When to Use a Family LLC

Most people have heard about LLCS, but you might not be aware of the best situations to use them when it comes to your family. Essentially, a family LLC is an estate planning tool for holding assets or transferring them to succeeding generations.

The people most likely to use a family LLC are those individuals who want to keep family assets together and intact, managed only by a limited number of people. As an LLC manager, you’re in control while you’re alive, but you can also exercise control in selecting who will manage the LLC after you pass away.

If your family has rental real estate, it’s a good option to use a family LLC. You can manage it during your lifetime, and then at your death a portion of the LLC managing that real estate goes to your children. This limits the opportunity for children to argue after you have passed away about who is entitled to what.

Another benefit of a family LLC is that you can gift it during your lifetime. Without having to worry about other members signing off on your decisions, you can sell, lease, or buy assets while you are still alive. This gives you control while you are still present with opportunities for your heirs to manage the LLC after you are gone.

Interested in learning more about Family LLCs or other family entities? Send us an email at info@lawesq.net or contact us via phone at 732-521-9455.

Special Planning for Second Marriages: Lessons Learned From Casey Kasem

The recent news hoopla over Casey Kasem illustrates an important lesson for planning your own estate: things may change when you throw a second marriage into the mix, calling for a re-evaluation of your plans. There are many things that should be addressed in estate planning where a second marriage has occurred. Doing so will help prevent problems and lay the groundwork for plans that actually carry out your wishes rather than spark legal battles among family members.

Special Planning for Second Marriages Lessons Learned From Casey Kasem
(Photo Credit: mediaconfidential.blogspot.com)

Medical directives, powers of attorney, and even decisions about burial planning should all be considered in your estate plan if you are involved in a second or third marriage. This avoids conflict between family members that can make the grieving process even more difficult.

When it comes to passing down assets, this is especially complex in a second marriage. Who should get the money? Should it be split between children? Does it go to the first wife in one lump sum and the remainder is split among the children? There’s a lot of tension that can arise if you don’t think about the answers to these questions well in advance. Conflicts tend to crop up especially when a non-parent spouse is receiving assets that children feel entitled to in one sense or another. The more clarity there is in your planning, the better. Once you’ve met with an estate planning professional, it’s important that you in some sense communicate what you have outlined to family member stakeholders. To learn more about estate planning techniques for second and third marriages, email us at info@lawesq.net or contact us via phone at 732-521-9455

What About Blended Families?

Planning for blended families presents particular challenges when it comes to ensuring your wishes are carried out. While every situation is unique, here are a few common problems and ways to address them.

Blended Families
(Photo Credit:  sitcomsonline.com)

Let’s say you want to disinherit your ex-spouse. At the very least, make sure you have replaced him or her as the named beneficiary of your retirement plans and other assets. You should also consider a Long-Term Discretionary Trust (LTD Trust) to administer your children’s inheritance, with a party of your choosing serving as trustee. In this way, even if your children reside with your ex-spouse, your trustee will control the inheritance through the LTD Trust and ensure it is used only for your children. Should one of your children predecease your ex-spouse, the inheritance would remain
in your LTD Trust for your grandchildren and, if there are none, for your surviving children or other beneficiaries of your own choosing.

Another useful trust is called a Qualified Terminable Interest Property Trust (QTIP Trust). It can protect your new spouse by providing income and even principal for life. It can also protect your new spouse’s inheritance in the event of a subsequent remarriage and divorce. And, upon the death of your new spouse, the QTIP Trust assets may pass to the LTD Trust you established for your own children.

To learn more about the unique planning problems associated with blended families, and how we can help address your particular concerns and goals, please contact us for a consultation.

Keys To Selling Your Family Business

There are plenty of challenges to running a successful family business. But they can look like a hop, skip and a jump compared to the challenges associated with passing your family business along to your children or other relatives.

