A comprehensive estate plan often includes writing a Last Will and Testament to transfer your assets to your beneficiaries.  Once you’ve passed away, the executor of your Will shepherds the Will through the probate process.  However, you may have things you’d like to communicate to your loved ones and beneficiaries that you don’t want to include in the Will itself. Often, these are informal instructions that will help your executor carry out your wishes. It might also include such informal elements as opinions about your funeral, the values you’d like to be remembered for or a list of personal items designated for individuals.

Sometimes known as a letter of intent, a list of personal items designated to certain individuals is a document that provides specific information regarding your preferences as to who gets certain personal items, family heirlooms, sports memorabilia, jewelry, guns or a clock.  The letter of intent should clearly identify the individual and accurately describe the item you wish for them to have.  Labeling the item(s) helps as well. The Will contains a paragraph that specifically references this letter of intent or list so that personal items do not have to be made public record, but the executor knows who gets what item.

Another similar item is a letter of instruction on anything from key contacts, account information, family information, medical care, or your funeral wishes.  A letter of instruction isn’t legally binding in any way, unlike a Will.  Rather, it’s meant to be something of a crib sheet for the executor of your Will or your loved ones. You can use plain English to communicate anything you want regarding your affairs as a reference once you are no longer able to communicate this information personally.

Because there is no legal aspect to this document, you are free to also include messages to your family if you wish, and you can touch on matters that you may not be able to include in something like a Will or an advance directive.

What Should You Include in Your Letter of Instruction?

What you decide to include in your letter of instruction is completely up to you.  There’s no one piece of information that will qualify or disqualify your letter.  Your attorney should provide you with guidance in this matter and may even have a form.  That said, there are a handful of things that will make your executor’s life easier when she’s working to probate your estate. This information includes:

• A list of all your assets;

• The location of any assets that may not be readily accessible;
• All of your account information, including passwords, PIN numbers and account numbers, for any bank accounts or retirement accounts you have;
• Contact information for anyone who helps you with your finances, including attorneys, brokers, bankers and financial advisors;
• Informal directions about how you would like the executor to disperse some of your assets, typically heirlooms or other sentimental possessions;
• If you’d prefer people to make donations in lieu of flowers at your funeral, information about which charities you prefer;
• Where your executor can find your most recent tax returns, Social Security statements, birth certificate and other important documents;
• Similarly, where your executor can find any real estate titles/deeds or oil and gas leases, etc.;
• Your Social Security number;
• Any divorce and/or citizenship papers, or applications thereof;
• Contact information of any creditors (mortgage, car, etc.) and any insurance companies, particularly if you have a life insurance policy;
• If you have pets who will need a home, where you would like your executor to send them.

From there, you can include any messages or additional preferences that come to you. Some people choose to include a preference for burial or cremation. You might even mention which songs you’d like played at the funeral.

Letter of Instruction vs. Last Will

Although a letter of instruction and a Last Will discuss similar topics, they are distinct documents with several differences. First and foremost, a letter of instruction isn’t a legal document, while a Will has legal force. State law requires that your executor or administrator follow the terms of your Will, whereas no one is required to follow your letter of instruction. In order to prevent any potential conflict as to whether your letter of instruction is a testamentary document or not, you should let you estate planning attorney provide guidance.

Because of this distinction, a letter of instruction can be much more flexible. You’re essentially just writing a message to an executor or a loved one with helpful information. This is why you can choose to include anything you want.

A letter of instruction can’t take the place of a Last Will.  If you pass away without a Will, a court-appointed administrator will distribute your possessions according to state and county law rather than your letter.

While it can’t serve as a substitute for a Last Will, a letter of instruction can be extremely helpful to your loved ones.  You can spell your wishes out in simple terms, and you can leave them a final message without the formality that comes with a legal document.

It is very important to have an estate planning attorney help draft your estate planning documents, and provide guidance with letters of instruction.  It is money well spent to avoid expensive conflicts later.

