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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

2013 Wall Street Journal Money Magazine Notes Unusual Bequests

I Leave My Fortune To…estate planning, wills

A Chinese restaurant? Some large and unusual bequests:

1. Roman Blum, U.S.

Worth about $40 million | Died: 2012

When the real-estate developer died childless and without a will, he left behind the largest unclaimed estate in New York state’s history. Experts say that in most of these cases, the money ends up in the state coffers.

2. Wellington Burt, U.S.

Worth about $100 million | Died: 1919

The lumber baron and former Michigan state senator took his own sweet time with his bequest. He wanted his fortune handed out 21 years after the death of the last grandchild, who was born while he was still alive. The money was finally distributed to 12 heirs in 2011.

3. Golda Bechal, U.K.

Worth more than $15 million | Died: 2004

The property magnate left her fortune to a couple running her favorite Chinese restaurant. The unusual friendship, which began over a dish of Chinese pickled leeks and bean sprouts, extended to shared Christmases and other holidays.

4. Nina Wang, Hong Kong

Worth about $10.7 billion | Died: 2007

A long-drawn battle over Wang’s will unfolded when it revealed she had left her money to her personal feng shui guru. The Hong Kong court later ruled the bequest to be a forgery by the geomancer, who recently appealed a prison sentence for fraud. The money has gone to charity.

It is always interesting to see how wealthy persons plan…or don’t.  So what’s your plan?

 

Source:  Wall Street Journal 2013 Money Magazine

 

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.

Women And Money: 9 Strategies For Unmarried Partners

image of a familyMany times I’ve had unmarried partners (usually of the same sex) tell me that they were concerned that when a partner died his or her family would “come out of the woodwork” and challenge the estate to claim benefits.

On those occasions it is very important to avoid probate. It may also be advisable to include what is now known as a “Sinatra” clause, after Frank Sinatra who included one in his will. The Sinatra Clause specifies that anyone who challenges the provisions of the will, any trust that the decedent established or the administration of the estate forfeits any benefits that person would have otherwise received.

Frequently a will or trust will mandate that a bequest will be given to a child and if the child is not living then to that child’s children. When the Sinatra clause is included I think it is important to also make sure that the challenging child beneficiary and his children are excluded too. Otherwise the child beneficiary may launch a fight, be dropped from the benefits list because of the Sinatra clause, only to have his children receive the benefits (getting in “the back door”).

I have also decided – from years of experience – that if a decision is made to employ the Sinatra clause, it’s a good idea to leave the person who is going to be disinherited something that they consider worthwhile so that the decision to fight or not to fight is made after deliberation – not because of spite.

If there is something you can offer that the person would regret losing, they will usually think twice before a fight.

 

  1. Have you executed a health care proxy? Is a successor named?
  2. Have you executed a durable power of attorney? Is a successor named?
  3. Have you thought about drafting a “living together” agreement?
  4. Have you executed a Will? And, if appropriate a living trust?
  5. Have you reviewed with your advisors the tax consequences of leaving your assets to your partner? Have you reviewed with your advisors the tax consequences of your receipt of assets your partner intends to leave you?
  6. Have you explored long term care insurance?
  7. Do you know what assets you will be able to access if your significant other becomes disabled or incapacitated?
  8. What about your debt – have you both reviewed how that will be handled at the first death?
  9. Have you both made funeral and burial arrangements and put them in writing?

 

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.

So You Want to be a Cadaver? Understanding the Uniform Anatomical Gift Act

In March, Dick Cheney received a heart transplant and Richard Norris a 37 year old shooting victim received the most complete facial transplant to date (including new jaw, tongue and teeth). About a year ago Charla Nash, the woman mauled by her friend’s chimpanzee, received a face and hand transplant. Susan Whitman’s husband, Joseph Helfgot died during a heart transplant operation. Ms. Whitman told The Boston Globe that she was surprised that the organ bank called and asked her if she would authorize a facial transplant. She immediately spoke to her children and the family immediately agreed to it. In the interview she stated, “It’s easy to sign up and say you are an organ donor. It is another to have your family understand and facilitate that. It is painful and takes strength and a will to do it.”

Medical science is advancing. An increasing number of individuals wish to make anatomical gifts for the purposes of transplantation or medical research. The Uniform Anatomical Gift Act (the terms of which when enacted varies from state to state) standardizes the rules concerning organ and tissue donation. Anatomical gifts may be made during life, or more commonly, after death. 

