Category Archives: Estate Planning

Trust Basics III: Do You Need a Trust?

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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

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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?

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 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

 

Who is in Charge of Your Estate?

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Choosing a Personal Representative or Trustee to Manage Your Estate

Choosing the personal representative of your estate or successor trustee in the event of a trust, is one of the most important estate planning decisions you will make. However, all too often people make this decision rather quickly without considering all of the options and potential long-term issues.

Take the case of Sharon. Sharon was a single woman with four grown children.  She finally decided to get her estate plan in order. Due to the nature of her assets she determined that a revocable living trust was the best option for her. She put considerable time into creating her trust, and appointed all four of her children as co-trustees of the trust. Sharon’s four children were also her main beneficiaries and would receive most of the assets of her trust.

According to the terms of Sharon’s trust agreement all of the trustees were required to agree before they could distribute any assets of the trust. Upon Sharon’s death her four children were unable to agree on anything and make any decisions about the trust distribution.  Consequently it took several years to settle her estate and had a traumatic impact on her four children and their relationship with each other.

This situation is actually quite common; parents nominate all of their children as their personal representative(s) or trustee(s) with the best of intentions, but the children cannot agree on any aspects of the distribution. As a result it can take years for an estate to be settled at the expense of family relationships.

How can you avoid this situation?

Choosing the personal representative of your estate, or successor trustee in the event of a trust, is one of the most important estate planning decisions you will make. It requires careful consideration of both your estate assets and family relationships.

What Does a Personal Representative or Trustee Do?

As an initial matter whether you appoint a personal representative or a trustee depends on your specific estate plan and whether you create a will or trust.

Duties of a Personal Representative

A personal representative (also known as an “executor” or “administrator”) is the individual responsible for the administration of your Last Will and Testament through probate. The personal representative is responsible for gathering up the assets of your estate; evaluating claims against the estate; paying the last debts and expenses of the estate; accounting for assets of the estate; paying taxes; and distributing the assets of your estate according to the terms of your will or trust.

Duties of a Trustee

A trustee is the individual you appoint to carry out the terms of your trust agreement and plan of distribution. You would nominate a trustee, or successor trustee, only if you have executed a trust agreement, most likely a revocable living trust. A trustee is required to collect the assets of the trust, pay bills of the trust, account for trust assets, and distribute those assets. Often a trustee is also required to invest and manage assets for the benefit of your beneficiaries over time. Unlike a personal representative, the duties of a trustee can carry on for many years, sometimes even multiple generations.

Who Should  You Choose to Manage Your Estate?

Once you have created a will or trust, then who should you appoint to manage your estate? Again, who to appoint 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.  Typically, a married individual will nominate his or her spouse as a personal representative of their will, or a trustee of a trust. However, it can be difficult to determine who to appoint as an alternate personal representative of a will or alternate trustee of a trust.

Appointing Your Children

After appointing a spouse, people often appoint either one or all of their children as alternate personal representative(s) or alternate trustee(s). If you have a fairly simple will or trust, and a relatively small family with a solid, ongoing relationship, then appointing one or all of your children may be a good option. Your children are familiar with your assets and intentions. Accordingly, appointing your children to manage a simple estate can provide a relatively quick and economical solution.

However, as illustrated above children are also often the primary beneficiaries of an estate which can provide for unintended consequences. Even siblings with the best of relationships do not always agree to the management or distribution of an estate.

Appointing a Relative or Friend

Instead, you may decide to appoint a relative or close friend that is not one of your children and not a beneficiary named in your will or trust. 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, your assets and your intentions. Moreover, an individual that is not named in your will or trust does not have a potential conflict of interest between the duty to manage your estate and the desire to receive certain assets from your estate.

While appointing a non-beneficiary family member or friend may help to reduce disputes between your children, there are drawbacks to consider. One common issue is that family members often lack experience managing estate assets, financial investments and methods for ongoing accounting of these assets. In addition, a relative or friend may not be immune to family disputes. One of your children may simple dislike or not agree with the personal representative or trustee, which makes it difficult for that individual to carry out his or her duties.

Appointing a Professional Fiduciary or Institutional Trustee

As an alternative to your children, relatives or close friends you may choose to appoint an institutional trustee such as your bank’s trust department, or professional fiduciary to act as a personal representative. One key advantage to 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.