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1. Make sure the EIN is being obtained directly from irs.gov.  This seems obvious, but it is helpful to those unfamiliar with the IRS website.  Be aware a Google search of “obtain EIN online” could lead to unwelcome results such as websites of companies that offer to collect your information (and sometimes a fee) to obtain an EIN for you.  An EIN can be obtained from irs.govinstantly and at no cost. There’s no need to pay a fee or disclose personal, identifying information through any other website.
2. Confirm that appropriate legal authority exists before obtaining the EIN. An EIN should not be obtained before an executor or trustee has legal authority with respect to the estate or trust; therefore, the application should be made once the executor has been appointed and qualified as such or once the trustee has formally accepted trusteeship.  To qualify, an executor must take a sworn oath for example.  While the IRS website does not ask for this proof, it is necessary if audited.
3. When applying for an EIN for a trust, note that the IRS currently provides 18 different types of trusts to choose from.  Choosing the right one matters.
4. You will be asked if the estate will use a fiscal or calendar year.  You should select the ending month that will give you the longer tax year.
5. Make sure the name of the decedent matches the probate records. When applying for the EIN of an estate, use the Decedent’s name exactly as stated in probate records. Doing otherwise could cause problems for the executor when the executor attempts to open a bank account in the name of the estate.
6. Make sure the name of a trust matches the name as indicated in the governing instrument.  As with an estate, you will want to make sure the name of the trust you list on the EIN application is consistent with the name of the trust as indicated in the governing document.
7. Be aware that the IRS typically will not give the same responsible party more than one EIN on the same day.  The IRS typically limits the number of EINs a responsible party can obtain on a given day, with the current cap understood to be one.
8. If wires got crossed and two EINs were obtained for the same trust or estate, you must contact the IRS right away.
9. Know when you might need an EIN for a grantor trust.  For many grantor trusts, an EIN will not be needed for the trust while the grantor is still living because the grantor’s social security number will effectively serve as the trust’s EIN, and the trust income will be reportable to the grantor.  This is also true when a grantor trust has two grantors who are married and file their income tax returns jointly, as the trust income is reportable on their joint return.  However, if the trust has two grantors who are not married to each other or who are married to each other but file separate income tax returns, the trust will need its own EIN.
10. Consider who the “responsible party” is. The EIN application will ask who the “responsible party” is for the trust or estate. The “responsible party” is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. For an estate, it follows that the responsible party is the executor or administrator.  For trusts, the responsible party is a grantor, owner, or trustor.

Most attorneys who are handling the estate or trust will obtain the EIN and take care of these matters.  However, I believe it is important to understand these points so that you and your etate attorney are on the same page.

While Texas has the best system for transferring your property through your estate planning, it is more than a document.  It is a process process with many moving parts to secure your legacy.

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Gather Important Records:

           Death Certificate (can be provided to probate attorney after initial meeting)

           Social Security Card

           Driver’s License

           Marriage Certificate

           Birth Certificate

           Birth Certificates of Children

           Insurance Policies

           Business Documents and Agreements (consider if the business had a succession     plan – this will be apart from the probate process)

           Auto Titles and Registration

           Deeds & Titles to other Property

           Bank Account Information

           Bank Safe Deposit Box Information (Who can access the box and where is the key?)

           Financial Account Information (stocks & bonds)

           Retirement Account Statements

           Tax Returns (last three years)

           Consider tax filing deadlines for the current year

                       Loan Documents & Debt Information

                      VA Information (discharge papers & VA claim number)

                      Digital Account Information (account information, passwords)

                      Information regarding Intellectual Property Rights

                      Social Media Account Information (access, information & legacy programs)

                      Estate Planning Documents (powers of attorney end upon death)

It is important to consider if any of  the above Assets have Beneficiary Designations.

Locate the Will. There is no formal requirement to file a Will before death.  If you cannot locate the original Will, you should also check with the attorney who prepared the Will – sometimes Attorneys will maintain the original Will.  Other places to look for an original Will include the following: bank safe deposit boxes, safes, gun safes, safe rooms, fire proof boxes and the freezer.  A lot of estate planning & probate attorneys use blue ink to help us determine that the document is an original. Original documents also often have colored jackets.  You should also check with other advisors such as CPAs, tax preparers, financial advisors, and insurance agents.  As mentioned below, at times and in certain circumstances a copy of a Will may be admitted to probate. Consider that a few companies offer digital vaulting of important documents such as Wills.

Review the Will or Trust. In other words, read it.  In Texas, the Will needs to be signed by the testator and be witnessed by two individuals above the age of 14.  I have seen many documents that fail to have all these requirements.  Never assume the Will is valid or invalid, see an attorney.

Every state has their own estate code and tax system.  These systems vary greatly from state to state.  Generally, in Texas, the original Will is admitted to probate, meaning filed with the court and retained within the court files.  However, in certain circumstances, a copy of a Will can be probated. Note, Texas also recognizes the existence of a “Holographic Will,” this Will needs to be “entirely” in the handwriting of a testator and signed.  Just signing a typed document doesn’t count.  Once you locate the Will you should keep it safe because your probate attorney will need to review it at the initial meeting.  Again, never assume the Will is valid or invalid, see an attorney.  You will need an attorney familiar with the probate process to guide you through the best course of action.  You cannot represent yourself in a Texas probate.

