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business Plan

Business Succession Planning: 5 Ways to Transfer Ownership Of Your Business

Business Succession Planning: 5 Ways to Transfer Ownership Of Your Business

WRITTEN BY: Robert Newcomer-Dyer

Business succession planning is a series of logistical and financial decisions about who will take over your business upon retirement, death, or disability. To write a succession plan, the first step is to identify the ideal successor to take over the business, then determine the best selling arrangement. This usually involves a buy-sell agreement, secured with a life insurance policy or loan.

There are five common ways to transfer ownership of your business:

  1. Co-owner: Selling your shares or ownership interests to a co-owner.
  2. Heir: Passing ownership interests to a family member.
  3. Key employee: Selling your business to a key employee.
  4. Outside party: Selling your business to an entrepreneur outside your organization.
  5. Company: For a business with multiple owners, you can sell your ownership interests back to the company, then distribute them to the remaining owners.

How a Business Succession Plan Works

business succession plan is a document that is intended to guide through a change in ownership by providing step-by-step instructions. If a purchase is involved, the sale price and purchase terms are clearly outlined, relieving stress for the departing owner’s family. A well-crafted succession plan aims to benefit everybody—the departing owner, the business, employees, and the successor.

A small business succession plan should include the following:

  • A succession timeline: Details regarding the circumstances when a succession would take place and specific dates as applicable.
  • Your potential successors: A list of potential successors, including strengths and order of consideration.
  • Formalized standard operating procedures (SOPS): A collection of documents, procedures, employee handbooks, and training documentation.
  • Your business’s valuation: The valuation of your business should include the method by which is valued and be updated frequently.
  • How your succession will be funded: Details including whether the succession is funded through life insurance, a seller’s note, or other funding options.

Who Should Create a Business Succession Plan

Succession plans are commonly associated with retirement; however, they serve an important function earlier in the business lifespan: If anything unexpected happens to you or a co-owner, a succession plan can help reduce headaches, drama, and monetary loss. As the complexity of the business and the number of people impacted by the exit grows, so does the need for a well-written succession plan.

You should consider creating a succession plan if you:

  • Have complex processes: How will your employees and successor know how to operate the business once you exit? How will you duplicate your subject matter expertise?
  • Employ more than just yourself: Who will step in to lead employees, administer human resources (HR) and payroll, and choose a successor and leadership structure?
  • Have repeat clients and ongoing contracts: Where will clients go after your exit, and who will maintain relationships and deliver on long-term contracts?
  • Have a successor in mind: How did you arrive at this decision, and are they aware and willing to take ownership?

Many business owners ignore succession planning because they don’t believe it’s necessary or put it off until they’re ready to retire. For small, simple businesses, a succession plan may not be necessary. However, consider what would happen to your business if you were no longer able to run the day-to-day operations. Who would take over? Would the business be viable?

When to Create a Small Business Succession Plan

Every business needs a succession plan to ensure that operations continue, and clients don’t experience a disruption in service. If you don’t already have a succession plan in place for your small business, this is something you should put together as soon as possible.

While you may not plan to leave your business, unplanned exits do happen. In general, the closer a business owner gets to retirement age, the more urgent the need for a plan. Business owners should write a succession plan when a transfer of ownership is in sight, including when they intend to list their business for sale, retire, or transfer ownership of the business. This will ensure the business operates smoothly throughout the transition.

The 5 Common Types of Succession Plans

There are several scenarios in which a business can change ownership. The type of succession plan you create may depend on a specific scenario. You may also wish to create a succession plan that addresses the unexpected, such as illness, accident, or death, in which case you should consider whether to include more than one potential successor.

Here are the five most common types of small business succession plans in detail.

1. Selling Your Business to a Co-owner

If you founded your business with a partner or partners, you may be considering your co-owners as potential successors. Many partnerships draft a mutual agreement that, in the event of one owner’s untimely death or disability, the remaining owners will agree to purchase their business interests from their next of kin.

This type of agreement can help ease the burden of an unexpected transition—for the business and family members alike. A spouse might be interested in keeping their shares but may not have the time investment or experience to help it blossom. A buy-sell agreement ensures they’re given fair compensation, and allows the remaining co-owners to maintain control of the business.

Potential Drawbacks

A buy-sell agreement with a co-owner requires a lot of cash kept on-hand. Your co-owner should be prepared to buy-out your shares, theoretically, at any moment. Many businesses will fund this plan with life insurance. Term life insurance is relatively inexpensive and can offset a lot of costs in the event of an owner’s death. Permanent life insurance is a bit more expensive with the added benefit of a payout in the event of retirement or disability.

If you choose to draft a buy-sell agreement with your co-owner, you’ll want to make sure a life insurance policy is stipulated in the agreement. The company can also purchase key person insurance that pays out in the event a key member of the business dies or becomes disabled. We recommend speaking with an expert for specific help on the type of policy you’ll need.

2. Passing Your Business Onto an Heir

Choosing an heir as your successor is a popular option for business owners, especially those with children or family members working in their organization. It is regarded as an attractive option for providing for your family by handing them the reins to a successful, fully operational enterprise. Passing your business on to an heir is not without its complications.

Some steps you can take to pass your business onto an heir smoothly are:

  • Determine who will take over: This is an easy decision if you already have a single-family member involved in the business but gets more complicated when multiple family members are interested in taking over.
  • Provide clear instructions: Include instructions on who will take over and how other heirs will be compensated.
  • Consider a buy-sell agreement: Many succession plans include a buy-sell agreement that allows heirs that are not active in the business to sell their shares to those who are.
  • Determine future leadership structure: In businesses where many heirs are involved, and only one will take over, you can simplify future discussions by providing clear instructions on how the structure should look moving forward.

Failing to address these steps may lead to a chaotic transition. For example, if a future leadership structure is not implemented, and the business passes on to more than one heir, the resulting power struggle may negatively impact the business. Alternatively, each heir may incorrectly assume the other will take over day-to-day responsibilities.

Before instructions can be given on who will take over leadership of the business, a future leader should be chosen. This is likely to be complicated when more than one heir is interested in taking over. Business owners can reference current business contributions and responsibilities from potential heirs to assist in choosing a successor.

Potential Drawbacks

Making business decisions within a family can get messy. Emotions can run high, especially after an untimely death or disability. Further, second-generation businesses rarely survive the transition, as they’re often sold by the inheriting family member, or fail outright.Only about 30 %  keep the same name and ownership following an inheritance.

Altogether, this should beg the question; is inheritance even the best idea? If your successor is skilled and business savvy, then perhaps the answer is “yes.” If not, you may consider selling your business to a co-owner, key employee, or outside buyer instead.

3. Selling Your Business to a Key Employee

When you don’t have a co-owner or family member to entrust with your business, a key employee might be the right successor. Consider employees who are experienced, business-savvy, and respected by your staff, which can ease the transition. Your org chart can help with this. If you’re concerned about maintaining quality after your departure, a key employee is generally more reliable than an outside buyer.

Just like selling to a co-owner, a key employee succession plan requires a buy-sell agreement. Your employee will agree to purchase your business at a predetermined retirement date, or in the event of death, disability, or other circumstance that renders you unable to manage the business.

Potential Drawbacks

A common drawback to key employee succession is money. Most employees aren’t in the financial position to buy the business they work for. Even if they are, having enough liquid cash on hand is another challenge.

