2020 was a nightmarish year for many families. But thanks to recent legislation, you could see a silver lining in the form of major tax breaks when filing your income taxes this spring. First up, although it’s technically not a tax break, the IRS announced this week that the deadline for filing your 2020 federal income taxes has been pushed back from April 15 to May 17, 2021, which gives you an extra month to get your tax return handled. 

The postponement applies to individual taxpayers, including those who pay self-employment taxes. But the extension does not apply to first-quarter 2021 estimated tax payments that many small business owners file. So if you file quarterly taxes, contact your tax advisor now if you haven’t already done so.

Additionally, the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 provides individual taxpayers with several hefty tax-saving opportunities, many of which are only available this year. What’s more, President Biden’s new relief package, known as the American Rescue Plan (ARP), which went into effect in March 2021, not only offers additional stimulus payments to most Americans, but it also includes significant tax relief for those taxpayers who lost their job and had to rely on unemployment benefits in 2020.

While there are dozens of potential tax breaks available for 2020, here are 7 of the leading ways you can save big money on your 2020 tax return. 

1. Stimulus Payments

As part of the CARES Act, millions of Americans received stimulus checks in 2020, and those payments were an advance refundable tax credit on your 2020 taxes. This means that no matter how much you owe (or get back) on your 2020 taxes, you get to keep all of the stimulus money and won’t have to pay any taxes on it.

Because the IRS didn’t have everyone’s 2020 tax returns when they issued the stimulus checks, they based the stimulus payments on your 2018 or 2019 returns, whichever one you had most recently filed. Using data from those years, the stimulus payments from 2020 phased out at an adjusted gross income (AGI) of $75,000 to $99,000 for singles and at $150,000 to $198,000 for married couples filing jointly.

Given that the stimulus payments were based on your AGI for 2018 or 2019 but technically apply to your 2020 AGI, you may find that your payment was either too much or too little. But there’s good news—even if your financial situation has improved since 2018 or 2019 and you received too much stimulus money based on your 2020 income, you get to keep the overage.

By the same token, if you received too little or only partial payment on your 2020 stimulus, you can claim what you missed in the form of a recovery rebate credit when you file your 2020 taxes. Not sure how this would work? Here are three scenarios where you may be entitled to additional stimulus money.

• If your AGI for 2018/19 is higher than your AGI in 2020, you can claim the additional amount owed when you file your 2020 taxes this April.
• If you had a child in 2020, but didn’t get the $500 credit for dependent children in your stimulus payment, you can claim the child when you file in 2021.
• If someone else claimed the child based on 2018/19 returns, but you can legitimately claim that child on your 2020 return, you can get the $500 tax credit when you file in 2021, and the person who got it based on 2018/19 returns will not have to pay it back.

2. Unemployment Benefits

When the pandemic stalled out the economy, many Americans lost their jobs and were forced to rely on unemployment insurance to pay the bills. That said, unemployment benefits are generally taxable, so if you took them, without having taxes automatically deducted, you were looking at having to pay income taxes on that money when you file your 2020 return.

However, taxpayers who received unemployment benefits in 2020 were provided with significant relief with the passage of President Biden’s American Rescue Plan (ARP). Under the ARP, the first $10,200 of your 2020 unemployment benefits are tax-free if your annual household income is less than $150,000. The ARP doesn’t provide a different threshold for single and joint filers, so both spouses are entitled to the $10,200 tax break, for a potential total of $20,400, if both spouses received the benefits.

Note that if your unemployment benefits exceed $10,200 in 2020, you’ll need to report the excess as taxable income and pay taxes on the amount over the limit. And if your household income is over $150,000, you’ll need to pay taxes on all of your unemployment benefits just like you would before the passage of the ARP.

If you already filed your 2020 return and paid taxes on your unemployment benefits before the passage of the ARP made those benefits tax free, the IRS plans to automatically process your refund. This means you won’t have to tax any extra steps, such as filing an amended return, to secure the refund. The IRS will release further details on this issue in the coming weeks.

3. Waived RMDs

You are typically required to take an annual required minimum distribution (RMD) from your IRA, 401(k), or other tax-deferred retirement account starting in the year when you turn 72, but the CARES Act temporarily waived the RMD requirement for 2020. The waiver also applies if you reached age 70½ in 2019, but waited to take your first RMD until 2020, as allowed under the SECURE Act.

RMDs generally count as taxable income, so taking this waiver means that you may have lower taxable income in 2020 and therefore owe less income taxes for 2020.

However, there are a number of factors to consider, including the state of the market and your living expenses, when deciding whether or not to waive your RMDs. Given this, consult with us, as your Personal Family Lawyer®, or your tax professional before making your final decision.

Next week, in part two of this series, we’ll cover the remaining four ways you can save big money on your 2020 tax bill. 

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

With the government shutdowns and economic fallout from the pandemic, 2020 was a rough year for many businesses. But thanks to recent legislation aimed at helping business owners recover from the pandemic, you could see a silver lining in the form of significant tax-saving opportunities when you file your annual tax return this April. 

First off, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed last March, and in addition to emergency loans like the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL), it also included several tax breaks to help struggling businesses, most notably, the Employee Retention Credit (ERC). From there, the Consolidated Appropriations Act 2021 passed in December 2020, expanded and extended the ERC program to address the lingering effects of the pandemic.

Finally, in addition to the pandemic-related legislation, multiple provisions of the 2017 Tax Cuts and Jobs Act (TCJA) continue to provide potentially hefty reductions to your tax bill. On that note, here we’ve highlighted five key tax-saving opportunities you should keep top of mind when you file your 2020 return.

1. Expansion and Extension of the ERC
Under the original version of the ERC, any business that was fully or partially suspended as a result of government-mandated COVID-19 shutdown orders or whose gross receipts fell by more than 50% in a quarter in 2020 compared to the same quarter in 2019 may be eligible for the tax credit. The tax credit is worth 50% of qualifying wages, with payments of up to $10,000 per employee for wages paid from March 13, 2020 through January 1, 2021. Initially, the ERC was not available to those employers who took a PPP loan, but this rule was changed for 2021.

Based on changes enacted under the Consolidated Appropriations Act 2021, the ERC is now available to business owners who took a PPP loan, including borrowers from the initial round of PPP, who originally were ineligible to claim the tax credit. However, the credit can only be taken on wages that are not forgiven or expected to be forgiven under PPP. Eligible employers now have until June 30, 2021 to claim the tax credit.

On March 1, 2021, the IRS issued Notice 2021-20 that offers guidance for employers claiming ERC for wages paid through the end of 2020. The notice explains how employers who received a PPP loan can retroactively claim the employee retention tax credit. In order to claim the credit for past quarters, employers must file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for the applicable quarter(s) in which the qualified wages were paid.

