Tips for Dividing Art in a Divorce or Death

estate planningI was recently quoted in this Wall Street Journal article By Daniel Grant. An interesting look at dividing art.

Fights and Taxes Can Arise When Art Collections Must Be Broken Up

Who gets that painting?

Of all the fights that can erupt during divorce proceedings or when a family member leaves behind a large estate, some of the biggest take place over the artwork.

“I’d put it in the same category as child-custody battles,” says Suzanne Landers, an attorney specializing in family law in Memphis. Emotional attachments to art can outweigh financial considerations, Ms. Landers says. It takes far longer to decide who gets what painting or sculpture than it does to divvy up houses, cars or even money, she says.

Serious art collectors might roll over in their graves—or never marry—if they knew what feuds their purchases were destined to inspire. On the other hand, lots of friction can be avoided if lovers of art and their families acquaint themselves with a few legal and tax basics.

What follows are some tips on how to decide, peaceably and equitably, who gets what, and ways of disbursing an art collection and minimizing taxes.

In Case of Divorce

Make an Inventory.  For divorcing couples, the first step is to develop a detailed list of all the art bought before the marriage; bought during the marriage; art sold and at what price; and art that hasn’t been sold, says Raoul Felder, a divorce attorney in New York City.

Art bought or obtained before the marriage, or acquired after the couple has separated or filed for divorce (depending upon the jurisdiction), is not considered marital property. It belongs to the same spouse as before. If one partner agreed to buy a piece before the marriage and it arrives after the wedding, it also is excluded from marital assets.

Hiding artworks or failure to disclose relevant documents could lead to lawsuits. If fraud is determined, “half or even 100% of any undisclosed and unallocated assets may be awarded to the other spouse,” warns Valerie L. Patten, a family and art law practitioner in Palo Alto, Calif.

Hire an Appraiser.  “The love of art grows exponentially after the appraiser’s report comes in,” especially if items have grown in value, says Dallas-based lawyer Ike Vanden Eykel.

A couple may agree on one appraiser, or each may hire their own. Mr. Felder warns that appraisals can be far apart. Parties can agree to split the difference between two conflicting appraisals or take the differences into account when negotiating which partner gets which piece.

Artworks then may be divided equally by value, or other assets can be made part of the bargaining—the house, the vacation home, the car, even primary custody of the children.

‘Serious art collectors might roll over in their graves—or never marry—if they knew what feuds their purchases were destined to inspire’ .

And as Mr. Vanden Eykel says, “You don’t want to leave things up to a judge to decide, because the court will only order that everything be sold.”

Estate Planning

Security First.  When a collector dies, before any art changes hands or is sold, the estate must clear probate court. This can take years. If the home of the deceased is unoccupied, consider changing the locks, hiring a security firm or moving the art to a climate-controlled fine-art storage facility. No items of value can be removed before a formal distribution of assets.

“I hear people every so often say that when their parents die they will just go into the house and take things. I just shake my head,” says Ramsay H. Slugg, managing director and a member of the National Wealth Planning Strategies Group at U.S. Trust, Bank of America Private Wealth Management. He refers to such practices as “moving-van planning.” Removal of valuable items is “a criminal offense,” he adds. “You can go to jail.”

Plan Ahead.  Ideally, decisions about art should be part of estate planning. Like houses, art that passes at death receives a step-up in value for tax purposes. But even if a collector specifies who gets what, problems may arise.

“Say, you have a $20 million estate, and $10 million of that is a Rembrandt painting,” says Patricia M. Annino, an estate-planning lawyer in Boston. “The collector wills the painting to Susie and everything else to Charley. Charley is stuck paying the estate tax for Susie’s Rembrandt.” To be fair, Ms. Annino says, the will should specify that each heir will pay his or her share of taxes on the assets received.

For a person who dies this year, no federal estate tax will be owed if the estate is appraised at less than $5.34 million. But there only needs to be one Picasso or Warhol to trigger federal estate tax of as much as 40%. And some states charge as much as 20% above a $1 million threshold.

Objects will need to be appraised professionally. “Most of the time, if the work is good, of real value, it will go to auction,” Mr. Felder says.

Selling and Gifting. Sometimes collectors will sell art to help cover anticipated estate taxes. By placing the art in a tax-exempt charitable remainder unitrust, the collector can receive distributions from the sale for the rest of his or her life, taxable as ordinary income, allowing the collector to avoid a 28% capital-gains tax. When the collector dies, remaining distributions go to a designated charity.

