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Category Archives: Contracts
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
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:
- 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.
- 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.
- 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.
- 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.
- 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.
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.
Estate Planning for Parents of Young Children
While parents of young children may be somewhat young as well, and do not consider themselves as having a large enough “estate” to require an estate plan, parents of minor children often have the largest concerns. Even a bit of simple estate planning will allow parents of young children to have some control over the care of their children in the event of untimely death, and the peace of mind that their children will be provided for in the proper manner.
The basic estate planning considerations for parents of minor children include:
-Who will take care of your children?
-Who is responsible for managing assets for your children?
-How to financially provide for your children?
Choosing a Guardian for Minor Children
Undoubtedly the biggest concern of parents of young children is who will take care of their children once they are gone. Determining the best individual(s) to act as a guardian for minor children can be difficult. However, for parents of young children, guardianship is the estate planning decision with the most potential impact. Consequently, every parent of minor children should consider who would raise their children if they were unable to do so
If you do not appoint a guardian for your children, in the event of death of both parents, the court will appoint a guardian for your children. The court is required to follow state law with regard to the priority of appointment of a guardian, rather than the specific individual(s) of your choosing. Most people would prefer to decide the guardian of their children themselves, rather than leave it to the court and state law to dictate this important decision. Therefore, it is important to take some time to consider a guardian for your children.
I recommend starting the decision making process with a list of good potential candidates for the role of guardian. This list may include brothers, sisters, aunts, uncles, grandparents or even family friends, basically anyone you can think of that may act as a guardian.
Then, consider the most important factors for you in raising your children. Factors to consider include: philosophies about child rearing; relationship with your children; age and stamina; geographic location; social, political, religious and moral values; financial responsibility; lifestyle and availability and interest in acting as a guardian for your children.
Once you have considered these factors, prioritize the factors that are the most important to you and determine which of the potential guardians possess the most similar qualities.
Open discussion with your family members, including your spouse, children and potential guardians is a key component in this process. Also, understand that circumstances may change as children get older, so it is a good idea to revisit the appointment of a guardian periodically to determine if it still remains a good fit.
After you have determined who would raise your children upon the death of both parents, then it is important to consider who is responsible for managing your estate and assets for the benefit of your children.
Choosing a Trustee for Minor Children
Who to appoint to manage assets for your children requires careful consideration of the nature and value of your assets, as well as your plan of distribution and the relationships between your family members.
Family Members or Friends
You may decide that a relative or close friend, or even your chosen guardian, is the appropriate individual to manage assets for your children. Appointing a family member such as one of your siblings or a close friend can be beneficial because they are familiar with your family dynamics, as well as your assets and your intentions. However, family members or friends often lack experience managing estate assets, financial investments, and methods for ongoing accounting of these assets.
Professional Fiduciary or Trustee
As an alternative to your family members or close friends, you may choose to appoint an institutional trustee such as your bank’s trust department, or professional fiduciary, to manage and invest your assets for the benefit of your children. One key advantage of a professional or institutional fiduciary is that they are not subject to the same family pressures and can provide neutral management. A professional fiduciary also has critical professional knowledge in working with wills and trusts, and managing and investing estate assets. However, a bank or trust company will charge a fee for its services, and are not necessarily familiar with your family dynamics. On the other hand, the impersonal aspect may be an advantage when it comes to providing neutral administration, especially with arguing family members.
Ultimately, you want to choose an individual or institution that is responsible, has the ability to follow with large amounts of estate paperwork, an ability to work with all of your beneficiaries, and is willing to seek the advice of qualified professionals.
In addition to choosing a guardian and trustee, also consider how your assets will be managed and distributed to your children; both the mechanism of distribution and the ages or events in which your children will receive a distribution.
Planning the Distribution of your Estate
In planning how and when your estate will be distributed to your children, the first decision is what specific mechanism you will use to manage and distribute your estate. You may decide that a simple will nominating a guardian and leaving all of your assets to your children outright, in equal shares is sufficient, or you may determine that a trust is more appropriate.
