The Way-Early ‘529’ Gift

Grandparents Can Start a College-Savings Plan Before a Baby Is Born

By Peter S. Green

Photo illustration by John Weber

So you just threw your daughter a big wedding. Now comes the not-so-obvious next step: setting up “529” plans for estate planning, estate planning tips,the future grandchildren.

If that seems like rushing things, think again. With the average four-year price of a private college nearing $165,000 and rising 3.7% a year, anxious families are looking at lots of strategies for helping future grandchildren get a college education. One strategy is to open a 529 college-savings plan and have it start growing years before the future student is even born.

After all, anyone can start a 529, which is funded with after-tax income; the fund’s earnings and principal will be untaxed as long as the money goes to expenses that qualify as higher education. It makes particular sense for older parents with adult children to open a 529, as it helps get the savings ball rolling early. Moreover, if they later transfer ownership of the account to their grown children, both generations can benefit from some gift-tax exemptions.

Benefit Keeps on Giving

Jim Holtzman of Legend Financial Advisors in Pittsburgh explains: If a future grandparent starts a 529 whose beneficiary is the future parent, the grandparent can contribute tax-free up to $70,000—five years’ worth of contributions at $14,000 a year—or up to $140,000 for two grandparents. When an infant arrives with his or her own Social Security number, the parents—or the grandparents who still own the account—can designate the newborn as the beneficiary. Such transfers will likely avoid taxes, though they will eat into the donor’s lifetime gift allowance of $5.34 million.

In addition to increasing the amount of giving both sets of parents can do without owing gift tax, this can help wealthier grandparents reduce their estate below taxable level, particularly in states such as New York and Pennsylvania, where state estate-tax exemptions are far lower than the 2014 federal level, also $5.34 million.

Grandparents and parents can be tempted to maintain ownership of the account to help keep Junior on the straight and narrow. “The advantage of using a 529 is that the account-owner retains control, so when the kid graduates from high school, she’s not going to buy a Harley,” says Nancy Farmer, chief executive of the Tuition Plan Consortium, a group of 277 colleges in 39 states that lets parents (and grandparents) prepay tuition.

But if grandparents hang on to a 529 account, it can hurt a student’s eligibility for aid. Distributions from a parent-owned or custodial 529 reduce federal financial aid by just over 5% of the distributed amount. But distributions from a grandparent-owned 529 can reduce eligibility by half the distributed amount, says Mark Kantrowitz, publisher of Edvisors.com, a website advising on funding college education.

And while grandparents’ assets aren’t considered in aid decisions by state schools, they do figure in some private-college aid grants, says Maura Griffin, a principal of Blue Spark Capital Advisors in New York.

Five Years Ahead?

When is the right time for prospective grandparents to act? Right now, says Cameron Casey, an estate-planning lawyer with Ropes & Grey in Boston. Waiting until a grandchild is born to start a 529 for them can mean years of lost earnings potential.

A 529 plan started with the maximum $14,000 initial gift, five years before a child is born, funded with $500 every month and earning interest at 3% compounded monthly, would yield $226,784 by the child’s 18th birthday. The same plan started at birth would yield $167,336.

Of course, the future is unpredictable. If a future grandparent thinks he or she may not live to see a grandchild’s birth, a will can provide for an executor or trustee to carry out 529 plans using assets in a revocable trust.

For grandparents concerned about what to do if the grandchild doesn’t go to college or has sudden medical needs, a special trust might be a better vehicle, says Ms. Casey, as it will allow more flexibility. Using a 529’s funds for something besides higher education will trigger a 10% penalty and make the earnings taxable.

If no grandchild ever arrives, it can be possible to reassign the account to a close relative without owing taxes or penalty.

Source: WSJ.com   http://online.wsj.com/articles/grandparents-can-make-early-529-gifts-1415048467

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 Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Getting to Win/Win: Strategies to Strengthen the Accountant/Attorney Team

Casey Stengel once said, “Finding good players is easy. Getting them to play as a team is another story.” In my financial information, advisory team, effective advisory team30 years of practice, I have found that to be true for the client/advisor team too, since the advisors are, understandably, focused on their own jobs, their own responsibilities, and they all have their own relationships and methods of communication with the client.