For business owners who qualify in 2021, including PPP recipients, the new law expands the credit and allows them to claim a credit against 70% of qualified wages paid. Additionally, the amount of wages that qualifies for the credit is now $10,000 per employee, per quarter for the first two quarters of 2021. This means you could potentially claim $7,000 per quarter, per employee (or $14,000) for 2021.

The IRS plans to release additional guidance addressing the changes for 2021 in a future notice.  Given the changing and complex nature of the ERC, consult with us, as your Family Business Lawyer™, or your CPA to ensure you get the most benefit from the tax credit in 2020 and 2021.

2. Take a 20% QBI Deduction For Pass-Through Income
One of the biggest tax breaks offered by the TCJA was the Qualified Business Income (QBI) Deduction, and it’s still available for 2020. Starting in 2018 and running through 2025, this provision allows qualifying business owners to take a straight 20% deduction on their net business income for the year. And this deduction is in addition to any ordinary business-expense deductions you might have.

To qualify, your business must be set up as a “pass-through” entity, meaning your company’s taxes pass through and are paid at your personal income tax rate. This business structure includes sole proprietorships, partnerships, limited liability companies (LLC), and S corporations—basically all businesses except C corporations and LLCs taxed as corporations.

The deduction does have some restrictions, including for specific types of service businesses like law practices and accounting firms, and it begins to phase out at higher income levels. For 2020, the deduction begins to phase out once your taxable income surpasses $163,300 if single and $326,600 if married and filing jointly. Given these restrictions, meet with us, as your Family Business Lawyer™ or your CPA to see if your company qualifies.

Next week, in part two of this series, we’ll cover the remaining three ways you can save big on your 2020 tax bill. 

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule your appointment at 907-312-5436, or find a time for us to call you. 

Even though there are now vaccines for the pandemic and the number of new cases is on the decline, becoming infected is still a very real possibility. And for parents who suffer from any debilitating illness, it can be a colossal challenge to navigate your typical parenting responsibilities, while trying to recover.

This is especially true for single parents who are the sole caregiver, with limited outside child-care options. That said, plenty of single parents have faced the same challenge and successfully recovered, while raising their young children. Fortunately, you can learn from their experiences,  ask for support, and take steps to prepare for and manage your illness and your role as a parent.

Last week, in part one, we discussed some key legal issues that parents of minor children should address in order to deal with the risks of the coronavirus or any other serious medical condition that can leave you totally incapacitated or worse. Specifically, we talked about the need for naming legal guardians to care for your kids in the event you become unable to look after them. If you have not already legally documented who you would want to look after your children should you become unable to do so yourself—even for a short period of time—go to this free website right now get it done.

In addition to naming legal guardians for your kids, we also talked about the need to create a medical power of attorney and living will. These legal documents are advance directives that describe your wishes for medical treatment and end-of-life care in the event you become incapacitated and unable to express your own wishes. 

Here, in part two of this series, we are going to discuss proactive measures that single parents debilitated by the coronavirus or another illness can take to improve your chances for a smooth recovery and better manage your parenting duties at the same time. Additionally, we are going to discuss additional estate planning steps for you to consider now.

Practical Tips For Recovering From The Coronavirus

If you develop symptoms that aren’t serious enough to warrant hospitalization, your main priority is recovering from your illness, but unless you can find an alternate caregiver, you’ll still need to look after your kids. As with any other challenge, planning ahead for this situation will greatly improve your chances of having a smooth recovery.

The more you prepare yourself, your home, and your children for your illness before you start feeling sick, the easier it will be to manage things when your symptoms reach their worst. The coronavirus affects people in a variety of different ways, so until you know exactly how your body will react, it’s best to prepare for a broad range of symptoms.

Identify Support. As a single parent, having backup support to care for your kids, in case you become ill or in the event of your death, is critical. While we discussed naming legal guardians for your children in our previous article, on a practical level, now is the time to consider who in your life would you be able to call on for immediate support if you need help.

As you make this list of potential immediate supporters for you and your kids, have a proactive conversation with those people now, letting them know you hope to not have to call on them, but if you do, you want to know if they would be open to being available to support you and/or your children.

If they say yes, create legal documentation giving them authority to stay with your kids and make medical decisions for your kids, in the event that you cannot make those decisions for any reason at all. This way, if something does happen, and you are too sick to care for your children, the authorities would have your written authority to leave your children in the care of the people you’ve identified, and they wouldn’t have to take your children into the care of strangers or “the system” while they figure out what to do.

In the even that you do become seriously ill, you should take the following steps to help prepare yourself and your family: 

Plan to get lots of rest. Constant fatigue is one of the most common symptoms of the virus, and this can seriously affect your ability to care for your kids. Given this, you should do everything you can to keep your kids safe and occupied, so you can rest. This might mean gathering games, videos, books, music, toys, and snacks to keep them entertained. And if you have small children and are worried about them wandering off, consider using a playpen or play gates to keep them in the same room as you while you rest.

Stock up on food. You should stock up on food for both you and your kids. Your best bet are easy-to-prepare meals, such as canned soup, microwave meals, energy bars, meal-replacement shakes, and frozen pizzas. While you should be able to stock up on at least a couple of weeks worth of food beforehand, you may find that you need additional food or other essential supplies once you get sick. To prepare for this, reach out to family and friends to see if they can drop off groceries, and if that’s not an option, look into delivery services such as TaskRabbit or Instacart.

Get homework help. If your kids are attending school remotely, it might be a good idea to coordinate with a friend or tutor to be available via FaceTime or Zoom to help you kids with their schoolwork should you be laid low by your symptoms.  

Preparing for the Worst-Case Scenario .While most adults don’t experience severe complications from the coronavirus, there’s always the chance that you could be among those who do. Should the absolute worst happen and you end up passing away from the illness, it’s critical that your estate plan be completely up-to-date with the latest documents, beneficiaries, and administrators. Here we’ll outline some of the most important aspects of your estate plan that you should have covered to ensure your kids are properly cared for following your death.

Ensure your will distributes your assets properly: As a single parent of minor kids, you’ll likely want most, if not all, of your assets to pass to your children in the event of your death, and for this reason, you may have named them as beneficiaries in your will. However, as minors, they wouldn’t be able to access those assets until they reach the age of majority. Until they come of age, the court would appoint a guardian, which could be someone other than the person you’ve chosen, to manage their inheritance.

To avoid this, if you only have a will, you should ensure that your will establishes a testamentary trust for the benefit of your kids, with a financial guardian named by you to care for the assets, until your children reach the age you choose for them to receive their inheritance. 

But for a variety of reasons we’ll cover below, using a will alone is not the ideal option for protecting and transferring your assets to your kids. Instead, you should seriously consider creating a trust to ensure your children’s inheritance passes to them in the most advantageous way possible.

Use a trust to protect and control the distribution of your children’s inheritance: Using a revocable living trust to pass your children’s inheritance to them offers a number of important advantages over a will. For one, assets included in a will must first pass through the court process known as probate before they can be transferred to the intended beneficiaries. This means that the guardian you’ve named to care for your kids would have to first go through the probate process before they could get access to any of your assets for your children’s care.

