Lessons Learned: The Anna Nicole Smith Battle Still Rages On

September 1, 2014,

After nineteen years of battling from probate court all of the way to the United States Supreme Court twice a recent court ruling seems to have ended the battle between the estates of Anna Nicole Smith and Pierce Marshall, for now. Called "The Grand-Daddy of all Estate Battles" these two estates have been battling over the $1.6 billion fortune left by Ms. Smith's husband and Mr. Marshall's father, J. Howard Marshall, for almost two decades.

History of the Feud

Federal court proceedings began regarding this estate in 1996 when Anna Nicole Smith filed for bankruptcy in California. The bankruptcy led to a $475 million judgment against Pierce Marshall, but only temporarily. The judgment was reduced to $88 million on appeal, and then appealed again, making to the United States Supreme Court on two separate occasions. After the second trip to the Supreme Court, where the judges rejected Anna Nicole Smith's claims, it had appeared then, too, that the battle was over.

However, in May 2013 a federal district court in California issued a new ruling in favor of Anna Nicole Smith's estate and against Pierce Marshall's estate. During all of the legal battles both Anna Nicole Smith and Pierce Marshall had died, leaving the estate planning attorneys to continue to do battle with one another in probate court.

This new ruling allowed Ms. Smith's attorneys to collect significant sanctions, yet to be determined, against Mr. Marshall's estate because of unethical conduct that included destroying and hiding evidence, falsifying documents, and causing undue delays. The ruling also applied to the elder Mr. Marshall's estate planning attorney, as well, who routinely referred to Ms. Smith as "Miss Cleavage."

This latest ruling was then placed on hold because the California judge was unsure of how to proceed. On one hand, he had an obligation to uphold the Texas court's ruling in Pierce Marshall's favor that stated that his father's final estate plan was valid. On the other hand, the same team had also conducted itself unethically during the proceedings.

The Current Ruling

The California judge waited over a year before making a decision on the ruling handed down in May 2013. Recently, the judge decided to reverse his prior ruling and dismiss the sanctions against Pierce Marshall and J. Howard Marshall's estates. The judge came to this decision based on the Texas probate court ruling in addition to the impossibility of determining what amount of sanctions would be appropriate given that the actions took place so many years ago.

However, while that ruling may have ended the court battles in California, Ms. Smith's attorneys still have the right to appeal the judgment in Texas. An appeal was filed in 2002 after the 2001 ruling, but it was put on hold while the California issues were fought. If Ms. Smith's estate wins its appeal in Texas then the California ruling could be overturned, and the battle continues to rage on.

Lessons Learned from Anna Nicole Smith's Estate

Ms. Smith's estate provides a valuable lesson for everyone creating an estate plan about the danger of family feuds. While two-decade long court battles are not the norm, even modest estates can face battles that last a year or more in probate court. While nothing can be done to completely eliminate the possibility of family fighting there are steps that an estate planner can take to minimize the chances of it occurring.

Try to avoid probate court as much as possible when planning an estate, and consider using trusts and other tools for your assets. In addition, have a discussion with your heirs and explain why you are making your estate planning choices. This knowledge is usually enough to quiet any complaints that may have happened further down the road.

Estate Planning Long-Term Mistakes To Avoid

August 29, 2014,

It is important to consider two different scenarios when planning for retirement and drafting an estate plan. The first thing is to consider what will happen to your estate after you die. However, the second is to consider what will happen to your estate if you live a long life but are not in the best of health and require permanent assistance from others. Creating a comprehensive estate plan can help prepare for both of these scenarios by protecting assets that can either be passed down to heirs or used if you become disabled and need long-term support.

The Need to Plan for Long-Term Care

Most seniors drafting an estate plan today ignore the biggest risk to their estate - needing money for long-term health care. According to the U.S. Department of Health, over 70% of our country's population over the age of 65 will need some type of long-term care, and more than forty percent will need nursing home care for some period of time.

Many people do not have the insurance coverage for this type of risk, and Medicare does not cover long-term care. If care is needed, those that did not plan for this type of event rapidly deplete their savings and homes are sold in order to cover the costs. Estate planning solutions exist that can protect the assets, income, and home of a person while still allowing for access to long-term care programs like Medicaid.

Long-Term Mistakes to Avoid

When creating an estate plan that accommodates for both possibilities, it is important to avoid some common long-term mistakes. Many people make these mistakes because they are only thinking in terms of their heirs and not of themselves.

· Don't tie up money in long-term investments.

· If considering long-term care insurance check the benefits, the inflation rider, and any possible increases in premium.

· Make sure you have the proper advance directives in place, specifically a health care proxy and power of attorney.

· Put someone knowledgeable in charge of managing all real estate.

· Take advantage of possible penalty-free transfers when applying for programs like Medicaid or spending down for nursing home care.

