Wills, Trusts & Estates Prof Blog

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

Friday, December 30, 2011

Income+, Helping Employees Prepare for Retiment

RetirementMany employers have started providing ways to help prepare employees who are nearing retirement age prepare for the financial reality of retirement. One company, Financial Engines, introduced a new service called Income+ that is aimed at protecting the portfolio of employees before the employees stop working. The service also aims to generate consistent monthly payments that employees can deposit into their checking accounts after retirement.

The service is customizable, but the general model has the employee live on his portfolio income through age 85. The employee can also use another portion of his savings to purchase an immediate annuity before age 86 that will allow the employee to collect the same amount of income for the remainder of his life. This service gradually makes the employee’s portfolio more conservative as the employee nears retirement, with about 58% of a typical portfolio invested in stock funds by the time the employee is around age 60. By the time the employee retires, about 20% of the portfolio is invested in stock funds, 65% in fixed income, and 15% in bond funds.   

The service can cost an employee 0.25% to 0.60% of his assets, though the amount may increase based on the employee’s account balance. However, employees should compare this service with the option of rolling assets into an I.R.A as the latter may be a better option for some employees after retirement. Many employers with 401(k) plans have already signed up with Financial Engines for Income+, and some of the employers will automatically enroll their 401(k) participants into the plan when the employees reach age 60.

For more information on Income+, see Tara Siegel Bernard, More Advice for Pre-Retirees Coming to 401(k)’s, The New York Times, Dec. 2, 2011.

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

December 30, 2011 in Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Avoiding Ademption

MgrovesMatthew Groves (Associate Professor of Law, Monash University School of Law) recently published his article entitled Adeptly Avoiding Ademption, 84 Law Institute Journal 36 (2010). The abstract available on SSRN is below:

Many things can change between the drafting of a will and the death of a testator. One increasingly common event is that testators require specialist aged care and their only substantial asset – the family home – is sold to fund that care. These arrangements can have an unexpected impact on the will. The doctrine of ademption can cause a specific gift of the house to fail, though there is growing recognition of an exception for cases involving the sale of property made on behalf of an infirm testator.

December 30, 2011 in Articles, Estate Planning - Generally, Wills | Permalink | Comments (0) | TrackBack (0)

Thursday, December 29, 2011

Company Gets Extension To File a Section 754 Election To Adjust Basis of Partnership Property

Unknown-13Regulations for section 754 provide a deadline for companies to elect to adjust the basis of partnership property. The IRS granted a company an extension to file this election in Private Letter Ruling 201149008. The IRS will consider an extension if the taxpayer acts in good faith and reasonably and if the extension does not “prejudice the interests of the Government.”

See PLR 201149008 (Aug. 22, 2011); see also Andrew Hodes, PLR 201149008: IRS Grants Extension to File a Section 754 Election to Adjust Basis in Partnership Property, Wealth Strategies Journal, Dec. 16, 2011. 

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

December 29, 2011 in Current Events | Permalink | Comments (1) | TrackBack (0)

Should Doctors Offer Overall Prognosis to Patients who are Not Terminally Ill?

Images-26Dr. Alexander Smith is a proponent of offering to discuss overall prognosis with patients even if they’re not terminally ill. Researchers say this could be beneficial to anyone who has less than 10 years to live or has reached 85 years old. The average life expectancy for an 85-year-old is six years. Giving an overall prognosis can help patients get their affairs in order and focus more on the quality of the life they have left rather than toiling with medications and procedures in an attempt to prolong life.

Opponents to this idea say that patients don’t want to hear such grim news, and that there is no way to accurately predict life expectancy anyways. A small minority of patients prefer not to know their overall prognosis. Dr. Smith only proposes presenting the option to discuss this with patients, and the prognosis would not be forced upon anyone.

Dr. Smith also says that several geriatric calculators can reasonably predict life expectancies that are based on factors such as age, cognitive abilities, and sometimes lab test results. One index can accurately predict mortality within 4 years about 75% of the time.

