Articles Posted in Trust administration

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shutterstock_226347421 (2)As an estate planner, I get calls often from disgruntled beneficiaries, concerned parents, frustrated Trustees, or distrustful siblings.  Death and money don’t always bring out the best in families. But despite countless books, movies and television shows, rushing to court isn’t always (maybe ever) the best idea for families facing conflict.

Litigation, after all, is designed to create “winners” and “losers,” but family disputes are seldom winner-take-all scenarios.  Worse, the very adversarial nature of litigation can fracture and disrupt family relationships to the point that after the dispute is over, those relationships may be lost, forever. And finally, litigation is both expensive (think six figures to go to trial) and public (think family secrets filed as public documents).

Mediation, a process in which the parties themselves can negotiate an agreement to a family dispute, is a real alternative to litigation for trust and estates conflicts, but not one that many people know about.  Yet. (I aim to change that.)

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nostalgia-499988_640Estate planning is often motivated by the big things. I’m not getting philosophical here. Forget about life and death. On a practical level, what brings families into my office are often the big financial assets–the house, the brokerage accounts, the retirement assets, and a concern that these assets be shared equitably by loved ones. And I, like most estate planners, do my best to write trusts and Wills that do just that.

But, often, it is the little things that can become contentious after a parent dies. From Dad’s stamp collection, to (I kid you not) a parent’s lawnmower, I’ve seen families fight over things that weren’t even on their loved one’s radar when the estate plan was written. Somehow these physical object (in legalese this stuff is known as ‘tangible personal property’) can become the locus of much hurt feeling and much passion, seemingly to become imbued with a deceased person’s essence, or to evoke their memories in a way that money cannot.

Often, fights over tangible personal items becomes especially fraught when there are multiple marriages, with a surviving spouse and children of prior marriages sparring over a loved one’s personal items. I’ve been thinking of this a lot lately because of Robin Williams.  Less than six months after his death, his third wife and his children from his first and second marriages are involved in litigation over alleged ambiguities in what seems, from a distance, to be a well-drafted and thoughtful estate plan. As reported in the New York Times, here’s some of what they are fighting about:

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questionmarkThe Wall Street Journal recently published an article entitled, “The Trouble with Trustees” that outlined the issues that can come up between a trust beneficiary and a Trustee. The article focused on several themes that we’ve seen over the years:

  1. Frustration–a beneficiary is frustrated that they don’t have direct access to trust assets, even though a trust was established precisely to prevent that beneficiary from having direct access to trust assets.
  2. Poor communication – a beneficiary is angry because they don’t feel that they understand how trust assets are being invested or distributed or because a Trustee is not willing to disclose information about the details of a transaction.
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black-29972_150The IRS has extended the deadline for filing an estate tax return for decedents dying in 2011, 2012, and 2013 to December 31, 2014. The purpose of the extension is to provide time for surviving spouses to elect portability on the return, which would allow them to use their deceased spouse’s unused exemption from the federal estate tax. Electing portability means, in effect, that a married couple can combine their available exemptions, potentially saving a family a significant amount of money when the second spouse dies.

For example, if a person died in 2011, and had an estate worth $2 million, and that $2 million was allocated to a Credit Trust (as many of our client’s estate plans would do), their surviving spouse could file an estate tax return, elect portability, and gain an additional $3 million in exemption to be used at the spouse’s death. (In 2011, the available exemption was $5 million, and the decedent used up $2 million by funding the Credit Trust.)

In the above example, an estate tax return would not need to be filed for any other reason (because $2 million wasn’t a taxable estate in 2011), and many families may have missed the opportunity to file a return within nine months of the death (which is the usual deadline) because the decedent didn’t have a taxable estate, so no return was required.  The IRS, however, has extended the deadline for such returns until the end of this year to allow surviving spouses to take another look at the benefits of requesting this additional exemption.

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shutterstock_156185702Who knew?! I honestly had no idea that there was such a thing as National Estate Planning Awareness Week, but, in fact there is, and it’s the third week in October, established by House Resolution 1499 in 2008.

When I worked in the US Senate, I was particularly thrilled by National Ice Cream Day (the third Sunday in July) and when I worked in the California State Legislature there was one day when bikers from all over California rode around the capital to protest helmet laws (I’m not sure if that was an official day or not). But this, while not nearly as thrilling as either of those days, is still a good excuse to remind folks about the importance of having a plan in place and keeping it current.

The American Bar Association cites statistics that estimate 55% of Americans don’t have an estate plan. I’ve seen other estimates that over 120 million Americans don’t have an estate plan in place. Either way, that’s a lot of people.

