Asset Protection For The Business
Owner
As a business owner, you probably realize that operating and owning a
business can be fraught with pitfalls and risks. Turning a profit isn't enough;
you must also protect your business from claims and lawsuits. Debts and
mortgage obligations to third parties and vendors, claims for damages caused
by your employees, product or professional liability and consumer-protection
issues are just some of the risks you must deal with. If handled improperly,
these risks could result in the disastrous loss of both business and personal
assets. Knowing what risks you face and how to minimize or avoid the loss
they can cause can give you the chance to run your business successfully.
Read on to find out what they are.
Why Is Asset Protection Important?
The goal of a comprehensive asset-protection plan is to prevent or significantly
reduce risks by insulating your business and personal assets from the claims
of creditors. Unfortunately, if you're like most small-business owners, you are
unaware of all the potential risks that can harm your business and the options
available to protect your business and personal assets. An asset-protection
plan employs legal strategies, put into place before a lawsuit or claim arises,
that can deter a potential claimant or help prevent the seizure of your assets
after a judgment. If you haven't already put your asset-protection plan in place,
don't wait - the longer the plan has been in existence, the stronger it likely will
be. (Read Will Insurance Keep Your Business Safe? to learn how to guard
against the loss of skilled workers.)
Strategies used in asset-protection planning include separate legal structures
or arrangements, such as corporations, partnerships and trusts. The
structure(s) that will work best for you depends, in large part, on the kinds of
assets you own and the types of creditors most likely to pursue claims against
you.
Owner
As a business owner, you probably realize that operating and owning a
business can be fraught with pitfalls and risks. Turning a profit isn't enough;
you must also protect your business from claims and lawsuits. Debts and
mortgage obligations to third parties and vendors, claims for damages caused
by your employees, product or professional liability and consumer-protection
issues are just some of the risks you must deal with. If handled improperly,
these risks could result in the disastrous loss of both business and personal
assets. Knowing what risks you face and how to minimize or avoid the loss
they can cause can give you the chance to run your business successfully.
Read on to find out what they are.
Why Is Asset Protection Important?
The goal of a comprehensive asset-protection plan is to prevent or significantly
reduce risks by insulating your business and personal assets from the claims
of creditors. Unfortunately, if you're like most small-business owners, you are
unaware of all the potential risks that can harm your business and the options
available to protect your business and personal assets. An asset-protection
plan employs legal strategies, put into place before a lawsuit or claim arises,
that can deter a potential claimant or help prevent the seizure of your assets
after a judgment. If you haven't already put your asset-protection plan in place,
don't wait - the longer the plan has been in existence, the stronger it likely will
be. (Read Will Insurance Keep Your Business Safe? to learn how to guard
against the loss of skilled workers.)
Strategies used in asset-protection planning include separate legal structures
or arrangements, such as corporations, partnerships and trusts. The
structure(s) that will work best for you depends, in large part, on the kinds of
assets you own and the types of creditors most likely to pursue claims against
you.
Claim Types
The following are two general types of claims that can be made against you. For asset
protection, it's important to know the difference.
Internal claims - arise from creditors whose remedy is limited to assets of a particular
entity, such as a corporation. For example, if you have a corporation which owns a piece
of real estate and someone slips and falls on the property owned by the corporation, the
injured party is limited to pursuing the corporation's assets (i.e., the real estate). This
assumes you did not cause the injury.
External claims - are not limited to the assets of the entity, but can extend to your
personal assets as well. For instance, if the same corporation owned a truck which you
negligently drove into a crowd of pedestrians, the injured could not only sue the
corporation but also you and satisfy any judgment from corporate assets as well as your
personal assets.
Asset Types
Knowing the type of claims that can be made will allow you to better plan and protect your
property from seizure and your wages from garnishment. It is also important to
understand which types of assets are more susceptible to claims. So-called dangerous
assets, by their very nature, create a substantial risk of liability. Examples of dangerous
assets include rental real estate, commercial property, business assets, such as tools
and equipment, and motor vehicles. Safe assets, on the other hand, do not promote a high
degree of inherent liability. Ownership of stocks, bonds and individually-owned bank
accounts do not incorporate risk by their very existence.
Understanding the existence of these classes of assets is also very important in
asset-protection planning. Safe assets can generally be owned by you individually or by
the same entity since they carry with them a low probability of risk. However, you do not
want to commingle dangerous assets either with other dangerous assets or with safe
assets. Keeping ownership of dangerous assets separate limits exposure of loss to the
individual asset.
For example, a medical practice has obvious, inherent risks of liability. But did you know
that if you own the building in which the practice is operated, that property may also be
considered a dangerous asset? If both the practice and building are owned by you or by
the same entity, liability arising from either asset could stretch to and include the other,
exposing both your livelihood and property to risk of loss
The following are two general types of claims that can be made against you. For asset
protection, it's important to know the difference.
Internal claims - arise from creditors whose remedy is limited to assets of a particular
entity, such as a corporation. For example, if you have a corporation which owns a piece
of real estate and someone slips and falls on the property owned by the corporation, the
injured party is limited to pursuing the corporation's assets (i.e., the real estate). This
assumes you did not cause the injury.
External claims - are not limited to the assets of the entity, but can extend to your
personal assets as well. For instance, if the same corporation owned a truck which you
negligently drove into a crowd of pedestrians, the injured could not only sue the
corporation but also you and satisfy any judgment from corporate assets as well as your
personal assets.
Asset Types
Knowing the type of claims that can be made will allow you to better plan and protect your
property from seizure and your wages from garnishment. It is also important to
understand which types of assets are more susceptible to claims. So-called dangerous
assets, by their very nature, create a substantial risk of liability. Examples of dangerous
assets include rental real estate, commercial property, business assets, such as tools
and equipment, and motor vehicles. Safe assets, on the other hand, do not promote a high
degree of inherent liability. Ownership of stocks, bonds and individually-owned bank
accounts do not incorporate risk by their very existence.
Understanding the existence of these classes of assets is also very important in
asset-protection planning. Safe assets can generally be owned by you individually or by
the same entity since they carry with them a low probability of risk. However, you do not
want to commingle dangerous assets either with other dangerous assets or with safe
assets. Keeping ownership of dangerous assets separate limits exposure of loss to the
individual asset.
For example, a medical practice has obvious, inherent risks of liability. But did you know
that if you own the building in which the practice is operated, that property may also be
considered a dangerous asset? If both the practice and building are owned by you or by
the same entity, liability arising from either asset could stretch to and include the other,
exposing both your livelihood and property to risk of loss
Protect Your Company From Employee Lawsuits
Employment harassment and discrimination lawsuits are growing rapidly as more
employees become aware of their legal rights. These lawsuits are expected to escalate
even more as the awareness increases. It is no surprise that companies are going for
employment practices liability insurance (EPLI) to protect their interests. As the name
suggests, EPLI is a type of liability insurance targeted at companies and employers to
protect them against liability that arises out of employment practices. Let's take a closer
look at this type of employer protection. Here we'll introduce the general features of this
policy and show you how companies choose the policy best suited to their needs.
Coverage and Claims
EPLI covers judgments, settlements and defense expenses up to the specified policy limits
for a company, its directors and officers, and its previous and present employees. Many
insurers may not cover employment applicants, leased, temporary, part-time, seasonal
employees and even independent contractors. Hence, employers should opt for
comprehensive coverage that includes permanent, temporary and prospective employees.
The coverage includes all the office-related lawsuits such as sexual and non-sexual
harassment, religious, gender and racial discrimination, unlawful termination, negligent
assessment, breach of employment contract, mismanagement of employee benefits plans,
failure to employ or promote, denial of career opportunity, unfair discipline, invasion of
privacy, defamation and intentional infliction of emotional stress. Many EPLI policies also
provide larger coverage and cover claims brought by the Equal Employment Opportunity
Commission (EEOC) on behalf of an employee.
As with all insurance policies, the terms and conditions of the coverage may vary
considerably from insurer to insurer. The insured company must be acquainted with the
specified definition of the term "claim" within the policy.
Premium
Generally, premium rates differ from one state to another and from one company to another.
Premiums are calculated by determining the total amount of insurance a business requires
and its perceived risk. Risk factors such as the number of employees in a company, the
turnover ratio, the presence of a proper human resources division, and any previous
harassment or prejudice suits against the company affect the premium rates of that
company.
However, many companies try to lower the premiums by adopting zero-tolerance policies
against alcohol and drug abuse, harassment and discrimination at the workplace. As a rule,
insurers evaluate a company to verify the presence of any workplace liabilities before
issuing the policy. Consequently, the insurance company will propose the necessary
changes that need to be introduced in the company. These variations help in setting up a
healthy atmosphere at the workplace and protect the company against lawsuits.
EPLI Policies Differ from CGI policies
It is important to note that coverage provided by EPLI policies and comprehensive general
liability insurance (CGL) policies are different. Unlike EPLI policies, CGL policies provide only
general liability coverage and insure against tangible damages such as claims for injury and
property damage. CGL policies tend to cover property damage and bodily injury cases, while
EPLI policies do not cover these cases and instead tend to protect the employer against
claims of wrongful termination, workplace harassment and discrimination.
