Are you an owner in a multi-owner Corporation, LLC, S-Corp, or Partnership? If so, have you given any thought to or prepared a formal business succession plan?
One of the more difficult parts of being a business owner can be deciding how to wind up a business or determine how to restructure ownership after an owner wants out or dies. In order to simplify this process, the business owners should insist on having a formal Buy/Sell Agreement signed when they begin their business relationship.
A Buy/Sell Agreement is a legally binding contract that stipulates how an owner’s share of a business may be reassigned if that owner dies or otherwise leaves the business. Buy/Sell Agreements often stipulate that the available share be sold to the remaining owners or to the company. Buy/Sell Agreements can take many forms and there are no requirements as to how such agreements must be structured. Terms for such an agreement are negotiated between the owners. Therefore, the advice of an attorney is needed to ensure the best possible exit strategy for all of the owners.
Important clauses that every Buy/Sell Agreement should contain:
1. Valuation. The Agreement should include detailed information about your business’ worth. You should consider having it professionally appraised or using a set formula to value the business. You want the valuation provision clearly defined to establish a fair purchase price in the future in order to reduce conflicts.
2. Identify the Parties. The Buy/Sell Agreement must identify all the owners entering into the agreement.
3. Funding the Buyout. You want to make sure the Buyer has the financial ability to fulfill the payment terms of the Agreement. Many Buy/Sell Agreements utilize life insurance policies to ensure the purchase will be adequately funded. Don’t just assume the Buyer will have the cash at the time to purchase the business or that they can borrow 100% of the purchase price.
Acting as Trustee of a Trust can be challenging, and you should understand the responsibilities and duties involved if you are to serve in such a position. Although you may have initially been willing to assume this role, there may come a time when you know you want to resign as Trustee. Perhaps the administration of the Trust is taking more time and energy than you have available, or perhaps your health has deteriorated to the point where you no longer can properly carry out your duties; you don’t need to have a specific reason to resign. However, if you do need to resign as Trustee of a Trust there are a series of steps that should be followed to ensure that you are released, as much as possible, from any further liability.
A Trustee resignation should occur pursuant to the terms of the Trust. As long as you are Trustee, you are a fiduciary of the Trust with a duty of loyalty and a duty of care to the Trust and to the beneficiaries. Therefore, you must resign properly in order to ensure that you are not held responsible for problems that may occur due to your resignation or after your resignation. Even if the terms of the Trust seem clear and easy, you should consult with an attorney to ensure you are in compliance with the Trust and the law.
To resign as Trustee, the following steps generally must occur:
1. Check the original Trust document to see if there is a successor Trustee named. If there is no successor Trustee listed, a new Trustee will have to be appointed. The Trust may allow you to appoint a successor Trustee, but a thorough examination of the Trust will be required to determine this. If one or more of the original Grantors are still living and capable, they can name a successor trustee, if the Trust is a Revocable Trust. If the Grantor is unable to appoint a new Trustee, the current beneficiaries may be able to appoint a new Trustee. As a last resort, the Court always has the ability to appoint a successor Trustee. Whether these options are available to you depends largely on the terms of the Trust and the type of Trust.
If you’re age 65 or older, issues like retirement and long-term care planning are probably becoming more frequent topics of conversation. Even if you’re not in this population group, chances are you know and care for someone who is. Research from the U. S. Department of Health and Human Services suggests that if you are age 65 or older, you’re most likely going to need long-term care at some point in your life. Unless you are sufficiently wealthy or exceptionally poor, it is wise to do some advanced planning to cope with the increasing health care costs that will accompany long-term care stays.
Options you may want to investigate include, but are not limited to:
1. Long-term Care Insurance. The older you are and the longer you wait to obtain insurance, the more expensive it will become. Costs for long-term care insurance (LTCI) tend to be expensive and premiums will most likely rise over your lifetime. With average premiums running at $2,700 per year (according to industry research firm, LifePlans), many seniors may find LTCI too cost prohibitive to be a realistic option. Additionally, your age or current health condition may disqualify you from obtaining this type of insurance.
2. Life Insurance. Some insurance companies offer life insurance with long-term care riders. With this type of policy, your beneficiaries may still receive a death benefit even if you use long-term care rider benefits. With traditional LTCI, there is no death benefit paid to your beneficiaries after your death.
3. Family Members. Your immediate or extended family members may be able and willing to care for you or pay for your health care costs. However, with annual nursing home costs running an average of $89,000 annually, according to a 2018 Genworth study, few families can afford to cover these costs for a year, let alone for multiple years.
4. Medicare. Many people do not realize that Medicare does NOT cover long-term care expenses for patients requiring full nursing home care, except for very limited circumstances and for short periods of time.
