California Probate - Law Offices of Janet Brewer Blog

Should I Add that to My Will?

“A last will and testament is the foundation of an estate plan, which lets you plan for your estate after you’re gone. However, there are certain things that you might not want to put in your will.”

In general, a last will and testament is an easy and straightforward way to state who gets what when you die and designate a guardian for your minor children, if you (and your spouse) die unexpectedly.

MSN’s recent article entitled “Things you should never put in your will” explains that you can be specific about who receives what. However, attaching strings or conditions may not work because there’s no one to legally enforce the terms. If you have specific details about how a person should use their inheritance, whether they are a spendthrift or someone with special needs, a trust may be a better option because you’ll have more control, even from beyond the grave.

Keeping some assets out of your will can actually benefit your future heirs because they’ll get their inheritance faster. When you pass on, your will must be “proven” and validated in a probate court prior to distribution of your property. This process takes some time and effort, if there are issues—including something in your will that doesn’t need to be there. For example, property in a trust and payable-on-death accounts are two types of assets that can be distributed to your beneficiaries without a will.

Don’t put anything in a will that you don’t own outright. If you jointly own assets with someone, they will likely become the new owner. For example, this applies to a property acquired by married couples in community property states.

Property in a revocable living trust. This is a separate entity that you can use to distribute your assets which avoids probate. When you title property into the trust, it is subject to the trust’s rules.  Because a trust operates independently, you must avoid inconsistencies and not include anything in your will that the trust addresses.

Assets with named beneficiaries. Some financial accounts are payable-on-death or transferable-on-death. They are distributed or paid out directly to the named beneficiaries. That makes putting them in a will unnecessary (and potentially troublesome, if you’re inconsistent). However, you can add information about these assets in your letter of instruction (see below). As far as bank accounts, brokerage or investment accounts, retirement accounts and pension plans and life insurance policies, assign a beneficiary rather than putting these assets in your will.

Jointly owned property. Property you jointly own with someone else will almost always directly pass to the co-owner when you die, so do not put it in your will. A common arrangement is joint tenancy with rights of survivorship.

Other things you may not want to put in a will. Businesses can be given away in a will, but it’s not the best plan. Wills must be probated in court and that can create a rough transition after you die. Instead, work with an experienced estate planning attorney on a succession plan for your business and discuss any estate tax issues you may have as a business owner.

Adding your funeral instructions in your will isn’t optimal. This is because the family may not be able to read the will before making arrangements. Instead, leave a letter of instruction with any personal wishes and desires.

Reference: MSN (Dec. 8, 2020) “Things you should never put in your will”

Did Robert Redford Have a Business Exit Plan?

“Robert Redford officially bought what was once the Timp Haven Resort (now known as the Sundance Mountain Resort) in 1969. This year, he's stepped away, selling the resort to Broadreach Capital Partners and Cedar Capital Partners. While we don't know how much the resort was sold for, the structure of the sale shows how this iconic real estate investor has built a successful exit strategy.”

Motley Fool’s recent article titled “What Robert Redford's Sale of Sundance Can Teach Investors About Exit Planning” says that, in announcing the sale, Redford told the Salt Lake Tribune that he’s been thinking of selling for several years. However, he wanted to find the right partners. Broadreach and Cedar plan to upgrade the resort, add hotel rooms and build a new inn. The companies have also said that they will keep the resort sustainable and practicing measured growth, as well as also continuing to host the Sundance Film Festival.

The 2,600-acre resort has 1,845 acres of land saved from future development through a conservation easement and protective covenants. The 84-year-old actor has had a lifelong interest in the environment and in land stewardship. Redford and his family have also arranged with Utah Open Lands to create the Redford Family Elk Meadows Preserve at the base of Mt. Timpanogos. The gift will reduce Redford's tax liability on his estate.

Both Broadreach and Cedar have extensive hospitality experience, but neither looks to have much ski resort experience. However, they're working with Bill Jensen, an industry legend, who recently left his role as CEO of Telluride Ski and Golf Resort in Colorado.

Business exit and succession planning can be difficult—in part, because people don't like to address such unwelcome topics. Most investors don't have the luxury of waiting years to find the right buyer, but the Redford deal does show that planning ahead may be critical to creating a mechanism that supports the vision for the property.