Companies with EPLI policies have to inform the insurance company of any claims that
occurred during the coverage period. Only these will be covered under EPLI. With CGL, a
claim made today about damages that occurred in the past will still be covered under the
policy, even if the claim is made many years later. EPLI policies only cover the claims that
the employer reported and of which it was aware during the coverage period.
Deductibles and Limits of Liability
Deductibles apply to each claim in EPLI policy. A company can purchase insurance limits of
liability of between $1 million up to $25 million. For example, a $1 million limit implies that an
insurer would compensate only to the limit of $1 million. Usually, an EPLI policy is subject to
a per-claim deductible (which ranges from $2,500 to $25,000 per claim) and a per-claim limit
of coverage (the maximum amount an insurance company will pay to the insured company).
Finally, insurance plans have a per-policy aggregate limit of liability. While aggregate limit is
the highest amount an insurance company will pay out for the claims during the policy term
(generally one year).
Employment harassment and discrimination lawsuits are growing rapidly as more
employees become aware of their legal rights. These lawsuits are expected to escalate
even more as the awareness increases. It is no surprise that companies are going for
employment practices liability insurance (EPLI) to protect their interests. As the name
suggests, EPLI is a type of liability insurance targeted at companies and employers to
protect them against liability that arises out of employment practices. Let's take a closer
look at this type of employer protection. Here we'll introduce the general features of this
policy and show you how companies choose the policy best suited to their needs.
Coverage and Claims
EPLI covers judgments, settlements and defense expenses up to the specified policy limits
for a company, its directors and officers, and its previous and present employees. Many
insurers may not cover employment applicants, leased, temporary, part-time, seasonal
employees and even independent contractors. Hence, employers should opt for
comprehensive coverage that includes permanent, temporary and prospective employees.
The coverage includes all the office-related lawsuits such as sexual and non-sexual
harassment, religious, gender and racial discrimination, unlawful termination, negligent
assessment, breach of employment contract, mismanagement of employee benefits plans,
failure to employ or promote, denial of career opportunity, unfair discipline, invasion of
privacy, defamation and intentional infliction of emotional stress. Many EPLI policies also
provide larger coverage and cover claims brought by the Equal Employment Opportunity
Commission (EEOC) on behalf of an employee.
As with all insurance policies, the terms and conditions of the coverage may vary
considerably from insurer to insurer. The insured company must be acquainted with the
specified definition of the term "claim" within the policy.
Premium
Generally, premium rates differ from one state to another and from one company to another.
Premiums are calculated by determining the total amount of insurance a business requires
and its perceived risk. Risk factors such as the number of employees in a company, the
turnover ratio, the presence of a proper human resources division, and any previous
harassment or prejudice suits against the company affect the premium rates of that
company.
However, many companies try to lower the premiums by adopting zero-tolerance policies
against alcohol and drug abuse, harassment and discrimination at the workplace. As a rule,
insurers evaluate a company to verify the presence of any workplace liabilities before
issuing the policy. Consequently, the insurance company will propose the necessary
changes that need to be introduced in the company. These variations help in setting up a
healthy atmosphere at the workplace and protect the company against lawsuits.
EPLI Policies Differ from CGI policies
It is important to note that coverage provided by EPLI policies and comprehensive general
liability insurance (CGL) policies are different. Unlike EPLI policies, CGL policies provide only
general liability coverage and insure against tangible damages such as claims for injury and
property damage. CGL policies tend to cover property damage and bodily injury cases, while
EPLI policies do not cover these cases and instead tend to protect the employer against
claims of wrongful termination, workplace harassment and discrimination.
Companies with EPLI policies have to inform the insurance company of any claims that
occurred during the coverage period. Only these will be covered under EPLI. With CGL, a
claim made today about damages that occurred in the past will still be covered under the
policy, even if the claim is made many years later. EPLI policies only cover the claims that
the employer reported and of which it was aware during the coverage period.
Deductibles and Limits of Liability
Deductibles apply to each claim in EPLI policy. A company can purchase insurance limits of
liability of between $1 million up to $25 million. For example, a $1 million limit implies that an
insurer would compensate only to the limit of $1 million. Usually, an EPLI policy is subject to
a per-claim deductible (which ranges from $2,500 to $25,000 per claim) and a per-claim limit
of coverage (the maximum amount an insurance company will pay to the insured company).
Finally, insurance plans have a per-policy aggregate limit of liability. While aggregate limit is
the highest amount an insurance company will pay out for the claims during the policy term
(generally one year).
Hammer Clause
The hammer clause authorizes the insurer to advise the insured company to make a settlement to the other party. According to the hammer clause, the insurance company will offer settlement up to a certain
amount. If the insured company refuses this option and subsequently loses the case, then the company is liable to pay the judgment amount beyond the limit the insurer has agreed to pay. Suppose the insurer
offers the settlement of $70,000. The insured company refuses the offer and the claim in the judgment comes to $120,000 against the insured. In this case, the insurer will pay $70,000 minus the existing
deductible. The insured company has to pay the remaining $50,000 along with the deductible amount.
Another variant is the soft hammer clause (also called modified hammer clause) wherein the insurer must pay a fixed percentage (typically 50%) of the potential defense or
document.write(''); 
indemnity costs that exceed the amount of the settlement offer declined by the insured company. For instance, suppose the insurer proposes a settlement offer of $60,000 and the insured company declines
the offer. Unfortunately, the claim in the judgment equals $110,000 against the insured company. Hence, the insurer is liable to pay the amount of settlement plus the 50% of the amount exceeding the
settlement (ie. $75,000). The insured company is liable to pay the remaining $35,000 along with the deductible.
Sometimes, hammer clause contain a stipulation that empowers insurers to compel the insured company to opt for arbitration or any such means of dispute settlement. And, in some instances, a company
can eliminate a hammer clause from the policy by increasing the deductible.
Duty to Defend
Insurers provide duty-to-defend coverage that requires the insurer to defend against claims on the company's behalf. As a result, the insurance companies retain the right to choose the counsel that will
defend the insured company in case of a legal action.
Normally, EPLI policies insurer to choose legal counsel for the insured company. Typically, EPLI insurers have a preauthorized panel counsel, which is specifically employed to defend regional insured
companies. Because insurers have more claim experience and are emotionally detached, this can lead to early settlement of the claim with lower costs.
On the other hand, if the company prefers a particular counsel, then the company should name that counsel in an endorsement to the policy.
Duty to Pay
Duty-to-pay policy (also called "no-duty to defend" policy) is perfect for companies that are concerned about their good names and the probable effect of an unfavorable settlement. As per the duty-to-pay
policy, the insured company can control its own defense, choose its own attorney and challenge all the claims. However, a higher deductible has to be paid in this policy as there are chances of higher legal
costs and also higher settlement costs.
Policy Exclusions
EPLI coverage does not cover every situation. Typically, exclusions include criminal acts, fraud, illegal profit or advantage, purposeful violation of law, and claims arising out of downsizing, layoffs, workforce
restructurings, plant closures or strikes, mergers or acquisitions.
In case of punitive damages, many states rule out allowing insurers to compensate against them. However, many EPLI policies provide punitive damages through the "most-favored jurisdiction" clause. The
clause specifies that the punitive damages coverage will be regulated by the state law that favors insuring against punitive damages. For example, if a company has business operations in many states and a
claim arises in the state where punitive damages coverage is excluded, if the company was established in a state that supports punitive damages coverage, then the company can get coverage under its EPLI
policy.
Conclusion
Certainly, mistakes do occur at workplaces and a company may make costly errors in its employment practices. It can start with a small gag on an employee or questionable contract termination. That's when
a company needs liability insurance to protect it from lawsuits. Having a suitable employment practices liability insurance plan in place can save a company's reputation and protect it from financial losses in
the court system.
The hammer clause authorizes the insurer to advise the insured company to make a settlement to the other party. According to the hammer clause, the insurance company will offer settlement up to a certain
amount. If the insured company refuses this option and subsequently loses the case, then the company is liable to pay the judgment amount beyond the limit the insurer has agreed to pay. Suppose the insurer
offers the settlement of $70,000. The insured company refuses the offer and the claim in the judgment comes to $120,000 against the insured. In this case, the insurer will pay $70,000 minus the existing
deductible. The insured company has to pay the remaining $50,000 along with the deductible amount.
Another variant is the soft hammer clause (also called modified hammer clause) wherein the insurer must pay a fixed percentage (typically 50%) of the potential defense or
document.write(''); 
indemnity costs that exceed the amount of the settlement offer declined by the insured company. For instance, suppose the insurer proposes a settlement offer of $60,000 and the insured company declines
the offer. Unfortunately, the claim in the judgment equals $110,000 against the insured company. Hence, the insurer is liable to pay the amount of settlement plus the 50% of the amount exceeding the
settlement (ie. $75,000). The insured company is liable to pay the remaining $35,000 along with the deductible.
Sometimes, hammer clause contain a stipulation that empowers insurers to compel the insured company to opt for arbitration or any such means of dispute settlement. And, in some instances, a company
can eliminate a hammer clause from the policy by increasing the deductible.
Duty to Defend
Insurers provide duty-to-defend coverage that requires the insurer to defend against claims on the company's behalf. As a result, the insurance companies retain the right to choose the counsel that will
defend the insured company in case of a legal action.
