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For many, Memorial Day weekend signals the beginning of summer and enjoying warm-weather activities, including backyard barbecues with friends and family. Although a cookout may be an informal affair, planning is crucial to its success. This is true for estate planning, too. Just as preparations are necessary for a successful cookout, a little planning goes a long way to prevent a poorly designed estate plan (or no estate plan at all!) from leaving you and your loved ones in a pickle.

Step 1. The menu: what do you own?

When you plan a barbecue, one of the first steps is to decide what foods to include on the menu. If you buy the burgers and hot dogs but forget the buns, the menu will lack an essential component and the party may be ruined. Likewise, in creating your estate plan, one of the first steps in making sure your goals are achieved is to consider what you own. If you omit important property or accounts from your estate plan, it is unlikely to fully achieve your goals. 

As your estate planning attorneys, we will provide you with a checklist that will help you think through what you own so that none of your property is inadvertently left out of your plan. For example, you will be asked to list real and personal property and all of your bank and other accounts, and to note whether you own them individually or jointly with your spouse or another person. Filling out this inventory will help you evaluate everything you own holistically and determine how you want to distribute it when you pass away or if you would like to make gifts during your lifetime. It will also enable us to suggest estate planning strategies that will provide for your loved ones and achieve any other goals you may have, such as minimizing taxes.

Step 2. The invitations: who are your beneficiaries?

The next step in planning your cookout is determining who you would like to invite. Likewise, when creating your estate plan, you will need to decide who you would like to be your beneficiaries—the individuals who will inherit your money and property when you pass away or that you would like to benefit during your lifetime. You may think that this is simple and will not require much thought, but there is more involved in creating this list than you may think. Your beneficiaries may include your spouse or partner, children and stepchildren, grandchildren, other relatives, friends, charitable organizations, and your church. 

In determining your beneficiaries, you may want to consider issues such as whether all of your children need an inheritance or if one of them, such as a disabled child, has a greater need. If a child is addicted to drugs, you may decide not to provide them an inheritance and instead create a trust designed to prevent the child from spending their inheritance to support their habit. We can help you consider who you would like to receive your money and property and discuss the best strategies to provide for your beneficiaries while achieving other goals, such as minimizing gift and estate taxes or providing grandchildren incentives to attend college or start a new business.

Step 3. Serving sizes: how much does each person get?

When you plan a barbecue, you need to calculate how much food each person will consume. Your six-foot-tall adult son will likely need a bigger portion than your two-year-old granddaughter. In estate planning, your first instinct may be to provide an equal share of your money and property to each of your beneficiaries. However, as is the case with a cookout, you may want to give some beneficiaries a bigger share and others a smaller share. As mentioned previously, if you have a child with special needs who is unable to support themselves, you may want to create a trust to provide for them and give smaller inheritances to your other children who are financially independent. 

Depending on what you own, it may also be important to give certain accounts or property to one beneficiary and other accounts or property to other beneficiaries. For example, if you have a family home, real estate, or business in which only one child is actively engaged, splitting ownership among multiple siblings may set them up for disagreements and strain or destroy relationships. To avoid family fights after you pass away, consider giving hard-to-divide property to one child and money (in the form of accounts or insurance proceeds) to others. Alternatively, you could instruct in your will or trust that the hard-to-divide property be sold and the proceeds divided equally among the siblings.

Step 4. Extra touches: give letters and personal property to loved ones.

Just as you add extra touches such as umbrellas, tablecloths, or strings of lights to make your barbecue a special occasion, you can include special documents in your estate plan, such as letters to loved ones to articulate your feelings for them and leave a final blessing when you pass away. A will or trust document may otherwise seem impersonal, even if you intend for the gifts you make in them to be a demonstration of your love for your family. Leaving a letter to your loved ones expressing your feelings and hopes for them may be one of the most precious gifts you can give. 

You may also use a special memorandum, typically called a personal property memorandum, to indicate who you would like to receive your tangible personal property such as heirlooms, collectibles, or items having sentimental value (not real property or intangible property such as accounts). You can use this memorandum to express that particular items be given to certain family members or to make sure that everyone receives something meaningful to them. A personal property memorandum that clearly describes each item listed and who should receive it can also help avoid fights among family members over significant items. To make sure the personal property memorandum is effective and legally enforceable, reference it in your will or trust and include any formalities specified by state law. 

Lettuce help you plan: call us so we can ketchup!

You may be worried that you will be grilled when you come in for an estate planning consultation, but we promise that you will be glad you came. Anyone who has outgrown their salad days knows that failure to plan leads to less-than-optimal outcomes. Call us today to spill the beans about your estate planning goals, and we will help you create an estate plan that will satisfy your craving to provide a secure future for yourself and your family.

After a loved one has passed away and the funeral has been held, the task of sorting through their personal belongings begins. While items with sentimental value or family historical importance may have been distributed to beneficiaries in the estate plan, many more might still be lying around the house. 

The question of what to do with a loved one’s remaining possessions is one that every family faces. Some items, like trinkets and personal effects, may be given away to family or friends. Others, including medical equipment, can be sold or donated to charity. From eyeglasses and hearing aids to wheelchairs and at-home hospital beds, there are options for giving used medical equipment a second life. 

