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Powers of Attorney – Planning for Life Is as Important as Planning for Death

Powers of Attorney – Planning for Life Is as Important as Planning for Death

Many people think that estate planning is just about what happens when someone dies. However, an equally-important part of estate planning is ensuring that you are cared for while you are still alive. If you become incapacitated, even for a short period of time, who will pay your bills or decide where you should live? Who will determine what doctors will care for you, or what treatments and medicines you will receive?

A comprehensive estate plan will include powers of attorney for both your finances and health care to ensure that the persons making decisions on your behalf are the ones that you want. You can select different people – and backups – for your financial and health care powers of attorney. Without these powers of attorney, if you become incapacitated, your family may have to go through the court process of having a guardian and conservator appointed for you and that can be expensive and onerous.

Besides the routine responsibilities that your agent under a financial or health care power of attorney may have, you can also give specify directions regarding different situations. For example, if you are incapacitated, do you want to continue making charitable donations or paying for a grandchild’s piano lessons? Can your health care agent make mental health care decisions on your behalf?

The clearer you are with your wishes, the better your loved ones will be able to care for you during any periods of incapacity. So, when you are thinking about your estate planning, be sure to consider how you will be cared for during your lifetime as well.

How to Probate-Proof your LLC Interest

How to Probate-Proof your LLC Interest

Whether I’m working on a business transaction or assisting business owners with their estate planning, I always look at how the ownership of the LLC is structured. While many business owners have set up a revocable living trust in order to direct how their assets are managed and to avoid probate, it is common to find that their LLC interests have not been put into the trust. This means that even if everything else in the estate plan were done perfectly, the family would still likely need to open up probate to access and manage the LLC interests. Obviously, this is not ideal in any situation.

Fortunately, putting an LLC interest into a trust is often a simple and affordable solution. If the LLC is a single-member LLC, including an LLC owned by a married couple, the change can be made by signing an Assignment of Membership Interest and filing Articles of Amendment with the Arizona Corporation Commission. If there is more than one member, the operating agreement will control the steps necessary to transfer the LLC interest into the trust. Often there are provisions in the operating agreement allowing a member to make such a transfer. However, if there is no provision, or no operating agreement, the consent of the other members would be necessary to make the transfer. With either a single-member LLC or a multiple-member LLC, the operating agreement should be updated to reflect the change of membership. This is most often not a big change, and can be done by updating a Schedule which lists current members and their addresses. As a side note, if you do not have a written operating agreement for your LLC – get one!

Since I am a lawyer, I must include a few caveats. First, if the LLC is treated as an S-Corporation for federal income tax purposes, or could be in the future, it is imperative that the trust contain language necessary to qualify the trust as an S-Corporation shareholder in the event the business owner becomes incapacitated or passes away. Second, you want to make sure that the transfer of the membership interest is not prohibited in any financial or other agreements that have been entered into by the LLC. Third, I really mean it about the operating agreement – you really do need one, but I’ll save that for another blog post.

The Purpose of an LLC’s “Purpose”

The Purpose of an LLC’s “Purpose”

When forming your LLC, you may wonder the importance of specifying your company’s “purpose,” and may be tempted to provide a hasty response or use a generic phrase such as “any purpose authorized by law.” The reason defining your company’s purpose is important is because the actions that the members or managers may legitimately take on behalf of the company are limited by the company’s purpose as stated in the operating agreement. In a member-managed LLC, the unanimous approval of all members is required for a member to make a decision to undertake an action falling outside of the company’s purpose. Likewise, in a manager-managed LLC, all of the members must approve any decision or action of the manager that falls outside the scope of the company’s purpose.

When defining the purpose of your LLC, you want to be specific enough to place reasonable limitations on the actions of the members or managers, but broad enough that it does not impede the ordinary course of business for your LLC. Generally one or two phrases or sentences can provide a sufficient purpose for your LLC, such as:

  • Purchase and manage residential real property rentals;
  • Provide landscape services; or
  • Create custom artwork.

