Gun Laws: Why Not Enforce What We Have?

This is not a story about Hunter Biden. No, in this post, Hunter is simply a proxy for what’s wrong with the common-sense gun laws chant. It ignores a big problem with gun laws: Too often, they are not enforced, and even when they are, enforcement is often not evenhanded. The powerful, the connected, get waved through. The rest of us, well that’s why we have little people.

Case in point: Hunter Biden and his missing .38 revolver. From Politico:

POLITICO obtained copies of the Firearms Transaction Record and a receipt for the gun dated Oct. 12, 2018.

Hunter responded “no” to a question on the transaction record that asks, “Are you an unlawful user of, or addicted to, marijuana or any depressant, stimulant, narcotic drug, or any other controlled substance?” Five years earlier, he had been discharged from the Navy Reserve after testing positive for cocaine, and he and family members have spoken about his history of drug use.

Lying on the form is a felony, though prosecutions for it are exceedingly rare.

Take a look at the the first paragraph of the 2018 GAO report at that “exceedingly rare” link. Politico wasn’t kidding:

Investigations and prosecutions. Federal and selected state law enforcement agencies that process firearm-related background checks through the National Instant Criminal Background Check System (NICS) collectively investigate and prosecute a small percentage of individuals who falsify information on a firearms form (e.g., do not disclose a felony conviction) and are denied a purchase. Federal NICS checks resulted in about 112,000 denied transactions in fiscal year 2017, of which the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) referred about 12,700 to its field divisions for further investigation. U.S. Attorney’s Offices (USAO) had prosecuted [just] 12 of these cases as of June 2018. (Emphasis supplied)

See the problem? All the time, I mean all the time, people complain about how that shooter got this gun or this shooter got that one? Here’s a guy–a well-connected guy, no less–who apparently lied and thereby skirted the vaunted background check, and everybody knows about it now–and yet, he’s free.

For now. Who knows? Maybe he’ll be charged sometime in the future. But now, he’s just one among hundreds of thousands of persons who are not being prosecuted for giving false information on Form 4473, the Firearms Transaction Record, the form that initiates the background check. Want to get serious about background checks? Get serious about prosecuting lies on Form 4473.

By the way, how would you respond to the questions on Form 4473? Check yourself out at the link. Hunter’s apparent lie was in response to question 21 e. on the form.

Webinar: The Care and Use of that Gun Trust & Ancillary Documents Tucked Away in Your File Cabinet

On Tuesday, April 6, 2021, you and your friends and family members. are invited to the first of what I hope will become an ongoing series of Gun Trust webinars. In fact, I will conduct two Gun Trust & Firearms Law webinars that day:

The GunTrust & Firearms Law Breakfast Webinar from 7:00 AM to 8:00 AM Mountain Time that morning, and

The GunTrust & Firearms Law Lunch Webinar from Noon to 1:00 PM Mountain Time.

In the webinar, I will review important provisions of your firearms trust and explain again how to use the various ancillary documents that may have come with your trust. There may even be time for questions.

 No need to attend both webinars because they will cover the same topic:

My intent is to conduct additional webinars on the first Tuesday of each month, webinars discussing the safe, proper, and legal use of firearms. More on this in another email on another day. For now, please sign up for either the Breakfast or the Lunch webinar at the links below. Again, feel free to invite family members and friends.

The Gun Trust and Firearms LawBreakfast Webinar – Tuesday, April 6, 2021, 7:00 AM to 8:00 AM Mountain Time

The Gun Trust and Firearms Law LunchWebinar – Tuesday, April 6, 2021, Noon to 1:00 PM Mountain Time

Important Notices:

Neither of these webinars establish a lawyer-client relationship, especially given the general nature and applicability of the information presented and the fact that both clients, friends, and family may attend. To state this another way: I will not be offering legal advice in any of these webinars; what I say in the webinars is of general applicability and not geared necessarily to your particular situation.

If you would like to talk to me about your specific situation, please contact me via email at gregory@gtaglaw.com or call me at 801-636-5264.

