Crucial Beneficiary Designations

Posted on October 28, 2011 by Roger Billings

 

Beneficiary designations are an increasingly important element of estate planning. They can help to avoid probate, but they can also stir up disputes if not part of a coordinated estate plan. It is not enough to specify heirs in a will or trust. Beneficiary designations in life insurance policies, 401ks, IRAs, and buy-sell agreements frequently trump anything stated in a will.

The following beneficiary designation reminder was published in the Digital Journal:

Most people think of wills and trusts when they hear the words estate planning. However, an essential — and often overlooked — aspect of estate planning is making beneficiary designations and keeping them up to date after life changes. As more and more people put significant amounts of money into retirement accounts such as 401(k)s and individual retirement accounts (IRAs), making sure that the assets in those accounts are distributed to the right people is even more important.

According to the Wall Street Journal, 401(k)s and IRAs account for about 60 percent of the assets of U.S. households investing at least $100,000. Both state and federal laws affect to whom these assets may go, and the results can be complicated, especially when the owner of the account has been divorced and remarried. Therefore, the assistance of an experienced estate planning attorney is invaluable to help people make the correct beneficiary designations.

The rest of the article is available from Digital Journal.

The key word is harmonize beneficiary designations with the rest of the estate plan.

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Dead Celebrities Can’t Take It With Them But Still Making Plenty

Posted on October 27, 2011 by Roger Billings

 

More evidence that estate executors can be effective business managers. Forbes provides a list of the 15 highest earning dead celebrities. Here’s an excerpt from the report.

It’s been two years since Michael Jackson passed away at the age of 50 but the King of Pop’s earning power shows no sign of waning. For the second year in a row, Jackson tops our annual list of the Top-Earning Dead Celebrities. Over the past 12 months Jackson’s estate brought in $170 million from sales of his music and his stake in the Sony/ATV catalog. That’s a big drop from the $275 million Jackson earned in the previous 12 months but it’s still enough to make him the second highest-earning pop act over the past year, dead or alive, after U2.

The 15 people on our list earned a combined $366 million between October 2010 and October 2011, which just goes to show that death is not the end when it comes to celebrities.

Songwriters who own their own work usually fare best on our list because their catalogs can keep selling well long after they’ve passed away. But now there’s a new way for dead pop stars to earn big: Cirque Du Soleil.
. . . .
The Cirque show Viva Elvis helped Elvis Presley rank second on our list with $55 million. Of course Presley’s iconic songs, like “Hound Dog” and “Heartbreak Hotel,” still sell well and fans flock to Graceland. But a long-running Vegas show where tickets sell for as much as $175 a pop definitely gooses earnings. John Lennon, who ties for fifth on our list with $12 million, and George Harrison, tied for 13th with $6 million, both also benefited from Cirque. The show Love, based on Beatles music, has been running at The Mirage in Las Vegas since 2006.

Read the rest of the article and get the full list of 15 at Forbes.

Elvis knew the score

Thanks to the Wills, Trusts & Estates Prof Blog for bringing this article to our attention.

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Why Do Parents Fail To Choose Guardians?

Posted on October 26, 2011 by Roger Billings

 

Why is choosing a guardian for minor children one of the more neglected responsibilities of parents?

 Superman and friends playing with bubbles at Cherry Tree Festive picnic, University of Washington campus, Seattle, Washington, USA
Jacoba Urist for the Huffington Post looks for answers:

So, for the past year, I’ve been interviewing families, trying to figure out why people don’t pick a guardian for their child and cross it off their parenting list?

As it happens, parents would rather talk about pretty much any other part of their personal life than answer this question. But when they finally do start talking, almost everyone has the same misconceptions about the process. In fact, most folks are letting four major myths hold them back from getting the job done and protecting their kid in case the worst happens.

. . . .

Myth #2: Someone will step up anyway

If I had a dollar for every time I hear: my child has so many devoted people in her life, if something ever happened to us, our friends and relatives would be fighting to take care of her.

