Estates may need to be administered in more than one state. Generally, the state in which the decedent resided at the time of death will be the state where the decedent's estate is probated. However, state law governs the transfer of real estate. Therefore, if the decedent owned real estate in another state, it may be necessary to do an ancillary proceeding to probate that one piece of property in the state where it is located. An ancillary proceeding is a scaled-down probate proceeding, which governs only the assets located in that state. In some instances, it may be necessary to consult two attorneys, one in the state where the decedent lived and another attorney in the state where the decedent owned real estate.

In many states, a probate proceeding can be either formal or informal. An informal probate proceeding usually involves filing some basic paperwork, having the court appoint someone to manage the estate, paying the debts, distributing the assets, and having the court approve the distribution. The court's role may never require a hearing, but only a review of the papers filed.

In other instances, such as when a will is disputed, a formal probate proceeding may be required. A formal proceeding involves more court oversight and usually requires one or more court hearings. In some states, a probate proceeding can be formal in parts and informal in others. For example, the matter may start out formally, with a court hearing to appoint the personal representative, but end informally, with a paper filed with the court detailing how the assets are to be distributed.

If the decedent owned few assets, it may be possible to avoid the probate process. In many states, a "small estate administration" is available. Usually, in order to qualify for a small estate administration, the decedent's assets must not include real estate and must be worth less than a threshold amount determined by the state. If a small estate administration is applicable, the parties who are entitled to receive the decedent's assets may collect those assets by way of an affidavit. Even in a small estate proceeding, though, the decedent's creditors may need to be paid from the assets.

The first task in a probate proceeding is appointing a responsible party to manage the estate. This person is usually called the personal representative. In some states this position is known as the "executor." The personal representative may be an individual or a company, such as a bank. The personal representative may have been nominated by the decedent in the will. If there was no will, the court will usually appoint the surviving spouse or another family member. There may be more than one personal representative named.

After being appointed, the personal representative is expected to document all of the decedent's assets. This documentation is often referred to as the inventory. The personal representative must also inform the decedent's creditors that the decedent has died. If the decedent's probate assets are sufficient to pay the creditors, the personal representative will pay them from the estate. If the probate assets are insufficient, the personal representative may need to obtain court approval to determine which creditors should be paid.

If there are any assets left after the creditors have been paid, those assets are distributed according to the will. If there is no will, the decedent is said to have died intestate. State laws vary as to how to distribute the assets of an intestate decedent.

The personal representative will also file any necessary tax returns. If the estate is owed any money, the personal representative may need to bring a lawsuit to collect it. If the will is contested or there is any other dispute about how to distribute the estate assets, the personal representative may have to "defend" the will in a probate proceeding.

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THREE VALUABLE ESTATE PLANNING AND TAX CUTTING TOOLS

When preparing an estate plan, it is desirable to minimize taxes for yourself and for your beneficiaries now and after your death. Below are several tools which may help.

Charitable Trusts

A charitable remainder trust (CRT) is a good tool for a person who has charitable motives and also desires an immediate, substantial tax deduction. A CRT is especially good for people who wish to donate property to charity but don't want to give up all the benefits of the property prior to their death. Although a CRT is irrevocable, the grantor may reserve a fixed dollar amount or a percentage value of the trust and receive those benefits until his or her death. Not only does the grantor receive an immediate federal income tax deduction, the grantor also removes property from his or her estate that would be subject to the estate tax upon death. If a grantor contributes property that has appreciated in value to the trust, the grantor avoids paying the capital gains tax that would result if the grantor had sold the property and then contributed the proceeds into the trust. This is a great tool for anybody who is considering leaving a portion of his or her estate to a charity. It is also valuable for people who have no heirs or beneficiaries, and would like an immediate tax savings. If you have beneficiaries, you may consider a charitable lead trust (CLT) that allows you to discount the value of the gift and keep the property in the family. You may name your own charitable foundation as the charitable recipient.

Family Limited Partnerships

Family business owners often create a family limited partnership (FLP). As of January 1, 2001, sixteen states have adopted limited liability limited partnership (LLLP) statutes. In these states, an FLP may elect LLLP status. Usually, a parent serves in the role of general partner and maintains complete control of the partnership (which consists of the family business). The parent/general partner is shielded from personal liability in the same way that the limited partners are protected. The limited partners are the children who have no control of the partnership and no liability for the partnership debts and obligations beyond whatever they may have contributed to the partnership. An FLP is a good way for parents to make gifts to their children, obtain significant tax benefits, and structure the gift in such a way that the children are prevented from selling the business without the parent/general partner's consent. Another key benefit of forming an FLP is that upon your death, your interest in the partnership may be valued, for tax purposes, significantly less than it is worth. However, before setting up an FLP, remember that the Internal Revenue Service requires that FLPs have a legitimate purpose.