However, the client and the client’s team of advisors are best served if the advisors work well together. The client would receive consistent, more integrated advice and communication, and the advisors could potentially generate more work from that client and from their deepened relationships with each other.

Based on my experience working with accountants in many client situations, the most successful accountant/attorney client teams have these five essential characteristics:

1. Trust and respect. Each advisor has unique skills and expertise and should be respected for his/her contribution to the common effort. When problems do occur, the client’s best interests are best served if concerns or mistakes can be raised and addressed openly and honestly without posturing and finger-pointing. Most families start with one key advisor who has “grown up” with them. That advisor has been there through difficult financial times, during family crises, and may even have been the first person that a troubled family member turned to for help. The value of the legacy advisor is that he is trusted by all and has a proven history of acting in the family’s best interest, not his own. One can’t put a price tag on that level of trust and loyalty.
 
That does not mean, however, that the trusted advisor can or should continue to play all of his historical roles. When it becomes necessary to bring in specialized professionals, transitioning to other advisors does not have to be awkward. When the trusted advisor is assured of his continued importance, role, and compensation, the pathway to transition can be easy.
 
2. Open communication and conversation. Advisors must feel comfortable enough with each other (and have the client’s permission) to openly communicate ideas and strategies. They also need to be able to speak freely and to share their insight with the team. For example, the accountant may know that the son of the family business owner client is having financial difficulties, and that the client is concerned about a possible divorce – important information for the estate planner and/or corporate lawyer. Over the years I have seen many problems occur when families block that contact – either because they don’t want to pay to have the advisors speak to each other or because they don’t want the team to have full comprehension of what is going on. Sometimes the problems are significant; sometimes they remain dormant because the issues are not brought forward; and sometimes the problems are just missed opportunities. And missed opportunities can cost as much as mistakes.
 
3. Keen understanding of their respective roles. The key to a successful collaboration is to leave your respective egos at the door. Each advisor brings something different to the table, so it’s important to understand what role each team member plays. If someone on the team is a “weak link,” that will eventually become clear. If that person happens to be the longtime trusted family advisor, do not move to replace him or her. A strong and effective team will shore up any weaknesses and find a way to get results. Over time, that advisor’s role may diminish (but not evaporate), and other advisors can be brought in. Building and maintaining an effective advisory team is an ongoing process, not a static snapshot.

 
4. Billing the client. Communicating as a team and acting together in the client’s best interest certainly sounds like a good idea – in theory. But in reality, how will the client feel about all that communication once the bill arrives? That is why the team and the client must first agree on a billing process. When the team of advisors has a comfortable working relationship, they will learn that some conversations will occur whether or not a bill is paid. Another option I have seen is to create a standard monthly or quarterly billing arrangement that is not based on time, but instead takes into account any and all cross communication.
 
5. Importance of reciprocity in client referrals. Advisors who are fee-based are paid for the time they put into an engagement. Part of creating an effective advisory team is understanding that the more the team works together, the more they learn from each other, the stronger their relationships become, and the better their clients are served. When advisors work together on several key client relationships there is also more tolerance for unbilled communications, as they know that they are making a profit on the totality of their experiences and the collective results – and that those engagements will ultimately lead to additional business.
 
Trust, respect, open communications, and reciprocity are the hallmarks of good teamwork, and client advisor teams that include these characteristics will likely find success. As James Cash Penney once said, “The best teamwork comes from men who are working independently toward one goal in unison.”

Ken Griffin says prenup is ‘valid, binding, enforceable’

Anne and Ken Griffin Photo, premarital agreementCitadel LLC CEO Ken Griffin and his wife, Anne Dias Griffin, who have been separated more than a year, signed a prenuptial agreement a day before their 2003 wedding that Mr. Griffin’s attorneys say is “valid, binding and enforceable” as their client proceeds with divorce.

The Chicago businessman also seeks joint custody of the couple’s three children.

