By Associate Attorney Danielle Nodar
As estate planning attorneys, we counsel people on how to ensure that their loved ones are taken care of at their death. Oftentimes, life insurance is a tool we recommend for a variety of different reasons depending on the client’s assets, debts, and overall estate planning goals.
One reason that we recommend life insurance is that the proceeds pass outside of probate, which means that the beneficiary of the policy will receive the payout without an estate needing to be filed with the probate court. This is beneficial since probate takes about six months to a year before the inheritance can be distributed to heirs. With life insurance, the beneficiary will get the payout much more quickly which will help alleviate some of the financial burdens that your loved ones may be faced with such as funeral expenses, medical bills, or mortgage payments.
Since life insurance passes outside of probate, it is not considered a probate asset and is not subject to the court’s rules for such assets. Probate assets must be used to pay the deceased person’s debts. Anything remaining after all debts are paid can be distributed to an heir. For more information about what is a probate asset, please see this blog post. If you only have probate assets to pass to loved ones, they may not inherit anything depending on your debts at death. Since life insurance made payable to a named beneficiary is not considered as a probate asset, your beneficiary may not be required to use those funds to pay off your debts at your death. This provides some assurance if you are worried that you may not have enough assets to provide your loved ones with financial security at your death.
In the case of a surviving spouse, life insurance can be used to ensure that they will be able to pay your joint and some separate debts at death without having to deplete other assets. North Carolina holds the surviving spouse liable for medical and funeral expenses incurred by the deceased spouse, regardless of whether there are sufficient probate assets to cover them. By having life insurance, you can make sure your spouse will be taken care of and able to pay those debts at your death.
Life insurance can also be a valuable estate planning tool for clients who own businesses, as life insurance can be purchased to allow a business to continue after the death of an owner. For example, life insurance can be used to fund a buy-sell agreement between business partners. A buy-sell agreement sets the terms and prices that a surviving partner must honor in order to buy the shares of the business partner who leaves the business or passes away. If one partner dies, the surviving partner will receive the death benefit and can use those funds to pay the deceased partner’s heirs for the deceased partner’s ownership interest in the company. This allows the surviving partner to keep the business while compensating the deceased partner’s family.
These are just some of the benefits and potential uses for life insurance as part of your estate plan. At Jesson & Rains, we understand that a comprehensive estate plan involves both estate planning documents and products like life insurance to make sure that your loved ones are adequately protected and provided for at your death. If you have questions about estate planning, please call Jesson & Rains!
By Associate Attorney Katy Currie
August is National Make-A-Will Month! While it may not be as fun as celebrating one of August’s other “holidays,” like National S’mores Day (August 10) or National Dog Day (August 26), it is a reminder of the importance of having a will in place to ensure that your loved ones are provided for at your passing.
Some of the most important components of a will are:
1) Naming Beneficiaries to Inherit Your Assets:
A will allows you to specifically provide for the persons or charities of your choosing at your passing. If you pass away without a will in North Carolina, the North Carolina Intestacy Statutes will determine where your assets will go based on your next-of-kin. For any property that was owned joint with rights of survivorship, which is frequently the case with many assets owned by spouses, the asset will pass automatically to the surviving party. As will assets that have a designated beneficiary via a beneficiary designation.
However, this is not the case for any assets that are just in your name when you pass away, even if you are survived by your spouse. Under the North Carolina Intestacy Statutes, most people are surprised to learn that your spouse does not automatically inherit everything. Sometimes parents or half-siblings inherit. Thus, without a will, you may be inadvertently leaving your assets to people who do not need them, or you may be leaving assets to minor children instead of your spouse, who may need the funds to care for your children. A will also allows you to leave assets to more distant relatives, friends, or charities that would be ineligible to inherit through intestacy.
2) Naming an Executor. Your will allows you to name an Executor to manage your assets and distribute them to your beneficiaries at the time of your death. Without a will, you will not have any control over naming the person to manage your affairs at your death and a family member or friend will have to volunteer and seek the court’s approval before being allowed to serve. If someone has a higher degree of kinship than the prospective Executor, they must sign a waiver of their right to serve as Executor (i.e., creating more paperwork for your loved ones). If the person will not waive their right to serve, this may result in a person who is not as well-suited for the job serving as an Executor just because they have a higher degree of kinship than the prospective Executor.
3) Waiving the Executor’s Bond. In North Carolina, an Executor has to pay a bond based on the value of the assets unless (1) it is waived in a will or (2) all heirs sign a waiver to waive the requirement (again, more paperwork for your loved ones). If there are minors or incompetent heirs, they cannot consent, and the bond will be required. Any Executor who is not a North Carolina resident must pay a bond, regardless of the waiver. By planning with a will, you can waive the requirement altogether and make sure your desired Executor is capable of serving.
