Estate planning for valuable art (Part Two)

Lessons Brooke Astor could have used.

To continue our discussion from May 22.  Here are several additional options and considerations you may find appealing.

CRATs and CRUTs

The donor may determine how the income interest will be calculated with a CRT. There are two types of CRTs: the charitable remainder annuity trust (CRAT) and the charitable remainder unitrust (CRUT). The CRAT is designed so that the actual dollar amount distributed to the donor (and/or the other persons the donor designates) are fixed when the trust is created and funded. Generally the predetermined annuity amount will not change no matter how the trust assets fluctuate in value. A CRAT can be appealing to the donor who needs a specific amount of income and who is concerned about a change in income payments.

A CRUT is designed so that the amount distributed to the donor is recalculated each year based on a fixed percentage of the trust’s fair market value for that year. Unlike the CRAT, the CRUT is not a fixed annuity payment. The fixed percentage will not change; however, the amount that the donor receives can fluctuate. If the CRT performs well and the trust assets increase in value, so will the income interest payment, which is calculated as a fixed percentage of the increased trust value. However the reverse is also true, and if the trust decreases in value, the income interest will also be affected. A CRUT is appealing for the investment-minded donor who wants to benefit from increased income payments resulting from the long-term appreciation of the trust assets. There are various types of CRUTs, which should be explored in greater detail before the client makes a final decision.

A disadvantage of using a CRT for art is that because art is personal property, the income tax deduction may be limited significantly. In addition, when a charitable contribution consists of a future interest in tangible personal property, no deduction may be taken until all interests and rights to possession or enjoyment of the property have expired or are held by a person other than the donor (Sec. 170(a)(3)).

The tax benefits of transferring art to a CRT and later selling it include avoiding the capital gains tax on the sale of the asset and removing the underlying value of the asset from the donor’s taxable estate. Of course, the reason that the art is removed from the taxable estate is that it is no longer owned by the donor. For that reason, some donors couple the use of a CRT with what is known as an irrevocable life insurance trust. When used together, these tools replace the art’s value and keep that value out of the donor’s taxable estate.

Trusts

The client may also choose to make a gift (lifetime or at death) of the art to family members in trust. If the client wishes the art or collection to stay with intended beneficiaries, he or she can establish an irrevocable trust and transfer the collection to it. That will protect the assets from the creditors of the beneficiaries and preclude its value from being taxed in the client’s estate. If doing so, it is advisable to add enough funds to that trust to insure and maintain the art. Choosing a trustee must be carefully considered as the trustee or trustees will have the continuing ability to manage the trust assets, including the art.

Fractional Interests

A gift of a fractional interest in art should also be considered. However, the Pension Protection Act of 2006 (PPA) greatly limited the value of this strategy. Until passage of the PPA, a collector could donate a fractional interest in a work of art to a museum that qualifies as a charitable institution. Collectors did so for many reasons, one of which was that they could take a tax deduction for the value of the fractional interest. For example, if a collector donated a 50% interest in a painting to a museum, he or she could write off half the value as a charitable deduction. The painting would spend half the year in the donor’s possession and half the year in the museum’s. Unfortunately, this led Congress to be concerned that collectors may have been abusing the write-off by enjoying more than their rightful share of the art. For example, if a collector donated 50% of the art but kept it for more than six months a year, the public would be losing out on the painting’s availability during the excess period.

To address this perceived abuse, Congress changed the law to make donations of partial interests in artwork much less attractive for donors. Generally, before the PPA, the collector would bequeath the remainder of the fractional interest to the museum so the collector’s estate would take a charitable contribution deduction for the remaining current fair market value at the time of the collector’s death. But the PPA changed the law to require that the write-off be based on the art’s value at the time the original fractional interest was donated if the art appreciated in value, rather than on its value at the time of the collector’s death. If the art’s value has appreciated in that period, as it typically does, the law will reward the collector by reducing the amount his or her estate could take as a deduction for the donation and thus increasing the estate tax liability.

