Month: April 2013

Keeping It In The Family: Protecting Your Family Cottage With an LLC

Some of your family’s best times were probably spent at your family cottage. It’s only natural, then, that you want to keep the cottage in the family for your children and grandchildren to enjoy. Simply leaving the cottage to your relatives, however, can lead to unexpected problems in the future.

Take an example: you decide to leave your Door County cottage to your three children. The default result means that each of your children becomes a tenant in common (TIC). As TICs, each child has the right to use the entire property at any time and is responsible for certain costs such as taxes, mortgage and insurance.

On the other hand, TICs don’t have to chip in for repair or improvement costs and, if one wants out, the property can be partitioned or sold. Additionally, creditors could get a hold of one child’s interest and force a partition or sale of the property—your other two children would get their share, but the cottage wouldn’t belong to the family anymore.

A better option is to create a family LLC, where the company owns the cottage and your family members own units of ownership in the company. Properly drawn up LLC documents can solve many of the problems tenants in common have. You can set rules for use and a method for paying expenses. You can also determine who will make important decisions and how. You can also restrict transfer of ownership interests to non-family members. Most importantly, because the company owns the cottage, creditors can’t force a sale or partition, protecting other family members from losing the cottage.

While it sounds odd to form a company to protect family property, a family LLC can help you avoid the pitfalls of multiple owners and ensure family days up at the cottage for years to come.

Cross Your T’s: Conducting Due Diligence

Buying or selling a business can be an exciting opportunity. With that excitement, many buyers and sellers skip due diligence entirely or cut corners. Failing to do due diligence can have serious consequences. When the excitement wears off, many buyers and sellers are left wondering what went wrong.

Most people buying a business look at the financial information. But many fail to conduct full due diligence and look at all parts of the business. Failing to look at the circumstances of the sale can be disastrous for both buyers and sellers. Buyers may discover they can’t operate the business at a profit or at all. Two particular areas of concern are: 1) Licenses and permits and 2) Liabilities.

Many businesses require licenses or permits in order to operate. Due diligence involves making sure the business you buy has those and that they can be transferred to you (for example, an Appleton permit won’t work if you plan to set up shop in Green Bay). The last thing you want is to go through the purchase process only to find that you can’t operate the business because you don’t have the necessary permit.

Another area to investigate is liabilities that might not show up in financial statements. For example, a business might be in violation of employment laws or facing environmental lawsuits. Depending on the liability and how the sale is structured, a buyer may be on the hook for those, leading to extra costs and cutting into profitability.

Sellers also face problems if due diligence isn’t completed. Depending on what warranties you make, omitting information might make them untrue. And untrue warranties lead to liability.

Buying or selling a business should be an opportunity for growth, not a hassle years down the road. Taking the time to do it right now can save you time later.

Government Benefit Programs and Your Estate Plan

There’s been a lot of talk in the news over whether or not the government should give out benefits, how much, and to whom. But what you don’t hear about is the effect changes to government programs will have on estate planning.

There are many different types of government benefits, from Medicare and Social Security, to veterans’ benefits, to disability and so on. Nearly everyone receives some type of benefit or knows someone who does. They can be important tools for estate planning and come with their own sets of advantages and challenges.

In the past, many estate planning attorneys focused on maximizing the government benefits a person can receive and relying on those benefits to estate plan. The downside is that many benefits require a person to have limited personal assets to qualify (leading some critics to call this form of estate planning “poverty planning.”)

No matter how you feel about benefit programs, the fact is that many have been reduced or cut. Others now have stricter requirements. And while your attorney might have a guess, they can’t tell you what will happen to these programs in the future. Your current estate plan maximizing these benefits may not fully address your needs.

The better choice is to reexamine your plan now. You may find that maximizing government benefits isn’t your best option. Or you may find better ways to maximize those benefits. At the same time you can make sure your estate plan lines up with the rest of your goals.

An effective estate plan is updated with personal developments but also, as in the case with government benefits, with political and legal developments that change how your plan will work. It’s far easier to address these issues now, instead of ending up with an ineffective plan.

Long Term Care

With rising life expectancies and healthcare costs, it’s no surprise that many Americans will need long term care (home health care, assisted living, nursing home, etc.) at some point in their lives. That’s why it’s so important to consider long term care when doing estate planning.

The biggest misconception about long term care is that it’s something only the elderly need. Younger adults can end up needing long term care due to injury or illness, so it’s important to plan for the possibility now. Another misconception is that health insurance covers long term care costs. If you’re lucky, your health insurance will cover some of the costs immediately after you get sick or injured, but after that you’re on your own.

There are two main things you can do as part of your estate plan to minimize the problems associated with long term care. First, consider purchasing long term care insurance. For a relatively small premium, you can protect yourself against the high costs of long term care should you need it.

Secondly, consider creating a trust. With a trust, you can name someone to take over managing your assets if you become incapacitated due to injury or illness. The transition happens automatically. That person can then use the assets in the trust to cover the costs of long term care. In the meantime, you continue to manage your own assets as you normally would.

Estate planning requires planning for the unexpected. For many, needing long term care is an unexpected and costly situation to find themselves in. But with a little advanced planning, you can make sure it doesn’t derail your estate planning goals.