Estate Planning and Personal Effects
Who gets mom's wedding ring?! When clients hire me to create their estate planning documents, we have a thorough conversation about their assets, how they are held, and to whom they want them to go to. This conversation is focused primarily on the large assets, such as the family home, retirement accounts, insurance policies, other properties and investment accounts. Part of the initial estate planning process is to really look at these and then clearly designate beneficiaries.
Inevitably during this discussion, the client’s personal effects come up. In Colorado, personal effects, such as grandmother’s antique ring, grandfather’s favorite chair, mom’s jewelry, dad’s watch, etc., can be designated in a separate Memorandum of Personal Effects that is incorporated into the Will by reference. This allows my clients to keep a running inventory of bequests and beneficiaries for personal times that can be changed over time.
I provide this memorandum as part of the estate planning notebook I create for my clients. The Memorandum, referenced in the Will, is binding and it simply has to be dated and signed. This allows the personal representative or family members peace of mind and ease. It avoids the stress and conflict of having to figure out who gets what. An analogy I recently read about in the New York Times is that without this Memorandum, its like waking up to a house full of kids on Christmas morning and having no name tags on any of the wrapped gifts – chaos! To read this article click here.
The article, references a workbook called Who Gets Grandma’s Yellow Pie Plate, by Marlene Stum. She says that the process starts with recognizing that dividing up a loved ones’ belongings is laden with emotions and can be a real mine field for family members and friends. The workbook helps sort out the process by helping people:
- Determine what you want to accomplish, decide what's fair to your family.
- Understand belongings have different meanings to different individuals.
- Consider distribution options and consequences
- Agree to manage conflicts if they arise.
To learn more about this workbook, click here.
In representing my probate clients, I have seen sibling relationships torn apart because they don’t agree about how to divide up the personal property of the deceased. My clients that are appointed as personal representatives really struggle, during a time of personal grieving, to try to figure out how to divvy up personal effects fairly, without hurt feelings.
All of this can be avoided with an estate plan that provides for a Memorandum of Personal Effects. I advise my clients to use this Memorandum as a living, breathing document that they can continue to add to and change as time goes by. So when a loved one expresses a sentimental attachment to a certain item, my client can simply add that to their Memorandum and know that that beneficiary will receive that heirloom.
On Gratitude
Luke at 9 weeks old in 2003.
I recently lost my 14-year-old, yellow lab, Master Luke. After many days of tears and grief, I woke up this morning feeling soothed by a deep sense of love and gratitude. My aching heart, my sadness, and my sense of loss are being gently transformed by my appreciation for the great gift I have received in having this incredible being of light and love in my life for so many years and through so much change.
Since gratitude is such an important and healing thread in all of our lives I thought to pay it forward a little by reminding us all of some simple ways that we can express our appreciation and gratitude to those who touch our lives. There are many ways to say thanks and it is always nice to reach out to those who have touched us or made a difference.
Some simple ways to express gratitude include:
- Bake some cookies or other special treat or buy some from a bakery and deliver them or have them delivered.
- Send a handwritten card or thank you note via snail mail.
- Brighten someone’s day by sending or delivering flowers or a nice plant.
- Give a small but useful gift or gift card to someone as an expression of appreciation.
- Make a donation to a charity in someone's name who has touched our life as a way of saying thanks.
- Chocolate, specialty coffee, a nice tea, healthy treats that can be enjoyed are always appreciated!
- Give them a shout out on social media and let others chime in as to how special they are as well.
These might seem a bit old fashioned, but when was the last time you got a card in the mail or flowers delivered as an expression of appreciation? Life is precious and our connections to each other are a big part of that so why not reach out to say thanks now and then without using the strokes on the keyboard. If you have a special way of expressing gratitude please share here by posting a comment.
Framing Your Work: a Legal Plan for Artists and Healers
As a solo practitioner with 20 years of experience practicing law, I have been truly touched by the myriad of entrepreneurs that I have counseled in making their vision a reality. One area that I have particularly enjoyed is representing artists, healers, and other creative people in the legal aspects of their unique endeavors. Thus, allowing them to focus their time and energy on their creative work and not the legal framework necessary to protect and support it.
I represent, counsel, and advocate on behalf of the creative small business entrepreneur, artists, and practitioners in the healing modalities. It is an honor for me to represent, value, support and protect these creative independent artists and healers and the work they contribute so that they can focus on shining their bright light amongst us.
To this end, I believe that the law and legal problem solving methods are very powerful and I use these tools to empower my clients. This means making sure their contracts actually protect their interests and work. It means putting processes in place to make sure that they get paid on time and that their original ideas and work are protected. Staying ahead of the game by being properly informed is good planning. Legal planning is life planning.
What I actually can do for you if you are an artist or healer is to provide multi-faceted representation to facilitate your artistic work (whether it be painting or massage or some other unique form of expression). This may include but is certainly not limited to:
Establishing and helping to implement a new company – separating personal assets from business assets is a must.
Protecting original ideas through trademarks, copyrights, licensing agreements and enforcement efforts.
Advocating for your needs and priorities to help resolve disputes.
