Donor Education and Financial Literacy – The Series

Educated donors who are financially literate understand why they are giving. Education leads to empowerment. Empowerment leads to action. Integrating an effective financial literacy and donor education program into your institution’s goals and objectives is a mandatory component of an overall philanthropic plan.

 

Why Financial Literacy Is Important

Financial literacy adds significant value to donor education because it helps donors make the most of their wealth through giving.  Financial literacy has been defined by The Organization for Economic Co-operation and Development (OECD) as  “the process by which financial consumers/investors improve their understanding of financial products, concepts and risks; and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being” (http://www.oecd.org/dataoecd/0/41/42271820.pdf).

Research suggests, however, that most Americans have extremely low levels of financial literacy, and that their lack of financial literacy has an impact on philanthropic giving.

Analyses show that, regardless of the actual financial resources held by donors, the size of their donations is negatively affected by feelings of retention (a careful approach to money) and inadequacy (worry about their financial situation).

It can be concluded that an understanding of money perceptions is an additional important factor in the understanding of charitable behavior. Since most people do not know how much they can afford to give based on their income, financial literacy can result in higher giving—once donors know the amount that they can afford to give based on their income, they can increase their giving. Given these findings, fundraising professionals should not only select potential donors based on their absolute financial capacities, but also take the potential donor’s own financial perceptions into account when asking for donations. (Wieping and Breeze, 2011, 1)

Next week: Why Effective Donor Education Programs Are Important!


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.

New Risks to Wealth Management: To Gift or Not to Gift

Traditional risks related to the family’s wealth (including financial, intellectual and social assets) include the illness or death of the key family stakeholder, economic downturn and changes in the regulatory or legal environment. New risks are triggered by the dissipation of wealth due to generational mathematics—with each ensuing generation, the wealth is splintered—and the lack of creation of new wealth; this very turbulent economic time; the increased complexity of legal and tax matters; and the increased complexity of wealth management choices. These risks can be mitigated when the family coordinates its advisors and monitors the integration of all professional services.

The risks are further mitigated when the family embraces and encourages financial education and financial literacy across the generations. Mentoring, shadowing, exposure to the concepts and resources along the generation continuums reduces the chances for unintended consequences.

New Risk: The Bracket Game:  To Gift or Not to Gift…That Is The Question…..

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the Act). The Act significantly changes the federal estate tax, which impacts estate planning for many and presents significant estate planning opportunities. The biggest surprise in the new law is the ability to give $5,000,000 of assets away now and remove those assets and any appreciation in their value from the donor’s taxable estate. In a marriage, this doubles the amount to $10,000,000. This law is in effect until December 31, 2012, and it is unclear what the state of the law will be from 2013 on.

This significant increase in the gift exemption adds to the donor’s ability to gift the annual exclusion of $13,000 each year and the donor’s ability to pay anyone’s tuition and medical expenses as long as payment is made to the provider.

The Act has prompted spirited discussions, “Well, now that I can really give that much, should I? What are the non tax risks to making those gifts?”

     Factors to consider when deciding whether to gift or not to gift:

1.     How much is enough?

This question is always worth discussing. Warren Buffet’s answer is, “Leave your children enough money so they can do anything, but not enough that they don’t have to do anything (although Buffet did not leave his children the bulk of his fortune, he did leave each of them a foundation of $1billion dollars to give to the charities of their choosing).  In my experience, the answer depends upon the individual, often changes over the lifetime of the donor and has to do with his/her children and the economic times.

2.     What strings do I want on the gift?

Whatever the amount, you must decide how much control there    is over the gift. Is it to be given outright? In trust? Who is the trustee? How long should the trust extend? What are the terms of distribution? Who are the permissible beneficiaries?

3.     Should I leverage the gift?

In addition to the strings that you want to impose on the gift, you should also address leverage. If you make a gift that is eligible for a minority or marketability discount, that increases the value of the gift by at least 20%. If you fund an irrevocable trust and anticipates that the trustee will use the funds to make annual life insurance premium payments, then significantly more may be added to the trust through leverage than if the gift were to be invested along more traditional methods.