4) Name a Guardian and Trustee for Minor Children. In North Carolina, the only way to name a guardian for your children if both parents pass away is to name the guardian in a will. Without a will, multiple family members may seek to be appointed a child’s guardian, which may result in fighting or someone serving that you would not have chosen yourself for that role. You can also create a testamentary trust in your will, which allows you to have more control over the age when your children inherit. With this trust, your named Trustee will manage and distribute assets for your children’s benefit until they reach the age where you designate that they can manage the funds on their own. Without a will, any person eighteen years or older can inherit any type of asset without the benefit of a Trustee’s oversight.
If you do not have a will, or your existing will does not accurately reflect your current wishes, use Make-A-Will Month to get a plan in place so that your loved ones are not left with questions or complications if you pass away. Please call Jesson & Rains if you would like to discuss how a will can be tailored to your specific needs and wishes!
By Associate Attorney Danielle Nodar
If you live in North Carolina and are married, one of the benefits available to you is a type of property ownership known as Tenancy by the Entirety (TBE). TBE is a type of real estate ownership where the marital unit, not the individual spouses, own the property. This means that one party to the marriage cannot sell or borrow against the property without the consent of the other party.
The main benefit of TBE ownership is asset protection, as the creditors of one spouse cannot attach a lien or judgment against the TBE property. For example, if a spouse has a $10,000 judgment against him or her, the creditor will be unable to attach a judgment lien against the TBE property. This is a great way for protecting real estate from a creditor, particularly if one spouse is involved in a business or occupation where there may be a higher risk of being sued. The only exception is that federal tax liens against one spouse will attach to that spouse’s interest in the TBE property.
TBE ownership can also be an important estate planning tool as it includes survivorship rights. If one spouse passes away, the title of the TBE property automatically passes to the surviving spouse without going through probate. Also, as ownership of the property is automatic for the surviving spouse, one spouse cannot convey TBE property in their individual will or trust to a non-spouse.
It is important to remember that a couple must be married at the time they acquire the real estate to get TBE protection. For example, if a couple owns a house together before marriage and then gets married, the property will not automatically become TBE property. As strange as this sounds, to gain the benefits of TBE ownership, the couple would need to sign a new deed transferring the property from themselves individually to themselves as a now-married couple.
As TBE provides that the marital unit owns the property, it can be terminated under certain circumstances that impact the marriage, such as divorce or death of a spouse. If a divorced spouse or the surviving spouse has a judgment against them, it will then attach to their interest in the property.
If you have any questions about how TBE can be used in estate planning or asset protection, please call Jesson & Rains!
By Associate Attorney Danielle Nodar
While preparing a child to start college in the fall, one important consideration is creating legal powers of attorney allowing you to make healthcare, financial, or legal decisions for your child in the event of an emergency. Once a child turns eighteen, the child is considered an adult by law, which means that parents are no longer given access to their child’s financial, health, and educational records without the adult child’s consent. In an emergency, a child may not be able to give consent, and having power of attorney documents in place in advance will grant the parent access to their child’s information without having to resort to court intervention.
A Healthcare Power of Attorney allows a person to name an agent to make healthcare decisions on their behalf if the person is unable to communicate their wishes to their medical providers. It also authorizes medical providers to share private health information with a designated agent. Without these authorizations, medical providers are legally prohibited from releasing such information. No parent should be put in the position of being in a different state from their child and being told that their child has been hospitalized, but the hospital is unauthorized to release any other information about the child’s condition or care. A Healthcare Power of Attorney can avoid this situation and allows parents to easily step in and access medical information during an emergency. It also allows your child to include instructions relating to their healthcare, including wishes related to organ donation or wishes relating to religious or cultural practices. The student can keep these documents on file with their university or medical provider so that it can be easily accessed if needed.
A Durable Power of Attorney allows a person to name an agent to make legal, financial, and business decisions on their behalf if the person becomes incapacitated (unable to handle their affairs). It can be used to allow parents to help pay a child’s bills, access the child’s personal bank account or education records, or manage the child’s finances or legal decisions in an emergency. Without a Durable Power of Attorney, you would not be able to manage these decisions during an emergency without first being appointed by a court as the child’s legal guardian.
If a child is going to college outside of North Carolina and does not have these legal documents, the laws of that state will control who may be able to make decisions on behalf of the child if they are incapacitated. For example, in North Carolina, if an adult does not have a health care power of attorney and is unmarried, the majority of the child’s parents can make healthcare decisions if the child is unable to. This means that parents will be joint decision-makers and must agree on all actions taken by doctors. However, other states may be different. There might not be a default decision maker for healthcare decisions in your child’s state. In North Carolina and most states, there is no default decisionmaker for legal and financial decisions, so a parent must seek to be appointed the child’s legal guardian by the courts. This process is more costly, stressful, and time-consuming than having documents in place before the need for them arises. If your child resides in North Carolina but is going to school out of state, these powers of attorney will allow you to act on behalf of your child in an emergency regardless of the other’s state’s rules on default decisionmakers as North Carolina documents will be valid in another state.
