Science, Industry & Business Library Blueprint for Your Business Future Estate Planning Fundamentals for Immigrant Owned Businesses New York Public Library Science, Industry & Business Library Science, Industry & Business Library

Disclaimer All information contained in these pages is for informational purposes only. It should not be considered legal advice. Please consult an attorney before taking any steps based on this information. Financial Planning Association

What is an “Estate Plan”? LEGAL DOCUMENTS “Living Documents” Wills & Trusts Deeds to Real Estate GIFTING DURING LIFE Giving Outright or in Trust 529 Plans & UTMAs Health & Education Expenses ACCOUNTS & BENEFICIARY DESIGNATION FORMS Joint & Individual Accounts Life Insurance Policies Retirement Plans

Estate Planning While You Are ALIVE PART ONE Estate Planning While You Are ALIVE How to Protect Your Business During Your Life

What are “Living Documents”?

Why Your Business Needs Them “Living Documents” allows your agent to handle your business affairs when you cannot A business partner can handle finances A family member can handle your health needs When could you need them? In a hospital Out of the country Too busy to bother with small transactions

Power of Attorney Designate a person(s) to manage your financial affairs. Business partner  business matters Family member  personal matters States specific areas of your finances you are giving control over (can be all areas). Can allow “Gifting” to others Beware. This is a blank check. The person you designate could take all your money. They could go to jail, but the money may have disappeared before they are caught.

Health Care Proxy A document regarding health care decisions Names an “Agent” Gives authority to make health decisions Grants access to medical records States Organ Donation desires Places limitations on treatment

Living Will States your desires when: 1. You are in a terminal condition; or 2. You are permanently unconscious; or 3. You are conscious but have irreversible brain damage and will never regain the ability to make decisions and express your wishes. These conditions are sometimes referred to as "a vegetative state."

Estate Planning AFTER Your Life PART TWO Estate Planning AFTER Your Life How to Transfer (or Capitalize) Your Business Upon Your Death

Methods to Transfer Your Property “Operation of Law” Transfers Probate / Administration Anything with a “Beneficiary Designation” Because we know who it goes to at death Jointly Owned Property Some Business Agreements Retirement Plans Life Insurance “Transfer on Death” [TOD] accounts Trusts This is what transfers through your WILL Because we don’t automatically know who it goes to This includes all property not listed under “Operation of Law” (I.e. everything else) 2 Legal Procedures: If there is a valid Will = “Probate” If NO Will = “Administration”

Non-Testamentary Transfers This property does not require a Last Will and “Testament” for it to be transferred (so we call it “Non-Testamentary) Your Business Partnership (sometimes) Joint Property Life Insurance Retirement Plans Transfer on Death [“TOD”] accounts Trusts

Businesses After Death Some businesses that are owned by 2 or more people may pass to the survivor outside of Probate This requires legal documentation Needs to be discussed with a business attorney and agreed upon by the owners

“Buy / Sell Agreements” A written contract between 2 or more business owners that pays money when one partner passes away The Survivor receives the business The family of the deceased owner gets money

“Buy / Sell”: Business Insurance EXAMPLE: 2 partners own a business, the business owns life insurance on the partners Partner 1 dies The business receives the life insurance proceeds The business pays life insurance to Partner 1’s family Partner 2 now controls the business

“Buy / Sell”: Partner Insurance EXAMPLE: 2 partners own a business, the partners owns life insurance on each other Partner 1 dies Partner 2 receives the life insurance proceeds Partner 1’s family still owns Partner 1’s business interest Partner 2 now has money to (1) buy-out Partner 1’s family, or (2) continue running the business without Partner 1 (but pays some profits to Partner 1’s family

Jointly Owned Property The Survivor needs the other owner’s Death Certificate (that is all) Can be used for S-Corp or C-Corp stock or LLC ownership Example: “Martin Chen and Linda Chen, Joint Tenants” No Probate or Administration needed Positives Negatives Easy access to both owners Minimal transfer costs Non-trusted joint owner can empty the account May have gift tax costs and consequences

Life Insurance Beneficiary needs a Death Certificate and be named on the “Beneficiary Designation Form”

Retirement Plans Includes: IRAs, 401(k)s, 403(b)s, certain pensions, etc. Beneficiary needs a Death Certificate and be on the “Beneficiary Designation Form” Owner must begin taking Required Minimum Distributions [“RMDs”] the year after he/she turns 70 ½ (most people do it at 70 ½)

