Business owners are often advised on the importance of holding annual meetings, documenting their minutes, and exercising proper corporate formalities as a method of preventing the “piercing of the corporate veil.”

However, although many people know they should be holding meetings and doing their minutes, our experience with new business owners who do not have a history of being in the “corporate” world or serving on a “board of directors” is often a feeling of confusion and cluelessness as to what meetings and minutes are and what purposes they serve.

Although the general purpose of meetings, minutes and resolutions are to document and authorize acts taken by an entity, company meetings can accomplish several other important goals that we feel are critical to a business’s long-term success, for example:

  • Strengthen the corporate veil and asset protection
  • Document goals and objectives of the business
  • Structure tax planning and establish bookkeeping procedures
  • Create a great reason for a tax-deductible trip (at least annually)
  • Increase communication between the business owners
  • Involve the family members and teach them about the operations of the business

In a corporation, you have a hierarchy that consists of shareholders that own the corporation, directors that establish the major policies and decisions for the corporation, and officers (President, CEO, Secretary, etc.) that perform and execute the daily activities for the corporation. In this three-level vertical hierarchy, officers are appointed by the directors who are in turn appointed by the shareholders.

In a Limited Liability Company or LLC, it’s a bit simpler in that you have Members that own the LLC and Managers that operate the day to day transactions.   The Managers are appointed and serve under the authority of the Members.

This illustration below depicts the standard structure of both corporations and LLCs:

CORPORATIONS—->Shareholders (Own)—->Directors (Direct)—->Officers (Manage)

LIMITED LIABILITY COMPANYS (LLC)—->Members (Own)—->Appoint Managers (Manage)—->Hire Employees (Work) 

In a corporation, there are generally two types of meetings; “Shareholder meetings” and “Board of Director meetings”.  In a small business, they are generally the same, but you may expand the ‘board’ to include family members and others to help you succeed.

In an LLC, I feel strongly there should be two types of meetings; “Member meetings” and “Board of Advisor meetings”. There is nothing that says you can’t have a Board of Advisors in an LLC.

What’s in a “Meeting”?

While the items that should be discussed and documented in the meeting will depend on the situation, in general, items discussed in a meeting and documented in minutes should include the following:

  • Any Important Changes to your Business during the period since the last meeting, especially any changes to the corporate structure, ownership, management, key employees, company policy, governing documents, etc.;
  • Any transactions or actions that require “consent,” “vote” or are otherwise required to be approved as required in the governing documents for the entity or under the laws of the state; and
  • Major transactions for the company that are beyond what typically occurs in the day to day operations of the business (i.e. obtaining a loan, purchasing major assets, entering into a major contract, dissolving the corporation, etc.).

This list is not intended to be exhaustive. Conducting your meetings and keeping minutes should not be considered a burden and I encourage my clients to keep it as simple as possible. However, that will certainly depend on the type of transaction, size of the entity, and whether there is any disagreement among the attendees.

The ‘Minutes’ are the notes or records of the meeting. For example, who attended, what the votes were, suggestions, discussions, problems, and decisions.

Corporate resolutions, when documented properly, are literally the ‘decisions’ from the meeting. The resolutions confirm that certain transactions performed by the officers (in a corporation) have been authorized and approved by the directors, and in some cases, actions taken by the directors have been approved by the shareholders.

Similarly, for an LLC, minutes confirm that actions taken by the Managers have been approved by the Members. People who have ever tried to purchase or sell real estate through an entity often have lenders or escrow officers ask them for corporate resolutions approving the transaction. The purpose of this is so they (lenders or escrow) have signed documentation confirming that the one person that is signing the contract or deed in the transaction does actually have the approval of the other major decision-makers within that entity. Other entities that have been audited will know that the IRS often asks for meeting minutes as part of an audit.

Is it required?

In general, corporations are required to hold at least one annual meeting per year. I strongly encourage business owners hold the same meetings and meeting for LLCs. Although, many states don’t require that LLCs have such formalities, it is highly recommended in the legal industry for business owners to go through this process to strengthen the ‘veil’ of the LLC. It also encourages good recordkeeping, and can serve to enhance communication in the business. Moreover, there’s nothing wrong with doing more than the bare minimum that the law requires- it just makes good sense.

Is there an official procedure or process?

The procedure for the meetings and minutes can vary and is, in part, dependent on the language in the documents governing your entity (e.g. by-laws for corporations and operating agreement for LLCs). The laws of the state also set forth procedures when corporate/LLC records are lacking the particulars.

In most cases, there must first be official notice of the meeting that in many cases must conform with certain requirements, which can also be waived by those attending or not attending if properly documented. Next, there is typically a requirement for a certain number of attendees (i.e. a quorum) in order to conduct a valid meeting. When the meeting is held, the minutes are essentially notes of what happened in the meeting. The minutes should include who attended the meeting and when and where the meeting occurred. A “resolution” is a formal decision or act by the attendees of the meeting which also should also be documented in the minutes.

Involve the family and take advantage of a tax write-off

It’s very common for small business owners to have their adult children, and even teenagers participate on the Board of Directors of a Corporation or Board of Advisors for a Limited Liability Company (LLC). This is a fantastic opportunity to teach the children about the business and even basis entrepreneurship skills. Business owners should take the time to discuss finances, operations, potential growth and even the dynamics of employees or vendors and the impact they have on the business.

Moreover, the ‘meeting’ is a great opportunity to take a tax deduction. There is nothing wrong with an annual or semi-annual get-a-away to discuss the business. As long as it’s not extravagant and there is a valid meeting and discussion, the travel, dining and accompanying entertainment expense with the meeting can be justifiable on a tax return.

Take it seriously

Finally, those business owners that only consist of themselves or their spouses may find it silly to engage in what could be perceived as a pointless exercise in holding meetings or preparing minutes with ourselves. I believe adhering to these formalities is even more important when there is only one owner or director since an entity with just a single owner operating the company is under even more threat of being accused that their personal and their corporate identities have been merged (and therefore the corporate veil should be pierced). This is especially true in the case of money transactions between the single owner and the corporation which, if not properly documented, could be deemed comingling of funds or result in unfavorable treatment by the IRS.

Holding your meetings and documenting your minutes if often a private affair within your corporation and think of it like your insurance policy.   You hope that you never need it, but in the event of a lawsuit or an audit, you’ll be glad that you have it.

WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business


Contribution by Mark Kohler

Privacy is a big topic and it’s not just about being careful with whom you share your personal information. There are a lot of tricks and techniques out there on the ‘blogosphere’ that we can learn and implement. However, it can also be overwhelming trying to ‘hide’ our personal information in this day and age of technology, if not futile. It’s difficult to determine which strategies work and are worth the effort. The important point I want to make in this short article is that we need to understand what we are trying to protect, and then be targeted and exact in our privacy protection strategies.

Consider, for example, a distinction between personal privacy and asset or property privacy. Safeguarding our personal information from identity theft and not letting ‘the world’ know where we live, is very different than hiding a rental property or other business asset. Otherwise stated, our personal privacy is different than the privacy concerning the location of an asset private.

In daily practice we might, and in many instances as a business owner should be, willing to let people know who we are, where are office is, how to contact us, and follow us on social media. This could be a very important part of our marketing efforts to brand ourselves or our businesses.

In turn, I certainly don’t want the general public to necessarily know what assets I own. For instance, no one needs a potential stalker or disgruntled client or tenant, and especially a creditor or their attorney, to do a public record search and discover all their assets sitting there just waiting to be attached in a lawsuit.

 Personal Privacy

Here are some privacy action items that will help make the distinction between ‘personal and property’ privacy. First, here are some relevant practices that work great for personal privacy.

  • Pay for a credit bureau tracking service and carefully monitor any activity they find.
  • Keep critical data for both you and your family members, under a watchful eye. Items such as social security numbers, driver’s licenses, credit cards, bank account numbers, etc.
  • Invest in a safe deposit box, or a carefully hidden fireproof safe for the house, and place important papers in it.
  • Go paperless with an encrypted cloud hosting service to store all your data.
  • Copy all contents of your wallet and keep in an encrypted cloud service, a safe, or a safety deposit box.
  • Confirm that all firearms are properly registered and that the licenses are protected from theft.
  • Move the contents of the glove compartment in your car to a locked box in the trunk.
  • Consider the significance of the content you share on social media.
  • Protect your incoming and outgoing mail, which might have sensitive information in it.
  • Shred important documents and sensitive information with a quality cross-cut shredder at home and in your office.
  • Install antivirus software on all business and family computers.
  • Don’t keep sensitive information on laptops or smartphones.
  • Remember to log out of your computer at home and at work, and use a security measure like a password or pass code on your mobile phone.

These strategies are a great place to get started and don’t cost a lot. They just take some time and effort but could have significant benefits and results.

More advanced strategies for personal protection may include some of the following:

  • Since your personal address is probably already ‘out there’ (which is typical when we don’t vigorously guard our privacy), you may move or purchase a home for cash, and own or rent with a trust, an alias, or company name for the purposes of public record and utilities.
  • Use a P.O. Box, CMRA, or ghost address for all mail deliveries and never give out your home address.
  • Pay for everything with cash.
  • Set up email under an alias and use your alias aggressively—but always legally—to maintain personal privacy.
  • Follow specific rules when traveling. There are numerous privacy blogs where you can learn tips for what information to share when booking travel.
  • Have no information about yourself or your work habits in public view. NEVER post personal information on Facebook.

These strategies again, don’t focus on protecting the privacy of specific assets, but rather your personal privacy. Notice that these techniques are personal in nature. The steps above don’t do anything at all to stop someone from finding the assets you own with some relatively simple searches on the web.

 Property Privacy

In contrast to personal information, when it comes to protecting the privacy of an asset, obviously the ‘type’ of asset is going to dictate certain options. Typically, we are helping clients implement privacy procedures for assets on public record. Assets such as 2nd homes, raw land, rental property, cabins, beach houses, etc.… In contrast, assets that don’t have a ‘public recording’ are much easier to protect from public searches.

Here are some of the techniques we are using to help clients protect the privacy of assets and/or businesses:

  • Always use an entity to hold title to income producing property for asset protection and Never hold title to property in your personal name.
  • For property where asset protection isn’t necessary, utilize a land trust or privacy trust as they may be termed. They are revocable trusts for privacy, not irrevocable trusts that come with a lot of unintended consequences when it comes to flexibility and taxation.
  • Implement a mail forwarding address service, P.O. Box, or CMRA for the company address and never give out your personal address or main operating business address.
  • Pay for a Registered Agent service in every state you have an entity, to serve as your street address (required for every filed entity).
  • Engage a property manager for your assets and share only the necessary contact information needed to maintain the relationship (you’re never sure what they may share with 3rd parties in a crisis).
  • Create a holding company (LLC) in a state such as Wyoming or New Mexico where the Managers and Members of the company aren’t listed on public record. Almost every other State discloses the ‘Manager’ of the LLC on public websites, and some States even disclose the actual owners/members. Be careful you understand what is listed on the State websites before registering your entity.
  • Give Power of Attorney (POA) for someone to serve as the Manager of record for entities or Trustee for any trusts on public record, so your personal name isn’t used. Potentially even use a specific alias (legally) for this purpose.
  • Always file your tax returns honestly and ethically, but vigorously protect what you share about your assets with any institution or professional that doesn’t have a legal duty to keep your information private (i.e. such as a bank, attorney or financial advisor).

What type of privacy strategies are best for you to utilize will generally depend on three factors, 1) your individual ‘risk tolerance’ (i.e. how much privacy do you desire), 2) the assets in question, and 3) your personal lifestyle choices about your public and private life that you are willing to share.

MY TAKE: Remember, the different privacy techniques that you can choose from will need to be carefully tailored to your situation and is generally only a part of an overall plan developed over time. However, many asset protection plans become so complicated that not even the client can explain how assets are held or how those assets were transferred. But such questions can be expected in depositions or a debtor’s examination, and a failure to fully and clearly explain what happened and why will make the court very suspicious and potentially give the court grounds to begin disregarding entities or setting aside transfers. Most judges start asking themselves, “What is really going on here?” If the structure of an entity for example, and transfer of assets are too complicated and not well explained, there is a much higher chance that the judge will find an intent to commit fraud on potential creditors. Indeed, the best asset protection plans are often simple plans, such as creating and funding an irrevocable trust for the benefit of your children.

The bottom line is that some feel, as do I, that asset protection planning should be based on the presumption that the entirety of the planning and its purpose will eventually become known to creditors. Asset protection plans that require secrecy can often times face a plethora of problems, from how not to disclose the structure or activity on tax returns, to how to keep a mad ex-spouse or disgruntled employee from talking to creditors. And don’t even think about going into bankruptcy without making a full disclosure about assets and transfers. The failure to make a full disclosure will usually lead to a denial of discharge, and the failure to make a truthful disclosure can amount to charges of perjury and bankruptcy fraud.

In the end, you should consider “property privacy” only to the extent that it complies with recognized legal and ethical safeguards. After all is said and done, simply stated, if asset protection is implemented correctly, at the end of the day it doesn’t really matter who knows what and how much you have.

PHONE 949-413-6535  WFB LEGAL CONSULTING, Inc.—Lawyer for Business– A BEST ASSET PROTECTION Services Group


