Clients Divorcing? Be Sure to Handle These Estate Planning Details

Review all documents to ensure the right people inherit.

In my 30 years of practice, I have come to the conclusion that while a client may not want to be married to the person he or she is married to, that does not mean he or she wants to be divorced. Therefore, as the divorce progresses, emotions swirl, and anger and angst set in. The CPA, who has ongoing, in-depth knowledge of the client’scracked egg shell image, estate planning financial situation, can be instrumental in making sure that all details are attended to during this turbulent time.

Here are some issues CPAs and their clients must take into account during a divorce:

  1. Restraining orders. In many states, when a divorce petition is filed, what is known as an “automatic temporary restraining order” is put in place. Under a restraining order, most estate planning (such as changing estate planning documents or the designation of beneficiaries) cannot occur without a court order. In essence, all planning comes to a halt (unless a court rules otherwise) until the divorce is over. However, some documents may be revised while the divorce is pending. These may include a financial durable power of attorney and health care proxy documents, and documents that pertain to the disposition of the client’s remains. Ensure that your clients review such documents, especially if they put the client’s spouse in charge.

  3. State law, particularly as it applies to wills. In many states, a divorce, once completed, revokes the provisions in a client’s will that name a spouse as a beneficiary. However, you should still encourage divorcing clients to review and revise all estate planning documents, especially wills. Otherwise, they may unintentionally leave portions of their estate to an ex-spouse or former in-laws, as happened in a recent case in New York (In re Estate of Lewis, 978 N.Y.S.2d 527 (N.Y. App. Div. 1/3/14)). New York resident Robyn Lewis left everything to her husband, including her home, in her will. She got divorced, but did not change her will before she died at age 43. Though, under New York law, her ex-husband was now not allowed to inherit, Lewis had left her home to her father-in-law as a default provision—a provision not automatically revoked under New York law. Lewis’s family of origin contested the will, but the New York appellate court upheld the decision that the home now belongs to her ex-father-in-law.

  5. Beneficiary designations. When a client gets divorced, you should review all primary and secondary designations of beneficiaries for his or her life insurance policies, IRAs, and annuities, as getting a divorce does not automatically revoke those contract beneficiaries. In Hillman v. Maretta, 133 S. Ct. 1943 (U.S. 2013), for example, the U.S. Supreme Court ruled that a man’s ex-wife was still the beneficiary of a $124,558 life insurance policy, even though he had remarried before his death, as he had not changed his beneficiary designation after they divorced.

  7. Life insurance. Life insurance policies need be carefully reviewed to determine how the divorce will affect them. For example, if a couple purchased a second-to-die life insurance policy because they thought the marital deduction would defer the estate taxes until they both died, that policy must be reviewed to see what happens in the event of a divorce.
    Sometimes, after a divorce, one party does rightfully remain the beneficiary of a life insurance policy on his or her ex-spouse’s life. In these situations, the named beneficiary should, during divorce proceedings, mandate that the policy remain in force and that duplicate statements be mailed to his or her ex-spouse to ensure that payments are made on time.

  9. Estate tax. After they divorce, clients will lose the estate tax marital deduction—and therefore incur higher estate taxes if their spouse dies before they do. Prepare clients for these extra taxes by discussing topics such as what assets will cover the estate tax and whether they should obtain additional insurance.

  11. Embedded income taxes. In a divorce, many clients view the assets at their current values. The reality is that an asset may have a significant embedded gain because of a very low cost basis, depreciation, or recapture or because it is a non-Roth retirement planning asset. CPAs can call a client’s attention to embedded taxes and make sure they are taken into account in determining how the assets are to be divided.

If you are representing both spouses, be aware of potential conflicts of interest when providing advice to either of them that may be perceived as being adverse to the other spouse. In addition, ensure that both spouses have formally agreed to have the CPA represent both parties during the divorce. CPAs should consider the guidance on conflicts of interest in the AICPA Code of Professional Conduct (1.110.010 Conflicts of Interest for Members in Public Practice).

Patricia Annino
is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

Avoid these common mistakes when preparing a federal estate tax return

Attention to detail will keep your clients from paying more taxes than they should.

keyword image, estate taxes, estate planning, tax returnsAs a CPA, you may be asked to prepare or review the federal estate tax return, Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. This form, which is due nine months after a client’s death, provides a snapshot of the assets included in the decedent’s taxable estate. The assets are valued as of the date of the client’s death and this value (for most assets) restarts the income tax basis for the assets included in the decedent’s gross estate. However, unlike on the income tax return, the client’s estate planning documents and how the assets are titled may determine how certain assets are characterized and whether certain elections should be made. Therefore, in my experience, it’s best if you and your client’s estate planning attorney both work on preparing Form 706, especially if it’s not a form that you prepare regularly. That way, you can work together to avoid costly errors such as the following:

  1. Missing the filing deadline. The estate tax return must be filed nine months after the date of death. Not doing so can jeopardize elections and cause interest and penalties to be due. If it will not be possible or practical to file the return on time, then you should file Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes in a timely fashion. Keep in mind, however, that while filing Form 4768 provides an automatic six-month extension to file Form 706, it does not automatically extend the time allotted to pay the tax. If your client needs more time to pay, you must request an extension to do so (on Part III of Form 4768), but it’s up to the IRS whether to grant the extension.

