By Associate Attorney Danielle Nodar

National Estate Planning Awareness Week runs from October 19 through 25th and was created in order to increase public awareness about the importance of estate planning for financial and personal wellness. According to the National Association of Estate Planners & Councils, it is estimated that 56% of Americans do not have an up-to-date estate plan! In honor of this week, we are reminding you of the importance of having an estate plan in place and working with an estate planning attorney to create a plan that is tailored to your specific needs and goals.

There are many myths associated with estate planning that can be answered and addressed if you work with an estate planning attorney. Some of these include:

• “My estate is not big enough to require any estate planning”
• “My spouse is a joint owner of our assets so I don’t need an estate plan since they will inherit everything automatically”
• “I am too young for an estate plan”
• “Estate planning is too complicated or too expensive for me”
• “I created an estate plan years ago and nothing needs to be changed”

These myths, coupled with the discomfort that often accompanies thinking about incapacity and death, prevents many people from prioritizing their estate plan. However, by working with an estate planning attorney, you can address these concerns, gain control over an incontrollable life event, and leave with the peace of mind knowing that your loved ones will be taken care of when you pass away.

The purpose of estate planning is to develop a strategy that will maintain your financial security during your lifetime and create a plan for transferring your property at your death. A good estate plan considers a variety of circumstances unique to each person, including family dynamics, overall assets and debts, and the costs associated with transferring assets at death. Estate planning goes beyond making decisions relating to where your property goes when you pass away. It also includes naming individuals who will help implement your plans when you pass away, such as naming the executor who will administer the probate of your estate, a trustee who will manage property for the benefits of your named beneficiaries, or a guardian who will have custody and care of any minor children. Comprehensive estate planning also creates a plan for who will take care of you in the event that you become incapacitated during your lifetime. This includes naming agents under a durable power of attorney who will act in your place as to financial, business, and legal decisions if you are no longer able to manage your affairs and naming an agent under a healthcare power of attorney who will make medical decisions for you in the event you cannot speak for yourself. There are even ways to make plans for end-of-life medical decision-making in the event that you do not want life support if you are suffering from serious or terminal medical conditions.

Even if you have an estate plan in place, you should meet with your estate planning attorney every three to five years to review any life changes or changes in the law. Some reasons to update an estate plan are major life changes or changes in circumstances or assets, including factors like births, deaths, marriages, divorces, illness or disability, or even moving to a new state.

Thus, in honor of National Estate Planning Awareness Week, we want to remind everyone of the importance of creating and reviewing your estate plan to plan for your future and the future of your loved ones. If you have questions about creating an estate plan or potential revisions to your existing estate plan, please call Jesson & Rains!

By Associate Attorney Danielle Nodar

When you pass away, any outstanding debts that you owe, such as medical bills, taxes, mortgages, and credit card bills, continue to live on. This is true regardless of whether you pass away with an estate plan or intestate (i.e. without a will). While different debts are treated differently in terms of how they are secured and paid, the general rule is that any debt that was owed by you at during your lifetime is still owed once you pass away.

Thus, a main component of the probate process is the management and payment of creditor claims. Your personal representative, the person responsible for administering your estate, is required to provide notice to creditors that an estate has been opened to allow creditors to file claims against your estate. North Carolina law provides strict guidelines and timelines for providing sufficient notice to known and potential creditors. This includes providing written notice to known creditors (creditors who have sent bills to the decedent or to the estate) as well as publishing notice to creditors in a local newspaper. Providing notice starts the clock on a 90-day period where creditors must present their claims against the estate to the personal representative or risk the possibility of a claim being rejected for being filed too late.

Your personal representative is not responsible for paying your debts out of pocket; they use estate assets to pay claims made against the estate. If there is not enough cash to pay claims, any estate assets, including real and personal property, can be sold by the personal representative to create funds to pay estate debts. However, depending on the nature of the estate assets and liabilities, some estates may run into issues where there are more debts than there are assets even after available assets are sold.

