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Cleveland, Ohio Attorney

What is Business Succession?

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Whether you’re planning for retirement or the life of your business after your death, it’s imperative to develop a business succession plan to sooner rather than later.   There is no “one plan fits all” when it comes to developing a succession plan for your business.  And given that the economy is constantly changing, it isn’t surprising small business owners focus their energies on business survival, future growth, and even remaining active in business after retirement.

Business succession is about three things (1) Estate planning; (2) Retirement; and (3) Risk Management.

Estate Planning

Your estate plan should be incorporated into your business succession plan.  What will happen to your company assets after you die?  Who will run your business?  If you want to provide for your family using your business assets, you should consider at the very least having a last will and testament.  Carefully drafting your will allows you to select desired beneficiaries, elect an executor, and transfer your assets through probate.  Your family will be going through a difficult time.  Setting up a last will and testament in advance helps your family during that difficult time.

Retirement

When thinking about retirement, it’s important to consider your options when selling your business.  Will you sell with a lump sum, installments, mix, employee buy-out, or merger?  There are numerous options when planning for your retirement and taking advantage of the business you built.  Thus, business succession is about planning for your exit strategy.  To learn more about your options, visit this article.

Risk Management

Business succession is about limiting your risk.  If you have partners within your company, you should be aware of the risks involved.  For example, if your partner gets divorced, their spouse is entitled to the partner’s share in the business through the divorce proceedings.  If your partner dies, you can now be partners with their spouse or estate.  One option to avoid this potential risk is to create a buy-sell agreement through a cross purchase agreement or entity purchase agreement.

Business succession is an important idea that every business owner should consider.  Contact your Cleveland, Ohio business succession and estate planning attorney for more information on how to set up your plan.  You may also consider contacting Cleveland, Ohio law firm Baron Law LLC at 216-573-3723.

 

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Difference Between a Trustee and Executor Within a Testamentary Trust

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Cleveland, Ohio Estate Planning Dan A. Baron Explains the Difference Between an Executor and Trustee:

Estate planning can be complicated and sometimes difficult to bear when charged with the responsibility as executor or trustee of an estate. If you have minor children, then you probably have set up some form of testamentary trust coupled with your will and power of attorney. Within these estate planning documents, there are designated executors and trustees that have been carefully selected to administer your estate after you pass. It’s important to talk with your executor and trustee and let them know their responsibilities after your’re gone. Below is a quick summary of the difference between executor and trustee of a testamentary trust.

The Executor’s responsibility is to liquidate or otherwise gather all estate assets, pay any outstanding bills and then transfer assets from the name of the decedent to the beneficiaries named in the Will (most often the decedent’s children). They also make any necessary filings with the court and attend any court hearings. Most Executor’s elect to use an attorney to help them with this so the process runs smoothly. Once all assets are in the name of the beneficiary, the Executor’s job is done. The complexity of the estate will determine how long the Executor is needed.

In comparison, a Trustee receives the assets from the Executor and then, with court approval, invests the trust assets in savings account, investment accounts, or whatever they deem appropriate. Most importantly, the Trustee manages the funds and makes distributions to the trust beneficiary (usually children) when needed (i.e. to pay school tuition, living expenses, doctor bills, etc.). Most clients set a maturity age of 25. When the children reach the age of 25, the trustee distributes the balance of the trust funds and that particular child’s trust is terminated. The Trustee will be required every two years to make reports to the court as to the value of the trust. As you can imagine, the length of time the Trustee will be needed will depend upon the age of the children.

If you would like to learn more about the responsibilities and an executor and trustee, or have questions, contact our office at 216-276-4282. You will speak directly with an Cleveland, Ohio estate planning attorney who can help you set up a trust, will, power of attorney, medicaid planning, and more. If you would like to attend one of our FREE seminars, please visit this link.

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How Do I Avoid Probate?

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Successful Probate Avoidance Strategies

If saving time, money, and court supervision is right for your family, then avoiding probate is right for your estate plan.  There is a common misconception that having a will avoids probate. This is completely false.  Having a will does NOT avoid probate.  There are however many simple ways to avoid probate and some strategies that even offer asset protection.   But regardless of what estate planning method you choose, avoiding probate will avoid costly fees for your children and time consuming court proceedings. Here are a few helpful methods to consider.

Joint Ownership

Joint ownership is the most common method of probate avoidance and does not require the help of an attorney or other professional.  Assets owned by more than one person result in the survivor taking ownership.  Joint ownership examples might include a joint bank account or marital home.   This is significantly beneficial when avoiding probate for a residence because the transfer of assets is immediate and does not require a court approved transfer.   If you have a joint bank account, most banks require a simple death certificate and identification to transfer the account to the remaining account holder.  In lieu of a trust, the downside of joint ownership is that it does not offer asset protection.  Creditors may still attach their interest in a residence or asset of a jointly held account.

