Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Saturday, November 26, 2011

Temporarily Paying More for Insurance Policies in ILITs

Unknown-2Many wealthy families have created irrevocable life insurance trusts (ILITs) where the trust owns the insurance policy as opposed to the retiree. The premiums are funded by regular gifts to the trust and this method shields heirs from the federal estate tax. Now that Congress has lifted the gift tax exemption to $5 million from $1 million, many people are carrying up to $4 million more than what they may need in life insurance and paying more in premiums than they need to be. 

Insurance advisors do not recommend winding down the ILIT because the gift tax could easily go back up in 2012. Advisors do recommend to regularly review the insurance in ILITs and sell it for something more appropriate if necessary.

See Scott Martin, Trust Advisors Flocking to Life Settlements for ILITs, Other Trusts, The Trust Advisor Blog, May 22, 2011. 

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

November 26, 2011 in Estate Tax, Gift Tax, Trusts | Permalink | Comments (0) | TrackBack (0)

ALI on the Rule Against Perpetuitites

Shepard-scottScott Andrew Shepard (Professor of Law, The John Marshall Law School) recently published his article entitled, Which The Deader Hand? A Counter to the American Law Institute's Proposed Revival of the Dying Perpetuities Rules,Tulane Law Review, Forthcoming, June 4, 2011. The abstract available on SSRN is below:

Encouraged primarily by a fluke in federal estate and gift tax law, more than half of the states have either effectively or entirely abolished their rules against perpetuities in the past two decades. The American Law Institute, deeply troubled by this development, has adopted for its Third Restatement a proposed rule against perpetuities that would essentially prohibit conditional gifts to continue for the benefit of parties born more than two generations after the transferor. 

The ALI’s efforts are misguided. The rule against perpetuities was the product of a legal, political and social age very different than our own. It was designed in large part to address concerns, such as inalienability conditions, that do not effectively exist in modern law, either because the evolution of property structures has dealt with these problems by other means, or because changes in political and social structure have drained the problematicity from the concerns. While some of the old concerns do remain, in modified form, the RAP provides a poor response to them. It offers a medieval barber’s amputation saw where the job demands a modern surgeon’s scalpel. Though both may save the patient from the illness, the scalpel will do a more exact and reliable job, with far less collateral damage. 

This article demonstrates where the ALI went wrong, and fashions the scalpel required to deal with modern iterations of dead-hand control and related problems.

November 26, 2011 in Articles, Trusts | Permalink | Comments (1) | TrackBack (0)

Man’s Best Friend Refuses to Leave Owner’s Grave Site

Sad dogLao Pan, a sixty-eight year old Chinese man, died earlier this month, leaving behind his small yellow dog. Since his owner’s death, the dog has not left Lao Pan’s burial site. Villagers began bringing the dog food and water after they noticed he refused to leave his owner's grave. Villagers are now planning to build the dog a kennel near Lao Pan’s grave.

See Melissa Knowles, Heartbroken Dog Refuses to Leave Owner’s Grave and Facebook Rewrites Six Degrees of Separation, Trending Now, Nov. 23, 2011.

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

November 26, 2011 in Current Events | Permalink | Comments (0) | TrackBack (0)

Estate Planning and Commercial Annuities

AnnuitiesMary Ann Mancini (Partner, Bryan Cave, LLP), John L. Olsen (Financial Advisor and Estate Planner, St. Louis County, Missouri), and Melvin A. Warshaw (General Counsel, Financial Architects Partners) will give a presentation at the 46thAnnual Heckerling Institute On Estate Planning Conference in Orland, Florida. A preview of the presentation is in the article entitled Annuities in Estate Planning, Private Wealth (Nov. 2011). An excerpt from the article is below:

Commercial annuities have long been dismissed by some estate planners as being more beneficial to the insurance agent selling them than for the purchaser or beneficiary.

