2018 Changes Impacting Estate Planning

Most of us have heard plenty about the changes made to the tax code for 2018 by now. While you may understand that changes in certain deductions and credits may impact income tax, you may have concerns about how the changes may impact your estate planning. Similarly, you may be aware that estate tax exemption amount had increased in 2018 but are not sure to what level and what it means for your personal situation.

For the most part your current estate plan may be sufficient to meet your needs in light of the changes to the law. However, it may be more complex then necessary. It is important to review your estate plan to ensure it allows for flexibility in the event of a subsequent change to the estate tax exemption limits. You want an estate plan to be simple while taking full advantage of the changes and remaining flexible for the future.

First, what are the changes to the law?

Tax Cuts and Jobs Act of 2017

On January 1, 2018, the Tax Cuts and Jobs Act of 2017 (TCJA) became effective. The Act makes significant updates to individual and corporate tax rates, eliminates or modifies many tax deductions and results in changes for estate and business planning. Until such time that regulations are in place, the Internal Revenue Service and tax advisors are still sorting many of the details. Nonetheless there are some key updates that may impact estate planning. For most people the changes will not have a lot of impact on estate planning, but still provides a good opportunity to review their estate plan.

Doubling of the Estate Tax Exemption

One of the most significant estate planning changes for 2018 is the doubling of estate tax exemption amount. While for most people this change will not have a lot of impact on their estate planning, the doubling of the estate tax exemption is quite significant.

Beginning in 2018, the basic estate tax exemption amount increases to $10 million per individual with adjustments for inflation. The IRS has not yet released the inflation adjustment but it is expected that the 2018 exemption amount will be $11.2 million per individual and $22.4 million for a married couple.

Again, this change may not impact most people. However, the change will greatly simplify estate planning for married couples with a combined estate of more than 10 million dollars. Without further congressional action in the meantime, on January 1, 2026, the estate tax exemption amount will revert to the 2017 exemption levels of $5.49 million per individual and $10.98 per married couple. With this in mind, it is important for families with assets exceeding $10 million to plan with flexibility. Often this includes the use of revocable living trusts with certain disclaimer or optional bypass trust provisions.

Increased Gifting Opportunities

The lifetime gift tax exclusion amount also doubled for 2018. The lifetime gift tax exclusion amount is total amount that you can gift during your lifetime without paying gift tax. The new lifetime gift exemption amount mirrors the estate tax exemption amount with an expected adjusted exemption amount of $11.2 million per individual and $22.4 million for a married couple.

With this in mind, it is a good opportunity for those families considering sizable gifting plans to utilize the additional tax-free gift amount while it is available. Since the lifetime gifting exemption is also subject to change it may be advantageous to make additional gifts while exemption amount is higher. By making gifts during your lifetime you can transfer wealth and thereby reducing the overall value of your estate and decreasing your taxable estate.

However, it is important to balance the advantages of lifetime giving with tax basis and estate planning considerations. For example, gifts made during your lifetime will be transferred at your tax basis, or your cost. While distributions of assets through your estate receive a “step-up” in basis equal to the fair market value of that asset upon death. With this in mind, if you are considering lifetime giving you may want to save highly appreciated assets to pass through your estate.

Changes for Pass Through Entities That May Impact Planning

For individuals or families that have rental or investment properties as a part of their overall estate there are advantages to owning these assets through separate pass through entity such as an LLC. Ownership of investment properties through an LLC will provide additional liability protection as well as potential tax advantages.

TCJA changed the tax rate for pass through entities and provides a deduction of up to 20% on qualified business for business income that passes through to an entity to an individual. The modifications to the law and calculation can be quite complicated and are subject to certain limits and restrictions. For example, those with joint income over $315,000 are above the threshold amount and therefore subject to limitations. However, for most pass through entities this change results in a reduction of overall tax.

Another significant change in the law for pass through entities is a change to the partnership audit rules. The update to the law provides for tax assessment and collection at the entity level rather than individual level. This means that if you have assets in an existing LLC, S. Corp. or other pass through entity, or if you are considering setting up a new pass through entity, you need to consider the new requirements.

Practically speaking one of the most significant changes is the requirement to appoint a tax representative for the entity. The tax representative will be the point of contact for the entity in the event of an audit or other tax issue. This involves updating the operating agreement or partnership agreement to include the appointment of a tax representative. For smaller entities, with less than 100 partners or members, you may elect to opt out of these requirements. However, it is important to consult with your CPA to assist you in this process.

If you own a rental or investment property in your name individually, now is a good time to consider transferring your property to an LLC or other pass through entity. However, discuss this with your CPA, attorney and tax advisors first to ensure it is effective for your personal situation.

Overall Considerations

The focus of this entry is primarily on changes that may have an impact on estate planning. However, TCJA made significant modifications to many other tax provisions including reductions in tax rates and changes to many deductions and tax credits. It is important to discuss these updates with your CPA and tax advisors to determine how the changes might impact your personal tax situation.

Even if you think that the 2018 updates to the law may not apply to you, the key to any effective estate plan is flexibility, and regular review of your plan with your advisors. Discuss your estate and gift planning strategies with your attorney, CPA, financial planner, and other tax advisors as soon as possible to ensure you are making the most of your estate plan and gifting strategies.

If you have question regarding estate or business planning contact Kelly O’Brien, Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

 

 

Effective Trust Planning

The Importance of a Fully Funded Trust

What is a Trust?

A trust is written agreement wherein a separate entity, the trust, holds title of property and assets and manages those assets on behalf of an individual. A trust is created by a grantor (also known as the “trustor” or “settlor”) and the assets of the trust are managed by a trustee for the benefit of the beneficiary. During the lifetime of the grantor of a revocable trust, the grantor retains complete control over the trust and can amend the trust,  transfer or sell assets of the trust, or terminate the trust at any point.

How do you “Fund” a Trust?

For a revocable living trust to effectively avoid probate it must be fully funded. “Funding” a trust simply means transferring title of assets to the trust. This means making changes in ownership to change title of your assets from your name as an individual to you as the trustee of your trust.

Typically titling an asset in the name of the trust requires the name of the trustee, name of the trust and date of execution of the trust. For example: Kelly R. O’Brien, Trustee of the O’Brien Revocable Living Trust Dated June 1, 2017 and any amendments thereto.

