J.S. Burton Blog
Sunday, March 19, 2017
As baby boomers retire and get older, the number of older Americans are expected to skyrocket. There will be a serious uptick in the demands of the healthcare system, long-term care, and nursing home facilities.
As demand increases so does the potential for abuse and neglect of older Americans.
Read more . . .
Thursday, March 16, 2017
Every trust must have a trustee. When you create a trust, you allow the trustee to have certain rights and responsibilities regarding your property. In most circumstances, you will have lots of faith and confidence in your trustee because an unethical or irresponsible trustee can have detrimental effects on your trust and your beneficiaries.
Trustees have many responsibilities, so it is important to appoint a person that is willing to take on this role. Discuss the position with a potential trustee, and ensure that they are capable and receptive before incorporating the trust into your Read more . . .
Monday, March 13, 2017
Common Estate Planning Mistakes Regarding Individual Retirement Accounts (IRAs)
For many people, retirement savings accounts are among the largest assets they have to bequeath to their children and grandchildren in their estate plans. Sadly, without professional and personally tailored advice about how best to include IRAs in one’s estate plan, there may be a failure to take advantage of techniques that will maximize the amount of assets that will be available for future generations.
Failure to Update Contingent Beneficiaries
Assets in an IRA account usually transfer automatically to the named beneficiaries upon the death of the account holder, outside of the probate process. If the account holder’s desired beneficiaries change, due to marriage, divorce, or other major life events, it is critically important to update the named beneficiaries as quickly as possible to prevent the asset from passing to an outdated beneficiary. When updating beneficiaries, account holders should not neglect contingent beneficiaries – those individuals named to receive the asset if the primary named beneficiary is already deceased when the account holder dies.
Example: Sarah’s IRA documents name her husband, Harold, as the primary beneficiary of her IRA. The contingent beneficiary is Harold’s son, George, from Harold’s first marriage. Sarah and Harold divorce. Harold dies. If Sarah dies before changing her IRA beneficiaries, George will receive the IRA. This may no longer be the result Sarah would have wanted.
Failure to Consider a Trust as the Contingent Beneficiary of an IRA
There are three main advantages of naming a trust as the contingent beneficiary of your IRA:
- It avoids the problem described above of having incorrect contingent beneficiaries named at death.
- It protects the IRA if the desired beneficiary is a minor, has debt or marital troubles, or is irresponsible with money.
- It protects the IRA from intentional or unintentional withdrawal.
Since 2005, the IRS has allowed a type of trust created specifically to be the beneficiary of an IRA. The IRA Beneficiary Trust is also known as an IRA trust, an IRA stretch trust, an IRA protection trust, or a standalone IRA trust.
The main advantage of using an IRA Beneficiary Trust instead of a standard revocable living trust is that the IRA trust can restrict distributions to ensure compliance with tax rules and minimum distribution requirements – thus maximizing the amount of tax-free growth of the investments.
Another advantage is that the IRA stretch trust has a framework that allows it to be structured in a way that guarantees protection of the distributions from the IRA as well as protection of the principal of the IRA. When you first establish the IRA protection trust, you structure the trust as either a conduit trust or an accumulation trust. A conduit trust will pass the required minimum distributions directly to your named beneficiaries, maximizing the tax deferral benefits. An accumulation trust passes the required minimum distributions into another trust over which a named trustee has discretion to accumulate the funds, resulting in greater asset protection for the benefit of the beneficiary.
During your lifetime, the IRS allows you to switch between the conduit trust and accumulation trust for each of your beneficiaries, as circumstances change. Furthermore, you may name a “trust protector” who may change the type of trust one last time after your death. This change may be made on a beneficiary-by-beneficiary basis, so that some of your intended heirs have accumulation trusts for their portion of the IRA and others have conduit trusts.
IRA Beneficiary Trusts are complicated legal documents with intricate IRS rules and tremendous implications for your family’s wealth accumulation for future generations. It is wise to seek advice specific to your family’s unique circumstances when considering the establishment of this powerful type of trust.
