Ditch the DBA

For most businesses, doing business under an assumed name certificate filed with the county makes as much sense as using a rotary telephone. It may get the job done, but it is has many drawbacks and there are far more attractive alternatives.

Lets start with the basics. An individual can file an assumed name certificate with the county that allows that person to do business in the county under an assumed name. The form is simple and the filing fee is small. That may sound appealing until you realize that there are few benefits, and many downsides, to structuring your business in this method.

One significant drawback to an assumed name certificate is that it does not provide the business owner with any limited liability protection. In contrast, for businesses that are formed in a way that provides limited liability protection, such as corporations and limited liability companies (“LLC”s), you are not personally liable for most debts and obligations of the business. If you do business under an assumed name filed with a county, you do not have this protection. You are the business, the business is not considered a separate entity, and you are liable for the obligations of the company.

In the past, using a business that provided limited liability protection, such as a “C” corporation, meant also having the cost of “double taxation,” meaning that income was taxed upon receipt by the corporation, and taxed again on distribution to the owners. However, there are now many forms of entities, such as S Corporations or LLCs, which allow a business to have true limited liability protection and enjoy the benefits of “partnership” or “flow-through” style taxation, as opposed to traditional “corporate” style taxation.

There are many other advantages to using a company that provides limited liability protection, such as an LLC, including the ability of the company to continue in existence after the death of an owner, increased options for succession planning and integration with an owner’s estate plan, potential options for tax planning, and value in the form of perceived legitimacy from third parties when dealing with an established company. Also keep in mind that businesses operating an assumed name should file the certificate in every county in which they transact business, in contrast to an LLC or corporation which is protected by a single statewide filing.

If you are a business owner currently using an assumed name certificate filed with the county and you have questions about converting to a more favorable form, or you are considering starting a new business and you have questions about choosing the proper form, I encourage you to contact me or your local trusted business attorney.

Protect Your Home And Your Credit

Your home is probably your largest and most important asset. It is also one of the most attractive assets to criminals and con artists. Not surprisingly, many states report that mortgage fraud is one of the most commonly reported complaints. The effect of mortgage fraud can be devastating, not only as a way of removing equity or destroying credit, but in some cases homeowners also unwittingly sign deeds giving away actual ownership and legal title to the house.

Special thanks to Emil Izrailov, a Certified Mortgage Planner with Kaye Financial Corporation, for providing a recent article that highlights a new twist in mortgage fraud, an “equity disbursement program” purportedly sponsored by the “CRA” (that sounds official, doesn’t it?):

Through direct mail advertising, consumers are being offered special "cash grant or equity disbursement" programs which claim to be linked to the Community Reinvestment Act (CRA) and, in some cases, even endorsed by the Federal Reserve.

The Federal Reserve Board cautions homeowners that "no such federal programs exist". In fact, the Federal Reserve Board does not "endorse or sponsor" any mortgage programs, and the CRA does not "entitle individuals to any grants or loans". Enacted in 1977, the CRA is a federal law designed to address unfair "redlining" practices in low-income neighborhoods, encouraging financial institutions to address the financial needs of the community as a whole.

Click here to download the rest of the helpful article.

How do you keep from falling victim to this or any of the other in a frighteningly wide array of mortgage fraud schemes including equity stripping, loan flipping, bait and switch and deceptive loan servicing? (For a further description of these and other schemes to guard against here is a link to a recent article from Nancy Kreisler). The best way to protect your home and your credit is a twofold process:

First, only work with an experienced mortgage professional who can provide exemplary references. You can even send an email directly to Emil Izrailov if you have questions about how to protect yourself from mortgage fraud or you are looking to obtain financing.

Second, before entering into any agreements for the sale of your home or for financing which is secured by your home, contact me or your other trusted attorney who is experienced in real estate, civil and consumer protection law. That attorney can review the agreements before you sign them to make sure that your interests, your home and your credit are protected.

Keep Your Estate Private

Have you read Anna Nicole Smith’s Last Will and Testament?

I have not read her will, nor do I intend to. For me, the noteworthy aspect of her will is not the contents of the document, but the fact that it is front-page news on the CNN website (This is not meant to be a criticism of CNN, as I expect it is likely to be widely publicized by countless other media outlets).

For those of us who are not celebrities, there is little danger of our will being published by the national media. But if you do not make arrangements to avoid probate, your will, or any other probate proceedings, are public record.

Probate proceedings are less burdensome then they were in the past, but there are still many good reasons to avoid probate, including to protect your privacy. As an attorney who spends a significant portion of my practice dedicated to estate planning and administration, probate avoidance is one of the most common goals of my clients, and there are more options then ever to help clients achieve that goal. To avoid probate and protect your privacy, contact your trusted estate planning attorney.

The Problem With Going Paperless

Does anyone know your password to your online accounts? If not, they should.

That’s right, this is not a warning about security, this is a warning about the problem of making sure that your survivors have access to needed information in the event of your death or disability.

