LLCs and Recordkeeping

Another important aspect of proper LLC management is keeping accurate and up-to-date records.  Keeping records haphazardly (or not keeping any at all) has been a factor considered by courts that “pierce the veil” of LLCs, allowing company creditors to reach the personal assets of the members of the LLC. And in fact, state law requires that company records be maintained at the LLC’s principal office.  Records that a company should maintain include the following:

Tax Returns – State law requires these to be kept for three years, but it is prudent to keep copies (either paper or digital) indefinitely.

Financial Records – Correctly managing a company’s finances [hyperlink to previous post] is critical but so is keeping clear records to prove that you have done so.

Operating Agreement and Organizational Documents – A copy of the company’s organizational documents, including the Articles of Organization and signed Operating Agreement, along with any amendments, should be kept in the company’s files, as well as a current list of all the company’s members.

Consents – Each year, the members of an LLC should execute consents that ratify the actions the company has taken during that year. If certain actions are required to be taken by unanimous consent of the members, those consents should also be maintained in the company’s records indefinitely.

Agreements – Leases, deeds, contracts, and other documents or agreements relating to company operations and property should also be maintained at the company’s principal office.

How your company stores its records depends on what works best for its members and employees.  Some companies keep these records in a formal “minute book” or binder.  Others have traditional filing cabinets where the records are stored.  Increasingly, companies are moving toward “paperless” systems, where the vast majority of documents and records are stored on servers and backup hard drives.  As long as your records are stored in a systematic way and kept up-to-date, any format that works for the company is sufficient.  Be sure to make good recordkeeping a continuing priority.  Records are not just required by state law – they can protect members from personal liability in the event they are sued personally for company obligations.

This is the final installment in our series on Best Practices for LLCs.  We hope this series has been helpful in pointing out a few facets of successful LLC practices.  For more advice about your company, make an appointment today!

---

LLC Management Series

Part 1: Setting Up Your LLC | Part 2: LLC Finances

Jennifer Schooley Awarded Legal Elite for 2018

Since 2000, Virginia Business Magazine, in collaboration with the Virginia Bar Association, has been polling Virginia lawyers for the “best” in the state across 18 categories. With 14,000 lawyers polled and 3,423 nominees this year, Schooley Law Firm is honored to share that Jennifer Schooley has been awarded as one of the 1,000 members included in the Legal Elite 2018 lineup for her work in the category of Taxes/Estates/Trusts/Elder Law.

Jennifer’s over 20 years of helping people manage their estates and ultimately helping clients create their legacy through varying stages and life changing circumstances, points to her passion for designing customized solutions for each unique client’s life and keeps her top of mind to legal peers and clients alike.

With the new year finally here, Jennifer and the Schooley Law Firm are here to help you plan for your life, from business needs to marital planning and estate management. Increases to the estate tax exempt amount and the every day ups and downs of life make January a good time to take a look at your estate plan and make adjustments accordingly.  This blog post might help you think through reasons you should review your estate plan at the kick-off of every new year.

Lastly, “thank you” to all the Virginia lawyers who nominated Jennifer for this award. Best wishes to each of you, too!

Advance Care Planning

Advance medical directives or health care powers of attorney are a common element of an estate plan.  Healthy people often consider them of minimal importance to their overall plan and spend little time considering their terms.  However, for those people with terminal diagnoses, or those with negative hospital experiences, the terms of these documents are of paramount importance.  Understanding the function of and difference between these documents, as well as distinguishing them from other instruments, such as Do Not Resuscitate Orders ("DNRs"), is a vital part of end-of-life planning.

Living Wills –

Often referred to as "advance medical directives” and sometimes drafted as a document separate from a health care power of attorney, a living will may be used to direct your physicians to remove artificial life support if you are in a "terminal condition" or "persistent vegetative state."  These terms are defined in the Virginia Code, meaning that they represent objective standards for health care professionals.  Your direction in this document is considered your final statement of your medical wishes and cannot be overridden by your family members or health care agents (discussed below).

People may be as specific as they like in directing what measures they wish to continue or be withdrawn.  For example, some people state their specific preference to have artificial nutrition and hydration removed.  If a woman may become pregnant, this document can also provide for an exception to her direction to be removed from life support if she is pregnant and keeping her alive by artificial means for some period of time would allow her baby to be delivered safely.

Health care professionals are required by law to administer treatment to patients who do not specify their refusal, even if the health care professionals consider it inappropriate.  This treatment can only be discontinued after a certain period of time and a lengthy administrative process.  Therefore it is critical to have a properly-drafted living will if it is important to you not to be kept alive by artificial means.  The state has an advance medical directive registry where you may upload this document if you wish. https://www.connectvirginia.org/adr/

 Your physician will also scan your AMD directly into your medical record upon your request.  Taking either of these steps makes it more likely that your wishes will be known and respected; however, remember that if you update the terms of your medical directive in the future, you will need to update the old one with the registry and/or your physician.

Mental Incapacity Planning -

If you are incapable of making your own medical decisions, you may name one or more individuals who can make these choices on your behalf (called your "agents").  The Virginia Code specifies who has the authority to make these decisions if you have not executed a health care power of attorney.  You can provide your agents' contact information, including cell phone numbers and email addresses, so that medical professionals will be able to contact them more quickly.  On its own, this document is called a “health care power of attorney.”  When coupled with a direction to discontinue life support (a “living will”), the entire document is referred to as an advance medical directive.