If an art collection is donated to a nonprofit, the gift can be made all at once or in installments. If in parts, the collection can be donated incrementally over a period of up to 10 years, permitting the donor to take full advantage of tax deductions and to keep some objects over that time. When a donation is valued at $5,000 or more, it must be reported in the donor’s tax filing, accompanied by a qualified appraisal, says Catherine Schmidt, chair of the trusts and estates group at the New York City-based law firm Patterson Belknap Webb & Tyler.

Gifts to individuals valued at $14,000 or more must be reported as well, and an appraisal may be required. To qualify as a gift, Ms. Schmidt adds, “objects actually have to be transferred from one person to another.”

Be forewarned: Appraisals can be audited by the IRS’ Art Advisory Panel, and in 2012, only 51% of appraisals audited were accepted. Decisions may be challenged, but most parties pay the additional tax and any penalties.

Another piece of advice: If a collector decides to donate their art to a museum, make sure the museum wants it first.

“Collectors can be so attached to certain artworks, they assume that their heirs, or some museum, will want to own it, too,” says Ms. Annino. The museum may put the art in storage, or not accept it at all, leaving the family or estate executor to scramble for some option of disposing of it.

Mr. Grant is a writer in Amherst, Mass. He can be reached at reports@wsj.com. The original article can be viewed here: http://online.wsj.com/articles/divorce-death-and-divvying-up-the-art-1411333013?KEYWORDS=Fights+and+Taxes+Can+Arise+When+Art+Collections+Must+Be+Broken+Up

 

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.

How women can make estate planning easier

By Andrea Combes

estate planning, piggy bank with coins all around itGot a plan? Whether you’re single or married, divorced or widowed, a parent or not, you need an estate plan. That’s true for men and women, but women face challenges that make it even more important for them to start planning sooner rather than later.

It’s not that there are different estate-planning tools for each sex. But women are likelier to live longer, they’re likelier to be custodial parents and, speaking generally, women often approach the topic differently than men.

“Estate planning is different for women and men, but not because of anything technical. It’s different because of the psychologically different way that women approach the process,” said Patricia Annino, attorney at Prince Lobel and author of “Women and Money: A Practical Guide to Estate Planning.”
“Women spend all their time taking care of everybody else,” she said. In the process, she said, they forget those flight-attendant instructions. “You must put the mask over your own face first.”

What happens if…

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One key aspect of estate planning that women often overlook is what will happen when their husband, parents or other relatives die.

Consider this: 36% of women 65 and older are widowed, compared with 12% of men 65 and older, according to the U.S. Census Bureau.

“People that you are depending on either financially or emotionally: What does it mean to you if something happens to them, if they are disabled or die?” Annino said.

She cited the example of one of her clients: The woman recently found out that when her husband started his pension payments, he chose to get the maximum benefit in his lifetime — a choice that means the benefits will end at his death.

“When he predeceases her — and he just had a stroke — her income goes to zero, because they’re living off of his income and it ends with him,” Annino said. “If you knew that 20 years ago, you might try to plan for that.”
Another of Annino’s clients, a wealthy businessman, came into review his estate and business-succession plan. He was leaning toward putting his business advisers in charge of his estate plan, rather than his wife and three adult daughters. Annino advised him to reconsider.

If the advisers are in charge, the wife “would be absolutely at their whim,” Annino said. “They’d have a fiduciary duty to her, but they’d have all the ability to make all the decisions about what got sold, how it happened, how it was valued.”

She added that the wife made a mistake in not joining her husband at the meeting. “She knew where he was going,” Annino said. “She failed to understand that it was about her.”

For a lot of women, Annino said, “The keys to the kingdom are on the table and they just don’t understand that and they don’t pick them up.”

Start talking to your family about what their estate plans are. This doesn’t apply solely to married women. For example, if you’re a caregiver for a parent, talk to your siblings and parents about the potential implications of that: Does your time caregiving have implications for how your parent’s estate is divided?

A woman “can start a conversation that makes them put their planning into place,” Annino said.

Plans will vary

Your estate-plan focus will vary depending on your situation. Are you married or single? Children or no children?
For a single woman without children, “The hardest decision you’re probably going to make is who is going to be taking care of you,” Annino said, in the event an illness incapacitates you.

That is, who will make your medical and financial decisions?

For married women with children, often the first two estate-planning concerns are naming a guardian for the kids, and planning for income replacement through life insurance, Annino said.

For women who are widowed, key considerations include making sure their estate plan has been revised to reflect the husband’s death and to assess whether there are different financial-planning opportunities and challenges to consider, Annino said.