There is a growing trend towards managing assets online, oftentimes leaving your heirs with a lack of paper records and making them entirely dependent upon having access to your online accounts. If you don’t leave behind your user names and passwords, your information can be held so securely that it would require a court order, and costly legal proceedings, for your survivors just to gain access to the information. Special thanks to Michigan attorney William Josh Ard of Howard and Howard in Ann Arbor for bringing a recent article on this topic to my attention. As the author notes:

Keeping track of account passwords and Internet passwords is hard enough. Now imagine what can happen once a loved one is gone.

More and more people are using the Web to manage their financial and personal accounts. However, they don't think to leave behind user names and passwords with a trusted resource.

You may also recall the recent well-publicized court battle between the survivors of a Marine killed in Iraq and Yahoo, after the family, which did not have the account password, was denied access to the email account.

To avoid unnecessarily making your information inaccessible in the event it is needed by your loved ones, be sure to keep a current and complete list of all your accounts and login information. The list should be comprehensive, including everything from email accounts to bank accounts, investment accounts, credit cards - any other account that is password protected. Then, decide who else will receive or have access to the list, such as your spouse, adult children, financial advisor or estate planning attorney.

These problems apply equally to individuals and businesses. If your business depends on online accounts, make sure that the information on those accounts will be accessible to future owners, managers or employees who may need to take over the accounts with little or no advance notice.

Do you have a comment on this article or a suggestion as to how to maintain records of your online comments? I invite you to contact me or post a comment below.

Residential Land Contracts 101

In Michigan, sellers of residential property are more interested than ever in finding ways of making their property attractive to prospective buyers. Many sellers are offering leases as an option. Another alternative is to offer a sale by land contract. As an attorney who handles real estate transactions, from time to time I am asked by clients or prospective clients to review the fundamentals of a land contract. That prompted me to post the following primer.

What is a land contract? A land contract is both a method of financing and an agreement for the sale of an interest in real property. Payments are usually made in installments, and the interest rate cannot exceed 11% unless it qualifies for an exemption. Keep in mind, though, that the land contract itself does not convey legal title to the buyer (legal title is transferred by use of a deed). There are various reasons a buyer and seller may choose to enter into a land contract.

Why would a seller want to use a land contract? One reason is that, unlike a traditional sale whereby legal title is transferred at closing to the buyer and the mortgage holder retains a security interest, when a sale of real estate is conducted by way of land contract the seller retains legal title to the property until the conclusion of the land contract, and thus the seller retains the right to use the property as collateral during the course of the land contract (although this right may be barred by the language of the land contract). Another potential advantage for the seller relates to the seller’s remedies in the event that the buyer defaults. Should the buyer default, the seller has the remedy of “forfeiture”, by which the seller can recover possession of the property, retain all the payments the buyer has made to date under the contract, and the seller can avoid the lengthy process of a foreclosure sale.

Why would a buyer want to use a land contract? The most common reason for a buyer to agree to purchase property by land contract is because the buyer, as a result of their credit history or inability to make the required down payment, cannot obtain a traditional mortgage.

Beware of the “standard” land contract. There are many optional provisions for a land contract, including sections relating to prepayment penalties, rights to encumber, duty to place a deed in escrow, disposition of insurance proceeds, payment of taxes and insurance, rights to assign and remedies in event of default. Also, if you have an estate plan, be sure that the way in which you buy or sell property is consistent with that plan, particularly if your plan involves use of one or more trust agreements. Before entering into a land contract, or any other significant real estate contract, be sure to consult with an attorney who can make sure that your rights are fully protected.

Don't Disinherit Your Heirs By Mistake

Did you mean to disinherit your newly born child? Probably not. But to avoid mistakenly omitting a loved one from your estate it is most important to understand that your will only controls a fraction of what you own.

Many assets will likely pass outside of your will, including assets that are owned jointly (with rights of survivorship), assets held in a trust, and those which have controlling beneficiary designations, such as retirement accounts or life insurance. It is becoming more common for these assets to be the most valuable items in an estate. That makes it more important then ever to make sure that your beneficiary designations are current and consistent with your overall plan.

A recent Newsweek article highlights this important topic:

Your will tells the family how you want your property distributed when you die. But here's something you might not know: your will—and your wishes—can be overridden by other forms you've signed and forgotten about. Take the beneficiary form that came with your life-insurance policy. If it names your two children as beneficiaries and later a third child is born, only the first two will get the money. To include the third, you'll have to change the form.

The article discusses many other pitfalls that can affect you and your heirs in the event that your estate plan is incomplete or out of date. As an attorney who has worked with clients who have been the unfortunate victim of this scenario, I can confirm that this is a very real problem.

The best way to avoid family conflict and to make sure that your heirs are properly taken care of, make sure to not only work with an estate planning attorney to prepare your plan, but also to periodically work with your attorney to make sure that all of your assets will pass according to that plan. That is the best way to make sure that where you have a “will”, you also provide the way.