Estates with insufficient funds to fully pay all of the estate’s obligations, which include debts as well as the expenses involved with administering the estate, are known as insolvent estates. If an estate is insolvent, all of the creditors may not be paid in full or paid at all. To help determine who gets paid first, North Carolina provides a list of the priority depending on the classification of the creditor. This list of priority allows for certain creditors to get paid in full before other creditors are paid and reads as follows:

     1. Costs and expenses of administration, such as court fees and attorney’s fees
     2. Property liens up to the amount of the value of the property
     3. Funeral expenses to the extent of $3,500. Any fees over this amount fall into #10
     4. Costs associated with gravestones and suitable burial place to the extent of $1,500. Any fees over this amount fall into #10
     5. Taxes, dues, and other claims under federal law
     6. Taxes, dues, and other claims under North Carolina state law
     7. Judgments made in any North Carolina jurisdiction; liens active on a decedent’s property as of the date of death; and Medicaid claims made by The Department of Health and Human Services
     8. Outstanding wages due to decedent’s employees accrued no more than 12 months prior to the date of decedent’s death; medical expenses, necessary drug costs, and medical supply fees accrued in the 12 months prior to the date of decedent’s death
     9. All equitable distribution claims
     10. All other claims. This is a broad category that includes all other debts such as personal loans or credit card debts.

It’s important to follow this list carefully because a personal representative can become responsible for failing to follow the order of priority. For example, if a higher priority creditor is not paid in full before a lower priority creditor, the personal representative could find themselves liable for the amounts owed to the higher priority creditor if there are not enough estate funds to fully pay both claims.

Even if an estate is insolvent, there are some assets that are exempt from creditor claims, which means that your loved ones will be able to retain the assets or funds regardless of what debts you owe. This includes life insurance or retirement accounts that name your spouse or child as a beneficiary or real estate owned with your spouse as “tenants by entireties” (TBE). If there is a surviving spouse or minor children, the personal representative should also apply for a family allowance, which provides for funds that are given to the family free and clear of creditor claims. These must be applied for within one year of the date of death, so it is crucial that a personal representative petition for these allowances as soon as an estate is open instead of waiting to see what debts come in.

If you have questions about payment of estate expenses or debts or creating an estate plan to help protect your assets from creditors, please give the attorneys at Jesson & Rains a call!

By Attorney Kelly Jesson

In this second part of the series, we’re focusing on asset protection and estate planning. Two weeks ago, we wrote about protecting your assets from creditors during your lifetime. Through estate planning, we help people plan to protect their estate assets from their creditors as well as the creditors of the beneficiaries.

One of the main purposes of the estate administration process is paying the deceased person’s bills, and if they have a lot of debt, that can wipe out assets meant for the next generation. However, there are a few assets that are protected from the deceased’s creditors: if your spouse or children are listed as the beneficiary of a life insurance policy or retirement account, when you pass away, that money will pass to your loved ones free and clear of any creditor claims. Additionally, if you own real estate with your spouse as “tenants by entireties” (TBE), they will inherit it at your death free and clear of any creditor claims. Other assets, like cars, bank accounts, investments, and business interests may be up for grabs.

Unfortunately, this does not mean that these assets are now exempt from the beneficiaries’ creditors. If one of our client’s goals is to protect the beneficiary from the beneficiary’s creditors, we must set up a trust. There are different types of trusts that provide protection from a beneficiary’s creditors. The thing they have in common is not making distributions to the beneficiary mandatory and giving the trustee discretion to not give the beneficiary money in certain circumstances. For example, if the trustee was required to distribute $5,000 to a beneficiary each month, the trustee has no discretion, and that money would go right into the hands of a creditor upon distribution (or worse yet, a creditor may attach a lien to the trust). However, if the trust agreement provided that the trustee could decide to withhold or delay a distribution to a beneficiary if they had a creditor (for example, they had filed for a divorce or bankruptcy), the $5,000 would not belong to the beneficiary because it would not be a guaranteed distribution, and the trustee could wait to make the distribution months or even years down the road until the beneficiary’s situation resolved itself. If it did not, the money would likely go to the decedent’s grandchildren, which most clients prefer versus a creditor.

It goes without saying, but one of the main ways we help clients protect assets for their beneficiaries is through planning to minimize costs at death. For example, we make sure clients have beneficiary designations updated. If a large life insurance policy goes through probate, it could cost the family thousands of dollars in court costs. For clients who own property in multiple states, we can help by transferring their properties to a revocable trust now instead of their loved ones spending thousands of dollars probating their estate in multiple states after they pass away. Of course, if an estate tax bill is anticipated, there are many things we can do to minimize those effects.

If you are interested in implementing any of the above ideas in order to protect your assets, please give the attorneys at Jesson & Rains a call!

​By Attorney Kelly Jesson

Creditors come in all shapes and sizes: ex-spouses, bankruptcy, personal and business debts, and claims involving real estate or professional malpractice. People in high risk professions or who deal with circumstances that are prone to litigation sometimes want to take steps to protect assets. However, this must be done before a dispute arises, because moving assets around afterwards can sometimes be deemed a fraudulent conveyance and voided by a court.

