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Wills and Estates Blog

Revocable Living Trusts: Are They Worth the Hype?

Thursday, September 22, 2016

In many states, the use of a Revocable Living Trust has become increasingly popular as a viable estate planning option. But in Maryland, the ease of the probate process, among many other reasons, makes this option usually not worth the hype, money or time.

A Revocable Living Trust is a written document that contains provisions of how to hold, manage, and distribute property during your life and after your death. It is revocable, meaning that even though assets are transferred (or re-titled) to the living trust, the person who creates the trust, the grantor, can get his or her property back by revoking the Trust during his or her lifetime. The persons who manages the assets in the Trust is the Trustee and this is almost always the grantor during his or her lifetime. The primary purpose of a Revocable Living Trust is to avoid probate. It is most popular in states with probate systems which are expensive and time consuming.

In Maryland, the advantages of having a Revocable Living Trust are typically outweighed by other estate planning alternatives and the ease of the Maryland probate system. After a person's death and once the probate documents are filed in Maryland, a personal representative can be appointed within days and the Letters of Administration can be used to access funds and manage probate assets. In addition, the costs associated with probating an estate are modest with probate fees depending on the size of the probate estate. For example, an estate of $200,000 would have a probate fee of$400.00. Unless there is some complicating matter, many estates can be closed after 6 months which is the period that creditors have to make claims against the estate.

Despite the ease of the Maryland probate process, many who have heard of the evils of probate will still insist on a Revocable Living Trust, and for them, the following information should assist them with making an informed decision.

Pros

  1. Avoiding Probate

    Upon your death, assets that were titled in the Revocable Living Trust pass directly to the Trust without going through probate. This is particularly important if you own real estate in more than one state because without a trust, your loved ones would have to open a probate estate in each state real property is located. In addition, a Revocable Living Trust allows immediate access to bank accounts titled in the Trust after your passing, instead of waiting for the documentation from the probate estate to gain access to the account(s). Lastly, the decedent's affairs could theoretically be finalized in weeks or months as there is no 6 month creditor claims period. Note that this may in fact also be construed as a disadvantage because creditors may have three years to file a claim against assets that were in the trust.

  2. Management of Assets

    Should you become ill or incapacitated, some argue that it is easier to manage Trust accounts versus accounts in your individual name. If your assets are held in a trust account and you become incapacitated, the Trust document outlines the Trustee's power with regard to managing your assets. Financial institutions will require your trustee to provide a copy of the Trust Agreement.

    For accounts held in your individual name, a properly executed Power of Attorney will allow your agent to control those assets. Although recent changes in the Maryland law regarding Powers of Attorney should make it easier to use a Power of Attorney, some may still find it difficult to use POAs with certain financial institutions.

  3. Privacy

    Unlike a Last Will and Testament, upon your death a Revocable Living Trust is not public record. Therefore, information as to what you owned and how you dispose of those assets are private. Thus, your beneficiaries and the amounts they receive are not available for public scrutiny.

  4. Avoiding Multi State Probate

    The most compelling reason for a Revocable Living Trust is to avoid probate in multiple states if you own real estate outside of your home state. In this instance, your Last Will and Testament must generally be probated in your home state and the state for which you own real property, a process which is called "Ancillary Probate." If your real property is titled in your Living Trust, this will not be necessary. Your real property can be distributed by your Trustee, upon death, no matter where it is located.

Cons

  1. A Last Will and Testament is Necessary

    Invariably, not all of the assets will have been re-titled in the name of the Revocable Living Trust before death. There will be a bank account or vehicle that was still in the decedent's name at the time of death. Thus, a Will is still necessary. Most attorneys will draft a special type of Last Will and Testament called a Pour Over Will to ensure that any unfunded assets (assets not re-titled) will "pour" into your trust. To do this, your Pour Over Will must also be probated, and such assets may then be distributed according to the instructions in the Trust.

