Wills, Trusts & Estates Prof Blog

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

Friday, May 30, 2014

Roth in-Plan Conversions Not as Popular as Expected

Pro-ConThe American Taxpayer Relief Act of 2012 made available Roth in-plan conversions but they are not as popular as they were expected to be. Only 8% of plans in 2013 offered Roth in-plan conversions, and only .3% of plan participants opted to convert assets under a Roth in-plan conversion.

See Lisa Barron, No Rush to in-Plan Roth Conversions, Benefits Pro, May 28, 2014.

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

May 30, 2014 in Income Tax, New Legislation | Permalink | Comments (0) | TrackBack (0)

History Making Divorce Award Hits Complications

Dmitry RybolovlevAs I have previously discussed, the divorce of Russian billionaire Dmitry Rybolovlev and Elena Rybolovlev resulted in the highest award in a divorce proceeding in history. However, Elena has hit some snares in collecting her $4.8 billion divorce award. Much of Dmitry’s fortune is tied up in LLCs and trusts after selling his fertilizer business. It will be difficult for Elena to collect as she has to find the LLCs and trusts where the money went, which reportedly do not all have Dmitry’s name attached.

See Luisa Kroll, Trusts Make it Difficult for Billionaire’s Ex-Wife to Collect Record $4.8 Billion, Forbes, May 28, 2014.

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

May 30, 2014 in Current Events, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Thursday, May 29, 2014

Getting the Most Out of Social Security

Social security

Many Americans retire at the wrong time and end up leaving thousands of dollars in lifetime benefits behind.  This adds up to around $25 billion each year that could be collected by retirees.  Even those that retire at age 62, the earliest age to take Social Security, leave money on the table because their lifetime benefits are reduced. 

A recent study by the Government Accountability Office showed why too many Americans take Social Security early and the consequences of doing so:

  • Those retiring at the earliest age often need Social Security to supplement their income. Individuals who wait are less reliant on the program.  One way to maximize Social Security is to save more and fully fund your 401(k) and other retirement plan.
  • Retiring early gives you greater health security, especially with the Affordable Care Act (ACA). Online health exchanges sell policies and will issue to anyone, regardless of any pre-existing conditions.  Having an ACA policy could give you flexibility in finding a policy, which may buy you time so you can wait to collect Social Security.
  • Waiting nets you a bonus in higher Social Security benefits. “Despite higher monthly benefits for those who delay, many people still claim Social Security retirement benefits at age 62, the earliest age of eligibility.  In 2014, these early claimers will see their monthly benefits reduced by 25 percent compared to what they would have received if they had delayed claiming until age 66, the current full retirement age.”

See John Wasik, How To Get Social Security’s Biggest Bonuses, Forbes, May 28, 2014. 

May 29, 2014 in Disability Planning - Health Care, Disability Planning - Property Management, Elder Law, Estate Planning - Generally, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Trouble in Paradise: Celebrity Estate Issues


While Michael Jackson’s executors claim his estate is worth only $7 million, the IRS disagrees, estimating that his estate is worth $1.1 billion.  This disparity may have arisen because Jackson’s estate owns part of a trust, and the estate claims the singer’s interest in the trust had no value.  However, the IRS argues it is worth $469 million. 

The dispute between Jackson’s estate and the IRS serves as a lesson for financial advisors who handle high-profile clients with unusual assets.  Here are three tips to keep in mind:

  1. Early Appraisals. When gifting assets to relatives, it is important to have a good appraisal and attach it to the gift tax return.  “What that does is start the statute of limitations.  If the government questions the validity of the gift, it has to be done within three years.”  One strategy to remove assets from an estate is for clients to transfer them to a limited liability corporation and gift pieces of the LLC to relatives, “What the LLC does is create a layer of discount.”  Clients can also set up an intentionally defective grantor trust (dynasty trust), so the assets are removed from the client’s taxable estate, resulting in zero taxation. 
  2. Name as an Asset. One issue for celebrities is the right of publicity, which protects their name, voice, signature, and image, and laws can vary by state.  Understanding right of publicity laws can help the lawyer advocate for his client.  Furthermore, it is crucial to arrange a proper wealth transfer, which could include establishing trusts for family members to purchase assets from the estate in return for a promissory note.  The note can be repaid to the estate and the excess value that accrues from the asset can go estate tax free to the trust. 
  3. Backup Beneficiaries. Advisors must ensure there are multiple beneficiaries for the estate.  Failure to update a will can prove to be costly.  For example, Philip Seymour Hoffman passed in February, and last updated his will in 2004 when his first child was born.  He then had two more children, who may receive little or no inheritance.

See Joseph Perone, Celebrity Estate Pitfalls, Private Wealth, May 9, 2014. 

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

May 29, 2014 in Current Affairs, Estate Planning - Generally, Estate Tax, Trusts, Wills | Permalink | Comments (0) | TrackBack (0)

Financial Benefits of "I Do"


Although a couple may pay more taxes together than if they were single, there are countless financial benefits to marriage.  For example, it is still cheaper for two people to live together than live apart.  Getting married allows you to pool risk; one instance being if you lose your job but your spouse still works, it is easier to cope financially than if you were single.  Marriage can also ease the sting of state and federal estate taxes. 

There are also two other financial benefits to getting married including social security and individual retirement accounts.

