By Kim K. Steffan


As a small business owner myself, I understand why my business clients are sometimes hyper-focused on current operations to the exclusion of other business concerns.  The customers or clients to be served today are understandably the priority.

However, business owners can’t afford NOT to have succession plans, both for voluntary exits (like retirement, cashing out, or passing the baton to a younger generation) and involuntary exits (like what happens if the business owner becomes disabled or dies).  One-owner businesses and multi-owner businesses have different challenges to plan for.

For a one-owner business, the plan should always include a will and a durable power of attorney, and may include life insurance and/or disability insurance.  A durable power of attorney gives someone else legal authority to make business decisions or run the business if illness or injury makes you, the owner, unable to do so.  If you have a sole proprietorship, the business literally dies when you do.  The assets of the business will pass to whomever inherits from you by your will or by the intestate succession statute, and business debts will become your estate’s debts.  For the business to have legal continuity after your death, you’ll want to make your business a corporation or limited liability company (LLC).  Your interest in the corporation or LLC passes to heirs under your will or under the intestate succession statute, but the corporation or LLC continues to exist.  If a sole owner of any type of entity dies without a will, the business or its assets may get divided among a number of heirs; this causes practical problems if not all the heirs are interested or talented in running the business.

For multi-owner businesses, failure to plan for one owner’s death may mean that the remaining owners get to be in business with the deceased person’s spouse, parent, child, or other relatives.  Even if the heir is a nice person, he/she may know nothing about running this business.  A properly prepared buy-out agreement entered by all the owners prevents this problem.  It allows the business to buy out the estate of the deceased owner, keeping control in the business, but giving the estate cash instead.  Alternatively, an agreement can provide for an owner to pass his/her interest in the business on to a spouse or children by a will, but converting the ownership interest to a non-voting interest.  The heirs will still receive dividends if the business is profitable, but they won’t have a say in management. Life insurance and disability insurance can help implement these types of agreements.

Lawyers and accountants often take a team approach to helping clients who want to sell their business, or to transition over time to a younger generation or to key employees.  Accountants help with valuing the business and tax planning.  Lawyers help make sure clients have thought through the necessary details, and turn the plan into an enforceable written agreement.  It is important to sellers that they be paid the agreed-upon amount. Special planning is required if the seller wants to do seller-financing, which obviously carries more risk of non-payment than being paid in full at closing.  Tools for sellers offering financing include personal guarantees of payment by the buyer and getting adequate security for the balance owed.  Lawyers and accountants tailor their advice to each seller’s situation, because each one is unique.


Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough.  She can be reached at 919-732-7300 or




By Kim K. Steffan, Attorney


            Job losses during difficult economic times caused some people who had always paid their bills to become delinquent on debts like credit cards and consumer loans.  In some cases, creditors got judgments against them, or threatened to.  A common question in those cases is whether their creditors can take their retirement accounts.  Many of those clients have put a little away each year for a long time, and would hate to lose this retirement nest egg.

            The good news is that retirement accounts which you fund while you are working are generally safe from most creditors.  N.C. General Statute section 1C-1601 covers what assets creditors can seize and sell to satisfy judgments – a topic which is entirely separate from filing bankruptcy, by the way.  Under that statute, money in your 401(k), traditional IRA, Roth IRA, and/or 403(b) is protected.  Whether you file bankruptcy or not, NC law applies to allow an unlimited dollar amount of protection for qualifying retirement accounts.  Your contributions to your employer’s pension plan (like the N.C. State Retirement System) are also safe, but for a different reason – because they are held by the pension plan and are not assets in your name. 

            In fact, if you see creditor problems coming up, you might choose to contribute as much as you can (subject to annual limitations by law, which depend in part on your age) to protect those dollars from creditors too.  If those same funds are left in your bank account or used to purchase an extra vehicle, for example, a creditor can easily take the funds or the vehicle to satisfy a judgment entered against you.

            The rule I’ve described governs consumer debt like credit cards, furniture store loans, deficiency judgments on vehicle loans, personal loans, etc.  As you might guess, there are some non-consumer creditors that can seize your retirement accounts – e.g., when the United States, North Carolina, or a County is the creditor, or when needed for paying alimony or child support.

