By Associate Attorney Katy Currie
Recently, the news has been filled with the fight over Lisa Marie Presley’s trust after her sudden and unexpected death in January 2023. The issue is who should serve as trustee, and the reason why this is not clear is because, in 2016, Lisa Marie Presley amended her trust. This amendment removed her mother, Priscilla Presley, and Barry Siegel, the Presley family's business manager, as co-trustees and named her children, Riley and Benjamin Keough, as co-trustees instead. Benjamin passed in 2020, leaving Riley as the sole trustee. Priscilla Presley argues that the 2016 amendment is invalid because she never received a copy of the amendment.
In North Carolina, the creator of a revocable trust may revoke or amend the trust so long as they follow the procedure as it is stated in the trust document itself. If the trust states, for example, that the revocation document must be notarized, then it must be notarized. Under North Carolina law, if the method for amending the revocable trust is not stated within the trust document itself, the creator of the trust must amend their trust (1) with a later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust or (2) by any other written document delivered to the trustee, manifesting clear and convincing evidence of their intent to amend or revoke the trust.
So, in Lisa Marie Presley’s case, if she had lived in North Carolina, her mother would have a legitimate argument that the amendment was invalid if Priscilla Pressley was serving as the trustee in 2016.
Other estate planning documents must be amended or revoked carefully. Similar to a trust, if an agent is currently serving under a power of attorney and the principal amends or revokes it, the principal must serve the agent with a copy of the revocation. If a power of attorney document is recorded at the county Register of Deeds, a revocation of that document must also be recorded to put the world on notice that it is no longer valid.
Wills and health care documents are automatically revoked when a new document is executed; however, it is best practice to let anyone and everyone who has a copy of the document know and ask them to destroy it. Even though a later executed will revokes a prior will, if the prior will is filed or probated at the courthouse mistakenly after someone passes away, it is a lot of work for the executor to undo.
The death of a family member can, unfortunately, bring out the ugly side of some people. To ensure that your wishes are followed, you must carefully comply with the law when it comes to amending or revoking your documents. If you have additional questions or are in need of assistance, reach out to Jesson & Rains!
‘Tis The Season For Charitable Giving
By Associate Attorney Danielle Nodar
The holiday season always comes with numerous reminders about giving the perfect gift to express love and gratitude to our loved ones. This season of giving also inspires increased donations to charitable organizations. However, many people are not aware that they can use their estate plan as a tool for charitable giving and how these gifts can have benefits that extend beyond the charity, such as minimizing taxes during one’s lifetime or after death.
For lifetime gifts, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 provides several provisions to help individuals who give to Section 501(c)(3) tax exempt charitable organizations through the end of 2021. One change impacts the majority of taxpayers: those who elect the standard deduction. Ordinarily, these individuals cannot claim a deduction for contributions to a charitable organization, but the law now allows these individuals, including married individuals filing separate returns, to claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. For married couples filing jointly, this amount increases to $600. There are certain cash contributions that may not qualify, including gifts to private foundations or donations carried over from previous years, so it is important to work with your tax preparer to ensure that this gift qualifies.
There are also many methods of including a charity in one’s estate plan. A charity can be a named beneficiary in a will or trust, with the terms of the will or trust designating the asset being distributed and the charitable purpose of the gift. Your named Trustee or Executor will be responsible for making the distribution to the charity. When considering what to give to a charitable organization, it is important to remember that your gift can go beyond cash, but can include assets like a stock portfolio, artwork, a car, or even real estate.
Another way to include charitable giving in your estate plan is by naming a charity as a beneficiary of life insurance policies, annuities, IRAs, or other retirement plans. Depending on the other assets you have at death and their value, these gifts may have tax benefits to your loved ones or estate. For example, naming a charity as the beneficiary of a retirement accounts may be a wise choice for some individuals as retirement accounts are some of the highest taxed assets in any estate. By gifting your retirement account, your estate tax burden is reduced because your estate will receive a federal estate tax charitable deduction on the value that is held in the account. Furthermore, the charity does not have to pay income taxes on this gift.
