J.S. Burton Blog
Thursday, June 30, 2016
There are multiple steps to creating a successful estate plan. A large part of estate planning includes creating a will and designating a power of attorney. A will allows a testator to bequeath property to his or her heirs, such as family members. All of your property may be accounted for, in advance, if you delineate specific individuals or groups to receive the designated property in your will. It is a great way to ensure that your house, real property, possessions, cash, and the like, fall into the right hands.Read more . . .
Monday, June 20, 2016
Should I Transfer My Home to My Children?
Most people are aware that probate should be avoided if at all possible. It is an expensive, time-consuming process that exposes your family’s private matters to public scrutiny via the judicial system. It sounds simple enough to just gift your property to your children while you are still alive, so it is not subject to probate upon your death, or to preserve the asset in the event of significant end-of-life medical expenses.
This strategy may offer some potential benefits, but those benefits are far outweighed by the risks. And with other probate-avoidance tools available, such as living trusts, it makes sense to view the risks and benefits of transferring title to your property through a very critical lens.
- Property titled in the names of your heirs, or with your heirs as joint tenants, is not subject to probate upon your death.
- If you do not need nursing home care for the first 60 months after the transfer, but later do need such care, the property in question will not be considered for Medicaid eligibility purposes.
- If you are not named on the property’s title at the time of your death, creditors cannot make a claim against the property to satisfy the debt.
- Your heirs may agree to pay a portion, or all, of the property’s expenses, including taxes, insurance and maintenance.
- It may jeopardize your ability to obtain nursing home care. If you need such care within 60 months of transferring the property, you can be penalized for the gift and may not be eligible for Medicaid for a period of months or years, or will have to find another source to cover the expenses.
- You lose sole control over your property. Once you are no longer the legal owner, you must get approval from your children in order to sell or refinance the property.
- If your child files for bankruptcy, or gets divorced, your child’s creditors or former spouse can obtain a legal ownership interest in the property.
- If you outlive your child, the property may be transferred to your child’s heirs.
- Potential negative tax consequences: If property is transferred to your child and is later sold, capital gains tax may be due, as your child will not be able to take advantage of the IRS’s primary residence exclusion. You may also lose property tax exemptions. Finally, when the child ultimately sells the property, he or she may pay a higher capital gains tax than if the property was inherited, since inherited property enjoys a stepped-up tax basis as of the date of death.
There is no one-size-fits-all approach to estate planning. Transferring ownership of your property to your children while you are still alive may be appropriate for your situation. However, for most this strategy is not recommended due to the significant risks. If your goal is to avoid probate, maximize tax benefits and provide for the seamless transfer of your property upon your death, a living trust is likely a far better option.
Thursday, June 16, 2016
How can I make sure those who need access to my digital assets after I die will have it?
In the current world, most of our records are stored electronically. We all have numerous passwords, easy to mix up or forget. It is necessary, therefore, that, as we tackle the job of estate planning, we ensure that our digital assets, as well as our paper documents, can be accessed by those we designate.
What are digital assets?
"Digital assets" is the terms for information, records and data stored on the computer in electronic form. For any individual acting as a fiduciary, meaning a personal representative of an estate, a trustee, a guardian, of the holder of a power of attorney, it is essential to have access to digital assets.Read more . . .
Monday, June 13, 2016
Limited Liability Company (LLC): An Overview
The limited liability company (LLC) is a hybrid type of business structure, offering business owners the best of both worlds: the simplicity of a sole proprietorship or partnership, with the liability protection of a corporation. A limited liability company consists of one or more owners (called “members”) who actively manage the company’s business affairs. LLCs are relatively simple to establish and operate, with minimal annual filing requirements in most jurisdictions.
The best form of business structure depends on many factors, and must be determined according to your particular business and overall goals:
LLC members enjoy a limited liability, similar to that of a shareholder in a corporation. In general, your risk is limited to the amount of your investment in the limited liability company. Since none of the members will have personal liability and may not necessarily be required to personally perform any tasks of management, it is easier to attract investors to the limited liability company form of business than to a general partnership.
