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What Actually Happens with My Estate Planning Documents?

Generally, individuals reach out to me to discuss estate planning or probate. It is unusual that somebody seeks a lawyer to talk about both. However, it is important to know that the two fields are unavoidably linked. A will and trust attorney in this state should draft with the South Carolina Probate Code in mind. Likewise, estate planning is a variable in probate administration. You cannot get the full picture of one without the other.

The key to understanding this connection is playing out how estate planning done now is used later in time. This practical view of estate planning is easily overlooked. Folks know, for example, that a will is a good idea. But in real world terms what happens with it? Some highlights in the application of estate planning are the focus of this article.

Going to The Probate Court for Probate Assets

It is not the case that somebody passes on and probate assets simply go to those listed in the will. It generally takes a year or longer of interacting with the probate court and others to make it happen. When conflict arises, this timeline can be pushed back significantly.

Filings in the probate court are the starting point. Probate attorneys frequently are involved. An initial application sets forth some basic information. If there is a will, it gets attached. It tells the court who takes what. Very importantly, it also tells the court who will act as personal representative of the estate. It should also discuss the representative’s powers in that role. The personal representative’s actions go a long way to hopefully avoiding (or potentially causing) disputes. That is because he or she has hands on the property of other takers and is responsible for moving the estate forward efficiently.

Without a will, the court uses probate laws to determine where assets go and who the personal representative should be. Those statutes are based on family relationships.

During Incapacity

How often is it the case that somebody dies instantly? Surely it happens, but probably just as often there is period of time where the person receives care but is unable to do much else. Healthcare can be a big expense. Many people have other bills to pay and business that needs to be tended to during incapacity. How does all this get taken care of? The last will and testament cannot be used at this stage.

With no estate planning one must look again to the probate code. A guardianship and/or conservatorship proceeding is possibly the answer. The problem is that they can take months, usually involve paying lawyers, and court supervision is required.

One tool estate planning lawyers use to help close that gap is a general durable power of attorney. It gives an agent authority to act in a specified scope of transactions. It can be taken to third parties to show ability to conduct business now.

Trusts and Other Estate Planning Techniques

Trusts and other devices are efficiency tools estate planning attorneys often suggest. With proper usage, an authority structure is in place to avoid involving the court in guardianship and conservatorship. Also, assets can be removed from the probate process altogether. There is still the possibility for dispute but odds are minimized with the selection of a reliable trustee.

 

The takeaway is that estate planning is an alternative to the probate code’s one-size fits all approach. There are a number of eventualities that the code addresses. It is good that it does. For some, however, that approach leads to quarrels and wasted time and money compared to estate planning. Know what the code offers and decide how to utilize it while altering the outcome as desirable.

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Asset Purchase Transaction Basics

One of the most exciting calls I receive is from a client beginning a merger or acquisition. For starters, it’s challenging but fun work for the attorney. Also, the client is eager to get started in a new field or to add a line of business. The process is paper driven and requires much negotiation and attention to detail. A contract for the purchase and sale of the business is important and may feel like the end of the deal. However, usually it is just one part and there are many other items to accomplish.

There are corporate resolutions for both entities. The assets and contracts must be transferred. Goodwill and intellectual property are significant. Employees and contractors should be accounted for. There is often third-party or seller financing to structure. It all needs to be documented.

The emphasis of this post is common elements I frequently see in mergers and acquisitions. In particular, acquiring a business via asset purchase.

Letter of Intent

This is correspondence that reflects interest by the parties at the start of the deal. It sets forth how due diligence will proceed and outlines any important terms such as price. I like to use a letter of intent style but sometimes a different format like a mutual memorandum of understanding is appropriate. The key for the lawyer is to select whether the letter will be binding or non-binding and draft it that way. Non-binding means the parties can still back out of the deal and is often preferable. Usually, there is still due diligence the purchaser wants to conduct without being obligated if the results are negative. Non-disclosures and agreements not to seek another buyer during due diligence are more likely to be binding in nature.

Asset Purchase Agreement

This can be thought of as a much more comprehensive and binding agreement. It is a roadmap of the deal. An in-depth asset purchase agreement will cover all aspects of the deal and attach many of the closing documents as exhibits. Others can be negotiated later by the merger and acquisition lawyers. It makes clear when and how closing will occur and how the price will be paid. The seller will make a number of covenants, representations, and warranties that the buyer relies on. Upon its signing, lots of terms have been agreed to and the parties agree to negotiate the remainder in good faith.

Financing

Most buyers use something other than just cash to purchase. This is good business because it is easier to work with a promise to pay rather than try to recoup cash paid if there is a problem with the deal post closing. The lender will want a promissory note signed. Usually a security interest in certain assets is taken by security agreement. Some lenders will want a guarantee by the individual buyer and spouse.

Employment Agreements

The buyer will want to retain important employees that might include the seller. Employment agreements are put in place. The seller usually agrees not to compete with the business that was just sold.

Corporate

The buyer and seller entities need various resolutions and other documents showing authority and approval to complete the deal.

Other Documents

The simplest asset purchase transactions involve hundreds of pages of documents. Each one is important because they have bearing on the deal and relations at and after closing. The merger and acquisition attorney’s job is to negotiate the best deal for the client and to ensure the documents work together in one cohesive set.