Monday, March 6, 2017
11 Important Issues Business Partners Should Consider
Many people decide to start their own businesses because they’re intrigued by the idea ofbeing their own boss. All decisions, risks, and rewards are yours and yours alone. This equation changes, however, when you decide to start and run a business in partnership with another person. Many of the freedoms, risks and rewards are similar – but there are unique questions that business partners should ask each other to help ensure the relationship starts and continues smoothly.
Before and during the process of developing a business partnership, it is crucial to ask and answer the questions below.
- What goals do I have for this business? What goals does my partner have? What if one partner wants to create a business that will provide income for his family for several years or decades and the other partner wants to build a company that will grow quickly and sell well? These are not necessarily incompatible goals, but it is important to get these goals onto the table to discuss how to start and run a business that might meet both partners’ goals.
- What is each partner’s level of commitment in terms of time? You can prevent a major source of partner conflict by being explicit about how much time each of you expects to spend working on running and developing the business. Will either of you work full-time for your business at the beginning? Will either of you have other work commitments? If so, are there any situations in which that partner will close out other work or business commitments to focus more energy on this endeavor?
- How will cash invested by partners be treated? Will cash investment be treated as debt to be repaid? Will cash investment buy a higher level of company shares? Will the debt be convertible? These questions and answers also have tax implications, so it may be wise to consult a certified public accountant along with a qualified business law attorney during your start-up phase.
- How comfortable are we with change? Change is the only constant in any business environment, and the most successful businesses are those that are highly adaptable to change – in the market, in the economy, in the personnel, etc. That said, business partners should have a conversation about their “sticking points” – those aspects of the business that one or another partner does not want to change. One partner may be fully committed to the specific product being produced, whereas another partner may be unwaveringly dedicated to a certain market segment. Learn each other’s “sticking points” now to minimize conflict during the inevitable periods of change and adjustment as the business ages and grows.
- How much will we pay ourselves? Who has the authority to change compensation amounts in the future? This issue is related to the question of who is investing how much cash into the business during the start-up phase. Compensation can be a volatile issue. Regardless of how difficult the conversation may be, partners must thoroughly discuss pay structure at the very beginning of a business relationship to minimize conflict down the road.
- Who will own what percentage of the company? In other words, how will we divide the shares? The answer to this question often depends on whether one or both partners provided cash for start-up costs, as well as the time commitment each partner plans to make.
- Who has what kinds of decision-making authority? The answer to this question often is related to the division of shares between the partners, but this is not a requirement. You can designate shares as voting shares or non-voting shares, and you can also choose to set up a board of directors. The partners will have to decide which areas, if any, they each have individual authority over, which areas they must agree on, and which areas the board of directors will control. Common areas of decision making authority include human resources (hiring and firing), capitalization, issuance of shares, and mergers and acquisitions.
- Will we sign contractual terms with the company in addition to the shareholder agreement and partnership agreement? Two common examples of additional contractual terms are the non-compete agreement and the confidentiality or non-disclosure agreement. If founding partners are going to sign such contracts, what will the terms of each agreement be?
- What if one or both of us wants to leave the company? It is better to define exit procedures in the early stages of the business start-up. If no guidelines are in place, one partner’s desire to depart can cause high conflict as formerly aligned partners try to come to agreements about ending their relationship.
- Can either of us be fired? If so, what are the grounds for termination and who has the authority to make that decision? What is the procedure? Discuss and commit to writing your strategy for terminating the operational role of a co-founder if necessary.
- What is our business succession plan? While it is not necessary to have a fully developed and executed business succession plan before starting a business endeavor, it should at least be a topic for discussion in the early stages. Partners may have different ideas about how control over the business will pass to others in the future, and a conversation about succession planning can reveal these differences and give each partner food for thought as a plan is developed.
Have several conversations about these topics, and you will find yourself well prepared when it comes time to put your partnership agreement into writing.
Tuesday, February 28, 2017
The start of the New Year means it is once again time to think about when certain yearly to-do’s will get done. When will you get your annual physical? How about your annual eye exam? Don’t forget to make two appointments for teeth cleaning! When is your car due for its next oil change? How long has it been since you got a haircut?