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united-states-151582_150California is a big state, and it’s easy to get near-sighted. Because California has no state-specific gift or estate taxes, it’s easy to focus almost exclusively on the federal estate and gift tax exemptions when planning for the taxes due after there’s been a death.

But nineteen states and the District of Columbia levy their own state estate taxes or inheritance taxes, with widely varying exemptions and tax rates, and these taxes can come due, even to California residents–either because they own property located in another state, or because they inherit assets from a resident of a state with an inheritance tax.

If you, for example, own property in a state with an estate tax, like Minnesota, you might find an estate tax bill due as a result.  Estate taxes fall on the estate of the person who died; Minnesota currently exempts property worth up to $1.2 million, then levies a maximum estate tax rate of 16%. So, if your luxury duck blind is valued at more than $1.2 million,  your estate may owe tax on the transfer of that blind at your death.

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shutterstock_128072579The New York Times published an interesting story this weekend on the expectations that parents and children have with respect to inheritances. The article summarized a study published in The Gerontologist last year, in which older adults and their children were polled on whether or not they expected to leave or inherit an inheritance.

It turns out that 86.2% of the parents expected to leave their children something, but only 44.6% of the kids were expecting to receive anything.  Interestingly, the adult children who were getting money from their parents during life had a higher expectation about getting more after their parents died than did children who were not receiving such support. Even more interesting, adult children who were providing support for their elderly parents were less likely to expect an inheritance, even though their parents were more likely to leave one. (The article doesn’t say what ‘support’ means here and whether it was financial or more in the realm of help with daily living.)

Psychologists opine that older adults feel morally obligated to provide for their adult children, partly out of concern for their children’s ability to maintain a similar standard of living, given the decline in earning power, and partly out of a sense that family matters most.

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paperwork-315083_150Recently, a client of mine described having to go through about 30 years of their father’s financial records after he had passed away. Needless to say, that’s not an easy task, especially when you’re not entirely sure what to look for, what to keep, and what to throw away. And, here’s the real point: most of us save more paper records than we need.  One really nice legacy NOT to leave behind are massive piles of redundant, out of date financial records.

Here’s a list of what to keep and how long to keep it.  Do your children a favor — throw away the rest.

Things you should keep forever–in a safe or in your safe deposit box:

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kiddie tax piggie bank.jpgIt’s that time of year! We are all thinking about taxes, but here’s a tax you may not have given much thought to: the Kiddie Tax. This is a tax that was imposed as a way to prevent high tax bracket parents from shifting income to their lower bracket children by placing investments in the child’s name, not the parent’s name (a practice that was once relatively common)–I know, I once came home from college, answered the phone, and my mother’s accountant actually said, by way of introduction, “you don’t know me, but I certainly know you!”

The kiddie tax currently falls on investment income (interest, dividends, capital gains and other unearned income, such as from a trust) earned by children that is over $2000 annually for children aged nineteen or younger (or 24 if the child is a full-time student). Once a child’s income reaches that threshold amount, it will be taxed at their parent’s highest tax rate. If your child is actually working and getting paid, that income will still be taxed at the child’s lower tax rate.

This is relevant to estate planning if you have established an annual gift trust for your children, since income from that trust falls within the definition of ‘unearned income.’ To minimze income taxes on such a trust, the Trustee could invest in assets that appreciate over time, but don’t generate much (if any) taxable income until they are sold (when your children will be older and taxed at their own tax rates).

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Thumbnail image for tax paper.jpgAs we head into tax season, now is an excellent time to take a moment to make sure that your assets are correctly titled to your family’s living trust (if you have one). Assets held by your trust should say something like “Joe Smith,Trustee of Smith Family Trust,” or “Joe and Jane Smith, TTE” on the top. If you see your name alone on the top of the statement, that account probably isn’t in the trust yet.

What accounts should be in your trust? You should have your house and your large bank and brokerage accounts in the trust. Most people leave their everyday bill paying account out of the trust because you can easily transfer small accounts (up to a total of $150,000 currently) into a trust after the death of the account holder. Cars are also generally not put into trusts, unless they are valuable collector’s items that will appreciate in value. Finally, your retirement accounts (IRA’s, 401-k’s, 403-b’s, and their Roth cousins) are not held by your trust. Instead, your retirement accounts will pass to those named as beneficiaries of such accounts.

To transfer an account into your trust, you will need to get a form from the financial institution holding that account. Sometimes this is called a Trust Transfer Form, sometimes it’s called a Trust Account Application, and sometimes it’s called a Change of Title form. Whatever it is called, its purpose is to tell the institution that you used to own the account as yourself, and now you want the trust to own it. If you can’t find the form online, call and tell the person who answers the phone that you want to transfer your account into a living trust.