English: Pugh's Garden Centre A family-owned b...
(Photo credit: Wikipedia)

Only 33 percent of family owned businesses survive the transition from first generation ownership to the next, according to an article in the Vail Daily.

Why so hard?

In some cases, it is because no one in the family is interested in taking the business over.

But more often it is because there no good succession plan in place.

To come up with a workable succession plan, you must collect the thoughts and opinions of all family members as to who wants to be involved and how. You must know who wants to do what kind of work.

You must also discuss retirement goals for family members, cash flow needs and the goals and needs of the next generation of management.

Key decisions, of course, include who is going to be in control and who will eventually own it.

Your succession plan could be based on setting up a family limited partnership, where you, as the general partner, control day to day decisions, but over time sell off shares to family members. Eventually you give up control to who is ultimately going to run it.

Or you could set up a buy-sell agreement, which allows you to name the buyer — it could be one of your children — and establish a price. Then your child could buy a life insurance policy on you and eventually use the proceeds to buy the business.

But there are many strategies that can be considered. Best to consult an attorney with expertise on business succession and business buying and selling.

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Leaving the Vault Open: A Revocable Trust Will Not Protect You From Creditors.

One popular misconception concerning estate planning is that any trust will protect an individual’s assets from creditors. However, as a recent article explains, this is not true. If you are considering incorporating a trust into your estate plan as an asset protection tool, it is important to understand which trusts will actually provide asset protection.

As the title suggests, a revocable living trust will not protect trust assets from creditors. The primary purpose of these trusts is preserve privacy & ease the transfer of wealth by keeping a person’s assets out of probate, which often saves a family time and money. If you have a revocable living trust, it is important to realize that creditors can reach the assets within that trust. This is because you never fully relinquish control of your assets in a revocable trust so you are still considered the legal owner.

If you are interested in incorporating a level of asset protection into your estate plan, consider using an irrevocable trust, or in some cases, as Family Limited Partnership (FLP) or Family Limited Liability Company (FLLC). In contrast to a revocable living trust, an irrevocable trust, FLP and FLLC will protect your assets from creditors. This is because the trust or entity creator is not considered the owner of the assets held in the trust or entity. The trade off, however, is that you may relinquish direct total control of the assets placed in the trust (although, if done right, you may still exercise indirect control.)

How to Plan for, or Avoid, Transfer Taxes

As a recent article suggests, estate planning encompasses a lot more than most people would think. Not only does estate planning allow you to structure the final distribution of your assets upon your death, but it also allows you to provide for the management of your assets during life, plan for the care of your children, and make important decisions about what kind of medical care you would like to receive at the end of your life. Although estate planning encompasses all of these things, most people come to the table with an overwhelming goal of avoiding transfer taxes, namely Estate Taxes, Inheritance Taxes and Gift Taxes.

There are plenty of ways that estate planning can be used to minimize the tax liability an estate will face after the owner’s death. In many situations, it is possible to plan for zero estate taxes. Some strategies involve giving up control of certain assets. For example, a person could zero out their tax liability by setting up a charitable trust. Others, such as Family LLCs (FLLCs) and Family Limited Partnerships (FLPs) allow owners to maintain more control..

For the ultra-wealthy, there are many sophisticated asset transfer mechanisms that can be used to avoid transfer taxes. These mechanisms include foreign grantor trusts, dynasty trusts and private placement trusts. Again, these mechanisms often mean that a person has limited or no access to the assets within the trusts.

For those who want to maintain full control of their assets, life insurance is another way to provide money for anticipated taxes. These policies are often used to provide quick cash for a person’s heirs to pay any taxes and fees on the estate.

Planning for Blended Families: Part I – Intake Process

The “blended family” comprises a fast-growing segment of U.S. households. Whether you arean attorney or investment advisor, there is an advantage in taking some time to fine-tune your intake or initial interview process to determine the desirability of representing a blended-family client.Once you assess the accepted client to determine your counseling strategy, you canbegin strategy planning with your newly acquired information.

