Olivia K. Smith, Attorney at Law

Helping Families Transition with Dignity

Facebooklinkedinrss
schedule a consultation

Olivia K. Smith on Families & Seniors

An Estate Plan Should Include a Family LLC

Filed Under: Asset Protection, Estate Planning

Facebooktwitterredditlinkedinmail

Limited liability companies (LLC) are legal structures that sit between partnerships and corporations. Most small business owners are aware this hybrid legal entity is beneficial for financial management, yet an LLC is also a powerful estate planning tool for much the same reason. In the case of estate planning, a Family LLC permits the transfer of assets to children, grandchildren, and other family members at discounted rates without being heavily burdened by gift or estate taxes. As part of your estate plan, an LLC can protect assets during your lifetime, keep them in the family, and reduce taxes you and your family owe.

Why Do I Need a Family LLC?

All fifty states recognize a Family LLC as a legal entity, although each state has regulations governing its formation, running, and taxation. LLC owners (members) receive protection from personal liability in the event of lawsuits, debt, or other claims. This protection shelters personal property like a home, bank account, investments, and even vehicles. An LLC is subject to fewer state formalities and regulations than a corporation, so members can manage in nearly whatever manner they prefer.

A financial threshold defines the need for an LLC to help lower estate taxes if the estate is more than $12.06 million in 2022. If your estate is below this threshold, your estate planning attorney can help craft an estate plan that focuses on trusts to limit the probate process and estate taxes. While there is no legal reason you cannot create an LLC with fewer means, a trust will not require Family LLC’s initial and annual fees and more intensive reporting procedures.

Establishing an LLC in conjunction with your children permits you to:

  • Maintain control over your assets while alive
  • Effectively reduce estate taxes due to your children upon inheritance
  • Distribute inheritance to your children with less gift tax during your lifetime

How is a Family LLC Structured?

A Family LLC is managed by the parents. The children or grandchildren hold shares in the LLC’s assets without management or voting rights. The parents can distribute, buy, sell, or trade the LLC’s assets but other members have restrictions regarding the sale of LLC shares, company withdrawal, or membership transfer. While gifting shares to younger members come under the gift tax, significant benefits permit you to gift more while lowering the tax value of your estate.

Upon establishing a family LLC following your state’s legal process, you can transfer assets into the LLC. The management will decide how best to translate the market value of these assets into LLC units of value in much the same manner as stock in a corporation. You are now ready to transfer ownership of LLC units to your children or grandchildren as you desire.

The value of units transferred to non-managing members becomes discounted because the LLC units become less marketable without management rights which is where tax benefits come into play. The manager of the LLC can often reduce the value of transferred units by as much as forty percent of their market value. In essence, non-managing members may receive an inheritance advance at a lower tax burden than otherwise due to their personal income taxes. Additionally, the overall value of your estate is reduced, lowering estate tax when you die.

What is Transferred to a Family LLC?

You can transfer almost any asset into a family LLC, but typically they include:

  • Property – Titles to land and structures built on that land are transferable; however, check with any mortgage holder before such a transfer if you need their approval.
  • Cash – It is permissible to transfer money from personal bank accounts into the LLC and distribute it among members.
  • Personal possessions – You may transfer ownership of stocks, precious metals, automobiles, boats, jewelry, artwork, or other significant collections or belongings into the family LLC.

Upon the death of an LLC owner, some states require the dissolution of the LLC if there is no specific succession plan. A transfer to another individual upon death as defined in the operating agreement creates a joint tenancy membership, avoiding the LLC’s dissolution. This transfer builds a revocable trust to hold the LLC membership or a probate process if the LLC goes through court to determine a succession plan.

Asset Protection with Your Family LLC

The key benefit of a business LLC is that the owner is not liable for the company’s debts. The Family LLC also provides the heirs’ protection from creditors in the event of a parent’s default, bankruptcy, or other family obligations. It is not permissible for creditors to go after these assets.

A family LLC can be a powerful tool to manage your assets and pass them to your heirs. You can maintain control over your estate as an LLC manager while providing significant tax benefits to you and your children. Creating a Family LLC for estate planning purposes is complex and requires legal expertise from an Estate Planning Attorney and a financial advisor before formalizing your LLC plan. We hope you found this article helpful. If you’d like to discuss your particular situation, please don’t hesitate to reach out. Please contact our Cincinnati office by calling us at 513-771-2444 with any questions.

Facebooktwitterredditlinkedinmail

Children With Special Needs: Managing Their Money Over Their Lifetime

Filed Under: Estate Planning, Special Needs

Facebooktwitterredditlinkedinmail

The estate planning of children with special needs presents a unique challenge. Optimizing your estate to use, enhance, and enrich assets for your special needs child while maintaining their enrollment in public benefits programs requires careful planning. An estate planning attorney can prepare a special needs trust to accomplish these and other goals you have for your child.

