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

Judge rules trust for grown children must shoulder the bill

By Scott Calvert

Tom Clancy image, estate planning taxes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Clients Divorcing? Be Sure to Handle These Estate Planning Details

Review all documents to ensure the right people inherit.

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

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

  1. Restraining orders. In many states, when a divorce petition is filed, what is known as an “automatic temporary restraining order” is put in place. Under a restraining order, most estate planning (such as changing estate planning documents or the designation of beneficiaries) cannot occur without a court order. In essence, all planning comes to a halt (unless a court rules otherwise) until the divorce is over. However, some documents may be revised while the divorce is pending. These may include a financial durable power of attorney and health care proxy documents, and documents that pertain to the disposition of the client’s remains. Ensure that your clients review such documents, especially if they put the client’s spouse in charge.
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  3. State law, particularly as it applies to wills. In many states, a divorce, once completed, revokes the provisions in a client’s will that name a spouse as a beneficiary. However, you should still encourage divorcing clients to review and revise all estate planning documents, especially wills. Otherwise, they may unintentionally leave portions of their estate to an ex-spouse or former in-laws, as happened in a recent case in New York (In re Estate of Lewis, 978 N.Y.S.2d 527 (N.Y. App. Div. 1/3/14)). New York resident Robyn Lewis left everything to her husband, including her home, in her will. She got divorced, but did not change her will before she died at age 43. Though, under New York law, her ex-husband was now not allowed to inherit, Lewis had left her home to her father-in-law as a default provision—a provision not automatically revoked under New York law. Lewis’s family of origin contested the will, but the New York appellate court upheld the decision that the home now belongs to her ex-father-in-law.
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  5. Beneficiary designations. When a client gets divorced, you should review all primary and secondary designations of beneficiaries for his or her life insurance policies, IRAs, and annuities, as getting a divorce does not automatically revoke those contract beneficiaries. In Hillman v. Maretta, 133 S. Ct. 1943 (U.S. 2013), for example, the U.S. Supreme Court ruled that a man’s ex-wife was still the beneficiary of a $124,558 life insurance policy, even though he had remarried before his death, as he had not changed his beneficiary designation after they divorced.
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  7. Life insurance. Life insurance policies need be carefully reviewed to determine how the divorce will affect them. For example, if a couple purchased a second-to-die life insurance policy because they thought the marital deduction would defer the estate taxes until they both died, that policy must be reviewed to see what happens in the event of a divorce.
     
    Sometimes, after a divorce, one party does rightfully remain the beneficiary of a life insurance policy on his or her ex-spouse’s life. In these situations, the named beneficiary should, during divorce proceedings, mandate that the policy remain in force and that duplicate statements be mailed to his or her ex-spouse to ensure that payments are made on time.
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  9. Estate tax. After they divorce, clients will lose the estate tax marital deduction—and therefore incur higher estate taxes if their spouse dies before they do. Prepare clients for these extra taxes by discussing topics such as what assets will cover the estate tax and whether they should obtain additional insurance.
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  11. Embedded income taxes. In a divorce, many clients view the assets at their current values. The reality is that an asset may have a significant embedded gain because of a very low cost basis, depreciation, or recapture or because it is a non-Roth retirement planning asset. CPAs can call a client’s attention to embedded taxes and make sure they are taken into account in determining how the assets are to be divided.

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


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

Avoid these common mistakes when preparing a federal estate tax return

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

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

      
  1. Missing the filing deadline. The estate tax return must be filed nine months after the date of death. Not doing so can jeopardize elections and cause interest and penalties to be due. If it will not be possible or practical to file the return on time, then you should file Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes in a timely fashion. Keep in mind, however, that while filing Form 4768 provides an automatic six-month extension to file Form 706, it does not automatically extend the time allotted to pay the tax. If your client needs more time to pay, you must request an extension to do so (on Part III of Form 4768), but it’s up to the IRS whether to grant the extension.
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  3. Not electing portability on the federal estate tax return of the first spouse to die. Sec. 2010(c) allows any unused federal estate tax exemption to be “portable” and therefore available to be used at the surviving spouse’s death—but only if the portability election is made on the federal estate tax return of the first spouse to die. Even if you do not think the surviving spouse will need to use the exemption, elect portability anyway, because his or her financial circumstances may change.
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  5. Not including prior gift tax returns with the federal estate tax return. If you’re not a client’s first adviser, be sure to check whether his or her previous adviser prepared and filed any gift tax returns for him or her. Clients sometimes do not remember these details, so, after a client dies, have the named fiduciary write to the IRS Service Center and request copies of any prior gift tax returns. This is an important step to take, as prior gift tax returns will affect the amount of available estate and generation-skipping tax exemptions, which, in turn, affect the amount of any tax due on the federal estate tax return.
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  7. Not including a tax allocation clause in a will and trust. Every will and trust should incorporate what is known as a tax allocation clause that allocates the taxes among the beneficiaries or against the residue of the estate. If there is no such clause in the document, then the law of the state in which the client is domiciled controls the allocation, and tax may be allocated to assets that would otherwise qualify for the marital or charitable deductions.
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  9. Not providing adequate documentation for the assets that are valued on the return. Assets such as real estate, tangible personal property, and the interests in any closely held businesses can be hard to value. When adequate documentation is not obtained, the risk of an audit dramatically increases. Should taxes be assessed, penalties may also apply. Have appraisals (not opinions of value) made that show the fair market value at the date of death for these assets, and submit them with the tax return. These appraisals should be thorough and show comparable sales. If a discount from value is taken on the return, the appraisal should explain why that discount is the right one. The discount should also be a specific figure and not a range.