In all the hustle and bustle, it can be easy to forget that your estate plan also needs a regularly scheduled tune-up. Ideally you should check in with your estate planning attorney on a yearly basis to see if anything needs changed, but below is a list of the top 3 things your attorney will consider so you can decide on your own if you need to schedule an appointment.Read more . . .
Monday, February 27, 2017
Guardianships & Conservatorships and How to Avoid Them
If a person becomes mentally or physically handicapped and can no longer make rational decisions about their person or their finances, his or her loved ones may consider a guardianship or a conservatorship whereby a guardian would make decisions concerning the physical person of the disabled individual, and conservators make decisions about the finances.
Typically, a loved one who is seeking a guardianship or a conservatorship will petition the appropriate court to be appointed guardian and/or conservator. The court will most likely require a medical doctor to make an examination of the disabled individual, also referred to as the ward, and appoint an attorney to represent the ward’s interests. The court will then typically hold a hearing to determine whether a guardianship and/or conservatorship should be established. If so, the ward would no longer have the ability to make his or her own medical or financial decisions. The guardian and/or conservator usually must file annual reports on the status of the ward and his or her finances.
Guardianships and conservatorships can be an expensive legal process, and in many cases they are not necessary or could be avoided with a little advance planning. One way is with a financial power of attorney, and advance directives for healthcare such as living wills and durable powers of attorney for healthcare. With these documents, a mentally competent adult can appoint one or more individuals to handle his or her finances and healthcare decisions in the event that he or she can no longer do so. A living trust will also allow someone to handle your financial affairs – you can create the trust while you are alive, and if you become incompetent someone else can manage your property on your behalf.
In addition to establishing durable powers of attorney and advanced healthcare directives, it is often beneficial to apply for representative payee status for government benefits. If a person gets VA benefits, Social Security or Supplemental Security Income, the Social Security Administration or the Veterans’ Administration can appoint a representative payee for the benefits without requiring a conservatorship. This can be especially helpful in situations in which the ward owns no assets and the only income is from Social Security or the VA.
When a loved one becomes mentally or physically handicapped to the point of no longer being able to take care of his or her own affairs, it can be tough for loved ones to know what to do. Fortunately, the law provides many options for people in this situation.
Monday, February 20, 2017
Self-Settled vs. Third-Party Special Needs Trusts
Special needs trusts allow individuals with disabilities to qualify for need-based government assistance while maintaining access to additional assets which can be used to pay for expenses not covered by such government benefits. If the trust is set up correctly, the beneficiary will not risk losing eligibility for government benefits such as Medicaid or Supplemental Security Income (SSI) because of income or asset levels which exceed their eligibility limits.
Special needs trusts generally fall within one of two categories: self-settled or third-party trusts. The difference is based on whose assets were used to fund the trust. A self-settled trust is one that is funded with the disabled person’s own assets, such as an inheritance, a personal injury settlement or accumulated wealth. If the disabled beneficiary ever had the legal right to use the money without restriction, the trust is most likely self-settled.
On the other hand, a third-party trust is established by and funded with assets belonging to someone other than the beneficiary.
Ideally, an inheritance for the benefit of a disabled individual should be left through a third-party special needs trust. Otherwise, if the inheritance is left outright to the disabled beneficiary, a trust can often be set up by a court at the request of a conservator or other family member to hold the assets and provide for the beneficiary without affecting his or her eligibility for government benefits.
The treatment and effect of a particular trust will differ according to which category the trust falls under.
A self-settled trust:
- Must include a provision that, upon the beneficiary’s death, the state Medicaid agency will be reimbursed for the cost of benefits received by the beneficiary.
- May significantly limit the kinds of payments the trustee can make, which can vary according to state law.
- May require an annual accounting of trust expenditures to the state Medicaid agency.
- May cause the beneficiary to be deemed to have access to trust income or assets, if rules are not followed exactly, thereby jeopardizing the beneficiary’s eligibility for SSI or Medicaid benefits.
- Will be taxed as if its assets still belonged to the beneficiary.
- May not be available as an option for disabled individuals over the age of 65.