Probate can not only take months or longer to complete, but it can also be expensive and confusing. In contrast, if your assets are held in a properly drafted trust,  the person you name as financial guardian could work with your lawyer for ease of management of your assets, and the people you name to care for your children could access those assets much more easily and directly as needed.

The trustee you name could be the person you’ve named as your kids’ legal guardian, or it could be a different individual, who could oversee the management of your children’s inheritance, freeing the guardian from the responsibility of caring for your kids and worrying about managing their money at the same time. Alternatively, you could make the guardian and another individual co-trustees, so there would be two individuals overseeing the assets for increased accountability.

Another advantage a trust has over a will is the level of control they offer you when it comes to distributing assets to your kids. By using a trust, you can specify when and how your kids will receive your assets once they come of age. For example, you could stipulate in the trust’s terms that the assets can only be distributed upon certain life events, such as the completion of college or purchase of a home. Or you might spread out distribution of assets over their lifetime, releasing a percentage of the assets at different ages or life stages. 

In this way, you can help prevent your kids from blowing through their inheritance all at once, and offer incentives for them to demonstrate responsible behavior. Plus, as long as the assets are held in trust, they’re protected from the beneficiaries’ creditors, lawsuits, and divorce, which is something else wills don’t provide. 

Furthermore, a will does not cover assets that pass directly to a beneficiary by contract, such as life insurance and retirement accounts. Given this, make sure your insurance policies and retirement accounts are directed to your trust, instead of listing your children as designated beneficiaries. Naming minors or even young adults as the beneficiaries of insurance and retirement accounts is a sure-fire way to ensure they unnecessarily get stuck in a court process, with a judge deciding how your assets are managed for your children, which you can easily avoid by designating your trust as the beneficiary of your life insurance and retirement accounts.

That said, if an asset hasn’t been properly funded to your trust, it won’t be covered, so it’s critical to work with us, as your Personal Family Lawyer®, to ensure the trust is properly funded. We have systems in place to ensure that transferring assets to your trust and making sure they are properly owned at the time of your incapacity or death happens with ease and convenience.

Finally,  in addition to the above documents, it’s essential that your estate plan also include a comprehensive inventory of your assets.

Create a Personal Resource Map: Maintaining a regularly updated inventory of all your assets is one of the most vital parts of keeping your plan current. By creating such an inventory, those named in your will and/or trust will know what you have and how to find everything should something happen to you, so none of your assets end up in our state’s Department of Unclaimed Property. This task is so important we’ve created a free online tool called a Personal Resource Map to help you get your asset inventory process started right now, by yourself, without the need for a lawyer. 

After getting your inventory started there, meet with us, as your Personal Family Lawyer®, to incorporate your inventory into a comprehensive set of planning strategies that we will develop with you to keep your plan updated throughout your lifetime.

Minimize Your Risk With Planning

While the pandemic has been an extremely trying time, it seems we’re finally rounding the corner in containing the virus and getting our lives back to normal. Although it’s impossible to totally prevent you or your loved ones from getting seriously ill, by putting the type of proactive planning measures described here in place, you can significantly minimize the level of stress, suffering, and conflict that can result if you do become sick.

Whether you have yet to create these documents or need yours updated, meet with us, as your Personal Family Lawyer®, right away to ensure your family and your assets are as well-protected as possible. Contact us today to schedule your appointment.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for our team to call you at a time you choose.

With the government-mandated shutdowns and loss of business due to the pandemic, you may be thinking about filing for bankruptcy to deal with your company’s debt. However, even though bankruptcy is a valid option that can give you a chance to get a fresh start, bankruptcy isn’t always the best solution for managing out-of-control debt in your business.

Indeed, there are a number of things you should consider before you pull the trigger and declare bankruptcy. While you should always consult with an experienced business lawyer like us before filing bankruptcy, here are a few facts you should know about the bankruptcy process.

1. It Can Impact Your Personal Credit

The main difference between you and a big corporation filing bankruptcy is that if you use personal bankruptcy (either Chapter 7 or Chapter 13) to discharge or restructure your debt, it will impact your personal credit. In contrast, filing for Chapter 11 bankruptcy, which has mostly been used by large corporations, doesn’t hurt the credit of corporate officers or shareholders.

In the past, only large corporations could afford the time and expense associated with Chapter 11 bankruptcy, but recent legislation enacted under the CARES Act has made Chapter 11 more accessible to certain small business owners. Specifically, the Small Business Reorganization Act of 2019, which created Chapter 11, Subdivision V., makes the proceedings more like a Chapter 13 bankruptcy.

Note that business owners filing for Chapter 11, Subdivision V must be represented by legal counsel, so taking this route is still going to require significant expense. Consult with us, as your Family Business Lawyer™, to find out if filing Chapter 11 might be a smart move for your business.

Even with the new rules for Chapter 11, most small business owners will choose to file for personal bankruptcy under either a Chapter 7 or Chapter 13. A Chapter 7 bankruptcy (a liquidation bankruptcy designed to cancel general unsecured debts like credit cards and medical bills, when you have little or no disposable income) stays on your personal credit report for 10 years. A Chapter 13 (a reorganization bankruptcy where you earn a regular income and can pay back at least a portion of your debt through a repayment plan) stays on your credit report for seven years.

For more details on Chapter 7 vs. Chapter 13 bankruptcy, read our previous post, Can Bankruptcy Save Your Business?

2. Bankruptcy Doesn’t Cancel All Of Your Debt

While bankruptcy can cancel much of your debt, you’ll still have to pay back certain creditors. Debt that bankruptcy doesn’t clear include the following: 

• Student loans
• Government debts, such as back taxes, fines, or penalties
• Child support and alimony

Remember, every bankruptcy case is unique, and you won’t know what debts will be cleared until a bankruptcy court rules on your case.

3. It Will Cost You

Filing for bankruptcy comes with its own costs. According to the latest data, the filing fees for new petitions for Chapter 7 bankruptcy are currently $335, and the filing fees for a Chapter 13 are $310. 

In addition to the filing fee, you’ll also be required to take a credit counseling and a personal financial-management course, both of which you have to pay for. And if you decide to hire a bankruptcy lawyer, which you absolutely should do if you go the bankruptcy route, you are looking at shelling out anywhere from $800 to $6,000, depending on the type of bankruptcy you file and the details of your case.

Consider Alternatives to Bankruptcy

Before turning to bankruptcy, you should speak with us to see if we can help you restructure your business model and your debt or find potential investors to support you in getting the fresh start you need to keep going. By working with a trusted advisor who can help you retool your business model and put in place sound financial systems, you can find ways to increase your cash flow and plug areas of your business where you are leaking cash. 