A first step for anyone who’s gone through a divorce is to check the beneficiary designations on retirement and other financial accounts. “A lot of people walk away from their spouse but then never do any of the cleanup stuff they should do,” Annino said.

New marriages

Women who remarry or those who come to a marriage with significant assets should think carefully about their estate plan before tying the knot.

“We find that women are hesitant to discuss their net worth going into a new relationship, but that puts them in grave danger,” said John O. McManus, founder of McManus & Associates in New York and New Providence, N.J.

“If they keep the assets on their own balance sheet, the good news is, if they divorce, the new spouse won’t have access to that money,” McManus said. While state laws vary, in some cases the assets one brings to a marriage “are not an asset in divorce.”

The bad news, assuming your wishes are otherwise, is that, if you die first, your husband will get one-third of those assets. “By operation of law, your spouse is entitled to a minimum of one third of your assets. Social policy in the U.S. says you cannot disinherit your spouse,” McManus said.

Even if you write a will in which nothing is left to the surviving spouse, “by law, he’s entitled to one third of the assets,” McManus said.

There are a couple of ways to forestall that issue, though none are ideal, he said.

One tactic is to make sure beneficiary designations on retirement plans and the like are set such that your children or other heirs inherit — but those designations need to be in place before you get married. If they are, such designations “will control and overrule the right of election,” McManus said.

But changing beneficiary designations after you get married may be difficult, because some financial-services firms won’t allow changes that entail disinheriting a spouse without the spouse’s consent.

Another solution is to set up a trust, naming a child or other relative as the recipient, and put assets into it before you get married. You can still borrow from the trust, McManus said, but the husband will not have access to that money if you die.

McManus said he’s seen situations where a spouse changed the beneficiary designation on a retirement account to name her husband, rather than a child, with a verbal agreement that the money would go to the child in the event of the husband’s death. But at that point, there’s no way to be sure that will happen when you’re gone.

“Be clear in your head what you want to leave to your children and to your spouse before you get married,” McManus said.

Women who remarry also should realize that any assets they brought to the marriage are on tap to pay for the new spouse’s medical bills — that includes nursing-home care, which can quickly drain one’s resources, Annino said.
“It doesn’t matter whether you’ve been married two days or 50 years, the spouse has to pay for medical care,” she said, and a prenuptial agreement can’t prevent that. “Your assets are going to be on the line for his medical care, and you can’t get around that.”

Women who bring a hefty amount of money to a marriage should consider protecting her assets by purchasing a long-term-care policy for her husband, Annino said.

Just do it

The prospect of estate planning can be overwhelming. The first hurdle is simply facing the fact of death. The next hurdle is trying to get a handle on complex topics that are often shrouded in legalese. Then there’s the question of finding and hiring an attorney. (If your financial situation is simple, there are do-it-yourself options, such as the software available at Nolo.com.)

The key is to just take one step. “Start wherever you are, and take a step,” Annino said.

Maybe that step is a financial power of attorney. Maybe it’s creating a will that names a guardian for your children. Whatever it is, just start — and keep in mind that you’ll need to revisit your estate plan at least once every five years, and more often if there’s a change in law or in your family status.

“This is a process that’s going to evolve as your life situation changes,” Annino said.

The basics

No matter what your age or how much money you should have, consider getting these items into place:

  • A financial power of attorney, naming the person who will make money decisions for you if you can’t
  • A health-care power of attorney, naming the person who will make health-care decisions for you if you can’t
  • A living will specifying your end-of-life wishes
  • If you have minor children, a will that names a guardian for them
  • Make sure the beneficiary designations on retirement accounts and life-insurance policies are up-to-date.
  • Talk to your bank and representatives of your other financial accounts to make sure the titling of those assets suits your situation.

Of course, even these relatively simple tasks pose challenges: You need to pick people whom you trust, and who will agree about the best course of action concerning your health care and finances.

You want to avoid conflicts “between the person in charge of your health-care decisions and the person in charge of your money,” Annino said.

“One person may not think it’s a good idea to spend money on round-the-clock care, whereas the person who has the health-care proxy may see no problem with that,” she said. “Think through those conflicts when making those decisions.”

Source: MarketWatch.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.

