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Making LLC’S And Corporate Structure Work For You

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You might have rental properties or even a small business that you run and you have heard that you should start and Limited Liability Company (LLC) or even a S or C Corporation to protect yourself from personal liability for the business you conduct.  Sunbiz.org, which is the Florida Department of State website, makes it fairly simple to start either an LLC or a For Profit Corporation with just a few clicks of buttons and payment.  Are you now protected?  The answer is PROBABLY NOT!

In order for a corporate structure, whether it is LLC or what is known as a c-corp, to protect you, you have to treat the business as being its own entity.  If you don’t, someone suing the corporation could ask the Court to “pierce the corporate veil” or, in simpler terms, hold you personally liable for the debts of the corporation.

Piercing the corporate veil involves consideration of a number of things, but the most important is whether there has been a “total or partial disregard of corporate formalities.”  The following are an inexhaustive MINIMUM list of things you should definitely do in order to observe the corporate formalities:

  1. Get a tax identification number for the corporation. This is simple and involves only a few clicks on the irs.gov website;
  2. Once you have the tax id number, open a bank account under the name of the business;
  3. Do not pay your personal expenses out of the business bank account. In fact, if you are going to pay yourself a salary, go to a payroll service and make sure you pay yourself a salary just like you would any other employee;
  4. Every year, hold an annual meeting, even if it is with just yourself, and document the meeting with a sign sheet of minutes. The most simple of these will state the date on which the meeting was conducted, where the meeting was held, you was in attendance, and what was decided.  Do this at the time you file your Annual Report with Sunbiz and you can attach your Annual Report as an Exhibit to the meeting minutes, confirming that you have either changed or kept the following the same: Registered Agent; Registered Agent Address; managing member or officers.
  5. Hire an accountant to prepare a K-1 for the business every year even if you are just an LLC and are going to file the taxes on your personal tax return. If you are a c-corp, you will have a separate tax return for the business.
  6. Keep the business funded and pay the business creditors rather than take every penny out of the business to pay yourself.

This list is a good start, but you may want to read more about how to protect yourself.  Check out these  articles:

https://www.mavricklaw.com/blog/florida-corporation-law-piercing-corporate-veil/

https://www.jimersonfirm.com/blog/2017/10/piercing-corporate-veil-florida/

https://www.hg.org/legal-articles/piercing-the-corporate-veil-in-florida-5832

Happy Valentine’s Day!

Anne-mooreBefore you pop the question, make sure you have considered all of the ramifications of marriage on your estate planning.  For example, you and your sweetheart have children from previous marriages.  You own a house in Florida and your sweetheart owns a house in New England.  You both are residents of Florida because there is not State income tax and, let’s face it, its nicer here in the winter!

The plan is that your sweetheart will leave the New England property to his/her children and you will leave the Florida home to your children.  Sounds sensible, right?  BUT Florida will not recognize the provision in your Will to cut your spouse out of inheriting at least a life estate in your Florida homestead.  You can draft your Will to cut your spouse out, but if your spouse contests it, your spouse is entitled to a life estate.  Which means your kids can’t sell the house or even live in it while your spouse is still alive and living in the home (even if your spouse spends months in the house in New England).

Before you marry, or even after you marry, your spouse can waive his/her right to inherit your homestead, but that waiver is entirely voluntary and not every spouse is going to be so gracious.

This is but one of the implications of marriage in Florida upon your estate plans.

Word of advice – Before you pop the question, see an Estate Planning attorney so you at least go into it with your eyes (as well as your heart) open!

IN-LAWS AND THEIR RIGHTS TO YOUR CHILD’S INHERITANCE

allyweekSome of my clients have wanted to include their daughters-in-law or sons-in-law in their Wills or Trusts.  For people who want their in-laws to inherit, it is important to include them, by name, in any estate plan because under the inheritance laws in-laws have no legal right to inherit from you any more than your neighbor or friend would.   In the case of including the in-laws, I have suggested that my clients include the clause, “so long as he/she was married to my child at the time of my death or, if my child predeceased me, at the time of my child’s death.”  This contemplates cutting off any inheritance by your child’s spouse after a divorce.