Outright Distribution
If you decide to make outright distributions to your children, you must consider the Montana Uniform Transfers to Minors Act (UTMA). Under to the Montana Uniform Transfers to Minors Act (UTMA), the assets are transferred to a custodian who holds and administers the property for the benefit of a minor. UTMA custodianship can be beneficial because any type of property can be transferred and the custodian does not have to post bond, or file accountings unless mandated by the court.
However, under a UTMA custodianship property must be distributed completely at either age twenty-one or age eighteen years, depending on the circumstances. Many parents do not necessarily feel comfortable with their child receiving full control of assets at age eighteen or twenty-one and may want to consider other options.
Outright distributions not only require consideration of the Uniform Transfer to Minors Act, but it provides for less over the distribution of your estate. With that in mind, you may determine that you do not want to leave your estate to your children outright. When providing distributions of your estate for your children, it often makes more sense to create a trust to manage the assets for your children, rather than provide for an outright distribution.
Trusts
A trust is a 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. In general, the most commonly used trusts for children are testamentary trusts or revocable living trusts.
Testamentary Trust through a Will
A testamentary trust is a trust that is set out in a Last Will and Testament. A testamentary trust is only effective upon the death of the grantor through the probate of his or her Last Will and Testament. While testamentary trusts can be a simple and affordable mechanism, a probate of the estate is required before the trust can be funded and your children can receive any distribution from the estate. Not only does this delay the distribution of the assets because the assets must first go through the probate process, but the probate process requires additional fees and expenses, which will reduce the amount of assets available for distribution to your children.
Revocable Living Trust
A Revocable Living Trust is a type of trust that is immediately effective upon creation, but can be amended or terminated at any point by the grantor during his or her lifetime. A Revocable Living Trust offers much more flexibility in the distribution of assets than outright distributions or testamentary trusts.
Revocable Living Trusts do not have to go through the probate process, which permits distributions to begin immediately, in a private manner without the additional costs and fees associated with probate. Moreover, a Revocable Living Trust allows you to control exactly when and how your children receive assets. For example, you may direct that the trustee distribute 1/3 of the trust assets when a child reaches twenty-one; 1/3 when the child reaches thirty; and 1/3 at age thirty-five.
While Revocable Living Trusts can be beneficial estate planning tools, they are not necessarily advantageous for everyone. Revocable Living Trusts typically cost significantly more to create and administer than an estate plan with only a will. Moreover, Revocable Living Trusts require re-titling of assets in the name of the trust, and additional administration by the grantor. Therefore, it is essential to review you assets, family situation, and personal preferences with an estate planning attorney before deciding to create a Revocable Living Trust to benefit your children.
Consider Your Specific Circumstances
While these are the general issues to consider when providing for your young children in your estate, it is important to also consider your specific circumstances. If you have children from a prior marriage, or children with special needs, then you will need to take some additional steps in planning for their future.
If you have young children, even some basic estate planning will provide you with control over the care of your children and the peace of mind that your children will be provided for, both personally and financially, in the manner you see fit.
If you have questions or would like additional information regarding estate planning for minor children contact Kelly O’Brien, Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com
Trust Basics III: Do You Need a Trust?
Who Is a Good Candidate for a Trust?
You do not necessarily need to have a sizable estate for a trust, but it is essential to weigh the advantages and disadvantages of a trust to determine if a trust makes sense for your specific situation. If any of the advantages listed in my previous post seem to apply to your situation, or if you simply want greater control over the distribution of your assets, then a trust may be useful for you. In addition, if any of the following circumstances apply to your situation then you may consider a trust:
- Federal Estate Tax Concerns: If your estate exceeds the federal estate tax exemption amount, a trust can be helpful in reducing potential taxes. For 2014 the Internal Revenue Service has set out a federal estate tax exemption amount of $5,430,000.00 for an individual, or $10,860,000.00 married couple. If the value of your assets exceeds this amount then a trust may be highly beneficial for you and your family in potentially reducing the amount of taxes paid by your estate.