Beneficiary Designations

If you ever received life insurance or engaged with a financial planner, you’ve probably filled out a beneficiary designation.  These are very common with retirement accounts (401(k), 403(b), IRA, etc), life insurance, annuities, and other assets.  Here you simply designate the names of those you wish to receive the assets after your death.  Beneficiary designations are a great way to avoid probate and keep your estate private.  The transfer of assets is swift and does not require court approval.  If you name your minor children as beneficiaries, it is recommended that you appoint a guardian because a minor cannot take control such an account.  Once again however, the downside to beneficiary designations is that these assets are not protected against divorce, creditors, or litigation.  For example, if your children inherit an IRA but then get divorced, the ex-spouse is will receive half of the retirement assets.  (See trusts below for asset protection)

Transfer-on-Death

A transfer on death affidavit works just like a beneficiary designation.  Here the “TOD” allows you to designate the person or entity to receive your assets upon your death.  Just like a beneficiary designation, the TOD avoids probate while transferring assets swiftly and without court approval.  This method saves time and cost for commonly titled assets like a home, automobile, boat, and more.

Payable on Death

Similar to Transfer on Death Accounts, POD’s also transfer assets seamlessly through naming a beneficiary. Here the difference is that POD’s usually refer to checking accounts, savings, and certificates of deposit while TOD’s refer to brokerage accounts, stocks, securities, and mutual funds. Both TOD’s and POD’s do not offer asset protection.

Trusts

The single best way to avoid probate while also providing asset protection is by creating a trust.  A properly drafted trust is completely private, avoids probate, provides asset protection, and is advantageous for tax purposes (for larger estates).  There are numerous trust planning strategies available for all different types of estates.  For example, some trusts may be changed or modified during your lifetime (called revocable living trusts) or may not be changed (called irrevocable living trusts).  Other trusts may pay taxes themselves while others allow the trust beneficiary to pay taxes.  Regardless of what trust strategy is used, a properly drafted trust will ensure that your children and/or beneficiaries receive asset protection, favorable tax considerations, and probate avoidance.

To learn more about probate avoidance or trust planning strategies, contact an attorney at Baron Law LLC at 216-573-3723 or dan@baronlawcleveland.com  Baron Law LLC is a Cleveland area law firm providing legal services in the areas of estate planning, probate, wills and trusts, Medicaid planning, and more.

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Client Review
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Daniel Baron reviewed our Trust, Wills and HPOA. He provided good feedback as to what needed updating and any necessary additions to the documents. We didn’t have a FPOA which thanks to him we now have. He was able answer any questions we had and proved to be very flexible to accommodate our schedules when it came time to meet. I would recommend him to anyone looking to do Estate Planning

– Tom

Baron Law LLC

Estate Planning – Trends Following the American Taxpayer Relief Act.

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Estate Planning – Trends Following the American Taxpayer Relief Act.

A recent survey concluded that sixty percent of Americans are afraid they will outlive their retirement.   Thus, there has been a moving trend that people are more concerned about wealth preservation compared to wealth transfer.  For example, a fifty year-old man in the top income quintile in 1980 could expect to live 31.7 more years.  A fifty year old man in the top income quintile in 2010 could expect to live 38.8 more years.  At $75,000 per-year of spending, increased longevity creates an additional $532,500 in cost. Thus, estate planning methods have changed and the American Taxpayer Relief Act has adopted new laws conforming to the wealth preservation vision.

Up until recently, many estate planning attorneys would urge clients to include a trust in their estate planning package.  A trust is a good means to avoid creditors and shield assets from other liabilities.  However, because of the recent changes in the American Taxpayer Relief Act (“ATRA”), trusts are most often not necessary – even for the wealthy.   Pre-ATRA, an estate planning attorney would set up a trust with an amount equal to the deceased’s remaining exemption.  This is often called a “bypass trust,” or B or credit shelter trust.  Assets would often not be included in the spouse’s estate.  The balance would go to the spouse outright or to marital deduction (A) trust, eliminating tax after the first spouse dies.  In the end, these assets (plus any appreciation) will be included in the spouse’s estate.

Post-ATRA no changes the landscape for estate planning by offering several wealth preservation concepts.  First, the concept of “portability” means that the surviving spouse can add to his or her own exemption whatever amount of exemption the deceased had not used during their lifetime.  Thus, a bypass trust is not needed to avoid wasting the exemption.  However, the Deceased Spousal Unused Exemption Amount (DSUUEA) is not indexed for inflation.  In addition, ATRA now permanently sets the estate, gift, and generation-skipping transfer (GST) tax exemptions at $5 million and indexes that amount for inflation.  Therefore, in 2016 a married couple could avoid the gift tax for any amount less than $10,900,000.00 ($5.4 million x 2 for married couples).