However, in these difficult economic times, when it takes sophistication to make good investment decisions and when many estate owners do not have access to that type of professional advice, an annuity can achieve certain goals, even in the largest estates. There are three common scenarios that can arise in an estate plan in which an annuity can prove useful:
1. Providing for a longtime household employee.
2. Making a gift or bequest to an individual privately, when there are concerns about his or her ability to handle funds.
3. Managing the investment of a trust where the surviving spouse is not the parent of the remainder beneficiaries of the trust.
In these scenarios, an immediate annuity—an annuity contract where payments must begin within one year—may be appropriate. A deferred annuity, where funds accumulate until the contract is converted to an income stream, can be a useful tool in some estate planning situations, but not in situations that require payments to begin shortly after the annuity purchase.
Obviously, an annuity is not the sole solution to these situations; often, a trust could achieve the same goals with greater flexibility. However, trusts are expensive. Moreover, the selection of a trustee can be difficult and flexibility may not be a consideration. When this is the case, a commercial immediate annuity should be considered. If annuity payments are needed for the recipient’s lifetime, a life annuity is required. If the goal is merely to provide a set number of payments, a period certain annuity is called for. In either case, consideration should be given to whether the annuity payments ought to be fixed, increase each year or vary with the performance of investments. In the first two cases, a fixed immediate annuity will work. (Many, but not all, immediate annuities offer a cost of living adjustment, in which payments increase each year by a specified percentage). In the third case, a variable immediate annuity is required in which annual payments may increase or decrease, depending upon how the variable investment accounts chosen for the annuity perform. In any event, an immediate annuity will provide the certainty of an income for a period of years or for the lifetime of the “annuitant.”
The first scenario is one that often arises in the estate plans of very wealthy individuals who employ longtime household help and want to provide for them at their deaths. Typically, the bequest is in the range of $50,000 to $250,000 and is intended to benefit employees who are accustomed to receiving a regular paycheck, with little or no experience dealing with large sums of money. Often, the estate owner is concerned about how well the recipient will manage a lump sum bequest, especially if it is intended to replace, if only in part, the salary he or she enjoyed while employed.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

November 26, 2011 in Articles, Conferences & CLE, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Friday, November 25, 2011

Talk About Money Early With Your Spouse

UnknownOne of the ways that couples can avoid estate planning trouble later is to start talking about money early. New York Times provides some advice to encourage this discussion.

  •  Know what is going on with the financial situation and work together to make decisions.
  • Money represents each partner’s goals and fears. Grapple with the challenge of figuring out your partner’s views on what money represents to them and then try to work with these to come up with a common goal.
  • Don’t let money be the last thing that you talk about with your partner. Learning early to have meaningful conversations about money can be very helpful throughout the marriage.

See Carl Richards, Your Financial Honeymoon Will Eventually End, The New York Times, Oct. 3, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

November 25, 2011 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Dead Woman Found Three Years After Death

RoseOn January 25, 2006, officials who were repossessing a London housing unit found the skeleton of a 38 –year-old woman in one of the units. Officials determined that the woman had been there for three years prior to the discovery.

Officials did not find much information beyond the woman's name (Joyce) and birthplace, and they could not ascertain the cause of her death. One curious filmmaker, Carol Morley, placed advertisements in different publications for people to come forward with any relation or information to Joyce. Eventually, Morley found several men who had dated Joyce. No one that she met would reveal how Joyce might have died. She seemed to be very beautiful and to have an infectious personality.

Morley compiled the information that she gained from the individuals who came forward and has made a documentary about Joyce entitled “Dreams of A Life.”

See Carol Morley, Joyce Carol Vincent: How Could This Young Woman Lie Dead and Undiscovered for Almost Three Years?, The Observer, Oct. 8, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

November 25, 2011 in Current Events, Intestate Succession | Permalink | Comments (0) | TrackBack (0)

Recommendation for Jobs’ Heirs

Steve jobsFollowing Steven Jobs death, the Steven P. Jobs Trust acquired beneficial ownership of 138 million common shares of Walt Disney Co., 7.7% of the total outstanding shares. According to a recent 13G regulatory filing, the trust does not intend to influence control.

Now may be the best time for Jobs’ heirs to sell the $6.78 billion of Apple and Walt Disney Co. stock, however,  because the heirs can avoid $876 million in capital gains taxes under federal law. The capital gains tax is expected to rise from 15% to 20% in 2013.

