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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 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.

Planning for the Future (Without a Crystal Ball)

Planning for the Future (Without a Crystal Ball)

Creating a will, trust, or any type of estate plan has always involved dealing with an uncertain future. Consider that just 20 years ago in 1997, the estate tax had an astonishing 55% rate with only a $600,000 exemption. Back then, tax-driven estate planning was a mathematical necessity for a large segment of the population.

Fast forward to 2017. Not only do we now have a generous $5.49 million exemption and a lower 40% rate, we also have renewed emphasis and action from the President and Congress on repealing the estate tax, as evidenced by the September 27, 2017 Unified Framework for Fixing Our Broken Tax Code and by the House of Representatives bill released on November 22, 2017, The Tax Cuts and Jobs Act. So what does this mean for you, as you’re planning for the future?

Estate Tax Repeal Means No Need to Plan…Right?

Nothing could be further from the truth! Although there was a lot of tax-driven planning in the past, in recent years estate planning has largely focused on preserving family unity, protecting assets, ensuring privacy, and effectively passing along financial and emotional legacies.

And, for those with high net worth, it’s also worth mentioning that estate tax repeal isn’t a foregone conclusion at this point either. The proposed changes still must be crafted into legislation that must pass both houses of Congress and then be signed by the President. Given the political division the country faces (and the likely stiff opposition to the President’s tax proposal from Congressional Democrats), this will be no small feat.

While we wait for Congress to act, it’s also worth noting that the estate tax was already effectively repealed for more than 99% of American estates when the exemption was raised to $5 million (and indexed for inflation) in 2010. The vast majority of estates fall below this threshold and need no special planning to avoid the estate tax. But don’t think you’re out of the woods because you have less than $5 million.

Today, the focus of estate planning has shifted away from death taxes to other concerns that affect most families. Estate planners can now work with you to protect you and your family against costly, public probate, guardianship, or conservatorship court proceedings and also further your legacy goals.

You might be worried about some of these things happening to your family:

  • A financially irresponsible child or grandchild wasting their inheritance simply because they lack the financial maturity to handle wealth.
  • A divorcing spouse of one of your heirs taking advantage of family wealth.
  • Family discord lurking under the surface that tears your family apart, especially after the death of the patriarch or matriarch.
  • A lawsuit, judgment, or bankruptcy that causes your family to lose their inheritance.
  • Alzheimer’s or another cognitive impairment affecting you or someone else in your family.

Luckily, there are well-developed, flexible legal strategies (such as lifetime trusts, standby special needs trusts, and robust incapacity planning, to name a few) for overcoming these issues. Although estate planning can’t necessarily repair a damaged family relationship, proper planning can help make sure it does not get any worse. But these strategies are only effective when you work with a qualified estate planner to implement or refresh your will, trust, and estate plan.

So, there’s no crystal ball. Where should I go from here?

According to WealthCounsel’s 2016 Estate Planning Literacy Survey, about 74% of Americans find estate planning to be a confusing topic. So, you’re not alone if you’re unsure about your next steps. I’m here to help.

If you don’t yet have a will or trust, now is the time to explore getting one. If you have an “old” will or trust, now is the time to talk with me about whether you need an update. Modern families need modern estate planning solutions, and I am ready to help you create a flexible estate plan that works now, and will work in the future, even if the current tax laws change (even though no one has the proverbial crystal ball).

5 Reasons to Embrace the Emotional Side of Estate Planning

5 Reasons to Embrace the Emotional Side of Estate Planning

When you hear the phrase “estate plan,” you might first think about paperwork. Or your mind might land on some of the uncomfortable topics that estate planning confronts head-on: end-of-life decisions, incapacity, and your family’s legacy from generation to generation. Those subjects hit home for everyone.

But while that could feel like a reason to avoid estate planning, the emotional nature of these decisions is actually a reason to embrace the process with enthusiasm. Here are a few ways in which emotion in estate planning is a good thing:

1.     Estate planning creates stability in times of loss

If you end up in a state of incapacity later in life, it’s guaranteed to be a difficult time for your family. If your estate plan doesn’t include detailed instructions for a trusted decision maker and an actionable long-term care plan, it’s guaranteed to be even worse. You can save your loved ones from the confusion about what to do and the pressure to make rushed choices if this occurs, allowing them to save their energy for caring for you and your family.

2. Comprehensive estate plans keep emotional matters private

Detailed, trust-based estate planning with keeps your private matters out of the public eye. When your estate plan is scant, you’re running the risk of your estate going through court in a proceeding called probate. This means that choices become visible to those outside your inner circle. Because of the notice requirements, probate can also invite controversy and conflict which a private transfer would have avoided.

3. Estate planning can bring a family together

Everyone has heard of a situation in which siblings argued over what their parents left them as beneficiaries. But the opposite is also quite true. When you get your family and other loved ones involved in your estate planning process, you gain a wonderful opportunity to show them how much you care. Creating your estate plan can strengthen the bonds of love in a family and serve as a reminder of those bonds for years to come.

4. Your estate is about much more than money

Estate planning is about a whole lot more than just wealth distribution and taxes. During an estate planning session, we can talk about significant family heirlooms, your hard-won hobby collection, and other matters totally unique to your life. We can even look into the memories and intellectual property you want to make sure your beneficiaries receive, such as photos, art, and even recorded videos or audio files of family stories you’d like to share with future generations.

5. An estate plan means you’re not going it alone

You shouldn’t have to face trying times alone. Whether the estate in question is yours or a loved one’s, your estate planning attorney will have the answers. Let us take care of the nuts and bolts with regards to educating your appointed agents about their duties so you can know that your family will be in good hands if anything happens to you. The idea of setting everything straight on your own can be a stressful one, but these emotional decisions are much easier to make with a trusted advisor by your side.

We want you to feel ownership and investment in getting your estate plan to reflect who you are. Estate planning is an opportunity to look at some of life’s big questions and ultimately make sure your family feels your care for them through the choices you make. Give this office a call today to see how we can create custom-made solutions that do just that.