Death and Decluttering 

Even if somebody is careful to declutter during their lifetime, it is unlikely that they will pass away without any possessions. When somebody is dealing with an ailment or just age-related decline, certain medical items are likely to be needed right up until their final moments: 

• Elder-care or assisted-living products such as bathroom grab bars, shower seats, entryway ramps, and personal alert systems   
• Mobility aids like canes, wheelchairs, scooters, and walkers
• Eyeglasses and hearing aids
• Big-ticket medical equipment such as hospital beds, kidney machines, prostheses, ventilators, apnea monitors, and infusion pumps

Family members charged with clearing out the deceased’s home may unwittingly find themselves in control of these left-behind medical items. Nobody in the family may have a use for them, but that does not mean they must be discarded. Provided it is in relatively good condition, the medical equipment can be given to those in need, listed for private sale, or purchased by a dealer.

Donating Used Medical Equipment

The fastest and easiest way to get rid of unneeded medical items is to donate them. Depending on the items, consider the following options for donation:

• A local hospice, nursing home, church, Veterans Affairs hospital, or Center for Independent Living
• Charities, including Alliance for Smiles, American Red Cross, American Medical Resource Foundation, Easter Seals, Med-Eq, MedShare, Project CURE, and United Way
• A local Goodwill store or Salvation Army 
• Eyeglasses
  • The Lions Club Recycle for Sight program, Eyes for the Needy, and New Eyes
  • A local eye doctor who may participate in one of these programs
• Hearing aids
  • The Starkey Hearing Foundation Hear Now program
  • The Lions Club Hearing Aid Recycling Program, Hearing Charities of America, and Hearing Loss Association of America

In some instances, charitable giving has the added benefit of being tax-deductible. Receipts can be given during an in-person donation or requested from the organization in the case of drop-box or mail donations. 

Selling Used Medical Equipment

Donating small personal items like eyeglasses and assistive hearing devices might make more sense than selling them. While hearing aids, which are considered medical devices by the Food and Drug Administration, can be costly and might be worth selling, not all states permit the sale of used hearing aids. Where legal, used hearing aid sales may also have guidelines and restrictions. 

E-Commerce Sites

Before selling a medical device on an online marketplace such as eBay, craigslist, or Facebook Marketplace, check the site’s policy. 

eBay does not allow the sale of medical devices that require a prescription,¹ and craigslist does not permit the sale of medical devices, period.² Meta/Facebook says that it does not allow listings related to medical and healthcare products and services—including medical devices.³ 

Not all medical equipment is considered a medical device. However, it is not always easy to tell the difference. Medical gloves and insulin pumps are medical devices, for example, but wheelchairs and hospital beds are medical equipment.⁴ 

Selling durable medical equipment (DME) or home medical equipment (HME) at the retail level is regulated and requires a license in many states.⁵ DME is a specific medical term used by Medicare, Medicaid, and private insurance companies, and it covers wheelchairs, canes, crutches, hospital beds, and oxygen equipment, among other items. 

Licensing requirements may not apply to personal DME sales on e-commerce sites, but local laws should be consulted just in case.

Resale Sites

An internet search for “companies that buy used medical equipment” or similar terms will reveal a host of relevant companies. 

Not all companies are interested in all types of equipment. The website might list the types of equipment a company is interested in buying. For specific inquiries, reach out to the company and provide a description of the items for sale. 

Local resellers may be willing to pick up used equipment, but shipping costs may be involved for nonlocal buyers and can affect pricing. Buyers may have a set price for what they are willing to pay. As with most sales, though, it may be possible to negotiate a better deal. Clean up the equipment before shopping it around, take pictures in good lighting, and identify the brand, model, and features. 

Instead of using a professional reseller, consider a local medical facility that may be willing to purchase the used medical equipment. In either case, spend some time researching what the equipment may be worth. Online calculators can be used to get a rough idea of used medical equipment value.⁶ 

Need Advice? Let Us Know

Our attorneys have dealt with all aspects of estate planning and administration. Whether you need advice about selecting a charity or reseller for medical equipment donations, have legal questions about selling specific types of equipment, are wondering about charitable tax deductions, or are interested in securing your legacy with an estate plan, call or contact us to get answers.

Footnotes

1. Medical Devices Policy, eBay, https://www.ebay.com/help/policies/prohibited-restricted-items/medical-devices-policy?id=4322 (last visited Mar. 29, 2023).
2. Prohibited, craigslist, https://www.craigslist.org/about/prohibited (last visited Mar. 29, 2023).
3. Commerce, Facebook, https://www.facebook.com/policies_center/commerce/ (last visited Mar. 30, 2023).
4. How Medical Device and Medical Equipment Sales Differ—It’s More Than You Think, MedReps.com (Jan. 11, 2022), https://www.medreps.com/medical-sales-careers/how-medical-device-and-medical-equipment-sales-differ.
5. Hans Howk, Durable Medical Equipment Licensing Requirements, Wolters Kluwer (Feb. 8, 2022), https://www.wolterskluwer.com/en/expert-insights/durable-medical-equipment-licensing-requirements.
6. See, e.g., Used Medical Equipment Valuation Calculator, https://form.typeform.com/to/GmTvcsQi?typeform-source=pssshaix2gp.typeform.com (last visited Mar. 29, 2023).

It is important to let your estate planning attorney know if you own real estate that is subject to a mortgage. Most mortgages include due-on-sale clauses stating that, upon the transfer of the mortgaged property, the entire amount of the debt owed on the mortgage is immediately due and payable. Under the Garn–St Germain Depository Institutions Act of 1982¹ (Garn–St Germain Act), lenders are prohibited from enforcing due-on-sale clauses in some circumstances but not in others. If your estate plan involves the transfer of property subject to a mortgage, it is important to keep this in mind.

What Is the Garn-St Germain Act?

