Asset Protection

The Various Ways to Hold Title to Property

October 20, 2021Filed Under: Asset Protection

Most Americans consider real property, like their home, the most significant part of their overall net worth. How the home and other pieces of real property are titled deserves careful consideration. Real estate constitutes the land and any structure, including vegetation, livestock, crops, and other natural resources that sit on the land under the state’s law. Real estate can be commercial or residentially owned. Ultimately how you hold a property title has far-reaching consequences for liability, and when it comes time for sale or the bequeathing of it as an inheritable asset.

The title is a reference to the document that lists the legal owner(s) of a piece of property and can depict ownership of both personal and real property. Real estate titles are regarded as real property as it is a tangible asset. The title for real property, by law, must be transferred if the asset is sold or inherited and must be clear for the title transfer to take place. A clear title is free of liens or any other encumbrance posing a threat to proper ownership. The most common types of real estate titles are joint tenancy, tenancy in common, tenants by the entirety, sole ownership, and community property. Less common property ownership titles are corporate, partnership, and trust ownership.

Individual name or sole ownership allows for a single person to hold title, even if you are married. If the person becomes mentally or physically incapacitated due to injury or illness, a spouse or family member typically will need to conduct business with regard to your property. Your family member will not be able to do business transactions like refinancing or changing lines of credit, and they will be unable to act until a court appoints someone to act on your behalf. Many people assume if they have a will it will address the problem, yet a will does not go into effect until after you die and is not in effect if you become incapacitated.

Joint tenants (some may have rights of survivorship) occur when two or more people hold the title to real estate jointly. This type of title is widespread among but not exclusive to married couples. Unmarried couples may also hold joint tenant titles as can parents and their adult children. It is a fair, uncomplicated, and free way to hold the title. In the case of a couple, the death of one automatically transfers full ownership to the surviving owner without probate. However, probate is more than likely just to be postponed. In the event, the surviving owner dies without adding another owner, or if both owners die at the same time, probate is almost certain to occur before the property can go to the heirs.

Being a co-owner means that to sell, refinance, or take any action to the property, both owners must agree to the business action. If there is disagreement or in the event your co-owner becomes incapacitated, the court will become involved to resolve the disagreement or to protect the interest of the one who has become incapacitated. Court involvement will occur even in the event the incapacitated owner is your spouse. Joint tenants also expose the property to both of the co-owners obligations and debts. If a creditor successfully sues your co-owner, you could lose your home. In the case a co-owner is not a spouse, there can be income tax or gift tax problems. A will does not control any jointly owned assets, and you may mistakenly disinherit your family when your co-owner inherits your share, particularly in the case of second marriages with children from a previous union.

Tenants in common (TIC) allows for two or more people to hold title to real estate with equal rights during their lifetime to enjoy the property. A tenant in common title creates shares of ownership, and those shares will be distributed as directed in a will upon an owner’s death. In the absence of a will, the property goes to the heirs of the owner. As a tenant in common individuals holds the title for a respective part of the property, they are at liberty to dispose of said owned property or encumber it at will. Owners of their respective shares are permitted to use their portion of the property as collateral or in financial transactions. They may also be sued or have creditors place liens on only their portion of the property.

Tenants by entirety (TBE) are only permissible if the owners are legally married. This title, for purposes of ownership, treats the couple as one person for legal action and interpretation. Upon the death of one person, the TBE title is transferred in its entirety to the other spouse. This is advantageous as no legal action is necessary upon the death of one’s spouse. It does not require a will and probate is unnecessary.

Community property is only in effect in nine states (AZ, CA, ID, LA, NV, NM, TX, WA, and WI) and is a form of joint ownership between spouses commonly referred to as community property. When you die, your share of the community property is automatically transferred to your surviving spouse unless your will provides otherwise. Both tenants, by the entirety and community property titles, can find the remaining owner with several new co-owners, who, upon their death, can have their heirs inherit the property. Also, issues of incapacity and lawsuits are magnified if several property owners are trying to reach a consensus about the sale of the property or other business actions.