The use of a neutral professional may help to reduce family conflict, although there are other issues to considering when deciding to appoint a professional fiduciary or institutional trustee. The main consideration for most people is simply the cost of administration. A bank or trust company will charge a fee for its services, and usually have minimum fees that make it unaffordable for a simple estate. Another important consideration is that a professional fiduciary is not familiar with your family dynamics and can be a bit impersonal. However, the impersonal aspect may be an advantage when it comes to providing neutral administration, especially with arguing family members.

Qualities of a Personal Representative or Trustee

Ultimately the choice of who to appoint to manage your estate is personal and depends on your particular estate and family dynamics. It is important to consider the factors mentioned above and 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 professionals such as estate attorneys and CPAs. Discuss your thoughts and concerns with an estate planning attorney and your family members to ensure you have made the right choice for your family and estate.

If you have specific questions about any of the issues discussed in thispost, Contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

 

 

Estate Planning in a New Year

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Start 2014 Out Right By Getting Your Estate Plan in Order 

Recently, a friend and client of mine asked me to help her update her will. My friend realized that her will might need a little updating, but she was shocked when she actually retrieved her will from her safe deposit box to see just how much in her life had changed since she executed her will. In my friend’s case she had been divorced and remarried, and instead of having minor children, her children were now grown with children of their own. While my friend was shocked (and a little embarrassed) I reassured her that no time is better than the present to finally update her will.

Organize & Update Your Estate Plan in the New Year

The start of a new year is an excellent time to think about your estate planning. Whether that means a simple review of your existing will or trust to ensure that it still works for your current life situation; or that means finally taking the step to get a will or trust in place, consider the start of a new year a perfect opportunity. Remember estate planning is not only about how your assets are distributed, it also means appointing the individual(s) responsible for carrying out your wishes for your family and health care decisions.

Individuals whom have recently experienced major life changes such as a divorce, or the death of a spouse, are especially susceptible without a plan that reflects their current life situation. In the case of my friend, while she did have a will, it was completely irrelevant to her current situation. Moreover, women without any kind of estate plan in place leave it completely up to state law to dictate matters such as how their assets will be distributed, who will care for their children, or who will manage funds for their children or grandchildren.

If You Don’t Already Have an Estate Plan, Take the Opportunity in the New Year to Finally Get a Plan in Place  

Essentially, estate planning enables you to be in control of what happens to your assets upon your death or incapacity. Estate planning is also the process by which you appoint who you want to be responsible for carrying out your wishes for your assets, family and heath care decisions. At a minimum, your estate plan should include the following elements:

A Will and/or Revocable Living Trust

These are formal documents that describe how and when to divide and distribute your assets upon your death. Whether you need a simple will, or a more complex, revocable living trust, depends on your specific situation. Discuss your situation with an estate planning attorney to determine which makes sense for you and your family.

Durable Power of Attorney for Financial Decisions

A durable power of attorney for finances allows you to appoint another individual to make financial decisions on your behalf in the event that you are unable to make these decisions yourself due to incapacity or disability.

Durable Power of Attorney for Heath Care Decisions

A durable power of attorney for healthcare allows you to appoint another individual to make medical decisions on your behalf including decisions regarding medical consents and life support issues in the event you are unable to make these decisions yourself.

Beneficiary and Payable on Death Designations

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.

 If You Already Have an Estate Plan, Take the Opportunity to Review Your Existing Plan to Ensure it is Still Relevant to Your Life  

As busy individuals today, we all know that life changes fast. Your will may have been drafted during a prior marriage, or when your now grown children were still minors.  After any major life change, such as a divorce, death, or major change in assets, it is important to review your plan and appropriate changes.

When Should You Update Your Estate Plan?

While there are many life circumstances that warrant a change in your estate plan, below is a checklist of some of the life changes that may require an update to your plan:

  •   After a divorce or marriage
  • After the birth or adoption of a new child or grandchild
  • When your children or grandchildren reach the age of 18
  • Death or illness of an individual named as personal representative, trustee, beneficiary or guardian
  •  A change in relationship with an individual, organization or other beneficiary named in will
  • A sale or purchase of a major asset, such as a new home, a  new business, or sale of business or home
  • You move, especially if you move out of state
  • There is a change in the state or federal tax law
  • You experience a significant increase or decrease in the value of your assets, such as receiving an inheritance

Don’t forget to review & update Beneficiary designations

The last thing you want your family to have to deal with is removing a former spouse or other unintended beneficiary after you are gone. Work with your financial planner, or check with your specific financial institution on how to make and update beneficiary changes to reflect changes in your life.