To actually transfer title to your trust you will need to execute new documents of title. This includes executing new deeds for your real property. This also requires working with your financial advisor, accountant and attorney to update accounting information or obtain new deeds for real property.   If you already have a trust in place review your assets and accounts to make sure that the trust is actually funded.

Bank & Investment Accounts

For any significant bank or money market accounts, including certificates of deposit, you need to update the title on the account to include the name of the trust and trustee. This will likely require signing new signature cards or ownership documents directly with the bank.

For small accounts or checking accounts you may simply make beneficiary changes rather than re-titling your accounts.  By updating the beneficiaries of your checking account you will ensure that any remaining funds are distributed either directly to your family members or through your trust upon your death. By naming a beneficiary rather than re-titling your checking account you avoid having to list the name of your trust on all of your checks.

For stocks and bonds held in investment account you will also need to change title of the account to the name of your trust. The process is similar to re-titling bank accounts, but you may have to fill out new account applications so make sure you work with your investment advisor to transfer title of your investments to your trust.

Real Property

Transferring real property to a revocable living trust requires a conveyance of ownership. In Montana this requires the preparation, execution and recording of a deed for each property in the county where that property is located. This also must be filed along with the Montana Department of Revenue Realty Transfer form. If the property has associated water rights you will also need to transfer ownership of the water rights to the trust.

Prior to recording any deed it is important to review and understand the current status of property ownership and any related financing or tax issues. Additionally if your real property is encumbered by a mortgage or deed of trust you may need to provide additional notices or obtain consent from your lender. Accordingly, it is important to consult with your attorney and tax advisors before conveying title to real property to a trust.

Business Interests

Most business ownership interests, such as ownership in a partnership, limited liability company or corporation, can be assigned to your trust through a written assignment of interest. Typically the assignment must be approved and signed by the other owners of the business. However, it is important to first determine if there are any restrictions on the transfer of ownership. You may need to contact corporate counsel for the business and/or work with your individual attorney to properly transfer business ownership interests to your trust.

Retirement Accounts & Pension Plans

Retirement accounts are a unique type of investment requiring special planning. Typically it is not advisable to transfer ownership of a qualified retirement or pension plan to a revocable living trust as they correlate to your age, life expectancy and require minimum distributions. Instead, it is generally recommended that you include a spouse, partner or children as the primary and contingent beneficiaries of these types of plans.

However, appointing beneficiaries for retirement plans may involve complex tax planning and requires individual and specific advice. Therefore it is essential that you discuss your retirement plan beneficiary designations with your attorney, tax advisor, financial advisor and plan administrator.

Other Assets

The above descriptions include some of the more common assets that may be transferred to a trust. However, if you have a trust in place it is important that all of your assets are either titled in the name of your trust or that you have appointed the specific beneficiary for the asset. Again, work with your advisors to ensure that this is done properly.

Providing Documentation of a Trust

Typically you do not need to provide a bank, financial institution, or title company with a full copy of your trust, but instead provide what is called a “Certificate of Trust.” A Certificate of Trust prevents the disclosure of the private plans for distribution of an estate to third parties. A Certificate of Trust provides documentation and proof that a trust exists, lists the trustees of the trust and provides documentation of authority and power to transact business on behalf of the trust.

Additionally, you typically do not need to obtain a separate tax identification number for your revocable living trust. As long as you are the acting trustee of your trust (or for a joint trust if both spouses are living) you will use your own social security number for accounts held by the trust.

Effective Trusts Require Complete Funding

Revocable living trusts can be highly effective estate planning tools. Trusts provide a greater ability to control the distribution of your estate and can provide estate tax planning benefits. Moreover the use of a revocable living trust can enable your family to avoid a probate proceeding for your estate. However trusts are only effective so long as you properly transfer title of your assets to your trust. By reviewing ownership of your assets and following the processes outlined above you can ensure your trust is properly funded.  Work with your legal, financial and tax advisors to make certain that you have followed the necessary steps to fully fund your trust.

If you have additional questions regarding revocable living trusts or proper funding of trusts contact Kelly O’Brien, Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

 

 

 

Life Estates in Montana

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Effective Use of Life Estates in Estate Planning For Blended Families

The idea of the “typical” American family has changed significantly over the last several decades from the traditional nuclear family to blended families of countless variations. Modern families much more variety then the traditional husband and wife with two children. Now-a-days, a blended family, or a family where one or more spouse has children from a prior marriage is commonplace. A married couple with children from a prior marriage may face unique challenges when it comes to estate planning, especially if the couple is living together in a home they acquired prior to their marriage. All too often couples simply decide to leave everything to each other without considering how it may impact their children or create conflict in the future.

While we all would like to believe that our family members will all get along after we are gone, we all know that life can change. Your spouse may remarry, get sick or simply just not get along with your children. A life estate can be an easy way to address some of these issues without requiring the creation of a complex estate plan.

What is A Life Estate?

First, it is important to understand the basic definition of a life estate and how it is created. A life estate is an interest in land whereby an owner of real estate grants another individual (known as the “life tenant”) title of the property for the lifetime of the life tenant. The individual that possesses the life estate has an interest in the property for their lifetime only. Upon the life estate owner’s death, the remaining interest in land is passed to another individual(s) or entity (“remainder interest” holders or “remaindermen”). The person possessing the life estate interest may live on the property, use it, and otherwise benefit from it for their lifetime in a reasonable manner as they see fit.

The typical rights of a life tenant during his or her lifetime include:

  • Residing on the property;
  • Renting the property to a third party and collecting the rent payments;
  • Making profits from the land including profits from farming the land or timber harvesting (unless previously granted to a third party); and
  • Receiving a portion of sale proceeds if the real estate is sold (up to the value of the life estate).

The typical responsibilities and obligations of a life tenant during his or her lifetime include:

  • Maintaining the property and avoiding waste to the property;
  • Paying real estate taxes and insurance;
  • Paying any other fees, dues or utilities;
  • Paying any mortgage and interest costs.

Creation and Documentation of a Life Estate

A life estate can be created by a deed, an agreement, or though a will or trust. It is important that the document conveying the life estate is specific in any limitations that the grantor may intend. Otherwise, without specific language limiting or expanding the rights and responsibilities of the life tenant then the default rights and responsibilities of a life tenant listed above apply.

