Incorporating Cryptocurrency Into Your Estate Plan

July 4, 2022Filed Under: Asset Protection, Estate Planning

When it comes to digital assets, traditional estate planning elements are mostly obsolete. Crypto-assets may comprise significant individual wealth in the forms of cryptocurrencies like Bitcoin and noncurrency blockchain tokens. If you own any of these asset classes, addressing complex challenges to secure, transfer, protect and ultimately gift crypto-asset wealth is crucial to your estate plan.

Estate planning may seem incompatible with decentralized cryptocurrency systems. Joel Revill, CEO of Two Ocean Trust, says, “The idea of handing over your crypto-assets or your private keys to someone else goes against that original ethos of the self-sovereign asset.” Continuing about the asset class, he admits, “A self-sovereign asset is a wonderful concept, but when you put it into the context of succession planning or multigenerational planning, you begin to appreciate the fragility of that custody.”

Understanding Crypto-Assets

Whether you bought Bitcoin early and are managing millions or have more modest sums, understand when formalizing a plan for your crypto-assets, they are vulnerable to being lost forever without preparing to convey the access information to a beneficiary. A private key (public/private key encryption), typically alphanumeric characters, is known to the crypto-asset owner and permits access to the currency’s value through a distributed digital system called a blockchain. If your spouse or other heir is not crypto or technically savvy, they may have no clue how to access your crypto-assets without explicit instructions.

Suppose you have a small number of crypto-assets on an exchange such as Kraken, Binance, Coinbase, or others. In that case, the focus of your estate plan is to leave a comprehensive trail of information to your fiduciary so that they may locate and access the account. This trail can be as direct as a list of the crypto-asset on your schedule of trust assets with the certainty that the successor trustee has login protocols to the client’s account on the exchange.

Does My Cryptocurrency Need to Go into a Trust?

For those with more extensive crypto-currency assets, seeking professional help to establish a custodian and trustee may be necessary. You can use one or a combination of these solutions that help you both protect and make your estate plan for digital assets:

Share your seed phrase (master password) and private keys with a very trusted family member or friend.
Divide your seed phrase and private keys among multiple highly trustable individuals so that no one person has complete control of your digital assets.
Create a trust and transfer into the trust crypto-asset ownership with a designated loved one or corporation to serve as trustee.
Put your crypto-assets in custody, such as a software application or hardware wallet.
If you have the technical expertise, you may prefer to use a dead man’s switch app.
Implement a cascading multi-signature wallet, thus dividing responsibility instead of a self-sovereign wallet.

Digital asset custodian services like BlockFi, Unchained Capital, Anchorage, Casa, Genesis, and more also provide secure protection for crypto-assets alongside trustee services. Many of the trusts created for crypto-currency are lifetime discretionary trusts; however, there is no widely accepted digital asset estate plan template. Some owners prefer a simple approach while others tend to the very complex; still, others favor flexibility.

Beyond the safe storage and ultimate successful transfer of digital crypto-currency ownership is the question of what your beneficiary will do with the asset. There are tax implications when transferring or possibly selling digital assets. In this instance, some of the more traditional capital gain tax strategies are applicable. The inheritor can hold until their short-term gain becomes a long-term gain, thus reducing the tax consequence. They might also offset capital gains with capital losses or sell in a low-income year. Each beneficiary will have to weigh their financial situation to identify the best approach for themselves.

Crypto-currencies are ushering in a new age where primary estate planning documents like a will are not enough to meet the digital needs of this asset class. The nature of crypto-currency is somewhat volatile as improper passing of digital requirements may mean the loss of the asset in total. An elder law estate planning attorney can provide you with options and recommend how best to pass your crypto-currency assets to your heirs. We hope you found this article helpful. Please contact our Cincinnati office by calling us at 513-771-2444 with any questions.

An Estate Plan Should Include a Family LLC

June 20, 2022Filed Under: Asset Protection, Estate Planning

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.

Making an Estate Plan for Unmarried Couples

May 2, 2022Filed Under: Asset Protection, Estate Planning

Americans over 65 are experiencing divorce and widowhood at record rates, resulting in new partnerships. The US Census Bureau reports that more than half of all older adults have only married once, opting to stay legally single in their future relationships. Cohabitating can have unforeseen and unintended consequences without a legally recognized civil union, marriage, or domestic partnership certificate.

For instance, your assets are not mutually inheritable without careful estate planning that includes a “living together contract.” This contract type can be specific and, as an example, cover one transaction, such as purchasing a new home. The contract can also encompass every aspect of your property and finances, including asset distribution in the event of incapacitation, death, or breakup.

Many believe they can address domestic decision-making, such as permissions for owning pets, entertaining guests, and even including minor tasks like who will do the dishes in a casual contract, but it is unlikely to be enforced by the courts. If you’re an unmarried couple, it is safer to draw up a comprehensive agreement, enforceable by the courts, that will see you through your lives together. However, you won’t want to co-mingle personal and financial clauses in a single contract as it may render the agreement unenforceable, negating the importance of the contract’s financial clauses.

For estate planning purposes, a comprehensive living together agreement includes all assets and property owned before the relationship and another for any acquisitions during the relationship. The property and asset division is much like a prenuptial agreement. Remember, joint obligations to a mortgage company or a landlord do not create a contractual relationship or entitle you to a property settlement in the event of death or the parting of ways. With non-marital agreements, each partner should also have a valid will for the state in which they live.

A living together contract often includes rules regarding gifts received, living expenses, property purchases, inheritable rights, and a method for dispute resolution that may arise later, typically through mediation. Having a living together agreement in writing can avoid a host of future legal issues and can be developed in the spirit of two fair-minded individuals clarifying the understanding of a partnership.

Many older Americans prefer not to remarry as it can have consequences on social security income, pension benefit awards, alimony (as part of a divorce settlement), tax consequences, and rights of survivorship. A new spouse’s income may disqualify a child for college financial aid or, in the case of a disabled child, impact the eligibility for government assistance programs.

Because many seniors and near seniors live together in non-legally recognized ways, estate planning can create challenges when partners want to provide for the other after their death.

A legally binding living together contract must work in concert with existing plans for already named heirs. A qualified estate planning attorney can draw up this contract and make necessary changes to current estate plans to avoid future legal conflicts. Like all estate planning documents, the regular review of its content to account for major life changes or preferences is crucial. If you plan to make substantive changes, it is best to be open with your partner and any adult children.

Avoid the possibility of personal and family conflict through open communication channels and mutual understanding. A newer, unmarried partner of a beloved parent may provoke suspicion of intent by adult children. Cohabitating is becoming more popular; however, as states adjudicate separations and inheritance, there is much to consider about planning property and asset control. To protect and provide for your partner and your adult children, consult an estate planning attorney about a living together contract in conjunction with your estate plan to ensure your documents reflect your wishes and are legally enforceable. 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.

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.