By Attorney Kelly Jesson
We previously wrote about the importance of keeping good business records in order to avoid personal liability for business debts. However, did you know that certain business records can act as estate planning tools?
Your interest in your business, whether an LLC interest or corporate stock, is personal property that you can leave to a family member when you pass away. Unfortunately, it will go through probate unless you transfer it to a trust or enter into a transfer-upon-death (TOD) or joint with rights of survivorship agreement with your heir. The court collects a fee based on the amount of personal property that goes through probate, so if your business is worth some money, you want to avoid this.
What if you have a business partner? Perhaps you don’t want to do business with his/her spouse or child if your partner passes away? That’s where an operating agreement or a shareholder’s agreement comes in handy—in either of these agreements, the owners can agree that if one of them passes away, the other will buy out their interest. This is helpful for the survivor, who will remain in control of the company, and this is helpful for the deceased owner’s family, who will get a sum of money. These agreements (also called buy-sell agreements) are oftentimes funded with life insurance, to ensure that there is liquid cash available to pay the family.
In either of these agreements, the owners can promise the other not to transfer their business interest to third parties while they’re alive, which is also helpful for control purposes. The parties can agree to buy the other out when other “triggering events” happen, such as a partner’s bankruptcy or divorce. You don’t want one of these events to cause the forced sale of all or part of the business. It is important to put a plan in place to prepare for the unexpected (that frequently happen).
If you or someone you know needs assistance putting an operating agreement or shareholder agreement in place, or incorporating their business into their estate plan, please give Jesson & Rains a call! We offer flat fee packages for these formation documents. We also offer flat fee annual plans that include preparing annual meeting notices and minutes, filing annual reports with the Secretary of State’s office, and other legal services. More information can be found here.
By Associate Attorney Danielle Nodar
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 Attorney Kelly Jesson
With estate planning, like many other things, cheaper is normally not better. With online, fill-in-the blank options, the question assumes you understand it and know the answer. If you do not, you could be filling it in incorrectly. One top DIY legal document company used to have a note on its website that said “80% of people do not complete online forms correctly” (trying to get people to upgrade to a “live attorney” package). Specific words have meanings, and if you do not understand the law in your state, there can be some unintended consequences when doing it yourself. For example, you could unintentionally disinherit a child. You could accidentally leave money to someone you didn’t know was included in a class of people.
Most do-it-yourself forms leave out provisions that makes things easier and less expensive to manage, like extra powers in the Durable Power of Attorney that can help your loved ones if you are incapacitated or including the power to sell real estate in a will (saving your estate thousands of dollars). You may also accidentally leave assets in the wrong hands, such as having minors inheriting property, resulting in costly court proceedings to fix. Many companies rely on documents and laws that are not always up to date or they may not be state-specific (although advertised to be), and the remedies may be expensive and require an attorney or court proceeding to fix.
Additionally, estate planning attorneys are not just document drafters. There’s a reason why it is called “estate planning” and not “will drafting.” We counsel our clients as to their choice of guardian and executors, leaving money to kids, helping ensure that ex-spouses don’t inherit, etc. We help our clients plan for death or incapacity utilizing real estate deeds, beneficiary designations on retirement and life insurance policies, and business agreements. Did you know that your will could leave everything to one person, but if you have someone else named as a beneficiary on a policy, that trumps your will? Some surviving spouses are sad to learn that they do not inherit real estate outright due to the owners on the title. We update titles for our clients if they want to, in advance. If you wait until someone has passed, it is too late.
If something goes wrong with an online legal document, you are SOL (so out of luck). Just look at LegalZoom’s terms of service: “. . . LegalZoom cannot guarantee that all of the information on the Site or Applications is completely current. The law is different from jurisdiction to jurisdiction, and may be subject to interpretation by different courts. The law is a personal matter, and no general information or legal tool like the kind LegalZoom provides can fit every circumstance. Furthermore, the legal information contained on the Site and Applications is not legal advice and is not guaranteed to be correct, complete or up-to-date. Therefore, if you need legal advice for your specific problem, or if your specific problem is too complex to be addressed by our tools, you should consult a licensed attorney in your area.” If an attorney does something wrong that results in damages, you or your family can sue them for malpractice.
