Joint Property Ownership Pitfalls and Solutions

joint property ownershipOur law firm has worked on a couple of cases lately involving joint property ownership; that is, property owned by a group of several individuals. Owning a piece of land or real estate with a group of individuals or family members can lead to many problems, a few of which we will discuss here.

What Happens to Real Estate When a Person Dies?

In Tennessee, real property typically passes outside of Probate in accordance with the publicly recorded property documents in the County where the property is located.  A person can also plan for the disposition of real property in a Will or Trust.  If you die owning real property in your sole name, though, it can cause significant problems for your Beneficiaries that can be avoided by proper planning.

In both cases I mentioned above, the group of individuals came into joint property ownership because of intestate succession (i.e., dying without a Will).  You may think that you do not need a Will because your property will pass to your heirs regardless.  However, there are many problems and burdens that your heirs will face if property passes to them through intestate succession.  Here’s what can happen if a landowner dies without a Will:

  • Land may pass to heirs who do not wish to be landowners.
  • Land may pass to heirs who do not know that they are now landowners (i.e. lost heirs).
  • Land may pass to heirs who are not prepared for the responsibility of owning real estate (i.e. paying real estate taxes, maintaining insurance, upkeep of the property)
  • If there is a mortgage, payments may be required very soon after the death of the original owner and before any inherited owner has a chance to determine how to address the new ownership – i.e. sell the property, allow it to be foreclosed upon, etc.
  • The title to the property will be unclear and extra effort will be required to determine all legal owners in a joint property ownership situation. It can be very difficult to locate heirs and to determine with certainty who all owns a piece of property, especially if some of the original heirs have died, or if the family isn’t in close contact or is spread across the country. A title search may be required, and title searches can be expensive.

Increased Costs for Inherited Owners

When a piece of property passes through intestate succession, when ownership is unclear, or when a piece of property is owned by a large group of individuals, there will be extra expense involved when the property is sold. As a general matter, the entire sales process will take longer than usual. Each separate legal owner must be found and consulted with.  Then, each owner must agree to all parts of the sale process (i.e. negotiating the price, negotiating and completing repairs, and signing all required paperwork).  It can be very difficult getting a group of family members or individuals to all cooperate and agree during the course of a real estate transaction.

Inherited owners who want to sell property can expect to have to do some additional work with the buyer’s title company such as filing probate documents, getting releases from TennCare, and dealing with potential creditors of the deceased person.  A title company may require proceeds to be escrowed for up to a year after the deceased person’s death.

Legal Issues of One Owner Can Affect Other Owners

Inherited and multiple owners can also come with their own personal problems.  A judgment lien or a bankruptcy filing of one inherited owner will immediately attach to the inherited property, which could cause delays and problems for any co-owners wishing to sell the property.

Ways to Avoid Common Problems of Joint Property Ownership

If you must own property with a group of individuals or family members, or if you desire to pass property to a group of people, there are ways you can accomplish joint property ownership which lessen the burden and expense involved. Speak with an Estate Planning Attorney or Property Lawyer about the best way to achieve your personal goals. For example, more effective “joint ownership” can be achieved in the following ways:

  1. Own as Joint Tenants with Rights of Survivorship. This type of ownership is common with married couples, but it can also be used with any individuals wishing to create this type of joint tenancy.  Upon the death of one joint tenant, the remaining tenant owns the property outright.  This results in protection from a debtor-tenant’s creditors because liens can only attach to the right of the debtor-tenant, which is nothing more than a “potential survivorship right.”  This protection ends if the non-debtor tenant dies and the debtor- tenant then owns the property outright.  One negative of this type of ownership is that the property will only pass to the other joint tenant, so the Estate of the first to die loses any equity to pass on to other individuals.  In addition, potential gift tax issues may arise since the Grantor is “gifting” rights to the property to the person they are creating a joint tenancy with.
  2. Own the Property in a Limited Liability Corporation.  Ask a business organization attorney about property ownership through an LLC. The rights of the members will depend on the structure of the LLC. Creating an LLC requires maintenance of paperwork to the State to keep the LLC active which will be required if the LLC wants to sell the property.
  3. Put the Property Into a Living Trust.  This is achieved by conveying the property to a Trustee on behalf of a Trust. (A Trust itself can’t own property; rather it must be an individual Trustee on behalf of the Trust.)  The property will then be maintained and distributed in accordance with the Trust Agreement.  A Living Trust allows the Grantor to make changes during his or her lifetime (therefore keeping control and autonomy) but also allows for the streamlining of management and an easy transition of the property upon the death of the original Grantor.  The successor Trustee can sell or manage the property outside of Probate, and depending on the Trust terms, without the input of or disruption to the Beneficiaries.

