Salt Lake City Estate Planning

ESTATE PLANNING / INHERITANCE

The heads of ultra-high-net-worth families often have different views of how money should be bequeathed than those who will inherit it, according to a recent study.

For every planner considering the inheritance to leave and the arrangements to make, there is also a would-be inheritor with their own thoughts and strategies. As if figuring out your own plans and ensuring that they fall into place without a hitch weren’t difficult enough, it might also be necessary to contend with the would-be inheritor.

According to a new study out of Morgan Stanley Private Wealth Management and Campden Wealth entitled, "Next-Generation Wealth: The New Face of Affluence,” and as reported on over at Private Wealth Magazine, there is a tangible divide between the heads of today’s high-net-worth families and their inheritors.

The Private Wealth article, titled “In Rich Families, Old And Young Differ On Inheritance Issues, Study Says,” found a disconnect between the heads of families and their thirty-something inheritors. On the other hand, inheritors who are age 40 and older generally have either more involvement in the family wealth or greater complacency.

As for those thirty-something inheritors, the study reveals them to be an increasingly discontented bunch:

“Of the respondents aged 30 to 39, one quarter said they were not satisfied with their families' investment decisions and 43% disagreed with the wealth transfer plans. This compares to 84% of those in their 40s who said they have a high degree of satisfaction with the wealth transfer plans.”

Statistics aside, if you are passing wealth to a new generation, you might want to take into account their hopes and intentions. After all, planners increasingly want to leave more than a mere financial legacy. If you want the inheritance you leave to carry your values and insights, then plan and communicate. Also, it is best to communicate your plan to a competent estate planning attorney to ensure that estate plan will be distributed according to your desires. 

Reference: Private Wealth (May 10, 2012) “In Rich Families, Old And Young Differ On Inheritance Issues, Study Says”

The Disinheritance Dilemma

The motives for cutting a relative out of an estate range from the most primal — hate, abandonment, regret — to the most rational — preservation of wealth and tax considerations.

Planning what to leave behind to loved ones can be a difficult matter since, even with taxes out of the picture, it means explaining your choices and your hopes. On the other hand, planning to specifically disinherit can be all the more difficult.

Inheritance and disinheritance are emotionally charged concepts. The motivations that go into disinheritance are especially complex, as discussed in a recent article in The Trust Advisor titled Why Are Family Members Disinherited?.

Teaching point: If you are considering disinheritance, then it is also important to think about what that means, both for yourself and the excluded heir. There are many reasons to disinherit, some more reasonable than others and some worth abandoning upon meditative reflection.

Still, if you must disinherit, then consider explaining your basis for that decision. While it is your choice and right, your legal documents must be clear and withstand (oftentimes) inevitable legal challenge by the affected heir. For help and information regarding disinheritance, talk with and estate planning attorney. 

Reference: The Trust Advisor (April 15, 2012) “Why Are Family Members Disinherited?”

Generation-Skipping Transfers

Generation-skipping trusts, also known as dynasty trusts, are designed primarily to avoid estate taxes each time one generation transfers wealth to the next generation.

For a number of reasons, the government seems to think that family wealth ought to pass from one generation to the next, without “skipping” over anyone. However, that’s not always the way the world works (or the way folks want to distribute their assets)

What if you want to provide for your grandkids instead of your children?

This is one time when extra planning is crucial to escape a series of tax law traps. As a result, this planning may require a generation-skipping or “dynasty” trust.

The idea that wealth ought to trickle down from generation to generation is, if nothing else, a way of guaranteeing that taxes are paid at each level. On the other hand, it’s not necessarily in keeping with your plans or modern reality. For example, who would have anticipated the student debt so many grandchildren face today?

For whatever reason, you might want to skip a generation in your estate distribution. The estate planning vehicle to accomplish this objective is a trust, specifically a “generation-skipping” or “dynasty” trust.

For more information, check out an article in ProducersWeb titled Generation-skipping Trusts.

While there are many limitations, and perhaps also a growing political battle to further limit such trusts, there are very real gains to be secured for you and your family.

These trusts can become complicated very quickly, so competent counsel will be necessary to determine whether a generation-skipping trust is appropriate for your unique circumstances and, if so, then to implement it.

Reference: ProducersWeb (April 11, 2012) “Generation-skipping Trusts”

Estate Planning For Couples...Its Complicated

How married couples and domestic partners structure their estate plans can make the difference between whether a family stays connected or gets blown apart after the first spouse or partner passes away. Things can be even more complicated and volatile in blended families – when there are step and half siblings and stepparents in the mix.