One solution is seller financing, in which your employee pays you (or your family) back over time. There’s typically a down payment of 10% or higher, then monthly or quarterly payments with interest until the purchase is paid for in full. The exact terms of the loan will need to be negotiated and then laid out clearly in your succession plan.

4. Selling Your Business to an Outside Party

When there isn’t an obvious successor to take over, business owners may look to the community: Is there another entrepreneur, or even a competitor, that would purchase your business? To ensure that the business is sold for the proper amount, you will want to calculate the business value properly, and that the valuation is updated frequently.

This is easier for some types of businesses than others. If you own a more turnkey operation, like a restaurant with a good general manager, your task is simply to demonstrate that it’s a good investment. They won’t have to get their hands dirty unless they want to and will ideally still have time to focus on their other business interests.

Meanwhile, if you own a real estate company that’s branded under your own name, selling could potentially be more challenging. Buyers will recognize the need to rebrand and remarket and, as a result, may not be willing to pay full price.

Instead, you should prepare your business for sale well in advance; hire and train a great general manager, formalize your operating procedures, and get all your finances in check. Make your business as stable and turnkey as possible, so it’s more attractive and valuable to outside buyers.

Potential Drawbacks

One of the main drawbacks to an outside sale succession plan is the unexpected: It’s nearly impossible to predict exactly what the sales process will have in store. The process of selling a business to an outside party is complex and could encounter roadblocks like: your business not being as valuable as you anticipated, lack of credible buyers, your business not being able to sell at all, and more. Business brokers, like VNB Business Brokers, are experienced and well-versed in all aspects of selling and purchasing businesses on their clients’ behalf.

Consider outsourcing to a business broker so that you can focus on running your business and maintaining its value while professionals handle the sale. In addition to taking care of potential problems, VNB will ensure all steps of the process including finding and vetting buyers, structuring your deal, preparing documents, and negotiating terms. After one quick call, VNB Business Brokers will be able to tell you things like: what your business is worth, if the valuation price can be increased and how long it will take to sell your business.


5. Selling Your Shares Back to the Company

The fifth option is available to businesses with multiple owners. An “entity purchase plan” or a “stock redemption plan” is an arrangement where the business purchases life insurance on each of the co-owners. When one owner dies, the business uses the life insurance proceeds to purchase the business interest from the deceased owner’s estate, thus giving each surviving owners a larger share of the business.

Potential Drawbacks

An entity purchase is similar to a cross-purchase, in which you sell your shares to a co-owner or co-owners. In most circumstances, a cross-purchase is more financially viable. When co-owners purchase shares directly, they get a “step-up in basis,” which means the stock’s basis is revalued at its current price. With an entity purchase, the original basis remains, and your co-owners will be liable for potentially higher capital gains.

Despite this drawback, entity purchases can still be beneficial when you have a large number of co-owners. Drafting cross-purchase agreements with each owner can be cumbersome. An entity purchase agreement, in comparison, is much simpler to implement. It can typically be funded with a single life insurance policy for each co-owner.

How to Create a Succession Plan

There are several key steps necessary to create a comprehensive small business succession plan, and several ways to go about creating your plan. Some business owners may choose to create their own succession plan, while others may wish to engage the help of a professional, depending on the complexity of the plan and the business.

Whether you create your plan yourself or engage a professional, the five steps to writing a succession plan are:

  • Determining timeline: Define when the succession should take place, either on a predetermined date or in the event of death or disability.
  • Choosing your successor: If this is not a purchase by a specific party, consider choosing three or more potential candidates, filling out a profile for each.
  • Formalizing your standard operating procedures: Document your standard operating procedures (SOPs), including an organizational chart, employee handbook, operations manual, and any other recurring meetings or processes.
  • Valuing your business: Several methods exist to value your business. Once you have calculated your business’s value, it should be updated frequently.
  • Funding your succession plan: Define a specific path that lays out how the successor will purchase the business. Options include life insurance, loan, and seller financing.

Read more related articles at:

Your Business Needs a Succession Plan: Here Are the Basics

Strategic Business Plans: Why This Success-Focused Tool Is A Must-Have

Also, read one of our previous Blogs at:

Does My Business Need a Succession Plan?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

nursing care

Getting Paid to Care for Mom or Dad. Are You Eligible?


Many adult children wonder if they can be compensated for the countless hours that they spend caregiving for their aging parents. This is especially true with those family members who are caring for a loved one with Alzheimer’s or another form of dementia. The short answer to this question is yes, it is possible. Unfortunately, the short answer is insufficient, as the subject is complex. Many variables impact whether a loved one who requires care is eligible for such assistance, and what many people fail to ask, is if they, themselves as caregivers, are eligible.

The article that follows comprehensively explores the many different options and programs that can be used to pay family members as caregivers. However, this in-depth exploration makes for heavy reading and many of the programs won’t be relevant to the reader based on varying eligibility criteria, such as veteran’s status, income, or state of residence. An alternative approach is to use our Paid Caregiver Program Locator. This interactive tool asks a series of questions and provides the reader with a list of programs that are relevant to their family’s situation.

Medicaid Options

Of all the programs that pay family members as caregivers, Medicaid is the most common source of payment. Medicaid has eligibility requirements that apply to the program participant and it has rules that dictate who is allowed to provide them with care. While Medicaid is historically thought of as paying for nursing home care, modern Medicaid programs offer assistance options outside of nursing homes, in the beneficiary’s home or primary place of residence. We have identified four types of Medicaid programs / options that allow family members to be paid as caregivers. The bad news is that not all four are available in every state, but the good news is at least one of the four is available in every state.

HCBS Waivers and 1915(c) Waivers

The first and most common Medicaid option is Medicaid Waivers. These are often called HCBS Waivers, short for Home and Community Based Services, or 1915(c) Waivers or occasionally Section 1115 Waivers. Waivers allow states to pay for care and support services for individuals residing outside of nursing homes. Commonly, they pay for personal care (assistance with activities of daily living, such as eating, dressing, and mobility) and chore services provided for elderly or disabled persons who live in their homes or the homes of family members.

Most states’ Medicaid Waivers have an option called “Consumer Direction”. Consumer direction allows the beneficiary (the ”consumer” or the “care recipient”) to direct or choose from whom they receive care services. With this option, the care recipient can choose to receive care from a family member, such as an adult child, and Medicaid will compensate the adult child  for providing care for the elderly parent. In most cases, the adult child / caregiver is paid the Medicaid approved hourly rate for home care, which is specific to their state. In very approximate terms, caregivers can expect to be paid between $9.00 – $19.25 per hour.

It is important to note that the phrase “consumer direction” is not used in all states. However, the concept of consumer direction is available in all states. A variety of other terms or phrases are employed to describe this same concept. Depending on one’s state, alternative language may include Participant Directed Services, Self-Directed Care, Cash and Counseling, Choice Programs, and Self-Administered Services.

Waivers are offered as an alternative to nursing home care. Waiver names, eligibility requirements, and benefits are different in each state. While nursing home Medicaid is an entitlement, Waivers are not entitlements. They are enrollment capped, meaning there is a select number of people who can be enrolled in the program, and waiting lists are fairly common. A complete list of Waivers that allow family members to be paid as caregivers is available here.

