Avoiding 'Alter Ego' Status

A business owner was referred to Matthew C. Mullhofer by his long time client. The gentleman wanted to know how to eliminate various business risks by forming different entities in order to control the risk beyond insurance coverage. Creditors like to defeat this type of corporate planning by using a legal theory called “alter ego” which means that they can reach all assets that are controlled by a business owner, in order to satisfy their judgments, so he wanted to know how to avoid this and keep all the entities separate.

Matthew C. Mullhofer explained that the Federal and State Courts have provided a way to avoid having the activities of one entity merged into a sister entity by means of the “alter ego” theory. If a creditor failed to prove the “alter ego” they would not have jurisdiction over the sister entity that has the deep pocket even when they may have personal jurisdiction over the other entity.

In order for a Corporation of LLC to refrain from being considered the alter ego of another entity, Matthew C. Mullhofer explained, it must maintain these corporate formalities:

· It must maintain separate books and accounting records;

· Maintain separate bank accounts;

· File separate tax returns;

· It must be sufficiently capitalized when it enters into business;

· Loans or other capital transactions between entities should work together at an arm’s length transaction

Matthew C. Mullhofer helped his new client set up his businesses in a legal procedure. This in turn helped the client successfully maintain his business entities by following proper corporate formalities.

Call Matthew C. Mullhofer today at (714) 827-9955 to discuss your business ownership questions.

Does the deed to the property you purchased accurately describe the property?

This morning, Matthew C. Mullhofer’s long time client came into the office with a question regarding a recent purchase he was making. For insurance purposes he wanted to know how to find out if the deed to the home he was purchasing accurately described the property. Usually when a buyer purchases a home they rely on the property’s address to describe the real estate property they are purchasing, and when escrow is closing the buyer usually does not double check the legal description of their home in the deed to verify that it correctly describes the property they are purchasing which could cause problems down the line.

Matthew C. Mullhofer explained to his client that deeds will contain two or three lines of a legal description of the property if it is located in a subdivision, and the street address is often included in it as well. If the property is not located in a subdivision, the legal description will be a “metes and bounds” legal description which usually consists of half a page or several pages containing the property’s terminal points and angles. So how does a buyer verify that the description matches the property?

Matthew C. Mullhofer advised that when going over the Preliminary Title Report which states the exact legal description of the property you are purchasing, the following should be observed:

1) If the property you are purchasing is part of a subdivision, it will appear to have straight lines and form a box type area. The legal description is usually relatively easy to read and verify once you confirm a starting point on the property. However, before escrow closes it should be verified that the legal description on the title policy is the same as described in the Preliminary Report.

2) If the property’s legal description is a metes and bounds legal description, the dimension of the meters and bounds should be sketched out by the title company as part of the Preliminary Report and escrow instructions should state the property being insured is illustrated by the drawing.

3) The real issue is, if it is a metes and bounds description the title company will generally require a survey in order to insure the description of the property. In this case, a surveyor should stake out the borders of the property, and provide the title insurance company with a certified copy of the survey of the property. The survey will set forth the legal description. There might be an additional fee to have the title company insure the legal description provided by the surveyor.

Since 1999 The Law Office of Matthew C. Mullhofer has been helping clients with their real estate needs. Please feel free to contact Mr. Mullhofer at (714) 827-9955 to discuss your real estate questions.

Transferring Assets in a Safe Manner

We all want the assets we have worked so hard to accumulate to be taken care of when we pass, especially if we want to pass these assets to a special trust. We would like to know that we did everything we could to make sure everything was in order and our trustees would have no problem in obtaining these assets that we were passing along to them, and this is the exact question Matthew Mullhofer’s long time client came into his office with. What technique can an individual have regarding transferring assets to their heirs in a safe manner? A common question that people want to know is how to safely plan for a Personal Residence Trust, which is an important question because family residence is a major asset, so it is not surprising that safely transferring it to a special trust is important. Congress has enacted a legislation that has approved a type of planning that will benefit all parties involved when doing a Personal Residence Trust.

A qualified personal residence trust can easily be approved if there has been a proper evaluation of the residence and if the parents transfer 50% interest in the residence which is allowed by IRS codification. This is helpful when parents want to keep their separate interest in the residence. The IRS limits this planning to two residences so parent(s) can transfer a second home or vacation home under this planning as well. This type of arrangement is usually done between parent and child, so there is not an increase in property taxes at the end of the fixed term.

