How Should You Title Your Bank Accounts?

What You Should Know About Ways to Title a Bank Account
by Tom Bouman

1.         What is the importance of bank account titling?
 

In the context of estate planning, the way an account is titled is critical.  The choice often determines who will inherit the account after the account owner’s death.  In many cases, the account owner’s will or living trust is irrelevant.

For example, consider an account that is titled jointly between Parent and Child A.  If Parent dies, Child A inherits the account regardless of whether Parent’s will directs equal distribution to Child A and Child B.    
 

2.         What are the ways to title a bank account?
 

Arizona law permits several ways to title a checking account, savings account, or Certificate of Deposit, whether at a bank or credit union:

• Single party account.  This type of account is owned by an individual person.  If the owner dies, the account is subject to probate and would be distributed in accordance with a valid will.     
   
• Single party account with Pay-on-Death designation.  Also owned by an individual person, this account is paid directly upon death to the named beneficiary.     
   
• Multiple party account without right of survivorship.  This type of account is owned by two or more persons.  If one of the owners dies, the surviving owner or owners still have access to the account, but the portion contributed by the deceased owner is subject to probate. 
   
• Multiple party account with right of survivorship.  Also owned by multiple persons, this account passes without restriction to the surviving owner or owners.  When there are no surviving owners, the account is subject to probate and would be distributed in accordance with a valid will of the last owner to die.      
   
• Multiple party account with right of survivorship and POD designation.  This type of account adds a pay-on-death designation, which pays the account directly to the named beneficiary when all account owners have died.     

• Trust.  This type of account is technically held by a trustee.  Although the trust never dies, control of the account will transfer to a successor trustee in accordance with provisions outlined in the trust document. 

3.         What is a Pay-on-Death Designation?
 

A Pay-on-Death Designation (“POD”) is a probate avoidance technique that can be added to the titling of a bank account.  If used, the bank will have a record of the death beneficiary for the account.  Upon the death of the account owner, assuming the named beneficiary is alive, the funds in the account belong to the beneficiary.  If there are multiple beneficiaries, then the funds in the account belong to the named beneficiaries in equal amounts.  If there are no surviving named beneficiaries, then the POD designation is disregarded and the funds in the account belong to the estate of the deceased owner; i.e., subject to probate. 
 

4.         May an Investment Account have a Pay-on-Death Designation?
 

Yes, an investment account may have a POD designation, although it is properly described in Arizona as a transfer-on-death (“TOD”) designation.  Some financial institutions may use the term “in trust for” (ITF) to describe the same concept as the POD or TOD designation. 
 

5.         Why not name Child as joint owner of all accounts owned by Parent?
 

Many elderly persons add a child as joint owner of bank or credit union accounts during their lifetime.  Estate attorneys rarely recommend this strategy for many reasons including:

• Exposes the parent’s assets to the child’s creditors.  If the child is sued, the child must disclose the joint account to the court.  The burden falls on the child to convince a court that the child contributed nothing and that the account really belongs to the parent.  Similarly, the account would be a reportable asset if the child filed for bankruptcy.
• Parent loses full control of the account.  Although intended to facilitate a child helping the parent, a controlling child or the jealousy of other siblings could spoil the arrangement.  Similarly, if the child needs money, there is nothing to prevent the child from taking it without permission. 
• Assumes the child is a saint.  The parent can only hope the child “does the right thing” and uses the joint account to pay estate bills and then shares it with other beneficiaries as directed in the parent’s will or living trust.  The child’s attorney would be correct under the law to counsel the child otherwise.

About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection.  He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law.  Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.

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Thomas J. Bouman
Attorney - Author - Speaker

www.TomBoumanLaw.com
Book an Appointment online 24/7
or call during business hours

(520) 546-3558

"The renown that riches or beauty confer is fleeting and frail; mental excellence is a splended and lasting possession."  Sallust

Reasons to Quit Your Job

Here are some reasons people recently quit their jobs:

• "Someone left because her boss lost the dog she had given him."
• "Our employee said he was joining the circus." 
• "One person left because she lost her cell phone too many times at work."
• "We had someone quit to participate in a reality show."
• "An employee said it was his routine to change jobs every six months.

• "One worker left to become an apple farmer."
• "A staff member quit to climb Mount Everest."
• "There was an individual who left to play the trombone."
• "An employee wanted to enter a beauty contest."
• "One worker quit to join a rock band."

• "A guy said he was making too much money and didn't feel he was worth it."
• "One person left because she didn't want to work so hard."
• "An individual said he was bored."
• "Someone quit because she was going to live off her trust fund."
• "An employee said work was getting in the way of having fun."
• "A person quit because informal dress was not allowed."
• "The worker told us he just couldn't get up in the morning."

• "He quit because he didn't like the way the office smelled."
• "One employee didn't enjoy the cafeteria food."
• "An individual did not like the sound of file cabinets being slammed."

