Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

What to do If Someone Wants to Buy Your Business

Forbes’ recent article entitled, “What Should You Do When You Receive An Unsolicited Offer For Your Company?” suggests that it’s important to follow a structured three-step process to make certain you make the right decision and get the most successful outcome.

Is it the right time to sell? You need to see if this is the right time to sell your business. Examine your company and your personal readiness. Determine if the business is performing at a high level and is poised for rapid future growth. Look for any unaddressed issues that might harm value. On the personal side, think about whether you know how much you need to receive to fulfill your financial obligations and secure your future. It is also important to make sure that you have done needed tax and estate planning, so that you do not overpay taxes.

Is it the right buyer? If you are still thinking about selling, next determine if this is the right buyer. Think about what they will do with your company after the acquisition, and whether they will retain your staff or combine it with other operations. Will you have an ongoing role? You must also determine if the buyer will pay the best price and whether it is all cash or if you will retain equity in your company or the buyer’s company.  You should also ask if there are earn-outs that depend on the future performance.

Do you have a strong advisory team? Some business owners prefer to use their business attorney but consider using an experienced mergers and acquisitions attorney who knows “market” terms, where to advocate strongly and when to agree to the other side’s requirements to move the deal ahead. An inexperienced deal lawyer may negotiate hard on terms to “prove value,” which may, in effect, only obstruct the deal. The deal might go south, if an inexperienced lawyer makes you hold fast on terms the buyer needs to get the deal done. An experienced M&A attorney can also frequently move to a good deal in less time, by clearly setting parameters and getting buy-in on early drafts rather than a continuing series of drafts back and forth.

Reference: Forbes (May 11, 2021) “What Should You Do When You Receive An Unsolicited Offer For Your Company?”

Can Your Pandemic Pet Be in Your Estate Plan?

America’s love affair with pets grew during the pandemic, a heartfelt solution for individuals who are older and living without the comfort of seeing family on a regular basis. However, adopting a puppy when you are in your sixties or seventies must include some thought about the pet’s future. The Pittsburgh Post-Gazette’s article “So, you’ve got a pandemic support pet. Now what?” provides answers.

Let’s say you become ill or disabled and can’t care for your pet. Neither your family nor friends want the pet. A starting point is to have a general power of attorney created that is limited to the care of your pet. Make sure the person (or persons) you have selected to care for your pet are willing and able, of course. Tell them how and what you would like them to do with your pet. Should they try to find another home? Is there a no-kill shelter you would want your pet to go to? Write out your wishes, so they know exactly what you want.

However, what happens if you die?

All states now accept the use of a pet trust, which can be in your will or in a separate document. A pet trust is created to provide for the care of an animal that is living during your lifetime. The trust ends when the pet dies, or, if your trust is for more than one pet, then the trust lasts until the last pet dies.

Selecting the trustee for a pet trust is just as important as naming a trustee for any kind of trust. You might decide to designate more than one trustee if the original trustee is unable to fulfill their role.

The trustee is legally responsible for following your directions as expressed in the trust. That also means the assets in the trust are for the pet’s benefit. Therefore, you want to be specific about what kind of care you want your pet to have.

In some states, you can name another person who will monitor the care of your pets and require annual veterinary checkups. If this role is appointed in the trust, they may be able to remove the trustee if they deem that the person is not taking good care of the pet.

Deciding how to fund the trust is an important decision. How old is your pet, and how long do you expect them to live? A large dog won’t likely live for as long as a large bird, for instance. How much money will be needed for the care of a pet that might live several decades after you pass?

Consider a fee to be paid to the guardian from the trust. Caring for some pets is a long-term commitment, and they will appreciate an acknowledgment of their dedication to your beloved animal companion.

Reference: Pittsburgh Post-Gazette (May 20, 2021) “So, you’ve got a pandemic support pet. Now what?”

Do QTIP Trusts Help avoid Estate Taxes?

Using a QTIP trust allows one spouse to create a trust to benefit the surviving spouse, while providing the surviving spouse with up to nine months to decide how to treat the gift for tax purposes, explains a recent article “How Certain Trusts Soften The Blow Of Estate Tax Increases” from Financial Advisor. This flexibility is just one reason for this trust’s popularity. However, while the QTIP election can be made on the 2021 gift tax return, which is filed in 2022, the choice as to how much of the transfer will be subject to tax can be made in 2022.

The current estate and gift tax exemption of $11.7 per individual is slated to sunset in 2025, but the current legislative mood may curtail that legislation sooner. Right now, flexibility is paramount.

The surviving spouse is named as the primary beneficiary of the trust and must be the only beneficiary of the trust during the lifetime of the surviving spouse, in terms of both receiving income or principal from the trust.

