Specific Philanthropic Tools for Life, Death and Perpetuity

Depending on when donors envision giving, there are several types of donations to consider as part of the traditional financial and estate plan:

Direct transfers:

Gold Bars ImageDirect transfers are gifts given during a donor’s lifetime and consist of checks, cash, gold, etc. Donors give directly to the organization/institution and work directly with fundraisers at the institution. Direct transfers involve fewer legal issues and tax problems or knowledge regarding tax codes. ( Source: Ann Kaplan. 2010.”Philantropic Planning” Smith College, October 20, presentation)
 

CRUT (Charitable Remainder UniTrusts)

CRUT are donations which combine lifetime income with charitable donations, i.e., they combine annuity payments to the donor with a charitable contribution. These gifts are one of the most tax efficient ways of donating money to an institution. The grantor makes a contribution to the Trust and receives a tax deduction (based on a Treasury calculation regarding the amount to be left to charity).

The trust is usually funded with low basis assets because the sale of the stock within the Trust does not trigger capital gains taxes. The beneficiary of the trust receives an annuity. Taxes are paid by the beneficiary only when funds are withdrawn from the CRUT. Assets remaining after the life of the Trust go to charity. [Source: Ann Kaplan. 2010.”Philantropic Planning” Smith College, October 20, presentation]

CLAT (Charitable Lead Annuity Trusts)

CLAT combine wealth transfer to heirs with charitable giving and are another tax efficient way of donating money to an institution. They are comprised of the remainder of the estate after the heirs receive a specified amount and allow the donor to make a contribution to a trust and receive an immediate tax deduction.

An annual amount, established using the treasury rate in effect at the time the CLAT is established, would be paid to the institution. The difference between the charitable annuity payments and the investment results will transfer to heirs at the termination of the CLAT. During life of CLAT, annuity payments are distributed to charitable vehicles or institutions as scheduled when CLAT is established. (Source: Ann Kaplan. 2010, “Philanthropic Planning,” Smith College, October 20, presentation.)

 

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.

Estate Planning Conundrum: What to do when a beneficiary has a substance abuse problem

Will ImageIn my 28 years of working with families on their estate plans, many parents have raised the issue of what to do when a child or grandchild struggles with substance abuse. With the recent death of Whitney Houston and her connection to substance abuse, it reminds me of what this means during the estate planning process. These parents are heartbroken and need guidance on how to address this difficult situation in their estate planning documents. Substance abuse – whether it’s alcohol, prescription drugs, or illegal narcotics – affects many of the families we advise. As a result, we developed a list of questions for families to consider when designing their estate plan:

  1. Has the beneficiary ever been diagnosed with a mental illness?
  2. Is the beneficiary having a particularly hard time – is divorce on the horizon? Has he lost his business? Does he gamble?
  3. What is his relationship with other family members?
  4. Who does he trust?
  5. Who is giving him money?
  6. Is he eligible for government assistance?
  7. Who is paying his health insurance?
  8. Is he employed? For how long? What types of jobs?
  9. Has he ever been treated for his addiction?
  10. Is he a member of Alcoholics Anonymous or a similar organization?
  11. Do these issues run in the family?
  12. Has there been a family intervention?
  13. Is he open to counseling? Has this topic been addressed?
  14. Where is he living? Can he live alone?

I have noticed that substance abuse often masks other underlying mental health issues, including undiagnosed or untreated schizophrenia, bipolar disorder, and depression. That these issues are often part of a larger family pattern makes having the discussion much more difficult, but much more essential.

Families in Conflict

An addicted child may have already taken a significant emotional, physical, and financial toll on the entire family. Parents who find it difficult to handle this child become increasingly disturbed when they consider who would step in if they are unable or unavailable. This helplessness often leads to anger, frustration, and conflict.

One parent may want to cut off the beneficiary while the other parent cannot consider doing so. One parent may want to kick the child out of the home, while the other parent believes that doing so would make matters worse. These conflicts add stress to their marriage and the family at large.

