Wills, Trusts & Estates Prof Blog

IRS Clarifies What Is Subject to the 2% Floor for 67(a) Itemized Deductions

The IRS modified and superseded IRS Notice 2010-32 when the Supreme Court decided Knight v. Comm’n. That case held that “fees paid to an investment advisor by a non-grantor trust or estate generally are subject to the 2-percent floor for miscellaneous itemized deductions under section 67(a).” The new guidance also specifies which estate or non-grantor trust costs are  subject to the 2% floor for miscellaneous itemized deductions under 67(a).

See William Alan Nelson II, Extension of Interim Guidance on Section 67 Limitations on Estates or Trusts, Wealth Strategies Journal, Sept. 8, 2011; See also IRS Notice 2011-37.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention. 

Avoiding the Third Generation Curse

Throughout history, families have witnessed wealth accumulation in the first generation, wealth enjoyment in the second generation, and wealth loss in the third generation. The goal of the Heritage Institute, based in Portland, Oregon, is to help these families avoid this financial cycle and ensure that family wealth continues for numerous generations. The Institute focuses on strengthening family relationships, passing on personal values, and teaching heirs asset management techniques.

According to Rodney Zeeb, co-founder and chief executive officer of the Institute, family wealth tends to dissipate in the third generation because heirs are not prepared to deal with the inheritance or the emotional issues that accompany it. A recent study conducted by the Family Office Exchange, however, revealed that most families believe poor planning and investments, market fluctuations, and taxes are the biggest risks facing family wealth.

During a six to nine month process, the Institute helps families learns techniques and pointers on becoming a successful family. Part of the process involves family members meeting and exchanging stories and values with younger generations. Elders also work with younger generations one-on-one to help teach asset management skills. The family, as a whole, then sets up a family fund to help children learn to manage money.

See Colleen O’Dea, Beating The Midas Curse, Private Wealth Magazine (Jan. 2012).

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Live Webinar on Trust Companies

The Trust Advisor will be conducting an online webinar entitled, Launching a Trust Company in Delaware, South Dakota or Nevada: Red Carpet or Red Tape? on February 14. A description of the webinar is below:

The Trust Advisor -- America's Leading Wealth Management e-Newsletter is presenting, for the first time, a timely webinar for wealth advisors, banks, insurance companies, estate planning law firms, and registered investment advisors (RIA's) on the essentials of how to launch a public or private trust company in one of America's most favorable trust locales.

Chartering a trust company traditionally has been difficult. Federal laws typically discourage new entrants.

But three states: Delaware, South Dakota and Nevada offer a level playing field for firms who decide to launch their own trust company.

Join us for this roundtable webinar and learn how these savvy firms can take advantage of the unexpected boom.

In addition, you'll learn what common and costly mistakes to avoid.

Agenda

• Current developments and new trust trends: why advisors and banks need to be more intuitive and creative
• Trust company business models that have worked
• Which technology platforms support trust firms for both modest assets and large assets?
• Understanding the impact on business earnings
• How to launch a trust company in Delaware, South Dakota or Nevada
• Which type of trust arrangements are the most profitable?
• What can you charge for trust services?
• How to develop your firms’ action plans

Things to do Before You Save For College

According to a recent article in the Huffington Post, some families should consider investing in other financial goals before beginning to saving up for college for the kiddos. The four priority financial goals suggested in the article are below:

Life Insurance

Purchasing life insurance may be the most important purchase a parent can make to protect a child’s long-term financial well-being. In the event the primary earner passes away, the insurance will replace his or her lost income and can cover higher educational costs if the policy is large enough.  

Credit Cards

Paying double-digit interest on a credit card while receiving single-digit returns on a college fund is not a sound proof saving plan. By paying down credit cards and limiting adult spending, parents can put themselves in a stronger position to save for college funds.

Emergency Fund

Parents should set aside a solid cash cushion to cover any unexpected costs that may arise in the future. The cash cushion should consist, at a minimum, of three to six months of living costs.

Budget

Parents will likely find more money to put toward a college fund if they create and stick to a realistic budget. Printing out bank and credit card statements and evaluating where cash is spent each month is a good first step.

See Jacoba Urist, Please, Don’t Save for College, The Huffington Post, Jan. 24, 2012. 