  2. Initial Expense is High

    It is more expensive to create a Revocable Living Trust than a Last Will and Testament. Preliminarily, there is the initial cost of drafting a Trust Agreement, which is usually more than the price for drafting a Will. There is also the expense of "funding" the Revocable Living Trust. This is the process of transferring the ownership of every eligible asset into the name of the Trust. In addition to just the time spent on this process there may be costs associated with retitling assets. For example, real property can only be assigned to a trust by deed, which must be recorded at the applicable office of land records for a fee. This fee includes the time and cost for the attorney or titling company to draft the deed and the fees to record the deed.

  3. Funding a Trust Takes Time and Effort

    Once your Revocable Living Trust becomes effective, you must fund the Trust by contacting financial institutions, life insurance companies, and transfer agents to change account ownership and beneficiary designations; retitle vehicles, and sign and record new deeds for real estate. There is a significant cost – in terms of time – to accomplish this. If you fail to re-title, even one asset of any significance, your trustee, upon your death, would have to open an estate to administer such assets. This would defeat the purpose of the Living Trust.

  4. Cannot Avoid Tax

    Although assets that are retitled to the Trust avoid probate, they are still subject to income and estate taxes. This is because the IRS still considers that all the assets in the Revocable Living Trust are still yours. This should not be surprising as you are the trustee of the trust, the beneficiary of the trust, and can revoke it at any time. Because it is still considered your money, you and/or your estate are still responsible for income, estate, and inheritance taxes. There is simply no tax advantage to having a Revocable Living Trust over a Last Will and Testament.

    The next time you hear someone tell you that a Revocable Living Trust is a must, please consider all of the pros and cons as they specifically apply to your situation. While there are cases where a Revocable Living Trust can be beneficial, for most Maryland residents there are other legal avenues to accomplish your goals without the cost and effort of a Revocable Living Trust.

The Do Not Resuscitate (DNR) Order Has Been Replaced With the New and Improved MOLST Form in Maryland

Thursday, September 22, 2016

When it comes to protecting your loved ones, we MOLST Blog Pictureencourage you to have an Advance Directive (See Get an Advance Directive: Don’t Be a Headline; Should I get an Advance Directive, a Living Will or a Health Care Power of Attorney?). Having an Advance Directive is effective in explaining your wishes and giving someone the authority to act on your behalf. To be absolutely sure your wishes are followed, however, you should consider completing a Maryland Orders for Life-Sustaining Treatment (MOLST) form.

The MOLST form is a medical order form that contains orders about cardiopulmonary resuscitation and other life-sustaining treatments. Unlike an Advance Directive, the MOLST form is more specific and contains a more in-depth look into the various medical procedures that could be used during cardiopulmonary arrest and other emergency situations. For example, in an Advance Directive you may include generally your wishes with regard to artificial ventilation or artificially administered fluids and nutrition, but most Advance Directives do not include your wishes with regard to blood transfusions, hospital transfers, medical workups or dialysis situations. The details of the MOLST form provide the patient with a plethora of medical decisions that must be taken into consideration during an emergency situation, many of which are not taken into consideration when drafting an Advance Directive.

The MOLST form acts as added protection to correct any limitations an Advance Directive may have. For instance, if you reside in a nursing home and an emergency situation presents itself, your healthcare agent is not present. If a decision must be made to resuscitate you and the personnel must act vigilantly, they would probably perform CPR. But if you wished that CPR not be performed then your wish may not be followed. The MOLST form prevents this situation and stands in place of your Advance Directive, ensuring that your wishes are followed.

A MOLST form is completed by a patient or health care agent (if his/her decisions are consistent with a known advance directive of the patient) when the patient is incapable of making an informed decision, and is signed by a physician. Once signed, it becomes a valid medical order and all medical facilities must comply with it. More specifically, nursing homes, assisted living facilities, hospices, home health agencies, kidney dialysis centers (upon new admission), and hospitals (upon discharge of the patient to another medical facility) must complete a MOLST form for a patient. Also, in situations where the patient is hospitalized or institutionalized, the MOLST form must follow the patient.

When planning for the future, it is beneficial to consider completing a MOLST form. You can attempt to plan every aspect of your life, however, as we all know things can happen unexpectedly. Let the medical providers ensure your wishes are followed and take the burden off your health care agent of having to be available at all times in the case of an emergency.