Shine That Light: Ghosts in Your Client Families

estate planning  word artClients come to us with their version of their life, their finances and their problems; but whenever a new client comes in with a complicated situation, I know there is a ghost lurking in the background. I just never know whether it’s “Casper the Friendly Ghost” or a scary ghost lurking in the attic. I do know that the ghost impacts how a family operates and how they communicate. After 30 years practicing estate planning law, I have learned that if I don’t pay attention to that ghost, any solution I can offer won’t help solve the problem – in fact, it may make the problem even worse. So when I hear the client’s tangled story, I listen to what they don’t say just as much as what they do say. The client may think there’s a legal solution to their problem, but the solution may be much more fundamental.

An Example: The Ghost of Authority

An elderly couple I have represented for ten years came to me with a family dilemma. One of their sons had left the family business a few years earlier to work for a competitor but had since lost that job. He still owned stock in the family business and wanted his old job back. The other children in the business did not want him back, so the parents came to me to find out what his legal remedies were and how they could facilitate a solution.

A red flag went up when I heard that he was no longer working in their company but still owned stock. Another red flag went up when I heard he had been let go by the competitor. The parents were divided. The mother felt he should not be allowed back into the family business, because he chose to leave it and because the other children did not want him back. The father did not take a position and remained quiet. He had been in charge of the family business for many years, and although not currently active full time, he still owned stock in the business. The family respected him and to them, he remained the authority figure.

The parents asked if they could come in with the children to discuss the issues, and I agreed. The son was suspicious of the meeting and did not attend.

During that meeting the children told me emphatically that their brother was trouble while he worked there. He was a know-it-all and difficult to get along with. He left for more money when their company was struggling, and under no circumstances did they want him back. They had two main issues: a) they wanted him to sell his stock back to them, and b) it didn’t matter what they said, since unless their father took a stand with them, the brother would believe he still had a chance to come back. The father felt badly that his son was having financial trouble, and wouldn’t come out and say that he couldn’t rejoin the business. It became clear that this was not a sandbox I could or should be in. I represented the parents and this was not an issue that dealt with them directly.

I saw the ghost and it was the ghost of authority. The father no longer had the authority he once had, but it was enough to keep the game in suspense. Everyone was waiting for him to act, but his age and his switch from business to fatherly concerns had benched him and it was unlikely he was ever going to get back in the game. The family was stuck and no legal mechanism would unstick it.

I referred the family to a psychologist who worked with the father, the children in the business and the son who sought re-entry. He was able to put the ghost of authority in the light and facilitate family communication, which led to an acceptable resolution. The son was cashed out and is now otherwise employed. The family still speaks to each other and they will spend holidays together. Although the parents came to me for legal guidance this was not a legal dilemma.

As advisors, we need to be aware of what we know and what we don’t know. We need to read between lines – look for clues as to where the ghosts lurk, knowing that well-meaning clients will say just what they think is acceptable. They may not share the full story, and they may not be in a place where they can address the underlying issues. As seasoned advisors we must be able take the helicopter view, take a step back, and assess how best to shine the light on them.

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.

‘She has a dream – to make a quick buck’: Martin Luther King Jr.’s daughter says family wants to SELL his Nobel Peace Prize

estate planning, bernice kingThis story makes you realize how important it is to have guidelines for specific pieces of your estate that you may not want your heirs to be able to sell or dispose of.

The estate of Martin Luther King Jr. is asking a judge to force the civil rights icon’s daughter to relinquish her father’s Nobel Peace Prize and ‘traveling’ Bible.

The complaint against Bernice King was filed in February in an Atlanta court by her father’s estate, which is controlled by her brothers, Martin Luther King III and Dexter King.

The lawsuit says Martin Luther King Jr.’s heirs in 1995 assigned their rights to property inherited from the civil rights icon to the Estate of Martin Luther King Jr. Inc.

Appalled: Bernice King claims her family wants to sell Martin Luther King Jr.’s Noble Peace Prize and ‘traveling’ Bible

The lawsuit says Bernice King has ‘secreted and sequestered’ the medal and Bible in violation of that agreement.

Bernice King says in a statement that her brothers want to sell the medal and Bible to a private buyer and that she opposes that.

‘In my opinion, there is no justification for selling either of these sacred items. They are priceless and should never be exchanged for money in the marketplace,’ King wrote.

‘While I love my brothers dearly, this latest decision by them is extremely troubling. Not only am I appalled and utterly ashamed, I am frankly disappointed that they would even

Opponents: Dexter Scott King has gone to court over his father’s legacy before, with his3-25-14_She_has_a_dream_2 siblings charging him with financial mismanagement

entertain the thought of selling these precious items. It reveals a desperation beyond comprehension.