Negotiating and drafting contracts for artists, therapists, and other independent spirits so that you get paid for your work and your work is protected and only used with your consent.
Advising and providing guidance on laws and regulations that impact your work.
If you are an independent spirit and would like to discuss how I can help get your legal framework up and running give me a call to explore this further. I am happy to meet with you for a complimentary consultation.
Writing a "last" letter when your healthy
I recently read an article in the New York Times that I thought was important. I work in estate planning and so I meet with people all the time to discuss their end of life wishes in regards to both the care and control of their body should they become incapacitated and who they want to inherit their estate when they die. Inevitably, as we discuss these important issues, we end up talking about and exploring their own views on both death and family. I feel very blessed to participate in these conversations as I learn so much about life and the myriad of ways that it unfolds. What is always apparent and such a constant teaching for me is that each of us is unique and all of us are full of love. Sometimes the decisions are clear and easy and sometimes my client's really struggle with filling in the "estate planning blanks" such as who they would like to serve as their personal representative, who they would like to serve as their agent for their medical power of attorney, etc. Once my services are complete, I advise my clients about how to let their loved ones know where their documents are and to make sure their agents understand their wishes by having conversations with them about the documents that I have prepared. The one thing that I am missing in these conversations because it is not a "legal issue" is that other conversation: what is left unsaid that you would like to to say to your loved ones. In this article from the New York Times, I learned that there is a letter writing project that encourages people to write to their loved ones. The template allows people to complete seven life review tasks: acknowledging important people in our lives; remembering treasured moments; apologizing to those we may have hurt; forgiving those who have hurt us; and saying “thank you,” “I love you” and “goodbye.”
Here is the link to the article in the Times. Here is the link to a template for people who are seriously ill. Here is a link for healthy people who want to leave a letter for their loved ones.
What a great gift both for the letter writer and the recipients - I intend to tell my clients about this from now on - this is an idea worth sharing!
Beneficiary Deeds In Colorado - Avoid Probate for Small Estates
Beneficiary deeds can help avoid the need to probate small estates. Under Colorado’s simplified probate process, Colorado's probate code allows the beneficiaries of an estate to collect the estate assets by using a small estate affidavit, rather than a going through a full probate procedure, if the estate consists only of personal property with a value not exceeding $64,000.00 in 2016.
No such procedure is available in Colorado to clear title to real property at death. However, if a beneficiary deed has been filed prior to the death of the property owner, marketable title to the beneficiary can be transferred after death, without the need for probate administration. The beneficiary deed transfers the property outside of the estate and the value is not included in the estate.
Colorado’s beneficiary deed statute carefully defines the interest of the beneficiary in order to protect the rights of other parties interested in the property. First, during the lifetime of the owner who grants the beneficiary deed, the beneficiary has no legal right or interest to the property whatsoever, and the owner retains full power and authority with respect to the property without the need to notify or obtain the consent of beneficiary for any purpose. The beneficiary deed also provides an alternative method to transfer real property to an owner's trust at death, avoiding issues with lenders that might occur when mortgaged property is transferred to a trust during an owner's lifetime.
Under Colorado’s beneficiary deed law, the beneficiary deed must be recorded before the death of the owner. If not recorded before the death of the grantor, the property will then eschew to the deceased’s estate. A beneficiary deed can be revoked during the owner's lifetime by recording a revocation of the deed, or by recording another beneficiary deed executed after the revoked deed. A subsequent beneficiary deed revokes all beneficiary designations in their entirety, even if the subsequent deed doesn't convey the owner's entire interest in the property. At the owner's death, the most recently executed beneficiary deed or revocation of all beneficiary deeds or revocations recorded before the owner's death controls. It is important to note that if there is an effective beneficiary deed in place at the owner's death, the owner's Last Will does not control disposition of the real property, regardless of the date of the Last Will.
An owner of an interest in real property in joint tenancy may execute and record a beneficiary deed, but the deed is only effective if the joint tenant-owner is the last joint tenant to die of all the joint tenants. If the joint tenant-grantor is not the last joint tenant to die, the beneficiary deed is not effective at his or her death, and the grantee-beneficiary does not become a joint tenant with the surviving joint tenants. The law specifically provides that a beneficiary deed does not sever a joint tenancy.
The grantee-beneficiary named on a beneficiary deed effective at an owner's death does not immediately receive marketable title. The grantee-beneficiary's interest is subject to all conveyances, encumbrances, assignments, contracts, mortgages, liens and other interests affecting title to the property, regardless of when they were created, as long as notice of the interest is recorded within four months after the owner's death. After this four-month period, the grantee-beneficiary can pass marketable title to a purchaser of the property. However, the grantee-beneficiary may remain accountable for the proceeds of the property to persons interested the owner's probate estate for up to three years. If the probate assets are insufficient to cover claims by creditors, by a surviving spouse or children for statutory allowances, or a Medicaid recovery claim, the personal representative may bring a proceeding against the grantee-beneficiary to recover a share of the equity in the property, to the extent necessary to discharge the claims. The personal representative must begin such a proceeding within one year after the death of the deceased owner. Other persons whose claims against the grantee-beneficiary might be brought as late as three years after the owner's death can be barred earlier, if the owner's death certificate is recorded in the real property records.
