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Informative Articles

Our ongoing series of informational entries.

This information is not intended to substitute for specific legal advice.  These materials should not replace a thorough reading and understanding of the applicable provisions of the Texas Business Organization Code or other applicable law.



October 5, 2021

At trust is most often created when a gift or inheritance is intended for the use and benefit of a loved one, but that loved one lacks the maturity, discretion, good health or legal capacity to manage the gift properly. In such case, the creator of the Trust appoints a trustee to administer the assets for the beneficiary. The first and ongoing duty of a trustee is to read and be familiar with the Trust document itself which will detail the trustee’s specific rights and obligations. However, the overriding responsibility of a trustee is to always act in the best interests of the Trust’s beneficiaries without regard to self-interest. This is referred to as a trustee’s fiduciary duty.

Being named as Trustee may be flattering but accepting and serving as a trustee is a somber task. Trustees are held to a very high standard and can be prosecuted in criminal court if the fiduciary duty is ignored. In fact, it is expected that a trustee will be MORE careful with a beneficiary’s money than with her own. To ensure that the job is performed properly, a trustee must (1) obey the terms of the Trust, (2) be totally loyal to the beneficiary, (3) educate herself and get professional advice for sensible investments, (4) preserve sufficient assets to last the full term of the trust so money doesn’t run out, (5) be personally engaged and not blindly hand matters over to a third party, and (6) keep organized records.

Conflicts of interests are difficult to avoid. I commonly review or observe trustees who are acting on behalf of aged parents. Instead of using all the available Trust assets for the parents, they often are overly conservative to protect a possible inheritance for themselves. This is a big mistake. Undivided devotion to the beneficiary is required even if there is nothing left at the end of the beneficiary’s lifetime. If the Trust permits, a trustee may be compensated a reasonable fee for his or her services, but not more. A reasonable fee would be the same as charged by area financial institutions. To make informed decisions, seek legal advice from a qualified attorney.


STARTING YOU OWN BUSINESS: What are the options?

February 24, 2021

There are many options for structuring a new business. These options include sole proprietorship, general partnership, limited partnership, limited liability company (LLC), S-corporation and C-corporation. In determining which of these structures is the best fit for your enterprise, there are 6 elements to consider: (1) the startup costs, (2) management formalities, (3) liability protections, (4) tax exposure, (5) flexibility for changes and (6) termination. Each situation is different and must be carefully balanced to maximize the potential for success.

In general terms, the more formal the legal structure, the greater the bureaucratic duties – but, these additional responsibilities, are offset by considerable liability protections and tax savings. For example, corporations require the formalities of an elected board of directors, appointed officers, regularly held meetings, adopted bylaws, kept minutes, etc.… Nevertheless, most larger companies choose corporate status because of the ability to raise significant capital while protecting the stockholders’ private property.

The option of an LLC is attractive to many who are starting a new business because it reduces the bureaucratic formalities, yet still allows for liability protection and pass-through taxation. Pass-through taxation means the business’s income is taxed only once at the personal level. The LLC files an income tax return but does not itself pay income taxes. It is extremely important, however, that all legal formalities are met. If not, then there is no liability protection and individual owners can be liable for business debts and/or taxes.

It is important to consult with professionals in determining which structure works best for you. If you do some math to prepare a 3-year business plan of your expected expenses and projected income, your accountant can quickly tell you which business structure will save you the most in taxes. In addition, a visit with the right attorney can clarify your liability exposure and the relative formalities.


Must I Probate?

April 2022

The probate process occurs when there is a need to convey property to an heir. If a person has no property to convey, then probate is not necessary. Similarly, if all assets are held in accounts with named beneficiaries, then those accounts will pass based on the contract with the institution without the need of probate.

However, most of us acquire assets during our lifetime that we are reluctant to part with until we are in a final illness or very late years of life. Owning a home is most often preferred to renting. We enjoy the freedom that owning our own car allows. Moreover, we value our independence and want to hold on to what we have gathered and earned to support that independence for as long as possible.

Probate does not have to be a burden. Compared to all other states, Texas probate procedures are short and far less expensive IF you prepare properly. Having a Will that is carefully written to address your family’s dynamics with an executor selected because of the right skill set makes all the difference. In Texas, a typical probate (with a good Will) is complete within a few months and costs less than $3000. Having oil royalties, stock certificates and/or property in other states will make a Texas probate longer and cost a bit more; but nothing like other states. Residents of other states must plan for probate to last years, cost more than $10,000 and budget for inheritance taxes. In Texas, there is no estate tax for estates less than $11.5 million. Therefore, the trusts often used in other states to minimize taxes or avoid probate are not needed in Texas because the trusts themselves often cost more than our probate fees.