1. What is a living trust?
It is a written legal contract that marshals your assets (your home, bank accounts and stocks) and places them into the trust, administered for your benefit during your lifetime, and then transferred to your beneficiaries when you die.
Most people name themselves as the trustee in charge of managing their trust’s assets. This way, even though your assets have been put into the trust, you can remain in control of your assets during your lifetime. You can also name a successor trustee (a person or an institution) who will manage the trust’s assets if you ever become unable or unwilling to do so yourself.
The living trust typically is a revocable living trust (sometimes referred to as a revocable inter vivos trust, revocable trust or a grantor trust). Such a trust may be amended or revoked at any time by the person or persons who created it (commonly known as the trustor(s), grantor(s) or settlor(s)), as long as he, she, or they are still competent.
A living trust contractual agreement:
  • Gives the trustee the legal right to manage and control the assets held in the trust.
  • Instructs the trustee to manage the trust’s assets for your benefit during your lifetime.
  • Names the beneficiaries (persons or charitable organizations) who are to receive the trust’s assets when you die.
  • Gives guidance and certain powers and authority to the trustee to manage and distribute your trust’s assets. The trustee is a fiduciary, which means he or she holds a position of trust and confidence and is subject to strict responsibilities and very high standards. For example, the trustee cannot use your trust’s assets for his or her own personal use or benefit without your explicit permission. Instead, the trustee must hold and use trust assets solely for the benefit of the trust’s beneficiaries.
2.  What can a living trust do for you?
It can help ensure that your assets will be managed according to your wishes — even if you become unable to manage them yourself.
In setting up your living trust, you may serve as its trustee initially or you may choose someone else to do so. You can name a trustee to take over the trust’s management for your benefit if you ever become unable or unwilling to manage it yourself. And at your death, the trustee — similar to the executor of a will — would then gather your assets, pay any debts, claims and taxes, and distribute your assets according to your instructions. Unlike a will, however, this can all be done without court supervision or approval—in other words, the inherent nightmare called “probate.”
3. Should everyone have a living trust?
Whether or not to create a trust is a personal decision. Young married couples without significant assets and without children, who intend to leave their assets to each other when the first one of them dies may not necessarily need a living trust. However, if the couple should die in a common accident, or shortly after each other, without a trust their estate(s) may be subject to probate.
Other persons who do not have significant assets (less than $150,000) and have very simple estate plans also may not necessarily need a living trust. Anyone who believes that court supervision over the administration of his or her estate would be beneficial should not have a living trust. I do not know anyone like that. Simply, the greater the value of your assets ($150,000.00 or more in value, particularly if you own real estate), the greater the benefits of a living trust.
4. How could a living trust be helpful if I become incapacitated?
If you are the trustee of your own living trust and you become incapacitated, your chosen successor trustee would manage the trust’s assets for you. If your assets were not in a living trust, however, someone else would have to manage them. How this would be accomplished might depend on whether your assets were separate or community property, and whether you have a durable financial power of attorney. (Even if you have executed a living trust, it is still recommended that you execute a durable financial power of attorney.)
If you are married or in a registered domestic partnership, assets acquired by either you or your spouse or domestic partner while married or in the partnership, and while a resident of California, are community property. (Note: In domestic partnerships, earned income is not treated as community property for income tax purposes.)
On the other hand, any property that you owned before your marriage or registration of your partnership, or that you received as a gift or inheritance during the marriage or partnership, and the earnings or appreciation associated with such property, would probably be your separate property.
In California, most transactions concerning community property could be managed by your spouse or registered domestic partner if he or she is competent. If you own separate property (or are not married or in a registered domestic partnership) and you become incapacitated, such assets could be managed by an agent or attorney-in-fact under a durable power of attorney. Without planning, however, some or all of your financial matters would be subject to a probate court proceeding, generally called a conservatorship.
During the conservatorship process, a judge could determine that you were unable to manage your own finances or to resist fraud or undue influence. The court would then appoint someone (a conservator) to manage your assets for you. And the conservator would report back to the court on a regular basis. This gets very expensive to say the least. Your conservator might be someone whom you previously nominated, or, if no one had been nominated, it might be your spouse, registered domestic partner or another family member. If none of those persons are available, then it might be the public guardian.
Conservatorship proceedings are designed to help protect you at a time when you are vulnerable or incapable of managing your assets. However, they are also public in nature and can be costly because of the substantial court intervention. In addition, conservatorship proceedings may be less flexible in managing real estate or other interests than a well-managed living trust.
5. How could a living trust be helpful at my death?
The assets held in your living trust can be managed by the trustee and distributed according to your directions without court supervision and involvement. This can save your heirs time and money. Because the trust would not be under the direct management of the probate court, your assets and their value (as well as your beneficiaries’ identities) would not become a public record. Your heirs and beneficiaries would still have to be notified about the living trust and advised, among other things, of their right to obtain a copy of the trust.
If your assets (those in your name alone) are not in a living trust when you die, or do not otherwise pass by “beneficiary designation,” and the total of such assets exceed a specified threshold (currently $150,000), they would be subject to probate. Probate is a court supervised process for transferring assets to the beneficiaries listed in one’s Will.
After your death, a petition would be filed with the court (usually by the person or institution named in your Will as the executor). After notice is given, a hearing would be held. Then your Will would be admitted to probate and an executor would be officially appointed. An inventory of your assets would be filed with the court and notice would be given to your creditors so they could file claims. The process would end once the court approved a final distribution of assets.
Probate generally takes much more time to complete than the distribution of property held in a living trust. In addition, assets tied up in probate may not be as readily accessible to the beneficiaries as those held in a living trust. The cost of a probate is much greater than the cost of managing and distributing comparable assets held in a living trust.
6. Who should be the trustee of my living trust?
Many people serve as trustees of their own living trusts until they become incompetent or die. Others decide they need assistance simply because they are too busy or too inexperienced or do not want to manage their day-to-day financial affairs. Choosing the right trustee to act on your behalf is very important. Your trustee will have considerable authority and responsibility and will not be under direct court supervision. You may choose a spouse, adult child, domestic partner, other relative, family friend, business associate, or professional fiduciary to be your trustee. The professional fiduciary could be a licensed, registered individual, or a bank or trust company licensed by the State of California. You may also name co-trustees.
Discuss your choice with an estate planning lawyer. There are many issues to consider. For example, would the appointment of one of your grown children cause a problem with his or her siblings? What conflicts of interest would be created if you name a spouse, child, business associate, or partner as your trustee? Will the person named as your successor trustee have the time and organizational ability it will take to attend to the required fiduciary responsibilities?
7. How are my assets put into the living trust?
Once your trust has been signed, an important task remains. To avoid court-supervised conservatorship proceedings if you should become incapacitated, or the probate process at your death, your assets must be transferred to the trustee of your living trust. This is known as funding the trust. Deeds to your real estate must be prepared and recorded. Bank accounts and stock and bond accounts or certificates must be transferred as well. These tasks are not necessarily expensive, but they are important and do require some paperwork.
A living trust can hold both separate and community property. This makes it convenient for spouses and registered domestic partners to plan for the management and ultimate distribution of their assets in one document. (Note: Although registered domestic partners have many of the same rights as spouses, be aware that federal tax law does not provide the same tax benefits for domestic partners as it does for spouses.)
If you own real estate in another state, you might (depending on that state’s law) transfer that asset to your trust as well to avoid probate in that other state. A lawyer from that state can help you prepare the deed and complete the transfer. If the real estate is located in California, a California lawyer should prepare the deed and advise you on transferring such property.
A lawyer can help you address the transfer of other assets as well. In addition, you may consider changing the beneficiary designations on life insurance policies to the trust. As for the beneficiary designations on a qualified plan (such as a 401(k) or an IRA), you should seek a qualified professional’s advice, as distributions after death are subject to different income tax treatment depending on the designation.
8. Are there any disadvantages to having a living trust?
Not in my opinion, but here are the inflated arguments proponents of such a notion float:
1. Because living trusts are not under direct court supervision, a trustee who does not act in your best interests may, in some cases, be able to take advantage of you. (In a probate, direct court supervision of an executor reduces this risk.) That’s why it’s called a “Trust.” Presumably you will pick a trustee with integrity and therefore avoid the time and cost of the probate nightmare.
2. The cost of preparing a living trust could, in some cases, be higher than the cost of preparing a will. However, it depends on the particular estate plan. The difference in cost may not be significant if the estate plan is complex. Pay me now (invest wisely in a trust) or, pay me later when your Estate is subjected to the expensive probate process.
3. A living trust can create additional paperwork in some cases. For example, lenders may not be willing to lend to a trust and may require that real property be taken out of the trust (by a deed) before they will agree to a loan on that real property. Big deal—how much easier could the process of deed transfer be!
9. If I have a living trust, do I still need a Will?
Yes. Your Will affects any assets that are titled in your name at your death and are not in your living trust or some other form of ownership with a right of survivorship. If you have a living trust, your Will would typically contain a pour over provision. Such a provision simply states that all such assets should be transferred to the trustee of your living trust after your death. (In many cases, this means that your beneficiaries can avoid going through probate for these assets.) Moreover, your Will can nominate guardians for your minor children as well. Any assets held in a trust for your children would still be managed by the trustee.
10. Will a living trust help reduce the estate taxes?
A living trust may contain provisions that can postpone, reduce or even eliminate estate taxes in order to accomplish tax planning for you and for beneficiaries of your estate.
11. Will I have to file an income tax return for my living trust?
Not during your lifetime. The taxpayer identification number for accounts held in the trust is your Social Security number, and all income and deductions related to the trust’s assets are reportable on your individual income tax returns.
12. What other estate planning documents should I have?
durable power of attorney for property management should you ever become incapacitated. It deals with assets that were not transferred to your living trust before you became incapacitated and any assets that you receive afterward. It also empowers your agent to act on your behalf with respect to other financial matters, such as signing tax returns, or dealing with retirement benefits. (Such benefits are not transferred to a trust during one’s lifetime.) With this power of attorney, you appoint another individual (the attorney-in-fact) to make financial decisions on your behalf. (NOTE: This power of attorney expires when you die. It cannot provide instructions for the distribution of your assets after your death.)
You should also set up an advance health are directive/durable power of attorney for health care. This allows an attorney-in-fact to make health care decisions for you when you can no longer make them for yourself. In your advance health care directive, you may state your wishes regarding life-sustaining treatment, organ donation and funeral arrangements as well. A health care directive also is accompanied by a release that allows an authorized agent to access your medical information, which is important in light of strengthened federal privacy laws.
13. What other kinds of trusts are there?
Testamentary trusts and irrevocable trusts are two other types of trusts:
  • Testamentary trusts are trusts that are based on instructions in your Will; such trusts are not established until after the probate process. They do not address the management of your assets during your lifetime. They can, however, provide for young children and others who would need someone to manage their assets after your death.
  • Irrevocable trusts are trusts that generally cannot be amended or revoked once they have been created. These are also typically tax-sensitive documents. Some examples include irrevocable life insurance trusts, irrevocable trusts for children, and charitable trusts. A qualified estate planning lawyer must assist you with such documents.
14. Who should draft a living trust for me?
A qualified estate planning lawyer should help you prepare your living trust, as well as a Will and other estate planning documents. A living trust is a legal document—a contract, which should be prepared by a qualified lawyer. In addition, the State Bar urges you to seek advice only from professionals who are qualified to give estate planning advice. Many professionals must be licensed by the State of California.
Always ask a professional about his or her qualifications, and ask yourself whether the adviser may have an underlying financial incentive to sell you a particular investment, such as an annuity or life insurance policy. Such a financial incentive could bias that professional’s advice. A living trust is often held out as an enticement or “loss leader” by offices that are not staffed with competent and qualified estate planning lawyers. Unfortunately, some sellers of dubious financial products gain the confidence and private financial information of their victims by posing as providers of trust or estate planning services.
15. Should I be aware of “promoters” of financial and estate planning services?
Yes. There are many who call themselves “trust specialists,” “certified planners” or other titles that suggest the person has received advanced training in estate planning. California has experienced numerous promotions by unqualified individuals and entities which only have one real goal—to gain access to your finances in order to sell insurance-based products such as annuities and other commission-based products. To better protect yourself:
*Consult with a lawyer or other financial advisor who is knowledgeable in estate planning, and who is not trying to sell a product which may be unnecessary — before considering a living trust or any other estate or financial planning document or “specialist” service offered by non-lawyers.
*Always ask for time to consider and reflect on your decision. Do not allow yourself to be pressured into purchasing an estate or financial planning product.
*Know your cancellation rights. California law requires that sellers who come to your home to sell goods and services (with some exceptions) that cost more than $25 must give you two copies of a notice of cancellation form to cancel your agreement. You, the buyer, generally would be able to cancel this transaction up until midnight three business days later. Depending on the circumstances, you may have longer to cancel life insurance and annuity transactions. For example, if you are 65 or older, you have 30 days to cancel.
*Be wary of organizations or offices that are staffed by non-lawyer personnel and that promote one-size-fits-all living trusts or living trust kits. An estate plan created by someone who is not a qualified lawyer can have enormous and costly consequences for your estate. Do not allow yourself to be pressured into a quick purchase.
*Be wary of home solicitors who insist on obtaining confidential and detailed information about your assets and finances. Find out if any complaints have been filed against the company by calling local and state consumer protection offices or the Better Business Bureau.
*Insist on the person’s identification and a description of his or her qualifications, education, training and expertise in estate planning. Also, keep in mind that legal document assistants are not permitted to give legal advice, and paralegals must work under the direct supervision of a lawyer. (As a precaution, ask to speak directly to the supervising attorney if you are not given an opportunity to do so.)
*Always ask for a copy of any document you sign at the time it is signed.
*Report high-pressure tactics, fraud or misrepresentations to the police or district attorney immediately.
16. How much does a living trust cost?
It really and truly does depend on your individual circumstances and the complexity of documentation and planning required to achieve your goals and objectives. The costs may vary from lawyer to lawyer. Generally, the costs will include the lawyer’s charges for discussing your estate plan with you and for preparing a living trust agreement, your Will, powers of attorney and other necessary legal documents; supervision over their execution; and services or instructions for funding your living trust.
It is crucial to keep in mind that a living trust is a very important part of your estate plan. Avoid being lured by promotions for extremely low-cost living trusts without checking out those who are making the offer. Remember, you generally get what you pay for.
If you retain a lawyer, you should understand what services are to be provided and how much they will cost. California law generally requires that a lawyer explain, in writing, the nature of the services to be rendered, the cost of those services and the payment terms. Some lawyers charge a flat fee for estate planning services. Others charge on an hourly basis or use a combination of both types of fees.
MY TAKE: While it is critical to understand that a living trust allows for privacy assurance and the freedom from expensive and time-consuming Probate proceedings, it does not provide any added asset protection, unless the trust is irrevocable. You can still place asset protection entities in a revocable trust and that will allow the entity’s interest to pass privately, free from Probate to whomever you choose. Securing an irrevocable trust however, provides a second layer of asset protection for which you should consult with your attorney–all of this should more than provide the incentive to secure the living trust that is right for you and/or your family.





PERSONAL LIABILITY PROTECTION: The primary reasons small business owners choose to form corporations and LLC’s is to protect their personal assets, such as their home, car or family savings. In the event of a lawsuit or if your business should fail, your personal assets cannot be touched.






The primary reasons small business owners choose to form corporations and LLC’s is to protect their personal assets, such as their home, car or family savings. In the event of a lawsuit or if your business should fail, your personal assets cannot be touched, assuming you have properly formed and maintained your corporation or LLC.


This limited liability feature is not available in the sole proprietorship or partnership, where the participants are personally liable for all business debts. As liability insurance becomes more expensive for less coverage, asset protection is becoming more of a critical factor for entity selection. Incorporating provides another layer of complexity, giving you protection for your home and other personal assets.


Forbes Magazine published an article stating that in the last decade, “the average jury award in court cases as a whole has tripled to 1.2 million, in malpractice it is tripled to 3.5 million and in product liability cases it has quadrupled 26.8 million according to just-released data from Jury Verdict Research.” According to business statistics posted at, only 22% of all small businesses in America actually own corporations or LLC’s. Over 72% of business owners are personally exposed to liability risk.





Corporations and LLC’s can take advantage of tax savings options that are simply not available to sole proprietorships or partnerships. The following are some examples:

  • corporations can provide major self-employment tax savings. As a Corporation, only the earnings actually paid out to you as salary are subject to self-employment taxes; money left in the business is not subject to self-employment tax. All income passes through, but it’s tax status depends on whether it is classified as salary or ordinary income. Here’s an example. Say in 2005 you have net income of $90,000 and pay yourself $60,000 in salary, leaving $30,000 in the business account. As a sole proprietor, you would pay self-employment tax on the full $90,000 (90,000×15.3% equals $13,770). However, as an S corporation, you would only owe self-employment tax on the $60,000 in salary (60,000×15.3% equals $9180), resulting in a savings of $4590.
  • Corporations can offer deductible fringe benefits. One of the benefits of a Corporation is having to provide lucrative employee benefits that are deductible by the corporation and tax-free to the employees. Medical, life insurance, education, child care, and retirement plans are just a few of the types of benefits available.
  • Corporations and LLC’s offer flexibility in choosing federal taxation. Corporations and LLC’s have the leeway as to their method of taxation. This option is not available to sole proprietors or partnerships.
  • Corporations and multi-member LLC’s have a lower chance of IRS audit. IRS form 1040, schedule C. (profit or loss from a business), which is used by sole proprietors to report the businesses’ income and expenses, is the target of many IRS audits, however. The audit rates of similar businesses that have incorporated or formed multi-member LLC’s are much lower.




Forming a Corporation or LLC is an excellent way to keep your identity, as well as your business affairs, private and confidential. For example, a Corporation or LLC may be established in such a manner so that the shareholders/owners remain anonymous. If you want to open an independent small business of any kind and do not want your involvement to be public knowledge, your best choice may be to form a Corporation or LLC.


Another manner in which a Corporation or LLC could provide privacy deals with property ownership. When it comes to owning real estate the number one rule is, don’t own anything in your own name. Solid asset protection can include maintaining a lower profile, which is impossible if your name is splattered all over the public record. For example, one can simply go to the website of the local County recorder, enter the names of several high-profile individuals and print out a list of 20 or so properties owned by these individuals. That makes them sitting ducks for a lawsuit. By placing property in the name of an LLC, your name would not be associated with the property since the County recorder’s office generally lists only the name of the entity as the owner, not the LLC members.


However, remember that if your asset protection plan is constructed properly over time, privacy becomes less important because the protection is fed by the proper maintenance of the entity itself.




There is a greater source of capital available to corporations and LLC’s than is available to partnerships or sole proprietorships. If you plan on raising money to expand your business, a sole proprietorship or partnership may be burdensome. The sale of securities (ownership interests) in a business is a fairly complex legal matter, best facilitated by entities such as corporations and LLC’s. Corporations and LLC’s allow foreign investors to protect their personal assets from liabilities incurred by the business in which they invest.


The addition of the “INC.” or “LLC” designator to your business name imparts credibility, reliability, size and permanence in the minds of every person with whom you do business— customers, vendors, lenders, investors, and more. Status as a Corporation or LLC is an intelligent move, both in terms of marketing and financial status.




Corporations and LLC’s are the most enduring forms of business structure. If a Corporation or LLC owner dies, their portion of the business can be transferred quickly without interruption of the corporation’s operations. If a sole proprietor or partner of a partnership dies, the business may automatically end or it may become involved in various legal entanglements. Corporations and LLC’s can have unlimited life, extending beyond the illness or death of the owners. The ability to survive the death or departure of any individual person gives the corporation stability and makes it a more attractive candidate for long-term financing. Survivability also permits the corporation to raise funds by selling shares to new investors, because new owners can be added without disturbing the corporate form.




If a business begins with more than one owner or expects to expand beyond one owner, formation of an entity may be necessary. The formal structure of a Corporation or LLC provides not only a means for ownership interests to be divided and documented, but a set of guidelines for resolving conflicts and designating duties. Simply, the bylaws or “operating agreements” of these entities serve as contracts between the owners as to how the fundamental administrative matters of the business will be run.





* Sole Proprietorship:


A Sole Proprietorship is a business owned and operated by one person for profit. The owner is the sole proprietor and there is no required formation for the business. The business terminates at the will or the death of the owner. Profits are taxed once. Profits and losses are reported on the owners’ individual state and federal income tax returns. The owner may use losses to deduct other income on individual tax returns subject to active-passive investment loss rules that apply to all businesses. There is no double taxation.


The sole proprietor contributes whatever capital needed to the business. Business loans may also be utilized. Generally, there is no application of state or federal securities laws. A sole proprietor may set up an IRA for investment or Keogh retirement plan and may deduct all or a portion of medical insurance premiums. The owner has full control and management of the business operations and his personal assets are always at risk. This is the easiest form of business to dissolve—stop doing business. The owner must personally pay debts, taxes and claims against the business.


* General Partnership:


A General Partnership is comprised of two or more people who jointly own or operate a business for profit. The partners own the business and the formation of a general partnership requires no formal filings and creation can be expressed or implied, either oral or written. Nevertheless, a written agreement concerning the terms and conditions of the business venture should preferably be drafted in writing. The partnership must acquire a taxpayer identification number and if necessary register a fictitious business name. The general partnership terminates by agreement or by the death or withdrawal of a partner unless there is a specific partnership agreement to the contrary. Profits are taxed once and each partner reports his or her share of the profit and loss on his or her individual state and federal income tax returns. The partnership merely files an information return. The taxation of income is on a pass-through basis and partners may use losses to deduct other income under individual tax returns. There is no double taxation.


Partners typically contribute money or services to the partnership in order to raise capital and receive an interest in profits and losses. Business loans may be utilized. Generally, state and federal securities laws do not apply. General partners and other employees may set up an IRA or Keogh plan and may deduct all or a portion of medical insurance premiums.


Typically, each partner has an equal management capability unless otherwise agreed and each partner’s personal assets are at risk in terms of liability. The dissolution of a general partnership can be through the payment of debts, taxes and claims against the business in general, or through the settlement of partnership accounts.


* Limited Partnership:


A Limited Partnership is two or more people who jointly own a business for profit consisting of at least one general partner who manages the partnership, while subject to unlimited personal liability. There is also at least one limited partner who is a passive investor with no management rights and limited liability. The partners own the business.


Unlike general partnerships, limited partnerships may only be created where there is a written agreement among the partners and a certificate of limited partnership is filed with the Secretary of State. The limited partnership is terminated by agreement or upon the death or withdrawal of a partner, unless there is a partnership agreement to the contrary. Profits are taxed once and each partner reports his or her share of the profit and loss on his or her individual state and federal income tax returns. The partnership merely files an information return. Accordingly, there is pass-through income loss and partners may use losses to deduct other income on individual tax returns, but remain at risk for any loss or debt. There is no double taxation.


Partners typically contribute money or services to the limited partnership and receive an interest in the profits and losses. Business loans may also be utilized. Generally, state and federal securities laws do not apply and general partners and other employees may set up an IRA or Keogh plan, and also may deduct all or a portion of medical insurance premiums.
General Partners have all management rights while limited partners have no management rights. Limited partners lose liability protection if they partake in management activities. General partners’ personal assets are at risk while a limited partner is liable only to the extent of his or her investment. The dissolution of the limited partnership is through the payment of taxes or through debts or claims against the business. The settlement of partnership accounts may also dissolve the limited partnership, or it may be dissolved by filing a cancellation of certificate with the Secretary of State.


* C- Corporations:


The corporation is a legal entity separate and distinct from its owners. It is considered a limited liability entity, as none of the owners are typically liable for the corporation’s debts by virtue of being a shareholder. A C-Corporation is a Corporation that has not made an election to be an S corporation. The business is owned by shareholders. The corporation is formed by filing articles of incorporation with the Secretary of State, appointing directors, appointing officers, preparing and adopting bylaws, issuing stock to the shareholders, and obtaining a taxpayer identification number. Within 90 days after filing the articles, the corporation must file a statement of information with the Secretary of State. After incorporation, corporate formalities must be followed such as maintaining annual minutes. The corporation continues until formal dissolution and is considered the most stable form of business. It is not affected by the death or disaffiliation of a shareholder.