4.     Am I willing to assume the risk that the gift, once given, is gone?

What if the donee becomes divorced or has creditor issues during the donor’s lifetime, and the gift is jeopardized? Can you live with that consequence? The cascading effects from a gift can have far reaching consequences. For example, if the donor parent gifts 20% of the stock in his closely held business to his children; and one of the children becomes divorced, it is not just that the child’s interest in the business may be vulnerable. Even if it is not vulnerable, the divorce court also has the right to order the valuation of the child’s interest in that business. To do that means valuing the business in its entirety;  and having that asset valued in a hostile environment—where the ex-in-law’s lawyer will try to value that as high as possible—will in all likelihood be in direct opposition to the donor parent’s valuation and appraisals for estate planning and transfer tax purposes. In addition, if the donee child is ordered to pay alimony or child support, then the income from the gifted asset will be taken into account when the court establishes the dollar amount. If the income is phantom income, which the child donee does not actually receive, that can present additional complications and litigation.

5.     Am I willing to give up the “fruit as well as the tree”?

In most cases, the fruit and the tree—meaning the income and the principal—go hand in hand. For example, are you ready to give away 20% of the underlying asset, knowing that the corresponding 20% of the income which is attributable to that asset will also no longer be available to you?

6.     Have I considered gift splitting?

Gift splitting—where one spouse makes the gift, and the other gives consents to that gift—is a very effective estate planning technique for the second marriage couple. Frequently, in that case, one spouse is wealthier than the other. If the less wealthy spouse does not have $5,000,000 of assets in his/her own right, then using the less wealthy spouse’s $5,000,000 exemption in full or gift splitting, with the wealthier spouse giving his/her assets to his/her own children can be a very creative technique. In effect, it doubles the amount that can be gifted. When considering this technique, especially if there is a prenuptial agreement or postnuptial agreement in place, care should be taken to protect the estate of the less wealthy spouse who consented to this gift or allowed the use of his/her $5,000,000 exemption.  The possibility that the exemption could decrease later, resulting in additional estate taxes in his/her estate to his/her beneficiaries, should be thought through and discussed.

7.     Should I gift more than the $5,000,000/$10,000,000 exemption and incur the 35% gift  tax?

For many very wealthy individuals, this is a question to consider seriously. The gift/estate tax rate has not been this low in eight decades. The difference between a tax exclusive gift and a tax inclusive bequest is significant at the higher dollar levels, and exploring this (especially if the underlying assets have significant growth potential or discount opportunities) should be an option.

 Solution: Creation of a Family Risk Management Policy Statement:

A solid family risk management policy contains the purpose, principle and procedure for implementation. The purpose of a family risk management policy may be to reduce the risk for family members, both individually and as a whole. Adherence to the policy would go far to protect the family’s human and financial assets and minimize potential liability. The principle of the policy may be to make clear that the responsibility is to identify the areas of high risk and to do whatever possible to mitigate that risk. The procedure of the policy may make it clear that each family member is expected to:

  • Achieve financial literacy with regard to his or her own wealth as well as the wealth of the family enterprise.
  • Draft and have both parties sign a pre-nuptial agreement.
  • Contact their insurance providers annually to review their insurance coverage to ensure that they are current and adequate.
  • Have in place basic estate planning documents: will, revocable trust, health care proxy, power of attorney for financial assets.
  • Participate in the development of an investment policy that is aligned with the family’s shared values.
  • Protect the family’s reputation by learning how each individual’s behavior, both positive and negative, can impact the family’s reputation.

A family risk management policy statement is dynamic. It should be reviewed and adjusted as the risks that families face evolve and change.

 

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.

New Risk to Family Cohesiveness: Impact to individual goals and life plans

New Risk to Family Cohesiveness: Impact to individual goals and life plans by the increasing lifespan of baby-boomer generation. Take the Steps Now to Put the Oxygen Over Your Own Face First and Decide Who Will Make Your Health and Financial Decisions If You Are Unable To Do So.