 

One thing about life in the new millennium is that it is complex. Whether it is finances, taxes, gadgets, or relationships, nothing is as it was in the “good old days” (whenever that was, if ever). So it is with estate planning for the modern family, how ever “family” is defined. 

For example, how should married couples plan for their estates? Separately or together? This issue was explored recently by Forbes in an article titled “Estate Planning For Couples: Should It Be A Solo Or A Duet?” Indeed, this question is one worthy of your consideration if you are married.

On the surface, married couples would seem to face fewer challenges when it comes to estate planning. Nevertheless, the applicable laws make a great number of assumptions that may not be applicable to you, your spouse, and your family. For instance, the interests of married persons might not so neatly dovetail as their love lives, as in the case of blended families.

In the blended family context, couples may disagree about how distribute their assets, and even to whom assets should be distributed. To make matters even more difficult, in the absence of a clear-cut premarital agreement, there can be considerable rancor regarding ownership of the separate (let alone marital) assets.

One fundamental consideration at the outset is the question of separate representation. In other words, are the latent difficulties or possible misunderstandings so substantial that each spouse ought to secure independent legal counsel? While this may, at first blush, invite confrontation, it need not.

In the main, a single attorney representing both parties after full disclosure of potential conflicts of interest and written waivers may be the most appropriate solution for a couple. As the article highlights, however, each case (just like each couple) is different and there is no one-size-fits-all solution.

Whether you need help determining the appropriate solution for your situation or you already know what you want, be sure to contanct a competent estate planning attorney.

Reference: Forbes (April 10, 2012) “Estate Planning For Couples: Should It Be A Solo Or A Duet?”

The New Wealthy Show Their Tax Savvy

There’s nothing illegal about what these executives did. In fact, the Facebook registration statement and others that FORBES examined read like a playbook of how the ultra-rich and even the moderately wealthy can operate within the law to transfer vast sums and preserve assets–from the tax man and from creditors.

In case you missed it, there is something of a renewed technology boom underway. While the stars (read: Mark Zuckerberg, et al) of this boom seem to be ever younger, they are demonstrating some old-soul savvy when it comes to planning and structuring their current tax minimization and wealth transfer maximization.

In a sense, planning for and about wealth is always also planning about the future; that’s an important point even for those who already are “wealthy.” To glean some lessons from the rising technology stars, tap into a recent list of steps you can take, featured in a Forbes article aptly titled You Don't Have To Be A Billionaire To Plan Like One. 

I recommend clicking over to the original article, but the main takeaway is that classical “personal finance” is working hand in hand with classical “estate planning” in so many of these steps and “tricks.”

Reference: Forbes (April 3, 2011) “You Don't Have To Be A Billionaire To Plan Like One”

Successful Succession of Family Farm is NOT Automatic...Plan Successful Succession of Your Family Farm

Your “estate plan,” however, should not be your farm’s succession plan. Succession planning is a “process” – “not an event,” … an estate plan is a piece of the process that is succession planning.

Farm and family. Perhaps more than any other kind of industry or property, planning for the succession of the family farm poses a significant challenge to the estate planner.

Some of these challenges are described in a recent article in Agri-View titled Estate planning lays framework for smooth transition.

When the farm is a family farm, and therefore also the family business, planning for your estate is really about planning for the succession of the business and the farm. This can be a delicate process, but it is better to start the process sooner rather than later.

For one thing, don’t overlook the fact that farmland values can trigger estate taxes (real estate bubbles aside, land is the only thing that consistently grows in value – ‘cause God ain’t makin’ any more of it’ – and farms are all about land). Accordingly, some rather sophisticated estate planning (and liquidity planning) may be in order, or the family farm could be lost to the IRS. Not good.

Estate taxes aside, there are many other considerations to secure the future of the “family” element of the family farm. For example, who will inherit the farm, let alone continue to operate it? What if your children live in the suburbs and work every day downtown? Who will actually do the “farming?” Perhaps renting or sharecropping might be more practical. Regardless, these are the kinds of practical real-world matters that ought to be decided with a legal framework to ensure succession success.

So, if you are a farm-owner, and particularly the owner of a family farm, then there is much work to be done. While I recommend reading the original article, be sure to engage competent legal counsel, as well as any farm extension agent assistance that may be available.