Death of a Loved One: Practical and Legal Guidance

Thursday, September 22, 2016

Dealing with the death of a loved one both before and after death are the two most difficult situations in our lives. In addition to the emotional toll, there are also innumerable details, practical and legal, surrounding a loved one's death. Most people are not aware of the steps that need to be taken in preparation or after death. And even if they are aware, most people have a difficult time focusing on these tasks in such a fragile emotional state. In an attempt to help during this difficult time I wrote a manual of sorts. Death of a Loved One contains checklists to assist both before and after death. You can download a free copy of the booklet here. 

Preparing For the Death of a Loved One: 7 Practical Recommendations

Thursday, September 22, 2016

This is not an easy time and, emotionally, there is not much that your lawyer can do to help. What we can to is to assist you in understanding some of the practical issues involved. Below we describe seven recommendations of things to do before your loved one passes. At a minimum, this list will provide some guidance during this trying time and, at best, maybe it might even free up some extra time to spend with your loved one.

1. Notify Family & Friends

Your loved one’s family and friends will want to know what is happening. If possible discuss notification with your loved one. If you feel comfortable, consider preparing an email list. You can use the list to keep family and friends notified of changes in condition. The list can be used after death as well as a means to provide information about funeral services. This may not be the most personal, but it is the most efficient method to keep a larger number of people informed.

2. Locate Legal Documents

Speak with your loved one about the physical location of their legal documents. If your loved one does not have a Will, Advance Directive or Power of Attorney and they still have the capacity to execute these documents, consult with an attorney about having the documents drafted.

Will. After your loved one’s death you will need the original Will. Copies are not accepted by the Register of Wills. Thus it is of paramount importance to know its location and have access to the original Will. If it’s in a safe, you need the combination. If it’s in a safe deposit box, you will need to be a joint owner of the safe deposit box to have access to it after death.

Advance Directive. The Advance Directive appoints a health care agent to make health care decisions. This document also provides instructions regarding your loved one’s wishes regarding end of life medical care. If your loved one loses consciousness (or the legal capacity to make decisions), this document will allow you to consult with your loved one’s physicians and make decisions. The document will indicate your loved one’s wishes regarding what decisions to make in end of life situations. For instance, should artificial respiration be attempted when death is imminent?

Power of Attorney. The Power of Attorney allows your loved one’s agent to handle financial affairs if they become incapacitated. You may need this document to access your loved one’s bank accounts, pay for medical care, maintain the mortgage, and keep the utilities on in the house.

3. Be Certain Everyone Understands Your Loved One’s Wishes

You need to speak with your loved one about their wishes. Once you understand their wishes, it is your job to make sure everyone involved also understands.

Pre Death Wishes. Discuss with your loved one what their wishes are concerning end of life medical decisions. Hopefully this information is included in an Advance Directive. Once understood, the decisions need to be communicated to the medical providers. In Maryland, to make sure that your loved ones wishes are honored, you need your loved one’s health care provider to complete a Medical Orders for Life-Sustaining Treatment (MOLST) form. The completed MOLST form should remain with your loved one or his or her agent and a copy should be on file with the medical facility where your loved one resides. This is an important step as an advance directive alone will not stop emergency personnel from attempting to resuscitate.

Post Death Wishes. Make sure you understand what your loved one’s wishes are upon death. Do they want their organs donated? Do they want to be cremated or buried? What type of funeral service do they want? Do they want a headstone? Do they want their ashes scattered someplace?

4. Obtain Identifying Information

Before it is too late, obtain information that may be lost when your loved one passes. It is important to identify the institutions and account numbers for all of their financial accounts. You need to know if they have life insurance and the locations of the policies. In the digital age, user names and passwords are also very important. There are a variety of reasons you may need to access their email, Facebook, or other online services after their death. You may use their email or online services to notify family and friends about their death and/or funeral services. Or you may want to be able to collect pictures or videos posted on sites such as Facebook to use in a memorial service.

