The Esentials of Corporate Estate Planning

A CORPORATION NEVER DIES; IT JUST GETS A NEW PRESIDENT

Moving your estate into your corporation is very advantageous with Nevada C-Corporations. We will take a look at how you pass your estate to your families without probate and attorney's costs through C-corporations. Many approaches to family estate planning are legitimate, and often effective ways of preserving family estates, but consider the rapidly changing tax and legal trends when looking to preserve a lifetime of hard-earned assets.

Planning for the next generation is important. Currently the value of your estate that can be transferred to heirs tax-free is $2,000,000 and the exemption will gradually increase during the next couple of years to no taxes at all (in 2010). Keep in mind that at any time Congress can change this rule. If a Democratic administration takes place it has been said they would like to change this to as little as they can get away with. After this unified credit that we receive, the taxes on the remaining average 45%. Some individuals think there is no way their estate would be subject to the estate tax because it’s only for the extremely wealthy. Think again; just add up the value of all your assets, real estate, cash, jewelry, bank accounts, brokerage accounts AND the value of your life insurance. The life insurance is tax-free but the value is added into your estate value for determining estate taxes. Start making plans, because there are creative, preventative measures to keep the government out of your pocket.

THE ESTATE PLAN THAT NEVER DIES: Many creative estate-planning strategies have been developed for use by Nevada C-Corporations. Nevada C-Corporations are generally more flexible and creative when passing estates to heirs than living trusts are, while providing similar benefits such as avoiding probate, and potentially eliminating all estate taxes. There is an old saying that is as true today as it was 100 years ago.

“A CORPORATION NEVER DIES; IT JUST GETS A NEW PRESIDENT.”

HERE IS HOW THIS PROCESS WORKS: Long Term Corporate Planning is not just estate planning. Estate planning by itself is done in contemplation of death, and such planning has tax implications and interpretations by the IRS that simply don’t apply here. Long Term Corporate Planning is not done in contemplation of death, but when you do pass on and your living estate happens to be very successfully handled due to your foresight in long term corporate planning, then you have successfully accomplished a dynamic feat.

WHY IS THIS A DYNAMIC FEAT? Because with your Long Term Corporate Planning little is left for a lawyer to do. Legal expenses or taxes don’t consume your estate. That’s why some lawyers aren’t going to tell you how to take advantage of Long Term Corporate Planning. It is bad for their business. The tax collectors aren’t going to tell you either because they won’t be able to rip apart the results of your life’s work with taxes.

WHAT’S THE MAGIC? Well, corporations are immortal (unless terminated by statute or by its corporate articles). Corporations do not cease to exist because one of their key people dies. Here is where Nevada really shines; it allows its C-corporations to issue “bearer shares.”

BEARER SHARES. Nevada allows corporations to issue stock to the “bearer,” which is very much like writing a check to “cash.” The person who controls the bearer certificates, or has the

shares in their possession, technically has the power to redeem those shares as the beneficial owner. As a negotiable instrument, it may be difficult to determine how many times the stock has changed hands since it was first issued.

Bearer shares are generally considered to be an attractive solution for individuals who desire to own or control assets or business activities, while maintaining a high degree of financial privacy. It is true that privacy can be accomplished through bearer share ownership, however there are many issues, which are broadly misunderstood regarding the use of bearer shares.

Most states base their corporate law extensively on the Revised Model Business Corporation Act as developed by the Committee on Corporate Laws of the American Bar Association. It should not surprise you then that there are amazing similarities in the Corporation Codes of the various states. However, because the Model Act has been refined and modified over time, and because of the stubborn independence of the various states not to conform entirely to the Model Act, each state has developed its own eccentricities that set it apart from the others.

In Nevada’s case, one area in which it separates its Corporation Code from the Model Act is in the information required on the stock certificate of a C-Corporation. Under the Model Act, for instance, a stock certificate is required to contain: 1) the name of the issuing corporation and the state under which it is organized; 2) the name of the person to whom the stock is issued; and 3) the number and class of shares and the designation of the series, if any, the certificate represents.

