This Article will examine Single Member LLCs and why they are good for asset protection purposes of your personal residence. Today, I had a client that came in with his girlfriend/domestic partner. In society, same sex relationship and domestic partners (boyfriend/girlfriend) is become increasingly popular.
Asset protection is difficult for domestic partners because tenancy by entirety (way of owning a home) is not available. Tenancy by Entirety is a method of titling your home, which gives husband and wife the benefit of judgments against one partner not attaching to their personal residence. For example, Husband and Wife own 123 Madison Street, Chicago, Illinois as their personal residence and own their property jointly as tenancy by entirety and not as tenants in common or joint tenancy. John Smith sues Husband and wins his lawsuit and a judgment of $100,000 against Husband. In this example, John Smith's $100,000 lawsuit does not attach as a lien or judgment against Husband and Wife's personal residence. If Husband and Wife owned by the property as Joint Tenants as most married couples, the Husband's judgment could force Husband and Wife into auctioning their home to satisfy Husband's Judgment. In Illinois, Husband and Wife have a $15,000 per person homestead exemption. A homestead exemption is the amount of equity that cannot be touched by a creditor. For instance, in a typical situation, the Husband and Wife's mortgage company is first in line to get their mortgage paid first in case of an sale or auction, then Husband and Wife get a homestead exemption of $15,000 per person ($30,000 as married couple) and then the creditor gets the amount of money to satisfy their judgment. Hence, owning one's property as joint tenants or tenants in common is very risky.
In every state except Louisana and Tennessee, private land trust are a powerful way of owning real estate. A private land trust is a strategy where a Trust company appears as though they own the legal title of a property. Thus, a private land trust serves the purpose of shielding the identity of the owners of the real estate property. Secrecy is an important tool and is used often. With a private land trust, the owners of the property enjoy the "beneficial interest", which means they get the proceeds upon sale and have the ability to direct the legal title holder (trustee) to do certain actions such as transfer/assign title to another party. Additionally, a private land trust converts a real estate property interest from real estate to personal property. This enables real estate owners to avoid judgments and liens being attached to their property. With a lien or judgment, one cannot sell their property without paying all the lien holders such as the mortgage company or a creditor (such as a credit card company).
Owning real estate in a private land trust as two individuals is problematic. It is problematic because a creditor could force two individuals to undo their land trust and transfer the property back into their individual names. Thus, a creditor is using the "beneficial interest" component of a private land trust. With a single member Limited Liability Corporation (LLC), each individually is creating a different business entity which is seperate from them personally. Technically, the business entity is a seperate creation distinct from the individual.
For instance, Girlfriend and Boyfriend own their property jointly and quit claim their property interest from their names to their private land trust with Girlfriend's single member LLC as 1/2 owner and Boyfriend's single member LLC as 1/2 owner. Thus, this title arrangement arguably makes it more difficult for a creditor to force each individual to transfer their beneficial interest in the property back to themselves. Why? The boyfriend and girlfriend technically have set up a seperate business entity, which has a different federal tax identification number (similar to social security number), which is not them. Again, this is not a perfect arrangement because a court could disregard the single member LLC from a liability standpoint and decide that a single member LLC is the same as the individual. This is not perfect but the only one hundred percent protection for a boyfriend and girlfriend is to get married. Federal and state law treats a married couple better than a domestic partner or same sex couple. Therefore, the single member LLC is a good asset protection plan, but it is not perfect.
For tax purposes, the single person LLC is disregarded, which means the IRS treats boyfriend and girlfriend as though they own their primary residence as individuals and not as business owners.
Sean Robertson is a Wealth Preservation Attorney and Founder of Robertson Law Group, LLC. Sean concentrates in Wills and Trusts, Asset Protection, Elder law, and Commercial Litigation. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
Robertson Law Group, LLC
312-498-6080 or RobertsonLawGroup@gmail.com
Wills Trusts Phyician Legal Planning and Elder law
Tuesday, June 9, 2009
Sunday, June 7, 2009
ROBERTSON LAW GROUP, LLC
9923 S. RIDGELAND AVENUE, SUITE 99
CHICAGO RIDGE, ILLINOIS 60415
w) 312-498-6080 or f) 312-377-2480
e) RobertsonLawGroup@gmail.com
Wills and Trusts Quiz
1. If I have a will, will I avoid a court procedure called probate?
o A) True
o B) False
Answer: B
2. What is Probate court?
o A) It is the court that creditors sue my family upon death
o B) It is a court where wills are probated
o C) It is public legal process used to transfer assets that were owned by a deceased person
Answer: B & C
3. What is a Revocable Living Trust?
o A) An estate plan that, like a will, is subject to probate
o B) A Trust to hide assets for the rich and wealthy
o C) An estate plan, that unlike a will, may avoid probate
Answer: C
4. Is Real Estate Outside the State of Illinois, subject to Probate Court in Every State That You Own Real Estate?
o A) True
o B) False
Answer: A. Real estate outside of Illinois is subject to probate court if you do not adequately plan your estate. A will is typically inadequate.
5. In Calculating Your Net Worth, What does the Government define as an Asset?
o A) A House, Stocks, Bonds, Annuities, and Bank Accounts
o B) Everything you own except for life insurance policies
o C) Everything you own including life insurance policies
o D) Everything you own except life insurance and business interests?
Answer: C
6. If you have children under 18 and the parent(s) are not alive, who will be the guardian of your children?
o A) A guardianship court procedure is required to determine who would be an appropriate guardian of your child or children
o B) A guardianship court procedure typically will involve court costs and attorney’s fees and possible, family discord.
o C) A Judge will determine who is guardian over my child or children.
Answer: All of Above
7. Do You Own Real Estate that is for investment purposes, that is in your personal name and not an LLC or Corporation?
o A) True
o B) False
Answer: If A, you should have an Incorporation to protect your assets.
8. If you own Real Estate that is titled in your individual name, are all of your assets subject to a lawsuit?
o A) True
o B) False
Answer: A is true if you don’t have any Corp/LLC liability protection
9. Do You Have A Loved One Such As A Child, Spouse, Brother, or Sister That Would Receive An Inheritance and Blow the Money?
o A) True
o B) False
Answer: If A, a Trust could prevent this
10. What is a Power of Attorney for Property?
o A) A document where you choose an agent (Person) that manages your finances for you in case of an incapacity
o B) A will that is created upon death
Answer: A
11. What is a Power of Attorney for Healthcare?
o A) A written document that chooses a person that will make healthcare decisions for you in case you are incapacitated
o B) A State law that grants the state your assets upon a death
o
Answer: B
Sean L. Robertson is Principal & Wealth Preservation Attorney for Robertson Law Group, LLC. Sean concentrates his law practice in Wills and Trusts, Advanced Estate Planning, Asset Protection, and Elder law. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
9923 S. RIDGELAND AVENUE, SUITE 99
CHICAGO RIDGE, ILLINOIS 60415
w) 312-498-6080 or f) 312-377-2480
e) RobertsonLawGroup@gmail.com
Wills and Trusts Quiz
1. If I have a will, will I avoid a court procedure called probate?
o A) True
o B) False
Answer: B
2. What is Probate court?
o A) It is the court that creditors sue my family upon death
o B) It is a court where wills are probated
o C) It is public legal process used to transfer assets that were owned by a deceased person
Answer: B & C
3. What is a Revocable Living Trust?
o A) An estate plan that, like a will, is subject to probate
o B) A Trust to hide assets for the rich and wealthy
o C) An estate plan, that unlike a will, may avoid probate
Answer: C
4. Is Real Estate Outside the State of Illinois, subject to Probate Court in Every State That You Own Real Estate?
o A) True
o B) False
Answer: A. Real estate outside of Illinois is subject to probate court if you do not adequately plan your estate. A will is typically inadequate.
5. In Calculating Your Net Worth, What does the Government define as an Asset?
o A) A House, Stocks, Bonds, Annuities, and Bank Accounts
o B) Everything you own except for life insurance policies
o C) Everything you own including life insurance policies
o D) Everything you own except life insurance and business interests?
Answer: C
6. If you have children under 18 and the parent(s) are not alive, who will be the guardian of your children?
o A) A guardianship court procedure is required to determine who would be an appropriate guardian of your child or children
o B) A guardianship court procedure typically will involve court costs and attorney’s fees and possible, family discord.
o C) A Judge will determine who is guardian over my child or children.
Answer: All of Above
7. Do You Own Real Estate that is for investment purposes, that is in your personal name and not an LLC or Corporation?
o A) True
o B) False
Answer: If A, you should have an Incorporation to protect your assets.
8. If you own Real Estate that is titled in your individual name, are all of your assets subject to a lawsuit?
o A) True
o B) False
Answer: A is true if you don’t have any Corp/LLC liability protection
9. Do You Have A Loved One Such As A Child, Spouse, Brother, or Sister That Would Receive An Inheritance and Blow the Money?
o A) True
o B) False
Answer: If A, a Trust could prevent this
10. What is a Power of Attorney for Property?
o A) A document where you choose an agent (Person) that manages your finances for you in case of an incapacity
o B) A will that is created upon death
Answer: A
11. What is a Power of Attorney for Healthcare?
o A) A written document that chooses a person that will make healthcare decisions for you in case you are incapacitated
o B) A State law that grants the state your assets upon a death
o
Answer: B
Sean L. Robertson is Principal & Wealth Preservation Attorney for Robertson Law Group, LLC. Sean concentrates his law practice in Wills and Trusts, Advanced Estate Planning, Asset Protection, and Elder law. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
LGBT Estate Planning Center, LLC
Same Sex Couples/Non-Traditional Couples
Robertson Law Group, LLC has an affiliate law firm, LGBT Estate Planning Center, LLC, that understands the unique needs of same sex couples and non-traditional couples. The mission of the LGBT Estate Planning Center, LLC is to promote and advocate the legal recognition of same-sex partnerships and families by having an active presence in the community, focusing on legislative change, and education. We achieve this mission by providing tax, estate, and asset protection planning to individuals, families, and businesses within the LGBT community.
List of Services:
Wills
Living Wills
Power of Attorney
Revocable & Irrevocable Trusts
Charitable Planned Giving
Special Needs Trusts
Business Succession Planning
Asset Protection Planning
Estate & Gift Tax Planning
Business Entity Formation
Please call Robertson Law Group, LLC at
312-498-6080 or Robertson Law Group, LLC
Robertson Law Group, LLC has an affiliate law firm, LGBT Estate Planning Center, LLC, that understands the unique needs of same sex couples and non-traditional couples. The mission of the LGBT Estate Planning Center, LLC is to promote and advocate the legal recognition of same-sex partnerships and families by having an active presence in the community, focusing on legislative change, and education. We achieve this mission by providing tax, estate, and asset protection planning to individuals, families, and businesses within the LGBT community.
List of Services:
Wills
Living Wills
Power of Attorney
Revocable & Irrevocable Trusts
Charitable Planned Giving
Special Needs Trusts
Business Succession Planning
Asset Protection Planning
Estate & Gift Tax Planning
Business Entity Formation
Please call Robertson Law Group, LLC at
312-498-6080 or Robertson Law Group, LLC
Wealth Preservation & Asset Protection
WEALTH PRESERVATION & ASSET PROTECTION
“ASSET PROTECTION STRATEGIES
THAT PROTECT YOUR WEALTH”
Wealth preservation is the process of protecting your wealth from lawsuits, creditors, and life’s challenges that will diminish or alleviate your assets. In this article, we will discuss strategies to increase your chances against your assets being dissipated. Asset protection planning is misunderstood and most people believe that one’s assets are only at risk through malpractice and civil lawsuits. This could not be further from the truth.
The first wealth preservation strategy is to preserve your assets by creating a Revocable Living Trust (hereinafter referred to as “Living Trust”). A Living Trust is a written legal agreement that details your specific wishes with respect to incapacity and death. A Living Trust protects your assets during your life in case of incapacity. Incapacity is a condition where one cannot manage their own property, finances, or healthcare as a result of a lack of physical or mental abilities. Unlike a will, a Living Trust’s purpose provides a smooth transition during a person’s lifetime in case of a stroke, car accident, or any other disability that could occur. A Living Trust is typically used in connection with a Power of Attorney for Property and Healthcare.
A Power of Attorney for Property and Healthcare are legal processes where a person designates an agent to speak on their behalf in case they cannot manage their own finances or make their own healthcare decisions. Guardianship is a court procedure where a person asks a court to be appointed an incapacitated person’s guardian. Guardianship is a legal process where a person requests a court to allow them to manage a person’s financial interests and make personal decisions for them such as healthcare decisions.
Guardianship court procedures should be avoided because a person’s wealth can quickly be diminished as a result of paying nursing home care and legal fees and costs. Long term care insurance is insurance for people that manage the risks and expenses associated with nursing home and private nursing care. Guardianship court is often adversarial because competing persons want the power to take care of their loved one. A guardianship procedure can quickly result in a high expenditure of legal fees because multiple attorneys are employed. The attorneys get paid out of the incapacitated person’s estate (assets).
