Affiliated Attorneys, LLC Blog

Tuesday, February 9, 2016

What Your Loved Ones Absolutely Need to Know About Your Estate Plan

The conversation about a person’s last wishes can be an awkward one for both the individual who is the topic of conversation and his or her loved ones. The end of someone’s life is not a topic anyone looks forward to discussing. It is, however, an important conversation that must be had so that the family understands  the testator’s final wishes before he or she passes away. If a significant sum is being left to someone or some entity outside of the family, an explanation of this action may go a long way to avoiding a contested will. In a similar vein, if one heir is receiving a larger share of the estate than the others, it is prudent to have this action explained. If funds are being placed in a trust instead of given directly to the heirs, it makes sense for the testator to advise his or her loved ones in advance.

When a loved one dies, people are often in a state of emotional turmoil. Each deals with grief differently and, often, unpredictably. Anger is a common reaction to loss, one of the five stages postulated to apply to everyone dealing with such a tragedy. Simply by talking to loved ones ahead of time, a testator can preempt any anger misdirected at the estate plan and avoid an unnecessary dispute, be it a small family tiff or a prolonged legal battle.

The executor of the estate must be privy to a significant amount of information before a testator passes on. It is helpful for the executor to know that he or she has been chosen for this role  and to have accepted the appointment in advance. The executor should know the location of the original will. Concerns of fraud mean that only the original copy of a will can be entered into probate. The executor should be aware of all bank accounts, assets, and debts in a testator’s name. This will avoid a tedious search for documents after the decedent passes on and will ensure that all assets are included as part of the estate. The executor of an estate should be aware of all memberships, because it will be the executor’s responsibility to cancel them. An up-to-date accounting of all assets and debts will simplify the settlement of the estate for an executor significantly.

Monday, January 25, 2016

What is a tax basis and how will it affect my estate plan?

A tax basis is essentially the purchase price of a piece of property. Whenever that property is sold, the seller must pay taxes on the difference between the sale price and the original purchase price. This concept applies to all property, including stocks, bonds, vehicles, mechanical equipment, and real estate. If debts are assumed along with the purchase price, the principal amount of the debt will be included in the basis. The basis can be adjusted downwards when a person deducts depreciation costs on his or her income tax returns, and may be increased for capital investments towards improving the property that are not deducted for income tax purposes. Selling a property that has been held for a long time can carry a serious tax burden because of inflation, particularly when real estate prices have increased.

When an individual receives property as an inheritance, the tax basis is reset to whatever the fair market value is at the time of the transfer of title. This means that the heir would pay significantly less taxes if that property is sold by the beneficiary than if the original owner were to sell it and devise the money to his beneficiaries. Most simple wills provide that all of a testator’s assets are placed into a residual estate to be divided equally among the heirs. This means that an executor must liquidate the assets of the estate and divide the proceeds among the heirs. However, because there is no transfer of title before the property is sold, the heirs are stuck with the grantor’s basis and they lose an opportunity for a sizeable tax break.

A person planning his or her estate may also reset the basis in his or her property by giving it as a gift directly to his or her heirs or by gifting the property to an inter vivos trust. These actions can have their own tax related consequences, or create other unintended problems for the beneficiaries. Only an experienced estate planning attorney can advise you on the most efficient way to pass your assets on to your heirs.

Monday, January 18, 2016

Factors to Consider Before Declaring Bankruptcy

Filing a petition for bankruptcy protection is a major decision that will have a huge impact on an individual’s financial future. There are many factors that a person has to consider before making that decision. These are some considerations to take into account.

  • It will take 7 to 10 years for the bankruptcy to be removed from the filer’s credit history.
  • The most common reasons for bankruptcy are divorce, unemployment, and excessive medical bills, but none of these are necessary to declare bankruptcy.
  • Filing will halt all collection efforts, including letters, phone calls, and lawsuits, through a process known as the automatic stay.
  • Depending on the chapter of the bankruptcy code under which relief is sought, the result will either be the discharge of debt, or the consolidation of the debt into a manageable monthly payment.
  • Secured debts,  that is, debts that are tied to an asset like a car loan or mortgage, cannot be discharged.
  • Many assets may be liquidated in order to pay off debts, but some assets will be exempt from collection.
  • Not everyone qualifies for bankruptcy protection; petitioners must meet income requirements.
  • Costs for bankruptcy attorneys and filing fees vary from region to region. Low-cost legal services are available for those who qualify.
  • Where a petitioner shares a debt with another party, such as an ex-spouse, the other party remains liable for the debt, even if it is discharged.
  • Bankruptcy petitioners are required to take a 90-minute course on financial management. The course is available online.
  • The bankruptcy petition and subsequent order is a part of the public record and can be found by anyone searching for it.
  • Not all debts will be discharged in a bankruptcy. Some debts, such as student loans, support payments, certain tax debts and many other debts are exempt from discharge in a bankruptcy.
  • An individual’s decision to declare bankruptcy cannot lead to negative action from a governmental entity or a private employer. This means that a public utility cannot refuse service, a student loan cannot be denied, and a petitioner cannot lose his or her job as a result of filing for bankruptcy protection.