See Experts Say Jobs’ Heirs Should Sell Stock, SF Gate, Nov. 23, 2011; Steven Jobs Trust Reports Holding 7.7% Stake in Walt Disney Co., Bloomberg Businessweek, Nov. 24, 2011; Steve Jobs’ 4.6B in Disney Shares go to Trust, SF Gate, Nov. 23, 2011.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

November 25, 2011 in Current Events, Estate Administration, Trusts | Permalink | Comments (0) | TrackBack (0)

GSTT Asteroid

AsteroidRobert L. Moshman (Attorney, New York and New Jersey) recently published his article entitled Avoiding a GSTT Asteroid, Wealth Strategies Journal, Nov. 7, 2011. An excerpt from the article is below:


During the years of Joseph Kennedy's peak wealth until his death in 1969, the estate tax had a top rate of 70% or 77%. It was a harsh gatekeeper that applied to every generation. From 1941 on, the 77% top rate applied to assets exceeding $10 million. If taxed at that rate at Joseph Kennedy's death, and then again only one generation later, the Kennedy fortune would have been erased.

Kennedy saw the wisdom of avoiding a 77% tax. By passing wealth directly to his grandchildren, he skipped an entire layer of estate taxation.

For example, trusts that Joseph Kennedy established for John F. Kennedy provided JFK with income for life, as well as the right to withdraw up to 5% of principal in any year. During the Kennedy administration, the President's trust funds were said to be paying him $500,000 in annual income. Because Joseph Kennedy gave only a life estate to his son, the assets were not subject to estate tax at JFK's death. Thus, the government taxed the assets only once, in Joseph P. Kennedy's estate, before those assets reached Joseph's grandchildren, John F. Kennedy, Jr., and Caroline Kennedy Schlossberg.

The Kennedy estate plan shows that when assets are unencumbered by transfer taxes or the need to benefit one particular generation, the family can productively invest those assets in long-term pursuits. The Kennedy trusts held assets ranging from businesses to real estate. The family holding company, Joseph P. Kennedy Enterprises, contained the Merchandise Mart in Chicago, which Joseph Kennedy purchased in 1945 for $13 million and which was eventually sold for $625 million.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

November 25, 2011 in Articles, Generation-Skipping Transfer Tax | Permalink | Comments (0) | TrackBack (0)

Irishman Ordered to pay $560 Million to Bank

EurosOn Wednesday, a judge ordered Sean Quinn, formerly the richest person in Ireland, to repay 417 million Euros ($560 million) in bank loans. Quinn used borrowed funds from Anglo Irish Bank to build a twenty-eight percent stake in the bank. Quinn declared bankruptcy two weeks ago in Northern Ireland, and the judge stated that Quinn would likely be ordered to repay another 1.6 billion Euros or more next week. 

See Irish Tycoon Ordered to Repay Bank Record $560 Mln, The Associated Press, Nov. 23, 2011.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

November 25, 2011 in Current Events | Permalink | Comments (0) | TrackBack (0)

Prenups For All Women

Prenuptial-agreement-4_s600x600A recent Huffington Post article purports that every woman should sign a prenup before saying “I do.” The article explains that women today are waiting longer to marry than was the case fifteen years ago, and as a result women are entering marriages with more assets and more independence than ever before. Three reasons why women should consider entering into a prenuptial agreement are below:

  1. Protecting Her Assets: Women can think of prenups as insurance policies for the down payment they made on their first house or the few thousand they have saved in a retirement account. If the marriage turns sour, the woman will be no worse off financially than she was before the marriage.
  2. Protecting Her Human Capital: A prenup should contain a pay-out provision that will compensate the woman for any time she may have to take off from her career to raise children.
  3. Protecting Herself: A prenup can also serve to protect a wife from her husband’s creditors in the event he files for bankruptcy.

See Jacoba Urist, Why You Need a Prenup This Holiday Season, The Huffington Post, Nov. 24, 2011.

November 25, 2011 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)