            Some clients follow up with this question:  Didn’t I hear news about a U.S. Supreme Court case making retirement accounts fair game for creditors?  The Clark case in the summer of 2014 held that when you inherit an IRA from someone other than a spouse, your inherited IRA funds are not protected from your creditors.  Why treat IRAs inherited from someone other than a spouse differently than retirement accounts you have funded?  Those accounts are treated differently for tax purposes than the retirement accounts you fund for your retirement.  Inherited IRAs (from other than a spouse) don’t have to be left untouched until you retire.  In fact, the IRS requires that you take the money out of these inherited IRAs within a few years anyway (because they want to tax you on the income).  That makes these inherited IRAs more like money market accounts than like true retirement accounts.  A special rule still protects IRAs inherited from a spouse, because the law recognizes that most couples plan together for retirement using both spouses’ accounts.  A lot of news coverage that was just too summary made it sound like the USSC had held all retirement accounts were fair game for creditors, which is not accurate. 

            So, if you’ve fallen into trouble with consumer debt, you can usually rest easy that your retirement accounts you’ve worked hard to put away for your future are safe.  They will withstand consumer creditor claims and still be there to help support you and your spouse during retirement.




By Kim K. Steffan, Attorney


            If you are married or in a long-term relationship, consider having all your vehicles titled as “joint with right of survivorship.”  When one partner dies, the other partner will own 100% of the vehicle.  The survivor can transfer the title the easiest way – by bringing the title and death certificate to the DMV office.  No Clerk of Court or estate paperwork is necessary at all.  This saves time, money, and trouble.

            Titling a vehicle this way requires taking particular steps.  The initials “JWROS,” which stand for “joint with right of survivorship” must appear after both owners’ names on the title.  It looks like this:  “John Smith and Mary Smith, JWROS.” Just having both names (like “John Smith and Mary Smith”) without the initials “JWROS” will not give you the benefit of survivorship.  If it’s titled in both names without “JWROS,” half the value of the vehicle will be in the estate of either partner when he/she dies; it does not mean that the survivor will own 100% of the vehicle.

            Because titling vehicles JWROS is not well known, many DMV title clerks and car dealers’ staff are not familiar with it, and don’t think it can be done.  It can. NC law allows it.  I keep at my office to share with clients the section of the DMV Title Manual that permits it.  If you would like a copy at no charge, please contact my office.  It helps to take this with you to the car dealer when you purchase your vehicle or when you visit DMV to get your new title.  (The DMV Title Manual is a handy reference for a lot of things.  It tells you how DMV handles many transactions, what paperwork you need, what fees are charged, etc.  To find it, go to:

            Some clients who aren’t married or with a long-term partner ask me if they should title a vehicle JWROS with their adult child to transfer title automatically after they pass.  I usually discourage that, because it means giving a half interest in your car to your child.  If you decide to sell your car, both your child and you would have to sign.  Your child (as well as you) would have liability as an owner in the event of a wreck.  If your child has unpaid creditors who get a judgment against him or her, the creditor could force the sale of your car. 

            Sometimes a person dies owning a vehicle, and that is the only asset in his estate.  In that case, there is a shortcut so you do not have to probate the estate to free up that asset.  You can take the death certificate, will, and car title to Clerk’s Estates Office. You’ll fill out DMV Form 317 Assignment of Title, which the Clerk will certify for a nominal fee; then, take it to DMV to transfer the title.  If there’s no will, or if the person getting the vehicle by agreement is someone other than whom the will says, all family members must sign the Form. 

            Finally, if a vehicle is titled in the name of a deceased spouse (or is jointly owned but without JWROS), a surviving spouse can list the vehicle on a Years’ Allowance form with the Clerk. Take this form and the title to DMV to transfer the title to the spouse. The Clerk’s fee is nominal.  This option is only available to spouses.

            These are some ways to make it easier to transfer a vehicle title after someone dies without probating a full estate. Which one works best for you depends on your circumstances.



Estate Planning 101: Tools in the Toolbox

Clients often ask me about the basics of estate planning, to help them organize their thoughts and to create the best plan for them.

Basic estate planning tools are as follows:

Wills: A will is often the first tool to come to mind in estate planning. A will designates who will inherit your property after your death. It also designates a person to administer your estate. When beneficiaries are minors, it is critical to name a trustee to manage their inheritance. A will names a guardian to raise minor children in the parents’ absence. Tax reduction tools can be included for estates that may exceed the exemption level.