Unfortunately, there is no “magic wand,” and protecting assets oftentimes involves investing your earnings into protected accounts, such as life insurance and retirement. An individual’s retirement account is exempted from their own creditors (but not from a beneficiary’s creditors once the assets are inherited, which will be discussed in the next blog dealing with asset protection in estate planning). The cash value of a life insurance policy is also protected from the insured’s creditors, but again, not from a beneficiary’s creditors once the assets are inherited.

Additionally, the state of North Carolina exempts certain amounts of property from creditors:

• up to $35,000.00 of the value of the debtor’s or dependent of the debtor’s residence or burial plot, except if a debtor is 65 or older, they may exempt up to $60,000.00 if the property was previously owned with a deceased spouse (known as the “homestead exemption”)
• up to $5,000.00 of the value of any property if the debtor has not used their entire homestead exemption
• Professionally prescribed health aids for the debtor or a dependent of the debtor

• up to $3,500.00 in value of one motor vehicle
• up to $5,000.00 in value, plus an additional $1,000.00 for each dependent of the debtor, not to exceed $4,000 extra total for dependents, in household furnishings, household goods, clothing, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor
• up to $2,000.00 in value of professional books, implements, or tools of the trade
• up to $25,000.00 in funds in a 529 college savings plan.

One of the most important things you can do is title property as “tenants by entireties” (TBE). If a husband and wife purchase property together, by default, it is owned as TBE and is therefore protected from the creditors of just one of them, meaning a lien will not attach. However, if a creditor gets a judgment in both spouses’ names, a lien can attach. Also, if the spouses divorce or one passes away, a lien can attach if the remaining owner is the debtor. Another alternative or high-risk professionals is to have the low-risk spouse own the majority of assets because they will not be responsible for debts unless joint.

Another really important step is for self-employed people to form businesses and formalize businesses to protect assets. If you follow business formalities, business creditors cannot reach your personal assets for business debts. If you own investment properties, you are running a business. In fact, the definition of “operating a business” is pretty loose, and oftentimes people will move high-value assets over to LLCs for asset protection purposes. Again, you must follow business formalities (set up a tax identification number, maintain a separate bank account, have an operating agreement).

If you own a business but you have personal creditors, those cannot reach assets titled in the name of your business. They are limited to collecting only the distributions you receive from the business, which you control as the business owner. Distributions do not include your pay made through payroll, which is another reason to run your business like a business.

Finally, we’re often called by people to set up trusts to avoid creditors. General living trusts or revocable trusts are not protected from creditors of the grantor (the person who sets it up), although the funds could be protected from beneficiaries’ creditors after the grantor dies (the subject of our next blog). North Carolina residents have a few not-so-great options: First, they can set up an irrevocable trust for the benefit of others. For example, if you are married, you can create an irrevocable trust that benefits your spouse for his or her lifetime.  Presumably, your spouse will take care of you while you’re married, so you will indirectly have access to the money you put into the irrevocable trust, although on paper it will no longer belong to you, so your creditors cannot reach it. This obviously has risks, but it is an option.

Another option is an asset protection trust. In an asset protection trust, the trustee has discretion to distribute money to the grantor as well as other beneficiaries. These trusts are not valid in North Carolina, although they are available in seventeen other states and other countries. However, North Carolina residents can pick the situs (jurisdiction) of their trust and where the trustee is located, meaning, for example, that you can state that Georgia law applies to your trust even though you live in North Carolina. However, lawmakers in North Carolina have questioned whether this practice is valid for asset protection trusts, and, therefore, there are some risks involved. Of course, transferring funds to another country is always risky.

If you are interested in implementing any of the above ideas in order to protect your assets, please give the attorneys at Jesson & Rains a call!

​By Associate Attorney Danielle Nodar

As mentioned in the previous article in this series, you are deemed to have died “intestate” if you die without a will. North Carolina’s Intestate Succession Act is the default law that kicks in if you pass away without a will. It names which of your surviving family members are considered your legal heirs in North Carolina (spoiler alert! Not step kids or “common law spouses”) and the order in which they will inherit.

Only the assets that could have passed through a will are governed by this law. These assets are known as a person’s probate property, which is usually all of the assets that a person owns in their individual name and assets that do not pass via beneficiary designations. Some examples of non-probate assets not commonly governed by the intestate succession laws are life insurance, retirement accounts, jointly owned property with rights of survivorship, securities with named beneficiaries, and Pay on Death or Transfer on Death accounts. However, there could be circumstances where these non-probate assets could become part of your probate estate and thus subject to the intestate succession laws, such as if a named beneficiary predeceases you and there is no back-up named or you fail to designate a beneficiary in the first place.