· Don't stay in an investment that should be sold just to avoid capital gains taxes, especially if you need money for long-term needs.

How to Avoid Long-Term Mistakes

An experienced estate planning or elder law attorney will be able to go over your estate plan and look for any major long-term planning errors. In addition, the easiest ways to avoid making these types of mistakes is by checking the following:

· Plan for liabilities and expenses that can be foreseen, especially for long-term care.

· Update beneficiary designations on bank accounts, investments, retirement funds, and insurance policies

· Take steps to avoid confrontation and potential litigation among family members and other heirs. Using a trust or will with specific instructions can be very helpful.

· Draft and update your estate plan with an experienced attorney. Downloading estate planning documents off of the internet may not comply with your state law and cannot give you proper advice.

· Transfer real estate to heirs through the estate plan and avoid making transfers during your lifetime to avoid high capital gains taxes.

Estate Planning Assets: The Good, The Bad, and The Ugly

August 27, 2014,

Some assets are fantastic to hold onto in estate planning but others can be bad for you and your heirs. One of the key objectives when planning your estate is to keep the tax bill as low as possible for your heirs when they are bequeathed portions of your estate. The following is a ranking of the good, the bad, and the ugly of retirement assets that you should leave for your heirs.

The Good

Depleted partnerships: The best asset to keep in an estate plan is also a bit of a head-scratcher. While the taxation of partnerships is complex and at time counterintuitive, there are two important things to keep in mind.

First, the IRS takes a harsh view of selling partnership stocks, even if they have depreciated over time. Often, a sold partnership will get hit for capital gains tax as well as be taxed on what the IRS considers "recapture of depreciation." Second, if you pass a depleted partnership onto your heirs they receive it at the stepped-up value and do not have to pay for the capital gains or recaptured value up to that point.

Collectibles: This category includes assets like artwork, gold, coins, and similar valuable collectibles. These assets are taxed at a 28% rate if sold during the lifetime of the buyer, so it is smarter to hold on to collectibles and sell lower taxed items like stocks and bonds.

Highly appreciated stock: The same concepts in a depleted partnership apply to highly appreciated stocks. Let your heirs receive the stepped-up basis and waive the capital gains tax.

Roth IRAs: Once you have paid the income tax on a Roth IRA the income is tax free for your heirs. The money compounds in the Roth IRA tax free, and the withdrawals are tax free.

The Bad

Somewhat appreciated stock: While these assets can have some benefits, typically the value is not as much as a tax-free Roth IRA or higher appreciated stock.

Taxable IRAs: These include all retirement funds that contain untaxed contributions. If you cash in a taxable IRA before death then you pay income tax on the withdrawals, and if the heirs receive it then they pay taxes, too.

Bonds: Similar to somewhat appreciated stock, the return on bonds for your heirs will not be nearly as great as other assets in this list. If a bond has appreciated in value over time it has only been by a little. These are safe assets to liquidate and invest in better options.

The Ugly

Cash: Simply bequeathing cash to your heirs gives them no added benefit compared to the other assets in this list. Not only will the cash be taxed, there are no other tax incentives that come with receiving cash in an estate.

Depreciated securities: If you pass away with a depreciated asset the entire capital loss deduction is erased. This is the mirror image of the stepped-up rule; this is the stepped-down rule. You can use capital loss deductions to offset capital gains plus up to $3,000 per year of ordinary income. In addition, unabsorbed losses are carried forward into future years. All of these benefits are lost if you wait and attempt to pass these assets on in your estate.

Lessons Learned: Robin Williams and His Estate

August 25, 2014,

The tragic death and apparent suicide of master comedian Robin Williams has left millions of family, friends, and fans grieving for his loss. Reflecting on his legacy and memory, many people now wonder what is next for his family. He is survived by his third wife, Susan Schneider, to whom he was married for three years, and three adult children ranging in age from 22 to 31 from his two prior marriages.

Williams' Estate

Robin Williams complained to an interviewer last year about the lifestyle changes he has had to make because of how much money he lost in his previous two divorces. Reportedly, it amounted to around $30 million. He admitted to returning to television, The Crazy Ones, because of bills to pay and listed his Napa Valley property for sale. Public records show that his real estate has significant value. The Napa property, named Villa Sorriso, has been on the market since April for $29.9 million. Williams also owns a 6,500 square foot property in Tiburon, California, valued at around $6 million. After deducting the mortgages on the homes the real estate alone is worth around $25 million.

Besides the real estate properties, Robin Williams had other assets, royalties, and the like to leave for his heirs. While some experts believed that he was worth as much as $150 million, recent estimates pegged his net worth closer to $50 million. However, that is still a substantial amount to leave for his wife and children. This number also does not include death benefits from life insurance or other unknown assets.

