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Round Rock, TX Attorney Blog

Monday, July 25, 2016

The Rule against Perpetuities

The law allows a person preparing a will to have almost complete control over his or her assets after the testator passes on, but there are limits to such power. A person can restrict a property from being sold, or make sure that it is used for a specific purpose. A property can be bequeathed to a family member as long on condition that the person maintains the family business in a specific city, or exercises daily, or places flowers on the deceased's grave every week, or engages in any other behavior the testator desires. This freedom, however, is not without limits. The time limit on this ability is called the rule against perpetuities. The rule is also referred to as the “dead man’s hand” statute.

The rule against perpetuities is complex and rarely utilized. At the time of the passing of the testator, the heirs of the estate are locked in. These heirs are referred to as “lives in being.” For the purposes of this rule, if a child is conceived but not yet born at the time of the testator’s death, it will be considered a life in being. Once the last living heir named in the will passes away, the restrictions on the property will continue in place as the testator desired for 21 years. The idea is that a testator may control his assets for a full generation after his or her death. The rule is notoriously difficult to apply properly. When it does apply, the conditions on the bequest are abandoned and the gift returns to the residual estate.

What makes this rule so confusing is that, when an individual writes a will, he or she may make gifts to potential children or grandchildren. These children and grandchildren, however, may not be born until years later. If a child has been born at the time the decedent passes away, he or she is subject to the restrictions on the bequest during his or her lifetime. If a grandchild is conceived and born after the decedent’s death, however, the child may avoid the restrictions 21 years after the death of the last heir alive at the time of the decedent’s death. There is no way to predict when this might occur. The rule is archaic and easily avoided. A knowledgeable attorney can help a person planning his or her estate set up an equitable trust. Similar to a will, a trust may impose conditions on the use of assets, but is not subject to the rule against perpetuities. There are other advantages to a trust, but one of the most important is avoiding this unpredictable and confusing rule.


Thursday, July 21, 2016

How To Increase Your Chances for Start-up Success


What do successful small business startups have in common?

As most of us are aware, starting a new business is risky. The U.S. Small Business Administration reports that about half of all startups survive the first 5 years and only about one-third survive for 10 years. Having a


Read more . . .


Thursday, July 21, 2016

Muhammed Ali’s Estate: The Final Fight?


Can my will withstand a contest?

He could float like a butterfly and sting like a bee, but the outcome of what may be Muhammed Ali’s final fight may come down to whether he dotted all of his “I”s and crossed all of his “T”s. Or at least whether his attorneys did.

Celebrities like legendary former heavyweight champion Ali and rock royalty like the late Prince, are as fascinating in death as they are in life. With multimillion dollar estates on the line, the administration or probate of celebrity estates can turn into long, ugly, heated contests to rival the most famous battles in the ring, especially if they died without a will or trust—or if their estate planning documents were not handled properly.

Unlike Prince, who apparently died without leaving a will or trust, and without any surviving spouse or known children, Ali left a surviving spouse (his fourth wife, actually) and at least nine known children including one adopted son.


Read more . . .


Monday, July 18, 2016

Investment Strategies for Minority Investors

As a minority business investor, it is essential to have an investment strategy that will maximize your returns. Once an investment decision is made, it is critical that a target business will enhance value of a broader investment portfolio.  At the same time, many minority investors are also business owners who know what makes for a successful enterprise. This post is a discussion of what minority investors should look for in a privately held business.

What makes for a great minority investment?

Since a minority investor has a significant but non-controlling ownership interest in a business, the first rule of thumb is to invest in business enterprises that you understand and with which you are comfortable. At the same time, great investments can also be found outside your business comfort zone provided that you have good management skills and the acuity to understand your target's business model.

Investing in a small business starts at the top,  that is with the owners. Accordingly, getting to know the owner and understanding how they do business is critical in your decision-making process. One key attribute you should look for in an entrepreneur is passion. Without it, he or she will lack the vision to steer the company toward success. It is also wise that you exercise caution by conducting background checks particularly with an eye toward ascertaining any legal actions in which the owner and other key people have been involved.

Of course, it's not only a matter of the people, it's about the numbers. The onus is on you to do your own due diligence, perform your own research and undertake an analysis of the proposed business plan. An investment proposal can be filled with numbers that amount to nothing more than smoke and mirrors. It's your job to ensure the numbers add up.