• "One person quit to watch a soccer tournament."
• "We had someone leave because he had to stay home to feed his dog."
• "An employee left because he wanted to watch a movie with his girlfriend during work hours."

• "A person quit because he hated the carpet."
• "One worker did not like the colors of the walls."
• "The employee quit because the office building was unattractive."
• "Someone felt the lobby area was too small."
• "She hated the lighting in the building."

• "He just walked out without a peep. We have no idea why he left, and we were not able to contact him."

What You Should Know About Trust Funding

What You Should Know About Trust Funding
by Tom Bouman

1.         What is Trust Funding?
 

Funding is the term used to describe how a trust acquires ownership or control of an asset.  There are many types of trusts and many benefits of establishing them, but a trust must actually own an asset to make it work.  An unfunded or partially funded trust does not achieve its objectives.

There are two methods of funding assets into a trust, depending on the type of asset:

·         Ownership Changes.  Many assets will be funded by changing the title from individual name to the name of the trustee.  For example, a bank account would be re-titled to show ownership as Thomas J. Bouman, Trustee of the Thomas J. Bouman Living Trust.

·         Beneficiary Changes.  Other assets, such as retirement accounts, life insurance, annuities, and some real estate, may be funded by naming the trust as beneficiary upon the owner’s death. 
 

2.         How is real estate transferred into trust?
 

Real estate is usually transferred into trust by recording a new deed in the county where the property is located.  This process involves finding a copy of the existing deed – referred to as a current vesting deed – and then recording a new deed in its place.  Each state and county has its own rules and preferences for what information must be included on the deed and how it must be signed and recorded.  It is critical to avoid errors when re-titling real estate because even a minor typo can create problems many years later.

When real estate is transferred into trust, it is important to inform the homeowner’s insurance company so it can add the trust as an additional insured to the insurance policy.  Also, the mortgage lender should be notified before mortgaged investment property (a primary residence is exempt from this requirement) is transferred into trust.  Failure to do so may trigger the due-on-sale clause in the mortgage.
 

3.         What about cash accounts and non-retirement investment accounts?
 

Bank and credit union accounts, CDs, and other investments not held in tax-deferred retirement accounts should be re-titled into the name of the trust.  This usually requires submitting new account documentation to the financial institution and providing evidence the trust exists.   

Arizona law permits the use of a Trust Certification as a substitute for delivering a copy of the entire trust document to the financial institution.  This document includes only the essential information without sharing any confidential information about the beneficiaries of the trust.  Many financial institutions have their own form of Trust Certification.

As long as the trust grantor is also acting as trustee of the trust, a separate employer identification number is unnecessary for a revocable living trust.  The trust should simply use the grantor’s social security number.  Any income earned will be taxed to the grantor and reported on IRS Form 1040. 
 

4.         What about business interests?
 

If stock in a corporation is to be transferred into trust, the shareholder’s existing certificates should be cancelled and re-issued in the name of the trust.  Likewise, if LLC membership interests are to be transferred, an assignment should be prepared to transfer ownership.  All corporate transfers should be accompanied by formal authorization from the shareholders and board of directors.  All LLC transfers should be accompanied by written authorization from the manager or managing member.
 

5.         What about cars and RVs?
 

Motor vehicles are transferred into trust by obtaining new title from the department of motor vehicles.  The insurance company should be notified in order to add the trust as an additional insured onto the auto insurance policy. 
 

6.         What about retirement plans and life insurance?
 

A life insurance policy may be funded by naming the trust as beneficiary on a beneficiary designation form supplied by the insurance company.  The exception is for policies to be owned by an Irrevocable Life Insurance Policy, for which ownership of the policy must be in the name of the trust.

A retirement account may name a trust as primary or contingent beneficiary by submitting a beneficiary designation form to the administrator of the account.
 

7.         What about personal effects?
 

Personal effects, household furnishings, and the like, are funded into trust by written assignment.  Since they do not have titles or deeds, there is no need to record the assignment anywhere.


About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection.  He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law.  Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.

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Thomas J. Bouman
Attorney - Author - Speaker

www.TomBoumanLaw.com
Book an Appointment online 24/7
or call during business hours

(520) 546-3558

"To the dull mind all nature is leaden.  To the illumined mind the whole world burns and sparkles with light."  Ralph Waldo Emerson

What You Should Know About Single Member LLCs

What You Should Know About Single Member LLCs
by Tom Bouman

1.         What is a Single Member Limited Liability Company?
 

The limited liability company (“LLC”) is a common form of business entity ownership in Arizona and all other states.  Each owner is referred to as a member; thus, a single member LLC has only one owner.  The general intent behind the LLC is to encourage business development and investment by offering enhanced creditor protection to its members.  However, an active business is not required; rather any person may transfer personal assets to a LLC and may qualify to receive the same benefits as a business owner.