A special needs trust can meet strict financial eligibility rules for means-tested assistance programs because the assets held in the trust are not directly available to the child. A trustee provides benefits to the child via the trust. Parents select this trustee with great care because they will act as the child’s money manager, ensuring proper financial supervision after the parents die. A letter of intent is also a powerful tool to guide the trustee to make decisions that best benefit the child’s unique needs.

In most cases, your special needs child will benefit by selecting a non-family member who is independent to act as your special needs trustee. The range of options includes:

  • A parent, sibling, or another relative, which can be risky,
  • An estate planning attorney,
  • A financial institution or a trust company,
  • A non-profit organization, particularly one with special needs experience, or
  • Co-trustees, such as a trust company, acting in conjunction with a family member.

Each option has advantages and disadvantages that require close counsel with your estate planning attorney or financial advisor before selecting your trustee.

The creation of your special needs trust can happen while you are living or at the time of your death. A last will and testament can incorporate creating the trust, known as a testamentary trust. Parents often set up the trust while alive, known as a living trust (inter vivos trust). The living trust has advantages, including the avoidance of probate, the permission for other family members to make trust contributions (usually grandparents), and the opportunity for a co-trustee to experience what it is like to administer the trust.

Whether or not your trust is revocable or irrevocable affects tax consequences. Generally, you’ll want to choose a revocable trust if the goal is to maintain maximum control over the trust and income tax considerations aren’t a concern. Establish an irrevocable trust when there are concerns regarding income tax consequences, particularly if the trust funds exceed one million dollars. In this instance, both federal estate and gift taxes may apply to the trust.

While there is much to consider and decide, the crucial step to providing for your special needs child is to make it legal. Verbally telling your family how to care for your child is insufficient. In the absence of a will, testamentary trust, or living trust, the state in which you live will determine the outcomes of your estate’s distribution. This situation is not a viable option for a special needs child or any of your children.

Receiving proper legal guidance to implement your estate plan using appropriate trusts is crucial to maintaining a healthy lifestyle for your special needs child. Do not attempt to craft these legal documents on your own, use existing forms, or copy some internet template. Each special needs child requires careful considerations that are unique to them and the challenges they face moving forward. With so much at stake, a qualified estate planning attorney with expertise in special needs planning will best suit your wishes and the child’s needs. Protecting public benefits such as Supplemental Security Income (SSI) and Medicaid and establishing a special needs trust through your estate planning can best achieve these goals. We hope you found this article helpful. If you’d like to discuss your particular situation, please don’t hesitate to reach out. Please contact our Cincinnati office by calling us at 513-771-2444 with any questions.

Facebooktwitterredditlinkedinmail

Medicaid: Five Years of Looking Back Without Penalties

Filed Under: Elder Law, Long Term Care, Medicaid Planning

Facebooktwitterredditlinkedinmail

Planning for long-term care is important because nearly everyone will require it at some point in their lives. While we cannot predict the timing or level of care, we can take steps to prepare for an unexpected medical and financial crisis to help reduce the stress on ourselves and our family members. The cost of care continues to rise, but Medicaid planning can protect your assets, such as your home, hard-earned savings, retirement fund, or anything you wish to pass on to your loved ones.

Medicare is a federal and state program that helps seniors with limited assets and income afford long-term healthcare. Many seniors believe their only option to qualify for the program is to “spend down” their assets. However, proactive Medicaid planning can protect a substantial portion of your estate if done correctly. That means preparing at least five years before the potential need for benefits. The program’s eligibility rules are complicated, as is the application process. That’s why many people choose to hire an elder law attorney who specializes in Medicaid planning to evaluate their estate and reorganize assets over time.

Medicaid qualification requires a five-year look-back period at financial transactions in most states. The program verifies income and makes sure you haven’t gifted property to others under fair market value to reduce countable assets. Gifting assets is subject to a penalty that results in a period of ineligibility for benefits. The rules for gifting change state by state, and it’s important to know the rules where you live. If you begin early, you can ensure qualification for benefits when you really need them.

Qualifying for Medicaid Without a Penalty

A combination of options gives you the best outcome when applying for Medicaid benefits. An elder law attorney can customize a Medicaid planning strategy that works for your specific needs and goals. When you find yourself in need of long-term care services, you can receive Medicaid benefits to offset costs ranging anywhere from $60,000 to $100,000 a year.

