Articles Posted in Inheritance Trusts

As estate planning attorneys, we spend most of our time talking about how to structure an inheritance: putting the legal framework in place so that one can be confident that their wishes will be carried out. Professionals are eager to give advice about use of wills and trusts to save on taxes while passing on assets.

With so much focus on this aspect of the inheritance, far less guidance is given to the beneficiaries. What should you do after you receive an inheritance?

WMUR News published a helpful article last week that offers a good starting point on that very topic. The story runs through some basic tips about the next steps after receiving an inheritance. It is a worthwhile read both for those who expect an inheritance as well as for those who expect to leave one. After all, it is always possible to have discussions with family members about how you hope they use any assets they receive. In fact, the entire structure of an estate plan may change depending on how one hopes their generosity will be used by the next generation.

The story points to a Metlife study which suggested that about two-thirds of all “Baby-Boomer households” will receive some kind of inheritance. The median amount is around $64,000, but many families will receive more much or considerably less.

One of the seven tips outlines in the advice article is an obvious one: review your overall financial goals before deciding what to do with the windfall. Your current situation will obviously affect the options. Do you have many short-term goals (i.e. buying a house) or is more focus on long-term investments? It is important not to rush into any decision. There is no harm in waiting a short while while evaluating your options. At this time, it is helpful not to “co-mingle” funds with a spouse as the inheritance is likely considered separate property so long as it remains separate.

Many of the tips fall under the general theme of using the funds prudently, instead of spending it on relatively trivial matters. For example, paying down debt or creating an emergency reserve fund are usually smart choices for an inheritance.

One unique reminder is that shortly after receiving an inheritance may actually be a good time to tweak your own estate plan. Beyond being a basic reminder to get your own wishes in place, the finances need to be included in one’s plan. Perhaps the inheritance should be rolled into a trust or lead to changing insurance policies.

You’ve built a nest egg after years of consistent work, prudent planning, strategic risk, a lot of focus, and a bit of luck. You want to retire peacefully and provide a legacy that will hopefully secure some degree of wealth for you family for generations to come.

But what are the odds of wealth making it decades (or even centuries) after you are gone? If history is any indication, most inheritances won’t make it long at all. Wealth surviving into the third generation only happens in one out of ten cases. As a recent Senior Independent story on the subject reminded, this principles takes the form of an often-used refrain: “Shirtsleeves to shirtsleeves in three generations.”

The story points out that over the course of their lifetimes about two-thirds of Baby Boomers in the United States will inherit about $7.6 trillion. Yet, those same individuals will lose about 70% of that wealth before passing any of it on to their own children or other relatives.

Can you do anything to prevent this rapid dissipation in your case?

While it is usually impossible to have a 100% guarantee that wealth will survive indefinitely, there are many different steps that can make it far more likely. Those steps usually take two forms: (1) Taking advantage of legal tools that structure the inheritance in smart ways; (2) Having open conversations with beneficiaries so they understand money management and the importance of financial acumen.

In the first regard, various legacy trusts and “spendthrift” trusts exist which may be able to insulate wealth from beneficiaries who are not prepared to handle too much wealth too early (or all at once). An estate planning attorney can explain the prudent moves in your case. It usually depends on the size of your assets, type of assets, and unique family situation.

Regardless of specific legal planning, it is also critical to have honest conversations with family members about money management and financial responsibility. Also, it may be helpful to provide some inheritance early on, to get a feel for how the children will handle it. This may serve as a lesson for them in prudent financial smarts as well as provide you an opportunity to evaluate if safeguards needs to be put in place to protect their inheritance down the road. If family businesses are involved it may similarly be helpful to allow a second-generation family members to exert some control early on, so that are not completely blindsided by the decision-making process when you are not there to provide guidance and support.

Infighting over control of family assets is far from uncommon no matter the value of the holdings. History is replete with examples of siblings, step-relatives, and other engaged in estate battles over property that has little to no value. Of course, that is not to say that the possibility a disagreement increases with the value of the property. Things can get especially sticky when things like family businesses, land holdings, and other tangible and valuable items are at issue. Many of these assets may have been within a family for decades (or generations) and fighting over control is quite predictable, especially when estate planning is inadequate.