The prenup “governs all issues resulting from the parties’ marriage, including, but not limited to, maintenance and the division of marital and non-marital property,” the four-page filing states. “Prior to the premarital agreement being executed, both parties were represented by counsel, entered into the premarital agreement freely and voluntarily, and each party made a full disclosure of their assets and liabilities. The premarital agreement is valid, binding and enforceable upon the parties in every respect.”

Spokeswomen for Ms. Griffin and Mr. Griffin declined to comment.

The billionaire businessman filed for divorce yesterday in Cook County Circuit Court. The filing stated that “irreconcilable differences have caused the irretrievable breakdown of their marriage. Any attempt at reconciliation would be impracticable and not in the best interests of the family.”

The Griffins — he’s 45 and she’s 43 — own two condominiums in the Park Tower on Michigan Avenue.

Ms. Griffin lives in the penthouse on the 67th floor, and Mr. Griffin recently purchased the 66th-floor condo.

The couple have three children ages 6, 3 and 2, the court documents say.

“As such, Kenneth believes that it is in the minor children’s best interests that the parties be awarded their joint custody,” state the papers filed by the Chicago law firm Berger Schatz. “Anne has acknowledged Kenneth’s compliance with the premarital agreement and has accepted the benefits of Kenneth’s compliance with the premarital agreement.”

Though Ms. Griffin has been primary caregiver of their children, she also is a businesswoman. She is the founding partner of Aragon Global Management LLC, which she founded in 2001 with seed capital from legendary investor Julian Robertson.

The couple signed a premarital agreement July 18, 2003, a day before their wedding, according to Mr. Griffin’s filings. He filed for divorce four days after their 11th anniversary.

Source: www.ChicagoBusiness.com by Shia Kapos. Follow Shia on Twitter at @ShiaKapos. http://www.chicagobusiness.com/article/20140724/BLOGS03/140729871#comments

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 Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Teaching Your Children About Wealth

Families are using limited liability companies to transfer assets between generations.

By Liz Moyer

Do you need a family limited liability company, like Bill Gates? Reuters family investment, Image of Bill Gates

Wealthy families are increasingly turning to family limited liability companies to minimize taxes and transfer assets between generations.

The strategy helps provide hands-on investment education for the younger generation without forcing older family members to cede control and offers other benefits.

Advisers to high-net-worth families say the LLC arrangement is gaining popularity as older generations in North America prepare to transfer an estimated $30 trillion in assets to heirs in the coming decades, according to the consulting firm Accenture.

The growing interest among the wealthy in education and financial literacy since the financial crisis has made LLCs more popular, says Linda Beerman, head of wealth strategies at Atlantic Trust, Canadian Imperial Bank of Commerce’s CM -2.13% U.S. wealth-management arm, which has $24 billion under management and manages family LLCs for some of its clients.

Typically, an older-generation member—who acts as the managing partner—forms an LLC to create a family investment pool using assets such as commercial property, vacant land, a family business or an investment portfolio. The managing partner can make gifts of limited-partnership interests directly to other family members, such as children and grandchildren, or to their trusts. In some cases, family members can buy shares in the LLC.
The managing partner retains control of the assets, but the limited partners get to observe how investment decisions are made and, in some cases, help establish the investment mission.

The assets inside the LLC are protected from creditors, including divorcing spouses, which has made them popular with families that own their own businesses, lawyers said.

“It’s seen by the kids as graduating into the family,” Ms. Beerman says. “It gives them a sense of ownership.”

The booming markets of the past few years have made them popular for another reason, experts say. Because the limited shares in an LLC are minority interests, the value of the assets that are transferred into the LLC can be discounted from their fair-market value for tax purposes.

Such discounts typically range from 15% to 25%, and can go as high as 30%. For example, consider an asset with a $1 million fair-market value. Inside an LLC, that asset would be less valuable because multiple owners have minority stakes but no control. If it was valued at 25% below its fair-market value, its taxable value would be $750,000.

Rising markets have motivated families to lock in those lower valuations, says Richard Baum, a partner at accounting firm Anchin Block & Anchin in New York. That way, he says, “you can pass wealth to the next generation using the lowest possible value.”