Remember that the people named as your agents have no obligation to accept the job.  You can make this an easier task (and thus, make it more likely that they will take it on) by discussing your preferences with them ahead of time and forgiving them in advance for making mistakes.  For more advice about naming health care agents, see our "Choosing the Right Fiduciary" series.

Do Not Resuscitate -

People sometimes confuse an advance medical directive with a "do not resuscitate order" or "DNR."  A DNR is an order executed by your physician directing emergency medical personnel not to intervene if your heart has stopped beating or you have stopped breathing.  If you and your physician consider a DNR to be appropriate for your circumstances, remember to keep it in a prominent place where it will be seen or can be quickly given to EMTs.  Emergency personnel are in the business of quick decisions and attempting to save lives, so their inclination is not to go searching for your DNR in drawers or a safe.

Keep in mind that most hospitals have a policy that a DNR does not extend to medical procedures undertaken in the hospital.  There is a presumption that you would want to survive the procedure (otherwise, why would you be undergoing it in the first place?).  This means that if you stop breathing or your heart stops beating while such a procedure is in progress, the medical professionals who are present will most likely attempt to resuscitate you, even if you have a DNR order in place.

POST (Physician's Order for Scope of Treatment) -

A POST order can be issued by your doctor in the final six months to one year of your life.  These are very specific instruments about what treatments should or should not be administered to you based upon your condition, your end-of-life plans, and what treatments may have already been attempted or are considered unsafe for you.  POST orders are respected across state lines.

Organ or Body Donation -

Your advance medical directive may include your instructions for organ or body donation.  Even if your driver's license already indicates your preference to be an organ donor, you may wish to include this direction in your medical directive as further evidence of your intentions for your agents and/or family members.  Note that you cannot request to be both an organ donor and a body donor, because medical schools require cadavers with their organs intact.  Also keep in mind that donating your body to science is not a replacement for burial or cremation planning, both because your body could be refused if it is not needed and because, even if your body is accepted, it may eventually be returned to your family.

Medical documents are sometimes treated as the least important part of a legal estate plan; however, we encourage you to think carefully about your desires and preferences and to revisit them frequently.  At Schooley Law Firm, we are also willing to coordinate with your physicians if you have specific health care issues that should be addressed in your advance medical directive, health care power of attorney, or other estate planning documents.  Give us a call for more information.

4 Things To Think About If You Are An Unmarried Couple Jointly Owning Property

Virginia law has special treatment for couples who are married and own real property together. But what about unmarried couples? Couples often choose to cohabitate without getting married, for a number of diverse reasons.  But such couples often have to think more carefully about their expectations for their jointly-owned property at death.  Here are some practical and planning considerations for unmarried couples who own their home (or other real estate) together.

1. Titling: Unmarried couples can own real property one of two ways.  If they own property as “tenants in common,” each person has the right to transfer his or her interest to a third party, both during life and at death. However, if the property is owned as “joint tenants with the right of survivorship,” at the death of the first person, the survivor automatically owns the entire property.  Therefore, couples should consider which result they prefer and confirm that the property is appropriately titled.  If not, the title can be corrected by deed.
2. Contributions: If each person intends to leave his or her interest in the property to his or her heirs outside the relationship, another consideration is whether their interests should be considered equal.  For example, if each party contributed half of the cost of the property and each pays for half of any necessary repairs or improvements as they arise, a 50/50 division is appropriate.  However, if one party contributes more of the purchasing price, or later pays to replace the roof or add a garage, the couple may want to adjust their respective interests to reflect this.  If this is the intention, the couple should keep very clear records of each party’s contribution to the value of the property so that their estate planner, executor and/or trustee, and heirs understand the proper division.
3. Contents: In situations where unmarried couples cohabitate, division of the real estate itself is not the only source of confusion.  Generally, it is not obvious to outsiders which tangible personal property (such as art, furniture, and other household items) belongs to which person.  This means it can be difficult for heirs and fiduciaries to determine which items should remain with the survivor and which ones are part of the decedent’s estate.  Therefore, it is a good idea to keep a list of which items belong to whom, or at least to use a list or memorandum of specific items to go to specific heirs at each individual’s death.  The list is incorporated into the individual’s will but can be updated or replaced as often as desired, without the need to change the person’s entire will.
4. Marriage: Unmarried couples who acquired real property together may later decide to tie the knot. In that situation, it’s best for the couple to revisit the issues listed above to determine whether their thinking has changed about the best treatment.  Married couples may wish to own their real property as “tenants by the entirety,” a type of title that incorporates special creditor protection. Married couples also have certain statutory entitlements that can only be waived by contract, so it might be appropriate to discuss making a premarital agreement to memorialize the couple’s intentions if they are keeping track of their respective contributions to the value of the property.

If you have questions about record keeping, titling, estate planning, or premarital agreements, call us now!  It’s better to get organized now than to have your fiduciaries trying to guess at your intentions after the fact.