5. Make Funeral Arrangements

Start by contacting a reputable funeral home or crematorium. They should be able to assist you in all of the details. Planning ahead may seem morbid but many of the questions to be decided will be much easier with your loved one’s input. Some of the decisions to be made are:

  • location of final resting place 
  • determining how the body will be transported 
  • whether jewelry will remain or be removed from the body 
  • selection of a casket or urn 
  • selecting a grave marker and inscription 
  • selecting the deceased’s clothing 
  • selecting items to be placed in casket 
  • location and type of service 
  • types of flowers for the service 
  • identities of pall bearers 
  • identify of charity or organizations for donations 
  • selecting a photograph for display 
  • music selection 
  • selecting scripture or literature for the service 
  • selecting a person to deliver the eulogy.

6. Contact Professionals

Contact your loved one’s professionals: accountants, financial planners and lawyers. They may have valuable advice both before and after the death of your loved one.

7. Start Preparing Obituary

Although it may sound grim, start preparing an obituary. If you wait until your loved one passes, you may discover that you do not have the necessary information to write an obituary. Planning the obituary ahead of time can be cathartic and you may even learn something you didn’t know.

Power of Attorney: Why Should I Give My Agent the Power to Make Gifts?

Tuesday, September 20, 2016

The idea behind a Durable General Power of Attorney (POA) is to appoint someone (your agent) who can manage your financial affairs if you (the principal) are unable to do so. The overwhelming majority of the language in the document describes the various things that your agent can do. Most POAs (including mine) contain language to allow the agent to make gifts on the principal’s behalf. After receiving their draft POAs, my clients will often call asking why we are allowing their agent to give their stuff away! This post explains the purpose of the gifting power.

Exhaustive List of Powers

If you have ever read a POA, you know that it should be prescribed as a cure for insomnia. The POA is basically an exhaustive list of all the various things that your agent can do on your behalf. For example, your agent can:

  • sell any interest I own in any kind of property, real or personal, tangible or intangible,
  • buy any kind of property,
  • invest and reinvest all or any part of my property, and
  • may enter into contracts of any type and for any purpose.

And the list goes on . . . and on, and on. Our standard POA is 28 pages long, single spaced!

The goal of the POA is to give your agent the power to do anything that they might need to do. As we cannot predict the future, we are uncertain as to what they may need to do. So we attempt to give them the power to do everything. Unfortunately the law does not allow us to have a simple document that just reads “I give my agent the power to do everything that I could do.” If a power is not specifically given to an agent, they don’t have that power. As a result, we get 28 page POAs that list every conceivable power that your agent may need to have.

Gifting Power

The power to make gifts will likely be one of a long list of enumerated powers. The purpose of giving your agent this power is in case you need to be qualified for Medicaid. Medicaid is a state and federal program that can be used to pay for nursing home care. In order to be eligible for Medicaid in the state of Maryland, your resources (stuff you own) must be less than $2,500. In order to become eligible, your property may need to be given away – hence the gifting power.

Here’s a typical scenario. Your mother has dementia and needs to go into a nursing home. When your mother was younger, she named you as her agent in her POA. Your mother has saved $200,000 over her lifetime with the hope of leaving a substantial inheritance to her children. At $10,000 a month for nursing home care, if your mother stays in the nursing home for 2 years there will be no inheritance for the children. All of the money she had saved during her life will go to the nursing home with none going to her children.

This is where the gifting power in the POA comes into play. A competent Elder Law attorney may be able to assist you in gifting away a portion of the assets to the children in order to qualify your mother for Medicaid. (Note: this is not as simple as simply giving the assets away. You must have qualified legal help to navigate the Medicaid gifting and penalty period rules.) Once qualified, Medicaid will pay for the ongoing nursing home care and your mother will be able to leave an inheritance to her children. Without the gifting power in the POA, this option would not have been available.

Some of my clients are concerned that the gifting power could be used to, in effect, steal from them. My responses to that concern are threefold. First, it is important to understand that the powers that you give to your agents are only to be used for your benefit. Second, bad people certainly exist who would use the powers in a POA to steal. These people would probably be stealing from the principal regardless of the existence of a gifting power. Third, the gifting power isn’t the problem, the choice of agent is. So long as the agent you choose is 100% trustworthy, there should be no problems.


Should I get an Advance Directive, a Living Will or a Health Care Power of Attorney?

