Affiliated Attorneys, LLC Blog
Monday, June 30, 2014
How is the funding handled if you decide to use a living trust?
Certificates represent shares of a company. There are generally two types of company shares: those for a publicly traded company, and those for a privately held company, which is not traded on one of the stock exchanges.
Let's assume you hold the physical share certificates of a publicly held company and the shares are not held in a brokerage account. If, upon your death, you own shares of that company's stock in certificated form, the first step is to have the court appoint an executor of your estate.
Once appointed, the executor would write to the transfer agent for the company, fill out some forms, present copies of the court documents showing their authority to act for your estate, and request that the stock certificates be re-issued to the estate beneficiaries.
There could also be an option to have the stock sold and then add the proceeds to the estate account that later would be divided among the beneficiaries. If the stock is in a privately held company there would still be the need for an executor to be appointed to have authority. However, the executor would then typically contact the secretary or other officers of the company to inquire about the existence of a shareholder agreement that specifies how a transfer is to take place after the death of a shareholder. Depending on the nature of the agreement, the company might reissue the stock in the name(s) of the beneficiaries, buy out the deceased shareholder’s shares (usually at some pre-determined formula) or other mechanism.
If you set up a revocable living trust while you are alive you could request the transfer agent to reissue the stock titled into the name of the trust. However, once you die, the "trustee" would still have to take similar steps to get the stock re-issued to the trust beneficiaries.
If you open a brokerage account with a financial advisor, the advisor could assist you in getting the account in the name of your trust, and the process after death would be easier than if you still held the actual stock certificate.
Sunday, June 15, 2014
Most people develop an estate plan as a way to transfer wealth, property and their legacies on to loved ones upon their passing. This transfer, however, isn’t always as seamless as one may assume, even with all of the correct documents in place. What happens if your eldest son doesn’t want the family vacation home that you’ve gifted to him? Or your daughter decides that the classic car that was left to her isn’t worth the headache?
When a beneficiary rejects a bequest it is technically, or legally, referred to as a "disclaimer." This is the legal equivalent of simply saying "I don't want it." The person who rejects the bequest cannot direct where the bequest goes. Legally, it will pass as if the named beneficiary died before you. Thus, who it passes to depends upon what your estate planning documents, such as a will, trust, or beneficiary form, say will happen if the primary named beneficiary is not living.
Now you may be thinking why on earth would someone reject a generous sum of money or piece of real estate? There could be several reasons why a beneficiary might not want to accept such a bequest. Perhaps the beneficiary has a large and valuable estate of their own and they do not need the money. By rejecting or disclaiming the bequest it will not increase the size of their estate and thus, it may lessen the estate taxes due upon their later death.
Another reason may be that the beneficiary would prefer that the asset that was bequeathed pass to the next named beneficiary. Perhaps that is their own child and they decide they do not really need the asset but their child could make better use of it. Another possible reason might be that the asset needs a lot of upkeep or maintenance, as with a vacation home or classic car, and the person may decide taking on that responsibility is simply not something they want to do. By rejecting or disclaiming the asset, the named beneficiary will not inherit the "headache" of caring for, and being liable for, the property.
To avoid this scenario, you might consider sitting down with each one of your beneficiaries and discussing what you have in mind. This gives your loved ones the chance to voice their concerns and allows you to plan your gifts accordingly.
Thursday, June 5, 2014
During the estate planning process, your attorney will draft a number of legal documents such as a will, trust and power of attorney which will help you accomplish your goals. While these legal documents are required for effective planning, they may not sufficiently convey your thoughts and wishes to your loved ones in your own words. A letter of instruction is a great compliment to your “formal” estate plan, allowing you to outline your wishes with your own voice.
This letter of instruction is typically written by you, not your attorney. Some attorneys may, however, provide you with forms or other documents that can be helpful in composing your letter of instruction. Whether your call this a "letter of instruction" or something else, such a document is a non-binding document that will be helpful to your family or other loved ones.
There is no set format as to what to include in this document, though there are a number of common themes.
First, you may wish to explain, in your own words, the reasoning for your personal preferences for medical care especially near the end of life. For example, you might explain why you prefer to pass on at home, if that is possible. Although this could be included in a medical power of attorney, learning about these wishes in a personalized letter as opposed to a sterile legal document may give your loved ones greater peace of mind that they are doing the right thing when they are charged with making decisions on your behalf. You might also detail your preferences regarding a funeral, burial or cremation. These letters often include a list of friends to contact upon your death and may even have an outline of your own obituary.
