Friday, April 30, 2010

Adult Children Are Uncomfortable Discussing Estate Planning With Their Parents

A recent study conducted by The Hartford Insurance Company indicates that Seniors are more comfortable discussing estate planning matters with their adult children than vice-versa. This study is consistent with my observations of elderly clients and their families. The adult children are often reluctant to address planning inheritance issues, perhaps out of a concern about appearing "greedy." But an open and constructive conversation between elderly parents and their adult children will typically result in better planning -- and reduce the likelihood of disputes once the parents have "left the scene."

Tuesday, April 27, 2010

Presumptive Organ Donation in New York?

As reported in today's Times Herald-Record, proposed New York State legislation would automatically enroll people as organ donors when they apply for driver's licenses unless they specifically "opt out" on the application form. Presently, a person must specifically "opt in" to include the organ donation preference when applying for a driver's license.

I'm certainly in favor of increasing the pool of organ donors; however, I expect that this proposal will face opposition from those who contend that organ donation is too significant a decision to be left to an automatic "opt in" on a driver's license application. It will be interesting to see whether this proposal is in fact adopted.

Sunday, April 25, 2010

Avoiding Chaos When the "Glue" is Gone

All too often people have a "blind spot" when it comes to assessing the relationships among their children and other close family members. When I meet with clients to discuss their estate planning goals and objectives, in many instances they take the "just leave all the property equally to the kids and everything will work out" approach.

But as pointed out here, the children may only "play nice" as long as at least one of the parents is living. Once the parents have died, the family "glue" breaks down, and in all too many cases the knives may come out.

While the kids may surely fight about the money and other financial assets, as the linked article points out, it is with the personal property that a lot of the serious warfare occurs. After all, a bank account can be divided; the grandfather clock cannot.

In creating an estate plan, it is essential that serious discussion take place between you and your attorney regarding the disposition of personal effects. The wisest course of action is to specifically designate in a will, trust, or personal property memorandum which items of the significant tangible personal property -- both in a monetary and sentimental sense -- goes to which beneficiary.

Saturday, April 17, 2010

Costs for Reverse Mortgages Reduced

The New York Times reports that some of the biggest players in the reverse mortgage field have reduced costs by eliminating originations fees. While the fee reduction makes reverse mortgages more appealing, if you are looking into a reverse mortgage, be sure to understand both the advantages and disadvantages of these financial products.

Friday, April 16, 2010

Hospital Visitation Rights for Same-Sex Couples

As reported in today's Washington Post, President Obama has directed the Department of Health and Human Services to require any hospital that receives Medicare and Medicaid funding (which is virtually every hospital in the country) to permit same-sex couple to have visitation rights equal to related family members.

Gay rights activists have long complained that many hospitals allow only related family members to visit with hospital patients. Conservatives contend that this action is merely a sop to a powerful special interest.

Notwithstanding this important policy directive, same-sex couples should be sure to execute Health Care Proxies that provide each partner with legal authority to make health care decisions if the other partner is no longer able to make such decisions for him or herself.

Thursday, April 15, 2010

Planning for Children with Special Needs

I frequently meet with couples that have a child with "special needs," such as Down's Syndrome, autism, OCD, and other common condition. The parents have often been advised by friends - or even professional advisers -- to disinherit the special needs child on the theory that the child would lose their governmental benefits (e.g. SSI, Medicaid) if they were inherit a share of their parents' estate. Instead, the parents plan to leave all the assets to the other children, with the expectation (or at least hope) that the siblings will take care of their special needs brother or sister.

But such a strategy leaves too much to chance. Perhaps the other siblings suffer from a financial hardship and lose the inheritance to their creditors. Or, they might get divorced and forfeit some of the inherited assets in a matrimonial proceeding. Maybe they just decide they'd rather keep the money for themselves instead of using it to help out their sibling.

Even if the other children are committed to assisting their special needs sibling, there are both income tax and gift tax consequences if the "well" children use their inherited funds to help out their brother or sister.

