Estate planning attorneys refer to the process of titling and transferring assets to the trust as “funding.” If assets are not titled properly, your trust will not function as intended. Certain property requires special attention, particularly the following:

• Newly acquired or forgotten assets
• Real estate
• Business interests
• Retirement accounts
• High-value tangible personal property

Newly Acquired & Forgotten Assets

Newly acquired and forgotten assets frequently cause funding problems. It is common for estate planning attorneys to ask their clients to complete a questionnaire or provide a financial statement to assist with preparing the plan and identifying funding needs. If an asset is forgotten or omitted from a questionnaire, it may not be transferred to the trust. As a result, that asset would be tied up in probate, costing the decedent’s estate money and his or her family time. A forgotten asset may even fail to be distributed as the decedent intends. When providing information to your estate planning attorney, be sure to do a thorough review of your assets to ensure nothing slips through the cracks.

Real Estate

Real estate funding is more complex than updating bank information or executing an assignment because it requires preparation of deeds, or other instruments, and navigating mortgages. When preparing a deed, a title search should be conducted to gather required information and identify any signers that need to execute the deed. Additionally, if a property is mortgaged, a transfer-on-death designation affidavit should be considered in lieu of a deed to avoid triggering a “due on sale” clause. It is common to see those provisions in mortgages, and they could require the mortgage to be paid in full after a transfer. Due to their technical nature, extra care should be taken when funding requires real estate transactions.

Business Interests

As many business owners have discovered, operating a business can be fast paced and unpredictable. If a business interest is not properly transferred to your trust, it may go through probate. For most assets, going through probate is a costly inconvenience. For a business, going through probate can be excruciating. There are special rules for operating a business during probate and, most importantly, day-to-day operations could be delayed. To provide the business with stability and continuity, you should share your business’s important documents with your estate planning attorney so that transferring the business to your trust follows proper protocol and complies with the formalities of your business. If you only have a partial interest in your business, this becomes even more important because you and your estate planning attorney will need to coordinate with the other owners during the transfer process.

Retirement Accounts

Retirement accounts, like IRAs and 401(k)s, deserve their own section because of the tax considerations associated with them. First off, retirement accounts should not be transferred directly to the trust. Instead, the trust should be named as a beneficiary of the accounts to minimize tax liability. Second, and it seems counterintuitive to the goals of funding, but your trust should not be named as the beneficiary of retirement accounts if you are married. Your spouse should be named the primary beneficiary of any retirement accounts, with your trust named as the contingent, backup beneficiary. Naming your spouse as the primary beneficiary provides greater tax advantages than naming your trust first.

High-Value Tangible Personal Property

During the initial funding process, tangible personal property is typically assigned to your trust, or ownership is transferred pursuant to a provision in the trust. In the event you have high-value personal property, like jewelry, artwork, or collectibles, you should provide guidance to your successor trustees as to where the items are located, a description as well as associated documentation, and, if applicable, how to access them if they are in a safe or other restricted storage location. Providing written guidance as to high-value personal property is particularly important in the event your estate plan includes provisions gifting the high-value items to specific beneficiaries.

It is important to note that your trust will not function as intended if it is not funded properly. Creating the trust document is only the first step. Funding your trust should receive special attention to ensure your assets avoid probate and reach their intended beneficiaries. Taking the time to complete this task and periodically reviewing your assets as your financial circumstances change can help ensure your estate plan works as intended.

For more information on this topic or to seek counsel from our Trusts & Estates practice group, please reach out to request a consultation or call us at 216-696-1422.

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This information is provided for general informational purposes only and should not be construed as legal advice. Readers should consult with qualified legal counsel regarding their specific circumstances before taking any action based on the information presented.

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Asset Protection

Asset protection is the foundation of financial stability. The purpose of asset protection is to preserve what your business has accumulated. In today’s litigation-happy climate, even LLC membership may not protect you from being named as an individual defendant in a lawsuit.

To begin the process, your trusted advisor will ask you a number of questions that include:

• Existing debts & possible claims
• Personal & business assets
• “Exact ownership” of assets
• Unique facts & circumstances

The ultimate goal is to protect your personal and business assets from individual creditors.