Generation Skipping Transfer

You and your spouse should each use your full $1,000,000 generation skipping transfer (GST) exemption. By doing so, you may save over $1,000,000 in taxes in the course of a single generation. Through the use of trusts, you skip the payment of taxes but you do not skip the benefits for the next generation. Your beneficiaries may serve as their own trustees, and by giving them powers of appointment, they will control the investments and make the decisions regarding the final disposition of assets. Savings are enhanced when the trust continues for the maximum period allowed by law, and the trust is funded with discounted partnership interests or the remainder interest in a charitable lead trust.

Disclaimer

This publication and the information included in it are not intended to serve as a substitute for consultation with an attorney. Specific legal issues, concerns and conditions always require the advice of appropriate legal professionals.

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NEGOTIATING A FAVORABLE BUSINESS LEASE

Commercial leases are made for the long-term, at least five to ten years. The payments may be a significant percentage of business income. Tenants generally have greater responsibilities than in any residential lease. In order to get the best deal over the long haul, and to prevent costly disputes with the landlord, businesses must negotiate a favorable and highly detailed business lease. Below are some pointers for getting a good deal, and making sure all your business's bases are covered.

1 - Pay attention to all the details of a commercial lease. Commercial leases are much more complicated than residential leases. Below are just some of the elements commonly addressed in a commercial lease:

• What space is being rented, including common areas such as hallways, rest rooms and elevators.
  
• Rent, including allowable increases and method of computation.
  
• Security deposit and conditions for its use and return.
  Period (term) of the lease.
  
• Whether your rent will cover utilities, taxes and maintenance (called a gross lease) or whether you will be charged for these items separately (called a net lease).
  
• Whether you have an option to renew the lease or a right of first refusal to purchase the property.
  
• If and how the lease may be terminated, including notice requirements.
  
• Specifications for signage.
  
• Whether improvements, modifications, or fixtures (often called buildouts) will be added to the space, who will pay for them, and who will own them after the lease ends.
  
• Who will maintain the premises.
  
• Whether and how the lease may be assigned or sublet to another party.
  
• Whether disputes must be mediated or arbitrated as an alternative to court.

Understanding all the details will allow you to negotiate effectively and creatively. It will also keep you from being caught unawares by an unfavorable or unfamiliar term in the lease.

2 -Your lease will favor the landlord-it's your job to improve the situation. Your landlord wrote the lease, and of course it will favor him. However, a renter can significantly improve terms, but only if he or she is willing to spend time and effort negotiating.

3 - Do your homework. Know what the rental market is like in the area. For example, if the general going rate for similar rental space is $8 per square foot, and your prospective landlord wants to charge you $10 per square foot, being well informed will allow you to challenge that pricing.

4 -Try to have more than one location lined up. When you are negotiating for only one space, and your business won't have a location unless you close the deal, you are dealing from a weak position. Have a backup location, and make sure that both potential landlords know that they aren't the only game in town. This can give you leverage to improve each proposed lease. Besides, if you can't get the deal you need from one landlord, you can walk away without a backward glance.

5- Understand leasing terms so you won't be caught unawares. When is the price of $8 per square foot not really $8 per square foot? When it's only part of the calculation in a net lease. Net leases require tenants to pay for more than space-often taxes, insurance, repairs, utilities, or any combination thereof. By the time the tenant pays all these costs, the real price is considerably higher. Knowing the language of commercial leasing will keep renters from entering into a very different bargain than they thought they were entering into.

6- Focusing only on monthly payments is a mistake. Monthly payments are ongoing, and are therefore the most obvious expense in a lease. However, other terms are equally important. For example, if a space requires build-out, it is to the renter's advantage to convince the landlord to do the construction free of charge or at a highly reduced rate. The length of a lease is also very important; a short-term favorable rate may not be in the renter's best interest. One of the most difficult situations for a business owner to be in is to have a lease expire after several years, only to discover that he or she will have to accept the landlord's much higher new rate or move the business. Paying slightly more per month or building in some increases based on inflation, but having a longer-term lease, may be more beneficial than a low initial rate.


Disclaimer

This publication and the information included in it are not intended to serve as a substitute for consultation with an attorney. Specific legal issues, concerns and conditions always require the advice of appropriate legal professionals.

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