Another risk to family cohesiveness is the impact of increased lifespan to individual goals and life plans. Traditional risks included the illness, death or incapacity of a key family figure. In the family business and in the co-ownership of investment and commercial assets, the new risk is the increased work lifespan of the older generation, which results in the delayed succession of the middle generation. In essence, with the older generation in good physical and mental health and working far longer, the middle generation may in effect be knocked out of position and never get its day in the sun. By the time the older generation decides to move along, the individual goals and life plans of the middle generation may have been passed by; and the baton may be passed to the next generation. This new risk can be mitigated by intentional strategic planning and clear communication among all generations as to what the expectations are for the working lifespan and when the baton should/will pass.

Strategies to Mitigate the Risk of Increased Lifespan to the Ability to Control Your Own Health and Affairs and the Risk to Next Generation’s Life Plans:

1. Understand that estate planning is much more than what happens when you die; in an increasingly aging population that is living longer disability or incapacity planning is essential. Make sure you have in place the legal mechanisms so that you can be taken care of in the way you desire. It is important we all remember what the flight attendant says every time you board a plane- if the cabin pressure changes and the oxygen mask falls down put that mask over your own face first –it is only when you do put the mask over your own face that you will have the strength to protect others. In other words, protect yourself first.

2. Make sure the documents that will protect you if you are unable to care for yourself (Health Care Proxy and Durable Power of Attorney) are up to date and the way you want them.

A Health Care Proxy is a document in which you give the authority to an agent to make medical care decisions if he/she becomes unable to make them. The document can authorize everything, including minor and routine medical involvement, and can give the agent access to all your medical records. It can authorize someone to supervise your care if you are incapacitated, to consent to have you undergo certain types of treatment or to have them withdraw from treatment; to make hospital or nursing care arrangements; and to employ or discharge caregivers.   It can also empower the agent to make such major decisions as whether or not to terminate your life.

Under federal law, only one person at a time can be named as health care agent, but a Health Care Proxy can name a succession of people as alternatives.  This is done so that someone else can take over if, for instance, both spouses are in the same car crash, and neither one of them is in a condition to make medical decisions.  A copy of the Health Care Proxy should be given to your primary care physician and becomes part of the medical record.

As with a financial Durable Power of Attorney, in the health care area, couples usually designate each other to make medical care decisions and list their children as successor agents.  The health care agent must be someone they trust, who shares your value system, who is willing to perform the task and who has a clear understanding of what your preferences are.

It is prudent to update this document regularly, and, when it is updated, to make sure that the most recent contact information for those who have been designated to make health care decisions (including all telephone numbers and cell phone numbers) are current. If the Health Care Proxy was executed prior to The Health Insurance Portability and Accountability Act of 1996 (known as HIPPA) then the document must be updated. Under HIPPA, if you do not expressly waive your right to privacy in writing, hospitals and physicians do not have the legal right to speak with the health care agent or to release medical information to that person.

Choose a Health Care Agent. This important person may have different titles in different states (such as “health care agent,” “health proxy,” “patient advocate,”  “attorney-in-fact,” “health care representative,” or “health surrogate”), but the responsibilities are the same.  The official requirements for health care agents also vary from state to state, but most states simply specify that the person must be an adult (over 18) and must be someone who does not work for your health care provider or for an adult care facility in which you are residing.

It is good to designate both a health care agent and a successor agent (choice #1 and choice # 2), in case you need help at a time when the agent you have chosen is not available.  You should decide which child to choose, and if you have  no spouse or children, which friend or relative to choose.

In order for you to choose a health care agent wisely, it is helpful to establish a basis for evaluating potential candidates. That evaluation should include the following criteria:

1) Religious beliefs:  Since the concept of withholding artificial life supports runs contrary to the teachings of several religions – most notably the Catholic Church – it is helpful to find a health care agent who shares your  religious beliefs and your position on right-to-die issues.

2) Willingness to take on this task.

3)  Strength to act on your wishes and speak out on your behalf (even if faced with doctors, institutions, or family members who disagree).

