3 Common Types of Asset Protection

Clients often ask what steps can be done to protect their assets. My typical response: “what type of asset protection are you interested in?” Most clients aren’t quite sure how to respond… they are unaware that there are different types of asset protection available. The 3 most common types of asset protection I help clients with are:

  1. Asset Protection from Medicaid. Medicaid is a health program administered through the states. Missouri’s version of Medicaid is called Mo HealthNet. Medicaid provides very valuable care for those with limited financial resources. This is often the case with elderly individuals who go into a nursing home. Since nursing home care is expensive (thousands of dollars per month), elderly individuals are often very interested in steps they can take to protect some of their assets for their loved ones. The most common tool we use for this is called a Medicaid Asset Protection (MAP) Trust. One common use of a MAP Trust is to protect real estate so that it passes to a client’s children instead of having a lien placed on it by Medicaid.
  2. Asset Protection from Business Liabilities. Most business owners have the fear of “What if…”. “What if my employee does something and as a result I am sued?” “What if my product injures someone?” “What if a customer is injured on my property?” The answer to those “What ifs” is to plan. Part of that planning is certainly insurance. Yet, another part is structuring your business (businesses) the correct way to minimize liability. Whether your business is an LLC, S-Corp, or C-Corp, there are steps we can take to minimize an owner’s personal liability for business incidents.
  3. Asset Protection from Lawsuits. Almost daily you hear about someone getting sued. Sometimes the claims have merit. Other times the claims are frivolous and a waste of time, energy, and money. Planning ahead is important to minimize your personal liability. Especially if you are in a higher risk profession (doctor, pharmacist, lawyer, etc.), planning today is critical for asset protection tomorrow. This planning ranges from the simple (titling assets or establishing LLCs) to the complex (offshore trusts with professional trust protectors).

Protecting assets is doable… the initial steps are straight forward and simple… the key is asking the question and getting started before you need it. There is no silver bullet for asset protection. Instead, think of it as layers of protection. Get started building your layers of asset protection today.

How can Owners of Rental Properties limit liability?

A significant number of my clients have rental properties. Many are casual landlords with just a few rental properties. Others have dozens of rental properties. In both scenarios, the owner of the rental properties can take some common sense steps to limit liability and protect their assets.

First, the landlord should obtain adequate insurance. Our main concern here is with liability insurance. Often my clients select policies that have liability insurance of at least $500,000.

Second, the landlord should form an LLC for the rental properties. In Missouri, LLCs are very cost effective ways to do what its name says, limit liability of the owner. Yet, too many individuals have LLC with sloppy or amateur Operating Agreements. Yet, when it comes to asset protection, having a carefully crafted Operating Agreement is the smart way to maximize the protection of your assets and minimize your personal liability.

In 2013, Missouri passed legislation allowing the creation of a new type of LLC, a Series LLC. Because it is new, there remain several unanswered questions about Series LLCs. Yet, the basic premise is promising for landlords. The Series LLC would allow the landlord to get the benefits of putting all of one’s rental properties in separate LLCs, while eliminating some of the cost of doing so. A Missouri Series LLC consists of an LLC with any number of series. This means a landlord could create one series, “My Rental Properties LLC” and then create 20 series of it, “My Rental Properties LLC, Series A”, “My rental Properties LLC, Series B,” and so on. Each Series is separate and distinct from the other Series. In order to get full asset protection and limited liability, each Series must maintain its own separate books and records. We’ll post more on Series LLCs in Missouri if/when they become more popular.

Third, owners of rental properties need to be strategic in how you title the rental units, as well as the ownership of the LLC. This is one area where we can use the asset protection provided by “Tenants by the Entirety” for married couples to provide additional protection for our clients.

If you own Rental Properties, we are happy to assist you in minimizing your liability, protecting your personal assets, and ensuring a smooth transition to the next generation.

Bill of Sale for Car in Missouri

Chrysler 300

Recently we sold my wife’s car via Craigslist. As part of that transaction, I drafted a Bill of Sale which may be of use to others. It is in Microsoft Word format and can be downloaded by clicking here: Missouri Bill of Sale. I used this document to supplement the documents required by Missouri law, and to make clear that the buyer was purchasing the vehicle in “as is” condition.

A few other items to remember when selling a car in Missouri. The seller needs to (1) assign the Certificate of Title, (2) Get a Safety Inspection, and (3) Fill out and submit Form 1957 which is the Missouri Department of Revenue’s Bill of Sale.