Parents should know that the adult child must be the one to hire the attorney, and they are free to name anyone they want to serve in these roles. For an adult child who may be reluctant to give their parents decision-making power, they can be assured that these documents only go into effect after doctors certify that they cannot make their own decisions. During normal circumstances, the young adult still maintains their privacy and autonomy over their healthcare and financial decisions; these documents only apply in an emergency. Finally, now that your child is entering adulthood, it may be a good time for you to review your estate plan to make sure that it still meets all of your goals. Please call Jesson & Rains if you have questions about these documents or want to learn more about protecting you and your child’s interests through estate planning.
By Associate Attorney Katy Currie
Estate planning can be a daunting process. Whether it is 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 has led to these four common estate planning myths:
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 allows you to name people who may serve important roles when you pass away. For example, a will allows you to name an executor to manage your assets and distribute them to the beneficiaries stated in your will at the time of your death. Without a will, you will not have any control over naming the person to manage your affairs at your death. Additionally, in North Carolina, the only way to name a guardian for minor children (if both parents pass away while the children are still minors) is 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.
Moreover, estate planning involves planning for incapacity through both durable and health care powers of attorney. 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. A bonus myth: If you become incapacitated, your spouse can automatically do these things for you. Unfortunately, this is not true. Without a durable power of attorney, your spouse would have to become your court appointed guardian.
With a health care power of attorney, you can name an agent to make medical decisions for you if you become incapacitated. Your health care power of attorney allows you to include specific instructions for your health care agent regarding your health care wishes. There is also an 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. Your executor 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, 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.
There is no law in North Carolina that states that your surviving spouse gets 100% of your assets. The surviving spouse will remain owner of all joint property or accounts with right of survivorship. The surviving spouse gets any assets where they’ve been named as a beneficiary, like life insurance, for example. Also, every surviving spouse is entitled to a year’s allowance of $60,000 of the decedent’s cash or personal property. Thus, this oftentimes results in the surviving spouse getting everything, but not every time.
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 there are more children, the percentage to the surviving spouse drops to 1/3. 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.
If any of this concerns you, it is important to use an attorney to draft the estate plan specific for your situation. For further assistance with your estate planning needs, give Jesson & Rains a call!
By Associate Attorney Danielle Nodar
By creating a will or trust, a testator or settlor may make gifts to beneficiaries that are distributed at death. Often, the gift-giver will attach strings to these gifts in the form of certain conditions that the beneficiary must meet in order to receive the gift. Many conditions have been upheld by courts, but if a condition is considered too restrictive over certain aspects of a beneficiary’s life, the condition has been invalidated.
There are two types of conditions: conditions precedent and conditions subsequent. Conditions precedent are conditions that must be met before the gift can be distributed to the beneficiary. Some examples of conditions precedent that have been upheld include gifts that are conditioned on a beneficiary finishing college or reaching a certain age before receiving the gift. Conditions subsequent, which are conditions that must be met after the gift is distributed, are often more difficult to uphold if the assets have already been transferred to the beneficiary and too much time has passed. For example, if a beneficiary receives a gift of land with the condition that it is never used for commercial purposes, it may be difficult to enforce fifty years after the gift is received; thus, this condition is more likely to be invalidated.
Courts try to honor a testator’s or settlor’s wishes as much as possible, but a condition that encourages a beneficiary to break the law or is against public policy will be invalidated, and the gift will pass to that person as if the condition did not exist. Traditionally, gifts that have been invalidated due to public policy grounds are gifts that encourage harmful or discriminatory acts or hurt society in general.
One common condition that is often challenged are conditions related to marriage, particularly conditions that a beneficiary receive a gift only if he or she marries someone of a certain faith. Depending on how the condition is written, these requirements have been upheld by courts, but the court decisions are very specific to the facts of each case and the phrasing of each gift. If a condition is too restrictive on the beneficiary’s right to marry anyone or if it encourages the divorce of a beneficiary, it is likely to be a violation of public policy.
Whenever a condition is placed on a gift made in a will or trust, the condition must be clearly written, because if a beneficiary does not inherit due to failing to meet the condition, they may file a lawsuit to challenge the validity of a gift. A lawsuit will cause an unnecessary delay in other assets being distributed to beneficiaries, and the expense of a lawsuit will be paid out of your estate or trust. Also, when considering how to make a gift, certain conditions are easier to administer in a trust versus a will, as gifts in a will are usually distributed shortly after the decedent’s death and are subject to court scrutiny. When considering where and how to leave your assets, particularly if you want to exert some control over how the beneficiary receives the gift, it is important to consult with an experienced estate planning attorney. Please call Jesson & Rains if you are interested in more information on making gifts in your will or trust.
While You Build, We Protect®
Subscribe to our newsletter.