Personal Asset Protection

There are four tools for protecting personal assets from creditors: trusts, retirement accounts/IRAs, and adequate insurance.

Trusts

Trusts come in many forms and can be tailored to fit your needs. This includes gift trusts, revocable trusts for spouses (including prenups), asset protection trusts, inheritances in trust, trusts for the benefit of children, spousal limited access trusts, and trusts for probate avoidance (to prevent claims of creditors at death).

Trusts, like Grantor Retained Annuity Trusts and Intentionally Defective Grantor Trusts, can be utilized to transfer business assets during life while minimizing gift/estate taxes. These trusts allow appreciating assets to pass to beneficiaries with reduced tax consequences.

Retirement Accounts & IRAs

Retirement accounts and IRAs are powerful tools for asset protection.

ERISA spendthrift protections are included in retirement accounts, which also permit unlimited accumulation free from creditor claims. If possible, they should be limited to the required minimum distributions. On the other hand, retirement IRAs are not ERISA protected, so protection from creditors depends on state law. Self-directed IRAs allow for investments outside the scope of the traditional IRA. In the event of bankruptcy, assets in IRAs and Roth IRAs are protected from creditors, if they do not exceed a certain value.  

Adequate Insurance

Adequate insurance, like D&O and umbrella policies, completes the asset protection strategy.

Business Asset Protection

There are various entity structures to protect from creditors, including LLCs and corporations, which vary depending on your business’s needs. Regardless of entity structure, it is vital to maintain entity formalities, separate assets into different entities (business vs. real estate), and keep personal and business assets separate. Like personal insurance, it’s important to maintain adequate commercial and umbrella insurance coverage – and keep your policy updated after major changes.

Succession Planning

Succession planning is also crucial to the future of your business. First, determine who will take over. Will it be a family member, employee, or an external strategic buyer, customer, or competitor? Then, determine whether the assets or stock of your company will transfer via gift, compensation, or sale. In the event of a sale, it’s important to prepare for the transfer by hiring an advisory team, performing an internal audit, and proactively identifying and addressing potential issues.

Death, Divorce, & Dissolution

All good things eventually come to an end, and when that time comes, it’s crucial to protect your business assets, minimize taxes, and maintain relationships. Well-drafted operating agreements, buy-sell agreements, and trusts are essential to achieving these goals. Without them, default state laws will govern, potentially exposing your business to unnecessary creditor risks, disputes, and public disclosure of records. It’s also important to review your life insurance and installment notes to ensure proper titling and favorable tax treatment.

You’ve worked hard to build your business. Partnering with experienced counsel will aid in its protection.

To seek counsel from our Trusts & Estates group, please reach out to request a consultation or call us at 216-696-1422.

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Wills

Wills are legal documents that govern the disposition of one’s property at death. The review of one’s will should include insuring that the named beneficiaries are appropriate. Also, it is important to review whether the executor named in the will is the proper person to administer the estate.

Trusts

If a trust is part of the estate plan, that document should be reviewed to confirm the beneficiaries named in the trust, as well as the designated trustee, is appropriate.

Financial Powers of Attorney

Perhaps the most important document to review is one’s financial power of attorney. This document names the agent to act and make property and financial decisions on one’s behalf while the principal is living. The common form of a financial power of attorney is the durable financial power of attorney. The durable financial power of attorney means that the designated agent continues to have authority to act for and on one’s behalf even if the principal becomes disabled. That is extremely important in these trying times.

Advanced Directives

Advanced directives are documents that designate health care decision makers and choices regarding life sustaining treatment. There are two forms of advance directives in Ohio, the health care power of attorney and the living will declaration. Similar to a financial power of attorney, the health care power of attorney designates an agent to make health care decisions if the principal is unable to do so. Furthermore, in a health care power of attorney the principal may leave specific instructions regarding health care treatment.

The living will declaration is a statement of one’s wishes regarding life sustaining treatment when a principal is in a terminal condition or permanently unconscious state.

It is important to review these documents as well to ensure that the agents named are proper and if special instructions were added to prior documents that those special instructions continue to be relevant.