Finally, when making a charitable gift through an estate plan, there may be benefits to your estate and loved ones. Gifts, during life or at death, to Section 501(c)(3) charities do not count towards the total taxable value of your estate. Thus, naming a charity as a beneficiary will reduce the value of your estate at the time of death, which can lower or eliminate the amount of estate taxes owed by your estate.
During this season of giving, we recommend that you not only think of the legacy you can leave your loved ones, but also the gift that can be made to a charitable cause during your lifetime or after your death. Contact Jesson & Rains for assistance with considering your options for charitable giving in your estate plan.
Estate Planning for New Parents
By Associate Attorney Danielle Nodar
There are plenty of things new parents need to tackle on their to-do list to provide the best environment and future for their child. However, one big thing that often gets overlooked is planning for the unexpected with estate planning. Some of the factors new parents should keep in mind when considering estate planning are:
1) Naming a Guardian for Minors
One of the most important considerations a parent can make is naming a legal guardian for their minor children. A guardian is the person who will assume responsibility for all aspects of your child’s care if they are under eighteen when you pass away. This person will make all medical decisions, educational decisions, and step into the role of the parent in the eyes of the law.
In North Carolina, the only way a parent can designate a guardian is through their Last Will and Testament. A guardian named in a will is usually appointed by a court unless the person is unfit or incapable. Without a named guardian in a will, a court chooses the guardian based on its determination of what is in the best interest of your child. This may result in loved ones arguing over your children or the guardian being someone you would not have chosen.
2) Managing Inheritance for Minors with Trusts
If you leave assets outright to a minor child, those assets 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 until the child turns eighteen or twenty-one and inherits the remaining assets outright. Even when a child reaches the age of majority, many parents worry about a child’s ability to manage finances on their own, especially if it is a large amount of money being inherited. To have more control over your child’s inheritance, many parents set up a trust for the benefit of their children. Parents can create a trust with either 1) a revocable living trust, which is a separate trust agreement that is funded by the parent with their assets during their lifetime or 2) a testamentary trust, which is created in a will and only goes into effect at the death of the parent.
Both types of trusts allow the parents to name a Trustee to manage any inherited assets for children until the child inherits outright at a later age, such as twenty-five, for example. The Trustee will manage the assets and make distributions of the funds for your children’s health, education, maintenance, and support according to the terms of the trust. You can determine how much discretion you give the Trustee is managing the trust, and you can also provide them with clear guidelines of what are permissible expenses.
3) Updating Beneficiaries on Financial Accounts
If you have accounts that allow you to name a beneficiary, such as life insurance, retirement, or investment accounts, those funds will automatically go to the named beneficiary, even if your will names different beneficiaries. If you are creating or updating your will to include children, it is important to review your beneficiary designations to make sure that those assets will go where you want them to and that your plan works with both your will and beneficiary designations.
4) Updating Your Living Documents
Another key part of estate planning is naming who would make legal or medical decisions for you in an emergency where you cannot make those decisions for yourself. By naming agents under a healthcare power of attorney and durable power of attorney, you can ensure that if you become incapacitated, someone you trust can access your funds to care for you and your child and make medical decisions for you until you recover.
5) Considering Life Insurance
Many new parents consider life insurance to ensure funds are available for your children’s needs if they pass away while their children are still young. There are many factors to consider when looking into life insurance but finding a trusted insurance professional to assess your family’s specific needs is the first step in the process. Finally, if you do create a trust for your child, you can name the trust as a beneficiary of the life insurance policy, which would allow those funds to be used by the Trustee for your child’s benefit according to the trust’s terms.
If you have questions about how to create or update your estate plan to best protect your family, please call Jesson & Rains!
Asset Protection in North Carolina - What can you do to protect your assets from your creditors?
By Attorney Kelly Jesson
Creditors come in all shapes and sizes: ex-spouses, bankruptcy, personal and business debts, and claims involving real estate or professional malpractice. People in high risk professions or who deal with circumstances that are prone to litigation sometimes want to take steps to protect assets. However, this must be done before a dispute arises, because moving assets around afterwards can sometimes be deemed a fraudulent conveyance and voided by a court.