The Family Cottage: How to handle your vacation property at death

Vacations are often an integral part of a family’s collective identity and experience.  As a result, our clients frequently ask for more specialized treatment of the family vacation home in their estate plan.  They envision their children, grandchildren, and even great-grandchildren returning year after to year to the same property for decades to come. 

That kind of continuity can be powerful and comforting, but as times goes on and the family expands, the management of this type of asset often becomes a challenge without specific planning techniques to resolve potential problems.  The major obstacles in the family’s ownership of a vacation home after your death are apportioning costs associated with the property and creating a system to determine who will have the right to access the property at any given time.

Clients often theorize that the costs of maintaining the family cottage will be split evenly among the oldest generation, which sounds simple and straightforward.  In reality, our lives are rarely this predictable, and there may come a time when one or more siblings will be unable or unwilling to contribute their share of the costs.  This can be the result of unexpected illness or unemployment leading to financial stress, but it may also be the case that one of the siblings is no longer interested in using the family cottage and prefers not to continue contributing to the costs.

Similarly, co-owners of vacation property may have trouble coming to a consensus about when each of them should have access to it.  Wherever the family cottage is located, there is likely to be a ‘peak season’ when access is the most desirable.  Families may also have limited availability, because school breaks for children often overlap and adults might have inflexible options for taking time away from work.

There are planning options that may overcome these hurdles, but we encourage you to first talk to your adult children and gauge their level of interest in the family cottage.  If only one child is interested (or has the means to maintain it), you can simplify your estate planning approach by leaving the property to the interested child and making up for the value using other assets that pass to the children who are not interested.  If none of your children want to take on the property, it is unwise to employ planning techniques that attempt to force it upon them.  Even “locked” in a trust, the children could petition a court to allow the property to be sold, and if forced to retain a property none of them want, they are likely to allow it to fall into disrepair, thus losing value.

If your children agree that the family cottage should remain accessible by all of them, there are several approaches that can minimize conflict.  Leaving real property outright to multiple people may not be the best strategy, because when co-owners of real estate cannot agree about costs or access, their only recourse is to file a “partition suit” with the court, requesting that the court force the sale of the property and division of the proceeds.  Disagreements of this kind, without a plan in place to address them, can lead to family estrangement – the exact opposite of what retaining the family cottage is meant to accomplish.  Another problem with this approach is that any creditors of one of the children (including ex-spouses) could attach his or her interest in the property to satisfy the child’s debt.

One better possibility is to form a limited liability company (or “LLC”) to own the property and leave your children membership interests in the LLC instead of ownership interests in the real property.  The terms of the LLC’s operating agreement could allow your children to buy each other out if one of them is unable or unwilling to continue contributing to the costs.  This type of entity also provides some creditor protection, as well as liability protection if the family intends to rent the property out during periods when it would otherwise be vacant in order to offset maintenance costs. 

Another option is to hold the family cottage in a trust that has specific terms spelling out the rights and obligations of the beneficiaries and setting conditions or a certain time when the trust terminates.  If there are concerns about cost-sharing, one possibility is to fund the trust with liquid assets (such as marketable securities) as well as the real property and directing the trustee to pay the maintenance expenses from the liquid assets.  If the trust is drafted properly, creditors of the beneficiaries of the trust would be unable to access the assets.

If you are an owner of a beloved family vacation home and have wrestled with how to transition ownership to your children at your death, give us a call.  We can talk you through the options and come to the best solution for your family’s circumstances. 

Travels Tips From Estate Planning Lawyers

With the school year coming to a close, many of us (including the parents at Schooley Law Firm) are planning to take family vacations over the next several months.  We thought it would be a good time to gather our thoughts about important planning (legal and otherwise) to get ready for your summer vacation.

What to take with you:

• It’s a good idea to take a copy of your advance medical directive or health care power of attorney on your trip.  Although local laws vary with regard to these documents, having a copy with you will help doctors or paramedics reach your health care agents in an emergency.  Many cell phones also have an option to add emergency contacts and other information, such as allergies and blood type, which can be accessed by EMTs even if the phone is locked.  (On our iPhones, it’s under the “Health” app.)  Some people also like to carry a list of important contacts in their wallet, which is a great option – just be careful how much personal information is listed in case your wallet is lost or stolen.
• Traveling outside the United States? Email yourself photographs of your family’s passports.  If bags containing your identification are lost or stolen, taking this step will help you quickly establish your identity at the embassy.
• If you are divorced and have minor children from your previous marriage, it’s a good idea to bring a copy of your ex-spouse’s written consent for you to take your children out of the state or country if your court order requires this.  If you have questions about what the letter should say or whether your divorce terms restrict international travel, give us a call.

What to leave behind:

• Make sure someone who is staying behind knows where your estate planning documents are located and how to access them.  This is a good idea whether you are out of town or not. If an emergency happens while you are away, however, your agent under your power of attorney may need access to the instrument in order to resolve the problem.  Likewise, if you pass away unexpectedly while on vacation, your executor and/or successor trustee under your revocable trust will need access to your documents in order to make plans and arrangements.
• Likewise, don’t forget to leave someone with a copy of your itinerary, and make sure that itinerary contains sufficient detail. Someone needs to know when you are leaving and returning (with flight details, if applicable), where you will be staying, and how to reach you while you are gone.  Don’t assume you will be reachable on your cell phone – in remote locations (e.g. Yellowstone), cell service is notoriously spotty, and in other countries your phone may not work at all (or will cost you a small fortune to use).  If you plan on staying in touch, check with your cell phone provider before you leave to find out the terms of international use.  Alternatively, if you have an “unlocked” phone, buy a new sim card at a major airport abroad for minutes and texting in that region – then text your family your international number.  “WhatsApp” is another great app to use to stay in touch when you have internet or cell service.