When selling a large investment property, you must first understand why you're selling, and your desired end result. Of course, a return on investment is nice, but there may be other considerations, like in Redford's case. Another key is ascertaining the updated worth of what you're selling. Get a valuation, especially with an irreplaceable asset.

The structure of the sale is important. You will likely be liable for tax on your capital gains, so ask an attorney. If you're also structuring your estate plans at the same time, you'll need to know what amount you can give and what your heirs may have to pay. Talk to an experienced estate planning attorney to be certain that you’re covering all the bases.

Reference: Motley Fool (Dec. 12, 2020) “What Robert Redford's Sale of Sundance Can Teach Investors About Exit Planning”

Does My Business Need a Power of Attorney?

“As a business person you may have seen the term "durable power of attorney" in several situations. Power of attorney is a strange term because it's not immediately clear what powers an attorney for the business may have.”

Some business owners may need a power of attorney (POA). However, what type would be of benefit the most is the question. This article looks at the types of power of attorney and in what circumstances a business owner may need each of them.

Entrepreneur’s recent article entitled “Does Your Business Need a Power Of Attorney?” reports that the Consumer Financial Protection Bureau (CFPB) defines power of attorney as a legal document that permits a trusted agent the authority to act on your behalf. Accordingly, signing a power of attorney allows the business owner to authorize another person to conduct business in his stead. The person designated in the document is called the "agent" or sometimes the "attorney-in-fact." There are three main types of power of attorney:

Financial Power of Attorney. This document allows the agent to deal with the financial responsibilities and functions of the “principal” (the person who signs the document), if the principal is unable to do so themselves. Some functions for the agent of a financial power of attorney include the following:

• Delegation of the operation of your business
• Hiring an attorney and making decisions in lawsuits
• Filing and paying taxes
• Conducting transactions with banks and other financial institutions
• Making decisions on your investments and retirement plan
• Entering into a contract
• Purchasing of selling real estate or different types of property; and
• Using your assets to pay for your living expenses.

Special Power of Attorney (or Limited Power of Attorney). A business owner may need to accomplish a task for the company, but she’s unable to be there because of other responsibilities. This document permits a particular agent to conduct business on her behalf, concerning a specific and clearly outlined event, like opening a bank account, settling a lawsuit, or signing a contract.

Healthcare Power of Attorney. An individual who is incapacitated and can't communicate, can use this to permit an agent to make medical decisions on his behalf. Note that a healthcare power of attorney isn't the same as a living will. A living will focuses on a person’s preferences for healthcare treatment, such as do-not-resuscitate and other religious or philosophical beliefs that they want to be respected. A healthcare power of attorney is more flexible and leaves the decisions regarding healthcare to the agent. A living will concerns end-of-life decisions only, where healthcare power of attorney applies in all medical situations.

Durable Power of Attorney. A POA usually becomes effective when a person is incapacitated and stops once they’re able to make their own decisions. However, a durable power of attorney or enduring power of attorney may be applied to any of the types mentioned above. As a result, the agent can make decisions on behalf of a business owner when they aren't incapacitated.

A POA provides considerable protections that will help a business deal with regular operations, while the owner is unable to lead the company. If the business is an LLC or corporation, a power of attorney for the company may not be needed. However, it’s wise to have one for your own estate planning. Ask an experienced estate planning attorney about the types of power of attorney and how they might help your business.

Reference: Entrepreneur (Nov. 3, 2020) “Does Your Business Need a Power Of Attorney?”

Does My Estate Plan Need an Audit?

“Estate planning is the process of transferring the management of your assets, if and when you are unable to manage them yourself due to disability or death. Whether you have $100 or $100 million you should have an estate plan.”

You should have an estate plan because every state has statutes that describe how your assets are managed, and who benefits if you don’t have a will. Most people want to have more say about who and how their assets are managed, so they draft estate planning documents that match their objectives.

Forbes’ recent article entitled “Auditing Your Estate Plan” says the first question is what are your estate planning objectives? Almost everyone wants to have financial security and the satisfaction of knowing how their assets will be properly managed. Therefore, these are often the most common objectives. However, some people also want to also promote the financial and personal growth of their families, provide for social and cultural objectives by giving to charity and other goals. To help you with deciding on your objectives and priorities, here are some of the most common objectives:

• Making sure a surviving spouse or family is financially OK
• Providing for others
• Providing now for your children and later
• Saving now on income taxes
• Saving on estate and gift taxes in the future
• Donating to charity
• Having a trusted agency manage my assets, if I am incapacitated
• Having money for my children’s education
• Having retirement income; and
• Shielding my assets from creditors.