For example, if a grantor wants the life tenant to be able to reside on the property for his or her lifetime, but not rent the property to a third party, then the grantor must include specific language limiting the nature of the right to “live” or “reside” on the property. This language would create “limited life estate” or “right to reside,” which has very different rights and responsibilities.

Similarly, if the grantor wanted the remaindermen to pay the taxes and maintenance costs, rather than the life tenant, the granter must be specific in the conveyance document or agreement to transfer these obligations to the remaindermen.

A life estate can also be granted or sold to another person, or it may be reserved by the individual owning property for his or her lifetime. By retaining life estate interest in one’s own property an individual can enjoy the property for the remainder of his or her life, but transfer the property to another individual or entity upon death.

Use of a Life Estate in Estate Planning

A life estate can be a highly effective estate planning tool if properly documented and discussed with all involved. For a blended family a life estate can help to ensure that property would pass to children while allowing a spouse to reside on the property for his or her lifetime. Similarly, an owner of real estate can retain a life estate allowing the owner to continue to reside on the property for his or her lifetime while passing property to children, charities or other individuals upon death. The use of a life estate can also help to avoid a separate probate proceeding upon the death of the life tenant.

If you are considering granting a life estate to a spouse or child, or retaining a life estate for yourself talk with your family about your intent for the life estate to make sure your intentions are clear. Also make sure to discuss your plans with your financial, legal and tax advisors to ensure that your intentions are properly documented and carried out.

Seek Legal Advice

Before you proceed to grant or retain a life estate interest either through your estate plan or by a separate agreement discuss it with your attorney. It is important for you to consider your assets, family situation, and personal preferences carefully to ensure that it fits in with your overall estate plan. Moreover to ensure that your intent for your property is properly documented in a manner to meet your goals, discuss the following issues with your attorney:

  • What happens if the life tenant vacates the property? Can he or she rent the property to a third party and collect payments or does it pass to the remaindermen?
  • Who pays for regular maintenance costs?
  • What maintenance is required of the life tenant?
  • Who is responsible for major improvements? Who makes decisions regarding major improvements?
  • What insurance is required by the life tenant and the remaindermen?
  • Are the remaindermen permitted to inspect the property or otherwise enter the property during the lifetime of the life tenant? If so, when and how is entry permitted?
  • Who is responsible for taxes, insurance and other fees and costs?

Again, without specific language setting out the rights and responsibilities of each party the life tenant would have the responsibility for most of the expenses during his or her lifetime and benefit from the property during his or her lifetime. A life estate can be a valuable planning tool without the need for a complex estate plan. However, it is important that you involve your family and advisors in the process.

If you have questions or need legal assistance regarding life estates, estate planning or other real estate matters, contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

 

Beneficiary Deeds in Montana

What are Beneficiary Deeds and How Do You Effectively Use Them?

What is a Beneficiary Deed?

A Beneficiary Deed is a type of ownership interest where an individual holds title to real property but conveys his or her interest in the property to another individual to become effective upon the owner’s death. The individual to receive title to the original owner’s property upon death is known as a “grantee beneficiary.” A grantee beneficiary might be a child or other family member but it could also be a friend or charity. The grantee beneficiary’s interest in the real property is not effective until the death of the original owner. This means that an owner can revoke a Beneficiary Deed or change the beneficiaries at any time.

A Beneficiary Deed is a separate type of deed which requires all the formalities of a deed to be effective. This means that the deed must contain a full, accurate legal description of the property, contain the addresses for both the grantor and the grantee beneficiary, and it be signed, notarized, and recorded with the Clerk and Recorder in the county in which the real property is located. It also requires the filing of a Montana Realty Transfer Certificate with the Montana Department of Revenue.

Essentially a Beneficiary Deed is a way to transfer interest in real estate to heirs and beneficiaries upon death without the need for a probate.  While a Beneficiary Deed is not suitable in all situations, it can be an effective tool in transferring interest in real property upon death if executed for the appropriate reasons.

Beneficiary Deeds are most effective for estates that are relatively simple where real estate may be the only asset without an existing beneficiary designation and where the family members or other beneficiaries generally get along with one another. If your estate consists of your home and financial accounts, a Beneficiary Deed can be a simple and effective way to transfer your estate upon your death.

When a Beneficiary Deed May Not Be As Effective

If you have a complex estate, especially one with any type of trust in place or with potential estate tax planning issues or property in multiple states, then a Beneficiary Deed may not be the best option.

  • If your estate is complex. Complex estates, especially estates that are likely to exceed the federal estate tax exemption amount, require additional planning and consideration. For 2016 the federal estate tax exemption amount is $5,450,000.00 per individual.  While a Beneficiary Deed may be a simple way to transfer real estate upon death, it could have other estate tax implications or unintended consequences. If your estate is above or near the current federal exemption limit it may be beneficial for you to consider other estate planning options for avoiding probate such as a revocable living trust. If your estate falls into the more complex category discuss your overall estate plan with your attorney to determine how a Beneficiary Deed would impact your plan.
  • If you own property in multiple states. Every state has a different system for addressing real property and not all states recognize Beneficiary Deeds. Accordingly, if you own property in multiple states, the use of Beneficiary Deeds may not be as effective in accomplishing your estate planning goals. Instead, you may consider other options such as a revocable living trust to pass your real estate to your beneficiaries without the need for a separate, or “ancillary,” probate proceeding in each state where you own property. With a properly funded trust, the trust holds title to your property so no probate is required regardless of the location of your real property.
  • If family members or other beneficiaries do not always get along. Similarly, if you want to leave your estate to multiple individuals that may not always get along, a Beneficiary Deed may create more problems. If your heirs are likely to disagree, it does not make sense for them to hold title to real property together. Instead you may decide to create a separate trust or direct your personal representative or trustee to liquate your real property and split the proceeds between your heirs to avoid potential conflict.

Naming Multiple Beneficiaries

An owner of real property can list more than one grantee beneficiary on a Beneficiary Deed. However, they are most effective when only one or a few beneficiaries are listed (and those beneficiaries get along). If you decide to list more than one beneficiary on a Beneficiary Deed, it is important to make sure you specify how the beneficiaries will hold title together upon your death. Specifically, state whether they will own the property as tenants in common or as joint tenants with rights of survivorship. If you plan to list more than one beneficiary, make sure you discuss your options with a real estate or estate planning attorney to ensure that you understand the implications of different title designations.