Normally, EPLI policies insurer to choose legal counsel for the insured company. Typically, EPLI insurers have a preauthorized panel counsel, which is specifically employed to defend regional insured
companies. Because insurers have more claim experience and are emotionally detached, this can lead to early settlement of the claim with lower costs.
On the other hand, if the company prefers a particular counsel, then the company should name that counsel in an endorsement to the policy.
Duty to Pay
Duty-to-pay policy (also called "no-duty to defend" policy) is perfect for companies that are concerned about their good names and the probable effect of an unfavorable settlement. As per the duty-to-pay
policy, the insured company can control its own defense, choose its own attorney and challenge all the claims. However, a higher deductible has to be paid in this policy as there are chances of higher legal
costs and also higher settlement costs.
Policy Exclusions
EPLI coverage does not cover every situation. Typically, exclusions include criminal acts, fraud, illegal profit or advantage, purposeful violation of law, and claims arising out of downsizing, layoffs, workforce
restructurings, plant closures or strikes, mergers or acquisitions.
In case of punitive damages, many states rule out allowing insurers to compensate against them. However, many EPLI policies provide punitive damages through the "most-favored jurisdiction" clause. The
clause specifies that the punitive damages coverage will be regulated by the state law that favors insuring against punitive damages. For example, if a company has business operations in many states and a
claim arises in the state where punitive damages coverage is excluded, if the company was established in a state that supports punitive damages coverage, then the company can get coverage under its EPLI
policy.
Conclusion
Certainly, mistakes do occur at workplaces and a company may make costly errors in its employment practices. It can start with a small gag on an employee or questionable contract termination. That's when
a company needs liability insurance to protect it from lawsuits. Having a suitable employment practices liability insurance plan in place can save a company's reputation and protect it from financial losses in
the court system.
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Asset Protection for Business Owner
KNOWLEDGEFINANCIAL.COM
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Asset Protection For The Business Owner.
Why Is Asset Protection Important?
The goal of a comprehensive asset-protection plan
is to prevent or significantly reduce risks by
insulating your business and personal assets from
claims.
Why Is Asset Protection Important?
The goal of a comprehensive asset-protection plan
is to prevent or significantly reduce risks by
insulating your business and personal assets from
claims.
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'' OUR MISSION // '' OUR VISION // '' OUR VALUE // '' OUR EXPECTATION // '' SUCCESS STATEMENT //
'' How to Avoid Probate in Florida
How to Avoid Florida Probate - 4
Easy Ways..
#1 - Get Rid of All of Your Florida
Property
If you aren't a Florida resident but own real estate there,
then one way to avoid ancillary probate in Florida is to get
rid of all of your Florida real estate, because without
owning any property located in Florida, you won't have an
estate that will need to be probated in Florida.
Of course, this may not be practical or desirable, but it may
make sense for you to gift your Florida real estate to your
children or other beneficiaries in order to both reduce the
value of your estate and avoid Florida probate.
#2 - Use Joint Ownership With Rights of
Survivorship or Tenancy by the Entirety
Adding a joint owner to a bank account or investment
account or to the deed for real estate will avoid probate in
Florida, provided that it is clear that the account or real
estate is owned as joint tenants with rights of survivorship
and not as tenants in common.
If you're married, then in Florida you and your spouse can
own bank accounts, investment accounts, tangible
personal property and real estate with rights of
survivorship in a special form called tenancy by the entirety.
But beware of relying on joint ownership with rights of
survivorship or tenancy by the entirety to avoid probate
because there are several downsides to doing so:
In many cases adding a joint owner to an account or deed
will be a taxable gift that needs to be reported to the IRS on
a federal gift tax return (IRS Form 709).
If a joint owner is sued or gets divorced, then a judgment
creditor or divorcing spouse may be able to take the assets
in the joint account or real estate that is owned jointly.
If a joint owner dies before you do, then 50% or even 100%
of the joint account could be included in the deceased
owner's estate for estate tax purposes.
If you're in a second or later marriage, leaving your
property to your spouse by right of survivorship or tenancy
by the entirety will mean that your spouse will be free to do
whatever he or she wants with your property after your
spouse later dies.
This may not be what you want - in other words, you may
want your spouse to have use of your property after you
die, but then after your spouse later dies you may want your
property to go to your own children.
In this situation, joint ownership with right of survivorship
or tenancy by the entirety will not accomplish your final
wishes since your spouse may freely choose to leave your
property to your spouse's children or even to a new spouse
instead of your children.
#3 - Use Beneficiary Designations or Life
Estate Deeds
If you own life insurance or assets held in a retirement
account such as an IRA, 401(k) or annuity, then you are
already taking advantage of probate avoidance through the
use of beneficiary designations.
What you may not know is that in Florida you are allowed to
designate beneficiaries for your bank accounts (this is
referred to as a "payable on death" or "POD" account), and
also for your non-retirement investment accounts (this is
referred to as a "transfer on death" or "TOD" account).
In addition, in Florida you can use a special type of life
estate deed called an enhanced life estate deed, also
known as a "Ladybird Deed," to retain ownership of Florida
real estate during your lifetime and then pass the property
on to the beneficiaries of your choice after you die without
the need to probate the real estate in Florida.
#4 - Use a Revocable Living Trust
--------------
A Revocable Living Trust is a
written agreement which covers
three phases of your life:
While you're alive and well;
If you become mentally
incapacitated; and
After you die.
How to Avoid Florida Probate - 4
Easy Ways..
#1 - Get Rid of All of Your Florida
Property
If you aren't a Florida resident but own real estate there,
then one way to avoid ancillary probate in Florida is to get
rid of all of your Florida real estate, because without
owning any property located in Florida, you won't have an
estate that will need to be probated in Florida.
Of course, this may not be practical or desirable, but it may
make sense for you to gift your Florida real estate to your
children or other beneficiaries in order to both reduce the
value of your estate and avoid Florida probate.
#2 - Use Joint Ownership With Rights of
Survivorship or Tenancy by the Entirety
Adding a joint owner to a bank account or investment
account or to the deed for real estate will avoid probate in
Florida, provided that it is clear that the account or real
estate is owned as joint tenants with rights of survivorship
and not as tenants in common.
If you're married, then in Florida you and your spouse can
own bank accounts, investment accounts, tangible
personal property and real estate with rights of
survivorship in a special form called tenancy by the entirety.
But beware of relying on joint ownership with rights of
survivorship or tenancy by the entirety to avoid probate
because there are several downsides to doing so:
In many cases adding a joint owner to an account or deed
will be a taxable gift that needs to be reported to the IRS on
a federal gift tax return (IRS Form 709).
If a joint owner is sued or gets divorced, then a judgment
creditor or divorcing spouse may be able to take the assets
in the joint account or real estate that is owned jointly.
If a joint owner dies before you do, then 50% or even 100%
of the joint account could be included in the deceased
owner's estate for estate tax purposes.
If you're in a second or later marriage, leaving your
property to your spouse by right of survivorship or tenancy
by the entirety will mean that your spouse will be free to do
whatever he or she wants with your property after your
spouse later dies.
This may not be what you want - in other words, you may
want your spouse to have use of your property after you
die, but then after your spouse later dies you may want your
property to go to your own children.
In this situation, joint ownership with right of survivorship
or tenancy by the entirety will not accomplish your final
wishes since your spouse may freely choose to leave your
property to your spouse's children or even to a new spouse
instead of your children.
#3 - Use Beneficiary Designations or Life
Estate Deeds
If you own life insurance or assets held in a retirement
account such as an IRA, 401(k) or annuity, then you are
already taking advantage of probate avoidance through the
use of beneficiary designations.
What you may not know is that in Florida you are allowed to
designate beneficiaries for your bank accounts (this is
referred to as a "payable on death" or "POD" account), and
also for your non-retirement investment accounts (this is
referred to as a "transfer on death" or "TOD" account).
In addition, in Florida you can use a special type of life
estate deed called an enhanced life estate deed, also
known as a "Ladybird Deed," to retain ownership of Florida
real estate during your lifetime and then pass the property
on to the beneficiaries of your choice after you die without
the need to probate the real estate in Florida.
#4 - Use a Revocable Living Trust
--------------
A Revocable Living Trust is a
written agreement which covers
three phases of your life:
While you're alive and well;
If you become mentally
incapacitated; and
After you die.
Revocable Living Trust
A Revocable Living Trust is a written
agreement which covers three phases of
your life:
While you're alive and well;
If you become mentally incapacitated; and
After you die.
Aside from allowing you to make a plan for what happens if you become
incapacitated or after you die, a Revocable Living Trust is also a powerful
estate planning tool that will keep your estate plan private since it will
keep your final wishes outside of Florida's public probate court records.
But signing the Revocable Living Trust agreement by itself isn't enough
to avoid the probate of your property in Florida after you die.
Instead, once the trust agreement is signed, you will need to take your
assets and title them in the name of your trust - this is referred to as
"funding the trust." Only after your Revocable Living Trust has become
the record owner of your assets will the assets owned by the trust
(instead of you) avoid probate in Florida.
If you visualize your trust as a bucket, then "funding the trust" means
that you need to fill the bucket with your assets in order to insure that
the assets will avoid probate after you die.
If any of your assets sit outside of the trust (bucket) at the time of your
death, then the unfunded assets will need to be probated in Florida
unless they have a beneficiary designation or are owned with rights of
survivorship with someone who survives you.