The Nevada Revised Statutes (NRS) reads differently, and by omission of the language of the Model Act, creates an opportunity to issue shares of a Nevada Corporation to “The Bearer.” NRS 78.235(1) reads in part as follows: “every stockholder is entitled to have a certificate, signed by officers or agents designated by the corporation for the purpose, certifying the number of shares owned by him in the corporation.”

In other words Nevada law, specifically, only requires two things: 1) the name of the corporation, and; 2) the number of shares represented by the certificate (according to an attorney with the Nevada Attorney General’s office assigned to the Nevada Secretary of State’s office). Nevada is the only state with this language. Since the name of the shareholder is not specifically required on the certificate, there has been broad use and acceptance of bearer shares in the State of Nevada for many years.

Even so, officials with Nevada agencies such as the Attorney General’s office, the Securities Division and Corporation Division of the Secretary of State’s office, are reluctant to take an official position one way or the other on bearer shares. There are no Attorney General opinions on this issue, and surprisingly, there is absolutely no case law on the subject. The most positive affirmation I have received on the viability of bearer shares came from Mr. John Cunningham, an attorney with the Securities Division, who confirmed that bearer shares could be used as long as the corporation was not required to qualify for a public offering.

WHY BEARER SHARES ARE USED: There are two clear reasons why a corporation would issue bearer shares. First, as a tool to achieve total privacy in corporate ownership due to the fact that true ownership is extremely difficult to determine. Secondly, as a vehicle to provide for convenient transfer of ownership interests. Let’s discuss these individually.

PRIVACY: There are only two tangible sources of information on ownership of a Nevada Corporation: the stock certificate, and the stock ledger. The stock ledger has its own legal requirements under Nevada law. The ledger must contain, in alphabetical order, the names of the stockholders, their residence address, and the number of shares owned by each.

This list must be revised annually, and would be a significant document for a legal adversary to obtain. However, Nevada law provides a statutory barrier to getting and using information on the stock ledger that includes it's own penalties. As discussed above, NRS 78.257 provides that any stockholder who owns at least 15% of the issued shares of a corporation has a right to inspect all books and records upon five days notice, but must bear the costs of such an inspection. But subsection 3 of that statute states that, “Any stockholder or other person exercising (these rights) who uses or attempts to use information, documents, records or other data obtained from the corporation, for any purpose not related to the stockholder’s interest in the corporation as a stockholder, is guilty of a gross misdemeanor.” (Emphasis added).

In other words, the penalty for using corporate information for any other purpose than to have a stockholder defend or demonstrate his or her interest in the corporation is up to one year in the county jail and up to a $2,000 fine. Clearly, a non-shareholder in a Nevada Corporation has no legal right or authority whatsoever to view the stock ledger. However, the burden of proof; in the cases of Roney v. Buckland, 4, Nev 619 (1868), falls on the corporation to prove improper motivation for such a request.

TRANSFER OF OWNERSHIP: Most of the confusion surrounding bearer shares has to deal with the issue of transfer of ownership. A bearer instrument is negotiated differently than an instrument made payable to order. If an instrument is made payable to the order of John Doe, it is negotiated by delivery with any necessary endorsement (signature and proof of identity). If an instrument is made payable to bearer, it is negotiated by delivery. It is commonly believed that bearer shares allow you to transfer ownership of a Nevada C-Corporation in complete privacy, without any adverse impact. Three important facts must be established on this topic:

1. A stock certificate is not stock itself. The stockholder may own the stock with or without the stock certificate. The Nevada Attorney General has published a formal opinion on this subject (AGO38). The certificate is merely a piece of paper that indicates ownership. Because Nevada does not require corporations to issue certificates at all, it would be foolish to assume that possession of the certificate equals ownership of the shares.