Williams' Trusts

Robin Williams' comedic genius apparently went along with some estate planning genius as well. It looks as though Williams created at least two different trusts for real estate and other property in his estate. His real estate trust is entitled, "Domus Dulcis Domus Holding Trust." It contains both pieces of his real estate, and it was set up specifically to hold the land in trust. Two men, Hollywood producer Stephen Tenenbaum and New York accountant Joel Faden, were named as trustees.

In 2009, a different trust created by Robin Williams was leaked to the public. This occurred in the middle of his divorce from his second wife, Marcia Garces. The trust reportedly named his three children as beneficiaries and split the assets of the trust into three equal parts. The trust was to distribute funds to his children when they reached ages 21, 25, and 30. Because the trust appeared to transfer the money regardless of whether Robin Williams was alive or dead, this trust was likely established in part because of the divorce settlement and in part for estate planning purposes.

Lessons Learned

Regardless of the motivations behind the creation of the trusts, Williams took advantage of sophisticated estate planning tools to protect his loved ones, unlike other celebrity estates like Philip Seymour Hoffman or James Gandolfini whose estates have been public knowledge since their deaths. The trusts minimized the estate taxes for Williams on his property, and safeguarded his family from the public scrutiny of probate court.

While nothing can make the terrible loss of Robin Williams better for all who knew him, at the very least he appeared to have taken steps before his death to ensure that his family was well taken care of after he was gone. It is a lesson that others can learn from, as well. While most people do not have the level of wealth of Robin Williams, using estate planning tools like a revocable living trust can help your heirs avoid the cost, pain, and publicity of dragging your estate through probate court.

Two Estate Planning Documents Every 18-Year Old Should Sign

August 22, 2014,

Many people believe that estate planning is only for the elderly or those at retirement age. However, there are some documents and tools within estate planning that should be considered at a much earlier age. If you have a child that is about to leave for college or go on a gap-year trip there is one last thing that you should do as you prepare for the separation: ask your child to sign a durable power of attorney and health care proxy forms.

Why These Forms are Important

Estate planning forms like a durable power of attorney and health care proxy forms are important for a number of reasons. Without them, most states will not allow a parent of an adult child to make health care decisions or manage money for their kids. This applies even if the parent is paying for college, claiming the child as a dependent on tax returns, and still covers their kid for health insurance. Without these estate planning forms if your child is in an accident and becomes disabled, even temporarily, you would need a court order to make decisions on their behalf.

The risk for these possibilities is very real. Accidents are the leading cause of death for young adults, and over 250,000 people in the United States between the ages of 18 and 25 are hospitalized with nonlethal injuries every year. Without these documents, even finding out about your child's medical condition can be a challenge, let alone gaining the authority to make medical choices on their behalf.

Why Some Children Do Not Want to Sign

A few different reasons have routinely been cited for why a child is hesitant to sign a durable power of attorney or health care proxy form. One big reason is because at this age, adult children are finally attempting to become independent for the first time. Most kids think that they know better, do not want their parent's help, or want to try to do everything for themselves. Another major reason why children do not want to sign these documents is because as a power of attorney a parent can gain access to their child's grades.

Different Ways to Approach the Situation

Even though at this age most children believe that their parents are clueless, there are ways to approach the subject of estate planning forms and becoming your adult child's proxy. Gentle persuasion is usually the most effective technique. Explain that these documents can help in case of an emergency, wiring money to a bank account, and signing forms like an apartment lease when the child is gone.

Another tactic is to make the forms a condition of your child's education or trip. In exchange for signing the estate planning documents, the parent agrees to help pay for college or time abroad. A final way of approaching the situation is to have an experienced estate planning attorney draft the forms as a back-to-school package. You all sit down as a group and have the attorney explain the significance and importance of the documents to your child.

Three Important Estate Planning Questions to Ask Your Spouse

August 22, 2014,

Estate planning is not many couples' idea of fun, but it is necessary to ensure that your loved ones are cared for after you are gone. An experienced estate planning attorney can handle drafting the proper documents and explaining the law behind estate planning; however, there are three important questions that you should address with your spouse or significant other regarding an estate plan.

How well does my spouse know my estate planning attorney?

If you are the one in charge of the estate planning process and the finances of the family, it is possible that your spouse has never met, or only met once, your estate planning attorney. Perhaps they met to briefly sign some papers, but the client/advisor relationship is not very strong.

If you are the first to pass away, your spouse would be relying on a person that they barely know during the most difficult time in their life. Since your estate planning attorney will know about every asset, final wish, and plan for the estate it is important that your spouse form a strong relationship with your estate planning attorney.

Does my significant other know where all of the accounts are located and how to access them?

The surviving spouse or significant other will need to access money immediately in order to pay for funeral expenses. Even if an insurance policy covers funeral expenses the reimbursement does not come until weeks or months later. Hospital bills and the daily expenditures of everyday life also need to be taken care of. Your spouse will not have time to search everywhere trying to figure out what accounts exist and how to access them.