The Garn–St Germain Act is a federal law that allows lenders to enter into or enforce contracts, including mortgage agreements, that contain due-on-sale clauses even if a state’s constitution or laws, including their judicial decisions, prohibit them. However, the Garn–St Germain Act lists nine situations in which due-on-sale clauses are not enforceable, including some transfers that may be relevant to your estate plan. In the nine situations specified, lenders may not enforce due-on-sale provisions in real property loans “secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home.”²

This generally means that the statutory exceptions apply to due-on-sale clauses in mortgages on residential—not commercial—real estate with less than five apartments. Although we will not cover every situation involving mortgages on residential real estate in which lenders are not permitted to enforce due-on-sale clauses, the following exceptions are especially relevant when you are creating or updating your estate plan:

A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety. Many spouses and other individuals co-own their homes or other real estate. In a joint tenancy, two or more co-owners (not necessarily spouses) of real property have equal rights and responsibilities and a right of survivorship, meaning that if one of the co-owners dies, their interest disappears and the other co-owners’ interests automatically and immediately increase proportionally. A tenancy by the entirety is only permitted in some states and is generally available only to married couples. Neither of the married co-owners may sell the property or obtain a mortgage without the consent of the other. Similar to joint tenants, tenants by the entirety have a right of survivorship, so if one spouse dies, the surviving spouse automatically becomes the sole owner of the property. When one of these two types of co-ownership exists, a lender may not enforce a due-on-sale provision upon the death of one of the co-owners.

A transfer to a relative resulting from the death of a borrower. This situation involves the transfer of real property when one or more relatives inherit it after the borrower’s death. As long as the beneficiaries are relatives, the due-on-sale clause will not be enforced.

Transfer to a spouse or child during the owner’s lifetime. If someone who owns property subject to a mortgage transfers it during their lifetime to their spouse or child, the due-on-sale clause may not be enforced. This could be a transfer of the owner’s entire interest in the property or a partial interest to establish joint ownership, such as a joint tenancy mentioned.

A transfer to an inter vivos trust in which the borrower is and remains a beneficiary that does not relate to a transfer of rights of occupancy in the property. An inter vivos trust is a trust that is created during the lifetime of the grantor (the creator of the trust) as opposed to at the grantor’s death. There are a couple of somewhat complicated but important elements to consider regarding this exception:

1. The borrower is and must remain a beneficiary of the inter vivos trust. In the case of a revocable living trust (RLT), a grantor is often also the beneficiary of the trust: the trustee simply holds the property in trust for the benefit of the grantor. In many cases, the grantor is also the trustee. An RLT may be revoked or modified by the grantor at any time during the grantor’s lifetime, and is useful for many people because it enables them to enjoy their property as if they still owned it. The trustee is authorized to manage the property for the grantor if they become incapacitated during their lifetime, and holding the property in the trust avoids probate proceedings by enabling the property to pass according to the terms of the trust, maintaining privacy and avoiding delays and costs. Because the grantor often remains the beneficiary of an RLT, this requirement of the Garn–St Germain Act is frequently (although not always) satisfied in situations involving transfers to RLTs.

Irrevocable trusts, that is, trusts that generally cannot be revoked or changed once they are created, are often created to minimize estate taxes or protect the property held by the trust from creditors’ claims. To achieve these benefits, the grantor is often not a beneficiary of an irrevocable trust—and if the grantor is not a beneficiary, the lender may not be precluded by the Garn–St Germain Act from enforcing a due-on-sale clause when the property is transferred to the irrevocable trust.³ 

2. The borrower may need to occupy the property. Unfortunately, it is not completely clear whether the individuals who transfer real property to a trust during their lifetime need to occupy the property. The Garn–St Germain Act does not require occupancy of the property being transferred to an inter vivos trust, but simply mandates that the transfer does not relate to a transfer of the rights of occupancy in the property. However, the regulations issued by the Office of the Comptroller of the Currency to implement the Garn–St Germain Act state that the borrower must remain an “occupant of the property.”⁴ Because of the lack of clarity, it may be prudent to comply whenever possible with both requirements to ensure that the lender is prohibited from enforcing the due-on-sale clause.

We Can Help

Estate planning often involves transfers of real estate, either during your lifetime to a trust or family member, or at your death. Fortunately, if the property is subject to a mortgage, the Garn–St Germain Act will prevent the lender from enforcing a due-on-sale clause in many situations, especially transfers to family members. However, it is important to be cautious to avoid missteps that could result in a mortgage unexpectedly being called due. Obtaining lender approval in writing before transferring real estate with a mortgage is advised. Call us to set up an appointment so we can help ensure that your estate plan achieves your goals for your real property and does not include any unpleasant surprises.

Footnotes

1. 12 U.S.C. §1701j-3.
2. 12 U.S.C. §1701j-3(d). The regulations implementing the Garn–St Germain Act, Preemption of State Due-on-Sale Laws, 12 C.F.R. §§ 191.1-191.6 (2018), https://www.govinfo.gov/content/pkg/CFR-2018-title12-vol1/xml/CFR-2018-title12-vol1-part191.xml, use the word “home” instead of a “residential real property containing less than five dwelling units” as stated in the text of the Garn–St Germain Act. 12 C.F.R. § 191.5(b). Those regulations also state in 12 C.F.R.§ 191.2(e) that the word “home” has the same meaning as provided in 12 C.F.R § 141.14, which states: “The term home means real estate comprising a single-family dwelling(s) or a dwelling unit(s) for four or fewer families in the aggregate.”
3. There is some authority indicating that a right of occupancy will be deemed to be a beneficial interest sufficient to satisfy the statute. Daley v. Sec’y of the Exec. Off. of Health and Hum. Servs., 477 Mass. 188 (Mass. 2017).
4. Preemption of State Due-on-Sale Laws 12 C.F.R. § 191.5(b)(1)(vi)) (Jan. 1, 2018), https://www.govinfo.gov/content/pkg/CFR-2018-title12-vol1/xml/CFR-2018-title12-vol1-part191.xml. Although one case found that the OCC had exceeded its authority in requiring the borrower to be an occupant of the property to maintain the Garn St Germain protections, the case may not be considered by some courts because it was unpublished. Baldin v. Wells Fargo Bank, N.A., 2013 WL 794086 (D. Or. Feb. 12, 2013).