Medicaid Personal Care Services

State Medicaid programs often cover personal care under their regular Medicaid program, sometimes referred to as their “Medicaid State Plan”. Unlike Waivers, regular Medicaid is an entitlement program; if an applicant meets the eligibility requirements, then they can receive benefits. Waiting lists do not exist. Please note that some states elect to offer personal care services in the home and community through their state plan via an option called Community First Choice (CFC).

Similar to how Waivers offer consumer direction of services, State Plan Personal Care often allows the beneficiary to choose their care provider. Family members, including adult children can be chosen to provide care for their mothers and fathers. Again, like Waivers, the adult children caregivers are paid the Medicaid approved hourly rate for their efforts. During the initial enrollment process, the elderly individual is assessed, and it is determined how many hours per week they require care services. A list of state Medicaid programs that offer the choice of provider in their personal care benefit is available here. Readers should be aware of the various names these programs use, which include Personal Assistance Services (PAS), Personal Care Assistance (PCA), Attendare Care, and Personal Attendants. Sometimes, states don’t make a point to distinguish this option as a separate program, they just call it the personal care benefit under their regular Medicaid program.

Medicaid Caregiver Exemption

The Caregiver Exemption is also referred to as the Child Caregiver Exception. This option does not directly pay the adult child for their caregiving efforts on an hourly basis, but instead compensates them indirectly. To better understand this option, some background information on Medicaid eligibility is required. Eligibility for elderly persons is based largely on their income and their assets. One’s home, provided it is lived in by the Medicaid participant, is considered an exempt asset. However, if one moves from their home (into a nursing home, for example), then their home is no longer considered an exempt asset (unless their spouse lives there or the Medicaid recipient expresses an intent to return home). When the elderly person passes away, their state may try to take the home or some of the home’s value as reimbursement for the elderly person’s care. This is known as Medicaid Estate Recovery.

The Caregiver Exemption allows the adult child who provides care for their elderly parent in their parent’s home to inherit the home, instead of the state taking the home under Estate Recovery rules. There are additional requirements. The adult child must live in the home with their parent and provide care for at least two years. The level of care they provide must prevent their parent from being placed in a nursing home and they must have the medical documentation to validate this fact.

How much the adult child receives in compensation depends on the value of the home and their parent’s equity in the home.

The Caregiver Exemption is complicated. Therefore, it is strongly advised that families plan in advance for this option to avoid both Medicaid and family conflicts. One can read more about the Caregiver Exemption here or connect with a Medicaid planning expert to discuss if, and how this option, would work for your family.

Adult Foster Care

In a limited number of states, Medicaid allows the adult children to become adult foster care providers for their aging parent(s). In this situation, the aging parent moves into their adult child’s home. The caregiver / child is responsible for providing personal care, assistance with the activities of daily living, meals, transportation to medical appointments, and other supports. Medicaid will continue to fund the elderly parent’s medical care, prescriptions, etc. In return, the adult children are compensated by Medicaid for their care services, but not for room and board. Medicaid, by law, cannot pay for room and board. However, many states offer supplemental financial assistance from state funds to Medicaid beneficiaries who live in an adult foster home situation. This additional financial assistance is intended for room and board expenses. To summarize, the adult children caregivers will be compensated from two sources, Medicaid and the state’s supplemental program. It is estimated that the caregiving child will be compensated between $1,550 – $2,550 per month, dependent on the level of care required by their aging parent and, of course, their state of residence. State Medicaid programs offering adult foster care.

Programs for Veterans

Veterans Directed Home and Community Based Services

This program is often abbreviated as VD-HCBS or referred to informally as Veterans Directed Care. The program is open to any veteran who is currently enrolled in the VA health care system whose care requirements are such that “nursing home level care” is required. Under Veterans Directed Care, veterans are able to select from whom they receive care services. Veterans with a certain level of care needs, require personal care or personal care attendants. This program gives veterans the option to hire whoever they choose, including family members, such as their adult children to provide them with personal care services.

Adult children caregivers are paid an hourly rate. This rate is determined annually by Veterans Health Administration and modified for regional differences in home care costs. It is difficult to accurately project what caregivers will receive, as each veteran is assessed for a different amount of home care assistance. That said, caregivers might expect to be compensated between $8.44 – $20.00 per hour for their efforts.

The program is run at the local level through participating VA Medical Centers. See a list of participating VAMCs here.

Veteran’s Aid & Attendance and Housebound Pensions

The veterans’ pensions, which are called the Aid & Attendance and Housebound benefits, are programs specifically designed for wartime veterans and their spouses. How they can be used to pay individuals to provide care for their aging parents is a little complicated. It is important to understand that the dollar amount of pension that a veteran or their spouse receives depends on their current, non-pension related income. The second important factor is when calculating income, the Department of Veterans Affairs allows the beneficiary to deduct all care related expenses from their income. This can include the cost of personal care assistance provided by an individual or home care agency. Therefore, an aging parent can hire their adult child as a private caregiver. The adult child invoices their parent for their caregiving services, the parent deducts those invoices from their income, and the VA increases their pension check by the amount of the invoices. While confusing and seemingly roundabout, this approach is well documented, legal, and encouraged by many VA benefits experts. Learn more about the Aid & Attendance and Housebound Pensions or connect with a VA Pension planning expert to determine if your family is eligible and to discuss if either of these approaches can work for you.

Other Options

State Based, Non-Medicaid Programs

The concept of Consumer Direction (discussed under Medicaid) is not limited to Medicaid programs. Most states offer what are loosely categorized as nursing home diversion programs. These are state funded programs that provide assistance to elderly individuals who live at home with the objective of preventing unnecessary placement of these persons in Medicaid-funded nursing homes. Some of these state programs allow for consumer direction of care services. Phrased another way, program participants are given the flexibility to choose their own caregivers. This allows participants to choose their adult children to provide them with care services and assistance, instead of working with a state-chosen caregiver or home care agency. Caregivers are paid a rate comparable with the average hourly rate for home care in their geographic area.

Unfortunately, these programs are not available in every state. Further limiting this option is the fact that some programs allow for consumer direction, but do not allow family members to be hired. Finally, many of these programs are means-tested (this means eligibility is based on the financial resources of the participant). See a list of state programs that allow consumer direction here.

Life Insurance

Persons with life insurance policies with a death benefit valued at over $50,000 can use those policies to pay family members to provide care. As with many of the programs described in this article, the process is complicated. The policyholder, while living, engages in what is called a life settlement. A life settlement is the sale of one’s life insurance policy to a 3rd party while the policyholder is alive. The buyer pays the policyholder a lump sum amount, they take over paying the monthly premiums, and when the policyholder passes, they collect the full amount of the death benefit. In taking this approach, the original policyholder receives a lump sum of cash from their policy while they are alive.

This money can be used directly to pay a family member, such as a son or daughter, to provide care. However, a better option exists called a Medicaid Life Settlement. This type of life settlement allows the policyholder to preserve the option to receive Medicaid in the future, should the proceeds from their life settlement run out. A more thorough investigation of this strategy and its pros & cons can be found here.