A few more things to think about:

• Consider reviewing your estate plan before traveling to make sure it still makes sense.  We have answered more than one panicked phone call from would-be travelers who have realized changes need to be made at the last minute (commonly, changing the guardian of minor children).  If you do find yourself in this situation, feel free to give us a call and we will work with you to get things turned around as quickly as possible.
• Don’t forget to both notify and check with your credit card company and/or bank to find out whether restrictions apply to using your credit or debit cards while traveling.  It really sours a vacation when your card is declined at the swim-up pool bar.
• If you’re in the middle of estate planning, premarital planning, or a divorce and are embarking on a long trip, drop your attorneys a line.  For one thing, we love hearing our clients’ tales of exploration!  But we also get worried if we don’t hear back from you for awhile.

From all of us at Schooley Law Firm: have a wonderful summer and enjoy your travels!  If you have questions about travel planning or updating your documents, call us now to get it out of the way instead of waiting until you get back from vacation. It’s one less worry to come between you and your relaxation time!

The above pics were from Jennifer Schooley's trip to Greece with her two children, Jack and Coco, and Katie Dickinson's honeymoon in the Caribbean. 

A Reflection on Legacy and The Rockefellers

I often challenge my clients to ask themselves what “legacy” means to them and how that translates to their vision for their family.  This past weekend in New York, I paid homage to one of the grandest collecting legacies, that of late David and Peggy Rockefeller, on auction at Christie’s.  The auction, hyped for being the largest collection of fine art, decorative arts, china, and furnishings ever to be sold, began last night.  A Picasso, famed for being from the artist’s “Rose Period” and being purchased originally by Gertrude Stein, sold for a stunning $115M.  A Matisse (below) sold for $80.75M, and one of Monet’s water lilies paintings (below) sold for $84M.  

My personal favorite object – one that’s more pedestrian in nature, but still on a grand scale – is a massive picnic trunk, originally given to the Rockefellers by the king of Morocco. 

Far more stunning than the sale prices, is the Rockefeller giving legacy.  When Bill and Melinda Gates and Warren Buffett wanted to challenge other billionaires to increase their giving, they wrote to David Rockefeller, asking that he host the dinner that 14 individuals with a collective net worth of more than $130 billion attend.  The result, is The Giving Pledge which now has 175 billionaire subscribers pledging to give more than half of their assets during life or at death to charity.  David Rockefeller, having long been known for his philanthropy, already believed in and gave at such levels.  Thus, it should come as no surprise that all sale proceeds of the Christie’s auction, expected to bring more than $500M, as well as sales of real estate, are going to be donated to twelve charities.  Two of these charities benefit my beloved Maine.

And this is where my small story and that of the Rockefellers intersect.  If you were to ask my children what family legacy I have created for them, they would say, in their own words, that it is “a legacy of time and place.”  Many of our fondest memories rest in time we have spent together on Mount Desert Island in Maine, where the Rockefellers of past generations and other families donated their land to the public. 

Misty mornings spent searching for starfish in tidal pools, afternoons spent plunging into cold ponds, and evenings spent hiking up a mountain for a view of the sunset, all in and around a land of natural beauty that, on a different course of history, might not be open to exploration for a youthful mind’s delight.  It was there, watching boats from a harbor pier that the seed of our love of sailing was born.  It was there, from a fish tank in the back of small gift shop, that we picked our first Maine lobster dinner.  It was there, in the wonder of the landscape, that the natural separate spheres of parent and child, slipped away and we began to see one another as integrated human souls.   We unite in our time together, and we unite in our shared experiences, and through that we create our small legacy together.

So, in honor of the David and Peggy Rockefeller giving legacy that is unfolding this week, I urge you to design a legacy for your family, make a plan, and get started.

FAQs: How Can I Make Sure Money is Available to My Heirs Immediately at My Death?

Answer: A combination of purposeful titling and beneficiary designations, along with a revocable trust.

From time to time, you may have heard stories about assets being “tied up” for months (often years) after the owner’s death.  The reality is that this is less likely to occur when your asset information is organized and if the executor or administrator is motivated to finish the process.  Still, the named executor or the deceased owner’s spouse, children, and other beneficiaries will have to wait several weeks or even a month to get a probate appointment.  During that time, they may not have access to any of the funds, creating a hardship if they do not have their own assets.  This is because an estate plan that relies on either a will or state law to dispose of assets is subject to a process called “probate.”  During the probate period, only the executor or administrator has the right to control estate assets, and all actions of the executor or administrator must be reviewed by the appropriate government authority.