Spring is associated with renewal, and as the weather gets warmer, many homeowners turn their attention to renovation projects. 

Each May, the home remodeling industry and the National Association of Home Builders (NAHB) celebrate National Home Remodeling Month. In 2023, over 17 million home remodeling projects are expected to be undertaken in the United States. 

Between planning, permitting, and construction, the home remodeling process can take months to complete. But even after the finishing touches have been applied, there may still be work to do. If the home is part of an estate plan, a remodel can affect that plan and require changes to it. To keep your estate plan up to date, make sure to discuss a home remodeling project with an attorney. 

Remodeling Market Remains Strong 

The home remodeling market has shown tremendous growth. From 2007 to 2022, US remodeling activity increased 65.9 percent.¹ The remodeling market slowed at the start of the pandemic in early 2020 but has come back strong, despite rising material costs and labor shortages. 

Homeowners flush with cash from increased home values have been a major driver of the billions spent on improvement projects.² While high home equity levels should sustain remodeling activity for the next few years, decreases could occur due to falling home prices, inflation, and the probability of a recession. 

The number of remodeling projects is expected to decrease from 17.7 million in 2022 to 17.3 million in 2023. Nevertheless, the United States spends hundreds of billions per year on home improvement. From 2019 to 2021, Americans spent $624 billion on nearly 135 million home improvement projects—an increase of $300 billion and 94 million projects compared to 2013.³ 

As the housing market slows, more homeowners plan to invest in improvement projects to make their homes more comfortable and enjoyable, as opposed to making them more attractive to prospective buyers. Home improvement spending averages around $7,750 to $8,500.⁴ The most common remodeling projects involve the bathroom, kitchen, living room, and primary bedroom. 

When it comes to home improvement project funding, cash from savings pays for most projects under $5,000. Pricier projects are more likely to be funded by a home equity loan, cash from home refinancing, an insurance settlement, or contractor financing. 

Home Improvement Estate Planning Considerations

Different generations spend differently on home renovations. Millennials, for example, tend to focus on projects around family formation and favor a do-it-yourself approach. Baby Boomers and the Silent Generation, on the other hand, prioritize projects that make the home more livable as they age and are more likely to hire a professional contractor. 

There are also generational differences in estate planning. Although 60 percent of US adults have no estate plan, 81 percent of people aged seventy-two or older and 58 percent of those ages fifty-three through seventy-one have estate planning documents.⁵ 

A home is the largest purchase that most people ever make. For the average American, home equity accounts for around 65 to 70 percent of their net worth. The home should therefore feature prominently in any estate plan. Home remodeling can necessitate estate plan changes, however. Here are a few estate planning considerations to keep in mind when remodeling a home. 

Remodeling a Home in a Trust with a Home Equity Loan

Homeowners may place their property in a revocable living trust (i.e., a living trust) to avoid probate. Placing property in a trust makes the trust the legal owner of the property, which requires drafting a new deed in the trust’s name. 

A home equity loan (also known as a second mortgage) allows homeowners to borrow money using the equity in their home as collateral. A home equity loan is dispersed in a lump sum and paid back in monthly installments. This type of loan is often used to pay for big expenses, such as a home improvement project. 

Some lenders prefer to only extend a home equity line of credit to a person—not a trust. Depending on the bank, this could mean taking a property held in trust out of the trust and deeding it back to the homeowner. The property can be transferred back into the trust when the loan is secured; the homeowner does not have to wait until the loan is repaid. If you deed your home out of the trust and back to you, make sure that the home gets transferred back to the trust if you want to avoid probate.

Increasing a Home’s Value and Beneficiaries

Remodels are not a great way to make money. The return on investment for remodeling projects ranges from 54 percent to 87 percent.⁶ But depending on the neighborhood, region, market, and project expense, home improvement can significantly increase a property’s value, especially over time, since home prices increase about 5 percent a year. 

Median home prices have risen dramatically over the years, from just under $18,000 in 1963 to more than $467,000 in 2022.⁷ Record growth in home prices during the pandemic accelerated this trend, and while median prices are declining in some markets, they mostly remain above pre-pandemic levels. 

With or without major renovations, a home purchased years ago is likely to have appreciated over time. In certain areas, homes purchased in 2000 appreciated over 200 percent. Average prices in San Francisco, for example, have increased from $364,000 to $1.12 million since 2000.⁸ 

Home value changes may affect a homeowner’s estate plan. If leaving the property to a specific person and wanting to treat beneficiaries equally, an estate plan may need to be refigured to equalize each beneficiary’s inheritance. One option to do this is to leave the home to more than one person; however, care must be taken to avoid conflict among multiple beneficiaries. The estate plan should stipulate how the home will be co-owned and provide a plan for the recipients to sell their interests in it. 

Balancing Homeowner Needs and Legacy

Older adults have a strong preference for growing old in their current homes. Ninety-percent of respondents told AARP that they want to “age in place.”⁹ At the same time, nearly 50 percent said they have not considered the changes their home may need to accommodate them as they age. 