How is Title to Property Updated Upon Death?

If you list an individual as a beneficiary of a financial asset, that individual becomes the legal owner immediately upon your death without the need for probate. The same concept is involved with a Beneficiary Deed. The beneficiary you name on the deed becomes the owner upon death, instead of having to wait to transfer property through a probate proceeding. To update the title, the beneficiary owner must record an affidavit certifying that the original owner has died and naming the grantee beneficiary or beneficiaries entitled to receive the property. This affidavit must be signed by the grantee beneficiaries in the presence of a notary public and recorded with the office of the Clerk and Recorder in the county where the real property is located. If these steps are followed, the beneficiaries will take title without the need for a probate proceeding.

Seek Legal Advice

Beneficiary Deeds can be simple and effective estate planning tools. However, before you proceed to execute a Beneficiary Deed discuss it with your real estate or estate planning attorney. It is important that a Beneficiary Deed is properly executed and meets all the formal requirements for a deed. It is also important for you to consider your assets, family situation, and personal preferences carefully before recording a Beneficiary Deed and to ensure that it fits in with your overall estate plan.

If you have questions or need legal assistance regarding Beneficiary Deeds, estate planning or other real estate matters, contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

 

Assisting Aging Parents with Their Finances

While it may not be easy for an aging parent to admit they may need help managing their affairs, it is best to have the conversation before that parent’s capacity is diminished. By having the conversation about incapacity planning before it becomes an issue there is still time to execute financial power of attorney and health care power of attorney thereby avoiding the need for a separate legal proceeding.

Options Are Different Depending on Capacity

The specific option you may take to assist a parent with his or her finances depends on their level of competency and understanding of his or her own financial matters. If your parent does not have memory or competency issues, and want to maintain some level of financial independence, then options such as a power of attorney or signatory authority on accounts may make sense. However, if you are concerned that a parent may be showing signs of dementia or has significant memory problems, then you may need to seek appointment as his or her conservator through a court process.

Conservatorships in Montana

If your parent or parents already have significant memory or capacity problems, but do not already have a power of attorney in place, then you (or another trusted family member) would need to seek appointment as that parent’s conservator through a court order. A conservator is an individual appointed by a court with a duty to make financial decisions and manage finances for an incapacitated individual.

The appointment of conservator in Montana requires the filing of a petition with district court. This includes a general statement of property owned by the alleged incapacitated person. A hearing in district court is required to determine the issue of incapacity, as well as to determine the appropriate individual to act as conservator. Notice of the hearing and petition must be served on all interested parties, which includes spouses, children and other family members.

The process of seeking appointment as a conservator through the court system, can be time consuming and expensive. The process also can be confusing and overwhelming for an incapacitated individual, so it is not often a first choice.  However, if a parent already has significant memory or capacity problems and has not planned appropriately with a financial power of attorney, then a conservatorship is likely your only option for assisting a parent with his or her finances.

Financial Power of Attorney     

If your parent has previously executed a financial power of attorney appointing you or another family member as an agent in fact for financial matters, then you may be able to avoid the conservatorship process. Similarly, if your parent has sufficient capacity to appoint an agent to make financial decisions for him or her through a power of attorney, your family may avoid the need for a conservatorship.

A power of attorney is a document whereby you appoint another individual (called an “agent”) to make financial or heath care decisions for you or transact business on your behalf in the event you are unable to do so for yourself. A power of attorney can be an immediate grant of authority or only used in the event of incapacity or disability. Unless the powers are specifically limited in any way, an agent appointed under a general financial power of attorney can make all types of financial decisions and transact all business on your behalf. These general powers include authority for check writing and banking, real and personal property, taxes, stocks and bonds, business transactions, insurance, legal claims and all other general financial matters.

A power of attorney can be a useful tool for financial management and simplify the process for assisting a parent with his or her finances. They also let a parent choose the individual that they want to assist with their finances without the need for a public court process.

Duties of an Agent

If you are appointed to act on behalf of one of your parents, whether through a power of attorney or conservatorship, you have a fiduciary duty to act in the best interest of that parent. This means that you have a legal duty to act solely in the best interests of your parent. You must manage and protect his or her property in an impartial manner. If you fail properly manage and account for your parent’s assets you may be subject to liability.

 

Organization is Essential

The best way to assist an aging parent with his or her finances, while protecting your parent’s best interests is through organization. Start by creating an inventory of your parent’s financial assets, accounts and ongoing expenses. Use the inventory to create a monthly budget. Once you have a clear idea of the budget and ongoing expenses then utilize options such as automatic payments for utilities and other regular expenses. Once you have determined a budget and set up payment systems, keep updated records of these payments.

 

Discuss with Your Siblings and Other Family Members

Discussing a parent’s financial matters may cause disagreements between siblings, but it is important that you keep your family involved from the beginning. It is critical that you discuss these issues together before you take any specific action on behalf of a parent . This allows you to address any potential objections and make sure everyone is on the same page. If you don’t inform or involve your family from the start you may be prone to potential challenges, or even legal action at a later date.

Seek Advice

Before you begin to assist an aging parent with his or her financial matters seek legal advice to make sure you are proceeding properly. If you have any question about your parent’s capacity to make decisions make sure you involve your family, health care providers and legal counsel in the process. By seeking the proper advice and involving key advisers and family members from the beginning you may be able to avoid disputes and will be assured that you are taking the right steps to protect your parent.

 

With questions about assisting your parents with their financial matters, Montana powers of attorney, conservatorships in Montana, or general estate planning questions contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

 

 

 

When to Engage a Real Estate Attorney to Buy or Sell a Home


Buying or selling your home can be a daunting task. Often the purchase of a new home is the most substantial purchase in your lifetime. In addition to the emotional issues associated with buying or selling your home, there are a host of legal issues involved. A new home purchase can be exciting, but there are a lot of potential pitfalls in the process, which is why it is important to obtain adequate legal advice.

Working With a Real Estate Broker

In most circumstances a buyer or seller of real property will engage a real estate broker or agent to assist with the sale or purchase. A broker can provide helpful insight into the local real estate market, up-to-date listing information, marketing advice and assist in negotiating a fair price for your home.