If immediate availability of assets is a priority for your dependents or loved ones, creating a revocable trust may be the most efficient way to arrange your affairs.  Revocable trusts act as your silent alter-ego, holding your assets for estate planning purposes but not restricting your control over them.  Unlike property passing by a statute or will, when property is owned by your revocable trust, it is not subject to probate at your death.  This means your successor trustee has immediate access to the assets upon proof of your death and, depending on the dispositive terms of the trust, the authority to distribute them to your loved ones quickly after reserving an appropriate amount for the payment of debts and expenses.

Also note that assets that pass by beneficiary designation (for example, life insurance and retirement accounts) and those that pass by title (jointly-owned accounts and real estate) are excluded from the probate process.  This is one reason life insurance can be such an important part of an estate plan – it gives your loved ones immediate access to cash, which minimizes the risk of bills falling behind or beneficiaries scrambling to pay funeral or memorial service expenses.

Some elderly people, as a matter of convenience, add a child to a bank account as a joint owner to pay bills.  Though well-intended, this can cause problems when that child inherits the account at the funding owner’s death and then does not make a gift to his or her siblings (or, in some cases, has to file a gift tax return to do so).  Also, if that child has or develops creditor issues, monies intended for the elderly parent’s support can be seized.  A better arrangement is to title the account in the name of the parent’s revocable trust and name the child as a co-trustee.  This allows the child to pay bills for the parent during his or her lifetime, but still makes the funds quickly available to all the beneficiaries the parent intended at his or her death.

If your intended beneficiaries will have immediate cash needs, or if you need assistance managing assets in your later years, it is critical to review your estate plan (or remedy your lack thereof) to ensure that those needs can be met.  For help, contact Schooley Law Firm. Together, we can evaluate your circumstances and determine what kind of plan will provide the support you and your loved ones require.

And if you liked this article, check out our previous post, Three Lists You Need To Know For Asset Management.

Jennifer Schooley  |  Contact | Estate Planning

Romantic And Practical Reasons To Consider A Premarital Agreement

Premarital agreements are not commonly considered romantic.  They get an especially negative treatment in the media - anyone who broaches the topic in a movie or TV show has nefarious intentions.  We are looking to restore the reputation of premarital agreements (just in time for Valentine’s Day) because we believe there are plenty of romantic and practical reasons to consider whether such an agreement makes sense for your future.

Similar to the discussion in our last blog post, default state laws control the division and disposition of a married person’s assets when the marriage ends.  The rules are different depending upon whether the marriage ended in divorce or death.  One often-overlooked aspect of marital planning is the latter; that is, what is your spouse entitled to inherit when you die?  This question often comes up in the context of second marriages.  Each spouse may enter the marriage with assets acquired long before the contemplated marriage and continue to earn and grow assets during the marriage.  When one or both parties have children, they often wish to pass part or all of those resources to their own children.  People entering into marriage under these circumstances might not realize that spouses have a right to inherit some of those assets, depending upon various factors including the source of the assets, the respective assets of each party, and the length of marriage.  Setting expectations about inheritance early can be a profound act of love, both for a spouse and children.  When surprises emerge after one spouse’s death, it frequently leads to estrangement, hurt feelings, and, unfortunately, litigation which depletes the estate and postpones the grieving process.

This is true outside the context of blended families, as well.  Money is cited again and again as a leading source of marital conflict in articles on the topic; and people have all kinds of reasons for raising the possibility of a premarital agreement.  Clients often seek advice about protecting inherited assets for the ultimate benefit of their future children, minimizing taxes, or changing state law presumptions to meet their specific situation.  

So often, the perception is that the purpose of premarital agreements is to “plan for divorce,” and agreements often include provisions requiring (or limiting) alimony and setting property division terms.  But is this really so unromantic?  An honest conversation with your future spouse about these topics is actually a good idea.  Good relationships are born and sustained by good communication.  Asking the question if a premarital agreement is right for your relationship is a way to clear the air about your concerns for the future.  Perhaps a high-earning spouse with equally high student loans fears adding alimony to her list of obligations.  Or, a spouse who leaves a career to move and be with the other spouse, fears losing earning capacity without adequate security.  These documents are highly flexible and can be tailored to have a very narrow focus or a quite expansive one to fit each couple’s situation and relieve anxiety about the future.

Finally, you might consider making a premarital agreement to be an act of love for the moment when you’re least likely to feel it.  Marital conflict, separation, and divorce are some of the most traumatizing events a person can experience.  Agreeing in advance about how to settle your financial affairs if things go wrong can create certainty during conflict so that you and your spouse can focus on the cause of that conflict and potentially resolve it without letting financial fear take the wheel.  It can even send the message, “I love you so much that I want to make it easier for both of us if we are someday going through the pain of breaking up.”  

So, here is our Happy Valentine’s Day to you with a twist: Cupid’s love arrow may fly straight and strong, and when it sticks, it sinks even deeper if you can talk about money and security with love and care for one another.  To learn more about default state laws and analyze whether a premarital agreement is right for you and your intended, contact Schooley Law Firm.

New Year’s Resolution: Create or Review Your Estate Plan

For many of us, the New Year means an opportunity to start fresh and make resolutions for improvements over the next twelve months.  You might resolve to drop those ten pounds that have crept on over the years or take more time to exercise, read, or cook.  Clients often find their way to our firm in the first few weeks of the year, having undertaken one of the most important resolutions you can make for your family: finally sitting down to write or review your estate plan.