Profits are subject to double taxation once at the corporate level, and again at the individual shareholder level. There is accordingly no pass-through income loss. Corporations may deduct business losses, but shareholders may not deduct losses. The corporation may sell shares of stock and may offer various classes of stock shares. The corporation may apply for business loans and go public if a substantial infusion of cash is needed. The issuance or transfer of stock is subject to state and federal securities laws. There are full tax-deductible fringe benefits for employee shareholders and the corporation may also deduct medical insurance premiums and reimburse employee medical expenses.


Shareholders elect directors who manage the corporation. The directors must appoint officers and a rigid structure is required. In a Corporation, liability is limited to the corporate assets unless the court pierces the corporate veil to impose personal liability on shareholders; where there is personal negligence or fault; or where there is a personal guarantee of the business debts involved. The dissolution of the corporation is obtained via shareholder approval and by filing a statement of intent to dissolve with the Secretary of State. It can also be dissolved through the payment of debts, taxes and claims against the business. The corporate assets are then distributed to the shareholders. A gain or distribution of assets is then subject to double taxation.


* S-Corporation:


This corporation functions in the exact same manner as a regular C-corporation, except that it is taxed differently. It is considered a pass-through entity. The shareholders own the corporation and the formation requires that certain qualifying criteria are met and that there is a timely filing within 2 1/2 months of the first taxable year of an “S election” with the IRS. Articles of incorporation must be filed with the Secretary of State selecting directors, officers and preparing bylaws and obtaining a tax identification number.


The corporation continues until formal dissolution and is considered to be the most stable form of business. It is not affected by death or disaffiliation of a shareholder. Profits are taxed once. Each shareholder reports his or her share of the profit and loss on individual income tax returns. These corporations do not pay taxes in general. It is a pass-through taxable entity and shareholders may deduct their share of corporate losses on their individual tax returns. There is no double taxation.


Raising capital is generally the same as a C-Corp. and you must limit the number of shareholders to 75. You cannot offer different classes of stock to investors except for shares that have different voting rights. The issuance or transfer of stock is subject to state and federal securities laws. Employee shareholders owning 2% or more of stock are restricted from corporate fringe benefits under partnership rules. Otherwise the same fringe benefit allowances are in place as in any C- Corporation.


Shareholders must elect directors who manage the corporation and directors must appoint officers. Liability is limited to the corporate assets unless the court pierces the corporate veil to impose personal liability on the shareholders; where personal negligence or fault occurs; or where there is a personal guarantee of business debts. Dissolution occurs through shareholder approval and by filing a statement of intent to dissolve with the Secretary of State. Dissolution can also take place through the payment of debts, taxes and other claims against the business. Corporate assets are then distributed to the shareholders. A gain on the distribution of those assets is taxed once.


* Limited Liability Company:


This is an unincorporated business entity that combines the limited liability protection offered by a Corporation and pass-through tax treatment associated with partnerships and S-corporations. The members of the company own the business and it is established by filing articles of organization with the Secretary of State. An operating agreement must be adopted and filed with the Secretary of State. A separate tax identification number must be obtained and within 90 days after filing the articles, the LLC must file a statement of information with the Secretary of State.


The limited liability company may terminate by agreement or by the withdrawal of a member, depending upon the terms of the operating agreement. Each member reports his or her share of the profit and loss on his or her individual income tax returns. However, an LLC has the option of being taxed like a Corporation. Otherwise it is a pass-through income loss entity and shareholders may deduct their share of corporate losses on individual tax returns. There is no double taxation.


The members typically raise capital by contributing money or services to the LLC and receive an interest in profits and losses. Business loans may also be utilized. Generally, state and federal securities laws do not apply to an LLC if all members are active in the business. An LLC can get benefits associated with a Corporation through tax-deductible fringe benefits in a manner similar to a Corporation.


The manager, or member who is also the manager, has flexibility in permitting parties to customize the management structure. Generally, liability is limited to the company assets unless the court pierces the corporate veil to impose personal liability; where there is personal negligence or fault; or where there is a personal guarantee of the business debts. Dissolution of the LLC can occur through the payment of debts, taxes and claims against the business. The distribution of all remaining assets to members then takes place and articles of dissolution must then be filed with the Secretary of State.





Millions of companies regularly conduct business in the State of California. If you have a business nexus in California, then you are part of its tax system. The following questions can be used to determine whether or not you are or will be a part of the California tax system, and whether a California corporation or LLC is right for you:

  • Do you live in California?
  • Do you have a business location in California?
  • Do you or your employees work in California?
  • Do you own real estate in California?


If you answered “yes” to any of these questions, then you are or will be part of the California tax system. If you want California-based limited liability protection without paying extra out of state fees, then forming a California Corporation or LLC may be the right choice for you.



MY TAKE: Remember that asset protection begins with YOU and not some lawsuit or extraneous business threat that is foreseeable. Plan your strategy early and implement asset protection over time, beginning with a business entity creation that suits your business needs in particular. Entity Protection=Personal Asset Protection, and Liability Insurance=Business Asset Protection. AND, always consult with your business lawyer first, not when problems are already imminent.




Most entrepreneurs are driven, curious and never content with the status quo. These traits are probably why so many of them dabble in multiple ventures. A restaurateur may open a wine shop; a personal trainer may launch a line of fitness apparel. There’s always a new opportunity out there somewhere, and diversifying your income can be a sound strategy.

If you are running multiple businesses or thinking about starting a second one, you may be wondering what the best approach is for legally structuring each business: should you have separate corporations/LLCs for each one or a big umbrella company to hold them all? Are there any limits to the number of companies one person can form?

Generally speaking, there are three popular ways to structure multiple businesses. There are advantages and disadvantages for each approach, and the best structure will depend on your personal situation. Here’s some general advice to consider, but always discuss your specific needs and details with your CPA and your lawyer.

  1. Create Individual Corporations/LLCs:

First, there’s no limit to how many corporations or LLCs one person can form. Many entrepreneurs opt to file a new LLC or corporation for each of their start-up ventures. For example, you can form an LLC for your landscaping business and another LLC for the golf course you purchased.

The main advantage of this approach is that it isolates the risk to each individual business. Should a client sue your landscaping business, your golf course business will be protected. Likewise, if your golf course has a few down years, your landscaping business won’t have to share in any of the liabilities the golf course incurs.

The main downside with this approach is that it involves additional maintenance fees and paperwork. For example, you’ll need to pay to incorporate (form) an LLC for each business, as well as pay any annual maintenance fees and file appropriate forms with the state. You’ll also need to get separate business licenses and EINs for each business, and file tax forms for each corporation. For some entrepreneurs, this separate paperwork can be bothersome. But for others, the added fees are well worth it in order to protect each individual business from the others.

In particular, real estate investors often form an LLC for each property in order to shield each investment. If “Property A” is sued, you won’t be risking any of the assets belonging to “Property B” or “Property C.”

  1. Put DBAs Under One Corporation/LLC:

Another common option is to file one LLC or corporation, and then set up multiple DBAs (Doing Business As) for each of the other ventures. Keeping with the previous example, you may have an LLC for “Ken’s Landscaping Services.” Then, if you start a golfing business, the LLC can file a DBA for “Ken’s Golf Course.” From a marketing perspective, you can run each business as if they are separate companies — use each individual business name, accept checks written to each business name, etc.

With this approach, each business venture can use the right branding and company name, while you simplify some of the annual maintenance. You just need to pay your annual LLC/corporation maintenance fees for the LLC/corporation (and not each individual DBA). If you need and/or use an EIN, you’ll just need one EIN.  And when it’s time to file your taxes, you can take the income earned from each DBA and report them in a single tax filing under the main LLC or corporation.

Each business venture (DBA) enjoys the legal protection of the main LLC/Corporation. For example, if something should happen to one of your DBAs, your personal assets will be shielded (assuming you filed the DBA under your LLC/Corporation). But, each DBA isn’t protected from the other DBAs. So, if one DBA is sued, all the other DBAs under the main LLC/corporation are liable for any monetary damages that result.

  1. Create A Business Under A Holding Company.

In the third approach, you can create individual corporations/LLCs for each of your businesses and put them under one main holding corporation/LLC.

This scenario is common in a few situations. It is used for companies that are looking to be acquired or potentially spin off one of their businesses, as well as for established companies that are looking to start a new business so the established company will fund the new venture. As expected, this scenario can have complex tax and legal implications. Therefore, it’s best to consult with a tax adviser and attorney on the best way to structure a holding company and its subsidiaries.

The bottom line is there is no legal limit to how many business ventures you can start and run. Just make sure that you properly account for your liability risks when structuring these ventures and always have a lawyer and CPA on your team.

WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business


Language discrimination occurs when a person is treated differently because of that person’s native language or another characteristic of that person’s speech. For example, an employee may be subjected to language discrimination if the workplace has a “speak-English-only” policy but the employee’s primary language is something other than English. The employee may also be the victim of language discrimination if he or she is treated worse than other employees because he or she speaks English with an accent, or if the employee is told he or she does not qualify for a position because of a lack of English proficiency. Outside of employment, language discrimination may also occur if a person is denied access to businesses or government services because he or she does not speak English.

Many courts and governmental agencies consider language discrimination to be a form of discrimination on the basis of race or national origin, which are prohibited by well-established laws such as Titles VI and VII of the Civil Rights Act of 1964 (a federal law), and the California Fair Employment and Housing Act (a state law). These laws make it illegal for employers to discriminate against an employee because of his or her national origin. (“National origin” refers to the country that a person, or that person’s ancestors, came from.) But because the primary language a person speaks is closely related to the place that person came from, or the place that person’s family came from, being discriminated against for using that language, or because of characteristics having to do with that language, is essentially the same as that person being discriminated against because of his or her national origin.

California law generally prohibits employers from having “speak-English-only” policies in the workplace unless: 1) the employer can show some “business necessity” for the policy – that is, that there is an overriding and clearly job-related need for the policy (such as certain customer service positions), and 2) the employer notifies its employees about the policy, and when employees are required to abide by the policy. Even if the employer shows a “business necessity” for the policy, it must also show that there is no alternative practice to the policy that would achieve the business goals just as effectively. Similarly, in some states outside California where different laws may apply), the U.S. Equal Employment Opportunity Commission (“EEOC”) presumes that the mere existence of a “speak English-only” workplace policy is evidence of discrimination under federal law. Courts in other parts of the United States, therefore, also may require employers to show a business necessity for such policies.

Discrimination because of accent also violates an employee’s civil rights. In general, the standard applied in these cases is that the employee’s accent must “materially interfere with job performance” in order to justify any adverse action. In other words, an employee’s accent must have a significant negative effect upon the employee’s ability to do the job. Moreover, the employer must fairly and objectively assess the accent. Often there are subtle prejudices against some accents more than others.

An employer may not deny a person an employment opportunity because that person is not proficient or fluent in English, unless the job that person performs: 1) actually requires some English language skills (such as certain customer services positions), and 2) the person does not possess the particular type and level of English language skill required. For example, if a person is told that he or she does not qualify for a position because he or she is unable to speak or read English well enough, but the position is one that requires little or no communication, the person may have a claim of language discrimination.

Language discrimination exists outside the workplace as well. For instance, if a person is denied services by a business because he or she lacks English skills, this may be a violation of civil rights law. Such laws may also be violated if a person is unable to communicate with a government agency because the agency does not offer materials in that person’s language or have personnel who speak that person’s language. What should you do if you think you may have been subjected to language discrimination? If you think you may have been discriminated against by your employer because of your language, and the discrimination took place in California (and your employer has at least 5 employees), you may file a charge of national origin or language-based discrimination with the California Department of Fair Employment and Housing (“DFEH”) within one year of the discriminatory act.

If your employer has more than 15 employees (regardless of whether the discrimination took place in California or elsewhere), you may instead file a charge of national origin discrimination with the U.S. Equal Employment Opportunity Commission (“EEOC”). In California, you must do this within 300 days of the discriminatory act, and in other states, you may have only 180 days to do so. Filing a charge of national origin discrimination is the only way you can protect your right to sue your employer in court under California and federal law. (If your employer has fewer than 5 employees, or if you are employed by the federal government, you should consult an attorney).

WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business


From criminal history to bad reviews from former bosses, a pre-employment background screening can cost you a job opportunity for a number of different reasons. The vast majority of employers these days do extensive background checks on their job applicants before making an official hiring decision. Even if you have a job offer on the table, it might be conditional on you passing a background check first. Suffice it to say that these screenings are a very important step in the job interview process, and that they can impact your chances of landing or not landing a dream job. If you’ve never submitted to a pre-employment background check before, it can be unclear exactly what employers are looking for (or finding) in your past. Below, are some of the most common explanations for why your background check may have tarnished your job chances.

  1. You have an extensive criminal history

One of the first things that employers are looking for on their applicant background checks is criminal history. The simple existence of a criminal conviction on your record doesn’t necessarily mean you will be disqualified from employment consideration. Most employers won’t look at misdemeanor offenses or older convictions as deal breakers, and people who aren’t repeat offenders are regularly given the benefit of the doubt that they are trying to rebuild their lives after a criminal offense. Violent criminals, sex offenders, notorious repeat offenders, or embezzlers, are just a few of the groups that will repeatedly lose job offers due to criminal history background checks.

Ultimately, though, know that different jobs have different standards as far as acceptable criminal history is concerned. For instance, you’ll be much more likely to get hired for a warehouse job with a criminal record than you will be to win a teaching position at a public elementary school, or be accepted as a bank teller at a financial institution.

  1. You were not truthful on your resume

Background checks are great for uncovering an applicant’s criminal history, but they might be even better for unmasking bits of dishonesty on the resume or job application. Maybe you claimed a college degree that you don’t really have, or perhaps you provided incorrect information about a previous job title or hire date. Between background checks and employment or educational verification checks, an employer has a good chance of finding out if you were less than truthful on your resume. And if you so, even if the fib was minor and seemingly inconsequential to you, it can still cost you a job opportunity.

  1. Your credit history is poor

Not all employers will look into your credit history. For jobs that involve the handling of money or finances, though, you might find yourself approving a credit history check. Quite simply, your prospective employer wants to know how you have handled your own finances in the past. And in such situations, substantial amounts of debt or evident money issues can mark you as someone who is not responsible enough for the job at hand.

  1. Your driving record revealed issues

As with credit history, driving records are not something that every employer is going to look at. If you are going to be operating a vehicle as part of your job, then a driving history check should and will be a part of the applicant screening process. A speeding ticket or two shouldn’t hurt you, but if you’ve been charged with reckless driving or with operating a vehicle while intoxicated, then you’ll probably be out of the applicant pool as quickly as the hiring manager can shred your application.

  1. A previous employer gave you a bad review

As part of a background check, hiring managers won’t just call the references you’ve listed to speak on your behalf, but they’ll also probably try to speak with your former bosses. There’s an obvious reason for this: your prospective employer wants to hear how you operate on a day-to-day basis. Are you friendly? Are you a hard worker? Is your work of a high quality? These are a few of the types of questions that a hiring manager might wish to ask your former bosses simply to get an idea of what kind of experience they would have with you as an employee.

Due to libel claims and other similar issues, some former employers won’t be willing to speak about you beyond confirming job titles, hiring dates, and salaries. However, if you left a job on bad terms or frequently had clashes with your boss, there’s a chance that information could come out during the pre-employment screening process that might just alter your hiring chances.

  1. Your background check pulled up incorrect information

Sometimes, you can do everything right and still have your employment chances derailed by a background check. Ultimately, not every background check is going to be 100% accurate. For instance, a criminal conviction might have been filed on your record from a felon who shares your name. Or perhaps you’re a victim of identity theft, and that fact has left your credit in ruins. For these reasons, it’s a good idea to do a test background check on yourself before heading into the interview. If you find any incorrect information, you can contact the appropriate courts or agencies to get everything fixed and put in proper order.

Also remember that if you do lose a job opportunity because of a background check, you have a right to know why. The employer needs to provide you with a written explanation for the decision, and you are legally permitted to request a free copy of the background check report that cost you the job. If the report was inaccurate, you can dispute the findings and get your name cleared so that you have a better shot at getting a job next time around.


Generally, unless you fall within a specific exemption, your employer is legally required to pay you time and a half for all overtime worked. However, as reported by AOL Jobs and USA Today, the number of lawsuits filed by employees alleging that they were owed overtime pay is skyrocketing. As an employment attorney, I’ve seen lots of maneuvers, but below are the 10 most common problems that I’ve seen employers use to avoid overtime pay:

  1. Advising the employee that because he/she earns a salary, he/she isn’t entitled to overtime.

Many employers and most employees think that, once you’re paid on a salary basis, you lose your right to overtime pay. That isn’t the case. Unless you make at least $455 per week (there’s a bill pending in Congress to try to raise this amount), you don’t fall within any salary exemption. Plus, you still must fit within one of the exemptions to the Fair Labor Standards Act as well, or you must be paid for all your time.

  1. Improperly classify the employee as an ‘independent contractor.’

Some people classified as independent contractors are really employees. If your company controls the time, place and manner of your work; if you can’t work for other companies, can’t hire your own assistants, answer to company work rules and the company sets your hours, the law would probably consider you an employee. If you signed an independent contractor agreement and think you’re misclassified, you are losing more than your overtime. You are also paying your company’s share of employment taxes.

  1. Require employees to log in hours ‘off the clock.’

I’ve heard of employers that force employees to clock out for lunch, even if they work through lunch. Or they demand employees clock out and stay late. Maybe there’s no time clock at all, and you’re asked to sign a time-sheet every week saying you worked 8 hours a day. This is not always the best evidence of your classification as exempt vs. non-exempt. if you litigate and you signed a paper or clocked in and out, it could be claimed that you are lying about your overtime.

  1. Combine non-exempt duties.

Even if you have an exempt job, some employers try to save money by cutting non-exempt jobs and giving those duties to exempt employees. Double the work, same pay. For example, if your managerial job also requires you to be the receptionist, you are probably entitled to overtime pay for your non-exempt duties.

  1. Expect employees to be on-call.

If you have to jump anytime there’s an emergency and if you can’t use your “free” time freely, you may be entitled to be paid for your time on-call. If the company says you have to stay within a certain mileage from the office, that you must return calls within a short time (such that you can’t even go out and cut the grass or go to the movies should you so choose), or if the calls come in every 10 minutes so that doing anything else is impossible, you may be entitled to be paid overtime for your on-call time.

