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.
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!
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.
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