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Laches Back to Top

Laches is an equitable legal doctrine that provides if you don't exercise your legal rights with reasonable diligence (you sit on your rights) that they will be forfeited. If you have a claim or other legal right, you have to carefully evaluate how long you defer pursuing it to avoid loosing it. Courts at some point will find it unfair to assert a claim that you neglected to pursue.

Lack of Marketability Discount Back to Top

The value of an asset given away, say, to a child, may be less than its initial or expected fair value due to unusual circumstances that make it not readily saleable.

Last Deceased Spouse Back to Top

On your death, if your previously deceased spouse had not used his or her estate tax exclusion you may, under the new portability concept, be permitted to take advantage of that unused exclusion. To assure that your estate will only benefit from one such prior unused exclusion, and to provide clarity as to which exclusion, it is the exclusion of your last deceased spouse that governs

Lease Back to Top

A legal contract permitting one party to use property owned by another, usually for the payment of periodic rent. A common use of partnerships, LLCs, and other arrangements, is to segregate valuable business assets (patent, trademark, real estate, equipment) in a separate entity, gift the interests in that entity to your heirs and have them lease (or license) the right to use the property back to the business.

Life Estate Back to Top

A "Life Estate" is a right given to a person to use a particular asset during their life after which the asset passes to a designated person. Perhaps the most common life estate is when a person gives a second spouse the right to live in their home and on their death the house passes to their children from a prior marriage. Another common life estate is when an elderly person deeds (transfers) their home to a trust or their children, but retains for themselves the right to continue living in the house (called a retained life estate).

Life Insurance Trust Back to Top

A trust is a contractual arrangement which governs and directs a person, called a trustee, who manages the trust the beneficiary who benefits from the trust. An insurance trust is a trust that owns insurance, typically on the grantor's life. The grantor (also called settlor or trustor) is the person who sets up the trust. Trusts are used to own life insurance to keep the insurance out of the grantor's taxable estate, provide professional management of the trust assets (the insurance and then its proceeds) and to assure who the people will be to benefit from the trust. This is one of the most commonly used trusts.

Like Kind Exchange Back to Top

See "1031 Exchange".

Limited Liability Back to Top

Where an entity can be sued, but enerally its owners cannot be held personally liable for debts or losses of the entity. The classic limited liability entity is the corporation.

Limited Liability Company, or LLC Back to Top

An entity formed under your state's LLC statute that has the legal characteristic of limited liability similar to that of a corporation, while it may qualify to be treated for tax purposes as a partnership.

Limited Partner Back to Top

A partner (owner) in a partnership who can't participate in the management of the partnership's business. The advantage of being a limited partner is that lenders and others generally can't sue you personally if the partnership defaults on its mortgage payments, if someone is injured on the property, and so forth.

Limited Partnership Back to Top

A partnership with at least one general partner and any number of limited partners. Limited partnerships are one type of vehicle for investing in low income housing credit deals.

Limited power of attorney Back to Top

A power of attorney is a document in which a person (grantor, principal) designates another person (agent) to take tax, legal, financial and other actions for him or her. If that power of attorney is broad and all encompassing it is referred to as a general power. If it is restricted so that the agent can only perform limited functions, such as a particular house closing, it is referred to as a "limited power".

Liquidation Back to Top

Termination and winding up of an entity, such as an LLC. A final tax return will have to be filed with the IRS and state and local tax authorities. A tax clearance certificate may be necessary from the state. Usually, a Certificate of Termination (or something similar) must be filed.

Liquidity Back to Top

Liquidity is simply the availability of cash/funds. How readily assets can be converted to cash. The concept permeates tax, financial and estate planning. On the simplest level, you need to assure when you plan that you have adequate liquidity to meet emergency expenses, and other possible needs. The most common approach to this is the proverbial "rainy day fund". While maintaining some cash balances is important for everyone, this is almost always too simplistic an approach to the concept. The rules of thumb used to determine how much cash you need for a rainy day are often such vague generalizations that they odds are slim that they'll give you the right number. The right number depends on your personal financial situation, balance sheet, resources, income, insurance coverages and more. If you want to rely on a rule of thumb, go for it, but just pick the right thumb. If you want to be smart, complete a financial plan and come up with a real number. Also, the rainy day fund approach is usually too simplistic. Home equity lines of credit, margin accounts, family resources, and so on can all be planned for to meet emergency cash needs. Many people don't even take the simple step of securing a larger then currently necessary home equity line.

