Little Rock Estate Planning

Dying with Debt

At some point in our lives we may ask ourselves: “If I die and have debt, who or what will be responsible for paying back those I owe?”

The laws regarding debt after death are defined by each state, so there isn’t a single answer to the question above for everyone. On most occasions, the only time a family member would be responsible for your debt is if they cosigned a loan with you. People generally do not inherit another person's debt.

When we die, a new entity emerges, called our estate.  An “Estate” represents your assets and your liabilities. Upon death, a legal process called “Probate” (which is the first step of administering the estate of a deceased person), will resolve your debts and distribute your remaining assets to your heir(s).

Creditors may legally seize assets within your estate (money or property) in order to cure a debt owed to them.  If you have no assets, your creditors may have to take a loss on your debts. Depending on the state you live in, a creditor has a fixed amount of time to make a claim against your estate for payment.

There is a legal pecking order as to who is allowed first claim to retrieve money from your estate. The higher priority goes to funeral expenses, administrative expenses, and federal taxes. The estate may then pay off expenses from the last illness and state taxes. At the bottom of the barrel are unsecured creditors, like credit card companies.

Generally, all debts must first be paid by the estate before any remaining assets are distributed to an heir.  An outstanding credit card balance, for example, must be paid before any money or gifts can be distributed to an heir. If there are not enough assets to pay the debts, then all assets and property will be sold to pay down as much of the debt as possible and the heir will inherit nothing.

In the case of secured debts (e.g. home mortgage or auto loans), property (which is collateral) may be distributed with its debt. For example, you own a car worth $15,000 and the loan on the car is $7,500. If you die and leave that car to someone, it will become that person's obligation to pay off the loan.

Except for certain situations (which include joint property or joint debt), creditors are unlikely to go after surviving family members when a debt cannot be paid by your estate money. The majority of married couples have joint accounts and joint debt. In these situations, a surviving spouse will be held legally responsible for the debt of their deceased spouse even if they did not generate the debt themselves. This is something that will often cause problems for surviving spouses who financially cannot pay off old debt and meet their everyday needs.

If a creditor contacts a surviving family member about a debt of a relative who has died, the family member should give the creditor the contact information of the decedent's representative. The representative is responsible for paying any outstanding debts from the estate. If a will exists, the representative is known as the executor; if there is no will, the representative is known as the administrator.

In community property states (where married couples are considered to own their property, assets, and income jointly) credit accounts opened during marriage are automatically considered to be joint accounts. This could affect what your spouse will have to pay, depending on the debt that you incurred. The following states are community property states:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

To conclude, when you pass away, your estate is responsible for paying off any balances owed by you, not your family. If your estate goes through probate, your administrator (or executor) will look at your debts and assets and, guided by the laws of your state, determine in what order your bills should be paid. The remaining assets will be distributed to your heirs according to your will or state law.

References:  National Care Planning Council and longtermcarelink.net

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Be Your Own Bookkeeper When Caring for Elderly Parents

If you find yourself taking on the responsibility of a caretaker to your elderly parents, are you documenting your efforts?  If you are giving time and money for the care of loved ones and would like to take tax deductions for your efforts, you ought to make sure you brush up on your bookkeeping skills.  Otherwise, when it comes to tax time, you may be out of luck (and money).

The case of Estate of Olivo v. Commissioner is most instructive.

Forbes examined the Olivo case in an article titled “Mother's Day? Son Claims $1.2M Tax Write-Off For Helping Mom.”  From the title of the article, it is clear that the son may have been a bit generous in his claim.  To make matters even more interesting, the son was a tax attorney.

Background:  Anthony Olivo was the son/tax attorney.  He took nearly ten years away from his law practice to care for his parents.  Accordingly, Anthony lost his law practice income.  However, he did collect fees from his parents for managing their estates.  When Anthony’s mother died, he sought to deduct $44,200 in administrator’s fees, $55,000 in accountant’s and attorney’s fees, and a whopping $1,240,000 for a near-decade’s worth of lost wages (he did manage his own firm, after all).

The IRS raised an eyebrow, and then raised it further when they took a look at his documentation of all of these fees and amounts.  Problem:  there was no contract, no invoice, and no evidence.  Not good.

Even when Anthony was handling the estate and filing the tax return he didn’t keep track of his time and just estimated.  Also, not good.

In reality, not everything claimed may have been deductible.  Nevertheless, the lack of recordkeeping killed any chance for success.

If you and your loved ones are entering a period of caregiving, then a little forethought and planning can go a long way.  In the end, a little recordkeeping can be the deciding factor in making your claim.