The second purpose of a Revocable Living Trust is to provide a smooth transition upon death. Unlike a will, a Revocable Living Trust should not involve a court procedure if designed correctly. Upon death, there is a court process called “probate”, which is a court that determines who is the rightful person to inherit from the deceased person. There is a misconception that creating a will is a way to transfer one’s assets to their intended beneficiaries. After one’s death, a will must be admitted into court and notice must be given to the deceased person’s relatives.
This notice requirement invites disputes and may create an adversarial family conflict. For example, a client of mine is facing a will contests by her brother because the brother is not happy that the father left all of his assets to only one daughter. Will contests cause family conflict and costs a lot of money in terms of legal fees and costs.
The family conflict could have been avoided by transferring one’s assets upon death through a Living Trust. Unlike a will, a Living Trust does not involve a court procedure and the Living Trust does not create a situation where notice must be given to any family members except the one’s inheriting.
Furthermore, a Living Trust is a private document where a will is a matter of public record where anyone can see the contents of the will. A simple way to preserve one’s assets is privacy and avoiding court procedures. Attorneys often create bigger conflicts, which cause excessive attorney’s fees and costs. More importantly, families are destroyed and most people could not put a price on their family.
The true purpose of a Living Trust is to transfer one’s assets in a manner that minimizes family conflicts. Hiring an experienced Living Trust’s attorney with guardianship and probate experience is important because choosing the Trustee and drafting the Living Trust in a manner that minimizes or eliminates potential family conflicts are crucial. One of the mistakes of inexperienced attorneys are ignoring or not noticing potential conflicts that could create family friction. The area of wills, trusts, and estates have several unique situations such as special needs children, adult disabilities, and extensive wealth that could cause court procedures, estate and gift taxation, and situations where one does not place assets beyond the control of the federal and state government.
The second wealth preservation strategy is owning real estate and investments in the correct manner. Many people own investment real estate in their individual or joint name. A person should incorporate and create a business entity that is designed to own real estate investments in a business entity’s name. Thus, you are creating a fictional person or business entity that is separate from your personal finances.
Owning real estate investments in your personal name exposes all of your assets to lawsuits or creditors. Many people falsely assume that insurance is adequate to protect their assets from lawsuits. First, insurance companies often deny claims and people are faced with the prospect of paying for a lawsuit out of their own pocket or all of their assets being exposed to a potential judgment from their real estate investments. Second, people are not properly insured and have insurance policies that only provide for $250,000 in coverage. A person who is injured in a car accident or a fire may have extensive damages exceeding $1 million.
As a general rule, high net worth individuals should have a minimum of $1 million dollars of liability coverage. There are exceptions to this general rule and you should consult an insurance liability expert to discuss proper insurance coverage. Another method to reduce the likelihood of lawsuits is a privacy tool called “Private Land Trust”. A Private Land Trust is a privacy technique that keeps ownership of a property or properties anonymous. Typically, a private land trust shows the owner of the property as the Bank, which is the trustee of the private land trust. Banks charge trustee fees that fall in the range of a couple hundred dollars per year per property.
In considering a lawsuit, attorneys perform an asset search, which assists them determine whether a person or business entity has sufficient assets to warrant a lawsuit. As a general rule, attorneys do not want to sue people or business entities that do not own sufficient assets or have insurance. A private land trust is a tool to discourage lawsuits because an attorney may be discouraged from bringing suit because they cannot determine whether a person has assets to warrant a suit.
Another serious consideration in picking a private land trust is to minimize credit and bank fraud. Individuals and groups are scamming seniors and high net worth individuals and using their good credit and good name to secure mortgages, medical care, and credit. Keeping your identity secret is important in today’s society where identify theft is on the rise. Identify theft can cause families to deplete their assets and spend excessive legal fees.
The third strategy to preserve your wealth is to protect your assets against taxation. High net worth families should have experienced advisors such as accountants and attorneys to assist them to minimize taxation. Selling investment real estate and stocks and bonds should be carefully done to minimize capital gains taxes. Tax attorneys and accountants assist high net worth families to structure their assets and transactions in a way that minimizes taxation.
Additionally, high net worth families should protect their assets from estate and gift taxation. Estate taxation is a tax designed for people that own assets above the threshold the government allows without assessing a tax. In 2007, the federal government allows each person to own $2 million dollars in assets without assessing an estimated 50 percent estate tax. For estate tax purposes, the government considers assets such as life insurance proceeds, business and real estate interests, personal property, stocks, bonds, art, checking and savings account(s), and anything that could be sold for money.
Gift taxation is a tax assessed by the Internal Revenue Service that taxes gifts. For example, a quit claim deed to another party without adequate consideration is a gift. People should be careful in setting up and performing business and real estate transactions to ensure that one is not subject to a gift tax. A gift tax is about a 50 percent tax.
The third wealth preservation strategy is to set up a family business such as family limited partnership (hereinafter referred to as “FLP”) or limited liability corporation (hereinafter referred to as “FLLC”). A FLP or FLLC is an asset protection tool that places assets beyond the reach of malpractice lawsuits or creditors. This strategy is like adding virus protection to your computer. A FLP or FLLC sets up different sets of assets that minimize the risks of lawsuits such as malpractice or civil lawsuits. The asset protection goal is to place assets outside the control of an individual and outside the reach of creditors. This Article will not explain the benefits and weaknesses of FLPs or FLLCs further. Please see a specific legal article that examines FLPs or FLLCs in further detail.
Sean L. Robertson (“Sean”) is a Wealth Preservation Attorney & Principal of Robertson Law Group, LLC. Sean concentrates in Wills and Trusts, Asset Protection, Probate and Guardianship, and Business Transactions. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
“ASSET PROTECTION STRATEGIES
THAT PROTECT YOUR WEALTH”
Wealth preservation is the process of protecting your wealth from lawsuits, creditors, and life’s challenges that will diminish or alleviate your assets. In this article, we will discuss strategies to increase your chances against your assets being dissipated. Asset protection planning is misunderstood and most people believe that one’s assets are only at risk through malpractice and civil lawsuits. This could not be further from the truth.
The first wealth preservation strategy is to preserve your assets by creating a Revocable Living Trust (hereinafter referred to as “Living Trust”). A Living Trust is a written legal agreement that details your specific wishes with respect to incapacity and death. A Living Trust protects your assets during your life in case of incapacity. Incapacity is a condition where one cannot manage their own property, finances, or healthcare as a result of a lack of physical or mental abilities. Unlike a will, a Living Trust’s purpose provides a smooth transition during a person’s lifetime in case of a stroke, car accident, or any other disability that could occur. A Living Trust is typically used in connection with a Power of Attorney for Property and Healthcare.
A Power of Attorney for Property and Healthcare are legal processes where a person designates an agent to speak on their behalf in case they cannot manage their own finances or make their own healthcare decisions. Guardianship is a court procedure where a person asks a court to be appointed an incapacitated person’s guardian. Guardianship is a legal process where a person requests a court to allow them to manage a person’s financial interests and make personal decisions for them such as healthcare decisions.
Guardianship court procedures should be avoided because a person’s wealth can quickly be diminished as a result of paying nursing home care and legal fees and costs. Long term care insurance is insurance for people that manage the risks and expenses associated with nursing home and private nursing care. Guardianship court is often adversarial because competing persons want the power to take care of their loved one. A guardianship procedure can quickly result in a high expenditure of legal fees because multiple attorneys are employed. The attorneys get paid out of the incapacitated person’s estate (assets).
The second purpose of a Revocable Living Trust is to provide a smooth transition upon death. Unlike a will, a Revocable Living Trust should not involve a court procedure if designed correctly. Upon death, there is a court process called “probate”, which is a court that determines who is the rightful person to inherit from the deceased person. There is a misconception that creating a will is a way to transfer one’s assets to their intended beneficiaries. After one’s death, a will must be admitted into court and notice must be given to the deceased person’s relatives.
This notice requirement invites disputes and may create an adversarial family conflict. For example, a client of mine is facing a will contests by her brother because the brother is not happy that the father left all of his assets to only one daughter. Will contests cause family conflict and costs a lot of money in terms of legal fees and costs.
The family conflict could have been avoided by transferring one’s assets upon death through a Living Trust. Unlike a will, a Living Trust does not involve a court procedure and the Living Trust does not create a situation where notice must be given to any family members except the one’s inheriting.
Furthermore, a Living Trust is a private document where a will is a matter of public record where anyone can see the contents of the will. A simple way to preserve one’s assets is privacy and avoiding court procedures. Attorneys often create bigger conflicts, which cause excessive attorney’s fees and costs. More importantly, families are destroyed and most people could not put a price on their family.
The true purpose of a Living Trust is to transfer one’s assets in a manner that minimizes family conflicts. Hiring an experienced Living Trust’s attorney with guardianship and probate experience is important because choosing the Trustee and drafting the Living Trust in a manner that minimizes or eliminates potential family conflicts are crucial. One of the mistakes of inexperienced attorneys are ignoring or not noticing potential conflicts that could create family friction. The area of wills, trusts, and estates have several unique situations such as special needs children, adult disabilities, and extensive wealth that could cause court procedures, estate and gift taxation, and situations where one does not place assets beyond the control of the federal and state government.
The second wealth preservation strategy is owning real estate and investments in the correct manner. Many people own investment real estate in their individual or joint name. A person should incorporate and create a business entity that is designed to own real estate investments in a business entity’s name. Thus, you are creating a fictional person or business entity that is separate from your personal finances.
Owning real estate investments in your personal name exposes all of your assets to lawsuits or creditors. Many people falsely assume that insurance is adequate to protect their assets from lawsuits. First, insurance companies often deny claims and people are faced with the prospect of paying for a lawsuit out of their own pocket or all of their assets being exposed to a potential judgment from their real estate investments. Second, people are not properly insured and have insurance policies that only provide for $250,000 in coverage. A person who is injured in a car accident or a fire may have extensive damages exceeding $1 million.
As a general rule, high net worth individuals should have a minimum of $1 million dollars of liability coverage. There are exceptions to this general rule and you should consult an insurance liability expert to discuss proper insurance coverage. Another method to reduce the likelihood of lawsuits is a privacy tool called “Private Land Trust”. A Private Land Trust is a privacy technique that keeps ownership of a property or properties anonymous. Typically, a private land trust shows the owner of the property as the Bank, which is the trustee of the private land trust. Banks charge trustee fees that fall in the range of a couple hundred dollars per year per property.
In considering a lawsuit, attorneys perform an asset search, which assists them determine whether a person or business entity has sufficient assets to warrant a lawsuit. As a general rule, attorneys do not want to sue people or business entities that do not own sufficient assets or have insurance. A private land trust is a tool to discourage lawsuits because an attorney may be discouraged from bringing suit because they cannot determine whether a person has assets to warrant a suit.
Another serious consideration in picking a private land trust is to minimize credit and bank fraud. Individuals and groups are scamming seniors and high net worth individuals and using their good credit and good name to secure mortgages, medical care, and credit. Keeping your identity secret is important in today’s society where identify theft is on the rise. Identify theft can cause families to deplete their assets and spend excessive legal fees.
The third strategy to preserve your wealth is to protect your assets against taxation. High net worth families should have experienced advisors such as accountants and attorneys to assist them to minimize taxation. Selling investment real estate and stocks and bonds should be carefully done to minimize capital gains taxes. Tax attorneys and accountants assist high net worth families to structure their assets and transactions in a way that minimizes taxation.
Additionally, high net worth families should protect their assets from estate and gift taxation. Estate taxation is a tax designed for people that own assets above the threshold the government allows without assessing a tax. In 2007, the federal government allows each person to own $2 million dollars in assets without assessing an estimated 50 percent estate tax. For estate tax purposes, the government considers assets such as life insurance proceeds, business and real estate interests, personal property, stocks, bonds, art, checking and savings account(s), and anything that could be sold for money.
Gift taxation is a tax assessed by the Internal Revenue Service that taxes gifts. For example, a quit claim deed to another party without adequate consideration is a gift. People should be careful in setting up and performing business and real estate transactions to ensure that one is not subject to a gift tax. A gift tax is about a 50 percent tax.
The third wealth preservation strategy is to set up a family business such as family limited partnership (hereinafter referred to as “FLP”) or limited liability corporation (hereinafter referred to as “FLLC”). A FLP or FLLC is an asset protection tool that places assets beyond the reach of malpractice lawsuits or creditors. This strategy is like adding virus protection to your computer. A FLP or FLLC sets up different sets of assets that minimize the risks of lawsuits such as malpractice or civil lawsuits. The asset protection goal is to place assets outside the control of an individual and outside the reach of creditors. This Article will not explain the benefits and weaknesses of FLPs or FLLCs further. Please see a specific legal article that examines FLPs or FLLCs in further detail.