Consider the example of a painting worth $1 million when the collector first donated 50% to the museum. The collector bequeaths the remaining 50% of the painting when she dies, at which time it is worth $10 million. Under the old rule, the painting would pass to the museum and the estate would take a $5 million charitable contribution deduction. Under the new law, her estate may only deduct $500,000 and the estate would have to pay taxes on $4.5 million more than it would have under the old law.

The PPA also introduced recapture rules (deductions turned back into taxable income) that further reduce the desirability of contributing a partial interest in art. If the collector fails to donate the balance of the art to the museum on or before the earlier of 10 years of the original gift or the collector’s death, the collector will be forced to recapture the deduction. In addition to paying income tax and interest on the recaptured amount, the collector must pay an additional 10% tax on it. This essentially requires the collector to donate or bequeath the remaining fractional interest or lose the tax benefit of the original gift.

Conclusion

If the client has valuable art, it is important that he or she assemble a team of advisers that understands how to deal with it. The team may include an attorney, financial adviser, tax specialist, and an art succession planner. It is wise to make sure that the team members know the extent and value of the art and how the client intends to dispose of it so that it can properly be taken into account when establishing a financial and estate plan.

The decisions and choices as to how to preserve the legacy of artwork should be thought through with care and involve a discussion with the client, the intended beneficiaries, the charitable organization, and the team of advisers.

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.

Patricia Annino Receives “Best in Wealth Management” Award

The Euromoney Legal Media Group chose Patricia Annino, Chair of Prince Lobel’s Estate Planning and Probate Practice Group, to receive the prestigious “Best in Wealth Management” award at the second annual Americas Women in Business Law Award ceremony held May 24, 2012, in New York City.

Selected from a short-list of eight well-known, highly-qualified nominees, Patricia’s award was based on extensive peer review research conducted by Euromoney’s research team, her professional accomplishments during the past 12 months, and her advocacy and influence in the field of wealth management.

Following the success of similar award ceremonies in Europe and Asia, the Americas Women in Business Law Awards was launched by Euromoney Legal Media Group to give law firms and professional services firms the recognition they deserve for their efforts in helping women advance in the legal profession.

Patricia Annino is a nationally recognized expert on estate planning and taxation, with more than 25 years of experience serving the estate planning needs of families, individuals, and owners of closely held and family businesses. She speaks regularly on many issues of concern to family owned businesses, including succession planning, risk management, managing a business with multiple stakeholders, the risk of divorce, and more. Annino is a graduate of Smith College and Suffolk University School of Law.

Patricia is the author of two widely utilized professional texts: Estate Planning in Massachusetts, and Taxwise Planning for Aging, Ill, or Incapacitated Clients. Patricia’s recent books for consumers include, Cracking the $$ Code: What Successful Men Know and You Don’t (Yet), Women in Family Business: What Keeps You up at Night, and Women & Money, A Practical Guide to Estate Planning.

About Prince Lobel

Prince Lobel Tye LLP is a full-service law firm providing a wide range of services for Fortune 1000 companies, closely held businesses, and individuals. Prince Lobel’s attorneys are guided by the highest standards of legal excellence, professionalism, and service – whether they are addressing complex business issues or providing advice on personal legal matters. Practice areas and industries served encompass corporate law, data privacy and security, domestic relations, employment law, estate planning and probate, insurance and reinsurance, intellectual property and Internet law, litigation, media law, nanotechnology, real estate, telecommunications law, construction law, environmental law, renewable energy, health care, and education. For more information, visit Prince Lobel at PrinceLobel.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.

Estate planning for valuable art (Part One); Lessons Brooke Astor could have used.

According to many who knew her, noted heiress and philanthropist Brooke Astor had a favorite painting, a Frederick Childe Hassam work known as “Flags, Fifth Avenue.” This American impressionist painting hung in a prominent place in her apartment since the early 1970s. Her son, Anthony Marshall, sold the painting while she was alive (and not competent) for $10 million and paid himself a $2 million commission. A short time after the sale, the dealer resold the painting for $20 million.

