Wills, Trusts & Estates Prof Blog

Potential Problems With Joint Tenancy

Often times people decide to add other names to the title of the property they own. Once the names are added to the title the named individuals are considered co-owners of the property. Legally this is called joint tenancy. However, people should be cautious when entering into a joint tenancy. There are many illustrative examples about why people should think twice about creating a joint tenancy, but here are a few underlying reasons why joint tenancy might not be a good idea.

1. Joint tenancy of financial accounts increase the odds of embezzlement.
2. It is difficult to remove a person’s name off a title for property because it requires the consent of the person whose name is being removed.
3. The property is subject to both tenants’ creditors immediately. This exposes the property to more liabilities.
4.  Joint tenancy can create unanticipated outcomes such as accounts being passed outside of probate.
5. There are other estate planning alternatives such as a revocable trust that can accomplish similar goals.

See Stephen J. Dunn, The Perils of Joint Ownership, Forbes, Jun. 14, 2013.

ATRA Tax Implications

Recently, Congress passed the American Tax Relief Act of 2012, or “ATRA”. The Act affects only already existing provisions, but has many new tax implications. Some of the provisions included in the act will positively affect estate planning. One of the areas affected by the Act is the maximum estate, gift and GST tax rate. The rate is now permanently set at 40%, which occurs on taxable estate worth more than $5,250,000. Moreover, ATRA set the tax-exempted amount for decedents’ estates at $5.25 million. ATRA has also given something for married couples to think about. The Act extended TRA 2010’s ‘portability’ provision, permitting married couples to transfer unused estate tax to the surviving spouse. ATRA has made many previous temporary provisions permanent. However, the change from temporary to permanent can significantly change estate-planning techniques.

See Lewis Saret, ATRA : An Unexpected Plus To Your Estate Planning --Part I, Forbes, Jun. 13, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Advice for Scammers

Major private banks seem to have a talent for ripping people off.  A “structured product” is a good example.  By investing in hedge funds with a boatload of fees, these structured products can transfer a $1 million investment over to the bank in just a seven-year period. 

This is accomplished by bleeding investors out of their returns.  Instead of allowing investors to compound their returns, banks will slowly skim of the top.  For more humorous methods of stealing lots of money, click here.

See Edward Siedle, How to Steal a Lot of Money (Part III in a Series): The Beauty of Bleeding, Forbes, June 6, 2013.

The Importance of Annuities

When trying to solve your lifetime income needs, it may be best to “do as the Romans did.”  The Romans instituted the original Single Premium Immediate Annuity (SPIA) structure, which still prevails to this day as the best annuity option.  While many agents are choosing to sell variable and fixed-indexed annuities, the best and most efficient strategy for guaranteed lifetime income is the SPIA structure or the newer Longevity Annuities.  Similar to SPIAs, Longevity Annuities activate the income stream on a certain future date instead of immediately.  Both lifetime income solutions “have no annual fees and pay low commissions to the agent when compared with most deferred products.”

See Stan Haithcock, Do as the Romans Did – With Annuities, Market Watch, June 4, 2013.

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

CLE on Skills Training For Estate Planners

The American Bar Association of Real Property, Trust and Estate Law and the New York Law School  is offering a CLE program entitled, Skills Training For Estate Planners, on July 17-19, 2013.  Provided below is a description of the event:

Come to New York City July 17-19 for an intensive CLE program for experienced estate planning lawyers. The annual Skills Training for Estate Planners program has a NEW Advanced Topics course of study focused on current areas of interest and importance. This institute-type program allows lawyers to have a comprehensive CLE experience with coordinated sessions that build upon one another, covering advanced estate planning subjects. The sessions will be led by an outstanding faculty consisting of experts in all aspects of estate planning and will include time to speak with the presenters. The topics covered include:

Business Planning

• Family business planning
• Chapter 14 implications
• Valuation theory and practice
• QSSTs versus ESBTs
• Use and drafting of buy sell agreements
• Income tax exit strategies

Trust Considerations

• Use and drafting of split interest trusts
• Generation skipping transfer tax planning
• Impact of Section 2036 on drafting and planning
• Estate freezes, GRATs and sales to intentionally defective grantor trusts
• Life insurance trust planning
• The numbers of estate planning

Important Considerations

• Retirement planning and deferred compensation
• Planning for residences/vacation homes
• Planning for the multinational client
• Income tax considerations for taxable estates
• Ethical considerations

Registration Deadline - June 28

Register now for the Advanced Topics course!

