- By Jesson & Rains Associate Attorney, Danielle Nodar

The beginning of a new year lends itself to reflecting on the year that has passed and setting goals for the future. Come January, we are bombarded with information about New Year’s resolutions and implementing plans to help us transform our resolutions from lofty dreams to our reality.  From health goals relating to diet and fitness, financial goals such as saving for retirement or paying off longstanding debt, even decluttering our homes--there is no shortage of information about what we can do to improve our present and plan for our future.
 
However, one area of planning that many people seem to put off is creating an estate plan. Estate planning involves meeting with an attorney to discuss things like your assets and debts and how they could impact your estate plan; how you want your property distributed at your passing; who will administer the probate of your estate; who will handle your financial affairs and medical decisions if your become incapacitated and are no longer able to make those decisions on your own; and other important decisions that could make a lasting impact on your loved ones.
 
Even if you have an estate plan in place, you should meet with your estate planning attorney every three to five years to review any life changes or changes in the law.  Some reasons to update an estate plan are:
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• Births – When you have children, you should update your will and/or trust to 1) appoint a guardian for minor children in the event that you pass away before they reach the age of 18, and 2) provide a plan for your children to inherit your assets. Otherwise, under the law, children can inherit all assets once they reach the age of 18. It is also important to make sure you that are not inadvertently leaving out a new child or grandchild from your estate plan.
• Deaths – You may need to replace any deceased beneficiaries, executors, trustees, powers of attorney, and guardians. This not only applies to all your estate planning documents, but also includes documents where you name a beneficiary, such as retirement accounts or life insurance policies.  If a contingent beneficiary is not named for those products, the money will go into your estate, making it available to creditors.
• New disability or illness – If a beneficiary of your estate plan becomes disabled or ill, special planning can be implemented into your estate plan to ensure that these people are cared for and still retain benefits.  
• Marriage – If you are married, you may have to update your estate plan to include your new spouse. It is a common estate planning myth that when a spouse dies without a will, the other spouse will inherit everything.  Instead, a portion of the estate may go to the deceased’s children or the deceased’s parents instead of the spouse.  We also assist in retitling property in an effort to avoid probate.
• Divorce – If you become divorced, make sure your ex-spouse and his/her family is not inheriting or playing any other role in your estate plan. This also includes reviewing your beneficiary designations, such as retirement accounts or life insurance policies.
• Moving to a new state – If you have moved to a new state, does the new state have beneficial laws to incorporate?
• Buying real property in a second state – You may want to upgrade to a trust to avoid multiple probates in multiple states.
• Changes in assets or debts –For example, if your assets have dramatically increased, you may need to see if estate taxes are now an issue. If your debts have increased, you may need to come up with a different plan to shield your assets from creditors.

 
If you have had any major life changes or just want to ensure that your estate plan is in order, make it a goal for 2019 to plan for your future and the future of your loved ones with estate planning. We can help you to ensure that your property is distributed how and to whom you want it to be distributed and to ensure that you are leaving your family unburdened. 

Retirement accounts can be one of the largest assets that someone passes on to a loved one.  However, these assets are treated differently if they are tax-deferred.  If you leave a standard 401K to a beneficiary, they will pay income tax when they withdraw the money.
 
A surviving spouse will be required to take Required Minimum Distributions (RMDs) once they turn 70.5 years old.  For non-spouse heirs, the beneficiary will have to take RMDs every year if the original account owner passes away after reaching age 70.5.  But if the original account owner was under the age of 70.5 when they died, the RMDs will be based on the beneficiary's age instead.  This is called a “stretch out” because the RMDs are stretched out over the beneficiary’s life, based on the beneficiary’s life expectancy as dictated by the IRS. 
 
Not all plan administrators will allow a beneficiary to stretch out the payments.  It may be worthwhile for the beneficiary to rollover the inherited 401K to their own IRA because, if you do not stretch out RMDs, the RMDs might be taxed at a higher income tax bracket!  
 
Additionally, because 401Ks are distributed according to life expectancies, sometimes they are not the best asset to pass along to multiple beneficiaries through a trust.  The IRS will force RMDs based on the life expectancy of the oldest beneficiary. 
 
