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Monday, June 13, 2016

When is a person unfit to make a will?

Testamentary capacity refers to a person’s ability to understand and execute a will. As a general rule, most people who are over the age of eighteen are thought to be competent to make and sign the will. They must be able to understand that they are signing the will, they must understand the nature of the property being affected by the will, and they must remember and understand who is affected by the will. These are simple burdens to meet. However, there are a number of reasons a person might challenge a will based on testamentary capacity.

If the testator of a will suffers from paranoid delusions, he or she may make changes to a testamentary document based on beliefs that have no basis in reality. If a disinherited heir can show that a testator suffered from such insane delusions when the changes were made, he or she can have the will invalidated. Similarly a person suffering from dementia or Alzheimer’s disease may be declared unfit to make a will. If a person suffers from a mental or physical disability that prevents them from understanding from understanding that a will is an instrument that is meant to direct how assets are to be distributed in the event of his or her death, that person is not capable of executing a valid will.

It is not entirely uncommon that disinherited heirs complain that a caretaker or a new acquaintance brainwashed the testator into changing his or her will. This is not an accusation of incapacity to make the will, but rather a claim of undue influence. If the third party suggested making the changes, if the third party threatened to withhold care if the will was not changed, or if the third party did anything at all to produce a will that would not be the testator’s intent absent that influence, the will may be set aside for undue influence. Regardless of the reason for the challenge, these determinations will only be made after the testator’s death if the will is presented to a court and challenged. For this reason, it is especially important for the testator to be as thorough as possible in making an estate plan and making sure that any changes are made with the assistance of an experienced estate planning attorney.


Monday, June 13, 2016

When is a person unfit to make a will?

Testamentary capacity refers to a person’s ability to understand and execute a will. As a general rule, most people who are over the age of eighteen are thought to be competent to make and sign the will. They must be able to understand that they are signing the will, they must understand the nature of the property being affected by the will, and they must remember and understand who is affected by the will. These are simple burdens to meet. However, there are a number of reasons a person might challenge a will based on testamentary capacity.

If the testator of a will suffers from paranoid delusions, he or she may make changes to a testamentary document based on beliefs that have no basis in reality. If a disinherited heir can show that a testator suffered from such insane delusions when the changes were made, he or she can have the will invalidated. Similarly a person suffering from dementia or Alzheimer’s disease may be declared unfit to make a will. If a person suffers from a mental or physical disability that prevents them from understanding from understanding that a will is an instrument that is meant to direct how assets are to be distributed in the event of his or her death, that person is not capable of executing a valid will.

It is not entirely uncommon that disinherited heirs complain that a caretaker or a new acquaintance brainwashed the testator into changing his or her will. This is not an accusation of incapacity to make the will, but rather a claim of undue influence. If the third party suggested making the changes, if the third party threatened to withhold care if the will was not changed, or if the third party did anything at all to produce a will that would not be the testator’s intent absent that influence, the will may be set aside for undue influence. Regardless of the reason for the challenge, these determinations will only be made after the testator’s death if the will is presented to a court and challenged. For this reason, it is especially important for the testator to be as thorough as possible in making an estate plan and making sure that any changes are made with the assistance of an experienced estate planning attorney.


Monday, June 6, 2016

How to Calculate Estate Tax

In order to predict how much your estate will have to pay in taxes, one must first determine the value of the estate. To determine this, many assets might have to be appraised at fair market value. The estate includes all assets including real estate, cash, securities, stocks, bonds, business interests, loans receivable, furnishings, jewelry, and other valuables.

Once your net worth is established, you can subtract liabilities like mortgages, credit cards, other legitimate debts, funeral expenses, medical bills, and the administrative cost to settle your estate including attorney, accounting and appraisal fees, storage and shipping fees, insurances, and court fees. The administrative expenses will likely total roughly 5% of the total estate. Any assets that is bequeathed to charity through a trust escapes taxation, and the value of those assets must be subtracted from the total. Any assets transferred to a surviving spouse are not subject to taxation as long as your spouse is a US citizen.

If the net worth of an estate is less than the Federal and state exemptions, no taxes must be paid. However, the value of assets over the exemptions will be taxed. The amount over the exemptions is referred to as the taxable estate. A testator’s assets are taxed by the state in which the will is probated. Taxes paid by the estate to the state may be deducted for Federal tax purposes. The Federal exemption was $5.43 million in 2015 and is slated to increase in 2016. The top Federal estate tax rate in 2015 was 40%.