One famous example of a family LLC is Bill Gates’s Cascade Investment LLC, which is based in Kirkland, Wash., and manages a portion of the Gates family money.

There are some drawbacks, estate lawyers and advisers say. To avoid scrutiny by the Internal Revenue Service, a family LLC needs to serve a legitimate business purpose.

That can include managing commercial property or a family’s investment portfolio, but not other holdings, such as a vacation home that is used by the family. The LLC interest holders must meet regularly, maintain current state filings and keep detailed records of income, expenses, contributions and distributions.

Families can use an LLC to buy and hold stakes in exclusive investments such as timberland or private-equity funds. Conversely, a family with its own business can set up an LLC to diversify its investments. The LLC also could be set up to forbid family members from selling their stakes unless everyone agrees or require a certain percentage of shareholders to agree to investment decisions.

In some cases, families are setting up these companies to pool their assets so they can qualify for the most exclusive private-banking services at firms such as J.P. Morgan Chase, JPM -0.27% Goldman Sachs Group GS -0.58% and UBS, UBS -0.54% says Jonathan Forster, a lawyer at Greenberg Traurig in McLean, Va., who has set up family limited liability companies for clients with at least $30 million of assets.

“People are using these structures more because they are using more sophisticated investments,” Mr. Forster says. “They’re not just buying stocks and bonds. They’re buying commercial real estate or private company stakes.”
Source: The Wall Street Journal – wsj.com Write to Liz Moyer at liz.moyer@wsj.com

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 Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

In Divorce, Who Gets Custody of the Debt?

divorce and debt, marriage paperwork imageA recent Wall Street Journal article outlines some surprising information about marital debt! Enjoy.

With more young spouses carrying student loans, misconceptions abound about who is responsible.

By Charlie Wells

For many young couples today, marriage means more than loving, honoring and cherishing each other—it also means taking on a spouse’s student loans. And not only does educational debt make life together tougher for some, it can lead to surprises for those who end up divorcing.

While no generation is immune to the complications surrounding debt and divorce, the current one may be especially vulnerable: College students who took out loans and earned bachelor’s degrees in 2012 graduated with an average $29,400 in educational debt, according to the Institute for College Access and Success, and those earning advanced degrees were typically on the hook for even more. Multiply that by two, and student loans could outlast many a marriage.

Forever Yours

Legal experts say one of the most common misconceptions about dividing debt in a divorce is the belief that educational debt incurred before a marriage always becomes shared, marital debt once a couple gets hitched.

New York divorce attorney Cari Rincker says her mother once quipped that she couldn’t wait for Ms. Rincker to “get married because half of [her] student debt will be his.”

Ms. Rincker, who is single, had to correct her mother: Generally, educational debt incurred before a marriage is considered separate property and barring some predetermined contractual agreement, it stays that way after a divorce. “My law-school-loan debt is forever mine,” Ms. Rincker says. “No spouse will ever be liable” for it.

That can come as a rude awakening for those used to getting help with loan payments.

Such was the case when Devon Montgomery, a program manager for the Bryn Mawr College Alumnae Association in Pennsylvania, split from her husband of two years. The 29-year-old says she had racked up big student loans from various schools, and it was a challenge dealing with all of that debt by herself after her divorce.

Ms. Montgomery says she had to “reallocate all of the debt and change the repayment terms to make it more affordable.”

Couples who took out student loans while they were single but living together should expect a similar outcome.

“It’s generally like roommates,” says June Carbone, an expert in family law at the University of Minnesota Law School. “The roommate doesn’t pick up student debt.…It doesn’t matter if you’re sleeping together.”

It’s Complicated

Debt division can get a little trickier when the student loans are taken out during the marriage. The person responsible for paying the loans isn’t necessarily the person whose name is on them. Indeed, how educational debt is divided may depend on where you live and who benefited from the borrowed money.

In many states, divorce courts have the discretion to divide marital property in a holistic way. That means that if the educational debt is considered marital property, they have the option of taking into account contextual issues, such as each spouse’s ability to pay it off, Ms. Carbone says.