You may also want to make note of the following in your letter to your loved ones:
- an updated list of your financial accounts with account numbers;
- a list of online accounts with passwords;
- a list of important legal documents and where to find them;
- a list of your life insurance and where the actual policies are located;
- where you have any safe deposit boxes and the location of any keys;
- where all car titles are located; the
- names of your CPA, attorney, banker, insurance advisor and financial advisor;
- your birth certificate, marriage license and military discharge papers;
- your social security number and card;
- any divorce papers; copies of real estate deeds and mortgages;
- names, addresses, and phone numbers of all children, grandchildren, or other named beneficiaries.
In drafting your letter, you simply need to think about what information might be important to those that would be in charge of your affairs upon your death. This document should be consistent with your legal documents and updated from time to time.
Friday, May 30, 2014
Filing for bankruptcy often represents the last gasp following a period of mounting stress and emotional turmoil. If you have reached the point of seeking relief in bankruptcy court, you have probably investigated and exhausted every available option to keep your finances intact. In addition to financial considerations, you should carefully think through how filing bankruptcy will affect your children.
Who Owns What?
The line between your assets and your child’s assets can become blurred in the context of your bankruptcy case. If you established a bank account for your child, but did not take the necessary steps to set it up correctly, it may not be protected from creditors during your bankruptcy because the money in that account may be deemed your money and not your child’s. Parents typically encounter this problem if the account was established only in the parents’ names, and not the child’s name, or if the parents have used the account to pay their own bills. To protect your children’s account from your bankruptcy, the account should be established under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act.
College Tuition Assistance
If you are currently contributing money toward your child’s college fund or tuition payments, your bankruptcy filing could put a stop to it. When a debtor files for bankruptcy, creditors and the court strive to limit how much your monthly expenses are, to preserve as much “disposable” income for repayment as possible, and may place a higher priority on debt repayment than your child’s education. Bankruptcy courts allow for “necessary” expenses, including housing, food and utilities; however, your child’s educational expenses may not be considered essential. The amount of any such payments may be added to your disposable income available to repay your debts under Chapter 13, or may disqualify you for Chapter 7 under the means test calculation.
Bankruptcy and Child Support
Child support payment obligations are not eligible for bankruptcy discharge, and children are protected from bankruptcy regardless of whether a parent is behind in making the payments. Under Chapter 7 bankruptcy, child support payments are considered a top priority when assets are liquidated to raise cash for creditors. Under Chapter 13, the required child support payments are addressed in the repayment plan. Ideally, the bankruptcy itself will make it easier for the parent to keep current with support obligations by reducing other payment obligations.
Thursday, May 15, 2014
The bond between a grandparent and grandchild is a very special one based on respect, trust and unconditional love. When preparing one’s estate plan, it’s not at all uncommon to find grandparents who want to leave much or all of their fortune to their grandchildren. With college tuition costs on the rise, many seniors are looking to ways to help their grandchildren with these costs long before they pass away. Fortunately, there are ways to “gift” an education with minimal consequences for your estate and your loved ones.
The options for your financial support of your heirs’ education may vary depending upon the age of the grandchild and how close they are to actually entering college. If your grandchild is still quite young, one of the best methods to save for college may be to make a gift into a 529 college savings plan. This type of plan was approved by the IRS in Section 529 of the Internal Revenue Code. It functions much like an IRA in that the appreciation of the investments grows tax deferred within the 529 account. In fact, it is likely to be "tax free" if the money is eventually used to pay for the college expenses. Another possible bonus is that you may get a tax deduction or tax credit on your state income tax return for making such an investment. You should consult your own tax advisor and your state's rules and restrictions.
If your granddaughter or grandson is already in college, the best way to cover their expenses would be to make a payment directly to the college or university that your grandchild attends. Such a "gift" would not be subject to the annual gift tax exemption limits of $14,000 which would otherwise apply if you gave the money directly to the grandchild. Thus, as long as the gift is for education expenses such as tuition, and if the payment is made directly to the college or university, the annual gift tax limits will not apply.
As with all financial gifts, it’s important to consult with your estate planning attorney who can help you look at the big picture and identify strategies which will best serve your loved ones now and well into the future.
Monday, May 5, 2014
You may have signed several affidavits over the years, without fully knowing what they are. You might have signed one to register to vote or obtain some government benefit. An affidavit can also be used as evidence in a lawsuit.