Beneficiary Deeds

Tennessee does not offer this, but some states allow the use of a Beneficiary Deed to clarify how a property is to pass upon the owner’s death. Essentially, a Beneficiary Deed lets a person name a beneficiary and only takes effect upon the death of the owner. Ask your Estate Planning Attorney about the availability of Beneficiary Deeds if you own property in multiple states.

Right to Partition

If you are tied up in joint property ownership, or if you own a piece of property with a group of individuals or family members and you want to end the relationship and go your separate way, you can. In Tennessee, you have the legal right to what is called “partition.” Speak with a civil litigation attorney about filing a partition lawsuit. In this kind of lawsuit, you ask the judge to partition the property, either “in kind” or “by sale.” To learn more about this kind of lawsuit, read our previous Blog Post about Partition Lawsuits.

Need Help with a Property Ownership Issue?

Have questions about joint property ownership or other real estate issues? Please call us at 901-372-5003 or send Wiseman Bray PLLC an email.

Wiseman Bray PLLC

8001 Centerview Parkway, Suite 103

Memphis, Tennessee 38018

(901) 372-5003 Office

www.WisemanBray.com

 

**Blog Post by:  Erin Shea and Carlisle Dale

erin shea, injury lawyer at wiseman bray memphis  carlisle dale, memphis asset protection

 

 

 

 

**Special thanks to Real Estate Closing Attorney Jennifer Sisson of Sisson and Sisson Law Firm for contributing her wisdom and insight to this Blog Post.

Wyoming Close LLCs Protect Assets

Wyoming Close LLC Asset Protection Memphis TNA popular asset protection tool we use at Wiseman Bray PLLC is the Wyoming Close Limited Liability Company.  One or more people can establish and own this type of entity and may also manage the LLC.   

Anyone can establish a Wyoming Close LLC, even if you do not live in Wyoming or conduct your business there.

Protection from Lawsuits

Under current law, assets inside a Wyoming Close LLC are protected from “outside” lawsuits and creditors, such as those resulting from a car accident or malpractice action.  In a few states, like Wyoming, the sole remedy for a creditor of an LLC member against that member’s LLC interest is a “charging order.”  A charging order only allows the creditor access to the debtor’s LLC interest to the extent distributions are made to the member.

Estate and Gift Tax Benefits

Under current law, the value of a membership interest in a Wyoming Close LLC may be subject to valuation discounts for estate and gift tax purposes. We anticipate in the future that the IRS will institute regulations limiting tax benefits.

Separation of  “Hot” and “Cool” Assets 

A “hot” asset is something like a rental property.  A “cool” asset is something like a brokerage account. Separate LLCs should be formed to keep “hot” and “cool” assets separate.  “Cool” assets should be isolated from “hot” assets because any “inside” lawsuits, such as those resulting from accidents occurring on property inside the LLC, will subject “cool” assets to claims of creditors of the “hot” assets.

Is a Wyoming Close LLC right for you?

If you have questions about whether a Wyoming Close LLC might be right for you, or if you’re curious about other forms of asset protection and business organizations, please call us at 901-372-5003 or email us here. We will examine your personal situation and work to develop the asset protection strategy that is right for you.