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

A college with a $94 million endowment is shutting its doors, and people in higher ed should be scared

by Peter Jacobs for the Business Insider

sweet briar college, estate planningA women’s liberal arts college in Virginia announced Tuesday that its Spring 2015 semester would be its last.

Sweet Briar College — located near Lynchberg, Virginia — will close “as a result of insurmountable financial challenges,” the school said in a statement.

Sweet Briar administrators cited several trends that informed the decision to close, including the declining number of female students interested in all-women colleges and the dwindling number of students overall interested in small, rural liberal arts colleges.

Last year, Bloomberg Businessweek reported that small, private US colleges were in a “death spiral” in light of dropping enrollment rates. This decline comes amid competition from cheaper online colleges and community colleges, which are enticing to students in a job market that’s weaker than it once was.

Several colleges similar to Sweet Briar have recently made changes to survive financially, according to Scott Jaschik at Inside Higher Ed. But each choice has come with its own trade-offs. Jaschik highlights two other women’s colleges in Virginia:

Mary Baldwin College has embarked on a plan to preserve its identity as a residential undergraduate liberal arts college by creating new colleges of education and health professions. College leaders say this approach will make the women’s residential college financially sustainable, but many professors fear that the institution’s liberal arts ideals are being compromised.

Randolph-Macon Woman’s College, meanwhile, renamed itself Randolph College and in 2007 started enrolling men. As has been the case at many women’s colleges making that decision, some alumnae objected.

Randolph College’s endowment is over $125 million.

The Sweet Briar statement in part reads:

In March 2014, the College began a strategic planning initiative to examine opportunities for Sweet Briar to attract and retain a larger number of qualified students and determine if any fundraising possibilities might exist to support these opportunities. Unfortunately, the planning initiative did not yield any viable paths forward because of financial constraints.

Speaking with IHE, Sweet Briar College President James F. Jones Jr. lamented the closing of the college as a part of a broader change in “the diversity of American higher education.”

“The landscape is changing and becoming more vanilla,” Jones said.

As Jaschik notes, Sweet Briar’s closing is not unique, especially given the financial burdens many schools have faced since 2008. But, Jaschik writes, “the move is unusual in that Sweet Briar still has a $94 million endowment, regional accreditation and some well-respected programs.”

Mary Baldwin College recently created new colleges of education and health professions.

Shutting the school now — as opposed to when Sweet Briar runs out of funds — will allow the college to offer help to its students and faculty as they transition out after the semester.

“We have moral and legal obligations to our students and faculties and to our staff and to our alumnae. If you take up this decision too late, you won’t be able to meet those obligations,” Sweet Briar College board of directors chairman Paul G. Rice told IHE.

Here’s how Sweet Briar plans to offer support, according to IHE:

While all employees will lose their jobs, the college hopes to offer severance and other support. Students (including those accepted for enrollment in the fall) will receive help transferring. This semester will be the last one at the college, but it will remain officially open through the summer so that students can earn credit elsewhere and transfer it back to Sweet Briar to leave either with degrees or more credit toward degrees.

Sweet Briar announced on its Facebook page that it has expedited transfer arrangements with four local colleges.

Source: BusinessInsider.com Read more: http://www.businessinsider.com/sweet-briar-college-closing-2015-3#ixzz3TMzAxfY7

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.

