ASSET PROTECTION AND ESTATE PLANNING

civil litigation

Asset Protection

Actively protecting and preserving tangible and intangible assets is a specialty that Chris Beard and Jonathan Arnold work tirelessly to perfect.  Whether you are looking for judgment protection, business succession, or just simply risk-averse, a very well-thought-out plan is the best defense to preserving those assets.  Tools to preserve those assets are available to you in the great state of Alabama and we do employ other measures with specific laws from other states that also aid in protecting assets.  Whether you are looking for simple measures, advanced judgment issues, desire to plan for business maneuvers or estate planning, Fortune and Beard is your choice to prepare and execute those plans.

Alabama Entities

Overview

The choices for organization of small and medium-sized businesses are sole proprietorship, general partnership, limited partnership, limited liability company (“LLC”), S corporation, and C corporation. Below are some commonly used entities. Please note that this is not an exhaustive overview and a consultation is needed to fully begin to understand the intricate nuances of the listed entities.

Sole Proprietorship.

  • This is the default business form for an individual. If you operate a business by yourself without taking formal steps to organize a separate business entity, you are operating as a sole proprietorship. Your income tax return for this business is filed on Schedule C of your individual form 1040. Self-employment taxes (i.e., the employer and employee’s share of FICA taxes) are to be paid upon all earnings from a sole proprietorship in addition to standard income taxes. The operator of a business as a sole proprietorship is personally liable for any debts incurred by the proprietorship. If your business operates under a trade name (i.e., Joe’s Fish Market), you must make a fictitious name registration with the state secretary of state’s office but there will be no state franchise taxes due. Note: In California, the minimum annual franchise tax for corporations is $800 per year; however, most other states have annual franchise taxes under $100.

General Partnership.

  • A general partnership occurs whenever one or more personals or legal entities jointly operate a business together but fail to formally organize the business as a business entity. A general partnership may or may not have a written partnership agreement that spells out the rights and duties of the partners relative to partnership assets, liabilities, income (loss) and control of business operations. All general partners are jointly and severally liable for all partnership debts. “Jointly and severally” means that each partner can be held liable to 3rd parties for the entire partnership debt. Also, each partner has the potential to hold all partners liable for actions taken in connection with the business (note: there are limitations upon this hazard but one must be aware of the potential danger when operating as a partnership). Partnerships file a separate tax return (i.e., federal form 1041) and partners pay Social Security and Medicare on all partnership earnings.

Limited Partnership.

  • A limited partnership is formed through the filing of a certificate of limited partnership with the appropriate state office for corporate filings (usually the secretary of state). In sole proprietorships and partnerships, the owners are all active participants in the operation of the business. In a limited partnership, we have two groups of owners: (a) the general partners who operate the business and are personally liable for partnership debts and (b) limited partners who may not participate in the operation of the business but are NOT liable for partnership debts. Limited partners are, thus, passive investors in the business. The general partners pay Self-Employment tax on all partnership earnings whereas the limited partners do not. All limited partnerships are required by state law to have written partnership agreements.

Limited Liability Company.

  • An LLC is also formed through the filing of articles of organization with the appropriate state office for corporate filings (usually the secretary of state). An LLC is a hybrid between a partnership and corporation. Generally, LLCs are required by state law to have written operating agreements that set forth the rights and duties of the LLC members much like a partnership agreement. Although an LLC can be organized with non-member managers operating the business, the IRS has ruled that in most cases LLC members shall be liable for self-employment taxes on their share of LLC earnings. An LLC reports its income (loss) on federal form 1041 and LLC members are not personally liable for the debt of an LLC.

Corporations.

  • A corporation is formed through the filing of articles of incorporation with the state. There is no distinction between an S and C corporation when the initial filing of articles of incorporation are made with the state. To become an S corporation, a corporation must file Form 2553 with the IRS within a certain deadline to qualify for S status. If you fail to make a timely S-corporation election, the corporation is automatically a C corporation. S corporations are taxed on income (and losses) like partnerships in that there is no entity level taxation whereas corporations have their income taxed at the corporate level. Please note that S corporations that formerly were C corporations can be taxed upon “built-in gains” that existed upon their conversion from C to S. Shareholders are not personally liable for the debts of either C or S corporations. In regard to employment and unemployment taxes, S and C corporations are treated alike: employment taxes are only paid upon the designated salary of a shareholder and not upon dividends.