Grandparents may have different opinions than the parents. Siblings may already be resentful of their addicted sister or brother. In many families, the troubled child has already received significant emotional and financial assistance. His troubles have already taken center stage at the dinner table. His presence in the home and attitude toward the family may have already created constant disruption.

Estate Planning Tools and Options

As complex and emotional as these issues are, families must address them. And they will welcome having an impartial, yet compassionate advisor to provide guidance, suggestions, and choices.

One planning tool for parents to immediately consider is for that child to designate them as the agent under his health care proxy and his attorney in fact under the durable power of attorney. Without these documents, HIPPA will prohibit the parents from being involved with his treatment. Also, these documents give parents legal access to his health and financial records, which could be extremely important if it becomes necessary to apply for government benefits.

Inevitably, an estate planning discussion will include disinheritance. In my experience, this is a subject frequently discussed and rarely implemented. No matter how angry and frustrated they are, parents still want to provide some sort of safety net for their child.

This pressure to disinherit the troubled child may come from the sense that he has already taken more than his fair share of the family’s resources, possibly at the expense of the other, more responsible children. As the family’s advisor, however, you should ask the parents:

  • If you are not here, how will the child be cared for with no existing financial resources?
  • Who will be responsible?
  • Who will he call?
  • Will disinheriting him place a financial burden on your other children, or will they be able to walk away?

Establishing a Trust

Rather than disinheriting him, a common solution is to establish a trust that includes him as a permissible beneficiary – or is only for his benefit during his lifetime. The hard decision, however, is who will serve as trustee after both parents die. Parents are understandably reluctant to place that burden on their other children or on other relatives.

If there are significant assets, then choosing a corporate trustee is the simple choice. The other children or trusted friends or advisors can then have the right to remove or replace that trustee during the trust duration. If there are not sufficient assets to warrant a corporate trustee, then the parents must identify friends or trusted advisors – who should be paid for their services. The trustee should review the trust document to ensure that he has the right to resign from his office, and understand the mechanism for subsequent trustee appointments. The document should provide the trustee with the authority to expend funds for purposes such as counseling, detectives, drug testing, and private security.

Trust Terms and Provisions

After deciding on the line of succession and identifying who will operate the trust, parents need to focus on the various purposes for which the trustee may or may not distribute income and/or principal from the trust to the beneficiary.

If the beneficiary is likely to require government assistance, then the terms of the trust must contemplate that. The trust document may also give the trustee authority to withhold payments if deemed advisable. This is often preferable to asking that trustee to determine whether a beneficiary is drug-free. Those suffering from substance abuse can be clever, and making such a determination is tricky.

Rather than withholding payments, another approach is to provide the beneficiary with incentives for staying clean. The trustee could provide additional distributions if the child holds a full-time job or regularly attends counseling sessions. Making the distribution provisions restrictive and under the trustee’s sole control can help protect those assets from the troubled child’s creditors, or from any of the many “friends” and acquaintances who might take advantage of him if they believe there is money in his pocket.

Many parents have a sense of shame or denial, and may rightly choose not to make these troubles public, or put them in a trust document that others can access. I encourage parents to write an annual side letter to the trustee that describes their observations and offers details that they are reluctant to share while living. This letter could be placed in a sealed envelope, kept with the original estate planning documents, and updated/revised as circumstances change. It can be comforting to the trustee to understand more about the parents’ goals and objectives from their own voice.

Planning for the beneficiary with a substance abuse issue is complex and can have consequences that affect the entire family. Remind parents that life is a movie, not a snapshot. A plan created now should be good enough to handle today’s circumstances, yet flexible enough to contemplate the unknown. Encourage parents who are dealing with this difficult situation to revisit their plan every few years as circumstances change and evolve.

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.

Don’t let clients overlook these key estate planning issues

estate planning, estate planning tipsClients tend not to want to deal with estate planning until they absolutely have to. In my 30 years of practice, I’ve found that the two most common times clients revise an estate plan are when a vacation is coming up and when a friend or family member has just died or received a bad diagnosis, leading the client to contemplate his or her own mortality. But both of those events are the wrong time to do proper estate planning. It is very difficult to plan when facing a medical emergency, sudden illness, or recent death in the family, and it’s equally difficult to do proper planning when the client just wants a quick fix before he or she gets on a plane.