Corporate ownership allows a legal entity, a company owned by shareholders, to hold title to the property. Partnership Owners can own real estate as a partnership. This title constitutes two or more people who transact business for profit as co-owners. There are also limited partnerships where an investor has limited liability because they do not make management decisions regarding business transactions of the property. In the case of limited liability, a singular general partner will typically be responsible for making business decisions on behalf of the identified limited partners.

Trust ownership, most often in the format of a revocable living trust, is a legal entity that owns the real property, which is managed by a founding or designated trustee on behalf of all trust beneficiaries. In the event you become incapacitated, your named successor trustee can seamlessly take control of your trust without court interference. A successor trustee is legally obligated to follow the instructions put forth in your trust. If you recover from incapacitation, you resume control of your trust. If you were to die, the property would be distributed according to your trust instructions and without probate. Holding real estate in trust ownership has challenges regarding benefits that surround financial and legal liability, managerial influence, and tax considerations. A real estate trust document can provide significant advantages to property owners but only if created by competent legal staff who take into account the complexities surrounding the trust and its interaction with the liabilities listed.

Methods of holding and owning title to real estate property are determined by state law and, as such, must be considered when researching and determining the best method to acquire and hold title to real property where you live. Depending on the complexity of your situation, assessing the best way to title your real estate may require professional real estate, legal, and tax guidance. We help clients determine the best way to hold title to the property, and whether a trust would be beneficial. 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.

What is an Irrevocable Life Insurance Trust

September 23, 2021Filed Under: Asset Protection

Since the federal estate tax exemption allowance appears to be in jeopardy of being lowered, it may be time to reconsider how you plan to pass generational wealth to your heirs. Senate Democrats are proposing to lower the current estate tax exemption from $11.7 million to $3.5 million for individuals and $23.4 million to $7 million for couples. Whether this particular Congressional bill will pass into law is unknown; however, change is likely coming to estate tax exemptions. Even without action by Congress, in 2026, the current rate will sunset and essentially be cut in half to about $6 million per individual.

Understanding Irrevocable Life Insurance Trusts and Other Taxations

To address additional inheritance taxation, many look to an irrevocable life insurance trust as a mechanism to reduce estate tax and pay your heirs part or all of the amount your estate will be taxed. The asset of the trust will be one or more life insurance policies. However, beware, as once an irrevocable life insurance trust (ILIT) is created, it cannot be rescinded, modified, or amended. There are several important requirements to create and maintain an ILIT properly, and each requirement helps to explain the nature of such a trust.

If you are the trust grantor, you cannot also serve as a trustee because a trustee controls the trust, leading to the trust being considered a part of your estate. It is crucial to name a trusted person or financial institution to act as a responsible trustee.
The trust itself must be the owner of the life insurance policy. If you transfer an existing policy to the trust and die within three years of the transfer, the policy is part of your estate due to a look-back rule. The trust can directly purchase a policy to avoid this risk.
The trust must pay the policy premiums, and you must transfer funds to the trust for such a purpose. This situation can create an issue with gift taxes as a transfer to a trust is not usually afforded the yearly gift tax exclusion of $15,000. To qualify as a gift for a tax exclusion, the recipient must have a “present interest” in the money. To accommodate this requirement, you can use what is known as “Crummey” power, giving beneficiaries the ability to withdraw funds transferred to the trust for up to thirty days. Sending a Crummey letter to the beneficiaries of an ILIT informs that a gift has been made to the trust, and there is an immediate and unrestricted right to withdraw those assets for up to thirty days. After thirty days, the trustee can pay the annual insurance premium with the funds. Although you run the risk that the beneficiaries will withdraw these funds, if you make it clear the financial benefit is greater in the future, it should not present a problem.
Generally, the beneficiary of the life insurance policy is the trust. After the funds are deposited into the trust, the trustee can distribute the assets to the beneficiaries as specified in the trust. If your beneficiaries are still minors, you can instruct the trustee to wait until they reach a certain age. Leaving the assets in the trust can also protect them from beneficiaries’ creditors.