What are the Requirements for a Valid Last Will & Testament in Missouri?

In Missouri, there are 5 requirements for a will to be valid:

  1. It must be in writing;
  2. It must be signed by the testator (the person making the Will) or by someone by his direction and in his presence;
  3. Testator must be over age 18;
  4. Testator must be of sound mind; and
  5. It must be witnessed or attested to by two or more competent witnesses who also sign the will in the presence of the testator,

Most Wills today are also self-proving. This means that the testator and the two witnesses appear before a notary public and state something substantially similar to:

  1. The testator signed and executed the instrument as his last Will;
  2. The testator willingly signed or willingly directed another to sign for him;
  3. The testator executed it as his free and voluntary act for the purposes therein expressed;
  4. That each of the witnesses, in the presence and hearing of the testator, signed the Will as witness; and
  5. That to the best of the knowledge of each witness, the testator was at that time eighteen or more years of age, of sound mind, and under no constraint or undue influence. (see RSMO 474.337).

Having a self-proving will simplifies and expedites the probate process.

Clients sometimes ask how they can revoke a prior Will. Missouri statute 474.400 contains the answer:

“No will in writing, except in the cases herein mentioned, nor any part thereof, shall be revoked, except by a (1) subsequent will in writing, or by (2) burning, (3) cancelling, (4) tearing or (5) obliterating the same, by the testator, or in his presence, and by his consent and direction.”

Clients often contact me asking for an appointment to make a Will. While visiting together, it becomes clear that what they are really interested in is avoiding probate. Often, much to the client’s surprise, they learn that a Will does not avoid probate. I’ll repeat that again because it is so important: a Will, by itself, does not avoid probate. To avoid probate, consider a Revocable Living Trust and Beneficiary Designations.

What’s the Best Part of Estate Planning?

From my perspective, as the attorney, the best part of estate planning is the people. Daily, I get to meet and help great people. And part of estate planning is that it isn’t only about the client – client’s plan for themselves as well as their children, grandchildren, and loved ones. Estate Planning brings out the best in people!

Most of my clients report that the best part of estate planning is the peace of mind it brings. It’s common to hear clients say that they have been meaning to do estate planning for years… and have simply procrastinated it. And estate planning is easy to procrastinate. To borrow a phrase from Stephen R. Covey, estate planning is important but not urgent. So clients can put off estate planning for months or years. Yet, when they decide to get it done, they experience relief! The peace of mind comes from ending the procrastination, from getting answers to their questions, from facing the inevitable (that one day we will all die), and from knowing that their wishes will be carried out not only for themselves but also for their children, grandchildren, and loved ones. Often these wishes include that their loved ones will be able to avoid the time, expense, and hassle of probate court. Estate planning makes that possible.

What is Tenancy by the Entirety?

Tenants by the Entirety is based on the longstanding idea that when a man and woman marry, they create a new entity, a marital unit. Thus, husband can own property, wife can own property, and the marital unit can own property as tenants by the entirety.

Tenants by the entirety is separate and distinct from tenants-in-common or joint tenants. In tenants by the entirety, husband and wife don’t own 50% but rather the marital unit owns 100% of the property. As a result, neither spouse can sell tenants by the entirety property without the consent of the other spouse.

So why hold property as tenants by the entirety? The big (actually it is huge!) advantage is asset protection. In Missouri, tenants by the entirety property cannot be subject to an individual spouse’s debts.

For example, Husband and Wife own their house worth $250,000 as tenants by the entirety property. Husband goes through a mid-life crisis and buys a top-of-the-line Mercedes, a new Harley-Davidson motorcycle, and then takes a 30-day luxury vacation across the globe. All the while, wife continues her normal, responsible life. If (perhaps when…) Husband stops making payments on his new car, motorcycle, and vacation, his creditors will come after him for payment. They will likely end up suing him and receiving a court judgment against him. That judgment will allow his creditors to go after and collect from any of Husband’s separate property. But so long as Wife hasn’t co-signed on these debts, Husband’s creditors will not be able to collect against their marital assets, namely their home, since it is owned as tenants by the entirety.

Tenants by the Entirety is a very powerful tool. Especially for individuals in professions where there is a higher risk of being sued (doctors, pharmacists, lawyers, etc.) tenants by the entirety can help protect your assets. Consider how this could help provide asset protection to a doctor when faced with a medical malpractice lawsuit.