Inherited IRAs Everyone else: “Inherited IRA” Only a spouse can transfer one person’s IRA directly to his/ her own IRA (owner must be dead) Everyone else: “Inherited IRA” “The Nancy Smith Inherited IRA f/b/o Megan Smith- Jones” The beneficiary must take RMDs no later than the year after owner’s death, even if the beneficiary is under 70 ½

Transfer of Death [“TOD”] Also seen as “In Trust For” [“ITF”] or “Payable on Death [“POD”] Owner retains total control during life Can change beneficiary, take all funds out, etc. Future beneficiary has no control until owner passes After passing, beneficiary needs a Death Cert. Ex: “Mary Smith Savings Account TOD Patrice Lange”  Convenient for businesses that are not Corporations or LLCs (some family busnesses)

Trusts: Who is Involved? Assets owned bya Trust pass Outside of Probate Creator / Grantor / Settlor > Creates the Trust > Determines Terms of the Trust > Funds the Trust Beneficiaries > Entitled to the property under the terms of the Trust Trustee > Manages the trust property > Follows the Terms of the Trust > Entitled to a Commission

Revocable Trusts A person can serve as all three parties at the same time (1) amend or revoke the trust, (2) if the Creator becomes disabled a Successor Trustee can continue to use Trust funds for the Creator’s benefit without requiring court approval (3) upon the Creator’s death the Successor Beneficiaries receive the remaining estate without the need of going through Probate A Revocable Trust can own S-Corp stock or an LLC, BUT the owners must be US citizens ONLY US Citizens can own S-Corp shares

Revocable Trusts: + & - Benefits Detriments Can be altered, amended revoked Creator can transfer funds into and out of Trust whenever they want Detriments No savings on estate taxes ** Have to “Fund” the Trust: Account / Deed Name: “The John and Mary Smith Revocable Trust”

Trusts vs. Wills Wills Trusts Positives Typically cost less to draft You should have one anyway No Probate costs for assets transferred by Trust(s) Private document Fast distribution of funds / Continuity of control May provide tax savings / government program access Negatives Eventual Probate Costs All information is public Longer time to access and distribute funds You may need a “Testamentary Trust” anyway More legal fees up front Time / effort required to transfer assets into Trust

Wills: What does a proper Will accomplish? States who receives what property and how / when Names an Executor: to administer Probate Estate Collects assets; appraises valuables; sells property Pays creditors Can bring lawsuits Pays beneficiaries Can be paid for services Names a preferred Guardian for Minor Children

Probate: When there is a valid Will A PUBLIC process to validate and administer a Will Executor brings the Will to SURROGATE’S COURT Places relevant parties on legal notice  Court may appoint an attorney to represent minor children (a “Guardian Ad Litem”) Court appoints a “Guardian of Minor Children” (usually any remaining parent or family member) Executor delivers an “Inventory of Assets” with the court

Executor: Your Business Representative Your EXECUTOR has the same rights as you Runs your business like you would until Probate is completed Can enter contracts Pays bills, collects funds Responsible for selling or transferring your business (depending on what your Will wants him to do) Someone (1) who is competent and (2) that you trust At least one Executor MUST be a permanent U.S. resident (or a bank / trust company)

Guardians Minor children (younger than 18): (1) need a Guardian (2) cannot own property (1) If parents are unavailable the Court asks who is a good choice for Guardian (look at the Will to see who parent wants as Guardian) This is just one of many factors Asks what is in the “Best Interest of the Child” (2) If a minor is left property the Court can appoint a “Guardian Ad Litem” – an attorney your estate pays for that represents the child

Testamentary Trusts A Trust created in a Will Example: “My Trustee shall pay for my child’s health, education and support needs until he/she is 25, at which point the rest of the Trust shall be paid to him/her” A Trustee is named A different job than Executor (but can be the same person); only concerned with the money in Trust Choose a Trustee you trust; can have more than one person serve at the same time

Who Should I Give To? You can choose who gets what, HOWEVER… The people listed in the prior slide have the right to contest if you do not leave them your estate There is no legal obligation to leave money to people not in the order of the prior slide You can leave money to almost anyone in almost any country (but they may be taxed) ALSO, certain people have a right in your property even if you leave them nothing…