Life Insurance: Life insurance policies pay proceeds by contract to the named beneficiary, outside of the estate. If an insurance beneficiary is also named in the will, he will receive both the insurance proceeds and the bequest provided in the will. If minor children are primary or contingent beneficiaries on an insurance policy, naming a trustee to receive legal title to the funds and manage them for the children will prevent the Clerk of Court becoming involved in managing the funds. Life insurance companies usually have trust designation forms. Alternatively, the policyholder can name “my estate” as the beneficiary instead of the children, and leave more detailed trust instructions in the will. Some retirement plans also name a death beneficiary, and these are paid by contract like life insurance proceeds.

Power of Attorney: A power of attorney names someone to manage your financial affairs if you were unable to do so. Although married persons may own many items of property jointly, there are always some items that cannot be jointly titled – e.g. retirement plans and government benefits – necessitating a power of attorney. If a person cannot manage his own financial affairs and no power of attorney exists, a guardian must be appointed through the Clerk of Court, which is expensive and time consuming.

Health Care Power of Attorney: A health care power of attorney names someone to make health care decisions for you if you were unable to make those decisions yourself. Some doctors simply ask the family what to do. However, some doctors or hospitals will not take action unless there is a health care power of attorney, living will or a court order. Even if a doctor is willing to implement a family’s decision informally, sometimes family members disagree; a health care power of attorney appoints one person to make the decision.

Living Wills: A living will is a declaration that a person wishes to die a natural death, without extraordinary measures, if he is in a persistent coma, vegetative state or suffers severe dementia. A living will is binding on doctors and health care agents. A living will can be contained within a health care power of attorney, or can be a separate document.

Living Trusts: Living trusts take in all of the owner’s property while she is alive, with beneficiaries named to take the property after her death. The usual purpose of living trusts is to avoid probate, or for privacy. Fortunately, in North Carolina probate is simple and not costly, so we do not have the need to avoid probate that exists in some other states. Living trusts can meet some specialized estate planning needs.

Attorneys can provide more detailed information on these documents. Insurance agents can assist you with various choices in life insurance.

What are”Living Wills” and “Health Care Powers of Attorney”?

Health Care Powers of Attorney and Living Wills are documents that allow you to choose how medical decisions will be made in the event you became unable to make these decisions personally. The need may arise because an older person’s health declines or because a younger person is in a serious accident. Not having these documents when you need them can cause needless expenditure of time and money for your family. Keep in mind that a Health Care Power of Attorney is different than a general Power of Attorney; the latter concerns financial matters and will be discussed in a later column.

A “Health Care Power of Attorney” appoints someone to make medical decisions only in the event you cannot make or communicate those decisions yourself. The person you appoint, called your “health care agent,” is usually a family member or trusted friend.

Why are Health Care Powers of Attorney important? When the patient cannot make medical decisions, some doctors simply ask the closest family member his or her preference, and act on it. However, some doctors will not do this. Those doctors want the protection of legal paperwork, and say that they will not act unless and until they are given a Health Care Power of Attorney or a court order. Obviously, going to get a court guardianship order to discontinue life support or to start or stop some treatment is not what a family wants to do when a loved one is critically ill. This type of court action is also very expensive. When a family wants life support discontinued, there is another financial toll, because while waiting for the court order, the patient’s estate can be depleted by thousands of dollars each day in intensive care charges.

A “Living Will” can be included in a Health Care Power of Attorney, or can be done on its own. A Living Will instructs medical providers about care, especially about whether to provide extraordinary measures like artificial respiration. A Living Will is ideal when a person feels very strongly about not wanting extraordinary measures to keep them alive in the event of terminal illness, permanent coma, severe dementia, or a persistent vegetative state. Some clients prefer to make this instruction in a Living Will so that their family will not have the burden of deciding. However, not every person feels strongly about extraordinary measures. Some feel that the best decision depends on the circumstances, and prefer to leave the decision to their appointed agent. Those persons would not want to do a Living Will, but would instead want to discuss their general preferences with the person appointed in their Health Care Power of Attorney.

Because decisions may be necessary on topics not covered by a Living Will, I recommend that clients include Living Will provisions within a Health Care Power of Attorney, instead of doing only a Living Will. By including the Living Will within the Health Care Power of Attorney, someone will be appointed to make decisions that are not covered by the Living Will if the need arises.

What is a “Power of Attorney?”

A “Power of Attorney” appoints someone to handle your financial matters and personal business in the event you are unable to do so yourself. A general Power of Attorney appoints someone to do anything with your financial affairs that you could do yourself. A general Power of Attorney is often prepared so that is does not take effect unless or until the person who signed it became physically or mentally unable to manage his or her own affairs. A common use for general Powers of Attorney is for someone to be able to handle financial matters for an older relative who is in ill health. They also help younger persons who may be hospitalized for an extended time after an accident. Under a general Power of Attorney, the person appointed can do things like pay bills, apply for government or insurance benefits, sell property if necessary, transfer funds between accounts, etc. It is good advance planning to prepare a general Power of Attorney now, ahead of when you think you may need it, since no one knows when an accident or ill health may happen.