The better option -- by far -- is for the parents' estate plan to include a specific share or amount of assets to be used to fund a "Supplemental Needs Trust" established under Federal and State law. Such Supplemental Needs Trusts -- which are governed in New York under Section 7-1.12 of the Estate, Powers and Trusts Law -- allow for the trust assets to be used by the Trustee for the "special needs" of the disabled child to supplement, but not supplant, available governmental programs and assistance. The trust assets can greatly enhance the special needs child's quality of life by providing a source of funds that can be used for many purposes including but not limited to vacations, electronics, and entertainment. Upon the death of the special needs child, the assets can pass to the parents' other children or descendants, or as otherwise specified in the parents' wills or trusts in which the special needs trust is created.

In some cases the parents do not have much in the way of liquid assets to fund the special needs trust, and they are concerned that the special needs child will not be adequately provided for after the parents' deaths. One possible solution to this problem is for the parents to purchase a "second-to-die" life insurance policy that will be used to fund the supplemental needs trust after both parents' deaths. Because these policies only pay-out after both parents have died, they are considerably less expensive than policies insuring one life only. With life insurance in place to provide liquid resources for the special needs child, many parents are then comfortable leaving the bulk of their remaining assets to the other children.

Friday, April 9, 2010

Key Issues To Consider When Purchasing a Business

Even in a troubled economy, there will always be those risk takers having the passion and conviction to own and operate their own business. Some will start a business from scratch; others will prefer purchasing an established business.
If you are considering purchasing an existing business, it is critical that you conduct a “due diligence review” to ensure that you have all the relevant information needed to evaluate the associated risks and likely rewards. The due diligence review will encompass such issues as:

-- A market analysis of the ongoing demand for the business’s products or service
-- An evaluation of the capabilities of the existing employees, and whether additional employees will be required
-- A review of the suitability of existing equipment and facilities
-- A detailed review of the company’s books (to be performed by an experienced
-- A legal review that will include items such as (i) analysis of the company’s organization documents such as bylaws, operating agreements, shareholder agreements, stock records and partnership agreements; (ii) review of the company’s contracts and leases with third parties; (iii) a search of county and state records for liens, judgments and other public records affecting the company and its current owners; (iv) a review of any trademarks or copyrights being transferred; (v) analysis of any employment contracts and union agreements; and (vi) a review of the company’s retirement plans to ensure adequate funding and record management

In conducting the due diligence review, the seller, purchaser, and their respective representatives should sign a confidentiality and non-disclosure agreement protecting confidential information associated with the transaction.

A significant issue is whether the sale will be structured as an “asset sale,” or rather as the sale of the company stock or limited liability company membership interests, as applicable. In most cases the purchaser will prefer to acquire the company’s assets rather than the seller’s stock or other ownership interest. If you purchase the seller’s stock, then you will be acquiring not only the company’s underlying assets, but also the company’s liabilities. With a stock sale, the purchaser will also forfeit potentially favorable tax advantages achieved through allocation of the purchase price among various asset types.

Either during or at the conclusion of the due diligence period, the parties will need to formalize their agreement in a contract of sale. The contract will incorporate a number of standard provisions, including:

-- the purchase price and the amount of the down payment
-- whether the purchaser will be purchasing only business assets, or the seller’s stock or LLC membership interests
-- the amount to be financed, including the terms of any seller financing and collateral to be used as security
-- the allocation of purchase price among the various asset classes (i.e., real estate, machinery, goodwill, leasehold, covenant not to compete, inventory, etc.)
-- the extent to which the purchaser will assume the seller’s liabilities
-- representations and warranties for both seller and purchaser
--the closing date
-- a list of assets to be conveyed
-- a statement of any existing or pending litigation for either party
-- any conditions to closing, such as governmental or bank approvals
-- the seller’s agreement to indemnify the purchaser against any unassumed liabilities

After the contract is signed, the purchaser will need to complete any remaining due diligence items. If the purchaser is acquiring real estate as part of the deal, he will need to have a title search performed to ensure he is acquiring clear title. If bank financing is being used to finance part of the purchase price, the bank will go through its own due diligence procedure. Once all pre-closing items are completed, the closing will take place. If the full purchase price is being paid at closing – either from the buyer’s own funds (rarely) or through commercial financing -- the seller will walk away with the full sale proceeds at closing. More commonly, the seller will be taking back a note for a portion of the sale price.