Reference: Agri-View (March 29, 2012) “Estate planning lays framework for smooth transition”

Letting Go - End of Life Realities...Do You Have a Living Will?

It takes strong doctors to stand up to [the kind of verbal abuse that palliative care doctors have to put up with], to explain that courts and ethics committees have approved care that’s intended to reduce suffering, to point out that the patient’s own wishes are paramount. Perhaps they have to be stronger than we know. ‘The culture is changing … but it’s not changed yet.

Have you sat down and written your “end of life” advance health care directives? It can be a difficult chore, to be sure. Carrying out your wishes, can be a difficult chore, too, especially for the palliative care doctors and hospice medical staff who will carry out your decisions.

Some of these challenges were recently featured in an article titled Amongst Doctors, Fierce Reluctance to Let Go on the New Old Age Blog at the New York Times. Indeed, we live in a culture of medicine aimed at preserving life. However, when does such “medicine” actually get in the way and prolong biological life beyond what is desired by the patient?

In addition to the medical culture of preserving life, the family of the patient receiving care can be a powerful force in the mix. Many times they do not want to let go, even though their loved one is ready. Add these three ingredients together – the medical culture, the patient’s wishes and the family’s fears of loss – and you have a recipe for conflict.

The palliative or hospice care doctor is well attuned to the intentions of their patient and their wishes. Unfortunately, the rest of the medical community and the patient’s own family may be less attuned. In fact, they may be hostile at best and litigious at worst.

I recommend reading the original article, as you will better appreciate the unfortunate tension thrust upon so many healthcare professionals in these cases. On the other hand, the lessons gleaned may encourage you to design advance health care directives with clarity and then communicate your wishes to your primary care doctor and family members now.

I also recommend preparing your Utah Advance Health Care Directive.  While it will require some thought and planning about difficult topics, a Utah Advance Health Care Directive is not too difficult to complete.  I further recommend that you review your other estate planning documents to assure they are up to date.

For convenience, the following is a brief guide about making a Utah Advance Health Care Directive:

Preparing Your Own Utah Advance Healthcare 

Directive (Utah Living Will)

Written by: Jason C Hunter

STEP 1:  Download and Read The Instructions

The Utah Advance Healthcare Directive instructions can be downloaded by clicking on the preceding link. This link is to the Center for Aging at the University of Utah. After downloanding the instructions, read them thoroughly. Contact an estate planning attorney your your health care provider if you have questions.

STEP 2:  Download the Form

The actual form can be downloaded at via this link (Utah Advance Health Care Directive). You can fill the form in online, or you can print it and fill it out by hand. Make sure you follow the directions in completing the form. Again, consult with an estate planning attorney or your medical provider if you have questions.

STEP 3: Sign and Witness the Form

You need to sign the form and have it witnessed by someone who is not related to you.

STEP 4: Keep the Document Safe / Provide a Copy to your Medical Providers

You should keep the signed original of your health care directive in a safe place with your other estate planning documents (I tell clients to keep it in their estate planning binder with their wills/trusts/etc.). You should also make sure to have a copy readily available for an emergency and you may want to give your appointed agent and health care providers a copy.

Additional Resources

If you have any questions about completion of your health care directive, you might consider visiting the Center for Aging website at http://aging.utah.edu/utah_coa/directives/index.html. Various law firms also maintain informational resources on estate planning (feel free to visit our website: www.hunterestategroup.com for a wealth of free estate planning information).

 

Administrivia – Postmortem Paperwork Proliferates

So as a public service to those who are coping with the same tedious chores or may soon be, the Foreman family assembled a list of stuff to do, stuff almost everyone will have to do, after a loved one dies.

Death and taxes. Benjamin Franklin aptly noted that these are the only two certainties in life. Mr. Franklin perhaps should have added a footnote regarding the paperwork both certainties generate.

A New York Times blog (The New Old Age) recently published a “public service” announcement of sorts titled Death's Companion: Paperwork. The article showcases the experiences of the Foreman family as an object lesson for what one of the family members member termed “administrivia.” This in an appropriate one-word description for one family’s experience with the trials and tribulations of postmortem paperwork and minutia.

Think about it. While we are living, we establish myriad relationships with bureaucracies. Whether the IRS, Social Security, Medicare, banks, hospitals, creditors, social media platforms, car companies or gym memberships, we all have long lists of identification numbers, account numbers, customers numbers, and user passwords. And the list goes on and on. So, what happens when you die? How do all of these relationships end? How many trees must die (in the form of paperwork) to achieve legal and financial closure?