The beneficiary deed statute specifically provides that a person cannot qualify for Medicaid assistance if the person has a beneficiary deed in effect. To ensure that a revocation can be made should a person require Medicaid assistance, any person executing a beneficiary deed should also execute a power of attorney specifically authorizing an agent to execute and record a revocation of any beneficiary deed, if necessary for purposes of qualifying for Medicaid.
Shimer Law can answer your questions about the possibility of using a beneficiary deed in your estate planning to avoid probate and ensure that your real property passes as you intend it to.
Disclaimer -- Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.
Estate Planning is Life Planning!
Having an estate plan in place is an important part of your life plan - if not for you, for your loved ones!
Regardless of whether a loved one in your family is facing a debilitating disease such as Alzheimer’s, ideally you should have your legal planning in place for such an event – thereby taking one less major stressor off the table should something occur. Legal life planning should include: Estate planning documents including Last Will, Powers of Attorney and Living Will. If you have already completed these documents then it is important to review existing legal documents and make necessary updates. This allows you and your family to:
- Make legal plans for finances and property
- Put plans in place for enacting your future health care and long-term care preferences
- Name another person to make decisions on your behalf when you no longer can
At a minimum your estate planning documents should include:
General durable power of attorney . The power of attorney allows you (the principal) to name another individual (called an attorney-in-fact or agent) to make financial and other decisions when you are no longer able. A successor agent or agents should also be named in case the original agent you choose is unavailable or unwilling to serve. Power of attorney does not give the person you appoint (agent) the authority to override your decision making. You maintain the right to make your own decisions, as long as you have legal capacity. A durable power of attorney for finances/property allows you to designate another person to make decisions about your finances, such as income, assets and investments, when you can longer do so.
Power of attorney for health care. A power of attorney for health care allows you to name a health care agent to make health care decisions on your behalf when you are no longer able.
Health decisions covered by the power of attorney for health care include:
- Doctors and other health care providers
- Types of treatments
- Care facilities
- End-of-life care decisions, such as the use of feeding tubes
- Do not resuscitate (DNR) orders
Discuss your wishes regarding care with your chosen agent early and often to make sure that this person understands your wishes and is willing and able to act on your behalf when the times comes.
Living will . A living will, a type of advance directive, expresses your wishes for what medical treatment you want, or do not want, near end of life, such as life-prolonging treatments. In Colorado, this document should be respected and adhered to by medical personnel so long as it has been signed in front of two witnesses and notarized. It is a document you should prepare and sign before any disease such as Alzheimer’s progresses.
Last Will and Testament. Your Last Will and Testament provides information about how your estate will be distributed upon death. In your will, you may name a personal representative, the person who will manage your estate, and beneficiaries, the person(s) who will receive the assets in the estate.
Demystifying Trusts
Planning our estate with Wills and Trusts.
I can’t tell you how many times I get calls from people who want to create a trust of some kind as a part of their estate plan. There are many types of trusts and they all serve different purposes. I have created a summary of the most common types of trusts and what they are used for as a basic guideline to help dispel some of the myths around “trusts” and how they are used. There are many different asset protection tools available, including LLCs and family partnerships and so trusts are an important vehicle but not the only way to protect assets. As an estate planning tool, trusts are an important planning technique but not always either necessary or advisable. If you are curious about trusts and how they are used, I hope the summary below gives you some helpful information.
First, there are revocable trusts and irrevocable trust. Revocable living trusts are generally used as part of an overall estate plan and are important planning tools in Colorado when a client has assets in multiple states or a very complex asset structure, has an imminent disability that would require a successor trustee to be able to step in seamlessly, or has a need for privacy. While probate avoidance is important in some jurisdictions, Colorado has an informal and relatively simple probate process that can make the expense of trust set up contraindicative for simple estates. Revocable living trusts do not shelter assets from the creditors of the settlor and become irrevocable upon the death of the settlor.
An irrevocable trust cannot be modified or revoked after it is created. Examples of these are Irrevocable Life Insurance Trusts (ILIT) or Asset Protection Trusts, which can be set up in jurisdictions such as Nevada or the Cook Islands that have trust protection laws. ILITs are generally used as an estate planning technique for those who find themselves in the position of having taxable estates ($5.43 million in 2015) and Asset Protection Trusts are used to make sure that future creditors can never access the Trust to satisfy a judgment against the settlor.
Charitable Remainder Trusts are set up to benefit a nonprofit organization. These are used as an estate planning technique and can help avoid the estate being taxed and gift tax implications. The settlor receives benefits during his or her life and also receives the intangible benefit of being recognized by the charity beneficiary during his or her life.
Special Needs Trusts are set up for people who are disabled and receiving government benefits. The disabled beneficiary cannot control the amount or frequency of the trust distributions and cannot revoke the trust. Parents of a disabled child can establish a special needs trust as part of their estate plan and not worry that their child will be prevented form receiving necessary benefits when they are not their to care for their child.