Even if you utilize a real estate broker, you may want to consider engaging a real estate attorney. When you engage a real estate broker you typically sign a brokerage or listing contract with the broker. When a buyer makes an offer that is reasonable to a seller, the parties enter into a formal buy-sell agreement.

Once the parties agree to the price and terms of the buy-sell agreement, the buyer will obtain a preliminary title commitment. If the title commitment is acceptable then the parties will proceed to address any contingencies. Once the contingencies are released the parties can proceed to close the sale. At every step of this process there are potential problems and areas for dispute.

A real estate attorney can review any listing agreement and the buy-sell agreement to ensure that all of the potential legal issues are addressed. An attorney can also help you to understand the commissions and closing costs you will be required to pay. Oftentimes, realtors use standard forms that may not address a unique issue relating to the specific property. Moreover, a real estate attorney can review the title commitment to ensure that you are aware of and adequately address any title exceptions that may cause a problem in the future.

However, whether or not you decide not to engage a real estate agent, an attorney can assist with all aspects of the sale or purchase of real estate from the initial offer through closing. More specifically a real estate attorney can provide assistance in the following areas:

Document Drafting & Review

A real estate attorney can draft or review every written document involved in the sale or purchase of real property. Attorneys can prepare offers, buy-sell agreements, financing documents, deeds, and other documents for conveyance. Even if an attorney does not draft these documents, a real estate attorney can provide review and essential insight into the terms of the documents to ensure that the contract and associated sale documents are correct, do not omit essential terms, and that you understand the terms contained in the agreement.

Examine Status of Title & Resolve Title Issues

Most real estate sales require the buyer to obtain a preliminary title commitment for the property. A title commitment will show any encumbrances on the property, such as easements, or legal restrictions, such as restrictive covenants, that may impact the property. Advice of an attorney within this process can be especially valuable. An attorney can explain what certain title exceptions might mean and how they might impact your property.

For example, one of the most common types of encumbrances on real property is an easement. By definition, an easement is a “nonpossessory” interest in the land of another individual that gives the easement holder the limited right to use the land of another. Many people living outside of the city limits may have some type of road or utility easement either on their property, or used to access their property.  If you are considering purchasing or selling property it is important that you adequately review any easements and related agreements to ensure that you understand and agree to the terms. If the title commitment raises any potential issues with adjoining property, an attorney can help to resolve the potential issue before you purchase the property.

Explain Zoning Restrictions & Subdivision Regulations

If you plan to purchase a home to use for a particular purpose, such as a home business or farm, a real estate attorney can explain the zoning restrictions on a particular property. A real estate attorney may also advise you as to whether you are able to subdivide the property and the process required to subdivide.

Examine Water Rights & Environmental Issues

A water right is a type of property right, which means it can be bought, sold or transferred. Water rights are normally transferred with real property, but sometimes the previous owner reserves the water rights from the conveyance. A reservation of water rights must be specifically written into the deed. If a seller does not reserve the water rights then a water right transfer certificate must be filed to ensure the water right documentation is updated with the state. An attorney can review the language of conveyance in the deed and associated documentation to ensure the water rights are properly transferred with the land, and assist in determining the nature and extent of water rights associated with a particular property.

Similarly, a real estate attorney can assist in determining whether there are any environmental issues that may impact the property. If there is existing environmental issues, such as previous spill or other environmental contamination, an attorney can explain how this might impact ownership or future development. An attorney can also provide advice in how to address an environmental issue within the sale process.

Resolving Disputes & Litigation

Even if you thoroughly address all potential legal issues in advance, real estate transactions do not always work out as planned. If a sale falls through an attorney can assist in attempting to resolve a dispute and negotiate the best outcome for you. Ultimately, if attempts to resolve the situation are not successful, an attorney can assist with the litigation associated with the transaction and related agreements.

Seek Legal Advice at the Beginning of the Process

If you are interested in buying or selling real estate consider engaging a real estate attorney at the beginning ofthe process to help reduce potential problems with the transaction. Even if you work with a real estate agent, a real estate attorney can assist in navigating the entire process to ensure you understand and agree to all the terms of the agreement, and if not, can negotiate better terms or resolve potential issues prior to the property sale.

A Power of Attorney- What is it and Why Might You Need One?

What is a Power of Attorney?

A power of attorney is a document whereby you appoint another individual (called an “agent”) to make financial or heath care decisions for you or transact business on your behalf in the event you are unable to do so for yourself. A power of attorney is typically used in the event of incapacity or disability. However, a power of attorney can also be used simply for convenience in limited circumstances, such as signing legal documents when you are out of the country. A power of attorney can be a useful estate planning tool for individuals of all ages, but it can be especially helpful to have in place as you age. If you wait to execute a power of attorney until your physical or mental condition may be declining, it may be too late.

Types of Powers of Attorney

Power of Attorney for Financial Decisions

A power of attorney for financial decisions allows you to appoint an agent to make financial decisions on your behalf in the event that you are unable to make these decisions yourself due to incapacity or disability. A financial power of attorney can provide immediate powers to your agent. In the alternative, you may execute a financial power of attorney that is not effective until you are determined to be legally incapacitated. Typically the determination of incapacity is made by a licensed physician in your state of residence.

Unless the powers are specifically limited in any way, an agent appointed under a general financial power of attorney can make all types of financial decisions and transact all business on your behalf. These general powers include authority for check writing and banking, real and personal property, taxes, stocks and bonds, business transactions, insurance, legal claims and all other general financial matters. These general powers can be expanded upon to include the powers to make gifts, execute wills or trusts, or change beneficiary designations. The powers can also be specifically limited to include only a particular authority, such as authority to sign real estate documents. All of the specific duties, responsibilities and authorities of a power of attorney in Montana are set out in the Montana Uniform Power of Attorney Act.

Power of Attorney for Heath Care Decisions

A power of attorney for healthcare decisions allows you to appoint an agent to make medical and health care decisions on your behalf in the event you are unable to make these decisions yourself. This includes decisions regarding all types of medical consents and life support issues, as well as decisions regarding medications and health care facilities.

While the appointment of an agent for health care decisions under a power of attorney might include broad powers to make health and personal care decisions, these appointments most often are not effective until you are disabled or incapacitated to the point that you are unable to make or communicate your health care decisions. A power of attorney for health care will typically require the agent to follow your desires as you specifically set out in the power of attorney document itself, or as known to your agent. Typically your agent is required to attempt to discuss the proposed health care decision with you to determine your desires if you are able to communicate in any manner.