At closing, the seller’s attorney will prepare various documents that may include (1) bills of sale, (2) deeds (if real estate is part of the purchase), (3) assignments of equipment leases, (4) one or more promissory notes, (5) mortgages and security agreements, (6) employment agreements, (7) resolutions authorizing the sale of assets by the corporation or LLC, (8) equipment lists, (9) covenants not to compete, (10), assignments of phone numbers, websites, copyrights, trademarks and other intellectual property, (11) resignations of officers, (12) sales tax returns, (13) escrow agreements, (14) personal guarantees and (15) motor vehicle registrations.

If the seller is providing financing, after the closing the security agreement and UCC financing statements will be filed with the appropriate governing bodies to properly secure seller’s interest in the business assets and any other collateral used to secure the purchaser’s obligation to pay on the promissory note. These filings will ensure that the seller has “first position” to reclaim any of the collateral in the event that the purchaser shall default in any payments under the promissory note(s).

Purchasing a business is a significant life event. It is essential that a prospective business purchaser retain an experienced attorney and accountant to ensure that the purchaser’s interests are fully protected during each phase of the transaction.

Use Caution When Helping Your Kids Get Out of Debt

The “Great Recession” of 2009-2010 has caused financial distress for many families. Many people have fallen hopelessly behind on their mortgages and other personal debt, including credit card and automobile payments.

Many seniors are now faced with the dilemma of whether, and to what extent, they should “bail out” their children or grandchildren. There is no “right” answer to this question. Each parent or grandparent has to look at the totality of the circumstances before deciding how to proceed. In my experience, those seniors who are able and willing to help their children and grandchildren climb out of debt tend to pay off their loved-ones’ obligations without taking appropriate steps to ensure that the situation will not repeat itself. The unfortunate result is that before long the child or grandchild finds themselves in a similar situation and comes looking for another “helping hand.”

Am I suggesting that you simply leave your beloved offspring at the mercy of their creditors? Not at all; it is natural to want to help your loved-ones get out of a financial crisis. I do recommend, however, that financial assistance come with “strings attached.” In the long run, conditioning financial aid on certain behavioral changes will help prevent your child or grandchild from falling into the same financial trap.

First, I would recommend that if the debt is of a substantial amount (say, in excess of $10,000), most if not all of the aid should be made as a loan rather than a gift. The loan should be memorialized by a well-drafted promissory note, with terms to include a regular payment schedule (typically monthly or quarterly), plus a reasonable rate of interest (anywhere from 3% to 7% would be reasonable in today’s economic climate). While in most cases the senior making the loan will not be interested in requiring that the child or grandchild provide collateral security for the loan (i.e., securing the loan by placing a mortgage on the borrower’s home), that option should be considered.

If you are paying off a mortgage, automobile loan, credit card or other debt, you should make the check payable directly to the third party creditor to ensure that the funds are in fact used to reduce or eliminate the child or grandchild’s financial obligation.

The lending parent or grandparent should also consider requiring the borrower to cancel all of their credit cards, with the possible exception of one card with a very low credit limit. Until the borrower demonstrates that their spending is under control, they should rely primarily on cash or a debit card. The child or grandchild should also provide the lending parent or grandparent with a current copy of the borrower’s credit report so that the lender can verify the nature and extent of the borrower’s debt.

One final recommendation: any assistance plan should incorporate financial planning and management assistance for the younger family member. Many young adults have never mastered proper budgeting or financial planning skills. In New York State, a reliable source for financial education can be found at Cornell Cooperative Extension. Among its many services, Cooperative Extension offers training in personal financial management and debtor education. To learn about the offerings at your local office of Cooperative Extension, visit The Cooperative Extension website provides general information and links to the various Extension offices throughout New York State. The Orange County Extension office, for example, offers a three hour personal financial management and debtor education course. Another excellent resource is America Saves (, a national coalition of over 1,000 non-profit, government and corporate groups.