Los Angeles (and the rest of the country) is filled with entrepreneurs and business owners. If you're young, you've probably never thought about this, but what happens to your business if you pass away or lose the capacity to work? This is where business succession planning comes into place.

Business Entities?

If you run a business, it is probably worth creating some sort of business entity for the purpose of operating it. For example, if you have (or are growing!) a real estate empire, it may be worth utilizing one or more LLCs to hold those interests. In addition to potential liability protection, the government documents for the business entity, whether it is an LLC, corporation, or some other form of business entity, can provide details about how profits are to be split (if you have more than 1 partner), as well as provide a plan for who will manage the business in the event a partner passes away or is not able to actively participate in the business.

Intersection With Estate Planning

As part of the estate planning process, the estate planning lawyer may discuss:

1. Forming a business entity to hold your business(es) and drafting the appropriate LLC Operating Agreement, Partnership Agreement, Corporate Bylaws or Shareholders' Agreement.
2. Assigning your interest in the business entity to your revocable living trust.
3. Assigning all or a portion of your interest in the business to others, including family or other associates.

Planning for your business can help to ensure that your family and other business partners are able to maximize the value of the business and that the business remains productive long after you pass away. It can also be a good tool to teach younger generations how the business works and instill in them values that may be of importance to you.

You may not know that California is considered a "Community Property" state. In Community Property states, assets owned by married couples or registered domestic partners are considered either "community" assets or "separate" assets. Whether an asset is community or separate property has a significant impact on how those particular items are distributed.

(Simple) Definition

Community property, in general, includes assets that you earn through your labor (such as a salary) after your are married. If you own property that is considered community property, then the income from that property would also be considered community property. Community property is considered owned 1/2 by each spouse or registered domestic partner.

Separate property, in general, is assets that you owned prior to marriage, or assets gifted or inherited directly by you at any time, and would include the income generated from separate property that you own.

If couples want to be sure that their assets can be properly characterized at a future time, it is critical to keep community and separate property separate.

Transmu-what? (Transmutation)

Married couples or those in registered domestic partnerships can agree to "transmute" their property. That means, they can:

1. Convert community property into the separate property of either of them.
2. Convert separate property of either of them into the separate property of the other of them.
3. Convert separate property of either of them into the community property of both of them.

There may be a number of reasons for why a couple might want to do this, as it can affect the way assets are distributed at the time of death, and can help the couple achieve certain tax minimization goals.

It's important to note that registered domestic partners are not considered "married" under federal law. Therefore, the federal tax benefits available to registered domestic partners are limited.

If a couple meets with an estate planning lawyer, this is certainly going to be a part of the conversation, so be prepared.

When most people think of estate planning, they think of money, investments, real estate, and other items of value. One thought that is overlooked are the important medical decisions that may need to be made if you became incapacitated. For this reason, just about every estate plan also includes a document called the Advance Health Care Directive.

Features Of An Advance Health Care Directive

The Advance Health Care Directive allows you to tell your medical providers your wishes with respect to life-sustaining treatment if you have a terminal illness, if you're in a coma, or the risks of treatment would exceed the expected upsides of that treatment. You may also specify the parameters of any relief from pain that you want or organ donation. Perhaps one of the most important things the Advance Health Care Directive does is allows you to name one or more individuals (also known as an "health care agent") to make decisions for your regarding your health care.

Powers of A Health Care Agent

In general, the health care agent has the following powers:

1. He or she has the right to receive your medical information
2. He or she has priority over others in making health care decisions for you
3. He or she has the power to deal with your remains after you pass away (except to the extent that you specify in the Advance Health Care Directive)

California has conveniently created a statutory form of Advance Health Care Directive. You can find it for free in the California Probate Code Section 4701, so there's no reason not to have one!

A shorty, but a goody today. The Durable Power of Attorney is a legal document that allows you to name someone (also known as an "attorney-in-fact" or "agent") to make financial decisions for you. The Durable Power of Attorney can even be drafted broad enough to allow the agents to make gifts on your behalf or to transfer assets to your revocable living trust if you have created one. This document is only effective while you're alive. 

Why Do You Need One?

Most people only plan for death, but with advancements in medicine, it's possible to be alive for quite a while but be incapacitated to the point where you're unable to make decisions regarding your assets. Having a Durable Power of Attorney can help you avoid a court-supervised conservatorship and may allow your loved ones to act more quickly in the event that something happens to you and important decisions need to be made regarding your financial affairs.

Overlap With Trustees?

You may be thinking that the agent under a durable power of attorney would seem to have a conflict of interest with the Trustee of your Trust, but that is generally not the case. First, the agent under your Durable Power of Attorney is often the same individual that you've chosen to be your successor Trustee. Second, your Trustee deals with assets contained within your revocable living trust, whereas the agent under your Durable Power of Attorney principally deals with assets that are outside of your trust.

The Durable Power of Attorney is frequently a standard document that is incorporated into an estate plan, so don't be surprised if your estate planning lawyer includes one for you as well. Even if the cost of estate planning is outside of your budget, I encourage everyone to have a Durable Power of Attorney, as it is inexpensive to prepare and can even be found in the California Probate Code (Section 4401).