Beneficiary Designations

Certain assets pass by way of beneficiary designations that permit those assets to be transferred to identified individuals. Examples include retirement plan benefits, IRAs, life insurance, annuities, deferred compensation or other forms of contractual arrangements and similar financial accounts. A review should include determining that the beneficiaries named are appropriate, including naming of contingent beneficiaries.

Conclusion

In these times it is paramount for individuals to review one’s estate planning documents to confirm that the documents are current and reflective of one’s current intentions. If your specific situation or intentions are not captured in your existing documents, changes should be made promptly. If you do not have documents addressing one or more of these important issues the time to act is now.
If you have questions, regarding your existing estate planning documents or whether you should prepare one or more of the identified documents, please call one of the estate planning attorneys at McCarthy Lebit at (216) 696-1422.

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Health Care Power of Attorney

The health care power of attorney allows an individual to designate an agent and alternate agents – such as a spouse, family member, or friend – to make health care decisions for the individual when that person’s physician determines the individual has lost capacity to make informed health care decisions on his or her own.  The health care power of attorney also allows an individual to leave specific instructions for the agent regarding his or her health care and treatment.  This can effectively limit the amount of discretion an agent has and provides clear guidance regarding the individual’s wishes to the health care provider.

It is important to note that the health care power of attorney is a different document than other powers of attorney, which may nominate an agent to make financial or legal decisions on behalf of another when he or she is unable.  Further, the information provided in a health care power of attorney can be changed or altered at any time.

Living Will Declaration

The living will declaration documents an individual’s wish that life-sustaining treatment, including artificially or technologically supplied nutrition and hydration, be withheld or withdrawn if he or she is unable to make informed medical decisions and is in a terminal condition or a permanently unconscious state.  A terminal condition is an irreversible, incurable, and untreatable condition caused by disease, illness, or injury from which, to a reasonable degree of medical certainty, both of the following apply: (1) there can be no recovery; and (2) death is likely to occur within a relatively short time if life-sustaining treatment is not administered.  Conversely, a permanently unconscious state means an irreversible condition in which the patient is permanently unaware of himself or herself and surroundings.

The living will declaration does not affect the health care providers’ responsibility to provide comfort care.  Comfort care means measures taken to diminish pain or discomfort, but not to postpone death.  Note that the living declaration only applies when an individual is in a terminal condition or a permanently unconscious state; an individual that wishes to direct medical treatment in other circumstances must do so through the health care power of attorney.  Like the health care power of attorney, the living will declaration may be changed or rescinded at any time.

Conclusion

 Advance directives are an important component to an individual’s estate plan.  Not only do they provide clear guidance to health care providers, they also can eliminate potential family disputes relating to important health care decisions made on behalf of a loved one.  In these times, it is vital that individuals consider the need for advance directives and update their existing documents if need be.

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This is not the first time a celebrity of such stature has died without simple estate planning documents. Prince died in 2016 without a will and after high-drama in court, it was determined his estate passes to his siblings, both full and half-siblings. Amy Winehouse died in 2011 without a will and a court decided the heirs of her estate were her parents, even though a documentary about the singer indicated she had a strained relationship with her father.

It is unclear how Ms. Franklin’s estate will play out in court. The initial court filings list her sons as interested parties in the estate. Even though the next of kin are presumed to be her four sons, and the probable rightful heirs to Ms. Franklin’s immense fortune, the lack of a will opens the door for potential unknown heirs to come forward. A will would have clearly stated her next of kin and her family relationships. Further, it is not known what type of relationship she had with her family. For instance, in addition to her sons, she could have been extremely fond of her grandchildren, nieces or nephews. Without a will (which is an intestate estate) the opportunity to include bequests to additional members of her family is lost as the Michigan rules of intestacy control. Ms. Franklin also loses the opportunity to remember any of her favorite charities. Bequests to charities specifically named in a will or a trust would have reduced the estate tax that will be payable, as well as honored her memory. As the intestate rules control her estate, the opportunity to leave assets to a charity and reduce any tax is missed.

A will would have also stream-lined the probate administration. A will gives the named Executor or Personal Representative power to act on behalf of the estate. The powers can range from selling the property to the ability to make certain distributions to the heirs. Without a will, the court will have to grant the Executor the power to act on behalf of the estate. This becomes both time-consuming and costly.