You need to ensure that your significant other is aware of all financial accounts and how to access them after you pass away. It is helpful to make a list (or two) and leave them for your spouse that includes:

· Password lists for all online accounts and memberships
· Names of all accounts and memberships, online and offline, along with any necessary instructions
· Location of all estate planning documents
· Names, addresses, and phone numbers of all lawyers, financial planners, accountants, and others who helped create the estate plan

Are all of our estate planning documents and beneficiary designations up to date?

Life events such as births, deaths, marriages, divorces, and job changes can all necessitate an update to your estate plan. This applies to the will, estate planning documents, and any beneficiary designations. Be sure to check:

· Retirement plans (401K plans and IRAs)
· Life insurance
· Annuities
· Taxable investment accounts

...and other assets that require a beneficiary designation.

By talking with your spouse or significant other about these important aspects of your estate plan you can minimize the stress and confusion of the entire process. If your spouse has a good relationship with your estate planning attorney, is knowledgeable about your accounts, and has worked with you to update the estate plan and beneficiaries you can be assured that your loved ones will be properly cared after you are gone.

Celebrity Legacies Teaching Lessons About Estate Planning

August 18, 2014,

A new show premiered on the Reelz Channel this week called Celebrity Legacies, a documentary series highlighting the estates of famous deceased celebrities. The show explores a different celebrity's estate plan every week, discussing their legacy, estate, and problems that arose after the celebrity's death. It also explains how a celebrity's estate can continue to increase after their death and why some deceased celebrities still make the "highest paid" lists years after they are gone.

Premiere Episode: James Gandolfini

The premiere episode of the series focused on the estate of James Gandolfini, and subsequent episodes include famous names like Anna Nicole Smith and Jim Morrison. Gandolfini died unexpectedly of a heart attack at age fifty-one in 2013 while on vacation in Italy with his son. The actor, known primarily for his work on the television show The Soproanos, left behind two children from two different marriages and a messy, largely unfinished estate plan.

Celebrity Legacies provided legal and financial commentary on the outcome of Gandolfini's estate. Done as a "Band-Aid" measure after the birth of his daughter, Gandolfini relied primarily on his will for his estate plan instead of placing his assets in something more secure like a revocable living trust. As a result, his estate and the affairs of his family came under public scrutiny when his assets became public record in New York's probate court.

Gandolfini's estate was estimated between $70 million and $80 million at the time of his death, and it was divided amongst his family members as well as some close friends. However, he did not contemplate what he was going to do with his Italian properties or consider whether his children would be mature enough to handle their massive inheritances when they come of age at twenty-one.

Celebrity Legacies as a Teaching Tool

One of the great things about this new show on the Reelz Channel is that it can serve as a teaching tool for its viewers. Celebrity estate stories can be used to educate people, including families and professionals, about how celebrity errors in estate planning can help them avoid issues in their own plans. Most people think that celebrity estates could never be relatable to their own situations, but in reality many people make the exact same mistakes in their own estate plans. Regular families routinely face sibling squabbles, public court battles, and other issues that also arise in celebrity estates.

Gandolfini's estate taught many important lessons for viewers in the premiere episode of Celebrity Legacies. He was only fifty-one years old when he died, and Gandolfini started planning his estate before he left for vacation - intending to finish when he returned. Like Gandolfini far too many people put off estate planning, and it can have tragic consequences for the rest of the family. His incomplete estate plan could have been avoided and all of the complications, publicity, and estate taxes could have also been sidestepped if he would have stopped procrastinating.

As obvious as it may seem, for most people it is not. In fact, as many as two-thirds of the U.S. population has neglected to fill out even a simple will. Hopefully, shows like Celebrity Legacies will highlight the dangers of putting off estate planning and help viewers avoid the same fate.

Estate Planning Issues Involving Pets, Pt. 2

August 14, 2014,

In the first part of this article the importance of planning for pets in the estate planning process, common reasons why pet planning often fails, and the documents needed for proper pet planning were discussed. However, there are other issues that must also be reviewed when including a pet in the estate planning process.

Issues to Consider When Planning for a Pet

Regardless of the document(s) you choose to develop your estate plan for your pet, the following issues also need to be considered for their wellbeing and needs. By clearly detailing every one of the following aspects you can be sure that your pet will be properly cared for in your estate plan.

Pet Owner: It is important to establish who the true owner of the pet is because a pet is considered personal property. The issues that arose with pet ownership after Hurricane Sandy are another good example of why it is important to establish ownership of a pet.

Pet Guardian: The pet guardian can be a person or organization. The guardian typically keeps the pet and cares for it under the instruction of the will or pet trust. If an organization is the guardian then instructions about adoption should be included in the estate plan.