No Time is Better than the Present to Review, Update or Create Your Estate Plan

We all know that it can be difficult to keep up with every little change in life. However, when a major life change occurs, it can sometimes be too overwhelming to think about your estate plan.  Make it a resolution to consider your estate plan in the New Year to ensure that it works for your life.  By taking the time to review your existing estate plan, or to finally execute a will or trust, you take control of what happens to your assets upon your death or incapacity. Review the checklist above and discuss any life changes with estate planning attorney to ensure that your estate plan reflects your current situation and ensures that you and your family are protected and prepared.

 

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

 

 

 

How to Keep the Vacation Home In the Family

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If you own a vacation home in Montana, you probably have a very special emotional connection to the area, and the memories it creates for you and your family. Since vacation homes have such a unique emotional and familial tie, you likely want to make sure that it stays in the family for generations to come.

However, you also may have worried about what will happen to the family vacation home after you are no longer able to visit. Often questions come up, such as: Who will inherit it? How will I decide who can use it and when? Will my family have to sell it after I am gone? How will my family pay for the taxes and maintenance?

Without proper planning your family’s vacation home can be a great source of disputes, and create financial burdens for your family in the future. Moreover, there are tax and financial implications for transferring your vacation home at different times and though different mechanisms, especially in situations where the home has increased in value.

What Is Your Long-term Vision for Your Vacation Home?

First, it is important to adequately consider your long-term goals for your vacation home. Do you intend to keep in the family for multiple generations? If so, how do you envision the home being shared by your children and grandchildren? How do you plan to pass along your interest in the home? Do you want to pass it during your lifetime, or upon your death?

As an initial matter it is critical that you speak with your CPA or tax planner about the tax implications of transferring real property during your lifetime or upon your death. Everyone has a unique financial and tax situation, and real property transfers are especially susceptible to pitfalls.

If you do not want the vacation home to be sold upon your passing, and want to make sure that the home is kept in the family, without a significant financial burden, consider the creating a separate entity such as a trust or limited liability company (LLC) to own and manage your vacation home. Both trusts and limited liability companies can help to reduce personal and financial risks for your family, plan for financial costs, and reduce conflict. Moreover, trusts and LLCs also have the advantage of preventing unwanted partitions or forced sales.

Create a Trust for Your Vacation Home

There are several different types of trusts you may consider in managing a vacation home, including revocable or irrevocable trusts. Speak with your attorney or tax advisor to determine which makes the most sense in your specific situation.  Regardless of the type of trust, a trust can hold the home for the benefit of your family, as well as direct the distribution of the home to your children or grandchildren. In addition, a trust keeps your vacation home out of probate and less likely to be subject to claims of creditors. Moreover, a trust can provide additional funds to be set aside specifically for taxes or maintenance of the home.

A Trust as a Method to Provide Funds to Maintain the Home for Your Family

Adequate funding helps to alleviate some of the financial constraints for your family and help to ensure that the vacation home will stay in the family for generations to come. Your trust can simply set aside funds to pay taxes upon your death, or a lump sum of money to be paid to your children for the maintenance of the vacation home.  Otherwise, you could decide to keep the trust ongoing to make annual payments of principal or income to provide for such costs as taxes and insurance for the home.

If you managed to save enough to buy a vacation home, but don’t anticipate that you will have a significant sum of money to provide for the maintenance of the home long after you are gone, you may consider making the trust a beneficiary of a life insurance policy. Upon your death, the death benefit of the life insurance policy will be paid to the trust. Then, these funds can be uses to pay for taxes, repairs and maintenance for the property.

Create a Limited Liability Company to Hold and Transfer Interests in Your Vacation Home

A Limited Liability Company (LLC) can be a great tool for transferring interests in your vacation home to family members, as well as establishing guidelines for the use of the home.  In addition, by placing liability on a separate entity rather than an individual, LLCs help to protect your family from personal liabilities, including creditor claims or liability associated with accidents occurring on the home by other users.

Transferring Ownership Through Membership Interests in the LLC

If you establish an LLC for your vacation home, you can transfer partial interests in the home during your lifetime. You can accomplish this simply by gifting membership interests (like shares of stock) in the LLC to each child or grandchild up to the current federal gift-tax exclusion amount every year. This can provide significant tax advantages, and also allow you to maintain a certain amount of control over your vacation home until your death. Again, make sure that you work closely with your financial and tax advisors when gifting interests in your vacation home LLC.