Tuesday, September 20, 2016

The answer is the first one or the second one and the third one. The problem with answering the question is first and foremost one of terminology. For starters, each state calls these legal documents by different names. For instance, Maryland has an Advance Directive, Virginia has an Advance Medical Directive and the District of Columbia has a Power of Attorney for Health Care and Declaration of Living Will. In addition, as a legal community we have simply not standardized our terms. What one lawyer calls a Health Care Power of Attorney, another calls an Advance Directive. In this blog I will attempt to clear up the confusion. (At least for Maryland residents).

Before talking about each of these different documents, we need to understand what we are trying to do with them. In general, the purpose is to give someone the legal power to make medical decisions for you when you cannot. For instance, if you have just been in a serious accident and are unconscious we need someone to give the “okay” to the doctor to perform surgery. In addition to giving someone this authority, it would also be nice if these documents provide some guidance to the person as to how to make the decisions.

Health Care Power of Attorney

Recall that you can execute a Durable Power of Attorney to give legal power to someone to handle your economic affairs. (See What is a Durable Power of Attorney Anyway?). Thus, some refer to a document that gives power over medical decisions a Health Care Power of Attorney. This document appoints an agent to make medical decisions. This person will be able to receive medical information and make decisions about treatment options for you. In other words, the doctors can tell your agent what your condition is and ask your agent for permission to provide treatment.

Living Will

The Living Will indicates your personal preferences as to what type of medical treatment you want in an end-of-life situation. Do you want to be on a ventilator? Do you want pain medication even if it would shorten your remaining life? This document does not provide any information as to who can make these decisions. In my opinion, the Living Will is of seminal importance because it eases the burden on your loved ones who have to make these tough decisions. Additionally, a Living Will should eliminate disputes over what treatment should (or should not) be provided. Everyone wants to avoid the legal battle that surrounded the Terry Schiavo case.

Advance Directive

In Maryland, an Advance Directive is simply a document that contains both a Health Care Power of Attorney and a Living Will. The first part of the Advance Directive names the person (or agent) to make health care decisions for you. Treatment preferences in end-of-life situations are contained in the second part. Thus, at least in Maryland, a properly drafted Advance Directive should accomplish all of your needs.

3 Issues to Consider When Drafting your Power of Attorney

Thursday, September 15, 2016

So you are now convinced that you need a Power of Attorney (POA) in place to help your family and loved ones take care of you in your time of need. Or maybe you and your aging parent have decided that a POA needs to be executed in anticipation of deteriorating health. Below are three items to consider prior to meeting with an attorney.

1. Avoid Joint Powers

By executing a POA you are granting some other person or persons the power to handle your economic affairs. This includes everything from accessing your bank account to selling your house. The person or people you designate are your agents. My clients often tell me that they would like two people to serve as their agents. It seems that parents have a difficult time deciding between their son and daughter – they want to avoid hurt feelings. In reality, being the agent under someone’s POA is extremely hard and thankless work; the child not named should be pleased, not upset. Regardless of the emotional ramifications, joint agents should be avoided. The primary problem with joint agents is that they may not agree on what to do on your behalf. The POA is a document to make it easier for someone to take care of you. If the agents cannot agree, you may have actually made it more difficult for anyone to assist you in your time of need. Only one person should be given the ultimate decision making authority. This does not mean that you should not designate successor (back up) agents in case your primary agent is unavailable or unwilling to accept the responsibility. But at any one time, only one agent should have the power to act on your behalf.

2. Capacity to Execute

You must have the "legal capacity" to execute a POA. Traditionally a Will begins with something like "I being of sound mind...." This statement is merely a recitation of the principle that in order to execute a Will, POA, or Advance Directive, you must understand the nature of the document and what it is that you are doing by signing it. In the case of an aging parent, the parent must have the capacity to execute the document. If the aging parent does not understand the nature of the POA or the ramifications of giving someone else power to act on their behalf, then the parent cannot legally sign a POA. As an attorney, if there is any question as to the capacity of the person retaining me to draft a POA, I will require a medical evaluation to confirm capacity.

3. Effectiveness

When does your agent have the power you have given them? Does the agent have this power as soon as you sign the document? POAs are generally drafted one of two ways. Either the power is immediate or the power is triggered by your incapacity. If the power is triggered by incapacity, the POA will include provisions to determine capacity. For example, the POA may indicate that only if two doctors certify that you are incapacitated and unable to manage your affairs that the power comes into existence.

