By Attorney Kelly Rains Jesson
Naming a guardian for minor children is one of the top reasons why a parent engages in estate planning. The only way to name a guardian for a minor child in the state of North Carolina is in a will (N.C.G.S. § 35A-1225(a) references “last will and testament” but does not mention any other document). So, making it a Facebook status or writing it on a cocktail napkin before a trip is not going to cut it.
Even though the statute states that the guardian named by the parent is a “recommendation” that serves as a “strong guide” to the clerk, court history shows that the clerk almost always will appoint the guardian named in the will, unless it’s not in the best interests of the child (for example, if the named guardian was a drug addict, felon, or incapacitated). The North Carolina legislature wrote that “[p]arents are presumed to know the best interest of their children.”
We recommend that parents agree on their choice of guardian in the event they both pass at the same time. If they name different guardians in their respective wills, there could be a dispute over who would serve, which defeats the purpose of naming a guardian in the will in the first place. However, a long-surviving spouse may update his/her will after the first spouse passes away. If that is the case, the court will appoint the guardian named in the will with the latest date.
If you or someone you know needs help creating a will and naming a guardian for minor children, give Jesson & Rains a call!
President Trump signed a new law in December that has taken effect this month called the SECURE Act (Setting Every Community Up for Retirement Enhancement Act). It includes a wide array of changes to retirement accounts that both individuals and business owners should know.
For individuals, here are a few highlights:
(i) being unable to perform (without substantial assistance from another individual) at least 2 activities of
daily living for a period of at least 90 days due to a loss of functional capacity,
(ii) having a level of disability similar (as determined under regulations prescribed by the Secretary in
consultation with the Secretary of Health and Human Services) to the level of disability described in
clause (i), or,
(iii) requiring substantial supervision to protect such individual from threats to health and safety due
to severe cognitive impairment.
Business owners should be aware of the following:
A financial adviser would be the best person to contact if you have any questions about how the SECURE Act affects your retirement, and a CPA would be a good person to contact regarding business credits. However, if you want to discuss how eliminating the IRA lifetime stretch might affect your estate plan, give Jesson & Rains a call.
By Associate Attorney Danielle Nodar
Thanksgiving is one of the best opportunities of the year to slow down before the rush of the holiday season and spend quality time with our loved ones. During this time of relaxation and reflection, many people also think about how to they want to plan for their future and the impact it may have on their loved ones. The holiday provides a chance to catch up with loved ones we may not see during the year and open the door to discussing important topics as a family.
While the majority of adults consider having an estate plan important, nearly half of all Americans do not have a will, and even fewer have other documents that plan for incapacity. Unfortunately, there are countless issues that could arise without proper estate planning.
Without a will or living trust, your assets would pass according to the intestacy laws of North Carolina. This takes away the control you have over who inherits what when you pass away and could have huge implications on your loved ones. Additionally, in North Carolina, a will is the only way to name a guardian for your minor children in the event that both parents pass away.
Furthermore, some people may require more complex estate planning depending on their family situation (such as second marriages, a child with special needs, or care of minor children) and the type and amount of their assets. Estate planning through devices such as living trusts allows you to put plans in place to address the specific needs of your beneficiaries, avoid the probate process, and address more complex tax issues depending on your assets.
Finally, a comprehensive estate plan not only plans for what happens after death, but also addresses who would be responsible for making decisions on your behalf if you became incapacitated during your lifetime. This includes naming someone to make financial decisions on your behalf and someone to make medical decisions on your behalf. Without such a plan, your family may have to go through more drastic and expensive court proceeding to have you deemed legally incompetent by a judge.
While most people think of turkey, football, shopping, and the inevitable food coma when Thanksgiving comes to mind, it’s an opportunity to discuss planning for the future while everyone is gathered together in the spirit of family and gratitude. If you approach the topic with honesty, care, and thoughtfulness, it could help you get the ball rolling on making important decisions for your estate plan that will have a positive impact on your family for years to come.
By Associate Attorney Danielle Nodar
When creating an estate plan, people oftentimes consider their legacy and what they may be leaving behind for future generations. For many individuals, this legacy extends beyond their loved ones and includes considering donations to a charity they have given time or money to during their lifetime, a school or organization that has had a meaningful impact on their life, or a cause that they are passionate in supporting.
There are many methods of including a charity in one’s estate plan. One is naming a charity as a beneficiary in your will or trust. Just like any other asset that is left to an individual beneficiary, the terms of your will or trust designate how and when your assets are distributed for charitable purposes and your executor or trustee will be responsible for carrying out the distribution. When considering what to give to a charitable organization (often referred to as Section 501(c)(3) tax exempt organizations), it is important to remember that your gift can go beyond cash in a bank account, but can include assets like a stock portfolio, artwork, a car, or real estate.
When deciding how to contribute to a charity, an estate plan may also provide you with more options in determining how the donation is used. For example, if your donation is to a charity that fights a certain disease, your estate plan can specify that you want your donation to be used for research. You can also leave the donation to the charity directly and they make the overall decision as to how the funds are allocated.
In addition to the benefits to the charity, there may also be financial benefits to your estate and loved ones by including charitable giving in your estate plan. Gifts, during life or at death, to Section 501(c)(3) charities do not count towards the total taxable value of your estate. Thus, naming a charity as a beneficiary will reduce the value of your estate at the time of death, which can lower or eliminate the amount of estate taxes owed by your estate.
Depending on the size of the donation you are planning to make, you may also be able to create a donor advised fund (DAF), which allows you to make irrevocable charitable gifts to Section 501(c)(3) charities while taking advantage of tax benefits during your lifetime. With a DAF, most donors are immediately eligible for a tax deduction upon making the initial donation, donor contributions to the DAF are tax-deductible, and investment growth in the DAF is tax-free. You can also donate long-term appreciated securities without paying capital gains tax.
Another way to include charitable giving in your estate plan is through updating beneficiary designations of life insurance policies, annuities, IRAs, or other retirement plans. You can name a charity as a primary or contingent beneficiary and gift them all or a portion of the funds. While this option may be as simple as updating a beneficiary designation, whether or not is the best choice for charitable giving depends on a variety of factors, including what other assets an individual may have at the time of their death and the value of the asset being distributed through a beneficiary designation. For example, using charitable giving through retirement accounts may be a wise choice for some individuals as retirement accounts are some of the highest taxed assets in any estate. By gifting your retirement account, your estate tax burden is reduced because your estate will receive a federal estate tax charitable deduction on the value that is held in the account. Furthermore, the charity does not have to pay income taxes on this gift.
When considering your priorities in your estate planning, dedicating a portion of your assets to charitable giving is one of the ways to support causes that are important to you, even after death. Contact Jesson & Rains for assistance with considering your options for charitable giving in your estate plan.
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!
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