Why An Estate Plan Is Vital for Real Estate Investors

Estate planning is the process of making arrangements for how you want your assets to be disposed of if you pass away or become incapacitated. Sure, it might not be everyone’s favorite topic, but estate planning is nevertheless an important task that ensures your hard-earned assets are passed down to the right people and organizations. By making your arrangements in advance, you can leave specific instructions for which of your possessions are distributed to whom, at what time, and how.

While estate planning is important for everyone, it is especially important for those with a real estate portfolio–or at least in the process of building a real estate portfolio. Below are important documents to include in your estate plan if you are a real estate investor.

Wills & Living Trusts

Wills and living trusts are both tools used in estate planning. These documents are mainly used to designate beneficiaries for your property in the case of your death, but each option has different applications. Many choose to keep both wills and living trusts concurrently, so as to take advantage of the different benefits.

One of the main differences between a will and a living trust is that a living trust ensures that your property is passed on in private without going through probate, and without challenges from the court. A will, on the other hand, must be filed in probate court and becomes a public document. The property included in a will is subject to probate court and claims, which can be lengthy and expensive processes. There are multiple ways in which estate attorneys use these documents in order to ensure that real property is transferred as smoothly as possible upon an investor’s death.

Lifetime Planning For Investors: Powers of Attorney & Advanced Directives

A power of attorney is a document that gives one person (an agent) the authority to act on behalf of another (a principal). The principal may grant a limited or wide range of authority to the agent, depending on the principal’s needs. This document is often used for those who want to make sure someone is designated to make financial and business matters on their behalf in case they ever become unable to do so due to incapacitation or other reasons. Real estate investors may find granting an agent power of attorney useful for carrying out business functions such as collecting rents, making payments and managing tenants in their absence.

While powers of attorney generally allow someone to make business and financial decisions on another’s behalf, an advanced directive allows you to designate someone to make medical decisions on your behalf when you are unable to speak for yourself. Times in your life when you may want an advanced directive include if you have a chronic, ongoing health condition, are planning a surgery, receive startling health news, or have other concerns for your well-being. If this hasn’t happened to you, that’s wonderful. But the reality is we can all get sick.

Asset Protection & Tax Planning

An estate plan for real estate investors should also include strategies to protect your assets as well as provide tax sheltering strategies for your investments. To begin protecting your assets, start by creating an inventory of your assets and break them down based on how they are owned. Next, take the necessary measures to ensure that your assets can legally be passed on to your beneficiaries. This process can get a bit more complicated for real estate investors who purchase properties with partners or through an LLC. They will need to form a plan for how to to transfer the ownership of their investments, including those with a surviving business partner.

Our Office Can Help

Our office has served many real estate investors. We have extensive experience in how the various estate planning documents are used for investors. Contact our office today if you have any questions about estate planning. We will review your personal circumstances and help execute the best strategy for you, your business, and your heirs.

Life Insurance: Vital to Your Estate Plan During Coronavirus Pandemic

The world’s latest pandemic, corona virus disease of 2019 (COVID-19), should prompt all Americans to consider our estate plans. Even if you aren’t concerned about passing away from the virus, it’s important to give your loved ones peace of mind during uncertain times. For those of us who are unsure where to get started, life insurance should be one of your first considerations.

Why Life Insurance?

Pay off Debts

Life insurance policies can pay a lump sum death benefit to make sure your loved ones aren’t burdened by any debts you may leave behind when you’re no longer here. It can even help your beneficiaries pay debts that they may currently have.

Provide for Your Children

If you are a new parent, one of the first things you should do when entering parenthood is to make sure your life insurance policy will provide financial security to your children in the event that you pass away. Cover their education and lifestyle until they are able to get established. They may find themselves in a situation such as the current pandemic, where many people are being furloughed and out of work due to quarantine and social distancing measures. Certain situations may arise that may make it hard for them to pay their rent or cover necessities.

Replace Income

Nowadays, maintaining a household requires the income of both spouses. One of the many uses of life insurance is to protect the flow of funds for a surviving spouse. Have you ever considered how your spouse would survive if the income you bring to your household suddenly stopped?

Cover Your End-of-Life Expenses

Funerals can easily cost thousands of dollars. At minimum, you should have a life insurance policy that can cover expenses such as a casket, your ceremony, and your burial plot.