So while student loans generally will go to the person who incurred them, there may be exceptions, she says.

For example, if it seems like one spouse will have high income after a divorce and another will struggle to make debt payments, the higher earner may end up having to fork over some temporary spousal support to cover the ex’s debt payments.

But debt division is complicated and can vary, depending on whether the state applies equitable-distribution, community-property or marital-property rules, Ms. Carbone says. As such, student loans in some circumstances could be split down the middle, even if one spouse has a much different financial situation than the other after divorce.

In a related issue, in a few jurisdictions such as New York, a professional degree earned during the marriage can be considered marital property, says Rachel Rebouché, an associate professor who teaches family law at Temple University Beasley School of Law.

That can lead to situations where the degree earner has to compensate a spouse for supporting his or her educational pursuits. Support for a spouse could mean time spent cooking meals, driving the degree earner to campus or even the supporter delaying his or her own educational pursuits, Ms. Rebouché says. In some cases, courts have awarded more property to the supporter to offset the value of a partner’s degree, she says.

Two Steps

divorce and debt, marriage paperwork imageThose in the field say couples can take two basic steps to avoid surprises related to college debt.
First: Get a prenuptial agreement and make sure it clearly specifies how you and your partner want to allocate any student debt accrued during a marriage in a divorce, says Naomi Cahn, a professor who researches family law at George Washington University.
Second: Ask a partner about the extent of his or her debt and be honest about yours. When discussing finances, couples tend to “focus so much on the assets, but they forget that there’s often a lot of debt,” Ms. Cahn says.

Source: wsj.com – Mr. Wells is a Wall Street Journal editor in New York. Email him at charlie.wells@wsj.com.

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 Amazon.com. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Strategies to Strengthen the Accountant/Attorney Team

Peter Brown, BeatlesCasey Stengel once said, “Finding good players is easy. Getting them to play as a team is another story.” In my 30 years of practice, I have found that to be true for the client/advisor team too, since the advisors are, understandably, focused on their own jobs, their own responsibilities, and they all have their own relationships and methods of communication with the client.

However, the client and the client’s team of advisors are best-served if the advisors work well together. The client would receive consistent, more integrated advice and communication, and the advisors could potentially generate more work from that client and from their deepened relationships with each other.

Based on my experience working with accountants in many client situations, the most successful accountant/attorney client teams have these five essential characteristics:

  1. Trust and respect. Each advisor has unique skills and expertise and should be respected for his/her contribution to the common effort. When problems do occur, the client’s best interests are best served if concerns or mistakes can be raised and addressed openly and honestly without posturing and finger-pointing. Most families start with one key advisor who has “grown up” with them. That advisor has been there through difficult financial times, during family crises, and may even have been the first person that a troubled family member turned to for help. The value of the legacy advisor is that he is trusted by all and has a proven history of acting in the family’s best interest, not his own. One can’t put a price tag on that level of trust and loyalty.
     
    That does not mean, however, that the trusted advisor can or should continue to play all of his historical roles. When it becomes necessary to bring in specialized professionals, transitioning to other advisors does not have to be awkward. When the trusted advisor is assured of his continued importance, role, and compensation, the pathway to transition can be easy.
  2.  

  3. Open communication and conversation. Advisors must feel comfortable enough with each other (and have the client’s permission) to openly communicate ideas and strategies. They also need to be able to speak freely and to share their insight with the team. For example, the accountant may know that the son of the family business owner client is having financial difficulties, and that the client is concerned about a possible divorce – important information for the estate planner and/or corporate lawyer. Over the years I have seen many problems occur when families block that contact – either because they don’t want to pay to have the advisors speak to each other or because they don’t want the team to have full comprehension of what is going on. Sometimes the problems are significant; sometimes they remain dormant because the issues are not brought forward; and sometimes the problems are just missed opportunities. And missed opportunities can cost as much as mistakes.
  4.  