A qualified personal residence trust (“QPRT”) is a trust that can be used to transfer your residence to your children at a extremely reduced gift tax cost and with no estate tax, and also allows you to continue to live in the residence for as long as you like is known as. You do not have to transfer your entire interest in the family residence. The Law Office of Matthe Mullhofer can help you with this. This is how it works:

Trust for Fixed Term: While you are still living, you can give your asset(residence) to a trustee, which can be yourself(California state law permits this). The trustee must grant the right for you to live in the residence rent-free for a fixed number of years that is stated in the trust instrument, which would most likely be the number of years that you are likely to survive. During this term, you will pay mortgage expense, real estate taxes, insurance, and payments regarding maintenance and repairs(you can deduct mortgage interest and real estate taxes on your income tax return). When the term is over, the asset stays in the trust for them or is given to your children.

Maintenance after Fixed Term: After the fixed term ends, you can keep using the residence in one of two ways. First, instead of immediately dispersing the residence to your children, the residence can be kept in trust for your spouse's lifetime(this is assuming that the residence is available to you). Or, there is another option of creating a lease with your children which will allow you to live in the residence for as long as you wish. However, keep in mind that if you create a lease you must pay market value rent to your children after the fixed term ends so the residence is not being charged estate tax on your death.

If you are still living when the fixed term of the QPRT is over, your estate tax will not include the value of the residence. If you don't live through the fixed term, the estate tax will be affected as if you hadn't created the trust in the first place.

The rules regarding a QPRT can be complex. If you are contemplating setting up a QPRT, feel free to contact Matthew Mullhofer to discuss this matter.

How Long is Long Enough: Key Tips to Storing Income Tax Records

We all want to be safe, and nobody likes taking chances with the IRS. So how long should we save documents like income tax records and other relating materials? One of Matthew Mullhofer's clients wondered the same thing as he made his way in to the office for his 3 o'clock appointment.

He wanted to be prepared for anything, while at the same time, feared his files would start to overflow with the number of papers he was stuffing in to them. Matthew Mullhofer sat him down, and promptly started explaining...

At minimum, federal income-tax returns should be saved 3 years from the date the return was originally due; once again, this is at MINIMUM. To be SAFE, it is advised to save federal returns for at least 6 or 7 years. The reason for this being if you failed to report income that you should have reported and if its more than 25% of the gross income shown on your return, then "the period of limitations does not run out until six years after you filed the return," so says the IRS.

However, These same rules DO NOT apply if you file a return that is "false or fraudulent." In this case, the IRS can take action generally at any time.

When it comes to records showing how much you paid for stocks, bonds, mutual funds, real estate and other types of property that you bought and still own, it would be considered wise to hold on to these for very long periods of time. also to check if your state tax department has any special record keeping rules. Some states require you to hang on to old documents for longer than you would imagine, these are all based on IRS rules.

Matthew Mullhofer had one final piece of advise pertaining to the client's w-2 form (showing wages and other compensations). The client was advised to keep copy "C" until he began receiving social security benefits. This is in order to protect benefits in case there is a question about work records or earnings in a particular year.

Attorney Matthew C. Mullhofer can be reached toll free at (877) 246-2770

Matthew C Mullhofer

Here is the video of a PowerPoint presentation Matthew C Mullhofer recently gave at a local conference.

Matthew Mullhofer: Attorney At Law Protects Your Assets

Protecting your assets during a time of crisis is something everyone seeks to do. People work hard during their lifetime to make their lives comfortable. One bad legal judgment can change the way you and your family live if you are unprepared. Attorney at law Matthew C. Mullhofer knows all about this topic as he focuses on helping families and people of business protect their assets so that they can not be seized in times of legal troubles involving both the government and in the instance of a lawsuit.

Matthew Mullhofer emphasizes the need to take precautionary measures when it comes to your assets. Once a judgment has been passed on you it's to late to transfer or protect your assets in any way. The time to do this is beforehand so that should the unthinkable happen your assets can not be seized.

Matthew helps clients with needs pertaining to the following:

• Frivolous Lawsuits
• Trusts
• Family Limited Partnerships
  
• Limited Liability Companies
• Domestic Corporations
• Estate Planning
• Corporate acquisition, licensing, and registration of trademarks.

There are numerous other services Matthew Mullhofer offers his clients, all of which are designed to protect what you've worked so hard to earn or have a legal right to. To view a complete list of Matthew Mullhofer's services please visit his website. You may also contact Matthew for assistance with any questions you might have.

Beware of Offers to Reassess Home to Lower Property Taxes

A Client recently walked into the Law Offices of Matthew Mullhofer asking for his opinion on a company advertising to reassess his home to lower his property tax.



The company wanted $250.00 to file the application with the county assessor's office. Matthew Mullhofer weighed in on the issue because he had just gone through a similar situation with his property in Orange County.