For these reasons, it may be helpful for you to bring up certain key issues with clients who are on the fence about estate planning, so that they can visualize the consequences of not having an up-to-date plan. One way to do so would be to hand them this column before you begin working with them.

  1. Health care proxies. All members of your family who have attained the age of majority should have signed and updated health care proxies or health care durable powers of attorney. It is also a good idea to list the cellphone numbers of all relevant people on these documents and to give copies of them to your health care agent (the person designated by the health care proxy to make health care decisions) as well as one or two and backup people so that they can be easily accessed.Having a health care proxy is especially important if you have children going off to college. Under Health Insurance Portability and Accountability Act (HIPAA) privacy rules, once a child attains the age of majority, his or her parents cannot access the grown child’s medical information without permission.

    Without a signed health care proxy, you will not able to make medical decisions for your child in the event he or she is unable to make them.
  2. Guardians or conservators. As you age, you need to decide who will be in charge should you lose the ability to handle financial affairs. A durable power of attorney can be used to handle financial affairs should you become disabled or incapacitated.However, even if you have a valid durable power of attorney in place, there are certain situations where protective proceedings must commence for someone to be appointed your guardian or conservator. The durable power of attorney can include a provision that nominates this person.

    Note that the nomination is just that: a nomination, not an appointment. But, should protective proceedings commence in court, the court is obligated to notify the person or persons you named as guardian or conservator that the proceeding is underway and that they have been nominated. In my experience that gives you a fighting chance that the person you nominated will be the person who serves in that capacity. (This is especially important if you’re worried that your family members may dispute your guardianship or if you’re in a nontraditional relationship or a second marriage.)
  3. Durable powers of attorney. Retirement planning assets (such as IRAs, Keogh, etc.) are owned by the plan holder. Without a durable power of attorney, no one automatically has the power to make investment decisions, take a hardship withdrawal, or roll the asset over for you should you become disabled or incapacitated. This is true even if you’re married. However, if you’ve established a durable power of attorney and given the attorney-in-fact (the agent) the authority to deal with the retirement planning asset, then the attorney-in-fact will be able to take those actions.Likewise, while you’re alive, you are the only person who can transact any real estate you own (including any jointly owned real estate). No one else automatically has the right to handle your assets. This is true even if you’re married and own real estate jointly with your spouse. If you and your spouse jointly own a piece of real estate and you become disabled, that asset is frozen unless you have given someone the legal authority through the durable power of attorney to deal with it.
  4. Updating the entire estate plan along with a will or a trust. If changes are made to a will or a trust— such as a change in beneficiary—it is important to make sure you coordinate your entire financial picture alongside those documents so that the plan remains integrated.
  5. Periodic revisions of the estate plan. In general, you should revise your estate plan at least every five years. Other times to do so include death, disability, divorce, marriage, the birth or adoption of children, the serious illness of a beneficiary or named fiduciary, a substantial increase or decrease in the size of your estate, the purchase or sale of a business, significant gifting or lending of money to a child, change of residence, or the purchase of real estate in another jurisdiction. Changes in the tax laws may also necessitate that you revisit your estate plan.It is a challenge for all of us to think about estate planning when there is no immediate reason to do so. It is very easy to put it off planning for one more day—then one more day. But life can be unpredictable. You don’t want to have to deal with a death, serious illness, or other unforeseen event without a proper estate plan in place. The time to secure that plan is now.

 

Source: http://www.journalofaccountancy.com/newsletters/2015/oct/key-estate-planning-issues.html

 

 

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.