For more information, including a complete schedule, list of speakers, CLE credit, and tuition rates, please visit our webpage. Contact Michael Kesler at (312) 988-5620 orMichael.Kesler@americanbar.org with any questions.

If you're looking for more fundamental training, visit our webpage for information on the Fundamentals course.

Trust and Estate Practice Aids Available on Different Internet Services

Many online websites are helpful for folks in the trusts and estate practice. Below are a few online resources and a short description of what the each site provides.

IGS International Genealogical Search Inc. provides users with a way for people to identify heirs, quiet title searches, search for heirs of wrongful death actions, and a few other services that can help identify beneficiaries to an estate. 

Some practitioners need information that is more specific and training material to assist them in succession planning. One estate planning resource to share with farm owners is Planning Your Farm. The site discusses the risk associated with farm transfers, assessing farm resources, and other estate planning techniques.

Other practitioners need assistance in obtaining property title searches. Property Shark provides title searches that sift through public records and adds public information to the proprietary information for a more complete set of online records. Property shark makes mortgage files, deeds leases, different ownership rights and other services available to trust and estate practitioners.

Practitioners needing access to public documents such as real time court records can find them on LexisNexis.

Court filings have been made more convenient by allowing the service to be done online at One Legal Online Court Services.

FindLegalForms.com can provide practitioners with a collection of free legal forms. Some of the forms include handy checklists and there is no registration required to download the forms.

There are many other websites offering primary, and secondary, trust and estate affiliated material. Access to these sites enhances speed to accomplish client tasks.  

See Donald Kelley, Internet Services for T&E Practitioners, Wealth Managment, Jun. 12, 2013.

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

Digital Asset Planning Becoming a Necessity

As I have previously discussed, it’s becoming more and more common among financial advisers to incorporate digital assets into their client’s estate plan.  If they don’t leave behind passwords or provisions detailing the transfer of account ownership, “loved ones may never be able to access their digital photos, games, music, or videos, as well as their email, online-banking and social-media accounts.”

Some estate planners suggest using trusts to hold digital assets while other planners are giving their clients checklists containing data they will need to provide for the disposition of digital assets.  Advisers suggest including any passwords in a separate document from the will as wills can become public.

Meanwhile, the Uniform Law Commission is drafting a law that would allow states to grant fiduciaries the right to manage clients’ digital assets.  Please see my article, Estate Planning in the Digital Age, for additional information on this increasingly popular topic.

See Arden Dale, More Estate Plans Account for ‘Digital Assets’, The Wall Street Journal, June 13, 2013.

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

Google Users Can Set Up Account Management After Death

Unfortunately, communication and privacy laws have failed to catch up with technology leaving Internet companies like Google and Facebook exposed to lawsuits from family members seeking answers from accounts belonging to other family members after death. Recently, Google has added the ability for users to designate an account manager who will manage your different Google accounts when you die. The account is connected to an inactivity timeline that users will set. Once the account has been inactive for the specified period, Google notifies your designated account manager. Families treasure digital data much like folks traditionally treasured material heirlooms. Part of the legislative difficulty is how privacy and access is being balanced with the emotional significance of a person’s digital legacy.  

See Rachel Ehrenberg, Computer Scientist Grapple With How to Manage the Digital Legacy of the Departed, Science News, Jun. 10, 2013.

Are Family Wealth Management Discussions Being Labeled Taboo ?

Having family discussions about money has been stigmatized. According to a survey by MFS Investment Management, almost 70% of financial advisors stated that their clients do not include their adult aged children in finance discussions. Advisors are losing the opportunity to tell their clients to have discussions with their family about family wealth issues. Only one third of advisors have had discussions with their clients about family wealth management. The study indicated that 60% of investors claim their advisor has not discussed family wealth management. Moreover, a mere 14% of investors state they are interested in advice about family wealth. William Finnegan, senior managing director of global retail marketing for MFS expresses the significance of family wealth discussions, “Advisors willing to reach out to the adult children of their clients can play a key role in guiding multiple generations of investors and protecting a family's legacy of financial health."

