Professional Wills

Often, my estate planning clients are engaged in a professional practice of some sort, be it law, medicine, psychiatric care, accounting or the like, and many are sole or principal practitioners.  The customary documents most often do not provide any specific instructions for the winding up or disposition of the professional practice.  As such, in addition to the standard Will, Trust, Durable Power of Attorney and Health Care Proxy, it may be wise for such a client to execute a “Professional Will” addressing the winding up and disposition of the professional practice.  Some professions have regulations addressing file retention, client notification and other such matters, and it is important that a qualified person be in charge of seeing the process through in full compliance with all applicable matters.

A Professional Will differs from a personal Will, in that it is not a legal document, but rather a detailed set of instructions for an appointed “Professional Executor” to follow.  The Professional Executor (“PE”) generally would not be the person named as Personal Representative or Trustee of the other documents, but rather a professional colleague who understands the nature of the practice and the steps to be taken.

The PE should be empowered to do any or all of the following:

1.         Identify all of the clients to be contacted to inform them of the death or incapacity of the professional.  This may be done in person, by phone, or in writing, but should be done with proper sensitivity.

2.         Access all records relating to the practice, and as referred to below.

3.         Change voice mail message, website and any other internet-based sites relating to the professional.

4.         Notify any professional liability insurance carrier of the death or incapacity of the professional, and deal as needed with current or future coverage.

5.         Refer current client matters to other practitioners or to him/her self.

6.         Return files to clients, if they request that, or otherwise dispose of closed client files in a responsible manner (shredding, burning) to maintain confidentiality.

7.         Inform all professional organizations of the death or incapacity, and terminate memberships.

8.         Maintain all other files in compliance with any applicable laws, rule and regulations.

9.         Reconcile all financial records, pay liabilities and collect receivables.

A Professional Will should include:

1.         A list of all of the clients to be contacted to inform them of the death or incapacity of the professional, and a statement empowering the PE to contact those clients.

2.         A statement identifying where all current client files are kept.

3.         A statement identifying where all old files are kept.

4.         Identifying the location of all billing and financial records relating to the practice, including passwords if they are kept on a computer.

5.         A statement identifying the location of all databases of client names, addresses and phone numbers, with passwords if applicable.

6.         A list of all email addresses, websites, and other on-line resources used by the professional and passwords for all.

7.         Location of any keys required to unlock file cabinets or other storage facilities.

8.         Any specific information to be provided to clients.

9.         If applicable, the name and contact information for the professional liability insurance carrier, and any other professional organizations to which the decedent may belong.

10.       Arrangements, if any, for compensation to the PE for the work he or she does.

11.       Any additional instructions to the PE.

If you have already had an estate plan prepared, you may want to consider adding a Professional Will to the document set.  If you have no estate plan, now would be an excellent time to put one into place, and a Professional Will may be a part of such a plan.  It behooves you to leave proper information and instructions in the hands of a trusted person who is qualified to attend to the difficult task of winding up a professional practice in an appropriate manner.

S Corp or LLC?

I was recently asked to explain the difference between a Massachusetts Subchapter S corporation (S Corp) and a Limited Liability Company (LLC). As I was pondering the response, it occurred to me that this would make a great topic for a blog entry!

Both an S Corp and an LLC provide limited liability protection of personal assets against lawsuits and other liabilities of the business. Both also offer the benefit of the "pass-through" of profits and losses to the individual tax return of the shareholder/member, thereby eliminating the double taxation which occurs for standard business ("C") corporations. Other comparisons of the two highlight the differences.

1. Formalities of creation: Both are created by the filing of an organizational document with the Massachusetts secretary of state. The filing fee for a corporation is $275 (for up to 275,000 shares) and the filing fee for the LLC is $500. An S Corp also requires the additional step of filing a Subchapter S election with the IRS once the corporation is formed. Both must file an annual report each year with the Secretary of State. The annual report filing fee for a corporation is $125 per year and the filing fee for the LLC is $500 per year.

2. Formalities of Operation: An S Corp is governed by the corporations statute, which requires the creation of bylaws, the maintenance of formal minutes and other records, and the holding of annual meetings. The LLC has no such formal requirements, though the creation of an Operating Agreement is highly recommended.

3. Composition of Participants: An S Corp may have no more than 75 shareholders, all of whom must be U.S. citizens or have residency status. All shareholders must be individuals. Only one class of stock is permitted. The corporation is controlled by officers and a board of directors. In contrast, members of an LLC may be individuals or separate legal entities, U.S. citizens or not. There are no limits on the number of members permitted, and there may be different classes of members. An LLC may be run by the members or by managers who may not be members.

4. Allocation of Profits and Losses: With an S Corp, the allocation of profits and losses must be according to the ratio of each shareholder’s percentage of stock ownership, even if a different distribution scheme is preferred. With an LLC, profits and losses may be allocated to members in whatever manner the members wish regardless of their percentage of ownership. This, for example, would allow a member who contributes less capital but more "sweat equity" to receive a higher portion of profits despite a lower capital contribution.