We often see business owners who have a great product or service and a strong customer base, but they simply haven’t learned how to properly manage their financial resources and don’t have the right financial systems in place. If this sounds like you, bankruptcy may not be your best option, so reach out to us for recommendations. Meanwhile, review our previous post discussing five ways struggling startups can get a handle on cash-flow management.

Additionally, you should look for ways to restructure your debt and your overall expenses. You can start by contacting each of your creditors to inform them that you may need to stretch out payments or even consolidate your debt load. But don’t do this alone. Instead, seek our counsel, so you can have these conversations coming from a place of confidence and strength.

Don’t Go It Alone
The economic fallout from the pandemic has crippled countless businesses, but before you make any final decision about bankruptcy, you should meet with us, as your Family Business Lawyer™. We can assess your situation, analyze your finances, and determine your best course of action from an unbiased perspective. 

And if it turns out that bankruptcy is your best option, we can recommend bankruptcy lawyers we trust to assist you with the process. Ultimately, the best way to manage debt is to seek financial guidance before things reach the breaking point, but if you find yourself drowning in debt, contact us to determine the best way to keep your operation from going under.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

Even though there are now vaccines for COVID-19 and the number of new cases is on the decline, becoming infected with the virus is still a very real possibility. And for parents who become infected, it can be a colossal challenge to navigate your typical parenting responsibilities, while trying to recover from the illness.

This is especially true for single parents who are the sole caregiver, with limited outside child-care options. That said, plenty of single parents have faced the same challenge and successfully recovered from COVID-19, while raising their young children. Fortunately, you can learn from their experiences, ask for support, and take steps to improve your chances for recovery. With this in mind, here in this series, we’ll outline ways single parents can prepare for and manage your illness and your role as a parent.

Stay Calm

Getting diagnosed with COVID-19 can be terrifying for anyone, but even more so for single parents with young children. But do your best not to freak out. Remember, most people who contract COVID-19 don’t experience serious complications, and many never even develop any symptoms at all. 

Not to mention, children who do contract the virus typically fare even better than adults. And for those kids who do become sick, the symptoms are often fairly minor, with many kids just experiencing a sore throat and some diarrhea. So while it may be extremely scary to test positive, letting yourself become overly stressed is only going to make you feel worse and frighten your kids. 

If you do contract COVID-19 and develop symptoms that leave you ill, preparing for the illness beforehand can not only give peace of mind, but greatly improve your chances for recovery, as well as enable you to be a more effective parent. Before we get to the preparation for reducing contagion, dealing with symptoms, and other practical issues related to the virus, we’ll first address some of the legal planning you should have in place as a single parent.  

Legal Issues For Parents Dealing With COVID-19

As a parent of minor children, your number-one planning priority is to name legal guardians to care for your children should anything happen to you. And with the ongoing pandemic, this responsibility is even more vital and urgent. 

Name legal guardians for your kids: Go to this free website right now to name guardians for your children in a legal document, and then have your legal document reviewed by us, as your local Personal Family Lawyer®. When we review your legal document (or your will if you already have one), we will look for six common mistakes parents make when naming legal guardians to ensure you haven’t made any of these errors and can easily fix any mistakes you may have made.

And if you are having a difficult time deciding who to name as legal guardians for your children, we can help you make the right decision.

Officially answering the question of who will care for your kids if you can’t—even for a short time—is one of the best things you can do right now to prepare for COVID-19 or any potential illness. Taking this simple action is a real, concrete step you can take to protect your kids during this frightening time. Plus, knowing that your kids will be cared for by the people you would want looking after them in the event you require hospitalization, need to be intubated, or pass away from the virus will be a huge relief, allowing you to focus 100% on your recovery.

Create advance healthcare directives: The second-most urgent planning priority for all adults is to create the proper legal documents to assist medical providers in better coordinating your care should you become hospitalized and/or incapacitated by the virus—or any other medical condition. The planning documents for this purpose are a medical power of attorney and a living will.

A medical power of attorney and living will are both advance healthcare directives that work together to help describe your wishes for medical treatment and end-of-life care in the event you become incapacitated and unable to express your own wishes. What’s more, in light of COVID-19, even those who have already created these documents should revisit them to ensure they are up-to-date and address specific scenarios related to the coronavirus.

While all adults over age 18 should put these documents in place as soon as possible, if you are over age 60 or have a chronic underlying health condition, the need is particularly urgent. Contact us right away if you or anyone in your family needs these documents created.

For an in-depth explanation of what advance directives are, how they work, and the specific details that you need to address in these documents for COVID-19, read our previous blog post, COVID-19 Highlights Critical Need for Advance Healthcare Directives.

Next week, in part two of this series, we’ll discuss measures that single parents diagnosed with COVID-19 can take to reduce passing the virus on to your children as well as outlining steps for enhancing your ability to recover from the illness.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for Liz to call you at a time you choose.

As you grow your company, you may discover that it’s time to move beyond leveraging your personal credit to fund your business, whether through business or personal credit cards, and look for outside investors or lenders.

When it comes to securing funding for your business, you must first decide what form of investment is right for your company: equity or debt. More specifically, are you looking for an investment in exchange for an equity stake in your company, or would you be better off getting a loan to fund your business?

Equity Investment: Selling Shares In Your Business

Equity investors provide capital, either in the form of cash (preferable) or in kind with services, in exchange for a percentage of your company’s profits. Generally speaking, equity investment is only feasible when you have a clear plan for exiting your business, so your equity holders will be able to earn a return on their investment when your equity becomes saleable. If you are not yet at the place where you have a clear strategy for exiting your business, you (and your investors) will likely be better off securing a loan to fund your business.

If you are at the early stages of your business and not yet clear on its value, you may want to structure that investment in the form of what’s called a SAFE investment. SAFE stands for “Simple Agreement for Future Equity.” Basically, a SAFE is an agreement between an investor and your company that provides rights to the investor for future equity in your company.

In exchange for the money invested through the SAFE, the investor receives the right to purchase stock in a future equity round (when one occurs), subject to certain conditions set in advance in the SAFE. SAFEs were created to be a simple replacement for convertible notes, and they are designed for startups seeking initial funding.

A SAFE makes sense when your company is likely to raise money in the future through an established valuation, but your company is in too early of a stage to be valued appropriately. For more information on SAFE investments, check out this video from the seed-money startup accelerator Y Combinator.

You definitely want to bring on a trusted legal advisor like us if you decide to fund your company with complex investment structures, such as a SAFE, or if you are going to raise capital by selling equity in your company. With our support and guidance, we can ensure that you have the proper legal and financial systems in place to secure your investment.

Debt Investment: Business Loans

Oftentimes, the best place to start looking for outside investment in your company is by reaching out to your friends and family for a loan. Before you take on a loan from a friend or family member, be sure to document the loan with a promissory note.

A promissory note is basically a legal agreement that you are promising to pay back the money you borrowed under certain terms. The promissory note should have clear terms regarding how you will repay the loan and the specific terms under which you will repay, such as the interest rate you are paying on the loan and over what time period the loan will be repaid.