It has been said that a shortcut to wisdom is to learn from the experiences of others. Accordingly, the experiences of the Foreman family provide excellent lessons and the original article provides important pointers for you to consider in your own estate planning.

In short, proper planning is about seeing both the forest and the trees. Be sure to seek competent legal counsel to help you with the big picture when it comes to your own estate planning. However, the difference between the success or failure of any estate plan hinges on careful attention to the details.

Reference: The New York Times – The New Old Age Blog (March 15, 2012) “Death’s Companion: Paperwork”

 

 

Indiana Death Tax Dies – Will Other States Follow?

It’s official. The Indiana inheritance tax is repealed for deaths after Dec. 31, 2021.

The Indiana inheritance tax is officially on its way out the door. What does this mean for other states?

For some taxpayers, wealth transfer planning has required two layers of tax consideration. First, the federal estate tax, which traditionally has received the lion’s share of attention and, second, “state” estate taxes or even “state” inheritance taxes. And, in some instances, those state taxes can be harsher than the federal estate tax (especially given the current federal estate tax exemption of $5.12 million per taxpayer)!

Accordingly, the demise of another state wealth transfer tax is welcome news to many in Indiana. Might this signal a trend extending beyond the Hoosier state? This question is explored in a recent Forbes article titled Another State Death Tax Kicks The Bucket, Will More Fall?. As the author points out, this development in Indiana could buttress the argument for the repeal of such wealth transfer taxes in sister states and maybe even at the federal level. The states, after all, are always in constant competition with one another (for residents and businesses) and taxes are a constant give and take in the exchange.

For more information on the Indiana laws and the politics involved, I recommend reading the original article.

Reference: Forbes (March 20, 2012) “Another State Death Tax Kicks The Bucket, Will More Fall?”

 

Modern Art...Meet the Internal Revenue Service

Sometimes, I’ve noticed, the IRS itself gets a bit too creative. Exhibit A is its treatment of the estate of legendary modern art dealer Ileana Sonnabend who died in 2007, at the age of 92.

When it comes to the IRS and taxes, the message is more often than not that you really can’t have your cake and eat it too. Unfortunately, this also means that heirs oftentimes end up between a rock and a hard place. For an extreme lesson, consider the case of Ileana Sonnabend.

What do you do when something is both so valuable as to trigger taxation and yet also so valuable – and illegal – that it is without value on the market? Some readers might have run across this story last month, but it gets coverage over in this recent article in Forbes.

Sonnabend was a bit of an art buff, to put it lightly, and her collection of modern art requires a doctorate in modern art history to fully articulate, with such names as Jeff Koons, Roy Lichtenstein, Andy Warhol and Cy Twombly rounding out the gallery walls. At her death, all of these works passed to her heirs and, to pay for the estate taxes thusly triggered, her heirs had to sell those very pieces.

It’s a sad story, if you just stop there. However, then you miss the most unique of artwork (and, at the very mention of “most unique,” it’s worth noting that some of these artists considered toothpaste a means of expression), a piece known as “canyon” by Robert Rauschenberg.

“Canyon” is really a mixed media piece incorporating a stuffed bald eagle, putting the production and sale of same on the darker side of the law as far as the Bald Eagle Act of 1940 is concerned. Accordingly, “Canyon” is not only art, but it’s illegal art. Nevertheless, it squeaks by on a technicality: it predates the Bald Eagle Act.

As such it is beyond value, literally, because it is restricted from the market. But that doesn’t put it beyond the interest and reach of the IRS. Apparently, the IRS incorporated the piece as part of the taxable estate, even though it was beyond selling by U.S. law, it could still be sold internationally (and on black markets.)

That’s a strange place for a strange piece of art, to be sure, but it does highlight the fact that art, as both real property and expensive property, requires more than a little planning. Sonnabend herself didn’t take advantage of any estate planning, forcing her heirs to sell the very art for which the estate tax was assessed.

Again, to learn more about (and understand) the art you’ll need a doctorate degree, but to learn more about Sonnabend and her legacy you should consult the original article. On a more personal note, to make proper estate planning arrangements for your own art and the rest of your estate engage competent counsel to help you take advantage of available techniques that can save your own unique collection and the family you hope to inherit it. 

Reference: Forbes (February 23, 2012) “Even Rich Heirs Deserve A Fair Shake From The IRS”

Suggested Key Words: Estate Planning, Art Collection