Long Term Care Insurance

Some elderly individuals that have long-term care insurance may use the benefits from that insurance to pay their children to provide them with care. Each policy is different and some policies may expressly prohibit family members from being compensated. However, such rules are relatively rare. More common is the long-term care insurance policy that requires care providers to be licensed. Fortunately, this should not prevent the family members of the policyholder from being paid to provide care. It does, however, create a minor logistical obstacle in that the son or daughter will have to obtain a business license as a care provider and register with their local authorities. While this process may sound daunting, it is in fact a fairly simple and quick process. The adult children who are now paid caregivers must declare their payment as income and pay taxes as they would with any other income.

Paid Family Leave Laws

Paid Family Leave (PFL) is a type of program that allows working individuals to take time off from their jobs (or take non-consecutive days off) to care for their family member. Paid Family Leave laws are not limited to caring for aging parents, one can also care for their children or spouses. However, caring for aging parents is most relevant to this article. The caregivers continue to receive a large percentage of their salary and they are legally protected from losing their jobs or their health insurance.

Most laws will pay the adult children for periods of between 4 – 12 weeks, so this is not a permanent solution for most families. However, the paid leave does not have to be taken in one consecutive period. Instead, the caregiving child could take one day off each week for many months. Additionally, multiple siblings could take consecutive paid family leave if they live in the same state, which when combined, can make a large impact in helping an elderly parent.

Unfortunately, not all states currently have paid family leave laws. While they are under discussion in many states, at present only California, New Jersey, New York, Rhode Island, Washington, and the District of Columbia have programs. More about each program can be found at the following links: CANJNYRI and DC. At the time of this writing, the paid family leave acts have not yet been implemented in Washington and the District of Columbia. Both are expected to be in effect in 2020.

State specific, paid family leave laws should not be confused with the national Family and Medical Leave Act (FMLA), which allows family members to take time off work to care for a loved one and protects their job and health insurance but does not offer compensation. More about the FMLA.

Tax Deductions and Credits

Tax deductions or tax credits do not pay the adult children directly as caregivers. However, they can considerably decrease the tax burden of those caring for their elderly parents. The net effect is the same, they have more money available to them as a result of their familial caregiving efforts. For persons whose parents are financially dependent on them, the medical and care expenses incurred by the aging parents can be deducted from their own income. Read about medical and care expense deductions here. Another option is the Dependent Care Credit. For persons who must pay for care for their elderly parent so that they are able to continue working, this credit is highly relevant. Expenses such as home care or adult day care, in most instances, are fully deductible under this credit. Read more.

Read more related articles here:

Also, read one of our previous Blogs at:

Should You Get Personal Care Agreement to Care for Mom?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Pet Trusts

5 Things You Need To Know About Protecting Your Pets After You Die

5 Things You Need To Know About Protecting Your Pets After You Die

5 Things You Need To Know About Protecting Your Pets After You Die. Some days it seems like the only thing everyone can agree on is how much we love our pets. They are always happy to see us, their love is unconditional and they welcome us home at the end of the day. Being greeted by your dog’s wet nose and wagging tail can make all your troubles melt away – it’s better than a Calgon bath.

So what happens to our trusty companions when we die? Who will care for them? And will that person have enough money for a lifetime of caretaking? Here are five things you need to know about protecting your beloved Mr. Jiggles when you are gone.

    1. Pets are tangible property. In most states, pets fall into the same category as your car, furniture and jewelry. While they mean so much more to us than that, the law looks at them as chattel. Since the law regards pets as possessions, ownership of them is typically transferred in a will along with the artwork and household furnishings.
    2. Choose a caretaker wisely. Most people leave their pets to a child or immediate family member who will happily take care of the pet without additional monies left expressly for that purpose. If you don’t have a close family member to take your pet, consider leaving them to a friend, neighbor or other more distant relative. One of my elderly clients is leaving her pet to her dog walker who has already agreed to take the dog. Other clients, who have no one to take their pets, have left them to the local humane society or pet shelter with a substantial donation.
    3. Follow the money. Some clients will leave an outright gift of a certain dollar amount. The money is intended to be used to care for the pet, but often there is no requirement that the person use the money for the pet. Be aware that cousin Louie could take your cat Fluffy and the money, but then drop Fluffy off at a shelter the next day. You can condition the cash gift to Louie on his keeping Fluffy, but who is going to police that? And how do you ensure the level of care that Fluffy receives? A pet trust is the best way to prevent this scenario from happening.
    4. Creating a pet trust. Many states allow for pet trusts. You create a trust and on your death transfer ownership of the pet and cash to the trustee. The trustee then has to use the cash to care for the pet. On the animal’s death, the remaining assets are distributed in accordance with your written instructions in the trust. The trustee cannot use the trust assets for himself, although he can take a fee.
  1. Don’t leave your pet too much money. If you do, the court may reduce the amount of money held in trust for the pet’s benefit. Courts do not like to see folks punishing their heirs by leaving all the money to the dog. Remember the story of Leona Helmsley, the New York hotel heiress who left the bulk of her $12 million estate to her little white Maltese named Trouble? Helmsley was dubbed the “Queen of Mean” for disinheriting family members and leaving so much to a dog instead of family members or charities. A judge later reduced Trouble’s trust to $2 million, but Trouble still lived out her life in the lap of luxury with round-the-clock care and a security guard in Florida (there were kidnapping threats). The cost of her care was reportedly $100,000 per year.

Most pets do not need $100,000 per year for care. A much smaller amount will often suffice. And when the pet passes away, the rest can go to your family members, or better yet, to your local pet shelter or humane society.

Read more related articles at:

5 ways to make sure your dog will be protected after you die

How To Make Sure Your Pets Are Taken Care Of After You’re Gone

Also, read one of our previous Blogs at:

Estate Planning for Pets: How to Protect Your Furry Friends

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Update Estate Plan

When it comes to a will or estate plan, don’t just set it and forget it. You need to keep them updated.

When it comes to a will or estate plan, don’t just set it and forget it. You need to keep them updated.

  • The pandemic appears to have generated a bigger interest in estate planning, which includes a will and other legal documents that address end-of-life considerations.
  • Whether you have only a will or a more robust estate plan, a review should be done every few years at least, although there are a variety of reasons to do so more frequently.
Whether you drew up a will recently or years ago, keep in mind it’s generally not something you can set and forget.

Experts recommend revisiting your will and other estate-planning documents at least every few years unless there are reasons to do it more frequently — which is common. That could include things like marriage, divorce, birth or adoption of a child, coming into a lot of money (i.e., inheritance, lottery win, etc.) or even moving to another state where estate laws differ from the one where your will was drawn up.

“One of the main considerations for a review is a life event — when there’s a major change in your life,” said Nick Foulks, who oversees client engagement at Great Waters Financial in Minneapolis.

The pandemic has spurred an interest in estate planning, which includes a will and other legal documents that address end-of-life considerations. For instance, 18- to 34-year-olds are now more likely (by 16%) to have a will than those who are in the 35-to-54 age group, according to Caring.com research. In the 25-to-40 age group, just 32% do, according to a survey from TrustandWill.com and 1Password.com.

Nevertheless, fewer than 46% of U.S. adults have a will, according to a Gallup poll in June.

If you’re among those who have a will or full-blown estate plan, here are some things to review and why.