Level of Investment

Once you've done your homework on the target business, you need to decide how much to invest and how closely you will be aligned with the entity. Determining how much to invest is really a matter of risk management. In order to safeguard your investment, it is critical to negotiate a deal that is mutually beneficial. In particular, you should consider having an exit strategy with an understanding that your investment will be repaid by a certain date at an agreed upon rate of return.

You must also decide whether you will have no active participation in the decision-making and operations of the business or if you will be involved in the management of the entity. Even as a minority investor, your stake in the business may be significant enough to warrant having a seat at the table in order to advise on policy and evaluate management's performance.

Business Categories

As a minority investor, there are many business categories to consider that depend on your investment strategy. For example, investing in a start-up tends to be high-risk since management may not have a track record of success or a proven business model. Nonetheless, start-ups can also offer great rewards if they are breaking ground in a new business method or technology. The caveat is that the majority of start-ups are short-lived and destined for failure within the first 5 years.

If you are looking for a growth opportunity, there are business enterprises that have successfully launched but need another infusion of capital to grow. These businesses have an initial track record that will allow you to determine if your investment will be rewarded, even if it is subordinated to original investors. On the other hand, opportunities can also be found in companies that have stopped growing because of insufficient capital but still have a solid business plan.

For investors with a greater appetite for risk, companies that are failing can be ripe for a turn- around, provided that your stake comes with a hand in the decision-making and that the business fundamentals remain sound. Even bankrupt entities with cash flow potential offer investment opportunities for investors who are willing to have a high level of involvement.

The Bottom Line

For the minority investor, the nature of investing is high-risk, and every opportunity is unique - some offer greater rewards as well as higher risks. Your ability to make a decision on the merits of a business plan depends on your capacity to be a good business manager as well as a shrewd dealmaker. Investing in a privately held business requires a lot of up-front sweat equity in researching your target company, analyzing financial reports, evaluating the businesses track record, and ascertaining management's skills.

In particular, investing in a closely held business is an investment in the owners as well as the business. These entrepreneurs need to be innovative and have the ingenuity and passion to grow the business. In the final analysis, investors and owners need to be honest partners and strike a deal that is a win-win. The goal for both parties is to ensure the enterprise is successful and offers a worthwhile return on investment.

If you do your homework, your investment in privately-held businesses can be quite lucrative. That being said, it's always in your best interest as a minority investor to have a lawyer on your side of the table to craft an investment agreement, advise you of your responsibilities and shield you from potential litigation.


Monday, July 11, 2016

What are the powers and responsibilities of an executor?

An executor is responsible for the administration of an estate. The executor’s signature carries the same weight of the person whose estate is being administered. He or she must pay the deceased’s debts and then distribute the remaining assets of the estate. If any of the assets of the estate earn money, an executor must manage those assets responsibly. The process of doing so can be intimidating for an individual who has never done so before.

After a person passes away, the executor must locate the will and file it with the local probate office. Copies of the death certificate should be obtained and sent to banks, creditors, and relevant government agencies like social security. He or she should set up a new bank account in the name of the estate. All income received for the deceased, such as remaining paychecks, rents from investment properties, and the collection of outstanding loans receivable, should go into this separate bank account. Bills that need to be paid, like mortgage payments or tax bills, can be paid from this account. Assets should be maintained for the benefit of the estate’s heirs. An executor is under no obligation to contribute to an estate’s assets to pay the estate’s expenses.

An inventory of assets should be compiled and maintained by the executor at all times. An accounting of the estate’s assets, debts, income, and expenses should also be available upon request. If probate is not necessary to distribute the assets of an estate, the executor can elect not to enter probate. Assets may need to be sold in order to be distributed to the heirs. Only the executor can transfer title on behalf of an estate. If an estate becomes insolvent, the executor must declare bankruptcy on behalf of the estate. After debts are paid and assets are distributed, an executor must dispose of any property remaining. He or she may be required to hire an attorney and appear in court on behalf of the estate if the will is challenged. For all of this trouble, an executor is permitted to take a fee from the estate’s assets. However, because the executor of an estate is usually a close family member, it is not uncommon for the executor to waive this fee. If any of these responsibilities are overwhelming for an executor, he or she may elect not to accept the position, or, if he or she has already accepted, may resign at any time.