You can place more specific limitations within your purpose, but be sure you are thinking long-term. The LLC’s purpose as defined in the operating agreement can only be amended if all LLC members agree.

Putting a few minutes of thought into the purpose of your LLC is worth it to protect you and the other LLC members. In addition, just having the purpose conversation with the other LLC members can help facilitate important discussions to ensure everyone’s interests and expectations are aligned at the formation of the LLC.

The Dangers of Joint Bank Accounts

The Dangers of Joint Bank Accounts

Adding an adult child as a joint owner of a parent’s bank account seems like a simple and straightforward solution that allows the child to help care for mom or dad without the expense or hassle of preparing powers of attorney or other legal documents. Naming a child as a joint owner also allows the account to avoid probate at the death of the parent. However, there are many dangers that account owners, and the children, may not realize.

Most bank accounts are set up so that once a child is added as a co-owner to a parent’s bank account, the child becomes a legal owner of the assets in the account. Even though in the minds of both the parent and the child, the money “belongs” to mom or dad, the reality is that from a legal perspective, the money actually belongs to both the child and the parent. This means that the money in that account can be spent by the child for any reason, not just for caring for mom or dad. The money in the account also becomes reachable by any creditors of the child. Even if the child is a responsible adult, unforeseen circumstances, such as a car accident, could cause mom or dad’s bank account to be wiped out due to the child’s liabilities. One of the most common creditors is a divorcing spouse, and the money in the joint account could be counted as an asset of the child in a divorce.

Another common misconception is that the parent does not need a Will or Trust because the child on the jointly-owned account knows after the parent dies, the money is to be split among all of the child’s siblings. Now, there are times when this strategy could work; however, legally the money transfers 100% to the child named as a co-owner on the account. That child has no legal obligation to share the assets of the account with other siblings. Frequently, there is conflict among siblings about whether mom or dad offered the co-owner child a larger share, or all, of the account to compensate that child for caring for the parent during their last years.

The intentions behind adding an adult child to mom or dad’s accounts are good – everyone wants a simple solution that is easy to manage. Even though I do not recommend adding a child to a parent’s bank account, there are other ways to address the issues, and they do not need to be complicated or expensive. At the most basic level, the child could be added as agent, or signer, on mom or dad’s accounts by filling out a form at the bank. This would allow the child to access the money for mom or dad’s benefit only. The money would not legally belong to the child, and would not be reachable by the child’s creditors. A beneficiary designation form can also be filled out at the bank which would allow the assets in the account to avoid probate and pass to all the siblings automatically at mom or dad’s death.

Caring for family members can sometimes feel complicated, but taking these steps will allow the child to not only care for mom or dad, but also protect mom or dad’s money from unintended consequences that may arise from joint account ownership.

Lessons Learned from COVID-19 – an Estate Planner’s Perspective

Lessons Learned from COVID-19 – an Estate Planner’s Perspective

One of the best things about working with someone or a couple on their estate plan is that a primary goal is usually to take care of their children, grandchildren, and other loved ones. I enjoy getting to know the families, hearing their stories, and helping them make sure future generations will be protected and cared for.

Because their focus is on others, many clients do not think about making sure they are cared for during their lifetimes and during any periods of incapacity. This is equally important, if not more important, than taking care of others. Too many times since COVID-19 pandemic started, I have received heart-wrenching phone calls from children whose parents have become ill. They want to know how they can help take care of their parents’ finances, who is the proper person to make medical decisions, or how do they make end of life care decisions.

Nobody wants to contemplate these types of issues. I don’t like to think about them for myself or my family either. What we learned during COVID-19 pandemic is that things can change in an instant. It is so important to put documents in place to give authority to those who will be decision-makers if someone becomes incapacitated. Once those documents are together, it is time for another uncomfortable yet critical step. It is vitally important to talk to the decision-makers about your wishes so, if they are needed, they can be as prepared as possible.

Providing for your family means more than figuring out how to distribute your assets. It also means giving them the tools to make sure you are cared for during your lifetime.