- Ownership of Real Property: If you own significant amount of real property or owner property in multiple states a trust can help limit the need for probate, or ancillary probate in multiple states. Real property is a type of asset that requires additional estate planning to pass to the next generation due to the manner in which it is titled. Unless you own all of your property in joint tenancy with rights of survivorship, a trust is one of the only manners in which to avoid a probate proceeding for the transfer of your real property. Moreover, if you own property in multiple states your estate may have to go through 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.
- Probate Avoidance: If you are simply interested in avoiding the cost and time associated with the probate process, you may consider a trust. With a properly funded trust, no probate will be required for your estate. The distributions of your estate can occur more quickly, privately, and without the costs associated with a probate court proceeding.
Seek professional advice
Trusts can be very effective estate planning tools if properly executed and funded. However, trusts do not make sense for everyone. It is important to review your particular situation with your attorney and tax advisers to determine the type of trust that is right for you and your family.
If you have specific questions about any of the issues discussed in this post or trusts in general contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at 
(406) 752-6373/ www.measurelaw.com
Trust Basics II: Advantages & Disadvantages of Trusts
In my previous entry I set out the definition of a trust and discuss some basic types of trust agreements. Understanding the basic definition and types of trusts is important, but what are the advantages of a trust versus creating a simple will? The focus of this entry is on the advantages and disadvantages of creating a trust in an estate plan as compared to other estate planning tools.
Advantages Creating a Trust in Your Estate Plan
• Greater control over distributions: Perhaps one of the most significant benefits of a trust is the ability to have greater control of the distribution of your assets. A trust allows you to set out exactly when, where, and how much each of your beneficiaries will receive from your estate, over time, rather than requiring immediate distribution of your entire estate.
For example, if you wanted to leave your estate equally to your two children, but wanted to ensure that they did not receive all of their inheritance at once you could specify in your trust that each of your children receive a percentage of your estate upon reaching a certain age, or achieving a certain life milestone (such as completing college).
• Probate Avoidance: Probate is a court proceeding whereby your personal representative (also called an “executor”) is responsible for gathering your assets, paying debts and expenses, and distributing your property either pursuant to your last will and testament, or by state law if no will is in place. However, 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. In Montana, the probate proceeding takes a minimum of six months before closing and distribution. However, with a trust, distributions can occur more quickly, privately, and without the costs associated with a probate court proceeding.
• Privacy: As mentioned above, probate is a public process. Probate requires filing an inventory listing all of your assets with the court as well as filing your original last will and testament which sets out your plan of distribution. This also means that the public could obtain and view copies of this information. A trust, on the other hand, allows for the private distribution of your assets.
• Reduce Potential Conflict: Because trusts are private documents not subject to probate proceedings, the use of a trust can help to reduce the potential for conflict surrounding your estate. 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.
• Incapacity Planning: A trust is a great mechanism for ensuring/providing that your property will be managed for your benefit during any period of incapacity or prolonged mental or physical illness. The terms of your trust can set out how to determine your incapacity, who is responsible for managing your assets, and how the assets should be managed upon a disability.
• Estate Tax Planning: While having a revocable trust does not necessarily mean that you can avoid taxes or estate taxes, they can be helpful vehicles in maximizing the estate tax exemption available to your family upon the distribution of your estate. For example, you may decide to create a “credit shelter trust” (also known as “bypass trust” ) within your trust, whereby you can take advantage of certain tax exemptions upon your death to reduce the overall amount of estate taxes paid.
• Caring for a Beneficiary with a Disability: If you have someone in your family with a disability, special needs, or who receives any type of disability benefits, they could risk losing these benefits if they inherit from your estate. A trust can provide for the basic needs of a disabled beneficiary while also maintaining their current benefits and care.
