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There are about 200,000 web retailing affiliates in the United States representing the likes of Amazon.com and Overstock.com, ranging from “mom and pop” operations to good-sized businesses.  Now the Wall Street Journal reports that some states are claiming the presence of those affiliates in their state means the states get a second chance to force Internet sellers like Amazon.com to collect state sales tax for that state.

Previously, in Quill v. North Dakota (1992) the United States Supreme Court has said that in order to tax a business, that state must find that the biz has “physical” presence in its territory: a storefront, a warehouse, for example. For the Court, this may suffice for a “nexus” or tie to justify the exercise of the state’s taxing power. In 1992, the Court was saying that catalog retailers did not have to collect state and local sales taxes for the 7200 odd state and local taxing authorities, because it would impermissibly burden interstate commerce. Since then that argument has been applied to protect Amazon.com and similar web retailers.

Today some states are pointing to Amazon’s and other web sites’ sales affiliates, thinking they have found the missing physical connection. New York, Rhode Island, North Carolina and Hawaii passed laws trying to make e-tailers collect state sales taxes if they have a marketing affiliate program with members who live in those states, or other state residents who collect commission on Internet sales through the e-tailer.

The web-sellers counter that it is unconstitutional to cram state taxes down the throat of companies that have no significant physical connection to those states. According to them, their affiliates and salespeople are independent legal entities - independent contractors - just marketing channels, like advertising campaigns. However, some large Internet sellers have just decided to dump their affiliates in certain states, rather than risking losing this battle.

Today, of course, few state governments can afford to turn away the opportunity for tens of hundreds of millions of new tax dollars. That means state legislators need to balance a potential tax revenue stream and the apparent unfairness of making instate brick and mortar stores collect state sales taxes while Amazon.com and its ilk do not versus dealing with angry constituents who used to be web affiliates before being dumped by some e-tailer when the dot-com felt the hot breath of state tax collectors.

Web affiliates! Not to worry, in its 1992 decision the Supreme Court stated that Congress, in its wisdom, could decide to change the rules about when states can burden interstate commerce by taxing out of state merchant sales proceeds. Well, OK, maybe knowing Congress can mess with the current situation doesn’t really make anyone feel any better…

Read the Wall Street Journal Article here.

Reports today indicated that a will executed by Michael Jackson in 2002 has been found and will be submitted to court to begin the process of “probating” the will: http://tinyurl.com/mwoxp7. A trust and other documents appearing to indicate that Michael wanted his mother to care for his children if he were unable to have also been found.

A will is a legal document executed according to the legal requirements of applicable state law. The will is designed to give “voice” to the preferences of the testator (the person making the will) on important issues: who will inherit his or her assets, if a trust or trusts should be set up after his or her death to provide structured financial support for loved ones, etc. A will only “speaks” the intention of the testator after the will has been probated or proven by a court of proper jurisdiction. Then the court typically oversees the performance of the provisions in the will by the executor (the person chosen to carry out the what the will says).

Other wills by MJ may be found. While most people should have a will, having more than one version “lying around” can lead to a “will contest,” in which one’s survivors may seize upon the version of a will that most nearly agrees with their expectations and try to find reasons why other - perhaps more recent - versions of the will are invalid.

Typically, good practices require that the “testator” (the person making the will) gather the original and copies of any earlier wills he or she made and cause them to be permanently defaced or destroyed to avoid confusion about which version of the will is the valid one. Further, any will executed by the testator should specifically revoke any prior wills or codicils. (A “codicil” is an amendment to a will executed with the same type of formalities as a will and which usually changes the terms or contents of the will.)

The version of MJ’s will that has been found reportedly leaves Michael’s assets to his mother, his children and certain charities - with nothing for his father, Joe Jackson. Wills are often the last “word” that we speak to those we leave behind and should be executed calmly and with due consideration. A decision to disinherit a blood relative who might usually “take” something under one’s will should not be done lightly.

Stories about Joe Jackson pushing his son to excel in show business from an ealry age as well as anecdotes about Michael seeking but never feeling he merited his father’s affection (http://tinyurl.com/kwxznh) abound. Carefully thought out wills and other estate planning documents can speak a healing word to those left behind, but while a carefully thought out estate plan shows consideration for one’s beneficiaries, don’t put off saying what needs to be said now to family members.