What is more common; however, is clients who want to make sure that their daughters-in-law or sons-in-law DO NOT inherit any money from them.  That’s easy, because if you don’t include them, by name, in a Will or Trust, they have no right to inherit.

Some clients want assurances even more specific. They want to be sure that any moneys they leave to their child won’t become payable to the spouse if their child gets divorced.  While there is very little that my clients can do in their documentation to prevent this, there is something that their child can do.

I TELL MY CLIENTS TO TELL THEIR CHILDREN THIS:  In most states, marital or community property excludes inherited money EXCEPT where the person who inherits it puts it into a joint asset (jointly named bank account or jointly held real estate or other property) with their spouse.  Once they jointly title an asset, most states presume that a gift of ½ of the inherited money has been made.

Accordingly, it is very important TO KEEP INHEREITED MONEY IN YOUR OWN SEPARATE NAME.  Then if a subsequent divorce occurs, the money that Mom, Dad, or Grandparent left you is protected from any claim by your soon-to-be-ex-spouse.  While you may not be able to envision a divorce now, we know from statistics that not all marriages are forever.   Protect the assets you inherit from your loved ones by keeping them in your sole name.

JOINT WILLS AND AGREEMENTS TO NOT REVOKE WILLS

I serve a lot of couples in my estate planning practice.  A few of them come and want to make only one Will, which they will both sign.  Such a practice is not recognized under the law.  Each person needs to make their own Will. retiredcouple

But the question arises, can they agree that the Wills that they make will not be revocable after death?  First of all, how does this usually come about?  Well, let’s say the Husband and Wife each have children from previous marriages.  Husbands and wives usually leave everything to each other in their Wills, because they want to provide for their spouse.  But when the second spouse dies, it doesn’t seem fair that that spouse could have changed their Will to leave everything to their own children, cutting out their spouse’s children.

So, can you promise not to revoke your Will after your spouse dies?  The answer is one of those confounded legal ones – Well, yes and no.

First of all, your Will, no matter what has been promised in it or what you have promised in a separate contract, can always be revoked.  How is a Will revoked?  You can rip it up or otherwise destroy it.  If you do this, it is best to either keep the pieces or do it in front of someone who can testify that they saw you revoke your Will.  You can also revoke it by executing a new Will.  My Wills say in the first paragraph that all prior Wills and Codicils are revoked.

But what if your Will promised you wouldn’t revoke?  Well, you could still be liable for breach of contract, but the Will which was revoked, no matter how wrongly, is still revoked.

So, is a promise not to revoke enforceable?  The answer is – yes, it can be.

There is a statute that makes contracts not to revoke enforceable if signed by both parties and witnessed by two “attesting witnesses.”  This requirement must be strictly met because the law doesn’t favor the notion of interfering with a person’s right to leave his or her estate to anyone he or she chooses.

My advice to my clients who have these concerns is for them to make a Joint Revocable Trust.  A Trust solves the problem nicely because the second to die can change their portion of the Trust, but not the portion designated by the first to die.

Interested in any of this?  Call me and I would love to discuss this with you!!!

Will My In-laws Inherit My Money if My Children Predecease Me?

Portrait of a family posingA common misconception is that when you die, your daughter-in-law or son-in-law has the potential to claim a portion of your estate.  The laws of inheritance in most states do not place in-laws in the category as statutory heirs or descendants.  Descendants will, in most cases, include adopted children, but you didn’t adopt your in-laws just because your children married them.  Most people do not want their in-laws to receive any portion of their estate.  Not to worry!  If you don’t write a will or trust naming them as beneficiaries, they will not get anything themselves.