An affidavit is a written document. The person signing it (the “affiant”) declares under oath that he or she is making voluntary and truthful statements. Requirements for an affidavit vary based on the circumstances and jurisdiction. In most jurisdictions, an affidavit must contain the affiant’s name, physical address and the affiant’s signature.
The contents need to be voluntary and limited to what the affiant knows to be true because of direct observation or experience. Before signing an affidavit, be certain of the basis of your knowledge. Do you know these statements to be true or just think that they’re true?
Most jurisdictions require the affiant swear under oath that the statements are true before signing the document. That signature needs to be witnessed and certified by a notary public, attorney or other public official authorized to take oaths. The affiant must understand the content of the affidavit, the importance of an oath and the consequences for violating an oath. A person who lies on an affidavit may be deemed to have committed perjury and face considerable penalties. Given the significant consequences, anyone who is not mentally competent shouldn’t sign an affidavit or be asked to sign an affidavit.
You may be asked to sign an affidavit if you witnessed an incident that may lead to, or has already resulted in, legal action. Parties, or their attorneys, may want a formalized, written statement of what you saw. If you’re in this position, make sure the affidavit is complete and accurate. Consult your own legal counsel before signing. The party contacting you may want an affidavit that puts them in the best light, not one that tells the whole story.
Be very careful about what’s stated in the affidavit, as opposing counsel may focus in on the document and investigate every aspect of it during litigation. In a deposition or during a trial, opposing counsel may press you on the contents of affidavits to impeach your credibility.
Is this the first affidavit on this topic? If not, review the previous affidavit(s). If something you previously stated was true, but you now know is false, you need to discuss with your attorney how this should be addressed.
Before signing on the dotted line of an affidavit, think it through and make sure the information presented is accurate. If you have any questions about an affidavit you’ve been asked to sign, or want to sign for your own purposes, consult with an attorney who can review it to ensure it is optimally drafted and does not end up getting you in hot water.
Wednesday, April 30, 2014
In creating a trust, the trustmaker must name a trustee who has the legal obligation to administer it in accordance with the trustmaker’s wishes and intentions. In some cases, after the passing of the trustmaker, loved ones or beneficiaries may want to remove the designated trustee.
The process to remove a trustee largely depends on two factors: 1) language contained with the trust and 2) state law. When determining your options, there are a number of issues and key considerations to keep in mind.
First, it is possible that the trust language grants you the specific right to remove the named trustee. If it does, it likely will also outline how you must do so and whether you must provide a reason you want to remove them. Second, if the trust does not grant you the right to remove the trustee, it may grant another person the right to remove. Sometimes that other person may serve in the role of what is known as a "trust protector" or "trust advisor." If that is in the trust document you should speak to that person and let them know why you want the trustee removed. They would need to decide if they should do so or not. Finally, if neither of those is an option, your state law may have provisions that permit you to remove a trustee. However, it may be that you will have to file a petition with a court and seek a court order. You should hire an attorney to research this for you and advise you of the likelihood of success.
Another option may be to simply ask the named trustee to resign. They may do so voluntarily.
Assuming the trustee is removed, whether by you, a trust protector, or by court order, or if the trustee resigns, the next issue is who is to serve as the successor trustee. Again, looking at the terms of the trust should answer that question. Perhaps a successor is specifically named or perhaps the trust provides the procedure to appoint the successor. Before proceeding, you will want to make certain you know who will step-in as the new trustee.
Tuesday, April 15, 2014
Establishing a Life Estate is a relatively simple process in which you transfer your property to your children, while retaining your right to use and live in the property. Life Estates are used to avoid probate, maximize tax benefits and protect the real property from potential long-term care expenses you may incur in your later years. Transferring property into a Life Estate avoids some of the disadvantages of making an outright gift of property to your heirs. However, it is not right for everyone and comes with its own set of advantages and disadvantages.
Life Estates establish two different categories of property owners: the Life Tenant Owner and the Remainder Owner. The Life Tenant Owner maintains the absolute and exclusive right to use the property during his or her lifetime. This can be a sole owner or joint Life Tenants. Life Tenant(s) maintain responsibility for property taxes, insurance and maintenance. Life Tenant(s) are also entitled to rent out the property and to receive all income generated by the property.
Remainder Owner(s) automatically take legal ownership of the property immediately upon the death of the last Life Tenant. Remainder Owners have no right to use the property or collect income generated by the property, and are not responsible for taxes, insurance or maintenance, as long as the Life Tenant is still alive.
Life Estates are simple and inexpensive to establish; merely requiring that a new Deed be recorded.