At time time of this writing, no will, family trust, or estate plan has been found in the wake of Michael Jackson’s famous but seemingly tortured life. It seems one of the most famous men in the world - recognizable and still admired on all continents for his undeniable talent - did not formally plan for the custody of his children or how to support them if something ever happened to him. The following link: http://tinyurl.com/krf55e details the current state of apparent confusion that reigns in the wake of MJ’s death. We extend out thoughts and prayers for Michael and his family.

Typically, the Social Security Administration (”SSA”) may be paying disability benefits to the beneficiary of a Spcial Needs Trust. The disabled beneficiary of the trust must not be able to access the trust assets without restriction, if she hopes to keep her SSA disability benefits coming.

If the trust is carelessly set up, the SSA may conclude that the trust assets actually belong to the beneficiary for all practical purposes. This would be fatal to the continuation of the beneficiary’s disability benefits.  In other word, if the beneficiary exercises too much control over the assets in the trust, the government will count the trust assets as if the beneficiary owns them out right and will terminate or deeply cut the benefits.

The question of whether the government will consider the assets (or corpus) of a trust is available to the beneficiary often turns on how the trust document talks about the discretion of the Trustee of the trust to disperse the trust assets. In other words, the issue of who controls if and when the beneficiary gets paid from the trust is essential to how the government looks at the trust.

The SSA looks to to a ponderous reference called the Social Security Program Operations Manual System or POMS to decide how to treat special needs trusts. The POMS deems the beneficiary to be in control of all the assets in the trust if the beneficiary has the legal right to force a distribution of assets from the trust or has the right to revoke the trust.

Therefore, when setting up a special needs trust the language setting out the conditions under which distributions can be made from the trust is critical. The ability of the trust to prevent the government from concluding that the beneficiary has so much control over the trust assets that she owns them for all practical purposes depends on how the power of the trustee to make distributions is defined.

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Families of disabled individuals have several options when considering planning their estates in light of the special needs of their disabled family member.

First, the family can give the disabled person assets (money, property, items of value) directly by a lifetime gift or at the time of the giver’s death. However, today, a disabled person is likely to be a recipient of government benefits because of their disabled status and the continuation of those benefits may be imperiled if the disabled person turns out to own significant assets in his or her own name. Thus, giving assets directly in the name of the benefit recipient may improve the financial standing of the disabled person in the short run, but can lead to the loss of government benefits in the long run. Also, although many disabled people are very capable, if the recipient’s disability compromises their intellectual ability, the recipient may not be legally competent to make binding decisions before the law about his or her assets. Or the recipient might make rational decisions about those assets.

Another option is to leave the disabled person without any gifts or financial provisions provided by the family. This is the opposite tack to directly giving money or assets to the disabled person to hold and manage in his or her name. In this manner there is no risk that the disabled person’s government benefits will be lost because he or she no longer meets the financial criteria required to receive those benefits. However, this option leaves the disabled person totally dependent upon government programs which may be altered, discontinued or which may become inadequate to the particular needs of the disabled person.

A third option is to try to protect the disabled person byt leaving him or her money or assets in the name of a sibling of other third party. This technique may shield the assets intended for the enjoyment of the disabled person from government asset and financial checks. However, this exposes the money or gifts left to the disabled person to the misjudgments of the sibling or third party as well as the thrid parties possible creditors or spouses in domestic relations court proceedings.

A fourth option is the Special Needs Trust. A trust is a legally structured relationship in which a Trustee controls the assets or Corpus held in the trust for the benefit of the Beneficiary. The trustee has legally enforceable obligations to use good judgment in preserving the assets and using them to care for the beneficiary’s needs. This option is therefore like making a gift to a sibling for the sake of the disabled person in that the assets are not counted (usually) in the name of the disabled person, but the sibling or other third party must answer to the courts for any egregious misjudgments or malfeasance.

A Special Needs Trust is particularly structured so that it will benefit a disabled person who is the recipient of government benefits, but will do so without violating the requirements of the government programs so that the disabled recipient loses those beenfits because he or she has too much money or assets in his or her name. The trust is set up and is required to be administered by an individual who is qualified to make wise decisions and who will make distributions of the assets in the trust to benefit the disabled person without causing their benefits to evaporate.

More about what a Special Needs Trust is and how to set one up later.