After researching the procedures for reassessment, Matthew Mullhofer indicated that the advertisement was over priced and that the company was offering to do something that the client could do for himself for free.



These letters or advertisements come from companies called government property tax reassessment, county property tax reassessment, and gov. tax reassessment. These companies seem to be sending out their notices to everyone.



The client asked Matthew Mullhofer, do these companies actually offer some value to the homeowner? When property values are down by double digits, in most areas, it does make sense to petition the county to lower your property taxes. The government says they routinely reappraise peoples homes whether they are asked to or not. However, the value that the government may reassess your property at maybe different from what fare market value is based on sales.



That makes one wonder, what incentive does the county assessors have in lowering homeowners property taxes when the local governments are strapped financially. Matthew Mullhofer had researched the issue and found that the government did have a conflict of interest in promising to reduce property taxes but also begging for state and federal tax increases. The result was to search for experienced companies that would file and process the paper work for a reasonable fee.



What was a reasonable fee, the client asked? No more than $50.00 said Matthew Mullhofer. A company that Matthew Mullhofer used personally called http://californiaproptaxappeal.com/ that he located on the internet, was willing to file the necessary paper work, including current sales comps in the area where the homeowner's house is located , charged $50.00 for the service.



It is true that you can do this on your own but it seems the work involved would be worth the $50.00 spent.



If you have questions regarding home values and tax reassessment, please feel free to contact the Law Offices of Matthew Mullhofer at (714) 827-9955.

Costly Mistakes of Incorporating Your Company Online

A client walked into the Law Offices of Matthew Mullhofer explaining why he decided not to use an online service to incorporate his new business.

He explained to Matthew Mullhofer that he did not feel comfortable handing out vital information such as social security numbers, credit card accounts, and asset information to an unknown entity.

Matthew Mullhofer agreed with the client's realistic fears of identity fraud and theft. Unlike online companies, attorneys are licensed by the state bar and are held accountable for their actions.

In addition to the identity fraud issue, Matthew Mullhofer pointed out that there are many tax and legal consequences that must be addressed when setting up a new corporation such as what type of entity fits best for ones business. The choices are many: C-corp versus S-corp, limited liability companies versus corporations, and limited partnership versus general partnership. The online companies do not offer advice regarding these decisions.

There are also tax considerations such as choosing a calendar year end over a fiscal year end. What are the proper business expenses and deductions? How does one go about making an initial stock offerings and how to provide proper capitalization for the company?

Matthew Mullhofer also pointed out that if you do not follow the appropriate state and federal corporate formalities you may be in jeopardy in losing your limited liability status as a corporate officer/director.

Incorporating your business is a legal process and should be left to the legal professionals.

We all have different training and skill sets. You would not take your car to be fixed by anyone other than a car mechanic. As attorneys and tax professionals, we specialize in forming a corporate entity that can legally exist for many years to come.

For more information on incorporating please visit Matthew Mullhofer's website at www.protectmyassets.com

Organize Your Affairs Before Its Too Late

Two years ago, a client walked into the Law Office of Matthew C. Mullhofer, holding a probate court document concerning his deceased mother's estate. The client was confused. A week before his mother passed, she executed a deed to her house in the son's name and asked him to sell the house after her death and split the proceeds with his seven brothers and sisters.

The son agreed to do this for her, and thought this would take care of her estate plan. Unfortunately, she did not have a last will or trust.

The Probate court document was filed by a brother of the client. The brother felt that he should have been the one that would be in charge of selling the home and distributing the cash proceeds to the brothers and sisters.

Needless to say, the case has been tied up in the Probate court for the last two and a half years. During that time the value of the home dropped by more than $250,000. All of the family members were affected by the case. Half chose one brother's side and the other half chose the other brother's side. They no longer speak to one another.

We at the Law office of Matthew C. Mullhofer, work with clients to avoid this type of dispute before it can occur. A simple revocable trust for the mother would have listed instructions in writing as to how and when the house would be sold. It would have helped the family avoid this conflict and preserved the estate asset from being tied up in a long court battle. The trust would have allowed the house to be sold quickly after the mother's death and a much higher gain from the sale would have been available to the heirs.

Above all, the family would have avoided having to choose sides and would have retained their close relationship.

If you have a parent or a loved one that needs help planning their estate and getting their affairs in order, have them call Matthew C. Mullhofer at (714) 827-9955. You can also visit his website at www.protectmyassets.com

Matthew C. Mullhofer

The Seven Costly Mistakes Of Using An Online Internet Service To Write Your Will Or Trust

So the time has come for you to start thinking about writing your will and/or living trust, which is a very important step to take in ones life. In deciding whether to use the internet to write your trust, will or estate plan, the old adage holds true: “A man who represents himself in court, has a fool for a client.”

