Is It A Business? or Is It A Service? Part 2

Can A Fiduciary Form a Corporation?

Most professions can form a simple businesses structure which allows an owner experienced in the work to train employees and pass on knowledge, processes, and goodwill.  It also can shield them from personal liability.  (For an overview of the issues surrounding business formation, see Part 1,  first posted on 8/7/13).

This does not work for fiduciaries.  According to the California probate code and the business and professions code which established the licensing and oversight of professional fiduciaries, only an individual can be named as a fiduciary.  An attorney can offer these services, but they are not allowed to advertise that they offer these services as part of their legal practice.

 

To make things more complicated, most tax advisors recommend that the IRS can and will disallow an agent's personal income which they assign to their corporation.

If a corporation offers fiduciary services, it must be formed as a Trust Company. Professional fiduciaries who plan to attend the Northern California Education Day for Professional Fiduciaries Association of California (PFAC) on September 12, 2013 will have a chance to gain insights from a number of panelists, including attorneys, on whether fiduciaries can engage in a business formation.  You can read this article (Part 1 & Part 2); request our overview by commenting below; and, listen to how other fiduciaries have chosen to address this topic; then speak with your business advisors and form your own opinion.

Why bother thinking of fiduciary services as a business at all, if we are hindered from forming a corporation? 

Developing Field Craft

 

Our practice as professionals is built around offering expertise in the practical and legal requirements of closing or managing an estate.  This expertise is built over time and a variety of case experiences, not just the singular experience of handling a family member’s estate and taking the classes to obtain a license.

As Malcolm Gladwell has become famous for noting about Master Class level performance, “The emerging picture from such studies is that ten thousand hours of practice is required to achieve the level of mastery associated with being a world-class expert—in anything,” writes the neurologist Daniel Levitin.   The point made in Gladwell's  book, Outliers, is instructive. To stand out: patiently and consistently build expertise through practice, more practice, and even more practice. 

Where can a new professional fiduciary “practice” in our field without putting ourselves and our clients at risk?   Here is one reason for a corporation in our profession. To create a structure that mutually and collaboratively supports experienced fiduciaries and trains new fiduciaries in their field craft.

Services can be businesses.  Businesses can offer services.  But, the service offered by professional fiduciaries is best when offered as part of a collaborative group; formed to support each other and present the marketplace with the right information needed to select just the right fiduciary to fit a particular situation. Only a professional business structure can give potential clients the comfort of working with someone with a long-term, consistent business plan.

 

Only a professional business structure can give you the boost you need. If you are interested in how the ACE Fiduciary Group can help you excel in your marketplace find out more at www.ACEfiduciary.com.

Is It A Service? or, Is It A Business?

What type of business structure best fits professional fiduciaries? Part 1

Professional Services Offered

When professional fiduciaries take on clients, we work for the benefit of a living person who needs help making decisions and after a death, for the beneficiaries of the estate. We are licensed by the state of California to be estate Administrators, Conservators, and private trustees. We are a bit like family members who take on these roles out of obligation, duty or love: but we are not like family members in a number of ways.  One of these is we are not part of the family system.  This means we tend to be able to work towards the goal and minimize inter-family conflict. The other is that we charge reasonable fees for our services.

Sometimes a family member chooses not to collect fees for this work (although they are entitled to do so).  Professional fiduciaries are building a professional presence through our practice, and we earn fees for this vital service; but is it a business?

The work of a fiduciary is a cross between personal services and business management.  Professional fiduciaries handle much of the same type of work as a bank trust department, but we can also offer the types of services that banks cannot  -  Conservatorships and Financial or Health Agent.  The nature of our “business” is personal. We often form deep, abiding, long-term relationships  with our clients and their family. 

Business Formation

Businesses are formed to better organize people into focused activities to serve clients in a consistent and dependable manner. Because a corporation is deemed a “person” under the law, business owners sometimes form a  corporation, even when there is only one owner and that owner is the only employee.  Business owners do this because a properly formed and maintained business structure can shield the individual owner from business liability. Individuals create a business structure to shift some expenses to business expenses; hire employees; and, create an entity that can be sold or passed on to the next generation. 

These are all reasons that some professional fiduciaries have used a corporate form for their businesses.  A commonly used business structure in California is an S-Corp. While useful to many types of small service businesses, it may not be helpful in offering fiduciary services.

The form of a business structure is determined by state law.  Each type of structure approved under California law has a different purpose. Some, like limited liability partnerships, are only available to certain types of professions (for example, attorneys) not to fiduciaries.  If you would like an overview of issues surrounding business formation and structures, send an email or post a comment below.

 

Sign up to follow this blog and stay tuned for Part 2 - Can A Fiduciary Form A Corporation?

Heed Early Warnings - Lessons on Dying from Romeo & Juliet

We are enthusiastic season ticket holders to The California Shakespeare Theater in Orinda California. The production of Romeo and Juliet by William Shakespeare in this season is superb. Go see it if you can! The Director, Shana Cooper, brought an element of mime to the production which really underscored the love story. Even more, she brought this perspective, "Romeo and Juliet is not a story about the stars controlling our destinies - it’s about the urges and vulnerabilities of being human." This makes me think of our ultimate vulnerability - death.

Even though the parents of Romeo and Juliet could not have predicted their children’s passion nor their tragic deaths, they could see some early warning signs. We too, can sense and prepare when life sends us early warning signs to be prepared for our own or a loved one’s death.

The first early warning sign occurred on the day of their births. A live birth is a 100% guarantee that death will follow at some point. Between that first breath and our last, we all look for meaning in our lives. Yet, something about the birth and death experience offers us the potential for experiencing a sacred moment. Our spirit’s release from the earth is a sacred time; as sacred as the morning dew on a new soul loosed upon the earth in birth.