For many individuals and families, what to do and whom to trust with art is a thorny issue. It is important to consider the legacy of the work itself. Understanding the choices of who should receive it, who can afford to pay any estate taxes on it, who can afford to maintain it, who will use it, and who will appreciate it is an important part of the planning process. For many families these are not simple decisions. The right solution lies at the intersection of many complex and sometimes competing considerations.

Valuing art is an inexact science. No one can ever be sure what the market will bear. A first step to understanding the value is to get a qualified appraisal and valuation. The appraiser should be a member of either the American Society of Appraisers, the Appraisers Association of America, or the International Society of Appraisers.

It is important that the client understands the impact of taxation on the art in his or her estate (editor’s note: for more on this topic also see this Journal of Accountancy article.) For estate tax purposes, the gross estate of a U.S. citizen or resident at the time of his or her death, includes “the value of all property, real or personal, tangible or intangible, wherever situated” owned by the decedent at the time of his or her death (Sec. 2031(a)).

The IRS has established an Art Advisory Panel whose task is to assist the Service in reviewing and evaluating appraisals of artwork in conjunction with federal income, gift, and estate tax returns. (IRS Internal Revenue Manual, §42(16)4). The panel consists of 25 art experts. If a tax return containing art with a claimed value of at least $20,000 is selected for audit, the case must be referred to the panel. If the artwork exceeds $50,000, Rev. Proc. 96-15 (modified by Announcement 2001-22) provides that a request can be made for an IRS-expedited review of the art valuation.

The client should understand that with valuable art, more may be included in his or her gross estate than the art itself. Art may have to be sold and substantial commissions paid on the sales. If that is the case, it may be desirable to mandate in estate planning documents that a sale be made by the executor so that the commissions are deductible as administrative expenses. The only other way that commissions paid on the sale of the art after death are deductible from the estate is if the sale is necessary to pay the estate taxes. In other words, if the art is sold by the estate (for any reason other than it was essential to pay estate taxes) and the estate planning documents do not mandate that the art be sold, then the expenses of the sale, which can be significant, will not be deductible. Therefore, in essence, the heirs will be paying an estate tax on the lost deduction.

That is one reason it is important to have a frank discussion with family, beneficiaries, and any intended charity before bequeathing art. If a piece of art has always been in the client’s family and the client believes that his or her children wish to receive it, it is wise to have a conversation with the children or heirs to see if they want the art or if they are more interested in converting it to cash. In reality, the children or heirs may be unable to pay the taxes and the cost of maintaining the art.

The possible lack of deduction from the taxable estate for expenses attributable to the sale of art underscores how critical it is to discuss the art’s legacy with heirs and with any charitable organization in the planning process. If the client wants to leave the art to a charitable organization and the organization is willing to accept it, then the art’s value is included in the taxable estate and the estate receives a charitable deduction for the gift. If the charitable organization does not accept it and there is no alternative provision and the art is sold and added to the residue or passes to individual heirs, the expenses attributable to the sale are not deductible.

If, in the discussion about art, one family member does wish to receive it, then in the planning process you must carefully address how the estate taxes on that art are to be paid —who is to bear the burden of that tax? Is it the recipient or is it the estate’s remaining assets? Another option may be to consider what is known as a disclaimer—that is, the client leaves the art to the charitable organization or to a family member, and if they disclaim it (or choose not to take it) then the will mandates the sale of that asset to ensure that the estate will receive the requisite deduction.

If the client is considering gifting art to a charitable organization, find out now whether it is realistic for that organization to accept the gift and discuss any terms of the gift. Will there be any restrictions? Are those restrictions realistic? Are there endowment funds that will accompany the donation? It can be a burden to maintain and store art for a significant period of time. In my experience, donating funds to assist with maintenance and storage is prudent.