  1. Give off-hours duties.

This is how it works: Employers require employees to arrive at the workplace several minutes before clocking in to put on a uniform or do other prep work, have before-hours or after-hours meetings, mandatory training, and other duties that are off the clock. If you’re in this situation, you may be entitled to be paid for any time you are mandated to be present at work. Truly voluntary training, such as going to an outside company to get a certification you want to increase your chances of promotion, even if the company pays for it, is probably not work time such that you’re entitled to be paid. If you’re told that failure to attend the training will result in some adverse consequences, it isn’t voluntary.

  1. Expect the employee to do work from home.

If your job requires you to answer emails, respond to texts, or otherwise work from home after you leave, you are probably entitled to be paid for those hours. No, you can’t charge for time you took a shower, ate dinner, or watched TV, but you can charge for the time you actually spent working. A recent survey by Good Technology found that most Americans do an extra 30 hours of work per month from home.

  1. Tell employees to wait before clocking in.

If your employer requires you to come in, only to make you wait until they need you before you’re allowed to clock in, you’re probably entitled to be paid for your waiting time. If you aren’t told you can leave the premises, you can’t do anything else like go shopping or eat lunch, and you must be available when the work comes in, you are working. If you work in the copy room and play online games while waiting for the next job to come in, you’re probably entitled to be paid for that time.

  1. Require employees to volunteer.

Many companies are involved in civic and charitable work. They may ask for volunteers to help with, say building houses for Habitat for Humanity. If you can volunteer or not, without consequences, then you’re working for free. But if your employer requires you to participate, supervises your work, and if you will suffer consequences for not “volunteering,” you are likely required to be paid.

  1. Pretend not to know employees are toiling through lunch.

Your employer may look the other way if you work through lunch or after you clock out. That doesn’t excuse the employer from paying overtime. They may claim they didn’t know, but if the company suffers or permits you to work extra hours, you must be paid. That’s why many companies have written policies that require discipline, even termination, for failing to report all hours worked.



There are limits to how much liability protection an entity can serve to provide. Even though the presumption is that a legal entity such as an LLC or corporation is separate from the owners and management, i.e., “veil piercing” is rare, don’t shoot yourself in the foot by doing things, such as commingling business and personal funds, or failing to do things such as entity maintenance or appropriately title assets that would rebut this presumption.

Here is a brief snapshot of a few recent court cases throughout the country that have discussed “piercing the veil” and some of the factors that were considered:

In a case called Knopf v. Phillips (S.D.N.Y., 2016), which was decided last month (December 2016), the number one factor as to whether or not the “veil” of corporate/entity protection should be “pierced” was the disregard of corporate formalities. The court ruled that the plaintiffs adequately pleaded a claim for veil piercing/alter ego because the defendant had “abused the corporate form” to defraud the plaintiffs. Another factor which is often analyzed in these cases, including this one, is the fact that the defendant has “undercapitalized” his business as evidenced by the inability to pay debts, in conjunction with the fact that the defendant had diverted thousands of dollars from one entity to another entity despite the inability to pay its debts. The takeaway from this case is that if you’re going to setup an entity, take the time to treat it as a separate entity and be sure you have enough funds inside the business to service debts of the business.

A few months earlier (October 2016), 5th Circuit Federal Court of Appeals, a case called Janvey applied some of the same analysis as in Knopf yet because of the facts, reached a different conclusion. In Janvey, it involved a parent company and a subsidiary and whether the parent company should be liable for the actions of the subsidiary. Here, the outcome was in favor of the parent company that the “veil” should not be pierced between the subsidiary and the parent company, and one of the factors the court looked at was how assets of the subsidiary were titled and how the subsidiary was operated. Had there been a disregard and failure to appropriately hold title of the subsidiaries assets in the name of the subsidiary rather than the parent company, or had the overall operations of the subsidiary collapsed into the parent company where it would have been indistinguishable to differentiate between the subsidiary’s business operations and the parent company’s operations, the court might have more seriously considered allowing the veil to be pierced. This is one reason why in the real estate context it is important to ensure that if a parent company with subsidiary’s is going to be utilized, that assets are appropriately held and maintained by the subsidiaries rather than everything in the name of the parent company.

A case in Ohio in November 2016 involved factors the court looked at such as, “lack of corporate records” and “disregard of corporate roles”, as well as the entity’s inability to pay its debts to due siphoning of funds for personal use. In this case, the business had been unable to pay its debts and was essentially insolvent at the time the plaintiff was injured by the acts of the business, so the court (appellate court) decided there was more than enough facts to allow a jury trial to make a determination whether to pierce the LLC/corporate veil. This case highlights the importance to keep corporate records such as annual minutes.

Lastly, a case out of California last year (2016) called Boeing v. Energia highlights the importance of properly maintaining entities with the state, holding annual meetings, and keeping corporate records. The defendant was a parent company which had setup multiple subsidiaries to hold various assets such as licenses, etc., and some of the main reasons the court disregarded the corporate veil was because the subsidiaries were not properly maintained (Delaware) in terms of annual filings and payment of franchise taxes, and also because there was a dearth of corporate meetings and records held and maintained by the subsidiary. In applying Delaware law, despite a court’s reluctance to pierce the veil, it may do so when a “parent and subsidiary operate as a single economic entity” and there is an “overall element of injustice or unfairness that is present”.

MY TAKE: Although a typical requirement for the veil of your entity to be pierced by a plaintiff or injured party is that the entity was used to perpetuate fraud, illegal acts, or unlawful behavior, you nevertheless don’t want to open up yourself to a “pierce the veil” claim for failure to appropriately maintain your entity. Undertake a brief meeting outlining in your ledger a financial or management decision you made during the course of the year and the impact you hope it will have on your company. Do this annually and note your position with the company, the time, date, and who else may have been present at the meeting. A little investment of time may save you a big headache down the road.




Whether your concern is for your personal assets or your business, various tools exist to keep your property safe from tax collectors, accident victims, health-care providers, credit card issuers, business creditors, and creditors of others.

To insulate your property from such claims, you’ll have to evaluate each tool in terms of your own situation. You may decide that insurance and a Declaration of Homestead may be sufficient protection for your home because your exposure to a claim is low. For high exposure, you may want to create a business entity or an offshore trust to shield your assets. Remember, no asset protection tool is guaranteed to work, and you may have to adjust your asset protection strategies as your situation or the laws change.

Liability insurance is a must in any line of defense

Liability insurance is important in any plan for asset protection. You should consider purchasing or increasing umbrella coverage on your homeowners policy. For business-related liability, purchase or increase your liability coverage under your business insurance policy. Generally, the cost of the premiums for this type of coverage is minimal compared to what you might be required to pay under a court judgment should you ever be sued.

A Declaration of Homestead protects the family residence

Your primary residence may be your most significant asset. State law determines the creditor and judgment protection afforded a residence by way of a Declaration of Homestead, which varies greatly from state to state. For example, a state may provide a complete exemption for a residence (i.e., its entire value), a limited exemption (e.g., up to $100,000), or an exemption under certain circumstances (e.g., a judgment for medical bills). A Declaration of Homestead is easy to file. You pay a small fee, fill out a simple form, and file it at the agency where your deed is recorded.

Dividing assets between spouses can limit exposure to potential liability

Perhaps you work in an occupation or business that exposes you to greater potential liability than your spouse’s job does. If so, it may be a good idea to divide assets between you so that you keep only the income and assets from your job, while your spouse takes sole ownership of your investments and other valuable assets. Generally, your creditors can reach only those assets that are in your name.

 Business entities can provide two types of protection—shielding your personal assets from your business creditors and shielding business assets from your personal creditors

Consider using a corporation, limited partnership, or limited liability company (LLC) to operate the business. Such business entities shield the personal assets of the shareholders, limited partners, or LLC members from liabilities that arise from the business. The liability of these owners will be limited to the assets of the business.

Conversely, corporations, limited partnerships, and LLCs provide some protection from the personal creditors of a shareholder, limited partner, or member. In a corporation, a creditor of an individual owner is able to place a lien on, and eventually acquire, the shares of the debtor/shareholder, but would not have any rights greater than the rights conferred by the shares. In limited partnerships or LLCs, under most state laws, a creditor of a partner or member is entitled to obtain only a charging order with respect to the partner or member’s interest. The charging order gives the creditor the right to receive any distributions with respect to the interest. In all respects, the creditor is treated as a mere assignee and is not entitled to exercise any voting rights or other rights that the partner or member possesses.

Certain trusts can preserve trust assets from claims

People have used trusts to protect their assets for generations. The key to using a trust as an asset protection tool is that the trust must be irrevocable and become the owner of your property. Once given away, these assets are no longer yours and are not available to satisfy claims against you. To properly establish an asset protection trust, you generally must not keep any interest in the trust assets or control over the trust. There are some exceptions and I would advise consulting with an estate attorney to discover these options.

Trusts can also protect trust assets from potential creditors of the beneficiaries of the trust. The extent to which a beneficiary’s creditors can reach trust property depends on how much access the beneficiary has to the trust property. The more access the beneficiary has to the trust property, the more access the beneficiary’s creditors will have. Thus, the terms of the trust are critical.

There are many types of asset protection trusts, each having its own benefits and drawbacks. These trusts include:

  • Spendthrift trusts
  • Discretionary trusts
  • Support trusts
  • Blend trusts
  • Personal trusts
  • Self-settled trusts

Since certain claims can pierce domestic protective trusts (e.g., claims by a spouse or child for support and state or federal claims), you can bolster your protection by placing the trust in a foreign jurisdiction. Offshore or foreign trusts are established under, or made subject to, the laws of another country (e.g., the Bahamas, the Cayman Islands, Bermuda, Belize, Jersey, Liechtenstein, and the Cook Islands) that does not generally honor judgments made in the United States.

Beware of fraudulent transfers

The court will ignore transfers to an asset protection trust if:

  • A creditor’s claim arose before you made the transfer
  • You made the transfer with the intent to defraud a creditor
  • You incurred debts without a reasonable expectation of paying them


Prescription drug abuse has made national news in the last few years.  In fact, prescription opioid abuse and [the] heroin epidemic claims the lives of tens of thousands of Americans each year. This “epidemic” is harming far too many Americans and their families.

This does not mean, however, that employers should not be mindful of federal and state disability laws that protect those taking prescription drugs for valid medical conditions.  Two recent lawsuits brought by the Equal Employment Opportunity Commission (EEOC) alleging disability discrimination claims in violation of the Americans with Disabilities Act (ADA) underscore the importance of engaging in an interactive process with job applicants and employees and providing reasonable accommodations to those taking prescription drugs for medical conditions.

Failed Drug Test Due to Valid Prescription Drug Use

In September 2016, the EEOC filed a lawsuit in a South Dakota federal court against a casino on behalf of a job applicant after her pre-employment drug test revealed a positive drug test result.  According to the EEOC, the applicant suffered from a back and neck impairment, which limited her ability to perform certain tasks, such as lifting and bending.  After receiving the positive test result, the casino withdrew her job offer.  The EEOC alleges that when the applicant tried to explain to the casino that the positive drug test was due to legally prescribed pain medication, even offering to provide documents to support this, the casino still refused to hire her.

The crux of the EEOC’s lawsuit is that the casino’s refusal to hire an applicant taking lawful prescription drugs due to a disability violated the ADA.  The lawsuit also challenged the casino’s blanket policy requiring all employees, regardless of whether they work in safety-sensitive positions, to disclose their prescription or non-prescription drug use.

Doctor’s Note Stated Treatment Included Pain Medication

Two weeks later, the EEOC filed a complaint against a regional medical center alleging it terminated a physician after learning about his use of narcotic drugs to treat his chronic pain. According to the lawsuit, which was filed in Georgia federal court, the physician provided the medical center with a letter from his doctor, which stated that he was undergoing treatment for a chronic pain condition that limited the functioning of his musculoskeletal and neurological systems. The letter also stated that the physician’s treatment plan required him to take prescribed pain medication and receive spinal injections.

After receiving this letter the medical center removed the physician from the schedule pending further evaluation of his condition.  The medical center then notified the physician of its intention to terminate his contract unless he resigned because the medical center believed he could not meet the requirement of his job duties due to his pain medications and spinal injections.  The EEOC’s complaint alleged that the physician could have performed his job safely and competently and therefore the medical center’s termination decision and purported failure to have any dialogue with the doctor about the issue violated the ADA.

Per the EEOC’s press release issued in conjunction with the filing of this action, “[e]mployers have an obligation to conduct individualized assessments when they have a concern about an employee’s ability to safely perform his or her job duties. … [The] EEOC will continue to hold employers accountable when they summarily dismiss employees based on unsubstantiated fears about a perceived disability.”

Implications for Employers

My take on all of this: Employers can lawfully test employees for prescription drug abuse and can regulate such abuse in the workplace, including the testing of pre-employment applicants.  The ADA specifically states that tests for illegal drug use are not medical examinations and are not evidence of discrimination against recovering drug abusers when used to ensure the individual has not resumed the illegal drug use.  If an employee uses a prescription drug that is not prescribed to him or her, this is considered illegal drug use and the employer can impose discipline for violating its policy against illegal drug use.

However, that said, I believe these cases serve as a reminder that employers should avoid making adverse decisions based on misperceptions or a lack of information about the effect of prescription drug use on the employees’ ability to actually perform their job duties.  Moreover, employers should take precautions before implementing blanket drug-testing policies that do not account for the need under the ADA to engage in an interactive process with individuals taking prescription medications and, if necessary, then provide reasonable accommodations.  Finally, these cases demonstrate the importance of ensuring that certain policies and practices, including requirements that employees report their prescription drug use, be limited to those working in safety-sensitive positions.

Side Note: Long-Term Shift of Essential Job Functions May Remove Them as Mandatory Qualifications:

 As some employers may or may not know, The Americans with Disabilities Act (ADA) only requires employers to provide accommodations that allow the disabled employee or applicant to perform the essential functions of the job. The employer is not required to shift or remove essential job functions whether or not such accommodation would be reasonable. However, a new, unpublished decision from the Sixth Circuit Court of Appeals warns employers that by voluntarily relieving an employee of the need to perform essential functions of his or her original job, it may eventually lose its ability to later disqualify the employee from work due to inability to carry out those tasks.

In Camp v. Bi-Lo, LLC, the plaintiff worked as a grocery clerk for the defendant for 38 years. Due to childhood scoliosis, he could not lift more than 35 pounds. Over the years of his employment, he was relieved of such lifting, which was shifted to other employees. When a new manager assumed supervision of the plaintiff, he discovered this limitation, and referred him to corporate human resources for an evaluation of his ability to safely perform the job. Human resources concluded that the plaintiff could not perform the essential job functions due to the lifting restriction, basing its conclusion on a job description prepared 30 years after he began working for the company.

On appeal in a 2-1 decision, the Sixth Circuit reversed the lower court’s dismissal of the ADA claim, remanding the suit for trial on the question of whether lifting heavier weights is really an essential function of the position. The court concluded that because the plaintiff had been relieved of such lifting duties for so many years, created a factual question over whether the lifting requirement truly was an essential job function.

My Point of view: Employers frequently shift essential job functions with the intent of allowing an employee to transition back to work from an injury or illness. By definition, light duty jobs involve reassignment of essential job functions. However as illustrated by this decision, long term removal of such essential functions may eliminate the employer’s ability to later use the employee’s inability to perform them as grounds for ending employment. Any light duty program should be temporary in nature. When that time expires, light duty should end, and the decision to reinstate the employee should be based on whether he or she is capable of performing all essential functions of the original job at that time, with or without reasonable accommodation. Remember, ADA claims may be brought in Federal Court in any State in the union.



     Employee reductions and terminations have been an unfortunate result of the current economic downturn.  Even in good economic times, however, businesses of every size carefully assess their operational structures and may sometimes decide to reduce their workforce.  Often, employers terminate older employees who are eligible for retirement, or nearly so, because they generally have been with the company the longest and are paid the highest salaries.  Other employers evaluate individual employees on criteria such as performance or experience, or decide to lay off all employees in a particular position, division, or department. An employer’s decision to terminate or lay off certain employees, while retaining others, may lead discharged workers to believe that they were discriminated against based on their age, race, sex, national origin, religion, or disability.

To minimize the risk of potential litigation, many employers offer departing employees money or benefits in exchange for a release (or “waiver”) of liability for all claims connected with the employment relationship, including discrimination claims under the civil rights laws enforced by the Equal Employment Opportunity Commission (EEOC) — the Age Discrimination in Employment Act (ADEA), Title VII, the Americans with Disabilities Act (ADA), and the Equal Pay Act (EPA).

While it is common for senior-level executives to negotiate severance provisions when initially hired, other employees typically are offered severance agreements and asked to sign a waiver at the time of termination. When presented with a severance agreement, many employees wonder: Is this legal? Should I sign it?

This document answers questions that you may have if you are offered a severance agreement in exchange for a waiver of your actual or potential discrimination claims.  Part II provides basic information about severance agreements; Part III explains when a waiver is valid; and Part IV specifically addresses waivers of age discrimination claims that must comply with provisions of the Older Workers Benefit Protection Act (OWBPA).  Finally, this document includes a checklist with tips on what you should do before signing a waiver in a severance agreement and a sample of an agreement offered to a group of employees giving them the opportunity to resign in exchange for severance benefits.


A severance agreement is a contract, or legal agreement, between an employer and an employee that specifies the terms of an employment termination, such as a layoff.   Sometimes this agreement is called a “separation” or “termination” agreement or “separation agreement general release and covenant not to sue.” Like any contract, a severance agreement must be supported by “consideration.”  Consideration is something of value to which a person is not already entitled that is given in exchange for an agreement to do, or refrain from doing, something.

The consideration offered for the waiver of the right to sue cannot simply be a pension benefit or payment for earned vacation or sick leave to which the employee is already entitled but, rather, must be something of value in addition to any of the employee’s existing entitlements.  An example of consideration would be a lump sum payment of a percentage of the employee’s annual salary or periodic payments of the employee’s salary for a specified period after termination.  The employee’s signature and retention of the consideration generally indicates acceptance of the terms of the agreement.

  1. What does a severance agreement look like?

A severance agreement often is written like a contract or letter and generally includes a list of numbered paragraphs setting forth specific terms regarding the date of termination, severance payments, benefits, references, return of company property, and release of claims against the employer.



     Most employees who sign waivers in severance agreements never attempt to challenge them. Some discharged employees, however, may feel that they have no choice but to sign the waiver, even though they suspect discrimination, or they may learn something after signing the waiver that leads them to believe they were discriminated against during employment or wrongfully terminated.