There are many other types of trusts, including Spend Thrift Trusts which are created to protect a beneficiaries’ interests from creditors, Tax By-Pass Trusts, Totten Trusts, etc. If you are curious about whether a trust might be an important tool to manage your assets, I would be happy to discuss the various types and how they might or might not be applicable to your situation.
Probate: Estate Tax - Filing Returns
Probate and state and federal tax returns.
Probate and Estate Tax Returns If you are the Personal Representative or an estate, you will need to work with an accountant to file the last tax return (1040) for the deceased person whose estate you are administering. This tax return should be filed by April 15th of the year following the death and should be marked at the top Deceased Final Return. You will need to gather and collect the financial records and 1099s that the deceased receives to complete this process. Ideally, you can work with the accountant who handled the deceased’s previous tax returns, but if not the accountant you hire will most likely need a copy of the deceased’s tax return form the previous year and all the regular documents to complete the Final Return. Its a good idea to start a file right away and then as you come across pertinent documents or as they come in the mail you can place them in the file for the accountant.
As a personal representative you may also have to file an estate tax return (IRS form1041). A deceased person’s estate is a separate legal entity for federal income tax purposes. You will need to acquire a federal identification number for the estate.
There are two different scenarios in which an estate must file a return with the federal government. If the estate is over the federal estate tax exemption amount of $5.43 million for deaths in 2015 the estate must file a return. If the estate does not fall into this category, the personal representative may still have to file a tax return for the estate.
Does the Estate need to file a tax return?
This is a common question that I get from my Probate clients. The Personal Representative must file a federal income tax return (Form 1041) if the estate has either:
- Gross income for the tax year of $600 or more
- A beneficiary who is a nonresident alien
What constitutes income in regards to the Estate?
Common examples are rents from real estate, monetary benefits received by the person after death, or interest on an estate bank account. Your accountant should be able to tell you whether income generated after the person’s death should go on their personal 1040 for that year or be considered estate income, requiring the filing of the federal estate return 1041. It is important to keep accurate records and present these to the accountant for a through review
If the personal representative promptly distributes all the estate assets to the people who inherit them, the estate may not have income, and the personal representative may not need to file an income tax return for it but its a good idea to discuss this with the accountant who prepares the final return to ensure that all income is accounted for.
Questions and answers on Avvo
I have been participating in a legal question and answer forum on Avvo. Here is a link - some questions might be pertinent to your situation or of interest to you or someone you know.
Corporate Compliance
Whether you are operating as a Limited Liability Company or a Corporation in Colorado, it is important to keep your business in compliance with statutory requirements so that your personal assets are protected from any liability that your business might incur. Here is a checklist that will help you gauge whether your business is in compliance and if not what you might need to address.
- Filing with secretary of state. Colorado requires that all companies file an annual report. If you are not sure about the status of your company go to the secretary of state’s website and make sure you are in compliance with this requirement. http://www.sos.state.co.us/pubs/business/businessHome.html
- Operating agreement or bylaws. While Colorado does not require that an LLC have an operating agreement, the operating agreement is critical in terms of both company management and asset protection. Colorado does require that all Corporations have written bylaws.
- Company records. If your company is a corporation, Colorado requires that you keep the following items with your corporate records at your principal place of business:
- The Articles of Incorporation and bylaws
- Minutes from all director and shareholder meetings over the past three years
- All written communications to shareholders over the past three years
- A record of all actions taken by directors or shareholders without a meeting
- A record of all actions taken by a committee of the board of directors in place of a meeting
- A record of all waivers of notices of meetings of the shareholders, directors or any committee of the board of directors
- A record of the names and addresses of all shareholders, arranged alphabetically and by class of shares
- A list of the names and business addresses of current directors and officers
- A copy of the most recent annual report
- All financial statements for the past three years
- Separate bank account. Whether you are operating as an LLC or a corporation, you should keep a separate bank account for your entity and use it for all transactions. You should be able to document all moneys put into your entity in return for your ownership.
- Acting on behalf of the company. Any interactions you have in the course of doing business with other commercial enterprises or individuals should be clearly on behalf of the company and not as yourself individually. For instance, if I give a speech on estate planning I give the speech as Tanya Shimer of Tanya R. Shimer LLC and not just as myself individually.
- Written documents. Use letterhead on all of your correspondence and contracts.
- Entity designation. Always include the entity designation (“Inc.,” “Limited,” “Ltd.,” “LLC”) whenever possible on business identifiers such as business cards, advertisements, signs, etc.
- Your signature. Always sign documents in your representative capacity, and not as an individual:
YOUR ENTITY NAME
______________________________________________
by: YOUR NAME, YOUR TITLE (Manager, President, Owner, etc.)
- Titles of assets. Ensure that all assets that are owned by your company are titled in the name of your entity and not in your name personally.
- Keeping money separate. Be careful to never commingle the funds or assets of your entity with your personal funds and assets. If you need to fund the operations of your company with your personal assets, document the transfer as either a loan or a contribution to the capital of your entity. If you need to use assets of the company for personal reasons, distribute the assets out of the company to yourself first as income, profit distributions, or a return of your capital contribution.