4) Communication:  The agent is comfortable talking to you about sensitive issues and capable of listening to and absorbing what it is that you want.

5)  Separation:  This is a person who can differentiate between his/her feelings and yours and be able to do what you want done.

6)  Proximity: This is someone who either lives close or could travel quickly to be there when needed.

7)  Availability:  This person is likely to be accessible and capable of performing tasks well into the future.

8)  Personal Understanding:  He/she knows you well enough to intuit what is important to your.

9)  Negotiation skills:  He/she can mediate conflicts between family members, friends, and medical personnel.

Figuring Out What You Want: The following questions are designed to help you know yourself and to form a basis for discussion with the person you choose to execute your health care power of attorney.

1)  The Pleasures of Health:  How essential are these capabilities to your happiness?  (I.e. are they, Vital, Important, Mildly Important, Not important)

*Walking

*Enjoying the outdoors

*Eating, tasting

*Drinking

*Reading

*Attending religious services

*Listening to Music

*Watching television

*Avoiding pain and discomfort

*Being with loved ones

*Touching

*Being self-sufficient

2)  Fear Factors:  What are your biggest concerns about the end of your life?

3)  Spirituality:  How much of your comfort and support comes from religion?  From personal prayer?  From interaction with clergy?

4)  End of life: If you had the power to decide, what would the last day of your life be like?  Where would you be?  With whom?  What would you be doing?  What would your final words be?

5) Assistance Preferences Worksheet:  It is useful to discuss with your health care agent (and family members as well) the types of assistance you might want, should you need help, and to revisit this issue from time to time, because your preferences could very well change. Looking at each of the different scenarios spelled out below, think through what your preferences would be by asking yourself the following questions:

a) Would I still want to live at home?

b) Would I want caregivers hired to help me out in my home?

c) Would I want to be taken to a rehab or assisted living center?

d) Would I want family members to care for me?

e)  Would I want to live with one of my children?

f)  Would I want one of my children or a relative to live with me?

g) Would I want my health care agent to make these decisions for me?

h)  Would my answers differ if my spouse were still living at home?

-If you were unable to drive a car ___

-If you were unable to climb stairs ___

-If physical problems prevented you from being able to dress yourself ___

-If you had to use a wheelchair because you were no longer able to walk ___

-If you were unable to leave your home ___

-If your vision were seriously impaired ____

-If your hearing were seriously impaired ___

-If you needed kidney dialysis ___

-If you needed chemotherapy ____

-If you were in physical discomfort most of the time ___

-If you could no longer control you bladder ___

-If you could no longer control your bowels ___

-If you could not think clearly ___

The more you take the time now not only to think through who you wish to choose as a Health Care Proxy, but also how who would want various future scenarios to be addressed by that person, the more likely your wishes will be honored in the future.

Make sure (especially if you are in a second marriage) that you have coordinated the person chosen as your Health Care Agent with the person named as your Trustee and/or your Attorney in fact under a Durable Power of Attorney so that the decisions about your medical care and how to pay for it are coordinated.

What challenges are you facing in your estate individual goals and life plan?  Share your stores in the comment section below.

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.

Who Owns the House and Land – Gifting Family Property

Protect Your Assets:

Question: Our family and extended family has always lived close to each other. We own quite a few lots of land that homes could be built on. We would like to give one to each of our children but we would like to make sure that it remains in the hands of our children and grandchildren-not their spouses. What do you suggest?

Answer:

Whose name is on the title to the house is one of the most emotional issues in any marriage.  My home is my castle is part of the American dream. If you give the lot directly to your child and that child maintains title in his or her name alone there is power imbalance in the marriage.

It can have deep consequences. It also has practical problems-who will be on the mortgage? Should both spouses pay the payment? Would it be fair to ask for your daughter to ask her husband to pay part or the entire mortgage from his earning but not give him an equity stake in the house? If the lot is in joint name then without a contrary written agreement should the couple divorce your ex son-in-law would in all likelihood receive one-half of the equity of the lot.