If an estate earns money while it is being administered and distributed, for example, if real estate is rented or businesses continue to operate, it will be necessary for the estate to complete a tax return and pay taxes on the income it receives. The net income of the estate can be added to the taxable portion of the estate if it is over the federal or state exemption. It is important to be aware that the laws surrounding estate taxes change frequently and require seasoned professionals to navigate, and to notify you if changes in the laws will affect your estate plan. 


Monday, May 23, 2016

Should a Power of Attorney be a part of my Estate Plan?

A durable power of attorney is an important part of an estate plan. It provides that, in the event of disability or incapacitation, a preselected agent can be granted power over the affairs of the individual signing the document. This power can be limited to specific decisions, like the decision to continue life sustaining treatment, or it can be much broader in scope to allow the agent power over the individual’s financial dealings.

Estate planning is meant to prepare for contingencies beyond an individual’s control. A traumatic accident could leave an individual without the ability to manage his or her own financial affairs. Debilitating diseases, like Alzheimer’s, can affect a person’s ability to make sound decisions for him or herself. In these scenarios, someone must be appointed to do make decisions on behalf of the incapacitated individual. Preparing a durable power of attorney as a part of an estate plan accomplishes three things. First, it gives the power of appointment to the individual, instead of to a judge. Second, it avoids the need for a potentially expensive court proceeding necessary to make that appointment. Finally, a power of attorney may be used to respond to time sensitive issues without waiting for a court hearing to grant an agent the power to act.

A power of attorney provides much flexibility for the individual signing it. It can take effect only upon disability, or right away, regardless of disability. It can specify what funds may or may not be used for. If a person does not want to live in an assisted living facility, he or she can make sure that money from his or her own bank accounts is not used for those purposes. Different assets can be managed by different agents. The power of attorney can give an agent power to distribute assets as gifts on a specific schedule to collaborate with an existing estate plan. The level of detail and amount of instruction that is possible as a part of the document is unlimited. It will always be quicker and more economical than a guardianship or conservatorship proceeding, and it will always serve the disabled person’s interests better than the broad powers granted to an individual by a court.


Monday, May 16, 2016

How does life insurance fit into my estate plan?

Life insurance can be an integral part of an estate plan. Policies can be set up to be paid directly to the beneficiary, without the need to pass through the estate, and without the need for any taxes to be paid. Having a life insurance policy ensures that some assets will be liquid, so that debts and expenses can be paid quickly and easily without the need to dispose of assets. Beneficiaries can be changed at any time as can the benefit amount. The policy can be used to accumulate savings if the plan is surrendered before death. Life insurance policies, especially those purchased later in life, can pay out significantly more than what was invested into them. There are many benefits to purchasing a life insurance policy as part of an estate plan.

An attorney can set up a life insurance trust to help avoid estate taxes. A life insurance trust must be irrevocable, cannot be managed by the policy holder, and must be in place at least three years before the death of the policy holder. Any money received from the life insurance trust is not a part of the taxable estate. The need for this is rare as the exemption for estate taxes is currently almost five and a half million dollars, but it is a useful tool for some nonetheless.

There is a limit to how much life insurance an individual is permitted to purchase. A person may carry a multiple of his or her gross income which reduces with age. A twenty five year old can buy a policy worth thirty times his or her annual income. A sixty five year old may only purchase ten times his or her annual income worth of life insurance. This is an important factor to consider when deciding whether life insurance should be a part of your estate plan.

Life insurance as a part of estate planning is a complicated issue. It makes sense to consult with an estate attorney and a tax professional before meeting with an insurance broker. Both can help an individual understand the benefits of insurance over other means of transferring assets.


Monday, May 9, 2016

Costs Associated with Dying Without a Will

When someone dies without a will, it is known as dying intestate.  In such cases, state law (of the state in which the person resides) governs how the person's estate is administered. In most states, the individual's assets are split -- with one third of the estate going to the spouse and all surviving children splitting the rest. For people who leave behind large estates, unless they have established trusts or other tax avoidance protections, there may be a tremendous tax liability, including both estate and inheritance tax.