Disadvantages of Trusts
While trusts can be beneficial estate planning tools, they are not necessarily advantageous for everyone. If you have a fairly simple estate, both in the type of assets and value, a trust may not be necessary to accomplish your estate planning goals. The main drawbacks of trusts to consider are the costs associated with creating a trust and the increased administration required for a trust.
• Increased cost: Trusts typically cost significantly more to create and administer than an estate plan with only a will. Often a trust will cost three to four times as much as a basic will, depending on the complexity.
• Administration: For a trust to be effective the grantor’s assets must be re-titled in the name of the trust, or otherwise transferred to the trust. This means that upon initially executing a trust you would have to execute deeds for any real property to your trust and change bank and other financial accounts. While this often is accomplished upon initial execution of a trust, for some people the administration of a trust is enough to be a deterrent.
Trusts can be very effective estate planning tools if properly executed and funded. Consider your assets, family situation, and personal preferences with your attorney and tax advisers carefully before proceeding with a trust.
If you have additional questions regarding trusts contact Kelly O’Brien, Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373(406) 752-6373/ www.measurelaw.com
Trust Basics I: What is a Trust?
What Is a Trust ?
I frequently have clients that come into my office with questions regarding trusts. They may have heard something from a friend, or recently watched the latest Suze Orman Show, and are convinced that they need a trust. However, there are a lot of misconceptions about trusts, both good and bad. Trusts can be highly beneficial estate planning tools, but it is important to understand the basics of trusts, how they work, and whether or not a trust makes sense for his or her specific situation.
This is the first entry in a series of entries on trust basics. This article will focus on on the definition and types of trusts, I go into the and disadvantages of creating a trust and discuss the criteria and good candidates for a trust agreement in later entries.
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.
As an initial matter there are two general types of trusts: revocable living trusts (often called simply “Living Trusts”) and irrevocable trusts. Within these types of trusts there are numerous variations in techniques and complexity, but it is important to at least understand the basic distinction between a revocable and irrevocable trust.
Revocable Living Trust
A revocable living trust is a type of trust that can be amended or terminated at any point by the grantor during his or her lifetime. Typically, during the lifetime of the grantor of a revocable trust, the grantor is also the trustee and the beneficiary, so he or she retains complete control over the trust. It is only usually during a period of incapacity or death of the grantor that a successor trustee would step in and act on behalf of the trust.
Irrevocable Trust
An irrevocable living trust is a trust that, once executed, cannot be amended or terminated without court approval or consent of all the beneficiaries. Once the assets are transferred to an irrevocable trust the grantor no longer retains control of those assets. Irrevocable trusts can be important tools for estate tax planning or creditor protection purposes. However because they are irrevocable, the decision to execute an irrevocable trust depends on your specific tax and estate plan and should be discussed carefully with your attorney or tax adviser.
While it is important to understand the difference between revocable and irrevocable trusts, for purposes of this article, the main focus is on revocable trusts as they are more commonly applicable.
Seek Professional Advice
Trust can vary greatly in type, terms and complexity. If you are considering creating any type of trust it is essential that you review your particular situation with your attorney and tax advisers to determine the type of trust that is right for you and your family.
If you have specific questions about any of the issues discussed in this post, Contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com
Business Operating Agreements & Guidelines
Tools to Help Small Business Owners Protect Themselves
Andrea and Susan were old friends that decided to start a small business together in Montana. For them the process of setting up their business was fairly simple; they found a great downtown location for their little gift shop, each invested a small amount of their own money to purchase inventory, and then they were open for business.
Initially they did not form any separate entity, but within a few months of opening they decided to form a limited liability company, or an “LLC.” Andrea found the “Articles of Organization” form, and filed it with the Montana Secretary of State. Over the coming months, both owners would use personal funds to help purchase inventory, in amounts they agreed upon, but they never formalized any agreement regarding using personal funds for the business.