In most states a donor, or his or her health care agent, may make an anatomical gift in several ways, including: 

  1. By a statement or symbol to be imprinted on the donor’s driver’s license or identification card;
  2. By Will – (An anatomical gift made by Will, shall take effect upon the donor’s death whether or not the Will is probated. Invalidation of the Will after the donor’s death will not invalidate the gift);
  3. By verbal communication to two witnesses during a donor’s terminal illness or injury
  4. By a donor card or other record signed in the presence of two witnesses or by inclusion on a donor registry.

If the deceased individual did not make a lifetime choice to make an anatomical gift and the Will is silent then certain authorized persons can make the gift for the deceased individual. In most states the persons who can do so (in order of priority) are the health care agent, spouse, adult children, parents, adult siblings, adult grandchildren, grandparents, an adult who exhibited special care and concern for the decedent, the persons who were acting as guardians at the time of death and any person who has the authority to dispose of the decedent’s body. If there is more than one member of the class entitled to make the decision that person can do so unless they know of an objection by another member of the class. If there is an objection then the gift may be made only by a majority of the members of the class who are reasonably available. 

An anatomical gift can be changed or revoked. A person can also refuse to make an anatomical gift. This refusal can be done in writing or, in some circumstances orally. A refusal can also be made in a Will. 

The gift can be made to the following persons or organizations: 

  1. A hospital, accredited medical school, dental school, college or university, organ procurement organization or other appropriate person for research and education.
  2. An individual recipient of the part, as designated by the person making the anatomical gift.
  3. An eye bank or tissue bank.

As with most estate planning decisions, the question of whether or not to make an anatomical gift is a personal one. It is wise for you to consider now whether or not you would wish to make an anatomical gift and state your intent to those who would make that decision if you are unable to do so. For those who wish to make an anatomical gift you should make that gift in your Will. And, now that in many states your health care agent has the power to make an anatomical gift on your behalf during your lifetime you should consider updating your health care proxy to either prohibit him or her from exercising the power, or to outline the desired scope of limitations of your proxy’s ability to exercise this power. 

The official U.S. Government website for organ and tissue donation and transplantation, http://www.organdonor.gov, is maintained by the U.S. Department of Health and Human Services. A downloadable donor card can be found at http://organandonor.gov/donor/index.htm. 

All fifty states and the District of Columbia have enacted statutes based on the Uniform Anatomical Gifts Act. The law varies from state to state and should be reviewed prior to making an anatomical gift. 

Certain organizations promote organ donation. The Organ Procurement and Transplantation Network (OPTN) is the universal transplant network. It is a private non profit organization and operated under a federal contract with the U.S. Department of Health and Human Services. Its goal is to increase and ensure the effectiveness, efficiency and equity of organ sharing in the national system of organ allocation and to increase the supply of donated organs that are available for transplantation. The UNOS website, www.unos.org, provides information about transplant centers in various geographic areas and about the donation of particular organs.  Donate Life America (www.donatelife.net) promotes organ donation. Its website provides general information about organ donation and contains information on organ donation in each of the 50 states and the District of Columbia. MatchingDonors.com (www.matchingdonors.com) is a non profit organization that matches persons needing an anatomical gift with prospective donors. 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Estate planning for valuable art (Part Two)

Lessons Brooke Astor could have used.

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

CRATs and CRUTs

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

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

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

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

Trusts

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

Fractional Interests

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

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

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

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

Conclusion

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

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

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

Patricia Annino Receives “Best in Wealth Management” Award

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

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

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

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

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

About Prince Lobel

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

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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

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

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

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

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

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

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

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

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

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

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

Charitable Remainder Trusts

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

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

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

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

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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

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

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

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

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

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

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

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

A Special Gift for Moms on Mother’s Day

As Mother’s Day approaches, I am reminded of those times when I was just not sure of what to give my Mom on her special day.  I recall a time when I helped get her estate planning and affairs in order, and how much she appreciated the peace of mind that it allowed her once the process had been completed.  Now that she has Alzheimer’s disease I am very glad we had that conversation and she had the ability to put her affairs in order. I am also glad we had the opportunity to discuss what type of care she wanted and how that should be managed.

Whether you’re looking to support your Mom, or get your own house in order, take this time to make sure that, much like you normally focus your time as a Mom making sure that everyone else is protected and safe throughout the year, that you and yours are, too, as it relates to your estate planning needs.

It reminds me of what the flight attendants say every time the plane takes off, if the barometric pressure changes and the oxygen mask drops from the sky, put the mask over your own face first…it is only when you do that, and protect yourself, that you can know that you are strong enough to protect the others you by instinct protect.

What a wonderful gift to you and your family at a time when we pause to honor you on Mother’s Day.

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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