If your beneficiary has a substance abuse problem, an inheritance may make the addiction worse or even kill them.  At the least, the inheritance is likely to be squandered.  If your beneficiary has an addiction such as drugs or alcohol, pass the inheritance in trust, never outright.

How Outright Inheritances Work

Outright gifts pass into your beneficiary’s individual name.  They are within your beneficiary’s full control, to be spent any way he deems appropriate.  This may mean that the inheritance is spent on drugs, alcohol, or “friends.”  Outright windfalls such as inheritances are typically gone within 18 months.

In addition, an outright inheritance can be seized by creditors in divorce, bankruptcy, malpractice, car accident, and medical crisis law suits.

How Inheritances in Trust Work

Inheritances in trust for a beneficiary, who has a substance abuse problem, are not given directly to the beneficiary.  Instead, an independent professional trustee makes distributions for the beneficiary’s needs, but not to the beneficiary directly.

The trustee may pay the beneficiary’s medical bills, rehab costs, tuition, landlord, grocery bills and the like.  The money doesn’t go into the beneficiary’s hands so it’s not used to fuel an addiction.

In addition, the inheritance in trust is protected from divorce and lawsuits.

If you have a beneficiary who suffers from an addictive disease, consult with a qualified estate planning attorney to protect both your beneficiary and your money.

We appreciate you following us and value your comments and input. Please provide your thoughts by using the comments section on our blog page.

You Can Also Find Us Online: Facebook | Twitter | LinkedIn

Thanks again.

Dennis D. Duffy

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Estate planning has a slew of benefits, but what clients (and their families) find really valuable is peace of mind.  Peace of mind promotes family relationships, health, and positive communication.  Here are the 4 ways an estate plan creates peace of mind.

1.    Blended Families

When your second (or third) spouse and children from previous relationships all know that you’ve done estate planning and that they’re protected, relationships can be fostered.

2.    Long Term Care Covered

If you’ve planned ahead and have arrangements to pay for your long term care through Medicaid, private pay, or long term care insurance, both you and your loved ones will have peace of mind, knowing that they don’t have to decide between your care and financial ruin.

3.    Your Wishes are Documented

When you have an up-to-date, comprehensive estate plan, your wishes are documented; both you and your loved ones have peace of mind.  There is no fighting over what you would have wanted regarding a living Will, organ donation, final arrangements, trust helper roles, and asset distribution.

4.    Beneficiaries Protected

You and your loved ones will sleep better at night, knowing that your beneficiaries and their inheritances are protected from addictions, spendthrift behavior, bad decisions, divorce, bankruptcy, lawsuit, malpractice claims, second spouses, and medical crisis.

We appreciate you following us and value your comments and input. Please provide your thoughts by using the comments section on our blog page.

You Can Also Find Us Online: Facebook | Twitter | LinkedIn

Thanks again.

Dennis D. Duffy

Duffy Law Office

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

No intent or legal formalities are needed to create a general partnership.  It just happens as soon as you begin a business with someone else.

While you may need a license to operate a particular business and to register a fictitious name, there is no law that you have to follow to create a partnership.

How to Create a Sole Proprietorship

A sole proprietorship is created the same way a partnership is created; you just start a business, but you are the only owner.  A partnership involves two or more people (or business entities.)

Like a partnership, there is no required written agreement and you file your taxes on your own 1040.  There are no required meetings, minutes, elections, or other formalities.

Why You Don’t Want a Partnership or Sole Proprietorship

Many folks have a partnership or sole proprietorship out of default.  They are do-it-yourselfers who like the ease of set up and operation.

These business folks likely think their liabilities are covered with business insurance or if they work at home, by their homeowner’s insurance.

They are wrong.

• Business insurances have exclusions and only protect up to the coverage limits.
• Homeowner’s insurances don’t cover business matter such as the Fed Ex guy falling on the ice, while delivering a package for your business.
• Your personal and business assets can be seized if you are sued because the general partnership and sole proprietorship offer zero asset protection.

Alternatives to a General Partnership

The limited liability company (LLC) is a common alternative to the partnership or sole proprietorship, although there are others such as limited liability partnerships and corporations.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

If you own a business, consider limited liability companies (LLCs) to own the business and the business assets.  Using LLCs protects your personal assets and insulates business asset liability.