For example, the Wealth Strategist Journal reported recently on the battled over control of supposedly the largest underground series of caves in the eastern United States–Luray Caverns. The caverns are incredibly popular, and it is reportedly the third most visited cave in the country. Considering its popularity, the location has grown into a significant business for the family which owns it. A Washington Post story notes how the cave has been open to the public for nearly 130 years. At $24 for a one-hour tour, the business of showing the cave is estimated to bring in about $30 million annually.

Unfortunately, control over the caverns is apparently is disarray as the family in charge seems perpetually mired in controversy. The Post story explains how two of the family siblings recently sued two others in an attempt to disqualify them for participating in a family trust. In total, control of the caverns rests with six children bore of a family patriarch who died in 2010 at the age of 87.

The disputes are varied, including disagreements about managements of the operations and claims of unfair “golden parachute” retirement packages. On top of that, the parents had “no contest” clauses in their wills (added secretly late in life) which theoretically disinherit any beneficiary who challenges the terms of the will. That no contest clause is what has spurred the most recent litigation.

Many have pointed to the situation as a textbook example of how things can go awry quickly with largest families and complex assets. One observers explained, “Family businesses can be quite successful, he said, but the managing and intermingling of blood and commerce, insiders and outsiders, requires a deft hand, planning and enormous amounts of trust.”

As in this case, parents are often able to keep rivalry and infighting in check while still alive. But all of that often comes apart after a passing. Without incredibly clear, unambiguous, and open estate planning, sibling discord can explode when parents are gone.

The heirs of art dealer Illena Sonnabend faced a very unique problem after the woman’s death in 2007. One the most valuable pieces of her estate was a work by Robert Rauschenbeg known as “Canyon.” The 1959 piece of art is a collage that include various three dimensional materials, including a stuffed bald eagle. Canyon would prove to be a sticking point in the heir’s attempt to settle the estate–a process which ultimately dragged on for five years.

Taxes Always Due
For estate tax purposes, the value of artwork in an estate is appraised and the tax is owed based on the total appraisal value. Sonnabend’s estate had a significant number of pieces and the artwork taken together was valued at over $1 billion. According to a Wall Street Journal story on the case, this led to an estate tax bill of about $471 million. The two heirs to the estate sold about $600 million of the artwork to pay for that bill.

However, the Canyon piece was a different story. Because the work featured a stuffed bald eagle, it could not be sold under U.S. law. That is because the 1940 Bald and Golden Eagle Protection Act as well as the 1918 Migratory Bird Treaty Act prohibited sale of the items. Since Canyon could not be sold, the three appraisers for the estate gave the artwork a value of zero for estate tax purposes.

But the IRS disagreed.

The IRS sent the family a report valuing the artwork at $15 million-even though it couldn’t be sold for $5, let alone $15 million. The family rejected the IRS valuation. This drew the ire of the government tax collectors who responded by re-appraising the art as worth $65 million. On top of that, they claimed that the intial appraisal by the family of zero dollars triggered an “undervaluation penalty” of 40%. All told, the family was being asked to pay $40.4 million in taxes on an object that they could not make a dime from selling.

Few Options
Confused logic aside, the family had few options. Eventually, they chose to donate the piece to the New York Museum of Modern Art. This allowed them get around having to pay the hefty estate tax–charitable donations (like inheritances to spouses) generally fall outside the purview of the estate tax. Unfortuantely, however, the family was unable to use the gift for charitable deduction purposes as happens in most cases. That is because, even though the gift was made to get around estate taxes, at the end of the day it still had no value because it could not be sold.

This bizarre case is a testament to the lengths that the IRS may go to collect what it deems it is owed, even when logic suggests otherwise. It’s a reminder that local residents should never try to plan for these details or handle long-term financial affairs without experienced professional assistance.

See Our Related Blog Posts:

Forbes Estate Tax Article Catches Fire on Social Media

DNA Info in New York shared an interesting story on the intersection of a custody dispute, estate planning, and a one billion trust fund waiting in the wings. The tale is a reminder of how money and the emotions following a death are a breeding ground for feuding and conflict among many different parties. It is always best to proceed with the assumption that strong disagreement will arise and to crafts plans and take those into account. Perhaps those worst fears won’t materialize, but, if they do, they must be accounted for.