Tom Clancy’s Widow Wins Legal Battle Over Taxes on $86 Million Estate

Judge rules trust for grown children must shoulder the bill

By Scott Calvert

Tom Clancy image, estate planning taxes

Tom Clancy’s widow has scored a legal victory in a long-running dispute over who should foot the hefty taxes on the author’s estate, which includes a rare World War II tank. Photo: Carlos Osorio/Associated Press

BALTIMORE—Tom Clancy’s widow has scored a legal victory in a long-running dispute over who should foot the hefty taxes on the best-selling author’s $86 million estate, which largely comes from a minority share of the Baltimore Orioles and includes a rare World War II tank.

Siding with Alexandra Clancy, a Baltimore judge ruled Friday that no taxes will come from the two-thirds share of the estate of which she is sole or main beneficiary. Instead, he ruled the entire $11.8 million tax bill is to be borne by the roughly $28.5 million trust that Mr. Clancy, who died in 2013, left his four adult children from his first marriage—a 41% tax hit.

The four children wanted the tax bill split evenly between their trust and a family trust of which Ms. Clancy is the main beneficiary. That would have raised the overall estate taxes to $15.7 million and divided it between the two sides at $7.85 million apiece.

If the judge’s ruling survives a potential appeal, Ms. Clancy would avoid paying the $7.85 million, while the adult children would owe nearly $4 million more than if they had prevailed in the case.

Although “some evidence” indicated Mr. Clancy wanted the family trust to help shoulder the tax burden, probate Judge Lewyn Scott Garrett wrote in his ruling that much of the evidence supported Ms. Clancy’s claim that her inheritance should be tax-free.

The judge pointed to language in the will that he said offers “the clearest and the predominant evidence” of Mr. Clancy’s intent, and he said that can only be achieved if his widow’s portion pays no tax. Her roughly $57.5 million share of the estate consists of the family trust and a tax-exempt marital trust. She and Mr. Clancy had a daughter, who is a minor.

Jeffrey Nusinov, Ms. Clancy’s lawyer, said in a statement, “We are pleased with the court’s thorough, well-reasoned opinion on this important issue.” Mr. Nusinov, managing attorney of the Baltimore law firm Nusinov Smith LLP, declined to comment further.

Sheila Sachs, attorney for the adult children, said she would review the decision with her clients before considering an appeal.

Mr. Clancy, who died at the age of 66, made his fortune writing techno-thrillers featuring the exploits of fictional Central Intelligence Agency analyst Jack Ryan.

Much of his estate consists of a 12% stake in the Orioles, valued at $65 million, according to court papers filed last year.

Mr. Clancy’s fascination with military equipment was on display in such best-sellers-turned-blockbusters as “The Hunt for Red October” and “Patriot Games.” Court filings detailed some unusual assets, such as a 1943 M4A1 Sherman tank known as a Grizzly. He kept it at a 535-acre Chesapeake Bay estate valued at $6.9 million.

An inventory filed with the court said Mr. Clancy had 26 “handguns and long guns of various makes and models” worth about $35,000.

Tom and Alexandra Clancy’s joint assets included six penthouse condominiums spread over 17,000 square feet at the Ritz-Carlton Residences on Baltimore’s Inner Harbor.

Judge Garrett’s ruling also restores J.W. “Topper” Webb to his role as the Clancy estate’s executor, called a “personal representative” in Maryland. Mr. Webb drafted a 2013 amendment, known as a codicil, to Mr. Clancy’s will, and his law firm advised Mr. Clancy on estate planning.

The judge said his ruling rendered “moot” the dispute between Mr. Webb and Ms. Clancy over his interpretation that the family trust was required to share in the estate taxes. Mr. Webb didn’t immediately respond to a request for comment on Monday.

Source: http://www.wsj.com/articles/tom-clancys-widow-wins-legal-battle-over-taxes-on-86-million-estate-1440438903

Write to Scott Calvert at scott.calvert@wsj.com

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 http://online.barrons.com/articles/can-another-state-tax-your-trust-1431741739 E-mail: penta@barrons.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.

You Can’t Litigate Love (so why are you trying)?

I love my brother image, estate planning attorney, trustsThis week a woman came into her attorney’s office wanting to sue her oldest brother in a trust dispute. She felt he had been taking advantage of her, not giving full financial information and making decisions that only benefitted himself.