Real Estate Business

Real estate is a hot asset, meaning that the potential for lawsuits is great.  A tenant could fall in the laundry room; a delivery man could slip on ice; and guest could fall from a balcony.

To protect your assets, own each rental building in a separate limited liability company.  For example, if you own 3 apartment buildings, own each in its own LLC.

If a tenant is building A is injured, only the equity in building A is at risk.  The equity in buildings B and C are protected as are your personal assets such as your home, investment accounts, and cash.

Medical Practice

The practice of medicine is a hot business, also meaning that the potential for lawsuits is great.

To protect your assets, own the expensive medical equipment, real estate, and practice in separate entities such as limited liability companies.

If a patient successfully sues in malpractice, he is likely to settle for your insurance coverage as the equipment and real estate are insulated in their own LLCs and your buy-sell agreement won’t allow a creditor to own any part of your practice.

Other Businesses

This same concept works for other businesses and professional practices as well.  If you own a retail shop, put the real estate, inventory, and business in separate LLCs.  If you own a law firm or accounting practice, do the same.  Limited liability companies isolate risk and protect your assets.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

LLC stands for “Limited Liability Company” and in many situations, it’s a great way to own your rental real estate.  Why?  To insulate liability.

LLC Asset Protection Example

Rhonda and Mike own three apartment buildings in their joint names.  A balcony on one of the buildings collapses and a young engineering student plunged to his death. 

A lawsuit is filed; the jury verdict is $15 million.  Rhonda and Mike lose all of their investment and personal assets.  They are both personally bankrupt; the real estate business is bankrupt.

OR

Penelope and Grace own three apartment buildings in LLCs.  Each building is in its own LLC.  A balcony on one of the buildings collapses and a young engineering student plunges to his death. 

A lawsuit is filed and Penelope and Grace’s personal assets are protected because they didn’t own the building with the faulty balcony; their LLC did.

The other two apartment buildings were not attachable because they were owned by separate LLCs.

The LLC held insurance on the affected building in the amount of $1 million.  The building had a net value of $400,000. 

The case was settled for $1.2 million. 

Which Do You Prefer:  Protection or No Protection

If you own rental real estate (or any other type of business), consult with a qualified estate planning attorney to determine whether an LLC is right for your individual situation.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Although a comprehensive insurance plan is part of every good estate plan, there are 2 very serious reasons why insurance is not full asset protection.

1. Coverage Limits
2. Coverage Exclusions

Insurance Coverage Limits

You only have as much insurance as you purchase and it is impossible to buy enough insurance to cover some of the huge verdicts that are returned (i.e., $11.8 million, stemming from a car accident.)

But, get good advice from your estate planning attorney and your insurance professional and with their help develop the best comprehensive insurance plan for your situation.

Be sure that plan includes umbrella liability insurance, which raises the limits on your homeowners and auto policies to whatever limit you purchase such as $1 million or $5 million dollars.

Umbrella liability insurance also known as personal catastrophic insurance is an inexpensive and excellent investment.  If you own a business, you need business umbrella liability as well.

Insurance Coverage Exclusions

You’ve likely heard of claims being denied because the insurance policy has an exclusion such as a homeowner’s policy doesn’t cover either flooding or “acts of God” such as an earthquake.

But, there are many more exclusions.  For example, some umbrella liability insurance policies exclude claims arising from dogs, lawn mowers, business activities, guns, intentional acts, dangerous sports, and dangerous equipment.

Bottom Line Insurance Advice

Understand what your insurance policies cover and exclude.  Consult with a qualified estate planning attorney to make sure you have a comprehensive insurance plan in place as well as additional asset protection measures.  Insurance alone is not enough.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Asset protection refers to action you take to keep your assets from being seized by creditors, including divorcing spouses.  With about 15 million lawsuits being filed each year, asset protection is appropriate for everyone.

The specific methods of asset protection that are appropriate depend upon your personal situation. Always consult with a qualified estate planning attorney, regarding your individual situation.