If you don’t have any friends or family who are interested in investing in your business, you may choose to fund your company with a loan from a bank. The best way to do this is to have a relationship with a local banker, who can get to know you and your business. From there, the banker can help you tap into different small-business financing options, generally through loans from the SBA, or Small Business Administration.

It’s never too early in your business lifecycle to establish a relationship with a business banker. Ideally, contact the local business banks in your community, and go meet one or more of the bankers at each of the banks to find a relationship that feels most supportive to you and your business.

When you receive funding from a business bank, make sure the loan is provided to your business, and not to you personally, whenever possible. And it’s most ideal if you can avoid a personal guarantee of the loan, though not always possible. A personal guarantee means that if your business fails, you will be held personally liable for the balance of the loan, and the bank can come after your personal assets to satisfy the terms of the loan.

Once your business has established income, you may be able to qualify for a loan for your business without a personal guarantee. Yet, in the early stages of your business, this likely won’t be possible. However, you should always ask to get your business loan without a personal guarantee required—the worst case scenario is the banker says no.

Gain Confidence and Clarity With LIFT Systems
Building relationships with investors and lenders can be a great way to fund the future growth of your business. That said, developing such relationships will require you to confront any remaining insecurities or fears you may have about whether or not you are personally worth investing in.

On that note, having solid legal, insurance, financial and tax (LIFT) systems in place will make you far more confident going into these relationships. If you’ve yet to put LIFT systems in place, contact us, as your Family Business Lawyer™, to take our free LIFT 20-Point Assessment.

Just taking the 20-Point Assessment is a huge benefit, as it shows you the gaps in your foundation that need the most attention. From there, you can meet with us to conduct a more thorough audit of your business, so you can eventually implement the full LIFT Foundation System & Toolkit into your operations.

With a solid LIFT foundation for your company in place, you can finally gain genuine confidence about your business’ long-term success. Armed with that clarity, you can devote all of your energy and passion into growing your business into something truly meaningful for yourself, your clients, and your family.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

Legendary TV and radio host, Larry King, died at Cedars-Sinai Medical Center in Los Angeles on January 23rd, 2021 at age 87. Larry was hospitalized in December due to COVID-19, but he’d recently been moved from the ICU to a regular hospital room after recovering from the virus. However, the famed broadcaster suffered from a number of other health conditions over the years, including multiple heart attacks, kidney failure, and diabetes, and he passed away from sepsis that was the result of an unrelated infection.

Last week, in part one of this series, we discussed how Larry’s decision to create a handwritten will, rather than take the time to consult with legal counsel to properly update his plan for his impending divorce, is likely to result in a lengthy court battle between Larry’s seventh wife, Shawn Southwick King, and his surviving children. Moreover, we also noted that Larry would have been far better off using a Lifetime Asset Protection Trust, instead of a will, to distribute his assets to his children upon his death.

Here, in the second part of this series, we’ll first look at the different ways a Lifetime Asset Protection Trust would have benefited Larry’s children. From there, we’ll discuss the complications that are likely to arise given that two of Larry’s children died before he had the chance to update his plan—and the planning lessons we can take away from this mistake.

Lifetime Asset Protection Trusts: Airtight Protection For Your Child’s Inheritance
A Lifetime Asset Protection Trust is a unique estate planning vehicle that’s specifically designed to protect your children’s inheritance from unfortunate life events, such as divorce, debt, illness, and accidents. At the same time, the trust gives your children the ability to access and invest their inheritance, while retaining airtight asset protection for their entire lives.

For someone with as much wealth and as many heirs as Larry, a Lifetime Asset Protection Trust, built into his Living Trust, would have been an ideal vehicle to protect and pass on his assets to his heirs. To see why, let’s break down how these unique trusts work.

To avoid the court process of probate that’s inherent with a will-based plan, most lawyers will advise you to put the assets you’re leaving your kids in a revocable living trust—and this is the right move. But most living trusts are structured to distribute your assets outright to your children at certain ages or stages, such as one-third at age 25, half the balance at 30, and the rest at 35. Giving outright ownership of the trust assets in this way leaves them at serious risk of being lost or squandered.

While a living trust may protect your loved ones’ inheritance as long as the assets are held by the trust, once the assets are distributed to the beneficiary, all of the protection previously offered by your trust disappears. For example, let’s say Larry’s youngest sons Chance, 21, and Cannon, 20, both racked up serious debt while in college. If they were to receive one-third of their inheritance at age 25, creditors could take their money if it’s paid to them in an outright distribution.

The same thing would be true if Larry’s oldest son, Larry Jr., 58, got divorced soon after receiving his inheritance, only it would be his soon-to-be ex-wife who would claim a right to the funds in the divorce settlement.

In contrast, a Lifetime Asset Protection Trust gives a Trustee of your choice full discretion on whether to make distributions or not. The Trustee has full authority to determine how and when the assets should be released based on the beneficiary’s needs and the circumstances going on in his or her life at the time. And you can even choose to make your beneficiary the Trustee of their own trust (with some restrictions) for even more flexibility and control.

For example, if Larry Jr. was in the process of getting divorced or in the middle of a lawsuit, the Trustee could refuse to distribute any funds. Therefore, the Trust assets would remain shielded from his future ex-wife or a potential judgment creditor should Larry Jr. be ordered to pay damages resulting from a lawsuit.

And because the Trustee controls access to the inheritance, those assets are not only protected from outside threats like ex-spouses and creditors, but from your child’s own poor judgment, as well. For example, if Chance ever develops a substance abuse or gambling problem, the Trustee could withhold distributions until he receives the appropriate treatment.

What’s more, you can write up guidelines to the Trustee, providing him or her with clear directions about how you’d like the trust assets to be used for your beneficiaries. This ensures the Trustee is aware of your values and wishes when making distributions, rather than simply guessing what you would’ve wanted, which often leads to problems down the road.

In addition to airtight asset protection, a Lifetime Asset Protection Trust can also be set up to give your child hands-on experience managing financial matters, like investing, running a business, and charitable giving.

Although a Lifetime Asset Protection Trust would have been a great way for Larry to protect and pass on his assets to his children, such trusts aren’t for everyone. That said, contrary to what you might think, Lifetime Asset Protection Trusts are not just for the super wealthy.

Indeed, these protective trusts are even more useful if you’re leaving a relatively modest inheritance, since the smaller the inheritance, the more at risk it is of getting wiped out by a single unfortunate event like a medical emergency or lawsuit. However, if your kids are going to spend the vast majority of their inheritance on everyday expenses and consumables, such trusts probably don’t make much sense.

Meet with us, as your Personal Family Lawyer®, to see if a Lifetime Asset Protection Trust is the right option for your family.