ILIT’s can own both individual and second to die life insurance policies. All premium payments should come from a bank account owned by the ILIT. The downside to an ILIT is that it is irrevocable. However, your ILIT is a powerful tool that can minimize your estate taxes, avoid gift taxes, protect assets and government benefits, select the timeline of distribution to beneficiaries, and more. If you would like to discuss whether an ILIT may be right for you, give us a call. We would be happy to schedule a confidential meeting to discuss your needs. Contact us at 513-771-2444.

What Happens to your Digital Assets?

January 11, 2021Filed Under: Asset Protection, Elder Law, Estate Planning

Today, almost everyone has digital footprint. From social networks like Facebook, Linkedin, Instagram, Twitch.tv and Twitter, blogs and licensed domain names, email, music, photos, seller accounts on eBay, Amazon, or Itsy, gaming accounts, even your financial, utility, and medical accounts are all part of your digital footprint. When most of us created these accounts, we blithely accepted the End User License Agreement (EULA) without much thought to when we would no longer be around to manage their content and activity. However, a EULA designates in detail the rights and restrictions that apply when using the software known as terms of service (TOS). Most EULA’s are a standard form of contract, a contract of adhesion, which is known to exploit unequal power relationships. A user has no option to negotiate the terms of a EULA if they want to use the software.

When you create your will and its associated documents like a durable power of attorney (in the event you become incapacitated) it is prudent to include digital assets and a designation for someone to access your online accounts and manage their activity. Without specific instructions, most of your online accounts will not pass through the typical estate planning devices like trusts and wills because they are not your property. Still, they are very representative of your being. Since most TOS are non-transferable, you will likely be unable to transfer the “ownership” of your online accounts legally. However, you can still plan for how they should be handled when you die.

In terms of Facebook and other social network platforms, each company has its policy regarding the account of the deceased. Facebook, for example, will permit your account to be placed in a “memorial” status so that it can be viewed, and loved ones can leave memorial messages. Other social networking sites will delete or deactivate your account. If the social network is not appraised of your death, the company won’t know for a while, allowing someone to make changes to your account after your death, perhaps even posting a final status or update of your choosing. Though this is in opposition to most social networking platform policies, it is difficult for online companies to know about and monitor user activity in the event of death.

Your executor should inform readers of a blog or other licensed domain names you maintained while alive. A licensed domain name should be transferred or ended as continued licensing payment makes no sense. The content of these sites should be removed or archived. If you belong to online communities such as a book group or community list serve, you may also choose to leave a final message or have your executor notify the group of your passing.

If you store movies, music, photos, eBooks, or other digital online files, your executor should have access to the files and carry out your wishes as to what to do with them. If you do not leave access to your online accounts, they will eventually become disabled due to inactivity, and no one will have access to the files. In the event you own the data, i.e., personal photos, you can use your will or living trust to leave them to a loved one or a friend. You will have to leave detailed descriptions (My trip to Paris) for photos. As far as purchased online music or eBooks it is not the same as owning a physical CD or book. Software or digital content does not permit acquisition of ownership rights. This means the money you paid for the online content was more of a subscription service solely for your use and not transferable upon your death. Your virtual music and film library will die with you.

If you are an online seller on eBay, Amazon, Itsy, or the like, leave specific instructions about what to do with your online store. You may leave all profits that continue to come in and the stock items you sell through your will or living trust. When the company knows of your death, your executor will have no power over the account itself, but you can make provisions for the profit and stock items to be bequeathed. If you want someone to take over your online store after you die, you will need to reference the TOS of the company. Most do not allow accounts to transfer; however, the new “owner” can open a new account and reimagine your storefront.