For those who wish to establish a firearms trust, you can read more about the three versions of firearms trusts I draft by visiting my website.

Friday Estate Planning Links

Interesting links dealing with estate planning, wills & trusts, and the like appear all the time on the internet. Here are a few for your reading pleasure:

Estate planning: A must for all physicians from Helio.com

International Estate Planning from Forbes.com

The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates could be a harbinger of things to come: increases in the capital gains tax rates. Per the abstract of the article:

This paper uses an event study approach to estimate the effect of capital gains taxation on realizations at the state level, and then develops a framework for determining revenue-maximizing rates at the federal
level. We find that the elasticity of revenues with respect to the tax rate over a ten-year period is -0.5 to -0.3, indicating that capital gains tax cuts do not pay for themselves, and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent (emphasis supplied).

In other words, the maximum rate imposed on capital gains on property held longer than 1 year could jump from 20% to as high as 47%–if Congress needs the money. What are the chances?

Core Documents to Review During a Pandemic from Trusts & Estates magazine.

Enjoy and have a great weekend.

Yes, Virginia, there are firearms laws

I have a 233-page book on my bookshelf titled the Federal Firearms Regulations Reference Guide, published by the ATF. You can find your own copy here. That’s 233 pages of dense print on 8 1/2 X 11 inch pages, dense print of federal statutes, regulations, forms, and other information related to firearms law. Roughly 110 pages of the book contain the federal statutes and regulations. The rest includes a variety of circulars, rulings, and even a 30-page, extremely helpful Q&A section–extremely helpful.

It’s worth pointing out that the book contains just federal law. But worry not, the ATF’s website also sports links to every state’s firearms laws. Lots and lots and lots of laws.

I tell you that to repeat this: We don’t lack laws. What we lack–too often–is enforcement. According the Kevin Williamson,

What’s missing is ordinary, unglamorous, labor-intensive law-enforcement and public-health work — i.e., the one thing no one employed by government will seriously contemplate and no politician answering to government workers and their unions will seriously consider. Instead: We complain about “straw buyers” but rarely prosecute them; some federal prosecutors refuse as a matter of publicly stated policy to take a straw-buyer case unless it is part of a larger (sexier) organized-crime investigation. Chicago manages to convict fewer than one in five of those arrested on weapons charges. A New York Times investigation found that about 90 percent of the killers identified in New York murder cases had prior criminal histories, often histories of violent crime. (About 70 percent of New York’s homicide victims also had prior criminal arrests.) On and on it goes: Ordinary crime and ordinary criminals, ordinary bureaucratic failure, and the occasional act of armed histrionics to keep the headlines churning.

Note that I wrote “too often” above. I didn’t write “always.” That’s because the ATF itself is actually rather busy enforcing federal law as pointed out at the following links, that enforcement often involving felons illegally in possession of firearms.

Operation Legend Results in 22 Defendants Charged with Various Federal Charges

Shreveport Man Convicted by Federal Jury Sentenced on Firearms Charge

Collin County Man Sentenced for Firearms Violation in Connection with Teen’s Death

St. Petersburg Man Pleads Guilty to Possessing a Machine Gun

Springfield Man Involved in Nightclub Shooting Sentenced to 15 Years for Illegal Firearm

I could go on, but you get the idea. There are laws. When they’re enforced, they get results. There are those who quibble with John Lott’s claim, “more guns less crime.” Nobody can quibble with “more enforcement, fewer baddies with guns.”

How Are LLCs Taxed?

Limited liability companies (LLCs) are one of the most popular types of business entities. What they are not is a tax classification. In fact, an LLC’s flexible taxation options are one reason it is the preferred choice of enity; LLC members can, for the most part, choose how they would like to be taxed. The LLC enjoys this flexibility because the Internal Revenue Service does not recognize it as a distinct entity for federal tax purposes. It must, therefore, be taxed as one of the four taxable options already available:

  1. Disregarded Entity. A disregarded entity is a business structure that is not recognized as distinct from its owner for tax purposes. If you are the sole owner of a single-member LLC, the IRS classifies your company as a disregarded entity by default and taxes the LLC as a sole proprietorship. As a result, the owner of a single-member LLC must report the LLC’s income and expenses on the member’s Form 1040 Schedule C. A separate tax return for the entity is not required. 
  1. Partnership. When an LLC has multiple members, the IRS’s default classification for tax purposes is the partnership. Partnerships, like disregarded entities, pass their income and expenses down to their owners, and LLC members are responsible for paying taxes proportionate to their ownership interests. Income, credits, and deductions are reported to the IRS using Schedule K-1 (Form 1065). 
  1. Corporation. If the member or members of an LLC don’t want it to be taxed as either a sole proprietorship or a partnership, they can elect to have it taxed as a corporation by timely filing Form 8832. Electing taxation as a corporation may be beneficial in several ways. If the company does not intend to pay out dividends, electing to file taxes as a corporation allows LLC members to avoid reporting the business’s income on their personal income tax returns. Because personal income tax rates are often higher than corporate income tax rates, this may allow individuals to benefit from the lower corporate income tax rate. Additionally, LLC members may avoid paying self-employment taxes. Thus, corporate taxation may have money-saving benefits for LLC members.
  1. S Corporation. The S corporation tax election is unique. Unlike the other three options described above, the S corporation is not a different entity type. Rather, it is a corporation that meets all of the following criteria:
  • it has less than 100 owners
  • all of its owners are United States citizens or residents
  • it has only one class of membership
  • its membership is not comprised of any partnerships, corporations, or non-resident aliens

If members choose to have their LLC taxed as an S corporation, the LLC members enjoy pass-through taxation unlike a standard corporation. Moreover, the income that is taxed as a distribution is not subject to self-employment tax. Finally, an S corporation allows its owners to take advantage of the Qualified Business Income Deduction of up to 20 percent. There are some limitations as to which industries qualify for this unique deduction. You must timely file IRS Form 2553 to elect S corporation taxation.

We Can Help

Choosing the right structure for your business can be challenging and involves all kinds of considerations in addition to how the LLC should be taxed. Be careful you don’t willy nilly allow the IRS tail to wag the LLC dog. Have a conversation or two with your attorney and your CPA (you do have a CPA, don’t you?), then make the tax decision.

Who’s Minding the Kids?

Better put, that question should be, Who has the authority to mind the kids, particularly when the parents or guardian are out of town or otherwise very much indisposed, for a short period? In Utah and many other states, the answer is the person who holds a power of attorney specifically delegating temporary authority over the minor child or children. In Utah, that period can be no longer than six months:

A parent or a guardian of a minor or incapacitated person, by a properly-executed power of attorney, may delegate to another person, for a period not exceeding six months, any of the parent’s or guardian’s powers regarding care, custody, or property of the minor child or ward . . . UCA §75-5-103 (and no, I didn’t put the hyphen between properly and executed)

This temporary power of attorney is a nifty little tool that could come in handy for the babysitter or the nanny if the minor child needs to see a doctor or must have permission to do something at school, and the parents are (way) out of town or out of touch. And it’s a pretty simple document, at least the form on the Utah Court’s website is. (I wish I could say Wyoming allows such a delegation of authority, but I’m not sure yet. When I know, I’ll report back.)

My wife and I have one for three of our grandchildren and will have for the rest of them soon. Of course, we’re trustworthy and have a track record with minor children. So should the person(s) you grant such authority to. As handy as the temporary power of attorney is, it is not something to give away willy nilly.

Is Probate Necessary?

Good question. The answer? It depends:

  • Did the decedent own probate property, that is, property that does not pass to heirs by deed, contract, title, beneficiary designation, account designation, POD or TOD account, trust, etc?
  • Did the decedent have creditors and outstanding debts?
  • Are any of decedent’s heirs or beneficiaries, even just one of them, a bit contentious, a bit entitled, or wondering why it’s taking so long to distribute the decedent’s property?
  • Did the decedent leave a will?
  • Is there any question in any one of the decedent’s heir’s or beneficiary’s mind about the will’s validity?
  • Did the decedent leave minor children and no spouse?
  • Did the decedent wish to disinherit his or her spouse or any other heirs?
  • Are there questions about who is and who is not an heir or beneficiary?
  • Do any of the heirs or beneficiaries distrust or have reason to distrust the decedent’s designated personal representative?
  • Is there real estate in the estate that the decedent didn’t own jointly with someone else?
  • Is the decedent’s probate estate worth less than $100,000.00 (Utah) or $200,000.00 (Wyoming)?