Sean L. Robertson (“Sean”) is a Wealth Preservation Attorney & Principal of Robertson Law Group, LLC. Sean concentrates in Wills and Trusts, Asset Protection, Probate and Guardianship, and Business Transactions. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
Long Term Care Planning and Special Needs Trust for Elderly
LONG-TERM CARE PLANNING:
SPECIAL NEEDS TRUST FOR THE ELDERLY CLIENT
BY SEAN L. ROBERTSON, PARTNER
Robertson Law Group, LLC
9923 S. Ridgeland Avenue, Suite 99
Chicago Ridge, Illinois 60415
w) 312-498-6080 f) 312-377-2480
e) RobertsonLawGroup.com
www.RobertsonLawGroup.com
blog: www.chicagolandestatestrusts.blogspot.com
This article is for Educational Purposes Only. Consult with an Attorney about your specific circumstances, which may make these suggestions impractical or unwise.
Long-term care planning is the planning process of attempting to preserve an elderly person’s assets or provide a supplement to the governmental assistance that an elderly person may need to live a more comfortable life. As one attorney stated, elder law is “late life legal planning.” Nursing home expenses deplete the comfortable lifestyle of an elderly person or their family. A special needs trust is a planning device that enables an elderly person to protect their assets against dissipation. A special needs trust also allows an elderly beneficiary to preserve their assets and to supplement government spending that the Illinois Department of Human Services will not pay for. For example, Medicaid, a federal medical assistance program for the poor will pay for long-term care nursing care expenses of indigents. However, Medicaid will not pay for extra amenities such as a private room or traveling expenses (may not pay for). Therefore, long-term care planning is a strategy to preserve a senior’s assets and assist a senior to live a more compassionate life similar to their accustomed standard of living.
Several planning techniques are available for a senior or senior’s family member to preserve the assets of a senior. First, we must evaluate legal and ethical rules surrounding elder planning. Federal law prohibits certain asset transfers of property that are made to qualify for Medicaid. Congress passed a law nicknamed “Granny Goes to Jail Law” because of the criminal liability to persons who assisted or counseled a Medicaid applicant in making a transfer for purposes of qualifying for Medicaid. Therefore, long-term care planning is not fraudulent or designed to deceive the federal government or State of Illinois. In contrast, long-term care planning is a process of taking advantage of current law to assist a senior to meet their late life legal planning goals. Advanced planning is necessary to avoid fraudulent transfers.
Medicaid is a federal program, which is administered by the States. In Illinois, the Illinois Department of Human Resources is responsible for administering the State of Illinois’s Medicaid plan. To qualify for Medicaid in Illinois, a senior must possess $2,000 or less in assets. Thus, Medicaid is for seniors who lack means or middle class or wealth seniors that aim to preserve their assets and live a more comfortable late life. In determining what is an asset, Illinois has a two-prong approach. First, Illinois labels assets as exempt and non-exempt assets. Exempt assets are assets that are not counted for public policy reasons. In contrast, non-exempt assets are assets, which are counted and are includable in determining whether a senior qualifies for Medicaid.
The first planning strategy to qualify for Medicaid is to shelter your assets into exempt assets when you suspect that a senior may need long-term care planning. Exempt assets include some of the following: a primary residence, household furnishings & personal effects, and assets not in Medicaid applicant’s ownership. Examples of non-exempt assets include a banking account and liquid cash. There are a couple of rules to consider when considering a long-term care planning strategy. First, asset transfers within 36 months to 60 months may not avoid these exempt assets from being counted as non-exempt assets for Medicaid purposes. A “look back” provision enables the government to pretend that a transfer did not occur if it was within 36 months to 60 months of a Medicaid application. The government is aware many seniors hire attorneys to assist them in qualifying for Medicaid. Seniors who aim to preserve their assets from government intrusion should consider gift tax strategies. A senior may gift up to $10,000 per year to children, family members, or loved ones without incurring a gift tax penalty. If the senior is married, the allowable gift amount may increase to $22,000 per year. Therefore, a senior should consider gifting multiple gifts to children, family members, and friends to preserve their assets.
Additionally, seniors should consider transferring their home to the community spouse. A community spouse is a spouse that is married to a senior who is receiving the assistance of Illinois Department of Human Services. The transfer of a home to a community spouse is allowable under Illinois law. Be careful not to use the institutionalized spouse’s assets to pay the mortgage, improve the home, and pay real estate taxes. This may cause the transfer of the home to be considered a non-exempt asset. After the house has been transferred, the community spouse may sale the house and use the proceeds of the sale to establish a special needs trust. The proceeds of the sale of the house are not considered and are exempt from being considered by the Illinois Department of Public Aid. The transfer of property to the community spouse will prevent the institutionalized spouse from being disqualified for public assistance if the community spouse predeceases the institutionalized spouse. This is due to the institutionalize spouse having the ability to sell the home and use the proceeds of the sale of the home for their long-term care needs.
Moreover, a senior should consider transferring a home to a child who is 21 years of age or under. With this strategy, a senior should consider a trust to help preserve the assets from an irresponsible young adult. This strategy helps preserve the home within the senior’s family.
Next, a senior should use liquid assets such as checking accounts to purchase household furnishings and personal effects. A personal or household item is an exempt asset if it is for the institutionalized senior’s personal or household use. An attorney must be careful that personal or household items are not classified for investment purposes.
A senior also should consider using liquid assets to purchase a cemetery plot, establish a burial fund, or purchase a burial insurance policy irrevocably assigned to a funeral home in purchase of a burial service contract.
Furthermore, a senior should utilize liquid cash to purchase a residence if one is not owned. Remember that a personal residence is an exempt asset and not considered for Medicaid eligibility.
Moreover, a senior should consider purchasing an annuity where they have no access to the principal. This method is useful because a senior is turning non-exempt assets into monthly income payments. Monthly income payments if structured correctly help a Medical applicant turn a non-exempt asset into an exempt asset. This also provides some immediate support for the senior without jeopardizing Medicaid eligibility. Be careful and make sure that a senior’s age is considered when purchasing an annuity. If the annuity is not structured correctly, the monthly income may not be exempt for Medicaid purposes.
Finally, a special needs trust should be considered. A special needs trust is a trust where income is distributed for the “special needs” of the senior beneficiary that are not provided for by government entitlements. Special needs refer to the requirements for maintaining the beneficiary’s good health, safety, and welfare whey they are not provided for by a state or federal government body. Hence, a special needs trust is aimed to supplement state expenditures. A special needs trust is designed to pay for items of personal convenience when the Illinois Department of Human Services refuses to pay. For instance, Alice sets up a special needs trust where her son, George, is the trustee (person responsible for following Alice’s wishes). Alice travels every August to her family reunion in Florida. The Illinois Department of Public is unlikely to pay for Alice’s trip. A special needs trust is a supplemental trust that pays for items that are not provided for by a government body. Therefore, a special needs trust’s goal is to pay for recreation, home improvements, vacation, and other personal items that make a senior’s living more comfortable and similar to their standard of living. Most people incorrectly believe that their assets will not be depleted due to ill health. Unfortunately, many well-to-do seniors have experienced a total depletion of their assets by the high costs of nursing homes and medical bills. Often times, long-term care policies are good but not good enough.
In conclusion, a senior who aims to live a more comfortable living situation upon later life should consider employing some of the discussed strategies. Typically, long-term care planning should be considered if a senior is concerned about ailing health in the near future. Remember, the more you plan the more opportunity your attorney has to preserve your assets and assist you in living a more comfortable lifestyle if you were to become sick or disabled.
Sean L. Robertson, is a Partner and Wealth Preservation Attorney with Robertson Law Group, LLC. Sean concentrates his practice in Wills and Trusts, Elder law, Medicaid Asset Protection, and Probate and Guardianship law. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
SPECIAL NEEDS TRUST FOR THE ELDERLY CLIENT
BY SEAN L. ROBERTSON, PARTNER
Robertson Law Group, LLC
9923 S. Ridgeland Avenue, Suite 99
Chicago Ridge, Illinois 60415
w) 312-498-6080 f) 312-377-2480
e) RobertsonLawGroup.com
www.RobertsonLawGroup.com
blog: www.chicagolandestatestrusts.blogspot.com
This article is for Educational Purposes Only. Consult with an Attorney about your specific circumstances, which may make these suggestions impractical or unwise.
Long-term care planning is the planning process of attempting to preserve an elderly person’s assets or provide a supplement to the governmental assistance that an elderly person may need to live a more comfortable life. As one attorney stated, elder law is “late life legal planning.” Nursing home expenses deplete the comfortable lifestyle of an elderly person or their family. A special needs trust is a planning device that enables an elderly person to protect their assets against dissipation. A special needs trust also allows an elderly beneficiary to preserve their assets and to supplement government spending that the Illinois Department of Human Services will not pay for. For example, Medicaid, a federal medical assistance program for the poor will pay for long-term care nursing care expenses of indigents. However, Medicaid will not pay for extra amenities such as a private room or traveling expenses (may not pay for). Therefore, long-term care planning is a strategy to preserve a senior’s assets and assist a senior to live a more compassionate life similar to their accustomed standard of living.
Several planning techniques are available for a senior or senior’s family member to preserve the assets of a senior. First, we must evaluate legal and ethical rules surrounding elder planning. Federal law prohibits certain asset transfers of property that are made to qualify for Medicaid. Congress passed a law nicknamed “Granny Goes to Jail Law” because of the criminal liability to persons who assisted or counseled a Medicaid applicant in making a transfer for purposes of qualifying for Medicaid. Therefore, long-term care planning is not fraudulent or designed to deceive the federal government or State of Illinois. In contrast, long-term care planning is a process of taking advantage of current law to assist a senior to meet their late life legal planning goals. Advanced planning is necessary to avoid fraudulent transfers.
Medicaid is a federal program, which is administered by the States. In Illinois, the Illinois Department of Human Resources is responsible for administering the State of Illinois’s Medicaid plan. To qualify for Medicaid in Illinois, a senior must possess $2,000 or less in assets. Thus, Medicaid is for seniors who lack means or middle class or wealth seniors that aim to preserve their assets and live a more comfortable late life. In determining what is an asset, Illinois has a two-prong approach. First, Illinois labels assets as exempt and non-exempt assets. Exempt assets are assets that are not counted for public policy reasons. In contrast, non-exempt assets are assets, which are counted and are includable in determining whether a senior qualifies for Medicaid.
The first planning strategy to qualify for Medicaid is to shelter your assets into exempt assets when you suspect that a senior may need long-term care planning. Exempt assets include some of the following: a primary residence, household furnishings & personal effects, and assets not in Medicaid applicant’s ownership. Examples of non-exempt assets include a banking account and liquid cash. There are a couple of rules to consider when considering a long-term care planning strategy. First, asset transfers within 36 months to 60 months may not avoid these exempt assets from being counted as non-exempt assets for Medicaid purposes. A “look back” provision enables the government to pretend that a transfer did not occur if it was within 36 months to 60 months of a Medicaid application. The government is aware many seniors hire attorneys to assist them in qualifying for Medicaid. Seniors who aim to preserve their assets from government intrusion should consider gift tax strategies. A senior may gift up to $10,000 per year to children, family members, or loved ones without incurring a gift tax penalty. If the senior is married, the allowable gift amount may increase to $22,000 per year. Therefore, a senior should consider gifting multiple gifts to children, family members, and friends to preserve their assets.
Additionally, seniors should consider transferring their home to the community spouse. A community spouse is a spouse that is married to a senior who is receiving the assistance of Illinois Department of Human Services. The transfer of a home to a community spouse is allowable under Illinois law. Be careful not to use the institutionalized spouse’s assets to pay the mortgage, improve the home, and pay real estate taxes. This may cause the transfer of the home to be considered a non-exempt asset. After the house has been transferred, the community spouse may sale the house and use the proceeds of the sale to establish a special needs trust. The proceeds of the sale of the house are not considered and are exempt from being considered by the Illinois Department of Public Aid. The transfer of property to the community spouse will prevent the institutionalized spouse from being disqualified for public assistance if the community spouse predeceases the institutionalized spouse. This is due to the institutionalize spouse having the ability to sell the home and use the proceeds of the sale of the home for their long-term care needs.
Moreover, a senior should consider transferring a home to a child who is 21 years of age or under. With this strategy, a senior should consider a trust to help preserve the assets from an irresponsible young adult. This strategy helps preserve the home within the senior’s family.
Next, a senior should use liquid assets such as checking accounts to purchase household furnishings and personal effects. A personal or household item is an exempt asset if it is for the institutionalized senior’s personal or household use. An attorney must be careful that personal or household items are not classified for investment purposes.
A senior also should consider using liquid assets to purchase a cemetery plot, establish a burial fund, or purchase a burial insurance policy irrevocably assigned to a funeral home in purchase of a burial service contract.
Furthermore, a senior should utilize liquid cash to purchase a residence if one is not owned. Remember that a personal residence is an exempt asset and not considered for Medicaid eligibility.