Another tip is to keep beneficiaries informed. There is no formal requirement to make a Will public to the beneficiaries by “reading” a Will in Texas.  However, there is a requirement that the beneficiaries be furnished with a copy of the Will.  Your probate attorney will take care of that and other legal requirements.

As always, check with your attorney to decide which method of estate administration is right in your particular circumstance.  It could save you time and money.

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Another common thought is that I can just do this myself.  With the internet comes a vast amount of information and tools.  However, a person may not practice law in the State of Texas unless they are licensed by the State Bar of Texas per Section 81.102 of the Texas Government Code.  In fact, the unauthorized practice of law is prohibited by Section 81.106 of the Texas Government Code.  There will always be the shadetree “lawyer” who is going to do it himself or herself.  Most of these homegrown documents or instruments end up creating problems that cost more in the long run.

While the traditional tools work very well at accomplishing their designated tasks, you might be surprised to learn that they are not the only tools available for estate planning.  Depending on your particular assets and desires, then the use of a limited partnership, limited liability company, corporation may be right for the situation.

All of the business entities mentioned above are common when a business is owned by different individuals.  While the primary purpose for forming one of these business entities is for liability protection, they also provide for a means to manage the business and eventually shift ownership.

Limited partnerships have general and limited partners, the general partner(s) are responsible for management and decision making.  The limited partners are investors or owners with no management or decision making authority.

Limited liability companies and corporations have either membership holders or shareholders.  Typically the membership/shareholder(s) elect the officers who are responsible for management or decision making.  Thus, the membership/shareholder(s) with the greater number of membership interests or shares control.

The interests in all of these forms of business entities are something that can be transferred over time, therefore making a perfect vehicle for parents or grandparents to maintain control over assets owned by the business entity until they pass away or are ready to shift the majority of the ownership over to the next generation for control.  An additional benefit is that the family also has liability protection. So, using a family owned ranch/farm for example, if one family member is sued or found liable in some accident, then the assets of the other family members in ranching/farming business with them are not susceptible to being taken.  Another benefit is that incidents such as incapacity, death or divorce, can be addressed in the governing documents.  This means that should one of these events occur, there is a plan for how the property owned by the business entity is transferred.

If you are thinking of working on your estate plan, then perhaps one of these business entities is right for you.  Or maybe you are a candidate for a more traditional plan.  In either case, you should sit down with an attorney familiar with traditional plans and business entities to find out what estate plan is best for your needs.

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A person may not practice law in the State of Texas unless they are licensed by the State Bar of Texas per Section 81.102 of the Texas Government Code.  In fact, the unauthorized practice of law is prohibited by Section 81.106 of the Texas Government Code.  However, there is always the shadetree “attorney” who is going to do it himself.  Most of these homegrown documents or instruments end up creating problems with regards to the ownership of the property in question.  What the legal profession calls a “cloud on the title.”

What would you do if one day you received a notice of eviction while sitting in your home because it turns out the person you purchased the home from did not pay off their lender?    Or perhaps you have decided to sell your property and find out that the conveyance to you when you purchased the property was not valid.  Think this could not happen to you?

Each year thousands of lawsuits are filed involving title problems.  Many title problems can arise which cause the complete or partial loss of your home or business property.  Even the most careful search of the public records will not find every title problem.  Because some problems are hidden, your title may appear to be perfect when in fact there may be a problem that is a land mine waiting to explode.

To give you an idea of the types of title problems that may occur, I have compiled this list of “Land Mines” that could result in partial or complete loss of your property or an expensive lawsuit.

“LAND MINES”

1. Property still held by a deceased owner whose interest has not been properly conveyed by the surviving heirs.
2. Inadequate legal descriptions.
3. Defective acknowledgments.
4. Mistakes in recording legal documents.
5. Misinterpretation of wills.
6. Undisclosed or missing heirs.
7. Deeds by minors.
8. Surviving children omitted from a will.
9. Marital rights of spouse allegedly, but not legally, divorced.
10. Deed of community property recited to be separate property.
11. Instruments executed under fabricated, expired or not properly recorded powers of attorney.
12. Birth or adoption of children after date of will.
13. Falsification of records.
14. Easements established through  continued use but not discovered by a survey or in the public record.
15. Errors in indexing of legal documents by the County.
16. Mistaken reports furnished from taxing authorities.
17. Deeds to or from defunct corporations.
18. Documents executed under duress.
19. Errors in tax records.  (For example, listing payment against wrong property account.)
20. Forged deeds, releases, other forged instruments.
21. Deeds by persons supposedly single but secretly married.
22. Deeds from persons not competent to handle their affairs.