When Bob and Laura married, they both had children and assets from previous marriages. They had new wills prepared, with each leaving their separate assets to their own children, but they did not sign a consent to one another’s wills. When Bob died ten years later, Laura’s attorney advised her that, as a surviving spouse in Kansas, she was entitled to a percentage of all of Bob’s assets—including the 300-acre farm that had been in his family for generations. Although she knew Bob had wanted the farm to go only to his children, she felt that she and her children had a right to part of it. She decided to contest Bob’s will, prompting a bitter and expensive court battle. Eventually Laura won. But, the farm had to be sold to pay the expenses, and the closeness the family had developed during Bob’s lifetime had been destroyed.
Second marriages, or even first marriages that occur later in life, can be wonderful and fulfilling but they should be entered into with caution when it comes to preserving family assets. In the above scenario, Bob’s farm had been in the family for generations. Bob and Laura had discussed that Bob wanted the farm to stay in his family after his death, but Bob’s will was not properly prepared to ensure that would happen. Because Bob and Laura had been married for ten years, Kansas law states that a surviving spouse who had been married 10 years but less than 11 years may receive 30% of the augmented estate of the deceased. Kansas Statute 59-6a202 offers a sliding scale to provide for the surviving spouse according to the number of years the couple was married. For example, if the couple had been married for 5 years, but less than 6 years, the surviving spouse would receive 15% of the augmented estate of the deceased; and if the couple had been married for 15 years or more, the surviving spouse would receive 50% of the augmented estate of the deceased.
Additionally, a surviving spouse is entitled to the homestead (residence) after the death of their spouse, unless otherwise agreed upon in their wills or in a pre- or postnuptial agreement. According to Kansas Statute 59-6a215, “a surviving spouse is entitled to the homestead, or in lieu thereof the surviving spouse may elect to receive a homestead allowance of $50,000. The homestead or homestead allowance is exempt from and has priority over all demands against the estate. The homestead or homestead allowance is in addition to any share passing to the surviving spouse by way of elective share.”
It’s finally summer. The kids are out of school and now is the time to visit the family vacation home for some rest and relaxation! If you’re like most people, your vacation home probably is located in a different state than your primary residence. As an owner of a vacation home, do you know how it will pass after your death to your heirs?
When someone dies in Kansas, any property owned in their individual name and without a Transfer on Death Deed will require a probate proceeding in order to transfer ownership to their heirs or beneficiaries. However, Kansas probate only applies to Kansas property. Real estate owned outside of the state—like a vacation home or investment property—will require a separate probate in the state where the property is located, known as an ancillary probate.
If the vacation home or investment property is put into a Trust during the owner’s lifetime, however, a probate can be avoided and the property can pass to whomever is named in the Trust. Even out of state
We frequently are asked to review old Wills for new clients. Many of those Wills are technically correct, but lack many of the “what if” scenarios that a more experienced estate planner would consider mandatory. We understand how this happens because when estate planning isn’t an attorney’s primary focus, it can be difficult to stay up-to-date on the current trends and recommendations of language that should be included in your Last Will and Testament. To ensure your Last Will and Testament provides the best protection for your estate and beneficiaries, here are some of the most common things you should be on the look-out for:
1. Does your Will name an alternate Executor or Trustee? Should your preferred Executor/Trustee be unable or unwilling to serve and you have no alternate named to serve in their place, it may be necessary for the Court to appoint a successor Executor/Trustee and the appointed Executor/Trustee may not be someone you would want handling your estate affairs.
2. Does your Will name contingent beneficiaries? It’s important to not only name someone to receive your estate assets, but also to have a contingent beneficiary in the event your first named beneficiary predeceases you. Failure to name contingent beneficiaries can result in your estate assets being distributed to individuals or organizations whom you would not have chosen yourself.
3. Would you have a taxable estate and if so does your Will include tax planning? Inclusion of specific tax planning language can save your beneficiaries thousands of dollars in unnecessary taxes, if your estate is found to be taxable. We recommend including tax planning language for anyone who is at or near the current taxable amount ($11,400,000 in the year 2019). Only an attorney familiar with tax planning should draft your estate planning documents if you believe your estate may be at or near a taxable level.
Q: My uncle recently died. I received a notice from his family attorney stating I am a beneficiary in my uncle’s estate. Am I also an heir? What exactly do these terms mean?
A: Under Kansas law, a beneficiary is a person or organization that receives money or property because someone specifically named them in their Will or Trust. In your case, because you’ve been notified that you are a beneficiary, your uncle mentioned you in his Will by name to receive something from his estate. The item(s) being given could be things like money, property, or personal items like jewelry or a family heirloom. Beneficiaries can include a person, charity, or organization.