Many people do not realize that, without a will or other estate planning in place, a combination of state law and titling or beneficiary designations controls where their assets pass at their death.  The statutory rules can result in unintended or undesirable consequences, particularly for people with blended families, unmarried couples who are in permanent, committed relationships, and people with estranged relatives. 

Assets that pass by title or beneficiary designation also create special challenges.  People often set up retirement accounts or life insurance on their first day of employment with a company and fail to update the beneficiary designations as their lives change.  Contrary to what you might hope, the sibling or parent you named as your primary beneficiary ten years ago may not be eager to surrender the proceeds to your spouse and children who have since entered your life.

Administration concerns are another reason to create a purposeful estate plan, especially if your beneficiaries are not well suited to take on important legal and financial responsibilities (see our Choosing The Right Fiduciary series for more detail).  And without an organized estate plan, beneficiaries and fiduciaries are often at a loss to compile information about your assets, a problem that has worsened with the advent of online banking and account management.

Even if you have a will or other estate planning in place, it may be time (or long past time) to give it a second look.  Changes in your finances, family, and state or federal law may have rendered your existing plan obsolete.  Now is an especially good time to review older estate plans because the recent tax act, which doubled the amount of estate tax exemption per individual, may warrant a simplification of the terms of your documents.  And the fact that you have documents in place may not mean that your estate planning work is done, since coordinating titling and beneficiary designations on your existing or recently acquired assets can be just as important as drafting estate documents.

Creating and maintaining a thoughtful estate plan is a wonderful gift to your beneficiaries.  A well-organized plan allows them to minimize time spent worrying (or outright panicking) and focus on processing their grief.  We often find that clients who complete their estate plans find a welcome peace of mind themselves, as well.  Taking action now, rather than carrying stress in the back of your mind about what will happen to your loved ones if you die, is the right course for you and them.  Contact Schooley Law Firm today to get started and check a resolution off your list.

Jennifer Schooley  |  Contact | Estate Planning

December Is A Time For Making Lists

December is a time for making lists – grocery lists for big family gatherings, shopping lists for gifts, and to-do lists as you try to get everything ready for the holidays.  So, in keeping with the spirit of the season, here are three lists you should create that will really help your family, if instead you decide to just hit the eject button from Santa’s flying sleigh … or, if Grandma gets run-over by a reindeer. Ho ho ho! 

1. Contact lists for professionals and advisors:  Agents under powers of attorney, executors, and trustees need access to information about your assets, your estate plan, and your end-of-life wishes.  Therefore, keep a list with contact information for your financial/investment advisor, accountant, insurance agents, estate planning attorney and other relevant legal advisors, doctors, and any other important people who might have information your fiduciaries need.

2. Assets:  Simply put, your fiduciaries need to know where your stuff is and what it is.  Talking to the professionals listed above and reviewing past income tax returns can help with that, but it’s a good idea to keep a list of your assets so that, when the time comes for your fiduciaries to step in and start managing assets, they aren’t flying blind or scrambling to understand your situation.  This can also trigger your fiduciaries to think about what payments need to be made during your incapacity to ensure policies do not lapse, real estate taxes are paid, etc.  Consider listing the following:

· insurance policies – including life insurance, disability insurance, medical insurance, long term care insurance, homeowner’s and auto policies, and any others.

· real estate – your fiduciaries may not be aware of investment or vacation property, or that lot you inherited in another state and haven’t decided whether to keep.

· securities – especially if you own certificated stock or other securities that are not managed by an investment advisor.

· cash – list your checking and savings accounts, CDs, and any safe deposit box in your name, making sure to identify the branch where the box is located.

3. Digital assets and accounts:  This is extremely important because you may have accounts and assets that you only manage online.  Your fiduciary does not have easy or automatic access to your email account, thus will not see your statements and notices.  In addition, state law on a fiduciary’s ability to access to digital assets is new and evolving, and it varies state by state. Without knowledge that these assets exist and access to those accounts, your fiduciaries have no way to gain control over them (or even realize they exist).  In addition, there is the concern that hiring a hacker to get into a computer to find this information violates the federal Computer Fraud and Abuse Act and similar acts under various state laws. We’ve known some people who keep detailed lists of each account and password; however, how do they keep up when so many institutions require frequent password changes?  At a minimum, you should make sure these assets are listed (with the assets in #2 above) or print statements from each such account.   If you think your fiduciary can just go onto the web and click the “Forgot Password” button to solve the problem, you’re wrong.  They don’t have access to the email account where that “Forgot Password?” email is sent.

We recommend that you keep these lists with your estate planning documents, but don’t forget to let your fiduciaries know where you keep them!  You should also update them as your situation changes – we recommend checking them twice (!) a year.  The more organized your records are, the easier time your fiduciaries will have implementing your estate plan.

As for digital assets, a thorough discussion would require a series of blog posts.  Perhaps we will put that on our 2018 New Year’s Resolution list.

