August 7, 2008

How to deal with Rental Property when Estate Planning

By Sabrina Winters

One of the assets I look at and consider when Estate Planning for a client is any real property that the client owns. This includes residential homes as well as rental properties.  A big mistake people make is owning rental property in their own name. What they may not realize is if it is owned in their own name that they will be personally liable should anything happen to a renter or a renter’s guest while on the property.  This leaves all the client’s personal assets vulnerable in a lawsuit.

What I often advise my clients to do is transfer the rental property into a separate entity such as an LLC. The client can be a manager and member, but the property will not be in their name, but in the name of the LLC.  The liability is limited to the assets in the corporation (which is the value of the rental property).  Not only will this limit personal liability, but often times it helps in Estate Planning when the client’s estate may ultimately be taxed upon death. The deed, rental agreements, rental payments, insurance policies, utilities, etc. would all be in the name of the LLC.  Any income from the rental property would be placed in a separate bank account with the LLC as the owner.

Unfortunately we live in very litigious times.  Doing whatever you can to limit your personal liability is not ownly smart but in the long run will save you more money than you can imagine. 

Posted in Estate Planning, Real Estate | Comments (0) | Trackbacks (0)
August 4, 2008

The Basics of the Federal Estate Tax

By Sabrina Winters

At first, most clients that meet with me think that they do not have a large enough Estate to be concerned  about it being taxed when they pass away.  When I have completed asking them questions they are amazed at the true value of their Estate.  The reality is that many people need to start planning for the possibility of their estate being taxed.

To put it simply, if you pass away in 2008 and the value of your estate exceeds $2,000,000, anything over $2,000,000 will be taxed at the rate of 45%.  If you pass away in 2009 and the value of your estate exceeds $3,500,000, anything over $3,500,000 will be taxed at the rate of 45%.  Passing away in 2010 provides the greatest benefit; your estate can be of any amount and it will not be taxed.  More than likely in 2011 the excluded amount will be back down to $1,000,000; affecting many more clients.

How does the Federal Government determine the value of your estate? They will look at every asset that you own whether you own it in your name alone or together with someone else.  The assets include (but are not limited to) your home, rental property, stock accounts, checking accounts, savings accounts, IRAs and 401Ks.  In addition, they will take into account the value of any life insurance you own.  Yes, I know, this really isn’t your money, but that does not matter, and that discussion I will leave for another Blog all its’ own!

There are numerous methods that can be used to protect an Estate from being taxed. Avoiding taxes is legal; evading taxes is not!  If you are married, you are permitted to pass all your property to your spouse without incurring any Estate tax, regardless of the amount that is passed. Any potential Estate Tax will be imposed on the estate of the second spouse to die.  Trust me, when the children hear this they are all on board spending the extra money today to have the proper documents in place!

For example, a married couple can take advantage of what is called an AB Trust (or also known as a Credit Shelter Trust).  Without getting too detailed, when the first spouse passes away, a certain amount of assets is placed into a trust for the benefit of the surviving spouse.  The remaining assets pass directly to the surving spouse.  When the second spouse passes away the trust assets are left to the children.  This allows for legally avoiding an Estate Tax.

It is so important to speak with an attorney to make certain that you utilize any resources and methods that will allow for the maximum amount of your assets to pass to your family. 

Posted in Estate Taxes | Comments (0) | Trackbacks (0)
June 16, 2008

10 Items to Consider When Choosing a Guardian for your Child or Children

By Sabrina Winters

One of the biggest reasons my clients say that they waited to have their Last Will and Testaments drafted is because they did not know who to choose for the guardian of their children. This is not a decision to take lightly. These are your children and the thought of them being raised by someone else is heartbreaking and virtually unthinkable.

When I draft Estate Planning documents, I always assume that my client could die tomorrow. I also make certain that my clients understand that the provisions in the Estate Planning documents can always be changed in the future. Also, and this is probably an obvious statement to many, but, if you are married the only time your child will have a Guardian appointed is after the second parent dies.

Listed below are points I tell my clients to consider in choosing the proper Guardian.

  1. The age of the person? If your guardian is too young perhaps he or she is not at the right place in his or her life to care for a child. Or, if he or she is too elderly perhaps he or she is not physically capable of caring for a child.
  2. Does he or she have children already or plan on having children? Maybe he or she already has all the children they can or want to care of or he or she wants to have more children and could not be able to care for others in the future.
  3. Is this person married? If so, you need to consider whether you like the spouse as well. After all, your child will be living in the same home as the spouse. If he or she is not married, you need to consider whether you are comfortable with your child being raised by a single parent. There are some difficult obstacles that a single parent faces raised every day.
  4. What are the religious beliefs of the person? This is something to think about if it is important for you to have your child raised with the same religious beliefs as you are currently raising them.
  5. Is he or she a blood relative or relative by marriage? Be careful if you are considering nominating an “in-law”. You should always consider the possibility of divorce, regardless of how happy they are today.
  6. Does your child actually like this person? You may think he or she is the perfect person to raise your child, but if your child does not have or show the same feelings towards that person, you may be causing more harm than good.
  7. How drastic will your child’s daily life change? Think about whether your child will have to move (in or out of state) or change schools. This could be a difficult transition without having just lost your parents. Imagine how difficult that would be if it is due to your parents passing away.
  8. Does this person have pets? If your child has allergies which may be drastically affected by living in a home with a pet, that home may not be the best place for your child to live. Many people will not give up their pets that easily.
  9. What type of job does this person have? Think about whether that person has to travel for work or has a job that is considered dangerous. This may mean that your child may have to go to daycare (not that that is a bad thing) or potentially even be faced with loosing another loved one.
  10. Would you live with this person? You cannot expect your child to live with someone if you could not see yourself living with this person!

