The Legal Pad

Four Reasons Why You Should Incorporate a Trust Into Your Massachusetts Estate Plan

2011 February 18 by

Four Reasons Why You Should Incorporate a Trust Into Your Massachusetts Estate Plan:

1. Assets Held In Trust Do Not Require Probate Court Administration. Probate Court administration is the process by which a decedent’s assets are re-titled and passed to his or her rightful heirs. A Last Will and Testament does not avoid Probate Court Administration, it only indicates your wishes to the Court.

2. Massachusetts Probate Administration is Expensive. Your estate could pay several thousand dollars in court filing fees, attorney fees, accounting fees, executor fees, and other costs.

3. Massachusetts Probate Administration is Time Consuming. The decedent’s records must be gathered. The Probate petition must be prepared and filed with the Probate Court. The Petition and ancillary documents must be reviewed by the Court. Notice must be given to all interested parties. The Court must again review the petition after notice has been given. Finally, if all goes well, an executor will be appointed. All of this routinely takes 3 months or longer.

4. It’s public. Massachusetts Probate administration is a public process. You likely keep your financial affairs private during your lifetime, but via Massachusetts Probate administration they become very public when you die.

If you have any questions regarding estate planning or probate administration, please do not hesitate to contact Michael J. Callahan, Esq. – Sigman Law Office, PC.

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An accountant, an electrician and a plumber each walk into a bar…..

2011 January 7 by

…..each charges the landlord $600.00 for his services. This sounds like the beginning of a joke, but it is not. What do these three vendors have in common? Each of them needs to be sent an IRS 1099 form by the landlord.

Prior to the passage of Small Business Jobs and Credit Act of 2010 (H.R. 5297), most small landlords were not considered to be “conducting a trade or business” and therefore were exempt from certain tax reporting requirements by the IRS. The IRS previously only required businesses such as full-time property managers to track and report payments to vendors. However, the new bill expands the definition of “conducting a trade or business” to include all property owners. Section 2101 establishes that, “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property”.

The new law requires that any person receiving rental income from real property must file a 1099 for all payments made to service providers in excess of $600.00. For larger landlords and rental property owners, this requirement to track payments to vendors is not new. H.R. 5297 now requires even owners of a single unit of rental property (such as a partially owner occupied multi-family property or as part of a self-directed IRA or other personal investment) to track and report payments to any vendor providing at least $600.00 worth of services or face stiff penalties. It is important to note that this is cumulative so if you hire someone to clean the property at a rate of $60.00 per month, the aggregate of the payments would exceed the $600.00 threshold.

H.R. 5297 does provide a couple of exceptions but they are naturally quite vague at this point. The exceptions are as follows:

1. If gathering the information and issuing a 1099 would be an undue burden or hardship.

2. If the rental is a temporary rental of your own residence.

3. If the income from the rental does not meet a minimum amount

The IRS hopefully will provide some guidance on what constitutes a hardship and the minimum income threshold. It is important that you stay up to date with these changes.

So for small landlords, you now have a legal obligation to obtain and keep certain information about your vendors. This information includes, but is not necessarily limited to, the name, address, and taxpayer ID of the vendor as wells as amount you pay them. Examples of vendors include electricians, plumbers, handymen, accountants, cleaners and pretty much any person or company that provides services to rental property owners.

As always, if you are running any sort of small business it is essential that you maintain detailed financial records. You should review your bookkeeping practices to ensure that you can accurately track payments made to vendors. It is also a good idea to have any vendor that you anticipate paying more than $600.00 this year provide you with a completed W-9 prior to beginning work on your property. Remember you will have until January 31, 2012 to issue a 1099 for those vendors so it is very important to be prepared ahead of time..

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What's a Trust?