As you can see, there are only a limited number of ways to avoid probate
in Florida. What will actually work the best for you and your family will
depend on your own unique situation and should be discussed with your
Florida estate planning attorney.
But regardless of what you choose to do, if you use one or more of the
techniques described above to avoid the probate of your property in
Florida, then you will be creating peace of mind for you as well as peace
of mind for your loved ones during a difficult time.
A Revocable Living Trust is a written
agreement which covers three phases of
your life:
While you're alive and well;
If you become mentally incapacitated; and
After you die.
Aside from allowing you to make a plan for what happens if you become
incapacitated or after you die, a Revocable Living Trust is also a powerful
estate planning tool that will keep your estate plan private since it will
keep your final wishes outside of Florida's public probate court records.
But signing the Revocable Living Trust agreement by itself isn't enough
to avoid the probate of your property in Florida after you die.
Instead, once the trust agreement is signed, you will need to take your
assets and title them in the name of your trust - this is referred to as
"funding the trust." Only after your Revocable Living Trust has become
the record owner of your assets will the assets owned by the trust
(instead of you) avoid probate in Florida.
If you visualize your trust as a bucket, then "funding the trust" means
that you need to fill the bucket with your assets in order to insure that
the assets will avoid probate after you die.
If any of your assets sit outside of the trust (bucket) at the time of your
death, then the unfunded assets will need to be probated in Florida
unless they have a beneficiary designation or are owned with rights of
survivorship with someone who survives you.
As you can see, there are only a limited number of ways to avoid probate
in Florida. What will actually work the best for you and your family will
depend on your own unique situation and should be discussed with your
Florida estate planning attorney.
But regardless of what you choose to do, if you use one or more of the
techniques described above to avoid the probate of your property in
Florida, then you will be creating peace of mind for you as well as peace
of mind for your loved ones during a difficult time.
Understanding Trusts
A trust is one of the fundamental documents of estate planning, but they
come in many forms, from revocable and irrevocable trusts to living and
testamentary trusts. Learn which trust is best for you and your family.
Irrevocable Life Insurance Trust (ILIT) -- Estate Planning..
Many people aren't aware that the proceeds from their life insurance
policies are included their estate for estate tax purposes when they die.
This can be avoided by forming an irrevocable life insurance trust, also
known as an ILIT, to take ownership of the policy.
A policy owner can withdraw the cash value of his policy and change its
beneficiary or beneficiaries at any point during his lifetime, so he has
what the Internal Revenue Service calls "incidents of ownership" over
the policy and its proceeds.
The IRS and some state taxing authorities can then include the proceeds
in the policy owner's estate, potentially making them vulnerable to
taxation.
Here's how it works: If you own a $2 million life insurance policy, that
money will go into your estate when you die. It will count against your
exemption from federal estate taxes. The value of your estate over and
above this exemption threshold is subject to taxation.
As a practical matter, the exemption is $5,450,000 as of 2016 and it's
indexed for inflation, so it can go up -- or down -- annually, depending on
the economy. Typically, only very valuable estates have to worry about
federal estate taxes.
But some states also impose estate taxes with much lower thresholds. If
your state's exemption is $1 million, the balance of your policy's death
benefits are taxable. If you also own more than $3,450,000 in other
property that also makes up your estate when you die, the balance is
subject to federal estate tax.
Avoiding Estate Tax with an ILIT
An ILIT is a type of irrevocable trust that's specifically designed to own
life insurance policies. After the ILIT has been set up, you can transfer
ownership of your policy. You can't serve as trustee of the ILIT -- this
would give you incidents of ownership. But your spouse, your adult
children, a friend or even a financial institution or an attorney can act as
trustee.
When you transfer ownership of the policy to the ILIT, give up all
incidents of ownership so the proceeds aren't subject to estate tax when
you die.
Who Are the Beneficiaries of an ILIT?
The ILIT is designated as the insurance policy's primary beneficiary.
Death benefits are deposited into the ILIT and held in trust for the
benefit of your trust's beneficiaries, those you've named in the trust's
formation documents.
If the proceeds are held in trust for the benefit of your spouse instead of
going directly to her -- she'll receive regular incremental payments
rather than the lump sum, the proceeds can't be taxed as part of her
estate, either.
Potential Complications
If you die within three years of transferring your life insurance policy to
your ILIT, the IRS will still include the proceeds in your estate for estate
tax purposes. You can avoid this by having the trust purchase the policy
on your life, then funding the trust with sufficient money over the years
to pay the premiums.
Gift taxes can also be a consideration because you're effectively giving
the trust the money to pay for the policy, but this is avoidable, too.
Your trustee can simply send your trust's beneficiaries something called
a "Crummey" letter each time you transfer money to the trust, advising
them that they can ask for their share of the money within a specific
period of time. They have an immediate right to it.
Of course, if they take the money, the premiums will go unpaid and they
will no longer be your life insurance beneficiaries because the policy
would lapse. This is usually sufficient encouragement for the
beneficiaries to leave the money right where it is.
Because an ILIT is irrevocable, you typically can't undo one after you've
set it up. But because ongoing premiums must be paid to keep the life
insurance policy in effect, all you must do if you want to cancel the trust
is stop making payments for the premiums. The trust would then become
an empty vessel when the policy lapses.
A trust is one of the fundamental documents of estate planning, but they
come in many forms, from revocable and irrevocable trusts to living and
testamentary trusts. Learn which trust is best for you and your family.
Irrevocable Life Insurance Trust (ILIT) -- Estate Planning..
Many people aren't aware that the proceeds from their life insurance
policies are included their estate for estate tax purposes when they die.
This can be avoided by forming an irrevocable life insurance trust, also
known as an ILIT, to take ownership of the policy.
A policy owner can withdraw the cash value of his policy and change its
beneficiary or beneficiaries at any point during his lifetime, so he has
what the Internal Revenue Service calls "incidents of ownership" over
the policy and its proceeds.
The IRS and some state taxing authorities can then include the proceeds
in the policy owner's estate, potentially making them vulnerable to
taxation.
Here's how it works: If you own a $2 million life insurance policy, that
money will go into your estate when you die. It will count against your
exemption from federal estate taxes. The value of your estate over and
above this exemption threshold is subject to taxation.
As a practical matter, the exemption is $5,450,000 as of 2016 and it's
indexed for inflation, so it can go up -- or down -- annually, depending on
the economy. Typically, only very valuable estates have to worry about
federal estate taxes.
But some states also impose estate taxes with much lower thresholds. If
your state's exemption is $1 million, the balance of your policy's death
benefits are taxable. If you also own more than $3,450,000 in other
property that also makes up your estate when you die, the balance is
subject to federal estate tax.
Avoiding Estate Tax with an ILIT
An ILIT is a type of irrevocable trust that's specifically designed to own
life insurance policies. After the ILIT has been set up, you can transfer
ownership of your policy. You can't serve as trustee of the ILIT -- this
would give you incidents of ownership. But your spouse, your adult
children, a friend or even a financial institution or an attorney can act as
trustee.
When you transfer ownership of the policy to the ILIT, give up all
incidents of ownership so the proceeds aren't subject to estate tax when
you die.
Who Are the Beneficiaries of an ILIT?
The ILIT is designated as the insurance policy's primary beneficiary.
Death benefits are deposited into the ILIT and held in trust for the
benefit of your trust's beneficiaries, those you've named in the trust's
formation documents.
If the proceeds are held in trust for the benefit of your spouse instead of
going directly to her -- she'll receive regular incremental payments
rather than the lump sum, the proceeds can't be taxed as part of her
estate, either.
Potential Complications
If you die within three years of transferring your life insurance policy to
your ILIT, the IRS will still include the proceeds in your estate for estate
tax purposes. You can avoid this by having the trust purchase the policy
on your life, then funding the trust with sufficient money over the years
to pay the premiums.
Gift taxes can also be a consideration because you're effectively giving
the trust the money to pay for the policy, but this is avoidable, too.
Your trustee can simply send your trust's beneficiaries something called
a "Crummey" letter each time you transfer money to the trust, advising
them that they can ask for their share of the money within a specific
period of time. They have an immediate right to it.
Of course, if they take the money, the premiums will go unpaid and they
will no longer be your life insurance beneficiaries because the policy
would lapse. This is usually sufficient encouragement for the
beneficiaries to leave the money right where it is.
Because an ILIT is irrevocable, you typically can't undo one after you've
set it up. But because ongoing premiums must be paid to keep the life
insurance policy in effect, all you must do if you want to cancel the trust
is stop making payments for the premiums. The trust would then become
an empty vessel when the policy lapses.
How Do Irrevocable Life Insurance
Trusts Work?
In order to avoid the federal estate tax, many people transfer their policies to a
trust rather than to children or other individuals.
These trusts are called Irrevocable Life Insurance Trusts or “ILIT’s” (pronounced
“eye-lets”). If this technique is used, the ILIT becomes the owner and beneficiary
of the policies. The death benefit, when paid to the trust, is not subject to estate
tax, assuming that the insured survives the transfer of ownership to the trust by
at least three years.
If the Irrevocable Life Insurance Trust acquires a new policy insuring the
decedent’s life, rather than receiving the insurance policy by transfer, then the
three year rule does not apply.
