An Owners Intro to Protecting Their Business (Part 4)

A final suggestion of considerations business owners should consider having in place are:

Transfer on Death Deed

A transfer on death deed (TODD) does not affect any of your property rights during your lifetime. It only takes effect after your death. You can still sell the property, use it as collateral on a loan, get property tax exemptions, and enjoy all other property rights. The named beneficiary has no legal right to the property until your death. The sale “voids” the transfer on death deed and it is as if the TODD never existed. You can only give someone the portion of the property that you own. If you and your spouse own the property in equal shares and file a TODD giving the property to someone, like a child or a friend, that person only gets your share of the property. Your spouse still has their share. It must be filed with your County Clerk’s Tax Office where the property is located, and they will forward it to the Property Tax Office to record it. Upon the person passing the original title is listed, a death certificate needs to be filed with the Property Tax Office, and then they will refile the title with the beneficiary with the listed recipient on the TODD.

If you have a will that gives the property to someone else, the TODD “trumps” the will and is considered legally binding and AVOIDS probate. If you already have a will, it is best to talk to an attorney about the pros and cons of using a TODD. If you make a will at some point in the future that gives the property to a different person than the beneficiary listed in the TODD, that provision does not override it. If you change your mind about who you want to get the property, you need to complete the cancellation of transfer on death deed in the will (see below) or file an updated transfer on death deed.

A transfer on death deed does not protect the property from creditor claims. You may use a TODD even if there is a debt or lien, such as a mortgage, against the property. However, upon your death, your beneficiary takes the property subject to all mortgages, liens and claims and will be responsible for paying those debts on the property. If the property owner dies and has other unpaid debts, the property could be tied up in probate court until those debts are resolved.

The TODD beneficiary must survive you by at least 120 hours (five 24-hour days). If not, the property is treated as if the transfer on death deed did not exist.

A transfer on death deed cannot be created by a person acting under a property owner’s power of attorney, however, that person can cancel the transfer of death deed. Currently there are only 29 states and the District of Columbia that have some type of TODD available. Simply look it up in the appropriate state you’re interested in and complete it.

Key Person Insurance - A policy a business takes out on its most valuable employee(s), usually owners. This insurance policy can be deducted from the business expenses if the business is listed as the beneficiary, which is vital to either help the company’s continuation or help with its closure.

Short-Term Disability Insurance - Intended to cover a policy holder for a set amount following an illness or injury if you’re out of work, covering for a term between 3-6 months and may be covered as a business expense.

Long-Term Disability Insurance - Intended to cover a policy holder for a set amount following an illness or injury if you’re out of work as a business owner, covering for a term started and ending determined by the policy and may be covered as a business expense.

Short-Term Care Insurance – Intended to cover a policy holder and provides coverage for 1 year or less for a set monthly amount, but it could last longer and may be covered as a business expense.

Long-Term Care Insurance – Intended to cover a policy holder for a set amount following an illness or injury if you’re out of work. The exact type of coverage varies by policy and amount, but it could last longer and may be covered as a business expense.

If you need assistance to determine if you're classifying your transactions properly or need to discuss other potential tax issues, feel free to contact a tax resolution associate with Bookkeeping-Results, LLC.