If you can answer No! to all of these questions, you may not need to probate the decedent’s will. If you answer Yes! to any of them, then you may need to probate the will. My plan is to review these and other questions in a series of post, so stay tuned.

Probate vs. Non-Probate Property: Which Property Can Pass Outside of Probate?

Probate is the legal process where a court proves, or validates, the decedent’s will; appoints his or her personal representative; and often oversees the collection, distribution, or sale of the decedent’s property. The probate property, that is. Thus, it is important for the practitioner to know the difference between probate and non-probate property. The easy, but unsatisfactory answer is that probate property is anything other than non-probate property. So what is non-probate property; that is, what property passes at death without a permission slip from the court?

Here’s another easy, but more instructive answer: non-probate property is property that does not pass under the decedent’s will.  As the list below illustrates, that could include a lot of property:

Non-Probate Property

Property that passes by beneficiary designation, which generally includes:

  • Life insurance policies (but see below),
  • Annuities,
  • Individual retirement accounts or IRAs,
  • Roth IRAs,
  • Employee Stock Ownership Plans or ESOPs,
  • Pension Plans, including
  • Defined Benefit Plans,
  • Money Purchase Plans,
  • 401(k) Plans,
  • 403(b) Plans,
  • Simple IRA Plans (Savings Incentive Match Plans for Employees),
  • SEP Plans (Simplified Employee Pension),
  • SARSEP Plans (Salary Reduction Simplified Employee Pension),
  • Payroll Deduction IRAs,
  • Profit Sharing Plans,
  • Governmental Plans under 401(a),
  • 457 Plans,
  • 409A Nonqualified Deferred Compensation Plans,
  • Payable-on-Death or POD Accounts,
  • Transfer-on-Death of TOD Accounts, including investment accounts,
  • Property that passes by deed, which includes:
  • Real estate owned in 1. joint tenancy with rights to survivorship (JTWS), 2. life estate where property passes to another upon death of life tenant, and 3. any property the decedent held in a life estate,
  • Property that passes by account designation, which includes: 1. Bank accounts owned jointly, and 2. brokerage accounts owned jointly,
  • Vehicles owned jointly,
  • Safety deposit boxes,
  • Other property that falls within the definition of a “non-probate transfer,” including ; 1. Insurance policies, contracts of employment, bonds, mortgages, promissory notes, deposit agreements, pension plans, trust agreements, conveyances, or virtually any other written instrument effective as a contract, gift, conveyance, or trust.
  • Property owned by a trustee of a trust. (Of course, if the decedent is the settlor of a trust, that trust will be subject to an administration somewhat similar to the administration that takes place in probate, but away from the prying eyes of both a judge and the public.)

Non-probate property bypasses Go, bypasses the court, and goes directly to the beneficiary, the joint account holder, the joint owner. Often the movement of the property from the decedent owner to the surviving owner is virtually seamless—well, painless anyway: beneficiaries file a death claim with the insurance company, attach a death certificate, and voila! the death proceeds appear. But often the movement requires a trip to the DMV. Even that need not be a chore. If the word “or” separated the two names on the title, the survivor doesn’t have to do anything; however, if he or she wishes to remove the decedent’s name off the title, then mailing or hand-delivering a “Vehicle Application for Title” to the DMV along with a check to cover the cost of removing the name, will do the job. If the word “and” separates the name, the survivor will also need to provide a death certificate.

Likewise, the surviving owner(s) of real property owned in a JTWS must take a few steps to terminate the decedent’s interest in the property under most states’ probate code, including filing an affidavit substantially similar to the statutory form in the county where the property is located and attaching a copy of the death certificate. (By the way, if the decedent owned real estate as a trustee of a trust, the successor trustee should file a similar affidavit along with a death certificate, indicating that the successor trustee has assumed the position of the deceased trustee with regard to the property.)