Tuesday, June 28, 2016

"Elder Caring Coordination" Grows in Popularity


How can families resolve differences over elder care without litigation?

Can an elderly parent continue to live alone? Is it time to take away a parent's driver's license? What if one sibling is stuck with providing most of the care for an elderly parent?

Even the most harmonious families can become deeply divided over these and other elder care issues. In families where tensions are already frayed, disagreements can lead to crises and lawsuits.

A program known as "elder caring coordination," available in Indiana and recently adopted in Florida seeks to reduce the harm to seniors resulting from so-called "“high-conflict family dynamics.”

Caring for Elderly Parents and Keeping Siblings Out of Court

The project seeks to use alternative dispute resolution techniques to mediate disputes between warring family members.


Read more . . .


Monday, June 27, 2016

How does life insurance fit into my estate plan?

How does life insurance fit into my estate plan?

Life insurance can be an integral part of an estate plan. Policies can be set up to be paid directly to the beneficiary, without the need to pass through the estate, and without the need for any taxes to be paid. Having a life insurance policy ensures that some assets will be liquid, so that debts and expenses can be paid quickly and easily without the need to dispose of assets. Beneficiaries can be changed at any time as can the benefit amount. The policy can be used to accumulate savings if the plan is surrendered before death. Life insurance policies, especially those purchased later in life, can pay out significantly more than what was invested into them. There are many benefits to purchasing a life insurance policy as part of an estate plan.

An attorney can set up a life insurance trust to help avoid estate taxes. A life insurance trust must be irrevocable, cannot be managed by the policy holder, and must be in place at least three years before the death of the policy holder. Any money received from the life insurance trust is not a part of the taxable estate. The need for this is rare as the exemption for estate taxes is currently almost five and a half million dollars, but it is a useful tool for some nonetheless.

There is a limit to how much life insurance an individual is permitted to purchase. A person may carry a multiple of his or her gross income which reduces with age. A twenty five year old can buy a policy worth thirty times his or her annual income. A sixty five year old may only purchase ten times his or her annual income worth of life insurance. This is an important factor to consider when deciding whether life insurance should be a part of your estate plan.

Life insurance as a part of estate planning is a complicated issue. It makes sense to consult with an estate attorney and a tax professional before meeting with an insurance broker. Both can help an individual understand the benefits of insurance over other means of transferring assets.


Saturday, June 25, 2016

Overcoming the Financial Burden Long-Term Care


Can you afford to pay for long-term care if you need a nursing home or adult day care?

For decades, the stigma surrounding putting a parent in a nursing home drove many families to make great sacrifices in order to keep elderly family members at home in their declining years.

Today, not only has that stigma somewhat lifted, but 4 out of 10 people surveyed believe that they will not need long-term care and/or that the government’s Medicare program will pay for their long-term care if they do. Unfortunately, this mindset may present devastating financial consequences down the line for the majority of Americans.

First, the U.S.


Read more . . .


Monday, June 13, 2016

Common Frivolous Suits Filed Against Small Businesses

Frivolous lawsuits are an all-too-common problem for small businesses. This is because, under current laws, there is almost no risk to trial attorneys or their clients for bringing even absurd cases to court. While large companies routinely retain attorneys and have the financial means to protect themselves from frivolous lawsuits, small businesses may be left out in the cold if served with an unwarranted lawsuit. Regardless of whether there is any validity to the plaintiff's claim, the small business owners will have to hire attorneys and will typically incur legal fees even if they win the case.

 

Disturbing Statistics about Frivolous Lawsuits against Small Businesses

There are two common types of frivolous lawsuits small business owners have to deal with: product or professional liability and personal injury. According to a recent survey, such unnecessary lawsuits cause financial, not to mention emotional, damage throughout the country. Some of the alarming statistics concerning small business owners in the U.S. are:

  • Over 50 percent of all civil lawsuits target small businesses annually
  • 75 percent fear being targeted by a frivolous lawsuit
  • 90 percent settle frivolous lawsuits simply to avoid higher court costs
  • Owners pay $20 million out of their own pockets to pay tort liability costs
  • U.S. tort costs have increased more than the gross domestic product since 1950
  • On average, those earning $1 million per year spend $20,000 of it on such lawsuits

How Can Small Business Owners Protect Themselves from Frivolous Lawsuits?