 

However, if your child predeceases you and leaves minor children, your in-law, as those children’s parent, could end up with control over those funds.  Therefore, if you have real concerns that your in-law would basically steal from their own children, then you need to expressly provide that under no circumstances shall that in-law (name them specifically) be appointed as a trustee or guardian of property or funds left by you in your will or trust.

 

Finally, some people actually WANT to include their in-laws.  In those cases, it still may be important to you to add a qualifying clause, after you have expressly included them as beneficiary, that they will inherit only  so long as they were married to my child at the time of your death.  That technique will avoid having to change your estate plan in the event your child divorces.

5 Ways to Avoid Probate in Florida

smallbusiness_planPeople sometimes confuse avoiding probate with avoiding intestacy.  If you don’t leave a Will, you die in a state that is called “intestacy.”  This means that your statutory heirs will inherit your estate.   However, even if you have a Will, your Will will not avoid probate.  It will have to be probated and the Court direct the manner in which your beneficiaries receive their inheritance.

  • Top way to avoid probate: A Trust

If you create a trust and put all your assets into the Trust, you will avoid the situation where your heirs must probate your estate to inherit property and assets from you.  That is because the Trust owns everything – you don’t.  Therefore, when you die, the Trust still owns everything.  The Trust document then tells the trustee what to do with the assets, which usually includes transferring them to your beneficiaries.  If properly structured, all of this can be done without court supervision known as probate.

  • Second top way to avoid probate: Joint Tenancy with Right of Survivorship

Married couples often avoid probate when the first of the couple dies because everything is titled jointly with right of survivorship.  When the first of the couple dies, the assets are automatically the sole property of the remaining spouse.  This, however, does not allow avoidance of probate when the second spouse dies or the spouses die together.  Therefore, it is not a fool-proof method of avoiding probate.

  • Other ways to avoid probate

These last ways are mechanisms that individual assets are passed to your heirs without probate.  If, however, you have assets that don’t fall into these categories, you may end up with some of your assets passing without probate, while others must be probated.

  • Life Estate Deed – This is where you essentially give your heirs your real estate, but you keep the right to occupy it for your lifetime. Be careful doing this, however, because you may be causing your heirs a situation where taxes on capital gains will be due upon the sale of the property after your death.  Don’t do this without consulting your accountant or an attorney knowledgeable about tax.

 

  • Payable Upon Death or Transfer on Death – often you can designate your bank accounts or stock accounts to be paid to certain persons upon your death. This is not always available for every bank account or stock account, so make sure you get the proper information from your financial institution.

 

  • Placing your assets in the joint names of you and your heirs – This works just like it does for couples; however, you must realize if you do this that you are putting your assets at risk of being used by your heirs during your life or being accessible to their creditors. Again, it also may create a tax situation where your heirs are liable for capital gains taxes.

The bottom line is before you do any of these things and think you are home-free, you should consult an Estate Planner and/or your accountant.

Incapacity – Should You Make It Easy to Declare You Incompetent?

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Recently, I have been talking a lot to my clients about whether it should be easy to declare someone incapacitated or hard. Where this comes into play is when you have a Revocable Trust and you are Trustee. If and when you become incapacitated (unable to handle the day-to-day paying of your bills, etc.) your Successor Trustee will take over. The question is, should it be easy for your Successor Trustee to take over?

My usual answer is yes, it should be easy. I know that everyone’s knee-jerk reaction is that they don’t want their spouse, or children, or other loved-ones declaring them incapacitated and taking over when they still want to run their own lives. My response to that is, in my family, nobody really wants to take over paying my bills and managing my affairs. In my family, if they could get me to pay their bills and manage their affairs, my loved ones would gladly give this up to me!
So one cause of alarm is really not there for most of us. But what is the down side to making it harder to declare someone incapacitated? What is wrong with requiring my doctor to make that determination? The answer is one that it isn’t wrong, but it could be a problem. Doctors are not experts on legal documents-they are medical experts. They understand “incompetency” but not necessarily “incapacity.” What is the difference?
Some of my older clients can converse with you about current events, the latest family news, tell you their favorite recipes, and a whole host of other things. But they are having trouble remembering to pay the water bill or remembering to pay the taxes on a piece of property. A doctor may have trouble saying that such a person is “incapacitated” if the doctor is using the incompetency standard.