2. The Nevada Revised Statute (78.240) specifically states that shares of stock are personal property. So, all rules, regulations, and applicable taxes that would otherwise apply to transfers of personal property will also apply to transfers of bearer shares.

Bearer share certificates, like personal property, may be stolen, borrowed, obtained under false pretenses, lost, copied, sold, inherited, bought, willed, etc. My car is personal property also. On occasion, I have lent my car to a friend. Simply because he was in possession of my car during that time did not mean he was the owner.

3. Nevada case law requires a transfer of stock to be registered upon the corporation’s books before the transfer is valid against the corporation. This is done to protect corporate officers in determining ownership of and the right to vote corporate shares. (61 Nev. 431, 132 P.2d 605. (1942)). So can bearer shares be used to transfer ownership of a Nevada Corporation? Absolutely. But the new owner must register his/her/its ownership with the corporation before the corporation can grant ownership with those protections in place, the only other tangible source of ownership information is found on the stock certificate itself. A bearer certificate could only be considered circumstantial.

BEARER SHARES AND THEIR USE IN TRANSFERRING CORPORATE ASSETS TO HEIRS: Here is how to use bearer shares to eliminate any problems regarding passing the corporation on to your heirs when you die:

1. When you issue the shares of stock in your corporation, issue them by putting the word “bearer” in the blank for the name of the person receiving the stock and use the address of the corporation for the address of the bearer.

2. Next, split up the stock the way you want it distributed to your spouse, children, relatives and/or friends after your death.

3. Next, place the shares into individual SEALED envelopes and write on the outside of the envelopes: DO NOT OPEN EVEN UPON MY DEATH. INSTEAD, GIVE THIS SEALED ENVELOPE TO XXXXXXX.

4. Once provided to your “heirs”, upon your death, each will open their individual envelopes and because they now represent the shareholders of the corporation, they need only hold a shareholder meeting and create a resolution electing a new president (and/or officers and directors) and create a new resolution changing the signatories on the corporate bank account.

It’s that simple. Almost without a hick-up, the corporation has moved on to the next generation. This is only possible with a Nevada corporation because for all other states, shareholders are a matter of public record and bearer shares are not available. Thus when a shareholder dies, the stock of that shareholder MUST be shown as part of the estate and probated if not otherwise held in a living trust.

Your heirs now have the stock and they own the corporation, but you while living, have complete control of the corporation, its assets, its money, real estate — everything. You can sell these assets and pay yourself the money, or add to the assets, pay for any and all expenses, travel, medical and so forth. You can do anything you want for as long as you live.

THE BOTTOM LINE RELATING TO CORPORATE ESTATE PLANNING: When you pass on to the “happy campground in the sky”, your heirs already own all you want them to have. If you’ve ever thought of striking back from beyond “the grave”, here’s your chance. Since your heirs already own your estate when you pass on, there’s no transfer, no probate, no taxes -- no problems.

With this plan you know what is going to happen to your loved ones when you pass on. Everything you have worked for, acquired and have is going to the ones you wish it to go to. There won’t be a long drawn-out probate case in court. You can have peace of mind. What can take years of legal delay, astronomical expenses, waste and agony for the ones you love is accomplished by them at their stockholders meeting through the election of directors and officers (probably prearranged). The transition is smooth. Everything continues without interruption. You have the peace, joy, satisfaction and confidence of knowing that your loved ones have exactly what you intend for them to have.

Take advantage of this corporate immortality. Put what you have into a “C” corporation and the corporation will live long past you to successfully distribute your assets to the people you wish to have them. This will eliminate the normal pitfalls of estate planning, probate, and taxes and eliminate the need for a “living Trust or other probate eliminating vehicle.

PLEASE CONTACT PRIORITY SERVICES GROUP, LLC FOR A FREE CONSULTATION AND/OR TO LEARN MORE ABOUT OUR SERVICES AND PRODUCTS.