  3. Not electing portability on the federal estate tax return of the first spouse to die. Sec. 2010(c) allows any unused federal estate tax exemption to be “portable” and therefore available to be used at the surviving spouse’s death—but only if the portability election is made on the federal estate tax return of the first spouse to die. Even if you do not think the surviving spouse will need to use the exemption, elect portability anyway, because his or her financial circumstances may change.

  5. Not including prior gift tax returns with the federal estate tax return. If you’re not a client’s first adviser, be sure to check whether his or her previous adviser prepared and filed any gift tax returns for him or her. Clients sometimes do not remember these details, so, after a client dies, have the named fiduciary write to the IRS Service Center and request copies of any prior gift tax returns. This is an important step to take, as prior gift tax returns will affect the amount of available estate and generation-skipping tax exemptions, which, in turn, affect the amount of any tax due on the federal estate tax return.

  7. Not including a tax allocation clause in a will and trust. Every will and trust should incorporate what is known as a tax allocation clause that allocates the taxes among the beneficiaries or against the residue of the estate. If there is no such clause in the document, then the law of the state in which the client is domiciled controls the allocation, and tax may be allocated to assets that would otherwise qualify for the marital or charitable deductions.

  9. Not providing adequate documentation for the assets that are valued on the return. Assets such as real estate, tangible personal property, and the interests in any closely held businesses can be hard to value. When adequate documentation is not obtained, the risk of an audit dramatically increases. Should taxes be assessed, penalties may also apply. Have appraisals (not opinions of value) made that show the fair market value at the date of death for these assets, and submit them with the tax return. These appraisals should be thorough and show comparable sales. If a discount from value is taken on the return, the appraisal should explain why that discount is the right one. The discount should also be a specific figure and not a range.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

Can Another State Tax Your Trust?

You could owe a state tax simply because a fiduciary or beneficiary was located there.

By Amy Feldman

Smartly setting up trusts requires knowledge of state tax laws, not just federal rules. Consider Robert L. McNeil, a couple of an image with an attacking cash register, non grantor trustchemist and onetime Pennsylvania resident who amassed a fortune as the business brain behind Tylenol. McNeil established trusts for his family but chose to locate them in Delaware, for tax purposes.

When Pennsylvania sent the trusts a tax bill of more than $500,000, the chemist’s family fought back. In May 2013, the Pennsylvania Commonwealth Court ruled that, despite McNeil’s residency in Pennsylvania at the time of the trusts’ creation, there was insufficient connection to the state for it to impose its income tax.

Score one for wealthy families who set up trusts in no-tax states like Delaware and South Dakota, then fight against another state’s tax grab. Fighting back isn’t easy. Pennsylvania has one set of rules and California has another, while New York — wising up to some of the complex tax-avoidance techniques used by wealthy families — changed its rules last year to crack down on certain maneuvers. “Each state has its own little unique twists and turns,” says Heather Flanagan, a senior wealth planner at PNC Wealth Management. “It’s kind of a hodgepodge right now. It would be nice to have some uniform law.”

Start by knowing that there are two types of trusts for tax purposes, grantor and nongrantor. With a grantor trust, all of the trust’s income-tax items (gains, losses, deductions, and credits) pass through to the person who set up the trust. With a nongrantor trust, the accumulated income in the trust is taxed at the trust level. The highest federal income-tax rate for trusts is 39.6% (plus the 3.8% Medicare surtax) on trust income above $12,300 for tax year 2015; state tax rates can reach double digits in places like California and New York. Beneficiaries, meanwhile, owe income tax on the distributions they receive from a trust, subject to complex calculations on what constitutes income.

IF YOUR TRUST HAS INCOME that’s sourced from another state — a rental property located there, say — you’ll generally owe tax to that state. But for a state to tax all of a trust’s undistributed income, it needs to have a substantial connection, called a “nexus,” to that state. The rules are all over the map: Your trust could be considered a resident of a state simply because the person who set it up was a resident there, or because the trustee, fiduciary, or beneficiary lived there.