The Danger: Without a will, a judge makes the final decision, not you. And while your in-laws and neighbors are all vying for custody, your child could be caught in the middle — meeting with lawyers and social workers until the whole mess is sorted out. Some children even land in foster care while their case grinds its way through the legal system.

Time for a dose of tough love: the “so many people” excuse is a cop out. No one wants to think about leaving a child behind, but if you’re a parent, you’ve got to get your act together, and choose somebody.

Myth #3: You’ve left a letter or an email

A good number of parents say they’ve stashed a letter somewhere, or have this email on their laptop outlining their last wishes, so that’s where their child would go, right? Not necessarily.

The Danger: No matter how eloquently you’ve voiced your preferences, your letter or email is not legally binding. A judge could take it under advisement, but he could also come to his own “better” assessment. And why risk it? If you’ve taken the time to consider the right person, why not just make it official and seal the deal?

It is hard to excuse an ineffective nomination in California because the process of nominating a Guardian is simple. A written declaration under penalty of perjury naming the desired guardian is sufficient.

Read the rest of this article at the Huffington Post.

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Steve Jobs Died Without Owing Estate Tax: A New Urban Legend?

Posted on October 19, 2011 by Roger Billings

 

After the death of Steve Jobs last week, opinions started circulating that he was so smart that he even knew how to avoid paying estate taxes better than anyone else.

Entrepreneur of the Year

Jobs was smart and he seems to have done his estate planning brilliantly, but even he wasn’t that good. He certainly did not transfer billions of dollars in wealth to his family tax free.

So what is going on here? Why are these false statements circulating?

First, of course, they fit the Jobs myth of unimaginable genius. If anyone can beat the IRS, he can.

Second, the thinking goes that Jobs knew he was going to die for years and so he had time to work his magic.

Third, while the specifics of his estate plan are private, it is known that he set up trusts into which he transferred his real estate and his Apple and Disney stock.

And finally, it is widely known that he only took $1 a year in salary at Apple the last dozen or so years he worked there.

Ah ha! you say. He didn’t take a salary and he transferred all of his assets to trusts, so he died with no assets in his name. Voila, no estate tax.

Well, Congress plugged that loophole a long time ago. It is called the Gift Tax. You can’t avoid estate tax by giving your assets to your heirs before you die.

Now, Jobs might have left all of his assets to his wife, in which case no taxes are due until his wife dies. But it does not take a genius to do that. Leaving everything to the spouse is the most common estate plan there is, and it merely defers the tax bill until his wife passes away.

Jobs also might have given a portion of his estate to charity, which would reduce his tax bill, but also reduces the amount his family inherits.

The most important point here is that we don’t know what he did, and we are likely not to find out what he did, because he set up trusts and transferred assets to those trusts while he was still living. That keeps his finances private, which is something many other celebrities have been unable to do.

Jobs probably did not invent some new way to avoid estate tax, but he got the important, simple things right.

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Can I Avoid Probate of My House by Holding It in Joint Tenancy?

Posted on October 12, 2011 by Roger Billings

 

Joint tenancy might be a convenient estate planning shortcut, but it also brings some undesirable risks.

Joint tenancy is a form of ownership of property where two or more people hold title to the property with right of survivorship, meaning than when one of the joint tenants dies, the other joint tenant automatically owns the entire property. California married couples without a trust usually find that they own their home as joint tenants. But joint tenancy can exist between any two owners of real property, whether they be parent and child, or not related at all. A joint tenancy to real property is created when the words “joint tenants” are added to the deed, or “joint tenants with right of survivorship.”

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Joint tenancy provides built-in estate planning, in that the surviving joint-tenant takes the entire property without going through probate.  So, yes, you can avoid probate by owning your home in joint tenancy.

But joint tenancy has significant problems:

1. Joint tenants are exposed to each other’s creditors.  If a parent holds title in joint tenancy with an adult child, that child’s creditors can levy against the property even before the parent dies.  For example, if your child gets a divorce, the Court may be able to force a sale of “your” house in order to satisfy a judgment in favor of your child’s ex-spouse, truly a nightmare scanario.