It should go without saying, but I’ll say it anyway: non-probate property will pass to the intended beneficiary, account holder, surviving owner notwithstanding what the decedent said in his or her will. In other words, the beneficiary designation, the deed, the POD/TOD, etc. controls the disposition of non-probate property, not the will.

Probate Property

If non-probate property includes everything on the list above, probate property includes everything else, including the following:

  • Life insurance/annuities payable to the insured’s estate,
  • Personal property—art, furniture, antiques, and the like—not jointly owned,
  • Real estate the decedent owns either as an individual or as a tenant in common,
  • Accounts owned individually by the decedent, including
    • Bank accounts,
    • Brokerage accounts,
    • Etc.
  • Any other property the decedent owned individually at death.

And if it’s probate property, the court will have some say about who gets what, governed by the decedent’s will of course.

The Attorney’s Job

The probate attorney’s or personal representative’s or PR’s job is to separate the non-probate wheat from the probate chaff. To do that, the attorney or PR should consult the relevant documents. That requires gathering account statements, life insurance policies, retirement plan beneficiary designations, titles, deeds, and the like to determine how the property is owned and who the beneficiaries are in the relevant cases. That may turn out to be more difficult than it seems, largely because you can’t be sure the decedent’s heirs know fact from fiction. Thus, don’t rely on the life insurance policy in the decedent’s file drawer to tell you who or what is the beneficiary. Ask the life insurance agent or call the company to get a copy of the most recent beneficiary designation. Call the title company to pull the most recent vesting deed. (You might even go further, some attorneys argue that there’s no need to record a deed to a revocable trust; thus, the most recent recorded vesting deed may not be the most recent deed.) In other words, check primary sources.

Trusts and the People Behind Them

First, let’s discuss the parties or positions in a trust. To form a trust, you need at fill at least three positions. Nowadays, you can have as many as two more:

One or more Settlors/Grantors/Trustors/Trust Makers. The person (or persons) who creates the trust, whether during his or her lifetime or at death. In Wyoming and Utah, Settlor or Grantor is the preferred term, though the other terms are used as well. The terms mean the same thing. Utah’s definition reads, “’Settlor’ means a person, including a testator, who creates . . . a trust.” In contrast, Wyoming’s definition reads, “’Settlor’ means a person, including a testator, grantor or trust maker, who creates . . . a trust.”

The perfect trustee?

One or more Trustees. A fiduciary (either an individual or an entity) named in the trust document who holds legal title to trust property for the benefit of the . . .

One or more Beneficiaries. Person or persons, entity or entities, charities or otherwise, for whose benefit the settlor created the trust in the first place. The beneficiary may have a present, future, vested, or contingent interest in trust property. Beneficiaries may be income or remainder beneficiaries. Settlors can be beneficiaries of their trust.

Trust Protector. Someone named in the trust other than trustee with powers granted by the trust document, often including a limited power to remove the trustee, appoint a replacement, add beneficiaries, and maybe modify the trust. In other words, a trust protector is someone a trustee should pay attention to. Modern trusts often have trust protectors (and advisors, see below) to add flexibility to the trust.

Trust Advisor. Though the term is sometimes used interchangeably with trust protector, a trust advisor is more of an advisor than an enforcer, guiding the trustee in the exercise of her powers. That said, the place to define these two terms is in the trust agreement.

First, here are three important definitions and four basic types of trusts, especially as to the taxation of trusts:

Complex trust. A trust that either retains all current income or distributes corpus or makes distributions to charitable organizations.

Simple trust. As described in tax law, a trust that must distribute all income at least annually and which doesn’t provide for charitable distributions.

Grantor trust. A trust over which the settlor (aka the grantor) retains power to revoke or to control trust property. Consequently, the settlor/grantor is taxed on trust income. Most living trusts are grantor trusts.