The death benefit is excluded from the estate from the start. This is a very
important distinction. The reason the three year rule is inapplicable is because
the insurance policy was not transferred, the insurance policy was purchased by
the Trustee of the ILIT.
The beneficiaries of the trust are usually the family members; surviving spouse,
children, more remote issue, or really anyone the Settlor wishes to benefit can be
a beneficiary.
This is a very important distinction. The reason the three year rule is inapplicable
is because the insurance policy was not transferred, the insurance policy was
purchased by the Trustee of the ILIT.
The beneficiaries of the trust are usually the family members; surviving spouse,
children, more remote issue, or really anyone the Settlor wishes to benefit can be
a beneficiary.
Unless the policy owned by the trust is paid in full, the trustee will have to pay the
annual premiums. The trustee could do so with the cash income earned by
securities in the trust (if any), but this would make the trust income taxable to the
grantor. This result also occurs if the policy is on the grantor's spouse.
The most common estate planning technique used to fund the premiums is for the
Settlor to make gifts to the trust in sums sufficient to pay the premiums. The
trustee can then choose to use these trust contributions to pay the premiums and
keep the policy intact.
Using an ILIT is a good way to plan for liquidity of an estate. The ILIT is funded with
gifts during the decedent’s lifetime and invests cash in insurance on the
decedent’s life. On the decedent’s death, the irrevocable life insurance trust
receives the death benefit.
Many estate plans now provide for the unlimited marital deduction so that there is
no federal estate tax due until the death of the surviving spouse. In these
situations, often the ILIT will own a joint and survivor life insurance policy that
does pay the death benefit until the death of the second spouse - this is when
cash is needed.
When the death benefit is paid to the trustee, the ILIT does not distribute the
proceeds. Instead, with this cash, the trustee of the life insurance trust can
purchase illiquid assets from the estate, or loan cash to the executor. If the estate
owns illiquid real estate or a closely-held business, the irrevocable trust is a
source of cash for the executor to meet the estate’s obligations.
The asset purchased from the estate, or the repayment of the loan when assets
are finally sold, becomes the corpus of the ILIT and is administered according to
its terms for the benefit of beneficiaries.
Thus, the terms of the ILIT for how the assets will be held, or distributed after
death are very important and should not be taken lightly. Some folks assume that
the death benefit goes to pay taxes and there is nothing left. That’s not the way it
works.
Yes, the cash is available liquidity for tax payments, but the way it gets to the
estate is by buying assets from the estate, or making loans to the estate. The ILIT
cannot direct that estate taxes be paid from it.
If it did, it would lose its estate tax benefit and the death benefit itself would
become subject to estate tax.
Trusts Work?
In order to avoid the federal estate tax, many people transfer their policies to a
trust rather than to children or other individuals.
These trusts are called Irrevocable Life Insurance Trusts or “ILIT’s” (pronounced
“eye-lets”). If this technique is used, the ILIT becomes the owner and beneficiary
of the policies. The death benefit, when paid to the trust, is not subject to estate
tax, assuming that the insured survives the transfer of ownership to the trust by
at least three years.
If the Irrevocable Life Insurance Trust acquires a new policy insuring the
decedent’s life, rather than receiving the insurance policy by transfer, then the
three year rule does not apply.
The death benefit is excluded from the estate from the start. This is a very
important distinction. The reason the three year rule is inapplicable is because
the insurance policy was not transferred, the insurance policy was purchased by
the Trustee of the ILIT.
The beneficiaries of the trust are usually the family members; surviving spouse,
children, more remote issue, or really anyone the Settlor wishes to benefit can be
a beneficiary.
This is a very important distinction. The reason the three year rule is inapplicable
is because the insurance policy was not transferred, the insurance policy was
purchased by the Trustee of the ILIT.
The beneficiaries of the trust are usually the family members; surviving spouse,
children, more remote issue, or really anyone the Settlor wishes to benefit can be
a beneficiary.
Unless the policy owned by the trust is paid in full, the trustee will have to pay the
annual premiums. The trustee could do so with the cash income earned by
securities in the trust (if any), but this would make the trust income taxable to the
grantor. This result also occurs if the policy is on the grantor's spouse.
The most common estate planning technique used to fund the premiums is for the
Settlor to make gifts to the trust in sums sufficient to pay the premiums. The
trustee can then choose to use these trust contributions to pay the premiums and
keep the policy intact.
Using an ILIT is a good way to plan for liquidity of an estate. The ILIT is funded with
gifts during the decedent’s lifetime and invests cash in insurance on the
decedent’s life. On the decedent’s death, the irrevocable life insurance trust
receives the death benefit.
Many estate plans now provide for the unlimited marital deduction so that there is
no federal estate tax due until the death of the surviving spouse. In these
situations, often the ILIT will own a joint and survivor life insurance policy that
does pay the death benefit until the death of the second spouse - this is when
cash is needed.
When the death benefit is paid to the trustee, the ILIT does not distribute the
proceeds. Instead, with this cash, the trustee of the life insurance trust can
purchase illiquid assets from the estate, or loan cash to the executor. If the estate
owns illiquid real estate or a closely-held business, the irrevocable trust is a
source of cash for the executor to meet the estate’s obligations.
The asset purchased from the estate, or the repayment of the loan when assets
are finally sold, becomes the corpus of the ILIT and is administered according to
its terms for the benefit of beneficiaries.
Thus, the terms of the ILIT for how the assets will be held, or distributed after
death are very important and should not be taken lightly. Some folks assume that
the death benefit goes to pay taxes and there is nothing left. That’s not the way it
works.
Yes, the cash is available liquidity for tax payments, but the way it gets to the
estate is by buying assets from the estate, or making loans to the estate. The ILIT
cannot direct that estate taxes be paid from it.
If it did, it would lose its estate tax benefit and the death benefit itself would
become subject to estate tax.
Living Will vs. Trust - Definitions and Differences
Living Wills and Living Trusts are Very Different..
A living will vs. a living trust -- what's the difference?
Many people confuse living wills with living trusts because they're both estate
planning options and they sound much alike.
But, in fact, living wills and living trusts serve two completely different purposes.
Learn what a living will is and what a living trust is so you'll never again confuse
these two documents.
Living Wills vs. Living Trusts
A living trust covers three phases of your life - while you're
alive and well, while you're alive but not so well, and after your
death.
A living will only covers what happens to you if you are near
death.
What is a Living Will?
A living will is a document that allows you to explain your wishes with regard to what
medical procedures you want or don't want when your health is critical and you can't
voice your wishes. You might be in an irreversible coma or you've suffering from a
terminal illness and you're no longer lucid.
You might have suffered a severe injury and you're not expected to fully recover. A
living will is specifically designed to deal with questions about life-ending vs.
life-sustaining procedures.
A living will can be incorporated into an advance directive, also
called an advance medical directive. This is a legal document that allows you to
designate someone else to make health care decisions for you if you're unable to do
so yourself. It's not the same thing as a living will, which does not name or appoint
someone else to speak for you.
A living will simply states when and under what circumstances
you want health care providers to attempt to prolong your life or to cease
life-sustaining measures. Do you want your heart resuscitated if it stops?
Would you rather not be placed on a ventilator even if it means saving your life? A
living will can also address issues of palliative care and organ donation.
It allows you to express your wishes at a time when your life is not yet threatened and
you're thinking clearly.
Living Wills and Living Trusts are Very Different..
A living will vs. a living trust -- what's the difference?
Many people confuse living wills with living trusts because they're both estate
planning options and they sound much alike.
But, in fact, living wills and living trusts serve two completely different purposes.
Learn what a living will is and what a living trust is so you'll never again confuse
these two documents.
Living Wills vs. Living Trusts
A living trust covers three phases of your life - while you're
alive and well, while you're alive but not so well, and after your
death.
A living will only covers what happens to you if you are near
death.
What is a Living Will?
A living will is a document that allows you to explain your wishes with regard to what
medical procedures you want or don't want when your health is critical and you can't
voice your wishes. You might be in an irreversible coma or you've suffering from a
terminal illness and you're no longer lucid.
You might have suffered a severe injury and you're not expected to fully recover. A
living will is specifically designed to deal with questions about life-ending vs.
life-sustaining procedures.
A living will can be incorporated into an advance directive, also
called an advance medical directive. This is a legal document that allows you to
designate someone else to make health care decisions for you if you're unable to do
so yourself. It's not the same thing as a living will, which does not name or appoint
someone else to speak for you.
A living will simply states when and under what circumstances
you want health care providers to attempt to prolong your life or to cease
life-sustaining measures. Do you want your heart resuscitated if it stops?
Would you rather not be placed on a ventilator even if it means saving your life? A
living will can also address issues of palliative care and organ donation.
It allows you to express your wishes at a time when your life is not yet threatened and
you're thinking clearly.
What is a Living Trust?
A living trust is a legal document created by an individual called the trustmaker or
sometimes the grantor. It holds and owns his assets after he transfers him into the
trust.
This property is invested and spent for the benefit of the beneficiary, who is
typically the trustmaker himself. It's managed by its trustee, who is also usually the
trustmaker.
As you can see, there's a big difference between having a living will vs. a living
trust. If you're not sure if you have a living will, a revocable living trust or both,
meet with an estate planning attorney to review your documents and make sure
you have all of your bases covered.
There are other ways to pass your estate on to beneficiaries, but only a living will
can state your wishes for end of life without debate.
