Inky’s Tai-Chi Class

Attention my human subjects!  It is I, Inky “the Magnificent,” here to get your sorry species in shape by showing you the true path to enlightenment through proper conditioning.

First, find a nice warm blanket. Next lie flat on your back upon said blanket. Drift off to sweet oblivion. Hold pose for six hours (experts will do so for longer).  In the midst of your torpidity, you should achieve a level of repose such as I’m showing here.


Once reaching this “Tai-Chi” state, your forelimbs will make gentle concentric circles of their own volition. You reach the highest state if your hands dangle from your wrists. However, if you find your joints stiffening or “freezing in place” after being in this pose for a while, it probably means you’re dead and rigor mortis is setting in.

Thus concludes today’s class. Dismissed.

Your Omniscience,


The Basic Legal Structure of Forming Your Business

Starting your own business involves addressing several basic legal issues.

Choice of Business Entity

          How will your business be structured?  Most businesses starting out usually fall under one of four designations: (1) sole proprietorship; (2) corporation; (3) partnership; or (4) limited liability company (or LLC).  However, there are a myriad of choices and sub-designations to choose within these basic choices due to type of industry, membership make-up, tax ramifications, etc.  That’s why it’s good to engage both a CPA and an attorney specializing in business law early-on in the process to help you navigate these issues.

Filing Appropriate Documents with State & Local Governments

          Once you’ve chosen your business entity, you will want to file the correct documents with the locality where your business is headquartered as well as your state.  Your choice of entity will usually determine what types of documents need to be filed.  Also, the type of work or service you plan to provide can involve additional licensing requirements with the government.

Obtaining an EIN from the IRS

          If you want your business entity to have a separate tax designation from you or you don’t want to use your social security number as the tax designation for your business, you will need to obtain a Federal Employer Identification Number (or EIN).  The good news is it’s become fairly easy to obtain this number for free on the IRS website.  Once obtained, this number is what is used to identify your business for all of its tax filings.

Establishing An Operating Agreement for Your Business

The type of operating agreement you have drafted depends on the type of business entity you have chosen.  This operating agreement is the contract between the business owner or owners on how the business is to function and be managed. This agreement should also address contingencies and sudden events that may arise during the lifespan of the business, such as adding new owners or current owners retiring or dying.  It’s critical to retain an attorney specializing in business law to draft such an agreement early on after the above-mentioned steps have been completed.  Having such an operating agreement in place before something major happens can be critical in sustaining the business through a crisis.  Also, you usually need such an operating agreement in place if your business needs to obtain a commercial loan from a bank or similar financial institution.

Estate Planning Pitfalls of Joint Ownership

Oftentimes, spouses own their assets together.  The advantage of doing so is ease of managing the asset or assets, especially if one spouse becomes disabled or when a spouse passes away. These assets often have a right-of-survivorship designation. This designation means when one spouse or joint owner dies, the assets passes wholly and immediately to the surviving spouse or owner.  It’s as if the deceased person never owned it.  Such a circumstance presents pitfalls to watch out for in estate planning.

Probate of the Asset When the Surviving Owner Dies

          One of the advantages of spouses holding title to property together with a right-of-survivorship provision is that when the first spouse passes away, the asset immediately passes to surviving spouse’s estate without going through the probate process at the courthouse.  That’s true, but only when the first spouse dies.   If the surviving spouse engages in no additional estate planning to make provision for that asset upon their death, it’s likely such an asset could be part of an expensive probate proceeding.

Unintentionally Disinheriting Children

It’s not unusual for a surviving spouse to add one of their children as a joint owner on some or all of their financial accounts.  This scenario usually occurs because the parent is elderly and increasingly infirm and figures adding a child as a joint owner on the parent’s accounts will help with the ease of the administration of such assets.  The child can write checks on the parent’s behalf, deal with the bank or other financial institution, etc.  However, adding a child as a joint owner on your accounts is fraught with peril.

The biggest peril is what if you have more than one child.  But you chose one child as joint owner, thinking that one lives closest and it’s easiest for that particular child to assist you with your financial transactions. Well, when the parent passes away, the right-of-survivorship provisions automatically places those assets in the estate of the one child who was the surviving joint owner on all of the accounts.  Thus, the other children receive no inheritance from those assets.