Monday, January 4, 2016

Can an Individual be held responsible for his or her deceased loved one's debts?

When a loved one dies, an already difficult experience can be made much more stressful if that loved one held a significant amount of debt. Fortunately, the law addresses how an individual’s debts can be paid after he or she is deceased.

When a person dies, his or her assets are gathered into an estate. Some assets are not included in this process. Assets owned jointly between the deceased and another person pass directly to the other person automatically. If there are liens on the property at that time, they will stay on the property, but no new liens can be placed on the property for debts in the name of the deceased. Similarly, debt jointly in the name of the deceased and another party may continue to be collected from the other party. In community property states, all assets and debts are the joint property of both spouses and pass automatically from one to the other. The community property states are Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 

From the pool of assets in the estate, an executor is required to pay all just debts. This means that, before a beneficiary may receive anything, all debts must be satisfied. Property might be sold to create liquidity in order to accomplish this. If there are more debts than there are assets, the estate must sell of as many assets as possible to pay off the creditors. If there is no money in the estate, the creditor can not collect anything. Rather than force people into this tiresome process, many creditors will agree to discharge a debt upon receipt of a copy of a death certificate or obituary. This is particularly true of small, unsecured debts. Life insurance proceeds were never owned by the decedent and should pass to a beneficiary without consequence to the estate. Proceeds of a retirement account may also be exempt from debts.

If creditors continue harassing the beneficiaries of debtors, they may be violating federal regulations under the FDCPA. They can be held accountable by their actions, either by the FTC, the state attorney general, or a private consumer law attorney.

Monday, December 28, 2015

What is a Life Estate?

A life estate is a special designation in probate law referring to a gift to a family member that lasts as long as the life of the recipient. If an individual uses a life estate as part of his or her estate plan, whatever is bequeathed under the life estate will revert back to the residual estate upon the death of the life estate recipient. It is most common in scenarios where an individual starts a new family without children later in life and wants to ensure that the present spouse is taken care of for the remainder of her or his life. The owner of a life estate is called a life tenant. A life estate is often used as an alternative to a trust because it provides the life tenant with more control over the transferred asset.

A life tenant may treat an asset as his or her own. A home may be rented to tenants for income. The life tenant may sell his or her interest in the property to the heirs of the residual estate or to third parties. If the property is sold to a third party, that third party must surrender the property to the residual heirs upon the death of the life tenant.

Though the property belongs to the life tenant, the life tenant has a duty to the residual heirs to keep the property reasonably maintained and in good condition. He or she has an obligation to avoid mortgage arrearages and tax liens while in possession of the property. Exploiting natural resources on the property may be restricted during a life tenancy. A life tenant may not bequeath his or her interest in a life estate through a will because that interest immediately terminates upon the life tenant’s death. Significant changes to the property need to be agreed upon by all parties.

Though there are benefits, there are also drawbacks to establishing a life estate as part of an estate plan. The action could create estate tax issues for the tenant’s estate. In addition, creditors of the tenant may attach liens on the property, creating complicated legal issues for the heirs of the residual estate.

Monday, December 21, 2015

Five Common Reasons a Will Might Be Invalid

There are several reasons that a will may prove invalid. It is important for testators to be aware of these pitfalls in order to avoid them.

Improper Execution

The requirements vary from state to state, but most states require a valid will to be witnessed by two people not named in the will. Some jurisdictions require the document to be notarized as well. Although these restrictions may be relaxed if the will is holographic (handwritten), it is best to satisfy these requirements to ensure that the testamentary document will be honored by the probate court.

Lack of Testamentary Capacity

Anyone over the age of 18 is presumed to understand what a will is. At the end of life, individuals are often not in the best state of mind. If court finds that an individual is suffering from dementia, is under the influence of drugs or alcohol, or is incapable of understanding the document being executed for some other reason, the court may invalidate the will on the grounds that the individual does  not have testamentary capacity.

Replacement by a Later Will

Whenever an individual writes a new will, it invalidates all wills made previously. This means that a will might be believed to be valid for months until a more recently executed document surfaces. The newest will always takes precedence, controlling how assets should be distributed.

Lack of Required Content

Every will is required to contain certain provisions to carry out its purpose. These provisions, ensure that the testator understands the reason for executing the document.  Although these provisions vary from state to  state, some are common to all jurisdictions. It should be clear that the document is intended to be a will. The document  should demonstrate an individual’s wishes in regard to what should happen to his or her property after death. A proper will should also include a provision to appoint an executor to act as an agent for the estate and enforce the terms of the will. If the document  lacks any of these provisions, the will may be declared invalid. 