A possible solution is to ask your daughter to enter into a pre-nuptial agreement prior to marriage that mandates that if there is a divorce the value of the lot at the date of the marriage comes back to her first and any appreciation is split 50/50. An alternative is to lend, not gift the lot to both your daughter and son-in-law and have them sign a promissory note and recorded mortgage. Should they divorce both of them owe you the money and only the net equity in the property would be split.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently announced the release of an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com

Women and Money: How Much is Enough?

When the children are young, you may want to create wealth through life insurance to make sure that there will be enough, if you die, to clothe, feed, and house them, and assure they will have the educational opportunities you want them to have. In determining the amount of life insurance to put in place many people calculate the cash needs by first estimating any funeral expenses, debts, and unpaid mort­gages. Then estimate what would have to be put aside to pay for college. The next step is to calculate how much would be required on an annual basis to cover living expenses for the children, and then to estimate how many years that annual expense would be needed.

If you estimate that the children (and guardian) would need $60,000 per year to maintain their present lifestyle (assuming any mortgage has been paid off and assuming that the college tuition has already been set aside), and that that money would be needed for 20 years, then you would need to have wealth or life insurance in the approximate amount of $1,200,000 to cover those expenses. If you wanted to buffer this by making sure the guardian had an additional sum to do what he or she pleases, then that also should be factored in.

As the children grow past college age, the need to make sure they have enough di­minishes, and the question then becomes how much should they have? The issue of needs versus wants becomes more important. How easy do you want to make it for them? How much of a safety net should be provided? What will a significant inheritance do to their lifestyles? Will they buy a bigger car, a second home, quit jobs? What values do you intend to foster with your inheritance? Is your goal to make them richer?

An alternative answer I pose to families who ask that question is, if not your children, then who will receive your assets? The Internal Revenue Service? Charities? These are tough questions to deal with and they are questions on which husband and wife do not always agree.

It is interesting to note that the federal estate tax was not put in place to raise revenue. It was created by President Theodore Roosevelt who felt that if wealth was not diminished from generation to generation, we would end up with an unproductive country. Many of my high net worth clients are coming to that conclusion and making it clear to their children that they will receive a significant amount of wealth but not everything. One wealthy couple I sat down with recently decided to cap the amount each child would receive at $3,000,000 and leave the remaining $30,000,000 of their wealth to a charitable family foundation, which would continue to promote and institute social change in the areas that were important to them. They want all their children (at the death of both parents) to be in charge of that foundation and to make ongoing decisions as to how the funds will be spent.

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently announced the release of an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com

How Can I Ask My Husband to Include Me in Estate Planning Meetings?

Protect Your Assets: Question and Answer with Patricia M. Annino, Esquire

Question:  My husband handles all of the financial and legal affairs for the family. Recently he went to the estate planning attorney to have the documents updated to take new tax changes into account. We are in a very good marriage and I trust my husband to handle the financial affairs. I would like to be included in all estate planning discussions and meetings. How do I discuss this with him without sending the message that I am not sure that he is properly handling the estate plan?

AnswerBecoming actively involved in your family estate plan is very important and qualitatively different than your other family financial goals. After all, if your husband dies before you he will not be involved and that may be the key starting point in the discussion.

It is important that you understand what will happen if he becomes disabled or dies. Is your income secure? Who has he designated to be in charge? If it is not you then what is your role?

If he owns a business should it be sold? Who are the likely buyers? Who does he trust? Who are the advisors? Have you met them? What do the documents say? Are you restricted on the assets or how they can be used? How are they compensated? Can that be negotiated?

It is important to try to have these questions answered when there is an opportunity to change the answers.

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.  For more visit:  www.patriciaannino.com

 

Women And Money: 10 Strategies For Protecting Your Children

Making decisions about how your estate will be managed and your children protected can be stressful.  Here are 10 strategies to consider, and information to have available to your estate planner or attorney to be sure you protect your children fully.