What Happens Without a Power of Attorney?

Guardianships & Conservatorships in Montana

If you were to become incapacitated without a power of attorney in place, either suddenly as a result of an accident or due to a long-term disability or mental incapacity, a family member would need to seek appointment as your guardian and conservator through a court order. A guardian is an individual appointed by a court with a duty to manage personal and health care decisions for an incapacitated individual. A conservator is an individual appointed by a court with a duty to make financial decisions and manage finances for an incapacitated individual.

The appointment of a guardian or conservator in Montana requires the filing of a petition with district court. The petition is filed by the individual seeking appointment as the guardian and/or conservator. The petition must state the need for appointment, the specific interest of the petitioner, and set out certain factual allegations regarding the physical and mental state of the alleged incapacitated person. If a conservatorship is sought, then the petition must also include a general statement of property owned by the alleged incapacitated person. A hearing in district court is required to determine the issue of incapacity, as well as to determine the appropriate individual to act as guardian and/or conservator. Notice of the hearing and petition must be served on all interested parties.

In addition, the petitioner must request appointment of a physician, visitor and a separate attorney for the alleged incapacitated person. The physician appointed by the court must examine the alleged incapacitated person and submit a report in writing to the court to explain the mental and physical state of the alleged incapacitated person and whether or not a guardianship and/or conservatorship is appropriate. The court appointed visitor must visit and interview the alleged incapacitated person at their home or residence, as well as interview the petitioner, and submit a report in writing to the court. The attorney is required to represent the alleged incapacitated person to ensure that the guardianship and conservatorship is in his or her best interests.

The process of seeking appointment as guardian and conservator can be time consuming and expensive. Moreover, since it is subject to the court process, it is public, and held in open court. This process can often be confusing and overwhelming for an incapacitated individual.

However, one of the most significant drawbacks of guardianships and conservatorships is that the individual that is appointed by the court may not be the individual that you would have chosen to manage your financial affairs or personal care decisions. By appointing an agent to make financial and health care decisions for you through a power of attorney, you can avoid the need for a guardianship or conservatorship through the court system. A power of attorney allows you to appoint the individual of your choosing to conduct your personal and financial affairs.

Choosing an Agent to Appoint under a Power of Attorney

Choosing an agent to conduct your financial affairs or make your health care decisions requires careful consideration. Your agent has a fiduciary duty to manage your affairs in a manner that serves your best interests according to Montana law. Obviously you want to choose someone that you trust with your utmost personal decisions. The decision of who to appoint also requires consideration of the nature and value of your assets and the relationships between your family members.

Typically, a married individual will nominate his or her spouse as the agent for both the financial and health care power of attorney. However, for a single individual or widow(er) it can often be difficult to determine who to appoint as an alternate agent.

Many people choose to appoint either one or all of their children as alternate agents. If your finances are fairly simple and you have a relatively small family with solid relationships, then appointing one or all of your children may be a good option. Your children are familiar with your assets and intentions, but there is potential for conflict between siblings or misuse by one of your children that oversteps his or her authority or acts in a manner that is counter to your best interests.

Instead, you may decide to appoint a relative or close friend that is not one of your children and not a beneficiary of your estate. Appointing a relative or a close friend can be beneficial because they are familiar with your family dynamics and your assets and intentions. However, relatives and friends may lack experience managing financial assets and may not be immune to family disputes.

As an alternative to your children, relatives, or close friends you may choose to appoint a professional fiduciary. While I do not recommend appointing a professional fiduciary to make personal and health care decisions, the appointment of a professional fiduciary for financial decisions through a financial power of attorney can help to reduce family conflict and can provide neutral management.

Ultimately the choice of who to appoint as your agent under a financial or health care power of attorney is personal. The decision depends on your particular financial assets, health care needs and family dynamics. It is important to consider the factors mentioned above and choose an individual or institution that is responsible, has an ability to work with your family, and is willing to seek the advice of professionals such as physicians, health care providers, estate planning attorneys, financial planners, and CPAs.

Seek Advice

A power of attorney can be a useful tool for estate and incapacity planning. A power of attorney allows you to choose an individual to manage your financial matters and make health and personal care decisions on your behalf, instead of subjecting you and your family to a public court process. Discuss your thoughts and concerns about choosing and appointing an agent with an estate planning attorney and your family members to ensure you make right choice for you and your family.

Why Incorporate Your Small Business?

Clients often ask me why a separate legal entity is a good idea for their business. There are many advantages to setting up a separate legal entity, specifically liability protection. For example, consider a small retail business that is structured as a sole proprietor. The business has some initial success so the owner decides to expand the business.  They move to a larger location, increase staff, and expand  product lines. However, the expansion results in significantly higher operating costs, so the owner decides to take out a loan to cover some of the costs.

Unfortunately, the business gets behind paying the bills and becomes unable to make loan payments. As a result, the owner defaults on the loan and the lender files a collection action to recover the remaining debt. Because the owner held the business a sole proprietor the lender was able to file the action against the owner, personally, rather than just against the business itself. This meant that the lender could seek recovery from personal assets as well as any business assets. Most of the assets and inventory of the business were already purchased on credit so the creditor looks to personal assets to collect on the judgment. This could result in a judgment which encumbers a personal home and can take a significant amount of time to free personal assets from the judgment. If the business had  established the business as a corporation, or other separate entity, the owner could have avoided entangling a personal home with business debt.

Consider Your Business Entity Structure

If you own a small business and want to avoid some of these issues, consider structuring your business as a separate business entity such as a corporation or limited liability company (LLC), limited liability partnership (LLP), or other legal entity. For purposes of this article I use “corporation” or “incorporation” to generally discuss how forming a separate entity can be advantageous to your business. However, the decision about the specific legal structure for your business will impact your tax liability, ownership rights, and business operations. Making the right decision about the legal and corporate structure of your business is critical to your long-term success, so discuss your options with your tax advisor and business attorney to determine what is right for your specific business.