If the decision is made to treat the trust as a QTIP trust, a gift to the trust is eligible for the marital deduction and is not taxable. It does not use up any of the donor’s gift tax exclusion. That flexibility to make a transfer today and decide later whether it uses any lifetime exemption is something most people don’t know about. A QTIP can also protect the recipient spouse and the principal from any creditors.

There are conditions and limitations to this strategy. If the QTIP election is not made, all net trust income must be distributed to the beneficiary spouse. There’s also no flexibility for the trust income to be accumulated or distributed directly to descendants.

The property over which the QTIP election is made is included in the estate of the surviving spouse.

The election can be made over the entire asset or only a portion of the asset transferred to the trust. The option to apply only a portion of the transfer makes it more tax efficient. For generation skipping-trust purposes, an election can be made to use the transferor spouse’s GST exemption when the decision about the QTIP election is made.

QTIPs are not the solution for everyone, but they may be the best option for many people while the people in Washington, D.C. determine the immediate future of the estate tax.

There are many Americans who are moving forward with making gifts using the current gift tax exclusion, using spousal lifetime access trusts (SLATs). However, the QTIP elections remain a way to hedge against the risk of being on the hook for a substantial gift tax, if there is a reduction in the federal estate tax exemptions.

Speak with an estate planning attorney to learn if a QTIP or another type of trust is appropriate for you. Note that these are complex planning strategies, and they must work in tandem with the rest of your estate plan.

Reference: Financial Advisor (May 24, 2021) “How Certain Trusts Soften The Blow Of Estate Tax Increases”

Tell Me again Why Estate Planning Is So Important

The Legal Reader’s recent article entitled “The Importance of Estate Planning” explains that estate planning is not just for the rich.

If you don’t have a comprehensive estate plan, it could mean headaches for your family left to manage things after you die, and it can be expensive and have long-lasting impact.

Here are four reasons why estate planning is critical, and you need the help of an experienced estate planning attorney.

Estate plan beneficiaries. Middle-class families must plan in the event something happens to the bread earner. You might be only leaving behind one second home, but if you don’t decide who is to receive it, things might become complicated. The main purpose of estate planning is to allocate heirs to the assets. If you have no estate plan when you die, the court decides who gets the assets.

Protection for minor children. If you have small children, you must prepare for the worst. To be certain that your children receive proper care if they are orphaned, you must name their guardians in your last will. If you don’t, the court will do it!

It can save on taxes. Estate planning can protect your loved ones from the IRS. A critical aspect of estate planning is the process of transferring assets to the heirs to generate the smallest tax burden for them. Estate planning can minimize estate taxes and state inheritance taxes.

Avoid fighting and headaches in the family. No one wants fighting when a loved one dies. There might be siblings who might think they deserve much more than the other children. The other siblings might also believe that they should be given the charge for financial matters, despite the fact that they aren’t good with debts and finances. These types of disagreements can get ugly and lead to court. Estate planning will help in creating individualized plans.

Work with an experienced estate planning attorney and see how estate planning can help your specific situation.

Reference: The Legal Reader (May 10, 2021) “The Importance of Estate Planning”

Do You Know about the Grandparents Scam?

The Miami-Dade State Attorney’s Office explains that the Grandparents Scam involves someone posing as a grandchild or relative of the victim and claiming to be out of town and in need of help, usually involving an arrest.

Local10.com’s recent article entitled “Man, 22, arrested in connection with ‘Grandparents Scam’” notes that, in some cases, the scammer says he or she is a relative’s lawyer or bail bondsman.

County prosecutors explain that the fake relative claims to require cash for bail, hospital bills, or other bogus expenses. The caller provides the victim with directions on how to deposit money into their bank account.

The victims are asked to not tell anyone and are sometimes called again, so the fake relative can ask for additional funds due to “negative developments” in their case, prosecutors said.

“When a 22-year-old like Alvaro Esteban Jaramillo Fajardo revels in helping to allegedly steal the savings of caring grandparents and the elderly, there is something truly wrong. Sadly, some people seem to believe that it’s always easier and more sophisticated to take someone else’s money rather than work for it oneself,” State Attorney Katherine Fernandez Rundle said in a statement.

“The grandparent scammers and those ensuring that the scam works all deserve to hear the sound of a jail door closing behind them.”

Jaramillo Fajardo is facing charges in connection with eight victims, ranging in age from 71 to 88.

In all, these Grandparents Scam victims suffered financial losses of more than $480,000.

According to a news release from the state attorney’s office, Jaramillo Fajardo acted as the facilitator of the cash withdrawals from his associates’ bank accounts, “which effectively laundered the stolen money.”

