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.