See Paula Span, The Unspoken Diagnosis: Old Age, New York Times, Dec. 29, 2011.

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

December 29, 2011 in Disability Planning - Health Care, Elder Law, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

CLE on S Corporations

Images-25The ABA Section of Real Property, Trust and Estate Law is hosting a CLE entitled “S Corporation Tricks, Traps and Solutions.” The program will be held on Tuesday, February 7, 2012 and it is available as a 90-minute teleconference and live audio webcast. Panelists include: Steven B. Gorin, Christopher R. Hoyt, Daniel H. McCarthy, and Amber K. Quintal.

For more information including registration rates, please visit the following link: ABA

December 29, 2011 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Duties of a Trustee

Images-24If someone has appointed you trustee of a trust, that is a vote of confidence in you, but it is also a lot of responsibility. Below is a list of your main responsibilities:

1. Fiduciary Duties – you are held to a very high standard in a fiduciary role in relation to the beneficiaries or remaindermen of the trust.

2. Trust’s Terms  - be sure to read the trust terms carefully and abide by the trust’s directions

3. Investment Standards – you must make prudent investments that consider the interest of current and future beneficiaries alike.

4. Distributions – sometimes you will have discretion in what distributions you make. You should consider the beneficiary’s other sources of income along with his/her needs. You also need to be able to say no if a distribution is not for the well being of the beneficiary or consistent with the trust terms.

5. Accounting – you need to keep track of all income to, distributions from, and expenditures from the trust. You will need to give an accounting to the beneficiaries annually.

6. Taxes – be sure to keep good records for when you need to file an annual tax return and pay taxes for the trust.

7. Delegation – You cannot delegate your responsibilities, but you can delegate some of your functions as trustee. Be sure to delegate these functions prudently.

8. Fees – As trustee, you are generally entitled to a reasonable fee for your services. In general, what is reasonable will depend on the resources of the trust, the experience of the trustee, how much work the trustee is doing, among other factors.

 See A Brief Overview of a Trustee's Duties, Elderlawanswers, Dec. 2011.

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

December 29, 2011 in Trusts | Permalink | Comments (0) | TrackBack (0)

Young Parents Should Create Estate Plans Now, Not Later

Parents of young children should make an estate plan now to ensure that their children will be cared for in the event an unexpected tragedy hits. However, many parents of young children are so busy caring for their children and thinking about everyday occurances(school, soccer games, PTA, ect.) that sitting down to create an estate plan gets put on the wayside. Additionally, many parents find the financial cost of creating an estate plan to be too large of an investment at the present time, especially when compared to mortgage payments and other more common costs.

A proper estate plan, however, can be incredibly beneficial in providing for children and ensuring they are cared for in the future. An estate plan can help send a child to college, maintain support for a child with special needs, and provide food, clothing and shelter for children in the event of the parents’ deaths. Parents should consult an attorney as opposed to filling out the simple will forms online because these simple forms are not adequately designed to take into account young children. Parents should keep and maintain a list of property (including non-probate assets) to help the attorney determine the proper proper estate plan to create. It is also important that parents continue to review and change their estate plan over the years, especially when life changing events take place.

See Gerry Kane, Got Kids? Get an Estate Plan, Gerry Kane’s Estate Planning Law Blog, Oct. 1, 2011.

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

December 29, 2011 in Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Trust Asset Protection Provision Holds Up in Court

TrustThe debtor’s mother created a revocable living trust, naming her son (the debtor’s brother) as the sole trustee. The trust, created in 2000, contained a provision giving the beneficiary the right to direct the trustee in writing to retain authorized or required distributions. In 2002, the mother revised the trust to include a creditor protection provision for the beneficiary.

In 2009, the mother passed away. The debtor received $20,000 “free of trust” on January 1, 2010 and voluntarily filed for Chapter 7 bankruptcy in October of the same year. The Bankruptcy Trustee demanded that the debtor turn over the $20,000 the debtor was to receive from the trust on January 1, 2011. The debtor informed the Bankruptcy Trustee would the brother/trustee be exercising his discretion to not make a distribution, and the Bankruptcy Trustee sued both the debtor and the brother/trustee. The debtor and her brother/trustee moved for summary judgment.