LLC members share in the profits and in the tax deductions of the limited liability company while limiting the potential financial risks.
LLCs offer a relatively flexible management structure. The business may be managed either by members or by managers. Thus, depending on needs or desires, the limited liability company can be a hands-on, owner-managed company, or a relatively hands-off operation for its members where hired managers actually operate the company.
Because the IRS treats the limited liability company as a pass-through entity, the profits and losses of the company pass directly to each member and are taxed only at the individual level (which may or may not be an advantage to you, depending on the profitability of the LLC and your personal income tax bracket).
Members of an LLC have flexibility in dividing the profits and losses. In a corporation or partnership, profits must be divided according to percentage of ownership. However, with an LLC, special allocations are permitted, so long as they have a “substantial economic effect” (e.g. they must be based upon legitimate economic circumstances, and may not be used to simply reduce one member’s tax liability).
Limited liability companies are, generally, a more complex form of business operation than either the sole proprietorship or the general partnership. They are subject to more paperwork requirements than a simple partnership but less than a corporation. Annual filings typically include statement and nominal filing fee payable to the Secretary of State, informational returns to the IRS, and filing of a state tax return.
In certain jurisdictions, single member LLCs may not be afforded the same level of limited liability protection as that of an incorporated entity.
Also note that in many states, an LLC is prohibited from rendering “professional services” which can include companies providing services that require a license, registration or certification. Such professionals typically have to establish a Professional LLC which does not offer limited liability for professional malpractice.
Monday, June 6, 2016
There are certain considerations that should be kept in mind for those with chronic illnesses. Before addressing this issue, there should be some clarification as to the definition of "chronically ill." There are at least two definitions of chronically ill. The first is likely the most common meaning, which is an illness that a person may live with for many years. Diseases such as diabetes, cardiovascular disease, lupus, multiple sclerosis, hepatitis C and asthma are some of the more familiar chronic illnesses. Contrast that with a legal definition of chronic illness which usually means that the person is unable to perform at least two activities of daily living such as eating, toileting, transferring, bathing and dressing, or requires considerable supervision to protect from crisis relating to health and safety due to severe impairment concerning mind, or having a level of disability similar to that determined by the Social Security Administration for disability benefits. Having said all of that, the estate planning such a person may undertake will likely be similar to that of a healthy person, but there will likely be a higher sense of urgency and it will be much more "real" and less "hypothetical."
Most healthy individuals view the estate planning they establish as not having any applicability for years, perhaps even decades. Whereas a chronically ill person more acutely appreciates that the planning he or she does will have real consequences in his or her life and the life of loved ones. Some of the most important planning will center around who the person appoints as his or her health care decision maker and also who is appointed to handle financial affairs. A will and/or revocable living trust will play a central role in the person's planning as well. Care should also be taken to address possible Medicaid planning benefits. A consultation with an estate planning and elder law attorney is critical to ensuring all necessary planning steps are contemplated and eventually implemented.
Monday, May 30, 2016
There are many factors to consider when deciding whether or not to implement Medicaid planning. If you’re in good health, now would be the prime time to do this planning. The main reason is that any Medicaid planning may entail using an irrevocable trust, or perhaps gifts to your children, which would incur a five-year look back for Medicaid qualification purposes. The use of an irrevocable trust to receive these gifts would provide more protection and in some cases more control for you.
As an example, if you were to gift assets directly to a child, that child could be sued or could go through a divorce, and those assets could be lost to a creditor or a divorcing spouse even though the child had intended to hold those assets intact in case they needed to be returned to you. If instead, you had used an irrevocable trust to receive the gifted assets, those assets would not have been considered the child’s and therefore would not have been lost to the child’s creditor or a divorcing spouse. You need to understand that doing this type of planning, and using the irrevocable trust, may mean that those assets are not available to you and therefore you need to be comfortable with that structure.