Larry Bray

Larry Bray

Lindsay Jones

Lindsay Jones

Carlisle Dale

Carlisle Dale

Basic Asset Protection in Tennessee

asset protection lawyer, asset protection attorney, memphis How do you achieve asset protection? How do you best limit your liability and protect the assets and investments you have spent so much of your life building up?  While you cannot completely eliminate exposure to potential liability, you can achieve asset protection through the use of simple techniques, like buying the right kind of insurance, or through the use of more sophisticated tools like asset protection trusts.

General Layers of Asset Protection Planning

  1. Purchase Protective Insurance.  Examples: long-term care insurance, professional liability insurance, and umbrella personal liability coverage. Insurance is the simplest and most affordable way to protect your assets.  When our clients ask us if we think they have enough insurance, we always tell them that you can never be over insured.
  2. Utilize Statutory Law Protections.  Examples: ownership of real estate as tenants by the entireties, homestead exemptions, retirement plans, and life insurance or annuities.  Real property owned by a husband and wife as tenants by the entirety is exempt from the separate creditors of each spouse.  Additionally, other statutory protections provide that specific assets may be protected from creditors in certain circumstances.  For example, in Tennessee, life insurance passing to a surviving spouse or child passes free of the claims of a decedent’s creditors.  You should consult an attorney to find out which of your assets may be statutorily protected.
  3. Domestic Asset Protection Trusts.  Tennessee is only one of a handful of states that has a specific statute allowing an individual to create a self-settled asset protection trust.  This means that a person can create the trust, have control over certain aspects of the trust, and also be a beneficiary of a trust.  The rules governing these types of trusts are very specific.  These types of trusts are also available in Mississippi, Delaware, Alaska, and Nevada. If you are interested in learning more, click here.
  4. Domestic Entity Planning.  Example: Wyoming Close LLC.  An LLC, unlike a corporation, allows the members of the entity to separate their personal liability from their liability as members of the company.  The most enticing feature of an LLC is the fact that a creditor of the LLC cannot attach the personal assets of the LLC’s members.  We prefer using a Wyoming LLC because the laws in Wyoming are among the most favorable in terms of the protection an LLC provides.

Need an Asset Protection Attorney to Help Protect Your Assets?

We are experienced asset protection attorneys with offices in Memphis and Nashville. We can help develop a plan to best suit your individual needs. Call us today at 901-372-5003 or email us here. 

 carlisle dale, memphis asset protection

By:      Carlisle Dale

Wiseman Bray PLLC

8001 Centerview Parkway, Suite 103

Memphis, Tennessee 38018

(901) 372-5003 Office

(901) 383-6599 Fax

www.WisemanBray.com

 

 

Using The Tennessee Investment Services Trust Act To Create A Self-Settled Asset Protection Trust

The “Tennessee Investment Services Act of 2007,” (the “Act”) allows a person to create a self-settled asset protection trust. Tennessee is still one of only a handful of states to enact legislation permitting the creation of a self-settled, or self-created, asset protection trust.

Before the Act was passed in Tennessee, an individual could not protect his or her wealth from creditors and lawsuits while also retaining some control of his or her assets.   The Act allows an individual to create his or her own trust and maintain a certain level of control over the trust, while also protecting his or her assets from creditors and lawsuits.

One of the biggest perks of the Act is the trustmaker’s ability to retain a certain level of control over the trust. The trustmaker may retain the following rights, which include, but are not limited to, the rights to:

  • direct the investment of the assets;
  • receive distributions of principal at the discretion of the trustee;
  • live in a home owned by the trust;
  • veto distributions to any other permissible beneficiaries;
  • direct the distribution of the trust assets upon death to any one or more persons;
  • remove the trustee and other trust advisors and appoint their successors under certain provisions

 

In order to meet the statutory requirements, the trust must be carefully drafted and administered. For example, the trust must be irrevocable, meaning that the terms of the trust cannot be modified. Additionally, Tennessee law must govern the trust, and at least a portion of the assets of the trust must be administered in Tennessee. The person creating the trust cannot serve as Trustee, and the trustee of the trust must either be a resident of Tennessee or a corporate fiduciary authorized to conduct business in Tennessee. The trustmaker must also sign an affidavit that states, among other things, that the transferor of the assets to the trust is solvent and does not intend to defraud his or her creditors.

