While this plays out in New York City like a popular soap opera, I cannot help but follow the going-ons of this society matron's family. Probably a guilty pleasure but fascinating to follow.
As you may know, Brooke Astor was THE person on every social calendar in New York City. She was generous with her wealth favoring the library, blindness and "disturbed children." Her motto was alleged to be “Money is like manure; it’s not worth a thing unless it’s spread around.”
While New York society doesn't really interest me, towards the end of her long life, (she lived to 107), her family's dealings with her read like an exam question in an Estates and Trusts law class.
Currently, Ms. Astor's son, Alexander Marshall, is on trial, criminally charged with conspiracy, scheming to defraud and grand larceny. Basically, he is accused of taking his mom's money. I have no idea how the court will find, but the criminal charge is not where this case started.
In 2006, one of Ms. Astor's grandsons, Philip, who is the son of Mr. Marshall, paid a visit to his grandmother. More about how this visit was arranged in a moment. While he was there, he found her apartment to be very dirty and in a condition atypical for her. From this visit he filed a petition for guardianship of Mrs. Astor stating that his father allowed her to live in squalor. Apparently he felt that a woman of this wealth was living way below her means and this grandson sought a change of guardianship in order to provide better for her. Mr. Marshall had another son, Alexander, and while he didn't join in the guardianship proceedings, was noticeably quiet about his father's defense. Family visits were discussed at this later criminal trial. It seems that when these family members visited each other, whether grandmother or father, an appointment had to be made, calendared, and likely only to occur a couple of times a year. Just dropping in was either not allowed or not expected.
This leads me to the criminal trial. Ms. Astor died in August of 2007. The following November, largely started as a result of the prior guardianship proceedings, prosecutors found enough evidence to indict Mr. Marshall for the charges mentioned above. At the criminal trial, which is currently under way, both sons were called to testify against their father.
What started out as philanthropy and a busy social calendar, ended with an elderly woman, living in what appears to have been squalor, possibly taken advantaged of by her own son, with father and son having to face each other in trial on opposite sides of the courtroom. My earlier blog about avoiding financial elder abuse would be my recommendation here if I were an attorney involved in a similar case. Unfortunately, the sadness of these stories are all too real in my practice. Perhaps not as wealthy or well known clients, but still just as heart and family tearing as the events surrounding the Astors.
Thursday, May 21, 2009
Wednesday, May 20, 2009
Article: "Rethink Your Legacy"
Time to Rethink Your Legacy
An article in the June 2009 issue of Money magazine entitled, "Rethink Your Legacy," which I am sure will be widely read, points out the need to review estates given the fact that with the current economic downturn, most people have a smaller net worth. The article asks five issues that the typical family might face.
First, give it now or later? With the greater annual gift tax exclusion now at $13,000 per person and the reduced value of assets, those individuals who can afford it can now give away more to their family members without incurring any gift tax.
Second, equal or "fair"? Except in unusual circumstances, such as a special needs child or a business interest, it is best to divide assets equally among their children. Even though one child may be in a better financial position than another at the current time, conditions can change.
Third, a simple or complicated estate plan? Most individuals can get by with a simple estate plan, but if they need to consider taxes, are in a second marriage, or require certain provisions for their children, different types of estate plans can be of significant benefit. One issue that was not mentioned in the article, however, was the benefit of bequeathing a child’s inheritance through a spendthrift trust to protect them from spouses in the event of a divorce or creditors’ claims. Given the current and even future financial environment, this type of trust makes sense for many.
Fourth, thinking of giving to charity? Remember that each person, or if you are an advisor your clients, need to be careful when they use retirement plan money for charitable bequests so that they do not create income tax problems for your heirs.
Fifth, when to revisit your plan? Obviously, individuals cannot put their estate plans on the shelf and forget them. If the past year has taught us anything it is that economic conditions can change drastically in a short time. Even the best of plans can rapidly become obsolete. The article recommends that individuals contact their attorney every three years or so to review their estate to see if it needs updating.
I suggest that you, or your clients, peruse this article to determine if their estates need updating. We would be happy to review the estates of those individuals whose circumstances have changed since the plan was prepared and update their documents to comply with current rules and regulations and financial circumstances.
An article in the June 2009 issue of Money magazine entitled, "Rethink Your Legacy," which I am sure will be widely read, points out the need to review estates given the fact that with the current economic downturn, most people have a smaller net worth. The article asks five issues that the typical family might face.
First, give it now or later? With the greater annual gift tax exclusion now at $13,000 per person and the reduced value of assets, those individuals who can afford it can now give away more to their family members without incurring any gift tax.
Second, equal or "fair"? Except in unusual circumstances, such as a special needs child or a business interest, it is best to divide assets equally among their children. Even though one child may be in a better financial position than another at the current time, conditions can change.
Third, a simple or complicated estate plan? Most individuals can get by with a simple estate plan, but if they need to consider taxes, are in a second marriage, or require certain provisions for their children, different types of estate plans can be of significant benefit. One issue that was not mentioned in the article, however, was the benefit of bequeathing a child’s inheritance through a spendthrift trust to protect them from spouses in the event of a divorce or creditors’ claims. Given the current and even future financial environment, this type of trust makes sense for many.
Fourth, thinking of giving to charity? Remember that each person, or if you are an advisor your clients, need to be careful when they use retirement plan money for charitable bequests so that they do not create income tax problems for your heirs.