It’s not you, it’s them

Aside from reviewing your will in terms of who gets what, it’s also worth checking whether the person you named as executor is still a suitable choice. This is the person who is charged with carrying out your wishes. It’s typically a big job. Things such as liquidating accounts, ensuring your assets go to the proper beneficiaries, paying any debts not discharged (i.e., taxes owed), and even selling your home could be among the duties undertaken by the executor. Also be sure the guardian you’ve named to care for your children is still the person you’d want in that position. Additionally, take a look at the people you assigned powers of attorney to. If you become incapacitated at some point, the people with that authority will handle your medical and financial affairs if you cannot. Often, the person who is given this responsibility for decisions related to your health care is different from whom you would name to handle your financial affairs. As with choosing an executor, make sure whoever would hold the financial reins is trustworthy, experts say. In other words, even if you’ve had no major life event, individuals you previously chose to handle certain duties may no longer be in a position to do so.

Account beneficiaries

Some assets pass outside of the will, including retirement accounts such as 401(k) plans and individual retirement accounts, as well as life insurance policies. This means the person named as a beneficiary on those accounts will generally receive the money no matter what your will says.  “You definitely see that happen,” Foulks said. “We’ve seen accounts left to an ex-spouse and then the family has to go through a court process to try getting it back.”

Be aware that 401(k) plans require your current spouse to be the beneficiary unless they legally agree otherwise. Regular bank accounts, too, can have beneficiaries listed on a payable-on-death form, which your bank can supply. If no beneficiary is listed on those non-will items or the named person has already passed away (and there is no contingent beneficiary listed), the assets automatically go into probate. That’s the process by which all of your debt is paid off and the remaining assets are distributed to heirs. This can last several months to a year or more, depending on state laws and the complexity of your estate. If you own a home, be sure to find out how it should be titled to ensure it ends up with the person (or people) you intend, because applicable laws can vary from state to state. Moreover, there can be other considerations when it comes to how a house is titled, including protection from potential creditors or for tax reasons when the home is sold.

It may be time for a trust

If you want your kids to receive money but don’t want to give a young adult — or one prone to poor money management or other concerning behaviors — unfettered access to a sudden windfall, you can consider creating a trust to be the beneficiary of a particular asset.

A trust holds assets on behalf of your beneficiary or beneficiaries, and is a legal entity dictated by the documents creating it. If you go that route, the assets go into the trust instead of directly to your heirs. They can only receive money according to how (or when) you’ve stipulated in the trust documents.

The average cost to set up a trust using an attorney ranges from $1,000 to $1,500 for an individual and $1,200 to $1,500 for a couple, according to LegalZoom.com. Doing it yourself with online software could run at least several hundreds of dollars.

Read more related articles at:

Reviewing & Updating Your Estate Plan

7 Reasons It’s Time To Update Your Estate Plan

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Prenuptial Agreement

Prenuptial Agreements: What Is A Prenup And Should I Get One?

Prenuptial Agreements: What Is A Prenup And Should I Get One?


When two people get married, they’re not just uniting their bodies, hearts and souls; they’re also joining their financial assets. It’s a terribly unromantic fact — and probably the last thing anyone wants to talk about at length when they first get engaged.

Questions like “Should we get a prenuptial agreement?” can be downright buzzkills.

But if you’re planning to get engaged or already are, this is an important topic to unpack together.

We’ve set out to answer a number of questions you might have about prenups by consulting divorce lawyers and financial experts, along with a relationship therapist.

What is a prenup, exactly?

“It is a legal agreement entered into between two people before they are married that that can cover a wide variety of issues centered on property rights and assets,” says Ike Z. Devji, of-counsel asset protection attorney in Phoenix, Arizona. “In addition to the traditional role that most people think of (dictating the division and distribution of a variety of physical assets and setting terms for any required spousal maintenance at divorce), pre-nups can also cover death, incapacity, estate planning, student debt, spousal support and a variety of other legal issues including the division and attribution of income earned during marriage.”

What is the purpose of a prenuptial agreement?

There are many, but “one of the main reasons to sign a prenup is to deviate from what the law would provide in the event of a divorce,” says Elysa Greenblatt, a divorce lawyer in NYC. “People often want to protect their assets from distribution and a prenup is the obvious answer. There are other reasons that might not come to mind as quickly [such as] if one party has a child from a prior marriage — it can be important to have a prenup so that the parent can support that child with marital income. Another reason has to do with the fact that divorce laws vary state by state. If you live somewhere that has laws of equitable distribution but you may move to a community property state, it is important to protect your assets and set how they will be distributed.”

Often people want a prenup so they can keep what they brought into the marriage, which the law typically already protects — it’s when financial assets get commingled that things get complicated, and that, happens easier than you think.

Buying a house together with just one person’s money is commingling. Starting a business together using one person’s capital is commingling. Moving money around more than a few times can even qualify as commingling,” says Knight. “The longer you’ve been married, the more you are likely to commingle your assets [and have] non-marital assets turn into marital and, thus, divisible assets.

Aren’t prenups just for rich people?


“Typically, you think of a prenuptial agreement as being for those individuals with substantial means to protect,” says Marcia Mavrides, a divorce attorney in Massachusetts. “This isn’t always the case anymore, and in fact, many millennial clients hire Mavrides Law (my firm) to assist them with a prenup to protect them from their future spouse’s student debt and visa versa. Even though these individuals may have significant earning potential, they realize that they should each be responsible for their own student loans. The best part is that these couples have discussed their financial situations in great detail before hiring attorneys to draft a prenup, so there are no unpleasant surprises.”

How much does a prenup cost?

There’s no fixed cost here, as it depends on both geography and how much negotiating takes place.

If you’re in a situation where your betrothed has the bulk of the assets (that would be protected under the prenup), then they should cover the costs of your counsel, which Frawley notes is common practice.

To get a better idea, you should absolutely meet with a lawyer for a consultation.


How long does a prenup take?

Again, it depends. Typically, the more assets you or your partner bring to the table (and the more ardent your lawyers), the longer this will take.

“Ideally, you should start the prenup conversation with your spouse shortly after getting engaged,” says Mavrides. “You and your fiancé should each find an attorney and begin the drafting process at least six months prior to your wedding.”

You may even start exploring prenups before you get engaged.

“I had a case this year where we did a prenup before they got engaged,” says Pollock. “The earner had a strong feeling about conditions under which he was willing to be married. He had to be sure [his prospective fiancee] agreed what marriage looked like before he was willing to do it.”

The couple did end up getting engaged.

Do both parties need a lawyer for a prenuptial agreement?

While you might be able to find a lawyer who will draft up a prenup for both of you, this is highly inadvisable. So, to be safe, the answer is yes.

“One of the hallmarks as to whether a prenup is ‘fair and reasonable’ at the time of execution is whether a party had an attorney at the time the document was being negotiated,” says Shemin. “Personally, if I am the mediator, or even if I just represent one party, I insist that the other party have counsel. This is the general practice. Parties can work with one mediator, or, one lawyer to do the drafting — but each party should/must (if not legally, then advisedly) have his/her own counsel. Since prenups are governed by state law, although this may vary state-to-state, it is generally considered the advisable and preferred practice.”

Can prenups be thrown out?

As legal contracts, one would think that prenups would be set in stone, but in exceptional cases, they can be broken in divorce.

“Prenups are not ironclad and can be overturned on a number of circumstances,” says Megan Gorman, managing partner at Chequers Financial Management. “If one party had a significant windfall, it would be prudent to speak with the attorneys who handled the prenup to understand your rights. There might need to be changes made to the prenup. Keep in mind things evolve and that the best course of action is to always be open with your spouse on finances.”