Moreover, a senior should consider purchasing an annuity where they have no access to the principal. This method is useful because a senior is turning non-exempt assets into monthly income payments. Monthly income payments if structured correctly help a Medical applicant turn a non-exempt asset into an exempt asset. This also provides some immediate support for the senior without jeopardizing Medicaid eligibility. Be careful and make sure that a senior’s age is considered when purchasing an annuity. If the annuity is not structured correctly, the monthly income may not be exempt for Medicaid purposes.
Finally, a special needs trust should be considered. A special needs trust is a trust where income is distributed for the “special needs” of the senior beneficiary that are not provided for by government entitlements. Special needs refer to the requirements for maintaining the beneficiary’s good health, safety, and welfare whey they are not provided for by a state or federal government body. Hence, a special needs trust is aimed to supplement state expenditures. A special needs trust is designed to pay for items of personal convenience when the Illinois Department of Human Services refuses to pay. For instance, Alice sets up a special needs trust where her son, George, is the trustee (person responsible for following Alice’s wishes). Alice travels every August to her family reunion in Florida. The Illinois Department of Public is unlikely to pay for Alice’s trip. A special needs trust is a supplemental trust that pays for items that are not provided for by a government body. Therefore, a special needs trust’s goal is to pay for recreation, home improvements, vacation, and other personal items that make a senior’s living more comfortable and similar to their standard of living. Most people incorrectly believe that their assets will not be depleted due to ill health. Unfortunately, many well-to-do seniors have experienced a total depletion of their assets by the high costs of nursing homes and medical bills. Often times, long-term care policies are good but not good enough.
In conclusion, a senior who aims to live a more comfortable living situation upon later life should consider employing some of the discussed strategies. Typically, long-term care planning should be considered if a senior is concerned about ailing health in the near future. Remember, the more you plan the more opportunity your attorney has to preserve your assets and assist you in living a more comfortable lifestyle if you were to become sick or disabled.
Sean L. Robertson, is a Partner and Wealth Preservation Attorney with Robertson Law Group, LLC. Sean concentrates his practice in Wills and Trusts, Elder law, Medicaid Asset Protection, and Probate and Guardianship law. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
What are Estate Taxes and How Do I Avoid Them?
What are Estate Taxes and How Do I Avoid Them?
In 2001, the Economic Growth and Tax Relief Reconciliation Act was enacted and included sweeping changes to how estate taxes are determined and calculated. The Act also repeals federal estate taxes in 2010. However, there is a Sunset Provision, which means that all of the estate and gift tax laws revert back to the law in effect prior to the passage of the Act—which would be the laws that were in existence in 2001. This “sunset” provision is part of Congress’ procedures and budgetary estimates.
Federal estate taxes are expensive in 2004 they start at 45% and quickly go up to 55%. And they must be paid in cash, usually within nine months after you die. Since few estates have this kind of cash, assets often have to be liquidated. But estate taxes can be substantially reduced or even eliminated-if you plan ahead. If your estate exceeds the estate exemption amount set by Congress below, your family must pay estate taxes within 9 months of your death.
Estate Exemption and Tax Rates
Calendar Year Estate Exemption Amount Highest Tax Estate Rate________
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 $0 n/a
2011 $1,000,000 55%
Unlike a will, a Trust agreement has provisions, which reduce federal and state estate taxes. A Trust agreement may take advantage of federal laws, which allow the separation of one’s estate into Marital and Family Trusts or sometimes referred to as Credit Shelter Trusts or A/B Trusts. The purpose of the Marital Trust is to maximize the surviving spouse’s estate tax exemption. Any amount of money over the estate tax emption should go into the Family Trust and be spent first to reduce or eliminate the likelihood of paying estate taxes (see Attorney for explanation). Upon the surviving spouse’s death, the marital trust is transferred to the Family Trust. The purpose of two Trusts: Marital and Family Trust is to reduce the likelihood of a federal and state estate tax.
HOW IS MY NET WORTH DETERMINED?
Simply put, you add your total assets minus your liabilities to equal your net worth. To get your total net worth, you add all of your assets together such as your home, business interests, bank accounts, investments (CDs, Stocks, etc), personal property, retirement plans, stock options, and death benefits from your life insurance to equal your total net value. Here is a form to assist you entitled “Calculating Your Net Worth”.
Calculating Your Net Worth
Inventory
Assets
Stocks, bonds, mutual fund $___________________
Bank accounts $___________________
Retirement accounts [IRAs, 401(k)s, etc.] $___________________
Life insurance proceeds $___________________
Annuities $___________________
Real Estate $___________________
Personal property (jewelery, belongings, etc.) $___________________
Automobiles and other vehicles $___________________
Business Interests $___________________
Other/miscellaneous $___________________
Total Assets $___________________
Liabilities
Residential mortgages $___________________
Personal debts (loans, credit cards, etc.) $__________________
Estate settlement costs (3-8% of estate) $___________________
Business-related debt $___________________
Total Liabilities $___________________
Net Worth $___________________
(total assets minus total liabilities)
HOW DO I REMOVE ASSETS FROM MY ESTATE?
A. Tax Free Gifts
First, you may want to be charitable with some of your assets while you are alive (if you can afford it). You likely already know who you want to be the beneficiary of your assets upon your death. You could give tax free gifts to your children, grandchildren or even your favorite charity. Tax free gifts are easy and cost effective. Each person can give away $12,000 per year ($24,000 if married) to as many people as you wish. Gifting is tied to inflation and may increase every couple years.
For example, if you have three children and six grandchildren and you give the maximum amount of gifts allowed per beneficiary each year, your estate will be reduced by $108,000 per year. If your spouse joins in and makes gifts with you, your estate will be diminished by $216,000 per year. With estate taxes around 50%, this could save your estate over $100,000 in estate taxes per year. Additionally, an individual (or married couple) may make unlimited gifts to charities, educational institutions, and healthcare providers if the gifts are made in the correct manner. Why should you begin a gifting program? A simple gifting strategy may save your estate thousands to millions of dollars in estate taxes. Before you start a gifting program, you should consult an estate planning attorney.
B. Irrevocable Life Insurance Trusts (ILITS)
An irrevocable Life Insurance Trust (“hereinafter referred to as ILIT”) are an irrevocable trust that cannot be amended, revoked, or altered upon formation. For most families, death benefits from life insurance proceeds are a major asset of their total net worth. Removing life insurance proceeds from one’s estate may save some families thousands to millions of dollars. For instance, Dan Smith (hypo only) has a total net worth of $4 million with $2 million dollars in life insurance proceeds in 2004. In 2004, the estate tax exemption amount is $ 2 million.
Therefore, anything over $2 million will be taxed at a rate of approximately 50 percent. By setting up an ILIT and removing $ 2 million dollars of life insurance from Mr Smith’s estate, his estate is getting an estate tax savings of around $1 million. Additionally, ILIT may be an inexpensive way to pay estate taxes without liquidating any non-liquid assets such as a business or real estate. Please note that transfers within 3 years of your death, may be disregarded by the IRS if not planned correctly.
C. Equalize Both Spouses’ Estates
A great way to reduce estate taxes is to maximize the marital exemption provided by the IRS. With many families, one spouse earns substantially more than the other and owns the business in their individual name (in an LLC or Corporation typically). For example, a doctor earns $400,000 per year and owns his/her medical practice worth $2 million (according to IRS). In this case, one spouse may have a disproportionate amount of the net worth of the family due to the ownership of the medical practice. Therefore, an effective estate strategy is to equalize both spouses’ estates, so that each spouse uses the maximum amount of estate exemption allowed by the IRS. Please see an attorney for a better explanation.
C. Qualified Personal Residence Trust
A qualified personal residence trust (QPRT) is an irrevocable trust that removes a home from one’s estate at a discounted value while remaining to live in the property. The purpose of a QPRT is to remove assets from one’s estate and reduce the amount of estate taxes due upon death while enjoying the benefits of living in their home.
D. Family Limited Partnership/LLC
A family limited partnership or limited liability corporation is an estate tax and asset protection strategy designed to minimize one’s estate value. Simply put, a family limited partnership/LLC is designed for business, farm, real estate, or stock assets thereby saving thousands to millions of dollars in estate taxes. A family limited partnership/LLC also allows you to transfer appreciating assets to your children, reducing your gross taxable estate. If planned correctly, the general partner (senior family member with high net worth) can keep full control of the family limited partnership/LLC.
E. Charitable Trust
A charitable trust (CT) converts appreciated assets into lifetime income with no capital gains tax and saves estate (assets out of your estate) and income taxes (by creating a charitable deduction). Upon your death, the charity of your choice receives trust assets.
Sean L. Robertson is a Wealth Preservation Attorney and Principal of Robertson Law Group, LLC. Sean concentrates in Wills and Trusts, Advanced Estate Planning, Probate and Guardianship, and Asset Protection law. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
In 2001, the Economic Growth and Tax Relief Reconciliation Act was enacted and included sweeping changes to how estate taxes are determined and calculated. The Act also repeals federal estate taxes in 2010. However, there is a Sunset Provision, which means that all of the estate and gift tax laws revert back to the law in effect prior to the passage of the Act—which would be the laws that were in existence in 2001. This “sunset” provision is part of Congress’ procedures and budgetary estimates.
Federal estate taxes are expensive in 2004 they start at 45% and quickly go up to 55%. And they must be paid in cash, usually within nine months after you die. Since few estates have this kind of cash, assets often have to be liquidated. But estate taxes can be substantially reduced or even eliminated-if you plan ahead. If your estate exceeds the estate exemption amount set by Congress below, your family must pay estate taxes within 9 months of your death.
Estate Exemption and Tax Rates
Calendar Year Estate Exemption Amount Highest Tax Estate Rate________
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 $0 n/a
2011 $1,000,000 55%
Unlike a will, a Trust agreement has provisions, which reduce federal and state estate taxes. A Trust agreement may take advantage of federal laws, which allow the separation of one’s estate into Marital and Family Trusts or sometimes referred to as Credit Shelter Trusts or A/B Trusts. The purpose of the Marital Trust is to maximize the surviving spouse’s estate tax exemption. Any amount of money over the estate tax emption should go into the Family Trust and be spent first to reduce or eliminate the likelihood of paying estate taxes (see Attorney for explanation). Upon the surviving spouse’s death, the marital trust is transferred to the Family Trust. The purpose of two Trusts: Marital and Family Trust is to reduce the likelihood of a federal and state estate tax.
HOW IS MY NET WORTH DETERMINED?
Simply put, you add your total assets minus your liabilities to equal your net worth. To get your total net worth, you add all of your assets together such as your home, business interests, bank accounts, investments (CDs, Stocks, etc), personal property, retirement plans, stock options, and death benefits from your life insurance to equal your total net value. Here is a form to assist you entitled “Calculating Your Net Worth”.
Calculating Your Net Worth
Inventory
Assets
Stocks, bonds, mutual fund $___________________
Bank accounts $___________________
Retirement accounts [IRAs, 401(k)s, etc.] $___________________
Life insurance proceeds $___________________
Annuities $___________________
Real Estate $___________________
Personal property (jewelery, belongings, etc.) $___________________
Automobiles and other vehicles $___________________
Business Interests $___________________
Other/miscellaneous $___________________
Total Assets $___________________
Liabilities
Residential mortgages $___________________
Personal debts (loans, credit cards, etc.) $__________________
Estate settlement costs (3-8% of estate) $___________________
Business-related debt $___________________
Total Liabilities $___________________
Net Worth $___________________
(total assets minus total liabilities)
HOW DO I REMOVE ASSETS FROM MY ESTATE?
A. Tax Free Gifts
First, you may want to be charitable with some of your assets while you are alive (if you can afford it). You likely already know who you want to be the beneficiary of your assets upon your death. You could give tax free gifts to your children, grandchildren or even your favorite charity. Tax free gifts are easy and cost effective. Each person can give away $12,000 per year ($24,000 if married) to as many people as you wish. Gifting is tied to inflation and may increase every couple years.
For example, if you have three children and six grandchildren and you give the maximum amount of gifts allowed per beneficiary each year, your estate will be reduced by $108,000 per year. If your spouse joins in and makes gifts with you, your estate will be diminished by $216,000 per year. With estate taxes around 50%, this could save your estate over $100,000 in estate taxes per year. Additionally, an individual (or married couple) may make unlimited gifts to charities, educational institutions, and healthcare providers if the gifts are made in the correct manner. Why should you begin a gifting program? A simple gifting strategy may save your estate thousands to millions of dollars in estate taxes. Before you start a gifting program, you should consult an estate planning attorney.
B. Irrevocable Life Insurance Trusts (ILITS)
An irrevocable Life Insurance Trust (“hereinafter referred to as ILIT”) are an irrevocable trust that cannot be amended, revoked, or altered upon formation. For most families, death benefits from life insurance proceeds are a major asset of their total net worth. Removing life insurance proceeds from one’s estate may save some families thousands to millions of dollars. For instance, Dan Smith (hypo only) has a total net worth of $4 million with $2 million dollars in life insurance proceeds in 2004. In 2004, the estate tax exemption amount is $ 2 million.
