Frequently we have clients in our office who have recently (or not so recently) lost a loved one – a spouse or a parent, in particular. Often, the first thing out of the client’s mouth is, “I thought she had everything taken care of, but I guess not.” As if the loss of their loved one isn’t enough for clients them to deal with, they are now left to sort out the decedent’s affairs. This process can have major implications and is often very overwhelming.
The following are some examples of messes that people leave behind for their loved ones to clean up after they die:
MORTGAGE/TITLE TO HOUSE
This is a very common problem that we assist clients with following the death of a loved one. There is a variety of complications when it comes to real estate.
Spouse (or adult child) is on deed, but not on mortgage and/or note
This is the issue that we see most often when dealing with a decedent’s estate. Often, due to creditworthiness or other family issues, one spouse will obtain a mortgage for the marital home, but both spouses will be on the deed. For simplicity’s sake, let us assume the husband is on the mortgage. The husband believes that if he predeceases his wife, she will be able to stay in the house because she is on the deed. This is incorrect. What will happen to the mortgage? If the wife is able to make the mortgage payments, she will have to go through a very long, drawn out process to assume the mortgage. If the wife is unable to make the payments, she will most likely lose her house. If she is cognizant, timely, and works with an attorney, she may be able to enter into a deed in lieu of foreclosure, so the debt will be addressed. Sometimes, she may even be able to get some money from the mortgage company in exchange for the house. If the wife does not act in time or in the proper manner, she will lose the house and may have the mortgage company pursuing her husband’s trust and estate in court for the balance of the mortgage.
House is not addressed within proper estate planning documents
If a person passes away and has not properly planned for what will happen with their house, issues will arise. For this example, let’s assume the decedent is a widowed mother with one adult son. If there is a mortgage on the house, the son (unless someone else is designated in the mother’s estate planning documents) will be left to deal with the mortgage company similar to the example above. Regardless of whether there is a mortgage on the property, the son will have to open a probate estate in order to have the court decide what should happen to the house (and any other probate assets). People tend to assume that if they only have one child, everything will just go to that child. While that is most likely correct, it isn’t automatic. The surviving child will have to go through the long, expensive, painful process of probate court.
BANK, RETIREMENT, AND INVESTMENT ACCOUNTS AND LIFE INSURANCE
We often have clients in our office with boxes upon boxes of their deceased parent or spouse’s old financial statements, tax returns, etc. If they are unable to find all of the decedent's financial records, they might be unable to trace all of his or her assets. If assets cannot be located, heirs might not get everything they're entitled to, and the unclaimed assets will eventually revert to the State. It is best to make sure there is a least one person who has a list of all assets, accounts, and policies, including financial institution or insurance company, account or policy numbers, and beneficiary information.
Failure to name beneficiary
If a person dies and leaves assets behind that do not have a co-owner or beneficiary, the asset will have to be probated. The probate process is very slow and can be expensive. It is also usually quite taxing on the person or persons involved in the process. Additionally, the court will decide which heirs will get what. Oftentimes, the distribution does not match the wishes or the intention of the decedent. By the time the heirs are finished with probate, there might be very little of the asset left after expenses. We recommend to clients that they review the beneficiary designations on all of their accounts and policies.
We often hear that business owners have a variety of reasons for believing their business does not need to operate as a valid business entity. Unfortunately, these reasons typically turn out to be misconceptions.
When incorporation is done properly and thoroughly, it provides the governing documents that the corporation will use to conduct its business. There are several advantages to incorporating a business, including protection from personal liability and favorable tax treatment. If an individual is conducting business as a sole proprietor or if multiple business owners are acting as a partnership, Michigan law does not provide the business owners protection from legal liability.
It is important to understand that if a business entity is not established properly, legally, or formally in Michigan, the business owner or owners are automatically assumed to be acting as a sole proprietor or a partnership. This article discusses three misconceptions that we frequently hear about incorporation and will explain the risks involved with acting as a sole proprietor or partnership.
Misconception 1 – The business does not make enough money to incorporate.
We often hear from budding entrepreneurs that they do not want to invest the time and effort into incorporating because they do not know if their business will be successful and they do not yet have a high level of profit. This is one of the most dangerous misconceptions for business owners because the level of risk associated with conducting business is in no way related to the amount of money a business makes. If a business owner conducts business without a proper entity and a judgment is obtained against the business for an accident or other matter, the business owner’s personal assets will be used to satisfy the judgment.
Establishing a valid corporation and maintaining the entity protects business owners from personal liability for the actions and occurrences in the business. Creating a separate business identity through incorporation is one of the key factors a judge will use to determine if the business owner will be personally liable for the actions of the business. In addition, obtaining S Corporation status has favorable tax implications for the business owner. It is untrue that maintaining the corporation is difficult or expensive. The yearly requirements to maintain the C corporation are minimal and we educate business owners on the steps necessary to maintain their business entity from year to year.
Misconception 2 – The business does not need to be incorporated because I have insurance.
Insurance policies help protect businesses and business owners by providing coverage for the risks of conducting business. Insurance coverage’s, however, almost always come with coverage limits. If the amount of a judgment exceeds the amount of insurance coverage, the business owner will be liable for the deficiency. Additionally, depending on the type of insurance coverage, some types of claims may not be covered at all by the business owner’s policy. In this case, the business and the business owner would be liable for 100% of a potential judgment.
Misconception 3 – I am protected because I filed a DBA with the county.
Filing your business name as a DBA or “Doing Business As” with the county where your business is located does nothing to protect the business or you from liability. The only thing a DBA protects is the business name in that county. A DBA is not a legal entity and only provides that another business will not be able to conduct business under that business name in the county. If a business operating as a DBA is sued and a judgment is obtained, the business owner will most likely be held personally liable for the amount of the judgment. This means that the person or entity that obtained the judgment can take personal assets and income, such as the business owner’s home and financial accounts, to satisfy the amount of the judgment.
Business owners should have their business entity reviewed to determine if it is the most effective way to do business, and they are legally protected.