A limited Power of Attorney appoints someone to do a specific thing on your behalf. For example, if you will be working out of town for an extended time, someone at home may need to do your banking while you are gone. As another example, you may want a realtor to attend a real estate closing for you; a limited power of attorney will allow that.

The person you appoint is called your “attorney-in-fact.” Although the person you appoint is called an “attorney-in-fact,” this does not mean the person you appoint is necessarily an attorney. Usually, your attorney-in-fact is someone in your family or a trusted friend. By law, an attorney-in-fact has the duty to act in the best interest of the person who appointed him or her. If an attorney-in-fact intentionally violates that duty, he risks civil and/or criminal liability, especially if he did so in order to enrich himself.

In most cases, a Power of Attorney can be revoked, and a new attorney-in-fact appointed. That is important if circumstances change so that the person who was originally appointed is no longer the best person to serve.

It is important to have a “durable” Power of Attorney, meaning that it is worded so as to remain in effect even if the signer later becomes mentally incapacitated. A Power of Attorney necessarily expires when the person who signed it dies. A Will is needed to appoint someone to handle the estate after one’s death, since a Power of Attorney cannot do that.

What happens if you become physically or mentally unable (either temporarily or permanently) to handle your own financial matters and you don’t have a Power of Attorney? Your family would need to have a guardian appointed by the Clerk of Court. That is expensive and takes time when your family probably already has their hands full. Having a Power of Attorney in place before it is needed is an inexpensive and more convenient alternative to a guardianship.

How can a “renunciation trust” help avoid estate taxes?

Including a renunciation trust in a will is an excellent way to help avoid estate taxes. Tax law allows a married person to leave an unlimited amount of property to a spouse without incurring estate taxes. Problems can arise with the death of the second spouse, not the first. For simplicity, assume that the husband dies first, and the wife second. When the wife dies, tax law currently allows one million dollars to pass through her estate to children or other beneficiaries without estate taxes. If the husband’s death put the entire combined estate into the wife’s name, then the wife’s estate may be over the limit. The husband’s exemption has been lost. Planning with a renunciation trust could have avoided this, preserving the husband’s one million dollar exemption and combining it with the wife’s one million dollar exemption, allowing two million dollars to pass without estate taxes.

A renunciation trust allows the surviving spouse (here, the wife) to take outright from her husband’s estate the amount up to her one million dollar exemption. She then “renounces” the rest of the husband’s estate into a trust. The wife can use the trust principal and interest for support and maintenance, even though she doesn’t own those assets. All of those assets the wife does not use will pass at her death from the husband’s estate (through the trust) to beneficiaries, not passing through her estate. The trust assets will not cause her estate to be over the exemption limit. More assets can pass to beneficiaries without estate taxes.

The beauty of the renunciation trust is that it has no disadvantages. If the estate is small enough not to trigger estate taxes, the wife takes all of the husband’s estate outright without renouncing anything. There is no reason to have the trust active if it doesn’t save tax dollars. If, on the other hand, the estate is large enough to cause tax concerns, the wife activates the trust. For that reason, I recommend including renunciation trusts in all wills for married couples. I do this even for young couples starting out, because the will may never be changed while their estates grow over time. The renunciation trust language only requires adding one paragraph to the will, so it is not complicated.

The advantage of activating the trust only if needed distinguishes the renunciation trust from other approaches, such as a credit shelter trust. In credit shelter trusts, the surviving spouse cannot opt out of the trust, but is stuck with it whether it is needed or not.

The one million dollar individual or two million dollar joint limit may not be as far off as one might think. Many ordinary people have a large life insurance policy or a large death benefit in a retirement plan. When such a life insurance policy or death benefit combines with the other usual assets, one can be over the limit before realizing it. An attorney can help choose estate plans based on your particular needs.

As the parent of a growing child, why do I need a will?

Parents of growing children need wills, perhaps more than any other group. Why? Otherwise, your property probably will not end up where you intend, and the Court will have to guess who should raise your children in your absence. A will is the ONLY way to assure that your children are provided for in the way YOU want.