Larry Is Predeceased By Two of His Five Children

The final factor complicating Larry’s estate is the fact that two of his five adult children died just a few months before he did. His son Andy King, 65, unexpectedly passed away of a heart attack in late July 2020, while his daughter Chaia King, 51, died just three weeks later in August from lung cancer. Both children were from Larry’s marriage to his third wife, Alene Akins, who Larry wed in 1961.

While Andy and Chaia predeceased their father, Larry apparently didn’t update his estate plan to account for their deaths. Indeed, Larry’s handwritten will, which was created in October 2019, simply states that in the event of his death, “I want 100% of my funds to be divided equally among my children Andy, Chaia, Larry Jr., Chance, and Cannon.”

Had Larry worked with estate planning lawyers to keep his plan updated, rather than creating a handwritten will, his legal team would have ensured that his will and all of his other planning documents were immediately updated to account for the death of any of his beneficiaries. Along those same lines, had Larry worked with lawyers to amend his plan, his documents would have been drafted with provisions that would address the potential for one (or more) of his beneficiaries to pre-decease him, so even if his plan wasn’t updated, Larry’s assets would pass to the appropriate person or persons.

Based on California law, the share of Larry’s assets that would have passed to Andy and Chaia through his handwritten will are likely to pass to their children (Larry’s grandchildren), if they have any. However, this all depends on whether or not Shawn is able to successfully contest Larry’s handwritten will in court, which she has stated she plans to do. If she is successful, then Larry’s handwritten will would be deemed invalid, and his assets would be divided based on whatever previous estate plan Larry had in place.

Regardless of what happens to Andy and Chaia’s share of the estate, Larry’s plan should have been amended to account for their deaths. This brings us to our third and final estate planning lesson.

Lesson #3: Review your plan annually to make sure it’s up to date, and immediately modify your plan following events like births, deaths, divorce, and inheritances. 

As Larry’s case shows, your plan won’t do you any good if it’s not regularly updated. Estate planning is not a one-and-done type of deal; your plan must continuously evolve to keep pace with changes in your family structure, the legal landscape, your assets, and your life goals.

And unfortunately, this kind of thing happens all the time. In fact, outside of not creating any estate plan at all, one of the most common planning mistakes we encounter is when we get called by the loved ones of someone who has become incapacitated or died with a plan that no longer works because it hasn’t been updated. Yet, by the time they contact us, it’s too late.

We recommend you review your plan annually to keep it current, and immediately update it following major life events like births, deaths, divorce, and inheritances. We have built-in systems and processes to ensure your plan is always up to date, so you won’t need to worry about forgetting anything.

If you’ve yet to create a plan, have DIY documents you aren’t sure about, or have a plan created with another lawyer’s help that hasn’t been reviewed in more than a year, meet with us, as your Personal Family Lawyer®. We can ensure that your plan stays 100% current, so it works exactly as intended no matter what.

Don’t Do It Yourself

As Larry King’s story demonstrates, do-it-yourself planning can have terrible consequences for your loved ones—and in the worst cases, it can be even worse than if you had no estate plan at all. To ensure your plan works exactly as intended, contact us, as your Personal Family Lawyer®, to review and update your current plan, or create one if you have yet to do so.

With a Personal Family Lawyer® on your side, you’ll have access to the same planning tools and protections that A-list celebrities use, which are designed to keep your family out of court or conflict no matter what happens. Contact us today to learn more.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for Liz to call you at a time you choose.

This is the third in an ongoing series covering the value legal agreements bring to your business beyond the surface. From boosting your bottom line and expanding your business to hiring the most talented team and improving every relationship you enter into; this series offers a comprehensive look at how effective legal agreements can enhance just about every aspect of your operation

Every legal agreement you sign is going to contain boilerplate terms, which are sometimes referred to as the “fine print.” It’s important that you understand these terms before you sign any agreement, because even though they may seem tedious to read, these terms will impact you and your business if and when you ever have to go to court to enforce the agreement.

Common Boilerplate Terms Found in Legal Agreements

Some common boilerplate terms that every agreement should have include the following:

1) Terms regarding the length of the agreement, how it can be terminated, by whom it can be terminated, and under what circumstances termination is possible. Make sure to look for these terms; they are the foundation of the agreement.

2) Terms regarding intellectual property, who owns it, how it gets handled, and whether it can be used by one or both parties. If you are the creator of intellectual property for a client, then you want your boilerplate to provide that you own all intellectual property you create until the contract is paid in full. If you are the employer of someone creating intellectual property of any kind—including written words, images, graphic design, or computer code—for your business, you want the agreement to stipulate that once the agreement is paid in full, you own the intellectual property created. This is called a “work-for-hire” provision, and if your agreement doesn’t include it, you are at risk of not owning what you’ve paid your team member to create.

3) Terms known as restrictive covenants, which are designed to prevent one or both of the parties from engaging in specific actions once the relationship has ended. One type of restrictive covenant is a non-solicitation agreement, which means that one or both parties cannot solicit work with contacts made as a result of the relationship. Another such term is a non-compete agreement, which provides limitations on future work that can be done after the relationship is over. Finally, a non-disclosure agreement (NDA), or confidentiality agreement, prohibits one or both of the parties from disclosing any confidential or proprietary information—also known as trade secrets—learned during the relationship to any person outside the relationship. An NDA can apply both while the relationship is ongoing as well as after the relationship ends. Whenever you sign an agreement, it’s critical that you understand all of the restrictive covenants you are agreeing to, since they can impact you and your business even after the relationship has ended.

4) Terms covering refunds and under what circumstances one of the parties can seek the return of consideration exchanged under the agreement. If you are selling products, your agreements need to cover the terms under which someone is buying your product and when they are entitled to a refund. For example, if your customers don’t like what they bought, your agreements should make it easy for them to review the terms of your refund process and clarify the circumstances under which you would provide a refund. If you are selling services, you may want to include a provision regarding chargebacks to a credit card, so it’s clear when chargebacks are allowed and when they are prohibited.

5) Finally, all agreements should have terms for conflict resolution, including how conflicts will be resolved, where they will be resolved, whether you must agree to mediation or arbitration before a lawsuit can be filed, and who covers legal fees in the event a lawsuit is necessary.

When In Doubt, Ask For Guidance

Before you sign on the dotted line and before you begin negotiation, you should look for and clearly understand all of the boilerplate terms in your agreement. If you are ever asked to sign an agreement in which you don’t clearly understand all of the terms, you should consult with us, as your Family Business Lawyer™, for guidance and support.

When it comes to legal agreements, there is no such thing as a stupid question. In fact, we welcome your questions, since answering them is the best way we can support you—and we consider that smart! Always ask for guidance from trusted counsel before you sign, because once you sign, it’s too late—you’ve already entered into an agreement and are bound by the terms, regardless of whether you fully understood them or not. Contact us today to learn more.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

Legendary TV and radio host, Larry King, died at Cedars-Sinai Medical Center in Los Angeles on January 23rd, 2021 at age 87. Larry was hospitalized in December due to COVID-19, but he’d recently been moved from the ICU to a regular hospital room after recovering from the virus. However, the famed broadcaster suffered from a number of other health conditions over the years, including multiple heart attacks, kidney failure, and diabetes, and he passed away from sepsis that was the result of an unrelated infection.