Speak with an experienced estate planning attorney about the way in which you should handle your assets. If your plan doesn’t meet your objectives, your estate plan should be revised. This will include a review of your will, trusts, powers of attorney, healthcare proxies, beneficiary designation forms and real property titles.

Note that joint accounts, pay on death (POD) accounts, retirement accounts, life insurance policies, annuities and other assets will transfer to your heirs by the way you designate your beneficiaries on those accounts. Any assets in a trust won’t go through probate. “Irrevocable” trusts may protect assets from the claims of creditors and possibly long-term care costs, if properly drafted and funded.

Another question is what happens in the event you become mentally or physically incapacitated and who will see to your financial and medical affairs. Use a power of attorney to name a person to act as your agent in these situations.

If, after your audit, you find that your plans need to be revised, follow these steps:

1. Work with an experienced estate planning attorney to create a plan based on your objectives
2. Draft and execute a will and other estate planning documents customized to your plan
3. Correctly title your assets and complete your beneficiary designations
4. Create and fund trusts
5. Draft and sign powers of attorney, in the event of your incapacity
6. Draft and sign documents for ownership interest in businesses, intellectual property, artwork, and real estate
7. Discuss the consequences of implementing your plan with an experienced estate planning attorney; and
8. Review your plan regularly.

You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Forbes (Sep. 23, 2020) “Auditing Your Estate Plan”

Is a Family Office Structure Good Estate Planning?

“During estate planning, one of the situations that you must plan for is the possible sale of real estate, artwork, and especially operating family businesses. What is sometimes overlooked in planning is what happens after there has been such a sale.”

When you do own real estate, artwork, or an operating business, the structure is dictated by several factors, such as business needs, control requirements, and income tax efficiency. However, usually there’s little or no thought given to the legal, accounting, management, and other services that directly or indirectly benefit the owners of the company. If the real estate, artwork, or business are held as investments, it’s an asset used for a trade or business and the expenses can be tax-deductible, says Forbes’ recent article entitled “Planning For After a Sale Of Real Estate, Artwork Or An Operating Business.”

In the past, when the liquid proceeds of a sale were invested into an investment portfolio, these expenses could be deducted as expenses to produce income under Section 212 of the federal tax code. However, that has changed. The Tax Cuts and Jobs Act (TCJA) of 2017 suspended Section 212, until at least 2025, making legal, accounting, tax, and similar advisory service expenses no longer deductible,  those expenses are trade or business expense of an operating company and, therefore, deductible under Section 162.

A real advantageous structure, even before TCJA, has been a family office structure where you can deduct the fees and expenses of managing family wealth as an operating company. The Tax Court in 2017 decided that the family office that managed the wealth of the heirs of the founder of Lender's Bagels was able to deduct these expenses because Lender Management is an operating business. As a result, it’s possible to set up a family office that can deduct expenses as an operating company. However, this doesn’t ask all of the questions a family should ask in setting up an operating family office, along with issues that can mean adverse income tax effects.

Here are some of the right questions the family should ask:

Is the family's goal for forming or maintaining a family office best served by making it an operating business? If an operating family office isn’t necessary to achieve the family's goals, it won’t be worth the trouble to set one up and to maintain its operations.

If the strategy of forming and maintaining an operating family office best serves the family, then which tactic is needed to achieve the family's objectives? This includes the choice of entity, being limited to only family as clients, outsourcing, governance and oversight.

Is the formation and maintenance of an operating family office going to be enough to achieve the family's goals in the long-term? The operating family office should be run as a profitable business to be sustainable over time. If it’s profitable, it will have sufficient income to deduct expenses and return a profit to the owners of the family office. This is important to avoid the loss of Section 162 deductions to evidence that the family office exists for something more than just tax advantages.

What specific steps are required to set up and maintain an operating family office, and are those steps even possible for the family? Even if the operating family office is possible, will the habits and behaviors of family members who are used to doing things their own way with their money mess it up? Despite knowing that there are tax savings, can they conduct business in a more formal, collaborative, manner, and will their behaviors be disciplined in the operating business to meet the approval of creditors, clients, vendors, and employees? When it comes to the investment of liquid wealth, this discipline is frequently absent, and many poor behaviors and attitudes continue for the older generations and are allowed to grow for the younger generation.