Many people ask me, “Why do I need a living trust”. That is a very good question, because the answer is not always the same for every client. If you own Real Estate in California or any other state, it is important to hold title to that property in a trust. The main reason is that when you die, your intended heirs cannot transfer, sell, or refinance that property until they obtain a Court order allowing them to do so.

This process is what we call "Probate". The probate process allows heirs to have the real estate and other personal property (ie: bank accounts, mutual funds, and CD’s) to be transferred to their name. The downside to probate is that it takes about 18 months to be final and the costs are extreme.


For example, the cost to probate an estate worth $500,000 would be close to $20,000. This would include attorney’s fees, court filing fees, the posting of a bond and appraiser fees.

The cost of a living trust properly prepared and funded by an attorney for a $500,000 estate would cost about $1500.

1. THE COST OF THE IMPROPERLY PREPARED TRUST.
Many people are the do-it-yourself type. This is a nice approach if you have unlimited time and do not care if you have made the proper decisions in changing title to every asset that you have worked so hard to achieve. If your re-titling project goes awry, your heirs may be required to go to court to persuade a judge of what you really intended to happen after you have died. The internet services do not provide the service of re-titling your assets into your trust.

A trust must have your assets funded or transferred to the trust for it to work properly. Assets have legal title, such as your home, money market accounts or stocks and bonds. The title to your assets must be changed over to your trust.

When you transfer title to the assets, you must have legal documentation properly filed and or recorded with the proper agency. If you miss something, or fail to record a deed, that asset will not pass to your heirs through the trust and will be subject to the probate process. For example, the cost to probate a asset worth $250,000 would be close to $12,000. This would include attorney’s fees, court filing fees, the posting of a bond and appraiser fees.

An asset that is left out of the trust will have to pass through probate. This will cost money and take time to finalize the probate process. In addition, the asset (ie: stock account) will be frozen during this process. So if you have a stock that you would like to sell because it is selling at a high price, you cannot sell until the probate is final. Again, this may take 18 months, and during that time, the stock market may change and the price of your stock could fall.

2. THE TIME INVOLVED IN PREPARING A TRUST CAN BE UNLIMITED.
Estate planning attorneys usually need about four to eight hours to properly prepare, execute and fund a living trust. The time needed by an individual that has not had the training to prepare a trust could be more than twenty hours. And there is no guarantee that the self-written trust was properly completed. It is no different than you driving down the road and the “check engine” light goes off and you pull off onto the side of the road. You know that you can try to diagnose the problem on your own or you can take the car to a well trained mechanic that will charge you a fee to fix the problem with your car. You may be able to discover and fix the problem on your own, but how long will it take? Will you do it right the first time. If you don’t do it right, who will you hurt by your mistakes?

If you miss something in putting the trust together, you are only adding more time onto the project, because the trust will most likely be thrown into the probate court. Time is something we do not have an unlimited amount of.

In my practice, I often am faced with having to probate a trust for a family that was prepared by a non-attorney or internet service. In probate court, judges do not like trusts that were not prepared by attorneys. I have had the opportunity to see how probate judges view trusts prepared by non-attorney’s and look for defects that will allow the trust to be invalidated.

Again, if the trust is invalidated, the assets are subject to the probate process and more time is added to the botched estate plan.

3. THE TAX IMPLICATIONS OF IMPROPER ESTATE PLANNING.
The internet services do not look at your net worth or entire estate to spot potential tax traps that could eat up your hard earned assets. A benefit of hiring an estate planning attorney to prepare your estate plan, they will advise you on what to do if your estate is subject to federal estate taxes.

As of 2007, an estate worth over 2 million dollars will be taxed under the federal estate tax at rates of up to 49%. This means that, those assets that you have been taxed on during your lifetime, will be taxed again after you have died.

If you make the right choices with trusts, gifting and insurance, you can eliminate and/or minimize these exorbitant taxes. I can assure you that an online service will not provide this valuable information to you.

4. THE PROPER SUCCESSORS CAN MAKE OR BREAK YOUR PLAN.
When you go online to do estate planning, you are filling out a series of standard questions. One question is, “who do you want to be in charge of the distribution of the assets after you have died?” There is no discussion as to why you choose that particular person.