Unfortunately, there is no “magic wand,” and protecting assets oftentimes involves investing your earnings into protected accounts, such as life insurance and retirement. An individual’s retirement account is exempted from their own creditors (but not from a beneficiary’s creditors once the assets are inherited, which will be discussed in the next blog dealing with asset protection in estate planning). The cash value of a life insurance policy is also protected from the insured’s creditors, but again, not from a beneficiary’s creditors once the assets are inherited.
Additionally, the state of North Carolina exempts certain amounts of property from creditors:
One of the most important things you can do is title property as “tenants by entireties” (TBE). If a husband and wife purchase property together, by default, it is owned as TBE and is therefore protected from the creditors of just one of them, meaning a lien will not attach. However, if a creditor gets a judgment in both spouses’ names, a lien can attach. Also, if the spouses divorce or one passes away, a lien can attach if the remaining owner is the debtor. Another alternative or high-risk professionals is to have the low-risk spouse own the majority of assets because they will not be responsible for debts unless joint.
Another really important step is for self-employed people to form businesses and formalize businesses to protect assets. If you follow business formalities, business creditors cannot reach your personal assets for business debts. If you own investment properties, you are running a business. In fact, the definition of “operating a business” is pretty loose, and oftentimes people will move high-value assets over to LLCs for asset protection purposes. Again, you must follow business formalities (set up a tax identification number, maintain a separate bank account, have an operating agreement).
If you own a business but you have personal creditors, those cannot reach assets titled in the name of your business. They are limited to collecting only the distributions you receive from the business, which you control as the business owner. Distributions do not include your pay made through payroll, which is another reason to run your business like a business.
Finally, we’re often called by people to set up trusts to avoid creditors. General living trusts or revocable trusts are not protected from creditors of the grantor (the person who sets it up), although the funds could be protected from beneficiaries’ creditors after the grantor dies (the subject of our next blog). North Carolina residents have a few not-so-great options: First, they can set up an irrevocable trust for the benefit of others. For example, if you are married, you can create an irrevocable trust that benefits your spouse for his or her lifetime. Presumably, your spouse will take care of you while you’re married, so you will indirectly have access to the money you put into the irrevocable trust, although on paper it will no longer belong to you, so your creditors cannot reach it. This obviously has risks, but it is an option.
Another option is an asset protection trust. In an asset protection trust, the trustee has discretion to distribute money to the grantor as well as other beneficiaries. These trusts are not valid in North Carolina, although they are available in seventeen other states and other countries. However, North Carolina residents can pick the situs (jurisdiction) of their trust and where the trustee is located, meaning, for example, that you can state that Georgia law applies to your trust even though you live in North Carolina. However, lawmakers in North Carolina have questioned whether this practice is valid for asset protection trusts, and, therefore, there are some risks involved. Of course, transferring funds to another country is always risky.
If you are interested in implementing any of the above ideas in order to protect your assets, please give the attorneys at Jesson & Rains a call!
President Trump signed a new law in December that has taken effect this month called the SECURE Act (Setting Every Community Up for Retirement Enhancement Act). It includes a wide array of changes to retirement accounts that both individuals and business owners should know.
For individuals, here are a few highlights:
(i) being unable to perform (without substantial assistance from another individual) at least 2 activities of
daily living for a period of at least 90 days due to a loss of functional capacity,
(ii) having a level of disability similar (as determined under regulations prescribed by the Secretary in
consultation with the Secretary of Health and Human Services) to the level of disability described in
clause (i), or,
(iii) requiring substantial supervision to protect such individual from threats to health and safety due
to severe cognitive impairment.
Business owners should be aware of the following:
A financial adviser would be the best person to contact if you have any questions about how the SECURE Act affects your retirement, and a CPA would be a good person to contact regarding business credits. However, if you want to discuss how eliminating the IRA lifetime stretch might affect your estate plan, give Jesson & Rains a call.
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!
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Kelly Rains Jesson