A third-party settled special needs trust:
- Can pay for shelter and food for the beneficiary, although these expenditures may reduce the beneficiary’s eligibility for SSI payments.
- Can be distributed to charities or other family members upon the disabled beneficiary’s death.
- Can be terminated if the beneficiary’s condition improves and he or she no longer requires the assistance of SSI or Medicaid, and the remaining balance will be distributed to the beneficiary.
Monday, February 13, 2017
Start-up Business: When is the Best Time to Consult with a Lawyer?
If you are starting a new business venture, it is vital that you assemble your team of advisors immediately. Many entrepreneurs are short on cash during the start-up phase and forego hiring of legal counsel or other professional advisors in order to preserve capital for other aspects of the business venture. But this approach is usually penny-wise and pound-foolish. Especially since many small business start-up lawyers are a lot more affordable than you think.
Your attorney can be an invaluable member of your team of advisors. Business attorneys have seen first-hand the mistakes entrepreneurs make and know how to structure transactions to avoid them. It is best to consult with an attorney early on in the process, before you formally organize the company because the foundational issues are critical to the long-term success of your new venture.
There are many issues to be considered; and the earlier you do so, the better. You’ll want to ensure you choose the most advantageous business structure. From C-Corporations to S-Corporations to Limited Liability Companies and other hybrid entities, you have many options. They must all be carefully considered, in light of your particular situation. How many owners and who they are, liability issues, licensing restrictions, and anticipated profits all play a role in determining what type of entity affords you the most asset protection, and costs you the least in taxes.
During this foundational process, your legal advisors can also help you determine equity splits, which can save you headaches down the road. For example, it is generally advisable to avoid dividing business ownership according to percentages. Doing so can create problems later if additional investors need to be brought in. However, if the appropriate number of shares are authorized at the outset, and issued according to a plan for long-term company growth, you ensure your company can access capital in the future.
Vesting schedules can also be established before stock is issued to the company founders, enabling the initial shareholders to obtain full ownership rights to their shares over a period of time. However, this may not be advantageous in every situation, and must be carefully considered.
Even after your initial formation is complete, there are still a number of legal issues that require your attention. There are agreements to negotiate which may include leases, employment contracts, independent contractor agreements, customer purchase or service agreements and many more.
Steps should be taken early on to protect your intellectual property. Depending on the nature of your business, you may need to obtain and enforce patents and copyrights. If your company has a “brand” you will likely want to obtain a federal or state trademark to protect it for your own exclusive use.
The federal and state employment regulations can be onerous. From verboten interview questions to potential allegations of discriminatory hiring practices, a start-up lawyer can help you avoid the pitfalls and ensure you have a happy, productive work force.
Finally, your attorney can help you identify and secure other professionals and services, such as accountants, recruiters, bankers and even start-up friendly print shops and website development and hosting services.
Monday, February 6, 2017
Avoid Family Feuds through Proper Estate Planning
A family feud over an inheritance is not a game and there is no prize package at the end of the show. Rather, disputes over who gets your property after your death can drag on for years and deplete your entire estate. When most people are preparing their estate plans, they execute wills and living trusts that focus on minimizing taxes or avoiding probate. However, this process should also involve laying the groundwork for your estate to be settled amicably and according to your wishes. Communication with your loved ones is key to accomplishing this goal.
Feuds can erupt when parents fail to plan, or make assumptions that prove to be untrue. Such disputes may evolve out of a long-standing sibling rivalry; however, even the most agreeable family members can turn into green-eyed monsters when it comes time to divide up the family china or decide who gets the vacation home at the lake.
Avoid assumptions. Do not presume that any of your children will look out for the interests of your other children. To ensure your property is distributed to the heirs you select, and to protect the integrity of the family unit, you must establish a clear estate plan and communicate that plan – and the rationale behind certain decisions – to your loved ones.
In formulating your estate plan, you should have a conversation with your children to discuss who will be the executor of your estate, or who wants to inherit a specific personal item. Ask them who wants to be the executor, or consider the abilities of each child in selecting who will settle your estate, rather than just defaulting to the eldest child. This discussion should also include provisions for your potential incapacity, and address who has the power of attorney.