People are living longer and the ATRA has adjusted for that.  For more information, contact Cleveland, Ohio estate planning attorney Dan Baron.  Call Baron Law LLC today.  You will speak directly with an attorney who will help you with your estate planning and tax planning needs.  Baron Law LLC is a Cleveland, Ohio law firm located in Independence, Ohio.

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Living Trusts vs. Testamentary Trust

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Living Trusts vs. Testamentary Trusts

Cleveland, Ohio Estate Planning Attorney Dan Baron:

If you’re planning for your Ohio estate plan, then you’re probably lost among the many estate planning terminologies. However, there are numerous estate planning methods to provide safety and security for your family.  There are many ways to achieve this including living trusts, testamentary trusts, wills, legacy trusts, power of attorney’s and more.    If you have minor children (under the age of 18) it is often suggested to implement a testamentary trust into your last will and testament.  How is this different from a living trust you ask?  Here ‘s some additional insight…

First, if you’re trying to decide between a trust or a will, please see this link. However, if you have children, a testamentary trust is often recommended for your estate planning needs.  A testamentary trust is created in your last will and testament.  Thus, unlike a living trust, a testamentary trust will not take effect until you die.  The terms of the trust are amendable and revocable – they can be changed at any time.   It is highly recommended to include a testamentary trust in your will for parents who are at risk of dying at the same time.

Example: Husband and Wife have $1,000,000 in assets including a house, stock, and automobiles.  Both Husband and Wife die in a car accident and leave behind three children ages 4,6, and 11.  Because their children have not reached the age of 18, they may not have a claim to the money until they reach the age of maturity – age 18.

A testamentary trust can help avoid the scenario above.  Through the trust, you may set parameters on your estate.  For example, you might include terms that allow for $1,000 a week to be given to your children in the event both parents pass.  Or, you might hold off on giving your children any money until they reach the age of 21, 25, attain a degree, get married, etc.  Having a testamentary trust allows you to control your estate even after your death.  Note however that if only one parent dies in the example above, the testamentary trust does not take effect.  Instead, most often times the dying spouse leaves all of the estate to their spouse.  In that instance, the remaining spouse would determine how and when the money is distributed among the children.  Side note – you cannot disinherit your spouse…

Contrary to a testamentary trust, a living trust – or inter-vivos trust – takes effect at its creation. These trusts can be either revocable or irrevocable.   Inter-vivos is Latin for “among the living persons.”  So, if I were to decide to give you my boat, then that would be an inter-vivos transfer.  Typically, a living trust must contain a trustee (a person responsible for carrying out the wishes of the creator), and a beneficiary (the persons receiving the benefit of the trust).  In Ohio, you as the creator of the trust may not be the beneficiary of the trust unless you elect to set up an Ohio legacy trust.  Put simply, a living trust is one that is created during your lifetime.   Living trusts are often recommended for those who wish to avoid probate or want to keep their assets private.

For more information, contact Cleveland, Ohio estate planning attorney Dan Baron at Baron Law LLC.  Baron Law is a Cleveland, Ohio are law firm practicing in the areas of estate planning, divorce, business law, and securities litigation.  Contact an trust attorney at Baron Law today at 216-573-3723.  You will speak directly with an attorney who can answer all your trust and estate planning questions.

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Estate Planning – Protecting your Children Through Testamentary Trusts

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From Cleveland, Ohio Estate Planning Attorney Dan Baron:

Estate planning attorneys will tell you that testamentary trusts are a great way to protect your children and plan for your estate.  Below are 10 things to know about testamentary trusts and how they might fit into your estate plan.  To learn more, contact Cleveland, Ohio estate planning attorney Dan Baron at Baron Law LLC.

  1. What is a testamentary trust?

A testamentary trust is a trust usually coupled with your last will and testament.  Contrary to many living trusts, a testamentary trust is revocable and will not take effect until you die.  The trust provides for the distribution of all or part of an estate and often proceeds from a life insurance policy held on the person establishing the trust.   You can have more than one testamentary trust in your will.

  1. Why choose a testamentary trust?

Most often a testamentary trust is used to protect your children.  For example, if husband who has a will dies in an automobile accident, his estate would pass to his wife.  However, if both husband and wife are die in the accident, leaving their two minor children behind, a simple will will not provide a plan for the estate. Thus, a testamentary trust may provide guidelines as to how the estate is passed to their children.   There are other trusts to consider.  Contact your estate planning attorney to learn more.

  1. How do you create a testamentary trust?

As mentioned above, the most common way in Ohio to create a testamentary trust is to include the necessary language in your will.  The creator of the trust (known as the “settlor”) dedicates a Trustee who then administers trust.  For example, in the event both spouses die, the trust might make the estate pass to their children at the age of 18.  Or, the estate might pass in the even one of the kids gets married.  It is recommended that an estate planning attorney create your trust.