Remodeling projects specific to aging in place average less than $10,000, but they can cost up to $40,000 or more.¹⁰ Because older adults tend to have more equity in their homes and more savings, an aging-in-place project may be affordable, but unless paying cash for a project, it also may entail taking out a loan.

Any debt that outlives a person needs to be paid during estate or trust administration. Creditors have preference over most heirs, and every dollar that goes to paying back a loan is one less dollar that goes to a beneficiary. While aging in place usually costs less than a nursing home, having less cash on hand or added debt can impact estate planning goals. 

Revising Your Estate Plan After Home Improvement

Americans renovate their homes around every three to five years. This is the same time interval that attorneys recommend reviewing an estate plan. 

Once you have finished remodeling your home, you should consider remodeling your estate plan. In addition to home improvements, there may have been other life events in recent years that warrant an estate plan update. Making changes to your plan does not cost much, and you will buy peace of mind knowing your plan reflects your current wishes. 

To discuss revisions to your estate plan, contact our office and schedule an appointment.

Footnotes

1. Vincent Salandro, Remodeling Activity Likely to Drop in 2023, Remodeling by JLC (Dec. 18, 2022), https://www.remodeling.hw.net/benchmarks/economic-outlook-rri/remodeling-activity-likely-to-drop-in-2023.
2. Market Measure, The Industry’s Annual Report, Hardware Retailing p. 26, 27 (Jan. 2022), https://lsc-pagepro.mydigitalpublication.com/publication/?m=59500&i=732068&p=30&ver=html5.
3. Elizabeth Renter, 2022 Home Improvement Report, NerdWallet (Nov. 16, 2022), https://www.nerdwallet.com/article/mortgages/2022-home-improvement.
4. State of Home Spending, Angi, https://www.angi.com/research/reports/spending/ (last visited Apr. 10, 2023).
5. Haven’t Done A Will Yet? You’ve got company. Neither have 6 in 10 U.S. adults, AARP (Feb. 24, 2017), https://www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html.
6. Carl Vogel, Home Renovations with the Best Return on Investment, This Old House, https://www.thisoldhouse.com/home-finances/21015466/renovations-that-give-you-a-return-on-your-investment (last visited Apr. 10, 2023).
7. Median Sales Price of Houses Sold for the United States (MSPUS), FRED Economic Data, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/MSPUS (last visited Apr. 10, 2023).
8. Nick Routley, Charting 20 Years of Home Price Changes in Every U.S. City, Visual Capitalist (Oct. 22, 2020), https://www.visualcapitalist.com/20-years-of-home-price-changes-in-every-u-s-city/.
9. Kristen Dalli, Most older adults want to grow old in their current homes, study finds, Consumer Affairs https://www.consumeraffairs.com/news/most-older-adults-want-to-grow-old-in-their-current-homes-study-finds-041822.html (last visited Apr. 10, 2023).
10. Jonathan Trout, The Cost of Aging in Place Remodeling, RetirementLiving (Mar. 15, 2023), https://www.retirementliving.com/the-cost-of-aging-in-place-remodeling.

When it comes to protecting your hard-earned money and property, it is important that you have the right plan, which can include a number of tools for your unique situation. One tool that might benefit you is a limited liability company (LLC) that owns some of your accounts and property.

What is a limited liability company?

An LLC is a business structure that can own many types of accounts and property. The LLC is owned by members who contribute money or property to the LLC. You can have a single-member-owned LLC or a multimember-owned LLC. If there is more than one member, management of the LLC can either be carried out by each member or the members can elect a manager.

What can an LLC own?

When people think of an LLC, they assume that it is a structure to operate a business. However, many types of accounts and property can benefit from being owned by an LLC:

• Real estate. An LLC can own property such as a second home, a rental property, or a property that has been in the family for generations.
• Investments. In some cases, an LLC can be formed to allow multiple people to pool their money and invest it with a larger volume.
• Expensive and risky property. An LLC can own items such as airplanes and boats. 

Why should I consider using an LLC in my estate plan?

Asset Protection

Because the LLC is a separate entity, typically the LLC’s creditors can only go after the LLC’s money and property, not the member’s personal accounts or property. Also, if the proper formalities are in place, the member’s personal creditors may not be able to reach the LLC’s accounts and property to satisfy the member’s personal debts. Note: In some states, a single-member LLC does not enjoy the same protection from the member’s personal creditors. The rationale of these laws is that your creditors should be able to seek relief through your LLC interests to satisfy their claims because there are no other members that will be negatively impacted by seizure of money and property owned by the LLC.

Probate Avoidance

Anything that is owned by the LLC, either retitled into the name of the LLC during your lifetime, bought by the LLC, or transferred by operation of law at your death, will not go through the public, costly, and time-consuming probate process. The probate process only transfers accounts and property that you owned at your death. By using an LLC, the LLC—not you—owns the accounts and property. However, if you own a membership interest in your own name, the transfer of the membership interest at your death may need to go through the probate process.

How can an LLC be used in an estate plan?

How It Works

During your lifetime, you create an LLC and then transfer accounts and property to the LLC or name the LLC to be the beneficiary of your accounts and property at your death. Once it has been created, you may also purchase property or create accounts in the name of the LLC. As the creator of the LLC, you will be a member. A member is someone who owns an interest in the LLC, and depending on the number of members and the type of management, may also manage the LLC. If you are married, your spouse may also be a member. You can also add other people as LLC members either when the LLC is created or later. Be aware that there may be gift tax consequences associated with adding members who do not contribute their own money or property to the LLC. The LLC becomes the owner of the accounts and property and it is operated as an entity separate from its individual members. It is this separation that allows an LLC to have some level of asset protection. At your death, the only item that may need to be transferred is your ownership interest in the LLC; the accounts and property owned by the LLC will remain owned by the LLC.

