New York Estate Planning Lawyer Blog

America currently has 72 million people from the Baby Boomer generation, the oldest of which are turning sixty-eight this year. That is also the average age when people decide to create charitable remainder trusts. Estate planning attorneys are expecting a big increase in the number of charitable trusts set up over the next twenty years as the rest of the Baby Boomer generation begins the estate planning process.

Charitable Remainder Trusts

A charitable remainder trust is a trust that provides a distribution, usually annually, to one or more beneficiaries where at least one is not a charity. The distributions can be made over a period of years or for the life of the beneficiaries, but an irrevocable remainder interest is held for the benefit of one or more charitable institutions.

In an interesting twist of events this week, court documents show that the late Phillip Seymour Hoffman left his entire estate to his girlfriend, Mimi O’Donnell. Hoffman died earlier this year at the age of forty-six of a heroin overdose at his home in New York City. He left behind his long-term girlfriend, O’Donnell, and three children. Cooper (ten), Tallulah (seven), and Willa (five) were all children of Hoffman and O’Donnell.

Hoffman’s accountant stated in court documents that he saw Hoffman treating O’Donnell like a spouse and not a girlfriend. Although they had been together for well over a decade, Hoffman never married her because he simply did not believe in marriage. However, he did fully believe that his girlfriend would fully support and take care of their children. O’Donnell was named as one of the executors of his estate which was estimated at around thirty-five million dollars earlier this year. She already held multiple joint financial accounts with Hoffman that held substantial assets when he died.

Reason for Exclusion

Most people feel a sense of accomplishment after drafting and executing an estate plan. Afterwards, it is commonplace to file away the paperwork and promptly forget about the documents. The issue in this is that most people’s lives change between the creation of an estate plan, and it will need to be updated accordingly. In fact, recent studies have shown that people at all levels of wealth, including the very rich, have estate plans that are routinely more than five years old.

As some estate planning attorneys have noted, an estate plan is not like a time capsule that should only be opened at a future time. An estate plan needs to be routinely updated as life events occur. You should plan on regularly updating your estate plan every three to five years; however, it should occur more often if major events happen. In some cases, estate plans that have not been updated have led to large, public disputes between family members. These fights have destroyed families as well as the inheritances that they were supposed to have. These situations are even more unfortunate because the vast majority of these disputes could have been avoided if the estate plan was up to date.

Common Excuses Why an Estate Plan is Not Updated

In late 2012, the government threatened to make steep cuts in the levels of exemption for gift and estate taxes. At the time, the gift tax exemption was set to drop from $5.1 million to $1 million, and the top tax rate was to rise from 35% to 55%. As a result, many families hurried to create trusts that would protect their assets from the cuts and did so very hastily. This is because assets placed in certain types of trusts are not affected by gift and estate taxes. However, Congress prevented these cuts, but by that time many trusts had been created with cook cutter documents in order to be executed quickly. Now, many creators of these trusts are going back and trying to provide more detail to the trustees about how they want the trusts to benefit their heirs.

Letter of Wishes

The trust creators are using “letters of wishes” which have long been around in the world of trusts and estates. These letters are not binding, but they typically reflect the intention of the trust creators in more detail than what was written when the trust was first formed. These intentions are usually in regard to priorities for doling out distributions, for example like getting for education or a new home.

Parents who are now at retirement age think that they have done a great job discussing finances and estate plans with their children. However, their children think the exact opposite about the situation. According to a new study done by the Fidelity Investments Intra-Family Generational Finance Study, this is the new generation gap.

The key point in the study is that many parents are failing to have critical conversations about their finances and estate plans with their grown, adult children. For the baby boomer generation, money and estate planning are taboo subjects. However, the same study showed that having this important conversation with their children gave parents an increased peace of mind and reduced anxiety.

Key Findings in Study

The late lead singer and guitarist of The Velvet Underground, who later had a decades-long successful solo career, was the man who famously sang “Hey babe, let’s take a walk on the wild side.” He seemed to take that lyric to heart when it came to his estate planning, and his estate is worth more than $30 million.

Lou Reed passed away from liver disease on Oct. 27, 2013 at the age of 71. Recent filings in probate court in Manhattan show that since his death less than a year ago his estate has already earned another $20.3 million. This income has come from his copyright, publishing, and performance royalties as well as other deals that were put together by his longtime manager, Robert Gotterer. Mr. Gotterer is also one of the co-executors of Lou Reed’s estate.

Details of Lou Reed’s Estate

People entering retirement age are now facing an unexpected hurdle – dealing with the pitfalls from their parents’ reverse mortgage. The same loans that were supposed to be helping their elderly parents stay in their homes are now pushing the children out of them. In fact, the same situation is playing out all across the United States, where the retirement age children of elderly borrowers are discovering that their parents’ reverse mortgages are now threatening their own inheritances.

Reverse Mortgage Schemes

A reverse mortgage is a financial tool that allows people age 62 and older to borrow money against the value of their homes. This money does not need to be paid back until they move out of the home or die. Unfortunately, many children of parents who invested in reverse mortgages are discovering the issues that arise with them.

If you have accrued some wealth in your lifetime, have a significant life insurance policy, or simply want to look out for the best interests of your children the idea of incorporating a trust into your estate plan may have been suggested. A trust fund places assets into trust, run by an appointed trustee who makes decisions about the investment and distribution of trust assets to its beneficiaries. However, smaller mistakes can be made in the creation of a trust for your children that can cause major problems after you are gone.

Carefully Consider the Trustee

Naming a trustee for a trust fund for your children is different than naming a custodian for their physical care. Consider appointing someone who has financial knowledge and can make wise decisions regarding the trust assets. Also consider naming co-trustees to the fund, thereby creating a set of checks and balances that can preemptively avoid any type of trust abuse.