Finally, it is the bank and other financial institutions that the Successor Trustee will have to convince that they can now take over under the provisions of the Trust. If the standard is the least bit complicated and the words of the paper declaring someone incapacitated is not perfect, the bank has wiggle room to refuse to deal with the Successor Trustee. In that case, it may be necessary to get a court order to force the bank to deal with the Successor Trustee. Legal fees and proceeding are exactly what my clients who set up Revocable Trusts are trying to avoid – wasted money and hassle!

In the case of a family where interpersonal trust is an issue, maybe a physician should be relied upon. But in most cases, I say make it easy on your loved ones to care for you!

Does the Discomfort of Discussing Your Death Keep You From Planning Your Estate?

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Some of us have no trouble talking about death and others of us are a bit more squeamish. A friend of mine told me his wife wouldn’t make a Will because she is convinced that if she does, it means she will die. To me that seems silly and superstitious...but hey, the bottom line is no one likes thinking about dying.

First, I want to explode the myth that just because you have planned for your death that you are ready to die. I have had a Will since I was six years old. In West Virginia where I was raised, Holographic Wills, that is, in the testator’s own handwriting not witnessed or notarized, were valid. My father’s estate plan included gifting money away from himself to my sister and me. If we were to die, God forbid, the last thing he wanted was the money he can carefully given away to end up back in his pocket. This is exactly what would have happened. I wasn’t married as a little girl, I didn’t have children obviously, so my parents would have inherited anything I had upon my death. So my father, always thinking ahead, had my sister and I write Wills leaving our estates to each other. Problem solved! Luckily, my sister and I are living happy, long lives and have made other plans to leave our spouses and children our estates. But my point is, that Will I wrote at age 6 was in no way an admission that I was prepared to die.

Second, if you don’t write a Will (Holographic Wills, by the way, are NOT valid in Florida), you may end up with some very unintended consequences. I tell all of my clients, my job as your attorney is to make sure there are no unintended consequences. Such as these:

Sally is married to Bill. Sally and Bill have 2 children, but Sally has a daughter, Susie, from a previous marriage. Sally dies without a Will. Result, Bill gets ½, Susie gets ½. Sally and Bill’s children get nothing.
Bob is unmarried and lives with his domestic partner, Taylor. They don’t have kids and Bob’s parents are deceased. They’ve been together for 20 years and they are closer than any two married people ever were. Bob dies without a Will. Bob’s sister, whom he hasn’t seen in 30 years inherits everything.
Tom has full blooded sisters and a half-blooded brother, Carl, who were all raised together and if you asked them, they would have never even thought to tell you that Carl was only their half-brother. Tom dies without a Will, not married, no children, parents deceased. Carl gets only half of what the full-blooded sisters get.
Does any of this seem right to you?

You see, if you die without a Will, no one be able to look into the particular circumstances of your life. You may have hated one sibling and told the world that you disowned him or her. That doesn’t matter. You may have raised your stepchild as your own child, considered her your own child, never treated her any different than your son and daughter. Generally, that doesn’t matter either. The intestate law (that says who gets your stuff if you don’t have a Will) is a one-size fits all estate plan and, in all likelihood, it will not look great on you!

Set aside your fear of the grave for a minute. Think of estate planning as life planning. Come to a lawyer and tell them about the particulars OF YOUR LIFE! And let them draw up documents that make sense of it for you!

The Difference Between A Do Not Resuscitate (DNR) and Living Will?

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I once had a client come in and tell me that the Living Will that their mother had didn’t work because she “coded” in the hospital and they revived her in direct contradiction to the Living Will.  I had to explain to them that a Living Will is NOT a DNR.  If their mother didn’t have a DNR, the hospital was obligated to revive her.  Then if the doctors determined that there was no reasonable medical probability of recovery from her state after being revived, the Living Will would require that no “heroic measures” or health care to artificially prolong life could be administered.  To be blunt a DNR is a “leave them where they lie” order and a Living Will is an “unplug them” order.