Secure Your Business and Passion Projects

If you are an entrepreneur or have a particular project you’re passionate about, your businesses and projects will be apart of your legacy. As a business owner, you need to think about more than just your family, you need to consider your work and your employees (if you have any).  Life insurance can be used to protect your business and secure your assets.

The Sooner You Get Covered, The Better

Many Americans put off getting life insurance in the face of other debts such as mortgage payments, student loans, and car payments. However, while paying off current debt is critical, putting off buying life insurance has a significant economic impact, much like delaying saving for retirement. It is always cheaper, and sometimes substantially less expensive, for a younger person to buy insurance than an older person. This means the potential benefits of insurance can be just as large and cost much less or may be much larger and cost about the same. In other words, life insurance for a 22-year-old is a better proposition than life insurance for a 55-year-old.

Get Started Today

Getting life insurance coverage is a relatively easy process. Getting a free quote and choosing the right coverage for you can take as little as little as 10-12 minutes. Some companies are even able to get you covered without a medical exam. Don’t let another pandemic happen without having proper coverage in place for your family and business.

Parkland, Florida Shooter Could Inherit Over $400,000; Public Defenders Ask to Withdraw

The public defenders for the Parkland, Florida shooter suspect, Nikolas Cruz, have asked to withdraw from his defense as their client stands to inherit over $400,000 from his mother’s life insurance policy. Lynda Cruz, the mother of the Parkland shooter, passed away from pneumonia in November 2017, just a few months before the shooting. Based on Florida state law, public defenders are not allowed to work for defendants that can afford their own attorney.

The public defenders disclosed the possibility that Cruz would receive an insurance payout last year, but said at the time that it would likely amount to about $30,000. In the new filing, the defendants said neither they nor Cruz were aware the actual amount would be higher.

Because some of the victim’s families have sued Cruz in civil court, a judge could rule that he would not receive the insurance policy pay out and instead have it awarded to them.

Check out the article by Thomas Barrabi, Parkland, Florida Shooter Could Inherit $432,000; Public Defenders Ask to Withdraw.

Luke Perry was Buried in Eco-Friendly Mushroom Burial Suit

According to Sophie, the daughter of the late Beverly Hills 90210 actor Luke Perry, her father was buried in an eco-friendly “mushroom suit.” She says that being buried in the suit rather than a traditional casket was one of the star’s last wishes.

As Sophie explains, when Perry discovered the suits, he “was more excited by this than I have ever seen him.” The burial suits are made by Coeio, a “green burial company,” according to its website. The eco-friendly suits, which cost $1,500, help to “return your body to the earth without harming the environment,” the company claims. According to People magazine, the suits have “built-in mushrooms and other microorganisms” that help to speed up the body’s decomposition process.

Check out the article by Madeline Farber, Luke Perry was Buried in Eco-Friendly ‘Mushroom Burial Suit,’ Late Actor’s Daughter Says, Fox News, May 4, 2019.

Estate Planning for Art Collectors

Last month I had the pleasure of attending the 36th Annual Magic City Art Connection in Linn Park and it was nothing short of amazing. Even though the park was covered with dancing, paintings, music, and sculptures from artists from all over the country, I especially appreciated the work from painters and sculptures here in the local Birmingham area. It wasn’t until a few years ago that I realized how many talented artists were right here in our backyard.

All of this excitement over art brings up an interesting situation to consider: how do you incorporate your art collection into your estate plan? Sure, you likely don’t have an authentic Picasso or Michelangelo, but you may have art that’s been passed down through your family; or maybe you want to start an art collection. Whether you collect paintings, audio recordings, or photography, your plan should include instructions on how to dispose of your most sentimental possessions. Below are a few estate planning considerations for art collectors.

Value of My Art?

When it comes to your estate plan, a primary consideration must be the monetary value of your art. This isn’t always the first thing collectors think about because their passion lies in the art itself, not the monetary value of the art. After all, we collect art because of an appreciation for a certain subject or medium, not the money. However, art collectors (especially high net worth collectors) must remember that their art will be among the many things considered when their estate is valued, which may have various tax consequences.

One way to get started on valuing your assets is to contact an art appraiser. Also, gather bills of sale for your art. This will be useful when the art changes hands in the future. This will also be helpful in determining the whether your art will appreciate or depreciate over time.