Charitable Remainder Trusts

Lifetime gifting options should be explored. There can be income tax benefits to making the gift of art—whether outright, in trust, or by fractional interest now. To assess the benefit, you must determine the income tax basis in the asset and quantify any capital gains tax that will be due on the sale. To avoid that gain, some clients consider transferring the art to a charitable remainder trust (CRT). A CRT (known as a split interest gift) is an irrevocable trust. The donor can gift the assets to the trust and retain the right to receive income for a predetermined period. When the income period ends, the CRT ends, and the remaining assets are distributed to the charitable organizations the donor has selected.

When the donor contributes an asset to the CRT, the donor will (in most cases) receive a current income tax deduction equal to the present value of the gift the charity will eventually receive when the CRT ends. Because CRTs are generally tax-exempt, appreciated assets can be gifted to a CRT and later sold without the donor or the trust owing capital gains tax. However, a CRT with unrelated business taxable income may be subject to a 100% excise tax on the unrelated business taxable income.

When the CRT is being established, the donor must decide the length of the income interest. In many cases, it is a lifetime payment stream (and/or for the lifetimes of one or more other persons the donor designates). As an alternative, the donor may direct that the income interest be paid for a specified period not to exceed 20 years. Once the specified income interest has concluded, the CRT terminates and the remaining assets are distributed to the charities that the donor has chosen.

Next week we’ll continue this discussion by looking at several types of trusts you may want to consider when making these types of gifts, as well as, the Fractional Gift option, and changes in the way these are managed.

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.

How Psychedelic Drugs Can Help Patients Face Death & What it Means to Estate Planning Effected Towards the End

I recently read an article in the New York Times (read article here: http://nyti.ms/Kp9yct) about a study using Psychedelic Drugs to help patients cope with facing death as the result of a life-ending diagnosis, like cancer.  In the article it indicated that these end-of-life researchers only included otherwise healthy patients, those with no indication of mental illness, in the study.

These drugs are also being examined as treatment for alcoholism and other addictions.  While I can see the advantages of such treatment for those facing the end of their lives due to grave illnesses, it also makes me very aware of how this might affect the ability for someone to consider and finalize their estate planning needs at a time when they are not only facing their own demise, but while under the influence of psychedelic drugs.

Could this open up their decisions to scrutiny after their death?  Even though they are otherwise considered of sound mind, does this open the door for others to challenge a person’s Will or other estate planning functions finalized after such diagnosis, and while using psychedelic drugs.

I am an advocate for putting your affairs in order early on, long before you might be facing something like this, but the reality is, even if plans had been made, depending upon the individual situation, such a diagnosis could cause someone to rethink or alter their plans.

It seems like we would need to take some sort of extra steps during this process to make sure we can forego any challenges that could or would be made to change your final wishes.  I’m not exactly sure what that might look like, how we could provide verification of your ‘sound’ mind at such a time.

What do you think?  Leave your comments or questions below and expand the discussion!

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.

Donor Education & Financial Literacy

Educating the Donor about Tax Savings and Efficiency Matters

A significant advantage of financial literacy is that it can save the donor in estate tax depending on the type of gift made to institutions. It is important for donors to realize that inaction is involuntary philanthropy.  That is, what donors pay in taxes to the federal and state governments is spent by the government as it wishes on programs of its choosing.

So when donors pay taxes or give money without exercising any specific influence, they have engaged in de facto involuntary philanthropy.  That involuntary philanthropy can be at least partially converted to voluntary philanthropy by donating part of what the government would otherwise receive to charities of the donor’s choosing for purposes of the donor’s choosing.

Once donors realize that they have engaged in involuntary philanthropy, they are often motivated to consider philanthropic gifting. In other words, when the donor makes a private charitable gift and receives an income tax deduction for that gift, then the government loses part of its share of revenue and those funds are instead redirected to the specific philanthropic causes of the donor’s choosing.