Here’s what the difference is for me and you.

All people, even an 18 year old, should have a Living Will.  Terri Ann Schivo was 28 years old when she had a catastrophic heart attack and ended up in a persistent vegetative state for over 10 years.  There was nothing that could be done for her – no reasonable medical probability of recovery.  She was kept alive through a feeding tube.  That feeding tube was an artificially life prolonging measure.  If she had had a Living Will, after it was clear that she was no longer going to recover, her husband could have had the feeding tube removed and Terri would be allowed to die.  Maybe you remember the 1.3 Million Dollar fight over whether that should happen or not.  But Terri didn’t have a Living Will.

Terri also didn’t have a DNR, but why would she?  She was 28 years old and not expecting to have these problems.  I have 50 year olds who come into my office and say I want a DNR.  I tell them they are crazy.  If they have a heart attack or respiratory arrest, they could be revived and live another 25 years!  They say, I don’t care . . . I want a DNR.  Luckily I can honestly tell them that they have to have their doctor give them one.  DNR’s have to be signed by your physician and have to be on yellow paper to be valid.  If your doctor agrees that you are old and/or infirmed enough that it might be cruel to revive you, then he will sign a DNR.  The yellow paper is so that the Emergency Medical Team that is there to work on you, either the ambulance that arrived at your house or in the hospital, can see that it is a DNR and be assured that you don’t want to be revived.

A Living Will is a document where you, yourself, now in the present, say that “in the future” if I cannot express my wishes, and I have a condition that my doctors do not believe I have any probability of recovering from, then I want comfort care only.  Dying with dignity as it is often referred to.  Most of my clients want some form of that.

You should speak with an attorney about this if you want to make sure that you don’t end up on machines at the end of your life while the health care dollar meter keeps ticking on!

Types of Trusts - What They Can and Cannot Do

I have had more than a couple of clients come to me after their friends or financial advisors told them to put all of their wealth into a trust so that it would be protected from Medicaid/Medicare when they die. That's it. That's all they have been told and it sounds simple enough. However, these people have, by and large, been healthy people in their 50s or 60s, so when I tell them exactly how that works, very few of them really want to create the kind of trust that accomplishes protection from Medicaid liens.

Medicare/Medicaid

First of all, there is a big difference between Medicare and Medicaid. Medicare is health insurance provided to the public beginning at age 65 regardless of your income, your asset level, or your employment. When you get on Medicare, you will probably want to also purchase a Medicare Supplement which will pay the portion of your medical bills that Medicare does not pay (usually Medicare pays 80% and you pay 20%). Generally, there are no liens that Medicare assesses at your death. You may, indeed, have unpaid medical bills that will be debts at your death (your 20% if you don't have a Medicare Supplement policy), but, generally, Medicare doesn't attempt to get back from your estate any sums that it paid on your behalf.

Medicaid, on the other hand, is health insurance for people below certain income and asset levels. If you have worked all of your life at a job that pays decently, you probably won't have had to apply for Medicaid. If you collect SSI (Supplemental Social Security Income) because you are disabled and you didn't work long enough to collect SSD (Social Security Disability), you automatically get Medicaid to pay your health care bills. However, due to the fact that Medicaid is an asset qualifying program, if you die with assets, Medicaid is going to assert liens on your estate and property for monies it has expended on you during your lifetime.

So how is this relevant to ordinary folks like my clients.

Long-Term Care

In-home, assisted living, and skilled nursing care (in a nursing home) are very expensive. The average annual cost of a semi-private room in a nursing home in Florida is over $87,000. The average annual cost of assisted living is over $37,000. That cost, of course, can wipe out a lifetime of hard-earned savings pretty quickly.