Life Estates avoid probate; the property automatically transfers to your heirs upon the death of the last surviving Life Tenant.
Transferring title following your death is a simple, quick process.
Life Tenant’s right to use and occupy property is protected; a Remainder Owner’s problems (financial or otherwise) do not affect the Life Tenant’s absolute right to the property during your lifetime.
Favorable tax treatment upon the death of a Life Tenant; when property is titled this way, your heirs enjoy a stepped-up tax basis, as of the date of death, for capital gains purposes.
Property owned via a Life Estate is typically protected from Medicaid claims once 60 months have elapsed after the date of transfer into the Life Estate. After that five-year period, the property is protected against Medicaid liens to pay for end-of-life care.
Medicaid; that 60-month waiting period referenced above also means that the Life Tenants are subject to a 60-month disqualification period for Medicaid purposes. This period begins on the date the property is transferred into the Life Estate.
Potential income tax consequences if the property is sold while the Life Tenant is still alive; Life Tenants do not receive the full income tax exemption normally available when a personal residence is sold. Remainder Owners receive no such exemption, so any capital gains tax would likely be due from the Remainder Owner’s proportionate share of proceeds from the sale.
In order to sell the property, all owners must agree and sign the Deed, including Life Tenants and Remainder Owners; Life Tenant’s lose the right of sole control over the property.
Transfer into a Life Estate is irrevocable; however if all Life Tenants and Remainder Owners agree, a change can be made but may be subject to negative tax or Medicaid consequences.
Saturday, April 5, 2014
Discussing your desire to establish a prenuptial agreement with your future spouse has the potential to be a complete disaster, but approaching the topic with the comfort of your partner in mind can help alleviate much of the stress associated with the process of creating a premarital agreement.
A prenuptial agreement is a legal document drafted and signed before marriage that lays the groundwork for the distribution of assets should the marriage fail. Although these agreements aren't a requirement for engaged couples, many attorneys agree they are an important part of the pre-marriage process, as they provide a binding agreement that each partner must adhere to in the event of a divorce. Many are sensitive to the idea that signing an agreement of this kind means one partner thinks the marriage will fail, but prenuptial contracts are really just meant to serve as a contingency plan.
Below are three ways to make the discussion easier.
Know the basics of a prenuptial agreement.
You likely have an inkling as to how your partner will react to you bringing up the subject of a premarital agreement. Whether you think they will be neutral or get defensive at the very mention of the idea, explain that drafting the agreement as a couple gives you the ability to design it in a way that could financially protect both of you in the event that your marriage fails. Make sure your partner is aware that their feelings during this process are of the utmost importance to you. It's best to seek the guidance of an experienced family law attorney prior to discussing a prenuptial agreement with your future spouse in order to gather all the information you need to have a thorough discussion on the subject. These small preparations can help the conversation flow more smoothly between you and your partner, hopefully resulting in a relaxed and honest discussion about what you both expect from your marriage.
Don't wait until the last minute to tell your fiancé you want a premarital agreement.
Both of you should be involved in the process of drafting the prenuptial agreement. It shouldn't be one of you presenting the other with a contract at the rehearsal dinner right before the wedding. Not only are last-minute agreements on "shaky ground" legally speaking, but you're more likely to upset your partner if you expect them to read and sign this type of contract without any warning. Prenups that are signed shortly before the wedding aren't necessarily lawfully invalid, but they are much more likely to be legally argued than agreements that were signed well before a couple says "I do." In order to avoid inflicting massive pre-wedding jitters on your partner, talk about your desire to have a prenup as soon as possible following your engagement. Working together to draft the agreement provides both of you with a chance to state how you feel "work" will be divided throughout your marriage, which can make you more secure with your decision to marry than before. The prenuptial agreement takes the guesswork out of a divorce, as it determines who owns what property.
Consider working with a mediator to draft your premarital agreement.
Working with a mediator allows you, the couple, to draft a contract that combines both of your best interests. Before meeting with a mediator, couples should come up with some issues they would like to address in their prenuptial agreement. Discussing what key points you want the agreement to include beforehand ensures that you are on the same page as a couple, and it will make the meeting with the mediator more productive. In addition to providing you with unbiased advice, a mediator can offer couples guidance on the legalities involved in such contracts. This method is a smart way to guarantee each spouse equal bargaining power. As a matter of protection and precaution, each spouse may also hire their own individual attorney to review the agreement.