See, Family Wealth Conversations Are Not Happening Survey FInds, Financial Advisor, Jun. 5, 2013.

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

CLE on Planning with Portability: Benefits and Risks

The American Legal Institute is offering a CLE entitled, Planning with Portability: Benefits and Risks, on Wednesday, June 26, 2013 from 2:00 – 3:00 pm.  Provided below is a description of the event:

Why You Should Attend

The American Taxpayer Relief Act of 2013 (ATRA) has given portability its permanence. Portability requires additional review and revision of estate plans by counsel that some clients may resist. Are you prepared to listen to your clients’ concerns, work within their legal budgets, and provide the appropriate guidance?

Join us for this timely, practical program that will explore the new frontiers of portability. Our panel of nationally recognized estate planning practitioners will highlight the planning opportunities that spawn from the new estate tax regime while also examining its limits and potential traps!

What You Will Learn

• Expert faculty will analyze the essentials of portability, including:
• Potential loss of GST exemption of the first deceased spouse
• Gifting opportunities for asset protection
• Tips for compliance and the election of portability
• Revocability and opting out
• Different planning strategies: traditional, proactive, and defensive
• Tax considerations for surviving spousal gift giving
• Inflation adjustments 

Questions submitted during the program will be answered live by the faculty. In addition, all registrants will receive a set of downloadable course materials and free access to the archived online program.

5 Celebrities Who Needed an Estate Planner

Fame and fortune doesn’t necessarily improve estate planning.  Here are five celebrity estate planning mistakes to prove it:

1. Leona Helmsley, the widow of multibillionaire Harry Helmsley, gave $12 million in trust for her dog, Trouble, while disinheriting two of her grandchildren.  This proved to be trouble as a judge reduced the dog’s trust fund to $2 million while giving $6 million to the grandkids.
2. Sammy Davis Jr. intended to give a lot of people a lot of money in his will.  The problem with this is that his estate was insolvent by the time he died.
3. Steve McNair’s tragic death revealed a true lack of estate planning.  McNair’s estate was hit with a tax bill over $3 million and his mother had to be displaced from a six-bedroom home.
4. Marilyn Monroe made the mistake of leaving the majority of her estate to her acting coach, Lee Strasberg, without putting her assets in a trust.  After Strasberg’s death, his third wife, who never knew Marilyn, made millions off her belongings.
5. Jim Morrison left his estate to common-law wife, Pamela Courson.  She soon overdosed, leaving Jim’s estate to his father-in-law who “probably hated him.”

See Sheyna Steiner, 5 Celebrity Estate Planning Mistakes, Bankrate.com.

South Dakota Supreme Court Revoked Disclaimer Used To Obtain Medicaid

The Supreme Court of South Dakota ruled that a son could not withhold assets from his mother suffering from dementia for Medicaid purposes. In 2008, Arline Shipman was moved to a nursing home because of her dementia. However, social services revoked Arline’s admission to a nursing home due to her resources. It was only after Eugene, Arline’s husband, paid out over $100,000 in nursing home health care costs that Arline became eligible for long term Medicaid aid.

Due to the substantial amount of money spent on nursing home costs, Arline’s husband disinherited her from his will. Arline’s attorney drafted a document disclaiming any inheritance from Eugene. After Eugene’s death, Arline’s guardian ad litem petitioned the court for half of his estate citing South Dakota law.   

In Shipman v. South Dakota, the court held that Arline was entitled to receive half of the estate because it was her elective share, not fulfilled by the spousal support for her nursing home care. Moreover, the court revoked the disclaimer stating it would be in Arline’s best interest and that the beneficiaries under the will would not be prejudiced. The court reasoned that the disclaimer was being used as an estate-planning tool to obtain Medicaid.

See Jeff D. Gorman, Widow With Dementia Must Get Inheritance, Courthouse News, Jun. 12, 2013.