  5. Keen understanding of their respective roles. The key to a successful collaboration is to leave your respective egos at the door. Each advisor brings something different to the table, so it’s important to understand what role each team member plays. If someone on the team is a “weak link,” that will eventually become clear. If that person happens to be the longtime trusted family advisor, do not move to replace him or her. A strong and effective team will shore up any weaknesses and find a way to get results. Over time, that advisor’s role may diminish (but not evaporate), and other advisors can be brought in. Building and maintaining an effective advisory team is an ongoing process, not a static snapshot.
  6.  

  7. Billing the client. Communicating as a team and acting together in the client’s best interest certainly sounds like a good idea – in theory. But in reality, how will the client feel about all that communication once the bill arrives? That is why the team and the client must first agree on a billing process. When the team of advisors has a comfortable working relationship, they will learn that some conversations will occur whether or not a bill is paid. Another option I have seen is to create a standard monthly or quarterly billing arrangement that is not based on time, but instead takes into account any and all cross communication.
  8.  

  9. Importance of reciprocity in client referrals. Advisors who are fee-based are paid for the time they put into an engagement. Part of creating an effective advisory team is understanding that the more the team works together, the more they learn from each other, the stronger their relationships become, and the better their clients are served. When advisors work together on several key client relationships there is also more tolerance for unbilled communications, as they know that they are making a profit on the totality of their experiences and the collective results – and that those engagements will ultimately lead to additional business.

 
Trust, respect, open communications, and reciprocity are the hallmarks of good teamwork, and client advisor teams that include these characteristics will likely find success. As James Cash Penney once said, “The best teamwork comes from men who are working independently toward one goal in unison.”

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 an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime. To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Is it Reasonable to Expect Alimony for Your Eggs?

The September 7th New York Times has an op-ed piece by Sarah Elizabeth Richards, author of “Motherhood Rescheduled: The New Frontier of Egg Freezing and the Women Who Tried It”.

In that op-ed piece Ms. Richards discusses the case of a 38 year old woman who is asking her soon to be ex-husband of 8 years to pay $20,000 to cover the cost of her egg freezing procedure, medication costs and several years of egg storage on the grounds that when theyalimony, alimony after divorce got married they started with the expectation they would start a family and now she may not have that chance much longer.

The couple had been unsuccessful in fertility treatments and as part of her legal case she is arguing that since fertility treatments were part of the marriage, they should be considered part of the marital lifestyle, which should be maintained as long as possible post-divorce.

The lawyer representing the woman is quoted in the article as saying that he hopes the case settles out of court. Should this go to court it would be a case of first impression in the country and we will all be watching what happens.

Read the entire article here: http://www.nytimes.com/2013/09/07/opinion/alimony-for-your-eggs.html?_r=0

Source:  www.nytimes.com

 

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 an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Britney Spears and Adam Lanza: At What Point Should a Parent Become a Guardian/Conservator of an Adult Child?

guardian, guardianshipMore and more often, we see front-page news of adult children with issues so significant that they need a parent or another adult to become their legal guardian or conservator. When we think of traditional legal guardianship or conservatorship, we think of the minor child whose parents may have died young, the elderly parent with dementia or Alzheimer’s, or an adult who has been severely injured and can no longer take care of himself.  But is there a new category evolving? That of an adult child whose decisions are impaired?

Britney Spears’ father has been her court-appointed conservator since 2008 and has been in charge of her legal and financial decisions since then. Britney, however, performs worldwide, is a brand spokesperson for perfume, records albums, and has regular visitation with her minor children. Yet while she is under conservatorship, she does not have the legal right to make financial or legal decisions… and she may not have the right to make decisions concerning her own medical care.

Elsewhere on the spectrum, Adam Lanza, the young man responsible for the Sandy Hook massacre, was not under any guardianship or conservatorship. Yet he was obviously in need of care.

At what point does it make sense to appoint a guardian or conservator for a young adult who is struggling with life decisions and displays an impaired ability to care for him or herself? When a person is put under guardianship or conservatorship (in some states, conservatorships are called adult guardianships, but the terms mean roughly the same thing), then that court-appointed fiduciary has the legal right to overrule the decisions the ward makes. The court-appointed fiduciary must report to the court and in certain circumstances, such as ordering anti-psychotic medication, must prove to the court why it is essential to do so. The issue at hand, however, is when and where to intervene and seek guardianship. After all, plenty of young adults in this country make bad, and sometimes unsafe decisions. They may be addicted to alcohol or drugs, but does that mean that their personal liberties should be taken away and their rights overruled?