- Annual meetings. Whether you are a corporation or an LLC, annual meetings are required This is one of the first things a judge will look for in deciding whether to allow a creditor or other to go after your personal assets.
- Corporate taxes and fees. Work with a professional to make sure that you are in compliance with all corporate taxes and fees and that your income tax returns are filed each year in compliance with both the IRS and the Colorado Department of Revenue.
While this checklist is not meant to be all inclusive its a good start and good self monitoring system for both you and your employees. I certainly hope that it helps! Don't hesitate to contact me if you have questions about your company and these guidelines.
Talking to adult children about your estate plan
If you’ve done your estate planning and have adult children (single, married, divorced, with or without children), its important to let them know that you have taken care of this. It would be courteous to let your children know: Where your documents are located, both copies and originals.
Whom you have chosen as your fiduciaries, such as agents for powers of attorney, personal representative, and trustees.
It would also be helpful if you can convey to them your wishes should you become disabled.
You may wish to discuss the nuts and bolts of your plan in more detail with them, this is a personal matter, and you may decide to not disclose this at all.
However, it might be wise to discuss any areas that might cause conflict in the family up front and address this with the parties now to avoid future contention. If there are any anomalies in your estate plan, such as leaving money to a more distant relative or choosing to favor one beneficiary over others, it’s a good idea to talk about this – that way there will be no hurt feelings or surprises when the estate plan is implemented and you are unable to explain your reasons for the choices you have made.
Talking to elderly parents about estate planning
How to talk to your parents about their estate planning. Its an old adage and maybe even a cliche - we don't talk about whats in the Will and its not polite to bring up aging or death with our elderly loved ones. Yet it is important and necessary. You need to know if they have a plan and where the documents are kept in case something happens. Here are some guidelines to help navigate this awkward conversation with your parent or parents.
- Your intention. Make it clear that your intention in bringing this topic up is to understand their wishes so you can help make sure that they are carried out. If they don’t have a plan it is to encourage them to contact a professional who can help them implement one – tout suite.
- Their privacy. Your focus in this conversation is not to provide them with advice or haggle over the details of their arrangements, but to make sure that they have a plan and that you are able to locate it should something happen.
- Concerns that need to be addressed. This conversation is about them. Are they happy with the arrangements that they’ve made; is there potential for conflict amongst their chosen beneficiaries and if so how can this be averted; are they comfortable with the fiduciaries that they’ve chosen or does this need to be updated. If they don't have a plan why not, what are their fears or reasons for procrastinating and how can you and your siblings help.
- Include your own circumstances if applicable. If you are in a position where receiving money in trust is important or might be important in the future, convey this or other particular concerns to your parents.
- If you have siblings keep them in the loop by letting them know you are concerned and are addressing this with your parents.
Ways to break the ice include talking about:
- Planning gone awry. Talk to them about estate planning horror stories that you have heard on the news (a little celebrity gossip can’t help but break the ice, think Georgia O'Keeffe, Steig Larsson, Thomas Kincaid, etc. ) or through your own experience (your neighbor so and so…).
- Your own planning. If you’ve done your own estate planning it might be helpful to share with them your experience and what you have decided in regards to fiduciaries, etc., as a way of both breaking the ice and so that they know what your own plan entails and who has been designated to implement it.
If there is no planning in place:
- If your parents do not have estate planning in place encourage them to seek counsel and get it done. Many clients that I work with are so pleased to finally get this out of the way and express that this is something they have been thinking about for “a long time” and their relief and boost in confidence about the state of their affairs is palpable. Gently remind them about the added expense, stress and conflict caused to family members if a person dies without estate planning. I do not recommend putting pressure on them about this - ultimately its their estate and their responsibility but at least having this conversation in a gentle way might encourage them to tackle this task.
LLCs and Taxation
Many of my clients are curious about forming LLCs and how they are treated for tax purposes. In Colorado, a limited liability company is considered to be a pass-through entity and is treated like a partnership or sole proprietorship for tax purposes. All of the profits and losses of the LLC pass through the business to the LLC members (owners) who then report this information on their personal tax returns. The LLC itself does not pay federal income taxes.
If the LLC is owned by a single member, the IRS treats it as a sole proprietorship for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the IRS. The sole owner of the LLC reports all profits or losses and submits it with his or her 1040 tax return. If the company makes a profit, even if the member leaves this money in the company, he or she must still report this and pay taxes on this money at the end of the year.
If the LLC is a multi-member LLC, the IRS treats it as a partnership for tax purposes. This means that multi-member LLCs do not pay taxes on business income. Instead, the LLC members each pay taxes on their share of the profits on their personal income tax returns. The LLC members’ share of profits and losses, called a distributive share (usually ownership percentage), should be set out in the LLC operating agreement.
Most operating agreements provide that a member's distributive share is in proportion to his or her percentage interest in the business. If the members decide to split up profits and losses in a way that is not in proportion to the members' percentage interests in the business, it's called a special allocation. The IRS has guidelines as to how this works.