Jennifer Schooley  |  Contact  |  Estate Planning

Jennifer Schooley Awarded Legal Elite 2017

Jennifer Schooley has been nominated by her legal peers in the commonwealth and awarded as a member of the Legal Elite 2017 by Virginia Business Magazine, in association with the Virginia Bar Association, for her work in the category of Taxes/Estates/Trusts/Elder Law.  

She is appreciative of the recognition and remains dedicated to understanding the legal industry in today's every-changing times, as well as passionate for helping people develop comprehensive plans and advice that supports their unique life needs.

As we look towards 2018, Schooley Law Firm can help you address changes in your circumstances — whether that be due to changes in the tax laws, new or deceased family members, or increases in the value of your estate.

Jennifer Schooley  |  Contact

Choosing the Right Fiduciary: Trustees

This the fifth and final segment of our Choosing the Right Fiduciary series where we cover trustees. 

Trustees are best saved for last because their duties often overlap with the duties of agents under powers of attorney and health care powers of attorney, as well as executors.  Yet, naming a trustee is unlike these other positions because a trust is an incredibly flexible document.  Before diving into the substance of this post, a few key terms to note:

            Grantor/Settlor:  The person who creates the trust.

            Beneficiary:  The person whom the trust assets are meant to serve.

Revocable vs. Irrevocable:  Trusts can be either revocable or irrevocable.  In a revocable trust, the grantor has full power to amend or revoke the trust during his or her lifetime.  An irrevocable trust, on the other hand, cannot be revoked or amended by the grantor once executed.  This distinction is important because the tax treatment of these two types of trusts can differ and, in some cases, only certain people can be named as trustee.

Trusts may be created to achieve many different goals.  One of the most common trust arrangements is a revocable trust created by the grantor to serve as a will substitute.  The grantor serves as the trustee of his or her revocable trust during the grantor’s lifetime.  He or she may title assets in the name of the revocable trust and may name the revocable trust as the beneficiary of insurance policies or retirement assets.  If the grantor becomes mentally incapacitated, the successor trustee is authorized to step in and manage assets on behalf of the grantor.  Therefore it is desirable to name a trustee who will coordinate well with the agent named under the grantor’s power of attorney and the grantor’s health care agent.  Clients often name the same person to serve in all three roles, which creates efficiency.  However, be aware that the more “hats” a fiduciary is wearing, the less oversight there is over his or her actions.  As has been stated throughout the series, absolute confidence in the named trustee’s abilities and integrity is paramount.

At the grantor’s death, the trust becomes irrevocable and functions like a will – it directs assets to the grantor’s desired beneficiaries, often outright.  In this scenario, the clients frequently name the same person to serve as executor and trustee because the primary purpose of the trust is to direct assets at the grantor’s death.  The trustee’s responsibilities – locating heirs, distributing assets, etc. – are often very similar to the duties of an executor, but without the government oversight and reporting requirements. 

If assets are directed to be held in continued trust, the trustee’s role more closely resembles that of a guardian of property.  The trustee manages assets for the beneficiary, according to prescribed terms in the trust about how the assets should be used and when distributions should be made or withheld.  In this case, the right person to serve as trustee would be familiar with the beneficiary’s potential needs and obstacles.  Clients often name a guardian or other close relative to serve in this role because he or she is in a strong position to observe and interact with the beneficiary.  A trustee who is named to serve for a trust with multiple beneficiaries has the special challenge of weighing each beneficiary’s needs and avoiding preferential treatment of current beneficiaries over remainder beneficiaries (unless the trustee is specifically directed otherwise by the terms of the trust).  Trustees should also be strong decision makers, because beneficiaries may have opinions about the desired frequency and amount of distributions that the trustee considers inappropriate or ill-advised.  Many clients also prefer to name trustees who share the clients’ values (particularly if assets are held in trust for their children) so that those values may be passed on in the clients’ absence.

Though great consideration must be given to a trustee’s relationship with beneficiaries and ability to understand the grantor’s intent while also weighing the beneficiaries’ needs, the trustee role also requires proficiency in managing assets.  Beneficiaries are entitled to annual accountings of trust activity, so it is best to name trustees who are reasonably savvy when it comes to finances and record-keeping.  One way to accomplish both goals is to name co-trustees with different strengths who can work together, including professionals or individuals with a financial background.  The trustee is responsible for filing tax returns on behalf of the trust, which can be complicated and time consuming depending on the nature and purpose of the trust itself.  Finally, keep in mind that for some types of irrevocable trusts the class of people who may serve as trustee is limited if the desired tax result is to be achieved.

When the right person is serving as trustee, trusts are incredibly useful tools that can accomplish a wide variety of objectives.  The best choice of trustee will depend upon the goals of the grantor, the potential needs of the beneficiaries, the assets to be managed, and other circumstances particular to each trust.

We hope you have enjoyed the Choosing the Right Fiduciary Series.  Contact us today to learn more about creating an estate plan and selecting the best people to manage it.

Below are links to the four earlier articles in our Choosing The Right Fiduciary Series, if you missed them:

1. CHOOSING THE RIGHT FIDUCIARY

2. CHOOSING THE RIGHT FIDUCIARY: FINANCIAL POWERS OF ATTORNEY

3. CHOOSING THE RIGHT FIDUCIARY: HEALTH CARE POWERS OF ATTORNEY

4. Choosing The Right Fiduciary: Executors

Jennifer Schooley  |  Contact  |  Estate Planning

Choosing the Right Fiduciary: Executors

Pick me! Pick me? Pick…ugh, her?