Reference: Forbes (Aug. 12, 2020) “Planning For After a Sale Of Real Estate, Artwork Or An Operating Business”

How Can I Use Estate Planning for My Small Business?

“Small businesses are often caught up in growth cycles, profits and ensuring that products arrive to consumers on time. The life of a small business owner is a hectic one with many owners failing to follow basic estate planning and business law practices.”

All business owners would like to live long enough to see their business become successful, but there are no guarantees.

Legal Scoops’ recent article entitled “3 Ways Estate Planning is Used in Small Business” says that estate planning can work to keep your dream alive and help keep your business thriving after your death. Let’s look at some ways that estate planning helps small business owners.

1. Protection from Unfamiliar Owners with Buy-Sell Agreements. Small businesses are frequently partnerships between family members or friends. However, one of the owners will die before the other, and if this occurs, the business may be in jeopardy if a buy-sell agreement isn’t in place. Buy-sell agreements can make certain that family members of the deceased don’t gain control of the business. It also automatically allows other owners to buy the owner’s share in the company.

2. Implementation of a Succession Plan. A succession plan can identify and develop new leaders and key people to fill business objectives. Succession plans are implemented long before an owner’s death, so their wishes can be upheld. A succession plan can also decrease the chance of family arguments that come after a person’s death.

3. Elimination of Unnecessary Taxes. A business that’s operational and successful will have assets and significant tax burdens for heirs. If a majority of your wealth is tied into a business, you must take action to help remove these unnecessary tax burdens from your business. Business owners can do one of the following:

• Gift family members shares in the business, while they’re still alive
• Redeem stocks at a lower tax rate than cash; or
• Estate taxes can pay estate taxes in installments.

When a business is illiquid, heirs may not be able to pay the 35% – 50% estate tax on the business.

To help you with your business succession planning, contact an experienced estate planning attorney to make certain that your family is financially sound after your death and that your legacy continues on with your family business. Contact our office today to schedule your consultation.

Reference: Legal Scoops (July 14, 2020) “3 Ways Estate Planning is Used in Small Business”

CDC Offers Guidelines for COVID-19 Workplace Safety as Businesses Re-Open

If you’re a business owner, the CDC answers questions about workplace safety as businesses start re-opening.

Communities are starting to ease their COVID19 restrictions, which means many businesses will be re-opening under new guidelines. While this is welcome news for many business owners, questions remain about workplace safety. The Centers for Disease Control and Prevention (CDC) has a great, updated reference site for businesses with a guide to ongoing mitigation and resources for COVID19 prevention and support.

The site offers a special section for Frequently Asked Questions on the following topics: Suspected or Confirmed Cases of COVID-19 in the Workplace, Reducing the Spread of COVID-19 in Workplaces, Healthy Business Operations, Cleaning and Disinfection in the Workplace, and Critical Infrastructure.

The Department of Labor also has a thorough safety guide compiled under the Occupational Safety and Health Act (OSHA) available for download. This 35-page document is not a standard or regulation, and it creates no new legal obligations. It does contain recommendations as well as descriptions of mandatory safety and health standards. Download the OSHA guide at https://www.osha.gov/Publications/OSHA3990.pdf

Resources: Centers for Disease Control and Prevention, Businesses and Workplaces: Plan, Prepare and Respond, updated April 20, 2020.

Did You Get a Paycheck Protection Program Loan? Take These Steps Now to Qualify for Forgiveness

Amid the climate of uncertainty surrounding the coronavirus pandemic that is sweeping the nation, people are grappling with the difficult subject of estate planning … and not taking any chances.

The Small Business Administration is expected to start taking loan applications again next week through the Paycheck Protection Program for small businesses impacted by coronavirus. You may recall that the PPP was part of the $2.2 trillion CARES Act stimulus package. One of the most valuable aspects of this program is that these small business loans can be converted to grants and be fully forgiven if used to keep employees on the payroll.

While there is still confusion around exactly what steps business owners must take to qualify for forgiveness, Forbes recently suggested loan recipients take the following three steps now.

1: Use all of the funds you receive to pay your employees. Be aware that is mathematically impossible to get the full 100% forgiveness simply by paying the same wages that your PPP application was based on. This is because the loans were calculated at 2-1/2 times your monthly payroll, and you will have only eight weeks (from the day you received funding) to disburse the loan funds.

