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 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.
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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.

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!