Reference: Forbes (May 8, 2013) “Mother's Day? Son Claims $1.2M Tax Write-Off For Helping Mom”

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Family Matters

The American Association for Marriage and Family Therapy states that “more than ever before, families are providing long-term care to older adults with limitations in the ability to perform tasks necessary for independent living.  Nearly 25% of American households are providing care to people age 50 years and over.  Families are the alternative foundation for a stressed healthcare system.  Hospital stays are shorter than ever and family caregivers are often expected to do what healthcare professionals once did.”

Family caregivers take over various responsibilities for their elders.  It may be just handling finances, running errands, going to doctor appointments or taking on full 24 hour care services.  In most cases one sibling in the family will become the main caregiver, but most successful ventures are supported by the entire family.

There is a saying that it takes a village to raise a child.  This may be true, but it takes a family to care for an aging parent.  As seniors lose physical and cognitive function they become vulnerable and unable to manage their own care.  Who better to know their needs and desires than their own children.  Even if professional care givers are providing services, family involvement makes the difference in quality of life for their parents.

“If one family member has been designated caregiver other members can give support with respite care, transportation to doctors, etc., everyone needs to be aware of all that is needed and be in total agreement to do it”.  “The 4 Steps of Long Term Care Planning”

Experience has shown that even families that are close can quickly grow angry, jealous and hostile towards each other when an aging parent begins to need long term care.  If a sibling moves into the parent’s home, others can easily be suspicious of ulterior motives and fear to lose their inheritance.  On the other hand, the child doing the entire care taking becomes bitter and feels there is no support or help from siblings.

One example of a family misunderstanding is that of a brother accusing his sister of stealing all of the money from the sale of his parent’s home.

Karen, who was a single mom with two children, moved in with her parents when her father had a stroke to help her mother take care of him.  Her mother was also disabled.  Needing money to pay for a home care service, Karen helped her mother do a reverse mortgage on the home, which gave the needed funds.  If communication had been open and Karen’s brother had known the need and been involved with his parents care, he would not have reacted so negatively when he eventually found out about the reverse mortgage.

Every family is different. Some families are close and some have never been compatible. If your communication is strained, consider having a professional mediator present at a family meeting.  The mediator will be able to keep things calm and running smoothly and help work out each persons concern.

Family matters.  The experience of working together for their parents care can give aging parents and family members a peaceful, memorable experience.

References:  National Care Planning Council and longtermcarelink.net

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Hospice Still Waiting on Help from Medicare

U.S. health care has been in flux since 2010, with many aspects of health care reform still on hold. Hospice is one area that is still waiting for help with protecting the elderly and those in end-of-life care.

As reported quite recently through the Kaiser Health News, hospice care has yet to be expanded under the Medicare project set out three years ago.

The article titled “Medicare Lags In Project to Expand Hospice” examines the very real conflict between “curative” treatment and “palliative” treatment.  The former is meant to cure a condition and thereby prolong life, and the latter is meant to ease the pain caused by a condition without a focus on effecting a cure.

Naturally, the curative and palliative treatments are often considered opposites.  In fact, choosing palliative care would mean giving up all hope on curative care.  Consequently, it is only natural that rapidly declining patients delay their entry into palliative hospice care.

The 2010 law was to begin inroads into exploring combined care, the possibility of both curative and palliative concurrently.  Logically, this should ease transitions without forsaking hopes, likely reducing costs in the process.  To date, however, this has not happened.

Health care planning is complicated, and since so much is at stake be sure to consult a professional when exploring your options. 

Reference: Kaiser Health News (May 9, 2013) “Medicare Lags In Project to Expand Hospice”

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Life Resource Planning Meets Needs Beyond Retirement

Seniors are the fastest growing segment of the population, not only in the United States, but in the world.  Currently, individuals age 65 and over represent 13% of the U. S. population – about 41 million people – but this will grow to 20% -- 88 million -- in just a matter of 38 years.  Seniors also control a great deal of the wealth in this country. (USNews)

Even though many seniors have put together financial plans or completed retirement planning, very few have a plan in place for later life needs.

Most healthy, active seniors ignore this type of planning.  The need for later life planning is typically recognized when, due to the aging process,

• the senior's family realizes that their loved one's savings and investments will run out,
• the senior is moving into a new living arrangement such as living with a child or living in a facility,
• the senior's health is failing or
• the senior is losing his or her independence. 

It is often at this point that one or more of the children of the aging senior intervenes and seeks direction from a resource planning specialist on how to extend income for long term care, where to find government and private services and how to preserve assets.