You May Not Have Thought of These 14 Methods of Asset Protection

You’ve likely heard of offshore trusts, but what about:

1. Umbrella Liability Insurance (i.e. Personal Catastrophic Insurance)
2. Long Term Care Insurance
3. Property and Casualty Insurances
4. Malpractice Insurance
5. Disability Insurance
6. Lifetime Trusts
7. Spousal Trusts
8. Children/Grandchildren’s Trusts
9. AB Trusts
10. Irrevocable Trusts
11. Family Limited Partnerships
12. Limited Liability Companies
13. Self-Settled Trusts Sited in Other States (i.e. Nevada, Utah, and Alaska)
14. Prenuptial or Postnuptial Agreement

Examples of Creditors Who May Attempt to Seize Your Assets

1. Divorcing Spouse
2. Your Beneficiaries’ Divorcing Spouses
3. Mortgage Lender
4. Individual Injured in Car Accident or Slip and Fall
5. Family of Individual Killed in Car Accident or Malpractice Incident
6. Malpractice Claimant
7. Bankruptcy Trustee
8. Credit Card Company
9. Former Business Partner
10.  Disgruntled Heir
11. Nursing Home

This article is meant to raise a red flag and draw your attention to the fact that you need asset protection. You and your estate planning attorney can best measure your exposure to risk as well as which methods of asset protection are best for your specific situation.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

You may know that you don’t pay taxes on contributions to your work retirement plans; you may even know that retirement plan assets grow tax deferred. But, today, we talk about a third reason to fund your work retirement plans: Asset Protection.

First, work retirement plans refer to your retirement plan offered at work. Examples would be a 401k, 403b, pension plans (defined benefits plans), and profit sharing plans (defined contribution plans.)

Second, asset protection means taking steps so that a creditor (i.e., someone who sues you) can’t take your work retirement plans. They have asset protection thanks to the federal ERISA statute.

• A statute is a written law.
• ERISA stands for “Employee Retirement Income Security Act.”

ERISA protects your work related retirement savings, so they can’t be taken in a lawsuit or bankruptcy.

Fund as much of your assets into your work retirement plans as you can afford and is allowable under federal law. If you own your own business, there are ways to set up retirement accounts so they can be super-funded.

• Be sure to consult with a qualified estate planning attorney to determine how you can best protect your retirement assets.

In addition, while traditional IRAs and Roth IRAs do have asset protection, they do not have the same level of asset protection as plans at work. The thought is to fully fund plans at work first; then, look to funding IRAs.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Commonly business entities are used in estate, asset protection, and business planning. For example, an S corporation may be used for a larger business; a family limited partnership may be used to consolidate and organize family financial interests; and a limited liability company may be used to form a professional practice or to hold real estate investments.

Business Entity Benefits 

There are benefits to using these tools such as asset protection, compression of underlying assets to decrease transfer taxes, and income tax reporting ease and benefits.

However, you only get these benefits if you follow the rules and the practices of the underlying business entity.

Follow the Formalities  

If you have a business entity as part of your business, estate, or asset protection plan, treat it like a business. You are not finished once you sign the business formation papers in your attorney’s office. For example, a limited liability company requires annual meetings, elections, minutes of the meetings, and tax filings that flow through to the members’ tax returns.

Do What Your Attorney Advises

When you are setting up your business entity, your estate planning attorney will explain exactly how to handle your new business. Be sure to follow his or her advice. You are not finished when you sign the formation papers and walk out the office door.

Your attorney may offer to take care of the annual formalities and requirements on your behalf. That service is worth the investment as a mistake may cause your business entity to be ruled a sham and it may be undone by the court.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.

Life insurance is often a significant part of a comprehensive estate plan. In addition to funding an estate plan, if owned by an irrevocable trust (not an individual), the life insurance has asset protection.

Asset Protection

If the life insurance policy’s value and proceeds have asset protection, cannot be taken by creditors (i.e. anyone who would sue you or your beneficiaries).

• Term insurance has no value during lifetime, but pays out proceeds at the death of the insured. To protect term insurance, the beneficiary of the insurance must be a trust.

• Whole life insurance has value during lifetime and pays out proceeds at the death of the insured. To protect whole life insurance, both the owner and the beneficiary of the insurance must be a trust.

(In addition, with both term and whole life, the owner of the policy is the life insurance trust. This avoids federal estate and generation skipping taxes.)

Dynasty Trusts

If the life insurance proceeds are thought to last beyond the next generation, often dynasty trust planning is used. A dynasty trust is sited in a state that has abolished the Rule Against Perpetuities, which means that the trust can continue forever; and, assets can’t be forced out of the trust by creditors. This means that asset protection (and federal transfer taxes) can last forever.

If life insurance is a part of your estate plan (or should be), consider the benefit of asset protection and having a life insurance trust own your policy. Chat with a qualified estate planning attorney.

Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.