At the end of a two-hour meeting (and her admission that a prior attorney had retained a forensic accountant who went through all the trust books and did not agree that her brother had breached his fiduciary duty), it made me think one more time that in family dynamics it is much safer for some family members to walk into a law office than a therapist’s office and it is critically important as attorneys that we do not fall into the trap of believing that what a client says is what the client means. If the client is trying to litigate love it just can’t happen…

 

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.

Robin Williams’ Foolproof Estate Plan? How To Avoid Family Fallout

Posted by Steven Maimes,

Hartford Courant article by Kevin Hunt

5-12-15_Robin_Williams_foolproofBy Hollywood standards, Robin Williams created an uncommonly sophisticated, tax-efficient estate plan before his tragic death by suicide in August 2014.

It appeared almost beyond dispute, with a real-estate holding trust and at least one other trust, covering everything from his Villa Sorriso (Villa of Smiles) mansion in Napa Valley — listed after his death at $29.9 million — to his “memorabilia and awards in the entertainment industry” designated for either his children or widow.

But as March ended, attorneys for the estate and heirs appeared before a probate judge in San Francisco Superior Court in an ongoing battle between Williams’ widow, Susan Schneider Williams, and three children from his first two marriages.

What went wrong?

“Kids fight over the china and silverware,” says Darren Wallace, an attorney and estate planner at Day Pitney’s Stamford office. “These are the things that get people upset.”

Aside from the entertainment-industry memorabilia, Williams also left his children the “tangible personal property” in the Napa Valley home. Schneider Williams, in a court filing, requested clarity on the meaning of “memorabilia” and asked that “jewelry” left for his Williams’ children exclude his watch collection. After their marriage in 2012, Robin Williams amended one of his trusts so that she could live in their 6,500-square-foot waterfront home in Tiburon, Calif., valued at $6 million, the rest of her life and retain most of its contents. In the court filing, she asks for all property in the Tiburon home, even items the trust specifically designates for the children.

Schneider Wiliams also filed a suit in December alleging that some of Williams’ clothing and photographs, among other possessions, had been taken from their home by his three children, Zachary, Zelda and Cody. To avoid a jewelry-watch-photo challenge, says Wallace, an estate needs specifics.

“We try to be very clear in the drafting,” he says. “It looks like, from some of the reports, that language used to dispose of these things was what I would call more general language. With a client like Robin Williams, where there’s clearly celebrity or even in the more routine case, with specialty assets you could identify as having particular financial or sentimental value like wine collections, a gun collection, a car collection or art or jewelry, it’s important not to rely on more general language. You can’t leave it up to interpretation.”

Wallace often recommends a Qualified Terminable Interest Property Trust, known as a QTIP (available in any state), for blended families because it provides for the surviving spouse while retaining control of the trust’s assets after the surviving spouse’s death. A surviving spouse could remain in the family home, for example, but the house and assets ultimately belong to the children.

“It allows for exactly the situation they’re dealing with,” says Wallace. “It might not make everybody happy, but at least it avoids this type of division where everyone is putting stickies on everything they’re claiming.”

Supplement a will or trust with side letters or guidance memos, for further clarity. “Express in very clear language, not necessarily legalese,” says Wallace, “the intentions carrying out the estate plan.”

Nobody likes a movie spoiler, but a spoiler alert for a will is not a bad idea. Give your children and other loved ones an indication what you will leave them.

“Set expectations,” says Wallace, “so the folks involved, in this case the widow and children, have some idea of what the plan might call for so they’re not learning about it for the first time following a tragic event. After they lose a loved one, they’re going to be grieving. They don’t want surprises.”

Philip Seymour Hoffman, who died of a heroin overdose in 2014, did not leave money for his three children because, as court documents revealed, he did not want trust-fund kids. He left his estimated $35 million estate to Mimi O’Donnell, his partner and mother of the children. Because they were not married, however, O’Donnell did not qualify for the estate-tax law’s unlimited marital deduction. That estate-planning blunder left Hoffman with a $15 million tax bill.