After several years of being in business, Susan decided that she wanted to spend more time traveling and no longer wanted to be involved in the business. At that point in time the gift shop had become quite successful and Susan believed that her interest in the company had become very valuable. With that in mind, Susan approached Andrea to let her know her intentions for leaving the company and suggested that Andrea buy her out of the business.
However, the amount suggested by Susan was shockingly high to Andrea. According to Andrea, Susan was only entitled to her initial investment, which was less than one-third the amount proposed by Susan. Andrea suggested a lower price and unfortunately the two spent the next year arguing over the value of Susan’s interest.
This situation is all too common for small businesses; the owners file a form to become a separate entity such as an LLC or corporation in an effort to protect themselves from personal liability, but fail to actually follow the formalities of a separate entity and fail to execute an operating agreement. The operating agreement is key in determining the value of the business, how individual owners may join or withdrawal from the business, and what happens to an owner’s interest in the event of their untimely death, bankruptcy or other life event.
Observe Business Formalities
First, observance of LLC or corporate formalities is an important factor in determining whether it will be actually treated as a separate entity. If the LLC or corporation is not treated as a separate entity, then the members or shareholders may be held personally liable for the debts and obligations of the company.
Some examples of to how maintain business and personal matters separate include:
· Refrain from commingling business funds or accounts with personal funds. If you are placing personal funds in the business, make sure it is accounted for as a capital contribution, a loan or a reimbursed expense.
· Always make clear when you are acting on behalf of the business, rather than acting in a personal capacity. This may include signing documents in a representative capacity or clarifying your role in a business meeting.
· Do not use funds owned by the business to pay personal debts and obligations. Personal obligations should not be paid directly from business accounts. If you need to make a personal payment, pay yourself first as a member or shareholder of the business, then make a payment from your personal account.
· Maintain written documentation of actions of Members, Shareholders, Directors or Officers. This includes maintaining minutes of your annual meeting and any special meetings, or written consents, signed by all owners.
Create an Operating Agreement (or Shareholder Agreement)
An operating agreement is the document used by the owners or “members” of an LLC. A shareholder agreement is the document used by the owners or “shareholders” of a corporation. 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.
An operating agreement is a contract between the members of the LLC and the LLC as a separate entity. It sets out all of the internal terms for the operation of the LLC. These terms may include valuation, distribution of profits and losses, and the withdrawal or addition of a new member.
While an operating agreement may be drafted by an attorney, 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 the beginning of the business, rather than trying to figure out these issues in a disagreement or other unknown circumstance.
Some important issues to discuss in the creation of an operating agreement include:
· What limitations to place on transfers of ownership. Some options to consider include: no transfer without consent of all owners; right of first refusal of company and/or members; limitations on forced buy-outs; or right to remove owners for certain unlawful or unethical actions.
· How to fund a buy-out of an owner. Consider such issues as allowance for installment payments, use of life insurance, or loans.
· How to calculate the value of an ownership interest in the business. Will the value simply be book value, or assets minus liabilities of the company? Or do you want to use a different formula? Do you want to set a price in advance?
· What happens in the event of unforeseen life circumstances? What happens to an owner’s interest in the business when that individual owner retires, wants to withdrawal from the business, becomes disabled, gets a divorce or files for bankruptcy?
Obviously these are just some of the discussion points to consider when creating an operating agreement. A business attorney can advise you on options for your particular business. However, it is important that the business owners discuss these issues prior to starting business, rather than wait until after a dispute arises, like Andrea and Susan.
If only Andrea and Susan had taken some extra time to create an operating agreement when they started their business, they could have spent less time and money arguing back and forth over the value. Instead Andrea could have spent more time focusing on the business and Susan could have spent her time traveling. By taking the time to discuss a potential buy-out in the beginning of their business these women could have saved themselves significant time and money in the long-run.
For advice regarding business formalities, operating agreements or general business law contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373(406) 752-6373/ www.measurelaw.com