less likely to be selected for a random IRS audit (audit risk decreases from 2.7% to .3%, making it very possible that you can go your entire life without ever being selected for an audit).

Setting up a Side Business Can Be Risky Unless You Do it Right, Mithcell York, About.com: Enterepreneurs

Los Angeles Business Tax Break Proposed

Los Angeles' mayor today proposed an expansion of the City of Los Angeles' new business tax exemption, from two to three years, assuming gross revenues of less than $500,000:

Tax Break for New Businesses Proposed, Los Angeles Business Journal, June 15, 2010

CEOs rank California 51st for Business Environment

More than 600 CEOs rated states on a wide range of criteria from taxation and regulation to workforce quality and living environment, in our sixth annual special report.

In Chief Executive’s annual survey of best and worst states for business, conducted in late January of this year, 651 CEOs across the U.S. again gave Texas top honors, closely followed by North Carolina, Tennessee and Virginia. They gave the booby prize for worst state to California, with New York, Michigan, New Jersey and Massachusetts filling out the bottom five-a line-up virtually unchanged from last year. Florida and Georgia each dropped three places in the ranking, but remain in the top 10. Utah jumped six positions this year to sneak into the top 10 at No. 9.

The business leaders were asked to draw upon their direct experience to rate each state in three general categories: taxation and regulation, quality of workforce and living environment.

Best and Worst States for Business 2010, chiefexecutive.net, 29 April 2010

See also Of 50 States, California ranks 51st, Orange County Register editorial, 5 May 2010:

As the magazine noted, Californians pay among the nation's highest income and sales taxes. Unemployment exceeds the national average, and, contrary to the national trend, "union density is climbing, from 16.1 percent of workers in 1998 to 17.8 percent in 2002."

Indeed, according to the magazine's critique, "organized labor has more political influence in California than in most other states." The magazine zeroes in on perhaps the crux of the problem: "When state employees reach critical mass, they tend to become a permanent lobby for continual growth in government."

That helps to explain why unfunded pension and health care promises for state workers "top $500 billion, and the annual pension contribution has climbed from $320 million to $7.3 billion in less than a decade," as the magazine noted.

It doesn't take a national survey to reveal California's failing business climate. Seven California metro areas were among the 15 national leaders in commercial bankruptcy filings in 2009, according to Equifax Inc. Not coincidentally, California had twice as many personal bankruptcies as any other state in 2009 when it ranked 11th in bankruptcies per capita.

It also doesn't take a CEO to notice the differences between California and top-rated Texas. Texas, with nearly as many residents and the world's 12th largest economy, "is where 70 percent of all new U.S. jobs have been created since 2008," the magazine reported. Also unsurprisingly, Texas gained more than 848,000 net residents based on migration in and out of the state in the past decade, while California lost 1.5 million, according to the Census.

"You feel like [Texas] state government understands the value of business and industry to create jobs and growth," one CEO said in the magazine.

California Secretary of State Processing Times

California Secretary of State business entity filing times have soared since the first of the year, as a result of the state budget crisis and resulting budget and staff cuts at the Secretary of State's office (which included the closing of some regional offices).

Alas, the Secretary of State also failed to notify practitioners or the general public about these changes before the fact, resulting in unexpected delays to the tune of 6-8 week turnaround for business entity (LLC, corporation, etc.) filings by mail and standard over-the-counter expedited filing times increasing to three weeks and sometimes more from an average of less than two.

Belatedly, the SOS issued this apologetic announcement earlier this month:

http://www.sos.ca.gov/business/pdf/processing-times.pdf [subsequently updated in 2011 to provide an update on the progress the SOS is making to work through these issues]

California Annual Minimum Franchise Tax Repeal Proposed

A bipartisan commission appointed by Governor Schwarzenegger has recently proposed sweeping overhauls of California's tax laws, including reduction of personal income tax rates, the elimination of the corporate tax, and the elimination of the $800 per yaer minimum annual franchise tax levied on corporations, LLCs, and LLPs doing business in the state. The committee did, however, propose a 4% business net profits tax, exempting small businesses with less than $500,000 in revenues.

The recommendations are only that, and must be acted upon by the legislature and governor in order to become law.

For more information see:

Commission on the 21st Centuray Economy Press Release dated September 29, 2009