The situation in this story concerns two teens who are set to inherit the $1 billion inheritance from their great aunt’s fortune–the New York philantropist Doris Duke. Duke was a tobacco heiress andspent much of her time in a $44 million Upper East side apartment. Duke obtained the fortune after the death of her husband–Lucky Strike cigarette magnante “Buck” Duke–and holding from her own mother’s fortune. Upon Doris’s death in 1993, the fortune passed down to her nephew with whom she was close–the father of the twins. Sadly, he died in 2010 at age 57 due to a methodone overdose. He had divorced the teens’mother in 2000 and was awarded custody at that time.

As one might expect, confusion broke loose following the father’s death. The children’s biological mother was given custody at first, though serious concerns have been raised about her ability to raise the children, with past reports identifying her as suffering from paranoia and post-traumatic stress disorder. The twins’ stepmother has been trying to obtain custody of the children but has thus far been unsuccessful.

In this midst of this tragedy and custody fighting, the children’s mother has been making strange requests of the $1 billion trust fund that the two teens will inherit when they turn 21 years old. The large fund is currently managed by JPMorgan with specific rules about how much funds are dispersed to the children while they remain minors. Recently, the mother has been making large, somewhat bizrre requests of the trustees, claiming that the children “feel like they are poor” because of the trustee’s denial of many of the requests.

Right now the family received a range of monthly allotments, including $8,000 for housing, $1,800 for food, $3,600 to rent a car, $500 for gas, $2,000 for random monthly expenses, and pre-pad nanny service, tuition, medical insurance, and more. All of this, however, is apparently not enough and the mother has been making repeated calls for more money. For example, $6,000 was requested for a Halloween party, with the trustee providing only $2,800. At Christmastime, the mother asked for $50,000 to cover expenses for gifts and several trips. That request was denied.

In the midst of all of these financial requests, the trustee asked a Manhattan Court for guidance on how to respond to the financial requests. As often happens in these cases, the court has appointed an independent guardian to act in the children’s best interest in the matter. It is still pending with the court.

See Our Related Blog Posts:
Court Rules Woman Must Give Up Kafka Papers She Inherited

Protecting Assets While Facing Uncertainty

Do you really need to conduct estate planning if you are only in your 30s, don’t have many assets, and don’t have a lot of money to spend on legal and planning services? Absolutely.

The specific costs of these planning efforts can always be arranged to meet your resources. And it is critical not to forget that the planning includes components that apply to all parites, regardless of how old they might be or how wealthy. For one thing, an elder law estate plan in New York includes preparations related to long-term health and extreme medical care wishes. Serious accidents affect community members of all ages, and it is critical to have legal documentation in place to explain how you’d like things handled in the event you are seriously incapacitated or disabled.

The need for these documents is even more paramount if children are involved. It goes without saying that parents usually devote their lives to ensuring their children are cared for, protected, and secure in their future. Yet far too many young mothers and fathers forget to take a simple step to prolonged that security indefinitely–use legal documents to identify child care issues in the event of their passing. There is no way to completely prepare for the death of young parents on a child. Yet, dealing with the tragedy is always made a bit easier when the parent or parents had taken some time to identify clear successor guardian wishes in the event of their own death or disability. It is critical that all parents–no matter how old–have very clear plans in place for alternative caregiving.

Informal plans, however, are often of little use. Telling a relative or a friend that you’d lke them to take care of your child in the event of a tragedy is nowhere near enough. There has to be actual legal effect to one’s wishes, otherwise, the long-term care of your child may be left to decisions made by the court and agents of the court who have no personal connection to you or your family. It is critical for guardian identification’s to be made in a legal document, like a last will and testament, that will affect how the court handles these matters.

Many young parents assume that there is no need for this legal planning because there is an obvious choice for alternative guardian and the court will clearly see things that way. However, one of the most important lessons shared by estate planning attorneys is the fact that relationships are often frayed in the aftermath of a death. While it may not seem like a possibility now, in the aftermath of your death different family members may begin feuding over the guardianship of your child. This fighting will obviously leave real scars on family relationships and will have serious impacts on the child’s long-term living. Taking away this uncertainty and doubt should be a high priority for all parents, and it is only fully accomplished as part of an estate plan that puts legal effects to your wishes no matter what the future holds.