Problems like these listed above, and many more, happen everyday.  I see them because it is my job to make sure there are no such problems with regard to the property in order to protect the parties’ interests.

An uncovered “land mine” could result in an expensive lawsuit.  A title insurance policy insures that these matters have been diligently researched and addressed before closing the transaction.

Owner’s title insurance protects you against financial loss caused by covered title risks.  The title insurer, without expense to you, will defend you against an attack on the title to your property as insured.  If the attack is successful, the title insurer will indemnify you against the defined financial loss up to the policy limit.  A small, one-time premium provides you with this valuable protection.

When buying or selling a home or real property, it is often the largest single investment a person or couple makes.  Therefore, you should seek the assistance of a real estate agent, attorney and title company before making your investment.  This is not a realm for the shadetree “attorney.”

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Incapacity isn’t just about catastrophic accidents or permanent disability. It can be temporary. It can come in the form of a long recovery after surgery, a cancer diagnosis that takes you out of the office for months, or even an extended leave to take care of a family emergency. The bottom line is this: if you can’t be there, your business still needs to function.

The Real Risk of No Plan

As a business owner, you wear a lot of hats. You oversee operations, make the big decisions, manage key relationships, and keep the business financially afloat. So what happens when you suddenly can’t be in the office for an extended period?

Without a clear incapacity plan, the absence of leadership can create confusion—and fast. Employees might not know who’s in charge. Decisions could be delayed or made by the wrong people. Worse, family members involved in the business may assume they should step in, even if they’re not the best fit.

A lack of structure during your absence can lead to internal power struggles, operational breakdowns, and even financial loss.

What Incapacity Planning Looks Like

Incapacity planning is an extension of good estate planning. It’s about protecting your business during your lifetime—not just after you’re gone.

Here’s what a solid incapacity plan should include:

A designated decision-maker: Someone who knows the business, commands respect, and can make tough calls when you’re unavailable.

Clear communication: If your family works with you, set expectations early. Being related doesn’t automatically make someone the best person to lead.

Legal authority: Make sure your chosen backup has the legal power to act on your behalf—this often includes creating a durable power of attorney or incorporating provisions into your business operating agreement.

Operational systems: Document key processes, vendor contacts, passwords, and protocols. If you’re out, someone needs to step in seamlessly.

Why Family Isn’t Always the Best Fit

Many business owners assume a spouse, sibling, or child will take the reins if something happens. But that assumption can be risky. Family members may not have the right experience, temperament, or relationships to lead the business effectively. And assuming they’ll step up—or that others will accept them in the role—can cause unnecessary tension or confusion.

Choosing the right person means thinking about what your business actually needs to stay stable in your absence, not just who’s closest to you.

Build a Plan Before You Need One

At the end of the day, estate planning isn’t just about preparing for death—it’s about protecting what you’ve built during your lifetime. For business owners, that means thinking beyond succession and addressing incapacity head-on.

If you haven’t created a plan for who leads your business when you can’t, now is the time. We can help you identify the right person, create the necessary legal documents, and build a plan that protects your employees, your income, and your peace of mind.

Consulting with professionals who understand business operations when estate planning will provide peace of mind, knowing that your legacy is secure and your wishes will be honored.  Therefore, see an attorney with business and estate planning experience.  They should be able to work with you, your financial planning team and accountant to create the best plan.

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The inheritance rights of adopted children are protected when a parent dies without a Will.  Under the Texas Estates Code, an adopted child is treated the same as a natural born child.  Therefore, the adopted child can inherit from his or her adopted parents and vice versa.  The adopted child can also inherit from his or her natural parents, but the natural parents cannot inherit from the child if the child dies without a Will.  This is an important consideration today when often an adopted child seeks and discovers the identity of a natural parent and then establishes a relationship with that parent.

After-born or after-adopted children who are born to or adopted by a person after he or she executed a Will in which such children were not provided for or mentioned at all may inherit only under limited circumstances, so it is best to execute a new Will or a Codicil to the existing Will to provide for the after-born or after-adopted children.