Using online forms gives the drafter / purchaser a false sense of security. While they may have saved a few thousand dollars, the true price may be far greater and paid by undeserving family members. Investing in estate planning is investing in your family’s future, and who can put a price on that? If you’re ready to get your estate plan in order, give Jesson & Rains a call.
By Attorney Kelly Jesson
I am not an insurance salesperson. However, I often give my estate planning clients one common piece of advice – get life insurance if you can. This is typically easier for my younger clients, but for my older clients, the importance of having life insurance is greater.
Here’s the reason for my advice: First, life insurance passes outside of the probate estate, beyond the reach of any estate creditors (for a refresher on what is included in your “probate estate,” see this blog post). This means that your loved one will receive a check without an estate being opened or finalized and it will belong to them outright. Often, my probate clients who have lost loved ones have already received their life insurance check before they ever even come into my office to see me to probate a will or settle an estate.
This can result in a tremendous burden being lifted. While your loved one is still obviously grieving the loss, your loved one does not have to be concerned with paying funeral expenses, medical bills, or even a mortgage payment, for example. This is especially true if you do not have joint bank accounts. If an estate has to be opened and settled for your loved one to receive their inheritance, they will not get that money for at least six months (and sometimes even one year). Also, spouses are required by law to pay the funeral expenses and medical expenses of the deceased spouse. These bills can sometimes wipe out savings. Additionally, if you pass away with debt, some savings accounts and other assets are included in your probate estate. Your loved one may not inherit anything if your estate assets are needed to pay your final debts.
Many people opt to forego life insurance in exchange for passing on retirement accounts like 401Ks and IRAs. While this is certainly an option, your loved one may not have near instant access to pay your final expenses. Depending on whether your surviving spouse is your heir or your children (or someone else), there may be restrictions on the use of the funds. Importantly, life insurance is passed on tax free while your beneficiary will be responsible for paying taxes on withdraws taken from retirement accounts.
Furthermore, if you are a business owner, and especially if you are in business with a spouse, life insurance can ensure the survival of your business.
Finally, I have started recommending life insurance policies that contain long-term care riders. If there is ever a need for you to enter a long-term care facility, you can use those funds for that. I have a couple of clients who are in moderate-to-nice assisted living facilities who have told me that they would not be able to live there had they not purchased long-term care insurance years ago. People are living longer, and medical care is getting more expensive.
While some people use these products to ensure they pass along an inheritance to their loved ones, these products also alleviate stress and potential burden on your family members (whether that means at death or in the event you can no longer care for yourself). Do not hesitate to contact me if you would like to be referred to an insurance professional to find out more information. I am not being paid to promote life insurance, but I feel strongly about these products, and I believe that it is an important part of the estate planning process.
By Associate Attorney Danielle Nodar
Many people associate “trust fund babies” with millions of dollars, royal babies, and celebrity kids, but with proper estate planning, anyone can leave their children a trust fund to provide for them once both parents are gone. The goal is to make sure your children’s basic needs are met, not to spoil them. By using either a revocable living trust or testamentary trust, parents can create a plan for how money will be used for their children’s care if both parents pass while a child is still too young to manage money on their own.
A trust is an agreement where the settlors, the creators of the trust, entrust money and other assets to a trustee for the trustee to hold, manage, and ultimately distribute to named beneficiaries upon the happening of some event. Without utilizing a trust, the law generally allows for any adult, meaning anyone eighteen or older, to inherit money outright, regardless of their maturity level, ability to manage finances, or the amount of money being inherited. Prior to turning eighteen, assets inherited by a child will be kept in a custodial account to be managed by a surviving parent or legal guardian. The adult in charge will manage the money for the child’s benefit and can use the funds for the child’s education, support, health, and maintenance until the child turns eighteen and inherits the remaining assets outright.