An immediate grant of power makes the POA easier to use for your agent. Your agent can use the power without getting additional certifications from doctors in order to use it. If your agent is someone you completely trust (as it should be) then the immediate grant of power is recommended.

A conditional power only upon incapacity can be more difficult to use. First, your agent has to actually obtain the doctor's certifications. Second, there may be issues involved in interpreting the doctor’s certifications. For instance, a bank officer may not think the doctor described your condition in a way that indicates that you are incapacitated or that the date on the certification was too long ago to still be valid. This requirement for doctor's certifications of incapacity creates an additional hurdle your agent must overcome in order to assist you in your time of need.


Maryland's New Power of Attorney Act

Thursday, September 15, 2016

On October 1, 2010, a new power of attorney act went into effect in the State of Maryland. Efforts had been made for a number of years to get legislation passed that would govern the use of power of attorneys. The new Act should assist the general public by making power of attorneys easier to create, interpret, and use.

Witness Requirement

Before October 1, 2010, only the principal had to execute (sign) a power of attorney and the signature had to be notarized. The new law makes the formality required for a power of attorney even greater than that required for a Will. Now two witnesses are required in addition to the principal's signature being notarized. (A Will requires two signatures but does not require notarization).

Effectiveness of Copies

The new law provides that copies of a power of attorney should be treated with the same legal significance as an original. Thus, the days of banks and insurance companies requiring an original power of attorney are hopefully over.

Standardized Forms

For the first time ever, the Maryland statute provides two power of attorney forms in the statute itself. The first is called a Personal Financial Power of Attorney, the other a Limited Power of Attorney. These are provided as examples of valid power of attorneys – their specific use is not required.

Easier to Use

The new Act requires that persons (e.g. banks, insurance companies, brokerage houses) accept properly executed power of attorneys. This is true for all power of attorneys – regardless of when they were executed. The law also indicates that if a power of attorney is "substantially in the same form" as one of the statutory forms, any person that refuses to honor the power of attorney will be liable for the agent's attorney fees in seeking court intervention.

Limitations

The new Act, by providing suggested forms and enforcement authority, should make the use of power of attorneys in Maryland easier. Unfortunately, the “teeth” in the Act only apply to a power of attorney that is in “substantially the same form” as the statutory form. We believe that the statutory forms accomplish about 90% of what a good power of attorney should. There are notable absences from the statutory forms. For example, the statutory forms to not provide for the power to engage in Medicaid planning or to take care of the principal’s pets. As a result, we are providing our clients a power of attorney package that actually includes two different forms. The first is a <em>statutory</em> form – to take advantage of the enhanced statutory enforcement language. The second is a <em>supplemental</em> power of attorney that is a more exhaustive and thorough description of the powers being given to the agent. This <em>supplemental</em> form includes language that gives the agent the power to act in areas that are not addressed in the statutory form.

Conclusion

If you already have a power of attorney, there is no need to get a new one. So long as your power of attorney was executed properly under the then-existing law, it is still valid. If you would like to take advantage of the new statute, our current power of attorney documents should be easier to use and enforce under the new law.


What is a Durable Power of Attorney Anyway?

Tuesday, September 13, 2016

So many people come in to see me and are convinced that they need a Durable Power of Attorney (DPOA). When I ask them why, they don’t know. Further probing usually reveals that they aren’t quite sure what a DPOA actually is. Let me see if I can explain the idea.

Simply put, a power of attorney is a legal document where you give power to someone else (your agent) to act on your behalf. It is similar to hiring an attorney. The attorney is your representative and performs acts or conducts affairs on your behalf. Also, just like an attorney, your agent is under a duty to act for your benefit. If the power of attorney is “durable,” the power you have given continues even if you become incapacitated. However, any power you have given to an agent under a DPOA terminates upon your death.

A DPOA is one of the three legal documents in a basic estate planning package along with a Will and an Advance Medical Directive. A standard DPOA is written to give your agent the power to do anything you could do. Thus your agent can talk to the cable company, access your bank accounts, and even sell your house! It goes without saying that the choice of an agent is an important one.