Finally, deferred tax assets should not be left in a supplemental needs trust for the benefit of a disabled beneficiary.   If the trustee accumulates the RMDs instead of distributing them to the beneficiary (which oftentimes is necessary to keep the beneficiary qualified for government benefits), the IRS will tax the RMDs at the trust income tax rate, which can be as high as 37%! 
 
As you can see, estate planning is so much more than simply drafting a will.  Please contact Jesson & Rains if you would like to consult with a professional.

ILIT stands for Irrevocable Life Insurance Trust.  It is a method of decreasing the size of a person’s taxable estate. For tax year 2018, an estate over $11.2 million is taxable (in North Carolina, which only has to deal with federal tax). Most people do not realize that life insurance proceeds are included in the calculation of a decedent’s taxable estate by the IRS.  An exception to this rule are proceeds from a life insurance policy that the decedent/insured had no rights or powers over (called incidents of ownership). Therefore, ILITs are used to own the life insurance policy instead of the decedent so that the policy proceeds are not includable in the taxable estate.
 
Unlike revocable living trusts, where the grantor/insured is also the trustee during his or her lifetime, for an ILIT to work, the grantor/insured cannot be the trustee (because that would be an incident of ownership).  “Incidents of ownership” also include the power to change the beneficiary, change the proceeds, cancel the policy, assign the policy, change the terms of the policy, or use it as collateral.  Therefore, one of the major downsides of utilizing an ILIT is that once the policy is owned by the ILIT, the insured no longer has any control over it.
 
The premiums are paid by the ILIT using contributions made by the Grantor.  This is another benefit of an ILIT – the Grantor can contribute an amount equal to the $15,000 yearly gift tax exclusion to the trust per beneficiary (which is not countable towards the $11.2 exclusion amount).  The beneficiaries must have a right to withdraw the gift within a reasonable amount of time (called a Crummey power).
 
It is better to have the ILIT purchase the life insurance instead of transferring the policy to the ILIT because there is a three-year lookback period (meaning, if the owner dies during that three-year period, the policy proceeds are includable in the owner’s estate).
 
If you or someone you know would like more information about ILITs, please give Jesson & Rains a call.

In North Carolina, generally, the answer to this question depends on (1) what type of business you own; (2) whether you have bylaws or an operating agreement; (3) whether you have a will; and (4) if you have an insolvent estate.
 
No matter what type of business, your interest in the business is an asset.  Unless there’s a contract stating otherwise, it is an inheritable asset, meaning if you have a will, you can name who the interest passes down to, or if you do not have a will, the interest will pass to your heirs (spouse, children, etc.).  If you want to pass your business interest to your son, who will run the family business, instead of it passing naturally to your spouse, you need to have a will drafted. 
 
When the individual and the business entity are interwoven, like a sole proprietorship or a partnership, it is important to note that business debts are oftentimes personal and can cause your estate to be insolvent (leaving nothing for your family).  This is an important reason to form a business entity separate from the individual.  If your business is not healthy, it may cease to operate at your death and wipe out your estate.
 
If you have a contract with other members of the business, you can state what happens to your interest when you pass. This is one of the reasons why we urge people who are going into business with non-relatives to enter into operating agreements – do you really want to be working with your business owner’s spouse after the pass away?  More importantly, what happens if the spouse has no interest in running the business?  What if she wants to sell or have you buy her out?  What if you cannot afford to do so?  In addition to recommending our clients enter into operating agreements, we recommend that they incorporate buy/sell language into these agreements.  Financial professionals can find inexpensive ways to fund these agreements so that a partner can afford to buy another out.
 
If you own stock in a corporation, that stock will be passed to your beneficiary or heirs just like any other property.  While this is not a big deal if you own stock in AT&T, for example, it is a big deal if you own 90% of the shares of a small, family owned business.  Again, maybe your business partner does not want to own the corporation with your spouse.
 
If it is your wishes to continue your business when you pass, and your family is onboard, it may be a good idea to put your business interest in the name of a revocable trust.  This way, your business interest stays out of your estate when you pass away and the trustee can manage your business interests better than the executor can.  Many attorneys will recommend to executors to liquidate business assets because there is too much potential for liability on the executor’s part if he/she attempts to continue to operate the business.
 
We recommend that all individuals get an estate plan in place.  However, as you can see, there is more planning to be considered when that individual is a business owner.  Feel free to contact Jesson & Rains if you have questions about your business or estate plan.