An heir is a relative who would inherit under the laws after the death of someone. If the deceased person (also known as the decedent) did not have an estate plan in which he or she named beneficiaries then the heirs would inherit the property. What property an heir is entitled to after the death of a decedent is determined according to the laws of the State that the decedent was a resident of when he or she died. In Kansas, an heir could be a spouse, child, parent, sibling, niece or nephew. For instance, if an unmarried individual dies in Kansas and does not have children, Kansas law states that their property is to be distributed equally to their parents. One common misconception is that if a person in Kansas dies and they are married with minor children, all of their property will be distributed to their spouse. This is not true. Instead, half of the property will be distributed to their spouse and half to their minor children. Oftentimes, people want their property to go to individuals other than their heirs. This is one of the reasons why it is a good idea to have an estate plan in place and to know who your heirs are if you don’t.
An important thing to note is that a person can be both a beneficiary and an heir. In fact, most Wills and Trusts are set up by individuals leaving property to their heirs who they are naming as beneficiaries in their estate planning documents. For example, a child named in a Will set up by their parent is a beneficiary of the Will and an heir of their parent.
For more information on beneficiaries and heirs, contact Davis & McCann, P. A., Dodge City, KS. We are members of Wealth Counsel, a national consortium of Estate Planning Attorneys and the National Academy of Elder Law Attorneys (NAELA). We focus our practice on providing clients with the best legal advice on Estate Planning, Medicaid and Long-term Care Planning, Family Business/Small Business Succession Planning, Probate, Trust Administration, Real Estate Transactions, and related matters.
Q: Our house is owned by our Revocable Trust. We would like to sell the house. How do we remove the house from the Trust for the sale?
A: As the Grantors of your Trust, you can sell property in your Revocable Trust the same way you would sell a property titled in your own names. The only difference is that you use a different type of deed called a Trustees’ Deed. Trustees’ Deeds typically are prepared by your attorney. You should provide a copy of your existing deed on the property to your attorney, showing when the property was deeded to the Trust, and verifying the legal description and recording information. If you are providing title insurance as part of the sale, you will need to purchase a title commitment from your title company. This title commitment will stipulate the information that in required to be included on the deed. Your attorney will use this information to prepare the Trustees’ Deed and Affidavit or a Certification of Trust. An Affidavit/Certification of Trust in Kansas should state the name(s) of the Trustee(s) of the Trust, that the Trustee(s) are legally authorized to sell the property, and that the Trust is in good standing, among other things. The Affidavit may be combined with the Trustees’ Deed, while the Certification of Trust typically is a separate document. The Trustee(s) must sign these documents before a notary public. The documents
We often talk about the proverbial “crystal ball” in our office. If only we knew when our death will occur, we could wait until the last minute to get our affairs in order. Unfortunately (or maybe fortunately), very few of us receive notice that our death is imminent while we are healthy enough to take care of these things. Perhaps we receive a terminal diagnosis, but we believe we’ll “have more time” to take care of the details involved in our estate. Or, we pass away due to an unforeseen accident. The reality is we “think” about getting our estate in order but, time seems to slip away. We encourage everyone to assemble these important documents during their younger years, so when a health crisis or death occurs, there is one less stressor on the family.
Here are some helpful tips we gathered from the National Institute on Aging, as well as some of our own, that may assist you in getting your affairs in order:
1. Gather important papers and keep them in one place. Create a file and place everything in a desk or dresser drawer. Notify a trusted family member or friend where these papers are located. You also can notify your lawyer as to their location. You may wish to list the information and location of papers in a notebook. If your original papers are in a bank safe deposit box, keep copies in your home file. Check each year to see if there is anything new to add.
2. Give permission in advance for your doctor or lawyer to talk with your caregiver as needed. There may be questions about your care, a bill, or a health insurance claim. Without your consent, your caregiver may not be able to get needed information. You can give your approval in advance to Medicare, Medicaid, or your doctor. A HIPAA authorization form and/or Health Care Power of Attorney may be used to accomplish these tasks.
Q: Why do I need a Durable Power of Attorney if I own everything jointly with my spouse?
A: While you generally would have access to jointly titled bank accounts and brokerage accounts, owning everything jointly with your spouse does not give you the power to manage every asset if your spouse is incapacitated. Without a Durable Power of Attorney, you could not sell, rent or lease jointly owned property. Without a Durable Power of Attorney naming you as your spouse’s agent, you could not manage or draw upon your spouse’s IRA, even if you were the beneficiary, until your spouse dies. You cannot sign tax returns on behalf of your spouse or access information regarding his or her social security or other government related accounts without a valid Durable Power of Attorney.
While joint ownership can be an economical estate plan, it is not fool-proof. Everyone over the age of 18 should designate one or more persons to act on their behalf should they become incapacitated, with the use of a Durable Power of Attorney. Your Durable Power of Attorney can be drafted to provide your agent(s) with all the powers allowed by the State, or you can limit their power to very specific matters and time periods. The agent(s) can be given immediate authority to begin acting on your behalf, even if you are perfectly healthy, or the Durable Power of Attorney can be effective only upon your incapacity.
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