Living trust. Also known as an inter vivos trust, a living trust is one established and funded during the settlor’s lifetime as opposed to a testamentary trust (see below), which comes into being upon the settlor’s death. A living trust can be either revocable or irrevocable. The settlor of a revocable living trust is typically also the initial trustee of the trust.

Revocable trust. A living trust over which the settlor retains the power to revoke the trust.  

Irrevocable trust. A trust over which the settlor retains no right to revoke. Irrevocable trusts are generally used to remove assets out of the taxable estate of the settlor. Once a settlor dies, his or her revocable becomes irrevocable. Likewise, once the creator of a testamentary trust dies, his or her trust is irrevocable.

Testamentary trust. A trust created by will and which comes into being upon the death of the testator or maker of the will.

Now, in no particular order, here’s a brief summary of many of the trusts in use today:

Charitable trusts. A trust for the benefit of a charity (government, educational, religious, and similar institutions). There are a variety of charitable trusts, including a charitable lead trust (CLT)—defined as a trust for a fixed period, during which the charity receives the trust income and after which, the remainder goes to a non-charitable beneficiary—or a charitable remainder trust (CRT), which essentially reverses those roles.

Irrevocable life insurance trust (ILIT). An irrevocable trust designed to own life insurance, so the insurance remains outside the insured’s estate and free of estate tax.

Pet Trust. A trust established to take care of the settlor’s pets in the event of the settlor’s death or disability.

Firearms or NFA Trust. A trust to hold firearms generally and National Firearms Act firearms specifically. Such trusts allow for the sharing of NFA firearms without violating transfer rules governing NFA firearms.

Special Needs Trust (SNT).  A trust designed to hold assets for the benefit of a beneficiary whose disabilities may allow the beneficiary to receive public assistance for medical and other care expenses.

Standalone Retirement Trust (SRT).  A trust designed to receive “qualified retirement accounts” like IRAs, 401(k)s, etc. It can be either revocable or irrevocable, and it’s designed to allow trust beneficiaries to defer income tax on the account for as long as possible—i.e., stretch the IRA. SRTs can be either conduit trusts (distributions flow through them and out to the beneficiaries) or accumulation trusts (any trust that is not a conduit trust).

Grantor Retained Annuity Trust (GRAT). A special type of irrevocable trust. The settlor/grantor establishes the trust, puts property in, and takes back an annuity (calculated as a dollar amount) for a specific amount of time based on the value of the property in the trust.

Intentionally Defective Grantor Trust (IDGT). An irrevocable trust that removes the value of the trust assets out of the settlor’s estate but allows the grantor/settlor to continue to be treated as the owner for income tax purposes. A big advantage of IDGTs is that grantor/settlor can add value to the trust by paying the income tax due on trust income without those tax payments being treated as additional taxable gifts to the trust.

By-pass or Credit Shelter Trust. Also known as the B Trust that holds that part of the deceased spouse’s estate that is applied against the deceased’s applicable exclusion amount, thus protecting it from estate taxes.

Marital Trust. Also known as the A Trust, this trust holds the portion of the deceased spouse’s estate that qualifies for the unlimited marital deduction. That portion will later be included in the surviving spouse’s taxable estate. The Marital and Credit Shelter Trusts are generally created by the trustee of the settlor’s Revocable Living Trust or Testamentary Trust upon the settlor’s death.

Qualified Personal Residence Trust (QPRT). This trust works like a GRAT except that the property transferred into the trust is the Settlor’s personal residence. The Settlor retains the right to live in the home for a specified number of years. At the end of the term, the Settlor must move out or begin paying rent to the trust, which goes to beneficiaries entitled to the trust property after the initial term.

Qualified Domestic Trust (QDOT). A form of trust that allows a taxpayer whose surviving spouse is a non-citizen to claim the marital deduction. To qualify, 1. at least one U.S. citizen must be a trustee, 2. the trust can’t allow distributions of principal unless the U.S. trustee has the right to withhold estate tax on the distribution, and 3. sufficient trust assets must be held in the U.S., among other things.

