Moynihan Lyons PC

What are Your Plans for Retiring from Your Business?

If you own your own business, you most likely have a lot of freedom but also a lot of responsibility.

So, just what will happen to your business, if you retire or are not longer capable of running it? It is probably a really good idea to plan ahead for those situations, according to Florida Today in “Estate planning for business owners: What happens to your business when you leave?”

The challenge is, with no succession plan, the laws of the state will determine what happens next. If you started your own business to have more control over your destiny, then you don’t want to let the laws of your state determine what happens, once you are incapacitated, retired or dead.

Think of your business succession plan as an estate plan for your business. It will determine what happens to your property, who will be in charge of the transition and who will make decisions about whether to keep the business going or to sell it.

Your estate planning attorney will need to review these issues with you:

Control and decision-making. If you are the sole owner, who will make critical decisions in your absence? If there are multiple owners, how will decisions be made? Discuss in your vision for the company’s future, and make sure that it’s in writing, executed properly with an attorney’s help.

What about your family and employees? If members of your family are involved in the business, work out who you want to take the leadership reins. Be as objective as possible about your family members. If the business is to be sold, will key employees be given an option of buying out the family interest? You’ll also need a plan to ensure that the business continues in the period between your ownership and the new owner, in order to retain its value.

Plan for changing dynamics. Maybe family members and employees tolerated each other while you are in charge, but if that relationship is not great, make sure plans are enacted so the business will continue to operate, even if years of resentment come spilling out after you die. Your employees may be counting on you to protect them from family members, or your family may be depending upon you to protect them from disgruntled employees or managers. Either way, do what you can in advance to keep everyone moving forward. If the business falls apart the minute you are gone, there won’t be anything to sell or for the next generation to carry on.

How your business is structured, will have an impact on your succession plan. If there are significant liability elements to your business, risk management should also be built into your future plans.

To make your succession plan work, you will need to integrate it with your personal estate plan. If you have a Last Will and Testament in a Florida-based business, the probate judge will appoint someone to run the business, and then the court will have administrative control over the business, until it’s sold.

An estate planning attorney can advise you on your options.

Reference: Florida Today (Feb. 12, 2019) “Estate planning for business owners: What happens to your business when you leave?”

A Good Estate Plan Can Prevent Family Feuds

There are many reasons for a will but avoiding family battles is a really good one.

A basic premise in estate planning is that careful thought about what you would like to happen to your assets when you pass away and a good will, can prevent family squabbles, according to Fatherly in “How to Write a Will: 8 Tips Every Parent Needs to Know.” Families fight when they don’t have clear direction of what the deceased wanted.

A will is one way to ensure that your property is eventually distributed as you wish. Without a will, your estate is administered as an “intestate estate,” which means the state’s laws will determine who receives your assets after you pass. In some states, that means your spouse gets half of your estate, with your parents getting the rest (if there are no children). If the parents have died and there are no children, the rest of the estate may go to your siblings. Your spouse could end up losing the house.

Most people—some studies say as many as 60% of Americans—don’t have a will. It’s hard to say why they don’t: maybe they don’t want to accept their own mortality, maybe they don’t understand what will happen when they die without a will, or perhaps they want to wreak havoc on their families. However, having a will is essential.

Don’t delay. If you don’t have a will in place, stop putting it off. Creating a will gives you the opportunity to effectuate your wishes, not that of the state. What if you don’t want your long-lost brother showing up just to receive a portion of your estate? If you don’t want someone to receive any of your assets, you need to have a will. Otherwise, there’s no way to know how the distribution will play out.

Be thoughtful about how you distribute your assets. If you have children and your will gives them your assets when they reach 18, will they be prepared to manage without blowing their inheritance in a month? A qualified estate planning attorney will be able to help you create a plan for distributing your wealth to children or other heirs in a sequence that will match their financial abilities. You may want to create a trust that will hold the assets, with a trustee who can ensure that assets are distributed in a wise and timely manner.

Every family is different, and today’s families, which often include children from prior marriages, require special planning. If you have remarried and have not legally adopted your spouse’s children from a previous marriage, they are not your legal heirs. If you want to make sure they inherit money or a specific asset, you’ll need to state that clearly in your will. If you are not married to your partner, they will not have any rights, unless a will is created that directs the assets you want them to inherit.

Parents of young children absolutely need a will. If you do not, and both parents pass away at the same time, their future will be determined by the court. They could end up in foster care, while awaiting a court decision. Battling grandparents may create a tumultuous situation. The court could also name a guardian who you would never have chosen. A will lets you decide.