Saturday, March 15, 2014
Most people think of marriage as a declaration of love and commitment, not as a legal contract that defines the financial and familial obligations of each party. That is, until they start negotiating a divorce settlement and discover their state’s policy on the division of marital property and spousal support. Although not every couple establishes a prenuptial agreement, there are several good reasons for having a smart prenup in place before saying those magical words, “I do.”
What is a Prenup?
A prenuptial agreement is a legal document that allows the couple to make decisions about their finances and marital property should they eventually decide to part ways. You cannot circumvent the child custody statutes in your state through a prenuptial agreement, although you can decide who gets to keep the family dog. The terms of the prenup must be legal and should be fair to both parties. For instance, an agreement that would leave one spouse homeless with no source of income would not be enforceable.
A prenup is particularly useful when one, or both parties, enter into the marriage with valuable assets or has children from a previous relationship. Older couples are more likely to consider a prenup because they have more assets to lose. Those who are exchanging matrimonial vows for a second or third time recognize that having a customized financial game plan in place can make divorce proceedings less stressful.
A prenup can eliminate later disputes over assets during a divorce and save the couple from acrimonious, time consuming and stressful litigation.
When Should You Consider a Prenup?
A prenup might be a good idea if you have any of the following concerns:
- Providing peace of mind for the partner who has significantly more income or wealth
- Making sure your business remains intact, in your name
- Defining assets such as property, a retirement fund or investments as separate property, not marital property
- Retaining possession of family property, heirlooms or an anticipated inheritance after a divorce
- Looking after the long-term interests of children from a previous marriage
- Worrying that changing your career plan to raise children will leave you at a financial disadvantage
- Avoiding interference with an estate plan
- Financing long-term care for elderly parents or relatives
Starting Your Marriage the Right Way
The divorce laws in most states work on the assumption that both partners in a marriage have agreed to pool their tangible and intangible assets, and the courts generally attempt to make an equitable and fair division of these assets following a divorce. A prenuptial agreement gives you and your intended spouse the opportunity to consider potential areas of disagreement regarding your financial future and address them in a forthright and realistic manner.
Wednesday, March 5, 2014
Workplace romances are never advisable, but sometimes co-workers and business partners fall in love and get married. Unfortunately, they also sometimes fall out of love and get divorced. What happens next?
For some couples, the end of the marriage parallels the end of their working relationship—and possibly the end of the business itself. There are a number of options in such cases. The couple can sell the business and split the proceeds as part of the divorce settlement, or one partner can buy out the interest of the ex-spouse. Or they can try to split the business, with each taking half. Speak with an experienced business lawyer about the pros and cons of these options for your situation.
However, some former spouses do figure out a way to maintain their business partnership after the divorce. The personal relationship may have hit a dead-end, but the investment involved in building and growing a successful company can make it hard to walk away—and unless the business is wildly successful, with plenty of prospective buyers waiting in the wings, it is feasible that neither party can afford to walk away.
Overcoming the Challenges
There are challenges in every business partnership, and ex-spouses can adopt some basic business strategies to cultivate and maintain a healthy working relationship:
- Sign a partners agreement. Be clear about your separate and joint responsibilities, and matters of liability. Make a contingency plan outlining how assets will be divided in case either partner decides to leave.
- If necessary, divide up responsibilities or tasks you once did together so you each have more autonomy.
- Establish a board of directors. Trustworthy business people may have valuable perspectives about the direction and goals of your company.
- Keep the company finances transparent. Money is often one of the most difficult issues in a divorce. Get help if necessary to streamline your accounting processes.
- Be professional around other staff members and employees. It is not fair to put employees in a position where they feel pressured to take sides or respond to inappropriate complaints about their other boss. A toxic work environment is never good for business.
Thinking Outside the Box
Even with the best intentions, a divorced couple may keep falling back into their old patterns at the workplace. If you still think that the business is viable and worth the effort to make a go of it, get professional help. A good marriage therapist is trained to help couples understand the point of view of the other person and gain insight into their dynamics, and this can be valuable information post-divorce, as well.
Most entrepreneurs have a knack for thinking outside the box. Maybe you and your ex- can alternate day and night shifts for a few months. Build a partition between your desks. It might take a while before you move from being unhappy exes to friendly partners - but it just might be worth it.
Serving Southeastern Wisconsin, with offices in Milwaukee and West Bend, Affliated Attorneys, LLC represent clients throughout Milwaukee County, Washington County, Waukesha County, Dodge County, Ozaukee County, Racine County, Sheboygan County, Jefferson County, Fond du Lac County and Walworth County.