Starting a Non-Profit: Where do I start?

If you’re like most non-profit founders, you like to get stuff done. You see a problem in the world that you think can be fixed. You’re ready to start making a difference. You ask yourself, where do I start? What is the first step? 

Many organizations want to jump in right away with forming the legal organization and applying for tax-exempt status.  However, first, you must decide the purpose of your non-profit. In order to do this, you should think about the need or problem to be solved and how you could solve it. Researching the problem, talking with people in the area, and spending time thinking about how you will make a difference are some great ways to get the ball rolling. You should be able to answer to the question “Why does this organization exist?”.

The second step in creating a non-profit organization is writing a mission statement. Your mission statement explains the purpose of your organization and acts as the guiding principle for your non-profit. Drafting a good mission statement is very important, as it will guide the decisions you make as an organization. Once you’ve crafted your mission statement, you’re ready to hit the ground running in forming your non-profit. 

What does a mission statement look like? 

A mission statement should be one to two sentences long. It is a clear and concise. It states the big-picture strategy of what your non-profit organization is going to do. Usually, this will include the problem or need, the stakeholders (people around the problem), and how the non-profit is going to solve the problem or need.  

What does a mission statement not look like? 

The mission statement shouldn’t be overly complicated or have big, fancy vocabulary that no one can understand. You want your mission statement to be understandable for everyone! Also, your mission statement isn’t a catchy slogan and shouldn’t have any buzzwords. The substance is what’s important. 

Why is a mission statement important? 

From a legal perspective, a mission statement it is important because it is necessary to include in your organizational formation documents and application for tax-exempt status.  But, a mission statement is even more important because it motivates your team, serves as a reminder of the goal of your non-profit, and tells the world who you and what makes you special. In the future, your non-profit may run into a problem or tough decision. You should be able to use the mission statement as a tool and reminder of the ultimate goal. Also, you might want to work with another non-profit or business in the future, or you may need funding from a third-party. Your mission statement adds value to your nonprofit because it helps other people see what you do and why its important. 

How should I begin writing a mission statement? 

Writing a mission statement can be hard, but you don’t need to write the mission statement alone. You can start by asking your team, prospective board members, mentors, and other stakeholders about your mission statement ideas to see if they have any ideas. You can spend time thinking, talking, and debating different ideas and wordings. Its important to get the team around you involved since they will be joining you on the mission. You want everyone to be on the same page! 

I’ve got the mission statement ready. What should I do next?  

Congratulations! This was an important first step. Now it’s time to start making your mission a reality with the next installment in this series: Preparing a Business Plan.

Digital Assets in Estate Planning →

Technology is a big part of our lives. It has changed the way we do a lot of things, like socialize with one another, pay bills, and work. It has also changed how your estate plan needs to operate.  

Today, more than ever, your estate is composed of “digital assets.” These digital assets are information electronically stored on a device or on an online “cloud” server account. This includes access to your devices, email accounts, online bank accounts, benefit accounts, subscription services, social media, digital folders, and more. 

If your estate plan does not account for these digital assets, you may face many risks. Most notably, your loved ones could be unable to access these accounts in the event of your incapacitation or passing. The monetary assets could be unreachable. The accounts could be hacked. The services could continue to bill. And your loved ones might be unable to access pictures, videos, stories, and information that are personal and important. 

 Your loved ones will want to do everything they can to figure out what accounts you have, access the information, protect your account, and bring any monetary assets to your estate. Unfortunately, it is incredibly difficult if the estate has not been prepared to account for digital assets. Thankfully, you still have time, and I can help. 

 The first step is to help you record all of your digital assets. There are so many digital assets that you use in your day-to-day life, and our law office has a Digital Assets Worksheet to make sure that you don’t accidentally forget anything. The Digital Assets Worksheet has been prepared to account for all the different categories of digital assets and for all the different passwords, usernames, authentications, and PINs that your accounts may require. You can download the Digital Assets Worksheet here: https://palmersheimlaw.com/contract-templates/digital-assets-worksheet 

Once you complete your Digital Assets Worksheet, you will want to ensure it is stored somewhere safely, like in a fire-proof safe or a safety deposit box that your trustee or personal representative knows how to access.  

Next, I can ensure your estate plan allows your trustee or personal representative the authority they need to administer your digital assets. Depending on your state, your trustee or personal representative may not have this power if the estate doesn’t specify it. 