You could, in fact, owe state income tax in several locales. In one infamous case, California levied a tax on a beneficiary of a Missouri trust when he received a final distribution, even though the trust had been paying Missouri state taxes during the previous years. PNC’s Flanagan points to a client who lived in Maryland and was paying taxes on a Delaware trust in several states, and wanted to decant the trust, or move the assets in it to another trust, to lower state taxes (see “How to Bust a Trust,” Penta, March 4, 2013). “We were not comfortable with their stance, so they went to another trustee,” she says.

While you may be able to get a tax credit in one state for state tax paid to another, the overlapping rules are so complex it’s not always clear how to claim one. Double taxation can happen, says Ronald Finkelstein, a tax partner at Marcum, a national advisory firm. Such issues regularly crop up in California, where there are many traps. If a New York family set up a directed trust in Delaware, then named a financially sophisticated friend in California to oversee the trust’s portfolio or to make distributions, it could face a tax hit in California.

What’s a person to do? Some wealthy families will pre-emptively move — or switch trustees — to avoid such problems. In one such case, a Californian who had sold a building-materials business for hundreds of millions of dollars, relocated out-of-state in advance to avoid the hefty state-tax hit. No surprise: Going into internal exile for tax reasons has become “a highly contentious issue in California,” says Matthew Brady of Wells Fargo Private Bank.

A client of Finkelstein’s switched from a grantor to a nongrantor trust and dropped a trustee who would have established a connection with a Midwestern state that could have staked a claim. Hundreds of millions of dollars of stock were in the trust, with a cost basis of zero for tax purposes, explaining why we were asked not to identify the players.

This, in short, is a high-stakes game of cat-and-mouse, pitting rich families wanting to hang on to their assets against states desperate for revenue. New York’s new rules crack down on a complicated planning technique known as an Incomplete Non-Grantor Trust; the strategy is to essentially straddle the rules of grantor and nongrantor trusts to cut state income taxes for residents of high-tax states. States, of course, are on to the technique. “New York is the most aggressive on doing this,” says PNC’s Flanagan. “Other states may follow.”

The game is ongoing.

Source: www.barrons.comIllustration: Dan Picasso for Barron’s E-mail:


Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

A Generous (and Unwanted) Gift

people in bed image, estate planning tipsBy MICHAEL BAHLER

My father has always been generous with his money. I didn’t have to pay for college or law school or even for the confused year I spent at Princeton taking graduate courses in sociology.

When my mother was sick, I moved back from Washington to be near her and help with her care. While there, I tried to start a legal-research business, for which my father paid the start-up costs and then the winding-down expenses. Most of the money in my children’s college funds is from him.

He would cover random needs, too, like sending me home after a visit with new boxer shorts, dress socks and Allen Edmonds loafers (size 11½, even though I am a 12). He had bought these things for himself but wanted me to have them and wouldn’t take no for an answer.

“He’s like his mother,” my mother said, smiling. “Except instead of trying to get you to eat food, he gives you underwear.”

As a successful cardiologist, my father can afford to be generous. He never invested in stocks, but he earned a lot and lived a frugal life. Besides buying laptop computers and a Volvo station wagon every seven years, the man buys almost nothing. He doesn’t take vacations or go to Atlantic City.

My sister recently treated him to dinner at a nice restaurant. When I asked him how it was, he said: “Good. But Burger King is just as good.”

After my mother died, my father told me he was giving me his house.

This offer was different, and not just because a house is obviously a big gift.

My father had not slept in my parents’ bedroom since my mother died, choosing a couch in the family room where she spent her final weeks in a rented hospital bed.

In the months since her death, he had not cleaned out any of her things, not even the wig she wore to chemotherapy.

It seemed he was desperate to leave the house to escape the reminders of my mother, but he couldn’t bring himself to sell it because there was too much history.

My two sisters already had houses they were happy with. The only way he was going to get to leave was if I agreed to take it. But my father couldn’t tell me why he really wanted to leave the house, so he made it seem as if he were doing it all for me.

“Your two boys need a house,” he said. “They need a backyard. Your wife wants a house.”

My wife, Jen, had been wanting to move out of our apartment and into a house, and she appraised my parents’ home objectively. It was in a good neighborhood on a quiet street. The backyard was big and level, so our boys could run loose and she wouldn’t have to trek to a playground.

The house was small; my parents had bought it right after my father finished his residency, when they had little money. With few windows and stained wood paneling, it was also dark and out of date. But Jen said if we didn’t have a mortgage we could take our savings and remodel.

To me, it was the house I grew up in and the place where my cancer-riddled mother had just died. And while I may be wearing my father’s boxers, I wasn’t going to move back into his house. I kept telling him no.

“You’re making a mistake,” he would say in a singsong voice.

“So be it,” I would singsong back.

In earlier times it was common for people to stay in the house in which they were raised. But these days leaving home permanently is the goal, and to move back feels like the ultimate failure.