The DPOA is an essential tool to protect yourself in the case of future incapacity. Let’s face it, we all know someone who has been diagnosed with Alzheimer’s or dementia. Alzheimer’s and dementia are easily the most common causes of incapacity. The conditions are incapacitating when they prevent a person from being able to handle his or her financial affairs. By creating a DPOA now, while still healthy, you can make sure that someone you trust has the power to conduct your affairs and protect you during incapacity.

Preparing For A Grand Exit!

Thursday, May 19, 2016

Are you a small business owner? If so, you may love your job so much, that retirement, death, or incapacity are the furthest thoughts from your mind. While you may not intend to exit the business in the near future, have you considered the possibility of what might happen if you have to unexpectedly retire, die, or become incapacitated? How will your company continue to exist? Who will take the reins and run the company in your absence? Depending on the level of your direct day-to-day involvement, determining who will take control of the business and/or training said individual could take quite a bit of time.

What exactly is a Business Succession Plan?

A business succession plan is a roadmap for your business in the event you retire, are incapacitated, or pass away. Think of a succession plan for your business like an extension of your personal estate plan. By creating a business succession plan, you are clearly identifying who will take over, how they transition into that role, and in what capacity. Depending on the nature and complexity of your business, a business succession plan can range from fairly simple and straight forward to quite complex and dynamic.

Similar to a personal estate plan, business succession plans are not “one size fits all.” To this end, it is highly recommended you speak with an attorney that is skilled in both business planning and estate planning to ensure that both plans work together to achieve your ultimate goals.

Why should every small business owner have a business succession plan?

A small business succession plan allows you to take a proactive approach to identify new owners of the business, address orderly transition from one owner to the next, identify procedures for transfers in ownership that are the result of unanticipated circumstances that result in challenges (i.e. death, illness or incapacity, or even partnership disagreements).

Business succession plans allow you to prepare for retirement while securing the survival of the business beyond your ownership. Further, by implementing a business succession plan you are able to address and account for various tax consequences associated with a transfer in ownership.

Consequences of not having a plan in place.

Not having a plan leaves everything up to chance. Why would you ever want to leave something you have devoted a substantial amount of your life, both physically and emotionally, up to chance?

There is potential for monetary loss due to estate, gift, and income tax issues. Additionally, not having a plan could result in huge gaps in wealth from a lack of business valuation activities and financial planning.

Lastly, without a plan in place, your business may end with you slowing down or becoming incapacitated. Due to the structure of the business and the individuals involved, not having a plan could result in the business having to dissolve and liquidate.

If you are a small business owner it is imperative you establish a succession plan to ensure that your business and your family have a smooth transition in the event you retire, become incapacitated, or die.

By Patricia Zeleznik

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    Mike W.


    "You have been kind throughout this process and I appreciate your professionalism as well as your gentle concern. Thanks for helping us and all the others who need your legal expertise. We are grateful."

    Nancy F.


    "Thanks to Mr. Shultz's aggressive and professional work ethic style I was able to receive the medical services and compensation pertaining to my case."

    Navdeep C.


    "I can honestly say this firm is simply TOP NOTCH! They not only have handled countless cases for my members that require their services, they also have gone well beyond their "scope" to help some of my folks in other areas of need. "

    Rick H.


    "The attention and professional care the staff has taken toward my needs has always been excellent. I have no complaints nor worries that my issues discussed are not addressed."

    Tim T.


    "I just got off the phone with Craig and let him know how thankful we are to you, him and Ken for all your efforts – you are all really terrific to work with!"

    Val K.


    Locations Throughout Maryland, Virginia & Washington DC

    Gaithersburg Office

    481 N. Frederick Avenue, Suite 300
    Gaithersburg, MD 20877
    301-670-7030 / 800-248-3352
    Fax: 301-670-9492

    Lutherville Office

    1301 York Road, Suite 600
    Lutherville, MD 21093
    410-769-5400 / 800-248-3352
    Fax: 410-769-9200

    Frederick Office

    30 W. Patrick Street, Suite 105
    Frederick, MD 21701
    301-668-2100 / 800-827-2667
    Fax: 301-668-2000

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