With a career spanning more than half a century, Larry became the most famous interviewer of his generation as the host of CNN’s Larry King Live, a follow-up to his nationwide call-in radio show, The Larry King Show, which started in 1978. Larry retired from CNN in 2010, but up until the very end, he still hosted the streaming video cast “Larry King Now” on Hulu and RT America.

With his success in the media and the fact he continued working long after most people would have retired, Larry amassed a fortune estimated to be worth some $50 million. Starting at age 19, the media mogul got married a total of eight times to seven different women (one of them, he married twice).

With so many marriages, Larry also had multiple children. He was the father of five children: Chaia King, Larry King Jr., Cannon Edward King, Chance Armstrong King, and Andy King. Larry also had nine grandchildren and four great-grandchildren. With so much money, so many spouses, and so many children, it was practically guaranteed there would be some conflict over Larry’s estate following his death.

However, three factors are sure to make settling his estate especially troublesome.

First, Larry was in the middle of negotiating a divorce settlement with his seventh wife, Shawn Southwick King, 61, when he passed away. Second, in October 2019, Larry created a new handwritten will, which stipulated that $2 million of his estate should be equally divided among his five children upon his death, yet the document makes no mention of his seventh wife.

And finally, two of the five children—Andy, 65, and Chaia, 51, —named in Larry’s new will died within weeks of one another in August 2020, yet it seems Larry failed to amend his handwritten will to reflect their deaths.

Given Larry’s immense wealth and the fact that his seventh wife claims they worked with estate planning lawyers in the past, it’s likely that he had other estate planning vehicles, such as trusts, in place to protect and pass on some of his assets. But since trusts are private and their contents generally aren’t made available to the public, we don’t know the full details of Larry’s estate plan.

That said, in light of his impending divorce, the existence of the new handwritten will, and the recent death of two of Larry’s children, it’s almost certain that there will be a major court fight between Larry’s seventh wife and his surviving children over the $2 million in assets listed in the new will. In fact, Shawn has already announced that she plans to contest the handwritten will.

In the end, the fallout from this legal battle could make Larry famous for another reason—failed estate planning. However, with the proper planning, nearly all of the impending conflict over Larry’s estate could have been avoided. On that note, here we’ll outline several planning lessons we can learn from Larry’s death.

Till Death Do Us Part

The first factor that makes Larry’s case so contentious is his last divorce—or lack thereof. Larry filed for divorce from his seventh wife, Shawn Southwick King, in August 2019. As with most divorces, it can take some time for the two parties to reach a final settlement arrangement (especially when it’s a long marriage like the King’s, who were married for 23 years), and Shawn and Larry were apparently still negotiating their divorce settlement when he died in January 2021.

According to The Wealth Advisor,  at the time of his death, Larry was paying Shawn spousal support as part of their ongoing divorce negotiation, and she was reportedly seeking $1 million in annual spousal support as part of that deal. However, given that Larry died before the divorce was finalized, Shawn could inherit far more than that—and this is true in spite of the existence of Larry’s new will or even prior estate plans.

The reason Shawn stands to inherit so much is because California is a community-property state. Under California’s community-property laws, unless there was a prenuptial agreement or post-nuptial agreement stating otherwise, Shawn is entitled to 50% of any marital assets acquired during marriage, regardless of what Larry’s estate plan leaves her.

Given that the couple was married for more than two decades, Shawn’s ultimate inheritance will likely far exceed the $1 million per year she was seeking in the divorce settlement, which is something Larry likely would have wanted to avoid. What’s more, given that Shawn is planning to contest Larry’s new will in court, Larry’s surviving children are now facing the prospect of a costly legal battle.

This brings us to our first estate planning lesson.

Lesson #1: Update your estate plan as soon as divorce is inevitable.

Although Larry attempted to do the right thing by creating the new will, he should have taken the time to work with legal counsel to properly update his plan once he knew he was getting divorced—and ideally, before the divorce was filed. As we pointed out in a prior blog post about estate planning and divorce, it’s imperative that you create new planning documents as soon as you realize divorce is inevitable.

While California is one of the few states where you can change your will before your divorce is final, in many states, once divorce papers have been filed with the court, you are not legally allowed to change your will or trust document. To this end, once you know divorce is on the horizon, you need to act immediately to amend your estate plan.

When creating a new will or trust, rethink how you want your assets divided upon your death. This most likely means naming new beneficiaries for any assets that you’d previously left to your future ex and his or her family. And because most married couples name each other as their executor and/or trustee of their estate, it’s important to name a new person to fill these roles as well.

As we saw in Larry’s case, it’s important to keep in mind that some states have community-property laws that entitle your surviving spouse to a certain percentage of the marital estate upon your death, no matter what your plan dictates. So if you die before the divorce is final, as Larry did, you probably won’t be able to entirely disinherit your surviving spouse in your will or trust. But you can amend your plan to ensure the proper individuals inherit the remaining percentage of your estate should you pass away while your divorce is still ongoing.

Had Larry worked with his estate planning lawyer to draft his new will, rather than writing his own by hand, he could have created a much more robust will that not only would have stipulated exactly how he wanted his share of the marital assets divided among his children upon his death, but he also could have prevented a number of conflicts inherent with do-it-yourself planning. This brings us to our second planning lesson.

Lesson #2: Always work with an experienced estate planning lawyer when creating or updating your planning documents, especially if you have a blended family.

While it’s always a good idea to have a lawyer help you create your planning documents, this is exponentially true when you have a blended family like Larry’s. If you are in a second (or more) marriage, with children from a prior marriage, there’s an inherent risk of dispute because your children and spouse often have conflicting interests, particularly if there’s significant wealth at stake.

The risk for conflict is significantly increased if you are seeking to disinherit a family member. By creating your own will, even with the help of an online document service, you won’t be able to consider and plan ahead to avoid all the potential legal and family conflicts that could arise. For example, had Larry enlisted the help of an experienced estate planning lawyer to create his new will, he could have built in provisions that would have made it unlikely that Shawn—or anyone else—would contest his will.

It remains to be seen whether or not Shawn will be able to successfully contest the validity of Larry’s new will. However, because the new will was created in such an informal manner, her case will be a lot stronger than it would’ve been had Larry worked with lawyers to formally create a new document. Indeed, Shawn told The New York Post’s Page Six  that Larry never told her about the new will, and she believes someone pressured him to draw it up. If a trusted estate planning lawyer had been involved, the threat of such “duress” would be much less viable.

Commenting on the discovery of the new will, Shawn told Page Six, “We had a very watertight family estate plan. It still exists, and it is the legitimate will. Period. And I fully believe it will hold up, and my attorneys are going to be filing a response [to the new will], probably by the end of the day.”