See Our Related Blog Posts:
Court Rules Woman Must Give Up Kafka Papers She Inherited

Protecting Assets While Facing Uncertainty

The world is a different place today than it was in 1950. Several decades ago the vast majority of families were of similar make-up: father, mother, kids, dog, house, and car. Inheritance planning in those situations often followed very predictable patterns. A spouse received the assets after a death, and the children split the remaining assets when the second parent moved on. However, our New York estate planning lawyers know that there is much more complexity these days.

That is true for several reasons. On one hand, the law has changed, with different tax situations, legal tools, long-term care concerns and other realities forcing estate plans to take more into account. In addition, families are much more diverse these days than in the past.

Blended families are quite common, necessitating families take special care to account for their inheritance wishes. “Default” statutory inheritance rules may have been a bit less off-putting several decades ago. However, considering the unique make-up of most families these days, it is incumbent upon local residents not to risk their estate being split via default intestacy rules. As a new USA Today story explains, it is no longer a luxury to have the help of an estate planning lawyer–it is a necessity.

The article reminds readers that complex family situations “are turning the already-prickly matter of inheritances into a gargantuan challenge.” Part of the cause is that many families are now filled with ex-spouses, stepchildren, grandkids, siblings who live thousands of miles apart, and many other components. Default rules of inheritance simply no longer fit. Plans need to be tailored to meet each case uniquely.

In addition, some adult children are finding themselves in tricky financial situations after counting on an inheritance than never comes. Some planners have noted that they’ve seen adult children dig themselves into financial holes expecting to be helped by an inheritance only to find that the inheritance is split differently than they expected. Also, on many occasions that overall inheritance is smaller because of changing healthcare needs. With seniors living longer and elder care costs rising, it is not difficult for a once robust family estate to be eaten up.

All of these pressures are making family inheritance feuds more common than ever. According to the latest Pew Research Center data, about 40% of Americans have at least one step-relative. New additions to the family heighten the tension of inheritance issues. Stories abound of step-children fighting with surviving step-parents, money passing to step-children instead of blood relatives, and similar dynamics. There is no one-size-fits-all piece of advice to avoid these situations. The only universal wisdom is to ensure that families meet with planning professionals early on–before a senior’s health deteriorates–so that some plan is in place when necessary.

See Our Related Blog Posts:

Now Remains a Good Time for Baby Boomers to Conduct Estate Planning

Estate Planning May Be A Family Decision

Last week an article in the Mansfield Patch listed “Five Vital Estate Planning Mistakes” made by local community members. The list touched on a few issues that each New York estate planning lawyer in our firm has seen time and again. Like history, these errors tend to repeat themselves. Being aware of the common problems is the best way to ensure you don’t make them yourself.

Of course common mistake number one is putting off estate planning efforts entirely. Passing on is usually not a topic that most enjoy thinking about. Estate plans inherently involve some considerations and preparations in the event that one is no longer alive, and so many simply avoid the idea altogether. This delay ultimately serves no purpose. As the article author remarks tough-in-cheek, “If you don’t die before retirement, chances are pretty good you’ll die sometimes afterwards.” Considering that death is inevitable, there is simply no logical reason to do no planning and risk paying more in taxes, the uncertainty of the probate process, or the potential squabbling of family members.

Second on the list was failure to consider naming guardians for one’s children. While most local residents conducting New York estate planning have adult children, planning is important for younger community members as well, particularly those who have young children. When crafting an elder law estate plan for clients, we always take into account the family dynamics involved. When young children are present it is important to make plans for those children in the event something happens to you, the parent. This is another task that is often put off, because it is not pleasant to think about orphaned youngsters. However, at the end of the day failing to name a guardian only means that the buck will be passed to some other decision maker if anything happens–usually the court. No one is better positioned than a parent to name a potential replacement in case of tragedy, and so it is always prudent for parents to do so.

Another common mistake includes failing to update policy beneficiaries. Single parents or those who are divorced are more susceptible to this error. For example, when their children are young a single parent may name a grandparent as a beneficiary on things like an IRA, 401(k), or life insurance policy. They then fail to change that designation down the road, after their children have grown. Similarly, divorced spouses often forget to change each other as named beneficiaries after the divorce.