Plus, I had been a high-school misfit with few friends and I still avoided restaurants and other public places in my hometown for fear of bumping into former classmates. I couldn’t see moving to a place where I would have to go into hiding.

And if I took the house I knew I would never be able to sell it because I couldn’t even bring myself to throw out scrap paper with my mother’s handwriting on it.

In February, I called my father to tell him my youngest son had said his first word.

“You’re missing out on a great house,” he said.

“Don’t you want to know the word?”

“It’s got dual-zone heating and air-conditioning. Andersen windows. Solid oak doors and cabinets.” My father had installed the doors and cabinets himself.

When I was a child, my parents were always looking for a better house, and on weekends they’d drag us along to see all these pricey homes. I would fight with my sisters in the back seat and then complain I was bored as we toured each house. If I had known I was looking for a home for my future wife and children, I would have paid much more attention.

“The dishwasher’s still great after 40 years,” my father said.

“No,” I told him.

In May, I called to wish him a happy birthday.

“You know, your son would do much better in this house,” he said.

My eldest was having serious kidney issues at the time.

“It’s all the dust in your apartment,” my father said. “The air is horrible there. You need to bring him to this house. It’s like the country here. You’re harming your son by staying at that apartment.”

My father was a doctor, so I couldn’t totally dismiss his opinion. To be safe, I mentioned his dust theory to my son’s New York nephrologist, who shook her head and looked at me as if I were bonkers.

In July, I asked my father when we were having Mom’s unveiling.

“She’s still in the house, Michael. I can feel her here. She’ll look after you. She’ll look after your family.”

“You think I want to move to a house where Mom died?” I said. “You think that doesn’t affect me also?”

“You could always knock down the house and build something you like,” he said.

“So Mom’s still in the house, but you want me to knock it down?”

“Think about it financially.”

I didn’t want to think about it financially.

“You wouldn’t have to take out a mortgage.”

I put thoughts about not having a mortgage out of my head.

“Why don’t you move to the house,” he said, “and if you don’t like it after a year, sell it and find someplace you like?”

“You’d really let me sell it?”

“It would be your house. That would be up to you.”

I felt as if I was being conned, but it would be a great financial move. Plus, who was to say my father wouldn’t remarry and leave everything to his new wife? The house might be my only chance at an inheritance.

“No, Dad, I can’t do it.”


“Don’t you want more for me than to live in that house? Why would you want me to live there?” I was on the verge of tears.

“It’s a great house.”

Over the next year, he kept pushing. I’d be seduced by the positives and then unnerved by the negatives.

Finally he told me he had already given me the house and showed me a property tax bill with both our names on it. Without telling me, he had gone to a lawyer and made us joint owners.

“That doesn’t mean I have to take it,” I told him.

He kept on me until my views began to shift. Maybe he had just worn me down, but the numbers suddenly seemed better, and I stopped thinking about the negatives. Jen and I decided to take the house and we moved in.

In our apartment, I slept on the right side of the bed and Jen slept on the left. But it felt weird to be in my parents’ bedroom sleeping on what was my father’s side of the bed, even though it wasn’t his bed; he had taken that to his new house three blocks away.

I begged Jen to let me switch sides and she agreed. I thought it would be better until I realized I was sleeping on my mother’s side, and that felt equally weird.

“Can we switch back?” I asked.

She moaned and I crossed over her.

I stayed there for a while and then inched toward the middle, where I had sometimes slept as a child when my parents let me come in after I had a nightmare.

I woke the next morning splayed across the bed, feeling anxious and unsettled. But then the sunlight beamed at me through the blinds, and I heard my two boys frolicking in the hallway, happily oblivious to history.

Time to put on a pair of my father’s boxers and start my new life.

Michael Bahler, a writer, lives in New Jersey.

Source: The New York Times

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

Help Your Clients Choose the Right Beneficiaries

beneficiaries, willFor many clients, estate plans control the two most significant assets they own: their retirement planning assets and their primary residence. But even well-drafted estate plans can fail if a client names the wrong person the beneficiary of a retirement plan, annuity, or life insurance policy.

CPAs, as the quarterbacks of the financial or estate planning team, have an important role to play in ensuring clients choose the right beneficiaries. Here is what CPAs should keep in mind when helping their clients make this crucial decision.

Ask your clients the right questions.

To ensure that your clients designate their beneficiaries in the best possible manner, be sure to ask them the right questions when performing an annual review. Who are the current beneficiaries of their assets? Why (and when) were the beneficiaries designated the way they were? Does the entire financial/estate planning team know who the beneficiaries are? Asking these questions in an annual review may make clients aware of new options. For example, a client may remember that he designated his ex-wife as the beneficiary of his life insurance in case he died before his child support obligations were fulfilled, but realizes now that his children are grown child support is no longer a factor. Or a client whose son is struggling with debt and facing creditors may see that it’s better to establish a trust for the son rather than making him the primary beneficiary of her life insurance policy.