Speak with an estate planning attorney to make sure you have a will that is properly prepared and follows the laws of your state. You also want to name a power of attorney and a health care agent.

Reference: Fatherly (Feb. 6, 2019) “How to Write a Will: 8 Tips Every Parent Needs to Know”

You May Be in Favor of the Estate Tax but Just Don’t Know It

Many Americans favor the repeal of the “death tax.”

The estate tax has generally been considered by Americans as a bad tax that is unfair, even if it hits the wealthy the hardest, according to The Washington Post in “People like the estate tax a whole lot more when they learn how wealth is distributed.”

The use of the phrase “death tax” hasn’t done much to enhance the federal estate taxes’ likability. It is the tax on a person’s estate and is paid when the person dies. Many people feel like it’s an unfair tax, levied during a time of a family’s grief. However, a research study from Sweden has revealed some interesting responses to how people feel when questioned about wealth inheritance. Sweden abolished its estate tax in 2004.

The study gave participants information about wealth inheritance in three bullet points:

• Inherited wealth represents about half of all wealth in the population.
• Those with the highest incomes inherit the most.
• A majority of Swedish billionaires have inherited their fortunes.

Others in the study were not given this information. The group who received this information were more likely to support the estate tax than those who did not. Of the people who did not receive these three facts, 25% supported the estate tax. Here’s the interesting thing: support among the group that did receive these facts stood at 33%, meaning the support for the tax was boosted by about 8 percentage points.

It boils down to this: people who do not know much about wealth distribution are likely to think an estate tax is not a good thing. The larger implication is that once people have a greater understanding of how wealth is distributed (or in this case, not distributed), they are far more likely to support an estate tax.

Similar studies in the U.S. have come to the same conclusion. People were asked if the estate tax should be abolished. Half of them were told that the tax effects only estates worth more than $5 million. In that group, support for keeping the tax was 46%. In the other half, people who were not told that fact, 27% didn’t want to keep the tax.

Generally speaking, most Americans don’t know as much about wealth distribution. One study revealed that Americans think the bottom 60% of the country owns a little more than 20% of the total wealth. The bottom 60% of this country owns 1% of the total wealth. Ninety percent of wealth is held by the richest 20% of families, with the richest 1% owning 40% of it.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: The Washington Post (Feb. 6, 2019) “People like the estate tax a whole lot more when they learn how wealth is distributed”

Going Crypto? Estate Plan Needs Extra Care

If you haven’t made good plans, the funds may not be available to your heirs.

There can be strong returns in cryptocurrency. However, there can also be dangers, if your estate plan is not designed to deal with the digital world, according to Bloomberg in “Crypto Exchange Founder Filed Will 12 Days Before He Died.”

The unexpected death of 30-year-old cryptocurrency exchange founder Gerald Cotten left $145 million in Bitcoin and other digital assets protected by his passwords. No provisions were made for anyone to retrieve the assets. His wife Jennifer Robertson was his sole heir and executor to his estate.

The Canadian press reported that a Nova Scotia Supreme Court Justice granted the company a 30-day stay to halt any lawsuits from proceeding at this time, and the Vancouver-based firm was granted protection from creditors.

The business was launched late in 2013, and users deposited cash or cryptocurrency through its online trading platform, storing digital currency on blockchain ledgers that are only accessible through a code. There were 363,000 registered users and 92,000 have account balances owing to them, in either cash or cryptocurrencies.

Cotten, the sole owner and director, did an excellent job of protecting his assets. This was fine while he was alive, but now presents a serious situation for account holders. He was very conscious about security. Everything, from his laptop, email addresses and messaging system, was encrypted. He was the only one who handled funds, coins and the banking and accounting side of the business. He also moved most of the digital coins into storage that was not connected to the internet, to avoid being hacked.

His wife can’t find his passwords or any business records for the company. Experts who attempted to hack into the system were only partially able to do so. Attempts to open an encrypted USB key have also failed. Some clients who claim that they are owed money, have retained counsel to represent them during creditor protection proceedings.

Cotten and his wife had no children. The assets that he left to her include several properties, an airplane, a yacht, a luxury car and his two pet dogs. He died as a result of complications due to Crohn’s disease.

This is an extreme example of what can go wrong, when digital assets are not made part of an estate plan. Most people today do have digital assets and need to address them in their estate plan.