The most common misconception surrounding intestate succession is that your spouse will inherit everything if you pass away without a will. This is sometimes not the case if you have probate property and are survived by your spouse, children, or parents. For example, if you do not have a will and are survived by a spouse and one child (or grandchildren, if that one child is deceased), in addition to receiving the spousal allowance, your surviving spouse takes the first $60,000 of your personal property, ½ of your real property, and ½ of whatever remains of your personal property while the child inherits the remainder.

If you are survived by a spouse and more than one child (or grandchildren in the event of predeceased children), the spouse inherits 1/3 of your real estate, the first $60,000 of personal property, and 1/3 of whatever remains of the personal property. Your children will evenly split the remaining 2/3 of your personal property and 2/3 of your real estate.

If you do not have children but are survived by a spouse and parent(s), your spouse will inherit ½ of your real property, the first $100,000 of your personal property, and ½ of the remaining balance of your personal property. Your parent(s) will inherit ½ of your real estate and any personal property remaining after the spouse’s share.

Thus, without a will, you do not have full control over where your probate property will go at your death. You may be inadvertently leaving property to people with whom you do not have a close relationship or to family that does not need your assets. You could also be leaving a headache instead of an inheritance if heirs do not get along. For example, if you have a spouse and a child from a previous relationship, they could potentially become joint owners of real estate. If they do not agree on what to do with the property, court procedures may be necessary in order to sell and divide assets. You could also be leaving a family member in need if you do not have a will. For example, if you have a spouse and minor children, you may want your spouse to inherit all of your assets to be able to more easily take care of your children and not leave real estate to minor children.

If you have questions about intestacy in North Carolina, drafting a will, or ensuring that your wishes regarding your property are honored once you pass away, please call Jesson & Rains.

By Associate Attorney Danielle Nodar

If you pass away without a will in North Carolina, there are statutes that govern who will serve as your executor and who will inherit your estate. However, dying without a well-written will can leave your loved ones with a variety of legal hurdles to overcome.

The first article of this series discusses who will be responsible for administering your estate if you pass away without a will and what are some of the issues they may face when trying to get appointed by the probate court. The next article in this series will discuss how property is distributed if you die without a will in North Carolina.

When you die without a will, you are deemed to have died “intestate.” Each state has its own intestacy laws, which are the “default” option that outlines major decisions in the probate process, such as who can serve as your executor and their qualification requirements. The appointment of the executor is the first step in probating an estate. The executor is responsible for collecting all of your remaining assets at death, paying all of your legally enforceable debts and expenses out of those assets, and distributing any remaining assets to your heirs. A court will never appoint an executor who is a convicted felon, incapacitated, or under the age of 18, but generally, if you have a will, you can name anyone, and the court will respect your decision.

If you die without a will, the clerk of court will appoint someone in the following order: (1) a surviving spouse; (2) any heir; (3) any next of kin, with the person who is of closer kinship under having priority; (4) any creditor of the decedent; (5) any person of good character residing in the county who applies therefor; and (6) any other person of good character. The person the court appoints could be someone you don’t particularly want to handle your estate, and you could avoid that by naming them in your will. Also, there could be issues with relatives who are the same degree of kinship arguing over who should serve, which could cause unnecessary delays and expenses if the dispute cannot be resolved without attorneys.

The other issue is that, generally, a bond is required of the executor of an estate. This bond is an insurance policy, and it is required to protect the beneficiaries of the estate in the event that the executor breaches their duties in administering the estate, such as by running off with the estate assets. The executor must be able to pass a credit check in order to obtain the bond and pay the bond premium of out-of-pocket (which can sometimes be quite high) because they will not have access to your assets before they are appointed executor by the probate court.

There are two ways to avoid the bond. First, all of the heirs could sign a document waiving the bond requirement, but this requires them to all be in agreement (which sometimes doesn’t happen) and they all must be age 18 or older and otherwise have capacity. The second way to avoid the bond is to waive the requirement in a will. This makes is easier from the outset for your desired executor to serve. After all, they’re doing a job for your benefit and the benefit of your family.
​
Lastly, another benefit of having a well-written will is that attorneys can put helpful provisions in the will that don’t otherwise exist under the default intestacy statutes that make it easier for the executor to do their jobs. For example, we can write in the will that the executor can sell a house if needed to pay debts of the estate; whereas, if the same person died without a will, the executor would have to file a motion with the court and having a hearing (costing them money, and likely requiring an attorney) in order to sell the house.

If you have questions about intestacy in North Carolina, drafting a will, or ensuring that a person of your choosing is able to manage your estate once you have passed away, please call Jesson & Rains.