Funding: Providing funding for a pet trust or pet provision in a will is highly recommended for a pet in the estate planning process. The funds can be a percentage or fixed amount from the estate and can come from bank accounts, retirement funds, insurance policies, or from the selling of personal items in the estate. You should include in your consideration for funding the possible future expenses of the pet as it ages, level of comfort you wish the pet to have, and whether you want to include compensation for the pet guardian.

Remainder Beneficiaries: It is vitally important to consider who or what will receive the remainder of the funds set aside for your pet after it dies. If a remainder beneficiary is not set up the court will decide who gets the rest of the funds in the pet account. Most people designate the remainder of the pet trust to go to families, charitable organizations, or the pet guardian. Another important consideration if you are leaving the remainder to multiple beneficiaries is to designate the amount in percentages rather than whole numbers because it is incredibly difficult to figure out ahead of time how much will be left in the pet account.

Pet Description: This is done for the protection of the pet to ensure that the pet guardian does not destroy the animal or replace it with another after it dies to illegally extend trust distributions or benefits.

Instructions for Care: Detailed instructions help ease the transition for the pet from its owner to its new guardian. However, the instructions should also allow the pet guardian some discretion in care.

Keeping Pets Together: If more than one pet is being planned for consider adding a provision in the will or pet trust that keeps the pets together. Keeping pets together is not automatic, and it can have a significant impact on who will agree to be pet guardian.

Including Present and Future Pets: All pets should be included in the estate planning process, including those not yet owned. The care for all present and future pets can be included in the estate planning process. Using the term "all of my pets" in the documents is the best way to make sure this is accomplished.

Estate Planning Issues Involving Pets, Pt. 1

August 13, 2014,

Legally, pets are considered personal property of their owners, but for many people their pets mean so much more than any piece of furniture or inanimate object. They can be a person's best friend, companion, and family. When a person begins the estate planning process the pets need to be addressed, as well.

For many people, the wellbeing of their pets is not a concern in the estate planning process, and unfortunately it can lead to the abandonment or euthanizing of the animal once the owner is gone. The only way to protect pets after the death of the owner is through legally binding estate planning documents. Allergies, conflicts with other pets, and exclusion of pets in rental agreements are the most common reasons why informal promises made by friends and family members to take care of a pet often fail.

The idea of legally enforceable documents that ensure a pet's wellbeing in estate planning is a relatively new concept. Mockery in the press is also another reason why people do not seriously consider providing for pets in an estate plan, even if the remainder of the funds is set to go to an animal charity or other worthy endeavor. The most well-known example of this was Leona Helmsley, who left millions for her dog, Trouble, in a pet trust. Sadly, she was ill-advised when creating the trust, and her wishes were never fulfilled.

Legal Documents for Pet Protection

There are two main documents to consider when planning for the future of your pet - a will and a pet trust. Each document has its advantages and disadvantages, so the best option is to discuss with an estate planning attorney what the best choice for your estate should be.

Will: A will is valid after death and serves to distribute property. However, there are many pitfalls to relying solely on a will for a pet's wellbeing. Instructions in a will are not enforceable, and disbursements cannot be made over time. In addition, the lag time between when a will is read and disbursement of property can also create issues. Changes to a will are also in a court's discretion, so if a judge does not think that the pet deserves a disbursement the document can be changed. Finally, in states without pet trusts any disbursement to a pet in a will is considered "honorary."

Pet Trust: A pet trust enlists a pet trustee who distributes funds for the pet's wellbeing and ensures that it is being properly cared for per the previous owner's instructions. This document has many advantages over a will. Pet trusts are valid during and after the owner's life and a trust can preempt problems in the estate. Control over the disbursement of funds is also better under a pet trust. Pet trusts also allow for an investment trustee or trust protector for the proper investment and disbursement of funds. Finally, a pet trust allows for provisions about incapacity, and it can instruct that the pet goes with the owner to a nursing home or other care facility.

Part two of this article will discuss the various issues that need to be contemplated concerning the wellbeing of your pet during the estate planning process.

Integrating Business Succession Into Estate Planning

August 11, 2014,

When many business owners talk about business strategy they often refer to financing, expansion, partnerships, marketing, and the like. However, many business owners fail to take into consideration the question of continuity and business succession. According to the U.S. Small Business Administration, over 70% of all small business owners do not have a business succession plan integrated into their other estate planning documents.

Why You Should Create A Plan Now

Many small businesses are family owned, and as a result they do not feel the need to be so formal with a succession plan. However, this can be a huge mistake and many businesses have crumbled after an owner dies or leaves because of the lack of a plan.

Another reason why business owners do not create a business succession plan is because, like writing other estate planning documents, the process makes them feel uncomfortable. Keep in mind that creating a plan is necessary to ensure that the business will continue in line with your goals. A succession plan can also protect your employees, their retirement plans, and your future, as well.

