By Tim Barkley. March 2020.
Jack and Jill (not their real names) were sipping coffee when the attorney came into the conference room.
“Thanks for calling,” the attorney greeted them. “I understand you want to update your estate plan.”
“Well, really, we want to create one,” Jill clarified. “Jack got some papers a long time ago from a lawyer at his old work, but it doesn’t really deal with our situation now.”
“Let’s see … two of you. Any kids?”
“Three. All ours, and all adults. It’s really simple … everything to me, and if we die together, everything to the kids.”
“Great. Simpler is better. What are we planning for? Real estate? Mutual funds? Vehicles?”
“We own our house, and we have a couple of timeshares. We both have IRAs, and he has a 401(k) from his old work. He has a truck and a van and a bunch of tools and equipment for his business.”
“Tell me about the business. Is it an LLC or corporation, or just a sole proprietorship?”
Jack weighed in. “It was my father’s business. I took it over when he died, and went online to make an LLC for it about 10 years ago.”
“Is the bank account in the LLC name?”
“No, it’s just in the business name as a ‘trading as’ name.”
“How about the vehicles?”
“The van is in the name of the LLC, and the truck is just in my name.”
“One more question: If we sold everything and paid off the debts, but didn’t pay any taxes yet, would we have more than $10 million?”
They both laughed. “Not even close. Maybe a couple of million, with our life insurance.”
“Well … then you don’t need to worry about estate tax. That only kicks in if you have $10 million for a married couple.
“So, we’re really just trying to get everything where it’s supposed to go as painlessly as possible. One last question: is the business supposed to go to one of the kids when you die?” This addressed to Jack.
“Yeah, my daughter has worked for me since high school. The boys really haven’t been part of the business.”
Jill interjected, “But I work there, too, and the business is where I get money my living expenses, so we just can’t give the business to Mickey when you die.”
Jack and the attorney nodded. The latter queried Jill, “Are you a ‘member’ – an owner – of the LLC? An LLC has ‘members’ like a corporation has shareholders.”
She looked at Jack. He shrugged, “I don’t know. I just sent in the form.”
“Here’s the scoop. Jack is probably the only owner or ‘member,’ since nothing was ever done to make Jill a member of the LLC.
“That means that when Jack dies we would have to put his membership interest in the business through probate, which would mean we’d have to get it appraised, and that would probably cost at least $1,000, possibly two or three times that just for the appraisal, let alone the probate costs and attorney’s fees. Let’s not do that. OK?”
The couple nods. “Should we just put me on the business?” Jill asked.
“I don’t think so,” responded the attorney, “because that might make you liable for the business debts or judgments against the business if somebody manages to get a court to agree that the owner of the business is responsible for the business’s obligation.
“Instead, let’s make you a beneficiary of your husband’s LLC membership interest if you survive him, and, if you don’t, let’s make Mickey the beneficiary.
“This is done by a ‘transfer on death’ registration of the LLC membership interest. It’s a single-page form that I draw up and he signs, and we can do it at the same time we update your will and powers of attorney.
“And we can avoid probate on your other assets, too. For the IRAs, 401(k) and life insurance, we really don’t have to do anything, but you should check to make sure that your spouse is your beneficiary and your kids are ‘contingent’ or secondary beneficiaries.
“For your bank accounts, you can make your children ‘paid on death’ beneficiaries, and you can use the same ‘transfer on death’ registration, but this time the broker will have their own form. The truck and your personal vehicles can have two names on the title, so if they are jointly owned by the two of you, you already have two – but for your truck and any other vehicle that has only one owner, you can name a ‘transfer on death’ beneficiary on the title. That could be the other of you or one of the kids.
“For your timeshares, check with the company to see if they have a form for a ‘beneficiary designation.’ Sometimes we have to create a deed, but more and more the timeshare management companies are working with beneficiary designations. That assumes your kids would want to keep the timeshares.”
They nodded. “We use them every year, one on Nags Head, and one week in the summer in Maine.”
“Then go ahead and check with the management company. With your house, we can use a ‘life estate deed.’ Have you heard of that?”
“Yes,” affirmed Jill. “We’ve read an article in the paper by a local lawyer …”
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
Wills & Trusts | Estate Planning | Probates & Estates
Elder Law | Real Estate | Business Planning | Estate & Trust Litigation