If an employee who signed a waiver later files a lawsuit alleging discrimination, the employer will argue that the court should dismiss the case because the employee waived the right to sue, and the employee will respond that the waiver should not bind her because it is legally invalid.   Before looking at the employee’s discrimination claim, a court first will decide whether the waiver is valid.  If a court concludes that the waiver is invalid, it will decide the employee’s discrimination claim, but it will dismiss the claim if it finds that the waiver is valid.

A waiver in a severance agreement generally is valid when an employee knowingly and voluntarily consents to the waiver. The rules regarding whether a waiver is knowing and voluntary depend on the statute under which suit has been, or may be, brought.  The rules for waivers under the Age Discrimination in Employment Act are defined by statute – the Older Workers Benefit Protection Act (OWBPA). Under other laws, such as Title VII, the rules are derived from case law.  In addition to being knowingly and voluntarily signed, a valid agreement also must: (1) offer some sort of consideration, such as additional compensation, in exchange for the employee’s waiver of the right to sue; (2) not require the employee to waive future rights; and (3) comply with applicable state and federal laws.

  1. What determines whether a waiver of rights under Title VII, the ADA, or the EPA was “knowing and voluntary”?

To determine whether an employee knowingly and voluntarily waived his discrimination claims, some courts rely on traditional contract principles and focus primarily on whether the language in the waiver is clear. Most courts, however, look beyond the contract language and consider all relevant factors – or the totality of the circumstances — to determine whether the employee knowingly and voluntarily waived the right to sue. These courts consider the following circumstances and conditions under which the waiver was signed:

  • whether it was written in a manner that was clear and specific enough for the employee to understand based on his education and business experience;
  • whether it was induced by fraud, duress, undue influence, or other improper conduct by the employer;
  • whether the employee had enough time to read and think about the advantages and disadvantages of the agreement before signing it;
  • whether the employee consulted with an attorney or was encouraged or discouraged by the employer from doing so;
  • whether the employee had any input in negotiating the terms of the agreement; and
  • whether the employer offered the employee consideration (e.g., severance pay, additional benefits) that exceeded what the employee already was entitled to by law or contract and the employee accepted the offered consideration.


       3.   May I still file a charge with the EEOC if I believe that I have been  discriminated against based on my age, race, sex, or disability, even  if I signed a waiver releasing my employer from all claims?

Yes. Although your severance agreement may use broad language to describe the claims that you are releasing (see Example 1), you can still file a charge with the EEOC if you believe you were discriminated against during employment or wrongfully terminated. In addition, no agreement between you and your employer can limit your right to testify, assist, or participate in an investigation, hearing, or proceeding conducted by the EEOC under the ADEA, Title VII, the ADA, or the EPA.   Any provision in a waiver that attempts to waive these rights is invalid and unenforceable.


         4.  If I file a charge with the EEOC after signing a waiver, will I have to  return my severance pay?

No.  Because provisions in severance agreements that attempt to prevent employees from filing a charge with the EEOC or participating in an EEOC investigation, hearing, or proceeding are unenforceable (see Question and Answer 3 above), you cannot be required to return your severance pay –or other consideration –before filing a charge.


          5. Will I have to return my severance pay if I file a discrimination suit in  court after signing a waiver?

Under the ADEA, an employee is not required to return severance pay — or other consideration received for signing the waiver — before bringing an age discrimination claim. Under Title VII, the ADA, or the EPA, however, the law is less clear.  Some courts conclude that the validity of the waiver cannot be challenged unless the employee returns the consideration, while other courts apply the ADEA’s “no tender back” rule to claims brought under Title VII and other discrimination statutes and allow employees to proceed with their claims without first returning the consideration.

Even if a court does not require you to return the consideration before proceeding with your lawsuit, it may reduce the amount of any money you are awarded if your suit is successful by the amount of consideration you received for signing the waiver.



General Requirements for Employees Age 40 and Over

In 1990, Congress amended the ADEA by adding the Older Workers Benefit Protection Act (OWBPA) to clarify the prohibitions against discrimination based on age. OWBPA establishes specific requirements for a “knowing and voluntary” release of ADEA claims to guarantee that an employee has every opportunity to make an informed choice whether to sign the waiver. There are additional disclosure requirements under the statute when waivers are requested from a group or class of employees. See “Additional Requirements for Group Layoffs of Employees Age 40 and Over” at IV. B.

  1. What makes a waiver of age claims knowing and voluntary?

OWBPA lists seven factors that must be satisfied for a waiver of age discrimination claims to be considered “knowing and voluntary.” At a minimum:

  • A waiver must be written in a manner that can be clearly understood.  EEOC regulations emphasize that waivers must be drafted in plain language geared to the level of comprehension and education of the average individual(s) eligible to participate. Usually this requires the elimination of technical jargon and long, complex sentences.  In addition, the waiver must not have the effect of misleading, misinforming, or failing to inform participants and must present any advantages or disadvantages without either exaggerating the benefits or minimizing the limitations.
  • A waiver must specifically refer to rights or claims arising under the ADEA.  EEOC regulations specifically state that an OWBPA waiver must expressly spell out the Age Discrimination in Employment Act (ADEA) by name.
  • A waiver must advise the employee in writing to consult an attorney before accepting the agreement.
  • A waiver must provide the employee with at least 21 days to consider the offer.  The regulations clarify that the 21-day consideration period runs from the date of the employer’s final offer.  If material changes to the final offer are made, the 21-day period starts over.
  • A waiver must give an employee seven days to revoke his or her signature.  The seven-day revocation period cannot be changed or waived by either party for any reason.
  • A waiver must not include rights and claims that may arise after the date on which the waiver is executed.  This provision bars waiving rights regarding new acts of discrimination that occur after the date of signing, such as a claim that an employer retaliated against a former employee who filed a charge with the EEOC by giving an unfavorable reference to a prospective employer.
  • A waiver must be supported by consideration in addition to that to which the employee already is entitled.

If a waiver of age claims fails to meet any of these seven requirements, it is invalid and unenforceable. In addition, an employer cannot attempt to “cure” a defective waiver by issuing a subsequent letter containing OWBPA-required information that was omitted from the original agreement.

  1. Are there other factors that may make a waiver of age claims invalid?

Yes.  Even when a waiver complies with OWBPA’s requirements, a waiver of age claims, like waivers of Title VII and other discrimination claims, will be invalid and unenforceable if an employer used fraud, undue influence, or other improper conduct to coerce the employee to sign it, or if it contains a material mistake, omission, or misstatement.

  1. If I am 40 years old or older, am I entitled to more severance pay or benefits than a younger employee?

No.  Although severance packages often are structured differently for different employees depending on position and tenure, an employer is not required to give you a greater amount of consideration than is given to a person under the age of 40 solely because you are protected by the ADEA.

  1. Are there any circumstances where I may have to pay my employer back the money it gave me for the waiver of my age claims?

Yes.  Your employer may offset money it paid you in exchange for waiving your rights if you successfully challenge the waiver, prove age discrimination, and obtain a monetary award.  However, your employer’s recovery may not exceed the amount it paid for the waiver or the amount of your award if it is less.

  1.  If I challenge an age discrimination waiver in court, may my employer renege on promises it made in the agreement?

No.  EEOC regulations state that an employer cannot “abrogate,” or avoid, its duties under an ADEA waiver even if you challenge it.  Because you have a right under OWBPA to have a court determine a waiver’s validity, it is unlawful for your employer to stop making promised severance payments or to withhold any other benefits it agreed to provide

Additional Requirements for Group Layoffs of Employees Age 40 and Over:

When employers decide to reduce their workforce by laying off or terminating a group of employees, they usually do so pursuant to two types of programs: “exit incentive programs” and “other employment termination programs.”  When a waiver is offered to employees in connection with one of these types of programs, an employer must provide enough information about the factors it used in making selections to allow employees who were laid off to determine whether older employees were terminated while younger ones were retained.

  1. What is an “exit incentive” or “other termination” program?

Typically, an “exit incentive program” is a voluntary program where an employer offers two or more employees, such as older employees or those in specific organizational units or job functions, additional consideration to persuade them to voluntarily resign and sign a waiver.  An “other employment termination program” generally refers to a program where two or more employees are involuntarily terminated and are offered additional consideration in return for their decision to sign a waiver.

Whether a “program” exists depends on the facts and circumstances of each case; however, the general rule is that a “program” exists if an employer offers additional consideration – or, an incentive to leave – in exchange for signing a waiver to more than one employee. By contrast, if a large employer terminated five employees in different units for cause (e.g., poor performance) over the course of several days or months, it is unlikely that a “program” exists.  In both exit incentive and other termination programs, the employer determines the terms of the severance agreement, which typically are non-negotiable.

  1. If I am in a group of employees who are being laid off and asked to sign a waiver, what information does my employer have to give to me?

Your waiver must meet the minimum OWBPA “knowing and voluntary” requirements (see Question and Answer 6 above).  In addition, your employer must give you – and all other employees who are being laid off with you – written notice of your layoff and at least 45 days to consider the waiver before signing it.  Specifically, the employer must inform you in writing of:

  • the “decisional unit”  — the class , unit, or group of employees from which the employer chose the employees who were and who were not selected for the program. For example, if an employer decides it must eliminate 10 percent of its workforce at a facility, then the entire facility is the decisional unit, and the employer must disclose the titles and ages of all employees at the facility who were and who were not selected for the layoff.   If, however, the employer must eliminate 15 jobs and only considers employees in its accounting department (and not bookkeeping or sales) , then the accounting department is the decisional unit, and the employer has to disclose the title and ages of all employees in the accounting department whose positions were and were not selected for elimination.The circumstances of each termination program determine whether the decisional unit is the entire company, a division, a department, employees reporting to a manager, or workers in a specific job classification.
  • eligibility factors for the program;
  • the time limits applicable to the program;
  • the job titles and ages of all individuals who are eligible or who were selected for the program (the use of age bands broader than one year, such as “age 40-50” does not satisfy this requirement) and the ages of all individuals in the same job classifications or organizational unit who are not eligible or who were not selected.


If your employer decides to terminate your job, you may be given a severance agreement that requires you to waive your right to sue for wrongful termination based on age, race, sex, disability, and other types of discrimination.  Although most signed waivers are enforceable if they meet certain contract principles and statutory requirements, an employer cannot lawfully limit your right to testify, assist, or participate in an investigation, hearing, or proceeding conducted by the EEOC or prevent you from filing a charge of discrimination with the agency.

An employer also cannot lawfully require you to return the money or benefits it gave you in exchange for waving your rights if you do file a charge.  While this document is not intended to cover all the issues that arise when your employer informs you that you are being terminated or laid off, the following checklist may help you decide whether to sign a waiver.




Creating a trust to holds assets can help the grantor while he is alive and continue to serve him after his death. A living trust is created during the grantor’s lifetime. It transfers title (ownership) of the grantor’s property into the trust to be managed by a trustee for the benefit of a designated beneficiary. There are different types of living trusts and each can protect assets in a different way — or not at all.

Revocable Trust

A revocable trust determines how the grantor’s property is managed and distributed both while he is alive and after his death. However, the grantor retains the right to amend or even end (revoke) the trust. However, this type of living trust doesn’t protect the assets against the grantor’s creditors or avoid estate taxes because the grantor retains ownership of the assets.

Irrevocable Trust

An irrevocable trust is a trust that cannot be amended without the beneficiary’s permission. When the grantor dies, the assets are immediately distributed to the trust’s beneficiaries. This type of trust protects assets from creditors because the grantor no longer owns the property, so it cannot be seized to pay the grantor’s debts. It also avoids estate taxes because when the grantor dies, he is not the owner of the property, so trust assets cannot be taxed as part of his estate. As an added benefit, assets in an irrevocable trust avoid capital gains taxes.

Medicaid Laws

Any assets that can be withdrawn from a trust are not protected under Medicaid law. If a grantor suffers a catastrophic illness and has the ability to withdraw assets from a trust, Medicaid can force him to end the trust, if it is a revocable one, in order to use trust property to pay for his care. In contrast, assets in an irrevocable trust are safe because the grantor no longer owns the property. An irrevocable trust is the only living trust that protects assets from Medicaid costs.

Spendthrift Trusts

A spendthrift trust is a type of irrevocable trust that limits a beneficiary’s access to the assets in the trust. It is often used for a beneficiary who is fiscally challenged and can’t control his own spending. The terms of the trust include strict rules that dictate how often the trustee will distribute payments (or other assets in the trust) to the beneficiary. Aside from these periodic payments, the beneficiary has absolutely no access to the trust. This ensures that all assets in a spendthrift trust are protected until they are distributed to the beneficiary. In other words, while the assets remain in the trust, a beneficiary’s creditors have no right to the assets in the event she defaults on a loan. The trust can also be used to protect assets from a beneficiary’s spouse in the event of divorce.


Can a Living Trust Protect a Home From a Lawsuit?

A living trust refers to any type of trust you create during your lifetime rather than having it take effect upon your death. Transferring the title of a home to a living trust will only protect it from a lawsuit judgment if the terms of the trust are irrevocable. However, most state trust laws allow attachment of the home by judgment creditors if the transfer is fraudulent.

Must Be Irrevocable

State trust laws recognize the trust as irrevocable if the grantor, who is the person creating the trust, permanently relinquishes all ownership interests and control over the home and other assets in the trust. Moreover, grantors of irrevocable living trusts have no authority to amend or cancel the trust document after the date of creation. In contrast, a revocable living trust allows the grantor to retain control over the trust assets, control distributions to beneficiaries or even the authority to cancel the trust. For purposes of protecting the home from lawsuit judgment creditors, you cannot retain any authority over the trust; otherwise, state laws will continue to treat you as the owner of the home, which then allows a judgment creditor to attach it.

Qualified Personal Residence Trust

The permanence of an irrevocable living trust makes it one of the more extreme asset protection strategies. An alternative option is to create an irrevocable qualified personal residence trust, or QPRT, which allows you to retain a tenancy interest in the home. With a QPRT, you still transfer title to your home, but you retain the right to reside in the home for the period you specify in the trust document. Your right to occupy the home is an interest that has value, but a QPRT remains an effective strategy for protecting the full ownership rights of the home from judgment creditors.

Protection to Beneficiaries

Since the living trust you create will identify beneficiaries who will eventually receive the benefits of ownership in the home, it’s important consider the potential for their own judgment creditors to attach the home in the future. You can eliminate this possibility by including a spendthrift clause in the trust document that prohibits the trustee from transferring title in the home to anyone but the beneficiaries. Therefore, you can allow beneficiaries full use of the home, but as long as the trust remains the legal owner, lawsuit judgment creditors of the beneficiaries have no claim against the home.

Fraudulent Transfers

One significant limitation to using an irrevocable living trust to protect your home from a lawsuit creditor exists if you transfer the title to the trust after the creditor obtains a legal judgment. An irrevocable living trust only protects the assets you transfer to the trust against future creditors. However, your existing creditors can still attach the trust assets by claiming your transfer was fraudulent, meaning you do it for the sole purpose of avoiding attachment by an existing creditor.


Also, be sure to see a lawyer for business to discuss the options that are specifically applicable to your goals and corresponding needs when forming your business entity, in order to get the best asset protection available–see link below:


To avoid unwanted costly litigation and to continue to insulate yourself from a lawsuit personally. read all the BEST ASSET PROTECTION articles.



Few things in law are exactly what they sound like, but a pour-over will is one. When you die, it essentially “pours” some of your assets into another estate-planning mechanism for distribution to your beneficiaries. Pour-over wills generally work in tandem with trusts. They address assets that — for one reason or another — you did not transfer to your trust.


When you create a trust, you transfer ownership of your assets into it. Then, when you die, your trust transfers them to your beneficiaries according to your directions. Some assets might escape the process. You might acquire a new piece of property, then neglect to transfer the deed into the name of the trust before you die. Some assets are not suited to trust ownership. Others don’t involve a title or deed, such as your grandmother’s antique wedding ring, so officially transferring ownership may seem unnecessary. A pour-over will automatically transfers these remaining assets into your trust when you die. You don’t have to itemize each asset. That would defeat the purpose. You simply state that anything you own not included in your trust should transfer to your trust when you die. Without such a will, the probate court distributes them according to your state’s laws of intestate succession, as though you had died without a will or any estate planning at all. Your non-trust assets would go to your closest living relatives, even if you didn’t want those relatives to receive them.


Your trust is usually the sole beneficiary of your pour-over will. Therefore, the assets caught by your pour-over will and transferred to your trust must usually pass through probate. Probate is the legal process that changes ownership from you to your trust. However, some exceptions exist. Some states do not require probate of small estates with values under a certain limit. For example, in California, the limit is $100,000. Because you’re not transferring all the assets in your pour-over will, but only the portion you did not place in your trust, their value might easily fall below the $100,000 threshold. Other states offer simplified probate procedures for small estates. Depending on the type of assets your pour-over will must move from your name into your trust’s name, if their value is not significant, the probate process might simply be a brief legal formality.


Your pour-over will is a document of your own creation so you can tailor it to fit your own estate needs. You’re not legally required to transfer ownership of your other assets to your trust. A pour-over will’s primary purpose is to catch assets you didn’t place in your trust so you can avoid your state’s laws of intestate succession. Instead, where they go is up to you. You can bypass your trust entirely and leave the assets caught in your pour-over will to named beneficiaries. You can also use a pour-over will to name guardians for your children. This issue is not normally something your trust documents would address. Typically then, when an attorney prepares your living trust, he/she will create a pour-over will at the same time as part of your trust documents.


Short Review

A pour-over will is like any other will, except that it has only one primary beneficiary, which is the testator’s living trust.  The pour-over will transfers assets to the trust to ensure that these assets will be subject to the distribution plan in the trust and will also receive the benefit of trust’s tax reduction provisions.
Why is it called a pour-over will?

Because it “pours” assets into the trust.

What assets are controlled by a pour-over will?

The will controls only probate assets, i.e., assets that are not in a trust, not in joint tenancy, not being inherited by a surviving spouse, and not in an IRA or 401K.  Probate assets are usually titled in the name of the decedent only.  However, probate assets can also be found in situations in which a mistake has been made, such as failing to name beneficiaries for an IRA or 401K.

Does a pour-over will have to go through probate?

That depends on the value of the probate assets that are controlled by the will.  If the probate assets add to up to more than $150,000, a probate is required.  If the amount does not exceed $150,000, the assets can be transferred to the trust by using declarations as authorized by California Probate Code section 13100.

What else does the pour-over will do beside transfer assets to the trust?