This is the fourth installment in our blog series on Choosing the Right Fiduciary, discussing how to select the best executors for your will and asset distribution, among other things.

Many people have the impression that being chosen as the executor is being chosen as the anointed one, rather than viewing it as the job that it actually is.  According to Webster’s, an executor is “a person or institution appointed by a testator [that is, the person making the will] to execute a will.”  This sounds pretty straightforward.  In reality, an executor’s duties can be complicated.  The actions of executors are governed by extensive state law and are overseen by various government authorities.  Below are just a few of their obligations:

• qualifying before the circuit court probate division
• gathering assets of the deceased person, including tangible personal property (things you can touch or move) and intangible property (accounts, etc.)
• locating and notifying heirs and/or beneficiaries
• filing an inventory with the Commissioner of Accounts detailing every asset of the deceased person’s estate
• keeping detailed records of income and expenses of the estate (including paying final debts and taxes)
• filing accountings with the Commissioner of Accounts showing income received, expenses paid, and distributions made to beneficiaries
• filing the decedent’s final tax return (and any prior years the decedent failed to file)
• filing the estate’s tax return

Executors can be exposed to personal liability if they make mistakes during the course of estate administration, and can even be sent to jail for failing to fulfill their responsibilities.  It is not a task to be assigned or undertaken lightly. Many people who have experience as executors are less than eager to go through it again, so it is extremely important to use care in choosing the best person for the job.  However, with proper planning, it is possible to create a smooth process for your executor and even minimize his or her obligations.

The best choice for an executor will be scrupulous, organized, and tactful in moderating potential conflict between heirs.  Many executors struggle with the reporting requirements to the Commissioner of Accounts, so it can also be helpful to name someone with financial experience and/or familiarity with your assets.  Your executor will have complete control over your “probate” estate (some assets pass outside probate by beneficiary designation, deed, or title – these assets are not subject to your executor’s control).  This creates an opportunity for theft and can also create tension between your named executor and any beneficiaries of your estate who are not serving as co-executors.  Another challenge is that out-of-state executors are often required to post a bond with the Circuit Court, an expense that must be paid out of pocket by the executor (although he or she can be reimbursed once the estate is open).  In order to qualify for a bond, the executor must have good credit and a clean financial record.  It is possible to name more than one person to serve together as co-executors, so naming a professional and/or Virginia resident to serve as a co-executor is one way to mitigate these concerns.

Making a strong choice of executor is a major step toward a smooth administration process, but you should also provide clear instructions for your executor about where to find your will and assets, particularly when you no longer have paper statements.  Remember that your named executor is under no obligation to accept, so the more orderly your affairs are, the more likely it is that your desired executor will take on the responsibility.  If chosen correctly, the executor will understand exactly what they are getting into, with no illusions of glory or prestige, leading to a greater likelihood of acceptance and a smoother administration process.  Contact us for more information about wills, executors, and creating an orderly estate plan.

Choosing the Right Fiduciary: Health Care Powers of Attorney

This is the third installment in our blog series on Choosing the Right Fiduciary, discussing how to select the best agents under a health care power of attorney.

The people you name to act as your agent under a health care power of attorney are responsible for making your medical decisions if you are incapacitated and unable to do so for yourself.  In the absence of a health care power of attorney, Virginia law identifies the people who are authorized to make those choices; however, clients generally prefer to be more specific about who will manage their health care and treatment.

It can be helpful to name a friend or family member with a medical background.  Clients with a nurse or doctor in the family often name that person as their health care agent because he or she will have a better understanding of the client’s condition and the decisions that should be made.  Your health care agent should also be familiar with your personal values – for example, knowing your end of life wishes and whether your religious beliefs would affect your treatment plan. 

Personality can be a major factor as well.  Look for someone who stays calm in emergencies, is able to make quick decisions, and can communicate those decisions clearly to the rest of your loved ones.  Situations where you are abruptly incapacitated because of a medical problem can be very high stress for the people who care about you.  Another factor to consider is that a person’s incapacity may not be temporary, or short-lived.  Health care agents can become overwhelmed when they become responsible for the long-term care of someone who is incapacitated, so it can be a good idea to choose someone who is conveniently located and has a flexible lifestyle.  Complex family dynamics can add to that stress for the person you have entrusted with this responsibility. Naming a strong decision-maker whose choices will be trusted by others can help minimize disagreements surrounding your medical care.

Another way to reduce conflict about your health care is to include an advance directive (sometimes called a “living will”) with your health care power of attorney.  This is your declaration to your doctor that you wish to be removed from artificial life support if your doctor has determined you are terminally ill or in a persistent coma and unlikely to recover.  This can be a powerful tool to effectuate your wishes and to release your loved ones from the burden of making that final decision.

Keep in mind that you can name anyone to act as your health care agent, whether that is a family member, a friend, or a trusted employee or neighbor.  We can help you identify your options, but ultimately you are in the best position to determine who should be named to act in this capacity.

Jennifer Schooley  |  Contact  |  Estate Planning