Do not assume any of your children want to inherit specific items. Many heirs fight as much over sentimental value as they do monetary items. Cash and investments are easily divided, but how do you split up Mom’s engagement ring or the table Dad built in his woodshop? By establishing a will or trust that clearly states who is to receive such special items, you avoid the risk that your estate will be depleted through costly legal proceedings as your children fight over who is entitled to such items.
Take the following steps to ensure your wishes are carried out:
Discuss your estate planning with your family. Ask for their input and explain anything “unusual,” such as special gifts of property or if the heirs are not inheriting an equal amount.
Name guardians for your minor children.
Write a letter, outside of your will or trust, that shares your thoughts, values, stories, love, dreams and hopes for your loved ones.
Select a special, tangible gift for each heir that is meaningful to the recipient.
Explain to your children why you have appointed a particular person to serve as your trustee, executor, agent or guardian of your children.
If you are in a second marriage, make sure your children from a prior marriage and your current spouse know that you have established an estate plan that protects their interests.
Tuesday, January 31, 2017
How do you want to be remembered after you die? A woman named Glenda Taylor DeLawder wanted her love and care of cats and dogs to be what people remembered her for, so she gave $1.2 million to care for animals in her community in her estate plan. On Christmas Day, the county where the late Ms. DeLawder had lived announced her generous gift, and explained that plans were already underway to spend part of the money expanding the local animal shelter and buying a van for the shelter to use. Her legacy will live on for many years and the lives of many animals will be improved thanks to her heartfelt last wishes.Read more . . .
Monday, January 30, 2017
Advance Planning Can Help Relieve the Worries of Alzheimer’s Disease
The “ostrich syndrome” is part of human nature; it’s unpleasant to observe that which frightens us. However, pulling our heads from the sand and making preparations for frightening possibilities can provide significant emotional and psychological relief from fear.
When it comes to Alzheimer’s disease and other forms of dementia, more Americans fear being unable to care for themselves and burdening others with their care than they fear the actual loss of memory. This data comes from an October 2012 study by Home Instead Senior Care, in which 68 percent of 1,200 survey respondents ranked fear of incapacity higher than the fear of lost memories (32 percent).
Advance planning for incapacity is a legal process that can lessen the fear that you may become a burden to your loved ones later in life.
What is advance planning for incapacity?
Under the American legal system, competent adults can make their own legally binding arrangements for future health care and financial decisions. Adults can also take steps to organize their finances to increase their likelihood of eligibility for federal aid programs in the event they become incapacitated due to Alzheimer’s disease or other forms of dementia.
The individual components of advance incapacity planning interconnect with one another, and most experts recommend seeking advice from a qualified estate planning or elder law attorney.
What are the steps of advance planning for incapacity?
Depending on your unique circumstances, planning for incapacity may include additional steps beyond those listed below. This is one of the reasons experts recommend consulting a knowledgeable elder law lawyer with experience in your state.
- Write a health care directive, or living will. Your living will describes your preferences regarding end of life care, resuscitation, and hospice care. After you have written and signed the directive, make sure to file copies with your health care providers.
- Write a health care power of attorney. A health care power of attorney form designates another person to make health care decisions on your behalf should you become incapacitated and unable to make decisions for yourself. You may be able to designate your health care power of attorney in your health care directive document, or you may need to complete a separate form. File copies of this form with your doctors and hospitals, and give a copy to the person or persons whom you have designated.
- Write a financial power of attorney. Like a health care power of attorney, a financial power of attorney assigns another person the right to make financial decisions on your behalf in the event of incapacity. The power of attorney can be temporary or permanent, depending on your wishes. File copies of this form with all your financial institutions and give copies to the people you designate to act on your behalf.
- Plan in advance for Medicaid eligibility. Long-term care payment assistance is among the most important Medicaid benefits. To qualify for Medicaid, you must have limited assets. To reduce the likelihood of ineligibility, you can use certain legal procedures, like trusts, to distribute your assets in a way that they will not interfere with your eligibility. The elder law attorney you consult with regarding Medicaid eligibility planning can also advise you on Medicaid copayment planning and Medicaid estate recovery planning.
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