The IRS treats each LLC member as though the member receives his or her entire distributive share each year. This means that each LLC member must pay taxes on his or her whole distributive share, whether or not the LLC actually distributes all (or any of) the money to the members. The practical significance of this is that even if LLC members need to leave profits in the LLC, each LLC member is liable for income tax on his or her rightful share of the profits left in the company.
As a result, if the members intend to keep a substantial amount of profits in the LLC (retained earnings), the members might benefit from electing corporate taxation. Any LLC can choose to be treated like a corporation for tax purposes by filing a form with the IRS within a certain time frame of the LLCs formation.
Seniors Getting Married - Estate Planning Considerations
Seniors getting married and estate planning.
People are getting married later in life. Marriages, with one or both spouses being seniors, retired, and having grown children, have become quite common. And while its fantastic to know that love can blossom at any age and usually children and grandchildren are happy that their parents have companions to spend their later years with, these marriages require unique estate planning considerations.
Estate planning for later life marriages is complicated for a number of reasons. These "senior" marriages can directly impact the inheritance of the children and other family members on both sides. Remarriages also can affect a spouse’s right to alimony payments from a prior spouse, retirement benefits, social security benefits, health insurance, and the spousal medical care obligations. Its important for both spouses to clearly address who their assets are intended to benefit, whether it’s the new spouse, the children and families or a trust – both while the spouses are alive, upon the death of one of them, and when both die.
Other considerations that should be addressed as a part of the estate planning process should include whether long-term care insurance is needed; should income and assets be blended or kept separate; how the primary residence is treated both during life, and upon the death of one spouse, and then both spouses; is a post or prenuptial agreement necessary or advisable as part of the estate planning process; how do the parties wish to pay for future medical expenses (for example, is it advisable to deplete the assets of one spouse first).
People in later year marriages also should consider the conflicts that could arise between the spouse and children should agents named for medical and general powers of attorney need to act. The best way to avoid this is to think these conflicts through in the planning phase and coordinate the choice of fiduciaries in the documents – with the fiduciaries having a clear understanding of the spouse’s agreements to the later life marriage concerns, as delineated above.
Rental Properties and Colorado LLCs
In Colorado, the Limited Liability Company business structure is popular because it is a hybrid of a corporation and a sole proprietorship/partnership, offering the benefits of both. For a rental property owner, an LLC provides many advantages and protections in legal, tax, and management flexibility. An LLC offers owners, also known as members, limited personal liability for liability created by the entity. One of the biggest benefits an LLC provides is personal property protection. An LLC maximizes asset protection, whether the rental owner has one or multiple properties. Each rental property should have its own LLC, so if the property owner gets sued, only the one property (LLC) will be liable instead of all of the investment properties and the personal assets of the owner. An LLC can be considered an alternate form of insurance because it protects the personal assets of a rental property owner from certain legal claims, such as slip-and-fall cases and contractual tenant disputes. Rental property owners must also be properly insured to protect the property from claims made directly against the LLC.
For tax purposes, an LLC must file a tax return as a sole proprietorship, partnership or corporation because the federal government does not recognize an LLC as a federal tax classification. One tax advantage of a single member LLC is the ability to use pass-through taxation. A single member LLC can choose to be taxed as a sole proprietorship. Income and capital gains from the LLC pass directly to the owner/member, avoiding double taxation. As the legal owner of the property, a single-member LLC can deduct mortgage interest based on IRS rules. An LLC can also choose to be taxed as a corporation. If an LLC has multiple members or opts to be taxed as a corporation, mortgage interest deductions and taxes become more complicated, so a consulting with a good CPA is helpful.
Once the LLC is set up, the owner/member is obligated to follow the guidelines spelled out in the operating agreement rather then the statutory obligations required of a corporation. Additionally, after the LLC is set up the member/members are required to file annually with the secretary of state, hold an annual meeting, keep a separate bank account, and not comingle funds.
If the rental property is mortgaged, retitling it into an LLC is an issue that will need to be addressed with the lender.
Intestate Rules for Non-Married Individuals In Colorado
Singles (aka non-married individuals) often procrastinate about estate planning. If you are one of my friends or colleagues who fall into this category here is a brief summary of who will inherit your assets should something happen to you. By taking the mystery out of what happens I am hoping to alleviate some of the worry and maybe even encourage some proactivity in this regard.
Colorado's intestacy rules are similar to the rules found in other states but don't provide for inheritances by remote relatives, such as distant cousins. State laws set the inheritance rules for the estate of a person who died intestate; however, these rules don't take the financial needs of his heirs into consideration.
If a non-married individual dies with children, their children inherit their estate. If a non-married individual dies with no children then surviving parents inherit his/her entire estate. If both parents are dead, the estate goes to the parents' surviving descendants: for example, the siblings of the deceased person. Surviving grandparents may inherit the estate if the parents have no surviving descendants. If both grandparents are dead, their surviving descendants inherit the estate. In cases where the deceased person's parents and grandparents left no surviving descendants, the estate may go to the state of Colorado.
Colorado's laws allow inheritances by a birth parent who adopted out the deceased person or any birth children the deceased person put up for adoption, but only to prevent the estate from going to Colorado because of a lack of heirs.