It also distributes tangible personal property, such as furniture, jewelry, clothing, etc., to the testator’s beneficiaries.  It nominates executors and guardians for the testator’s minor children.  The pour-over will also revokes prior wills.  The pour-over will might include other provisions, such as tax allocation clauses.




A majority of employers perform criminal background checks when hiring for at least some positions. However, job seekers with criminal records have some legal rights. Both Federal and California laws place limits on how employers can use these records in making job decisions.

       1. California Protections for Job Seekers With Criminal Records

State laws provide a variety of protections for job seekers with criminal records. California places more restrictions on employers than many others. For example, California employers may not ask applicants about a prior arrest that did not lead to conviction, nor may they ask about an applicant’s referral to or participation in a pretrial or post-trial diversion program. Employers also may not seek or use records relating to these arrests. However, the law allows employers to ask about arrests for which the applicant is awaiting trial (for example, because the applicant is out on bail or has been released on his or her own recognizance pending trial).

California also prohibits employers from asking about convictions that have been sealed, expunged, or statutorily eradicated. Employers also may not ask about certain older marijuana offenses. However, an employer may ask job-related questions relating to a conviction. (California’s Department of Fair Employment and Housing publishes a guide on these and other limits on employer questions, Employment Inquiries.)

       2. Federal Protections for Applicants With a Criminal Record

There are two federal laws that protect applicants with criminal records, at least in some situations. The Fair Credit Reporting Act (FCRA) addresses the problem of accuracy. Criminal background checks may include errors, such as information on convictions that have been expunged, incomplete information (for example, failing to report that the person was exonerated of a crime or that charges were dropped), misclassification of crimes, multiple listings of the same offense, and even records that belong to someone else entirely.

The FCRA imposes obligations on employers who request criminal background checks and on the firms that provide them. Employers must do all of the following:

*Get the applicants written consent ahead of time.
*Tell the applicant if the employer intends to disqualify him or her based on the contents of the report. *The employer must also give the applicant a copy of the report.
*Notify the applicant after the employer makes a final decision not to hire him or her based on the information in the report.

Firms that run background checks also have obligations under the FCRA. They must take reasonable steps to make sure that the information they provide is accurate and up to date. If an applicant disputes the contents of the report, the agency must conduct a reasonable investigation. If the investigation reveals that the report was incorrect, the agency must inform the applicant and any other person or company to whom it has provided the report.

Title VII of the Civil Rights Act of 1964 also protects applicants and employees from discrimination in every aspect of employment, including screening practices and hiring. Therefore, because arrest and incarceration rates are so much higher for African Americans and Latinos for example, an employer that adopts a blanket policy of excluding all applicants with a criminal record might be charged with race discrimination.

The Equal Employment Opportunity Commission (EEOC) has issued guidance explaining how employers can screen out applicants whose criminal records pose an unreasonable risk without engaging in discrimination. In deciding whether a particular offense should be disqualifying, employers must consider:

*the nature and gravity of the criminal offense or conduct
*how much time has passed since the offense or sentence, and
*the nature of the job (including where it is performed, how much supervision and interaction with others the employee will have).

The EEOC has said that employers should give applicants with a record an opportunity to explain the circumstances and provide mitigating information showing that the employee should not be excluded based on the offense.




If you qualify for the exclusion, you may do anything you want with the tax-free proceeds from the sale. You are not required to reinvest the money in another house. But, if you do buy another home, you can qualify for the exclusion again when you sell that house. Indeed, you can use the exclusion any number of times over your lifetime as long as you satisfy the requirements discussed below.

If you’re a homeowner this is the one tax law you need to thoroughly understand.

The Two Year Ownership and Use Rule

Here’s the most important thing you need to know: To qualify for the $250,000/$500,000 home sale exclusion, you must own and occupy the home as your principal residence for at least two years before you sell it. Your home can be a house, apartment, condominium, stock-cooperative, or mobile home fixed to land.

If you meet all the requirements for the exclusion, you can take the $250,000/$500,000 exclusion any number of times. But you may not use it more than once every two years.

The two-year rule is really quite generous, since most people live in their home at least that long before they sell it. (On average, Americans move once every seven years.) By wisely using the exclusion, you can buy and sell many homes over the years and avoid any income taxes on your profits.

One aspect of the exclusion that can be confusing is that ownership and use of the home don’t need to occur at the same time. As long as you have at least two years of ownership and two years of use during the five years before you sell the home, the ownership and use can occur at different times. The rule is most important for renters who purchase their rental apartments or rental homes. The time that a purchaser lives in the home as a renter counts as use of the home for purposes of the exclusion, even though the renter didn’t own the home at the time.

If You Are Not Living in the Home

To qualify for the home sale exclusion, you don’t have to be living in the house at the time you sell it. Your two years of ownership and use may occur anytime during the five years before the date of the sale. This means, for example, that you can move out of the house for up to three years and still qualify for the exclusion.

This rule has a very practical application: It means you may rent out your home for up to three years prior to the sale and still qualify for the exclusion. Be sure to keep track of this time period and sell the house before it runs out.

The Home Must Be Your Principal Residence

To qualify for the exclusion, you must have used the home you sell as your principal residence for at least two of the five years prior to the sale. Your principal residence is the place where you (and your spouse if you’re filing jointly and claiming the $500,000 exclusion for couples) live.

You don’t have to spend every minute in your home for it to be your principal residence. Short absences are permitted—for example, you can take a two-month vacation away from home and count that time as use. However, long absences are not permitted. For example, a professor who is away from home for a whole year while on sabbatical cannot count that year as use for purposes of the exclusion.

You can only have one principal residence at a time. If you live in more than one place—for example, you have two homes—the property you use the majority of the time during the year will ordinarily be your principal residence for that year.

If you have a second home or vacation home that has substantially appreciated in value since you bought it, you’ll be able to use the exclusion when you sell it if you use that home as your principal home for at least two years before the sale.

$500,000 Exclusion for Married Couples

There are certain additional requirements you must meet to qualify for the $500,000 exclusion. Namely, you must be able to show that all of the following are true:

  • you are married and file a joint return for the year

  • either you or your spouse meets the ownership test

  • both you and your spouse meet the use test, and

  • during the 2-year period ending on the date of the sale, neither you or your spouse excluded gain from the sale of another home.

If either spouse does not satisfy all these requirements, the exclusion is figured separately for each spouse as if they were not married. This means they can each qualify for up to a $250,000 exclusion. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. For joint owners who are not married, up to $250,000 of gain is tax free for each qualifying owner.

If your spouse dies and you subsequently sell your home, you qualify for the $500,000 exclusion if the sale occurs within two years after the date of death and the other requirements discussed above were met immediately before the date of death.

 Also, be sure to see an attorney to discuss the options that are specifically applicable to your goals and corresponding needs when forming your business entity–see link below:



Buying A California Business? Here is a Legal Guide of Things to Look For and Do.  (Contribution by Melissa C. Marsh)

When purchasing a California business or corporation, the buyer often acquires several types of assets, including: real estate, personal property, intangible property such as copyrights, or a web site, and the ongoing business itself. A buyer can protect himself against claims concerning the real estate by purchasing title insurance. However, title insurance will not protect the buyer against claims arising from the operation of the seller’s business on the property before the sale. This article discusses seven (7) types of seller liabilities that should concern a buyer when negotiating the purchase of a California business, and suggests how a buyer might limit his or her exposure in a Purchase and Sale Agreement, or similar agreement between the parties.
A word of caution: While using a business broker to find a buyer for a business may be essential, neither the buyer nor the seller should rely on the statements made by the business broker, or a standard real estate form. A business broker is primarily interested in his or her commission and cannot provide any legal advice. Anyone buying or selling a business or corporation in California should hire competent legal counsel to negotiate and prepare either an asset purchase agreement, or a stock purchase agreement.
1. Demand Full and Complete Disclosure.
A buyer should insist that the seller disclose all liabilities concerning the operation of the seller’s business. This should be done even if the buyer does not intend to assume the seller’s liabilities. The Purchase and Sale Agreement between the buyer and seller should also contain representations and warranties by the seller regarding:
  • contracts which affect the property, such as: equipment leases, maintenance contracts and similar agreements;
  • taxes relating to the operation of the property, including: income taxes, payroll taxes, sales taxes, and real property taxes;
  • employee wages and other benefits;
  • amounts owed to suppliers; and
  • existing obligations to both present and past customers.
Disclosure is the first step towards obtaining an accurate picture of what the seller owes and what the buyer might be responsible for upon purchase.
2. Investigate Employee Matters.
The seller should provide the buyer with a list of employees, including job title, social security number, wages, salaries, bonuses, vacation, sick pay and any other benefits payable to the employee at the time the Purchase and Sale Agreement is signed, and at the time of closing. The seller should also be made responsible for all of the accrued wages, salaries, bonuses and benefits that relate to the period before closing.
The buyer should also investigate whether there is a union, or collective bargaining agreement, in effect with respect to any of the seller’s employees, and if not whether there have been any past attempts or efforts to organize any of the employees into a union. The union status of a business is critical to establishing a budget for future expenses which the buyer will weigh when determining the value of the seller’s business. A collective bargaining agreement may be binding upon a buyer, even if it has been negotiated by the seller. If there is a collective bargaining agreement in place, it should be carefully reviewed.
3. Investigate Potential Tax Liability.
Obviously, the buyer does not want to assume any of the seller’s tax liabilities. However, it is often difficult to determine what those liabilities are, particularly where the seller has been paying taxes on an estimated basis, or has not yet filed an applicable tax return. At a minimum, the buyer should obtain the seller’s representation and warranty that no lien exists, and no lien can be asserted against, the real estate being purchased by the buyer due to the seller’s failure to file any tax return or report or pay any federal, state or local taxes. In addition, the buyer should demand that the Purchase and Sale Agreement contain a provision obligating the seller to pay any taxes which relate to the seller`s prior ownership of the assets, but are not assessed until after the closing. Many states and municipalities issue lien certificates, or other documents, from which the buyer can verify a seller’s tax liability.
The buyer should also be particularly wary of the types of taxes that run with the land or business being acquired, as these may become the buyer’s obligation, by law, if unpaid by the seller. Many states have “bulk sales” laws, which must be complied with when a buyer is purchasing all, or substantially all, of the seller’s assets. Failure to comply with the bulk sales laws may lead to the buyer being liable for any liability owed by the seller. A lawyer can be particularly valuable in this setting, as compliance with such “bulk sales” laws falls on the buyer, not the seller.
4. Review All Existing Contracts.
The importance of reviewing existing contracts cannot be overemphasized. Many businesses routinely enter into contracts for almost everything, including: (1) furniture and phone rentals; (2) equipment leases; (3) telephone book, and other advertising; (4) maintenance; (5) additional office, storage and warehousing space; etc…. A prospective buyer should analyze every contract to determine whether they are acceptable.
If the buyer finds a contract acceptable and wants to assume the contract, then the buyer should review the pertinent contract to ensure it can be assigned to the buyer without the vendor’s approval. If the vendor’s prior approval is required for a valid assignment of the contract, the Purchase and Sale Agreement should obligate the seller to obtain that prior written approval prior to closing.
If the buyer does not want to assume the contract, the buyer should determine whether the contract can be terminated early by the seller. If the contract in question is for a specific term and cannot be terminated early, the buyer should negotiate this point in the Purchase and Sale Agreement. The buyer may require the seller to either buy out the contract, or simply agree to remain responsible for the payments required by the contract (even if the buyer does not want to assume the benefits of the contract).
5. Review The Account Receivable and Payable.
Assume the seller is leasing equipment for the business, but is several months behind in his rental payments at the time of closing. Further assume that the Purchase and Sale Agreement states that the buyer is not responsible for the seller’s liabilities arising before the date the buyer acquires the business. Is the buyer adequately protected? Well, Yes and No!
From a legal standpoint, the buyer may not have any legal obligation to the equipment lessor after closing. But, from a practical standpoint, the buyer may be left in a difficult position. If the buyer is unaware of the amounts owed on the equipment leased by the seller before closing, the buyer may receive a call from the lessor after closing, saying that he will confiscate the equipment unless the buyer pays the amounts owed by the seller. This leaves the buyer in the precarious position of either having to pay the seller’s charges, or risk business interruption if the lessor retrieves its equipment before the buyer can replace it.
To avoid this situation, a buyer should thoroughly audit the seller’s books and records before closing, and try to force the seller to provide evidence that all obligations have been paid in full. The buyer should request this, even if the buyer is not going to assume any of the seller’s obligations that arose before closing.
6. Require Minimum Requirements on Acceptance of New Orders.
If the business being acquired has future orders or works-in-progress, there are probably orders booked for which the seller has previously received a deposit. Some of these orders may have to be filled or completed by the buyer after closing. Before entering the Purchase and Sale Agreement, the buyer should therefore try to obtain a complete list of future orders and works-in-progress, which should be updated periodically and at closing.
In addition, since the buyer will most likely be obligated to honor the seller’s prior commitments, the buyer should be certain that the future orders and work-in-progress is profitable. If possible, the Purchase and Sale Agreement should: (1) require the seller to assign to the buyer all deposits received for works-in-progress and future orders not fulfilled at closing; (2) set minimum requirements on the seller’s acceptance of new orders, and (3) require the seller get the buyer’s prior consent before accepting new orders that deviate from those requirements.
7. Four Ways The Buyer Can Protect Himself Against a Seller’s Default on an Obligated Payment.
Although a buyer can obligate a seller to pay for the liabilities incurred by the seller during the seller’s ownership of the business assets, what happens if the seller simply does not pay? What can the buyer do to protect himself?
First, the Purchase and Sale Agreement can require the establishment of an escrow to last for a certain period of time after closing to pay for all known, and any unknown, liabilities of the seller that may arise after closing.
Second, the Purchase and Sale Agreement can contain a clause obligating the seller to indemnify, defend and hold the buyer harmless from and against the seller’s liabilities. This indemnity clause will allow the buyer to recover his or her losses from the seller in the event the buyer pays the seller’s liabilities.
Third, the buyer can insist that tbe seller allow the buyer have his or her attorney perform a litigation and lien search on both the business and its owners.
Fourth, the buyer can attempt to obtain a guaranty from a financially responsible party of the seller’s continuing obligation to pay his liabilities. In many instances, the seller will be comprised of one or two “single purpose entity(ies),” whose only assets are the real estate and business being sold. Once the assets are sold, the seller will likely cease doing business, liquidate the proceeds from the sale, and dissolve any entity that once held the business assets sold. In this situation the seller entities would no longer exist and it would be very difficult for the buyer to obtain compensation from the selling entities if the buyer were to pay the seller’s liabilities after closing. However, the individuals who own the selling entity(ies), or another financially responsible entity controlled by these individuals, can provide the the buyer with a guaranty that they will remain responsible for the seller’s liabilities. This would provide the buyer with the added protection of knowing that a party with real assets will be available to compensate him or her for losses if the seller defaults on an obligated payment.
When buying a business or corporation in California, examine the past performance of the seller’s business and the seller’s assets from both an income and expense standpoint. Examine the current status of the seller’s liabilities and how you are going to deal with them. Demand full disclosure by the seller and demand that the seller accept personal financial responsibility. If you do, the risks assumed upon acquisition of the property, business assets, and ongoing business will be minimized.



Trustee standard of care also is a constantly evolving area of law. Generally, Courts construe the trustee’s standard to be very high. Initially, the beneficiary does have the right, in most, but not necessarily all circumstances, to demand that the trustee disclose trust-related information. At that point, if the beneficiary believes that an impropriety has occurred, the beneficiary must, to the extent possible, expressly state the nature of the dispute or impropriety. The Courts are not uniform in determining the extent to which the beneficiary must initially present, if at all, evidence of the trustee’s alleged wrongdoing. Assuming that the beneficiary has stated a potentially valid claim, it is then the burden of the trustee to refute that claim with sufficient evidence. Assuming that the trustee can present sufficient evidence tending to refute the claimed impropriety, the beneficiary will want to present evidence establishing trustee wrongdoing.

The general standard of trustee care is stated in Cal. Probate Code §16040. The trustee should administer the trust with the reasonable care, skill, and caution that a prudent person would under the current circumstances to accomplish the purposes of the trust as determined from the trust wording. A trustee who has special skills is required to use those skills.

Generally, the trustee should not delegate responsibilities that the trustee can reasonably be expected to perform. However, in practice it is not uncommon for trustees to delegate certain responsibilities, and, by statute, in appropriate circumstances a trustee can delegate specific duties. Some of the responsibilities that might be delegated are investment, tax, legal and accounting in nature. The trustee must prudently select which agents to use, and must oversee those agents.

Confidentiality, self-interest, and impartiality: A trustee has a duty of confidentiality. The trustee has a general duty, but not in all circumstances, not to disclose to a third person information about the trust and the beneficiaries. However, the trustee might need to disclose certain information to properly administer the trust. More important, a trustee must not put his or her interests above those of the trust or the beneficiaries, and should avoid conflicts of interest with the trust and the beneficiaries. This can be a difficult area because it is absolutely permissible and common for a trustee also to be one of several beneficiaries. Although not a legal requirement, it has been my experience that a trustee should try to avoid even the appearance of self-dealing, or that he or she has placed his or her interests above those of the trust or beneficiaries. If potential conflicts exist, often disputes can be avoided by obtaining prior beneficiary or Court approval of the action to be taken. The trustee should act impartially between the competing interests of the various beneficiaries. Unless the trust specifies otherwise, the trustee should not favor a particular beneficiary or class of beneficiaries.

 Discretionary powers

 A trust will typically contain provisions that give the trustee discretionary powers, that is, the power to use his or her own judgment in specific circumstances. The amount of discretion is strictly construed from the language in the trust document and the intent of the trustor. Be cautious, however—even if the trust provides sole, absolute or uncontrolled discretion, Courts still require the trustee to act within the fiduciary standards and not in bad faith or in disregard of the purposes of the trust. In other words, if the issue of a trustee’s discretion is presented to the Court, the Judge will make a determination based on his or her own evaluation. Unless limited by the terms of the trust, the trustee also has other statutory powers. You should review the powers and limitations specified in the trust document, and also the powers listed at Probate Code §§16200-16249.


 Some trusts have co-trustees, that is, a trust that has two or more people acting as trustees at the same time. Unless the trust provides otherwise, co-trustees must act unanimously. However, the trust can allocate powers unequally between co-trustees. And, in limited circumstances if a co-trustee is unavailable, the remaining co-trustees may act. If the co-trustees are stalemated on a decision, one or more of the co-trustees can file a Court petition for instructions. A co-trustee can be liable for a breach of duty by a co-trustee.