It is interesting to note that in many states, the protective proceedings of guardianship or conservatorship can be voluntary – the person involved can agree to have a legal guardian or conservator appointed so that financial and/or legal decisions can be made. A distinct advantage to this type of protective proceeding is that it does not have to be adversarial. Twice in my practice I have seen a person enter into a voluntary protective proceeding and then have that protection end after a few years, eventually taking charge of his life and making his own legal and financial decisions.

It is (and should be) difficult to put adults under guardianship or conservatorship against their will. Taking away someone’s personal liberties is not something to take lightly. To complicate matters, many states define competence for legal purposes differently from competence for medical purposes. In all states, however, those seeking to place someone under involuntary guardianship or conservatorship must first produce ample medical evidence to support this course of action. The decision of whether or not to embark on a guardianship or conservatorship for an adult is a tricky one – in this country we are presumed competent until proven otherwise and when it is proven the person under care no longer has the right to make his or her own decisions.  Embarking on the process of taking away someone’s personal liberties and substituting your decision for their decisions is fraught with emotional and legal peril. Courts should go very slowly and carefully on this slippery slope.

The person being put under guardianship or conservatorship receives advance notice of the court proceeding and then has the right to object to it. Court proceedings can take time and can be costly – including legal fees, fees for the person acting as guardian or conservator, and possible fees for medical testimony and court-appointed investigators. Plus, court proceedings are public. If the proceedings involve finances, the court-appointed fiduciary must also file annual accountings.

Even in such difficult circumstances, families don’t want to believe that the situation is as bad as it appears. They focus on the good days and shrug at the bad ones. No matter how bad things are, they want to believe that the situation might still improve. Therefore, the decision to embark on an adversarial protective proceeding is extremely difficult for a family to make – especially if the outcome of that proceeding is not clear. The adult child may create a rift within the family, where some agree that this is the wrong way to go, while others feel it is the only alternative. If the adult child “wins” and retains competence, then family relations will break down and any trust or confidence between the parent and adult child will evaporate.

A lesser route, and an important first step for many, is putting in place the basic estate planning documents – durable power of attorney (for financial purposes) and health care proxy (for medical purposes). These documents are important because they start the process of providing another person with the legal authority to act. Another advantage of these documents is that they exist outside the court system. Therefore, any financial actions taken by the attorney in fact under the durable power of attorney, or health care actions taken by the health care proxy, are private.

These documents are also important for parents who wish to view the medical or financial records of their adult children – because once young adults attain the age of majority (age 18 or 21 depending on the state of domicile), then no one has the right to access their records without a HIPPA release. These documents waive the HIPPA privacy rights. In most states, adults have the right in a durable power of attorney to designate who they would name as their guardian/conservator should protective proceedings commence. The person nominated as a fiduciary has the right to be present in a protective court proceeding, if such a proceeding commences. Unfortunately, in extreme cases, it also gives that person the right to revoke these documents.

For many of our clients, dealing with an adult child who has significant mental, drug, or addiction issues can be a considerable challenge that disrupts the family. In addition to the traditional paths of medical and psychiatric care, the appropriate legal mechanisms should be explored. At a minimum, for any child at the age of majority, a health care proxy and a durable power of attorney should be executed. For more extreme situations, the legal protective proceedings, guardianship or conservatorship (voluntary or involuntary) may be an answer. To fully explore the available courses of action, I recommend consulting an estate planning or disability planning attorney, a physician, and a psychiatrist.

 

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 an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Building a Team for Your Key Client When There Is a Disruptive Change in Income and Financial Status

Wham – your client suddenly comes into money. He is an athlete or entertainer who has just been discovered and his income is about to inheritance, bankruptcytake a quantum leap forward. He just won the lottery. His aunt died and left him a significant inheritance. A public company has just become interested in his “decades-old” start-up and makes him a substantial cash offer.

