USA – NORTH CAROLINA Trends and Developments Contributed by: Kelly Rains Jesson, Jesson & Rains, PLLC
SBA loans , personal guarantees and hidden liabilities Business owners frequently carry obligations that are not immediately visible in a review of their personal bal - ance sheet but that can have significant consequences for their estates and their families. SBA loans, and other obligations that might be personally guaranteed, are a common example. Upon the owner’s death, that per - sonal guarantee becomes a claim against the estate. If the estate lacks sufficient liquid assets to satisfy the obligation, estate assets may need to be liquidated to address it, potentially disrupting the very inheritance the owner intended to leave behind. The implications extend further. Many business own - ers pledge personal assets as collateral for business loans without fully appreciating the estate planning consequences of that structure. Sometimes, business owners will use assets titled in the name of the busi- ness for quasi-personal use (such as their daily vehi - cles) without thought as to the consequences their families must deal with at their death. This is precise - ly the kind of information that a transactional estate planning engagement is unlikely to expose. The ongo - ing client relationship is what creates the opportunity to ask those questions on a regular basis. Connelly v United States and the life insurance question Against this backdrop of operational and liability com - plexity, the Supreme Court’s 2024 decision in Con- nelly v United States , 602 U.S. 257 (2024), adds a layer of tax planning urgency that practitioners can - not afford to overlook. In brief, the Court held that life insurance proceeds received by a corporation to redeem a deceased shareholder’s stock are an asset of the corporation includable in the company’s date- of-death value. The practical effect of this ruling is that the estate tax value of a deceased owner’s interest in the business may be valued much more than the pre- death fair market value, potentially increasing estate taxes and even North Carolina court fees if the busi - ness interest passes through probate (here, the court bases its fees on the value of the personal property passing through probate, and business interests are personal property). Before Connelly , estate planners did not have to think much about life insurance owned by the business.
Now, attorneys working with business owner clients must determine who owns the life insurance on each owner’s life and assess whether the existing owner - ship structure creates a valuation problem. For higher net worth clients, the tax savings available through restructuring can be substantial. For business owner clients, the failure to ask these questions at all is no longer defensible. What this means for practitioners Taken together, the operational vulnerabilities at death, the hidden liabilities in business financing and titling structures, and the valuation consequences created by Connelly make one point unmistakable: business owner clients require a fundamentally different level of engagement than the established standard of just drafting estate planning documents. They require an adviser who understands the business, stays current with their circumstances and brings a level of proac - tive analysis that a transactional model simply cannot support. This is another area where the ongoing client relation - ship yields concrete, measurable value. A client who is in regular contact with their estate planning attor - ney is far more likely to mention a new business ven- ture, a new insurance policy, a change in ownership structure or the addition of a business partner (not to mention, the attorney being more proactive about asking the questions). Otherwise, attorneys leave it up to the client to reach out, and the client does not know that these are triggering events that might affect their estate plan. This level of analysis is not a one- time exercise. Planning for North Carolina families with minor children and the relationships that grow from it Documents that require ongoing attention Most estate plans just name a guardian for a minor child in a will, but this provision only kicks in when a guardian needs to be formally appointed by a court due to death or permanent incapacity. This leaves massive gaps that keep parents awake at night: what if the parent suffers a medical emergency while with their child? What if there is an emergency with the child while the parent is out of town? In addition to the core estate planning documents, it is advisable to draft medical powers of attorney for minors, to
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