Reference: Bloomberg (Feb. 5, 2-019) “Crypto Exchange Founder Filed Will 12 Days Before He Died”

What If the Beneficiary Is Deceased?

Prevent failed testamentary transfer from happening.

The concept of having an estate plan, is to prevent intestacy. However, things don’t always work out as planned, according to the Lake Country News’ in “Estate Planning: Failed Testamentary transfers.” That’s why every will, trust and any asset of any kind with a beneficiary designation, should have an alternative or secondary beneficiary.

Here’s what happens, if the person isn’t named. If the deceased beneficiary was the decedent’s kin or was kin to the surviving spouse, deceased spouse or even an ex-spouse, in California a special statute called the California Anti-Lapse Statute comes into play, unless another intention is expressed in the will. Under this law, a gift to a deceased kindred beneficiary goes to the kindred beneficiary’s descendants.

The share of the asset will be divided into as many shares, as there are living members of the next generation of kin.

Here’s an example: Let’s say a father makes a gift to his beloved daughter Susan. Sadly, Susan dies before her father. She has two daughters, Dawn and Heather. There’s also a son, Phil, who has passed away, with two surviving children (who were Susan’s grandchildren).

The shares of the father’s gift to Susan is divided by a right of representation into three equal shares: one share each for both of Susan’s daughters Dawn and Heather, and one share for her son Phil, because he has two surviving children.

The share for Phil’s two kids is split equally between the two boys.

This division of assets is a statutory response to what can happen when children do not live longer than their parents.

When there is no alternative beneficiary to inherit and the Anti-Lapse statute does not apply, then the gift is subject to a residual clause. This determines how the remainder, or balance, of the assets are distributed after any specific gifts or assets and monetary gifts are made. First in line: any debts or taxes that need to be paid by the estate.

When there are no specific or monetary gifts, the residuary clause distributes the decedent’s entire estate.

Let’s say Bob leaves his entire estate to his friend George. The Anti-Lapse statute does not apply, because Bob’s heir is not a relative. The will has a residuary clause that gives the remainder of the estate to Bob’s own children equally, even though that might not have been Bob’s intention.

While every state has different laws, this is a good example of why it is very important to update your will on a regular basis. It’s also important to have alternative or secondary heirs named as beneficiaries.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Lake Country News (Jan. 26, 2019) “Estate Planning: Failed Testamentary transfers”

Will Planning and Estate Planning? Not the Same

Estate planning goes the distance in caring for your family.

Will planning and estate planning are often confused. However, the important difference is that a will focuses on distribution of assets but estate planning goes much deeper, according to Lexology in “The Differences Between Will Planning & Estate Planning.”

An estate planning attorney can help you determine exactly what kind of planning you need, help you create the documents that will support your needs and give you and your family guidance in more complex matters.

Will planning is a relatively simple process that involves creating a document known as a last will and testament. It conveys instructions for after you have died. That may include naming a guardian to rear your children or who should take over your business, who should be in charge of your estate, the executor and who will receive your assets.

Everyone needs a will. It avoids family disputes about property, saves money on legal expenses that occur when there is no will and makes many decisions about your estate much easier. It is a kindness to your loved ones, to have a will.

Estate planning is a little different. It is more detailed and involves tax planning and certain protections for you while you are living. A living will is used to convey your wishes about what kind of medical care you want, if you should become unable to speak on your own behalf. The living will includes end-of-life care, the use of extraordinary measures, like a respirator or feeding tube and more. This is also a kindness to your loved ones, since it spares them from having to guess what your wishes might be.

You’ll also want to have a financial Power of Attorney created to instruct a named person regarding how to handle your money, your business and your investments, if you are unable to function. This person can do anything you could do, from transacting business to moving money into accounts, etc. 

A living trust can be used to outline your wishes regarding your property and finances. An estate planning attorney will be able to review your assets and determine whether you need a living trust or if there are other trusts that may be more appropriate for your situation.

Beneficiaries are the individuals named on various accounts. They will receive assets directly from the institution that holds the assets, like insurance policies, retirement accounts, investment accounts and the like. It’s very important to understand that when there is a beneficiary named in a document, that beneficiary will get the assets, regardless of what your will says. These should be updated on a regular basis and if possible, you should always have a primary beneficiary and a secondary beneficiary.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Lexology (Jan. 28, 2019) “The Differences Between Will Planning & Estate Planning”

For the Record: Not All Wills are Probated

So, just what is the process?