Advantages of Incorporating

Regardless of the specific entity type there are some very compelling advantages to incorporating, or otherwise creating a separate entity for your small business.  Among the advantages these include:

  1. Protection of Your Personal Assets

Perhaps the most persuasive reason for incorporating your small business is protection of your personal assets. A corporation is a separate legal entity which means it can own, buy and sell property; enter into contracts; sue and be sued; and be separately taxed. Moreover, a corporation is responsible for it’s own debts and liabilities.

This separate structure protects the owners, or shareholders, as well as directors and officers from personal liability for corporate debts and obligations so long as corporate formalities are properly followed (as discussed below). This means that creditors of a corporation may only seek payment from assets of the corporation and not the shareholders or directors. Without a separate entity structure such as a corporation, business creditors may be able to pursue the owner’s personal home, car, or bank accounts as Mary’s creditors did.

  1. Ease of Transfer

Ownership interests in a corporation are held in corporate stock. Corporate stockholders can readily sell or transfer their stock. This also means that shareholders can transfer or even give shares of stock to their family members. The ease of transferability allows business owners to transfer a family business to the next generation in a more seamless fashion. It also increases the ability for the business to add new owners or investors.

Alternatively, transferring ownership in a sole proprietorship or partnership can be an expensive and time consuming process that involves transferring title to property, assigning contracts and often setting up entirely new accounts.

  1. Perpetual Existence

A corporation is a separate legal entity so it is not dependent on the life of any one individual owner. This allows a business to continue indefinitely despite changes in ownership without disruption. This also provides additional stability for owners and investors and avoids the need for an extensive process to transfer or liquidate the business upon the death of an owner.

  1. Attracting Investors & Raising Capital

When you incorporate your business it is often taken more seriously by lenders or outside investors.  If you have taken the step to incorporate it indicates that you may be more willing to invest time, energy and resources in the business to ensure the long-term success in the business. The willingness to invest in the long-term success of the business makes corporations more attractive to lenders and investors.

In addition, corporations can easily raise capital and transfer ownership by selling shares of stock. This makes it easier for outside investors in invest in corporations, and provides the additional piece of mind associated with the limitation on personal liability.

  1. Potential Tax Advantages

Corporations may provide certain tax advantages over a sole proprietorship or partnership. It is typically easier for corporations to write off expenses such as pension plans, health insurance premiums and other fringe benefits as tax-deductible expenses. Some corporations are also able to structure the business in a manner to save on self-employment taxes. There are numerous ways in which a corporation may reduce its overall tax liability. It is important that any business discuss these issues with its tax advisors prior to incorporating, or otherwise creating a separate entity for the business.

Maintain Corporate Formalities

The advantages of incorporating a small business are numerous. However to enjoy the benefits, especially the benefit of limited liability protection, the entity must act as a corporation. This means maintaining certain corporate formalities such as using the corporate name, holding annual and special meetings, maintaining meeting minutes and filing annual reports. Furthermore, it is essential not to mix corporate and personal assets or accounts or otherwise use corporate assets to pay for personal debts and obligations.

 If you incorporate your business, it is critical to know when to seek legal advice to assist you in maintaining a separate entity structure.  Legal advice may be especially beneficial when taking actions such as issuing or purchasing stock, performing business in other states, amending corporate documents, or merging, dissolving or otherwise restructuring the business.

A business attorney can advise you how to incorporate your business, as well as discuss the benefits and drawbacks of specific types of legal entities for your particular business. While incorporating your business will not ensure that your business will always be successful, it can enable you to protect your personal assets.

Reducing the Potential for Conflict and Disputes Regarding Your Estate

While we all would like to believe that our family members will all get along after we are gone, unfortunately estate disputes are all too common. While some lawsuits relating to estates and probate are disputes about large sums of money, many of these lawsuits relate to modest-sized estates or small items of personal property. Even if your family gets along fabulously now, there is always the potential for conflict down the road, however by recognizing a few simple issues you may be able to reduce or completely avoid these situations.

Any estate may be subject to dispute, but there are some specific situations that may create a greater potential for disputes. For example, if you have remarried and have children from a prior marriage your estate may be subject to more scrutiny from your family. In addition, if your children do not get along with each other during your lifetime, it is more likely that they will dispute issues regarding your estate. Whether or not one of the situations mentioned above exist in your family there are some measures you can take to reduce the potential for conflicts between your family members.

Ways to Reduce Potential Disputes Regarding Your Estate

Don’t Put Off Estate Planning

Estate planning is a process that requires careful thought and consideration. Do not wait until you are faced with an illness, traveling out of the country, or dealing with potential capacity issues. Take some time to review and create an estate plan that addresses your unique situation while you still clearly have the capacity and health to make sound decisions.

Perhaps more importantly, clearly communicate your intentions with your family both during your lifetime and in your will or trust. If you talk to your spouse and children about your wishes during your lifetime you may be able to address, or event prevent, potential disputes that may arise with the distribution of your estate. Clear communication and planning can also provide you with the peace of mind that you may spare your family from conflicts or hurt feelings.

Make Sure Your Beneficiary Designations are Up-To-Date

It is also critical to review your beneficiary designations to ensure that the proper beneficiaries are named, and the beneficiary designations fit within your overall estate plan. Remember, a beneficiary designation can take precedent over a will, so keeping your beneficiary designations updated to reflect your current life situation is essential.

Specifically Recognize Any Lifetime Gifts or Loans in Your Will or Trust

If you loan money to one of your children, or give gifts during your lifetime, make sure that you recognize the loan or gift in your will or trust. Be specific about whether the loan is to be forgiven or repaid at your death. Additionally, document any loans or gifts you make during your lifetime, in writing, with the use of promissory notes, contracts, or other document, so that your intent is clear.

Be Specific About Personal Property

While most people may be more focused on the distribution of financial assets and real estate in their will or trust, personal property can often create more problems and disputes than larger assets. With that in mind, include a specific “Personal Property Memorandum” to attach to your will or trust, or include a specific provision directly in your will or trust that sets out the distribution of your personal property. This not only includes personal property with high monetary value, such as jewelry or art, but also any personal property that has family or sentimental value, or simply may cause an argument in your family.

Create a Revocable Living Trust to Avoid Probate

A revocable living trust is an estate planning tool that can eliminate the need for the probate administration process. If you have a trust in place, so long as you properly transfer title of your assets to your trust, probate will not be required for your estate. Probate is a public process, which requires filing an inventory and accounting of your assets. While the purpose of a probate proceeding is intended to be administrative rather than adversarial in nature, probate does provide a forum for heirs to contest terms of your will or dispute with other heirs and beneficiaries. Revocable living trusts are private documents not subject to probate proceedings, so the use of a trust can help to reduce the potential for conflict surrounding your estate.