The Act implements a two year “look back” rule. This means that, after two years have passed since the assets were transferred to the trust, the trustmaker’s creditors cannot seize the assets of the trust to satisfy claims against the trustmaker.

It is important to note that the Act does NOT apply to certain creditors, claims or judgments, including those for past due child support, past due alimony or support of a spouse of former spouse or agreements setting forth division of marital property.

In summary, the Tennessee Investment Services Act of 2007 provides an asset protection opportunity for individuals who are concerned about the loss of their assets due to unforeseen creditors. The trust presents a unique solution to those who wish to protect their assets during their lifetime while still retaining the ability to manage those assets and benefit from them.

Legal Problem Solving: Does Your Lawyer Merely Work the Problem? Or Solve the Problem?

legal problem solvingLet’s discuss legal problem solving. Does your lawyer merely work the problem, or solve the problem? There’s a difference, you know.

  • A cookie-cutter response vs. a creative solution
  • Reaction vs. a plan of action
  • “Winning” the lawsuit vs. avoiding the lawsuit
  • Churning legal fees vs. finding a cost-effective solution up front

I saw a blog post once detailing a masterful stroke of legal genius by the lawyers for Jack Daniels, and wanted to share it. It’s a prime example of the type of culture and approach we cultivate at Wiseman Bray PLLC– solving the problem vs. merely working the problem.

Legal Problem Solving at Wiseman Bray PLLC

Our clients don’t just want legal answers.  They want solutions.  So at every stage our goal is to focus on the following question to the client:

“What do you ultimately want to accomplish?”

Sometimes that means we have to act not just as legal advisors, but also legal counselors – asking questions, raising issues the client may not have considered, and then sometimes even gently prodding and steering clients to think beyond their immediate short-term emotions and goals.

In virtually every case, our clients appreciate our focus on long-term solutions.  That might mean, for example, our client accepting a short-term loss in exchange for saving a relationship with a customer and securing new business, renegotiating as opposed to litigating a contract, and realizing that the cost of vindication might sometimes outweigh the perceived benefits. Many clients have even remarked how unusual it is that a lawyer would suggest an option that they weren’t even aware of, and that would generate less in billed fees for the lawyer.

But, then again, that’s how we internally answer the very same question we put to our clients:

“What do WE ultimately want to accomplish?”

We want to uniquely serve the best interests of our clients so that they ultimately come back.  And refer their peers, colleagues, friends, and family.

And they do.  And we’re confident you will, too.

 

WISEMAN BRAY PLLC

8001 Centerview Parkway, Suite 103

Memphis, Tennessee 38018

(901) 372-5003 Office

(901) 383-6599 Fax

www.WisemanBray.com

 

Who are my Beneficiaries? A critical question in planning for the future.

beneficiary designations estate planning lawyerDo you know who your beneficiaries are? When we ask clients this question, their first response is often quick and affirmative. However, we frequently discover through the estate planning process that the beneficiaries listed on our clients’ life insurance policies and retirement accounts are not who they think they are, nor are they the intended recipients of the property.

How does Property Pass to Beneficiaries?

One of the most common misconceptions we see is how property passes at someone’s death.  Accounts that have beneficiary designations  pass to the beneficiary or beneficiaries named on the beneficiary designation form for that account regardless of what your will or trust says.  So, for example, if my Will says that everything passes to my spouse at my death, but my beneficiary form on my life insurance names my children as beneficiaries, my life insurance proceeds  pass to my children and not to my spouse. Here are some examples of accounts that typically designate beneficiaries:

  • life insurance
  • retirement accounts
  • transfer on death accounts (TOD)
  • payable on death accounts (POD)