2010 November 7 by

A trust is a legal arrangement where a “grantor” transfer legal title to property (e.g. real estate, investment accounts) to a “trustee.” The trustee holds the property for the benefit of the beneficial title holder or “beneficiary.” The trust sets forth the terms and conditions by which the trustee is to manage the property held in the trust. Most trusts have one set of beneficiaries during the grantor’s life and a different set after the grantor’s passing. Trusts can be established for a variety of purposes including avoiding probate, reducing estate taxes and providing creditor protection..

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Understanding the FDD

2010 November 3 by

So you’ve decided that buying a franchise is right for you. Congratulations! Whether you are working with a broker (or consultant) or pursuing this opportunity on your own, you need to conduct your due diligence. This means, among other things, that you need to validate the model and verify the financial information. Towards the end of this due diligence period is a good time to have an attorney review the FDD and Franchise Agreement.


The FDD is a formulaic document, required of all franchisors, by the FTC. Since not all franchises are the same, the standardized format of the FDD allows potential franchisees to compare apples to oranges (as much as possible). A good analogy is to consider the FDD as a federally regulated and mandated brochure.

Every FDD consists of 23 Items. Each Item must contain specific facts about the franchise and all material obligations and limitations that appear in the franchise agreement must be disclosed in the FDD, in the appropriate Item. Additionally, there will be a number of Exhibits accompanying the FDD, including a copy of the Franchise Agreement and ancillary agreements with the franchisor or specified vendors.

The FDD is not a negotiable document. It is a uniform disclosure of the required information, which must be provided to every potential franchisee. The FDD must be updated annually, within a specific number of days of the closing of the franchisor’s fiscal year – typically new FDDs are issued in April or May.

Some states require the registration of the FDD and franchise agreement, some do not, and some will allow an exemption from their registration requirement. Regardless, no governing body verifies the information, accuracy or truthfulness of the FDD. This is why it is imperative that you perform your due diligence in a thorough manner.

Despite the rigid disclosure requirements, not all of the terms of the franchise agreement are covered in the FDD. Do not rely on a review of the FDD as a summarization of your franchise agreement. Instead, use the FDD to help compare franchise opportunities as you narrow your decision, to help you in your validation process, and to orient yourself as to the specifics of a particular franchise.

Attorney Review

Why should you have an attorney review the FDD and Franchise Agreement? Can your real estate attorney or the attorney that drafted your will review it? An attorney familiar with the FDD format and requirements will read it with an eye to ensure that you are being fully disclosed and will be able to interpret information that you might otherwise just gloss over. Ideally, a legal review of the FDD will include a comparison with the terms included in the Franchise Agreement for consistency, confirmation that all required information is included, and notation of any “red flags” (such as incorrect start-up cost disclosures).

While any licensed attorney is capable of reading and digesting an FDD and Franchise Agreement, one that is not familiar with customary terms and language may be inclined to try to negotiate more favorable terms on your behalf. Only an attorney experienced in the review of FDDs and Franchise Agreements will know what terms, if any, are typically negotiable and when it’s acceptable to “push back” against the franchisor..

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What's Probate?

2010 November 1 by

Probate Administration is the process by which a decedent’s property (i.e. “the estate”) is passed to the decedent’s heirs, devisees and legatees. A probate court oversees the administration process and, in MA, it may take at least one year to complete, and cost several thousand dollars. In addition, the heirs, devisees and legatees may not have immediate access to the decedent’s assets until the administation has begun. Fortunately, there are several planning methods available to eliminate and/or reduce the need for a probate administration including the use of trusts & jointly held assets.

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Medicaid Concerns – Importance of Planning

2010 October 27 by

A major concern for aging individuals and couples is that they may need to move into a nursing home or long-term care facility. As you may know, such a move comes at a tremendous financial cost ($8K to $15K per month). Unfortunately, without the proper planning, most people end up paying for nursing home care with their personal savings until they can qualify for Medicaid benefits to pick up the cost. Fortunately, careful planning, whether in advance or in response to an unanticipated need for care, can help protect your estatefor your spouse and your heirs. If you would like to discuss Medicaid Planning techniques please do not hesitate to contact Attorney Michael J. Callahan of Sigman Law Office..


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