What is a Revocable Living Trust?
How Does a Revocable Living Trust Work?
A revocable living trust -- sometimes simply called
a living trust -- is a legal entity created to hold ownership of an individual's
assets. The person who forms the trust is called the grantor or trustmaker, and in
most cases, he also serves as the trustee, controlling and managing the assets he
placed there. Some trustmakers prefer to have an institution or attorney acts as
trustee, although this is somewhat uncommon with this type of trust.
A revocable living trust covers three phases of the trustmaker's life: his lifetime,
possible incapacitation, and what happens after his death.
Phase One of a Revocable Living Trust: The Trustmaker is Alive and Well
The trust's formation documents should include specific provisions allowing the
trustmaker to invest and spend the trust assets for his own benefit during his
lifetime. He can go about business as usual with the assets that have been
transferred or funded into the trust's ownership, assuming he hasn't appointed
someone else to act as trustee. In this case, the trustee would typically take
direction from him.
The trustmaker reserves the right to undo a revocable trust -- thus the term
"revocable." He can reclaim assets he's placed into it, divert the trust's income to
himself or to another beneficiary, sell the assets or place more assets into it. He
maintains final control.
A revocable living trust does not have its own taxpayer identification number,
unlike an irrevocable trust -- one where the trustmaker gives up all control. A
revocable trust and its trustmaker share the same Social Security number. Trust
taxes are filed on the trustmaker's Form 1040, just as though he continued to hold
ownership of the assets personally.
Phase Two of a Revocable Living Trust: The
Trustmaker Becomes Mentally Incapacitated
The trust agreement should also specify what happens if the trustmaker becomes
mentally incapacitated and can no longer manage his own affairs and those of the
trust. The trust documents should name a "successor trustee," someone to step in
and take over management of the trust if the trustmaker is determined to be
mentally incompetent. The successor trustee can then manage the trustmaker's
finances and the assets that have been placed into the trust.
Phase Three of a Revocable Living Trust: The Trustmaker's Death
A revocable trust automatically becomes irrevocable when the trustmaker dies
because he can no longer make changes to it. The named successor trustee steps
in now as well, paying the trustmaker's final bills, debts and taxes, just as he would
if the trustmaker became incapacitated. In the case of death, however, he would
then distribute the remaining assets to the trust's beneficiaries according to
instructions included in the trust's formation documents.
How a Revocable Living Trust Avoids Probate
The Internal Revenue Service and probate courts view revocable trusts a little
differently. Because the trustmaker and the trust share the same Social Security
number, assets placed in the trust do not avoid estate taxes.
The trustmaker can reclaim them any time he likes, so the IRS takes the position
that he has not technically relinquished ownership as he would with an irrevocable
trust, which does escape estate taxation.
The probate court says he has indeed relinquished ownership. He's given the
assets to the trust, even though he could theoretically take them back. Assuming
he hasn't done so as of his date of death, the trust's assets would not pass through
probate. The successor trustee can settle the trust outside of court, without
supervision.
So What is a Revocable Living Trust?
More specifically, a Revocable Living Trust is a legal document that is created by
an individual, called the Grantor, Settlor, Trustor or Trustmaker, to hold and own
the Trustmaker’s assets, which are in turn invested and spent for the benefit of the
Trustmaker as the beneficiary by a fiduciary called a Trustee.
In most cases, the Trustmaker of the trust will also be the Trustee, although some
wealthy individuals may choose to have an institution manage their trust property.
Living Trust vs. Revocable Trust vs. Revocable Living Trust
So why are there so many different terms to describe the exact same thing?
Because, as the saying goes, “To each his (or her) own.” Some estate planning
attorneys, including me, use the term "Living Trust" when naming a client's
Revocable Living Trust agreement: "Jane Doe Living Trust dated February 29,
2012."
Why do I like to name my clients’ trusts “Living
Trusts”?
Mainly because this term is shorter than “Revocable Trust” or "Revocable Living
Trust" or "Declaration of Trust" and is easier to understand than "Inter Vivos Trust"
(“inter vivos” means “between the living” in Latin).
Living Trusts, Irrevocable Trusts, and Testamentary Trusts
With all of that said, you should be aware that the term "Living Trust" can also be
used to describe an "Irrevocable Trust" that is created while you are alive and
kicking, therefore making it an "Irrevocable Living Trust." This is in contrast to a
"Testamentary Trust," which is a trust that goes into effect after the death of the
person who has created the trust.
But to date I have never come across an Irrevocable Trust that has been named
the “Jane Doe Irrevocable Living Trust” – but that’s not to say that somewhere,
some place, there is a trust named the Jane Doe Irrevocable Living Trust.
Usually Irrevocable Trusts are named just that, the “Jane Doe Irrevocable Trust,”
and sometimes the words “Life Insurance” are thrown in when that type of trust is
being created – the “Jane Doe Irrevocable Life Insurance Trust.”
A living trust is a legal document created by an individual called the trustmaker or
sometimes the grantor. It holds and owns his assets after he transfers him into the
trust.
This property is invested and spent for the benefit of the beneficiary, who is
typically the trustmaker himself. It's managed by its trustee, who is also usually the
trustmaker.
As you can see, there's a big difference between having a living will vs. a living
trust. If you're not sure if you have a living will, a revocable living trust or both,
meet with an estate planning attorney to review your documents and make sure
you have all of your bases covered.
There are other ways to pass your estate on to beneficiaries, but only a living will
can state your wishes for end of life without debate.
What is a Revocable Living Trust?
How Does a Revocable Living Trust Work?
A revocable living trust -- sometimes simply called
a living trust -- is a legal entity created to hold ownership of an individual's
assets. The person who forms the trust is called the grantor or trustmaker, and in
most cases, he also serves as the trustee, controlling and managing the assets he
placed there. Some trustmakers prefer to have an institution or attorney acts as
trustee, although this is somewhat uncommon with this type of trust.
A revocable living trust covers three phases of the trustmaker's life: his lifetime,
possible incapacitation, and what happens after his death.
Phase One of a Revocable Living Trust: The Trustmaker is Alive and Well
The trust's formation documents should include specific provisions allowing the
trustmaker to invest and spend the trust assets for his own benefit during his
lifetime. He can go about business as usual with the assets that have been
transferred or funded into the trust's ownership, assuming he hasn't appointed
someone else to act as trustee. In this case, the trustee would typically take
direction from him.
The trustmaker reserves the right to undo a revocable trust -- thus the term
"revocable." He can reclaim assets he's placed into it, divert the trust's income to
himself or to another beneficiary, sell the assets or place more assets into it. He
maintains final control.
A revocable living trust does not have its own taxpayer identification number,
unlike an irrevocable trust -- one where the trustmaker gives up all control. A
revocable trust and its trustmaker share the same Social Security number. Trust
taxes are filed on the trustmaker's Form 1040, just as though he continued to hold
ownership of the assets personally.
Phase Two of a Revocable Living Trust: The
Trustmaker Becomes Mentally Incapacitated
The trust agreement should also specify what happens if the trustmaker becomes
mentally incapacitated and can no longer manage his own affairs and those of the
trust. The trust documents should name a "successor trustee," someone to step in
and take over management of the trust if the trustmaker is determined to be
mentally incompetent. The successor trustee can then manage the trustmaker's
finances and the assets that have been placed into the trust.
Phase Three of a Revocable Living Trust: The Trustmaker's Death
A revocable trust automatically becomes irrevocable when the trustmaker dies
because he can no longer make changes to it. The named successor trustee steps
in now as well, paying the trustmaker's final bills, debts and taxes, just as he would
if the trustmaker became incapacitated. In the case of death, however, he would
then distribute the remaining assets to the trust's beneficiaries according to
instructions included in the trust's formation documents.
How a Revocable Living Trust Avoids Probate
The Internal Revenue Service and probate courts view revocable trusts a little
differently. Because the trustmaker and the trust share the same Social Security
number, assets placed in the trust do not avoid estate taxes.
The trustmaker can reclaim them any time he likes, so the IRS takes the position
that he has not technically relinquished ownership as he would with an irrevocable
trust, which does escape estate taxation.
The probate court says he has indeed relinquished ownership. He's given the
assets to the trust, even though he could theoretically take them back. Assuming
he hasn't done so as of his date of death, the trust's assets would not pass through
probate. The successor trustee can settle the trust outside of court, without
supervision.
So What is a Revocable Living Trust?
More specifically, a Revocable Living Trust is a legal document that is created by
an individual, called the Grantor, Settlor, Trustor or Trustmaker, to hold and own
the Trustmaker’s assets, which are in turn invested and spent for the benefit of the
Trustmaker as the beneficiary by a fiduciary called a Trustee.
In most cases, the Trustmaker of the trust will also be the Trustee, although some
wealthy individuals may choose to have an institution manage their trust property.
Living Trust vs. Revocable Trust vs. Revocable Living Trust
So why are there so many different terms to describe the exact same thing?
Because, as the saying goes, “To each his (or her) own.” Some estate planning
attorneys, including me, use the term "Living Trust" when naming a client's
Revocable Living Trust agreement: "Jane Doe Living Trust dated February 29,
2012."
Why do I like to name my clients’ trusts “Living
Trusts”?