If you die without a will in North Carolina, the “Intestate Succession Act” controls the estate, specifying who takes what property, and how. You may be surprised to find that the Intestate Succession Act is not very logical, and probably would not do with your property as you would.

If you are married with one minor child, you probably expect that if you died without a will, your property would go to your spouse, who would use it to take care of himself (herself) and the child. It doesn’t work that way. Your estate would be divided between your spouse and your child, so that your spouse would not own everything outright. Then the Clerk of Court (not the surviving parent) oversees management of the child’s share of the property. If the surviving parent wishes to sell the property inherited by him and the child, he must go through a cumbersome and expensive procedure for the Clerk of Court to approve the sale. The Clerk also controls how the child’s share of sale proceeds will be invested or spent. No one would wish that on his or her family.

In some families, a spouse/parent can fully trust that if he/she died, his/her spouse would see that the children are properly cared for – financially, emotionally and otherwise. In those cases, life would be much simpler for the family if there is a will leaving the entire estate to the surviving parent.

If you wish to leave property to minor children (e.g., if you are a single parent), you need a trustee to take legal title to the property and manage it for the children. Having a trustee avoids having the Clerk of Court control management of the funds. If you are a single parent because of separation, depending on the circumstances, you may choose the other parent or a third person (e.g., grandparent) to serve as trustee. You cannot make this choice without a will.

A major concern for all parents is deciding who would raise their children in their absence. If the parents reside together, there should be a substitute guardian named in the will in case both parents die in a common tragedy. If the parents do not reside together, the will should designate a preference (whether it is the other parent or someone else) for guardian. While a court is not bound to appoint the guardian named in a will, that preference usually carries a great deal of weight.

Why do people put off doing wills? Some don’t want to think about it. However, once it is done, unless the family or financial situation changes, it is out of the way. Some think only older people need wills. As this article explains, parents of growing children may need wills more than anyone. Some think it is expensive. While a few people need extensive work with tax expertise, many clients’ needs can be met with modest cost. Many attorneys will discuss fees with you without obligation.

A will is a necessity and a sound investment for those who want control in providing for loved ones— especially children. A will gives its maker peace of mind, and saves expense and difficulties for the family later on.

What is a “trust”?

A trust is a legal arrangement allowing a “beneficiary” to have the benefit of trust assets (money or other property) without owning legal title to the assets. A “trustee” holds legal title to the assets, and manages the assets for the beneficiary. The person who establishes and funds the trust is called a “trustor” or “settlor.”

The trustee has authority both to disburse money directly to the beneficiary and to pay it out for the beneficiary’s benefit. Examples of the latter include paying for orthodontic care, rent, or school tuition. The trustee makes all spending decisions as long as the trust lasts. In addition, the trustee is responsible for managing the trust assets, like selling and investing.

A trust is used where, for whatever reason, the beneficiary cannot or should not hold legal title to the property or manage it. For example, minor children cannot legal own property in their names, so a trust is essential for property intended to benefit a minor. Although a college-age adult can legally own property, a trustor may decide that it is better for the trustee to manage the property until college graduation. In age-related trusts, once the beneficiary reaches a specified age, the trust assets are distributed to him/her outright. Another situation requiring a trust is when the beneficiary is mentally or developmentally disabled, such that the beneficiary would be unable to manage the property or would find the task burdensome. Trusts prevent a beneficiary’s creditors from reaching and depleting trust assets, as long as the assets remain in the trust. Trusts can also be set up to benefit charities.

Trusts can be established while the trustor is living (called a “living trust” or “inter vivos trust”) or by a will upon a person’s death (called a “testamentary trust”). Living trusts can be useful as part of tax and estate planning. Living trusts are set up with a “trust agreement.” Testamentary trusts are used when the person making a will wishes to leave the use and benefit of his/her property after he/she dies to a minor, young adult, or disabled person. Testamentary trusts are set up in a will.

Living trusts can be “revocable” or “irrevocable.” Revocable trusts can be changed or even terminated by the trustor if his/her needs or priorities change during his/her life. The terms of an irrevocable trust cannot be changed. The IRS recognizes irrevocable trusts as gifts for tax planning purposes, but not so with revocable trusts.

Trusts should have a “contingent beneficiary,” to become the new beneficiary if the original beneficiary were to die before the trust were terminated by some other event. Similarly, trusts should also have a “contingent trustee,” who would be the second choice to serve as trustee if the named trustee were unable to continue to serve. An attorney can assist you in making decisions about whether and when a trust may help you achieve your planning goals.

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