Utilizing an LLC Operating Agreement for the Maintenance and Use of Your Vacation Home

To ensure the success of the LLC for your vacation home, an operating agreement is essential. A well-planned LLC operating agreement will encourage your family members to share in the management and take responsibility for the use and maintenance of the property.

The LLC operating agreement should address the allocation and payment of taxes, maintenance, and other expense associated with owning and improving the vacation home over time, as well as how to decide on maintenance and improvement costs. In addition, the operating agreement should adequately discuss how the property can be used, by when and by whom, and how and when members can transfer or sell their membership interests. Similarly, the operating agreement should set out what to do in the event one member does not pay his or her contribution towards expenses or fails to follow the guidelines for use of the home.

Communicate Your Vision with Your Family & Seek Professional Advice

These are only a couple of techniques to consider when planning for your vacation home. Discuss your goals and considerations with your family members to determine if they are interested in pursuing one of these techniques. Make sure your children want to share in your vacation home and create an overall plan to addresses any potential disputes and financial issues. Once you and your family are all on the same page, then work closely with your CPA, attorney, financial and tax advisors to make sure you have chosen the right technique for keeping the vacation home in the family.

If you have specific questions about any of the techniques discussed in this article, Contact Kelly O’Brien at Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com to schedule an appointment.

Article previously published in the October/November 2012 Business Issue of 406 Woman Magazine http://406woman.com/

 

 

 

Estate Planning for Blended Families

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Tips & Techniques for the Modern Family

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. Now-a-days, a blended family, or a family where one or more spouse has children from a prior marriage is commonplace.

Blended families face unique challenges when it comes to estate planning. Parents of blended families should take extra precautions to adequately consider what would happen to the family upon the death of one spouse and take steps to avoid disinheriting a spouse or children.

Perhaps one of the more famous estate disputes in recent history surrounded the estate of J. Howard Marshall who was married to the much younger Vickie Lynn Marshall, more widely known as Anna Nicole Smith.  Upon Mr. Marshall’s death, his will left almost all of his estate to his son from a previous marriage. However, Ms. Marshall sued, claiming her elderly husband promised to give her more than $300 million and the court battle went on for several years.

This case illustrates one of the more common scenarios in blended families, where one spouse leaves everything to their children from a prior marriage and completely leaves out his or her spouse. This leaves the estate subject to claims from the surviving spouse, as well as other disputes between family members that can have lasting impacts.

Another common problem occurs when the children are disinherited by virtue of joint ownership of property.  This commonly occurs because married couples often decide to hold property such as houses, bank accounts, or cars jointly. However, in a family of a second marriage joint ownership with a spouse can result in unintended consequences. In the case of joint ownership, the surviving spouse obtains sole ownership of the property by operation of law, thereby excluding the predeceasing spouse’s children from ownership of the property.

If you have remarried and have children from a prior marriage, what can you to reduce the chance for disputes between your spouse and children after you are gone?

First, it is essential that you talk to your spouse and children about your wishes, as well as discuss potential issues that may arise with the distribution of your estate. In addition to communication with family members, a blended family should consider the following techniques for reducing conflicts:

Update your Estate Plan & Beneficiary Designations

At a minimum each spouse should have an estate plan containing a will with Powers of Attorney for finances and health care. However, a will only goes so far with a blended family. It is also critical that each spouse updates their estate plan and beneficiary designations to ensure that ex-spouses are disinherited or no longer listed as beneficiaries of assets such as retirement accounts or life insurance policies. Then review your beneficiary designations to make sure that the proper beneficiaries are named, and the beneficiary designations fit within your overall estate plan. Remember, a beneficiary designation trumps a will, so keeping your beneficiary designations updated to reflect your current life situation is essential.

Prenuptial or Other Marital Agreements

Perhaps one of the best methods of preventative maintenance for a blended family is to execute a prenuptial or other marital agreement with your spouse that addresses estate planning issues. By clearly defining which assets you want to remain separate after the marriage and which assets you agree will pass to each of your children you can reduce disputes later, Moreover, marital agreements allow you to maintain more control over the how and when your assets are distributed.