Mainly because this term is shorter than “Revocable Trust” or "Revocable Living
Trust" or "Declaration of Trust" and is easier to understand than "Inter Vivos Trust"
(“inter vivos” means “between the living” in Latin).
Living Trusts, Irrevocable Trusts, and Testamentary Trusts
With all of that said, you should be aware that the term "Living Trust" can also be
used to describe an "Irrevocable Trust" that is created while you are alive and
kicking, therefore making it an "Irrevocable Living Trust." This is in contrast to a
"Testamentary Trust," which is a trust that goes into effect after the death of the
person who has created the trust.
But to date I have never come across an Irrevocable Trust that has been named
the “Jane Doe Irrevocable Living Trust” – but that’s not to say that somewhere,
some place, there is a trust named the Jane Doe Irrevocable Living Trust.
Usually Irrevocable Trusts are named just that, the “Jane Doe Irrevocable Trust,”
and sometimes the words “Life Insurance” are thrown in when that type of trust is
being created – the “Jane Doe Irrevocable Life Insurance Trust.”
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'' World Class Real Estate Service:
Selling your home can be a daunting process. The questions never seem to
end. HELP IS AVAILABLE ANTHONY A SOUTH FLORIDA REAL ESTATE
PROFESSIONAL.
Questions like: How do you set a price? What comps do you look at? (Or should
you try selling by yourself?) How will you (and your agent) market your home?
How do you sell your home to make the maximum profits possible ? How much
can you expect to make from the sale of your home? YOU CAN GET ALL
QUESTIONS ANSWER...
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Real Estate Investing: The 10 Commandments Of Buying Properties With No
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In my opinion there is no other investment that works like real estate. It is the
only wealth/portfolio building tool that someone else finances.
Your tenants’ monthly rental payments pay all of your expenses. READ MORE =
Home Sellers -
Everything You Need to Know - South Florida Real Estate Guide For Home
Buyers And Home Sellers... READ MORE =
'' World Class Real Estate Service:
Selling your home can be a daunting process. The questions never seem to
end. HELP IS AVAILABLE ANTHONY A SOUTH FLORIDA REAL ESTATE
PROFESSIONAL.
Questions like: How do you set a price? What comps do you look at? (Or should
you try selling by yourself?) How will you (and your agent) market your home?
How do you sell your home to make the maximum profits possible ? How much
can you expect to make from the sale of your home? YOU CAN GET ALL
QUESTIONS ANSWER...
SOUTH FLORIDA CALL ANTHONY AT: = READ MORE =
''Real Estate Zone The Marketplace To Build Wealth
Real Estate Investing: The 10 Commandments Of Buying Properties With No
Money And, Or No Credit. READ MORE =
Real Estate World Class Service Welcome You -
In my opinion there is no other investment that works like real estate. It is the
only wealth/portfolio building tool that someone else finances.
Your tenants’ monthly rental payments pay all of your expenses. READ MORE =
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| Assets Protection: Don't Get Sued: Five Tips To Protect Your Company! Types of Asset-Protection Vehicles; Many different strategies have been developed over the years claiming to protect assets |
11 Great things to do with your money in financial crisis, in difficult economic time
Trust Account: Definition of a Trust; Land Trust, Living Trust, Revocable Trust,
Land Contract. It is one of the oldest and best defined relationships known in the
law --
How to protect yourself and a business against malicious law-suits?
Will & Living trust
What is a will and what is living trust? How does a living trust avoid probate?
{Investment} The Ultimate Retirement Guide for Everyone; Retire Rich, Retire
Early
How can I protect my assets? {Business 101 --- Corp., S - Corp., LLC, General
Partnership, Limited partnership, Trust Account, Will and Living-Trust}
Trust Account: Definition of a Trust; Land Trust, Living Trust, Revocable Trust,
Land Contract. It is one of the oldest and best defined relationships known in the
law --
How to protect yourself and a business against malicious law-suits?
Will & Living trust
What is a will and what is living trust? How does a living trust avoid probate?
{Investment} The Ultimate Retirement Guide for Everyone; Retire Rich, Retire
Early
How can I protect my assets? {Business 101 --- Corp., S - Corp., LLC, General
Partnership, Limited partnership, Trust Account, Will and Living-Trust}
Don't Get Sued: Five Tips To Protect Your Company
As a business owner, it's your responsibility to do everything within your means to limit risk and to
keep the business running smoothly. But how does one go about limiting the possibility of a lawsuit
to ensure business continuity? In this article, we'll take a look at five actions you can take today to
protect your company for tomorrow.
1. Watch What You Say and Do
First of all, when it comes to your business image, owners and their employees should avoid making
any public announcements or conducting any business that might be considered questionable. This
means avoiding things like libelous or potentially slanderous statements, but it also means not doing
business with unscrupulous individuals. You may not think it's a problem working for a group of
individuals who are known for shoddy business practices - because you know your company's
ethics are above reproach - but if they take a hit, your company's name may be linked to them in the
fallout.
This point also includes limiting any possible conflicts of interest. Business owners and their
employees must avoid situations where a conflict of interest may present itself. Situations such as
these can damage your integrity as a business owner and could land you in legal hot water. For
example, sitting on the town council and helping pass an ordinance that benefits your business
would be a conflict of interest, even if you didn't make a decision with any benefit for your company.
2. Hire a Competent Attorney
Business owners should interview attorneys when they first start up, in order to have a ready legal
contact. You may need this person to advise you before you act or on how to react when you've been
sued.
Owners should also attempt to secure an attorney that is familiar with local laws and customs in the
area in which the business operates. Care should also be taken to retain an attorney with expertise
in a particular field if necessary. If your company is anticipating legal challenges from the Internal
Revenue Service (IRS) or taxation state department it makes sense to hire a tax attorney.
There are several potential resources to help you find a good attorney. These include cold calling
and interviewing from the phone book, professional references from other business owners, or
through the professional organizations to which the company belongs (like the local chamber of
commerce or any sector association
. Separating Yourself From Your Business
Many business owners own and operate their businesses as sole proprietorships. The only problem
with this is that in the event the company is sued, the owner's individual assets (such as their cars
or home) are fairly easy to attack or attach in a court of law.
The solution to this, or at least a way to limit the possibility that the owner's personal assets might
be the target of a suit, is to have a trust own the business. A trust is a legal entity that, in most cases,
files its own tax return and can own property, businesses, cash, securities and a host of other
assets. If a business is owned by a properly established trust, and it is sued, in most cases the only
assets that can be attacked or attached in a court of law are those that are in the trust itself.
Incorporate
Incorporating separates your company's finances from your own. This makes your house and
personal wealth safe from attack even in the event you lose your business in a judgment. The
downside to incorporating can come from understanding and keeping up with the additional laws,
reports and taxes that the government requires for a corporation.
4. Insure Yourself
All businesses should obtain liability insurance in case (for example), a customer was to slip and fall
in your place of business. Certain professionals, such as insurance agents and/or consultants,
should also consider obtaining errors and omissions coverage to ensure the business should a
customer or client accuses the owner of making some sort of error, or not living up to a contract.
(To read more about this area of insurance, see Filling The Gaps In General Liability Insurance and
Cover Your Company With Liability Insurance.)
If the business is large and has a formal board of directors, it may also make sense to secure
directors and officers liability (D&O) insurance. Once purchased, this insurance protects the
directors' personal assets in a larger suit against the company.
In addition to purchasing insurance, another way to insure yourself against liability is to build
protection into your contracts. If an act of nature, a specific supplier or some other uncontrollable
act can make it impossible for you to fulfill a contract (and thus open yourself up to legal action) then
you should be putting to ink that you are not liable for incomplete work due to these factors.
Discussing the possible clauses and legal phrases needed in your work contracts is one of the best
ways to employ your lawyer's time and it will reduce your need for a lawyer later on in your business
venture.
5. Protect Your Files
As most businesses these days work quite intensively on computers, it makes sense to emphasize
the safety requirements for your computer system. Businesses should have updated antivirus and
other types of security software loaded and activated on their systems. If a computer system were
to go down because of a virus, the business may be at risk of not being able to perform certain
contracted work. In addition, key files could be lost or stolen, which could then lead to legal action
from clients and/or suppliers.
As a business owner, it's your responsibility to do everything within your means to limit risk and to
keep the business running smoothly. But how does one go about limiting the possibility of a lawsuit
to ensure business continuity? In this article, we'll take a look at five actions you can take today to
protect your company for tomorrow.
1. Watch What You Say and Do
First of all, when it comes to your business image, owners and their employees should avoid making
any public announcements or conducting any business that might be considered questionable. This
means avoiding things like libelous or potentially slanderous statements, but it also means not doing
business with unscrupulous individuals. You may not think it's a problem working for a group of
individuals who are known for shoddy business practices - because you know your company's
ethics are above reproach - but if they take a hit, your company's name may be linked to them in the
fallout.
This point also includes limiting any possible conflicts of interest. Business owners and their
employees must avoid situations where a conflict of interest may present itself. Situations such as
these can damage your integrity as a business owner and could land you in legal hot water. For
example, sitting on the town council and helping pass an ordinance that benefits your business
would be a conflict of interest, even if you didn't make a decision with any benefit for your company.
2. Hire a Competent Attorney
Business owners should interview attorneys when they first start up, in order to have a ready legal
contact. You may need this person to advise you before you act or on how to react when you've been
sued.