The recent court appearance of Williams’ heirs probably says more about the relationship between his widow and his three children than the thoroughness of his estate planning. The judge apparently agreed: He gave the heirs two months to resolve the dispute by themselves.

Source:  courant.com Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/robin-williams

 

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.

Gordon College donor reneged on $50M pledge due to misgivings about president

By Mary Moore/Boston Business Journal

Gordon College Donors, philanthropyA wealthy California real estate developer whose $60 million pledge to Gordon College made him the biggest donor in the college’s history says he added another $50 million to his bequest — but reversed course after becoming disillusioned with the Wenham school’s leaders.

Dale E. Fowler told the Boston Business Journal he instead gave half the total amount he had pledged to Gordon College to Chapman University near his California home. In 2013, Chapman University, located in Orange, named its law school for Fowler after receiving $55 million from him.

When Fowler and his wife Sarah announced their original $60 million gift to Gordon College in 2007, R. Judson Carlberg, now deceased, was the college’s president.

“(Gordon College) got a new president who we have had serious misgivings about. We have not had a very pleasant relationship with that individual,” said Fowler, referring to President Michael Lindsay, in a phone interview.

Fowler told the Business Journal his frustration is unrelated to any of the college’s recent issues. In fact, Fowler said, he had given the $55 million gift to Chapman University long before any of the recent headlines broke about Gordon College.

Fowler said the additional $50 million in assets he added to the original bequest to Gordon College was announced at a meeting of the Gordon College trustees. Most of the original $60 million bequest remains intact, Fowler said.

Kurt Keilhacker, a venture capitalist based in California and the chairman of Gordon College’s Board of Trustees, said that he and other college officials were unaware that Fowler had added $50 million to his original pledge.

As for Fowler‘s opinion of Lindsay, Keilhacker said, “Sometimes there’s a clash of personalities that is not always situated in fact.” He declined to elaborate.

The tension between Fowler and Lindsay has become public as Gordon endures considerable public criticism for banning homosexual activity by faculty, staff or students. City officials in Salem and Lynn severed relationships over the policy, which came under scrutiny after Lindsay joined religious leaders in signing a letter asking President Barack Obama for an exemption to a presidential order barring federal contractors from discriminating in hiring based on sexual orientation.

Similarly, the student newspaper at Emmanuel College reported last week that the college’s athletic teams will no longer play teams from Gordon College, a protest by Emmanuel’s athletic department related to the letter that Lindsay signed. The two schools are not in the same athletic conference, but their teams played each other as a result of contracts they sign, which will not be renewed, the student newspaper reported.

Gordon College also has had to respond to questions about its policy on homosexual activity from the New England Association of Schools and Colleges, or NEASC, the regional body that accredits colleges and universities.

More recently, Gordon College officials have faced criticism by some faculty members for the college’s decision to auction off a portion of the rare books included in the historic Edward Payson Vining collection.

Source: Boston Business Journal

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.

The Importance of Boilerplate Trust Clauses: Sterling, the Clippers, and Incapacity

Shelly and Donald Sterling Image, estate planningNBA team owner Donald Sterling was recently in a highly publicized court battle, in part, because of a trust clause that most clients likely gloss over.

Many clients sign estate planning documents without paying much attention to the clauses they contain. That is no surprise; the documents are complex, and death and disability are issues that no one wants to face.

While they may not be fun to contemplate, these clauses have real consequences. One clause in particular that few clients pay attention to is how that client’s incapacity could be determined—and therefore how the client could be stripped of the authority to serve in a fiduciary or trustee capacity. A high-profile case on this topic is playing out in California probate court. At issue was whether Shelly Sterling, the estranged wife of Los Angeles Clippers owner, Donald Sterling, had the authority to sell the NBA team to Steve Ballmer for $2 billion.

The Clippers were owned in a trust. Shelly Sterling gained control of the trust by assuming the role of sole trustee. This gave her the authority to negotiate the sale of the franchise. The trust agreement contained a provision (which Donald Sterling agreed to when he signed the trust) that authorized his removal as trustee based on expert determination he lacked mental capacity.

