By Attorney Kelly Rains Jesson and Associate Attorney Danielle Nodar

​Forming a corporation in the state of North Carolina is pretty easy to do yourself, but that may get business owners into trouble.  Numerous corporations exist without any bylaws and without issuing any shares (especially those who do-it-themselves).  Failing to complete all the steps can have negative consequences. 
 
A corporation is owned by its shareholders.  Shortly after a business is incorporated, it should issue shares to the owner(s).  If there are no shares issued, there are no shareholders, and thus no owners.  Why do so many business owners fail to complete this step?  Probably for two reasons: (1) they don’t know this is the way it works and (2) in order to incorporate, all the Secretary of State’s office requires is that Articles of Incorporation be filed with its office.  It does not require proof of bylaws or shares.
 
Shareholders do not manage the business just because they are shareholders. The Board of Directors manages the business.  For small, family businesses, the shareholders and the directors are often the same people.  However, these are still two distinct roles.  Most business owners that have not issued themselves shares are simply acting like directors of the corporation. 
 
To incorporate, the incorporator (could be a future director, shareholder, or third party, like an attorney) files Articles of Incorporation.  North Carolina law states that if no directors are named in the Articles of Incorporation, the incorporator shall hold a “meeting” (can be informal) to name the initial directors.  “The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.” N.C.G.S. § 55-2-06 (emphasis added). The law states that there SHALL be bylaws, not that there MAY be bylaws.  The bylaws govern the management and affairs of the corporation. The bylaws state how shares will be issued, how directors will be named/replaced, and how the company is managed. 
 
So why should you care?
 
First, the liability protection corporation owners enjoy is at risk if you do not follow the corporate formalities required by North Carolina law. You risk having a creditor ask a court to “pierce the corporate veil,” making you personally liable for debts and judgments of the corporation. When a court “pierces the corporate veil,” it determines that the corporation and owner are basically the same, with the corporation serving as merely a shell for the owner to act. If this finding occurs, your personal assets can be used to satisfy corporate debts, which defeats one of main purposes of owning a corporation in the first place.
 
Second, you will probably not be able to obtain an SBA loan if you do not have bylaws.  These loans are backed by government guarantees.  The government wants to make sure it is not lending to an entity that has not been set up properly. The SBA wants to make sure the bylaws do not contain provisions that make the loan risky.
 
Finally, another reason why we talk to our clients about shares and bylaws is for estate planning purposes.  When a person passes away, they leave their property to beneficiaries.  Shares of corporations are personal property.  If a business owner has not issued himself or herself shares of the corporation, what is there to pass to their beneficiaries? 
 
Further, as we explained above, corporations are managed by the board of directors and not the shareholders.  Therefore, even if a shareholder owner passes their shares to their beneficiaries, that does not mean that the beneficiary now suddenly starts managing the company as a new director.  If you are the sole director of your corporation, who will take over management when you pass away or are sick?  The bylaws of a corporation will govern what happens when a director passes away or otherwise becomes unable to act.
 
We can do some pretty creative estate planning with owners of corporations.  We can help them restrict management or ownership of shares to family members.  We can ensure that their shares stay out of probate through using trusts, saving their families money.
 
For assistance with drafting bylaws, issuing shares, and implementing an estate plan, give Jesson & Rains a call!

By Kelly Rains Jesson

​529 plans are named after IRS Code Section 529.  A person can make “gifts” into an investment account that is then used, in the future, by minors or young adults to attend college or a private K-12 school.  There are a few benefits.  First, the money that goes into the investment account grows and earns interest income that is not taxed when it is withdrawn in the future per the account terms.  Theoretically, if a parent started early, they could gift a small amount to a 529 account and have a much larger amount available for their child when the child enters college.  Second, the value of the account is not considered part of your taxable estate.  A 529 account offers the ability to control what a beneficiary spends the money on instead of gifting it to them directly.  Plus, someone can make gifts to a beneficiary via a 529 account when they’re under the age of 18.  You wouldn’t want to give a ten-year-old a few thousand dollars!
 
North Carolina 529 plans allow the owner (also called a “participant”) to designate a successor owner, who will take over the account in the event the primary owner dies or is incapacitated.  If the primary owner does not make this designation, North Carolina allows the estate to become the owner.  The estate can then transfer to another owner.  We typically recommend our clients designate a successor owner so they can have peace of mind that the new owner is someone who they’d want to take over.   Give Jesson & Rains a call if you have any questions!

​A few weeks ago, it was reported that three handwritten wills were located in Aretha Franklin’s home months after she died, after it had previously been reported that she died without a will.  The 2014 handwritten will was found in between couch cushions as part of a spiral notebook.  It’s hard to read.  Pages can be seen here:  AP News Story
 
Two 2010 handwritten wills were found locked in a cabinet after the key was discovered.  Her attorney filed all three and asked the probate court to determine their validity.
 