‘As Mark 8:36 teaches, ‘For what does it profit a man to gain the whole world and forfeit his soul?’ Our Father MUST be turning in his grave.’

Legacy: Martin Luther King III wants his sister to turn over their father’s achievements

3-25-14_She_has_a_dream_3Neither Martin Luther King III or Dexter King have responded, but Atlanta news outlets such as My Fox Atlanta report that such a statement is expected soon.

The siblings are no strangers to Atlanta’s courts. In 2009, the trio took 15 hours to reach a settlement regarding who would run King Inc., the corporation that controls the use of their father’s intellectual property. That deal temporarily placed a third party in charge. 

That settlement was the result of Bernice and Martin filing suit against Dexter, who’s financial mistakes they claimed were hurting the family’s legacy, according to the Atlanta Journal-Constitution

Source:  By Daily Mail Reporter and Associated Press Reporter  Click here for entire article.

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.

Court Says Will Created on Tablet Computer Valid

wills, estate planning tipsTimes they are a changing! In the past, courts were extremely strict, and conservative when it came to important estate documents like wills and trusts.  Certain verbiage is required, and conditions vary by state.

It’s always wise to be sure you know your individual state laws and their probate requirements in order that you not open up any reason these documents could be contested after your passing.

A recent article in the Chronicle-Telegram indicates that courts are being more open to new technologies that may provide new ways to memorialize your wishes.  Here’s the story:

Last resort: Write that will on your tablet

An Ohio probate court has ruled that a will written by Javier Castro on a Samsung Galaxy tablet computer is valid because no paper was available.

The decedent’s brothers testified that the decedent told them how he wanted to divide up the estate. One of the brothers wrote down those instructions on the tablet using a stylus. Later that day the decedent signed the will on the tablet with both of his brothers witnessing the signature and after he died the brothers printed out a copy of the will and submitted it to probate.

So what do you think?  Is it okay to simplify estate planning documents using present day technologies and does that leave the doors open for someone to contest it?

Do we need to ask the individual states to design legislation that will protect both the decedent and heirs when presented with these options, or not

This makes it much more important to be sure you work with a qualified attorney to help you manage your estate documents to be sure their validity will not be challenged after you’re gone.

 

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.

3 Tips to Planning at the Intersection of Income and Estate Taxes

The American Taxpayer Relief Act (ATRA) significantly increased the federal estate tax exemption in 2013 to Estate Taxes$5,250,000 (adjusted for inflation). For estate planners that have traditionally overlooked the income tax during planning discussions, it’s time to take another look at that tax and how and where it intersects with estate taxes.

  1. A refresher course on the relationship between the federal estate tax and the federal income tax.
  2. If there is no federal estate tax, giving the asset away during lifetime can result in overall higher taxes paid by the family. Under the ATRA federal income tax rules, capital gains on appreciated assets will be taxed at a 20% rate for taxpayers with taxable income over $450,000 (joint filers), $400,000 (single filers), $425,000 (heads of households) and $225,000 (married taxpayers filing separately). The capital gains tax is 15% for taxpayers that are below those thresholds. Also under ATRA, there is a 3.8% investment tax that may apply, with a significantly lower threshold. The investment tax is based on modified adjusted gross income (adjusted gross income plus any excluded foreign income) and is $250,000 for joint filers, $200,000 for single filers, $200,000 for heads of households and $125,000 for married filing separately.

    When the asset is given during lifetime, the recipient inherits the income tax basis of the donor if that basis is appreciated (IRC Section 1015(a)). The result may be a significantly higher overall tax paid than if the asset transferred at death. In other words, if the gross estate of the donor is less than the federal estate tax exemption, and there is significant built-in gain in the asset, then giving it during lifetime will trigger the gain when that asset is disposed of or sold.

    When evaluating the tax cost to a lifetime gift, look at the state inheritance and estate taxes too. For states with an estate tax, the exemption is lower than the federal estate tax exemption level, so there may be a state estate tax due even if there is no federal estate tax due. Retaining the asset until death may result in no federal estate tax, a state estate tax, and a fresh start income tax basis for income tax purposes. It is important to run the numbers and determine the lowest combination of those three taxes to make an informed planning decision.

    If property given during lifetime is depreciated at the time of the gift, the donee takes as the income tax basis the fair market value of the property at the time of the gift – but only for the purpose of taking losses. (IRC Section 1015(a)). The donee’s basis is increased by the portion of the gift taxes paid on the gift transfer. (IRS Section 1015(d)(6)).