A single member LLC is sometimes referred to as a “naked LLC” because of its limited ability to protect assets from seizure by a creditor of the member.  As a general rule, a multi-member LLC provides stronger protection than a single member LLC.

A single member LLC may own almost anything.  The most common assets held by an LLC are investments such as business property, brokerage accounts and rental properties.

A single member LLC is a disregarded entity for income tax purposes.  Any taxable income is reported by the member of the LLC.

2.         What are the benefits of a Single Member LLC?

First, the member can isolate company liability from personal liability.  If the company is legally responsible for a harm caused to another person or property, the creditor should only be able to enforce a judgment against the company assets and not the member’s personal assets.

Second, the member can isolate company debt from personal debt.  If the company is legally responsible for a debt – generally due to business failure – the creditor should only be able to collect against the company assets.  The member’s personal assets are protected.  Of course, this benefit is irrelevant if the member personally guarantees a debt.

A third potential benefit is protection of the LLC assets from seizure by a creditor of a member. 

3.         Will a LLC protect assets from seizure by a creditor?

Maybe.  The answer may first depend on where the LLC is registered.  Although all states have LLC statutes, one state may have better protections than another.          

The more protective state laws (including Arizona) provide that a charging order is the only remedy a court can use to seize assets from a LLC.  This means that any distributions otherwise payable to the debtor/member must instead be paid to the creditor, but a judge cannot order a distribution of assets.  However, less protective state laws provide that the creditor can foreclose on the LLC membership interests.  State laws also differ about whether a creditor has access to the books of the company or whether the charging order constitutes a lien on the member’s interest.  In sum, the choice of where to register the LLC is a huge factor in determining how much protection a LLC provides.

Another factor is how many members the LLC has.  A single member LLC is vulnerable because the charging order protection was intended to protect innocent members.  If there are no innocent members, the theory is hard to rely upon.  At least one state – Wyoming – has attempted to protect the single member LLC by statute, but even this protection is debatable.

For maximum protection, a single member LLC should be registered in a state where creditor rights are very limited by state statute and be subject to a restrictive operating agreement.  The operating agreement should carefully restrict the rights of a creditor seeking to enforce a judgment against a member.

4.         Who should be the single member?

Typically the single member will be an individual person, although a married couple also qualifies.  If the member’s estate plan includes a revocable living trust, the trust should be named as the member.  In some cases, another business entity will be the single member.

The assets of a single member LLC may be managed by the member (aka “managing member”), or by a separate manager.

5.         How much does a single member LLC cost?

In Arizona, anyone can establish a single member LLC by filing Articles of Organization with the Arizona Corporation Commission.  The fee is $50 (or $85 expedited), plus the cost of publishing the articles in a local newspaper.  Fees in other states are comparable.  Self-help companies will handle basic set-up for a few hundred dollars more, or an attorney can provide legal counsel and handle the documentation from start to finish for about $500 to $1,000.  When a restrictive operating agreement is appropriate, an attorney might prepare a customized document for $1,500 to $2,500.  


About the Author

Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection.  He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law.  Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.

---

                                                                                                            

Thomas J. Bouman
Attorney - Author - Speaker

www.TomBoumanLaw.com
Book an Appointment online 24/7
or call during business hours

(520) 546-3558

"No matter what you achieve, somebody helps you."  Althea Gibson

What is a "Workweek" and How Can it Be Manipulated to Avoid Paying Overtime?

Employers’ continued struggles with labor costs have led to additional hourly-rate cuts, salary reductions, furloughs, layoffs, and similar conventional measures. But are there other potentially less-disruptive and legal options?

You need to get creative.

An FLSA workweek is a fixed, regularly-recurring period of 168 hours – that is, seven, consecutive, 24-hour periods – that the employer expressly adopts in order to maintain FLSA compliance.

An employer can have multiple "workweeks" for different departments/groups/individual employees based on tendencies and work patterns of various groups and departments. In other words, a "workweek" does not have to be Monday through Sunday.

Don't Do This in the Exit Interview

If you're an employee and you work for a difficult employer, have you ever thought of surreptitiously recording your exit interview? If you're an employer, have you ever considered that a difficult employee might be trying to make your life miserable one last time during the exit interview?

A friend from Texas told me about his recent experience: "I recently resigned from my job and secretly recorded the exit interview. During the interview, the HR director threatened to withhold my last paycheck unless I signed a non-compete agreement. I told her the threat was unlawful and that I was recording the conversation. She became enraged and screamed 'get out of my sight! I hope I never see you again for the rest of my life!'"

National Right to Work Act

Senator Jim DeMint (R-SC) has introduced a bill in the U.S. Senate, the purpose of which is to "preserve and protect the free choice of individual employees to form, join, or assist labor organizations, or to refrain from such activities."

You can read the bill here.