Operating Agreement

Most LLCs have an operating agreement that outlines the rules for managing and transferring a member’s interest in the LLC. If you currently have an LLC but do not have an operating agreement, or have an operating agreement but need to update it, please reach out to an experienced business law attorney as soon as possible. Some provisions that should be included in the operating agreement are  

• who the members of the LLC are,
• the percentage of ownership that each member has,
• how conflicts among members are settled,
• any restrictions on a member’s ability to transfer their membership interest (including transfers to a trust), and
• what happens to each member’s interest if the member dies (in most cases, whatever is stated in the operating agreement controls).

Trust Agreement

As an additional layer of protection, you may choose to transfer your membership interest in an LLC to a revocable living trust. As the creator, trustee, and beneficiary of the trust, you would still be able to participate in the management of the LLC and benefit from the LLC, you would just do so as the trustee of the trust and not as an individual. Because the trust owns the membership interest, transfer of the membership interest will not require probate, because the trust does not die. In fact, the trust can continue to own the membership interest after your death, which you can include in the trust’s instructions, along with a provision allowing a successor trustee to step in for you and handle LLC matters on behalf of the trust’s beneficiaries. Alternatively, you could state in the trust instructions that the membership interest be distributed to a named beneficiary at your death or at a specific time in the future. At that point, the beneficiary would have control of the membership interest.

Best Practices for Using an LLC

To ensure that you can take full advantage of the benefits associated with an LLC, it is critical that you follow all of the rules. An LLC is supposed to be a separate entity and you need to treat it as such. This means that there are some formalities you need to abide by, some of which include filing your annual report with the appropriate state government office and keeping separate records to showcase all transactions and meetings that the LLC is involved with. Additionally, you need to keep your personal money and property separate from the LLC’s money and property. You should not treat the LLC bank account as your own personal wallet.

Effective January 1, 2024, LLCs that meet the definition of a reporting company will need to file a Beneficial Ownership Information Report with the Department of the Treasury’s Financial Crimes Enforcement Network. The report must include the name, birthdate, address, and unique identifying number, issuing jurisdiction, and image of an acceptable identification document for all of the beneficial owners of the LLC. A beneficial owner is an individual who owns or controls 25 percent or more of the ownership interest of the company or who exercises “substantial control” over the company. For reporting companies created after January 1, 2024, company applicants must provide their name, birthdate, address, and the unique identifying number, issuing jurisdiction, and image of an acceptable identification document. A company applicant is either the individual who files the document that creates the entity or registers the entity to do business in the United States in the case of a foreign reporting company, or the individual who is primarily responsible for directing or controlling another person’s filing of the document.

What are my next steps?

We understand how important it is to protect yourself, your loved ones, and all that you have worked so hard to earn. A comprehensive estate plan can help accomplish your goals by implementing the right strategies for your situation. If you would like to explore how an LLC can help you plan for your future and the future of your loved ones, please reach out to our firm. 

On February 14, 2023, California state lottery officials named the winner of the largest lottery prize in United States history: Edwin Castro won an eye-popping $2.04 billion in a November 2022 lottery drawing, choosing a lump sum payment of $997.6 million instead of annual payments over three decades.¹ A lottery player in Maine recently won the $1.35 billion Mega Millions jackpot—another of the largest prizes ever recorded.² If you are fortunate enough to have purchased a winning lottery ticket, it is important to carefully consider how you want to handle your unexpected windfall to avoid repeating the unfortunate pattern of many lottery winners who quickly squander their new wealth,³ even if your prize is much smaller than those mentioned.

Take your time. Lottery winners typically have a specific length of time to claim their winnings, although the deadlines vary by state. For example, under title 8, section 382 of the Maine Revised Statutes, the Maine Mega Millions winner has one year after the drawing to claim the money. If it is never claimed, it will be transferred to the state’s general fund. In North Carolina, however, the prize must be collected within 90 or 180 days of the end of the game or drawing, depending upon the type of lottery prize you have won.⁴ Although it is not wise to delay too long, you should take time to think carefully about what you would like to do with the cash you have won, preferably even before you claim your prize. 

Manage expectations. If your lottery winnings have substantially increased your wealth, you may discover that your popularity has also grown. Some family members, acquaintances, and scammers are likely to want a piece of your winnings. Do not feel pressured to do anything that you do not genuinely feel good about, and be firm about your choices, regardless of attempts to make you feel obligated or guilty. Nevertheless, you may choose to be generous with your winnings, making gifts to family members, loved ones, or charities. However, keep in mind that large gifts may have tax consequences. In 2023, the annual gift tax exemption amount is $17,000 per recipient. This means that, with a few exceptions, if you give more than $17,000 to someone other than your spouse or a dependent, you may be subject to gift tax. However, many people avoid owing taxes by filing a Form 709 and subtracting any amount exceeding $17,000 from their lifetime exemption amount ($12.92 million for 2023).

Keep an eye on income tax consequences. Although the winner of California’s lottery opted to receive a lump sum of $997.6 million, he will not actually receive that amount, which is the amount of his winnings before taxes. Mr. Castro should hold off on buying any private islands until all of the taxes on his winnings are paid. Before the state of California gives him any of his winnings, 24 percent—$239.4 million—will be withheld and sent directly to the Internal Revenue Service (IRS).⁵ In addition, because the highest federal income tax rate is 37 percent, an additional 13 percent—$129.7 million—will be due in April 2023.⁶ After these federal tax payments are made, Mr. Castro will be left with a relatively paltry $628.5 million. Depending upon the state and city in which lottery winners live, their prize may also be subject to a state tax. 