As noted, attorneys face different client engagement issues than advisors and CPAs.  This content seeks to illuminate the client-discussion topics but not to precisely define the boundaries between the planning perspectives.

*  Blended families have unique and complex planning needs
*  Planning for blended families may be an important growth area for your business
   –  Blended families continue to grow in number
   –  Blended families often require advanced planning strategies
*  Extending an engagement letter to a blended-family couple warrants careful consideration
*  Your intake interview is an important professional relationship tool

How a “Blended Family” Is Different from a “Traditional Family”
A “traditional” family is one in which any child is a child of both spouses. A “blended family” includes at least one child for whom only one of the spouses is the parent. Money-related discussions for any family can be challenging, but the dynamics of a blended family can make these discussions even more difficult and more critical.

Disparity in Age
Age differences between spouses may be more significant in a remarriage. As a result, age differences between children in a blended family may also be more significant.

These wider age differences mean guardianship issues and planning issues will be unique to each child. In some family situations, older stepsiblings may be willing to be named as guardian for their younger stepsiblings.

In addition to contributing to the potential for conflict, age similarity between the spouse and a stepchild must be considered in a planning strategy.

Disparity in Wealth
Any significant disparity in net worth between the spouses can make estate planning more critical early in the remarriage.

Conflict and Animosity
Bringing two families together can lead to animosity between spouse and stepchildren, between stepchildren, and between parent and children—this animosity can damage or destroy the relationship between the spouses. Aside from contributing to unpleasant living situations or family gatherings, the conflict and animosity that can exist in a blended family can prevent communication. However, effective communication is key to identifying potential issues and creating a sound financial and estate plan for the unique needs of a blended family.

Because of the increased potential volatility and the different legal status afforded blended families, advanced planning strategies may be important tools to implement.

What you need to know
Review your intake interview to ensure it’s designed to fully explore these unique aspects of a blended family so you’ve got an excellent starting point to begin strategizing with your client.

Important Information You Need but Don’t Ask Outright.
The intake process will provide you with a lot of information. With this information, you should determine:
* whether you want to represent a client;
* whether you can represent both spouses;
* your counseling strategy; and
* planning strategy.

Your powers of observation are critical both to deciding whether to offer an engagement letter to a blended-family prospect and to planning your counseling strategy for them.

Power Imbalance
Especially if your intake questionnaire indicates a large disparity in age, net worth, education, or health, carefully observe how a couple—and the whole blended family if children are present—interacts during the interview to identify and explore potential power imbalances.
* Is one spouse doing all the talking?
* What does their body language tell you?
* Does one spouse look to the other for consensus?

“They’re all our children.” Estate planning attorney and WealthCounsel member Jeff Sydney identifies this statement as a bright red flag. In his experience, couples in denial about the important and unique needs of a blended family are extremely hard to counsel. A blended-family couple must be willing to acknowledge that their situation is a breeding ground for conflict. The more access you have to the family’s dynamics, the better strategy you can create for its specific needs. Without that access, you can at least plan for the “worst case scenario”, but even that kind of planning requires the couple to acknowledge that effective planning must contemplate conflict. The more complex a family’s situation, the more specific and detailed the planning strategy must be.

Confidential Information
Requested private conversations—one spouse requests a conversation with you without the other spouse present—are another flaming red flag. Sydney indicates that the request typically starts like this:  “I didn’t want to say this in front of my [spouse], but . . . ” and, if you don’t stop it, sometimes concludes with disclosure of a secret child or hidden asset.  For an attorney, this attempted or achieved disclosure of non-shared information raises critical and perhaps insurmountable issues concerning representing the couple as joint clients. For that reason, attorneys must have the “no secrets among us” conversation at the very earliest opportunity and refuse any proffer of secret information from one spouse.