The best way for small business owners to protect themselves from frivolous lawsuits is to consult with an experienced, reputable business attorney to help them evaluate possible areas of vulnerability in their company. The attorney should assess their potential exposure in terms of:

  • Employment law, including harassment, discrimination and wrongful termination
  • Intellectual property (IP), protecting them from unintentional theft of IP
  • Contracts management
  • Electronically stored information (ESI)
  • Fraud, establishing internal controls to prevent employee fraud

 

Beyond retaining helpful legal counsel to protect their businesses, small owners must, of course, ensure that they are taking proper precautions in terms of quality control of their own products, services, plant maintenance and staff behavior.

Insurance against Frivolous Lawsuits

If small business owners want optimal protection against frivolous lawsuits, they should look into the possibility of purchasing property or liability insurance for their company. After having an attorney examine their business practices to ensure that they are taking all possible precautions against being sued, they may want to consider buying an insurance policy their lawyer deems appropriate.


Monday, June 6, 2016

When is a person unfit to make a will?

Testamentary capacity refers to a person’s ability to understand and execute a will. As a general rule, most people who are over the age of eighteen are thought to be competent to make and sign the will. They must be able to understand that they are signing the will, they must understand the nature of the property being affected by the will, and they must remember and understand who is affected by the will. These are simple burdens to meet. However, there are a number of reasons a person might challenge a will based on testamentary capacity.

If the testator of a will suffers from paranoid delusions, he or she may make changes to a testamentary document based on beliefs that have no basis in reality. If a disinherited heir can show that a testator suffered from such insane delusions when the changes were made, he or she can have the will invalidated. Similarly a person suffering from dementia or Alzheimer’s disease may be declared unfit to make a will. If a person suffers from a mental or physical disability that prevents them from understanding from understanding that a will is an instrument that is meant to direct how assets are to be distributed in the event of his or her death, that person is not capable of executing a valid will.

It is not entirely uncommon that disinherited heirs complain that a caretaker or a new acquaintance brainwashed the testator into changing his or her will. This is not an accusation of incapacity to make the will, but rather a claim of undue influence. If the third party suggested making the changes, if the third party threatened to withhold care if the will was not changed, or if the third party did anything at all to produce a will that would not be the testator’s intent absent that influence, the will may be set aside for undue influence. Regardless of the reason for the challenge, these determinations will only be made after the testator’s death if the will is presented to a court and challenged. For this reason, it is especially important for the testator to be as thorough as possible in making an estate plan and making sure that any changes are made with the assistance of an experienced estate planning attorney.


Monday, May 30, 2016

Is There Anyway a Disinherited Child Could Receive an Inheritance From an Estate?

If your estate plan and related documents are properly and carefully drafted, it is highly unlikely that the court will disregard your wishes and award the excluded child an inheritance.  As unlikely as it may be, there are certain situations where this child could end up receiving an inheritance depending upon a variety of factors.

To understand how a disinherited child could benefit, you must understand how assets pass after death.  How a particular asset passes at death depends upon the type of asset and how it is titled. For example, a jointly titled asset will pass to the surviving joint owner regardless of what a will or a trust says. So, in the unlikely event that the disinherited child was a joint owner, that child would still inherit the asset because of how it was titled.

Similarly, if you left that disinherited child as a named beneficiary on a life insurance policy or retirement plan asset, such as an IRA or 401k, that child would still receive some of the benefits as the named beneficiary even if your will stated they were to take nothing. Another way such a "disinherited" child might receive a benefit is if all other named beneficiaries died before you.

So, assume you have three children and you wish to disinherit one of them and you state you want all of your assets to go to the other two, and if they are not alive, then to their descendants.  If those other two children die before you and do not have any descendants, there may be a provision that in such a case your "heirs at law" are to take your entire estate and that would include the child you intended to disinherit.

If you wish to disinherit a child, all of these issues can be addressed with proper and careful drafting by a qualified estate planning lawyer.  


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