Therefore, anything over $2 million will be taxed at a rate of approximately 50 percent. By setting up an ILIT and removing $ 2 million dollars of life insurance from Mr Smith’s estate, his estate is getting an estate tax savings of around $1 million. Additionally, ILIT may be an inexpensive way to pay estate taxes without liquidating any non-liquid assets such as a business or real estate. Please note that transfers within 3 years of your death, may be disregarded by the IRS if not planned correctly.
C. Equalize Both Spouses’ Estates
A great way to reduce estate taxes is to maximize the marital exemption provided by the IRS. With many families, one spouse earns substantially more than the other and owns the business in their individual name (in an LLC or Corporation typically). For example, a doctor earns $400,000 per year and owns his/her medical practice worth $2 million (according to IRS). In this case, one spouse may have a disproportionate amount of the net worth of the family due to the ownership of the medical practice. Therefore, an effective estate strategy is to equalize both spouses’ estates, so that each spouse uses the maximum amount of estate exemption allowed by the IRS. Please see an attorney for a better explanation.
C. Qualified Personal Residence Trust
A qualified personal residence trust (QPRT) is an irrevocable trust that removes a home from one’s estate at a discounted value while remaining to live in the property. The purpose of a QPRT is to remove assets from one’s estate and reduce the amount of estate taxes due upon death while enjoying the benefits of living in their home.
D. Family Limited Partnership/LLC
A family limited partnership or limited liability corporation is an estate tax and asset protection strategy designed to minimize one’s estate value. Simply put, a family limited partnership/LLC is designed for business, farm, real estate, or stock assets thereby saving thousands to millions of dollars in estate taxes. A family limited partnership/LLC also allows you to transfer appreciating assets to your children, reducing your gross taxable estate. If planned correctly, the general partner (senior family member with high net worth) can keep full control of the family limited partnership/LLC.
E. Charitable Trust
A charitable trust (CT) converts appreciated assets into lifetime income with no capital gains tax and saves estate (assets out of your estate) and income taxes (by creating a charitable deduction). Upon your death, the charity of your choice receives trust assets.
Sean L. Robertson is a Wealth Preservation Attorney and Principal of Robertson Law Group, LLC. Sean concentrates in Wills and Trusts, Advanced Estate Planning, Probate and Guardianship, and Asset Protection law. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
What is Probate in Illinois?
What is Probate Court?
Probate is a process for beneficiaries to obtain the transfer of ownership of assets after the owner has died when the deceased has not designated who the rightful owner of their asset(s) will be. In Illinois, a person who does not have a will or trust must undergo a process called intestate succession. The state of Illinois has a generic formula, which determines whose the rightful owner of a deceased property if they failed to leave a will or trust. Thus, the State of Illinois makes a presumption that you would want to give your assets to your spouse and children equally if you have not left valid legal instructions upon your death. For example, Ann Smith deceased on January 5, 2006 with no spouse and five children. Ann Smith had a total of six children during her lifetime and thus, one child is deceased upon her death. This sixth child had one son, named John. If your spouse is deceased, the State of Illinois presumes that the deceased person would have wanted their children to share in their estate equally.
Therefore, the probate court would conclude that Ann Smith’s beneficiaries are the five children and the one grandchild. Each child and grandchild would share equally (all of the assets not designating a specific beneficiary).
In Illinois, if one child is deceased, it is assumed that the deceased person would want the deceased child’s portion of the inheritance to go to their children equally.
Consequently, probate court is long, time consuming, and expensive. Probate costs typically are 3 to 8 percent of the gross value of one’s estate. Thus, an estate worth $500,000 would pay probate costs such as attorney’s fees, accounting fees, appraisal fees, and court costs ranging from $15,000 to $40,000.
In Illinois, estates with a value of under $100,000 in assets may file a small estate affidavit, which states that the deceased person’s estate is under $100,000 and thus, avoids probate court.
Why Do Wills Not Avoid Probate Court?
Many people falsely believe that drafting a will avoids probate court. A will must be probated in Illinois. Typically, the probate process is called an independent administration, which means that the executor (person who is appointed to administer the will/estate) must file a report at the end of the probate process to explain to the court how the executor spent the assets of the deceased’s estate. An independent administration probate is a simpler probate process, but nevertheless, the process is time consuming, frustrating and costly.
How Do I Avoid Probate Court?
A proper estate plan involving a revocable living trust (Trust) that is funded is an easy way to avoid probate court. A Trust may be easily amended, altered or revoked if it is revocable. A Trust is a legal device, which transfers ownership of property from an individual’s name to a trust’s name. Thus, a trust is essentially a legal contract that creates a fictional person to own their property other than themselves. The key with a Trust is to proper fund the trust with your assets. For example, Ann Smith sets up a Revocable Living Trust but fails to transfer her bank accounts, her life insurance policy, and her home into her Trust name from her individual name. Consequently, this Trust was not properly set up and the assets still must undergo probate court. The good news is with proper estate planning, probate court and the family headaches associated with probate court are easily avoidable.
Does Robertson Law Group, LLC handle
probate and trust administration?
Yes, our attorneys are experienced and compassionate when working with families when their loved ones have not properly planned their estates. In fact, the legal process is fairly simple but time consuming and trying on families. We are experienced at handling the unique circumstances on working with different family members and executors that must probate their loved one’s estates. Many of our clients choose our law firm to be their corporate trustees and administrators of their estates to avoid family conflicts, create a smooth transition upon their death, and preserve their assets. Please call us for a free consultation.
Sean L. Robertson is a Wealth Preservation Attorney that concentrates in Wills and Trusts, Probate and Guardianship, Business Transactions, and Asset Protection law. Sean is Principal of Robertson Law Group, LLC and can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
Probate is a process for beneficiaries to obtain the transfer of ownership of assets after the owner has died when the deceased has not designated who the rightful owner of their asset(s) will be. In Illinois, a person who does not have a will or trust must undergo a process called intestate succession. The state of Illinois has a generic formula, which determines whose the rightful owner of a deceased property if they failed to leave a will or trust. Thus, the State of Illinois makes a presumption that you would want to give your assets to your spouse and children equally if you have not left valid legal instructions upon your death. For example, Ann Smith deceased on January 5, 2006 with no spouse and five children. Ann Smith had a total of six children during her lifetime and thus, one child is deceased upon her death. This sixth child had one son, named John. If your spouse is deceased, the State of Illinois presumes that the deceased person would have wanted their children to share in their estate equally.
Therefore, the probate court would conclude that Ann Smith’s beneficiaries are the five children and the one grandchild. Each child and grandchild would share equally (all of the assets not designating a specific beneficiary).
In Illinois, if one child is deceased, it is assumed that the deceased person would want the deceased child’s portion of the inheritance to go to their children equally.
Consequently, probate court is long, time consuming, and expensive. Probate costs typically are 3 to 8 percent of the gross value of one’s estate. Thus, an estate worth $500,000 would pay probate costs such as attorney’s fees, accounting fees, appraisal fees, and court costs ranging from $15,000 to $40,000.
In Illinois, estates with a value of under $100,000 in assets may file a small estate affidavit, which states that the deceased person’s estate is under $100,000 and thus, avoids probate court.
Why Do Wills Not Avoid Probate Court?
Many people falsely believe that drafting a will avoids probate court. A will must be probated in Illinois. Typically, the probate process is called an independent administration, which means that the executor (person who is appointed to administer the will/estate) must file a report at the end of the probate process to explain to the court how the executor spent the assets of the deceased’s estate. An independent administration probate is a simpler probate process, but nevertheless, the process is time consuming, frustrating and costly.
How Do I Avoid Probate Court?
A proper estate plan involving a revocable living trust (Trust) that is funded is an easy way to avoid probate court. A Trust may be easily amended, altered or revoked if it is revocable. A Trust is a legal device, which transfers ownership of property from an individual’s name to a trust’s name. Thus, a trust is essentially a legal contract that creates a fictional person to own their property other than themselves. The key with a Trust is to proper fund the trust with your assets. For example, Ann Smith sets up a Revocable Living Trust but fails to transfer her bank accounts, her life insurance policy, and her home into her Trust name from her individual name. Consequently, this Trust was not properly set up and the assets still must undergo probate court. The good news is with proper estate planning, probate court and the family headaches associated with probate court are easily avoidable.
Does Robertson Law Group, LLC handle
probate and trust administration?
Yes, our attorneys are experienced and compassionate when working with families when their loved ones have not properly planned their estates. In fact, the legal process is fairly simple but time consuming and trying on families. We are experienced at handling the unique circumstances on working with different family members and executors that must probate their loved one’s estates. Many of our clients choose our law firm to be their corporate trustees and administrators of their estates to avoid family conflicts, create a smooth transition upon their death, and preserve their assets. Please call us for a free consultation.
Sean L. Robertson is a Wealth Preservation Attorney that concentrates in Wills and Trusts, Probate and Guardianship, Business Transactions, and Asset Protection law. Sean is Principal of Robertson Law Group, LLC and can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
Growth and Asset Preservation Strategies for Real Estate Owners/Developers
GROWTH STRATEGIES FOR REAL ESTATE DEVELOPERS:
This article examines why the choice of business structure and choice of business entity are critical to the growth potential of a real estate developer.
1. CHOICE OF BUSINESS ENTITY AND CHOICE OF BUSINESS STRUCTURE
A) Five Major Non-Tax Benefits to Consider
This section examines the major non-tax benefits to evaluate for choice of business entity and structure for a real estate developer. There are several other factors to consider but the intent of this article is to discuss the major growth strategies for real estate developers. The first non-tax factor to consider for choice of business entity and structure is:
1) Limited Liability Protection
Real Estate developers want personal limited liability protection from business creditors’ claims. Typically, most real estate developers are either S corporations (S corps), Limited Liability Corporations (LLCs), or Limited Partnerships (LPs). Therefore, this article will solely discuss the benefits and disadvantages of S corporations, LLCs, and LPs.
With S Corporations (S & C), shareholders are the owners of a corporation. Shareholders purchase stock and become investors in the company. Generally, shareholders solely risk the amount of money they invest in the real estate venture.
With a Limited Liability Corporation (LLC), members are similar to shareholders in that they own a membership interest (like shares of stock) in a company. A LLC also provides members or owners of LLCs limited liability protection.
Limited Partnerships (LPs) are comprised of two types of owners: at least one general partner and at least one limited partner. The general partner is responsible for managing the day to day operations of the real estate development. The general partner also does not have personal limited liability protection. Therefore, it is necessary to make the general partner an LLC, so the general partner does not have limited liability protection.
In contrasts, the limited partners are like shareholders of a publicly held company because they are investors without the power to manage the business or interfere with the business operations. Thus, limited partners are financial investors who want a return on investment without managing the business. Generally, limited partners have limited personal liability protection unless they become active in managing the business.
2) Management and Control Arrangements
S Corporations are centrally managed by a board of directors that acts in a representative capacity for the shareholders who elect them.
In contrast, LLCs and partnerships have more flexibility than corporations. Members in LLCs can specify each party’s managerial role through appropriate provisions in the LLC operating agreement. LLCs generally are more flexible and allow innovative management and control arrangements.
LPs are solely managed by a managing partner, which consists of at least one partner or a management team. LPs have less flexibility because limited partners are prohibited from managing the day to day affairs of the business.
3) Allocations of Income & Loss
With S Corporations, shareholders must allocate profits, losses, deductions, and capital proportionally to their shareholder’s interest.
On the contrary, members in LLCs may allocate profits, losses, deductions, and capital in accordance with their specific needs as long as they meet the business purpose test. Essentially, the business purpose test states that you may allocate items disproportional as long as there is a legitimate business purpose behind such decision. The business purpose test is an attempt by the Internal Revenue Service (IRS) to reduce the number of tax avoidance transactions.
LLCs offer real estate developers the flexibility to structure transactions to incentive investors to invest in real estate ventures. For example, Equity ABC Office, LLC is a real estate development company that recruits wealthy investors to invest in their real estate developments. Equity ABC Office, LLC specializes in converting multi-unit apartment buildings to condos and investing in multi-unit apartment complexes that bring a long-term return on investment. To attract investors, Equity ABC Office, LLC offers investors an annual return on investment of 7 %. Initially, Equity ABC Office, LLC struggles to secure investors because of two reasons: first, investors want a greater return on investment than 7%; and second, investors are concerned that their money is illiquid for a five year period.
Equity ABC Office, LLC is smart and offers two solutions to its’ investors; first, Equity ABC Office, LLC promises its’ two investors 45% of the losses a piece while the investors get a 10% interest in the company a piece. Due to the disproportionate losses, investors A & B realize a return on investment of 25 % instead of 7%. Why? The tax losses reduced their capital gains from other investments. Therefore, the tax losses combined with the return on investment produced a promising investment.