I look forward to helping you. If you have any questions about managing your estate or accounting for your digital assets, of if you would like to schedule a consultation, please call (312) 967-5841. 

Do you need a living trust in your estate plan?

I recommend the use of a living trust, also known as a revocable trust, if the nature or amount of your assets will require that your estate go through the probate process.  Probate is the legal process through which a deceased person’s estate is distributed to heirs and designated beneficiaries and any debts owed to creditors are paid.  In probate, property is distributed according to your will (if you have one) or according to your state’s laws of intestate succession (if you don’t have a will).  Probate requires that the administrator of your estate (commonly known as the executor), file your will with the court, where the will must be proven to be valid.  Then, all the deceased’s property is inventoried, properties are appraised, and debts and taxes are paid.  At that point, the remaining assets are distributed to the beneficiaries.  This process can take, on average, six to nine months or, in some cases, if there are disputes as to the validity of the will, many years.  Often the executor will hire an attorney to help them through the probate process.  In Illinois, attorney fees for a relatively simple estate (no disputes and an active executor) are likely to be in the range of $6,000 (up to $7,500 may be paid from the estate).  Even a somewhat complex estate is likely to cost much more. In Iowa, an attorney is allowed to charge up to 2% of the value of the estate over $5,000.  

Many states have recognized that probate can be a burdensome, time consuming and expensive process.  In Illinois, if an estate is worth less than $100,000 with no real estate, the executor may file a simplified Small Estate Affidavit in lieu of the probate process.  In Iowa, you can file a Small Estate Affidavit if the estate is worth less than $25,000 and has no real estate.  A summary probate process is also available in Iowa if the estate is worth less than $100,000. If one of these processes can be used, probate is avoided (or greatly simplified) and the time and expenses are reduced. 

A revocable trust does add a layer of complexity and expense to the estate planning process.  So, the first thing I do with clients when determining whether to recommend a revocable trust is evaluate whether their assets will pass through their wills or whether they will pass via other probate-avoidance devices.  For example, insurance policies pass directly to the beneficiary of the policy.  Bank accounts may be owned jointly or have transfer-on-death features.  Similarly, many investment accounts and retirement plans have beneficiary features and, therefore, pass outside the will.  Many people’s assets fall into one of these categories, so that the assets required to pass through the will are relatively few and small in value.  For example, a young, heathy couple may have assets consisting of joint bank accounts, insurance policies and retirement accounts and a home owned jointly.  In such a case, the only assets passing through the will are the deceased’s personal property (clothes, home furnishings, jewelry, automobiles, etc.).  Unless, both spouses die at the same time, the family home will pass to the living spouse. In cases such as these, unless the clients want to do a trust at this time (anticipating a change in circumstances or growth in value of probate assets), I would not necessarily recommend a revocable trust.  

Many people wonder why a revocable trust will help them avoid probate.  A trust is a particular type of intangible legal entity (you can’t see or touch it, but it exists).  A trust requires a grantor (the person who creates the trust and transfers property), a trustee (the person who manages the trust) and a beneficiary (the person who is entitled to benefit from the trust property).  With a revocable trust, during a clients’ lifetime, the client is the grantor, the trustee and the beneficiary.  This is why, during your lifetime, as the grantor, you have the power to transfer property in and out of the trust, including buying or selling property.  As the beneficiary, you benefit from all the trust’s assets and, as the trustee, you have complete control over the trust. You can determine to revoke the trust if you want, which is why it is called a revocable trust.  There are other types of trusts that are irrevocable, and they are used for different purposes.  However, with the revocable trust, there is no concern that, during your lifetime, you will lose any control over your assets.  Any property granted to the trust simply becomes titled in your name, as the trustee of the revocable trust.  

The trust allows you to avoid probate by permitting you to name a successor trustee and successor beneficiaries.  When you pass, the person named as your successor trustee (for couples, this is most commonly your spouse, if living) becomes the new trustee and the persons named as your successor beneficiaries, receive your trust property.  A trust gives you the flexibility to keep your property in trust for your successor beneficiaries (like your spouse or minor children) or to pass your property free from the trust (like to your grown children or other people or organizations).  All of this is accomplished immediately upon your death by virtue of the trust documentation and without having to go through probate.  In order to retitle your assets, if necessary, the trustee will just have to provide your death certificate and the trust documentation.  It is still a fair amount of paperwork, but the trustee can often handle this alone or with just a small amount of assistance from a lawyer and in just a few weeks.  