Can I get a prenup online?

Technically yes, but you’re likely wasting your time and money.

“Obtaining a prenup online is not advisable,” says Gorman. “There are complex legal issues at play. You need to understand your rights. An online approach is risky and will likely have holes in the event of a divorce.”

A ‘postnup’ is also an option

If entering into a prenup is not something you can afford in terms of time or money before your wedding, you can absolutely arrange a postnuptial agreement after you’re married.

“The cost is the same and the process is the same [as a prenup],” says Pollock. “Commonly with a postnup though there’s a specific purpose, or a live event that triggers re-examination, such as the purchase of real estate, where you want to specify how that would be distributed — or someone is thinking about leaving the workforce and wants to negotiate how assets should be distributed.”

This is perhaps another article in itself, but Dr. Fran Walfish, a relationship therapist in Beverly Hills, shares three quick tips on navigating this potentially touchy conversation:

1. Admit that this is a tough but necessary talk

“Tell your beloved intended that this is a hard conversation to have and that you want to make it as productive as possible. All of us struggle to hear difficult things. When you share and expose your vulnerability the other person feels safe to do the same with you.”

2. Discuss in a peaceful environment

“Be sure you are in a quiet place with no distractions so you can focus on the other person.”

3. Listen patiently and mindfully

“Be ready to accept anything the other person says. You don’t have to agree but listen openly without becoming defensive. If you are shy and don’t know what to say, offer compassionate reflection of what you hear the other person saying. This allows the other to feel heard, validated and accepted.”

Read more related articles here:

Financial Planning For Young Adults: Prenuptial Agreements—What You Should Know Before You Get Married

Considering a Prenup? Here’s Everything You Need to Know

Also, read one of our previous Blogs at:


Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.


Trust vs. LLC: What’s the Difference?

Trust vs. LLC: What’s the Difference?

Mark Henricks

Trusts and limited liability companies (LLCs) are both legal vehicles that can be used to protect assets. Both are also created at the state level but they have different features and different uses. Trusts are primarily used to avoid taxation when transferring family assets from generation to the next. LLCs are legal business entities, similar to simplified corporations, that have as their main feature the ability to shield owners of the business from legal liability for actions of the business. Consider working with a financial advisor as you make key estate planning and business decisions.

LLC Features

An LLC is created by filing documents including a certificate of formation with the secretary of state for the state where the business will be legally based. It is one of the most common types of business entity, along with sole proprietorship, partnership and corporation.

An LLC is a legal entity with an existence separate from its owners. This means that the owners’ personal assets are protected from creditors in the event the business takes on debt that it fails to pay back. Similarly, should the business be required to pay monetary damages as the result of a lawsuit, the payment has to come from the business assets while the owners’ personal assets are protected.

LLCs offer a simplified management structure compared to regular corporations. They also avoid the double taxation levied on corporate profits by passing dividends directly through to their owners, who pay income taxes at their individual rate.

LLCs can also be useful when passing on business assets to heirs. In many states, a business organized as an LLC can be transferred to the next generation without going through the lengthy process of probate. In addition to business assets, the owners of an LLC can place other types of assets in it, allowing more of their estate to avoid probate.

Trust Features

Trusts are also organized at the state level and are used to hold assets and transfer them to beneficiaries. A trust is not a business entity, as an LLC is, however, and creating one doesn’t require filing any documents with a government agency. Trusts can hold many different types of assets, including cash and bank accounts, real estate and securities, as well as ownership interests in an LLC or other business entity.

The assets in a trust are transferred from the original owners’ control to the trust, where they are overseen by a trustee. The trust also contains instructions describing how the assets are to be distributed to beneficiaries in the event of the owner’s death.

When the owner dies, the assets do not have to go through the probate process and can significantly reduce the estate taxes that would otherwise be levied on the intergenerational transfer of assets. Rather than going through probate, the trustee just distributes the assets as specified in the trust documents.

While trusts are useful for managing estate taxes, they don’t protect the personal assets from liability to any lawsuits, as LLCs do. They also lack the income tax benefits of the LLC.

The choice between LLC and trust depends on individual situations. LLCs are better at protecting business assets from creditors and legal liability. Trusts can handle many types of assets and are better at avoiding probate and reducing estate taxes. In some cases, both an LLC and a trust may be the best way to manage the estate.

Bottom Line

LLCs and trusts are two legal vehicles used for managing assets and protecting them from liability and taxation. LLCs are a type of business entity that shields owners from liability for business debts and avoids double taxation while providing for a flexible structure to manage the business. Trusts are used as repositories for assets that will be distributed to beneficiaries after the death of the original owner. Trusts help people avoid the time-consuming probate process while minimizing estate taxes.

Read more related articles here:

Tax Implications for an LLC Owned by a Living Trust

Can a Trust Own an LLC?

Also, read one of our previous Blogs at:

Should I Create an LLC for Estate Planning?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Probate in FL

Is An Attorney Required For Probate In Florida?

Is An Attorney Required For Probate In Florida?   Yes, in almost all cases you will need a Florida Probate Lawyer. For all but the simplest estates, Florida law requires that the personal representative of an estate hire a probate attorney to guide him or her through the process. While hiring an attorney might seem like an unnecessary burden, an attorney should help make the probate process as efficient as possible. Except for “disposition without administration” (very small estates) and those estates in which the executor (personal representative) is the sole beneficiary, Florida law requires the assistance of an attorney. Even when an estate lawyer is not required, formal administration has so many technical rules and pitfalls that it can be very frustrating for the non-lawyer. Florida’s system is too complex for most personal representatives to follow without guidance, and the courts are not set up or staffed to provide probate legal assistance. In addition, judges in the state require probate documents to meet certain specifications and wording, the forms for which are not available online or even in most libraries. In other words, executors in Florida cannot count on the court clerk’s office to guide them through, as they might in some other states.

Why Can’t I Just Record The Will To Change The Title To My Parent’s Property In Florida?

Title insurance underwriters in Florida generally do not recognize a recorded will as sufficient to convey title, and for good reasons.   First, there is no way for those title insurers to know that the recorded will was valid and was the final will of the deceased. Second, there are situations in which the property cannot pass according to the Will due to the nature of the property, estate creditors, or other reasons.

Can An Estate Be Administered With A Missing Heir?

In many cases, yes, the estate could be administered. A missing heir is one who, although not shown on the title, has inherited a portion of the title due to the death of an owner, but who cannot now be located. Florida law has a useful provision under a formal probate administration which allows the personal representative to deposit the share of a missing heir into the registry of the court after the property has been sold.

A missing heir is much different from a missing owner of record. If the missing person is an owner of record and has not died or been declared dead by a court, the probate code does not apply and the situation is more complicated. A conservator may be needed.

Do All Estates In Florida Have To Go Through “Full” Probate?

No, very small estates without real property may qualify for “disposition without administration” and some estates may qualify for summary administration, which is a faster and cheaper form of probate administration. Because Florida’s homestead definition allows unlimited value (but not unlimited acreage), some estates with very expensive homestead property (principal residence), but little else, can qualify for summary administration. Also, if the deceased has been dead for more than two years, the estate can be handled in summary administration.