Life Insurance Policies

Life insurance can be a great tool for providing for your children, while also providing for your spouse. By specifically naming children as beneficiaries of a life insurance policy it creates immediate benefit to children upon death, rather than having to potentially wait many years for inheritance. With the life insurance proceeds going to children, the remainder of the estate may pass to the surviving spouse, thereby eliminating or reducing potential inequities.

Create a Trust

Consider a joint revocable living trust or Qualified Terminable Interest Property Trust “QTIP” Trust. A QTIP or other trust can provide income and principal for a surviving spouse’s care during his or her lifetime. However, upon the death of your spouse, the remaining assets in the trust can be distributed to your children according to your wishes.

Life Estates

Another option to consider is to provide your spouse with a life estate in your home.  A life estate allows a surviving spouse to live in the house for his or her lifetime, but allows the remainder interest in the home to pass to your children.

Talk with your Family & Seek Professional Advice if Necessary

These are just some of the techniques to consider when planning an estate with a blended family. It is critical that you and your family discuss these issues together and have an overall plan to addresses any potential disputes or inequity problems. Your particular estate may also have estate tax or other considerations, so I always recommend seeking the professional advice of your attorney, CPA or financial planner.

These types of estate planning issues may not always be easy issues to talk about, especially with a blended family. However, communication and planning now can provide peace of mind that you are sparing your family from conflicts or hurt feelings down the road.

Contact Kelly O’Brien for more information or questions about estate planning at  Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

 

 

Transferring Your Family Farm or Business to the Next Generation, Part II

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Planning for the Retirement or Unexpected Death of an Owner: Advice from a Montana Business and Estate Planning Attorney

Business succession planning is the process whereby the business, and its owners, to agree in advance to issues such as what consent is required to transfer business interests, to whom may an owner transfer business interest to, or how to determine the value of those interests. Two major considerations in this process are what happens in the event of a death or incapacity of an owner, and what happens upon retirement.

Planning for the Unexpected Death or Incapacity of an Owner or Manager

While most individuals do not want to think about death, planning for an unexpected death or incapacity of an owner or manager will enable the business to carry on even if a key individual in the business may no longer be able to manage the business.

When discussing how to plan for an unexpected death or incapacity of an owner or manager, consider the following:

  • Buy-out: Do you want the business to buy-out the heirs or family members?
  • Financing: What resources are available upon death? How to finance the buy-out of family members? 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.
  • Control & Management: If the business decides to buy out heirs, does it want those heirs to have an active role in managing the day-to-day operations of the business or simply receive income from the business?

Planning for Transfers of Ownership Pursuant to Retirement

While retirement may seem to be a long ways off for many small business owners, planning for retirement of an owner or manager will ensure that the business has both the funding available and capable individuals in place to handle retirement. Some of the same considerations discussed above also apply to retirement, and in addition the business should consider the following:

  • Who Will Take Over Leadership: Decide who will be the successors will be. Identify key individuals who may already have a role within the business. Discuss whether family members may have a role in the business and the potential role of current owners, managers and third parties.
  • Timelines & Transitions: Discuss the ideal timeline for retirement and what gaps in management may exist upon retirement. Discuss what training may be necessary and how to accommodate the different skills and interest of those taking over.

Communication is the Key to Successful Business Planning

The most critical component of successful business succession planning is communication. Communication between business owners, managers and all family members involved will facilitate a smooth transition. The business succession planning process does not have to be complicated, a simple discussion of these issues and a basic plan is better than waiting for the unexpected to happen and then trying to come to an agreement about what to do next.
If you have questions about business succession planning, contact Kelly O’Brien, Measure, Sampsel, Sullivan & O’Brien, P.C. at (406) 752-6373/ www.measurelaw.com

Transferring Your Family Farm or Business to the Next Generation

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Business Succession Planning- Passing Your Business to the Next Generation, Part I: Advice from a Montana Business and Estate Planning Attorney

Montana is a place where family values are reflected in our business practices and many successful businesses are completely family owned. However, many small or family owned businesses do not have an adequate plan in place for passing on the business. Whether considering passing the family farm to the next generation or planning for retirement, business succession planning is essential to a smooth transition for your business and your family.

Today’s entry is the first part of a two part series on business succession planning, in which I will provide a brief overview of business succession planning. Part II will address some of the specific considerations relating to an unexpected death or incapacity, or retirement, in detail.

What is Business Succession Planning?