    When the bequest occurs at death time, the income tax basis receives a fresh start and is stepped up to the date of death value, or the alternate valuation date, if that was elected. (IRC Section 1014). This occurs even if no federal estate taxes are due, meaning that any gain accrued prior to the date of death disappears. On the other hand, if the asset was depreciated for loss recognition purposes, the basis steps down at the time of death and loss cannot be recognized.

    If the taxpayer is domiciled in a community property state, then the surviving spouse’s share of community property is treated as acquired from the decedent and receives the stepped up or stepped down basis even if it was not included in the taxpayer’s federal gross estate. (IRC Section 1014(b)(6)).

    There is a glitch if the decedent had acquired the asset within one year of death and if at the taxpayer’s death the asset passes back to the donor or the taxpayer’s spouse. In that case the basis does not step up (Section 1014(c)). From a planning point of view, if the taxpayer’s health is declining, it makes sense, if possible, to make the gift more than one year prior to death and to someone other than the donor or the taxpayer’s spouse.

    Another exception to the stepped-up basis rules pertains to what is known as “income in respect of decedent” under Code Section 691.  Section 1014(c) provides that these items are to be included in full in the decedent’s gross estate and treated as gross income when realized. Essentially, these assets are taxed at twice – once for the estate tax and once for the income tax. There is an estate tax deduction under Section 691(c) for the estate tax attributable to the inclusion of income in respect of decedent on the decedent’s federal estate tax return.

    Examples of assets subject to both taxes include certain salary and fringe benefits accrued at death, fees and commissions performed during lifetime and paid after death, and retirement plan assets and dividends. If the taxpayer’s intention is philanthropic, however, donating these assets to a qualified charity qualifies for both the estate and income tax deductions.

    In light of the significantly increased federal estate tax exemption, take into account these income tax considerations in determining which assets should be transferred during lifetime, at death, to individuals, and to charities.

  3. Carefully Consider the Tax Consequences of Installment Sales
  4. The older generation may decide to sell the family business or commercial real estate to the next generation on an installment basis, which freezes the value of the asset for estate planning purposes. With the significantly increased federal estate tax exemptions, however, this may no longer be important. For federal income tax purposes, installment sales allow the taxation to be proportionately spread out during the years that the principal payments are made. Since this is a lifetime sale, there is no fresh start basis in the underlying asset and the heir who inherits the note continues to pay income taxes on the payments as they are received.

  5. Determine if Charitable Gifts Should be Made Lifetime or Death Time.

For clients who wish to leave a death time bequest to a charity, if the estate is not subject to federal estate tax then there is no deduction.  If the estate taxes are deferred until the death of the surviving spouse, and the charitable bequest occurs through the estate of the first spouse upon their death, in all likelihood there will be no federal estate tax and therefore no estate tax charitable deduction. Alternatively, the client may decide to make the gift during his lifetime and obtain the charitable income tax deduction, or he may ask his spouse to voluntarily make it during her lifetime if she survives him and take the income tax deduction. His estate planning documents could provide that if that is not done then the charitable bequest is to be paid when they both die.

With the significantly increased federal estate tax exemption, it is increasingly important for advisors to understand and focus on the income tax consequences of estate planning.


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.

Farrah Fawcett portrait by Andy Warhol at center of legal battle

The trial for the Farrah Fawcett Andy Warhol Painting started around November 20. When Farrah Fawcett died she leftFarrah Fawcett her artwork to the University of Texas.

She left nothing in her Will nor her revocable trust to Ryan O’Neal. He has possession of the $30 million Warhol and the University filed suit to recover it.

Ryan claim’s that the painting was jointly owned and it is hanging in his bedroom. He claims that he and Farrah also owned a Warhol painting called “Napkin” and on the back of that painting is an inscription to both of them from Warhol.

This certainly underscores that when the stakes are high and the dollar values significant it is important for art bequests to be made even more specific in estate planning documents.

I assume evidence such as how the property was insured while living, deeds of gift, intent, circumstances as to how Farrah acquired it and how it ended up in Ryan’s home will all be brought forward. This trial will also expose many private aspects of Farrah Fawcett’s life.

The star witness is a man whose identity had always been kept private and he is producing decades of love letters from Farrah to him, proving that Ryan O’Neal was not the sole man in her life.

Don’t let this happen to you.  Make sure you provide specific details of your wishes to your loved ones don’t end up in court!