Additionally, Equity ABC Office, LLC solved its’ investors’ second concern because investors A & B received part of its’ investments back in Year 1, Year 2, Year 3, Year 4, & Year 5 through the tax losses. Therefore, Equity ABC Office, LLC reduced investors’ A & B’s’ risk of losing their entire investment and investors’ A & B investment was not liquid because they received some of their investment back in Year 1, Year 2, Year 3, Year 4, & Year 5. Investors A & B will have to pay additional capital gain taxes after they have exhausted their basis. However, most real estate developers will continue IRC 1031 like kind exchanges and hence, defer their tax payment. Instead, Investors A & B have used Uncle Sam’s money to re-invest into different properties and earn interest on money that should have been Uncle Sams.
Limited partnerships offer a lot of the same tax benefits as LLCs because LLCs and LPs are taxed as partnerships. Two rules limit passive real estate losses from offsetting passive gains in LLCs and LPs. First, the IRS does not allow passive real estate losses to offset ordinary income unless the real estate developer or investor works at least 751 hours in the real estate development field.
Essentially, this means that real estate investors must work about 15 hours a week in their own real estate ventures to offset passive real estate losses from their ordinary income. Second, if investors or real estate developers want to utilize tax losses, they must have the same type of passive capital gains to offset their passive losses. For instance, short term (less than 1 year) passive losses must offset short term passive gains where as long-term (greater than 1 year) capital passive losses must offset long-term passive gains. The tax benefits associated with real estate development projects significantly affect the return on investment of a real estate developer.
Therefore, the choice of business entity and the tax attributes of a business entity have a major impact on the profitability of a real estate developer.
4. State & Federal Securities law considerations
With S corporations, a real estate developer is limited in offering a small piece of business ownership to a prospective employee. Shares of stock for an S corporation are subject to State and Federal Securities laws. Therefore, a real estate developer must prepare a Private Placement Memorandum (PPM) to offer their key employee a percentage of ownership of the company. A PPM is a strategy to raise growth and capital to assist a real estate developer to further expand and develop. Drafting a PPM is a costly endeavor because an attorney must be consulted to comply with State and Federal Securities law. The attorney’s goal is to find applicable reasons to seek an exemption under State & Federal Securities laws. Therefore, S corporations are ill suited to offering shares in exchange for services.
Moreover, a real estate developer must consider LLCs because a membership interest in exchange for services in an LLC is generally not subject to State and Federal Securities laws. Small real estate developers typically lack capital to hire traditional key employees like a more established real estate developer.
Instead, a real estate developer should consider issuing a percentage of ownership of an LLC in exchange for services of key employees or executives. Successful entrepreneurs understand that a solid management team is essential to realizing a real estate developer’s potential. To realize growth potential, successful entrepreneurs must sacrifice some ownership interest to obtain high quality employees.
Additionally, entrepreneurs should consider entering into a probationary period where the key employee and the principals of the emerging growth company experience working with one another. After this probationary period, the real estate developer will offer a membership interest (% of ownership of LLC) in exchange for future profits. Generally, a future profits’ interest is not immediately taxable by the IRS because the key employees’ capital account is initially zero.
A future profits’ interest is a percentage of net profits of the real estate development company. For instance, ABC, LLC is a real estate company comprised of five managers. Managers A, B, & C have a 10 % membership interest while the two founders of the company own 35% each. ABC, LLC aims to make key employee F their comptroller in exchange for a 5 % future profits’ interest for his/her future services (ignore the fact that partners must reconfigure their percentage ownership interest).
At the end of the year, employee F will get 5 % of net profits in exchange for his or her services. Therefore, the purpose of a future profits’ interest is to attract and retain outstanding employees, to induce employees to remain with the company, and to encourage employees of the emerging growth company to think and perform like business owners.
4. FLEXIBILITY
Flexibility is crucial to any emerging growth business. Opportunities arise at a moments notice and the business structure must be flexible. With an S corporation, flexibility is limited because S corporations are limited to 100 shareholders and one class of stock. Generally, S corporations are able to have different types of common stock without violating the one class of stock rule.
In contrasts, LLCs are more flexible than S corporations because they are not limited to a particular number of shareholders or requirements against different types of ownership interest. For example, an LLC has the flexibility of issuing common membership units (like shares of stock) and preferred membership units (like shares of stock). A common membership interest has the following characteristics: first, common members in case of a dissolution, liquidation, or sale of the business get paid after the preferred members; second, common members typically enjoy greater growth potential in the company than preferred members due to their increased risks.
As a general proposition, preferred members are investors in the company with a fixed rate of return or a guaranteed payment. In contrasts, common members risk their investments with a strong chance of forfeiting their investment. Finally, a real estate development company when expanding nationally and internationally may have different opportunities requiring flexibility in their choice of business entity.
For instance, ABC, LLC is a real estate development company headquartered in Chicago, Illinois. ABC, LLC aims to set up different LLCs in various states and train different entrepreneurs in each state to operate a profitable real estate development company. In each state, the investors may have different capital commitments and demands, which necessitate different business arrangements. An emerging real estate development business must be flexible in designing its business structure.
With S corporations, shareholders must allocate profits, losses, deductions, and capital proportionally to their shareholder’s interest. This requirement can inhibit flexibility because the ownership interest in the corporation may not follow the business deal.
In contrasts, an LLC & LP has flexibility to allocate profits, losses, deductions, and capital proportional to their member’s interest. For instance, ABC, LLC is considering adding two investors in Texas in exchange for a membership interest in ABC, LLC. With an LLC, the two investors can get a disproportionate amount of losses initially to incentive its investment in ABC, LLC. Assume that investor A (10% interest holder) & investor B (25% interest holder) want a 10 % return on investment.
With an LLC, investor A can get 40% of the losses while investor B can get 50% of the losses of ABC Texas, LLC. Note that investors A & B are getting a greater percentage of losses than their ownership interest in ABC Texas, LLC. This result is not possible with an S corporation. The additional losses for investors A & B may be the selling point for investing in ABC Texas, LLC.
Secondly, the disproportionate losses can ensure that investors A & B receive money back immediately to decrease the likelihood of losing their initial investment.
In conclusion, flexibility is a critical consideration for real estate development companies.
Sean L. Robertson is a Wealth Preservation Attorney that concentrates in Commercial Transactions, Wills and Trusts, Asset Protection, and Estate Planning. Sean is Principal of Robertson Law Group, LLC and has extensive experience in representing business owners, real estate investors and developers. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
This article examines why the choice of business structure and choice of business entity are critical to the growth potential of a real estate developer.
1. CHOICE OF BUSINESS ENTITY AND CHOICE OF BUSINESS STRUCTURE
A) Five Major Non-Tax Benefits to Consider
This section examines the major non-tax benefits to evaluate for choice of business entity and structure for a real estate developer. There are several other factors to consider but the intent of this article is to discuss the major growth strategies for real estate developers. The first non-tax factor to consider for choice of business entity and structure is:
1) Limited Liability Protection
Real Estate developers want personal limited liability protection from business creditors’ claims. Typically, most real estate developers are either S corporations (S corps), Limited Liability Corporations (LLCs), or Limited Partnerships (LPs). Therefore, this article will solely discuss the benefits and disadvantages of S corporations, LLCs, and LPs.
With S Corporations (S & C), shareholders are the owners of a corporation. Shareholders purchase stock and become investors in the company. Generally, shareholders solely risk the amount of money they invest in the real estate venture.
With a Limited Liability Corporation (LLC), members are similar to shareholders in that they own a membership interest (like shares of stock) in a company. A LLC also provides members or owners of LLCs limited liability protection.
Limited Partnerships (LPs) are comprised of two types of owners: at least one general partner and at least one limited partner. The general partner is responsible for managing the day to day operations of the real estate development. The general partner also does not have personal limited liability protection. Therefore, it is necessary to make the general partner an LLC, so the general partner does not have limited liability protection.
In contrasts, the limited partners are like shareholders of a publicly held company because they are investors without the power to manage the business or interfere with the business operations. Thus, limited partners are financial investors who want a return on investment without managing the business. Generally, limited partners have limited personal liability protection unless they become active in managing the business.
2) Management and Control Arrangements
S Corporations are centrally managed by a board of directors that acts in a representative capacity for the shareholders who elect them.
In contrast, LLCs and partnerships have more flexibility than corporations. Members in LLCs can specify each party’s managerial role through appropriate provisions in the LLC operating agreement. LLCs generally are more flexible and allow innovative management and control arrangements.
LPs are solely managed by a managing partner, which consists of at least one partner or a management team. LPs have less flexibility because limited partners are prohibited from managing the day to day affairs of the business.
3) Allocations of Income & Loss
With S Corporations, shareholders must allocate profits, losses, deductions, and capital proportionally to their shareholder’s interest.
On the contrary, members in LLCs may allocate profits, losses, deductions, and capital in accordance with their specific needs as long as they meet the business purpose test. Essentially, the business purpose test states that you may allocate items disproportional as long as there is a legitimate business purpose behind such decision. The business purpose test is an attempt by the Internal Revenue Service (IRS) to reduce the number of tax avoidance transactions.
LLCs offer real estate developers the flexibility to structure transactions to incentive investors to invest in real estate ventures. For example, Equity ABC Office, LLC is a real estate development company that recruits wealthy investors to invest in their real estate developments. Equity ABC Office, LLC specializes in converting multi-unit apartment buildings to condos and investing in multi-unit apartment complexes that bring a long-term return on investment. To attract investors, Equity ABC Office, LLC offers investors an annual return on investment of 7 %. Initially, Equity ABC Office, LLC struggles to secure investors because of two reasons: first, investors want a greater return on investment than 7%; and second, investors are concerned that their money is illiquid for a five year period.
Equity ABC Office, LLC is smart and offers two solutions to its’ investors; first, Equity ABC Office, LLC promises its’ two investors 45% of the losses a piece while the investors get a 10% interest in the company a piece. Due to the disproportionate losses, investors A & B realize a return on investment of 25 % instead of 7%. Why? The tax losses reduced their capital gains from other investments. Therefore, the tax losses combined with the return on investment produced a promising investment.
Additionally, Equity ABC Office, LLC solved its’ investors’ second concern because investors A & B received part of its’ investments back in Year 1, Year 2, Year 3, Year 4, & Year 5 through the tax losses. Therefore, Equity ABC Office, LLC reduced investors’ A & B’s’ risk of losing their entire investment and investors’ A & B investment was not liquid because they received some of their investment back in Year 1, Year 2, Year 3, Year 4, & Year 5. Investors A & B will have to pay additional capital gain taxes after they have exhausted their basis. However, most real estate developers will continue IRC 1031 like kind exchanges and hence, defer their tax payment. Instead, Investors A & B have used Uncle Sam’s money to re-invest into different properties and earn interest on money that should have been Uncle Sams.
Limited partnerships offer a lot of the same tax benefits as LLCs because LLCs and LPs are taxed as partnerships. Two rules limit passive real estate losses from offsetting passive gains in LLCs and LPs. First, the IRS does not allow passive real estate losses to offset ordinary income unless the real estate developer or investor works at least 751 hours in the real estate development field.
Essentially, this means that real estate investors must work about 15 hours a week in their own real estate ventures to offset passive real estate losses from their ordinary income. Second, if investors or real estate developers want to utilize tax losses, they must have the same type of passive capital gains to offset their passive losses. For instance, short term (less than 1 year) passive losses must offset short term passive gains where as long-term (greater than 1 year) capital passive losses must offset long-term passive gains. The tax benefits associated with real estate development projects significantly affect the return on investment of a real estate developer.
Therefore, the choice of business entity and the tax attributes of a business entity have a major impact on the profitability of a real estate developer.
4. State & Federal Securities law considerations
With S corporations, a real estate developer is limited in offering a small piece of business ownership to a prospective employee. Shares of stock for an S corporation are subject to State and Federal Securities laws. Therefore, a real estate developer must prepare a Private Placement Memorandum (PPM) to offer their key employee a percentage of ownership of the company. A PPM is a strategy to raise growth and capital to assist a real estate developer to further expand and develop. Drafting a PPM is a costly endeavor because an attorney must be consulted to comply with State and Federal Securities law. The attorney’s goal is to find applicable reasons to seek an exemption under State & Federal Securities laws. Therefore, S corporations are ill suited to offering shares in exchange for services.
Moreover, a real estate developer must consider LLCs because a membership interest in exchange for services in an LLC is generally not subject to State and Federal Securities laws. Small real estate developers typically lack capital to hire traditional key employees like a more established real estate developer.
Instead, a real estate developer should consider issuing a percentage of ownership of an LLC in exchange for services of key employees or executives. Successful entrepreneurs understand that a solid management team is essential to realizing a real estate developer’s potential. To realize growth potential, successful entrepreneurs must sacrifice some ownership interest to obtain high quality employees.
Additionally, entrepreneurs should consider entering into a probationary period where the key employee and the principals of the emerging growth company experience working with one another. After this probationary period, the real estate developer will offer a membership interest (% of ownership of LLC) in exchange for future profits. Generally, a future profits’ interest is not immediately taxable by the IRS because the key employees’ capital account is initially zero.