Creating the Plan

At a minimum, the business succession plan should include details about the transfer of management and ownership of the business. Management and ownership planning can include:

· Development, training, and support for successors
· Delegation of responsibilities and authority to successors
· Identification of outside advisors
· Retention of key employees through compensation, benefits, etc.
· Coordination between who will own and who will manage the business
· Consideration of transfer during the lifetime of the owner
· Consideration of the best interests of the business and owner's family

The last point is particularly important for the owners of small businesses. Many small business owners and successors have difficulty separating personal preferences and what is best for the business when creating a succession plan. You must treat the family business as what it is, a business, and if you need to speak with professional advisors about the succession plan then you should do so.

Benefits of Creating a Succession Plan

One benefit to creating a business succession plan is to avoid probate. All assets, including business assets, must go through probate and the courts unless arrangements are made beforehand. Another benefit to creating a business succession plan is to maximize potential tax considerations for your estate and your business.

Your business may continue to grow in between the time that you create a business succession plan and when you pass away. The taxable estate will include the increased value unless it is planned for accordingly. Options for avoiding probate and increasing tax benefits include an ILIT, GRAT, GRUT, family limited partnership, or family limited liability company.

An ILIT is an irrevocable life insurance trust that can provide liquidity for a business during probate. The funds from the life insurance trust do not pass through probate and are available immediately to help with the costs of business. The GRAT and GRUT are types of trusts that you can transfer the assets of the business into for successors while still maintaining a source of income for yourself. Any appreciation in business value is not subject to probate and is shielded from estate taxes. The final option is a family limited partnership or a family limited liability company. Using these in a succession plan can allow the owner to transfer business assets to the successor without probate and can even discount some assets for gift tax purposes.

Using a Trust Protector for Disputes

August 7, 2014,

A trust, in particular an incentive trust, can be a very useful tool for someone who wants to provide for his heirs but is not sure that the heirs can use the inheritance constructively. A trust can encourage personal responsibility and accomplishment for the beneficiaries; however, it can also cause resentment on the part of the beneficiary towards the trustee. This usually occurs because the beneficiary is limited in the amount of funds that he can access, and the third-party trustee is making determinations about whether a distribution should be made.

The best way to minimize friction between the trustee and beneficiary is to make the terms of the trust as explicit as possible, but there will always be some level of interpretation on the part of the trustee. Another way to lessen issues between a beneficiary and a trustee when there is a dispute is to use a trust protector.

Trust Protectors

A trust protector is a usually a person who is close to the beneficiary. Most trust protectors are other members of the family, a close family friend, or other advisor who has an intimate knowledge of the family's circumstances. Using their knowledge of the family, the trust protector can help the trustee make difficult decisions regarding distributions and if allowed can even overrule the trustee.

Role of the Trust Protector

Ideally, if a trust protector is used the roles, responsibilities, and limits on power will be established in the trust document. For example, the trust creator could specify that the trust protector has the ability to overrule the decisions of the trustee on matters of distributions, or the trust protector could be authorized to intercede if he believes that the trust funds are not being invested properly. The more specific that the trust creator can be in describing the duties of the trust protector, the easier the working relationship between the trustee and trust protector will be.

The trust protector's main role is to serve as an arbiter between the trustee and beneficiary when a dispute arises about distributions of trust funds. The trust protector can interpret the conditions of the trust based on his knowledge of the family and wishes of the trust creator. Although the trust protector may have a closer relationship with the beneficiary, it does not mean that the protector will side with him on every decision.

Another role of the trust protector is to adjust the expectations of the trust with any changes in tax or estate planning law. A trust protector can work with the trustee to decide how the trust should be updated to maximize the tax benefits and then make distributions in addition to investment choices accordingly.

The one role that a trust protector does not play is as the beneficiary's advocate. A trust protector is not there to work for the beneficiary or against the trustee. The two roles are supposed to work in concert with one another to ensure that the trust's conditions are being followed according to the creator's wishes given the economic and familial circumstances while also giving the beneficiary what he is due.

Court Ruled Donald Sterling Properly Removed as Trustee

August 6, 2014,

In an oral ruling last week a probate court judge ruled in favor of Shelly Sterling selling the Los Angeles Clippers against Donald Sterling's objections. Judge Michael Levanas ruled in a probate Los Angeles Superior Court case that Shelley has the authority to sell the professional basketball team to businessman Steve Ballmer, who has agreed to purchase the team for $2 billion.

Appellate Proof Ruling

The judge's ruling took the extraordinary step of granting Shelley's request for an order under section 1310(b) of the California Probate Code. It states that the trial court can direct the powers of a fiduciary to exercise powers as though no appeal was pending. Under this provision, the sale of the Clippers could be completed regardless of an appellate court intervention on the part of Donald Sterling.