Without a Will, the process is long, expensive, and carefully supervised by the courts. So, the key is to plan properly. A good Will is worth the expense – ask anyone who has endured a long probate because there was no Will. Having a Will ensures the probate process is smooth; but having a Will does not mean you have to probate. If you live a good long life and spend every dollar, then there is nothing to convey, and no probate is needed.

                                                                                 Options for Incapacity


“Incapacity” is a legal determination that an individual is unable to make decisions for him or herself. This can be because the individual is a minor and lacks the maturity to make a thoughtful decision, or because the individual suffers from a mental disability that limits rational thought processes.

When financial or medical decisions must be made for an incapacitated person, first refer to any documents executed by that individual to address this circumstance. Medical Powers of Attorney, Statutory Powers of Attorney, and Durable General Powers of Attorney permit a person when well to name agents to make decisions for them if they later become unable to do so for themselves. These documents are activated when needed using a HIPAA Release to obtain a written statement from the treating physician stating the diagnosis and disability. The Powers of Attorney permit an easy assumption of the ability to act in the incapacitated person’s best interests.

If, however, there is no advance planning, then the matter must be submitted to the county court at law. A local Judge must first decide whether the proposed Ward is in fact disabled, then if so, determine the appropriate guardian. A treating physician must complete an extensive report that includes their (1) professional relationship with the proposed ward; (2) opinion regarding the general nature and degree of incapacity, and the reasons for this opinion; (3) medical history; (4) prognosis and severity of the incapacity; (5) how, and in what manner, the proposed ward’s physical or mental health affects his or her ability to make or communicate responsible decisions; and (6) ability to participate in court proceedings. The Judge will also appoint its own attorney to independently review the records, speak to the medical providers, and interview family members. The attorney ad litem will report to the Judge their findings and recommendations. If the Judge agrees that a guardianship is needed, the Judge will appoint a Guardian who must post a bond, then file an inventory, annual reports, and annual accountings to assure the court that the Ward’s needs are being met.


Skill Sets for your Representatives or Agents

March 2022

F or proper estate planning, it is necessary to consider carefully who you want acting on your behalf or representing your probate estate. Different skill sets and logistics are helpful in making your determination, and you are not limited to family when making appointments.

An executor is the person who you want to take care of your estate at your passing. This individual will be responsible for the collecting, reporting and distribution of all your assets, as well as the payment of your debts. A typical probate in Texas lasts two to 18 months, depending on the complexity. Your executor needs to be organized and attentive to details. You don’t want a procrastinator or someone unable to multi-task. Your executor does not need any legal or financial knowledge because, most often, an attorney is hired to take care of the legal paperwork and procedures, plus a CPA for tax matters. With a Will, only a single hearing is required; but the executor will likely need to be close by or able to travel to Texas for the hearing and proper care of assets.

A Durable General Power of Attorney allows you to name the person you want making your financial decisions in the event you become incapacitated and cannot make those decisions for yourself. With a large estate, you want someone knowledgeable in investments; but primarily you prefer an agent who is responsible with money… someone who pays bills on time. This duty can be long-term since incapacity can last many years, but it can be done from a distance with the use of online accounts and billings.

Similarly, a Medical Power of Attorney allows you to name the person you want making your health care decisions should you become unable to make those for yourself. This agent makes more day-to-day judgments such as where you live, who your doctors are, what medical procedures you have or don’t have, etc. You want your medical agent to be your advocate in assessing your care and someone who shares your values. It is likely, for convenience, that you will need to live near your medical agent or expect that they will relocate you nearer to them.


When do I need a trust?

January 15, 2022

Once upon a time (20 years ago), middle class families had to be concerned about and properly plan for estate taxes on any personal assets above $600,000. It became a standard practice to utilize a trust to bypass a generation for inheritance, thereby minimizing estate tax exposure when a spouse or parent died. However, times have changed. In Texas, the estate tax now applies only to estates over $11 million.

A trust is a legally created entity that is treated as an individual under the law with its own tax identification number and annual reporting obligations. A trust can sue and be sued. It is a sophisticated fiction that requires a lot of paperwork to maintain. Therefore, any trust must be of some significant benefit to justify the hassle and expense.

A trust makes sense IF you have one of these situations: (1) your assets are over $11 million; (2) you have minor children or grandchildren that might inherit; (3) one of your heirs is disabled and you don’t want to jeopardize disability benefits; (4) one of your heirs is incapable of managing money in a healthy way because of addiction or mental illness; or (5) you plan to live somewhere outside of Texas where tax limits and rates are not as favorable. Texas is also the most independent and least expensive states for probate. By comparison, probate is much less time and money than maintaining a trust. Accordingly, using a trust to avoid probate is not logical.