Celebrity Estate Planning Lessons

As I previously blogged, singer Etta James passed away this month at age 73. The estate planning aftermath of James’  passing, along with the estate planning aftermaths of other celebrity deaths, illustrate many estate planning needs attorneys should discuss with their clients. Five ways James’ and other celebrities’ stories shed light on ways estate planners can help their clients are below:

• Talk with Clients About Creating an Estate Plan Now
  • James had suffered from numerous illnesses prior to passing, but many individuals’ deaths are much more sudden. For instance, Canadian Olympic skier Sarah Burke was only 29 when she recently passed away from injuries sustained in a freak skiing accident. Attorneys should speak with clients about ceasing the estate planning procrastination because death can come suddenly and it is best to be prepared.
• Discuss Medical and Financial Decision-Maker Appointments
  • During James’ last year of life, her sons and husband began battling over conservatorship of the singer’s estate. A few weeks ago, the family was able to resolve their issues, and James’ husband was declared her conservator with control limited to $350,000 for her medical care. Britney Spears’ father recently stated that he intends to ask the court to terminate the medical/non-financial portion of Spears’ conservatorship to allow Spears to marry without restriction. Attorneys should discuss powers of attorney and living will documents with clients. Without these documents, a client’s family will not have the right to make medical or financial decisions in the event the client suffers a serious medical condition or accident.
• Remind Clients to Update Wills, Trusts, and Other Legal Documents
  • Heidi Klum and Seal’s recent divorce announcement is a good reminder that clients should update their estate planning documents following life altering events like a divorce, death, or birth. When author Michael Crichton died of throat cancer, his wife was six months pregnant. Chrichton failed to update his estate planning documents to include the child, and a lawsuit between his adult daughter from a previous marriage and the surviving wife erupted regarding whether the baby could inherit. The judge ruled that the baby was entitled to share in the inheritance, but proper estate plan updating could have avoided the suit all together.
•  Organize Your Clients' Affairs
  • Clients should inform family members where their estate planning documents are located. An estate planning organizer can help clients list out their legal and financial documents, along with any of assets that possess. During the recent Italian cruise ship disaster, reports surfaced of many passengers calling loved one to ensure that children would be cared for and to disclose where wills and other important documents were located. Clients should not wait for a tragic event to take place to tell loved ones where important information can be located. 
• Persuade Clients to Discuss Their Estate Plan With Loved Ones
  • Clients can help eliminate some, if not all, future estate planning battles by simply discussing their estate plans with loved ones. Talking with loved ones can also ensure that those left behind will be able to located important documents and critical information.  

See Danielle and Andy Mayoras, Etta James Saga—Among Others—Illustrates Need for Thoughtful Estate Planning, On Wall Street, Jan. 24, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

ACTEC Announces Mary Moers Wenig 2012 Student Writing Competition

The American College of Trust and Estate Counsel has officially announced the Mary Moers Wenig 2012 Student Writing Competition.

Here are some of the key features of this competition:

• Large cash prizes (first place = $5,000; second place = $3,000; third place = $1,000; honorable mention cash awards may also be made).
• A broad range of topics in the trusts and estates and related taxation areas.
• Attractive page requirements -- the body of the paper must be 20 double-spaced pages and may not exceed 30 double-spaced pages.
• Use of original (but unpublished) papers, including papers prepared for law school credit.
• June 1, 2012 deadline which will allow for work over several months including spring break.
• No limit on the number of Honorable Mention Prizes allowing entrants to have a greater chance of receiving recognition and monetary awards.
• Papers may be coauthored.

The official rules may be found here.

Financial Planning Programs At Colleges May Not Translate to Wall Street

Texas Tech is one of 100 schools that offers a financial adviser program for students who want to be financial planners. Lubbock has programs at the undergraduate level and beyond into the graduate level. Those planners who are responsible for massive amounts of money generally do not have to have academic qualifications and certainly did not have to acquire a specific degree. There are many critics of these education programs – big financial advising firms among them.

Brokerage firms who hire many of the nation’s financial advisers do not actively seek students from these programs to hire. The firms respect the programs but many of them question how well a classroom experience will transfer into the fast-paced world of real-life financial planning. Most of the big firms have in-house education programs that teach the basics to their employees. The firms are looking for candidates who have salesmanship, people skills, and a long list of contacts. Critics also argue that the programs are often out-dated because investment strategies are changing quickly all the time – too quickly for education programs to keep up with successfully.

See Charles Passy, Can These People Teach Financial Planning, SmartMoney, Jan. 18, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention. 

Domicile at Death Governs Administration of Estate

For the first 43 years of his life, Eldon Foote lived in Alberta. In the 1970s, he bought a home in Norfolk and he moved there. In 1999, Eldon bought a condo in Victoria, British Columbia and spent summers there in 2001, 2002, and 2003. He and his wife made scattered plans to sell the Norfolk home and move to Victoria. In 2004, he went back to Alberta because he was diagnosed with cancer. He died there in May 2004.