As an attorney, I take a very active role in helping my clients decide on who is the right person or persons to act as the successor trustee. Is this person ethical? Does this person have a business or financial background? Do they have outstanding debts or creditors suing them? Do they cave into the pressure of others? Are they reliable? These are all very important questions to consider when choosing your successor.

I was once hired to sue a successor trustee for the beneficiaries, because he was diverting monies from the trust to pay for his gambling losses. This lawsuit cost the beneficiaries tens of thousands of dollars because the wrong person was appointed as the trustee and the trust was written by a non-attorney.

In my practice, I receive many calls each month from a disgruntled beneficiary that wants to sue the successor trustee for embezzlement of trust assets. An internet service does not spend the time counseling the client on the pitfalls of choosing the wrong successor trustee.

Another important question and decision is how should assets be distributed to an eighteen year old beneficiary. A typical eighteen year old lacks the ability to invest assets and manage an estate. A properly drafted trust can avoid the assets being squandered by a young inexperienced beneficiary. By using an attorney and not the internet, you can rest assured that your hard earned assets will not be lost at the craps table in Las Vegas.

Another issue that is typically missed on an internet trust application is what to do if a beneficiary is disabled or becomes disabled. Persons with disabilities can qualify for aid from the government if they have a limited amount of assets. If your beneficiary is disabled and then has an asset transferred to him or her via a trust, then that disabled person may no longer qualify for the state aid.

In our client interview, there is always a discussion about the age, maturity, and mental capacity of your intended beneficiaries. I also should mention about looking out for the opportunistic gold digger {daughter-in-law/daughter-in-law}. These people are always discussed in our consultation. I have never seen an internet application that inquires as to whether you trust your son-in-law.

5. THE DUTIES AND LIABILITIES OF A TRUSTEE.
By accepting the role of a trustee, that particular person is taking on responsibilities and potential liability if that trustee/successor trustee fails to follow state laws, the terms of the trust or does not pay creditors. The trustee can be sued in a court of law for failing to prepare the proper accounting documents on behalf of the trust.

Non-attorneys and online services do not have court experience and do not have the insight on how to counsel clients on how to avoid these pitfalls.

In my practice, I have the ability to share with clients the mistakes that I have seen made by others that were unrepresented and the consequences that were doled out due to those mistakes. For example, states provide statutes that define the duties and responsibilities of a trustee, if the trustee fails to act or acts negligently, the trust beneficiaries can sue the trustee for negligence.

6. WHO IS ACCOUNTABLE IF MISTAKES ARE MADE?
When you use a website to write a trust and things do not turn out properly, you have little recourse in correcting the mistakes. You do not have a warranty. Even if the website offers a money back guarantee, a refund of $300 will not get you very far in the probate court.

Attorneys are required to maintain good standing with the state bar and attend continuing legal education seminars on the recent changes in the law. Attorneys also typically carry malpractice insurance. I always let my clients know that I carry malpractice insurance and that they are covered if a mistake were made. In the planning stages of your estate plan and trust preparation it makes no sense to be penny wise and pound foolish.

7. ARE THERE ANY OTHER DOCUMENTS THAT NEED TO BE PREPARED?
The living trust is usually not the only document that is needed to complete your estate plan. Every family has different needs and an in depth discussion is necessary to spot all of the legal issues. It is important to add durable powers of attorney for asset management, advance health care directives, pour-over wills, irrevocable life insurance trusts, and special needs trusts are other documents to be considered. To make this decision, the client needs full disclosure as to why these documents may be necessary.

I also treat a client engagement as an opportunity to help educate that person on each of these documents and how they work and the importance of each tool. If I am not properly passing on my knowledge to my client, I am not doing my job. I enjoy helping people. That is why I became an attorney. It takes time to explain the importance of these estate planning tools. It is not fair to the client if they do not have a chance to explore all of their options.

I have used these internet sites before, I have even owned my own internet site. The goal of owning an internet site is to be able to sell products or services without having to develop a working relationship with the customer. It is all about generating income without having to answer questions. In the area of estate planning, if your questions are not answered you are headed for failure.

IDENTITY THEFT AND FRAUD
One last parting thought is regarding the problems with identity theft and fraud. When you set up a trust, you must disclose information about you, and your assets. In today’s world of crimes being committed on the internet, it does not make sense to disclose your sensitive information to a company that you know nothing about. You do not know who the owner is and you never get to meet their staff. Would you give your birth date, social security number and the whereabouts of your assets to a perfect stranger? When using the internet to set up your trust, you will be required to disclose private information to people that you do not know. This in of itself is a scary proposition.

I hope this information was helpful and encourages you protect yourself and those who are, or will be a part of your will or living trust. For information, please visit www.protectmyassets.com.