It is important to file tax returns reporting your winnings and pay taxes owed to avoid interest and penalties. There is a 5 percent per month penalty for each month after the due date up to a maximum of 25 percent for failure to file your tax return on time. If you file your tax return on time, but do not pay all of the tax you owe on time, there is a failure-to-pay penalty of one-half of one percent per month up to a maximum of 25 percent of the amount of unpaid taxes. The amount of the penalty will increase if the IRS issues a notice of intent to levy property as a means of collecting the amount due. If your prize winnings are substantial, these penalties could also be sizable.

It is also crucial to make a good faith effort to ensure that your tax return accurately reports your winnings and not take any steps to willfully evade paying taxes owed. In 2021, an Ohio man who won $1 million in the lottery was charged with filing a false tax return to avoid taxes.⁷ According to court documents, the man, who pleaded guilty, had falsely claimed large gambling losses and transferred significant sums of money to foreign bank accounts that were not disclosed to the IRS in an effort to avoid paying taxes on his winnings. The maximum penalty for filing a false tax return is three years in prison and a fine of up to $100,000.

Contact professional advisors. The financial, tax, and legal issues that arise when you win a large prize can be overwhelming if you do not seek help. Before you make any major purchases or gifts, it is important to immediately contact a team of professionals to help you think through how to handle your winnings. If you would like to preserve your new wealth and enable it to grow, it is important to contact a financial advisor who can help you make wise financial decisions that are most appropriate for your unique situation. A tax advisor will also help you make important decisions such as determining whether there are more tax savings from receiving the lottery winnings as a lump-sum or installment payments, as well as make sure you file an accurate and timely tax return and pay taxes owed by the IRS’s due date.

As your estate planning attorneys, we can coordinate with your other advisors to help you make decisions and create or update your estate plan to incorporate strategies that will ensure that your winnings are protected during your lifetime, income and transfer taxes are minimized, and that your wealth is distributed to the people you choose in the way you desire when you pass away. Let us help you avoid hasty decisions that you may later regret. Call us today to set up an appointment so we can help you create a plan that will maximize the benefits from your lottery prize during your lifetime and create a lasting legacy for your loved ones.

Footnotes

1. Jordan Mendoza, Winner of Record $2.04 Billion Powerball Finally Revealed, Says They Were ‘Shocked and Ecstatic,‘ USA Today (Feb. 15, 2023), https://www.usatoday.com/story/news/nation/2023/02/14/who-won-two-billion-powerball-jackpot/11258329002/.
2. Jesus Jimenez, Someone in Maine Won the $1.35 Billion Mega Millions Jackpot, N.Y. Times (Jan. 18, 2023), https://www.nytimes.com/2023/01/14/us/mega-millions-jackpot-winner.html.
3. Mark Abadi et al., 20 Lottery Winners Who Lost It All — As Millions Vie for Powerball’s $700 Million Jackpot, Bus. Insider (Jan. 11, 2023), https://www.businessinsider.com/lottery-winners-lost-everything-2017-8.
4. Frequently Asked Questions, NC Education Lottery, https://nclottery.com/faq#:~:text=For%20instant%20scratch%2Doff%20games,which%20the%20ticket%20was%20purchased (last visited Mar. 29, 2023).
5. Robert W. Wood, $2.04 Billion Powerball Winner Takes Home $628 Million after Taxes, Forbes (Nov. 9, 2022), https://www.forbes.com/sites/robertwood/2022/11/09/204-billion-powerball-winner-takes-home-628-million-after-taxes/?sh=38a5cba87bbe.
6. Id.
7. Hilliard Man Lies to Avoid Taxes on $1 Million in Lottery Winnings; Pleads Guilty to Tax Fraud, U.S. Dep’t Just. (Nov. 9, 2021), https://www.justice.gov/usao-sdoh/pr/hilliard-man-lies-avoid-taxes-1-million-lottery-winnings-pleads-guilty-tax-fraud.

Roughly one in five US adults experiences a mental illness each year. Anxiety disorders are among the most common mental health conditions, affecting nearly one-third of adults at some point in their lives. While anxiety can be generalized and chronic, it can also be a normal reaction to everyday stresses, such as worrying about finances, health, and family. 

During Mental Health Awareness Month, people are encouraged to make positive changes that can help them feel better. Anxiety may be rooted in concerns about the future, like what will happen when you pass away or have health problems. Many questions cannot be answered. But that does not mean we have no control over the future. 

Procrastination, Anxiety, and Estate Planning

Procrastination and mental health can be closely linked and lead to an increasingly self-defeating cycle. Putting off necessary actions may lead to anxiety, depression, and low self-esteem, which causes further procrastination and more negative emotions.¹ 

People may procrastinate because they fear an unpleasant outcome, struggle with perfectionism, or feel overwhelmed. Occasional procrastination, like occasional anxiety, is normal. But when procrastination starts to negatively impact your life, causing you to put off important tasks, it may be time to take corrective action. 

Experts recommend beating procrastination by taking on the dreaded task, even if it is just in a few small chunks at a time. They also advise getting more organized and, when necessary, seeking professional help. 

About two-thirds of Americans have no estate plan.² That means they have no plan in place for dealing with unexpected tragedies, including death or incapacity. 

Many procrastinations have no immediate or tragic consequences. But if you put off your estate plan—and tragedy strikes—it will be too late to get started. 