Donald Sterling's Removal as Co-Trustee

One of the most significant parts of the ruling was that the judge stated that Shelley had her husband properly removed as a co-trustee of the family trust, which held the ownership of the Clippers, before she made the sale. According to sources, the Sterling family trust included a provision that if either Shelley or Donald was found by two qualified doctors to have "an inability to conduct affairs in a reasonable and normal manner" he or she could be removed as co-trustee. Shelley had Donald see two neurologists back in May for a competency test, and those doctors found that Donald was incompetent to manage the trust as co-trustee due to Alzheimer's disease.

Removing a Trustee

Removing a trustee from a trust is usually a painful and lengthy process. Under the law, trustees are presumed to be competent in order to be able to perform their duties. Therefore, when beneficiaries or co-trustees want a trustee removed for incompetence they must prove to the court that the trustee is incapacitated to the point that he is unfit to serve in the position.

Most actions to remove trustees involve family members. Oftentimes, the trustee in question is a parent that is serving as trustee for their children's trust or like in the case of the Sterlings one spouse is petitioning to remove the other. Litigation to remove a parent or spouse as trustee is costly, time consuming, and often comes at the expense of emotionally devastating a family.

How to Establish Incompetence

Because the court presumes competence for trustees there are only a few ways to prove that a trustee is unable to serve and incompetent for the position. Some trusts, like the Sterling family trust, come with instructions about how to prove incompetence or how to remove a person as trustee. If no such language exists, the beneficiaries or co-trustee must turn to case law. Typically, it involves a showing that the trustee is unable to resist fraud, undue influence, or duress. The other option is usually to show that the trustee is no longer able to provide himself with personal needs like food, clothing, and shelter without aid.

A final option in some states to remove a trustee is to deem him unfit to run the trust by a doctor or medical professional. The doctor must test the trustee and testify that medically he is unfit by reason of health problem or mentally incompetent to fulfill the duties as trustee. This, aided by language in the family trust document, was the route that Shelley took to have her husband ruled incompetent as co-trustee so that she could complete the sale of the Clippers.

Overcoming the Taboo: Discussing Inheritance

August 3, 2014,

Recent studies have shown that talking about inheritance is still a taboo subject for many families, and the avoidance of the subject could lead to many issues down the road. An estimated $40 trillion of wealth will be passed down to heirs as the Baby Boomer generation passes away. According to a survey of thousands of clients done by financial managing giant UBS, over forty-six percent of people who plan on passing down their estate through inheritance have not discussed inheritance plans with their children and other family members.

Reasons for Avoiding the Talk

The reasons why people had not discussed these plans varied. Thirty-two percent of survey takers said that they hadn't discussed it because they did not want their children counting on the inheritance. Over a quarter, twenty-seven percent, said that they did not want their children thinking that they were entitled to wealth, and around thirty-one percent of people simply did not see the inheritance talk as a pressing issue.

However, despite the fact that families had not had the talk about inheritance seventy-five percent of people said that it is highly important for their children to use the inheritance wisely and not squander it. In addition, a solid two-thirds of responders stated that they did not want any bad feelings among the heirs about who got what or how much.

The Problem with The Taboo

This is where the conundrum lies: benefactors want fights avoided and prudent financial decisions to be made but keep their children in the dark about what to expect from the inheritance. Wealth experts agree that it is a big mistake to not have a discussion about inheritance with your family. The secrecy can backfire and heirs can be overwhelmed by sudden wealth. When inheritance is treated as a taboo subject, heirs can be surprised and disappointed about what they receive. When there is no explanation for differences in amount or in what people receive the heirs are left to only speculate about the reasons why. This leads to family fights and other issues that arise only after the testator is dead. It is also unsurprising that these types of tensions are higher still in blended families where there is a second or subsequent marriage and stepchildren.

The numbers do not lie, either. Of the heirs who know the details of their parents' estate plans beforehand - which include seeing the will, knowing how much money there is as well as how it will be divided, and where the assets are - a majority of eighty-nine percent of heirs said that they were satisfied with the distribution plan. Compare this to the heirs who did not know the details beforehand and only sixty-five percent responded that they were happy with the distributions. On top of that, twenty-seven percent of heirs who were in the dark about their inheritances stated that they would fight family members about the distribution of wealth, as opposed to a mere twelve percent of heirs who know what to expect from their parents.

Research has shown both quantitatively and qualitatively that the outcome of inheritance is better for the testator and the heirs when the plans are discussed ahead of time. By making inheritance less of a taboo subject there is a better understand of what is to come, what is expected, and less issues will arise as a result.

NJ Domestic Partners Lose Estate Benefits by Not Registering

July 31, 2014,

In the recent Tax Court case of Estate of Marie P. Frappolli v. Director, Division of Taxation, a domestic partnership lost estate tax benefits because they did not register as a couple with the state. As an alternative to marriage equality, New Jersey had introduced the option to register as a domestic partnership. Ms. Frappolli and her partner, Ms. Dorothea Angelou, qualified under the requirements for a domestic partnership in New Jersey, but they never filed with the state to make it official.