Appoint a Neutral Trustee or Personal Representative

Instead of appointing your spouse or a child as the trustee or personal representative for your estate, consider appointing an institutional trustee such as your bank’s trust department, or professional fiduciary. A professional or institutional fiduciary is not subject to the same family pressures and can provide neutral management of your estate. While professional fiduciary may not be familiar with your family dynamics and can be a bit more impersonal, this approach can be quite advantageous in providing neutral administration and reducing conflict.

If You Intend to Disinherit Someone Clearly Explain Your Decision in Your Will or Trust

If you want to disinherit a family member, especially if it is a child, very clearly explain in your will or trust your intent to disinherit your child. List the individual by name and give a brief explanation of why you intend to disinherit him or her. However, don’t go overboard in your explanation and make sure that your reason for disinheriting the individual is not easily challenged or against public policy.

Communicate Your Intentions and Seek Professional Advice

These are some of the techniques available to reduce disputes and conflicts regarding your estate. By implementing some of these strategies and discussing an overall plan with your family that addresses any potential disputes or inequity problems, you may be able to avoid a dispute.

Your particular estate may have estate tax or other considerations, so seek the professional advice of your attorney, CPA or financial planner. Your advisers may also have additional ideas to help reduce conflicts based on your personal and family situation.

Estate Planning for the Small Business Owner

Most small business owners barely have time to stop to catch their breath, much less think about their estate plans. However, for a small business owner estate planning can be as important as budgeting, forecasting or any other planning.
Why is estate planning important to small business owners? More than likely, if you own a business a large part of your personal wealth is tied to that business. Without a plan you lose the ability to manage the transition of your business, and your wealth. Estate planning enables you to be in control of what happens to your business interest upon your death or incapacity, rather than leaving it to state law, family members, your partners, or even creditors.

Review Your Will or Trust to Ensure it Addresses Your Business Ownership Interests

If you already have a will or trust in place, review it to make sure it addresses your intentions for your business interests upon your death or incapacity. This may include a specific provision in your will that passes your business interest to your spouse, or other family members, or a specific acknowledgement of your business ownership interests and a statement your intent that your family honor the terms of an existing operating agreement.
If your existing estate plan is silent as to your specific business interests, more than likely that means that your business ownership interests will pass with the remainder of your estate. While you may wish that your family receive your business ownership interests, it is important to specifically address how your heirs or family members may, or may not, be involved with your business and its operations.

If You Do Not Already Have an Estate Plan in Place, Make it a Goal for Your Business

Again, estate planning allows you to be in control of the distribution of your business interests, rather than leaving it to state law, or in the hands of your family members, business partners, or other third parties. Estate planning for business owners includes the traditional estate planning tools, such as wills and trusts, as well as internal business planning documents. At a minimum, your estate plan should include a Last Will and Testament and/or a Revocable Living Trust, as well as Power of Attorney documents for financial and health care decisions, and an operating agreement for the business.
Discuss your business transition goals with an estate planning attorney to ensure that your estate plan reflects intent for your business and your family.

Review or Create an Operating Agreement

If you own your business with another partner, or partners, an operating agreement is an essential estate planning document for you, as an owner, and the business as a whole. (For discussion purposes the term “operating agreement” is used here to generally discuss internal documents for the operation of various business types, but a different term may be used for a different type of entity, such as shareholder agreement for a corporation.) An operating agreement is a contract between the owners, and the company that guides the operation and transfer of a business. In addition to estate planning issues, such as death or incapacity, the operating agreement can also address how to determine the value of the business upon a sale, how individual owners may join or withdrawal from the business, or how to handle a dispute between owners.
While most individuals would prefer not to discuss the issue, planning for an unexpected death or incapacity of an owner or manager, an operating agreement will enable the business to carry on, even if an owner may no longer be able to manage the business. It is important that the members or owners of the business have a discussion as to the important points of the operating agreement. This ensures everyone is on the same page and has discussed these issues from a planning perspective rather than trying to figure out these issues in the event of a disagreement or other unknown circumstance. When discussing how to plan for an unexpected death or incapacity of an owner or manager with other owners or with your family consider the following:
• Ownership Transition and Buy-out: Do you want the business to buy-out the heirs or family?
• Control & Management: If the business does not buy-out the heirs, does it want those heirs to have an active role in managing the day-to-day operations of the business? Or any amount of voting power?
• Financing: What resources are available upon death? If the plan is to buy-out the heirs or family members, how will it be financed? Some options may include installment payments, life insurance, or the creation of a separate fund.
• Price: How do you establish a price to buy out? Price can often be calculated as book value, multiple of annual earnings, by appraisal, or otherwise by agreement of all owners.
These are only a few of the discussion points to consider when creating an operating agreement. A business attorney can advise you on options for your particular business and assist you in drafting an operating agreement that meets you needs.

Create a Separate Entity

If you are a solo proprietor, or a general partnership, the beginning of a new year is the perfect time to start thinking about setting up a separate business entity such as a Limited Liability Company (“LLC”) or corporation. LLCs and corporations protect personal liability by placing liability on a separate entity rather the business owners as individuals. Moreover, a entity that is separate from the individual owner(s), survives the death of an owner, which makes it easier for your business interests to be distributed to your family without the need for probate.
The decision about the legal structure of your business will impact your personal liability, ownership rights, and business operations. Making the right decision about the legal and corporate structure of your business is critical to your long-term success, so discuss your options with a business attorney to determine what is right for your specific business.

Communication is Essential to Successful Estate Planning for your Business

The most critical component of successful estate planning for a small business is communication. Talk to your partners, family members, tax and legal advisers to ensure that your intentions can be met and to facilitate a smooth transition for your business. Estate planning for a business owner does not need to be complex or lengthy, but it needs to be discussed and completed. Communication with those involved, along with some basic planning will enable your family, and business to carry on in the event of an unforeseen circumstance.
Don’t wait for the unexpected to happen and then to try figure out what to do next. Take some time to create an estate plan that addresses your business interests and keep the control of your business in your own hands.