Source:  LATimes.com

 

P.S. Click the link below for a trial update: http://bostonherald.com/inside_track/celebrity_news/2013/11/trial_over_disputed_fawcett_portrait_opens_in_la

 

 

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

2007 Bloomberg TV Video Still Holds True Today

I recently stumbled upon a 2007 Bloomberg TV interview I did about estate planning for women. It’s interesting to note that even though many of the laws have changed, these basics still hold true today.

I hope you enjoy this video as you consider whether or not your current estate plan will still suit your current circumstances.

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

Blessing or Curse? When Your Client Asks You to Serve as Trustee

estate planningAs the person who clients rely on to provide sound advice and direction on family and business matters, and as someone who shares and understands their views and perspectives, it is natural for clients and their accountant as trusted adviser to develop a personal relationship that extends beyond their professional one.  As an extension of this relationship, it is common for a client to name his accountant as a trustee in his estate plan.  The client wants the trustee to guard a host of goals and dreams that go beyond the basic preservation of assets and wealth.

The client/donor believes that his accountant as his trusted advisor understands him; that he has the wisdom to incorporate the donor’s most important values, spoken and unspoken. However, the dual responsibility of the advisor/trustee can blur the parameters of those roles, and may have legal, financial, and psychological ramifications.  Indeed, the blurred or hybrid nature of the advisor/trustee’s role offers advantages and disadvantages, risks and opportunities.

When the client becomes disabled or dies, the accountant serving as trustee has fiduciary responsibilities to the trust and its beneficiaries. Even though the advisor/trustee should give credence to the founder’s intent, the advisor must now switch his loyalty from the founder to the trust, where the standard for decision-making is significantly different from that of trusted advisor.

The founder can do anything he wants with his own assets, his own business, and his own money. He can take risks. If his net worth or income declines, it’s his responsibility and he deals with the consequences. When the advisor takes over as trustee, the problems exacerbate. As a fiduciary, the advisor cannot take the same risk – it’s not his money, his assets, or his income. As trustee he is obligated to preserve the assets for the beneficiaries. He therefore cannot act in the same role as the founder, or even in the same role he had as the trusted advisor to the founder.

For example, the founder may not operate his business based solely on profitability. He might make decisions for other reasons – to employ friends, keep older employees who are no longer productive but who were loyal to him during his lifetime, or operate a division of the company for fun, regardless of the economic consequences. The problem is intensified, however, if one of those non-productive employees is a family member who may also become a beneficiary of the trust. When the trusted advisor takes over, he cannot maintain those decisions or take those same risks.

The combination of coping with the disability or death of a friend and significant client, switching roles, understanding the risks, and navigating the family’s issues is a Molotov cocktail—and often where the trouble begins. I have previously written about the hidden psychological traps that go along with this responsibility. This column is focused on the practical provisions within the trust document that the advisor should review and be comfortable with before taking on the role of trustee. (And a preliminary point worth noting is that even if you are nominated as a Trustee you are not liable until you accept the office so if every bone in your body is telling you not to proceed decline the position; once you accept the position you are in line of liability. Should you decline before serving you have no liability).

Right to Resign and Method for Appointing a Successor Trustee – Life is a movie, not a snapshot. While it may seem like a good idea now to serve as trustee, that may not be true in five years. You may end up in conflict with a beneficiary, you may face illness, or a life changing event such as divorce that takes much of your time and energy, or you may switch jobs. At some point, serving as trustee may not be right for you. When reviewing the trust document, determine what it says about resignation and your obligations should you do so. Do you have a responsibility to appoint your successor? Who has to approve it? What if there is disagreement among the beneficiaries? If you discuss this with your client while the trust is being drafted, your input may be important. You may ask the client to provide you with a list of persons or institutions that he would consider suitable to carry on. The client may have specific thoughts about who is qualified to take that role and include those parameters in the document e.g., independent trustee (not related to donor or any member of his family), trustee with a certain number of years of experience, or a certain amount of assets under management.

Indemnification Clause – Carefully review the duty to defend and indemnification clause – most trusts contain a standard one. State law provides default protection. If there are risky assets in the trust, or obvious issues with difficult beneficiaries, it is wise for the trust document to be clear about how the trustee will be indemnified and defended. For example, a clause that limits the trustee to gross negligence only may make sense.

No-Contest Clauses – Determine if there is a no-contest clause, which means that if a beneficiary challenges the terms of the trust or the way in which it is operated, that beneficiary’s rights are impaired. A trust document that includes this type of clause can be a signal that stormy waters lay ahead.