Depending upon the size of your estate, and your sources of income, perhaps you have sufficient assets to pay for your own care for quite some time. You should work closely with an attorney knowledgeable about Medicaid planning as well as a financial planner that can help identify your sources of income should you need long-term care. Also, you should look into whether or not you could qualify for long-term care insurance, and how much the premiums would be on that type of insurance.
Monday, May 23, 2016
Family Business: Preserving Your Legacy for Generations to Come
Your family-owned business is not just one of your most significant assets, it is also your legacy. Both must be protected by implementing a transition plan to arrange for transfer to your children or other loved ones upon your retirement or death.
More than 70 percent of family businesses do not survive the transition to the next generation. Ensuring your family does not fall victim to the same fate requires a unique combination of proper estate and tax planning, business acumen and common-sense communication with those closest to you. Below are some steps you can take today to make sure your family business continues from generation to generation.
- Meet with an estate planning attorney to develop a comprehensive plan that includes a will and/or living trust. Your estate plan should account for issues related to both the transfer of your assets, including the family business and estate taxes.
- Communicate with all family members about their wishes concerning the business. Enlist their involvement in establishing a business succession plan to transfer ownership and control to the younger generation. Include in-laws or other non-blood relatives in these discussions. They offer a fresh perspective and may have talents and skills that will help the company.
- Make sure your succession plan includes: preserving and enhancing “institutional memory”, who will own the company, advisors who can aid the transition team and ensure continuity, who will oversee day-to-day operations, provisions for heirs who are not directly involved in the business, tax saving strategies, education and training of family members who will take over the company and key employees.
- Discuss your estate plan and business succession plan with your family members and key employees. Make sure everyone shares the same basic understanding.
- Plan for liquidity. Establish measures to ensure the business has enough cash flow to pay taxes or buy out a deceased owner’s share of the company. Estate taxes are based on the full value of your estate. If your estate is asset-rich and cash-poor, your heirs may be forced to liquidate assets in order to cover the taxes, thus removing your “family” from the business.
- Implement a family employment plan to establish policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.
- Have a buy-sell agreement in place to govern the future sale or transfer of shares of stock held by employees or family members.
- Add independent professionals to your board of directors.
You’ve worked very hard over your lifetime to build your family-owned enterprise. However, you should resist the temptation to retain total control of your business well into your golden years. There comes a time to retire and focus your priorities on ensuring a smooth transition that preserves your legacy – and your investment – for generations to come.
Monday, May 16, 2016
What’s Involved in Serving as an Executor?
An executor is the person designated in a Will as the individual who is responsible for performing a number of tasks necessary to wind down the decedent’s affairs. Generally, the executor’s responsibilities involve taking charge of the deceased person’s assets, notifying beneficiaries and creditors, paying the estate’s debts and distributing the property to the beneficiaries. The executor may also be a beneficiary of the Will, though he or she must treat all beneficiaries fairly and in accordance with the provisions of the Will.
First and foremost, an executor must obtain the original, signed Will as well as other important documents such as certified copies of the Death Certificate. The executor must notify all persons who have an interest in the estate or who are named as beneficiaries in the Will. A list of all assets must be compiled, including value at the date of death. The executor must take steps to secure all assets, whether by taking possession of them, or by obtaining adequate insurance. Assets of the estate include all real and personal property owned by the decedent; overlooked assets sometimes include stocks, bonds, pension funds, bank accounts, safety deposit boxes, annuity payments, holiday pay, and work-related life insurance or survivor benefits.
The executor is responsible for compiling a list of the decedent’s debts, as well. Debts can include credit card accounts, loan payments, mortgages, home utilities, tax arrears, alimony and outstanding leases. All of the decedent’s creditors must also be notified and given an opportunity to make a claim against the estate.