Financial, utility, and medical accounts should all be addressed very clearly in your digital will. Leave instructions as to what website, username, and password are for each account. Also, leave written instructions about what to do with each of them. Regarding your financial accounts, their contents will be addressed in your will or trust, but your executor will have to access these accounts to wrap up your estate. These accounts include checking and savings accounts, mortgage, life insurance, and retirement accounts, as well as phone, cable, gas, and electric bills, tax preparation services, medical accounts, and more.

Your online presence requires digital legacy planning. Take a good look at all of your online accounts and be sure to leave reliable access to them and instructions for your executor. We can help you with this process, and with drafting appropriate planning documents to deal with these assets.

If you have questions or would like to discuss your personal situation, please don’t hesitate to contact us at 513-771-2444.

Inheritance Is Not Always a Good Thing

December 21, 2020Filed Under: Asset Protection, Elder Law, Estate Planning, Spousal Support

Most of the time, getting an Inheritance is a good thing. However that is not always the case. Say your spouse is living in a nursing home because of advanced Parkinson’s. Your spouse is currently receiving Medicaid benefits to pay for the high cost of that care. If you were to pass before your spouse, you wouldn’t want your spouse to inherit all your life savings, no matter how much you love your spouse. Inheriting all of your life savings would jeopardize your spouse’s Medicaid benefits, and that is not what you want to see happen.

Hold the Medicaid or Supplemental Security Income (SSI) benefit-programs next to the high cost of health care. Those programs are “means-tested.” In other words, to be eligible, recipients must own practically nothing. If your spouse or any disabled person is receiving those kinds of benefits, and if they were suddenly to inherit, they would lose their benefits and they would end up having to pay for their care themselves until the inheritance was used up. That could involve a lot of money!

Rather, it’s best if the disabled person were to keep the benefits coming in, and have assets from your estate be used to pay for “extras” that benefits don’t cover. These extras might include payment of real estate taxes, upkeep of a residence, or vacations or a flat-screen television.

In the case of Medicaid, that is accomplished by creating a Will that includes provisions for a “supplemental needs trust” (SNT). When you pass, and if your disabled spouse or other beneficiaries were to be on benefits at that time, your assets would be moved into this trust. The money would be managed by a trusted person other than your beneficiaries. The trust would pay for “extras” only, and the disabled person would continue to receive the crucially important benefits.

This arrangement must be done by Will, though, as the Medicaid rules require (there are other possibilities for other benefits programs). As to Medicaid, your estate would go through a simplified probate process in which a judge would approve the transfer of the estate into the SNT.

Even if everybody inheriting were well and able-bodied – as, of course, we would hope – and there was no need for benefits, an SNT would still be important. It could be made “contingent.” In other words, it would be unnecessary if all your beneficiaries were able-bodied, but, if anybody did happen to be disabled and on benefits, the terms of the Will would require the creation of the SNT.

Or, if your beneficiaries might become disabled in the future – and unfortunately, none of us has a crystal ball – the SNT could be “forced.” A forced SNT would require that the assets be placed into an SNT regardless of whether anybody was disabled. In that situation, though, as long as your beneficiaries were well, there would be no concern about restricting distributions to only the “extras,” and the trustee would be free to distribute money as beneficiaries needed it for any worthy purpose. Then, later, if disability were to occur, the distributions could be made to conform to relevant government-program restrictions. Estate assets would be protected by the SNT and benefits eligibility would be preserved.

This is a win-win proposition and one that we would be happy to discuss further with you. Give us a call at 513-771-2444 and let’s get your planning started.

The Various Ways to Hold Title to Property

What is an Irrevocable Life Insurance Trust

Understanding Irrevocable Life Insurance Trusts and Other Taxations

What Happens to your Digital Assets?

Inheritance Is Not Always a Good Thing

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