Disposing of Art in Estate Plan

Another consideration for art collectors is deciding how to dispose of their art in their estate plan. There are three main ways to dispose of art in your estate plan:

Selling Your Art and Distributing Proceeds to Beneficiaries – This is a very common choice for art collectors. One of the benefits of selling art is that the art will be included in the value of your estate, which may lessen or eliminate capital gains taxes that you would otherwise face if you sold the art during your lifetime.

Donating Your Art to a Charitable Organization – Donating your art to a charitable organization or a museum is an excellent way to dispose of your art. It can also be one of the more simple options. Donating your art through your estate plan will create a tax deduction based on the value of your art. Give while you’re living and you can take an income tax deduction, also based on the value of the piece or collection at the time of the donation. Depending on when and how you decide to donate your art, donors are often able to work out other details with the donees, including where the art may be placed in the museum.

Devising Your Art to Your Loved Ones – Another common option is to keep the art within the family by gifting it to your heirs in your estate plan. You could gift it directly to your beneficiaries in your plan, but a more secure way of transferring your art to your beneficiaries and controlling how they are handled is to transfer the collection to a trust you create while living. This trust can also be useful for tax purposes.

Speak With Your Family

Though estate planning may not be a very fun conversation to have with your family, it is very important to have, especially if you have an art collection. It is highly possible that your family may not feel the same way about your art as you do, which may have an impact on deciding who to give your art to and how to dispose of it at your death. Incorporating your art into your estate plan may be almost as complex as the art itself. If you have questions about how to incorporate your art in your plan, don’t hesitate to contact us today.

Three Documents You Need for Healthcare Decision-Making

Dealing with a family member who’s incapacitated can be a very difficult and emotional experience. One thing that makes it even more stressful is having to make difficult decisions when that family member is no longer able to do so on their own due to being incapacitated. When multiple family members are involved this often leads to quarreling and drama over these decisions. In the absence of your documented wishes on your healthcare treatment, your family and loved-ones are left to speculate what treatment and healthcare decisions you would make if you could speak for yourself. That’s why its important to plan before you become incapacitated.

There are three essential legal documents for making health care decisions that must be in place prior to becoming incapacitated:

  1. Advanced Directive. This legal document, also called Medical Power of Attorney or Medical or Health Care Proxy, gives your agent the authority to make health care decisions for you if you cannot do so because you have become incapacitated.
  2. Living Will. This legal document allows you to state your wishes for end-of-life medical care, in case you become unable to communicate your decisions.
  3. HIPAA Authorization. Federal and state laws dictate who can receive medical information without the written consent of the patient.  This legal document gives your doctor or other health care provider the authority to disclose your medical information to the agent selected by you.

If you or any of your family members need assistance with preparing any of these documents feel free to give us a call at (205) 578-1597.

Requirements for a Valid Last Will & Testament in Alabama

While having a last will and testament is great and essential to every estate plan, it won’t be worth the paper its written on if it isn’t validly executed. Every state has different requirements that a last will and testament must meet in order to ensure that the will is validly executed, but for the most part, every state has many of the same requirements and formalities. If these requirements aren’t met, the will can’t be legally enforced. Below are the requirements for a valid last will and testament in Alabama.

Age & Capacity

In order to execute a last will and testament, a person must be at least 18 years of age. The person must also be of sound mind. To be of sound mind means to be aware of what property you have in your estate, what you want to do with your property, and you must be able to comprehend how your property will be distributed based on your will. A common mistake made by many is waiting until a sick family member is suffering from some form of dementia before urging them to execute a will. This is never a good idea as it will almost always call the person’s capacity into question, which may provide an opening for the will to be contested.

Writing and Signature Requirements

A last will and testament in Alabama must be in writing and signed by the testator (the person writing the will), or at the testator’s direction and in his or her presence. The will also has to be witnessed and signed by at least two people. These witnesses must either see the testator sign the will or witness the testator acknowledge his or her signature on the will. Historically, a person who had an interest in the assets in the will would be disqualified as a witness to the execution of the will. That is no longer the case.

A “Self-proving” Will?

If the above requirements are met, the will has been validly and legally executed in Alabama. However, when the will has to be enforced by a probate court one of the witnesses will have to appear at the probate court in order for the will to be enforced by the court. If a will is self-proving then this step can be skipped.