Undue influence or fraud

A will that was executed under undue influence, coercion or fraud will be invalidated by a court. If a will has been presented to a testator for a signature as if it were any other document, like a power of attorney or a business contract, the court will find that the will was fraudulently obtained and will not honor it. If an individual providing end of life care with exclusive access to the testator threatens to stop care unless a will is modified, that modification is considered to be the result of undue influence and the court will not accept it.

Monday, December 7, 2015

Own a Business With a Spouse? What Happens After a Divorce?

Given that this situation encompasses various areas of law, you should consult both a matrimonial and a business law attorney. Depending upon the type of business the division between you and your soon-to-be ex-wife may be straightforward. However, more than likely, it may take significant work to be able to divide the business. If you and your wife intend to continue to own and/or operate the business together, you could simply divide the ownership between the two of you.

Otherwise, the two of you have to continue to work together until the business is actually sold or dissolved. If the business is such that it has two distinct areas you could spin off one of those into a separate entity that can be owned by one of you.  If the business owns real estate, perhaps some of the real estate could be transferred into a new entity to be owned by one of you with the other of you retaining the ownership of the original entity. If the business is such that it is almost impossible to divide, then perhaps one of you becomes the sole owner of the business and has to pay the other over some period of time for the value of one half of that business. Instead of paying the other of you perhaps an outside loan from a bank or other lending institution could be obtained to provide the funding for the purchase price.

A final option may be that the business has to be sold to an outside third party and the proceeds would be divided between you and your wife in accordance with any agreement between the two of you that have been approved by the divorce court or pursuant to an order.

Monday, November 30, 2015

From Filing to Completion: The Anatomy of a Chapter 7 Bankruptcy

The process of filing a bankruptcy petition can be confusing for a layperson to understand.  There are time limits and deadlines to keep in mind and all filings must be made in accordance with court rules. 

Before any filing occurs, the Courts require a petitioner to complete a Court approved credit counseling course.  The course is easy to complete and is often available online or over the telephone.  The cost is about $25.00.  The certificate of completion must be attached to every Bankruptcy Petition filed.

To file a claim it is helpful to have an attorney.  Attorneys are familiar with the paperwork and terminology involved and can help a Petitioner understand his or her rights.  An attorney will file the petition electronically, and the Automatic Stay, which prohibits collection efforts on a debt that is in Bankruptcy, will go into effect.

At this point, a number will be assigned to the case along with a Bankruptcy Trustee.  The Trustee’s job is to administer the case and to look for and liquidate any unprotected property in order to pay back creditors.

Within two weeks of filing, the trustee will formally request financial documents from the petitioner including pay stubs, bank statements, tax returns, and more.  The request will come through the mail and it is important to respond to the request quickly.

Ten days after the Bankruptcy Petition is filed, a Master List must be filed with the court including the names and addresses of all creditors included in the Bankruptcy.  Within days, another filing, called Statements and Schedules, must be submitted to the Court.  An error in either of these filings could compromise the Bankruptcy.

About a month and a half after the Bankruptcy filing, the Trustee will hold a meeting of creditors for which the Petitioner’s attendance is mandatory.  The meeting gives the Trustee and creditors an opportunity to ask questions about the documents filed with the Court.  If there are errors in the filed papers, they may be corrected at the meeting.  The meeting should not take more than 15 minutes, but can take a significant amount of time to begin.  At this point a Petitioner must take a second credit-counseling course.

If any creditors have a legal argument to prevent a debt included in the bankruptcy from being discharged, that creditor must file a lawsuit within 14 weeks of the filing.  If no objections are filed, the Court will usually issue a discharge within 4 to 6 months of the initial filing.

Monday, November 16, 2015

Avoiding Common Mistakes in Estate Planning

Estate planning is designed to fulfill the wishes of a person after his or her death. Problems can easily arise, however, if the estate plan contains unanswered questions that can no longer be resolved after the person's demise. This can, and frequently does, lead to costly litigation counter-productive to the goals of the estate. It is important that will be written in language that is clear and that the document has been well proofread because something as simple as a misplaced comma can significantly alter its meaning.

Planning for every possible contingency is a significant part of estate planning. Tragic scenarios in which an estate planner’s loved ones predecease him or her, though uncomfortable, must be considered during the preparation of a will to avoid otherwise unforeseen conflicts. 

Even trained professionals can make significant mistakes if they are not well versed in estate planning. An attorney who practices general law, while perfectly capable of preparing simple wills, may not understand the intricacies of trusts and guardianships. A great many attorneys, not aware of the tax consequences of bequests involving IRAs, may leave heirs with unnecessary financial obligations. If an attorney is not knowledgeable enough to ask the proper questions, he or she will be unable to prepare an estate plan that functions efficiently and ensures the proper distribution of the estate's assets.