What you need to know
If your intake interview is designed for blended families, the answers it prompts will be a strong indicator of whether you want to or can engage a client. But make sure to read between the lines of how a blended-family couple interacts so that you have the whole picture. Make sure your intake process includes counseling strategy assessments so that you can effectively facilitate open, honest communication essential to effective client meetings.

Your Ethical Obligations as They Relate to Blended Families
Turning away a client may seem counterintuitive to your business plan, but carefully screening potential clients keeps you in the driver’s seat. For an attorney, declining a potential client at the outset is easier than resigning from an existing relationship. After a thorough intake interview, you will be able to determine if you are qualified to handle the client’s needs, if any conflicts exist, and if you want to proceed to the next step. Carefully assess the prospective clients’ direct responses to the interview questions and their observed behaviors. Be sure that the clients are forthright with each other and with you about the information needed to provide an effective and realistic financial plan for their family situation. A professional relationship founded on incomplete information and poor communication will keep you up at night and may lead to ethics issues. A positive professional relationship will be a more positive experience for you and will generate new leads for your business.

For the attorney or advisor:

  • Should you represent both spouses?
  • Should you represent parents or children of existing clients?

Ethics questions for the attorney:

  • Will you represent both of the spouses as a couple, or will you represent only one of the spouses?
  • If you represent the couple, does your engagement agreement contain necessary conflict-of-interest disclosures and waivers of attorney-client privilege as to each spouse?
  • If you represent only one of the spouses and have met with both of them, have you informed the other spouse in writing of his or her need to retain independent counsel?
  • If the other spouse has retained separate counsel, have you informed your client and your staff and instructed them in writing to deal only with the spouse’s counsel in matters related to the planning engagement?
  • If the other spouse has waived the right to independent counsel, did you get that waiver in writing?
  • When should you resign from an existing engagement?
  • When must you resign from an existing engagement?

Attorneys must know state requirements specific to representing blended families. Some state statutes address:

  • Duty to enter into written contract
  • Duty to avoid actual conflict of interest
  • Duty to avoid potential conflict of interest
  • Duty to maintain client’s confidence

What you need to know
Your observations during the intake interview may raise some ethics questions in your mind about representation. Know your state’s laws and ethics rules.

Actions to Consider:
* Market your professional services to blended families.
Blended families represent a growing share of the market, and they often afford the opportunity to implement advanced planning strategies. They can represent an excellent client base for your planning practice.
* Make an informed decision to represent a blended family.
Recalibrate your intake process to screen potential blended-family clients for some of the known landmines.
* Maximize your time together, fostering a productive and efficient professional relationship.
Collect the information you need to formulate your counseling strategy.

Our thanks and acknowledgement to WealthCounsel member Jeff Sydney for his contributions to this article.


Next in the Blended Family series:  Part II – Counseling Strategy

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.


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What is a Family Limited Partnership (or Family Limited Liability Company)?

There are many sophisticated estate planning strategies available to affluent families to ensure that the majority of their hard earned money stays within the family, rather than in the hands of the IRS and state taxing authorities. One such device is the Family Limited Partnership (“FLP”) or Family Limited Liability Company (“FLLC”.) FLPs & FLLCs are advantageous because they provide estate tax savings, gift tax savings, and asset protection.

A FLP or FLLC may own a variety of things, such as real estate or shares on your company. In order to retain control over the assets, you may choose to be the general partner or managing member. That way you can comfortably give your children a majority of the equity in the FLP/FLLC while maintaining control yourself.

By gifting limited partnership/membership interests to trusts or directly to members of your family, you reduce your taxable estate. Consequently, the amount of any applicable estate tax that your heirs will have to pay upon your death will be reduced by the ownership interest you gave away. Such gifts also apply for the annual gift tax exclusion.

As an article in Forbes points out, FLPs require not only good planning but good execution as well. Many times an FLP fails not because of a faulty set-up, but because of a poorly carried out transaction. The same can be said of FLLCs. It is therefore vital to coordinate between those who create your Family Entity, and those who will be working with it, such as accountants, to avoid problems.