YOU HAVE A WILL WHETHER YOU HAVE WRITTEN ONE OR NOT Guess What… YOU HAVE A WILL WHETHER YOU HAVE WRITTEN ONE OR NOT

Administration: When there is NO Will An Administrator is named and MUST deliver your property to these people: Who Gets What? 1. Spouse only - 100%   2. Spouse & Children - $50,000 to spouse + 50%/50% split between spouse and children 3. Children only - 100% divided equally 4. Parents only - 100% divided equally 5. Siblings only - 100% (Nieces and Nephews) 6. Grandparents only - 100% divided equally 7. Aunts + Uncles only - 100% divided equally 8. Cousins only - 100% divided equally 9. The State of New York Who Gets Nothing? 1. Life Partners 2. Friends 3. Those relatives not “in line” (see left) 4. Pets 5. Organizations and Institutions 6. Business Partners 7. Specific Gifts to Specific People 8. Charities

What Happens to my Business if there is NO Will Your family needs to submit a Petition and Waivers from all relevant family members Pay a Court fee and drop off all paperwork If there are minor children beneficiaries: Court appoints an attorney to represent them This takes 2-6 months During this time:  If No Partners (I.e. you are the only owner): your business CANNOT legally function  If Partners: your partners run the business on their own as they think it should be run

Spouse & Family Rights Your Spouse is entitled to One Third (1/3rd) of your estate by law Even if you leave them nothing in your Will This is call the “Spousal Right of Election” Different than Administration (where this is NO Will) Your Spouse and children are also entitled to approximately $96,000 of various property $25,000 in cash A car with a nominal value Certain household belongings

Executor / Administrator Compensation (if not stated in Will) ONLY paid for money passing through Probate or Administration: 5% for the first $100,000 probated ($0 to $100,000) 4% for the next $200,000 probated ($100,001 to $300,000) 3% for the next $700,000 probated ($300,001 to $1,000,000) 2 ½% for the next $4,000,000 probated ($1,000,001 to $5,000,000) 2% for all additional assets probated ($5,000,001 and Above) Co-Executors may each be entitled to a full commission

SPECIAL ISSUES for Non-US Family Members PART THREE SPECIAL ISSUES for Non-US Family Members What are the rules for people living outside of the US

Non-Citizen Issue: Your Business REMEMBER: A foreign citizen CANNOT own S-Corp stock – ALL owners must be US Citizens If you leave them your business, even a small portion, they may have to change the corporate entity or sell the business It is difficult for people in other countries to run small businesses from outside of the US Most US banks are NOT international Small businesses are typically local, require lawyers in local areas US attorneys are licensed by States, not the country US banks scrutinize foreign money transfers

Non-Citizen Issue: Non-US Executors A foreign citizen who does not live in the United States CANNOT be an Executor alone Need at least one person who is residing in the United States IDEA: You can name more than one Executor One person can be a person not a US citizen living outside of the County (trusted family member) The other person can be a US citizen you trust who is getting nothing from your Estate

Non-Citizen Issue: Leaving Money to Non-US People You may leave your money to people in other countries They have to sign a Waiver in front of a Notary (usually at a US Embassy or Consulate) Your Executor may have to file paperwork with the Consulate of that person’s country If you cannot find all beneficiaries or one has died the Court appoints a Guardian Ad Litem People in your close family and others you leave money to must consent to Probate in writing OR be given the chance to show up in Court

Non-Citizen Issue: What if I Have a Will From Another Country? If the Country has certain treaties with the United States, then a valid Will from that Country is valid in the US Varies depending on the Country, but most are valid in the US The Country’s Consulate in New York may have to receive notice of the death

Non-Citizen Issue: How does my US Will Affect Property in Another Country? If you have a valid Will in New York and a Treaty with the other Country exists, then you should be able to use the US Will to collect that property in the other Country ALL property worldwide is subject to US Estate Tax if you are a US citizen New York usually does NOT assess estate taxes on real estate owned in foreign countries You may need another attorney in the other Country to collect the property for your estate

What Transfers are NOT Taxable? US Residents Transfers Between Spouses Any US Person’s Health and Education Expenses The Annual Exclusion Gifts of $14,000 (in 2014)

What Transfers are NOT Taxable? NON-US Residents Transfers Between Spouses: - At Death: $60,000 - During Life: Only “Annual Exclusion” Any US Person’s Health and Education Expenses The Annual Exclusion Gifts of $14,000 (in 2014)

Resident Reporting Requirements for Gifts From Out of Country (1) if ALL foreign gifts received total more than $100,000 per year, OR (2) transfers from foreign entities exceeding $10,000 Failure to Report: 25% penalty (and if fraud is involved there can be criminal charges)

Drafting Legal Documents See a lawyer who focuses on Estate Planning before drafting documents

Questions & Answers Daniel Timins, Esq. dan@timinslaw.com 477 Madison Avenue Suite 240 New York, NY 10022