Once you’ve hit the pinnacle of personal and financial success, what else is there? Exploration and adrenaline. We get it. If your New Year’s resolution is less “learn to budget” and more “skydiving in the Florida Keys,” this newsletter is for you. Even if you are not seeking the ultimate thrill of climbing Mount Everest while blindfolded, there are still quite a few endeavors that fall under the “ultra-dangerous” category. So, if your hobby involves a plane, boat or deep-sea submarine, then read on to see how you can protect yourself, your loved ones and your business. The attorneys at PLDO stand ready to help you evaluate and plan for any degree of risk, from leaping into a new business venture to putting your head in the lion’s mouth of parenthood and everything in between or beyond.
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| So, You Want to Wrestle an Alligator?
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Before base jumping into the miasma of risk, the first thing you should do is make sure your estate plan, in its current iteration, meets your needs and has adapted to any challenging or changing family situation. A well-rounded estate plan is literally more of a life than (then) death plan. In other words, your estate plan should incorporate aspects of management during your life, and disposition arrangements after you’re gone. Estate planning tools, such as a revocable trust, power of attorney and health care power of attorney, are all intended to have import during your life and could avoid the need for a guardianship in the event of your incapacity.
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The revocable trust and power of attorney ensure legal decisions are made according to your wishes by your fiduciary, who is chosen to act in your best interest, during your life. For example, your power of attorney will be invaluable in making sure your mortgage payments are made if your parachute fails to deploy during your next sky diving adventure. Consider this: do you engage in annual exclusion gifting? Would you want that gifting program to continue during your incapacity? These documents would allow that. The health care power of attorney appoints someone to make health care decisions for you when you are unable.
Once you are gone, the revocable trust will continue to provide for management of your property and make disposition according to your wishes. If the unfortunate were to happen when you are wrestling an alligator in the Everglades, your trust will provide for property management by your successor trustee in your absence. Once the length of your disappearance causes your relations to declare you dead, your trust will provide for the next level of disposition to your beneficiaries. When properly and fully funded, your estate should be able to avoid probate. Do you have minor children? You can specify your preference for guardians in your Last Will and Testament.
Lastly, if you get your kicks from finding money saving nuances in the Internal Revenue Code (as your author does), we can structure a plan that allows you to have your cake (estate tax exclusion) and eat it too (paying the income tax personally while the asset grows tax free).
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How to Buy Ultra-Dangerous Assets
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It’s never a good idea to buy an asset, like a boat or plane, in your own name or to have multiple parties on the title. First of all, when your name is on the title, you are personally liable for any damage that the asset may cause. For example, you and Joe own a boat, Joe takes it out and, by accident, gets to see the inside of that neighboring yacht you’ve been wondering about. You (and your personal assets) can expect to be on the hook for any damages.
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Instead, you and Joe should own your boat (or other asset) through a limited liability company (“LLC”). Owners of a limited liability company (also known as members) are not personally liable for the actions of the company, hence the name. Of course, this isn’t a magic get out of jail card – to get this protection, certain corporate formalities need to be observed, i.e. separate bank accounts and insurance, corporate documentation, and otherwise that treat the LLC as a truly separate corporate entity. While Joe would still be personally liable for his dangerous actions; you would not because you were not there and had no part in the accident. Essentially, only the LLC itself would be on the hook for damages.
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The other benefit of taking title via an LLC is that the chain of title is much cleaner. What if you and four other friends buy a plane, then one of the co-owners needs to sell their interest? You have to revise the title, insurance and other documentation. Or, what if your co-owner suddenly dies while engaging in a dangerous activity? Now you are sharing title with your friend’s estate and must wait for probate administration to play out before you can make any decisions involving the plane. Not so with an LLC. The LLC still owns the plane, you would just be changing the ownership of the LLC, which is not recorded on title and much easier to do.
Looking to purchase a boat, plane, submarine, or other ultra-dangerous asset? PLDO can assist you with all aspects of that transaction, from forming the asset-holding company through negotiating and ultimately closing on the transaction.
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One Risk You Shouldn’t Take is Not Having the Right Life Insurance
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By: Peter S. Strobis, Associate, Estate and Trust Planning, Administration and Litigation Team
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If you never return from your sailing trip around the globe or reemerge from the deep ocean depths on the submarine destined for the Titanic, will your family receive the death benefit proceeds from your life insurance policy? That answer, as well as the answer to many legal questions is, “that depends.”
Life insurance policies have become common for many individuals and families that wish to ensure their loved ones are financially secure after the death of the insured. Life insurance policies can be utilized to fund buyouts or sales of corporate interests, help lessen the estate tax burden, and can provide critical liquidity to a family at the beginning stages of trust and estate administration. Life insurance is so common that many families believe that the claim submission process and payment by the insurance company are a forgone conclusion. Unfortunately, that is not always the case and insurance companies have written provisions into the policies that exclude payout in certain circumstances.
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First, and most importantly, it is critical to determine whether the life insurance policy is an “accidental death” policy, which only pays out in the limited circumstances of a truly accidental death. Accidental death policies do not cover deaths from “natural” causes, which include illness, cancer, and other diseases. Furthermore, accidental death policies do not cover accidental deaths caused during the course of “risky activities,” such as sky diving, SCUBA diving, and private aviation travel or accidents that derive from “illegal activities,” such as drunk driving.
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Even if your life insurance is not an accidental death policy, there are generally exclusions that the policy holder should be aware of. Most policies will exclude “dangerous or hazardous” activities from coverage, which include most of the risky activities listed above (and probably a few more).
While it is important for everyone to routinely review whether their existing life insurance policies cover their immediate needs, it is much more important to review before you engage in a dangerous endeavor or risky hobby so that you know whether such activity is covered under your policy.
The attorneys at PLDO can assist in determining whether your current policies cover your needs, can analyze planning options for existing policies that no longer meet your needs, and can facilitate communications with trusted insurance specialists on your behalf.
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PANNONE LOPES DEVEREAUX & O'GARA LLC
2424 NORTH FEDERAL HIGHWAY, SUITE 260
BOCA RATON, FL 33431 | 561-362-2030 | PLDOLAW.COM
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