Owners should also attempt to secure an attorney that is familiar with local laws and customs in the
area in which the business operates. Care should also be taken to retain an attorney with expertise
in a particular field if necessary. If your company is anticipating legal challenges from the Internal
Revenue Service (IRS) or taxation state department it makes sense to hire a tax attorney.
There are several potential resources to help you find a good attorney. These include cold calling
and interviewing from the phone book, professional references from other business owners, or
through the professional organizations to which the company belongs (like the local chamber of
commerce or any sector association
. Separating Yourself From Your Business
Many business owners own and operate their businesses as sole proprietorships. The only problem
with this is that in the event the company is sued, the owner's individual assets (such as their cars
or home) are fairly easy to attack or attach in a court of law.
The solution to this, or at least a way to limit the possibility that the owner's personal assets might
be the target of a suit, is to have a trust own the business. A trust is a legal entity that, in most cases,
files its own tax return and can own property, businesses, cash, securities and a host of other
assets. If a business is owned by a properly established trust, and it is sued, in most cases the only
assets that can be attacked or attached in a court of law are those that are in the trust itself.
Incorporate
Incorporating separates your company's finances from your own. This makes your house and
personal wealth safe from attack even in the event you lose your business in a judgment. The
downside to incorporating can come from understanding and keeping up with the additional laws,
reports and taxes that the government requires for a corporation.
4. Insure Yourself
All businesses should obtain liability insurance in case (for example), a customer was to slip and fall
in your place of business. Certain professionals, such as insurance agents and/or consultants,
should also consider obtaining errors and omissions coverage to ensure the business should a
customer or client accuses the owner of making some sort of error, or not living up to a contract.
(To read more about this area of insurance, see Filling The Gaps In General Liability Insurance and
Cover Your Company With Liability Insurance.)
If the business is large and has a formal board of directors, it may also make sense to secure
directors and officers liability (D&O) insurance. Once purchased, this insurance protects the
directors' personal assets in a larger suit against the company.
In addition to purchasing insurance, another way to insure yourself against liability is to build
protection into your contracts. If an act of nature, a specific supplier or some other uncontrollable
act can make it impossible for you to fulfill a contract (and thus open yourself up to legal action) then
you should be putting to ink that you are not liable for incomplete work due to these factors.
Discussing the possible clauses and legal phrases needed in your work contracts is one of the best
ways to employ your lawyer's time and it will reduce your need for a lawyer later on in your business
venture.
5. Protect Your Files
As most businesses these days work quite intensively on computers, it makes sense to emphasize
the safety requirements for your computer system. Businesses should have updated antivirus and
other types of security software loaded and activated on their systems. If a computer system were
to go down because of a virus, the business may be at risk of not being able to perform certain
contracted work. In addition, key files could be lost or stolen, which could then lead to legal action
from clients and/or suppliers.
S Corporations
An S corporation is similar to a C corporation except that it qualifies for a special IRS tax election to
have corporate profits pass through the business and be taxed only at the shareholder level. While the
liability protection afforded to C corporations generally applies to S corporations as well, there are
additional qualifications the S corporation must meet as to the number and type of shareholders, how
profits and losses may be allocated among shareholders, and the kinds of stock the company can
issue to investors.
Limited Liability Corporations
Due to the added formalities imposed on S corporations, a newer entity has evolved, which affords
similar liability protection to corporate principals as a C corporation and the same "pass-through" tax
treatment of S corporations, but without the formalities and restrictions associated with an LLC.
General Partnership
A general partnership is an association of two or more persons carrying on a business activity
together. This agreement can be written or oral. As an asset-protection tool, a general partnership is
one of the least-useful arrangements because each partner is personally liable for all of the debts of
the partnership, including debts incurred by other partners on behalf of the partnership. Any one
partner can act on behalf of the other partners with or without their knowledge and consent.
This feature of unlimited liability contrasts with the limited liability of the owners of a corporation. Not
only is a partner liable for contracts entered into by other partners, but each partner is also liable for
the other partner's negligence. In addition, each partner is personally liable for the entire amount of any
partnership obligation.
Limited Partnership
A limited partnership (LP) is authorized by state law and consists of one or more general partners and
one or more limited partners. The same person can be both a general partner and a limited partner, as
long as there are at least two legal persons or entities, such as a corporation who are partners in the
partnership. The general partner is responsible for the management of the affairs of the partnership
and has unlimited personal liability for all partnership debts and obligations.
Limited partners have no personal liability for the debts and obligations of the partnership beyond their
contributions to the partnership. Because of this protection, limited partners also have little control
over the day-to-day management of the partnership. If a limited partner assumes an active role in
management, that partner may lose his or her limited liability protection and be treated as a general
partner. This restricted control over the partnership business diminishes the value of
limited-partnership shares.
Trusts
A trust is an agreement between the person creating the trust (referred to as the settler, trustor, or
grantor) and the person responsible for managing the assets of the trust (the trustee). The trust
provides that the grantor will transfer certain assets to the trustee, who will hold and manage the
assets in trust for the benefit of another person, called the beneficiary. A trust created during the life of
the grantor (an inter-vivos trust) is also called a living trust, while a trust created at the death of the
grantor through a will or living trust is referred to as a testamentary trust.
While trusts have been used in many different asset-protection strategies, there are two basic types of
trusts: revocable and irrevocable.
A revocable trust is one in which the grantor reserves the right to alter the trust by amendment, or to
dissolve a part or all of the trust by revoking it. The grantor has no such rights with an irrevocable trust.
It's this precise lack of control that makes the irrevocable trust a powerful asset-protection tool. You
can't be sued for assets you no longer own or control.
Selecting the Right Asset-Protection Vehicle
Now that you're familiar with the most common asset-protection structures, let's consider which
vehicles work best to protect particular types of assets.
If you own a professional practice or business, your risk of loss and liability for claims is particularly
high, making this type of business a dangerous asset. Incorporating your business or practice long has
been considered the best way to insulate your personal assets from liability and seizure resulting from
claims against your business. However, the limited liability company is quickly replacing the standard
business or C corporation as the asset-protection entity of choice.
An S corporation is similar to a C corporation except that it qualifies for a special IRS tax election to
have corporate profits pass through the business and be taxed only at the shareholder level. While the
liability protection afforded to C corporations generally applies to S corporations as well, there are
additional qualifications the S corporation must meet as to the number and type of shareholders, how
profits and losses may be allocated among shareholders, and the kinds of stock the company can
issue to investors.
Limited Liability Corporations
Due to the added formalities imposed on S corporations, a newer entity has evolved, which affords
similar liability protection to corporate principals as a C corporation and the same "pass-through" tax
treatment of S corporations, but without the formalities and restrictions associated with an LLC.
General Partnership
A general partnership is an association of two or more persons carrying on a business activity
together. This agreement can be written or oral. As an asset-protection tool, a general partnership is
one of the least-useful arrangements because each partner is personally liable for all of the debts of
the partnership, including debts incurred by other partners on behalf of the partnership. Any one
partner can act on behalf of the other partners with or without their knowledge and consent.
This feature of unlimited liability contrasts with the limited liability of the owners of a corporation. Not
only is a partner liable for contracts entered into by other partners, but each partner is also liable for
the other partner's negligence. In addition, each partner is personally liable for the entire amount of any
partnership obligation.
Limited Partnership
A limited partnership (LP) is authorized by state law and consists of one or more general partners and
one or more limited partners. The same person can be both a general partner and a limited partner, as
long as there are at least two legal persons or entities, such as a corporation who are partners in the
partnership. The general partner is responsible for the management of the affairs of the partnership
and has unlimited personal liability for all partnership debts and obligations.
Limited partners have no personal liability for the debts and obligations of the partnership beyond their
contributions to the partnership. Because of this protection, limited partners also have little control
over the day-to-day management of the partnership. If a limited partner assumes an active role in
management, that partner may lose his or her limited liability protection and be treated as a general
partner. This restricted control over the partnership business diminishes the value of
limited-partnership shares.
Trusts
A trust is an agreement between the person creating the trust (referred to as the settler, trustor, or
grantor) and the person responsible for managing the assets of the trust (the trustee). The trust
provides that the grantor will transfer certain assets to the trustee, who will hold and manage the
assets in trust for the benefit of another person, called the beneficiary. A trust created during the life of
the grantor (an inter-vivos trust) is also called a living trust, while a trust created at the death of the
grantor through a will or living trust is referred to as a testamentary trust.
While trusts have been used in many different asset-protection strategies, there are two basic types of
trusts: revocable and irrevocable.
A revocable trust is one in which the grantor reserves the right to alter the trust by amendment, or to
dissolve a part or all of the trust by revoking it. The grantor has no such rights with an irrevocable trust.
It's this precise lack of control that makes the irrevocable trust a powerful asset-protection tool. You
can't be sued for assets you no longer own or control.
Selecting the Right Asset-Protection Vehicle
Now that you're familiar with the most common asset-protection structures, let's consider which
vehicles work best to protect particular types of assets.
If you own a professional practice or business, your risk of loss and liability for claims is particularly
high, making this type of business a dangerous asset. Incorporating your business or practice long has
been considered the best way to insulate your personal assets from liability and seizure resulting from
claims against your business. However, the limited liability company is quickly replacing the standard
business or C corporation as the asset-protection entity of choice.