  • Social Security. If one spouse has significantly lower lifetime earnings than the other spouse, claiming Social Security benefits can create confusion.  “One of the best strategies is to apply and suspend…At his or her full Social Security retirement age, the higher-earning spouse applies for benefits and immediately suspends.  That allows the lower-earning spouse to claim spousal benefits.  The higher-earning spouse then delays benefits to age 70.”
  • Individual Retirement Accounts.  If you inherit an IRA, the best strategy is to make use of the “stretch IRA.”  This involves withdrawing only the minimum sum required by the IRS each year, so you get maximum benefits from the traditional IRA’s tax-deferred growth and from the Roth’s tax-free growth.  Here, spouses have the advantage.  If you leave your IRA to someone other than your spouse, the beneficiary must draw down the account beginning the year after your death, and the minimum withdrawal is based on the IRS’s single-life expectancy table.  However, if your husband inherits your IRA, he can treat the IRA as his own.  Thus, required minimum distributions can be delayed until age 70 ½ and then the account is drawn down using the uniform-lifetime table, which involves smaller distributions.  Moreover, for Roth IRAs, your spouse would not have to take any distributions during their lifetime.

See Jonathan Clements, Why Getting Married Can Be A Financial Windfall, The Wall Street Journal, May 27, 2014. 

May 29, 2014 in Estate Planning - Generally, Estate Tax, Income Tax, Non-Probate Assets | Permalink | Comments (0) | TrackBack (0)

Article on Diversity Jurisdiction and Trusts

TrustJonathan J. Ossip (New York University School of Law) recently published an article entitled, Diversity Jurisdiction and Trusts, New York University L. Rev., Vol. 89, No. 6 (Dec. 2014 Forthcoming).  Provided below is the abstract from SSRN:

The federal courts are currently divided on how to determine the diversity citizenship of trusts. Several circuits hold that trusts take the citizenship of their trustees. Another takes the citizenship of the trust’s beneficiaries, and yet another uses both the trustees and the beneficiaries. But beyond this circuit split, a more significant problem plagues the law in this area: The courts of appeals have failed to recognize the distinction between traditional and business trusts. The former — what is most commonly thought of as a trust — is a gift and estate planning tool. The latter is an alternative to incorporation, and is designed to run a business and generate profit for investors.

In this Note, I examine the differences between traditional and business trusts in the context of federal diversity jurisdiction. After discussing the history of diversity jurisdiction and the nature of these two forms, I explore the current circuit split over the citizenship rules for trusts. I then propose a new rule that fits within the current Supreme Court case law in the field: Traditional trusts take the citizenship of their trustees, while business trusts take the citizenship of their members — the beneficiaries. Having proposed a rule that depends upon the type of trust at issue, I conclude by explaining that a trust can be classified by determining the primary purpose for which it was organized.

May 29, 2014 in Articles, Estate Planning - Generally, Trusts | Permalink | Comments (0) | TrackBack (0)

North Carolina May Disagree with South Carolina on LegalZoom

GavelAs I have previously discussed, LegalZoom recently experienced a legal win in South Carolina when the state’s supreme court found that the company was not engaged in the unauthorized practice of law. However, North Carolina may not see it that way.  

In LegalZoom v. North Carolina State Bar, Judge James L. Gale denied LegalZoom’s Motion for Partial Judgment on the Pleadings and dismissed the company's claims against The North Carolina State Bar, including equal protection and commercial disparagement claims. The case will go forward and the judge expressed that he had multiple questions to be answered before the case is decided on the merits.  

See Associate Editor, North Carolina Questions Ethics of LegalZoom, Wealth Strategies Journal, May 28, 2014.

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

May 29, 2014 in New Cases, Professional Responsibility | Permalink | Comments (0) | TrackBack (0)

Family of Wal-Mart Founder Suing Widow of Photographer

PhotographerThe family of Sam Walton, Wal-Mart founder, is suing the widow of photographer Robert Huff. Huff allegedly had family photos of the Walton’s that he was hired to take and was holding for the family. The photos date back decades and now the Walton family is asking for the negatives, proofs, and prints from Huff’s widow, claiming that they have the rights to them.

See Debra Cassens Weiss, Walmart Museum Sues Photographer’s Widow for Walton Family Pictures and Negatives, ABA Journal, May 26, 2014.

May 29, 2014 in Estate Planning - Generally, New Cases | Permalink | Comments (0) | TrackBack (0)

Wisconsin Same-Sex Marriage Case Stopped Short of State Supreme Court

RingsKatherine and Linda Halopka-Ivery will not have their case challenging Wisconsin’s gay marriage ban heard in the state’s supreme court. The couple legally married in California at the end of last year, but Wisconsin does not recognize their marriage. The Wisconsin Supreme Court denied hearing their case, but they say they will continue their legal battle to have their marriage recognized and are exploring other options.

See Sandra Torres, Wisconsin Supreme Court Denies Case That Challenges Gay Marriage Ban, May 27, 2014.

May 29, 2014 in Current Affairs, Estate Planning - Generally | Permalink | Comments (0) | TrackBack (0)

Houston Estate Considers Another Lawsuit

Whitney HoustonAs I have previously discussed, the estate of Whitney Houston recently sued CPMG Mendham LLC, who bought Houston’s home. Now, the Houston Estate may be filing another lawsuit, this time against the TV network Lifetime. Houston’s family is outraged that Lifetime is planning to produce a TV movie about the life of the late great Whitney Houston. They have big screen dreams for the telling of Houston’s life story and may attempt to block the TV movie with litigation.

See Whitney Houston Lifetime Movie, TMZ, May 26, 2014.

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

May 29, 2014 in Current Affairs, Estate Administration, Film | Permalink | Comments (0) | TrackBack (0)