Estate Planning

Overview

Estate and Trust Planning are important tools that you can utilize to prepare your estate for distribution in the event of your death while making the transition easier on your loved ones. You have several options when deciding how to plan for the future. Some of the ways that we can facilitate your needs are by creating and/or preparing a:

  • Will
  • Living Will
  • Living Trust
  • Durable Power of Attorney
  • Health Care Proxy
  • Business Succession Plan

You might be asking yourself, “Why is estate planning so important?” The importance is that a comprehensive estate plan can cover everything from asset distribution to health care decisions relieving your loved ones from making those tough decisions during that difficult time.
Wills, Trusts, a Durable Power of Attorney, and a Business Succession Plan are just a few ways to protect your assets and facilitate an orderly distribution. An orderly distribution can eliminate family disputes over your assets ensuring a smooth transition during the grieving period. A Health Care Proxy is another important document that will direct an appointed person to make medical decisions on your behalf should you become incapacitated. Having a health care proxy alleviates the stress and grief on your loved ones from having to make difficult medical decisions.
At the law firm of Fortune & Beard, P.C. we understand the sensitive nature of the Estate Planning process, and we are here to answer all of your questions in order to ensure an easy and stress-free estate planning process.

Estate Planning – FAQ

What is estate planning?

Estate planning is a process to consider alternatives for, to think through, and to set up legally effective arrangements that would meet your specific wishes if something happens to you or those you c are about. Good estate planning is more than just a simple Will. Estate planning also typically minimizes potential taxes and fees, and sets up contingency planning to make sure your wishes regarding health care treatment are followed.

On the financial side, a good estate plan coordinates what would happen with your home, your investments, your business, your life insurance, your employee benefits (such as a 401K plan), and other property in the event you became disabled or if you die.

On the personal side, a good estate plan includes directions to carry out your wishes regarding health care matters, so that if you ever are unable to give the directions yourself, someone you select would do that for you, and know when you would want them to authorize heroic measures and when you would prefer they pull the plug.

What are some typical estate planning documents?

Several of the following documents are typically used as part of the estate planning process:

  1. A Will, sometimes called a “Last Will and Testament”, to transfer property you hold in your name to the person(s) and/or organization(s) you want to have it. A Will also typically names someone you select to be your Personal Representative (or “Executor”) to carry out your instructions and names a Guardian if you have minor children. A Will only becomes effective upon your death, and after it is admitted to probate.
  2. A “Durable Power of Attorney for Health Care” or Health Care Proxy appoints a person you designate to make decisions regarding your health care treatment in the event that you are unable to provide “informed consent”.
  3. A “Living Will” or “Directive to Physicians” is an advance directive which gives doctors and hospitals your instructions regarding the nature and extent of the care you want should you suffer permanent incapacity, such as an irreversible coma.
  4. A “Durable Power of Attorney for Property” appoints a person you designate to act for you and handle financial matters should you be unable or perhaps unavailable to do so.
  5. A “Living Trust” can be used to hold legal title to and provide a mechanism to manage your property. You can select the person or persons you want — often even yourself — as the Trustee(s) to carry out the instructions you want in the Trust and name one or more Successor Trustees to take over if you cannot. Unlike a Will, a Trust usually becomes effective immediately, continues in force during your lifetime even in the event of your incapacity, and continues after your death. Most Trusts are “revocable” which allows the person who creates the Trust to make future changes, modifications and even to terminate it. (If the Trust is “irrevocable”, changes, modifications and termination are very difficult (and sometime impossible), although such Trusts often carry some tax benefits.) Trusts also help you avoid or minimize the expenses, delays and publicity of probate.
  6. A “Family Limited Partnership” can be used to own and manage your property, in a similar manner to a Trust, but allowing additional tax planning techniques to be employed. Family Limited Partnerships are typically used for those who have large estates and thus have a need for specialized estate planning in order to minimize federal and state estate/death/inheritance taxes as well as provide elements of asset protection.

Who should have an estate plan?

You should have an estate plan if:

  1. you are the parent of minor children
  2. you have property that you care about
  3. you care about your health care treatment.

If you do not have minor children, do not care about your property, and have no concerns about your health care treatment, then you do not need an estate plan. But if you meet any of these categories above, you should have an estate plan.

What is a conservatorship?

If you suffer from an incurable disease or are involved in a debilitating accident and are unable to manage your own affairs, state law might require someone to go to court to have a conservator appointed by the court. The conservator is given the authority to make financial decisions and handle your financial affairs, under court supervision, when you lack the capacity to manage them on your own.

The conservator has to make periodic reports to the court and petition the court for additional authority under certain circumstances. Typically, the conservator may be paid for services rendered on your behalf and there will be attorney fees as well. In addition, the court will often require your conservator to purchase a “surety bond” which is a type of insurance policy, to protect the conservatorship estate. The costs and expenses of a conservatorship are paid by your estate.

How can my estate plan lower the federal transfer tax liability?