Without a will, all of Ms. Franklin’s individual assets are now subject to probate administration and the public disclosure of those assets. In addition to a simple will, a revocable living trust would have preserved the anonymity of her assets and the values. Ms. Franklin’s long-storied successful music career certainly garnered her a multi-million-dollar estate that would also include rights to her songs. Now the nature of those assets and the applicable values will be very publicly reported in court. Not to mention, that any future rights and the preservation of her image are at the discretion of the court.

The thought of making a will or revocable trust is something people don’t like to think about. Maybe it is the acceptance of one’s mortality or maybe it is the cost and possible family issues involved. What is clear is that a lack of a will is more a burden in death than in life.

The probate administration is never swift. It may be years until Ms. Franklin’s assets are fully distributed. Before any assets are distributed to the heirs, the estate will first have to settle with the tax man. At a 40% estate tax rate, the estate tax bill will be substantial and the value of the assets will certainly be debated with the IRS. This will make for a lengthy administration that could have been simplified with the proper estate planning.

Unfortunately, the final chapter of the story of Aretha Franklin is just beginning. Sadly, it is not a chapter she has written. That will be left to the courts.

The post Aretha Franklin Should Have Stopped to “Think” About a Will appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

Healthcare Power of Attorney

This document will allow you to access your young adult’s medical records and make certain medical decisions on his or her behalf if incapacitated. It will enable your young adult to name an “Agent” (and Alternate Agents, if desired) to act on his or her behalf. Without this document, the above situation could require the courts to step in, which will likely be a great deal of time (and expense) for those seeking to obtain access to information or power to act on the incapacitated individual’s behalf. Therefore, we strongly urge anyone over the age of 18 to execute this document.

Living Will

This is another document that becomes effective once an individual is either unconscious or terminally ill and can no longer communicate his or her wishes to either be kept alive, resuscitated, or to decline specific treatments that otherwise could sustain his or her life indefinitely. In addition to these powers, this document dictates certain post-life decisions, like organ and tissue donation.  Given the living will’s obvious relevance in scenarios that might necessitate a healthcare power of attorney, we recommend that this document is executed in conjunction with the above.

Durable (Financial) Power of Attorney

In addition to a healthcare power of attorney, young adults should consider executing a durable power of attorney in favor of a trusted family member.  Like the healthcare power of attorney, the durable power of attorney allows the young adult to appoint an Agent to act on his or her behalf; however, this document enables the Agent to make decisions regarding legal and financial matters.  Many important institutions are accustomed to dealing with these materials and require one, so having it in place makes managing a young adult’s affairs much easier and more efficient.

Will

Unlike the above documents, I would not consider a will to be an absolute must-have for every single young adult; however, it still should be considered and may be desirable in certain instances. By default, an individual who dies “intestate” (without a will) in Ohio will still have his or her assets distributed according to the default rules set forth in the Ohio Revised Code. Provided the young adult has no children or a spouse, the default would have his or her assets pass to the young adult’s parents. If the young adult desires to leave any assets to someone other than his or her parents, then a will would be necessary to accomplish this. Additional situations not covered by this post would necessitate a will, but each case is unique, so it is important to explore the topic with the estate planning attorney who is drafting the other above documents to see if it is a good idea to execute one.

Why Wait?

Even though every parent wants to think that the above documents will never be needed, it is important to keep in mind, that even if the situation doesn’t arise where they are required, these documents can offer substantial peace of mind in the off chance that an unfortunate circumstance arise. Perhaps you are reluctant to have them prepared because your young adult is now unmarried, has no child, or assets, and you believe this will change in a few years, making the documents obsolete. While that may be true, keep in mind, that none of the above documents are irrevocable, so they can be revisited at any point of time in the future when the young adult’s personal situation has changed in a way that requires additional consideration.  In fact, the documents should be revisited as time passes to accommodate new significant life events and to make sure the documents still accomplish the individual’s wishes.

In short, given the peace of mind that the above documents deliver, and how quickly they can be modified to accommodate changed circumstances, it is not prudent to allow your young adult to continue living without them in place. If you have a young adult as a child (or if you are a young adult reading this), please do not hesitate to reach out to one of our estate planning attorneys who can help you evaluate what documents are appropriate for your individual scenario.

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