Investments and management

 The trustee has the duty to invest trust property for the benefit of the beneficiaries, subject to restrictions or limitations stated in the trust. The trustee’s investment powers are provided by the terms of the trust. If not derived from the trust, the investment powers are also derived by statute, case law and the factual circumstances. Generally, the trustee has the duty to make trust assets economically productive.

The trustee is subject to the Uniform Prudent Investor Act, unless the trust provides for a greater or lesser standard of care. A trustee must invest and manage the trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. The trustee must exercise reasonable care, skill, and caution. A trustee’s investment and management decisions relating to individual assets and courses of action are evaluated in the context of the trust’s portfolio as a whole and as a part of an overall investment strategy reasonably suited to the trust’s risk and return objectives. Unless the trust states otherwise, the trustee has a duty to invest trust property, preserve it, and make it productive.

The trustee must consider the interests and needs of all beneficiaries, income and remainder, when making investment decisions. The beneficiaries may have conflicting interests. When two or more income beneficiaries have different personal income tax brackets, generally the trustee should strike a balance between them when determining how much to invest in certain assets. However, the trustee might be allowed to prefer one class of beneficiaries over another if the trust terms direct—this can be a difficult area and cause litigation concerns.

Accountings and information

 The general rule is that the trustee is required to keep the beneficiaries reasonably informed about the trust and its administration. However, there are important exceptions. Upon reasonable request by a beneficiary, the trustee must provide the beneficiary with a report of the information relating to the assets, liabilities, receipts, and disbursements of the trust, the acts of the trustee, and the particular terms of the trust that are relevant to the beneficiary’s interest.

Probate Code §16062 requires the trustee to provide an accounting at least annually, at termination of the trust, and upon a change of trustee to each beneficiary to whom current distribution of income or principal is authorized. However, the accounting or information might not be required if waived by the terms of the trust or the beneficiary, or the trust in question is revocable. The trustee must maintain proper accounts. Accounting requirements are beyond the scope of this discussion—for example, generally, the records might be required to differentiate between potentially confusing accounting aspects such as income and principal allocations.




The Americans with Disabilities Act (ADA) prohibits employment discrimination on the basis of workers’ disabilities. The ADA also requires employers to provide reasonable accommodations — changes to the workplace or job — to allow employees with disabilities to do their jobs.

A reasonable accommodation is assistance or changes to a position or workplace that will enable an employee to do his or her job despite having a disability. Under the ADA, employers are required to provide reasonable accommodations to qualified employees with disabilities, unless doing so would pose an undue hardship. Qualified employees are those who hold the necessary degrees, skills, and experience for the job; and who can perform its essential functions, with or without an accommodation.

Examples of accommodations include:
• making existing facilities usable by disabled employees—for example, by modifying the height of desks and equipment, installing computer screen magnifiers, or installing telecommunications for the deaf
• restructuring jobs—for example, allowing a ten-hour/four-day workweek so that a worker can receive weekly medical treatments
• modifying exams and training material—for example, allowing more time for taking an exam, or allowing it to be taken orally instead of in writing
• providing a reasonable amount of additional unpaid leave for medical treatment
• hiring readers or interpreters to assist an employee
• providing temporary workplace specialists to assist in training, and
• transferring an employee to the same job in another location to obtain better medical care.

These are just a few possible accommodations. The possibilities are limited only by an employee’s and employer’s imaginations—and the reality that one or more of these accommodations might be financially impossible in a particular workplace. As one might imagine, the ADA has spawned yet another crop of workplace experts, all eager to give tips to employers on what they must do to comply with the law. Most offer some type of checklist or list of steps to take to help meet the ADA’s provisions.

In truth, the checklists are most valuable for employees who want to get or keep a job. If you have a disability, you will be in the best possible bargaining position if you approach a potential employer with answers to the questions on their list.

Here are some things to ponder:
• Analyze the job you want and isolate its essential functions.
• Write down precisely what job-related limitations your condition imposes and note how they can be overcome by accommodations.
• Identify potential accommodations and assess how effective each would be in allowing you to perform the job.
• Estimate how long each accommodation could be used before a change would be required.
• Document all aspects of the accommodation—including cost and availability.

The ADA does not require employers to make accommodations that would cause them an undue hardship: significant difficulty or expense. To show that a particular accommodation would present an undue hardship, an employer would have to demonstrate that it was too costly, extensive, or disruptive to be adopted in that workplace.

The Equal Employment Opportunity Commission (EEOC), in its role as the federal agency responsible for enforcing the ADA, has set out some of the factors that will determine whether a particular accommodation presents an undue hardship on a particular employer:

• the nature and cost of the accommodation
• the financial resources of the employer—a large employer, obviously, reasonably being asked to foot a larger bill for accommodations than a mom and pop business
• the nature of the business, including size, composition, and structure, and
• accommodation costs already incurred in a workplace.

It is not easy for employers to prove that an accommodation is an undue hardship, as financial difficulty alone is not usually sufficient. Courts will look at other sources of money, including tax credits and deductions available for making some accommodations as well as the disabled employee’s willingness to pay for all or part of the costs.



The Basic Facts:

A living trust is a legal entity that can own property and direct distribution of that property after a person’s death, or if they become incapacitated.
One of the primary benefits of a living trust is that it isn’t subject to probate, or its associated costs and delays.
If you establish a trust, you (known as the grantor or settlor) appoint yourself as the initial trustee and primary beneficiary of the trust. You retain full and complete control over the property during your lifetime. In the living trust document, you appoint the individual(s) and/or entities that will take on the role as successor trustee when you can no longer act as the initial trustee. The trustee manages and distributes the trust assets according to the terms of the trust.


When a person dies, the property from his estate can be transferred to the intended beneficiaries via a will. Probate is the process of properly transferring the estate to the rightful beneficiaries. This process is also used to collect any taxes due on the transfer of the property.

Living Trust Vs. Will:

A living trust is sometimes referred to as a “will substitute.” Although, in some respects, it does take the place of a will, a pour-over will is still necessary to distribute assets left outside the trust, as well as to nominate guardians for minor children. This type of will is used in conjunction with a trust—not as a trust substitute.
However, a will by itself only becomes effective at your death. A will does not avoid probate and does not protect you or the management of your assets in the event of your incapacity.

STEP 1: Identifying Your Estate Planning Goals:
Your overall estate planning goals are unique and any trust you create should accurately reflect them. Here are the critical reasons to consider a living trust: finances; probate avoidance; incapacity planning; and the ability to control assets after death.
Financial Cost
A living trust lets your loved ones avoid the legal costs associated with probate. It can also reduce, or even eliminate, any estate tax liability by properly using your estate tax exemption amount to the fullest extent. The current federal estate tax rate is assessed against the estate (as opposed to your designated beneficiaries) based upon the net value of the property transferred at your death, less the applicable estate tax exemption amount.
Because we have an estate tax system (not an inheritance tax system) at the federal and state levels, the beneficiary doesn’t pay taxes on the assets. Taxes may ultimately reduce the total amount the beneficiary receives, but the taxes don’t come out of the beneficiary’s pocket directly. Rather, they are paid out of the estate before the beneficiary receives the property.
Probate avoidance
Avoiding probate is in many ways linked with financial motivations. However, aside from wanting to avoid the legal fees that can come with probate administration, many people prefer to avoid probate so they can keep the distribution of their assets private. All information regarding your assets transferred through probate will become a matter of public record for anyone to see. Furthermore, probate can be a very lengthy process (averaging a year or more in California, for example). So, if you want your beneficiaries to have access to your assets sooner, and without the need for court involvement or approval, a living trust is clearly the best recourse. Remember: a will by itself does not avoid probate.
Incapacity planning
As the average life expectancy continues to rise, so does the likelihood that at some point you’ll become incapacitated. A will comes into effect only after your death. In contrast, through a Durable Power of Attorney, a designated trustee of your living trust can take control of your assets during your lifetime.
A well-drafted living trust will include disability/incapacity planning provisions and is designed to work in conjunction with a Durable Power of Attorney (POA). A POA should always be part of your estate planning package.
Retained control after death
A living trust lets you include further planning for minor children and for special assets and situations. You can also provide creditor and predator protection for surviving beneficiaries, which is difficult to accomplish through a standard will. For example, you can establish:
• Provisions creating an inheritance protection trust, which can last for the lifetime of the beneficiary and prevent those assets intended for the beneficiary from being included in lawsuits against the beneficiary. An inheritance protection trust can also protect the assets from the beneficiary’s spouse in the event of a divorce.
• Provisions to protect the beneficiary from himself. As an example, these provisions might allow trustee discretion when the beneficiary has a drug or alcohol problem.
• Provisions to create a special needs trust for any beneficiary who becomes disabled after the living trust has been executed, but before the trust assets are distributed. This would make certain that distributions to the special needs beneficiary would not make them ineligible for government assistance such as Social Security Death Index (SSDI) payments.
• Provisions that protect the trust assets should the surviving spouse remarry.

STEP 2: Identify The Parties:
Perhaps the most important decisions to make when it comes to creating a living trust is the choice of your successor trustee(s) and beneficiaries. Usually, when someone is looking to establish a living trust, they have a general idea to who they want to leave their assets. However, when it comes to selecting the person (or entity) who will be responsible for distributing the assets, there isn’t always an obvious choice.
Before executing a living trust, you should have a clear understanding of the powers and responsibilities you’ll be granting the trustee. Administering a trust can be complicated and time-consuming for the trustee. You’ll do yourself and your beneficiaries a disservice by selecting someone who isn’t up to the challenge.
A successor trustee doesn’t have to be a relative, but they must be someone you can trust completely. Family dynamics play an important role in the selection process, and you are the expert when it comes to your own family.
Blended families (e.g., second marriages, children from a previous relationship), same-sex couples, or families with no children, often have more difficulty in this stage of planning and are encouraged to seek legal counsel for guidance.
In many cases, a corporate trustee such as a trust company or a private fiduciary is the appropriate choice. Many financial firms and banks offer trust companies for a fee.

STEP 3: Determine How To Draft The Document:
There is a plethora of “do-it-yourself” trust-drafting pundits and online fill-in-the-blank solutions available for a fraction of the cost you’d pay for professional assistance. The drawback to these tools is that you’re creating a binding legal document without obtaining any legal advice specific to your situation. Most people create do-it-yourself trusts only to visit an attorney later with the expectation that the attorney will correct any deficiencies in the document with a simple amendment. This usually doesn’t work because most attorneys won’t take on the liability of having their name attached to the original trust. Instead, the attorney will most likely require a complete restatement of the trust, which often costs the same as if you’d had the attorney draft the trust in the first place.
Many estate planning attorneys offer a low-cost or free initial consultation, and it makes sense to take advantage of this consultation to determine your next steps. Retaining a qualified attorney will always save your estate money in the long run.

STEP 4: Funding The Trust:
A living trust only avoids probate to the extent that it is properly funded, i.e., that your trust includes as many of your assets as possible. If one of your motivations for creating a living trust is probate avoidance, you should make sure that the trust is funded with all your assets that would otherwise pass through probate. Typically, the critical asset to transfer into the living trust is any real estate you own. But you should also transfer your personal property, bank accounts, brokerage accounts, business interests, etc.
By the way, transferring your primary residence into a living trust doesn’t create a property tax reassessment in California, but you must file a preliminary change of ownership and the appropriate deed registering the transfer with the applicable county recorder. You can do the additional trust funding without professional help, but it often makes sense to have an attorney advise you regarding which assets should or should not be transferred.

STEP 5: Maintenance of The Trust:
Over time, there are going to be items you’ll want to update or change with respect to your trust. Common events that should prompt you to review and revise your trust document include (but are not limited to): marriage, divorce, birth in the family, death in the family, purchase of new real estate, refinance of existing real estate, change in the tax laws relevant to your trust, and significant increases in your assets. You should routinely review your document every three to five years.
REMEMBER PLEASE: Your estate plan shouldn’t end with the living trust, but rather begin there. At a minimum, your plan should include the following documents:
Pour-Over Will: This will directs that any assets you did not transfer to your living trust during your lifetime should be transferred to the trust and distributed according to the terms of your trust at your death. In addition, it should contain your nominations for guardians of any minor children in your care.
Durable Power of Attorney for Finances: This document authorizes your agent to transfer property to your trust and manage your financial affairs should you become unable to manage them yourself.
Power of Attorney for Health Care: Also referred to as a “Health Care Directive,” this document authorizes your designated agent to make medical decisions on your behalf when you are not able to. This document also typically contains your directions regarding prolonging life by artificial means in the event you become diagnosed with a terminal condition.
HIPAA Waiver: Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), hospitals, physicians, and other health care providers must take certain measures to protect patient information. A HIPAA waiver gives them permission to release your health information and medical records to people you designate.
Assignment to Trust: This document funds your trust with home and your personal belongings such as your household furnishings, artwork, jewelry, etc. It establishes your clear intention that you want to have your personal belongings distributed upon death according to the terms of your trust.
Certificate of Trust: This is a document you can give to financial institutions and others when they request a copy of your trust. It keeps the personal and financial information in your trust private while verifying that you actually have a trust.



What is a power of attorney?

A power of attorney is a contract between the “principal” and the “attorney in fact,” usually called the “agent.” The durable power of attorney is the most important estate-planning tool the attorney has, allowing the principal to appoint the person of his choice to make important financial and health-care decisions. It also allows the principal to give guidance in the exercise of those decisions.

Why is a power of attorney so important?

A will only becomes effective when the person making it dies, and a trust only applies to the person’s property; but a power of attorney is effective while the principal is living and often avoids court involvement in the family’s affairs. Without a power of attorney, it may be necessary to seek a court appointment to pay bills or manage property. Even more importantly, guardianship may be necessary to protect an incapacitated patient from bad treatment in a health- care facility.

An incompetent patient is under the complete control of a hospital or nursing home administrator. Family members and significant others can express their desires, but without guardianship or power of attorney they have little authority to enforce their decisions. This is a fact that many persons do not know. They often become complacent during periods when relations between the care provider and the family are friendly. However, if care at the facility fails to meet the family’s expectations or if there is a disagreement over what kind of treatment the patient should receive, the lack of a well-drafted power of attorney can be disastrous.

Because of the importance of this document, it should not be prepared without careful review of all provisions, nor executed without careful consideration and counseling. The attorney must particularly stress the responsibility borne by the agent. The attorney must also be alert to potential abuses of the power of attorney and decline to participate in either drafting or execution if it appears that an incompetent principal will be induced to sign a power of attorney.

Persons who sign powers of attorney do so out of a desire for privacy and to avoid court supervision of their affairs. They are also exercising a private right to contract. The powers granted may be durable–continuing despite disability–or springing–exercisable only on disability. Some attorneys recommend a springing power of attorney to avoid involving the agent in the principal’s affairs before the principal becomes incompetent. However, a springing power can be difficult to exercise and may leave a principal who is mentally competent but physically incapacitated without an advocate. For this reason the attorney may offer an immediate power of attorney that includes health powers so that the agent can act for the principal before the principal becomes unable to participate in medical decisions.

Why do powers of attorney include such long lists of powers?

Powers of attorney are strictly construed. A general grant of “all powers, not limited to the following” will add nothing to the laundry list of powers set forth, in most states. For example, a bank may require that the power of attorney specifically grant the power to deposit or withdraw before the bank will allow the agent to do banking. Therefore it is desirable to make the power of attorney detailed in naming specific powers.

Can the agent under a power of attorney make gifts for the principal?

The construction of a power of attorney is particularly strict relating to gifts and estate-planning. Under the general rule, an agent may not make gifts nor change the principal’s estate plan without an express authorization in the power of attorney. Although a recent California case upheld a gift of the principal’s home by an agent to herself, the extenuating circumstances point out the difficulty of justifying self-gifts without explicit authorization in the power of attorney. After the agent signed and recorded the transfer, the principal took several actions tending to show that he knew and approved of the transfer: he confirmed his intentions in a conversation with a County Recorder’s employee, he acknowledged receiving the deed in the mail after recording, and he had conversations with several disinterested individuals in which he described the transaction and his involvement [Estate of Stephens, 122 Cal.Rptr.2d 358 (Cal. 2002)]. Without such evidence, gifts by an agent to himself or herself would be likely to be overturned, if challenged.

What can the agent do if someone refuses to respect the power of attorney?

Banks, stock brokers, hospitals, and other third parties have the right to question the validity of a power of attorney. After all, they may be liable for damages if they negligently accept an invalid power of attorney and their customer or patient suffers a loss. Therefore, agents often get turned away when they try to use their powers at banks, credit unions, stock brokers, and other places. The agent should not just give up if the power of attorney is legitimate and he or she is justified in exercising the powers granted.

When the person to whom a power of attorney is presented is unfamiliar with the document or does not understand the agent’s right to act for the principal, a letter from an attorney often solves the problem. A thoughtful, yet sternly-worded, letter explaining the agent’s authority to act, requesting that the employee refer the matter to the institution’s legal department sometimes prompts the employee to decide to allow the agent to act for the principal.

Sometimes, the problem is that the power of attorney is stale. This just means that it is older than the bank officer or hospital administrator is accustomed to. A power of attorney does not expire, unless an expiration date is written into the document. However, if a bank officer is seeing a power of attorney that is a dozen years old for the first time, he or she may wonder whether it is still valid. A power of attorney that is more than 60 days old will not be accepted by most stock brokers. However, the fact that the power of attorney is older than the third party would like to see does not mean the power of attorney is no good. An attorney can probably cure the problem for the agent.

A stale power of attorney can be refreshed in several ways. One is to have the agent sign an affidavit that he or she is still authorized to act for the principal. An attorney can also sign an affidavit showing that the power of attorney is still valid.
For stock transactions, a Medallion signature is required. This does not mean that the original power of attorney must have had the principal’s signature guaranteed. It usually means only that the agent’s signature on the stock transfer instrument must have a Medallion guarantee.

Is a photocopy of a power of attorney valid?

Most powers of attorney include the following language: “A photocopy of this signed original shall be deemed to be, and should be accepted as, an original.” A copy of a power of attorney that includes this provision will be accepted for most routine uses. However, a real estate transaction will usually require an original signature and many agencies and institutions will demand to see the original. Therefore, it is smart to execute two or three original powers of attorney when doing one. That way, the agent is not out of business if a one-and-only original is lost or destroyed. Besides, the additional cost of doing two or three extra originals is small by comparison.