Liquidity also is an important factor in a wide range of business transactions. In business valuations, negotiating shareholder agreements, and so on, the amount of liquidity, how it is defined, how it affects distributions, etc. are a vital issue. For example, many shareholders' agreements (and partnership and other agreements) include provisions governing mandatory distributions, or mechanisms to determine how cash flow can be reserved with in the entity for business expansion, working capital and other purposes.

Another hot area for liquidity issues are the discounts in value claimed for gift and estate tax purposes on gifts, transfers, bequests, etc. of non-controlling interests in family limited partnerships or limited liability companies. The IRS will often maintain that if the FLP or LLC owns interests in marketable securities that these discounts are reduced, even though the asset transferred is itself a non-liquid interest in an entity subject to restrictions.

Living Together Agreement Back to Top

If you have a partner and are not planning on marrying (or you cannot legally marry) you should consider working out a Living Together Agreement. This is analogous to a pre-nuptial agreement that a couple planning to marry would sign, but it doesn't address the possibility of marriage. Because a living together agreement is a newer concept that a prenuptial agreement, and is unlikely to have as much case law governing it, its especially important that you and your partner each hire separate independent attorneys and hire attorneys that have significant experience in preparing such agreements. Extra care is warranted to help assure that if your partnership dissolves the agreement will make that dissolution as easy and reasonable as possible. When negotiating and drafting a living together agreement make up a detailed list with your partner before you sit down with a lawyer as to all of the issues the two of you can think of that might be a problem if the partnership dissolves. Not pleasant, but far better than the consequences of not doing so. Getting a detailed list together, and solutions for those matters which you can in advance will go a long way to making the process of putting the agreement together less costly and less stressful. For example, if you own an apartment together, should one of you keep it or should it be sold? If its a lease, what if the landlord won't let either of you off the responsibility?

Be certain to coordinate the planning for your living together agreement with your estate planning documents. Too many partners don't and it can be a huge problem. Example: You sign a power of attorney naming your partner as your agent to handle financial matters for you. That way, if you are sick, disabled, out of the country, your partner can help. If your relationship hits the wall can your partner use that power to undermine your finances? Think carefully. Many powers give the agent the unlimited right to make gifts of your assets. Is that appropriate at this point in your relationship?

Be sure that you attach detailed financial records and other disclosures to the agreement, have each attorney sign it as well. Be sure you each have copies of the entire package in a safe place.

As with any complex legal arrangement, use self help books and sample documents to save time, cut costs, and to think through issues with your partner in advance. NEVER use them as a substitute for competent professional advice. You'll pay in the long (and maybe short) run.

Living Trust Back to Top

This is technically any type of trust established by you (the grantor or trustor) during your lifetime. The legal term (jargon) for a trust you establish during your lifetime is "inter-vivos". Most insurance trusts, children's trusts, and revocable trusts are inter-vivos or living trusts. Many, inaccurately, refer to "living trust" only for the purposes of defining a trust that is established by you during your lifetime to avoid probate. See also revocable living trust.

LLC lawsuit Back to Top

Someone can sue an LLC just as anyone can sue any business, entity or person. If the LLC has adhered to the appropriate formalities and maintained its identity and business purpose the claimant should not be able to reach personal assets of the members (owners) or managers (persons who operate/manage the LLC). In some instances, the LLC may have so ignored formalities (e.g., commingling funds from the business and personal matters).

Loving Trust Back to Top

A "living trust" , also called a "loving trust" by some (its just a marketing gimmick) is a trust that is established during your lifetime. In legal jargon, this is called an "inter-vivos" trust. A "trust" is a legal entity created by a document or contract called a trust. Any type of trust created while you are alive is an inter-vivos or living trust. The "living trust" most commonly used is a revocable living trust (see that term in the glossary) which is typically used to minimize the costs of probate (although that is far from the only use, and is not worthwhile in many cases). Other types of living trusts include insurance trusts designed to own insurance policies to protect them from tax, claimants, and irresponsible heirs. Trusts for children and grandchildren are also commonly set up while you are alive as "living trusts".

Low Income Housing Credit Back to Top

When qualifying investments are made in certain low income housing, an extremely favorable tax credit can be obtained. The rules for the credit are extremely complex.