A bit like the Nurse who cared for and loved Juliet, even though she was not her own family; I find that I am like a "midwife unto heaven’s gates" for many of my clients. This makes me ponder the experience we will all face. I find a kind of comfort, hope, and joy in seeing the sacred surrounding us in our final breaths.

What is the nature of this experience? According to the Kaiser Permanente, Palliative Care group, our experience of dying is quite different today than it was for people 100 years ago. Instead of an expected, yet quick event; we now approach death as if we can forever order a pill to avoid it. As Dr. Robert A. Johnson likes to point out, "People used to just die! Now,
                      we ..... 
                                                are.....

                                                                         dying..........."
The course of dying is often a slow progression. This means that if we make it to our 75^th birthday, in 90% of the cases, there are early warning signs to death. Only 10% - 15% of diseases create a sudden death, the kind where we just fall asleep and die.

All other disease trajectories provide some clues that we need to use to help us prepare for this event before we have lost the ability to make medical, financial and spiritual decisions. At a recent East Bay PFAC meeting, Kathy E. Dalziel, RN, MSN with Kaiser Permanente, Palliative Care Group, pointed out over 50% of the patients were incapable of making their own medical choices in the time leading up to their death.
 
According to palliative care providers, 60% - 65% of Americans will enter death after either mild cognitive impairment has begun or an initial major organ system failure has left the elderly patient weaker for a period of time¹.

40% of Americans will die due to dementia or mental frailty; normally within 10 years of initial presentation of mild cognitive impairment or within 6 - 8 years of an actual dementia diagnosis².

20% - 25% of Americans will enter death within 2 - 5 years of initial and ongoing major organ system failure³.

20% - 25% of Americans will expire due to the onset of an incurable cancer. Decline may be over a few years, but often within just a few months⁴.

For young people, like Romeo & Juliet, when death occurs, it is more often sudden or due to external causes - homicide, accident or suicide. Thankfully, the percentage of deaths in those under age 24 has been shrinking with increased medical knowledge and protections. Today, more parents of teens use a pretty good early warning system which could have been used by Romeo or Juliet’s parents to avert their tragedy. They encourage their children to talk to them.

 Take Stock & Talk
 On the other hand 73.5% of the deaths in the U.S. in 2011 were experienced by people 65 years or older ⁵. These were most often due to cancer, heart disease, chronic respiratory or liver conditions. These diseases give us the "gift" of talking with our loved ones about what is on our hearts.

With the average age expectancy at 78.7 years, if you are over the age of 65, don’t wait to review your written wishes.

Make sure you exercise your choice to have the loved one or person of your choosing available to you during this time. Once you begin to see some of the early warning signs if disease or mental incapacity begins to impair your life, talk to your loved ones about your wishes and what you might need. Don’t let our culture’s current perspectives on death keep you in denial. Instead, find someone to help you navigate this conversation with your family.

If you do not have a nearby family member who can serve your needs, you may benefit from talking with us about what a professional fiduciary can offer. Having a ready, willing and able health agent and qualified financial agent is crucial to reducing your worries and increasing your peace. 
 
At each decade, review your estate plan. After you turn 75 years old, take stock of your circle of care regularly. If needed, choose a licensed agent and advocate to help you navigate through your own end of life choices. Our fiduciaries are trained in a unique LegacyMapping™ process to walk alongside you and help you to discover and document your wishes, needs and choices.
Footnotes:
1, 2, 3, 4 -  Lynne, Joanne, Kaiser Permanente, Palliative Care Disease Trajectories.

5  Miniño AM. Death in the United States, 2011. NCHS data brief, no 115. Hyattsville, MD: National Center for Health Statistics. 2013.  

Have Your Cake And Eat It Too!

Do you want to find a way to pass on family values to your adult children; control where your charitable dollars go; provide hope for future generations; reduce your current income tax and ultimately your estate tax?

Who doesn't want to do that?  All you need is more than $5,000,000 in extra assets ($10,000,000+ would actually be better). Add a family foundation; a charitable lead trust and this recent IRS private letter ruling. You get to have your cake and eat it too. Read on.

A recent private letter ruling as reported by the Planned Giving Design Center allows an individual to direct that a charitable lead trust created by him can make payments to the private foundation also created by him. This is a deductible gift for Federal gift tax purposes and no portion of the trust property will be included in the gross estate.

What is the catch? The three-legged stool concept. There is a long-standing principal of charitable trust instruments. The Settlor (or any beneficiary) may not be the trustee and the beneficiary.  An independent, professional fiduciary can be helpful to keep the benefits flowing and avoid problems with the IRS. Learn about The ACE Fiduciary Group here www.acefiduciary.com.

In this instance, the IRS has ruled that in order to keep the benefits planned for this estate, the trustor may not serve as the trustee or retain an interest in or right to alter or revoke the trust.  In this scenario, the funds paid from his charitable trust to his foundation must be separately managed and administered by an independent committee.   Again, keeping the concept of the three-legged stool in tact.

If you expect to accumulate more than $5,000,0000 in assets during your lifetime, this is a good hat trick to know about. Combined with the incentive to reduce long term capital gains taxes, it could be just the right strategy. Talk to a qualified estate planning attorney and tax advisor about your particular situation. Read the full ruling and analysis http://www.pgdc.com/pgdc/charitable-lead-annuity-trust-qualifies-gift-tax-deduction-and-excluded-estate.

Even without an extra large estate, high income individuals are taking a look at how a Charitable Lead Trust can be used to benefit a specific charity while reducing taxes on long-term capital gains.     http://www.pgdc.com/pgdc/charitable-giving-just-got-more-affordable.

Imagine if you had a large estate.  Where would you like to leave a legacy of hope? Post your comments here.