Essentially, business succession planning is long-term planning for the transfer of your business assets; either to the next generation or to other business partners. Business succession planning is the process of planning for the unexpected occurrences, or the “what ifs,” in business such as an unexpected death or retirement of a partner or manager. It allows the business, and its owners, to agree in advance to issues such as what consent is required to transfer business interests, to whom may an owner transfer business interest to, or how to determine the value of those interests.

The end goal of the business succession planning process is to have a solid agreement in writing that reflects the long-term strategy for the potential transfer of ownership in the business.

Why should you consider business succession planning?

Every business should consider business succession planning both at the initial start-up of the business, and periodically throughout the life of the business. Mainly business succession planning allows the business and owners to have more control of the unknown and unexpected that may come up with the business. Perhaps it is more important to consider what happens without business succession planning. Without it, the business may incur significant losses or the owners may even lose the business due to issues such as liquidity problems, family conflicts or tax issues.

Initial Considerations in Business Succession Planning.

First, if you have not already done so, consider a separate entity for your family or small business. A Limited Liability Company (LLC), Family Limited Partnership (FLP), or other corporate entity is an essential step in easing the transfer of your business to the next generation.

Next, review and discuss the long-term business goals with all of the owners, managers or officers; evaluate the current status of the business and where you want it to be in the future. The most important aspect of business succession planning is clear communication between all involved, which means the business partners, owners, managers, directors, and family members.

A major consideration in this process is deciding and agreeing on who will be the successors. Will it be family members, existing owners or third parties? Especially if you own a business with partners whom are not members of your family, it is essential to make clear, and agree upon issues such as whether or not you may transfer your interests to your children. If a transfer to your children is permissible, then discuss what role your children play in the business and whether or not additional training may be necessary.

In addition, it is important to consider the timeline for transferring interests. If the business owners have agreed to allow transfers to children or other family members, then determine whether or not transfers will take place all at once or incrementally over time. Within this timeline also discuss what training may be required, and how involved family members will be at each phase of the transfer.

During this process, always be mindful of estate and gift tax issues. Speak with your accountant or attorney to determine whether a sale of your business interests is preferable to a gift or bequest. Make sure you understand the tax implications for everyone involved.

Communication about these issues ahead of time will help to reduce conflicts in the event of unforeseen circumstances and ensure the business has the adequate resources to carry on into the future. 

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

The Benefits of Year End Charitable Giving

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Year-end Tips from a Montana Attorney

It is that time of year where we reflect on the previous year and start to plan for the year ahead. It is also a great time consider year-end donations to the charity of your choice. Not only does giving to a charitable organization provide you with the satisfaction and good will associated with giving back, charitable gifts to 501(c)(3) organizations are tax deductible. So, in addition to that good feeling associated with giving, you get the good feeling that is associated with saving on taxes. If you need to make some additional tax deductions for 2011, a gift to a charity is a great way to save.

While we typically write a check to make a charitable donation, there are many other ways to give to a charity that provide significant tax benefits. CNNMoney.com recently posted an article on different methods for making charitable donations that can provide additional tax benefits. These include:

Gifts of Appreciated Securities

By donating a stock, bond or mutual fund to a charity, you will avoid having to pay any capital gains taxes on the appreciation in value. Moreover, if you have owned the security for over a year, you can deduct the full market value rather than just the amount you invested.

Give from your IRA

For those of you over the age of 70 1/2, if you have not taken the required minimum distribution from your IRA this year, you can rollover a portion of your IRA to a charity. Currently, you can donate up to $100,000 to a charity, and the portion you donate will not be included in your taxable income. A rollover of your IRA to a charity can also make it easier to claim deductions, among other added tax benefits.

Donate to a Community Foundation or Community Fund

In addition to the federal tax benefits of charitable gifts, giving to a community fund can also provide state tax benefits. The state of Montana, provides a tax credit program for donations to a community foundation. Individuals are allowed a tax credit of up to 40% of the charitable contribution, with a maximum credit of $10,000 or $20,000 if filing jointly. Business entities are allowed of up to a $10,000 a year tax credit, or 20% of the  donation amount.

Charge Donations & Payoff Next Year

Often the holidays can take a toll on our cash situation, however we still want to donate to charities before the end of the year. If this is the case in your particular situation, consider donating via credit card and paying it off next year. The IRS permits you to take the deduction when the donation is made, rather than when it is paid, so you will still receive the tax benefit this year.

If you have questions about charitable giving, contact estate planning attorney, Kelly O’Brien at (406) 752-6373.