Ways to Act Now and Address Anxiety about the Future

Contemplating death and disability does not have to be a morbid, anxiety-producing exercise. It can be a productive exercise in which unpleasant thoughts are channeled into meaningful actions. 

For many unanswered questions you have about the future, there is a related estate planning action you can take to achieve a greater degree of certainty. Below are some of the most common questions we all deal with and ways to take action. 

What happens when I die? 

Spiritually, this is a question best left to religion or philosophy. But materially, you can specify what happens to your money and property after you pass away using a will or revocable living trust. 

• A will is the most basic estate planning document that everybody should have, even if it is very simple. At a minimum, a will should name who will receive your accounts and property (your beneficiaries) and describe the distribution of your accounts and property to them. A will can do much more, though. It can also appoint guardians for minor children, provide funeral and burial instructions, describe how to handle your debts, taxes, and other legal affairs, and appoint an executor to carry out the instructions in your will. 
• A living trust is a trust that can hold your money and property for your benefit while you are alive and distribute them to beneficiaries upon your death or incapacity. It is often called a revocable living trust because you can revoke the trust or change its terms during your lifetime. For example, you can move accounts and property in and out of the trust, name a new trustee or co-trustee, and change the beneficiaries. At the designated time (i.e., your death or incapacity), a trustee takes over the trust and manages the accounts and property you placed in it. A living trust, which can only deal with the ownership and management of your accounts and property, is more limited in scope than a will and is best used as a will supplement—not a replacement. 

What happens if I am alive but cannot communicate?

Contemplating incapacity can be as anxiety-inducing as thinking about death. The following estate planning tools can ensure that you do not end up in legal limbo due to a mental or physical disorder that renders you unable to manage your affairs or make decisions. 

• A revocable living trust (described above) can be written so that it takes effect when you are incapacitated. You can define “incapacity” to specify exactly what triggers a successor trustee to take over management of the trust’s accounts and property. The trust can even lay out the procedures to follow for determining incapacity. 
• A financial power of attorney is the legal authority, granted by you to someone else, that allows that other person to manage your financial affairs and property without the need for court involvement. The individual granted a power of attorney can handle bank accounts, pay bills, sell property, run a business, apply for public benefits, pay taxes, make investments, and oversee insurance and retirement accounts on your behalf. They are legally required to act in your best interest. 
• A medical power of attorney is the healthcare equivalent of a financial power of attorney. It designates a person who is authorized to make medical and personal care decisions for you if and when you are unable to make those decisions. A medical power of attorney also gives a trusted decision maker the authority to manage your protected health information. 
• A HIPPA release lets designated persons access your protected health information. Your medical decision maker may already have this authority through a medical power of attorney, but others may want to be included on a HIPPA release so they can stay informed about your condition. 
• A living will describes the types of medical treatment you do—and do not—want to receive to keep you alive, as well as your preferences for pain management, organ donation, and other medical decisions. The use of a ventilator, tube feeding, palliative care interventions, and resuscitation techniques are typically addressed in a living will. 

What happens to my children? 

An estate plan is not just about your own peace of mind. It can also have a considerable impact on those closest to you. If you have minor children, you need to account for their needs. Several documents can help ensure that your children are taken care of. 

• Your will can designate a guardian for your minor children in the event that tragedy befalls both you and the child’s other legal parent. It can also set up a trust and appoint a trustee to manage accounts and property for your children’s support. Careful use of a trust and trustee for this purpose may eliminate the need for a trustee bond (paid to secure performance of the trustee’s duties) and avoid court supervision of a minor child’s inherited assets.³ 
• A minor power of attorney lets a parent delegate somebody to take care of their child for a certain period (usually up to one year, depending on state law). The named caregiver is legally permitted to make necessary decisions for the minor, such as decisions about their schooling and healthcare. The parent can give the caretaker complete or limited authority to make these decisions. A minor power of attorney—which does not create a permanent guardianship—can be used as a stopgap if a parent is incapacitated, incarcerated, out of the country, or otherwise temporarily unable to fulfill their parental duties. 
• A permanent guardian nomination names a permanent caregiver for a minor child. The nomination can be in a will or a separate signed document. Nominating a guardian for your minor child does not guarantee that that person will end up as their guardian. The court has the authority to appoint a guardian. Usually, they appoint the nominee unless there is a good reason not to. Having a backup guardian is recommended in case the court rejects the primary nominee, or if for some reason they are unable to serve as guardian. 

Treat Yourself to Estate Planning This Mental Health Awareness Month

Rewarding yourself is a way to break out of procrastination that may be hindering your estate plan goals. And what better reward is there than taking control of your future? 

An estate plan that includes wills, trusts, powers of attorney, medical directives, and guardianship documents can help eliminate some of the uncertainty—and anxiety—that comes with contemplating end-of-life scenarios. You cannot cheat fate. However, you can buy yourself peace of mind with comprehensive estate planning. To start planning now, schedule a meeting with our attorneys. 

Footnotes

1. Why You Put Things Off Until the Last Minute, Mass Gen. Brigham McLean, https://www.mcleanhospital.org/essential/procrastination (last visited Apr. 7, 2023).
2. Lorie Konish, 67% of Americans Have No Estate Plan, Survey Finds. Here’s How to Get Started on One, CNBC (Apr. 11, 2022), https://www.cnbc.com/2022/04/11/67percent-of-americans-have-no-estate-plan-heres-how-to-get-started-on-one.html.
3. Introduction to Wills, Am. Bar Ass’n, https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/an_introduction_to_wills/ (last visited Apr. 7, 2023).