Not all property is subject to Colorado intestacy rules, some of it if properly designated/titled can pass out of these intestate rules. Money from retirement accounts, such as 401(k) accounts, and insurance plans go to the person named as the beneficiary on the account or plan paperwork. Property owned with another person as a joint tenant —the family home, for example—belongs to the surviving owner. Any property transferred to a living trust belongs to the trust and isn't subject to intestacy laws. Bank accounts that have another person designated to receive the funds if the account holder dies—known as "payable on death" accounts—pass to that designated person.
Clients who are successful entrepreneurs - some characteristics
Entrepreneurs are a special kind to be admired and learned from.
What are the characteristics of successful entrepreneurs? I love representing clients who are starting a new business venture. It’s always exciting to hear about their vision and plans to implement it and I am always happy to walk them through the legal requirements of this process so that they have the proper structure and building blocks to make it happen. After fifteen plus years working with clients pursuing their dreams of creating a successful business venture, I have developed a sense of characteristics that are helpful to start and run a business.
1. Passion and Energy
My most successful clients are busy people; they possess the capacity to work long hours and don’t seem to ever tire of putting time into their business because they are passionate about creating and building it.
“You know you are on the road to success if you would do your job and not get paid for it.” – Oprah Winfrey
2. Ability to take Responsibility
My most successful entrepreneur clients take responsibility for their actions and decisions even in the face of failure. They don’t blame their employees or anyone else; instead they take charge, correct their business mistakes and move on.
“Sometimes when you innovate, you make mistakes. It’s best to admit them quickly and get on with improving your other innovations.” – Steve Jobs
3. Confidence
My most successful clients are confident in their ability and their vision to make it happen. Whatever their relationship is with trust and or faith, they also strongly believe in themselves and their ability to achieve their goals.
4. Persistence
“When the going gets tough, the tough gets going.” My most successful clients persevere without letting obstacles or unexpected failures slow them down – they reboot quickly and carry on.
“Nothing in the world can take the place of persistence. Nothing is more common than unsuccessful men with talent. The world is full with educated derelicts. Persistence and determination alone are omnipotent.” – Ray Kroc
5. Goal Setting
My most successful clients have the ability to set clear goals for themselves and continue to map out their achievements against these goals and set new goals as their business matures – some of my most successful clients set daily, weekly, monthly, and yearly goals. One question I always ask, even as we are just setting the legal structure in place to create the business is- how do you see this business in five years time?
6. Ability to take Risk
As we all know, business is a risk and to undertake it, you have to be daring. Successful entrepreneurs are risk takers; they gamble their time, energy and resources in pursuit of their vision and goals.
“You must take risks, both with your own money or with borrowed money. Risk taking is essential to business growth.” – J. Paul Getty
7. Intelligent Use of Feedback
My most successful client entrepreneurs take feedback seriously. They surround themselves with smart teams and solicit and listen to customer’s feedback – always seeking to improve.
“Sometimes, I think my most important job as a CEO is to listen for bad news. If you don’t act on it, your people will eventually stop bringing bad news to your attention and that is the beginning of the end.” – Bill Gates
8. Integrity
“It takes 20 years to build a reputation and only five Minutes to ruin it. If you think about that, you will do things differently.” – Warren Buffett
My most successful entrepreneurial clients have thought about and set out principles that they do not compromise. They hold themselves and their employees to these principles and they have usually integrated them into their company – and this integrity permeates their business - from their initial vision through to their back door (so to speak).
“Real integrity is doing the right thing, knowing that nobody’s going to know if you did it or not.” – Oprah Winfrey
- Intelligent Use of Resources
Sometimes, entrepreneurs are faced with the challenge of building a business with limited capital or other resources including personnel and space. When building a small business startup from scratch, there is a need for efficient use of limited resoures - and my most successful clients seem to thrive making things happen on a shoe string budget. Clients who track and manage their budget and other resources always seem to do well.
10. Treat People Well
My most successful clients are a joy to work with – their employees are happy to work for them and their customers are pleased with the service they receive from the company. – "Do onto others as you would have them do onto you ..." – actually works.
I saw this when I was looking for an illustration for this blog post and so thought to add it here - it is always a joy to work with my entrepreneurial clients - energizing and inspiring so - here is to you:
If you have questions about a business idea that you are exploring my initial consultations are complimentary - and its always good (easier ) to start off with a solid legal foundation - so don't hesitate to contact me for an appointment or teleconference. Click here for my complimentary Legal Guide to starting a business.
Mediation – the alternative dispute resolution process revealed….
Mediation can help create agreement and set aside conflict by allowing the parties equal space to be heard and listen.
We’ve all heard about mediation - but many of us have no idea how this process of alternative dispute resolution actually unfolds. The idea of sitting down with someone that we are in conflict can be intimidating and its hard to imagine how we can get anything resolved without an arbitrator dictating the terms of resolution. Mediation is actually a beautiful process in which the parties themselves come up with solutions and after discussion agree on how to resolve conflict. This agreement is then put into writing, with both parties signing. The process if done correctly is empowering to the parties and the agreements are usually adhered to - because they are created by the parties themselves.