For just about everyone, the cost of having a will prepared by a skilled and knowledgeable attorney is negligible when compared to the cost of dying intestate,  since there are a number of serious consequences involved in dying without a proper will in place.

Legal Consequences

The larger your estate, the more catastrophic the consequences of dying intestate will be. If you die without a will, the freedom to decide how your property will be divided will be taken from you and the state in which you reside will divide your assets.

Not only will you not be able to decide on the distribution of your property, but a stranger will be making personal, familial decisions. This may be divisive among your family members; instead of leaving your loved ones in peace, you may leave them engaged in bitter disputes over a family heirloom or even a simple memento. This can be especially true in situations where there are children from a previous marriage.

Tax Consequences

In addition to the legal and personal problems associated with dying intestate, the tax results can be severe as well. This is particularly true for clients who have not consulted with an estate planning attorney in order to protect themselves through tax avoidance methods. Both the state and federal governments can tax the transfer of property and an inheritance tax may be imposed on the property you have left to your heirs.

The most effective way to avoid all of these negative tax consequences is to create a will with a competent attorney. Your lawyer will help you to choose a proper executor (the person who will administer your estate, distribute your property and pay your debts), and will assist you in finding ways to limit your tax liability. There are several ways your attorney can help you to do this:

  • By gifting some of those you want to inherit before you die
  • By creating one or several trusts
  • By purchasing a life insurance policy
  • By buying investments in your loved one's name

These methods will ensure that your loved ones receive the assets you desire them to have, while simultaneously protecting them from possibly enormous tax burdens after you pass.

For those who have no family, dying without a will can be even more troublesome and costly, since their entire fortunes can be left to the state. If a genealogical search doesn't turn up any blood relatives, all of your assets will be claimed by the government. This means that any individual, group, organization or charity you wished to endow will receive nothing.

It is never easy to think of one's own mortality, but it is even more painful to contemplate leaving a messy, uncomfortable situation behind when you pass. By engaging the services of an excellent estate planning attorney, who will help you fashion a legally binding, precisely designed document,  you can make sure that your loved ones are well taken care of and that your final wishes are respected and implemented.


Monday, April 25, 2016

Common Tax Deductions for Small Businesses

Automobile deductions: Whether an individual uses a personal vehicle for his or her own business or company owns a vehicle, the depreciation of value and costs associated with that vehicle may be deducted from the company’s income at year's end. A taxpayer must keep track of all of these expenses and document them by maintaining receipts and records of expenditures in order to claim the deduction. Alternatively, a business may declare standard deductions for the vehicle based on the mileage of the vehicle. In 2015, this standard deduction is 57.5 cents for every business mile driven. If a vehicle is driven for both business and personal use, the IRS will require a taxpayer to identify the percentage of use dedicated to business.

Capital expenses: Also called startup costs, the IRS allows a business to deduct up to $5,000from its income in its first year of expenses for expenditures made before the doors of the business opened. Any capital expenses remaining after the first $5,000may be deducted in equal increments over the next 15 years.

Legal and professional fees: Fees paid to professionals like lawyers, accountants, and consultants, may be deducted from a company’s income each year. If the benefit of a professional’s advice is spread out over a number of years, the tax deduction must also be spread equally over the same period. The cost of books or tuition for classes to help avoid legal or professional costs may also be deducted.

Bad debt: A business may deduct the losses suffered as a result of a customer who fails to make payment for goods sold. However, a business that deals in providing a service may not deduct the time devoted to a client or customer who does not pay. A service business may deduct expenses made in an attempt to help that customer or client.

Business entertaining:The cost of meals or entertainment purchased for business purposes must be documented by receipts in order to maintain the right to deduct the cost from income for tax purposes. Only 50percent of the total cost of entertainment expenses may be deducted.

Interest: If a business operates on a business loan or a line of credit, the interest on that loan may be deducted from income for tax purposes.

Normal business expenses: The cost of advertising, new equipment, depreciation of existing equipment, moving expenses, business cards, office supplies, travel expenses, coffee and beverages, software, casualty and theft losses, postage, business association dues, and all other business expenses can be deducted.


Monday, April 18, 2016

Why shouldn't I use a form from the internet for my will?