Wham – your client suddenly loses a great deal of money. He gets the pink slip. He owns a small business and his major vendor suddenly goes bankrupt leaving him with a cash shortage, tremendous bills, and nothing in the pipeline. He thinks he is all set financially and watches the news – the Bernie Madoff Ponzi scheme wiped him out. His house burned down. He becomes disabled. His business partner dies unexpectedly and he should not have cancelled the life insurance last year. Or your client is Paula Deen and her financial empire implodes in a second, causing a catastrophic and sudden loss in income and net worth.

As the client’s accountant and most trusted advisor, you are his first call. He can’t think straight and you know – whether the wham is good or bad – that he is in the middle of a life-changing event and that you will be helping him through this next phase.

A critical first step is to help your client form a team of advisors that is right for his particular situation – a team that is likely different from his current one. By working with the client to form a new team, the client is forced to come out of shock and into action. It is only through action that the right result will unfold. And while he may be uncomfortable even thinking about replacing or expanding his team, the issues he is now facing may be more advanced or complex than what the team normally handles.

In light of the unexpected turn of events, suggest what types of advisors or specialists he will need, and help him find good candidates. If some members of his current team are not right for his current situation, it may be up to you to make that clear to them.

You could think about this in medical terms: if the client was diagnosed with a serious illness he would consult various physicians for treatment options. The same goes for attorneys and advisors. The client should interview several specialists and pay them for their time. With each meeting, he will learn what advice has been given to others in similar situations. If the event was a negative one, the client will start to acknowledge the depth of the crisis during the interview process.

If the shock is a positive one, the lawyer that is right for the client’s sudden windfall may be different from the one he normally deals with. The lawyer who formed his corporation and negotiated his leases is probably not the right lawyer to help him sell his business to a public company. The financial advisor who has been counseling him in his current financial situation may not be used to dealing with wealth at the level of a significant liquidity event or lottery win.

The client must also be aware that some of the advisors he interviews could have their own agenda. If the financial upside is significant and the advisor would benefit from that upside, that is an important factor to consider. In this situation, the client should interview advisors who have dealt with significant wealth. And as the client’s most trusted advisor, your role is critical – you knew him long before Lady Luck arrived and you will know him long after she disappears.

If the shock is not positive, his current lawyer may not be right for this crisis. While a good general lawyer may be part of the solution, a specialized lawyer is essential. If the client has creditor/bankruptcy issues, he should retain a lawyer who specializes in that. If the crisis may lead to divorce it might be a good idea to consult with a divorce lawyer too.

One of the most important factors in selecting advisors is identifying who the client is most comfortable working with. Whether the wham is good or bad, this is a significant life event and the psychological component cannot be overlooked. Trust is essential. The client is at his most vulnerable, and he needs advisors with whom he can share everything, where he won’t feel judged, and where he won’t feel like someone is using his situation to further their own agenda.

If the wham is negative, don’t underestimate the power of spiritual counseling – even if the client has never sought that type of advice before. He may be feeling shame, guilt, and anger, so speaking with a rabbi, priest, minister or other spiritual/religious advisor might be important to him – someone who has no ulterior motive, who might help him forgive himself, and who will keep whatever he has to say totally confidential.

Having someone like that to confide in may help the client navigate the storm, and help him deal with the impact that his actions have had on those he loves and who depend on him. It is also important for one of the members of his team to be completely independent from the crisis at hand – someone who will bring a fresh perspective to the situation.

The client will find that in bad times, people who know about his crisis will seek him out – friends he never dreamed would care often show up. When that happens, the client should be open to them. Consider whether they would be the right ones to talk to and lean on. There may be a good reason they are showing up now – he should be approachable.

As the client’s most trusted advisor, forming the right team and staying the course while he works through the tsunami of financial, legal, and psychological issues will be one of the most important client services you will ever provide.

 

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 an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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

As 2013 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). estate planningThe 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.

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  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.
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  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.
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  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.
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  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.
  10. 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 an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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