The purpose of the probating process is to determine who will receive the assets of the decedent. An article in nwi.com recently reviewed the procedure in “Estate Planning: Do wills need to be probated?” An estate plan can be established, without opening a probate estate. Not all wills are probated.

Bear in mind that the only assets subject to probate, are those that are controlled by the will. Assets that the decedent owned in his or her name alone without beneficiary designations are probate assets. If the asset is owned in two people’s names or contains a beneficiary designation or is a POD—Payable on Death—or TOD—Transfer on Death—those assets are not probate assets.

One reason to probate an estate, is to determine who receives the property of the person who has passed. If the account is owned jointly in two people’s names, typically a husband and wife or parent and child, then the surviving joint owner becomes the full owner at the time of death. A bank or financial institution will probably want to see a death certificate to verify that the other person on the account has passed.

This is also true for a CD—Certificate of Deposit—if there are two names on it. It also applies to any real estate held in two names. Ownership for these assets, properly titled in more than one name, are not a big deal, if the titles have been done properly.

Therefore, using joint ownership or naming beneficiaries for most or all of the assets, removes the need to probate much of the will. However, in some instances, some attorneys like to present the will for probate, but ask that a personal representative not be appointed, and no estate opened. This is called “spreading the will for record” and it preserves the will. Wills need to be presented for probate within the statutory deadline for your state. These timeframes can range from six months to within three years of the death of the decedent (your estate planning attorney will know your state’s laws on this matter). If this is not done, then the will may not be accepted by the court as valid.

By spreading the will, the will is preserved in the outside chance that an asset is uncovered in the future, even after the statutory timeframe has expired. When the beneficiaries of the will are not the same as family members found under intestate statutes, like a pour-over will, where the trust receives all the property under the will, it makes this strategy especially valuable. Spreading the will further ensures that the trust estate plan will be carried out. Trusts are rarely presented to the court for probate.

In some regions, probate is a quick and relatively painless process. Depending on the situation, there may be little gained by over-engineering the estate just to avoid probate.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and meets the requirements of your state laws.

Reference: nwi.com (Jan. 20, 2019) “Estate Planning: Do wills need to be probated?”

Federal Taxes Not Usually at Top of List in Estate Planning

Middle class families had to be concerned with federal taxes in the past but not so much anymore.

The Rome Sentinel recently addressed federal estate taxes from an historical perspective and what its impact may be today in the article “2019 update: Should you be concerned about the estate tax?” One of the main issues, is that if you need to worry about the federal taxes, you are most likely in a very good financial situation.

For starters, there are many loopholes and nuances in the tax laws. Therefore, every situation is different. Your estate planning attorney will be able to review your individual situation and work with the laws of your state to make sure that your estate plan works for your family and minimizes your estate tax liability.

The estate tax concept is based on laws from past centuries, when the goal was to limit the amount of property that individuals could pass from one generation to the next. The estate tax is now the government’s way of saying you had too many assets, or assets that could not be fully valued or taxed, except upon your death. After death, the net worth of your estate is calculated by valuing your assets minus any liabilities.

Assets are counted as anything of value. However, they include: cash, insurance policies, stocks, bonds, real estate, annuities, brokerage accounts, business interests, and today, digital assets. They are brought to present market value to create the “gross estate.” Liabilities are counted as debts, mortgages, assets, funeral and estate expenses, and any assets lawfully passing to a surviving spouse. The liabilities are deducted from the assets to get to the “net estate” value.

Federal limits to the estate tax deduction were doubled, and today very few estates in the US are subject to the federal estate tax. Here’s a comparison: in 2000, the federal estate tax exemption was $675,00 and an estimated 52,000 estates had to pay estate taxes. The top 10% of income earners paid almost 90% of the tax, with more than a quarter of that paid by the wealthiest 0.1%.

When the new Tax Cut and Jobs Act became effective, the exclusion for federal estate tax increased from $5.49 million per person to $11.18 million per person. In 2019, there has been a further increase, to $11.4 million per person. That remains in effect until 2025.

Many states impose their own estate taxes. In New York State, the Basic Exclusion Amount for New York State Tax for estates for people who died on or after Jan. 1, 2019, and before Jan. 1, 2020, has increased from $5.49 million per person to $5.74 million per person. These amounts will increase in 2020.

However, even without the federal estate tax, people still need estate plans to protect themselves and their families because a will ensures that your assets are distributed to the people you want to receive your assets. An estate plan includes a Power of Attorney and Health Care Power of Attorney among the protections.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Rome Sentinel (Jan. 22, 2019) “2019 update: Should you be concerned about the estate tax?”