There are usually six steps to a formal mediation:
1) Introductory remarks
2) Statement of the problem by the parties
3) Information gathering
4) Identification of the conflict – what needs to be resolved
5) Bargaining and generating solutions
6) Reaching an agreement
Introductory Remarks
The parties and mediator meet together in a comfortable physical location. It is much more effective and empowering for both parties to be in the same room for this process - facing each other and speaking and listening to each other. With an effective mediator the parties can trust that they will be respected and safe. The mediator will start the session by outlining the process and rules. The mediator will define the protocol and set the time frame for the process. There will be a review of the mediation guidelines and the mediator will briefly recap what it is that the parties are in conflict about. This opening statement by the mediator will set out the ground rules for the mediation. These ground rules are what help the mediation go smoothly and both sides must affirmatively agree to adhere to the process as spelled out during this time.
Exploring the conflict
After the opening statement, the mediator will give each side the opportunity to speak without interruption on their perspective on how the conflict was created. The mediator serves as a third party witness and remains neutral – encouraging each party to speak freely and listen to the other party when its their turn. This forum for the statement of the problem is meant to allow each party uninterrupted time, where they can tell their side of the conflict. It also gives the parties an opportunity to frame the key issues that need to be resolved. By giving each party a chance to speak and listen the parties are able to define what needs to be addressed to resolve the conflict. More often then not when the parties actually hear both sides empathy is created which then decreases hostility and balances the power between the sides.
Information Gathering
The mediator will ask the parties open-ended questions to try to get the parties to understand the under currents and perhaps not obvious roots of the conflict. The mediator should repeat back key ideas to the parties, and will summarize the key issues of each party at the end of their turn. The mediator’s role is to keep the parties on track and build rapport by holding a safe space where people are able to speak and be heard without interruption.
The mediator may decide to hold a caucus (private session) with each party in order to move the negotiations along or if emotions get high in the room. This caucus session will be confidential. The caucus provides a safe environment in which to brainstorm and bring underlying fears to the surface.
Problem Identification
After each party has spoken, the mediator and the parties create a list of the key issues in conflict that need to be addressed.
Generating Solutions
Once the participants have defined the areas in dispute, the mediator will facilitate a brainstorming session to explore potential solutions. Usually, all potential solutions are explored and new solutions are often discovered as a part of this process.
The goal of the session is to find some common ground by exploring lots of options, and to bring about possible solutions for the parties to think about that might not have been explored before each party had the opportunity to speak and be heard in a neutral non-confrontational setting. Bargaining often takes place during this time and compromise is often a key ingredient, as both parties work to come up with a tenable solution together.
Agreement
By generating solutions together the parties usually come up with an agreement in real time during the mediation session. The mediator will draft this agreement and both parties will sign it – usually on the same day.
Thus, mediation provides a platform for conflict resolution by creating a safe place for both parties to speak and be heard. Its purpose is to enable people to come up with their own solution by working together – and hence most solutions are adhered to as each party has a hand in creating it. Mediation saves the parties the time and money by not having to resort to the courts and is self-empowering for the individuals involved.
Estate Planning For Single People
Single people without children often avoid estate planning and the challenges associated with it, because of feeling overwhelmed or unsure. This is unfortunate because its even more critical for single people to plan ahead and name their fiduciaries and beneficiaries as there is no clear cut answer for their loved ones should something happen.
The following questions should be addressed:
To whom should I leave my assets?
Do I need to consider creating a trust to manage my assets now or for my chosen beneficiaries in the future?
Who should be my personal representatives and/or trustees?
Who should be my agents for my medical and financial powers of attorney?
If you are a single person without young children, you can leave your assets to whomever you choose, including but not limited to your partners, relatives, friends or charitable organizations. In Colorado, you can also create Pet Trusts and name trustees to care for your animals. If you do not have an estate plan in place, the state will dictate who will inherit your assets. A recent case in point, the author of the Girl With the Dragon Tattoo series, Stieg Larrsen did not have an estate plan and as a result, his estranged father and brother, whom he had not spoken to for over 20 years before his death inherited his entire estate and all royalties thereof while his long-time love and assistant, whom he had lived with for 20 years was cut off, receiving nothing.
Selection of the right personal representatives and trustees is also essential to successful estate and trust administration. Who do you trust to administer your estate, especially if your relatives live far away or are unfamiliar with your affairs? In addition, health care and financial powers of attorney are very important documents to have in place since you may need these agents to make crucial medical decisions on your behalf as well as control your financial matters if you are ever unable to do so on your own because of disability.
Estate planning for a single person often demands more attention to detail than estate planning for married persons or single persons with children or grandchildren - because there is no obvious answer. A Will is usually sufficient for unmarried persons with smaller estates, but a Living Trust may be a better option for persons with larger estates (click here to read about Living Trusts). Your estate planning documents should be reviewed regularly, particularly when there have been changes in the law or in your personal situation. As a single person, it is very important that you understand how your assets are currently held and how they will pass after your death.