Other disadvantages of adding a child as a joint owner on your accounts include possibly exposing your assets to your child’s creditors and troubles with management of the asset if you no longer wish for that child to be a joint owner- typically, you have to get that child’s permission to be removed as a joint owner on your account.

What’s the best way to have a child help you with your financial accounts while hot possibly imperiling your assets in the manner discussed above?  Instead of adding a child as a joint owner on your financial accounts, ask the bank or financial institution to add your child as an “authorized signer” on such accounts.  That way, your child can sign checks and do other financial transactions on your behalf, but are not considered a co-owner of the accounts.

Tax Disadvantages for Significant Estates

Joint ownership of assets with your spouse can present potential tax disadvantages to your estate, especially if your estate is approaching the limit of the federal death tax exemption.  As mentioned earlier, when two spouses own assets together as joint tenants with right-of-survivorship, the entire asset passes to the surviving spouse immediately upon the first spouse’s death.  It’s as if the first spouse to die never owned it.

When a person dies, there is the potential for their estate to pay a federal death tax of 40% on what the estate owns.  Congress has granted an individual death tax exemption over the years, meaning a person’s estate could exempt a certain amount from the death tax but anything over the exemption limit would be taxed at the going rate.  Fortunately, the death tax exemption has increased about 800% the last fifteen years from $650,000 to 5.5 million dollars.  Unfortunately, twice in the last five years Congress has come close to pushing this exemption back down to one million dollars.

How this applies to joint tenancy ownership is that when the first spouse dies, that spouse’s individual exemption is forfeited for the formerly jointly-owned asset.  So when the surviving spouse passes away, their estate can only use one federal death tax exemption.  Whereas, if the spouses estates were kept separate for tax purposes, both spouses federal death tax exemptions could be utilized. Conceivably, a married couple could exempt twice as much of their assets from a potential federal death tax by utilizing proper estate planning.  This proper planning usually involves the creation of a Revocable Living Trust as the core the spouses estate plan, plus property agreements that work with the Trust to more flexibly allocate assets between both spouses estates after the first spouse passes away.

Black Cats Are Lucky

Inky Fall 1


I want to clear up the popular misconception in this country that Black Cats are bad luck.  Especially during Halloween.  Nothing could be further from the truth.  I don’t commiserate with witches or goblins (or dogs).  In many countries, such as England and Japan, having me around is considered good luck.  Rich knows how lucky he is.  He knows there is no greater privilege than being my liege and being responsible for paying me proper homage and vittles.  Just like the ancient Egyptians.  Those were the days!

Here is a small list of people I am luckier than:

The Leprechaun for ‘Lucky Charms’ cereal (have you seen what happens to the milk?).

Andrew Luck, quarterback for the Indianapolis Colts (have you seen what’s happened to their record?).

Lucky Luciano, famous 20th century mobster (died of a ‘heart attack.’).

Have a happy Halloween.  Maybe you’ll have the opportunity for a Black Cat to cross your path.  But only if you’re lucky.

Your Omniscience,


You Need These Medical Documents In Your Estate Plan

While a Trust or a Will handle the financial aspects of your estate upon your disability or death, you need two specific medical documents as part of your estate plan should medical matters arise and you can’t make your wishes known consciously to your family or your doctors.

The first document is called an Advance Medical Directive.  In an Advance Medical Directive, you decide who will be your agent to make medical decisions for you should you be unable to do so.  There will also be “death with dignity” provisions, so your loved ones know your wishes regarding end-of-life decisions.  Also, you will have an organ donation option.

The other medical document you should have in your estate plan is often referred to as a HIPPA Release.  Congress passed a healthcare privacy act several years ago.  Its aim was to make it harder for third parties to gain access to our private medical records.  Unfortunately, a consequence of this act has been that some hospitals will not let your loved ones talk to your doctors or gain access to your medical files without a signed authorization from you.  This HIPPA release is that signed authorization.

By having these documents already in your estate plan, you can ensure your family and doctors know your wishes on medical matters should you become unresponsive during hospitalization or when you face a terminal illness.

The Art of Philanthropy

What is Philanthropy?

Simply put, “philanthropy” is the vehicle for providing continuous charity.  While most of us may give to charity on a regular basis, most of us do so spur-of-the moment or when we feel we have a little extra money to give.  Philanthropy allows a person or groups of people to give to charitable organizations consistently over a long time period.