So, Just What Does a Financial POA Do?

It is really important to understand the responsibilities of a Power of Attorney.

If you are someone’s Power of Attorney or it is possible you are going to be named a Power of Attorney, it is probably a really good idea to understand the role and responsibilities before proceeding, according to the Rushville Republican in “Financial power of attorney responsibilities.”

The person who signs the POA is called the “principal” and the person to whom authority is given, is often referred to as the “attorney in fact” or the “agent.”

What powers are given to the person who becomes the agent? In some POAs, there are limits placed on the person, but in most cases the power is “general.” In these cases, the agent can do whatever the individual would do. That includes opening bank accounts, buying and selling property, managing investments, filing taxes, cashing checks and closing accounts. An agent is a considered a fiduciary of the principal.

The agent may not change the principal’s will and he is not permitted to transfer such authority to act as an agent for the principal to anyone else, unless specifically authorized in the POA itself.

There are different types of POAs. When they become effective, depends on their type. A financial POA is typically effective the moment it’s signed by the principal. However, a “springing” POA becomes effective only when a specific event, which is described in the POA document, takes place. If the springing POA is to take effect when the principal becomes incapacitated, usually one or more physicians must agree that the principal can no longer make decisions on their own behalf. 

The POA generally is not recorded in a courthouse, If you are signing a document for the principal that does have to be recorded with the county, like a deed to a house, then you will need to present and record the POA with the county recorder, before the document can be recorded. Laws vary by state.

Some people decide to have more than one agent. It’s not unusual, but it can lead to some complications. The wording should include the agents being appointed “severally,” so that they can act independently of one another, if that is appropriate under the circumstances. If one person is on the West Coast while the principal and another agent live on the East Coast, not having the ability to act independently could create problems for the agent and the principal.

The POA should remember to keep his assets and the principal’s assets separate. Money should not be intermingled in bank accounts or investment accounts. This is a very important point, since the fiduciary responsibility is a serious matter. The POA can be changed or revoked by the principal at any time, as long as the principal is mentally competent.

The POA ends with the death of the principal. It is meant to be used as a helpful tool, while the person is living. After the person dies, the executor takes over as the personal representative of the person’s estate.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Rushville Republican (Jan. 22,2019) “Financial power of attorney responsibilities”

Prepare for the Three Phases of Retirement

The information you need to prepare for retirement, isn’t the same that you need for retirement itself.

As one prepares for retirement, they usually focus on earning, saving and gathering assets for the future. However, that is just one phase of preparing and living comfortably in those years, according to Financial Advisor in “A Successful And Secure Retirement—Spend-Down Strategies: Part 1.”

The biggest difference in the strategies during the accumulation and withdrawal strategies, is that there’s a greater emphasis on long-term tax planning. Taxes are often the single biggest expense for investors. To make sure that you meet your goals, which includes having the IRS take the smallest piece of your assets, a plan must be created to focus on paying the least amount in taxes, while you are alive and even after you have passed.

The first phase of decumulation, which occurs at different times for different people (and for some people, never occurs) usually comes with a low tax rate. It often starts with retirement, when the paychecks are not coming in and, ideally, you are not yet drawing Social Security or pension benefits. This would allow your Social Security benefits to continue to grow and keep you in a low tax bracket.

The spend-down phase begins, when you start taking withdrawals from tax deferred retirement accounts. This typically starts the year you turn 70½ and start taking RMDs (Required Minimum Distributions). This is the time to be careful, since your tax rate will likely jump up from the amount it was when you were not yet taking RMDs or getting Social Security or pension benefits. The goal is to manage your retirement income, in order to minimize taxes.

The final-spending phase begins all too soon, especially when medical costs and long-term care costs increase dramatically. Given their tax deductibility, as things currently stand, this may provide another period with very low tax rates.

The legacy phase begins upon your death, or on the death of the surviving spouse. The goal is the tax efficient transfer of remaining wealth to heirs and charities and preparing heirs for the assets they will inherit. An estate plan should be in place long before this phase is reached, so that your assets are passed seamlessly to family members and charities.

As a person moves through these stages of post-retirement spending, there are many strategies that can be used to minimize tax liability and maximize the growth of assets. A balance must be found between spending, managing tax burdens and preparing for a legacy.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: Financial Advisor (Jan. 21, 2019) “A Successful And Secure Retirement—Spend-Down Strategies: Part 1”