Medicare does not pay for these kinds of care. Medicare will pay the first 100 days only of a stay in a nursing facility and will only pay for a limited amount of in-home care. The Medicare Supplements do not extend to pay these costs either.

Therefore, for long-term care, there are only 3 options available for people: 1) private pay; 2) long-term care insurance; or 3) Medicaid or VA benefits. Again, private pay is you paying for your own care at the very high rates just discussed. Long-term care insurance is special, specific insurance that you can pay for, but it is costly unless you lock in the rates when you are young.

That leaves Medicaid (or if you are a veteran or spouse of a veteran, VA benefits). However, Medicaid is only available to persons without assets over a certain level.
Revocable and Irrevocable Trusts

The only way to become eligible for Medicaid is to spend down your money. If you simply gift it away, Medicaid will deem you to be ineligible for benefits for a period of time determined by the amount you gave away. Medicaid is able to examine your bank and other financial records for 5 years to determine whether you have made any transfers that they consider to be gifts (not for value received). This is called the "look-back period."

There are exemptions from assets which are not counted as assets by Medicaid, such as a homestead up to a value of $552,000 and one vehicle of any value (even a Rolls Royce). A lot of assets can go into these types of assets and not be counted by Medicaid; however, any assets left over have to be taken out of the name of the person trying to qualify for Medicaid.

Putting money into a Revocable Trust does not do anything as far as Medicaid is concerned. That is because a Revocable Trust is considered a Grantor Trust. Because it is revocable, it is still money available to you. To make these assets unavailable to you, you would have to put your assets into an Irrevocable Trust with a Trustee that is not you. An Irrevocable Asset Protection Trust is one that is set up with someone other than you as Trustee, but you as beneficiary. But you don't get to call the shots as to how the money is invested or even how it is paid to you. This type of trust starts the five-year clock, so you would still have to wait for 5 years after setting up the trust before you would be eligible to apply for Medicaid. The benefit of this trust is that after you die, your heirs can inherit the remaining assets in the Trust. You could also put money into a Special Needs Trust. This type of Irrevocable Trust is an exempt transfer so the five years doesn't apply, but because you set it up, the first beneficiary of the Trust is Medicaid to the extent of any lien Medicaid can assert for money paid by it for your care. Monies from this Trust can be used to pay for your care over and above what Medicaid pays for.

That is why most of the clients who came to me thinking they wanted to set up a trust to protect against Medicaid liens decided they didn't really want to do that kind of thing yet.
When to Set Up an Irrevocable Trust for Applying for Medicaid

First of all, if you have substantial assets (liquid assets of over $500,000 or more), you may not want to ever apply for Medicaid. Not all skilled nursing facilities accept Medicaid and if you want a certain high level of care and luxurious surroundings, Medicaid is probably not the way to go. You could, under these circumstances, decide how long you want to pay for your own care in the luxury facility, set that money aside, and then put the rest in a trust, either an asset protection trust or a Special Needs Trust. Again, however, you need to be in a position where you don't mind losing control over your assets.

Second, if you have been diagnosed with a condition that raises the chances that you will end up in long-term care eventually (Alzheimer's, dementia, multiple sclerosis, Parkinson's, etc.), you will want to consult with an Elder Law attorney to see what options are available and to make a plan for your future care.
The Bottom Line

For most healthy individuals, losing control of their assets is not something they really want to do without some indication that they will actually need long-term care. The latest statistics from the Family Caregiver Alliance indicates that 35% of persons over 65 years of age will eventually enter a nursing home. Accordingly, you may not need long-term care and if you don't, do you really want to lose control over your assets? The bottom line is this: set up an appointment with an Elder Law/Estate Planning attorney. Go over your health and your financial status, as well as your estate planning goals. When and if you suspect you may end up needing long-term care in the future, go back to the attorney and have another in-depth review. But as common sense would dictate, it isn't as simple as placing your money into a trust and then magically having the government pay for your long-term care. If it was that simple, I suspect Medicare would be paying for long-term care for everyone.