It is my job as an attorney to give the good, the bad and the ugly. These points are to provide my clients with as many possibilities to consider before making a very important decision. In order to make the best decision for your family based on what your family’s needs, beliefs and traditions are, I supply the things to consider in making that decision.

Posted in Attorney Client Relations, Guardianship | Comments (2) | Trackbacks (2)
June 10, 2008

The Other Side of Having a Last Will and Testament in North Carolina

By Sabrina Winters

If you pass a way while a resident of North Carolina and you do not have a Last Will and Testament, the State of North Carolina dictates how your assets are distributed.  It is called Intestacy.  The Intestacy laws dictate the distribution of your personal and real property based upon who was alive on the day you died.

For example, a husband dies and leaves behind a wife and one child who is a minor.  His wife would take what is described as a one-half interest in any real property (meaning a home, a piece of rental property or vacant land); $30,000 off the top in personal property plus one-half of any balance remaining.  The other half of the real property would then be owned by his child.  After his wife has taken her share of the personal property (cash, bank accounts, investment accounts, etc.) his minor child would take the remainder.

Think about this…what if your child is a minor when you pass away?  Do you want his or her share to be placed into a trust until he or she turned the age of majority (currently 18 years old)?  It could ultimately be possible, without having a Last Will and Testament, that your surviving spouse would own a home jointly with a trust.  Money you had anticipated would be available for your child’s college or other needs are now in trust and not as available as you may have wanted.

Having a Last Will and Testament will allow you to dictate who receives your assets and what assets they get when you pass away. Do not leave it up to the State of North Carolina to say who gets what and how much.

Posted in Last Will and Testament | Comments (0) | Trackbacks (0)
June 9, 2008

What is consider a Last Will and Testament

By Sabrina Winters

Traditionally the word “will” applied to the distribution of real property and the word “testament” applied to the distribution of personal property.  North Carolina considers the word “will” to include both real and personal property.

The State of North Carolina recognizes written and oral Last Will and Testaments.  One that is written can be either attested (witnessed) or unattested (not witnessed).

Holographic Will (Does not require a witness)

This Last Will and Testament must be written entirely in the testator’s (the person making the Will) handwriting; must be signed by the testator and it must be found among the testator’s personal papers and effects.  There is no requirement that it be signed by witnesses.

Attested Will (Requires a witness)

This is the most common type of Last Will and Testament.  It must be in writing, signed by the testator and attested to by at least two competent witnesses in the presence of the testator.

Nuncupative Will (oral)

This Last Will and Testament must be spoken in front of two witnesses during the testator’s last illness. It must also be put into writing within 10 days of being spoken. This type of Last Will and Testament can only be used to pass personal property and not real estate.

Regardless of the form, it is always in your best interest to consult an Estate Planning attorney first.

Posted in Last Will and Testament | Comments (0) | Trackbacks (0)
May 29, 2008

How to chose an Estate Planning Attorney

By Sabrina Winters

The best way, in my opinion, to find the right Estate Planning attorney is to get a recommendation from a family member or a friend. If they had a good experience with an Estate Planning attorney they will be more than happy to pass his or her name and number along to you.  You can bet that if they were not happy, you would have already heard about it!

Referral
If you do not have the benefit of a referral, you can call your local County Bar Association.  They will provide you with a few names and telephone numbers of attorneys in your area.

Internet
The internet is a wonderful resource.  You are able to search numerous attorney websites for attorneys in your area and get a real sense of who they are by viewing their websites.  Often times they will provide legal information so that you can educate yourself.

Local Yellow Pages
Of course, you can still use the good old and trusted Yellow Pages!  Believe it or not, I have received numerous calls from clients who have found my contact information in the local phone book.

Business Associates
Your banker, financial planner, local real estate broker and agent are great people to be in the position to refer an Attorney.  Attorneys often times will visit with local business owners to introduce themselves and tell them about their practice; leaving their business cards behind, of course!


Regardless of how you are put in touch with an attorney, you should keep some things in mind:

How long has the attorney specifically practiced Estate Planning and What percent of his practice is dedicated to Estate Planning

I am in no way implying that an attorney who has practiced longer than another attorney or dedicates a larger percent of his practice to Estate Planning than another attorney is more able to prepare an Estate Plan.  You need an attorney who is up to date on the changes in the laws.  It is more likely that an attorney who dedicates a significant portion of his practice to Estate Planning has kept up with any changes in the laws.

Is the initial consultation free?

Some attorneys will charge a flat fee and others will charge you an hourly fee. It depends entirely on what attorney firm you use and often times it depends on what county they practice in.

What documents exactly will be drafted as part of your Estate Plan?

A properly drafted Estate Plan does not only include a Last Will and Testament, but it should include other Advanced Directives. These include a Power of Attorney, Health Care Power of Attorney and A Desire for a Natural Death (a/k/a Living Will).  Some Estate Plans may warrant a Revocable or Irrevocable Trust.

Speaking and thinking about our own death is not an easy subject for many of us to confront.  Just the thought of leaving my child to grow up without her mother sinks my heart and brings tears to my eyes.  It is almost as difficult to discuss our personal finances, beliefs and feelings with a person we probably have never met before.  You absolutely should feel comfortable with the attorney you chose.  The attorney should be sensitive to the issues that will be discussed and compassionate in his or her handling of your family matters.

Posted in Attorney Client Relations, Estate Planning | Comments (0) | Trackbacks (0)