What if this happened in North Carolina?  Handwritten wills (also called holographic wills) can be valid in North Carolina.  They must be almost entirely in the handwriting of the testator (all of the substance must be in handwritten), signed by the testator, and “found after the testator's death among the testator's valuable papers or effects, or in a safe-deposit box or other safe place where it was deposited by the testator or under the testator's authority, or in the possession or custody of some person [or business] with whom . . . it was deposited by the testator or under the testator's authority for safekeeping.”  Finally, it must be clear from the writing that the testator meant for the writing to serve as their Last Will and Testament.
 
Therefore, it’s unlikely that the 2014 will would be considered valid. It’s part of a spiral notebook found in couch cushions unlike the 2010 versions that were locked up.  Also, it’s not clear from the writing that she intended for that document to be her will. 
 
It’s not recommended to handwrite your own will for numerous reasons.  First, you’re probably not an attorney – what if you use the wrong language?  Forget important legal terminology?  Second, it is more difficult to probate.  Most typed wills, written by attorneys, are witnessed and notarized. The executor should have little trouble submitting the will to probate.  The executor of a handwritten will will have to provide additional proof to the court, causing them stress and possibly costing more money.  Finally, handwritten wills are asking to be challenged. If someone claims it is not the testator’s handwriting, handwriting experts will be called in to testify. Your estate could be reduced due to legal fees.
 
If you’re interested in having a will drafted by a professional, give Jesson & Rains a call!

​Written by Danielle Nodar, Associate Attorney

Estate planning can be a daunting process for many people. Whether it is the stress of making decisions that will impact loved ones when we are gone or avoiding thinking about death or incapacity, many people are hesitant to create an estate plan.  The confusion and anxiety surrounding this process have lead to some pervasive myths relatied to estate planning, which we have addressed below.

1. My estate is not big enough to require any estate planning.  

There is a widespread myth that only the very wealthy need estate plans and that the average person does not have an “estate” to begin with. This is not true!  When someone passes away, all of their assets become part of their estate; there is no minimum threshold of assets that make up an estate. Thus, at death, we all have an estate, it just varies in size and complexity based on the amount and types of assets you have. Oftentimes, people with fewer assets have the most issues during probate and could have really used the help of an attorney.
 
2. Estate Planning only deals with distributing property at my death.
 
Another myth is that your estate plan only deals with who will inherit your property when you pass away. This is also incorrect! A will also allows you to name people who may serve important roles when you pass away. In a will you will name an Executor to manage your assets and distribute them to the beneficiaries in your will at the time of your death. Without a will, you will not have any control over naming the person to manage you affairs at your death. Additionally, in North Carolina, the only way to name a guardian for your children in the event that both parents pass away while the children are still minors is to name the guardian in a Last Will and Testament. You can also name a trustee who is the money manager for inheriting children until they reach a certain age.
 
Additionally, estate planning involves planning for incapacity through durable powers of attorney and health care directives. With a durable power of attorney, you can name an agent to make business, legal, and financial decisions on your behalf if you become incapacitated. You can also name an agent to make healthcare decisions for you in the event that you are incapacitated and include specific instructions for them about your healthcare wishes. There is also the advance directive or “living will,” which includes your wishes relating to the withdrawal or withholding of life support if you are incapacitated and suffering from a medical condition where you will not likely recover.

3. If I have a will, I can avoid probate.  

Having a will drafted will not always prevent your estate from having to go through probate to pass assets to your loved ones. If you pass away with a will, depending on the circumstances, your executor may have to file your will at the courthouse along with the initial probate application and then must comply with all the requirements of the probate process. This includes providing the court with an inventory of all of your assets at the time of your death, providing notice to any of your potential creditors existing at the time of death, handling creditor claims and paying creditors with estate assets, and making distributions of any remaining assets to your beneficiaries. While there are ways to avoid probate (for example, owning property joint with rights of survivorship, the surviving spouse allowance, and utilizing revocable trusts), sometimes merely having a will is not enough.

4. I do not need a will because my spouse will inherit everything.  

In North Carolina, this is oftentimes false. The surviving spouse will remain owner of all joint property or accounts with right of survivorship. Also, every surviving spouse (regardless of the existence of a will) is entitled to a year’s allowance of $60,000 worth of the decedent’s personal property. If there are any other assets, a surviving spouse does not automatically inherit everything according to the North Carolina Intestacy Statute.  For example, if you do not have a will and are survived by a spouse and only one child (or grandchildren, if that one child is deceased), the surviving spouse takes ½ of your real property, the first $60,000 of your personal property, and ½ the remaining balance of your personal property while the child inherits the remainder. 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 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 may be inadvertently leaving your assets to people who do not need them and leave your spouse in need. For example, if your children are minors, you may want your spouse to inherit your full estate to take care of your children. 
 