An example of this is Larry and Joan.  Larry worked for the same company all his life and retired with a pension and some savings.  Joan was a stay-at-home mom and did not work.

Upon retirement they paid off their home mortgage and traveled. A number of years later, Larry’s health began to fail and signs of dementia appeared.  Joan became his caregiver, while struggling with her own health issues. It was becoming apparent that they would need some outside help, either from their children or from someone who understood their challenges.  For Joan and Larry there was no health insurance program that would cover non-medical care services at home.  This cost would have to be paid by them out-of-pocket.  If they had purchased long term care insurance when they were younger and healthy – that would have been a good strategy.  But they didn’t.  Larry and Joan, along with their children were in need of expert advice to best utilize their assets and income for care services and future expenses.

There are resources available to people like Larry and Joan and their family.  New income can be created from assets or real estate equity can provide cash, or there are possible new sources of income or care support services from certain government programs. 

To find these resources and supportive programs for later life needs, planning strategies need to go way beyond traditional financial and retirement planning.  The National Care Planning Council has developed a planning system called Life Resource Planning that uncovers all resources available to seniors when they need the medical, social, legal and financial resource assistance later in life.

Life Resource Planning creates an individualized plan for seniors and their families that will:

Optimize Income

• finding new sources of income
• finding government services to pay for costs
• enhancing income derived from assets
• tapping into real estate equity
• reducing income taxes

Protect and Preserve Assets

• making and updating legal arrangements
• implementing asset protection and estate planning strategies
• structuring insurance
• understanding and planning for Medicaid issues
• using personal service contracts
• implementing capital gains and estate tax strategies

Facilitate Favorable Outcomes for Health, Medical Issues and Final Preparations

• implementing strategies for improving or maintaining health
• understanding medical care issues
• planning for major medical incidents
• planning for end of life, including funeral trusts

Maximize Family and Community Support

• identifying community support systems for the elderly
• implementing personal service arrangements
• identifying government and private support for eldercare
• ensuring family consensus for caregiving -- a meeting of the minds
• putting together a eldercare plan
• solving family disputes over assets

Find the Right Living Arrangements

• identifying appropriate places to live, based on security, cost and support
• identifying government support for living arrangements
• tapping into equity
• enlisting help for downsizing and moving
• maximizing the sale of property

Seniors and their families who want to know more about Life Resource Planning from the National Care Planning Council or would like speak to a qualified planner using this approach can submit a request form online.

Professional practitioners who work with seniors and who would like to know more about Life Resource Planning and how it can help their clients, can call 800-989-8137 to learn more.

References:  National Care Planning Council and longtermcarelink.net

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Beware! Pay Attention to Your State Death Taxes

The fiscal cliff-bridging budget set and made “permanent” the estate tax at a generous $5.25 million exemption amount.  Good news, right?  But beware!  There are still some states with their own death taxes.

Consider Connecticut, a state that enjoyed a bumper year for death taxes.  As reported by The Hartford Courant in an article titled “Inheritance Windfall: Record-Breaking Year For Estate Taxes Helps Fuel Budget Surplus,” the tiny Nutmeg State raked in an unprecedented $428 million in inheritance taxes.

A good portion of this windfall is due to budget timing and estate planning, since this figure includes any gift taxes collected in 2012.  Remember, that was a year of great gifting before the American Taxpayer Relief Act (ATRA), and Connecticut counts all transfer/inheritance taxes as one and the same.  Then again, there were some notable deaths in Greenwich, CT, the richest little town in the U.S.

If you do not reside in one of the states with its own death tax, watch out.  As state budgets continue to squeeze, death taxes may become more appealing to your state legislators.

Reference: The Hartford Courant (May 11, 2013) “Inheritance Windfall: Record-Breaking Year For Estate Taxes Helps Fuel Budget Surplus”

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Estate Planning for Young Families

Many young families put off estate planning because they are young and healthy, or because they don’t think they can afford it. But even a healthy, young adult can be taken suddenly by an accident or illness. And while none of us expects to die while our family is young, planning for the possibility is prudent and responsible. Also, estate planning does not have to be expensive; a young family can start with the essential legal documents and term life insurance, then update and upgrade as their financial situation improves. A good estate plan for a young family will include the following:

Naming an Administrator

This person will be responsible for handling final financial affairs—locating and valuing assets, locating and paying bills, distributing assets, and hiring an attorney and other advisors. It should be someone who is trustworthy, willing and able to take on the responsibility.