A stepchild does not inherit from a stepparent who dies without a Will because he or she is not considered to be legally related to that stepparent.  This is unfortunate where the stepchild was raised by a natural parent and/or a stepparent.  However, a stepchild may inherit from a stepparent who dies without a Will in some circumstances such as if the stepchild were adopted or an oral or written agreement exist.

Half-blood children share the same natural mother or father but not the same two natural parents.  A half-blood child inherits only half as much as a whole blood child.  For example, if a decedent’s only heirs are a half-blood brother or sister and a whole blood brother or sister, the half-blood heir takes one-third of the estate and the whole blood heir takes two-thirds.

An illegitimate child can inherit from his or her natural mother and vice versa when either dies without a Will.  By contrast, the illegitimate child may not be able to inherit from the natural father or the father’s family members who die without a Will, except upon the occurrence of one of certain specified events: (1) the child is born under circumstances described in the Texas Family Code; (2) the child is adjudicated to be the child of the father by court decree as provided in the Texas Family Code; (3) was legally adopted by his father or (4) if the father executed an acknowledgment of paternity in accordance with the Texas Family Code.  This means that even if a father maintains ties with his illegitimate child, that child will not inherit from him if he dies without a Will, except under limited circumstances.

If you do find yourself in second marriage or any of the above situations, or think you may be, you should consult an attorney.  The Will or estate plan you prepared years ago may not fit the circumstances today.

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Recently, a client came in for assistance because they had sold property to another person by verbal agreement.  In Texas, the transfer of property must be by a written agreement and the description of the property must allow the property to be located on the ground.  My client’s verbal agreement was not valid, worse yet they tried to type something up on their own later that the buyer used to create a false document.  This created a bigger problem that will require a lawsuit to resolve.

A divorce is not something you want to tackle without competent legal advice.  You will find a plethora of  do-it-yourself divorce kits and a whole host of do-it-yourself forms available on the internet.  The problem is that many of these forms are too general, not Texas specific, incomplete, contain unnecessary clauses, or they are just wrong.

You will find that most judges do not like to handle do-it-yourself divorces.  Despite what you might think, this is not because they are out to make attorneys more money or because they are mean and hateful.  It is because judges know all too well the many pitfalls involved in divorce matters.  They are trying to help the do-it-yourselfers, and themselves, from future headaches and problems.

Legalzoom advertises itself as a cheaper alternative to an attorney.  Unfortunately, many people are lured by this promise of lower cost and do not seek the advice of a trained professional.  They believe the document created by LegalZoom will be just as effective as one created by an attorney.

I have reviewed many software programs and took a spin on LegalZoom.  While they look state specific, had I not been a Texas attorney who focuses on estate planning, I might have trusted that the site was providing me with accurate and current information.  Just a few glaring mistakes I found were:

LegalZoom’s advice with regards to Oral Wills.  LegalZoom would have you believe they are valid in Texas.  However, in September 2007, Texas repealed Sections 64 and 65 of the Probate Code, which authorized oral Wills.  In fact, under current Texas Law, oral Wills are ONLY valid if made before September 1, 2007 and in VERY limited circumstances.

Another mistake I found was with regard to providing for pets.  According to LegalZoom, Texas Law does not have provisions for taking care of your pets.  However, Section 112.037 of the Texas Property Code, enacted in January, 2006, does authorize pet trusts.

Almost every attorney I know who works with the formation of business entities has spent hours correcting DIY business formations.  Here is just a list of some of what we fix:

– Selecting the wrong entity

– Failing to complete all steps of formation

– Not correctly obtaining an EIN

– Picking a name that violates a third party’s trademark

– Failing to have a buy out agreement

– Failure to hold the Organizational Meeting or Annual Meetings

Without exception, all of these DIY providers have a disclaimer stating they are not acting as your attorney and their information should not be used as a substitute for the advice of an attorney.

If you are considering are selling or buying real estate, seeking a divorce, formation of a business entity or preparation of a Will, seek the assistance of an attorney.  They can best help you negotiate the minefield of problems that could arise later and the judge or your family will be most appreciative.

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Why would I need to protect my assets during marriage

“During marriage?” you may ask, “Why would I need to protect my assets during marriage? I would trust my spouse with my life.” This may be true (in fact, we very much hope it is true) but statistics show that more than 50% of marriages end in divorce, yet according to this article by Legal Clarity only 15% of marrying couples bother to create a prenuptial agreement. The low number may speak for the optimism of marrying couples, but not for their common sense.