2. Even if the joint tenants are a married couple, the surviving spouse misses out on a future reduction in capital gains taxes because at the death of the first spouse there is a step-up in basis on only half of the property.  To avoid this, property jointly owned by married couples in California should normally be titled as “community property with right of survivorship.” Or the property should be held in a trust, with a separate declaration in your records that it is community property.

The alternative to joint tenancy is either to leave a will designating who is to receive the property, or to set up a living trust. A previous post addressed the benefits of a living trust.

Let us know if you have any more questions about joint tenancy.

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Business Succession Lesson from the Oakland Raiders

Posted on October 11, 2011 by Roger Billings

 

The death of renegade owner Al Davis leaves the Raider Nation looking for future direction. A big question is how to pay estate taxes.

Family owned businesses can learn from the Raiders’ challenges, even though most are not large enough to incur estate tax liability. Under the current federal regime, no liability exists for estates less than $5 million. Despite these differences, the Davis estate underscores the importance of planning as a way of preserving business continuity. A well-considered business succession plan is essential to keeping the team in the family.

Raider Nation

Business Insider discusses NFL ownership rules and then provides the following explanation of the impact of estate taxes on the Raiders:

Davis unfortunately died a year too late. In 2010 there was no federal estate tax. There is in 2011. The base rate is 35% on estates over $5 million. While we don’t know the exact size of Davis’ estate, if we assume he took advantage of the NFL rule described above, and we estimate the value of the Raiders franchise at $750 million, then a rough estate tax calculation would be around $50 million.

That’s still a significant amount of money and it’s not clear if Davis’ family will be able to pay the estate tax bill without selling part or all of their ownership in the Raiders. When St. Louis Rams owner Georgia Frontiere died a few years ago, her children opted to sell their controlling interest to a minority partner, in large part to pay their mother’s estate taxes. Selling an NFL franchise isn’t a simple process, however. By NFL rules, the league can’t prevent family members from inheriting a team, but the other clubs must approve a sale to any outside party. That requires a detailed review by the NFL’s finance committee and final approval from at least three-fourths of the other owners.

The entire article is available from Business Insider.com.

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What Is So Bad About Probate and Why Should It Be Avoided? – Estate Planning Basics

Posted on October 5, 2011 by Roger Billings

 

Again it is time to get back to basics.

Avoiding probate is a primary reason to set up a living trust instead of a will . There are several reasons to avoid probate, and in California particularly the reasons are worth paying attention to.

First, what is probate? The word comes from the Latin for proof, and the process starts with proving to the court the validity of the will. Thus the court is involved from the first step, and on to the last step of distributing money to the heirs. Approval of the court must be obtained all along the way.

Auburn, CA Courthouse

The following reasons for avoiding probate are thus the same reasons for staying out of court in other legal matters.

1.  Probate is expensive.  In California, attorneys’ and executors’ fees and court filing fees are all based on the total value of the probate estate.  For a $300,000 California probate estate, just attorneys’ fees would be $9,000.  For a $1,000,000 estate, attorneys’ fees would be $23,000. Court, referee and other fees are added on top.  More detail on probate attorney fees is available here.

2.  Probate is slow.  Having to go to court can result in lengthy delays in distribution of the estate to the beneficiaries.  A four month waiting period must be given to creditors, so that even in the smoothest and quickest of probates, the process takes a minimum of seven to nine months. If there are any bumps in the road, the time can be greatly increased. I recently heard of a small probate that was filed in 1998 and is still tied up in court 13 years later!

3.  Probate is not private.  Documents, including financial records, filed in probate court, become public records, and are available to tele-marketers and the general public. The desire to secure privacy is sometimes by itself reason enough to stay away from the probate courts.

These reasons to avoid probate do not always apply. It may be desirable because of unique family circumstances to have court supervision from the outset. In that case, the last will and testament can be used in place of a living trust as the primary estate planning document.

Be informed. Knowing the basics of estate planning is essential to creating a plan that actually carries out your wishes. It’s your life and your legacy. It should be your plan.

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