While handwritten wills, also known as holographic wills, can be valid, we don’t know the full circumstances surrounding the will’s creation, but several issues stand out. First, the fact that Larry was suffering from multiple serious health conditions and was in and out of the hospital could lead the court to question whether or not Larry was of sound mind when he created the new document.

Additionally, Shawn’s claim that Larry was pressured into changing his will could raise questions as to whether or not Larry was coerced into disinheriting her by one of his children, who sought to increase his or her share of the estate. And even if Shawn isn’t successful in contesting Larry’s new will, the resulting litigation will be a lengthy, costly, and needless ordeal that will deplete Larry’s estate at the expense of all of his heirs.

Finally, had Larry consulted with an attorney when seeking to amend his plan to account for his impending divorce, he would have been advised that a will is not the ideal planning vehicle for protecting and passing on his assets to his children. Instead, Larry could have used a trust for this purpose. And while there are several types of trusts available, we would have advised Larry to create a special type of trust known as a Lifetime Asset Protection Trust.

Using a Lifetime Asset Protection Trust, Larry could have not only immediately transferred his share of the marital assets to his children upon his death or incapacity, without the need for court intervention, but he could have also ensured that those assets would transfer with airtight protection from common life events like divorce, serious illness, lawsuits, and even bankruptcy. Best of all, this asset protection would last for the lifetime of his designated beneficiaries.

Sadly, Larry chose to pass those assets to his children via a will and with no protection, which guarantees that his family will have to go to court in order to gain ownership of his share of the assets.

Next week, in part two of this series, we’ll discuss how a Lifetime Asset Protection Trust would have benefited Larry and his family, as well as the complications that are likely to arise given that two of Larry’s children died before he had the chance to update his plan.

This article is a service of Liz Smith, Personal Family Lawyer® in Juneau, Alaska. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love.  That’s why we offer a Life & Legacy Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today at 907-312-5436 to schedule a Life & Legacy Planning Session and mention this article to find out how to get this $750 session at no charge; or book a time for Liz to call you at a time you choose.

As a business owner, your family members aren’t the only ones who could be devastated by your death. Should something happen to you, your team, partners, and clients could all face disastrous consequences.

To address this risk, you should seriously consider investing in life insurance. As we pointed out in a previous post, having the right business insurance in place is the first line of defense for a number of different liabilities facing your business. However, life insurance is designed to protect against perhaps the greatest, yet often overlooked, liability your business faces—your own death.

Life Insurance: Betting On Death

Depending on the type and purpose of your coverage, a life insurance policy pays benefits to your family or your business in the event of your death. As with most insurance coverage, the earlier in your life that you purchase your policy, the cheaper it will be. Of course, investing in life insurance early on also means that you’ll pay into the policy for a longer period of time.

Along those same lines, the healthier you are when you invest in life insurance, the less you’ll pay in premiums, since your policy is basically a bet between you and the insurance company. The insurance carrier is betting that they’ll be able to earn enough from the premiums you pay out before you die, so that they’ll have received more than enough money to pay out the death benefit to your designated beneficiaries by the time you pass away.

Life insurance comes in two main forms, which you can think of as permanent and non-permanent. With permanent coverage, as long as you pay the premiums, your insurance cannot be canceled, and your policy will pay out when you die.

With non-permanent coverage, known as “term life insurance,” you pay premiums over a certain number of years, usually 10, 20, or 30, and if you have not died during that period, the insurance ends, your premiums are gone, and no benefits are paid out when you die.

Term life insurance is much cheaper than permanent, and term policies are typically used by people who expect that they’ll only need the insurance for a certain period of time, and eventually, they won’t need the coverage anymore.

Permanent vs Term Life Insurance: Which Do You Need?

To determine which type of life insurance policy you should invest in for your business—permanent or term—you’ll need to consider a number of different factors. When it comes to life insurance for your business, you will need to die with life insurance coverage in place if any of the following three scenarios apply:

1. You have a business that will need a cash infusion if you die to keep it running, until it can be sold or to buy out a business partner.
2. You are likely to have dependents—senior parents, a non-working spouse, or dependent children—who rely on you for their financial needs and who will still rely on you at the time of your death, and you will not have enough saved up to provide for their needs for the rest of their life.
3. You have an estate tax burden that you want to make sure is covered.

In each of these situations, you want to make sure you have either term life insurance that will continue long enough to address all of your needs, or you’ll want to consider purchasing permanent coverage.

Permanent Life Insurance

Permanent life insurance comes in many forms, and some of these forms include universal life, whole life, and variable universal life. Permanent life insurance can also be used as key-person insurance, which pays out benefits if you are a key team member in a company that would need cash upon your death to continue operating.

Permanent insurance can also be used to ensure there will be funds available to buy out a business partner upon your death, or it can be used to provide liquidity to your family in the event of your death, so they don’t need to continue running your company to get by.

Keep in mind: If you are considering permanent life insurance, you’ll want to have an experienced business lawyer like us join you when you meet with the insurance advisor to make certain you understand the terms of the policy you are buying and why you are buying it.

Permanent life insurance policies typically have two components: the amount that goes toward paying for the life insurance, and the amount that builds up as an investment, generally called the “cash value.” The cash value amount of your premium is invested tax-free, and you can use the cash value component in several ways: You can borrow against it throughout your lifetime, you can take it as distributions as part of your retirement, or you can use it to pay future premiums.

There are two caveats to mention here: Due to the high commissions on insurance products, you often need to pay premiums on a permanent life insurance policy for 10 to 15 years before there is enough cash value to borrow against or use to pay premiums. And you definitely want to either borrow against the cash value or withdraw it before your death, or it gets lost.

Covering Your Expenses

When it comes to purchasing life insurance, you’ll want to make sure you have enough term life insurance to cover the expenses that your dependents will require until they are no longer dependents, or until you are certain that you will have enough money in the bank to cover the lifetime needs of those dependents.

If you have children with special needs or a non-working/ homemaker spouse, they will require a longer period of care after your death, compared to a family with two incomes and children who will likely achieve their own independence in their late 20s or early 30s. To determine the right amount of term life insurance, consult with an experienced business lawyer like us or a fee-only financial planner.

If you plan on staying in your business well beyond the typical retirement age, if you are an absolutely indispensable part of your business’s success, or you will have estate taxes to cover upon your death, you should consider permanent life insurance. In that case, make sure you check the recommendations of your insurance agent with a lawyer or fee-only financial planner to ensure you are getting the right coverage for your money.

Get a Full Evaluation

Every business comes with its own unique risks, so there’s no way to know exactly what types and amounts of insurance coverage your company needs without a full evaluation. Before you sit down with an insurance agent, meet with us, as your Family Business Lawyer™, to identify the right types and amounts of insurance your business requires. Schedule your appointment today to get started.

This article is a service of Liz Smith, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.