Prenuptial Agreements can be Useful

A prenuptial agreement is not an admission that you don’t really think your marriage is going to work. On the contrary, prenuptial agreements can be useful in many situations, not just in cases of divorce. If you are entering into a second marriage and have children from a previous marriage a prenuptial agreement is absolutely essential to ensure that your children are entitled to any assets you bring from your previous marriage. If you or your fiancé comes to the relationship with heavy debts a prenuptial agreement can ensure that your marriage doesn’t begin under the weight of all that debt. And a prenuptial agreement can be a precursor to your eventual estate planning.

What You Need to Know about Prenups

There are some things you need to know about prenuptial agreements.  First, they are time sensitive.  The agreement must be entered before the date of marriage.  This should be done at least two (2) months before the vows are exchanged.  Before the agreement is signed, both parties have the right to have their own attorney review the agreement.  One attorney can’t represent both parties.

What do you need in order to have a completed agreement ready to review by both parties?

1. 1. All information regarding the assets of each party must be provided to the attorney drafting the prenuptial agreement.
   2. The list of assets should be specific.
   3. Gathering this information can take time, so be sure to give yourself enough time to gather it and provide it to the attorney drafting the agreement.

Final Advice

Finally, prenuptial agreements are not something a couple should try to do themselves.  Seek legal help from an attorney who can make sure all of the legal details are covered.

Planning a Wedding, Seek an Attorney

If you are planning a wedding in the near future, seek an attorney that can help answer any questions you may have about prenuptial agreements.  But really, knowing the many ways a prenuptial agreements can protect you, your spouse, and your children—is there any reason not to have one?

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Following fast on the heels of a decision to go into a particular kind of business is the decision about what kind of legal form it should take. The most common options are a sole proprietorship, a partnership, or a corporation. You may lean toward the corporate route because you like the sound of having “Inc.” after the company’s name, but there are  more practical considerations to take into account.

More so than with some of the other structures for a business, starting a corporation means complying with formalities required by state laws. Once the shareholders (owners) of the business agree on some basic matters, such items are embodied in articles of incorporation that must be filed with the appropriate state agency. These essentials usually include:

• a corporate name;
• the number of shares that can be issued;
• the number of shares each owner will buy and for what contribution of cash or property;
• the nature of the corporation’s business; and,
• the identity of the directors and officers of the corporation who will handle day-to-day operations.

The fledgling corporation will also need bylaws, which constitute a procedural rule book for the company.

Decision Making

The bottom line here is that whoever holds a majority of the shares of a corporation has ultimate control over it. Usually it takes a majority of the shares to elect the board of directors, which is charged with making the “big picture” decisions. If a decision is momentous enough for the company’s future, such as a change in the articles of incorporation or whether or not to merge with another company, the shareholders usually have a more direct role in that they themselves must approve the decision by a certain margin of votes.

The board elects the officers of the corporation, typically including a president, vice-president, secretary, and treasurer. The officers may or may not be salaried employees or shareholders, and in some cases one person may hold more than one office.

Accountability

At or near the top of the list of characteristics favoring the corporate structure is the fact that, since the corporation is treated as a legal “person” separate from the people who own and run it, the shareholders as a rule are not personally liable for the corporation’s debts. Instead, their risk is confined to their investment in the company. To every rule there is an exception, however, and here the exception has the colorful legal name of “piercing the corporate veil.” If the owners do not comply with the statutory requirements for running a corporation, or if they blur the lines too much between corporate and personal finances, the legal fiction of the corporation as a separate entity is ignored and the owners are on the hook for the corporation’s losses.

Transitions

As a separate entity in the eyes of the law, a corporation does not go out of existence if one or more of its owners die. Instead, a corporation stays alive until its owners decide otherwise. Transfer of the ownership of the corporation is accomplished by selling its stock. New owners are added either when existing owners sell some of their stock or the corporation itself sells more shares of stock. The smaller the enterprise, the more likely it is that the owners, for whom the corporation may be both their property and their employer, may agree to restrict the sale of the stock in order to maintain control.

The particular circumstances of each new business and the differences in the governing laws of the states make generalities difficult. That said, the factors on the debit side of the ledger for corporations include the costs of setting up the corporate entity, the need for a separate tax return, and the burden of “double taxation.” Double taxation means that the corporation is taxed on its profits, and the shareholders are then taxed on their dividends. On the credit side are limited liability for the owners and easy transfer of ownership.

Making the appropriate choice for a business form is one of the first, and one of the most important, decisions a new business will make. You should consult a qualified attorney when forming a business enterprise so that they can help you understand what business form is right for your specific needs.

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