Prosecutors explained that Fajardo paid the account holders about $2,000 for each incident in which they were involved.

Authorities say the Defendant frequently sought out his associates on social media and also offered a finder’s fee, if they obtained new, usable bank accounts to receive the illicit funds.

Fajardo also boasted that none of the account holders had previously gotten into any trouble, prosecutors said.

Reference: local10.com (April 15, 2021) “Man, 22, arrested in connection with ‘Grandparents Scam’”

When Should an Estate Plan Be Reviewed?

If your parents don’t remember when they last reviewed their estate plan, then chances are it’s time for a review. Over the years, wishes, relationships and circumstances change, advises the recent article, “5 Reasons To Have Your Parents’ Estate Plan Reviewed,” from Forbes. An out-of-date estate plan may not achieve your parent’s wishes, or be declared invalid by the court. Having an estate planning attorney review the estate plan may save you money in the long run, not to mention the stress and worry created by an estate disaster. If you need reasons, here are five to consider.

Financial institutions are wary of dated documents. Banks and other financial institutions look twice at documents that are not recent. Trying to use a Power of Attorney that was created twenty years ago is bound to create problems. One person tried to use a document, but the bank insisted on getting an affidavit from the attorney who prepared it to be certain it was valid. While the son was trying to solve this, his mother died, and the account had to be probated. A “fresh” power of attorney would have solved the problem.

State laws change. Things that seem small become burdensome in a hurry. For example, if someone wants to leave a variety of personal effects to many different people, each and every one of the people listed would need to be located and notified. Many states now allow a separate writing to dispose of personal items, making the process far easier. However, if the will is out of date, you may be stuck with a house-sized task.

Legal document language changes. The SECURE Act changed many aspects of estate planning, particularly with regard to retirement accounts. If your parents have retirement accounts that are payable to a trust, the trust language must be changed to comply with the law. Not having these updates in the estate plan could result in an increase in income taxes or costly fees to fix the situation.

Estate tax laws change. In recent years, there have been many changes to federal tax laws. If your parents have not updated their estate plan within the last five years, they have missed many changes and many opportunities. It is likely that your parents’ assets have also changed over the years, and the documents need to reflect how the estate taxes will be paid. Are their assets titled so that there are enough funds in the estate or trust to cover the cost of any liability? Here’s another one—if all of the assets pass directly to beneficiaries via beneficiary designations, who is going to pay for the tax bills –and with what funds?

Older estate plans may contain wishes from decades ago. For one family, an old will led to a situation where a son did not inherit his father’s entire estate. His late sister’s children, who had been estranged from him for decades, received their mother’s share. If the father and son had reviewed the will earlier, a new will could have been created and signed that would have given the son what the father intended.

These types of problems are seen daily in your estate planning attorney’s office. Take the time to get a proper review of your parent’s estate plan, to prevent stress and unnecessary costs in the future.

Reference: Forbes (May 25, 2021) “5 Reasons To Have Your Parents’ Estate Plan Reviewed”

Can Family Members Contest a Will?

Estate planning documents, like wills and trusts, are enforceable legal documents, but when the grantor who created them passes, they can’t speak for themselves. When a loved one dies is often when the family first learns what the estate plans contain. That is a terrible time for everyone. It can lead to people contesting a will. However, not everyone can contest a will, explains the article “Challenges to wills and trusts” from The Record Courier.

A person must have what is called “standing,” or the legal right to challenge an estate planning document. A person who receives property from the decedent, and was designated in their will as a beneficiary, may file a written opposition to the probate of the will at any time before the hearing of the petition for probate. An “interested person” may also challenge the will, including an heir, child, spouse, creditor, settlor, beneficiary, or any person who has a legal property right in or a claim against the estate of the decedent.

Wills and trusts can be challenged by making a claim that the person lacked mental capacity to make the document. If they were sick or so impaired that they did not know what they were signing, or they did not fully understand the contents of the documents, they may be considered incapacitated, and the will or trust may be successfully challenged.

Fraud is also used as a reason to challenge a will or trust. Fraud occurs when the person signs a document that didn’t express their wishes, or if they were fooled into signing a document and were deceived as to what the document was. Fraud is also when the document is destroyed by someone other than the decedent once it has been created, or if someone other than the creator adds pages to the document or forges the person’s signature.

Alleging undue influence is another reason to challenge a will. This is considered to have occurred if one person overpowers the free will of the document creator, so the document creator does what the other person wants, instead of what the document creator wants. Putting a gun to the head of a person to demand that they sign a will is a dramatic example. Coercion, threats to other family members and threats of physical harm to the person are more common occurrences.