Distribution Language – Every trust has language that specifies the standards by which the trustee may distribute income and/or principal to the beneficiaries. The trustee should be clear as to what those distribution standards are and how to implement them. If possible, ask for clarification as to what the intention is and have a mission statement prepared that sets forth both the goals and objectives. These guidelines, although precatory, can be useful to both the trustee and the beneficiaries when the trustee is exercising discretion.

Actions of Trustee: Unanimous or Mandatory – If there are co-trustees, review the document to determine if decisions are to be made by unanimous or majority action. If the document does not specify, state law will have a default provision to that effect and should be reviewed. This can be particularly important if difficulties lie ahead. It can also be important to understand how transactions (once the underlying action has been determined) are to be effectuated – in other words how many signatures are necessary. The document should be reviewed for the power to delegate administrative or ministerial tasks.

Authority to Hire Advisors and Experts – Review the document to determine what authority you have, as trustee, to hire the standard advisors such as your own attorney (in your role as trustee), accountants, and investment professionals. If there are unusual circumstances, such as a beneficiary with special needs or substance abuse issues, review the trust document to determine if you will have authority to hire mental health professionals and related caregivers. It may also be advisable to have broad authority to hire others, such as private investigators.

Investment Language – As fiduciary, you have an obligation to invest the trust assets prudently. Review the trust to determine if the trustee is to make allocations between income and principal. If the trust holds risky assets such as a closely held business or real estate, review the language to be sure the trustee has the authority to continue to hold that asset even if it is not productive or profitable. Just because the donor chose to retain those assets, without specific language in the trust document, that investment authority does not transfer to the trustee. Also, owning a significant concentration of one stock is probably not a prudent investment unless the trust document authorizes the trust to continue to hold it even if it loses value. If the trust holds loans, those should be secured unless the trust specifically authorizes loans to be unsecured – it is prudent however, to secure loans even if they are made to a beneficiary.  If, as trustee, you hire investment advisors, make sure that you do due diligence and check the investment advisor’s references and background. Make sure you determine how the investment advisor is compensated and how those fees are charged to the trust.

Accountings and Reportings – A critical element of a successful trustee/beneficiary relationship is open and transparent communication about finances and distributions.  Review the trust document to determine what reports are required and who should receive them. Also determine what the procedure is for assenting to the accountings –especially if a beneficiary does not acknowledge or assent to the accounting. It is also advisable to have regular in-person or telephone meetings with the beneficiaries to answer any questions and ascertain their needs.

Compensation – Review the document to determine how your compensation will be established and what expenses are reimbursable. If you are also serving as the trust’s accountant, be clear on whether that is part of your trustee fee, and if not, how compensation would be otherwise billed. Since you, as trustee, are paying yourself as accountant, it is important that there is a clear understanding of when you are acting as trustee (and how you are compensated for that) and when you are acting as accountant (and how you are compensated for that).

Serving as a trustee for your valued client can be an honor and a privilege –but it is important to understand the difference between your role as trusted advisor and your role as trustee and to review the trust document objectively with an eye to the future.

 

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.

Brooke Astor’s Son Released From Prison – What Can Estate Planners Learn From This Tragedy?

Brooke Astor's Son, Anthony Marshall, estate planningOn August 23rd The Boston Globe reported a sad footnote to a tragic family story. Brooke Astor’s 89 year old son, Anthony Marshall has grown so frail and weak that he will be paroled for medical reasons after serving 60 days of his 1-3 year sentence.

Marshall and Francis X. Morrissey Jr., an Astor family lawyer, were convicted in 2009 of stealing tens of millions of dollars from Astor. Prosecutors said the two tricked Astor, who was more than 100 years old and had Alzheimer’s disease, into altering her will to give the money to Marshall.

He cannot walk, stand, clean himself or dress himself and has potentially life threatening swallowing issues. One wonders as an estate planning attorney of the many ways the entire tragedy could have been avoided.

Perhaps separate legal representation of mother and son from the beginning, the involvement of a family psychologist, or an independent co-fiduciary at the outset could have made a difference,

Certainly more effective communication and an understanding of the enormity of the tangled issues and the potential damage they created could have mitigated the fracturing of this family.

I do know it is not fair to be a back seat driver and I am thinking not so much of this case but rather what lessons we as estate planning advisors may learn from it.

 

Source:  Boston Globe Entire Article Here: http://www.bostonglobe.com/news/nation/2013/08/22/brooke-astor-son-paroled/m2UMVHOQtbEa6Rer5jRWiJ/story.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.

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