Despite the additional complexity and initial expense, I do recommend a revocable trust in the following situations: 1) where the value of the probate estate is greater than $100,000; 2) where the client owns real estate (except for a home owned jointly), such as investment property or a farm; 3) where the client owns a small business; 4) when any of the proceeding are likely to be true in the near future (due to an inheritance or change in assets); and 5) in borderline cases (such as when probate assets are right around $100,000) where the client is in poor health.  Use of the revocable trust in these situations will allow you to use one of the simplified probate procedures.  You will still have to have a will because there are certain assets you do not generally want to transfer to a revocable trust, like the family automobile, but the time and expense will be greatly reduced.  There are some exceptions to this, though, like if your business has some debt problems or if you are in the middle of a divorce, so you should always talk to an attorney.

Do I need an estate plan?

I am often asked by clients, “Do I really need an estate plan?”  The short answer for anyone older than 18 is yes!  However, the scope and complexity of your estate plan will vary greatly depending on your circumstances.  Those with significant assets, who are married or have children, who have their own businesses or who have serious health concerns, absolutely should consider working with an attorney to develop a comprehensive estate plan.  Young, healthy individuals with relatively few assets (no real estate), little debt and no children should still consider a Durable Power of Attorney and Health Care Power of Attorney/Advance Directive.  Estate planning can be a complex process, but you can make it easier with the support of a capable, experienced attorney.

Having a comprehensive estate plan in place will help you feel more organized and confident about the future.  Some of the objectives of estate planning include:

·     Providing support and financial stability for your spouse.

·     Preserving assets for your children or grandchildren.

·     Supporting a favorite charity or cause.

·      Ensuring all of your assets, including those that pass by beneficiary designation (e.g., retirement accounts and life insurance policies), will be distributed according to your wishes.

·      Minimizing taxes and expenses.

·      Ensuring someone can make decisions for you in the event you become incapacitated.

An attorney can help you determine how to structure an estate plan to meet your goals.  You will discuss how taxes might affect your plan and what kinds of documents you need. An attorney can also give you examples of some common estate plan designs so that you can choose the one that best meets your needs.  Finally, your attorney will work with you throughout your life, so as your estate planning needs change, your estate plan can be adjusted accordingly.  

Estate planning can feel daunting for many people, but don’t wait until you are ready to begin your plan. You may never feel ready, but the peace and sense of control, organization and accomplishment you will feel once a professional estate plan is in place is absolutely worth it.

Do I need a lawyer to help start my small business?

The truth is, it really varies based on several different factors.  Whether you need a lawyer depends largely on the type of business you are starting.  In general, the simpler your business, the easier it will be for you to start it on your own.

A sole proprietorship is the easiest form of business to start.  You do not have to register this type of business with the state; however, you may still need to register an assumed name (also known as a Doing Business As or “DBA” name), register with the county or municipality where your business is located, obtain business licenses, and obtain tax identification numbers (for example, if your business will charge sales tax or have employees). Some people are more comfortable working through these issues on their own (i.e., what business license(s) do you need?), but especially in large metropolitan areas, the administration can be complex and other people want help.  

Partnerships and limited liability companies (LLCs) are more complicated because they have to register with the state and certain documents need to be drafted, like partnership agreements or operating agreements.  These agreements can become complex, particularly when multiple parties are involved, so it is advisable to use an attorney under these circumstances.  However, even in a relatively simple organization, such as a single member LLC, I still recommend preparing an operating agreement (although it is not strictly required) because it is one of the important indicators that your business is a separate entity.  I definitely do not recommend using a one-size-fits-all operating agreement (like from the internet) in any circumstance.  Each business is unique, and a generic agreement will inevitably lead to problems down the road.

Corporations (there are S- or C-corporations) are even more complicated.  They have to register with the state, bylaws and other documents must be prepared to establish the entity, and they have a far more complicated ongoing legal requirements than other business entities.  If you determine to be an S-corporation, you must notify the Internal Revenue Service of your determination within a certain amount of time. In addition, there are very specific requirements that vary by state that must be completed in order to keep your organization in good status.  Operating a corporation is very complicated and you will definitely want an attorney to assist you.

In addition to the above, an attorney can help you review or draft any contracts you may need, help you determine whether you should register any trademarks, and generally assist with matters of strategy.  Plus, when you allow an attorney to take care of all the legal matters, you can have more time to focus on growing your business!