Overall, all of these options are more complicated and involve more court oversight. It is much easier to create an estate plan with an attorney that ensures that your spouse inherits everything or is adequately taken care of when you pass away.  If you or anyone you know have any questions regarding estate planning, please give Jesson & Rains a call.

​North Carolina has a procedure whereby the surviving spouse can claim an “allowance” when their spouse dies, to be satisfied by only the deceased spouse’s singularly owned personal property.  Most jointly owned property will automatically become the surviving spouse’s. 
 
The allowance is a superior claim and will be paid out of the deceased spouse’s personal property before any creditors or other claimants are paid.  The spousal allowance law applies whether or not the deceased spouse had a will.  As of January 2019, the amount of available allowance doubled from $30,000 to $60,000!  Only personal property may be used to satisfy the allowance.  If a deceased spouse had real estate only in his name, the surviving spouse could not use the spousal allowance to get the real estate and would then have to resort to the probate process. 
 
The benefits of the increased spouse allowance statute are clear.  Example: you and your deceased wife own a house jointly and own joint bank accounts, but she had a car in only her name worth $30,000 and a stock account only in her name worth $20,000.  She also had a $20,000 Macy’s credit card bill in only her name.  You can go up to the courthouse with proof of her death and proof of your marriage, fill out a fairly simple form, pay a small fee, and leave being able to transfer those two items to you directly.  There is no need for a costly and time-consuming probate proceeding.  Additionally, Macy’s will not be paid.  
 
It is very important to note that a surviving spouse only has one year to file a claim for the allowance.  There are no exceptions to this rule.  If the deadline had been missed in the above example, the stock would likely have to be sold to pay the Macy’s debt.  Also, there is a $5,000 child’s allowance available for children under the age of 18 or certain children over age 18.

​  By Associate Attorney Danielle Nodar

One of the most important decisions when creating an estate plan is determining what will happen to your assets when you pass away. When thinking of assets, the usual tangible or financial assets come into mind: real estate, bank accounts, cars, jewelry, etc.  However, today as more and more of us are active online, another important and often overlooked asset are digital assets. Digital assets cover a wide range of a client’s assets, from the sentimental and personal items such as photos stored online and email and social media accounts, to assets with a monetary value, such as PayPal accounts, domain names, intellectual property stored on a computer, business information such as client lists, and cryptocurrency.  

Without creating an estate plan that references these assets, state and federal data privacy laws may make it difficult or even prevent loved ones from accessing your digital assets when you pass away.  If no planning has been done, an online provider’s terms of service agreement will likely control what happens to a consumer’s account after death.  As the law slowly catches up to technology, legislation has been enacted to allow the owner of digital assets to protect these assets after death. For example, The Uniform Fiduciary Access to Digital Assets Act has been passed in the majority of states (including North Carolina) and provides that an owner of digital assets can specify who will be able to access and dispose of the digital assets after death.  Therefore, by creating a formal estate plan, your documents can designate a specific person (such as your executor or trustee) to have access to your digital assets when you pass away. You can also include provisions that this person will have the ability to reset or recover any passwords in order to access your data and assets.

After determining who should be allowed access to your digital assets after death, additional steps should be taken to ensure that this person will be able to more easily access any relevant data or digital assets.  During your lifetime, you can create a list of your digital assets so that your loved ones have an idea of where to begin in collecting digital assets. This list should include usernames, passwords, security questions associated with accounts, and instructions on what should be done with accounts after death, such as which accounts should be deleted. As this list contains key information for accessing digital assets, it should be kept in a secure location that can be accessed by loved ones after death. We do not recommend that clients include this information in their wills, as they can be accessed by the public after death.  

In addition to creating an estate plan that plans for access and disposition of digital assets, certain online providers have internal procedures and policies that you can use to protect your digital assets after death. For example, Facebook ‘s privacy and security settings allow you to name a “legacy contact” to handle your account after you pass away. Instructions can be found here: https://www.facebook.com/help/103897939701143?helpref=faq_content.

Google also has an option where you can name an “inactive account manager.” This allows the Google account owner to specify what should happen to the account after it has remained inactive for a period of time.  The account owner can list persons who will be notified that the account will be closed before it is deleted, giving loved ones time to access the account and download any important content before the account is deleted.  Instructions can be found here: https://support.google.com/accounts/answer/3036546?hl=en.

With some basic planning, you can provide your loved ones with access to assets that could have considerable sentimental and monetary value. As society and our lives continue to get more intertwined with the digital world, it becomes crucial that estate plans are comprehensive and provide protection and instructions for our digital assets.