Make sure clients’ estate plans stay up-to-date, even when their circumstances change.

Significant life events such as marriage, divorce, and remarriage, for example, require clients to update their estate planning documents. But clients sometimes fail to complete the necessary paperwork. The legal process of a divorce, for example, can be emotionally and financially devastating, and clients may not feel like tying up all the loose ends—such as revising an estate plan—right away. Clients also may forget to update their beneficiary designations if they change advisers midway through making an estate plan.

Show clients how their choice of beneficiary affects their entire estate plan.

Many clients designate their beneficiaries in isolation, without thinking through the effect that decision will have on their entire estate plan. This decision can lead to serious federal or state estate tax consequences. Estate plans can founder if clients’ non-probate assets (those that pass by ownership or law or by contract designation beneficiary) aren’t properly coordinated with their probate assets (those that are in the decedent’s name alone and will pass through the probate estate, either by will or by the laws of intestacy if the client does not have a will). CPAs can help by showing clients how their beneficiary choices affect the whole plan, and encouraging them not to view the designation of beneficiary as a stand-alone decision.

Inform clients of the financial implications of the beneficiaries they have chosen.

Clients sometimes don’t fully understand the implications of how they designate assets to beneficiaries. For example, a client may name his minor children as beneficiaries of an IRA or retirement planning asset without realizing that the children will be able to use the funds however they wish when they turn 18 or 21 (depending on what state they live in). In the case of a significant asset, the client may be better off establishing a trust that will control the asset until the children are older than that. Or a client may name a trust she established as the primary beneficiary of a retirement planning asset, without understanding that stretching out the benefits over the lifetime of a trust is generally not permitted except in the case of a special trust known as a “see-through trust.” Advisers must consider all these implications and be sure their clients understand them.

Pay special attention to tax apportionments.

CPAs should also review the tax apportionment language in a will to determine how any federal and/or estate taxes that are assessed will be allocated among the assets. If this is not done carefully (and the plan reviewed on a continuous basis) beneficiaries under the will can be inadvertently disinherited. Specifically, if a will provides that all taxes are to be paid from the residue of the estate and not apportioned among the beneficiaries who receive the assets under the will, then beneficiaries who receive significant specific bequests could receive those assets free of any federal or state estate tax, while beneficiaries who receive their inheritance out of the residual estate will have their bequests reduced by the payment of all the federal and state estate taxes, not just the taxes attributable to their share. Likewise, should a client change the designation of a beneficiary later in a way that is inconsistent with the will—for example, by naming one child the beneficiary of the IRA and all other children the beneficiaries of his will—the consequences to the other children who take under the will can be disastrous.

As part of your review of your clients’ financial picture, you, as CPA, are in a strong position to look out for complications that arise when the right beneficiaries aren’t selected, and to advise your clients appropriately to ensure they have a current, coordinated, and integrated estate plan.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

Fundamental Family Estate Planning Goals

estate plann image, After you have given some thought to what the true north fundamental goals of your family are (and if you are new to the family, how your true north values mesh with those of the family you are blending into) then the question is: what do you do with that? At what velocity are your goals set? Are you happy at a modest level? Do you wish to shoot for a sonic boom?

If a strong sense of family and family safety is a paramount value, what goals to you put in place achieve it? I would assume that open communication would then be critical so that there are no surprises. Does that mean every member getting together on a regular basis?

If you do not live near each other, does that mean regular virtual communication? Do you establish a system for mentorship within the family? Does the family have a no-questions-asked “family bank” for emergencies? Is there a “travel bank” for family get togethers? Do you have a grandparents “summer camp” where the grandparents and grandchildren all get together for one week each summer (without the middle generation) and embark on a series of educational and recreational activities where the focus can be on the wider concept of family? Do you wish to establish family traditions that will continue on for subsequent generations and show the connections and strength of the family as it expands? The Kennedys had their family compound in Hyannis Massachusetts. Other families have weekend reunions in different locations. What would yours be?

How are holidays handled? Do they rotate? Do you have a common facebook site that posts pictures and has written narratives? How are new family members introduced? Are there traditions to make the entering spouse (and family) feel comfortable? Are there roles that the new family member should play to have a voice and be included? Will you assign a family leader (formally or informally) to keep this value on top of his mind? How would that person be selected, and when would the position rotate?

If entrepreneurism is a paramount value, what goals do you put in place to achieve it? Are there open discussions about the history of the family’s entrepreneurism? Is there instruction on business plans and what they mean? Are there “classes” on the financial components of this – balance sheet, profit and loss statement, risk, borrowing money, capital financing? If there is a family business, is there an articulated expectation about who can work in it and when? Are there policies about family members in summer jobs, internships?