If none of these circumstances apply, then it is unlikely that you need a trust for any future estate planning. Moreover, if you have such a trust, you should consider amending your estate documents to omit the trust to make the probate process simpler and less expensive.


Sole proprietorships and partnerships - getting it right so it does not go wrong.

March 15, 2020

The simplest form of business structure is a sole proprietorship. This business style is created informally without the recognition of the state. It is a business operated by an individual who uses their own name and social security number for tax purposes, and therefore, costs are low to open and maintain the business’ accounts. In many ways it is an alter ego of the owner which often leads to confusion on the parts of owners and customers. While sole proprietorships do not need to be registered with the secretary of state, it is important that the public knows with whom they are dealing. Accordingly, it is legally required that any name (other than the owner’s name) be recorded on an assumed name certificate and filed in any county where business is conducted. It is also essential that accounts be maintained separately to properly claim tax deductible expenses. Keeping all the funds in a single account is a red flag for audits.

In contrast, a partnership is an agreement between individuals who share in the management, profits, and losses of a business endeavor. Most partnerships are general partnerships, which like sole proprietorships, are informally created without a filing requirement. Because more than one person is involved, the partnership must have its own tax identification number and file its own tax returns. However, partnerships do not pay income taxes themselves. Profits are passed through to the partners who pay income taxes individually based on their pro rata share. A written partnership agreement is necessary for opening a bank account and to avoid any misunderstandings between the partners with regards to the risks, benefits, and responsibilities of ownership.

In neither sole proprietorships or general partnerships is there any liability protection for owners and managers. Therefore, liability insurance is an essential business expense to protect the owners’ personal assets. Some more advanced partnerships, such as limited liability partnerships (LLPs) and limited partnerships (LPs) will provide some liability shelter, but these forms are more formal and must be registered with the state.

It is important to consult with professionals in determining which structure works best for you.


Starting Your Own Business:

Essential formalities of LLCs and corporations

In order to gain greater protection for your personal assets, you must be willing to comply with the essential formalities of LLCs and corporations. These formalities create a buffer between your personal property and a wholly separate, legally recognized entity. The requirements include filing a Certificate of Formation; proper adoption of bylaws or a company agreement by the owners of the new entity; and keeping written records of mandatory meetings at least once a year.

For LLCs, closely held family corporations (S-Corps) and standard corporations (C-Corps), the first step is the preparation of a Certificate of Formation. The Certificate contains basic information about the business name, type of business structure, the purpose of the business, the primary business address, who are the initial owners, etc.… The Certificate and a filing fee must be submitted to, then acknowledged by the Secretary of State.

Promptly after the acceptance of the Certificate of Formation, the owners of the business should prepare the rules by which the entity will operate. These rules are named “bylaws” for corporations and a “company agreement” for LLCs. This document is the backbone of the business and the reference for all questions and solutions that arise. The bylaws or company agreement must be formally adopted by the owners in an organizational meeting that is documented in writing. Thereafter, owners are only required to meet annually. For LLCs, owners are referred to as “members.” For corporations, owners are referred to as “shareholders.”

Additional meetings by managers of LLCs or officers of corporations are sometimes needed in the practical, day to day operations of the business. While it is not legally required for these meetings to be documented in writing, it is a good idea to do so.

It is important to consult with an attorney of your choice to determine whether all the required formalities are being met, because failure to comply may result in a loss of liability protection.

                                                                                 Starting Your Own Business:

                                                                                 Non-profits and organizations created to do good.


A non-profit corporation is any corporation in which no income is shared with members, directors, or officers. It is formed like other corporations by the filing of a Certificate of Formation with the Texas Secretary of State, then the proper preparation and adoption of bylaws. The Texas Business Organizations Code requires that all non-profits have three or more directors, a president and secretary. Different individuals must fill the role of president and secretary. A non -profit may, at its discretion, have members. Members are often involved with religious or services organizations like Rotary or Lions Club.

A non-profit organization is not automatically exempt from federal and state taxes. To become exempt, the non-profit must comply with the requirements established by the IRS and the Texas Comptroller. While it is relatively easy to process tax-exempt status, it is an additional and much more arduous bureaucratic activity to apply for and receive 501(c)(3) status with the IRS which permits gifts to the non-profit to be tax deductible for donors.

There are restrictions on political contributions by non-profits. The IRS can revoke tax exempt status for violations of federal law. Moreover, the Texas Attorney General has the legal authority to examine all corporate records and investigate dealings by non-profit charities. Greater scrutiny is given to non-profits organizations than your typical small business holdings, including periodic reports required by the Secretary of State.