A “self-proving” will is one that comes with a sworn statement from the testator, who acknowledges that the document is his last will and testament and that he or she is 18 years of age or older, of sound mind, and that he or she is executing the will voluntarily. The witnesses of the will must affirm that the testator voluntarily signed the will, and to the best of their knowledge the testator was at least 18 years old, of sound mind, and was under no duress when signing the will. These sworn statements can be made in front of a notary public. For this reason, most wills are notarized in addition to the previously-mentioned requirements.

If you’d like to know more about the requirements of a valid last will and testament, or if you’d like to have a last will written, contact our office today at (205) 578-1597.

Guardianships and Powers of Attorney: What’s the Difference?

The terms “guardianship” and “power of attorney” are mostly heard when dealing with a family member or loved one who’s incapacitated. But what’s the difference between the two? Are they the same thing? Who needs a guardianship and who needs a power of attorney? When should I get a power of attorney vs a guardianship?

A guardianship is a legal process that gives one person the ability to make decisions for another person. These can be obtained for either an incapacitated adult or a minor child. A Power of Attorney is also a legal tool that gives one person (the agent) the ability to make decisions for another person (the principal). It is a legal document that is usually drafted by an attorney. Historically, a power of attorney became ineffective when the principal became incapacitated. However, most individuals who use powers of attorney for estate planning purposes opt for a “durable” power of attorney. A durable power of attorney remains effective even after the principal has become incapacitated. A person becomes incapacitated when they are unable to make their own financial and healthcare decisions.

So what’s the difference?

A Guardianship can be established when an individual is no longer able to make their own business and financial decisions. Guardianships in Alabama can only be obtained through the court system, and a judge decides who the guardian will be. Generally, a guardianship is used when there are no less restrictive means to make decisions on behalf of an individual.

A Power of Attorney, on the other hand, is created while an individual still has the ability to make his or her own business and financial decisions. The principal can decide who will be his or her agent, when the power of attorney will become effective, and what matters his or her agent can address on their behalf. The principal must, however, have a sound mind when executing this document. If you become incapacitated before you’ve had a chance to have a power of attorney drafted and you happen to need certain business and/or financial decisions made on your behalf, then someone will have to be appointed as a guardian by a court.

The main difference between the guardianship and a power of attorney is that a guardianship takes away the right of the individual to make decisions, while a power of attorney permits another to make decisions in conjunction with the individuals’ choices. There are times when it is necessary to remove the right to make poor decisions.

If I have a power of attorney will I still have to have a guardian appointed for me?

The answer depends on whether the Power of Attorney document is sufficient to meet all the needs of the incapacitated person. You might need a guardianship when a Power of Attorney is limited or not sufficient and doesn’t address certain matters that can be handled on behalf of a principal. In this case, you would need a Guardianship over the person in order to make decisions for them.

Another reason you might need a guardianship is when you have a Power of Attorney, and you need to protect an incapacitated person from being taken advantage of. A Power of Attorney allows another individual to make decisions on behalf of another person jointly. A guardianship goes one step further and takes away an incapacitated person’s rights to make individual decisions on their own.

Contact the Law Office of Rodney Davis, PLLC at (205) 578-1597 to speak with a lawyer who handles guardianships and powers of attorney. Our office can help you determine whether your Power of Attorney document is sufficient and whether you might also need a Guardianship.

More Real Estate Investment Opportunities Coming to Birmingham Area

Birmingham Initiative Seeks to Provide New Opportunities for Real Estate Investors In Opportunity Zones

The Tax Cuts and Jobs Act, signed into law by President Trump in December 2017, created Opportunity Zones to spur investment in distressed communities and in rural low income and urban areas throughout the country. New investments in Opportunity Zones can receive preferential tax treatment. The opportunity zones are delineated by local government officials and approved by the Treasury Department.

Pursuant to the Act, 24 opportunity zones were nominated in the Birmingham area by Governor Kay Ivey and certified by the Department of Treasury in 2018. These 24 opportunity zones cover 77 of Birmingham’s 99 neighborhoods. According to a recent article in the Birmingham Times, Birmingham Mayor Randall Woodfin recently announced the creation of the BIG Partnership, a new initiative that seeks to further advance and incentivize investment in the communities within Birmingham’s opportunity zones. The recent article on the announcement can be found here.

Among the many projects to be provided by the new initiative will be an educational campaign that will educate local residents on the opportunity zones.

To learn more about Birmingham’s opportunity zones and how we can help you get started in real estate investment, contact us today.