  1. Have you executed a will naming a guardian for your minor children?
  2. Have you named a successor guardian?
  3. Have you given thought to who will manage the money your children inherit – A Custodian under the Uniform Transfer to Minors Act? A Trustee? Are you designating a person or a team of people/institutions? Have you lined up successors?
  4. Have you thought through the reasons that money should be expended to the children? For education? For post graduation education? To buy a car? For a Wedding? Down Payment on a house?
  5. Have you calculated your assets and income to make sure that if you die before your children are educated and there are sufficient funds to pay for their living expenses and college tuition?
  6. If there aren’t sufficient funds, have you met with your advisors and considered the appropriate amount of life insurance?
  7. Have you left a memorandum or letter to the guardians and trustees explaining what you would like to see happen if you are unable to be there to watch your children grow up?
  8. Have you given thought to what the guardian should receive financially (compensation, reimbursement of expenses, funds to care for the enlarged household)
  9. Have you coordinated the primary and secondary beneficiaries of all life insurance policies, annuities and retirement plan assets to be sure that the assets are put in the hands of those who will be in charge of your children’s money (custodians under a Uniform Transfers to Minors Act or trust for their benefit), rather than having those assets payable outright to children at a very young age?
  10. Have you given thought to distribution ages – at what age or ages your children should have the right to overrule the Trustee and withdraw funds regardless of what the Trustee thinks is appropriate?

Patricia Annino is a 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.  For more visit:  www.patriciaannino.com



Protect Your Assets – Gifting the Family Business

Question: My 32 year old son is working in the family business.  He is dating a young lady I think he will marry.  We have worked very hard to build the business to where it is now. Although we like his fiancée, we are aware of the statistics – one-half of the marriages end in divorce.  He is contributing significantly to the value of the business.  We would like to begin gifting the business to him now.  Will any gifts or inheritances of the business we give him be divisible in any divorce? And if so how can we protect our assets? 

Answer: It depends 

Some states are community property states and generally those states classify gifted and inherited assets as “separate property” which means that as long as they stay in your son’s name and he does not transfer them to joint name with his wife they will remain his property – even in divorce.

Other states are “equitable division” states –meaning that a judge can take gifted and inherited assets and the expectancy of receiving assets into account in your son’s divorce. 

In Massachusetts and Connecticut it is very common for a parent to be subpoenaed in a child’s divorce proceeding. If the divorcing spouse serves the soon to be ex in-laws with legal papers the parents must turn over a summary of their estate planning documents, the date they were last amended and their net worth statement.

 Not complying with that order will land them in jail for contempt.

The Judge is then authorized to take those gifted and inherited assets as well as any the child may receive in the future, into account in determining how the marital assets will be allocated between the spouses. Typically if there is one spouse that will be receiving gifts or inheritances the Judge will order a division of the marital assets that is not equal – in other words the spouse who is not receiving the gifts/inheritances will receive a greater percentage of the marital assets than the spouse who will be receiving them downstream.

 Even if you do not live in an equitable division state that does not mean your child’s gifted or inherited assets are safe –he may move to an equitable division state at some subsequent time and the laws of that state will impact how his assets are divided. 

 When a family owns a business subpoenaing the parents’ assets has an additional obstacle. The value of your family business will be on that financial statement.  That means that there is the potential for your ex daughter in law to question whether or not the value on that statement is right.  Many parents find that unnerving.  Gifting (lifetime or death time) your assets to your son in trust form does not solve the problem.  All that does I affect the valuation of the asset.  If the asset was transferred to him directly the value is easier to determine than if he has expectancy in the trust.

 Encouraging him to sign a prenuptial agreement prior to marriage which specifically excludes all gifted and inherited assets (and can exclude what they appreciate to) is your best defense.

Patricia M. Annino, Esquire, is the author of the highly acclaimed book, Cracking the $$ Code: What Successful Men Know And You Don’t (Yet). Patricia is in demand nationally as a speaker for womens’ organizations on assorted topics.  Patricia works with organizations and women looking to educate and empower them to plan and work smarter with their finances and estates.  For more information visit:  www.patriciaannino.com

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