Some of the largest philanthropies have existed for decades and are large enough to provide an endowment of giving to last in perpetuity.  While you can give your own money to such large philanthropies to benefit your favorite charities, it’s not necessary to do so.  In fact, you can begin your own philanthropic legacy for as little as $5,000.

Types of Philanthropies:

Private Foundations

Charitable Trusts

Public Foundations

Community Foundations

Donor-Advised Funds

Private Foundations

A private foundation is a legal entity established by an individual, family or group of individuals for philanthropic purposes.  The Bill & Melinda Gates Foundation is the most prominent and largest example of a private foundation.  Corporations can also establish private foundations as well as charitable organizations.  The largest private foundations are endowed with billions of dollars in assets.

While most private foundations have under a million dollars in assets, establishing one is a beneficial philanthropic strategy only if it has at least several million dollars in assets.

The reason is the costs to maintain such a philanthropy.  As a legal entity, a private foundation has corporate and tax filings to maintain on a regular basis and myriad administrative tasks that go with any corporate endeavor.  The overhead costs alone are typically too expensive and time-consuming for most of us, as individuals or as families, to establish such a philanthropic structure.  You want your giving to achieve the most bang for the buck.


Charitable Trusts

Charitable trusts are often established by wealthy donors that provide a philanthropic legacy while providing income and/or estate tax advantages to the donor.   Typically, a person has an attorney draft a trust document, established for charitable purposes.  An asset or assets are funded into the trust and the donor continues to enjoy the use of the asset for a period of years or until the donor dies.  After death, charities become the beneficiaries of the trust assets.

The administrative burden with charitable trusts is not as onerous as with private foundations.  However, meticulous financial records must be kept as well as the trust filing an annual tax return.

For a charitable trust to be useful as a philanthropy, due to annual attorney and accounting fees, it needs to be funded with at least $200,000 in assets.

Public Foundations

Public Foundations are legal non-profit entities established to provide grants to a charity or charities from donations elicited from the general public.   Public foundations can benefit (or be) a single institution, such as a hospital or university, or can benefit a wide variety of interests in a single community.  Donations to public foundations usually involve a lager tax break to individual donors than donations to private foundations because the donor does not have ultimate “control” over who will receive the donation or grant.

Public foundations are more beneficial to donors who want to establish an initially modest philanthropic legacy.  Initial thresholds to establish a philanthropic fund vary from $5,000 – $50,000.  Oftentimes these thresholds can be met over a 2 or 3-year period.

Community Foundations

Community Foundations are a type of public foundation.  Such a foundation provides grant money to charities operating in a particular city, county or region.  There are over seven hundred community foundations operating in the United States.

A community foundation manages the charitable funds of its donors.  Anyone can establish a fund with a community foundation as long as it meets the minimum requirements.  While most require $10,000 – $50,000 to initially establish a charitable fund, there are some community foundation that have only a $5,000 threshold.  And the ones that require a higher threshold will usually allow the minimum to be met over multiple years.  The operating expenses of such a fund are much less than the fees associated with maintaining a private foundation or charitable trust.

A donor’s fund can be “unrestricted” in that it goes to any needs in the community the foundation sees fit to make a grant.  However, a donor can also establish a fund for a particular charity or field of interest.  For example you could establish a charitable fund to specifically benefit “the Boys and Girls Club of Manassas” or you could establish a fund meant to benefit “underprivileged youth in Prince William County.”

While community foundations are very beneficial institutions, some people like to be very private with their philanthropy.  Plus, most community foundations require a minimum threshold of establishing a fund greater than $10,000.

Donor-Advised Funds

Donor-Advised Funds, established privately, can provide the best combination of private and public philanthropy.  Instead, you have this fund set up with cash or an asset with the assistance of your financial advisor and through wealth managers who specialize in managing philanthropic investments.   Once established, you can make annual or more periodic donations to the charities of your choice.

What is unique about this option is you can give to your favorite charities anonymously, if you desire, and you can start your philanthropic giving for as little as $5,000.  Once the fund is established, you can add assets and cash to it at any time; you can have friends and family add contributions to it; and you can name successor advisors in case you pass away.  Establishing such a fund, even a modest amount, can be a great vehicle for starting a legacy of multi-generational giving in your family.