Estate-Planner's Playbook For 2013

Steve R. Akers (Senior Fiduciary Counsel, Southwest Region) recently published an estate planner's guide entitled,The Estate Planner's "Playbook" for 2013 and Going Foward Under the Post-ATRA "New Normal" of Permanent Large Exemptions and Portability, (2013). Provided below is the introdution to the article: 

The 47th Annual Philip E. Heckerling Institute on Estate Planning was again held in Orlando during the week of January 14, 2013. I have summarized some of my observations from the week, as well as other observations from various current developments and interesting estate planning issues. My goal is not to provide a general summary of the presentations. The summaries provided on the American Bar Association Real Property, Trust & Estate Law Section website that are prepared by a number of reporters, and coordinated by Joe Hodges, do an excellent job of that. In addition, there are excellent summaries provided by Martin Shenkman on the Leimberg Information Services reports. Rather, this is a summary of observations of selected items during the week as well as a discussion of other items. I sometimes identify speakers, but often do not. I take no credit for any of the outstanding ideas discussed at the Institute — I am instead relaying the ideas of others that were discussed during the week.

A major focus of the Institute was estate planning under the “new normal” of transfer tax certainty, large indexed transfer tax exemptions, and portability provided by the American Taxpayer Relief Act of 2012 (ATRA). This summary focuses on practical planning issues that estate planning professional will be facing in this new environment. Topics include:

•       legislative matters and proposals (Items 1-4);

•       planning for donors who made 2012 gifts, including compliance details (Items 5-6);

•       planning approaches for various categories of clients going forward in light         of permanent large indexed exemptions and portability (Item 7-8);

•       planning considerations for the new 3.8% Medicare tax on net investment income (Item          9);

•       strategies to preserve basis at death (turning some traditional planning on its head)         (Item 10-11);

•       wealth transfer planning strategies leaving some indirect access for the donor and         donor’s spouse (Items 12-25);

•       other sophisticated wealth transfer planning strategies (including using defined value         clauses) (Items 26-34);

•       planning considerations for commonly used intra-family loans and notes (Item 35); and

•       various other practical planning issues (Items 36-42).

It is hoped that this summary might be a useful “playbook” for planning under the new post-ATRA paradigm of permanent high indexed exemptions, portability, and higher income taxes

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

American Taxpayer Relief Act Adds Predictability To The Federal Estate Tax System

Originally, the American Taxpayer Relief Act (ATRA) had frightened a group of estate planners into thinking that there would be fewer clients looking for estate planning advisors if the act was passed. However, since the ATRA has been passed, it has had the opposite effect on estate planning services. In fact, some experts claim that because of the baby boomer generation we are approaching the “Golden Age of Estate Planning.” One of ATRA’s advantages is that it has taken the temporary $5 million federal estate tax exemption and made it permanent with subsequent inflation adjustment settings. As a result, people can predict the federal estate tax system. Moreover, over 99% of all taxpayers are protected from the “death tax.”  

See Richard A. Behrendt, The Golden Age Of Estate Planning, WealthManagment.com, Jun. 7, 2013.

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

Son Attempting to Recover All of Y.C. Wang's Assets

As I have previously discussed, Taiwanese billionaire Y.C. Wang passed away in 2008 without a will.  In addition to asking a Bermuda court to void an “unlawful” transfer of billions into offshore accounts, Wang’s eldest son and estate administrator, Winston Wong, has also “filed a lawsuit in Hong Kong seeking $4 billion of assets held by two companies that are alleged to belong to his father’s estate.” 

Wong alleges that these companies are actually trustees used by Wang to hold onto his personal assets.  Wong is accusing them of acting dishonestly to misappropriate the assets.

See Debra Mao, Plastic Heir Claims $4 Billion of Assets Misappropriated, Bloomberg, June 9, 2013; see also Russell Flannery, Late Taiwan Billionaire Y.C. Wang’s Son Expands Estate Battle, Seeks $4 Bln in Hong Kong, Forbes, June 10, 2013.