In this computer age, when so many tasks are accomplished via the internet -- including banking, shopping, and important business communications -- it may seem logical to turn to the internet when creating a legal document such as a will . Certainly, there are several websites advertising how easy and inexpensive it is to do this. Nonetheless, most of us know that, while the internet can be a wonderful tool, it also contains a tremendous amount of erroneous, misleading, and even dangerous information.

In most cases, as with so many do-it-yourself projects, creating a will most often ends up being a more efficient, less expensive process if you engage the services of a qualified attorney.  Just as most of us are not equipped to do our own plumbing repairs or automotive repairs, most of us do not have the background or experience to create our own legal documents, even with the help of written directions.

Situations that Require an Attorney for Will Creation

 In certain cases, the need for an estate planning attorney is inarguable. These include situations in which:

  • Your estate is large enough to make estate planning guidance necessary
  • You want to disinherit your legal spouse
  • You have concerns that someone may contest your will
  • You worry that someone will claim your mind wasn't sound at the signing

Mistakes and Omissions 

It has always been possible to write a will all by yourself, even before the advent of the typewriter, let alone the computer.  Such a document, however, is unlikely to deal with the complexities of modern life.  Many estate planning attorneys have seen, and often been asked to repair, wills that have mistakes or significant omissions. These experts have also become aware of situations in which the survivors of the deceased wind up in court, spending thousands of dollars to contest ambiguously worded or incomplete wills. Without legal guidance from a competent estate planning attorney, creating a "boxtop" will can result in tremendous financial and emotional risk.

Evidence that Online Wills Are Not Foolproof

Evidence that many other complications can arise when an individual creates a will using generalized online directions can be found in the following facts: 

  • Each state has its own rules (e.g. requiring differing numbers of disinterested party signatures)
  • Even uncontested wills can remain in probate if not executed in an exacting fashion
  • Estate planning attorneys find legal software programs inadequate
  • Even legal websites themselves recommend bringing in an attorney in all but the very simplest cases
  • Some legal websites provide inexpensive monthly legal consultations with attorneys to protect their client and themselves

Areas that Frequently Cause Problems 

Self-constructed wills often become problematic when the testator:

  • Names an executor who has no financial or legal knowledge
  • Leaves a bequest to a pet  (legally, you must leave the bequest to an appointed caretaker)
  • Puts conditions on payouts to an that are difficult, or impossible, to enforce
  • Makes unusual end-of-life decisions or puts living will information into the will
  • Designates guardians for children, but neglects to name successor guardians
  • Neglects to coordinate beneficiary designations where, for example, the will and  insurance policy designations contradict one another
  • Leaves funeral instructions into the will since the document will most likely not be read until after the funeral has taken place
  • Leaves inexact or ambiguous instructions dealing with blended families
  • Neglects to mention small items in the will which, though of small financial value, are meaningful to loved ones and may cause contention

In order to ensure that you leave your assets in the hands of those you wish, and to avoid leaving your loved ones with bitter disputes and expensive probate costs, it  is always wise to consult with an experienced estate planning attorney when making a will.  In this area, as in so many others, it is best, and safest, to make use of those with expertise in the field.


Monday, April 11, 2016

What is a 501(c)(3)?

A 501(c)(3) nonprofit is one of a class of 29 different types of tax-exempt, nonprofit organizations under section 501(c) of the tax code. Most charitable organizations that receive donations from individuals in the United States are organized as 501(c)(3) nonprofits. The 501(c)(3) status is the most coveted type of nonprofit status because donations to these organizations can be deducted from income for tax purposes by the donors. This makes fundraising significantly easier.

501(c)(3) tax exemptions are reserved for businesses that operate for religious, scientific, literary, charitable, or educational purposes. They are also permitted when the organization provides services to test products for public safety, aims to prevent cruelty against children and animals, or fosters national or international amateur sporting competitions. A group trying to convince an American city to host the Olympics can be a 501(c)(3) even if it is not a charity in the traditional sense. In order to qualify as a religious organization, a church must comply with the rules outlined in IRS publication 1828 or risk losing its tax exempt status. All 501(c)(3) organizations are prohibited from engaging in supporting political candidates, and there are hard limits to the amount of lobbying a charitable organization may make to influence legislation.