After his death, his children and family members argued over where he was domiciled at the time of death because that determines which law governs the administration of his $130 million estate. A person begins with a domicile of origin and then he/she can replace that with a domicile of choice when they choose to live somewhere else. The residence must be freely chosen and it must be “indefinite in its future contemplation.” To acquire a new domicile, one has to acquire a residence in a new place and have the intention of settling there. A person abandons a domicile when he/she both ceases to live there and ceases to have the intention to return.

In Foote v. Foote, the court ruled that Norfolk was Eldon’s domicile at the time of death, so Norfolk will govern the administration of the estate. The court found that the preliminary steps Eldon had taken and the intention to change his residence to Victoria did not satisfy the requirements for change of domicile. Eldon’s plans were too provisional at the time of his death.

See Stan Rule, Domicile, Rule of Law, Jan. 22, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention. 

Domicile at Death Governs Administration of Estate

For the first 43 years of his life, Eldon Foote lived in Alberta. In the 1970s, he bought a home in Norfolk and he moved there. In 1999, Eldon bought a condo in Victoria, British Columbia and spent summers there in 2001, 2002, and 2003. He and his wife made scattered plans to sell the Norfolk home and move to Victoria. In 2004, he went back to Alberta because he was diagnosed with cancer. He died there in May 2004.

After his death, his children and family members argued over where he was domiciled at the time of death because that determines which law governs the administration of his $130 million estate. A person begins with a domicile of origin and then he/she can replace that with a domicile of choice when they choose to live somewhere else. The residence must be freely chosen and it must be “indefinite in its future contemplation.” To acquire a new domicile, one has to acquire a residence in a new place and have the intention of settling there. A person abandons a domicile when he/she both ceases to live there and ceases to have the intention to return.

In Foote v. Foote, the court ruled that Norfolk was Eldon’s domicile at the time of death, so Norfolk will govern the administration of the estate. The court found that the preliminary steps Eldon had taken and the intention to change his residence to Victoria did not satisfy the requirements for change of domicile. Eldon’s plans were too provisional at the time of his death.

See Stan Rule, Domicile, Rule of Law, Jan. 22, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention. 

Two of John Tyler's Grandchildren Still Living

John Tyler, the 10th president of the United States, was born 221 years ago and two of his grandchildren are still living. The Tyler men all had children during the later years of life. John Tyler had Lyon Gardiner Tyler at the age of 63. Lyon fathered Lyon Gardiner Tyler Jr. at age 71 and then Harrison Ruffin Tyler at age 75. Harrison and Lyon Gardiner Tyler Jr. are both still living today. This calculates out to three generations of the Tyler family spread out over 200 years. Overall, John Tyler had 15 children with two wives.

See Eric Pfeiffer, Former President Tyler’s (1790-1862) Grandchildren Still Alive, YahooNews, Jan. 25, 2012. 

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

There's an App For That

There is a new app called “If I Die” that will allow you to leave a Facebook post after you die. An Isreali company developed the app in response to the near-death of friends. In order for the post to activate, three Facebook friends would have to verify your death first. Gary Baumgarten spoke to Facebook users to hear their reactions to the app and responses were mixed. Some think that it is great to have an opportunity to say what you wanted to say to people but didn’t get a chance to. Some people think you should just say what you need to say before your time is up.

See Posthumous Posting App Gets Facebook Users Talking, CBSNewYork.com, Jan. 15, 2012. 

 

Social Security Tax Changes for 2012

The future of Social Security taxes for employees is uncertain, but one certainty is the fact that the 2011 payroll tax holiday is set to increase in March under current law. A list of some of the other Social Security changes workers and retirees will experience this year is below:

• More than 60 million Americans will see a 3.6% increase in their Social Security payments in 2012. Most retirees will see a $43.00 per month increase.
• The Social Security tax cap has increased to $110,100 in 2012, up from $106,800 in 2011. According to the Social Security Administration, an estimated 10 million high-earners will pay higher taxes due to the increase in the tax cap.
• The Temporary Payroll Tax Cut Continuation Act of 2011 extended the 2% payroll cut that workers received in 2011 through the first two months of 2012.  Until February 29, 2012, close to 160 million workers will continue to have 4.2% (as opposed to the usual 6.2%).
• Employees who earn over $18,350 during the first two months of 2012 must pay a 2% Social Security tax on the pay they earned between $18,350 and $110,000.
• Fifty cents of each dollar earned over $14,640 in 2012 by Social Security recipients who are below the full retirement age will be withheld for Social Security payments. Thirty-three cents of each dollar earned over $38,880 will be deducted from monthly payments for Social Security retirees who will turn sixty-six this year.
• In 2012, the maximum possible Social Security check will increase to $2,513 per month, up from $2,366 in 2011. In order to receive this amount, the employee would need to earn the maximum taxable amount ($110,100 for 2012) each year after he turns twenty-one.