How is ownership handled? How are family members who are not owners handled? How are family members who are not employees but who are owners handled? What is the process for communication? What about cash flow? What information do the family member employees and the family member owners receive? What is the exit strategy for a family employee or owner? What if a family member wants to go his/her own way? Are there funds available for that? Are those loans? What does all this do to inheritance?

If philanthropy and giving back to the community at large are fundamental values, what are the steps necessary to achieve them? A family I worked with was a hard working family that built a significant business in the food services industry. When I met the parents, they were in their 90s; the business was being run by the next generation with an eye toward sale and conversion of the business to cash. The parents’ estate planning documents consisted of simple wills – all to each other and then to their children. When the parents had established the company they had put the shares of stock in the children’s names and therefore, for estate planning purposes, most of the wealth had already shifted to the next generation. Having said that, what the parents had in their names was still significant, and yet no thought had been given to their planning.

In my discussions with them it became clear that the parents wished that there was an entity like the family business that would collectively engage subsequent generations. It was also clear to me that philanthropy was a fundamental value in this family. Specifically, the parents had worked hard with time and money to do what they could to end homelessness and to provide food and shelter for homeless people. Yet, this philanthropy was not “organized”; it was in the parents DNA, and they had transmitted it to their children, yet there were no enabling structures.

We established a charitable foundation for the parents as part of their estate plan, and at their death, their entire net worth was added to that foundation. The foundation is now operated by all of the children and there is a plan underway for the grandchildren to become involved. There are family philanthropy meetings and a meeting of all family members during the Thanksgiving season. The family sets policies, reviews grants, goes on site visits and has active discussions about how to continue their parents’ goal of ending homelessness.

Should it be a family rule that each member over the age of 8 years must do something on a volunteer basis – go to a food bank; mow an elderly neighbor’s lawn? Should there be accountability for philanthropy? Are there common times of the year such as Thanksgiving when the family gets together and makes a decision as to how a collective sum of money should be dispersed? If the family is to give $100, or $1,000 or $10,000 that year, should there be a collective gift for part of it? How would the charities be selected? Would individual family members be assigned to participate in site visits (on a multi generational basis) and then provide a report and recommendations? Should it be a collective or an individual goal to contribute a certain percentage, such as 10% of income, to philanthropy each year? If the family has a business should part of the profit be used for community-based endeavors?

A helpful exercise is to think about, discuss and write down first the three most important true north values that your family has, and then the three goals that would support the sustainability of those values. It is important to consider how those goals would be implemented, by when they will be implemented (so that they are trackable) and who is in charge of the implementation.


Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

Understanding Your Estate Planning Goals

estate planningMany of the families I have worked with have unwritten rules about what their true north fundamental values are, and when entering into a family through marriage, it is important to look at what those are, what the undercurrents are and how they mesh with the entering spouse’s value system. To create a sustainable legacy the values must mesh so that when shocks (good or bad) come to the system, the system becomes stronger because it has built in mechanisms to sustain those shocks.

When a family does not have a clear vision of its own true north, or when that vision is clouded or destroyed, chaos happens. One family I have worked with has an unwritten rule that in-laws will never really be part of the family. The daughter-in-law never understood that rule (although all the warning signs were there) and after a lavish wedding was hurt and surprised that she was not treated better by the parents.

Four children and ten years later she sued the son for divorce, and it is one of the ugliest divorces I have ever seen, with continuous litigation in which the parents have had to participate through depositions and discovery. This is a wealthy family, but the root of the disagreement has nothing to do with money and everything to do with the family value that excludes in-laws. The son never stood up to his parents and allowed the emotional abuse of his wife to continue for a very long time.

Observing this from the sidelines it is interesting to note that if the daughter-in-law had understood the family code and accepted that she was not going to change it and gone in knowingly, her surprise and resentment could have been mitigated. If her husband had stood up to his parents, that may have helped. If they had strengthened their bond through counseling, that may have helped. If husband and wife had had a frank discussion with the parents, that may have helped. None of that happened and chaos ensued.

In another family I worked with, the father, patriarch of the family and founder of a very successful business, was diagnosed with cancer in his 50’s and knew that the cancer was a death sentence. His 25-year-old son was working in the business with him, and the father knew he was not ready to take the helm. We decided to have a very frank discussion with the family so that the family and his son could hear from the father himself what mattered. The family had been under the impression that the prime value in the family was working hard and making a successful business. That was true, but the father’s final illness put on the table the true value – family first, business second. In a very poignant discussion three months before the father died, he gathered his family (and me) and told his son that he did not want the legacy of the business to be his son’s legacy, that he knew his son was not quite ready, that he would fight for his life as long as he could but that death was inevitable. He gave his son permission to try to run the business (even if he failed), shrink the business, hire others, sell the business or do whatever else was prudent. (As will be discussed in the next chapter the financial security of his wife had already been handled by another mechanism so the son did not have the additional concern of knowing that any business risk impacted his mother’s financial security).