5. Self-employment taxes: With an S Corp, income paid to shareholders as distributions is not subject to self-employment taxes; instead only the salary paid to an owner/employee is subject to self-employment tax. With an LLC, members are considered to be "self-employed" and, as such, must pay self-employment tax on all income received from the LLC. If the business operates in active trade, the members are active in running the business, and self-employment taxes on the members would be high, an S Corp may be preferred; the business can elect to pay a lower salary and more in distributions to minimize this tax. The downside of the S Corp in this context is that payroll taxes must be paid, and the paperwork associated therewith can be substantial.

So which is right for you? If your priorities are operational ease, flexibility with membership and allocations of profit and loss, and low maintenance, then an LLC might be your preferred entity. If you are looking to save on employment taxes and annual filing fees, and you don’t mind the structural limitations, then an S Corp may be right for you. In any situation, it is crucial to seek the advice of a competent attorney and accountant in order to make a fully informed choice.

New Rules For First Time Home Buyers

When I started this blog, I was told that the first rule of blogging is to keep up with posting so readers stay interested. Somehow, that advice fell to my deaf ears over the summer. I won't try to make any unusual excuses, but instead will just renew my efforts to go back to regular postings, so that my loyal readers will again be kept informed of interesting developments in areas of the law that might affect them.

I will start by encouraging all potential first-time homebuyers to read Ron Lieber's terrific article in the September 11, 2009 issue of the New York Times, "Seven New Rules for the First -Time Home Buyer". Mr. Lieber has excellent advice on this topic in our current economic climate. Check it out at http://www.nytimes.com/2009/09/12/your-money/mortgages/12money.html?_r=1&emc=eta1.

So You Want To Buy A House?

Whether you are a first-time or repeat buyer, the process of purchasing real estate can be daunting. Following is a basic step-by-step primer of the components of closing on your new home.

When you are ready to begin looking seriously for a property to buy, it will be to your advantage to have a pre-approval letter in hand from a mortgage lender which verifies the purchase price you can afford and the amount of mortgage for which you will qualify. A pre-approval letter will make your offer more attractive to a seller since it affirms your ability to consummate the purchase. You may obtain a pre-approval letter from any mortgage lender, and while you are not then obligated to use that lender for your actual purchase, if you establish a relationship with a lender at an early stage, the loan officer can be an additional resource for you throughout the process.

Pre-approval letter in hand, you find the house of your dreams and you want to submit an Offer. Many buyers feel that this is the time to engage the services of a qualified real estate attorney; others work with the realtor and wait to hire the attorney until the Offer is accepted. The realtor or attorney will assist you in preparing an Offer, most likely on the standard "Offer to Purchase Form" customarily in use. The Offer will contain the business terms, such as price, amount of deposit, and dates, should include a contingency for satisfactory home inspection, and may also include contingencies for mortgage financing and other matters. The assistance of an experienced realtor or attorney is indispensable in preparing an Offer which contains all of the appropriate protections for a buyer. Negotiations may ensue until the parties come to agreement on the final terms and execute the Offer document.

In Massachusetts, unlike in some other states, the Offer to Purchase is a preliminary document which is later superceded by a more comprehensive Purchase and Sale Agreement. Do not, however, be fooled into thinking the Offer is not a binding contract; courts have enforced executed Offers to Purchase even in cases where the parties failed subsequently to enter into a Purchase and Sale Agreement. Most Offers contemplate a period of one to three weeks to finalize and sign the P&S. If you have not already hired an attorney, now is the time to do so. In the period between Offer and P&S, you should have the property fully inspected by a qualified home inspector. The inspector will give you a written report and flag any items of concern; you may then elect to negotiate price adjustments or repairs with your seller as a condition of closing. If you are not satisfied with the results of the inspection or cannot reach resolution with the seller, under the inspection contingency you have the right to terminate the Offer and recover any deposits paid to that point. It is important that you address any and all concerns regarding property condition during this time, and that any terms you negotiate with the seller be incorporated into the P&S. With certain exceptions, once you sign the P&S, you are essentially agreeing to accept the condition of the property "as is" and may not thereafter raise issues relating to property condition except to the extent that it represents a change since the date of the Purchase and Sale Agreement.

So you now have an executed Purchase and Sale Agreement – congratulations! If you have not already settled on a choice of mortgage lender, you should do that without further delay and submit a complete mortgage application by any applicable deadline in your mortgage contingency, if any. At the time of application, your lender should give you a Good Faith Estimate of Settlement Charges, setting out the closing costs you will expect to pay. That document, and the Truth In Lending Disclosure Statement, allow you to compare loan products among various lenders. Your lender will process your application and issue a Loan Commitment Letter. If you have a mortgage contingency deadline in your P&S, be sure you receive your written Loan Commitment Letter before that deadline expires.

