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!
By Associate Attorney Danielle Nodar
Who Inherits My Property?
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 Attorney Edward Jesson
It is often assumed when talking about purchasing a business that your only option is to purchase the business outright. However, there is a different solution which, depending on the circumstances, could have some benefits: purchasing the target business’s assets instead of the whole company.
When you purchase a business outright, be it all of the stock of a corporation or all of the membership interest in an LLC, you are buying everything. That includes all of the business’s assets but also includes all of the business’s liabilities, some of which could be unknown at the time of the purchase. In any business purchase agreement, there should be a “due diligence” period which will allow you to uncover as many of those hidden risks as possible, but it is nearly impossible to uncover every possible risk that exists.
Most purchase agreements will contain some form of indemnification clause providing that the seller will defend and insure the buyer from various liabilities. However, negotiating an indemnification provision that adequately protects the buyer can potentially increase the purchase price requested by the seller and can also be difficult and expensive to enforce if an issue does arise in the future.
However, when you purchase only the assets of a company you are buying the possessions of the business and putting them into a new business name. The buyer can (at least to a certain extent) dictate what liabilities of the selling business are being purchased which can assist in limiting the buyer’s liability and risk in moving forwards with the transaction. Another benefit of buying a business’s assets is that the buyer can also elect to purchase some, but not all, of the target business’s assets. For example, if you were buying a trucking company you may elect not to buy the old trucks that don’t have any useful life left.
There are downsides to an asset purchase. For example, contracts between the old business and its customers/vendors may need to be renegotiated in the new business’s name. There could also be similar implications with key employees depending on the terms of any employment agreements that were in place with the old business.
Whichever route you choose, it is important to work with a team of advisors who can assist you in the process. While not discussed in detail here, there are different tax implications depending on whether you purchase the business or just the assets, about which a CPA would need to advise.
If you’re thinking of purchasing a business, or a business’s assets, the attorneys at Jesson & Rains are ready to help you through the process.
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 Edward Jesson
Hearings were recently scheduled on a proposed North Carolina state bill entitled “An Act to Provide Consumer Protections Related to Roofing Repair Contractors.”
If passed, the law would have a big effect on the roofing industry in North Carolina--written contracts between roofing contractors and consumers would now be required. The proposed bill would require the following provisions to be included in these contracts:
1. The roofing contractor’s contact information;
2. The name of the consumer;
3. The physical address of the property being worked on and a description of the structure being repaired;
4. A copy of the repair estimate that addresses:
a. a precise description and location of all the damage being claimed on the repair estimate;
b. an itemized estimate of repair costs, including the cost of raw materials, the hourly labor rate, and the number of hours for each item to be repaired; and,
c. a statement as to whether the property was inspected prior to the preparation of the estimate and a description of the nature of that inspection.
5. Date the contract was signed by the consumer;
6. A statement that the contractor shall hold in trust any payment from the consumer until the materials have been delivered to the job site or the majority of the work has been done;
7. A statement providing that the contractor shall provide a certificate of insurance to the consumer that is valid for the time during which the work is to be performed;
8. If the consumer anticipates that insurance funds will be used to pay for any portion of the job, a disclosure from the consumer that states that the consumer is responsible for payment if the insurance company denies the claim in whole or in part and a disclosure from the contractor that he or she has made no guarantees that the claimed loss will be covered by an insurance policy.
The new law, if passed, will also give the consumer the right to cancel the contract if the consumer’s insurance company denies the claim. Further, it will prohibit various practices from roofing contractors, including offering to pay insurance deductibles for the consumer or offering the consumer anything of value in order to display a sign or any other type of advertisement at the consumer’s property.
It is important to note that the proposed law specifically excludes licensed general contractors or subcontractors working underneath a licensed general contractor from the definition of “roofing repair contractors.”
While the new law would create an extra requirement that roofing contractors in NC may not be happy about, we always recommend having written contracts in place between contractors and the consumer. Too often the only written documentation is a cost estimate and, if there are any disputes, there are no provisions in these cost estimates for handling those disputes. The proposed law may also strengthen the reputation of the roofing industry by weeding out unscrupulous roofing contractors.
Jesson & Rains will continue to keep our clients updated on the passage of this law and are happy to assist with the drafting or review of any construction contracts. You can follow the status of the law yourself at: https://www.ncleg.gov/BillLookup/2019/S576.
By Attorney Kelly Jesson
Amendments to the Payroll Protection Program (“PPP”) that have been discussed for weeks finally made it to law on Friday. The amendment makes six major changes:
1) Forgiveness period possibly extended: The definition of “covered period” has changed to give businesses the option of choosing the eight-week period, or the earlier of 24 weeks or through December 31, 2020. This enables businesses to have more time to spend PPP money on forgivable expenses, thus increasing the likelihood that the entire loan may be forgivable. However, there’s a catch: because the “covered period” has extended, the business owner needs to maintain payroll levels appropriately under the CARES Act during the extended period in order to obtain full forgiveness. Thus, some business owners may opt to keep the shorter 8-week period.
2) Businesses need only spend 60% of the loan on allowable payroll expenses: This is a decrease from 75%, which is not in the CARES Act but was made a rule by the Treasury Department. It obviously has a negative effect on businesses that have large rental or mortgage expenses. Now, they can use 40%, instead of 25%, on rent, mortgage, and utilities
and still have that part forgiven.
3) New PPP loans allowed to be paid off within five years: This is an increase from two years. While this only applies to new loans, existing lenders may allow existing borrowers to take advantage of this term as well.
4) Businesses may not be penalized if they cannot rehire workers or resume business during the covered period: As mentioned above, the amount of forgiveness depends on a business’s ability to pay covered expenses (60% has to be payroll) and re-hire or maintain its workforce. What if it CANNOT reopen due to mandatory closures? The PPP amendment exempts businesses from being negatively affected by these requirements if the business in good faith
documents: (1) both the inability to rehire individuals who were employees on February 15, 2020 and the inability to hire similarly qualified employees for unfilled positions by December 31, 2020; or (2) the inability to return to the same level of business activity it enjoyed before February 15, 2020, due to compliance with government closures or federal safety and sanitation requirements related to COVID-19.
5) Repayment deferral period has been extended: Instead of it being deferred for six months, the amendment defers repayment until the date the amount of forgiveness determined is remitted to the lender. This is beneficial because business owners won’t have to start repaying the loan without knowing how much they actually have to repay (makes sense, right?). However, if a borrower fails to apply for forgiveness within 10 months of the last day of the covered period, repayment must begin on that date (10 months after the last day of the covered period).
6) Payment of employer payroll taxes delayed: Businesses can delay the payment of employer payroll taxes until December 31, 2021 (up to 50% of the amount due) and December 31, 2022 (the remaining amount due). Prior to this amendment, businesses were prohibited from taking advantage of this benefit if its PPP loan was forgiven in whole or in part.
These changes are certainly welcome to business owners. Keep in mind, though, the Treasury Department and Small Business Administration still have the ability to provide further rules and regulations, so business owners should keep their eyes and ears open in order to fully take advantage of the PPP! Please contact Jesson & Rains with any questions!
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