Whether you can be held personally liable for the debts of your business depends on the structure of your business and how it was formed. Read on to learn more about when you are personally liable for business debts and when you are not.
Sole Proprietorship
You are likely a sole proprietor if you are the only owner of your business and you have not incorporated or set up a specific form of business entity for it. A sole proprietorship is not a separate legal entity. You and your business are considered the same and are equally liable for debts incurred by the business.
Since a sole proprietorship does not offer limited liability to its owner, creditors of the business can go after your personal assets in addition to business assets. This means that if the business does not have sufficient assets, creditors may sue you and try to collect the debt by taking your house, car, or other personal property.
A partnership is an unincorporated business entity owned by two or more individuals. There are several types of partnerships.

General Partnership
A general partnership can be automatically created without any paperwork if two or more people agree to carry on a business or activity for profit. Each partner is considered a general partner and is personally liable for the debts of the partnership. If your business is a general partnership, you will be responsible for the obligations of the business.
Limited Partnership
In a limited partnership there is at least one general partner and at least one limited partner. The general partner is personally liable for partnership debts while the limited partner is not. This means creditors can collect from the personal assets of the general partner but not the limited partner.
Limited Liability Partnership (LLP)
An LLP is designed to shield all partners from personal liability for the debts of the business. In some states all partners enjoy limited liability but there are states that require an LLP to have at least one general partner. Also, in certain states the liability protection of the LLP only applies to negligence claims so all partners may still be liable for business debts arising out of a contract (such as business loans or credit cards).
A corporation is an incorporated entity designed to limit the liability of its owners (called shareholders). Generally, shareholders are not personally liable for the debts of the corporation. Creditors can only collect on their debts by going after the assets of the corporation.
Shareholders will usually only be on the hook if they cosigned or personally guaranteed the corporation’s debts. However, shareholders may also be held liable if a creditor can prove corporate formalities were not followed, shareholders commingled personal and business funds, or the corporation was just a shell designed to shield liability. This is called piercing the corporate veil.

Limited Liability Company (LLC)
Similar to a corporation, an LLC offers limited liability to its owners (called members). Generally, members are not liable for the debts of the LLC unless they cosigned or guaranteed the debt personally. However, like a corporation, creditors may also be able to go after the members’ personal assets by piercing the corporate veil.



Generally speaking, the main difference between an LLC and a partnership is that LLC owners are not personally liable for the company’s debts and liabilities. This means that creditors of the LLC usually cannot go after the owners’ personal assets to pay off LLC debts. Partners, on the other hand, do not receive this limited liability protection unless they are designated “limited” partners in their partnership agreement.

Also, owners of limited liability companies must file formal articles of organization with their state’s LLC filing office, pay a filing fee, and comply with certain other state filing requirements before they open for business. By contrast, people who form a partnership don’t need to file any formal paperwork or pay any special fees.

LLCs and partnerships are almost identical when it comes to taxation, however. In both types of businesses, the owners report business income or losses on their personal tax returns; the business itself does not pay tax on this money. In fact, LLC and partnerships file the same informational tax return with the IRS (Form 1065) and distribute the same schedules to the business’s owners (Schedule K-1, which lists each owner’s share of income).

The owners of a corporation are the shareholders. The owners of an LLC are its members. Beyond the name differences, there are other substantial differences between the two. An LLC has complete freedom to distribute its ownership stake to its members without any regard to a member’s capital contribution to an LLC. This becomes important when profits are distributed to each member. Although a certain member may not have invested as much as another member, an LLC’s operating agreement may specify that all members receive an equal share of the profits.

Be sure to see an attorney to discuss the options that are specifically applicable to your goals and corresponding needs—AND, see also:



Yes, your employer can require that you remain on its premises during your meal period, even if you are relieved of all work duties. However if that occurs, you are being denied your time for your own purposes and in effect remain under the employer’s control and thus, the meal period must be paid. Minor exceptions to this general rule exist under IWC Order 5-2001 regarding healthcare workers. Pursuant to the Industrial Welfare Commission Wage Orders, if you are required to eat on the premises, a suitable place for that purpose must be designated. “Suitable” means a sheltered place with facilities available for securing hot food and drink or for heating food or drink, and for consuming such food and drink.

Furthermore, It is possible for an employer to force any employee to work through lunch, however for employees who are both Exempt and Salaried, hours worked do not matter, including working through lunch. If we instead have non-exempt hourly employees with a working lunch, the key phrase is “working”. These non-exempt employees have not been relieved of all duties, and have not been allowed to leave the premises. They not only must be paid for lunch as time worked, but the employer may also be subject to a fine.

wfb_legal_consulting_inc_largeTHE ADVANTAGES OF HAVING A CA LLC

A California limited liability company (LLC) is probably the most flexible entity choice in terms of management and structuring economic sharing arrangements among the members. A California LLC also offers the following advantages:

  • Personal limited liability protection for all members, such that unless a member personally guarantees a debt or obligation, or fails to form or maintain the LLC properly, the member may not be held personally liable for the LLC’s debts and obligations.
  • Pass-through tax treatment to eliminate the potential for double taxation like a partnership and an S-Corporation.
  • No restrictions on permitted members, such that non-resident aliens and corporations can be members of a California limited liability company (unlike an S–Corporation).
  • Less burdensome local and state reporting requirements than those required by an S-Corporation.
  • Less upkeep and maintenance than a typical corporation.
  • Much greater flexibility than an S-Corporation when it comes to management; a California LLC can be structured to be managed by either its members (member-managed LLC) or an elected centralized management team (a manager-managed LLC) and the Operating Agreement can be drafted in such a manner that the members right to remove managers is limited.
  • Much greater flexibility than an S–Corporation when it comes to income and loss distribution; for example, where one owner agrees to contribute all of the cash needed for the business, and another owner agrees to contribute his time or services by working full-time for the LLC, the parties might want to structure a preferred cash-on-cash return to the money partner. This can be easily done with an LLC, but would be very difficult to accomplish with an S-Corporation.
  • Much greater flexibility when it comes to structuring the voting and profit participation rights of the LLC members. For example if a corporation is owned by two shareholders (one who owns 60% of the shares and the other 40% of the shares), the two shareholders would still have equal voting rights on the board of directors even though one shareholder is entitled to 60% of the profit and the other 40% of the profit. With a California LLC, the two owners can provide for a 60-40 profit split and voting split, which is very difficult to do with an S-Corporation.
  • And, for the sole proprietor seeking to form a single member LLC, the ultimate benefit is that the owner of the LLC will not be required to file an additional tax return – just a Schedule C while simultaneously benefiting from the personal limited liability protection afforded to the member of an LLC.

wfb_legal_consulting_inc_largeBEST ASSET PROTECTION TIPS

I always suggest a course of continuing education where asset protection principles are concerned. Because your education is never really complete and should be ongoing nevertheless ,here are some BEST ASSET PROTECTION principles to carry around in your wallet:

  1. Inventory Everything. Make a complete list of your assets and debts. It’s a good idea to do this every three-six months. Remember to think broadly. For example, do you own a vacation home or have retirement assets? Do you hold stock in another company? These may be susceptible to attack in litigation.
  2. Research exemptions and protective entities. A few of your assets may be exempt from creditor actions because of federal or state laws. These typically include your personal residence, your pension or retirement fund, and your life insurance policy. These should be the few assets that are in your name. As for all other assets, consider setting protection in the form of LLC’s, S-Corporations, domestic trusts and perhaps offshore trusts (make sure your consult with a specialist to ensure foreign government credibility concerning offshore placements). “You can also layer the protection by using multiple entities. You can go even further and equity-strip the assets by taking loans against the assets or refinancing them. This allows the asset to be less attractive to creditors.
  3. Avoid personal guarantees. A personal guarantee is when you pledge to be personally responsible for a debt. The result is that you essentially lose the protection of your company’s corporate status. Put a time limit on any bank-required loan guarantee and/or specify a particular asset as collateral. Nevertheless, clients may try to get a personal guarantee. Don’t allow it. Get another client please!
  4.  Examine ALL contracts you sign. While your company’s corporate structure may provide some protection, it may not be enough if there’s a tort action or claim for fraud. In such cases, you may have personal liability. This is why I have always said that it’s important to provide liability protection in your contracts. This includes capping damages and even disallowing certain types of damages. ONLY sign contracts on behalf of your company—not in your name.  Avoid the chance the contract could later be considered a personal guarantee.
  5. Buy insurance. While asset protection can be extremely helpful in avoiding personal liability, a creditor may still be determined to go after your assets. That’s why it is important to have insurance protection. Liability insurance covers business assets and damages for personal injuries and property damages that you or other people cause (such as your employees) while in the scope of running your business. Property insurance covers your company’s assets. Seriously consider an umbrella policy to cover exposure that goes beyond property insurance. It is inexpensive and readily available.



Since 1998, California has prohibited individuals and companies from sending commercial email to those who have neither requested nor consented to receive the email, or with whom they do not have an existing business or personal relationship, unless:    The sender has either established a toll-free telephone number that recipients can call to stop future emails or included a valid email address that recipients can contact to stop future emails; and the subject line of the email begins with the four characters “ADV:” designating it as commercial communication, or “ADV:ADLT” designating it as sexual, adult material.


The Franchise Disclosure Document (FDD) is a legal document that franchisors must furnish to prospective franchisees, by law. The Federal Trade Commission (FTC) is the regulatory body that enforces it. That makes it kind of a big deal. The FDD contains information…facts and figures on the franchise business opportunity, and is provided to help you analyze the offering. You, as a prospective owner of a franchise, must receive the FDD at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. You have the right to ask for and get a copy of the disclosure document once the franchisor has received your application and agreed to consider it.

Look for more on this subject in next month’s August 2015 issue of the Bottled Business Sense Newsletter.



A sole proprietorship is the simplest form of doing business. All you need to do is just start selling your product or service. No Tax ID number (EIN) is required. No doing business as (dba) registration is required, although one is recommended for marketing purposes. No business bank account is required, although one is recommended for bookkeeping and audit protection. No extra tax return is required. All your income and expenses are reported on your 1040 Form, Schedule C.

One of the primary disadvantages of a sole proprietorship is the self-employment (SE) tax of 15.3 percent on the ordinary net income generated by your business. Ordinary income includes items such as sales of products or services, commissions, or short-term income in real estate if you are a real estate professional. SE tax doesn’t apply to passive income, such as rent, dividends, interest, or capital gain. When evaluating the possible tax ramifications and planning options of your sole prop, it’s critical to distinguish between ordinary income and passive income.

Another primary disadvantage of the sole proprietorship is the owner’s personal responsibility for the liabilities of the business. If you have exposure to risks, you may want to consider setting up an entity even if it’s unnecessary for tax purposes or any other reason.


Take a look at what it takes to set your business up as a Limited Liability Company.

1. Choose a Name

Your name will be the first thing people see or hear as it relates to your new business, so make it a good one. Next, make sure you are only one using the selected company name. You can do that with a free corporate name search in your state. 

2. Register the LLC and File Your Paperwork

Call WFBLC, Inc. and I’ll file your state’s Articles of Organization paperwork for only $600.00. 

3. Get Your LLC’s Tax ID

Before you can start operating as an LLC, you need an Employer Identification Number. This is like a social security number for your business, and one you’ll need before opening a business bank account. This is included in my price above. 

4. Create Your Operating Agreement

This document outlines the rights and obligations of the members of your LLC, as well as lists the distribution of income of the Limited Liability Company to its members. Your Operating Agreement doesn’t need to be filed with your state, however you do need to keep one on premises, signed, if you have other shareholders. This is separate and apart from the filing fees, and is particularized depending upon the particular needs of your company. 

5. File Business Licenses and Permits

Additionally, you should apply for any business licenses or permits you’ll need to operate your business. It’s best to do this before you start operating your business to avoid potential fees or issues down the road. This is usually accomplished through your local city or county offices. 

6. Keep Your LLC Compliant

Once you’re operating as an LLC, your work isn’t done for good. Each year, or every other year depending upon your state of residence, you will need to file your Statement of Information. The due date for this report depends on where you filed your LLC. For example, if you filed it in Michigan, Delaware, North Carolina, Georgia, Florida, or Texas, there’s a specific date that your annual report is due. In other states, it’s due on the anniversary of when you filed your LLC. 

7. Finally, Take Care of Loose Ends

Depending on where you’re based, you may need to publish your intent to form an LLC in a local newspaper. If you form an LLC in New York, for example, you are required to run that intent in an approved newspaper for 6 consecutive weeks. This is not so in California.

41619ead-1531-4678-aaa0-e3055a2fe951_btr_bbss_show_logo[1]The Bottled Business Sense Show broadcasts every Tuesday at 10am PST, and provides practical business perspectives that uniquely emphasize both legal and media marketing strategies to protect and insure the longevity of your business.

Whether you’re trying to provide a startup business with some level of stability, or an established business with fool-proof asset and estate protection, or simply attempting to get a better return for your business marketing dollars, Bill Bernard and Rick Moscoso will expose potential pitfalls to insure the security and growth of your business, free from unwanted expense and the threat of litigation. You’ll learn how to implement marketing and protection tools equal to those used by today’s most successful corporations. The show is in simulcast video and audio at:

*All calls answered during live shows will be responded to in the comments section under that show at:
See Also: for audio only.

Also, a continuing goal of mine is to help middle-income families access a proper estate vehicle to  secure and protect their assets in a manner that is both affordable, yet professionally guaranteed. “Put Your House in Order”, is a complete attorney-backed do-it-yourself estate plan. Please contact me to learn more about this unique opportunity.

I also provide the following asset protection offer: $600+filing fee for an LLC or Incorporation in all 50 states!

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A continuing goal of mine is to help middle-income families access a proper estate vehicle to  secure and protect their assets in a manner that is both affordable, yet professionally guaranteed. Accordingly, I have developed “Put Your House in Order”, a complete attorney-backed do-it-yourself estate plan. Please contact me to learn more about this unique opportunity. I also provide the following asset protection offer: $600+filing fee for an LLC or Incorporation in all 50 states!

My target encompasses the growing group of people in today’s market whom I refer to as the “do-it-yourself” individuals.  These individuals possess, or indeed at the very least believe, that they can undertake certain contractual commitments by themselves without the help of a professional.  In that regard, I have targeted this group with the intent of providing them with unique opportunities to combine their own talent with that of a professional at a very affordable rate.

Product Overview


  • Protect your family from the time-consuming and costly experience of going through probate.
  • Maximize the value of your Estate by avoiding potential tax ramifications.

For Large Complex Estates, Contact Us For A Complimentary Consultation.



Sharon Masler, Manager at Masler and Associates, Certified Public Accountant

Orange County, California Area

I highly recommend Protect Your Estate 365 to anybody who does not have an estate plan. Bill Bernard, Esq. can help you set up an estate plan that is most affordable to you with the assurance that it is prepared by an attorney, and most of all provides protection to you and your family from unexpected situations. Bill is a very experienced attorney and has been a wonderful resource for my clients.

Please see links below:*1_*1_*1_*1_*1_*1_%2Fwfb*5legal*5consulting*5inc*5&trk=biz_product_logo


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This month’s “Niche” is a follow-up to what was discussed last month.  I’ve actually had several questions posed as to the real potential value of obtaining an LLC or some corporate structure, such as an S-Corporation.  Many people feel that bloated insurance policies providing excess coverage is all that is required for operating a sole proprietorship.

Nothing could be further from the truth of course.  The greatest potential disadvantage of doing business as a sole proprietor is that you have unlimited personal liability on all business debts, as well as court judgments related to your business.  This goes far beyond general liability coverage for someone who might be injured on your premises, for instance.  A good example is as follows:

George is a sole proprietor of a small manufacturing business.  When business prospects look good, he buys $60,000 worth of supplies and uses them up producing his product.  Unfortunately, there’s a sudden drop in demand for his products and George can’t sell the items he’s produced.  When the company that sold George the supplies demands payment, he can’t pay the bill.

As a sole proprietor, George is personally liable for this business obligation.  This means that the creditor can sue him and go after not only George’s business assets, but other property as well.  This can include, of course, his house, his car, and his personal bank account.  Simply stated, good luck getting an insurance carrier to cover this scenario, and ultimately, the potential loss.





My message this month is centered on employee awareness for small business owners. All too often, business owners make all or a combination of the following three critical mistakes: 1. They fail to form a business entity which feasibly can create protection from lawsuits filed by employees, suppliers and customers; 2. They fail to carry the appropriate amount of commercial insurance necessary for the operation of the business; and 3. They fail to distinguish between the proper organization of the business and the smooth running of the business as it regards employer obligations and employee rights under the law.

This month, I urge business owners to form a structured formal business entity capable of inside and outside protection– by that I mean protection from internal lawsuits as well as from external lawsuits. Contact G.A.I.T.E.way Business Solutions at, in order to obtain the proper commercial insurance, health insurance and the full gamut of legal and coaching business expertise, in order to ensure the smooth operation of your business and the protection of its valuable assets. Finally, I would urge that every business owner create a twofold the level of protection through the utilization of a irrevocable living trust. With this great tool, you can provide a vehicle for the smooth transition of your assets after you pass, as well as an additional layer of protection for your business during your lifetime.



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NICHE Highlights of the Month:
The focus this month is on high liability businesses. By that I mean businesses that are exposed to potential litigation more so than others particularly because of the type of products or services they provide.

For example, an in-home care facility exposes itself to potential litigation not only in terms of the elderly patients to whom they attend, but also by way of employees who often times are injured on the job as a consequence of having to engage in activities which include some heavy lifting, such as turning patients in different positions and helping them move from location to location for various reasons.

This is a prime example of the need not only for the establishment of a formal business entity to avoid liability exposure, but also a comprehensive user-friendly employee handbook that spells out specific duties and obligations of consequence in the employer-employee relationship. Such a handbook, usually comprising somewhere in the neighborhood of 30 to 35 pages in length, spells out federal, state and common sense practical applications which all lead to compliance with the law in a particular jurisdiction where the business is located. A handbook in and of itself will prevent potential litigation as long as all of the prerequisites are met by the owner of the small or large business.

The above example emphasizes the need for planning, preparing and protecting your business assets: through the initial application of deciding what business entity or corporate structure in particular is best suited to a business with high liability exposure; the preparation of those documents through contracts which specifically set forth how the entity will operate in conjunction with its products or services; and finally the ongoing protection that is received by the entity from an attorney who has employment experience—someone who can walk the business owner through the various stages required to ensure that the business is operating efficiently.

Please fill free to contact us at the BEST ASSET PROTECTION group available:
WFB Legal Consulting Inc., at 949-413-6535, should you have any further questions concerning the nature of your new or ongoing business.
*Please be advised that this communication is for general public informational use only and does not establish an attorney-client relationship. For more information, please contact WFB Legal Consulting, Inc.—A BEST ASSET PROTECTION Services Group at (949) 413-6535.