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Saturday, March 23, 2019

7 Tips for Keeping Trusts Flexible in a Rapidly Changing World

One hundred years ago there were no commercial airplanes, women couldn't vote, the average family had 5 children, divorce was rare, children born outside of marriage had no inheritance rights, and surrogacy was virtually unheard of. In 2019 we have same-sex marriage, flexible gender identity, assisted reproductive technologies, digital assets, cryptocurrencies and an epidemic of lonely seniors. What will our society be like in 20 years?  The pace of change is increasing, so while you draft your documents today, make sure that these documents are sufficiently flexible to adapt to our unknown future.  


Read more . . .


Sunday, March 29, 2015

The battle for the estate of an elderly heiress and the wrong lessons for estate planning

A book (and soon to be a movie) Empty Mansions tells a story about Huguette Clark, a reclusive heiress to a copper mining fortune. Ms. Clark’s father, W.A. Clark, was the founder of Las Vegas and the copper king. His daughter spent the last 20 years of her life in a hospital, even though she was healthy.

During the last years of her life, she made large gifts to the people who were taking care of her – nurses, doctors, lawyers, accountants, etc. After her death, even though she wrote a Will and made it abundantly clear that she did not want her relatives to inherit any of her money, a long estate battle ensued. A lot of her charitable wishes cannot be carried out now because of the millions of dollars that went to lawyers, the unanticipated money that went to relatives, and the millions that had to be paid to the IRS.

There are many lessons from her (botched) estate planning that any good estate planning attorney will explain to a client:

  1. Consider creating a trust and place assets in it during the creator’s life. Trusts are harder to challenge and the information in them is private.

  2. Do not leave bequests to your accountant and your attorney in the will.

  3. Get an independent doctor’s opinion about the competency of the person making the bequest.

  4. Hire a competent accountant and a lawyer who understand the complexities and interplay of estate taxes, basis step up rules and charitable bequests. Estate planning is a very specialized area. A generalist attorney is unlikely to understand all the implications of one’s actions.

 

The information in this blog was adapted from

http://www.foxbusiness.com/personal-finance/2015/02/19/how-elderly-heiress-lost-her-300-million-fortune/

 

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


Wednesday, January 14, 2015

Celebrity Estates – the smart and the not-so-smart ways to leave the money.

Three beloved celebrities died in 2014 – Robin Williams, Phillip Seymour Hoffman and Joan Rivers. Both their deaths and their estate planning could not have been more different.

Robin Williams left behind 3 children from 2 separate marriages. During his life, Mr. Williams set up trusts for his children. The trusts are structured in such a way as to provide 3 separate payouts to the children – when they reach 21, 25, and 30.

This was a smart way to leave the money. Unlike a will, whose details are public, these trusts are private instruments, so the amount of money in the trusts and conditions of the payouts remain private.  Furthermore, the money is protected from the children’s mothers – whatever their eccentricities may be, and whoever their new spouses may be. The money is also protected from the children’s own immaturity – at least the hope is that a child at 30 is more mature than a child at 18. Finally, by taking the money out of his estate during his life, Mr. Williams may have avoided having his heirs pay an estate tax on their inheritance.

After his death, it was disclosed that Mr. Williams was diagnosed with Parksinson’s disease and Lewy Body Dementia. Had those trusts been established after his diagnoses, they would have been subject to potentially long and costly court battle. By establishing these trusts before he became ill, Mr. Williams saved his family a lot of money and pain.

Phillip Seymour Hoffman, on the other hand, left his entire estate of $35MM to his partner, the mother of his 3 children. He left nothing to his children directly.

This was not the smartest way of leaving the money. First, all the details of his estate are public, since everything passed through a will. This result could have been avoided by the use of a revocable trust. Second, Mr. Hoffman’s partner had to pay a $15MM tax on the inheritance: since they were not legally married, she could not take advantage of unlimited marriage deduction. This high amount could have been avoided by a marriage, or at least reduced by through the use of lifetime gifts. Third, this plan places a lot of trust into one person – the partner. She is now free to squander the money, leave it all to charity, or leave it to one of the children to the detriment of the others. She could also be sued (i.e. by an angry driver) and lose the money in a lawsuit. Overall, not a fair result to the children.

It is understood that Mr. Hoffman did not want his children to become ‘trust fund babies’. However, his desire could have been achieved by having a trust whose payout is contingent upon his children achieving certain results in life (graduating college, keeping a job, remaining drug free).

Joan Rivers’ estate was worth approximately $150 million. She wrote a will, where everything that she owned was left to a Trust (this is called a simple ‘pour over’ will). Reportedly, the trust language provides that she left her fortune to a combination of her daughter, grandson, friends and charity.  The executor and trustee is Ms. Rivers’ daughter. The charities that were important to Ms. Rivers were listed in the trust. The friends whom Ms. Rivers wanted to benefit were named in the trust. At the same time, the actual amounts given to each beneficiary remain private (because, unlike a will, the trust document does not need to be made public). Furthermore, there is a provision in the will that anyone who challenges either the trust or the will is going to be completely disinherited.

This was a clearly well thought out plan, put together while Ms. Rivers was in full command of her facilities.  Regardless of whether or not Ms. Rivers’ estate taxes were minimized, her wishes were fulfilled and the people and causes that she wanted to benefit will receive her money.

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