Estate Administration in Our Digital World

In our digital world, it’s increasingly important to plan ahead for the administration of our virtual estate.  Besides valuable financial information found online, most people also have email accounts, social networking accounts, photos, and music that have sentimental value.  This online presence can be difficult for executors to access if the decedent hasn’t left a password.  Some websites like Gmail and Hotmail have policies that “may” assist executors.  Other sites like Facebook and LinkedIn allow the family to make formal requests concerning a decedent’s account.  Sites like Twitter and Yahoo! de-activate or delete the account while sites like Apple have no policy.

To help executors unlock all of your digital information, it’s a good idea to leave a list of your confidential user IDs and passwords in a safe, with a trusted person, or with an online company.  Please see my article, Estate Planning in the Digital Age, for additional information.

See Gary A. Phillips, Mary W. Browning & Leo Matarazzo, Estate Administration in a Paperless World, Lexology, June 4, 2013.

Children Challenging Will Bequeathing $1.5 Billion to Mistress

Six out of nine children of Chinese businessman Chiu Yau-chuen are appealing a decision to uphold a will, which disinherits the children and bequeaths the HK$1.5 billion estate to Chiu Chung Kwan-ying, one of Yau-chuen’s three mistresses.

In 2004, Yau-chuen died from a heart attack at the age of 55.  In a 1997 will, Yau-chuen left his fortune, made by selling a taxi company and investing the proceeds, to all of his children, but later disinherited them in favor of Kwan-ying in a 2003 will.  The children claim the 2003 will is “unofficious” and that their father lacked the mental capacity to execute the will. 

See Patsy Moy, Mistress Was Wrongly Favoured, Court Told, South China Morning Post, June 5, 2013.

Pro Athletes in Need of Wealth Management

Highly-publicized sports figures like Evander Holyfield and Antoine Walker aren’t the only athletes to face bankruptcy after their careers have ended.  About 60% of athletes end up in bad shape after retirement.

The main reason athletes face money issues isn’t that all of them are blowing their money on an extravagant lifestyle, but instead it's that the average pro career is only four to five years long.  For all the big name players with lengthy careers, there are hundreds of athletes that effectively retire at age 25 or 26.  This means a majority of players, usually starting with zero net worth, have to make their retirement savings last six or seven decades to support a lifestyle they’ve gotten used to while young.  And their youth only compounds the problem.  Many of these 20-somethings are busy figuring out their new life and less concerned with planning for retirement.  For many wealth advisors, the main goal should be keeping their clients frugal and making sound investments.

See Scott Martin, Wealth Advisors Can Make the Difference Keeping Pro Athletes from Wasting their Fortunes, The Trust Advisor, June 4, 2013.

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

Becoming a Financial Caregiver: 6 Tips for a Smooth Transition

One of the most difficult transitions a family can face is when adult children must manage their elderly parents’ finances.  Here are six tips to formulate and execute a plan to maintain a loved one’s well-being:

1. Start looking for signs that it’s time to discuss the transition.
2. Be careful not to rush into this sensitive subject matter.
3. Be sure to build trust from the beginning.
4. Keep all siblings updated on important matters.
5. Maximize efficiency when managing assets by using advanced strategies.
6. Designate an IRA beneficiary to avoid probate.

See Doug Cubberley, When Adult Children Become Financial Caregivers, CNBC, June 3, 2013.

Repealing DOMA May Affect Employee Benefits

If the U.S. Supreme Court strikes down DOMA, employers and other benefit plan sponsors should not only consider how defining “spouse” will effect benefits, but also how defining “child” will effect federal income tax.

Currently, employer-sponsored health coverage made available to children of an employee’s same-sex spouse “may result in imputed income to the employee for federal tax purposes based on the value of that coverage if the child does not meet certain requirements under the Internal Revenue Code.” 

Based on an IRS FAQ, if an employee is considered to be a stepparent in the state in which the couple resides, the employee can avoid imputed income for federal tax purposes.  So if DOMA is repealed, more children will be considered stepchildren and attain favorable tax status.

See Emily Erstling & Tzvia Feiertag, U.S. Supreme Court Decision on DOMA May Impact Status of Children of Same-Sex Spouses for Employee Benefits Purposes, Mondaq, June 1, 2013.