After A Property Owner Dies, Can His Or Her Power Of Attorney (POA) Be Used?

No. It has no “power” after the maker (the property owner) dies. Without meaning any disrespect, a good way to remember this is to recall that death turns a POA into a “DOA.”

Is Summary Administration Always The Better Way When Available?

Sometimes it is not practical to use a summary administration even if it is an option. Examples:

  • The Will leaves the property to a large number of beneficiaries, each of whom would have to sign the contract to sell as well as the deed and other closing papers.
  • If some of the beneficiaries are minors, guardianships may have to be set up and maintained until the minor reaches adulthood, but in a formal estate, the personal representative may be able to avoid that through the Florida Uniform Transfers to Minors Act.
  • Sometimes, the whereabouts of one or more of the beneficiaries are unknown. Formal probate administration can accommodate a missing heir. Summary administration cannot.
  • If one of the beneficiaries refuses to cooperate with the other owners, formal administration may be needed in order to sell the property. The alternative is a “partition” lawsuit by one or more owners, the costs of which are likely to exceed formal probate costs.

If a formal administration is needed after the second anniversary of death, certain steps related to creditors are no longer required and for that reason, the fees and costs may not be that much more expensive than a summary administration.

Is It Ever “Too Late” To Start Probate?

No, there is no deadline to open a probate in Florida, and we have handled estates 50 years after a person’s death. If family members have paid the property taxes so that no tax deeds are granted, probate is often feasible for decades. However, there is a practical limit in some family situations, because over enough time there may be several probate administrations needed due to the deaths of the initial heirs and even children of the heirs. Also, sometimes family members lose track of each other so that the current generation does not know enough about the estate of a deceased heir to know who the heirs may be. Probate can be started with minimal information, but it must be through a more expensive formal administration.

Do I Need To Personally Appear In Florida To Probate An Estate?

No, not usually for probate. Unless a dispute requires a hearing, neither the personal representative nor the estate attorney will actually go to court in Florida. There is no “reading of the will” like you see in old movies. Everything is done by mail, email, phone, and internet.

Read more related articles at:

Florida Bar: Consumer Pamphlet: Probate in Florida

The Problem With Probate In America And Ways To Fix It

Also, read one of our previous Blogs at:

Estate Planning Secrets: How To Avoid Probate

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Gun Trusts

Gun Collections Pose Special Estate Problems


Gun Collections Pose Special Estate Problems

Gun Collections Pose Special Estate Problems. People may collect guns for self‐defense, target shooting or hunting. Guns may be investments or heirlooms. Many gun owners want their guns to be used responsibly and be passed on to those who appreciate them. Certain firearms and accessories are federally restricted. A state may restrict them further. For example, short‐barreled rifles, automatic weapons, silencers and other such items, require a federal tax stamp to acquire as well as the approval of the local Chief Law Enforcement Officer (CLEO.) There are many regulations and issues surrounding passing guns down to one’s heirs that are not present with a bank account, chair, picture or other type of property. We must consider not only where the beneficiary lives, the laws of that state, the laws of the state where the items are located, the eligibility of the beneficiary to be in possession, but also:

(1) Is it a good idea to put a weapon in the hands of the beneficiary? Are they mature and responsible enough?

(2) If not, what will we do?

A Gun Trust is a special purpose revocable living trust. A Gun Trust is written to hold only firearms. The owner of the gun is the trustee and the beneficiary. The owner appoints successor trustees and lifetime and remainder beneficiaries. The trust can be amended or revoked at any time and the owner can name and remove beneficiaries. In the past, Gun Trusts were created primarily for NFA restricted firearms (Title II items ‐ silencers, short-barreled rifles, shotguns, and machine guns) but lately they have attracted the attention of those who own “assault weapons” .

Gun Trusts are used for two main reasons. The first is to expedite a transfer of a National Firearms Act firearm. Using a trust means you do not have to obtain the approval of your local Chief Law Enforcement Officer (CLEO) and the application can be sent directly to BATF. This saves a lot of time. Registration of a NFA firearm to an individual or corporation takes approximately one to three months to complete. The firearm cannot be handled or transported by any other private individual unless the firearm’s registered owner is present. However, NFA items owned by properly drafted trusts may be legally possessed by any Trustee and a beneficiary may use the item in the presence or under the authority of the Trustee. The second reason is to provide detailed instructions over disposition of one’s gun collection.

Many gun dealers make trust forms available. The problem is that they are usually just standard revocable living trusts, not specifically written about firearms ownership. They typically do not provide guidance or limitations for the Trustee who may find him or herself committing a felony in the way the items are used, held, transferred or sold. Some people cannot legally possess firearms. Some transfers are illegal. A properly written “Gun Trust” for NFA purposes is far more than a form. It helps the decedent’s loved ones deal with items that are problematic at best under both state law and federal law. Improper administration of regulated firearms can result in a criminal conviction and fines. Certain conduct constitutes a criminal offense, including receiving or possessing a firearm transferred to oneself in violation of the NFA; receiving or possessing a firearm made in violation of the NFA; receiving or possessing a firearm not registered to oneself in the National Firearms Registration and Transfer Record; transferring or making a firearm in violation of the NFA; or obliterating, removing, changing, or altering the serial number of the firearm. Penalties can include up to ten years in federal prison; forfeiture of all devices or firearms in violation, forfeiture of all rights to own or possess firearms in the future and a penalty of $10,000 for certain violations.
Read more related articles here:

Protecting And Passing On Your Gun Collection

What to Do When Guns Are Part of an Estate

Also, read one of our previous Blogs here:

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

HEMS Trust

What Is HEMS and What Does it Mean for Trustees?

What Is HEMS and What Does it Mean for Trustees?

 By: Law Office of Gem McDowell, P.A April 1, 2020

Purpose and Benefits of HEMS

There are a few reasons for and benefits of HEMS.

For one, adhering to the “ascertainable standard” of HEMS can be vital for protecting the trust’s assets. For example, say a wife creates a testamentary trust that names her spouse both beneficiary and trustee upon her death. The trust may limit distributions of the assets to HEMS, which is an ascertainable standard recognized by the IRS. If the husband takes distributions that fall under one of these categories, the assets of the trust are not considered to be part of his personal estate – they belong to the trust, a separate entity – and are therefore protected from certain taxes. For this same reason, a creditor coming after the husband cannot access the trust’s assets to pay the husband’s debts.

Another benefit has to do with the trustee-beneficiary relationship, when it’s not the same person in both roles. It’s common for a beneficiary to want to draw more money from the trust while the trustee’s goal is to keep the trust as intact as possible. The HEMS standard serves to restrict the trustee from making distributions that can unnecessarily diminish the trust, while providing appropriate support for the beneficiary. By including this language in the trust, a grantor can prevent the beneficiary from having unlimited access to the trust’s assets.

Or, it can work the other way. Say that same couple from above has a trust that remains in the spouse’s control as trustee and beneficiary during his lifetime, and after his death passes to the couple’s children as beneficiaries. In this case, it’s the children who are motivated to ensure the trust remains as intact as possible. It’s in their best interest to ensure their father is adhering to the HEMS standard with the distributions he takes for himself as trustee and beneficiary.

Finally, the HEMS standard provides valuable guidance to trustees, whether they are also a beneficiary or not. By understanding what’s included under the umbrella of health, education, maintenance, and support, a trustee can better determine what distributions to make from the trust’s assets.