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The Cost of Probate Administration

There are two circumstances where clients normally ask me about costs involved in probating an estate. The first is obvious. After somebody passes, the probate court will appoint a personal representative. The personal representative will be responsible for estate accounting and finances. Naturally, that person asks the probate attorney how much the estate should expect to pay in expenses.

In that situation, strategies to save certain expenses are more limited. The probate lawyer can certainly advise on time and liability matters. The estate should be probated efficiently and to reduce the risk of current or future disputes. That can be a large time and money saver. But my point is that the composition of the estate will not substantially change. In other words, the assets of the estate are certain and probate must move forward.

The second circumstance where I get that question provides more tactical possibilities. It is when estate planning is underway and the estate planning attorney and client are organizing affairs. The client wants to know what will happen with his or her estate on a practical level. What are the costs of probate and can they be reduced or avoided? There are endless paths to take here. Besides the basic documents like wills and trusts, assets can be restructured or retitled.

Whatever the setting, this article discusses some of the basic costs involved with administration of an estate in South Carolina probate courts.

Probate Fees

This is the fee a probate court will charge based on the value of the estate. It is not significant and is almost never a reason by itself to alter an estate plan. The smallest of estates might expect to pay in the neighborhood of $25. A more moderate estate is in the hundreds of dollars with very large estates reaching the thousands. It is a progressive system in that the fee any estate pays is calculated to its exact dollar value.

There are other administrative costs in the probate court for copies and postage. Certain filings will carry a separate filing fee.

Time and Time Value of Money

This might be the largest cost to the personal representative. Estate administration usually takes a year and sometimes stretches much longer. Throughout the process, there are time-intensive duties. Not to be forgotten is the inheritance that will ultimately be received. If assets are tied up in the probate court, time value of money is lost.

Taxes

Final income taxes of the decedent are the responsibility of the personal representative. Many estates that earn income also pay estate income tax. Estate taxes are beyond the scope of this article.

Family Strife and the Cost of Disagreement

This one is hard to quantify. I see family members that disagree on probate issues regularly. It’s safe to assume that this is the last thing the decedent would have wanted. This cost can be as heavy as any monetary sum.

 

Probate avoidance is a common goal in estate planning. The costs can accumulate but the time and possibility of dispute are the reasons many estate planners want to stay out of the probate court. Estate planning attorneys and probate lawyers can be an invaluable resource.

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Callison Law Firm at Goose Creek Finance & Food Trucks Event

The Trident United Way held its first ever Finance & Food Trucks event on Saturday, April 29, 2017. The gathering was a collective effort of the Prosperity Centers, South Carolina Federal Credit Union, and Overcomers and Outreach ministry. It was a great event and I enjoyed being one of the speakers involved.

The topic was “Wills, Estates, & Probate”. The session included discussion about the interaction of estate planning and probate administration. Attendees had the opportunity to get questions answered and learn about resources available to them.

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President Trump’s Proposed Tax Reform and Estate Planning

Change to the federal tax code is always a hot topic and it is gaining steam right now. It’s clear that a goal of President Trump will be elimination of the estate tax. Some refer to it as the “death tax”. President Trump, and others, argue it is unfair. For the very wealthy, income gets taxed once during life and a second time at death. It is a tax on success. Others counter that the estate tax hits only those who can most afford to pay. The wealthy have means to get sophisticated planning. The revenue earned from the estate tax might be used productively to help everybody.

I’m not so concerned with the policy arguments for now. I’ll let the politicians sort that out. The focus of this article is how removal of the estate tax will impact estate planning. What will individuals need to consider? How will estate planning attorneys respond?

To know whether the estate tax is something you need to consider, it helps to understand in a nutshell how the exemption works. Here is an over-simplified idea of the exemption concept. Right now, there is an exemption for nearly five and a half million dollars. In other words, a single individual that dies this year can leave that amount of money without being taxed. Considering most recent fluctuations, the exemption is at the high end.

Estate tax rates gouge those estates that get taxed. The choice is give forty percent of the excess to the IRS or consider some strategies. Plans often involve a will, trusts, investments products, and gifting. Approaches that only serve to reduce estate value would be unnecessary with no estate tax.

A common assumption then is that there will be big changes in how a will, trust, and estate lawyer gives advice. My prediction is the exact opposite. I see a few reasons for this forecast.

To start, the estate tax is already a non-factor for most. Legislation cutting the estate tax will not change anything for these people. Clients that do have significant wealth will still want to see it passed down in an orderly way. That is, there are many planning needs that are not tax motivated. Would you want your 21-year-old child to receive a large sum of money all at once? Do you want your loved ones to spend a year or more in the probate court? Is there a business that will continue? Do you want a charity, special needs individual, or future generations to benefit? These are serious questions outside the world of tax. There are plenty of other examples.

Also, where will the estate tax be in ten years? Nobody can honestly answer that question. Avoiding tax planning now might mean overhauling documents in the future.

It will be interesting to see how President Trump’s proposal develops. Some certainty on the future of the estate tax would be great but don’t expect it in the short-term.