The meeting was one of the most powerful discussions I have ever witnessed. There were a lot of tears. The father died. The son decided to try to continue his father’s legacy and fifteen years later the business is very successful and the family is intact. What is most impressive to me is the fact that in the final inning the father had the courage to have this discussion and made it clear to all that he was giving permission for the son to make the decisions, even if that meant the business failed. It was one of the clearest examples of family first I have ever had the privilege to observe.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

Family Business Magazine Reviews “It’s More Than Money – Protect Your Legacy”

Its More Than Money CoverI am pleased to announce that the January/February issue of Family Business Magazine ( includes a wonderful review of my latest book, “It’s More Than Money – Protect Your Legacy”.

Written by Barbara Spector, it indicates, “The book also presents advice on risk mitigation, including strategies for protecting the family’s reputation on social media, questions to consider when deciding whether to make gifts to heirs, and the advantages of prenuptial agreements. In addition, the book offers information on achieving philanthropic goals.”

She really got the essence of exactly why I wrote the book. Click here to read the entire review!

Beyond the $5 Million Federal Exemption: Today’s Estate Planning Trends

Family estate planning document image, estate planningAs 2015 continues to unfold, estate planning advisors should take note of the latest trends, which appear to be here to stay:


  1. Simplify, Simplify, Simplify (and get back to the basics) – The federal gift, estate, and generation-skipping tax exemptions are, for now, remaining at $5 million (adjusted for inflation). The trend, therefore, will be to simplify and unwind complicated structures, including trusts, which no longer have any estate tax benefit.

    Clients under the tax threshold will not want to pay to establish traditional, revocable bypass trusts, so there will be a trend back to creating simple wills. Managing the complexity and the administrative burden of numerous entities would be frustrating for many of these clients.

    Although the sentiment that “the law may change” will encourage some clients to cling to those structures, the move will be toward simplicity. Clients want transparent, understandable planning tools and no longer believe they need anything complex to accomplish their overall goals. Post-mortem techniques will allow advisors and families to have a “second look” nine months after the date of the decedent’s death to correct any factual mistakes or changes in the law that may have happened since the documents were established.

  3. Increase in Emphasis on State Estate Tax Planning. – For many families, federal estate tax planning will no longer be the main driver – state estate taxes will now be in the spotlight. In some states, there is a minimal $1 million exemption and the state estate tax rates reach 16 percent. For a $10 million estate that may not pay any federal estate taxes, the state estate taxes could be as high as $1.44 million.

    Although the state in which a family is domiciled controls the bulk of the tax, it becomes complicated to calculate the state inheritance taxes when families own property in several different states. If a husband and wife are domiciled in Florida (which does not currently have a separate state death tax), owns a vacation home on Cape Cod, and has commercial real estate in Greenwich, they would have to pay state estate taxes to both Massachusetts and Connecticut because they owned real property in both states. The state that claims estate tax domicile will prevail in assessing the estate tax on more than the real property and tangible personal property physically located in that state – it will reap the tax on the decedent’s intangible assets too, including investments and stock in the family business no matter where it is located. The determination of domicile for state estate tax purposes is fact-driven and differs from the determination of domicile for state income tax purposes. Estate planning professionals need to pay particular attention to these points.

  5. Increased Focus on Intergenerational Planning – As greater wealth passes down unhampered by federal estate taxes, it will become easier to hold broad discussions on family wealth that cut across generational lines. Insurance professionals must shift gears from the old goal – preserving the wealth by making sure that the government interferes as little as possible – to emphasizing the capture, preservation, and management of the assets for the good of a family system for generations to come. This requires a candid and thoughtful conversation with the family to discuss their common goals, their visions for the future, and how the family business will be managed in subsequent generations.

  7. Investment Choices on Dynasty Trusts Established to take Advantage of the Federal Gift Exemption. At the end of 2012, many high net worth families took advantage of their ability to gift $5 million, adjusted for inflation, and transferred assets to trusts. In the year-end rush, many of those trusts now have investments but no investment strategy. Now that this increased exemption has become permanent, many families will continue to implement and fund these trusts. From a leverage point of view, current law dictates that those assets, no matter how much they appreciate, will bypass estate tax for subsequent generations and will do so until the trust terminates. From an estate planning point of view, advisors should consider investment leverage and with their fiduciary duty in mind, contemplate investing those assets for future growth. Many families are also purchasing life insurance as part of this investment strategy, as it provides additional leverage and the funds used to purchase the insurance have already been moved out of the federal transfer tax system.