It is also possible for the personal representative or trustee’s administration of a will or trust to be challenged. If the personal representative or trustee fails to follow the instructions in the will or the trust, or does not report their actions as required, the court may invalidate some of the actions. In extreme cases, a personal representative or a trustee can be removed from their position by the court.

An estate plan created by an experienced estate planning lawyer should be prepared with an eye to the family situation. If there are individuals who are likely to challenge the will, a “no-contest” clause may be necessary. Open and candid conversations with family members about the estate plan may head off any surprises that could lead to the estate plan being challenged.

One last note: just because a family member is dissatisfied with their inheritance does not give them the right to bring a frivolous claim, and the court may not look kindly on such a case.

Reference: The Record-Courier (May 16, 2021) “Challenges to wills and trusts”

Do Stepchildren Inherit?

When an individual passes away without a will, the state laws of intestacy instruct how the person’s probate estate will be distributed.

Only assets that would have passed through a person’s will are impacted by intestate succession laws. This typically includes only assets owned alone in his or her name.

For instance, in Nebraska, under intestate succession, who inherits depends on whether the deceased had living children, parents, or other close relatives, when he or she died.

In Nebraska, if the decedent was married and died without a will, what the decedent’s spouse will receive depends on whether the decedent had any living parents or descendants, such as children, grandchildren, or great-grandchildren. If the decedent did not, then his or her spouse inherits all of the intestate property.

Under New Jersey’s intestacy statute, when a decedent is survived by a spouse and children who are not children of the surviving spouse (stepchildren), the surviving spouse is entitled to the first 25% of the intestate estate, but not less than $50,000 nor more than $200,000– plus one-half of the remainder of the intestate estate.

However, nj.com’s recent article entitled “Who gets this house after spouse dies with no will?” explains that the laws of intestacy don’t control the distribution of assets that were jointly owned with a right of survivorship (like a house) or that have a beneficiary designation (like life insurance).

If the house was jointly owned as husband and wife in joint tenancy with the right of survivorship, the surviving spouse solely owns the entire house by operation of law, upon the death of the first spouse. The stepchildren do not have any right to the proceeds of the sale of the house.

However, if the decedent spouse owned the house only in his or her own name or the house was titled by the spouses as “tenants in common,” then the laws of intestacy would apply.

Tenancy in common is an arrangement where two or more people have ownership interests in a property.

The big difference between joint tenants and tenants in common is that joint tenants have the right of survivorship (which gives them ownership of the property when one owner dies), tenants in common do not.

With a tenancy in common, the tenants can own different percentages of the property.

Tenants in common can also gift their share of the property to anyone upon their death.

Reference: nj.com (May 5, 2021) “Who gets this house after spouse dies with no will?”

New Rules for Burial at Arlington National Cemetery

In testimony before the House Appropriations Committee, Karen Durham-Aguilera, Executive Director of Army National Military Cemeteries and Arlington National Cemetery, said she expects revisions to those rules in coming months, but would not say whether that would tighten or loosen the proposed eligibility restrictions.

Military Times’ recent article entitled “As space dwindles, final rules on burial eligibility for Arlington Cemetery expected this fall,” reports that new eligibility rules for Arlington Cemetery would exclude most non-combat veterans.

“We continue to explore all viable options to ensure Arlington National Cemetery continues to honor our nation’s heroes for generations to come,” she said. “It’s really an impossible problem for us. The eligible population is more than 22 million … currently today, we have less than 85,000 spaces.”

The proposed changes are aimed at extending the use of the cemetery for several more decades.

In 2019, Army officials suggested restricting all below-ground burial sites to combat heroes, battle casualties and a small pool of notable dignitaries. Other veterans would be eligible for placement of cremated remains in above-ground structures at the cemetery. However, many veteran groups were against this, saying it could upset numerous families’ end-of-life plans and risks the perception that certain military experiences are more valuable than others.

About 400,000 individuals are buried at Arlington now, and roughly 7,000 individuals are interred at the cemetery annually.  those numbers were reduced last year due to COVID restrictions.

The expansion plans are expected to add about 80,000 new burial spaces to the cemetery.

“Without changes to eligibility, Arlington National Cemetery will run out of space for new burials in the early 2040s or the mid-2060s with the construction of the Southern Expansion project, even for those service members who are killed in action or are recipients of the Medal of Honor.”

With the eligibility changes, officials estimate the site can remain an active cemetery for more than 150 years.

These proposed rule changes for Arlington wouldn’t change the veterans cemetery sites run by the Department of Veterans Affairs across the country.

Reference: Military Times (May 5, 2021) “As space dwindles, final rules on burial eligibility for Arlington Cemetery expected this fall”