To qualify as a 501c)(3), an organization must include in its articles of incorporation or bylaws restrictions on its power to operate for profit. Without this restriction, the organization’s tax exempt status will be denied, both by the Internal Revenue Service and by the state government. A 501(c)(3) company must receive a substantial portion of its funding by soliciting donations from the general public or government grants. If the organization raises most of its money by selling products or providing services, it cannot operate as a 501(c)(3), even if all the money raised is used for charitable purposes, though for small fundraisers, like carwashes or bake sales, exceptions may be permitted. An organization that receives significant income from private donations and government grants is called a public charity. Another type of 501(c)(3) is a private foundation, which is also tax exempt, and which may also receive tax-deductible donations. Private foundations, however, earn the bulk of their money through investments and endowments. This money is then donated to other charitable organizations.


Monday, March 28, 2016

Things to Consider When Picking an Executor

The role of an executor is to effectuate a deceased person’s wishes as declared in a will after he or she has passed on. The executor’s responsibilities include the distribution of assets according to the will, the maintenance of assets until the will is settled, and the paying of estate bills and debts. An old joke says that you should choose an enemy to perform the task because it is such a thankless job, even though the executor may take a percentage of the estate’s assets as a fee. The following issues should be considered when choosing an executor for one's estate.

Competency: The executor of an estate will be going through financial and legal documents and transferring documents from the testator to the beneficiaries. If there are legal proceedings, the executor must make all necessary court appearances. There is no requirement that a testator have any financial or legal training, but familiarity with these areas does avoid the intimidation felt by lay people, and potentially saves money on professional fees.

Trustworthiness: The signature of an executor is equivalent to that of the testator of an estate. The executor has full control over all of an estate’s assets. He or she will be required to go through all of the papers of the deceased to confirm what assets are available to be distributed. The temptation to transfer assets into the executor's own name always exists, particularly when there is a large estate. It is important to choose a person with integrity who will resist this temptation. It makes sense to utilize an individual who is an heir to fill the role to alleviate this concern.

Availability: The work of collecting rents, maintaining property, and paying debts can take more than a few hours a week. Selecting an executor with significant obligations to work or family may cause problems if he or she does not have the time available to devote to the task. If an executor must travel great distances to address issues that arise, there will be more of a time commitment necessary, not to mention greater expenses for the estate.

Family dynamics: Selection of the wrong person to act as executor can create resentment and hostility among an estate’s heirs. A testator should be aware of how family members interact with one another and avoid picking someone who may provoke conflict. Even the perception of impropriety can lead to a lawsuit, which will serve to take money out of the estate’s coffers and delay the legitimate distribution of the estate. 


Monday, March 21, 2016

Why Should I Incorporate my Small Business?

Not every small business needs to form an LLC in order to function. A child selling lemonade by the side of the road has no use for a Tax ID number. It doesn’t seem practical to set up a new business entity to host a garage sale or a Tupperware party. As a venture starts to grow from a hobby to a full-time job, however, there are questions every business owner should ask to determine whether it is best to incorporate the business into a legal entity.

Do I need to protect my personal assets?

The greater the risk of being sued, the more necessary it becomes to file the necessary paperwork to form a Limited Liability company. This will limit the owner’s financial liability to the assets invested in the business. This means that, if a business gets sued, the business owner’s personal assets, like his or her home, automobile, personal bank accounts, and belongings, may not be targeted by the lawsuit. Common lawsuits of concern are for the satisfaction of contracts and leases and personal injury claims for accidents on the premises. Similarly, a bank may not seek a business owner’s assets to repay a loan unless the business owner signs a personal guarantee. Banks often require such a guarantee for new businesses that have no credit history.

Do I need flexibility in my obligation to pay income taxes?

A C corporation, which is a type of Limited Liability Company, has the flexibility to shift the business’s tax burden from one year to another. Normal business expenses and salaries can be deducted from a business’s taxes that may ultimately reduce a business owner’s tax burden depending on the income he or she derives from the business and from other sources.

Do I need to protect my company name?

In most states, companies register their names with the state to ensure that only one business can operate under that name. This is important for branding and marketing purposes. Adding LLC to the end of a company’s name can also add legitimacy to a new business, thus enhancing the brand.

Do I want to sell all or part of the business?

Ownership of an LLC or corporation can be shifted easily compared to those of a sole proprietorship. Adding partners and selling the business can be difficult if there are no lines between where the business ends and the owner begins. Once a business is incorporated, it lasts until it is dissolved, meaning it continues to be an asset for a business owner’s estate after the individual passes on.


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