See Our Related Blog Posts:

Now Remains a Good Time for Baby Boomers to Conduct Estate Planning

Estate Planning May Be A Family Decision

This weekend our New York estate planning attorney Bonnie Kraham had an article published in the Times Herald-Record where she explained the importance of beneficiary designations in New York estate plans. These designations are often less well-known than other aspects of an estate plan, such as trusts, wills, health-care proxies, and powers of attorney. The designation is a contractual document that directs where an asset will go upon your death. They are most often involved in IRAs, annuities, and insurance policies. Beneficiary decisions must be made in conjunction with other aspects of any estate plan to protect assets from outside costs and keep them in the bloodline.

For example, Attorney Kraham discussed beneficiary designations in the context of inheritance trusts. These trusts are increasingly popular and useful legal tools to protect a child’s inheritance from the child’s creditors or divorcing spouse. If you have an asset in a qualified plan, it is important for the contingent beneficiary designation to be that child’s inheritance trust, instead of the child as an individual. Essentially what this does is ensure that the benefit of the inheritance trust applies to the qualified asset. A spouse will typically be named the beneficiary with the child’s trust named as contingent beneficiary, ensuring that the funds remain in the bloodline and are protected from outsiders.

Similarly, when your New York estate plan involves use of a Medicaid Asset Protection Trust (MAPT), it is vital that beneficiaries be considered closely. In particular, Attorney Kraham explains that it is helpful to name the MAPT as the beneficiary of a life insurance policy. Life insurance policy proceeds are never assets held in the name of the policy holder, and so when those proceeds are passed directly into the MAPT they do not count toward the “penalty period” that otherwise applies to asset transfers within five years of applying for Medicaid. As the article explained, we recently had a client in this exact situation. The man had a $500,000 life insurance policy on his wife with the couple’s MAPT named as the beneficiary. If the insurance proceeds were paid directly to the surviving spouse, those funds would have been unprotected from possible nursing home costs. In addition, the MAPT funds can still be used to pay for things like real estate taxes, home insurance, and home repairs. However, this option is only logical when the surviving spouse does not need the life insurance policy proceeds while alive for day-to-day living expenses.

See Our Related Blog Posts:

Careful Consideration Required Before Selecting Successor Trustee in Estate Plan

Many Challenges Face Estate Executors

The Wall Street Journal wrote this weekend on a unique estate planning issue that is becoming relevant to a growing number of families: the inheritance rights of children conceived after one’s death through in vitro fertilization. More people than ever before are cryopreserving their gametes which can then be unfrozen later and used in fertilization. This practice is growing in popularity among cancer patients before undergoing chemotherapy, those in the military, and others in high-risk occupations.

The total number of infants born through use of this technology has doubled in the past decade and the clinics offering this service have increased. For area residents, use of this science may have an impact on their New York estate plan. Many are beginning to question what inheritance rights these children have if their parent passes away before they were conceived? In an effort to provide clarity, more and more states are passing laws defining their rights with regard to insurance, Social Security, trust participation, and similar topics. However, the legal landscape is far from clear.

Families who are considering their options or who have already frozen gametes should take a close look at the forms associated with the procedure. The clinics should clearly explain what happens to the material in the case of the donor’s death. Some families may be surprised that the language in those agreements does not match their intent.

For example, one woman has been engaged in a seven year legal battle with the Social Security Administration in an attempt to get insurance benefits for her son. The child was conceived from frozen gametes used shortly after the death of the woman’s husband. The man signed a contract asking that all the material be transferred to his wife upon death. However, government officials are arguing that there was no record that the man actually intended to father a child. The lesson from this unfortunate situation is to ensure that all details are spelled out in writing in advance.

Charles Kindregan, the author of “Assisted Reproductive Technology: A Lawyer’s Guide to Emerging Law and Science” confirmed that the law in this area is ambiguous. The fact that the law remains in flux makes it is particularly important to consult an estate planning attorney with all questions regarding the rights of late conceived children.

See Our Related Blog Posts:

Planning For Your Digital life After Death

Instructions Should Help Family Find the Information They Need

Contact Information