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Trusts

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.


Friday, March 13, 2015

Self-settled trusts may not provide asset protection.

Another warning for anyone thinking of using self-settled trusts. A Utah court recently decided that Utah state law should apply to an asset protection trust, even though the stated choice of law in the trust was Nevada.

If the same logic will apply in New York, any local creators of self-settled trusts will be doomed, because New York has a strong policy against self-settled trusts. As a result, any transfer to such a trust my be considered void, and the money may be available for creditors!    As I wrote earlier, there are multiple considerations when choosing a type of asset protection trust to use. Talk to an experienced attorney if you are thinking about asset protection.

http://law.justia.com/cases/utah/supreme-court/2015/20100683.html


Thursday, February 5, 2015

Trusts will be the only solution if the “Step Up” in basis is eliminated

Earlier I wrote a post about what is the step up that President Obama wants to eliminate. Currently, the step up in basis is the favorable tax treatment that heirs get if the assets were held until death by the parent. If the mother buys stock at $20 a share, holds on to it until the share price rose to $100, and then dies, the heirs will not need to pay any capital gains on the appreciation. Obama wants to eliminate this ‘loophole’, treat death as a taxable event, and make $80 appreciation taxable immediately at death.

The unintended consequence of this proposal would likely be an increased use of trusts. If the mother holds the stock that she bought at $20, and thinks that the stock is likely to appreciate significantly (such as, for example, shares of a closely held corporation), she would be better off transferring the stock into a trust. For example, if she transfers the stock when it is worth $30, under the new proposal only $10 would be immediately taxable. Any further appreciation (such as when the stock reaches $100) would take place inside the trust. As a result, it would be outside the estate of the mother, and the mother’s death would not trigger a taxable event.

There are multiple assets who would benefit from being transferred to a trust if this proposal goes through. Art work, income producing real estate, stock of a closely held corporation – basically all the assets that heirs might want to hold on to after the parents’ death, yet whose value is high enough that heirs might not have sufficient cash to pay the death taxes.

 

http://www.forbes.com/sites/janetnovack/2015/01/20/obama-attack-on-trust-fund-loophole-could-increase-tax-advantage-of-trusts/

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.


Friday, January 30, 2015

Top Ten Reasons Why You Might Want a Trust

The federal estate tax threshold for an individual is currently $5.43MM (and double that for most married couples). The New York State estate tax threshold is currently $2.06MM (and set to rise to the federal level by 2019). That all means that for the vast majority of New York residents, estate taxes are no longer an important reason to consider creating a trust.

Does that mean that no one needs a trust anymore? Not exactly. Below are the top 10 reasons why you might still want to create a trust:

  1. You want to avoid probate. If the assets are owned outright at the time of death and there is a will, then the family must go through probate. If the assets are owned outright at the time of death and there is no will, then the family must go through administration. Both probate and administration are costly, long-lasting, and often frustrating court processes. Placing assets in a trust avoids this hassle for your family.

  2. You favor privacy. The text of your will and the names and addresses of the people to whom you left money and property become part of the public record. A trust document, on the other hand, is completely private. If you have unusual family dynamics or a publicly recognized name you might want to keep the distribution of your assets private.

  3. You want to make it easier for your family to get control of your assets. If you place assets in a revocable trust, you can name yourself as a trustee while you are capable of acting. You name a successor trustee (a family member or an institution) to take over in case of you lose capacity or death. The transition is orderly.

  4. You have real estate in more than 1 state. If you have real estate property in more than one state, the family will have to go through the probate process in each state. Each state has its own rules and complications, and attorneys will have to be hired in each of these states.

  5. You have children who are professionals (doctors, lawyers, accountants, real estate owners). By placing assets in a trust, you can protect your children’s inheritance from creditors and malpractice claims. You can also protect your children’s inheritance from divorce proceedings.

  6. You have children or grandchildren who are minor. In a trust, you can specify when and under what circumstances your beneficiaries will receive the money. However, you will still need a will in order to specify who will be the guardian of your minor children.

  7. You have a family member who is not good with money or who has a drug / alcohol / gambling problem. You might want some kind of outside management for that beneficiary’s share of your estate.

  8. You have a child, a grandchild or a relative with a disability. If they are receiving public benefits like Supplemental Security Income (SSI) or Medicaid, you will want to create a special needs trust for any share of the inheritance that they will receive.

  9. You may want to change your mind. A trust often has the language that permits the Grantor to change the disposition of the assets amongst the various beneficiaries of the trust. Thus, if for now your trust beneficiaries are your son and your daughter equally, and later you want to give only 25% to your son, you do not need to create a new trust in order to accomplish that. You can simply write a letter stating your new preferences, and sign it in front of a notary.

  10. It is harder to challenge a trust. To submit the probate or administration petition to court, an agreement from all your potential distributees is required. If one of the children wants to cause problems, the probate process and litigation may take years and cost thousands. A trust, on the other hand, does not require a sign off from the beneficiaries in order for the assets to be distributed.

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.


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