Both terms describe important legal documents used in estate planning, but their purpose and function differ significantly.

In this article, we will review some of the most critical things you need to know about living wills and why having a living will is essential to every adult’s estate plan. And it may be that a living will is even more important than a last will and testament.

WHAT IS A LIVING WILL?

A living will, also called an advance healthcare directive, is a legal document that tells your loved ones and doctors how you would want your medical care handled if you become incapacitated and cannot make such decisions yourself, particularly at the end of life.  Specifically, a living will outlines the procedures, medications, and treatments you would want and would not want to prolong your life if you cannot make such decisions yourself.

This is especially true when it comes to closely held businesses, such as LLCs, with two equal owners. In these situations, it’s ideal for key agreements, such as LLC operating agreements, bylaws, or buy-sell agreements to have deadlock provisions. 

Deadlock provisions in an agreement are clauses that outline the actions to be taken in the event that the members are unable to make important decisions because of a deadlock.

A deadlock can occur when there is a stalemate among members over important matters, such as the direction of the business or the allocation of profits. These provisions can include procedures for resolving the deadlock, such as mediation or arbitration, or procedures for dissolving the LLC if the deadlock cannot be resolved. It can also include provisions for buying out one of the member's interests or in some cases removing a member who is causing the deadlock. 

In some cases, you could inadvertently leave a reality in which your surviving heirs—your kids, parents, or others—are responsible for your debt. Alternatively, if you structure your affairs properly, your debt could die right along with you.

According to the Federal Trade Commission, an individual’s debt does not disappear once that person dies. Rather, the debt must either be paid out of the deceased’s estate or by a co-creditor. And that could be bad news for you or the people you love.

What exactly happens to this debt can vary. One of the purposes of the court process known as probate is to provide a time period for creditors to make a claim against the deceased’s estate, in which case debts would be paid before beneficiaries receive their inheritance. But if there is nothing in the probate estate and all assets are held outside of the probate estate, then what?

Well, that’s where we come in, and why it’s so important to get your affairs in order, even if you have a lot more debt than assets. Your “estate” isn’t just what you own, it includes what you owe, too. And with good planning, we can help you align it all in exactly the way you want.

DEBT AFTER DEATH

When an individual dies, someone will handle his or her affairs, and this person is known as an executor. The executor can either be someone of the individual’s choice, if he or she planned in advance, or someone appointed by the court in the absence of planning. The executor opens the probate process, during which the court recognizes any will that’s in place and formally appoints the executor to administer the deceased’s estate and distribute any outstanding assets to their loved ones.

During this process, the estate’s assets are used to pay any outstanding debt. This usually includes all of an individual’s assets, although it does not include assets with beneficiary designations, such as 401(k) plans and insurance policies. The estate does not own these assets, and they pass directly to the named beneficiaries. Given these factors, if an individual’s assets are subject to probate and the person has outstanding debt, their beneficiaries will receive a smaller share of anything left to them in the estate plan.

These records typically include articles of incorporation and annual financial reports, whereby the business lists the nominee as a company officer, member, director, or manager. Nominee services can protect your privacy, which can be useful for a person who likes the idea of running his or her own business but wants to avoid the attention that can come along with it.

WHAT IS A NOMINEE?

According to the Stolen Asset Recovery Initiative (StAR) of The World Bank, a nominee is an individual or corporate entity that rents its name to someone else to protect that person’s identity. Nominees can be any individual, including friends, family members, or professionals like accountants or lawyers. Often, business owners will look for companies that specifically offer nominee services rather than individuals.

The primary reason for company owners to use nominees is to legally ensure the owner’s privacy. However, the Internal Revenue Service (IRS) notably requires the actual business owner’s information when you apply for an employer information number (EIN) for your business. This means that, while the true business details are not publicly available, the IRS does have record of who actually owns the business.

But if you do, you need to understand how these services can backfire on you and your family. Online estate planning can be a catastrophe for those who aren’t aware of the risks. And as you’ll see, creating your will online without a lawyer’s guidance can even be worse for your family than if you’d done nothing at all.

KNOW WHAT’S POSSIBLE—AND WHAT’S NOT 

A great way to start educating yourself is by watching this training video by family financial and legal expert Ali Katz. This free, one-hour training clarifies what you can do yourself online, and when you really need a lawyer’s support. The training also gives you access to an online tool you can use to create an inventory of all your assets, which is critically important to leave to your loved ones, no matter how much or little you have to pass on.  Meanwhile, if you are looking  to create your own will online, first ask yourself the following 3 questions.

After considering these 3 questions, if you determine you can create your own will online, you should seriously consider having us review it for you once you complete the document to be certain you’ve properly covered everything and everyone you care about. 

01 - WILL YOUR ONLINE WILL KEEP YOUR FAMILY OUT OF COURT?

When considering creating your own will online, the first question you need to ask yourself is: “Should I become incapacitated or when I die, do I want to keep my family out of court?” If your answer is “Yes, I 100% want to keep my family out of court,” then creating your own will online may not be the best idea.

While a will is a necessary element of most estate plans, it’s typically just one small part of an integrated plan. And a will by itself won’t keep your family out of court. In order for assets covered by your will to be transferred to your beneficiaries, your will must first pass through the court process known as probate.