Careful planning is needed to minimize transfer taxes, and charitable giving can play an important role in an estate plan. (http://www.360financialliteracy.org/Topics/Budgeting-Spending/Budgeting-and-Saving/Charitable-giving?print=1). By leaving money to charity, a donor may deduct the full amount of a charitable gift from the value of a gift or taxable estate. Understanding that there may be tax benefits and exploring what those benefits may be can be an effective way to start the giving conversation.

In particular the effective use of specific bequests to institutions, charitable lead trusts and charitable remainder trusts result in the donor and his/her family paying less in estate taxes. In 2011, generally, the federal gift and estate tax is imposed on transfers in excess of $5 million and at a top rate of 35 percent. (http://www.360financialliteracy.org/Topics/Budgeting-Spending/Budgeting-and-Saving/Charitable-giving?print=1).

Making an institution the beneficiary of a tax deferred retirement plan is the most tax efficient way to leave money if assets are greater than the federal estate tax exemption, as the charitable institution will receive the funds free of both estate and income tax. (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.

Woman to Wed Slain French Soldier Posthumously

Yes, you read that correctly.  It got my attention, too!  Here’s a link to the entire article:  http://www.guardian.co.uk/world/feedarticle/10161149

In a nutshell, under certain circumstances, the French President is able to approve such a marriage for several reasons, this one being because his widow is pregnant and the marriage will serve to give his unborn child a father.

What came to mind for me is how shocking this is and how something like this here would dramatically affect the way we look at estate planning. When you consider the ramifications of this type of unusual ceremony, it’s impossible to contemplate what else the future may hold!

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

In my 25 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.

Your New Year’s Resolution: Is your estate planning in better shape than Stieg Larsson’s?

Now is the time of year that we all make our New Year’s resolutions. At first, we tackle our resolutions with gusto. We chug along for a month or so, and then we never look at our list again. But let’s make this year different. Make this the year that you, your family, and your clients resolve to get your affairs in order.

Unlike my previous columns, this one is also expressly directed to you –  the reader – as it is my experience that when the advisors have their affairs in order, they are more likely to ensure that their clients do too.

If you don’t, however, you certainly aren’t alone. You will be in the company of Jimi Hendrix, Bob Marley, Sonny Bono, Stieg Larsson, Pablo Picasso and Abraham Lincoln.

All of them died without a will. The court fight over Jimi Hendrix’s assets lasted 30 years. Bob Marley was diagnosed with cancer eight months before his death and still did not do a will. Sonny Bono died suddenly in a ski accident without a will in place. His ex-wife Cher filed claims, and a “love child” appeared looking for a share of his estate.

When Stieg Larsson, author of the currently popular “The Girl With The Dragon Tattoo,” died suddenly of a heart attack without having a will, his lifelong partner of 32 years received nothing; Swedish law divided his intestate estate between his father and his brother.

The moral of the story is that if you do not have a will, the law in the state in which you are domiciled has written one for you, and the default law is probably not the one that you want – especially if you are in a non-traditional relationship, have children from different marriages, have creditor claims, family conflict, charitable intentions, or a business.

January is the time of year to resolve to take the following actions:

  1. Gather all of your personal and financial information together. Look at it, sit down with your spouse/significant other and review it. Is it all in order? Are all your beneficiaries (primary and secondary) up to date? Are your assets titled properly (individual name, joint, in trust)? Do you have copies of all your important documents and passwords and do you each know how to access them? What if something happens to both of you. Who else has that knowledge?
  2. Review all your insurance coverage. Is all your insurance up to date and in the right dollar amounts? Review life insurance, disability insurance, long term care insurance, property and casualty insurance, and umbrella coverage.
  3. Make sure every member of your family – you, your partner/spouse, your children, and your parents – have up-to-date health care proxies and durable powers of attorney.
  4. If homestead protection is available in your state, make sure that you have made the proper filings to protect your family home from creditors.
  5. Review your estate planning documents in light of the recent changes in the tax law. Review the documents not just from a technical point of view but also from an operational point of view. If you died today what would flow into which trust, who would receive what, what would be the tax consequences, what is the authority to make distributions, who is in charge?
  6. Prepare an income and asset analysis. If you became disabled or died today how would your family be provided for? Is it sufficient? If your spouse/partner died or became disabled today how would you be provided for? Is it sufficient? If both of you died or became disabled today how would those you are supporting be provided for? Is it sufficient?
  7. Review your fiduciary choices. Who have you named as your health care agent, attorney in fact under a durable power of attorney and guardian of minor children? In your durable power of attorney you have the ability to nominate who should serve if you become disabled or incapacitated- have you done that? Who is named in your Will as your Executor or Personal Representative? Who is named as the Trustee of any Trust you have established? Look at your back-up choices. Are your selections still the right ones?
  8. Consider writing a side letter to those who will handle your affairs that expresses thoughts that you may not wish to express now while you are alive, but that would be important for someone to know later. These thoughts could include special mental health issues for family members, thoughts about an in-law, or confidential information about certain assets.
  9. Make an updated list of all your advisors, including their updated contact information.
  10. Review the prior nine steps and make sure that you have truly accomplished them.  Then encourage your clients to do the same.

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 announced the release of 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.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com

Women And Money: Understanding Estate Industry Terms

Alimony trust: A trust established as part of the divorce agreement, into which cash, investment assets or business assets are transferred before the alimony payments are due. The trust then pays out the required amount of money for the alimony payments.

Annuities: Contracts between a financial institution and you which allow you to invest money that grows on a tax deferred basis. You may make payments at once or over time. The company promises to make payment to you – either for a specific time period or over your lifetime. No state or federal taxes are due as the money accumulates. When the funds are distributed to you they are taxed.

Beneficiary (primary, secondary): A person, trust or organization you designate to receive property at your death. You must name a primary (first taker) beneficiary for any life insurance policy, annuity, retirement plan and bank or investment accounts you hold. The secondary beneficiary you designate is the person, trust or organization you designate to take the assets if the primary beneficiary is not then living.

Clayton Q-Tip trust: A Q-Tip trust in which after one spouse’s death an independent trustee decides how much money passes to the trust for the surviving spouse and how much passes to the children (or to a trust for their benefit).

Convertible option: An opportunity in a life insurance contract to convert term insurance to more permanent life insurance, in many cases without a medical examination.

Disclaimer will: A will in which the assets are left to the surviving spouse and the surviving spouse had nine months after death to decide how much to keep and how much to disclaim for tax reasons and pass to a trust for the children.

Durable power of attorney: A document in which you give another person the authority to handle your financial affairs. The powers remain effective through any disability or incapacity you may have.

Estate:  Your taxable estate includes the total value, usually the fair market value, of all possession property and debts you own at your death. Your probate estate includes any asset that is in your name at your death. It does not include assets you own jointly with a right of survivorship, assets that are already titled in the name of your trust, assets such as a life insurance policy, or annuity or retirement planning asset that pass to beneficiaries by contract. You can have a significant taxable estate and totally avoid probate.

Fiduciary: Anyone responsible for the management of another’s property; including executor, administrator, trustee, guardian or conservator.

Gross estate: The value of your entire taxable estate without taking into account any deductions or credits.

Heir at law: The persons who are entitled by state law to inherit your estate if you do not leave a will.

Irrevocable trust: A trust that cannot be changed, amended, or revoked.

Key man life insurance: A life insurance policy on a key employee that is owned by and payable to the business. The intent is to provide the business with operating funds to hire a replacement for the key employee if he dies while employed.

“Living together” agreement: An agreement, usually between persons who are not married but living together which sets forth their respective rights to assets and income should the relationship terminate.

I hope you found these definitions helpful.  Did I miss one?  Do you have an estate related term that you don’t quite understand?  Please leave the information in the comment section below and I’ll be happy to provide a detailed response.

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 announced the release of 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.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com

 

 

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