The court in In re McCoy, 2011 WL 6748388 (Bkrtcy.W.D.Wis., Slip Copy, Dec. 21, 2011) stated that:

[G]enerally only payments that have been distributed become subject to the claims of creditors, rather than all subsequent payments of principal that may be distributed. Therefore, even if the debtor received one principal payment, as long as any subsequent payment she is entitled to receive remains in trust, it is still protected. Only payments that the trustee declares he will make or that the debtor actually receives will lose the spendthrift protection.

The court held that the brother/trustee properly withheld future payments, thus protecting the payments from the Bankruptcy Trustee’s attempt to enforce a turnover.

See Jay Adkins, The Real McCoy: Living Trust Provides Spendthrift Protection to Assets of Beneficiary in Bankruptcy, Forbes, Dec. 28, 2011.

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

December 29, 2011 in New Cases, Trusts | Permalink | Comments (0) | TrackBack (0)

Using Tax Provisions to Make Larger Charitable Donations

TaxesMany tax code provisions can help taxpayers afford to give more during their charitable givings. Taxpayers who give appreciated assets to a qualifying charity, as opposed to giving cash, can increase their tax savings by avoiding capital gains tax. Taxpayers considering making a large charitable donation of appreciated property should seek out legal advice as the rules can be quite complicated.

A donor advised fund is another way taxpayers can make larger charitable contributions. Typically, taxpayers preparing to retire will set up a donor advised fund though a community foundation or financial institution using a large lump sum. The gift is spread out over several years, but the donor can put the money in and receive the tax deduction in one year. 

A few additional tax tips for taxpayers considering making a charitable donation are below:

  • Ensure the charitable organization is qualified (I.R.S. Publication 78).
  • Keep written records of charitable contributions from recipients of gifts of $250 or more.
  • The income rates recommended by the American Council on Gift Annuities are generally slightly lower than before for taxpayers who are sixty-nine and younger. The rates are slightly higher for taxpayers who are seventy-five and older.
  • Taxpayers who hold empty stock that includes net unrealized appreciation may benefit from making a direct gift to a charity because a charitable deduction is available for the full market value of the stock even though only the basis of the stock must be picked up as income.   

SeeJan M. Rosen, Tax Rules Allow an Array of Givers to Be More Generous, The New York Times, Nov. 1, 2011.

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

December 29, 2011 in Estate Planning - Generally, Gift Tax, Income Tax | Permalink | Comments (0) | TrackBack (0)

Civil Law Countries and Their Adoption of the Common Law Trust

Goodwin Iris Goodwin (Professor of Law, University of Tennessee College of Law) recently published her article entitled, Why Civil Law Countries Might Forego the Individual Trustee: Provocative Insights from the New-to-the-Fold, The Worlds of the Trust, L. Smith, (Cambridge University Press 2011). The abstract available on SSRN is below:

At the center of this article lies a decision in several civil law countries that have adopted the common law trust to restrict the office of trustee to banks and similar financial service institutions. Having had an opportunity to consider the trust anew, these countries represent a challenge to the common law where the individual – indeed the untutored individual – can still qualify as trustee (and serve in this capacity alone). This permissive common law regime obtains notwithstanding the size of the trust endowment or the number of beneficiaries whose interests might be at stake. Indeed, in some common law countries individuals can qualify as trustee not only of a personal trust (for transmission of family wealth), but also of a pension trust holding assets under a retirement plan sponsored by a large employer, or even of an indenture for holders of significant corporate debt. While it may be a rare individual who would be nominated to serve in these latter situations, nothing in the law directly precludes an individual from qualifying as sole trustee of even these trusts.

December 29, 2011 in Articles, Trusts | Permalink | Comments (0) | TrackBack (0)