Kelly Appears on GCTV
Kelly recently appeared on an episode for Gaston College Video Production. She appeared with Lauren Watkins, CPA, and discussed legal issues related to starting your own small business. Watch below!
What is the Doctrine of Necessaries?
The Doctrine of Necessaries is an old common law rule that a husband was responsible for the debts and expenses of his wife. Of course, that law is outdated and no longer valid, but North Carolina has retained a similar, gender-neutral law.
The doctrine of necessaries, as applied in North Carolina, means that a spouse is responsible for the other spouse’s medical bills, during their lives and after death. Necessaries also includes shelter like nursing home care.
Normally, this becomes an issue during bankruptcy, when one spouse tries to discharge their medical bills only to find that the other spouse is personally responsible. It also comes up during probate as well. When the first spouse dies, the surviving spouse is personally responsible for medical bills of the deceased spouse. This is a departure from normal law, which is that the family of a decedent is NOT personally responsible for their debts--the deceased person’s estate is the entity responsible for paying these bills. If there is no money in the estate, the deceased’s loved ones are not responsible for paying those bills. Not so with the surviving spouse, who is personally on the hook for funeral and medical bills.
Prenuptial agreements do not avoid the applicability of the doctrine because the medical providers are third parties who are not parties to the prenuptial contract. You cannot contract them out of getting paid. The only exception to the doctrine of necessaries is if the spouses were separated at the time the medical services were provided and the provider of medical services had actual notice of the separation during the time services were provided.
For people in second marriages, it is possible to do some planning with irrevocable trusts. This also illustrates the importance of obtaining life insurance to cover unexpected final expenses and long-term care insurance to cover nursing home costs. If you or a loved one are in need of planning advice due to a spouse’s eventual medical expenses, please give Jesson & Rains a call.
We have had clients contact us who are interested in forming several LLCs for liability protection but then have heard that it is a good idea to form a “holding company” to then own these LLCs under one umbrella.
Traditionally, holding companies are corporations that own stock in other corporations, and all they do is collect dividends from the stock. Berkshire Hathaway is the most famous holding company. It owns stock in many notable companies. It’s beneficial for the holding company to own a majority amount of stock, too, for control and tax purposes. Holding companies are a way for investors to buy shares of companies and make money by receiving dividends for doing nothing but investing. The owners of Berkshire Hathaway (its shareholders) don’t run any of the companies it owns. The board and officers of Berkshire Hathaway (including Warren Buffet) don’t run any of the companies Berkshire Hathaway owns. Of course, if Berkshire Hathaway owns a controlling amount of stock, it could vote to replace the board if the subsidiary wasn’t doing well.
Nowadays, people are forming “holding companies” for other purposes. Modern holding companies are really used as a tool for liability protection. If you form one LLC to own or “hold” the real estate, you can form a second LLC to operate / manage the properties. That way, if one LLC gets sued, the property of the other is not up for grabs. For example, if someone sues the property management company and it has to file bankruptcy, the building is safe because it is owned by the other LLC and its owners (also the owners of the operating LLC) can form another operating LLC immediately.
We think it is a great idea to form multiple LLCs. The more segmented and specific you can get it, the more liability protection there is. However, with each new LLC, there are additional costs: formation fees, annual report fees, and accounting fees.
Some people think that there is a benefit to having a parent LLC own multiple LLCs. So, in our example above, Real Estate Enterprises LLC would own the property holding LLC and the operating LLC. Again, creating a parent company for the purposes of simply “holding” the separate LLCs is an added expense without much of a benefit. There’s no increased liability protection forming a parent company. Each LLC has to file annual reports and tax returns each year, so consolidating isn’t making that easier. There is possibly an extra layer of management, too (management of the subsidiary and management of the parent) that may be unnecessary.
For investment purposes, though, there may be some benefit. The subsidiary LLCs are assets on the parent company’s books. There are also some estate planning benefits. Instead of having the deceased’s ownership interest pass to the heirs for 12 different companies, the parent LLC’s interest could pass to the heirs and they would automatically own all the subsidiary LLCs.
With any business formation, it is important to contact a business planning attorney and a reputable CPA.
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Kelly Rains Jesson