In spite of the wealth of an individual, the estate may be cash deficient if that wealth is tied up in assets at the time of the individual's death. Problems can also result if an estate planner has distributed assets into joint bank accounts or accounts with pay on death provisions. If the executor of the estate does not have access to funds to pay the estate's bills or taxes, the heirs of the estate may run into trouble.

Even if estate planning is handled well from a logistical point of view, lack of communication with loved ones can interfere with a will's desired execution. A tragedy that incapacitates the testator can occur suddenly, so it is imperative that a savvy estate planner confers with loved ones as soon as possible, making them aware of any future obligations, such as life insurance premiums that must be paid and informing them of the location of any probate documents and inventories of assets. Such conversations ensure that the individual's wishes will be carried out without complications or delay in the event of an unexpected incapacity.

In addition to communicating logistical information, it is also essential to schedule a personal conversation with loved ones that makes clear any sentimental bequests or large gifts that require explanation. This avoids the shock or discomfort that may arise after one's death during which a well-thought-out decision is questioned as impulsive or irrational. Such direct communication of one's plans avoids unnecessary envy, arguments or rivalry among family and friends.

Consulting with attorneys who specialize in estate planning is the cornerstone of creating a plan to ensure that one's desires are carried out and that all the bases are covered. Estate planning attorneys serve as invaluable repositories of all information necessary to strategizing a plan that not only meets one's personal needs and desires, but is legally binding.

Monday, November 2, 2015

How do I become a citizen if I have a green card?

The most common path to citizenship for immigrants is to obtain a permanent resident green card.  The receipt of a green card, however, does not guarantee that citizenship will follow.  Before an individual who possesses a green card can become a citizen, a number of criteria must be met. Individuals desirous of U.S. citizenship should be aware that when their green cards have been obtained through marriage to U.S. citizens, these criteria are slightly different.

Criteria for Application for Citizenship

In order to be eligible to apply for citizenship, an individual must meet the following criteria:

  • Be at least 18 years old;
  • Be in possession of a green card for at least 5 years, or 3 years if a spouse of a citizen;
  • Live in the same state for 3 months preceding application;
  • Maintain residence in the U.S. continually for the 5 years preceding application;
  • Be physically present in the U.S. for at least half of the 5 years preceding application; and
  • Remain in the U.S. while the application is processed.

Once these criteria have been met, United States Citizenship and Immigration Services (USCIS) will qualify the applicant to take the naturalization test. The test comes in two parts: English and civics (history and government). The English test may be waived if the applicant is over 50 years of age and has lived as a permanent resident in the U.S. for 20 years (the "50/20" exception) or is over 55 years of age and has lived as a permanent resident in the U.S. for 15 years (the "55/15" exemption).

The law also requires that an applicant for citizenship be of good moral character, show "attachment to the principles of the Constitution," and be "well-disposed to the good order and happiness of the United States." Having met all these qualifications successfully, the applicant is permitted to make an oath of allegiance to the United States and become a naturalized citizen.  

Monday, October 26, 2015

Deferred Action for Childhood Arrivals

For many people who were brought to this country as children, the United States is the only home they know but they are not citizens. Immigrants in this situation who meet certain eligibility requirements can apply for Deferred Action for Childhood Arrivals (DACA). This program began in 2012 and was expanded in 2014 when President Obama took executive actions on immigration.

Deferred action is not amnesty or immunity; it is a type of prosecutorial discretion that the government may choose to revoke at any time. It does not provide lawful immigration status or a path to a green card or citizenship. It does not extend to any family members of the person granted deferred action.

Despite these limitations, DACA is often an appealing option because individuals who receive deferred action are not considered unlawfully present for admissibility purposes. In addition, immigrants granted deferred action may be able to get an Employment Authorization Document (EAD) and are sometimes eligible for other government benefits such as drivers licenses or reduced tuition.

Individuals seeking DACA can be any age but must have entered the United States before the age of 16 and lived here continuously since January 1, 2010. Applicants for DACA must be physically present in the United States and have no lawful status. Anyone convicted of a felony, significant misdemeanor or three or more other misdemeanors, or who poses a threat to national security or public safety is not eligible for DACA. Applicants must currently be in school, have graduated (or obtained a GED) or be an honorably discharged veteran.

It is possible to collect the needed documents and fill out an application for DACA without the assistance of an attorney; however, you only get one chance to apply. If the government decides not to grant DACA in your case, you cannot appeal the decision or file a motion to reopen or reconsider. Furthermore, an incomplete application can delay the government’s decision, cost you unnecessary fees or even lead to removal proceedings (deportation). Therefore, it is in your best interests to hire an experienced attorney to assist you with your DACA application.

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