In Massachusetts, closings are conducted by attorneys rather than by title or escrow companies. The attorney who represents the lender and acts as settlement agent may be your attorney, or it may be a different attorney selected by the lender. It is quite common that one attorney represents both the buyer and the lender, and although this does technically constitute a possible conflict of interest, this conflict is regularly waived by the parties because the interests of the buyer and lender are very much the same. For a buyer, I believe there are two advantages to having your attorney handle the entire transaction. The first is for peace of mind—you no doubt have shopped carefully for a qualified and recommended attorney to represent you, so it only makes sense to have that attorney handle the important roles of examining title, preparing documents, and acting as settlement agent. If the lender chooses another attorney for those responsibilities, you have no input on quality control. The second advantage is lower cost. One of the closing costs customarily paid by a borrower (unless you get a "no-closing-cost" loan) is the attorney’s fee for the lender’s attorney. If two attorneys are involved, there is a certain amount of overlap which is likely to result in some duplication of fees paid. If your attorney also represents the lender, you eliminate that duplication of effort, which results in a lower total legal fee. In selecting a lender, it is always worth requesting, or even requiring, that your attorney also be permitted to represent the lender and serve as settlement agent.

Once your loan application is submitted, you can take a bit of a breather, as most of the work from then on belongs to the attorneys. The one exception is that you must procure homeowners insurance coverage to take effect as of the closing date. You will be required to pay the premium for the first year in full, and to provide the lender prior to closing with an insurance binder evidencing the coverage and naming the lender as an additional insured.

Prior to closing, the attorney will arrange for a title professional to search and examine the public records for information related to the property's title. The attorney will notify the seller of any defects in title, and those must be dealt with before the property can change hands. Closing will not occur until title to the property is clear. The one exception is that outstanding current mortgages taken out by the seller from institutional lenders may be paid off out of sale proceeds with the Mortgage Discharge to be recorded after the closing. It is the attorney’s responsibility to attend to this and follow up to record the proper Discharges.

Finally the day of closing will approach. The settlement agent will prepare the HUD-1 Settlement Statement. The "HUD", as it is known, outlines all of the costs for both the buyer and seller associated with the closing. Your costs will include those items shown on the original Good Faith Estimate (with possible modifications), as well as costs originating out of the attorney’s office. You will be offered the option to purchase an Owner’s Policy of Title Insurance, which I do recommend (see previous blog entry on this topic). You will be provided with a copy of the HUD in advance of closing and asked to obtain one bank check for the total amount due. It will not be necessary to bring multiple checks to closing; instead, it is the job of the settlement agent to divide your funds and disburse them in accordance with the HUD.

On closing day, all parties will meet at the office of the lender’s attorney or at the applicable registry of deeds. You will sign a seemingly endless number of documents that will be explained by your settlement agent, including, most importantly, a Promissory Note, which is your promise to the lender to repay the funds being advanced, with interest, and a Mortgage, which puts a lien on the property to secure your obligations under the Promissory Note. The seller will deliver a Deed which transfers title to your name. Following signing of all documents, the attorney will arrange for the recording of the Deed and the Mortgage at the applicable registry of deeds. The recording of the documents is the final step in the process and represents the moment when everything is completed. Upon recording, you become the new owner of both a house and the debt that you incurred to purchase it. Welcome to the American Dream!

The Power of Networking

For a small business owner, the importance and power of networking cannot be overstated. Networking is an effective and inexpensive way of connecting with people who could become your clients, support systems and referral network.

So what exactly is “networking”? It’s actually pretty simple—it involves talking with others about what you do, and listening to them in return to find out how you can help them. Most people you meet could be a potential client or a valuable contact. Learn to make small talk. Practice being able to articulate what you do in clear, easily understandable, memorable and concise way. Tell people about yourself, and don’t be shy about telling them how they can help you grow your business. In return, be a good listener, and ask how you can help them in the same way.

I have been incredibly fortunate for the last fifteen years to be part of one of the greatest networking groups in our area—the Women's Business Network of the Wellesley Chamber of Commerce (“WBN”). I joined WBN when I first started my suburban solo practice in 1993, worked on committees, chaired the group for three years, and have remained an active member to this day. There has been no better source of direct business, referral business and resources for my needs than WBN. I have made fabulous business connections and incredible friendships, and I can honestly say that WBN has been one of the best and most consistent sources of opportunity for me over the past fifteen years. The group continues to thrive and attract new members, but of course we always hope for more. Thanks to the efforts and talent of Deb Beck at Studio 18 Group (http://www.studio18group.com), WBN has produced a wonderful marketing piece profiling several of the active members. I am honored to say I was chosen as one of them, and I proudly share that piece with you here.




If you are a business person and are not doing any networking, now is the time to start. If you are a woman in business in the Metro West area, check out WBN by contacting the Wellesley Chamber of Commerce (http://www.wellesleychamber.org) —you can’t go wrong.