Fundamental Family Estate Planning Goals

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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

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

    Although the sentiment that “the law may change” will encourage some clients to cling to those structures, the move will be toward simplicity. Clients want transparent, understandable planning tools and no longer believe they need anything complex to accomplish their overall goals. Post-mortem techniques will allow advisors and families to have a “second look” nine months after the date of the decedent’s death to correct any factual mistakes or changes in the law that may have happened since the documents were established.
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  3. Increase in Emphasis on State Estate Tax Planning. – For many families, federal estate tax planning will no longer be the main driver – state estate taxes will now be in the spotlight. In some states, there is a minimal $1 million exemption and the state estate tax rates reach 16 percent. For a $10 million estate that may not pay any federal estate taxes, the state estate taxes could be as high as $1.44 million.

    Although the state in which a family is domiciled controls the bulk of the tax, it becomes complicated to calculate the state inheritance taxes when families own property in several different states. If a husband and wife are domiciled in Florida (which does not currently have a separate state death tax), owns a vacation home on Cape Cod, and has commercial real estate in Greenwich, they would have to pay state estate taxes to both Massachusetts and Connecticut because they owned real property in both states. The state that claims estate tax domicile will prevail in assessing the estate tax on more than the real property and tangible personal property physically located in that state – it will reap the tax on the decedent’s intangible assets too, including investments and stock in the family business no matter where it is located. The determination of domicile for state estate tax purposes is fact-driven and differs from the determination of domicile for state income tax purposes. Estate planning professionals need to pay particular attention to these points.
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  5. Increased Focus on Intergenerational Planning – As greater wealth passes down unhampered by federal estate taxes, it will become easier to hold broad discussions on family wealth that cut across generational lines. Insurance professionals must shift gears from the old goal – preserving the wealth by making sure that the government interferes as little as possible – to emphasizing the capture, preservation, and management of the assets for the good of a family system for generations to come. This requires a candid and thoughtful conversation with the family to discuss their common goals, their visions for the future, and how the family business will be managed in subsequent generations.
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  7. Investment Choices on Dynasty Trusts Established to take Advantage of the Federal Gift Exemption. At the end of 2012, many high net worth families took advantage of their ability to gift $5 million, adjusted for inflation, and transferred assets to trusts. In the year-end rush, many of those trusts now have investments but no investment strategy. Now that this increased exemption has become permanent, many families will continue to implement and fund these trusts. From a leverage point of view, current law dictates that those assets, no matter how much they appreciate, will bypass estate tax for subsequent generations and will do so until the trust terminates. From an estate planning point of view, advisors should consider investment leverage and with their fiduciary duty in mind, contemplate investing those assets for future growth. Many families are also purchasing life insurance as part of this investment strategy, as it provides additional leverage and the funds used to purchase the insurance have already been moved out of the federal transfer tax system.
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  9. Understanding the Impact and Influence of Double Inheritors. Many baby boomer women in this country will be double inheritors – they will inherit wealth from their parents and from their spouse. Over the next 20 years, the amount of wealth that will pass through and be controlled by baby boomer women will be staggering. As advisors, it is imperative that we understand the enormity of this market and acknowledge that reaching the woman client is different from reaching the male client. That woman client may be happily married now (and widowed later), single, divorced, widowed or remarried.
     
    Author Tom Peters, who has written extensively about organizations, leadership, and trends in the marketplace, is convinced that women represent the number one economy – and he believes that the impact of the women’s market on our global economy may be even bigger than the impact of the Internet. Understanding and reaching the double inheritor market is an important client service and an increasingly important business opportunity for estate planning advisors.

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

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

A Goal of Hard Work Created The Family’s Estate

Home and money image, estate planningAn Italian immigrant I know came to this country at a very young age with a grade school education and aspirations of a better life for himself and his family. Those aspirations brought him to work with what he knew – real estate. To him, land meant wealth that could never be taken away. He did not need a college education to develop real estate. He knew with good tenants there would be good cash flow. His immediate goal was survival coupled with those America stands for (land of the free, home of the brave and a place where hard work can bring tangible, financial rewards).

He started his family in a traditional marriage and raised hardworking children. (It is interesting to note he never viewed a good college education as a key value for his family; he valued hard work. It was fine if his children were educated, but that was not a goal). His initial goals were a strong family and wealth through hard work and entrepreneurism in real estate.

As time and life went on, his net worth increased and the course became tougher and the goals increased. He instinctively followed the message of IBM founder, Tom Watson who said, “I’m no genius, but I’m smart in spots, and I stay around those spots.” He stuck to his mission and did not enter into new lines of businesses for three decades. As he became successful, he bought more real estate and more real estate and more real estate. He involved his children in the real estate business at very young ages – discussing it with their parents at the dinner table, piling into the car after dinner and driving through the small city looking at what was for sale, how each piece was valued, where the trends were, what was successful, what was not successful. If the father saw a property that he thought was a “catch”, he would call the owner and make an offer – whether or not the property was formally for sale. His now adult son told me that the habit of driving around for a few hours every night is still ingrained in him, and no matter where he and his family travel, they still do an ongoing analysis of the real estate.