Periodically Review Your Beneficiary Designations

The  Supreme Court case of Kennedy v. Plan Administrator of DuPont highlights the unintended results that may occur if your beneficiary designations are not reviewed periodically.  In this case, William Kennedy named his wife, Liv, as the sole beneficiary of his pension and retirement savings plans at DuPont.  When the couple later divorced, the Qualified Domestic Relations Order (QDRO) provided that Liv gave up her rights to receive any benefits from William’s pension and retirement plan.  Unfortunately, however, the court order was never submitted to DuPont and the beneficiary was never changed.  When William later died, DuPont paid out the plan benefits to his ex-wife, Liv.  Their daughter, Keri, was appointed as Executor of William’s Estate and filed suit claiming that the Estate should receive his retirement benefits because the QDRO clearly provided that Liv had waived any interest she might have in those benefits.  The Supreme Court upheld the ruling of the Circuit Court in saying that DuPont properly paid the benefits to Liv and that Liv was entitled to the pension and retirement funds even though the parties were not married at the time of William’s death and the QDRO clearly provided otherwise.

Moral of the Story

The moral to the story is that the beneficiary designation governs. Thus, it is very important that you know who is named on your various beneficiary forms so that your property goes to the beneficiary or beneficiaries that you intend for it to go to.  It is clear that William did not intend for his benefits to go to his ex-wife instead of his daughter, but the Supreme Court held that the beneficiary designation governed and that DuPont properly paid the benefits to Liv.

Tips for Beneficiary Designation Forms

Here are some tips and common problems to watch out for with your beneficiary designation forms:

1. Do you know where the form is? Generally, employers maintain records of the form, but if they cannot find their form when the time comes, the burden may be on you to produce a copy of the form.

2. Is the form up to date? Changes in your life may require you to review the forms periodically. If you have had a recent marriage, divorce, birth or death in your family, it is important to review your beneficiary designations. And remember, your Will does not change who the beneficiary is on an account or insurance policy.

3. Do you have a contingent beneficiary named? If the beneficiary you have named dies before you or is involved in a common accident with you, you may not know who the benefits will go to if you do not name a contingent or secondary beneficiary.

4. Have you named a minor as a beneficiary? Minors cannot legally hold title to property, including these benefits. If you have named a minor, a guardianship may have to be established and administered through the Probate Court concerning applicable funds.

Want to talk it over with an Estate Planning and Probate Lawyer?

If you have questions regarding your beneficiary designations and how they factor into your Estate Plan, please call us at 901-372-5003 or email us here. We’re ready to help you plan for the future.

To read about other Estate Planning topics on our Blog, click here.

To meet the lawyers and staff at Wiseman Bray PLLC, click here.

 

Blog Post By:  Larry Bray

Estate Planning Lawyer in Memphis

Leaving a Legacy Greater Than Wealth: More than an Estate Plan

estate plan lawyer An estate plan isn’t all you need. While providing our children with a better life than we had may be a noble goal, the goal is often lost in translation because of the means we choose. As the saying in America goes, it is “shirt sleeves to shirt sleeves in three generations.”  In fact, studies show  that 60% of transferred or inherited wealth is lost by the end of the second generation, and 90% of family wealth is lost by the third generation.

Is money really the root of all evil?  Is giving our children a life of affluence replacing more traditional values such that our descendants cannot manage wealth?

Approaching an estate plan from strictly a tax, asset protection, or other objective standpoint may indeed add to the problem.  These issues certainly need to be addressed as part of any comprehensive estate plan, but perhaps the seeds of a legacy are planted during lifetime instead of at death and have little to do with a dollar figure.

Leaving a legacy may involve telling our children and grandchildren how the wealth was accumulated, the work ethic that helped us achieve what we have achieved, and the hard times we went through to get there.  It may involve teaching our children, even adult children, how to manage money, invest wisely, plan well, and save for retirement.  In that case, even if the money is gone or depleted, we have left a legacy far greater for our descendants because we have truly given them the tools to accumulate and maintain their own wealth.  Indeed, isn’t this giving them the better life we had envisioned for them?

We Can Design an Estate Plan Especially for You.

One of our primary goals in working with clients and prospective clients is helping them design an estate plan that fits in with their overall goals and values, rather than fitting their goals into a “cookie-cutter” estate plan. If we can help you, please call (901) 372-5003 or email us here.  Your initial consultation with us is always free of charge.