Whether the Will must be probated depends on a variety of factors, including size of the estate and how the decedent’s assets were titled. An experienced probate or estate planning attorney can help determine whether probate is required, and assist with carrying out the executor’s duties. If the estate must go through probate, the executor must file with the court to probate the Will and be appointed as the estate’s legal representative. Once the executor has this legal authority, he or she must pay all of the decedent’s outstanding debts, provided there are sufficient assets in the estate. After debts have been paid, the executor must distribute the remaining real and personal property to the beneficiaries, in accordance with the wishes set forth in the Will. Because the executor is accountable to the beneficiaries of the estate, it is extremely important to keep complete, accurate records of all expenditures, correspondence, asset distribution, and filings with the court and government agencies.
The executor is also responsible for filing all tax returns for the deceased person including federal and state income tax returns and estate tax filings, if applicable. Additional tasks may include notifying carriers for homeowner’s and auto insurance policies and initiating claims on life insurance policies.
The executor is entitled to compensation for his or her services. This fee varies according to the estate’s size and may be subject to review depending on the complexity as well as the time and effort expended by the executor.
Monday, May 9, 2016
Do I Really Need Advance Directives for Health Care?
Many people are confused by advance directives for health care. They are unsure what type of directives are available. and whether or not they need need directives at all, especially if they are young. There are several types of advance directives. One is a living will, which communicates what type of life support and medical treatments, such as ventilators or a feeding tube, you wish to receive. Another type is called a health care power of attorney or health care proxy. In a health care power of attorney, you name another person to make health care decisions for you in the event are unable to do so for yourself. A third type of advance directive for health care is a do not resuscitate order or a DNR. A DNR is a request that you not receive CPR if your heart stops beating or you stop breathing. Depending on the laws in your state, the health care form you execute could include all three types of health care directives, or you may do each individually.
If you are 18 or over, it’s time to establish your health care directives. Although no one thinks they will be in a medical situation requiring a directive at such a young age, it happens every day in the United States. People of all ages are involved in tragic accidents that could not be foreseen which result in life support being used. If you plan in advance, you can make sure you receive the type of medical care you wish, and you can avoid a lot of heartache for your family, who may be forced to guess what you would want done.
Many people do not want to execute health care directives because of some common misperceptions about them. People are often frightened to name someone to make health care decisions for them, because they fear they will give up the right to make decisions for themselves. However, an individual always has the right, if he or she is competent, to revoke the directive or make his or her own decisions. Some also fear they will not be treated if they have a health care directive. This is also a common myth – the directive simply informs caregivers of the person you designate to make health care decisions and the type of treatment you’d like to receive in various situations. Planning ahead can ensure that your treatment preferences are carried out while providing some peace of mind to your loved ones who are in a position to direct them.
Sunday, May 8, 2016
Why should we all have estate plans, no matter what our ages?
When Prince died prematurely last week, the world was in shock. How did an apparently healthy and wildly talented 57-year-old man leave us so suddenly? Not long afterwards, the second shock wave hit when people realized that Prince, who was currently unmarried and had no children, had not left a will.
The question echoed around the world: Who will inherit his estate?
His sister has filed documents to open probate and begin the lengthy process of distributing his assets, estimated at more than $300 million. It seems that someone as wealthy and renowned as Prince would have been advised to consult with an estate planning attorney. The error of omission, however, is not at all uncommon.Read more . . .
Wednesday, May 4, 2016
How can I provide for a troubled heir in my estate plan?
When it comes to estate planning, some individuals are faced with the prospect of leaving property to a beneficiary who is not financially responsible or has other issues that may cause him or her to spend through the inheritance. One way to avoid leaving property to an heir who may squander it is to establish a spendthrift trust.
What is a Spendthrift Trust?
In short, a spendthrift trust is designed to limit access to principal in order to protect it from the beneficiary or his or her creditors. Rather than providing trust property directly to the beneficiary, the grantor names a trustee who is tasked with providing a regular payment to, or buying goods and services for, the beneficiary.
Spendthrift trusts are particularly effective when the beneficiary does not know how to handle money, has an addiction to drugs or alcohol, is susceptible to being taken advantage, or has a history of falling behind on debt.Read more . . .