Everyone gets a credit against Federal estate and gift taxes of $220,550, in 2000 and 2001, which is equivalent to transferring $675,000 tax free to your heirs. (The estate tax exemption amount increases slowly to $3.5 million in 2009; the estate tax is totally eliminated in 2010 and reinstated in 2011 at an exemption level of $1,000,000.) Those with an estate of less than $1,060,000 (in 2001) should have no fear of the generation skipping transfer tax (the GST drops back to $1,000,000 in 2002 and thereafter matches the gradual increases in estate tax exemptions in effect for the calendar year. The GST is repealed in 2010, but reinstated in 2011).

For those who are married, there is an unlimited marital deduction. All estate taxes can be avoided upon the death of the first spouse to die. But the surviving spouse would have to remarry and give his/her entire estate to the new spouse in order to get another unlimited marital deduction. Most people would rather their children or other relatives benefit from the estate, rather than a new spouse and his/her family.

An estate plan can take advantage of certain tax avoidance techniques for those who have accumulated some wealth; this gives more of your property to your intended beneficiaries, instead of giving it to the federal government. Some of these techniques include:

  1. a tax by-pass trust to hold property for your children, while still providing for your surviving spouse during his/her lifetime
  2. distribution of share in a Family Limited Partnership to take advantage of minority and lack of marketability valuation discounts
  3. a gift program to take advantage of the current $11,000 per year per person gift tax exclusion so as to prevent a greater tax in the future in the form of an estate tax
  4. an irrevocable trust to handle and manage property outside of your estate, so that the property is not part of your estate at the time of death.
    Tax planning as part of estate planning can, depending on the size of one’s estate, save hundreds of thousands to millions dollars – if it is done right.

Can I leave my pension to my spouse or to my child?

In general, if you are married, your spouse is entitled to a portion of your pension if you die first. There is some cost to that, however, that usually serves to reduce the monthly retirement payments you would have received if the benefits were to be paid just during your lifetime. If you and your spouse agree, you can waive this survivor benefit protection, and/or sometimes name some other person(s) (such as a child) as your beneficiary. Consult with your plan administrator and review the plan summary carefully to find out your rights and responsibilities in this area.

Alabama Elder Law

As those we love age, we and our families increasingly encounter legal and practical concerns in caring for elderly loved ones. Our experienced attorneys at Fortune & Beard, P.C. can assist clients in planning for the future through the preparation of powers of attorney and advance directives to ensure that medical care is provided as you prefer it. Our attorneys can also advise on long-term care insurance or other funding options that foster the most independence and security for the many elders who wish to remain in their homes.

  • Powers of Attorney and Health Case Directives:  By utilizing powers of attorney and health care directives elders can ensure that their needs are met and their wishes are carried out with regard to future financial matters and medical treatment, even if they are unable to communicate their desires at the time those decisions need to be made. Powers of attorney and advance directives allow a person to designate an agent to carry out their wishes as an alternative to allowing a judge to select a guardian or conservator. In a written document, each person may communicate to the agent their financial goals and decisions, as well as outlining medical procedures or life-sustaining techniques that may be performed in the future. These directions allow the agent to make decisions according to the elder’s wishes, even if he or she is unable to communicate with the agent at the time. The documents can easily be changed if the loved one’s needs or wishes change.
  • Planning for Long-Term Care:  In addition to financial and medical plans, providing for long-term care for loved ones is of paramount importance. Many people overlook the financial, medical and personal aspects of long-term care planning until it is too late. If you develop a serious mental or physical disability requiring long-term care, you will want to have a long-term care plan. Health care costs in the United States are expensive and continue to rise. Proper long-term care planning now will allow you to pay for these rising costs without exhausting your life’s savings. Our attorneys can help you plan for the expenses making the process easier, and preventing problems with long term expenses down the road.
  • Help for Families of Elder Law Clients:  Caring for an elder loved one, can at times be challenging and time consuming depending on the loved ones needs. When added to your job, family and social obligations, your caregiver role may feel overwhelming. Our experienced attorneys have counseled others in your position, and can draw on experience to provide you the guidance, support and encouragement you need to care for your loved one.
  • Guardianships and Conservatorships:  For our loved ones who suffer from Alzheimer’s disease, dementia or physical disabilities, common tasks such as brushing one’s teeth, dressing, feeding oneself and bathing can become extremely difficult. Our loved ones may become forgetful or easily confused. The appointment of a guardianship and/or conservatorship are some of the ways to help you care for your loved one. Through a guardianship or conservatorship, you can become the court-ordered guardian or conservator to ensure that your loved one receives adequate personal care or to handle your loved one’s financial matters. By have the necessary powers given to a guardian or conservator you can maximize the quality of your loved one’s life.

The security derived from planning for your retirement including handling your financial, medical and long-term care decisions is without a price. Contact one of our experienced attorneys at Fortune & Beard, in Birmingham, Alabama for guidance. Taking the necessary steps now can reduce financial hardship and stress for you and your loved ones in the future.

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