Naming a Guardian for Minor Children

Deciding who will raise the children if something happens to both parents is often a difficult decision. But it is very important, because if the parents do not name a guardian, the court will have to appoint someone without knowing their wishes, the children or other family members.

Providing Instructions for Distribution of Assets

Most married couples want their assets to go to the surviving spouse if one of them dies. If both parents die and the children are young, they want their assets to be used to care for their children. Some assets will transfer automatically to the surviving spouse by beneficiary designations and how title is held. However, an estate plan is still needed in the event this spouse becomes disabled or dies, so that the assets can be used to provide for the children.

Naming Someone to Manage the Children’s Inheritance

Unless this in included in the estate plan, the court will appoint someone to oversee the children’s inheritance. This will likely be a friend of the judge and a stranger to the family. It will cost money (paid from the inheritance) and the children will receive their inheritances in equal shares when they reach legal age, usually age 18. Most parents prefer that their children inherit when they are older, and to keep the money in one “pot” so it can be used to provide for the children’s different needs. Establishing a trust for the children’s inheritance lets the parents accomplish these goals and select someone they know and trust to manage it.

Reviewing Insurance Needs

Income earned by one or both parents would need to be replaced, and someone may need to be hired to take over the responsibilities of a stay-at-home parent. Additional coverage may be needed to provide for the children until they are grown; even more if the parents want to pay for college.

Planning for Disability

There is the possibility that one or both parents could become disabled due to injury, illness or even a random act of violence. Both parents need medical powers of attorney that give someone legal authority to make health care decisions if they are unable to do so for themselves. (You would probably name your spouse to do this, but one or two others should be named in case your spouse is also unable to act.) HIPPA authorizations will give doctors permission to discuss your medical situation with others (parents, siblings and close friends). Disability income insurance should also be considered, because life insurance does not pay at disability.

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Don’t “Escheat” Your Family Inheritance

Estate planning is not a do-it-yourself endeavor; there are plenty of opportunities to make costly mistakes.  The biggest mistake is having no estate plan.  Why?  Because your life’s work may escheat to your state’s treasury by default.

At the very least, a proper will can avoid legal landmines like the escheat rule.

Escheat is the principle that there is no such thing as estate-limbo.  Basically, an estate can sit in limbo for only so long before it gets swallowed up by the state where the decedent last resided.  Consider the case of Roman Blum in New York, as reported in a recent Forbes article titled “N.Y. State Could Get $40 Million From Man Who Died Without A Will.”  You can read all of the details in the original article, but Mr. Blum likely did not intend the State of New York to benefit from his life’s work as a real estate developer.

Here are the lessons to take away from this case:

1. Plan for your loved ones.  If you don’t make at least a basic will, your state’s laws of intestacy may apply. To see what would happen in your state, visit the free, interactive website mystatewill.com.
2. Review beneficiary forms.  Many assets are transferred via designations on beneficiary forms – from your retirement accounts to life insurance and even bank accounts.  Review these forms regularly, and be sure to keep them up-to-date.
3. Benefit charities.  Some people refer to this as the “bomb” clause, stating that should your entire family be wiped out in a single incident, your assets should be distributed to specific charities.
4. Sign documents to protect yourself.  Someone needs to make important decisions for you when you cannot do so for yourself.  With legal documents like health care directives and powers of attorney you can appoint those you must trust to act on your behalf.
5. Make documents accessible.  Make sure your legal documents can be found. It won’t matter how many documents you’ve signed if no one can find them!
6. Don’t procrastinate.  Apparently, when Mr. Blum was ailing, he had finally agreed to sign the necessary documents, but passed away before getting it done.

Reference: Forbes (April 28, 2013) “N.Y. State Could Get $40 Million From Man Who Died Without A Will”

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Estate Planning After Divorce

One area that is often overlooked in the divorce process is the need to update estate planning. Most people would agree that their ex-spouse is the last person they want to inherit their assets when they die—or to have that person make life and death decisions for them. But that is exactly what can happen – and often does – when these documents are not updated.

Beneficiary Designations

Assets that have beneficiary designations (e.g., life insurance policies, employer retirement plans, IRAs, annuities, health savings accounts, investment accounts and some bank accounts) are not controlled by a will or trust. Instead they will be paid directly to the person listed as beneficiary (unless that person is deceased, is a minor, or is incapacitated when the insured dies). Because most married people name their spouse as beneficiary, these should be changed right away.