  9. Understanding the Impact and Influence of Double Inheritors. Many baby boomer women in this country will be double inheritors – they will inherit wealth from their parents and from their spouse. Over the next 20 years, the amount of wealth that will pass through and be controlled by baby boomer women will be staggering. As advisors, it is imperative that we understand the enormity of this market and acknowledge that reaching the woman client is different from reaching the male client. That woman client may be happily married now (and widowed later), single, divorced, widowed or remarried.
    Author Tom Peters, who has written extensively about organizations, leadership, and trends in the marketplace, is convinced that women represent the number one economy – and he believes that the impact of the women’s market on our global economy may be even bigger than the impact of the Internet. Understanding and reaching the double inheritor market is an important client service and an increasingly important business opportunity for estate planning advisors.

Now that the $5 million federal exemption appears to be permanent, estate planners need to refocus their energies – and their clients – to creating estate plans that are less concerned with avoiding federal taxes, and more concerned with managing and maintaining wealth for current and future generations.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,

How CPAs Can Help Clients Address the Number One Planning Obstacle

holding paper cut-outs, estate planningFinancial planners can help clients as they determine who should be named their children’s guardians in the event of the clients’ death.

As an estate planning attorney with 30 years’ experience, I can say with confidence that the No. 1 planning obstacle that couples with young children face is deciding who will be named the children’s guardian if the parents die. CPA financial planners can play a role in this crucial decision by helping clients work through issues such as the financial status of the prospective guardian, how the guardian will be compensated, and whether to name a trustee.

First things first: When counseling estate planning clients with young children, be sure they understand the importance of naming a guardian. When clients are reluctant to do so, I point out that a guardian would then have to be chosen by the court in the event of their death—and it might not be the person the client would have preferred.

Financial considerations

There are numerous considerations when it comes to choosing a guardian. While many may not involve input from a CPA financial planner, some could. For instance, clients may want to consider a potential guardian’s financial status and whether the guardian will be able to provide the lifestyle they desire for their children. At a basic level, clients should know whether the guardian they are choosing is financially stable enough to assume this new responsibility.

Prompt your clients to think about additional expenses that may occur if they die unexpectedly. In my decades of practice I have never seen any family spend less money after a family member’s death. They always spend more. Guardians’ income can be reduced if they take time off from work because of exhaustion or the need to care for other family members. At the same time, they may incur heavy counseling bills and spend money on activities meant to “blend” the two families, such as summer camp or vacations. If your clients want to “create” wealth to provide for the financial needs of their children (and perhaps the children of the adopting family as well), it may be prudent for them to purchase life insurance.

Do your clients need a trustee?

Clients should also consider having another person or institution serve alongside the guardian as trustee. There are several reasons why appointing a trustee is a good idea. First, the people your clients think will take the best care of their children may not be the best at handling money, so they may want to give that responsibility to someone more financially literate. Plus, guardians are often under a great deal of stress, as many are raising their own children as well as their deceased relatives’ kids, and they may prefer to have someone else make the financial decisions.

Guardians are also not always able to make disinterested decisions about their relatives’ children’s money. After the unexpected death of someone with minor children, there are many stressful decisions to be made: How should guardians be compensated? How should any changes to their house to accommodate deceased relatives’ children (such as an addition) be financed? If the clients’ children can afford to go to private school but the adopting family’s children cannot, should funds be made available for those children, too? Guardians tend to make decisions such as these with an eye to minimizing their own children’s resentment and helping their new, blended family become a unit. Trustees, however, can be more impartial and make decisions that make the best financial sense.

Should both members of a couple be named guardians?

Clients should consider whether to nominate one person or a couple as guardians. If they want to choose the wife’s married brother as guardian, for instance, they must decide whether to name the brother alone or both the brother and his spouse as guardians. In my experience, it is better to name both members of a couple as guardians. That way, both have the legal authority to access school records, attend parent-teacher conferences, and make medical decisions for the children. Difficulties and resentments can arise if one member of a couple has personal but not legal responsibility for a child’s welfare.

Clients should also revisit their choice of guardian as their children grow, because the proposed guardians’ financial status may change and because children’s needs vary greatly from one stage of life to another. The nurturing adoration of a grandparent that makes a 4-year-old feel loved and secure may suffocate a teenager, for example. At some ages a child may feel that being able to continue living in the same neighborhood with the same friends and going to the same school is more important than living with a beloved aunt and uncle. It is important that clients understand where their children are emotionally now and determine who would be the best choice to care for them if something happened in the next five years.

Any estate plan designed for the parents of minor children will have to take technical, financial, legal, and psychological components into account. A skilled financial planner will combine technical skill with emotional sensitivity to help his or her clients craft a plan that brings them all into balance.


Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning. She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about. Annino recently released her new book, “It’s More Than Money, Protect Your Legacy” available at To download Annino’s FREE eBook, Estate Planning 101 visit,