Examples of HEMS

Health, Education, Maintenance and Support are rather broad categories, but what do they include, exactly? The exact items included can vary by state, but here are examples of HEMS that are commonly included.

Examples of Health

Some basic examples in the Health category include:

  • Routine health care
  • Hospital care
  • Emergency medical treatment
  • Psychiatric or psychological care
  • Prescription drugs
  • Dental
  • Vision

The following may also be considered included in this category:

  • Elective procedures like LASIK or cosmetic surgery
  • Alternative medicine treatments
  • Gym, sports club, or spa memberships
  • Health supplements

Examples of Education

This category commonly includes:

  • Tuition for all levels of schooling from grammar to graduate, professional, or technical school or training
  • Continuing education expenses
  • Expenses for school-related programs, such as Study Abroad in college
  • Support during schooling years, even during summers and other breaks

Examples of Maintenance and Support

“Maintenance” and “support” are one and the same. Commonly included in this category:

  • Mortgage or rent payments
  • Property taxes
  • Premiums for health, life, and property insurance
  • Travel and vacation expenses
  • Charitable giving

This category is the least clearly defined. It’s typically interpreted to include distributions that help maintain the beneficiary’s standard of living. Distributions to cover expenses that are solely for the beneficiary’s happiness rather than support do not fall under this category.

For example, say our couple from above typically takes a two-week vacation to the Rockies each year. After the wife dies and her husband controls the trust, a distribution to cover this annual vacation would fall under this category. A distribution to cover a four-month, ‘round-the-world luxury cruise would not. That’s because such a vacation would be beyond his typical standard of living.

However, depending on the trust, the trustee may have some discretion to make distributions for just such an unusual vacation or other luxury that would be outside the beneficiary’s established standard of living.

Use of HEMS

Grantors can include general language regarding HEMS or they can be more prescriptive and precise about how they’d like the trust’s assets used. For instance, a grantor may specify that trust money can be used to pay for college but not for graduate school. Or that the beneficiary must use other sources of funds, if available, to pay property taxes or rent before accessing the trust’s money. The grantor has a large degree of control when directing how the trust’s funds can be used.

Read more related articles here:

What Is the HEMS Standard in Estate Planning?

The Princess Bride’s Guide to Discretionary Distribution Powers

Also, read one of our previous Blogs here:

The Role of a Successor Trustee After the Trust Creator Dies

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Trustee compensation

How Much Should A Trustee Be Compensated?

How much should a trustee be compensated?

Elissa Suh

How much should a trustee be compensated? Trustee fees vary based on who the trustee is and the complexity of administering the trust. Trustees are an integral part of estate planning — they have a fiduciary duty to distribute assets to the rightful beneficiaries of the trust and also manage the trust’s day to day activities more generally. A trustee’s duties can include filing the trust’s tax return and managing its assets in the least, and for more complex trusts a trustee may even be tasked with making investments or selling real estate. Serving as trustee is a time commitment and carries a lot of responsibility, so it makes sense that a trustee gets paid for their work  — similar to how the executor receives compensation handling the deceased’s estate. (Read about the difference between executor and trustee.) Trustee fees can be calculated a few different ways, depending largely on who the trustee is — friend or family, a lawyer, or even a corporation — and what they do as part of managing the trust.

Key Takeaways

  • A trustee is paid for their services and reimbursed for any out-of-pocket expenses related to trust management

  • Trustee fees may be a fixed amount, an hourly rate, or a percentage of the trust assets

  • The court can help determine trustee fees, including what counts as “reasonable compensation,” if the grantor didn’t specify in the trust agreement

  • A trustee who fails to perform fiduciary duties may not receive their fees

How much are trustee fees?

Trustee compensation is usually determined by the trustee’s level of experience and the size and complexity of the trust.

Trustee fees Type of trustee
Percentage of trust assets Corporate – trust company
Hourly rate Professional – lawyer
Fixed amount Private – friend or family

With a high-value trust or a complex trust with a variety of assets, the grantor may appoint an institution or company to manage it. These corporate trustees can charge an annual fee of 0.5% to 2% of the trust’s assets, in addition to requiring a minimum. For example, if the trust is worth $2 million, the trustee would receive $20,000 compensation that year.

Fees for managing smaller trusts aren’t calculated by percentage because it could eat up a lot of the trust funds. For example, a 1% fee for a trust that holds $100,000 would be $1,000 annually, and if the trust isn’t producing income then paying the trustee that much a year could make operating the trust unfeasible.

For a smaller trust, you can hire a professional like a lawyer who may charge an hourly rate. Many people opt for a non-professional trustee (like an adult child who isn’t an attorney) if they have a simple trust only meant to pass along an inheritance. Since they may not have many duties beyond distributing assets to beneficiaries, a non-professional trustee may receive a smaller fixed fee, but it is ultimately up to the discretion of the grantor.

What are the trustee’s expenses?

Before the trustee is officially recognized as such and has access to the trust funds, the trustee may end up covering some of the trust’s expenses — like property management fees or insurance with their own money. The trustee will be reimbursed for these out-of-pocket expenses, which can also extend to other costs related to managing the trust, like travel expenses or office supplies.

When and how is the trustee paid?

The trustee receives compensation from the trust assets, and not the grantor directly. Trustees might be paid on an annual, biannual, or even quarterly basis, and it could depend on the accounting schedule. It’s part of the trustee’s job to keep a log of their hours managing the trust and a thorough accounting of the trust’s activities.

Learn more about when the trustee can withdraw money from the trust.

When the court determines trustee fees

The trustor, or person who creates the trust, should specify the fees in the terms of trust agreement. However, it’s possible that the trustor forgets to designate the fee, or they indicate that the trustee should receive “reasonable compensation.” In this case, the court can step in to determine the trustee fees, including what’s considered reasonable, which may be based on the following:

  • The gross value of trust’s assets

  • Transactions associated with moving funds in and out of the trust

  • How much time was devoted to performing trust duties

  • Whether the trustee met the goals of the trust (like distributing assets or growing investments as specified by the trust document)

  • State and local law

 Here are a few other instances when the court can get involved:

There is a dispute

Beneficiaries can petition the court if they are dissatisfied with the trustee’s job and believe that the trustee has failed to follow its terms. The court may reassess and reduce the trustee’s compensation, and if the trustee misused or even stole the funds the beneficiary has the right to sue for losses.

Learn more about the rights of a trust beneficiary.

The trustee does extra work

Trustees can petition the court if they feel that they have performed difficult work beyond routine management or what’s laid out in the trust. They may be able to receive greater compensation (“extraordinary fees”) for handling “extraordinary work,” which includes handling litigation or business transactions, and they must provide records for the court.

Trustee compensation and taxes

If you’re a trustee, you will have to pay income tax on any fees you are paid for your services. Trustees that are beneficiaries can choose to waive their compensation. A parent may open a revocable living trust to pass along an inheritance to their child and name the child as the successor trustee to take over managing the trust when they die. Receiving assets as an inheritance may not require any taxes to be paid, depending on the structure of the trust.

Read more related articles here:

 Trustee Compensation

The 2021 Florida Statutes-Trustee Compensation

Also, read one of our previous Blogs at:

Successor Trustee: Duties, Powers and More

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.


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