QTIP Trust. A trust that can hold qualified terminable interest property, property the settlor sets aside for the surviving spouse and which qualifies for the marital deduction.

Domestic Asset Protection Trust (DAPT). An irrevocable trust that allows a settlor to set aside assets in trust and protect those assets from creditor claims. The DAPT is established under the laws of states with favorable asset protection laws—Nevada, Alaska, South Dakota, Wyoming, and Utah, for example.

Your LLC Up and Running in 6 Steps

One of the first decisions to make when starting a business is what type of business entity to form. The limited liability company (LLC) is one of the most popular business structures because it offers a level of flexibility and legal protection that is attractive to many people who are starting their own businesses. The following six steps will help you get started if you are interested in forming an LLC.

  1. Choose a name. To form an LLC, you must select a business name that complies with state regulations. The name you select cannot be the same as or even too similar to any other LLC’s name; it must be unique to avoid consumer confusion. Next, states often require that the name of your LLC include one of the following at the end: “limited liability company,” “LLC,” or “Limited.” This requirement gives the public notice of your business structure. As simplistic as this step may seem, it is critical to successfully establishing an LLC and being able to take advantage of the legal protections this business structure provides.
  2. Select a registered agent. In addition to selecting an appropriate name, you must select a registered agent. A registered agent, also known as a statutory agent, is the party appointed to receive service of process and communication from your state’s secretary of state. If you live in the state where you form your LLC, you may be your own registered agent. Registered agents must provide an address where important correspondence can be sent. Typically, post office boxes are not acceptable places for a registered agent to receive these communications—rather, a physical address is usually required so the agent can receive service of process. When deciding who should serve as the registered agent, keep in mind that the registered agent will typically be the first person to whom the state reaches out if any issues arise with your LLC. As a result, it is important to ensure that your registered agent consistently checks incoming correspondence and relays that information to you as the business owner. If you are not interested in being your own registered agent, consider using one or more commercial registered agents in your state to do the job. Generally, they perform their services fairly inexpensively.
  3. File documents. Perhaps the most important step in creating your LLC is filing the required documents. The articles of organization (referred to in some states as the certificate of formation or certificate of organization) are usually filed with the secretary of state and include such information as the company’s name, the registered agent’s name and address, and the business’s purpose. This information becomes public record, so be mindful of what information you are comfortable sharing with the world. Keep in mind that there is a fee to file these documents; however, any start-up costs and filing fees you incur are tax-deductible. 
  4. Get a tax identification number. Another essential step in starting an LLC is obtaining a Tax Identification Number. Your LLC’s Tax Identification Number, also known as an Employer Identification Number or EIN, is provided by the Internal Revenue Service (IRS). After completing a successful application, the IRS assigns a unique number that links the identity of the responsible party to the business for income tax purposes. 
  5. Open a business bank account. After you have filed your LLC’s formation documents with the state and obtained a Tax Identification Number, you will be ready to open a business checking account. This step must not be overlooked in order to enjoy the benefits of an LLC. Maintaining this separate business checking account prevents you from commingling your personal funds with the business’s funds. Failure to maintain this separate business account could result in losing the business’s limited liability status because of a legal concept called “piercing the veil.” If this happens, you could be held personally liable for the LLC’s debts and liabilities.
  6. Draft an operating agreement. Finally, to form an LLC, you must create an operating agreement. This document outlines the rules and regulations governing the LLC. Think of it as a contract or agreement between you and the other members of the LLC or between you and the LLC if you form a single-member LLC. In some states, business owners are required to file this document with the articles of organization. 

Once your LLC is formed, it is critical to remember and adhere to the compliance requirements to keep your LLC in good standing. These requirements vary by state but often involve some form of annual reporting. In most states, for example, Utah and Wyoming, you may also be required to pay an annual fee. Failure to comply with these requirements will result in the suspension of your LLC and put your personal assets at risk.

The Wyoming State Bar does not certify any lawyer as a specialist or expert. Anyone considering a lawyer should independently investigate the lawyer’s credentials and ability, and not rely upon advertisements or self-proclaimed expertise. This website is an advertisement.