  1. When is a testamentary trust created?

Unlike living trusts, the money is not distributed automatically.  Many people believe that testamentary trusts avoid probate.  However, there still are some probate considerations that are involved.  In Ohio, typically a testamentary trust begins at the completion of the probate process after the death of the person who has created it.  It is recommended that an estate planning attorney help guide you through setting up the trust.

  1. What is the term?

A testamentary trust lasts until it expires, which is provided for in its terms. Typical expiration dates may be when the beneficiary turns 25 years old, graduates from university, or gets married.

  1. How is the probate court involved?

As mentioned above, a testamentary trust will not automatically take effect.  Before the creator dies,  the probate court checks up on the trust to make sure it is being handled properly.  Once the creator dies, the beneficiaries of the estate should contact an estate planning attorney to carry out the trust.

  1. Who can be the trustee of a testamentary trust?

Anyone can be a Trustee for a testamentary trust.  However, it is recommended that the Trustee be someone that the creator trusts.  The Trustee will have great responsibility in administering the deceased’s wishes.

  1. Does the trustee have to honor the terms set out for expenditures in the will?

It depends.  Ultimately it is up to the Trustee to determine whether a certain act or time has occurred in order to distribute the estate.  Some of these events are very easy to figure out.  For example, if the trust provides that the estate be distributed upon a marriage, that event is easy to determine.  Conversely, if the trust provides that a certain dollar amount be distributed upon a child “finding a good job,” it becomes more subjective for the Trustee.  Thus, it’s imperative to hire a qualified estate planning attorney to help draft a will or trust.

  1. When can I opt out of a trust?

Generally, if the person’s estate is small in comparison to the potential life insurance proceeds or other amounts that will be paid to the estate at death, a testamentary trust may be advisable.

  1. How much does it cost to set up a testamentary trust?

It is generally inexpensive to set up a will with a testamentary trust.  In most cases, attorney Dan Baron at Baron Law LLC can set up a testamentary trust for less than $1,000.  If the estate plan is more complicated, the legal fees may be higher.  If you are interested in setting up a trust or estate plan, contact a Cleveland, Ohio estate planning attorney.  Call Baron Law LLC today at 216-573-3723.  You will speak directly with an attorney who can help with your estate planning needs.

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How Does a Minimum Required Distribution Affect My Retirement?

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Cleveland, Ohio Estate Planning Attorney

If your retirement portfolio contains a Simple Employee Pension (“SEP”), or Simple IRA, you need to know how the minimum distribution system works.  Cleveland, Ohio estate planning attorney Dan Baron provides the following remarks.

One major attraction to IRA’s and other estate planning tools is the ability to accumulate funds inside the plan on a tax-deferred basis. The minimum distribution rules dictate when this tax-sheltered accumulation must start coming out of a retirement plan, and, when they end.  Congress enacted the minimum required distribution rules to compel annual distributions from your retirement plan beginning typically at age 70 ½.  Estate planning and tax attorneys need to know the minimum required distribution rules because these rules set the outer limits on plan accumulations; moreover, failure to comply with rules results in penalties.

Is Your Retirement Plan Subject to the Rules?

Minimum required distributions apply to “Qualified Retirement Plans.”  IRA’s and 403(b) plans fall under the rules of qualified retirement plans.  However, Roth IRA’s are subject to the IRA minimum distribution rules only after the participant’s death.

Timing of a Minimum Required Distribution

If your retirement plan contains one of the above mentioned funds, there are many things to understand.  First, the starting point for lifetime required distributions is approximately age 70 ½ (or upon later retirement in some cases).  The starting point for post-death distributions is measured from the participant’s death.  Once the distributions start, the beneficiary must take distributions no later than December 31.  However, there are several exceptions to this rule including the “5 year exception” and rollovers.  Contact a tax attorney or estate planning attorney to learn more.

How is the Minimum Distribution Determined?

Each year’s minimum required distribution is determined by dividing the prior year-end account balance by a factor from an IRS table.  The amount is computed by dividing an annually-revalued account balance by an annually-declining life expectancy factor.  Taking more than the required amount in one year does NOT give you a credit you can use to reduce distributions in a later year.  Further, the distributions you elect cannot exceed 100 percent of the account balance.  Contact Cleveland, Ohio attorney Dan Baron to learn more on how this minimum distribution affects your retirement plant.

As you can see, there are numerous rules that affect your retirement and taxes.   Contact a Cleveland, Ohio attorney who can help you understand more about minimum required distributions or other estate planning rules.  Cleveland, Ohio estate planning Dan Baron can help you with your tax planning and estate planning goals.  Contact Cleveland, Ohio attorney Dan Baron at 216-573-3723.