A testamentary trust or revocable living trust allows parents to name a trustee to manage any inherited assets for children until the child inherits outright according to the terms of the trust. The Trustee will be managing the estate assets and making distributions of the funds for your children’s care according to the terms of the trust. You can give the trustee a lot of discretion over what the money can be used for. They also will be able to seek professional guidance to assist them with managing funds, as part of their job requires them to make sure that the estate assets continue to accrue income while the trust is in existence. Finally, the Trustee does not have to be the same person as the person who you name as a legal guardian for your children. If you think one person would be better suited as a caregiver and another would be better at managing money, you can have both people serve in different roles and work together in making sure that your children’s needs are met.
You can control the age and conditions in which your children will inherit funds outright. You can break up the distribution into different percentages at different ages so that children are not inheriting everything in one lump sum. For example, you can have a child inherit 25% at age 22, then another 25% at age 25, and the remaining assets at 30. During this time, the Trustee will still be making distributions for a child’s health, education, and support, but the child will get additional distributions of larger sums of money as they are more capable of making financial decisions on their own. A trust also allows you to give the Trustee discretion to distribute additional funds for whatever you’d like, such as travel, weddings, and purchasing a residence. Finally, you can name either trust as a beneficiary of a life insurance policy, which would allow any money that a child was to inherit to instead flow through the trust to be administered according to the trust’s terms. Without this, a child could ultimately inherit the entire proceeds from the policy at eighteen.
As you can see, all parents, and not just those who are royalty, celebrities, or have millions of dollars in assets, can benefit from having a trust for their children’s benefit included in their estate plan, as it allows you to name a trusted adult manage funds for your children if you are no longer living, and it also allows you to implement conditions and instructions for how money will be used and ultimately distributed. If you have questions about the best option for your family, please call Jesson & Rains!
By Associate Attorney Danielle Nodar
After creating your estate plan, you should review your documents after a major life event such as marriage, divorce, births, deaths, or moving to a new state. While most properly drafted estate planning documents are still valid after moving to a new state due to the Full Faith and Credit Clause of the U.S. Constitution, which says that the states must recognize the legislative acts, public records, and judicial states of the other states within the U.S., there may be some state-specific requirements that could impact how the will is interpreted and the difficulty of the overall probate process in the new state.
For example, most states require that the testator, the signer of the will, sign his or her will before witnesses who must also sign the document. The rules between the states vary as to who can serve as a witness and how many witnesses are needed in order for the will be to be valid. Also, some states require that the signatures of the testator and witnesses be notarized. While North Carolina does not require a will to be notarized, having a notary validate the signatures of the testator and witnesses makes the will “self-proving,” which makes the probate process easier because the court can accept the will without contacting the witnesses who signed it first. For people with out-of-state wills, tracking down witnesses could be difficult.
Another important consideration when moving to a new state is whether your chosen executor can or wants to serve in your new state. For example, North Carolina requires that all personal representatives who reside out of state post a bond, with the amount of the bond based on the value of the probate assets. The bond requirement can be waived in a will for any North Carolina resident executors, but it cannot be done for executors residing outside of the state. In order to obtain the bond, the executor will need to locate a surety company, pay a bond premium, and pass a credit check. Additionally, an out-of-state executor must appoint a resident agent residing in North Carolina to accept all legal documents for the estate. This typically results in the executor hiring a probate attorney to serve in this role. The entire bond/resident agent process can be avoided altogether if the executor resides in state and the will expressly waives the bond requirement. For people without friends or family in the state, there is also the option of creating an estate plan that avoids probate altogether through the use of a revocable trust.
Finally, different states have different requirements for witnessing and notarizing durable powers of attorney, healthcare powers of attorney, and living wills. These are documents that third parties would be reviewing and analyzing in the event of an emergency. Even though the documents may be valid under the Full Faith and Credit Clause, you don’t want to risk having your agents have to argue the validity of the document during an emergency. We often recommend that our clients update these documents to conform with North Carolina procedural requirements.
These kinds of small but significant differences in state law that could impact whether your estate plan needs to be revised when moving to a new state. Please call Jesson & Rains if you need to determine that your existing estate plan still works based on your new location and to ensure that it may not be unnecessarily difficult for your loved ones to probate your will in North Carolina.
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