The patriarch reached the point where he owned most of the town and employed many of the citizens in construction and real estate management. To him their families were as important as his own. He valued hard work and loyalty, helping his workers out in difficult personal times or illness.

His goal of coming from Italy to America to raise a family and achieve success was surpassed in the first ten years; yet he never stopped raising the bar, achieving new goals and setting new standards. He remained on the cutting edge of real estate development and his goal grew into revitalizing and shaping the city in which he lived. He wanted its people employed, and he wanted the city to be a magnet for those from other towns to come and shop and dine. His business broadened from acquiring apartment houses and office buildings to starting restaurants and stores.

His children and grandchildren (and most of their spouses) are all employed at some level in the family enterprise since, in addition to his entrepreneurial aspirations, a central value was a tight knit family with a sense of safety. His goal became to use the enterprise he’d built as a safety net for his family, his employees and his community – yet to continue to instill hard work. No one individual (including his family members) would ever become independently wealthy from the enterprise. It is held in a dynasty trust and will continue to support his goals long past his time on this earth.

Although he did not set off with a specific end goal in mind, he knew his compass was set to true north. He used that as a guide and kept course through the obstacles life threw him. His business and family were sustained because of his focus and persistence on his chosen direction. His story is one that shows that although it may be important to know what your long-term goals are – write them down and adjust them and you go – the goals that emanate from true north are instinctual. With focus and perseverance they endure. I am confident every member of his family and his extended family understands that his values are what they have accomplished and what matter to 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 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 CPAs Can Help Clients Address the Number One Planning Obstacle

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

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

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

Financial considerations

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

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

Do your clients need a trustee?

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

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

Should both members of a couple be named guardians?

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

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

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

 

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

Realities of Boilerplate Trust Clauses

estate planningMany clients sign estate planning documents without paying much attention to the clauses they contain. One clause that few clients pay attention to is the one governing how that client’s incapacity could be determined—and therefore how the client could be removed from serving as a fiduciary or trustee. A high-profile case on this topic recently played out in California probate court between former Los Angeles Clippers owner Donald Sterling and his estranged wife, Shelly. Here are several lessons from that case, whose outcome ultimately allowed Shelly Sterling to sell the team:

Review all “boilerplate” clauses in estate planning documents. Make sure that clauses that may seem benign when the donor is healthy and competent would also apply later.

Plan for disability or incapacity. This planning should be as important to a client as planning for death. Thinking through who will serve as successor trustee if the donor/trustee is removed for reasons of incapacity is important. Nuances, such as whether spousal estrangement should disqualify a party from serving as sole trustee, really do matter. (The Clippers were owned in a trust. The trust agreement contained a provision, which Donald Sterling agreed to when he signed the trust, that authorized his removal as trustee based on an expert’s determination that he lacked mental capacity.)

Put in place checks and balances to avoid conflicts. Conflicts may arise down the road. For example, should someone who has a vested economic benefit in the outcome of such a critical decision be able to overrule the donor? Should Donald Sterling have designated someone to replace him so there would always be two trustees? Shelly Sterling assumed the role of sole trustee after two doctors determined that Donald Sterling was mentally incapacitated and no longer able to conduct his legal or business affairs.

Think carefully about who can determine incapacity. Should a donor such as Donald Sterling have mandated that his own personal physician be one of the physicians who had to determine whether he was incapacitated?

Consider the consequences of a legally estranged spouse. When legal estrangement with a spouse happens, it is good practice to review all financial structures and estate planning documents—especially the control provisions. Did Donald Sterling affirmatively decide that his wife would have control if he was unable to serve as trustee, or did that happen by default? The trust documents apparently did not prevent Shelly Sterling from assuming sole trustee power even if the couple were estranged.

Identify to whom the trustees should be accountable. Besides the spouse, who else should the trustees account to? Children? Independent advisers?

Designate who will serve as guardian of person and property if protective proceedings commence. That designation would be included in a client’s durable power of attorney. Being named guardian gives a person legal standing in most states to defend the client in an incapacity hearing.

Regularly review estate planning. The Sterling case underscores the importance of regular review. Disability or incapacity does not occur at once—it can creep in over time. Continuous (or at least annual) attention to planning is a safety mechanism that catches inconsistencies early and allows adjustments.

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.

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