The rising costs of long-term care can be overwhelming and unaffordable, depending on an individual’s needs. Your Medicare policy doesn’t cover long-term in-home or nursing facility services, and long-term care insurance premiums are very high. To discover more options, you’ll need a list of countable assets to determine ways to spend down that comply with Medicaid rules. It makes sense to spend down if it offers advantages:

  • Make home modifications like stairlifts, wheelchair ramps, walk-in showers, and other convenient amenities
  • Purchase a funeral benefits plan to cover final expenses
  • Pay off debt
  • Gift assets at fair market value with legal documentation
  • Create caregiver agreements to compensate for care

Caregiver Agreements are formal agreements to compensate caregivers who can be relatives or friends, but they need to be carefully drafted by a professional.

Qualified Income Trust

You may still have too many assets to qualify for Medicaid benefits, but those assets can be protected from Medicaid’s Estate Recovery Program. Your elder law attorney may recommend transferring them to a trust called a Qualified Income Trust (QIT) or Miller Trust. It is an irrevocable trust managed by a trustee who has legal control of the funds. Once they are transferred, they are no longer countable assets.

Medicaid Exempt Annuities

This life insurance annuity type is common to avoid Medicaid penalties during the look-back period. An annuity is a lump sum investment by an individual in return for a monthly payment for the duration of that person’s life or a set number of years. These annuities turn assets into income, lowering the countable assets of the Medicaid candidate below the eligibility limit. However, not all annuities qualify, and your attorney will help you choose the right product.

The surest way to avoid violating a look-back period when qualifying for Medicaid is to consult a qualified Medicaid planning and elder law attorney before you gift or transfer any assets. If a violation has already occurred, they can also offer assistance to correct a problem.

Always seek professional legal advice when creating your long-term care strategy using Medicaid. Applications are rarely successful due to mistakes when filling out forms, and it can have devastating long-term consequences on a family and their finances. Begin well before you anticipate needing long-term care. Become well-informed about all your options as you go through the application process. Proactive planning and expert legal strategies can help protect your assets and offer considerable help for your long-term care costs. We hope you found this article helpful. If you’d like to discuss your particular situation, please don’t hesitate to reach out. Please contact our Cincinnati office by calling us at 513-771-2444 with any questions.

Facebooktwitterredditlinkedinmail

Your Possessions Are Part of Your Memories

Filed Under: Estate Planning

Facebooktwitterredditlinkedinmail

Consider that your estate plan has been finalized. It provides care for your home, savings, and investments so that your family will receive those valuable estate items fairly and efficiently. Your plan will also protect your legacy from your children’s potential divorces or bankruptcies. What could go wrong?

Plenty, unfortunately, when it comes to personal possessions. Personal items are typically not included in your will or trust. So, who gets those after you pass is up to you personally. Spend some time thinking about how you want your possessions to be shared with your family when you’re gone. It will be time well spent.

Your family’s memories of you can be connected, through your things, in deeply emotional ways that may have nothing to do with the actual cash value of the items. A bowl in which you served breakfast to a now grown-up child may have irreplaceable sentimental meaning. Likewise, a favorite piece of costume jewelry. A well-remembered sweater.

Or you may have items that are really valuable. If you don’t plan to allocate that value fairly amongst family members, these might turn into flashpoints that create lasting disputes. Wrangles can be avoided about “promises” that you may or may not have made. You should also protect your things from going missing toward the end of your life or after you pass.

Take care to document clearly where you want your items to go. Here are some suggestions to make that more possible.

Assess which of your possessions have actual cash value. If you own items like an Impressionist painting or a vintage diamond ring, get them appraised. Then consider how you might apportion the value so family members will be treated equally. It might make sense to sell such items and divide the proceeds. Or, a family member might wish to buy the item from your estate.

Group your possessions into clusters, to make the gift process more efficient. Items that match should be kept together. The dining room furniture. The good china. The bedroom set.

Communicate with your family. Take photos of your possessions and think about how to offer them to your family. You can circulate the photos to one person at a time, and give them the opportunity to choose what they would like. Then keep a list, and the photos with the agreed designations, together with your will.

Your estate-planning papers are only a piece of the puzzle. How you leave tangible pieces of family history really matters too. It’s for the same reason that we might treasure a faded rose from a wedding bouquet. Take care in passing along your personal things to your family and friends. Your family and friends will be more likely to remember you with warmth and respect.

We hope you found this article helpful. If you’d like to discuss your particular situation, please contact our Cincinnati office by calling us at 513-771-2444 with any questions.

Facebooktwitterredditlinkedinmail

WE ACCEPT CREDIT CARDS

READ REVIEWS ON AVVO

Olivia Kathleen SmithReviewsout of 8 reviews

Affiliated with Cornetet, Meyer, Rush & Stapleton Co., L.P.A.

Olivia K. Smith, Attorney at Law
Cornetet, Meyer, Rush & Stapleton
123 Boggs Lane
Cincinnati, OH 45246
Phone: 513-771-2444
Fax: 877-483-2119
oksmith@cmrs-law.com