However, naming the right beneficiary is critical. This is especially true for tax-deferred plans because of possible estate and income tax issues and the potential for long-term tax-deferred growth. Be sure to seek expert assistance before naming a beneficiary on these accounts.

Children and Other Beneficiaries

If you name children as beneficiaries and they are minors when you die, a court guardianship must be established for them until they become age 18—at which time they will receive the entire inheritance. Until then, the other parent (your ex-spouse) could be named by the court to manage the funds. Naming another individual (for example, your parent or sibling) as beneficiary with the understanding they will use the money to care for your children until they are older is also risky. You have no guarantee they will follow your instructions, they may be tempted to use the money for their own needs, and the money would be exposed to their creditors.

Naming a trust as the beneficiary instead and selecting your own trustee (which may still be your parent or sibling) is a much better choice. A trustee can be held liable if he/she misuses the trust assets. An ex-spouse can be prevented from having access to the money, and you can control when your children will inherit. Money that stays in the trust is protected from irresponsible spending, creditors, and even spouses. For all these reasons, a trust is an excellent choice as beneficiary instead of an individual, regardless of his/her age.

Your Will and/or Living Trust

If you do not update your will or trust, your ex-spouse may inherit your assets. And if he/she remarries, the new spouse and his/her children could inherit your assets, leaving your children and family with nothing. If you provide support to your parents or others, be sure to include them in your estate plan.

If you have minor children, you need to name a guardian for them in your will. (Even if you have a living trust, a simple will is required to name a guardian and to direct any forgotten assets into your trust.) Upon the death of one parent, usually the surviving parent will become the sole guardian. But if your ex-spouse has also died, had his/her parental rights terminated, or becomes an unfit parent, the court would have to appoint a guardian and would appreciate knowing your choice.

Powers of Attorney

Most married couples give each other the power to make health care decisions, including those regarding life and death. Financial powers are also usually given to each other so that one can manage the other’s financial affairs without interruption. These are often quite broad, including the ability to buy and sell real estate, open and close financial accounts, change beneficiary designations, collect government benefits, etc. Instead of your ex-spouse, you can name a parent, sibling, close friend or adult child to have these powers and act for you when you cannot.

You Need Professional Guidance and Assistance

You probably need an experienced attorney more now to help you with updating your estate plan than you did when you were married. Don’t procrastinate on this. Make sure you protect yourself, your children and others who depend on you.

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.

Asset Protection and the Limited Liability Company (LLC)

Business owners often focus on the tax consequences of business structure.  But asset protection is a growing concern in these litigious times, leading to the rising popularity of “limited” forms of business such as the Limited Liability Company (LLC).

LLCs have a unique asset protection feature against charging orders.  Maybe you have heard of these?  A recent Forbes article titled “The Misunderstood Charging Order,” offers a basic explanation:

The charging order itself is not the lien; rather, the lien is what is placed by the charging order.  Think of the charging order as a can of spray paint, and the paint is the lien.  The charging order basically sprays the lien on the debtor/member’s interest.  Stated differently, the charging order is the vehicle by which the lien is placed on the debtor/member’s interest — it is not the lien itself.

While this is a complex subject, basically a charging order is a creditor’s first and last tool to extract your interests and capital from your business (assuming they don’t try to pierce the veil).  In a corporation, a charging order can allow a creditor to actually gain a debtor’s stock interests in the business.  This can be disastrous.  “Limited” company structures are specifically designed with charging order protection, something that could be important to you as a business owner. 

The original article goes into greater detail, but essentially the charging order protection means that while a creditor can place a lien on your LLC membership interests and claim any distributions, a creditor cannot claim the membership interest itself and sabotage the business.

While a “limited” company structure does provide a level of asset protection, keep in mind it is not a panacea.  Do not just presume that a creditor will see an LLC and run away or settle for pennies on the dollar (as LLCs are often marketed), as that is rarely the case. 

Reference: Forbes (April 30, 2013) “The Misunderstood Charging Order”

Manage Your Wealth Today to Protect Your Legacy Tomorrow

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning and corporate, real estate and elder law, Ball & Stuart, PLLC will help you protect everything you love--family, friends and favorite charities.

For more information be sure to visit our web site at www.ball-stuart.com where you will have access to our Blog, Newsletter Archives, a Free Newsletter Subscription and a Free Report on Trusts.

Wayne B. Ball is a Little Rock estate planning and probate attorney serving families and businesses in Arkansas for more than 25 years.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this blog was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

For educational purposes only, compliments of Ball & Stuart PLLC.  Not intended as legal advice.  For information on how to properly plan your estate, the services of a competent professional should be sought.