Trustee troubles

Shelly Sterling assumed the role of sole trustee after two doctors determined that Donald Sterling was mentally incapacitated and no longer able to conduct his legal or business affairs. Papers filed in the court include medical records that allege that Donald Sterling has mild cognitive impairment consistent with early Alzheimer’s disease or some other form of brain disease, and is at risk of making potentially serious errors of judgment.

The trust documents apparently did not prevent Shelly Sterling from assuming sole trustee power even if the couple were estranged.

Donald Sterling and his attorneys were challenging his wife’s authority to sell the team and are taking the position that he is mentally competent to handle his financial and business affairs. Regardless of how the matter played out, the Sterlings are in court in part because of a boilerplate trust clause that many clients would simply have glossed over.

Lessons learned

There are several lessons that an estate planning team, including personal financial planners and attorneys, can learn from this case—and pass on to clients. They include:

  • Clients should review all the “boilerplate” clauses in a document to make sure that clauses that may seem benign when the donor is healthy and competent would also apply later.
  • Planning for disability or incapacity should be as important to a client as planning for death.
  • Thinking through who will serve as successor trustee if the donor/trustee is removed as trustee for reasons of incapacity is important. Nuances, such as whether spousal estrangement should disqualify a party from serving as sole trustee, really do matter.
  • What checks and balances should a client put in place to avoid conflicts that may arise down the road?

For example, should someone who has a vested economic benefit in the outcome of such a critical decision be able to overrule the donor? Should Donald Sterling have designated someone to replace him so there would always be two trustees?

  • Should a donor such as Donald Sterling have mandated that his own personal physician be one of thephysicians who had to determine him to be incapacitated?
  • When legal estrangement with a spouse happens, it is good practice to review all financial structures and estate planning documents—especially the control provisions. Did Donald Sterling affirmatively decide that his wife would have control if he was unable to serve as trustee or did that happen by default?
  • Think through to whom the trustees should be accountable—the spouse and who else? Children? Independent advisers?
  • Who will serve as guardian of person and property if protective proceedings commence? That designation would be included in a client’s durable power of attorney. Being named guardian gives a person legal standing in most states to defend the client in an incapacity hearing.
  • This case underscores the importance of regular review. Disability or incapacity does not occur at once—it can creep in over time. Continuous (or at least annual) attention to planning is a safety mechanism that catches inconsistencies early on and allows adjustments to be made.

Life is a movie (with sequels), not a snapshot. The donor, as director of the movie, needs to understand that the course will not be linear and that care should be taken in the “casting” of those who will play important roles.

 

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.

Pitfalls and Risks When Your Client Owns Commercial Real Estate in an Irrevocable Trust

Long before he met you, your client bought his first piece of commercial real estate – that two-family house, apartment building, office building, or strip mall. At the time, he went to a real estate lawyer who advised him to take Trusts, wills, estate planningtitle to that real estate in an irrevocable trust so that it would be protected from creditors. That lawyer also told him that he could stay in control and be the trustee.

Now, decades later, the property is still in that trust, and after a visit to you and his new lawyer, the client now understands that this trust is included in his taxable estate in full.  After all, he made the down payment, he is the trustee, the primary beneficiary, and has been taking all of the income and deductions on his personal income tax returns.

For many business owners, the disposition of the real estate that houses the family-owned business, the apartment buildings, office buildings, or rental units the family has collected over the years is a troublesome issue. Planning is not as simple as it seems. In fact, planning for the future typically means going back to a hodgepodge of isolated transactions that occurred over a period of time.

How title is held and what type of vehicle it is held in – irrevocable trust, corporation, limited partnership, or limited liability company, is an issue that should be reviewed and examined from the viewpoint of income taxes, estate taxes, succession planning, and liability concerns and consequences.