Helpful Links 

  1. For more information about donor advised funds go to:

  1. For more information about Community Foundations operating in Northern Virginia:

The Community Foundation for Northern Virginia 

The Community Foundation for the National Capital Region

  1. For more general information about charitable foundations:

Council on Foundations


  1. For more information about establishing a charitable trust as part of your estate plan, please contact Richard Phillips of Hometown Estate Planning at (571) 208-0425.

Message from Marketing Assistant ‘Okie’



Look into my eyes (‘Inky’ has trained me well).  I’m too cute and adorable to be ignored.  You will do my bidding.

First, fish (btw, fish are yummy) out your wallet/purse/European handbag (which is still a purse).  Next, get out your credit card.  The one with the highest limit will suffice.  If you have an AMEX Black card, so much the better.

Now you will go online to purchase me and ‘Inky’ a lifetime supply of Temptations Treats.  You can itemize the expense as a charitable deduction on your tax returns.  I swear.  I’m too cuddly and awwww-inspiring to lie to you.

Your Omniscience-in-Training,


Congress Provides Some Relief for Special Needs Beneficiaries

Congress Provides Some Relief for Special Needs Beneficiaries

By passing the ABLE (Achieving a Better Life Experience) Act last December, Congress has provided some financial relief for families with special needs children.  Children who suffer developmental disabilities often qualify for government benefits that provide financial assistance well into adulthood.  However, to qualify for these government benefits, a recipient usually must own less than $2,000 in assets.  Therefore, significant direct inheritances from parents or grandparents could jeopardize the government benefits a special needs child is otherwise entitled to receive.  Typically, the only was such a beneficiary could inherit any significant wealth was for their family to have a special trust established for the child, where that child is only a beneficiary of the assets (child has neither ownership nor management of such assets) and the assets are for that child’s supplemental needs beyond what’s provided by government benefits.

The ABLE Act, however, provides families with a bit more flexibility for special needs beneficiaries. Under the new law, a tax-favored savings account can be established for a disabled child or adult who became disabled before age twenty-six.  Up to $14,000 per year can be sheltered in this account and anyone can contribute to it.  Additionally, the first $100,000 in the account would not count as an asset of the beneficiary in considering eligibility with government programs such as SSI (Supplemental Security Income).

The money in the account is to be used for “disability-related expenses.”  But that term is broadly defined to include such expenses as education, housing, transportation, employment; healthcare, financial management and administrative services; legal fees and funeral and burial expenses.

It is anticipated that this account will be managed by the states in a manner similar to the 529 College Savings Plans and will be available to the public by 2016.

Why It’s Called a Trust Fund

Why It’s Called a Trust Fund

By Richard E. Phillips

Creating a Trust is a two-step process. The first step is creating and signing your Trust Agreement, the private contract between you as creator of your Trust and your Trustee (sometimes also you).  Your Trustee manages the Trust according to the terms of your Trust Agreement.

But that’s only the first step.  The second and critical step in the Trust process is retitling assets into your Trust or designating the Trust as a beneficiary of an asset upon your death.  This process of re-titling assets into the name of your Trust is oftentimes called “funding” the Trust.  Funding is critical to your Trust working as you desire.  Because a Trust without assets funded into it is a worthless piece of paper.  Below by section is a description of how some common types of assets are re-titled into your Trust.


Real Estate

Your real estate is funded into your Trust by having a new deed drafted that conveys title from you to the Trustee of your Trust.  What if there is a mortgage on the property?  Do you need the lender’s permission to fund it into your Trust?  The simple answer is ‘no’ for residential real estate, but ‘probably’ for commercial real estate and multi-unit dwellings.  Federal law allows individuals to convey a real estate interest into a Trust without triggering the mortgage’s “due-on-sale” acceleration clause.  The plain language of the law reads “real estate.”  However, lenders usually interpret that to mean only “residential real estate.”  Prudence suggests getting the lender’s pre-approval for funding commercial or multi-unit real estate into your Trust.

What if you own your interest partially with other persons?  If you own your interest as tenants-in-common, this means each person owns a separate share that can be conveyed separately.  Therefore, you can convey your interest in the property into your Trust by quitclaim deed without affecting the interests of the other property owners.