Similar requirements and details apply to other business structures that are organized to do good, such as cooperatives used by educational institutions, farmers, and utility providers.

It is important to consult with professionals in determining which structure works best for your purposes.

                                                                                 Starting Your Own Business:

                                                                                 Employees versus sub-contractors for labor.


​Texas is an “at will” employment state meaning that either the employer or the employee may terminate employment at their will, with or without cause. The only restrictions are those imposed by the U.S. Constitution regarding discrimination, or Texas laws that protect whistle-blowers and those filing for worker’s compensation. While employers need not have a good reason for firing someone, the lack of a good reason will likely permit the employee to file for unemployment compensation.

Employers who have invested in training employees may want to consider a written agreement to cover a specified period of employment to recoup training expenses. Employers can also bargain with employees for non-competition clauses when the agreement is in writing. When there is an employment contract, employment is no longer “at will” but based entirely on the written employment agreement which can be enforced by either party.

It is also important to note that employers are responsible for payroll, tax withholding and worker’s compensation for all employees. They must also pay ½ of employees’ social security and Medicare taxes. For these reasons, many small businesses elect to not hire employees, but instead use sub-contractor labor.

The difference between an employee and sub-contract labor is that the company cannot control a sub-contractor’s hours or work times, and the sub-contractor must supply his or her own equipment, workspace, transportation, and tools. The courts and IRS will consider actions, not written documents, when determining whether someone is an employee or sub-contractor. If the company tells the person when to show up for work, provides the materials, and supervises the labor, then the person is an employee (even if the person signed a document saying he is a sub-contractor). If it walks like a duck and quacks like a duck, then expect the authorities to treat it like a duck.


Starting Your Own Business: A Business Plan to Maximize Success.

Few of us plan for failure when we create a new business, yet profitability is far from guaranteed. To maximize the chance of success, developing a business plan is essential. Formal business plans are required when applying for loans and/or seeking investors. Such formal presentations include (1) executive summaries, (2) mission statements, (3) detailed descriptions of products and services, (4) market analysis, (5) promotion strategies, (6) leadership team, and (7) financial projections.

Many businesses start small and without the formality of a “business plan.” Nevertheless, much of the same basic research greatly benefits ANY business endeavor, regardless of size or formality. What are your short term and long-term goals? What are your anticipated expenses? How long until you expect to make a profit, and how will you support yourself until that happens? Who will be your likely customers? What can they afford? Who are your competitors? What are the marketing options for your specific customer base and their relative pros and cons? Who are your legal and financial advisors? Who will do the labor? Will you need management assistance? Who has what duties and responsibilities? What will be your financial expectations for the next 1 to 3 years? Answering these questions will prepare you for the work that lies ahead.

As important, you must know well with whom you are partnering. Do not be embarrassed to ask for a credit report to discover if a prospective associate can handle money. You should ask about previous business experience and talk with co-workers to learn if their personality is committed or compliant. You should be aware that it is not necessarily easier to partner with an old friend or family member(s). You may “trust” them more than a new acquaintance; however, significant and meaningful relationships have been destroyed by a business gone bad. A shared plan and written agreement will minimize the potential for conflict.

                                                                                 Starting Your Own Business:

                                                                                 Future Considerations


​Assuming all goes well with your business plans, there will be future decisions to make as you age, or your business grows. There may be offers from prospective buyers or retirement at some stage; but, be aware that to convey or close a business entity requires compliance with some state mandated procedures.

Prospective buyers are more likely to make a serious offer for businesses that are formally structured and well documented. They will want to review the corporate records, accounting, receipts, etc. Therefore, it is a valuable practice to keep these items in good order. If a decision is made to sell your business, then the terms should be carefully written out and approved by all interested parties. A special meeting should be called, and minutes adopted to formalize the exchange of ownership. The Texas Secretary of State’s office must also be notified that the owners and registered agents have changed.

Should you decide to retire or for some other reason close the business, then a winding up process must be done to account for and distribute the remaining assets to the owners based upon their respective percentages of ownership. A letter of good standing must be requested from the Texas State Comptroller to verify that all taxes and returns are up to date. Then, the letter of good standing along with a Certificate of Dissolution must be filed with the Secretary of State’s office. Without following these procedures, the owner(s) will have ongoing personal liability for all outstanding taxes and penalties.

Businesses cannot themselves be gifted in Wills unless it is a sole proprietorship. However, ownership interests can be passed on to your heirs. Therefore, it is important to consider in partnerships and other entities if you want to include “buy out” provisions. Agreeing to work with Jane Doe does not necessarily mean you want to be partners with Jane Doe’s ex-husband, her children, or heirs. So, consider the various ways your business might end and ask for qualified advice.

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