What to do? You can use the rest of the funds on permissible expenses (business rents, mortgage interest, and utilities, with some restrictions). But it appears the safest thing to do (“safe” meaning likelihood of achieving full loan forgiveness) will be to increase your payroll, either the amount per employee or the number of employees you have on payroll, or by paying bonuses, etc.

2: But beware – any amount paid to a single employee (including yourself) over an annualized $100,000/year will not count towards forgiveness.

3: Start these payments from the very date you receive the money, or as close to that as possible, and make sure all your pay periods fall within the 8-week window. This is a tricky little point; forgiveness appears to be calculated on a cash basis, in which case, accrued payroll with a pay date after the 8-week period won’t count.

Finally, remember that managing your business through these difficult times is a balancing act. In other words, don’t put your business in danger just to be sure your loan is fully forgiven. The last thing you want to do right now is sabotage the long-term health of your business. Even if your loan is not 100 percent forgiven, the remainder will convert to a one percent loan.

The best advice? Invest your time now on business strategy, forecast different scenarios, and have a plan to grow out of these challenging times.

Resources: Forbes, For Up To 100% PPP Loan Forgiveness, Take These 3 Steps The Very Moment You Get Your Loan, April 23, 2020; US Chamber of Commerce, CORONAVIRUS EMERGENCY LOANS Small Business Guide and Checklist, updated April 23, 2020

Will Insurance Help Business Owners Recover Lost Income due to COVID-19?

It is important to promptly review policies, notify insurers of claims, and track losses, even if there are issues or questions that may ultimately preclude coverage.

The economic disruption from the COVID-19 pandemic has led businesses and policymakers to ask whether insurance should cover associated losses. Most businesses carry Commercial Property insurance, which frequently includes Business Income or Business Interruption coverage. In general, this additional coverage is there to replace lost income due to “covered causes.”

There’s no question that the novel Coronavirus is causing unexpected business losses. But, are the lost profits and other damages covered under these business policies?

Insurers are reluctant to cover business income losses in a pandemic, primarily because of the sheer scale of the loss. Insurance industry sources suggest that the cost of covering business income claims resulting from COVID19 could run as high as $290 billion monthly.

While insurers typically exclude coverage for losses due to viruses or bacteria … the final answer may not be as certain. Depending on the exact policy language, a policy review by an attorney may reveal an argument for coverage.

Some lawmakers also are exploring ways to shift some of the economic burden to business insurers.

For example:

• Some insurance trade groups are considering an option where businesses submit claims as if the losses were covered, and insurers pay claims from a government-funded pool. There is precedent for this approach in the National Flood Insurance Program.
• A state bill in New Jersey would require insurers retroactively to include virus transmission as a covered peril in BI policies. The bill also includes a provision that would allow liable insurers to petition the state for partial reimbursement collected from other insurers in New Jersey that do not offer BI coverage. This would potentially shift business losses attributable to COVID-19 to all insurers in the state.
• Massachusetts, New York, and Ohio have also introduced bills on BI coverage.

If you are a business owner and you carry commercial property insurance, the best advice is to promptly review your policies, notify insurers of claims, document losses, and consult qualified legal counsel.

Resources: The National Law Review, Insurance Coverage in the Time of Coronavirus: Business Interruption Coverage May Require Creativity, March 18, 2020; Congressional Research Service, Business Interruption Insurance and COVID-19, March 31, 2020.

Guide to Resources Available for Small Business Disaster Relief for COVID-19

The US Chamber of Commerce has compiled an online guide with updates and resources to help small businesses survive the coronavirus pandemic.

If the coronavirus pandemic has hurt your business, visit the US Chamber of Commerce resource site for a wealth of resources to help your business survive.

Priority reading on this site includes:

• Everything You Need to Know About Coronavirus Federal Small Business Stimulus Aid Programs
• Everything You Need to Know About SBA Disaster Assistance Loans
• How to Apply for an SBA Disaster Relief Loan
• Resources to Help Your Small Business Survive the Coronavirus

Other resources include expert articles on business strategy and analysis, technology, managing a remote team, and their Coronavirus Response Toolkit, with shareable graphics and helpful information suitable for posting to social media to help boost your business’s visibility online.

Did you read yesterday's post about these loans? Check it out now. 

Resource: Coronavirus Small Business Guide, https://www.uschamber.com/co/small-business-coronavirus