When property is held in an irrevocable trust that was funded by the donor, and the donor retains the benefits of the property (the ability to receive income and/or principal distributions), and/or retains control over the property, it will probably be included in his taxable estate in full. If set up that way, it will also be treated as a grantor trust for income tax purposes and all income and deductions will flow to his individual income tax return.

When that donor dies, it will no longer be a grantor trust and will become a separate taxpaying entity. The trust probably contains what is known as a spendthrift provision, which protects the assets in the trust from creditors. However, in many states, spendthrift provisions do not necessarily mean the trust property is protected from the donor’s creditors while the donor is alive and a beneficiary of the trust.

Holding title to the real estate in an irrevocable trust presents another significant issue that may not be apparent from the document itself. The trustees of a trust have a fiduciary duty to not just the donor, but to all of the trust beneficiaries, including any other permissible beneficiaries during the donor’s lifetime and what is known as the remainder beneficiaries- those who will later take the benefical interest. The fiduciary duty of the trustees includes the duty to prudently invest and manage the trust assets. The concept of prudently investing and managing the trust assets is quite different from the concept of the business judgment rule, also known as the businessman’s risk.

In many states, the “prudent man” rule applies, and the trustee owes the beneficiary the fiduciary duties of skill, loyalty, diligence, and caution. Some fiduciary factors for the trustees to consider when managing investments include: (1) marketability of the trust property, (2) length of term of the investment, if a term is set, (3) duration of the trust, (4) probable condition of the market regarding the investment at trust termination, (5) probable market conditions for reinvestment of the proceeds if the investment is sold, (6) total value of all of the trust property and the nature of any other investments, (7) the needs of the beneficiaries, (8) other assets of the beneficiaries, and (9) the effect of any investment on the trust.

When operating under the businessman’s risk standard, trustees may choose investments that have a moderately high risk of losing value, but that also offer growth potential and capital gains, or sometimes tax advantages, rather than for the purpose of growing current income. Individuals can make riskier choices when they are dealing with their own investments rather than holding them in trust for the benefit of others.

When the business is owned by a trust, the prudent man rule for investments made by the trustees may conflict, in practice, with the business judgment rule that would control if the property were owned by a business entity, such as a corporation, limited partnership, or limited liability company. For example, when deciding whether to retain, mortgage, or sell one of its properties, the trustee must consider its fiduciary duty, rather than the lower standard that would apply to a businessman faced with those same choices.

Holding commercial real estate in an irrevocable trust also presents issues pertaining to income. For example, if the trust document requires all income to be distributed to the beneficiary (whether during the donor’s lifetime or after death), then the questions will be how to define income and what does the trustee have a duty to distribute?  Is it income for trust accounting purposes, for income tax purposes, or for cash purposes? If the trustee is to distribute all income each year, how can he hold an operating reserve? What happens with depreciation? What about reinvestment for repairs? How will the accounting be prepared?

From an estate tax point of view, if the value of the trust is fully included in the donor’s estate and he is married, does the trust say that his/her spouse is the lifetime beneficiary after the donor’s death? Does the trust qualify for the estate tax marital deduction so that there is the option to defer estate taxes until both spouses die?

When faced with the issue of a client owning commercial real estate in an irrevocable trust that no longer makes sense, there are remedial options to consider. One is to proceed to court and ask that the trust be reformed as it does not accomplish the donor’s intent. Trust reformations are permissible in many states and I have seen trusts reformed to ensure the marital deduction option, to add improved language for managing the property, and to handle the question of how income is defined.

Another option is to transfer title to a limited liability company that the trust owns. This would make it easier for the entity to obtain financing, since few institutions that sell their mortgages in the secondary market will issue mortgages to trust-owned real estate. It is also cleaner from a liability point of view in that the liability should be limited solely to the LLC assets. The LLC would be subject to businessman’s risk and all of the business decisions would be made at that level by the managers of the LLC and the terms of the operating agreement. The trustee of the trust would be dealing with the trust assets and would not be in charge of, or responsible for, the business decisions.

The term irrevocable does not always mean that the plans set in place decades ago are set in stone – rather there are mechanisms available that provide flexibility to bring those plans into current 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 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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