If you own real estate with another person as joint-tenants-with-right-of survivorship, however, this means you don’t own separate shares of the property.  Each joint owner has a 100% stake in the property.  When the first person dies, the whole value of the property conveys to the surviving owner.  You would need to get the other joint owner’s written permission, usually by a new deed, to break the “right-of-survivorship” provision in the current deed in order to convey your interest into your Trust.

Bank Accounts & Certificates of Deposit

The transfer of Bank Accounts, Savings Accounts and Certificates of Deposit (CD’s) into your Trust can be accomplished by providing your bank with a copy of the Certificate of Trust which your estate planning attorney has prepared for you. The Certificate of Trust is a 3-4 pages summary of your Trust Agreement and allows you to fund your Trust without having to give a financial institution a copy of your whole Trust Agreement.  You will then sign new signature cards as Trustee of your Trust. Generally you will not have to open new accounts to replace existing accounts; the only change is on the bank signature cards. For a checking account, you generally do not need new checks.

You can fund your credit union accounts into your Trust.  However, most credit unions require that the master account remain in your individual name, but your sub-accounts can be re-titled into the name of your Trust.

When you open up new accounts, simply instruct the bank that you wish to have the title of the account in the name of your Trust. You may need to provide the bank with a copy of the Certificate of Trust.

Brokerage & Mutual Fund Accounts

For a standard brokerage (and/or a mutual fund) account, all that is generally required is a request to the broker or account manager. The financial institution usually will require a copy of the Certificate of Trust.

Stocks & Bonds

To transfer stocks or bonds into the name of your Trust, a different procedure is used for privately held stock compared, such as stock in a family-owned business compared to publicly-traded stock.

  1. Privately Held Stock

The transfer of privately held security instruments, such as stocks in a privately held corporation, can be accomplished simply by surrendering the existing stock certificates and having new stock certificates prepared in the name of the Trust. This normally does not require a permit from a state agency, nor does it usually have any type of adverse tax consequence. However, the transfer of stock in a privately held corporation normally requires the approval of the corporation. Typically, such consent will be granted by the corporation after it has reviewed the Certificate of Trust and the appropriate assignment documents have been executed. Shares of individual professional corporations are usually not transferred to trusts because of statutory restrictions.

  1. Publicly Held Stock

In the case of publicly held stocks or bonds, it will be necessary to work through a stockbroker or through the institution from which the assets were purchased (such as a Dividend Reinvestment Plan or an Electronic Registration Plan). If you currently possess the certificate(s), the broker will require you to surrender the certificate(s) and sign certain transfer documents. Physical certificates should always be sent certified mail.  However, electronic dividend reinvestment accounts are much easier to transfer and usually require a written request and a copy of your Certificate of Trust.

Life Insurance & Annuities

If you wish the proceeds of your life insurance policies or annuities to be distributed in the same manner as the other trust assets (which is usually the case), the Trust should be the beneficiary. You must instruct each insurance company or your insurance agent to designate your Trust as the beneficiary.

IRAs, 401(k)s & Pension Plans

An IRA, 401(k) plan or pension plan, wherever invested, must remain in the owner’s name and Social Security number; this is not a major problem in estate planning since the account is paid, at your death, to a named beneficiary and, thus, does not have to go through probate. However, it may be desirable to have the account paid to your Trust instead of to a named beneficiary (e.g., the beneficiary is a minor or the Trust has more details for all contingencies); For a husband and wife, the non-owner spouse is usually named the primary beneficiary and the Trust may be named the contingent beneficiary. Any change of a beneficiary designation of a retirement plan could have important income tax consequences; therefore, you should consult with your tax advisor prior to making any change.

Personal Property & Motor Vehicles

Personal property such as furniture, household effects, art work, jewelry, automobiles, RVs, boats, etc. should be transferred to the Trust. Your estate planning attorney should draft an “Assignment of Personal Property” document.  This document assigns all of the above-mentioned personal property into your Trust. This Assignment covers not only the property you currently own but any additional personal property acquired up to the date of death. 

Limited Liability Companies

A trust can be a member of a limited liability company (“LLC”). The transfer of a LLC interest to a Trust may require the approval of the LLC. Typically, such consent will be granted by the LLC after it has reviewed the Certificate of Trust and the appropriate assignment documents have been executed.

If you acquire any future LLC interest, simply instruct the LLC that you wish to hold title in the name of your Trust. You will probably need to provide the LLC with a copy of the Certificate of Trust.