Marie Frappolli passed away, leaving her estate to Ms. Angelou. In addition, the couple lived in Ms. Frappolli's home that was transferred to a joint tenancy with the right of survivorship in 1993. The tax division argued that because the couple never registered with the state the entire estate could be taxed. Furthermore, the value of the home could be added to the total value of the estate when determining tax liability. As a result, Ms. Angelou was hit with a transfer tax bill by the state for $178,845.57.

Legal Arguments Over the Estate

The estate and Ms. Angelou's attorneys argued that given the length of the couple's relationship the formality of filing a piece of paper with the state could be overlooked. Clearly, the couple had fulfilled the qualifications for being a domestic partnership within the state. However, the tax court rejected that argument and stated that in order to bypass the transfer taxes on an estate the law requires that a couple register as a domestic partnership with the state.

Even if the couple meets all of the requirements the form must be filled out except for in limited circumstances. For example, in dire medical situations a couple can be treated as a domestic partnership even if the paperwork is not filled out with the state registrar. But the court would not apply the same reasoning to a couple making estate planning decisions.

The attorney for the couple also made the argument that an estate planning attorney reviewed the New Jersey state tax website, and nowhere in the website for domestic partnerships did it say anything about filling out a form with the state. However, the tax court also rejected that argument by stating "It is difficult for this court to accept the proposition that an attorney with longtime experience . . . would credibly argue to this court that it was reasonable for him to draw conclusions about New Jersey tax law and provide assistance in completing an inheritance tax return based solely on his review of [the New Jersey tax law] website."

Ramifications on Domestic Partnerships and Estate Planning

The New Jersey tax court affirmed in its decision that domestic partnerships are not equal to heterosexual marriages in the state. As a result, domestic partnerships must have every possible aspect of their estate plans covered in states that do not recognize gay marriage or risk the same outcome as Ms. Angelou and Ms. Frappolli's estate. It is incredibly important to speak with an experienced estate planning attorney who knows the law of the state as well as every potential legal pitfall to avoid. By not filling out a single affidavit for the state Ms. Angelou will be forced to spend the majority of her partner's estate just paying off the taxes for it.

Lessons Learned From Sting and Philip Seymour Hoffman: Myths About Trusts

July 30, 2014,

It was recently reported that prior to his death, Philip Seymour Hoffman rejected the advice of both his attorneys and accountant when planning his estate. Instead of leaving his estate to his children, Hoffman left his entire $34 million estate to his long-term girlfriend and mother of his kids. He told his accountant that the reason behind this was that he did not want to have "trust fund kids" or the stigma that goes along with it. Sadly, his poor estate planning decisions leave his estate open to a massive tax bill and other potential problems in later years.

Additionally, Sting also made news in the estate planning world recently when he announced that he did not want his six children to have trust funds, either. He told a reporter that he felt like a trust fund would be "an albatross around their necks." Sting said that if they needed financial help he would give it to them, but he wanted them to have their own work ethic.

While both Hoffman and Sting had good intentions regarding their wealth and children, both superstars perpetrated common myths held about trust funds that simply are not true. There are many different types of trusts, each with their own rules and standards that you can set for them. Here are some of the most common misconceptions that people have about trust funds and estate planning:

Trust funds create spoiled and lazy children.
One of the most common misconceptions about trusts is that the children who inherit them are spoiled and lazy. However, trusts can be used creatively and for whatever purpose the creator wants. In Hoffman's case, he wants his children to be introduced to culture and fine arts. Sting will help his children if they need it, but he wants them to work on their own. Trusts can be set up to accomplish both of these goals. A trust can be set up only for only cultural and artistic purposes, or it can be set up so that it can only be accessed for educational, health, or financial emergencies.

Trusts are only for rich people.
Trusts are for anyone who wants to avoid the hassles of probate court. A trust also allows the creator to control the estate legacy from beyond the grave, and it avoids the probate court from making decisions about the estate that may go against the final wishes of the testator.

If I start a trust then I lose control.
A revocable living trust means exactly that - they can be changed, amended, or canceled altogether at the creator's will as long as he is still competent. Furthermore, the creator can establish how, when, and if the assets in the trust passes and to whom.

I do not need a trust because I already have a will/joint accounts/other estate planning documents.
Wills and other estate planning documents must go through probate court, whereas a trust and all of its assets do not. In addition, trusts have tax benefits that other estate planning options cannot get. Trusts can help your children avoid getting double taxed for assets.

If I start a trust everything must go to my children.
Both Hoffman and Sting seemed to be under the impression that a trust is meant only to pass money to children, but that is not the case. A trust can be set up for anyone or any entity. That means that other family members, friends, charities, trusted employees, and others can all be beneficiaries of a trust.