A future profits’ interest is a percentage of net profits of the real estate development company. For instance, ABC, LLC is a real estate company comprised of five managers. Managers A, B, & C have a 10 % membership interest while the two founders of the company own 35% each. ABC, LLC aims to make key employee F their comptroller in exchange for a 5 % future profits’ interest for his/her future services (ignore the fact that partners must reconfigure their percentage ownership interest).
At the end of the year, employee F will get 5 % of net profits in exchange for his or her services. Therefore, the purpose of a future profits’ interest is to attract and retain outstanding employees, to induce employees to remain with the company, and to encourage employees of the emerging growth company to think and perform like business owners.
4. FLEXIBILITY
Flexibility is crucial to any emerging growth business. Opportunities arise at a moments notice and the business structure must be flexible. With an S corporation, flexibility is limited because S corporations are limited to 100 shareholders and one class of stock. Generally, S corporations are able to have different types of common stock without violating the one class of stock rule.
In contrasts, LLCs are more flexible than S corporations because they are not limited to a particular number of shareholders or requirements against different types of ownership interest. For example, an LLC has the flexibility of issuing common membership units (like shares of stock) and preferred membership units (like shares of stock). A common membership interest has the following characteristics: first, common members in case of a dissolution, liquidation, or sale of the business get paid after the preferred members; second, common members typically enjoy greater growth potential in the company than preferred members due to their increased risks.
As a general proposition, preferred members are investors in the company with a fixed rate of return or a guaranteed payment. In contrasts, common members risk their investments with a strong chance of forfeiting their investment. Finally, a real estate development company when expanding nationally and internationally may have different opportunities requiring flexibility in their choice of business entity.
For instance, ABC, LLC is a real estate development company headquartered in Chicago, Illinois. ABC, LLC aims to set up different LLCs in various states and train different entrepreneurs in each state to operate a profitable real estate development company. In each state, the investors may have different capital commitments and demands, which necessitate different business arrangements. An emerging real estate development business must be flexible in designing its business structure.
With S corporations, shareholders must allocate profits, losses, deductions, and capital proportionally to their shareholder’s interest. This requirement can inhibit flexibility because the ownership interest in the corporation may not follow the business deal.
In contrasts, an LLC & LP has flexibility to allocate profits, losses, deductions, and capital proportional to their member’s interest. For instance, ABC, LLC is considering adding two investors in Texas in exchange for a membership interest in ABC, LLC. With an LLC, the two investors can get a disproportionate amount of losses initially to incentive its investment in ABC, LLC. Assume that investor A (10% interest holder) & investor B (25% interest holder) want a 10 % return on investment.
With an LLC, investor A can get 40% of the losses while investor B can get 50% of the losses of ABC Texas, LLC. Note that investors A & B are getting a greater percentage of losses than their ownership interest in ABC Texas, LLC. This result is not possible with an S corporation. The additional losses for investors A & B may be the selling point for investing in ABC Texas, LLC.
Secondly, the disproportionate losses can ensure that investors A & B receive money back immediately to decrease the likelihood of losing their initial investment.
In conclusion, flexibility is a critical consideration for real estate development companies.
Sean L. Robertson is a Wealth Preservation Attorney that concentrates in Commercial Transactions, Wills and Trusts, Asset Protection, and Estate Planning. Sean is Principal of Robertson Law Group, LLC and has extensive experience in representing business owners, real estate investors and developers. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com.
Explanation of Wills and Trusts Package
ROBERTSON LAW GROUP, LLC:
ASSET PROTECTION LAW FIRM
Attorney and Counselor of Law
312-498-6080
RobertsonLawGroup@gmail.com
PLANNED GIVING
Hiring our law firm will be your first step towards successfully planning to protect your loved ones during your lifetime and beyond. Your package will include several important legal documents that will assist you in accomplishing your ideal giving situation. These documents are a revocable living trust, durable power of attorney for property, durable power of attorney for healthcare, and a pour-over will. Below is an explanation of what each document protects and how it will be utilized during your estate planning process.
Revocable Living Trust: You are a trustor (person who grants or bequests property interests), who will hold legal title to all bequeathed interests for the benefits of those you name (beneficiaries) to receive your bequest. The trustor creates his/her intent to pass his/her property interests (bequests) through this document (trust). The trustor shall name a person to manage the trust once he/she is deceased this person is called a trustee. A revocable trust is a right reserved by the trustor to change, terminate and recover any property interests that have been included in the trust document(s) without upsetting any loved ones or involving a long court process.
Durable Power of Attorney for Property: A power permitted by the trustor that authorizes an agent (whom ever the trustor names) to transact business for the trustor. This authorization would only become effective upon the trustor’s incapacitation or incompetence. The power would consist of making financial decisions, paying the trustor’s debts, and continuing to meet the trustor’s daily financial obligations.
Power of Attorney for Healthcare: A power permitted by the trustor that authorizes an agent (whom ever the trustor names) to transact healthcare decisions for the trustor. This authorization becomes effective upon the trustor’s disability, incapacitation, or incompetence. This kind of document would have made the Terri Schiavo situation more of a private matter between her and her loved ones and not the court system.
Pour-Over Will: This documents works like a normal will, but in this situation most of your assets of your estate are included in the trust; therefore this document will explain what happens to property that does not make it into the trust. For example, personal property such as clothing or a car may not make it into a trust. These simple personal items shall be distributed by this document (will).
Living Will: Living will usually covers specific directives as to the course of treatment that is to be taken by caregivers, or, in particular, in some cases forbidding treatment and sometimes also food and water, should the principal be unable to give informed consent ("individual health care instruction") due to incapacity. Works in combination with Power
ASSET PROTECTION LAW FIRM
Attorney and Counselor of Law
312-498-6080
RobertsonLawGroup@gmail.com
PLANNED GIVING
Hiring our law firm will be your first step towards successfully planning to protect your loved ones during your lifetime and beyond. Your package will include several important legal documents that will assist you in accomplishing your ideal giving situation. These documents are a revocable living trust, durable power of attorney for property, durable power of attorney for healthcare, and a pour-over will. Below is an explanation of what each document protects and how it will be utilized during your estate planning process.
Revocable Living Trust: You are a trustor (person who grants or bequests property interests), who will hold legal title to all bequeathed interests for the benefits of those you name (beneficiaries) to receive your bequest. The trustor creates his/her intent to pass his/her property interests (bequests) through this document (trust). The trustor shall name a person to manage the trust once he/she is deceased this person is called a trustee. A revocable trust is a right reserved by the trustor to change, terminate and recover any property interests that have been included in the trust document(s) without upsetting any loved ones or involving a long court process.
Durable Power of Attorney for Property: A power permitted by the trustor that authorizes an agent (whom ever the trustor names) to transact business for the trustor. This authorization would only become effective upon the trustor’s incapacitation or incompetence. The power would consist of making financial decisions, paying the trustor’s debts, and continuing to meet the trustor’s daily financial obligations.
Power of Attorney for Healthcare: A power permitted by the trustor that authorizes an agent (whom ever the trustor names) to transact healthcare decisions for the trustor. This authorization becomes effective upon the trustor’s disability, incapacitation, or incompetence. This kind of document would have made the Terri Schiavo situation more of a private matter between her and her loved ones and not the court system.
Pour-Over Will: This documents works like a normal will, but in this situation most of your assets of your estate are included in the trust; therefore this document will explain what happens to property that does not make it into the trust. For example, personal property such as clothing or a car may not make it into a trust. These simple personal items shall be distributed by this document (will).
Living Will: Living will usually covers specific directives as to the course of treatment that is to be taken by caregivers, or, in particular, in some cases forbidding treatment and sometimes also food and water, should the principal be unable to give informed consent ("individual health care instruction") due to incapacity. Works in combination with Power
Top 10 Estate Planning Mistakes for Physicians & Dentists
Robertson Law Group, LLC
9923 S. Ridgeland Avenue, Suite 99
Chicago Ridge, Illinois 60415
w) 312-498-6080 f) 312-377-2480
RobertsonLawGroup@gmail.com
www.robertsonlawgroup.com
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SERVING COOK, DUPAGE, AND WILL COUNTIES
TEN ESTATE PLANNING MISTAKES
FOR PHYSICIANS & DENTISTS
1. Titling property jointly with your children as a substitute for a will.
With a will or Revocable Living Trust (Trust), you make contingencies in case your initial beneficiaries listed are either disabled or deceased. Having a second or third contingent beneficiary is crucial because it helps to avoid probate court. Additionally, titling your personal residence jointly can result in partial loss of the capital gain exclusion if it is sold before your death or result in a gift tax (50% tax rate).
2. Failing to plan for the possibility of children getting divorced or having problems with creditors.
Parents often regret having made outright gifts to their children when the child subsequently divorces and the ex-son or daughter-in-law is awarded an interest in the gifted property by a court, or when property is taken pursuant to a legal creditor judgment against the child. These problems can be reduced through Trusts because Trusts have a spendthrift provision, which prevents the inherited money being subject to a divorce or creditor of the surviving beneficiary.
3. Underestimating Family Conflicts Caused By An Inheritance.
Any person setting up a will or Trust should strongly consider the family dynamics when considering who should be a Trustee and who should inherit their estate. For example, if A dies and has a surviving spouse, which is the result of a 2nd marriage and A has two children from a first marriage, this family will likely have a serious problem. If the estate is not properly structured, the 2nd husband and A’s kids from the first marriage will likely dispute who is entitled to plan the funeral, inherit from the estate, and whether the 2nd husband should continue living in the residence that A and the surviving spouse lived in together.
4. Failing to plan for the possibility of a guardian for your children if they are under age 18.
Many families fail to plan who they will choose to be the guardian over their minor children. A couple factors should be considered: a) who is your first, second, and third choice for guardian over your minor children if you and your spouse are deceased; b) should one or two guardians manage the finances and parental responsibilities; c) what happens if your choice of guardian is divorced and unmarried; and d) what school district and lifestyle will your children have if you choose certain people as guardians.
5. Failing to plan for children that you do not consider to be your children or grandchildren.
Families (especially high net worth) often ask an estate planning attorney to eliminate language in their wills or Trusts that state that they (person creating will or Trust) want to provide for any unborn or adopted children not listed in the will or Trust. Many professionals are concerned about illegitimate children or grandchildren claiming a right to a family inheritance that the family was unaware of.
6. Underestimating the true value of your estate for Federal Estate Tax Purposes.
Many people are unaware that life insurance proceeds are includable in their taxable estates upon death. The estate tax unified credit is currently $2 million and if properly structured, an estate tax can be totally eliminated or greatly reduced with some simple planning techniques.
7. Selling real estate without considering the benefits of “step up” in tax basis upon death.
For example, A owns two real estate properties and is 85 years of age. A is considering selling the property upon her death. If A sells the real estate properties upon her death, A may pay a substantial capital gain’s tax as a consequence of having a low tax basis in A’s real estate properties. If A does not sell the real estate properties and A deceases, A’s family gets a “step up” in tax basis in the real estate property which eliminates the capital gain’s tax on the real estate properties.
8. Protecting loved ones from a substantial inheritance.
One benefit of a Trust is the creator of the Trust can put restrictions on use of a beneficiary’s use of Trust’s assets to protect a beneficiary from their inability to manage money, protect a beneficiary from immaturity, and guaranteeing that a beneficiary will not spend all their inheritance by selecting a Trustor that is good with managing money. For instance, one always should strongly consider how to protect their children and their children’s lifestyle such as choice of educational institutions if the guardian is irresponsible with money.
9. Failing to plan for incapacity or disability.
Families should have appropriate powers of attorney for property and healthcare to appoint a guardian or conservator to act on their behalf if you become disabled or unable to make healthcare or financial decisions for yourself. For instance, if you became disabled today, would you be able to pay your bills or continue running your business. If you have business partners, would your business be able to withstand the absence of a business partner for a substantial amount of time without draining the resources of your business. Do you have an adequate buy/sell written partnership agreement and the proper funding vehicles to fund the buy/sell agreement in case of a disability or incapacity.
10. Failing to review and update your estate plan every couple of years.
Law changes along with personal, family and business changes make it necessary to update your will or Trust. For a lot of families, a Trust is more appropriate than a will and seeking out an estate planning expert can prevent your family from conflicts and substantial legal fees and costs associated with probate court. A second opinion is always good because a lot of attorneys are not seasoned estate planning attorneys and fail to understand the complicated family conflicts and ever changing estate tax laws. For example, have you had a baby, moved to a different state, accumulated additional assets, or been married or recently divorced? If you have had a substantial change in your family or personal life, you should strongly consider scheduling an appointment with an estate planning attorney.