Further, in 2011 the Missouri Legislature created what is called a “Qualified Spousal Trust” (QST). A QST is able to hold tenants by the entirety property and preserve the asset protection features of tenancy by the entirety. This is especially important for clients who may have older estate plans, to consider updating their estate plan to take advantage of the new law.

Probate Fees in Missouri

When one’s estate passes through probate in Missouri, there are a number of fees that the estate will face. There can be (1) bond premiums, (2) cost of publication in a local newspaper, (3) court costs, and the largest expense (4) attorney fees.

By statute, Missouri law establishes a minimum fee schedule for estates passes through probate. The fees are a percent of the money and personal property in the estate. It can also include any real estate sold during probate.

The minimum attorney fees in Missouri probate are as follows:

Size of Estate Fee
Less than $5,000 5%
$5,001 – $25,000 $250 + 4% of amount over $5,000
$25,000 – $100,000 $1,050 + 3 of estate over $25,000
$100,001 – $400,000 $3,300 + 2 ¾% of estate over $100,000
$400,000 – $1,000,000 $11,550 + 2 ½% of estate over $400,000
Over $1,000,000 $26,550 + 2% of estate over $1,000,000

 

The statute is 473.153. It can be found here: http://www.moga.mo.gov/mostatutes/stathtml/47300001531.HTML

Plus, the law allows the personal representative to take an amount equal to the attorney’s fee. The result is for an estate of $150,000, one may face $9,350 of expenses. Planning is better!

Estate Planning – It’s Important to Do, But Easy to Procrastinate

Benjamin Franklin said, “but in this world nothing can be said to be certain, except death and taxes.”

Benjamin Franklin - Nothing certain but death and taxes

We all know that someday we are going to die. In that way, it is completely predictable. Yet, since none of us know precisely when we will, we often feel that death is very unpredictable.

Often my estate planning clients report that they have been thinking about doing estate planning for quite some time, usually years. Sometimes, decades. Yet, like many important things, it is easy to procrastinate. There is usually nothing demanding that we get it done this week, month, or year.
This procrastination is often overcome when a loved one dies, a medical challenge arises, or the encouragement (also sometimes described as nagging) of children finally triumphs.
Recently, a friend’s mother contacted me for some estate planning. The mother’s husband had just passed away at age 92… with no estate planning. The deceased husband’s estate now had to be divided between his current wife and his children from his prior marriages. It was mess.
The question that crossed my mind is, “At what age should he have stopped procrastinating and done some estate planning?” When he retired seems like a really good time to start the planning process. Likewise, when he remarried. And when he turned 70… and 75… and 80… and 85… and 90!

Often I tell people, “The only time you need to do estate planning is the day before you need it. Yet, since we never know when that day will be, the time to do it is now!”

If you are reading this article, it is likely that you or a loved one is procrastinating estate planning as well. I encourage you to stop procrastinating. Pick up the phone, make the call, get the process started, and take a step towards planning and peace of mind.

In Missouri, a Last Will and Testament Leads to Probate

Often I have clients schedule an initial consultation to discuss having a Last Will and Testament drafted for them. While I am happy to do this for clients, upon further discussion, most clients realize that what they actually want is something different than a Will.

Last Will and Testament image

A Will is great for nominating guardians for minor children. Having a Will is also far better than passing away intestate (that is, without a Will) where default Missouri law controls the management and distribution of your estate rather than it being distributed according to your desires.

Yet, a Will often leads to Probate Court. This is the very thing that most of my clients want to avoid. After all, probate court (1) costs money, (2) consumes your loved one’s time, (3) leaves some decisions up to the local probate judge, and (4) is a matter of public record.

A much better plan is to avoid probate. And in most situations, in Missouri, avoiding probate is not that difficult to do. Clients can avoid probate by using all or some combination of the following:
1. a Revocable Living Trust (RLT) agreement,
2. a Beneficiary Deed for Missouri real estate,
3. a Gift Deed for personal property,
4. Payable on Death provisions for bank accounts,
5. Transfer on Death provisions for vehicles and boats, and
6. Beneficiary Designations for retirement and financial accounts.

Might it cost a little bit of money now to avoid probate later? Probably. Yet, avoiding planning now is being penny wise and pound foolish. One great thing about estate planning is the peace of mind it brings to my clients, that their affairs are in order and their wishes will be carried out.