See Emily Brandon, 5 Social Security Changes Coming in 2012, U.S. News, Jan. 23, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Probate Passport

The Texas Young Lawyers Association recently created a project entitled, Probate Passport: A Guide to Probate and Estate Planning in Texas (2011 TYLA). A description of the project is below:

“Texas Probate Passport” has been prepared to inform the public regarding: (1) what happens legally to the property of a person when he or she dies with a will or without a will (see tab entitled “To Will or Not to Will”); and (2) how the probate process works (see tab entitled “Probate in Texas”). The “Checklists” tab provides lists to assist in preparing a will, and in preparing for probate. The Texas Young Lawyers Association (TYLA) seeks to make Texas residents aware of how the law (the Texas Probate Code) affects them and their families. This handbook is not a substitute for the advice of a lawyer, but instead is designed to assist Texans in learning about their legal rights.

“Texas Probate Passport” incorporates material found in a previous TYLA publication called “To Will or Not to Will,” which was first published in 1986.

Sixty-Five and Older Age Group On the Rise

More Americans are age sixty-five and older now than at any other time in American history. On April 1, 2010, the number of individuals who are sixty-five and older increased to 40.3 million. This age group now makes up 13% of the total U.S. population, compared to 12.4% in 2000 and 4.1% in 1900.

While females in this age group outnumber males at older ages, the gap is narrowing. In 2000, there were 88.1 males per 100 females. In 2010, there were 90.5 males for every 100 females. The 2010 Census showed that, beginning at age 89, there were approximately twice as many women as men.

The West has seen the most rapid growth of this age group since the 2000 Census, with the number of senior citizens increasing to 23.5% from 2000 to 2010 (6.9 million in 2000 compared to 8.5 million in 2010). The Northwest is comprised of 14.1% of senior citizens, the Midwest is comprised of 13.5%, the South is comprised of 13.0%, and the West is comprised of 11.9%. Florida has the greatest population of senior citizens at 17.3%, followed by West Virginia at 16%, Maine at 15.9%, Pennsylvania at 15.4%, and Iowa at 14.9%. Alaska has the smallest percentage of senior citizens, at only 7.7%.  

See Emily Brandon, 65-and-Older Population Soars, U.S. News, Jan. 9, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Succession Planning for Small-Businesses

According to experts at MI&I (a subgroup of BMO Financial Group), small-business succession planning should take place five to ten years before the business anticipates a transition will occur. In reality, however, thanks in part to today’s economy, many small business owners are focused on everyday business operations and fail to invest the required time to develop a successful and comprehensive succession strategy.

The 20 million small U.S. businesses currently in operation employ half of the American work force. To help ensure these businesses continue to prosper for years to come, it is important that the small business owners make succession planning a top priority.

Succession planning options include selling the business, transferring the business to a family member or business partner, and dissolving the business. Small business owners should also consider speaking with a financial advisor when creating a succession plan to ensure that the plan will meet the business’s unique needs.  

See Amanda McGrory, Small-Business Owners Should Start Succession Planning Earlier, BenefitsPro, Jan. 24, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Controversy Over Treatment of Posthumous Children In Wills

The law does not provide for what happens when a child is conceived and born after their parent’s death. Even if that parent provides for the child in the will, there is still the unanswered question of whether that child is entitled to proceeds from the grandparents’ estates.

Questions also surround how long you should keep an estate open if you do provide for a post-mortem child. Some argue that keeping an estate window open is playing God, but if you don’t provide for them in your will, the law will automatically exclude them from the estate. Providing for children who are not blood related with specific language in wills is an important issue for same-sex couples too. The offspring may not be genetically related to its parents and it is certainly not related to the grandparents.

A model probate statute that was adopted in 2008 would provide estate inclusion to children who are born to a surviving spouse within 45 months of a married decedent’s death. Only two state legislatures have adopted this rule so far though.

One of the largest controversies relating to postmortem children is whether those children should receive dependent benefits when they weren’t even alive when their parent died. The Supreme Court will hear this issue in its current term.