Sean L. Robertson is a Wealth Preservation attorney concentrating in Asset Protection, Estate Planning, and Physician Legal Planning. Sean represents Physicians, Healthcare Groups, and Dentists. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com
Key words: Wills, Trusts, Estate Planning, Dentists, Powers of Attorney (Property & Healthcare), Living Wills, Physician, Asset Protection
9923 S. Ridgeland Avenue, Suite 99
Chicago Ridge, Illinois 60415
w) 312-498-6080 f) 312-377-2480
RobertsonLawGroup@gmail.com
www.robertsonlawgroup.com
blog: www.assetprotectionlaw.blogspot.com
SERVING COOK, DUPAGE, AND WILL COUNTIES
TEN ESTATE PLANNING MISTAKES
FOR PHYSICIANS & DENTISTS
1. Titling property jointly with your children as a substitute for a will.
With a will or Revocable Living Trust (Trust), you make contingencies in case your initial beneficiaries listed are either disabled or deceased. Having a second or third contingent beneficiary is crucial because it helps to avoid probate court. Additionally, titling your personal residence jointly can result in partial loss of the capital gain exclusion if it is sold before your death or result in a gift tax (50% tax rate).
2. Failing to plan for the possibility of children getting divorced or having problems with creditors.
Parents often regret having made outright gifts to their children when the child subsequently divorces and the ex-son or daughter-in-law is awarded an interest in the gifted property by a court, or when property is taken pursuant to a legal creditor judgment against the child. These problems can be reduced through Trusts because Trusts have a spendthrift provision, which prevents the inherited money being subject to a divorce or creditor of the surviving beneficiary.
3. Underestimating Family Conflicts Caused By An Inheritance.
Any person setting up a will or Trust should strongly consider the family dynamics when considering who should be a Trustee and who should inherit their estate. For example, if A dies and has a surviving spouse, which is the result of a 2nd marriage and A has two children from a first marriage, this family will likely have a serious problem. If the estate is not properly structured, the 2nd husband and A’s kids from the first marriage will likely dispute who is entitled to plan the funeral, inherit from the estate, and whether the 2nd husband should continue living in the residence that A and the surviving spouse lived in together.
4. Failing to plan for the possibility of a guardian for your children if they are under age 18.
Many families fail to plan who they will choose to be the guardian over their minor children. A couple factors should be considered: a) who is your first, second, and third choice for guardian over your minor children if you and your spouse are deceased; b) should one or two guardians manage the finances and parental responsibilities; c) what happens if your choice of guardian is divorced and unmarried; and d) what school district and lifestyle will your children have if you choose certain people as guardians.
5. Failing to plan for children that you do not consider to be your children or grandchildren.
Families (especially high net worth) often ask an estate planning attorney to eliminate language in their wills or Trusts that state that they (person creating will or Trust) want to provide for any unborn or adopted children not listed in the will or Trust. Many professionals are concerned about illegitimate children or grandchildren claiming a right to a family inheritance that the family was unaware of.
6. Underestimating the true value of your estate for Federal Estate Tax Purposes.
Many people are unaware that life insurance proceeds are includable in their taxable estates upon death. The estate tax unified credit is currently $2 million and if properly structured, an estate tax can be totally eliminated or greatly reduced with some simple planning techniques.
7. Selling real estate without considering the benefits of “step up” in tax basis upon death.
For example, A owns two real estate properties and is 85 years of age. A is considering selling the property upon her death. If A sells the real estate properties upon her death, A may pay a substantial capital gain’s tax as a consequence of having a low tax basis in A’s real estate properties. If A does not sell the real estate properties and A deceases, A’s family gets a “step up” in tax basis in the real estate property which eliminates the capital gain’s tax on the real estate properties.
8. Protecting loved ones from a substantial inheritance.
One benefit of a Trust is the creator of the Trust can put restrictions on use of a beneficiary’s use of Trust’s assets to protect a beneficiary from their inability to manage money, protect a beneficiary from immaturity, and guaranteeing that a beneficiary will not spend all their inheritance by selecting a Trustor that is good with managing money. For instance, one always should strongly consider how to protect their children and their children’s lifestyle such as choice of educational institutions if the guardian is irresponsible with money.
9. Failing to plan for incapacity or disability.
Families should have appropriate powers of attorney for property and healthcare to appoint a guardian or conservator to act on their behalf if you become disabled or unable to make healthcare or financial decisions for yourself. For instance, if you became disabled today, would you be able to pay your bills or continue running your business. If you have business partners, would your business be able to withstand the absence of a business partner for a substantial amount of time without draining the resources of your business. Do you have an adequate buy/sell written partnership agreement and the proper funding vehicles to fund the buy/sell agreement in case of a disability or incapacity.
10. Failing to review and update your estate plan every couple of years.
Law changes along with personal, family and business changes make it necessary to update your will or Trust. For a lot of families, a Trust is more appropriate than a will and seeking out an estate planning expert can prevent your family from conflicts and substantial legal fees and costs associated with probate court. A second opinion is always good because a lot of attorneys are not seasoned estate planning attorneys and fail to understand the complicated family conflicts and ever changing estate tax laws. For example, have you had a baby, moved to a different state, accumulated additional assets, or been married or recently divorced? If you have had a substantial change in your family or personal life, you should strongly consider scheduling an appointment with an estate planning attorney.
Sean L. Robertson is a Wealth Preservation attorney concentrating in Asset Protection, Estate Planning, and Physician Legal Planning. Sean represents Physicians, Healthcare Groups, and Dentists. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com
Key words: Wills, Trusts, Estate Planning, Dentists, Powers of Attorney (Property & Healthcare), Living Wills, Physician, Asset Protection
Friday, June 5, 2009
Basic Estate Planning for Seniors
“BASIC ESTATE PLANNING FOR SENIORS”
Will vs. Revocable Living Trust
A will is a legal document, which distributes your property upon your death. A will is simple and inexpensive. A Revocable Living Trust is a legal document, which acts similar to a Will in distributing your property with minimal hassle. Generally, a Will involves hassle.
Probate Court: Why Wills Do Not Avoid Probate Court?
A Will is public information and must be filed with a court. For example, Sam Smith aged 70 years old is deceased and left a Will. Sam Smith’s heirs must file Sam’s Will with Probate Court in the County where Sam lived. Unlike a Will, a Revocable Living Trust (hereinafter referred to as “Trust”) if planned correctly involves no court involvement and passes one’s assets quickly and easily upon death or incapacity. The second difference between a Will and a Trust is that a Trust plans for incapacity such as Alzheimers, dementia, and strokes. Seniors must be concerned about long-term care issues and incapacity planning is more vital now than planning for one’s transfer of assets upon death. An estimated fifty (50) percent or more Seniors are facing long-term care issues.
Unlike a Will, a Trust plans for incapacity and death. For instance, Sam Smith has a stroke and is unable to manage his healthcare concerns and finances. In this example, Sam Smith’s family members must either have a valid power of attorney (healthcare and property) or face Guardianship Court. Additionally, your loved one’s must undergo a probate or court procedure in every state where you own real estate. This creates a burden upon your family and is expensive and time consuming. Generally, a probate proceeding takes a minimum of nine (9) months to several years. More importantly, court involvement creates family conflict because of Will contests. Attorneys and Executors must mail notices to potential heirs involving Probate Court unlike a Trust. A Trust is private and is typically a secret document with only beneficiaries knowing the Trust’s contents and assets.
Guardianship Court & Incapacity Planning
Guardianship Court is a type of court that determines whether disabled adults are incapacitated and administers a process in choosing a Guardian to manage their financial matters and healthcare concerns. With a Trust, one’s assets such as their primary home, checking/savings accounts, certificate of deposits and any other assets are titled in their Trust’s name. Many people add relatives to their accounts or house deed, but this is ineffective because their relatives may have lawsuits and other legal matters that could jeopardize a senior’s assets. In this financial crisis, lawsuits, judgments, and bankruptcy are major concerns. Second, relatives and friends die and complicate a senior’s life.
Powers of Attorney for Property & Healthcare
There are two types of Powers of Attorney: Property & Healthcare. A Power of Attorney for Property appoints an agent or successor agent(s) to manage one’s finances in case of incapacity. It is highly recommended to have multiple agents in case your original agent is unavailable, deceased, or incapacitated. An Agent is empowered to make financial decisions for the incapacitated adult. The second type of Power of Attorney is a Power of Attorney for Healthcare. In a Power of Attorney for Healthcare, you state your wishes in case you are unable to make healthcare decisions.
POWER OF ATTORNEY VS. LIVING WILL
A living will is an advanced healthcare directive informing your doctor how you want them to proceed in case of an emergency. A Power of Attorney is much broader than a Living Will and it instructs your physician how to proceed in a medical emergency and appoints an Agent (your loved one) to make healthcare decisions for you. Thus, unlike a living will, you appoint an Agent to consult with your physicians and family members and make healthcare decisions as you have instructed them to do.
Conclusion
In general, a will is sufficient for somebody that does not own any real estate and have limited assets. In contrasts, a Revocable Living Trust is generally better for Seniors with a house and modest to large assets. At a minimum, Seniors should have a Power of Attorney for Property & Healthcare in combination with a Will and/or Revocable Living Trust.
Sean Robertson is Principal of Robertson Law Group, LLC and he concentrates in Elder, Wills & Trusts, Probate & Guardianship, and Asset Protection for Seniors & Adult Disabled persons. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com. Sean has a nationwide Elder law, Estate Planning, & Asset Protection law practice. Sean has his website at www.robertsonlawgroup.com.
Will vs. Revocable Living Trust
A will is a legal document, which distributes your property upon your death. A will is simple and inexpensive. A Revocable Living Trust is a legal document, which acts similar to a Will in distributing your property with minimal hassle. Generally, a Will involves hassle.
Probate Court: Why Wills Do Not Avoid Probate Court?
A Will is public information and must be filed with a court. For example, Sam Smith aged 70 years old is deceased and left a Will. Sam Smith’s heirs must file Sam’s Will with Probate Court in the County where Sam lived. Unlike a Will, a Revocable Living Trust (hereinafter referred to as “Trust”) if planned correctly involves no court involvement and passes one’s assets quickly and easily upon death or incapacity. The second difference between a Will and a Trust is that a Trust plans for incapacity such as Alzheimers, dementia, and strokes. Seniors must be concerned about long-term care issues and incapacity planning is more vital now than planning for one’s transfer of assets upon death. An estimated fifty (50) percent or more Seniors are facing long-term care issues.
Unlike a Will, a Trust plans for incapacity and death. For instance, Sam Smith has a stroke and is unable to manage his healthcare concerns and finances. In this example, Sam Smith’s family members must either have a valid power of attorney (healthcare and property) or face Guardianship Court. Additionally, your loved one’s must undergo a probate or court procedure in every state where you own real estate. This creates a burden upon your family and is expensive and time consuming. Generally, a probate proceeding takes a minimum of nine (9) months to several years. More importantly, court involvement creates family conflict because of Will contests. Attorneys and Executors must mail notices to potential heirs involving Probate Court unlike a Trust. A Trust is private and is typically a secret document with only beneficiaries knowing the Trust’s contents and assets.
Guardianship Court & Incapacity Planning
Guardianship Court is a type of court that determines whether disabled adults are incapacitated and administers a process in choosing a Guardian to manage their financial matters and healthcare concerns. With a Trust, one’s assets such as their primary home, checking/savings accounts, certificate of deposits and any other assets are titled in their Trust’s name. Many people add relatives to their accounts or house deed, but this is ineffective because their relatives may have lawsuits and other legal matters that could jeopardize a senior’s assets. In this financial crisis, lawsuits, judgments, and bankruptcy are major concerns. Second, relatives and friends die and complicate a senior’s life.
Powers of Attorney for Property & Healthcare
There are two types of Powers of Attorney: Property & Healthcare. A Power of Attorney for Property appoints an agent or successor agent(s) to manage one’s finances in case of incapacity. It is highly recommended to have multiple agents in case your original agent is unavailable, deceased, or incapacitated. An Agent is empowered to make financial decisions for the incapacitated adult. The second type of Power of Attorney is a Power of Attorney for Healthcare. In a Power of Attorney for Healthcare, you state your wishes in case you are unable to make healthcare decisions.
POWER OF ATTORNEY VS. LIVING WILL
A living will is an advanced healthcare directive informing your doctor how you want them to proceed in case of an emergency. A Power of Attorney is much broader than a Living Will and it instructs your physician how to proceed in a medical emergency and appoints an Agent (your loved one) to make healthcare decisions for you. Thus, unlike a living will, you appoint an Agent to consult with your physicians and family members and make healthcare decisions as you have instructed them to do.
Conclusion
In general, a will is sufficient for somebody that does not own any real estate and have limited assets. In contrasts, a Revocable Living Trust is generally better for Seniors with a house and modest to large assets. At a minimum, Seniors should have a Power of Attorney for Property & Healthcare in combination with a Will and/or Revocable Living Trust.
Sean Robertson is Principal of Robertson Law Group, LLC and he concentrates in Elder, Wills & Trusts, Probate & Guardianship, and Asset Protection for Seniors & Adult Disabled persons. Sean can be reached at 312-498-6080 or RobertsonLawGroup@gmail.com. Sean has a nationwide Elder law, Estate Planning, & Asset Protection law practice. Sean has his website at www.robertsonlawgroup.com.
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