See Posthumous Births, US News Report, Jan. 25, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention. 

10 Things to Look Out For with Funeral Homes

Funerals rank among the most expensive purchases consumers will ever make. You can keep the costs lower if funeral directors can’t pressure you into buying services you don’t need. Below is a list of 10 things funeral directors don’t want you to know:

1. You can save thousands of dollars by shopping around for funeral services.

2. Funeral homes are in business to make money. Everything that they say is not implicitly trustworthy.

3. If you’re going to bury the person within 24 to 48 hours, embalming is rarely required.

4. If people knew what embalming entailed, more people would probably choose not to do it. You will not have unresolved grief issues from seeing a loved one without the benefit of embalming.

5. Sealed caskets cannot preserve a body so they are not likely worth the extra cost.

6. A funeral director may not charge more for or refuse to handle a casket that you bought elsewhere.

7. A modest casket shouldn’t cost more than $600.

8.  You can pick and choose the services you want out of a funeral home’s package

9. You can plan services for your loved one on your own and you don’t have to depend on a funeral home for services.

10. Funeral and memorial societies such as the Funeral Consumers Alliance, can help you find discounted services and ethical funeral homes.

See 10 Facts Funeral Directors Don’t Want You to Know, ElderLawAnswers, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention. 

Investing for Trustees

Christopher P. Cline authored a book entitled “The Law of Trustee Investments.” The  book covers the restatement standard of Trustee’s duties, the Prudent Investor Act, and relevant case law.  Cline also discusses topics including types of investment, diversification, breach and damages, and drafting investment plans. To purchase the book, please click here. 

 

Mitt Romney's IRA

Mitt Romney has a retirement account just like many other Americans. However, his account differs from most American’s IRAs because his is valued at up to $101 million. Romney does not have to pay annual taxes on that account’s investment gains now, but when he eventually has to withdraw that money, he will face higher than average tax rates. He would only be taxed up to 15% if he left money out of the IRA to be considered capital gains. But once he takes the money out of the IRA in 2017, it will be subject to the 35% tax rate on income. Romney’s approach does offer an immediate tax saving and deferral of taxes. 

Mr. Romney’s aide said that Romney “’accumulated his IRA holdings through annual contributions, rollovers of sums in other retirement plans, and successful investments.’” His IRA grew largely also because it holds investments in the private-equity firm he helped create – Bain Capital. Currently under the law, if individuals invest an IRA in a private-equity fund, the investment would be taxed up to 35% as unrelated business income. Mr. Romney invested his IRA in a private-equity fund, but his filings indicate that he may have used a strategy where the IRA invested through an offshore affiliate of the private-equity firm which then turns around and invests that money in the private-equity partnership. The IRA avoids the unrelated business income tax because it technically invested in the offshore corporation and not the private-equity partnership. When asked about Romney’s offshore investments, his aide said that those investments are doing exactly what they intended to do in keeping the investments tax-free. Tax experts also add that this type of planning happens frequently.

See Mark Maremont, Romney’s Unorthodox IRA, Wall Street Journal, Jan. 19, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention. 

Book on Home Equity and Ageing Owners

Lorna Fox O’Mahony (Professor of Law, Durham Law School) recently published her book entitled, Home Equity and Ageing Owners: Between Risk and Regulation (Hart Publishing 2012). The description of the book is below:

The growing use of housing equity to support a range of activities and needs raises complex issues, particularly for older owners. In an environment in which older owners are pushed towards housing equity transactions to meet income and welfare costs, they are required to make choices from a complex and sometimes bewildering range of options. The transactions which facilitate the use of home equity as a resource to spend in later life - from 'trading down' and 'ordinary' secured and unsecured debt to targeted products including reverse/lifetime mortgages, home reversion plans and sale-and-rentback agreements - raise important legal and regulatory issues.

This book provides a contextual analysis of the financial transactions that older people enter into using their housing equity. It traces the protections afforded to older owners through the 'ordinary' law of property and contract, as well as the development of specific regulatory protections focused on targeted products. The book employs the notion of risk to highlight the nature and causes of the 'situational' vulnerabilities to which older people are now subject as 'consumers' of housing equity, showing that the older owner's personal situation is crucial in determining whether and why they may seek to release equity, the options and products available to them, and the impact of harms resulting from adverse transactions. The book critically evaluates the extent to which this context is incorporated in the legal frameworks through which these transactions are governed, as a measure of the 'appropriateness' of existing legal provision, as well as considering the arguments surrounding 'special protection' for older owners in housing equity transactions.