Fifth, when to revisit your plan? Obviously, individuals cannot put their estate plans on the shelf and forget them. If the past year has taught us anything it is that economic conditions can change drastically in a short time. Even the best of plans can rapidly become obsolete. The article recommends that individuals contact their attorney every three years or so to review their estate to see if it needs updating.
I suggest that you, or your clients, peruse this article to determine if their estates need updating. We would be happy to review the estates of those individuals whose circumstances have changed since the plan was prepared and update their documents to comply with current rules and regulations and financial circumstances.
Monday, May 11, 2009
Munckin Guardians?
This is the article from the Associated Press yesterday:
ST. LOUIS — The heirs of late "Wizard of Oz" actor Mickey Carroll are suing his caretaker for control of his assets. Carroll was one of the last surviving Munchkins from the 1939 film. He had Alzheimer's disease and died last week in suburban St. Louis at the age of 89. Four months earlier, Carroll signed papers turning control of his assets over to Linda Dodge, who cared for him and his disabled nephew in her home. She still takes care of the nephew, who's in a wheelchair with cerebral palsy. Carroll's other relatives claim Dodge and others took advantage of the actor when he was in the throes of dementia. They estimate that he left an estate of more than $1 million. Dodge denies the claims, calling the disagreement a "family squabble."
I cannot comment on the allegations but I wonder what could have been done ahead of time. I will use this story as if the allegations actually happened.
As a backdrop to this event is the issue of estate family squabbles. Sure, some families get into litigation, most don't, especially when they hear the lawyer insist that the case have some merit and the amount of the attorney retainer. Nevertheless, these cases do happen with emotions akin to divorce-type cases.
Arizona has statutes and case law dealing with vulnerable adults that are taken advantage of. If proven, the estate may be able to recover the loss, if the funds are still around. Better yet is to try to prevent this from happening. If you read the above article, preventing this is easier said then done, but can be done. An issue is time.
If I had a long time to plan, and Mr. Carroll was still very able to create an estate plan, I would put all his assets in a trust and name a successor Trustee. Once Mr. Carroll became unable to manage his affairs, I would seek the statement from his doctor, (and a second opinion doctor to comply with many trusts), saying he was unable to manage his financial affairs. and by trust language, the second successor Trustee named will become the acting Trustee. He or she would then notify all the institutions that manage estate assets and record in the county recorder notice of the change in trustee. With this in place, and notice given on who can sign documents, any transfers by a caregiver or unscrupulous family member will be far more difficult.
If I didn't have very long to plan, and Mr. Carroll was incapacitated, I would do the following, which is more expensive and harder to do (which is typically the case for estates that lack planning).
If incapacity is at all questionable, I would seek an neuro-psych evaluation to declare him incapacitated. With incapacity being proven, I would see a conservatorship hearing to appoint another person in charge of Mr. Carroll's financial affairs, which basically renders him unable to transfer funds without the conservator's consent. With this court order, I would send it to the financial institutions and record in the county where real estate is located in order to put fair warning out there that any assignments of assets are at their own peril. Sure this is expensive and cumbersome, but your best option. Just sending a letter from a doctor and a power of attorney stating that the agent has authority to sign will not, in my opinion, be enough to restrict the transfer of an asset or be considered sufficient notice to third parties that accept transfer of an asset.
A good estate plan, in advance, would have been the best defense to the occurrence above. While he is able, Mr. Carroll is more than free to manage his own affairs, but when necessary, safeguards are in place to protect him for potentially overreaching family and caregivers.
ST. LOUIS — The heirs of late "Wizard of Oz" actor Mickey Carroll are suing his caretaker for control of his assets. Carroll was one of the last surviving Munchkins from the 1939 film. He had Alzheimer's disease and died last week in suburban St. Louis at the age of 89. Four months earlier, Carroll signed papers turning control of his assets over to Linda Dodge, who cared for him and his disabled nephew in her home. She still takes care of the nephew, who's in a wheelchair with cerebral palsy. Carroll's other relatives claim Dodge and others took advantage of the actor when he was in the throes of dementia. They estimate that he left an estate of more than $1 million. Dodge denies the claims, calling the disagreement a "family squabble."
I cannot comment on the allegations but I wonder what could have been done ahead of time. I will use this story as if the allegations actually happened.
As a backdrop to this event is the issue of estate family squabbles. Sure, some families get into litigation, most don't, especially when they hear the lawyer insist that the case have some merit and the amount of the attorney retainer. Nevertheless, these cases do happen with emotions akin to divorce-type cases.
Arizona has statutes and case law dealing with vulnerable adults that are taken advantage of. If proven, the estate may be able to recover the loss, if the funds are still around. Better yet is to try to prevent this from happening. If you read the above article, preventing this is easier said then done, but can be done. An issue is time.
If I had a long time to plan, and Mr. Carroll was still very able to create an estate plan, I would put all his assets in a trust and name a successor Trustee. Once Mr. Carroll became unable to manage his affairs, I would seek the statement from his doctor, (and a second opinion doctor to comply with many trusts), saying he was unable to manage his financial affairs. and by trust language, the second successor Trustee named will become the acting Trustee. He or she would then notify all the institutions that manage estate assets and record in the county recorder notice of the change in trustee. With this in place, and notice given on who can sign documents, any transfers by a caregiver or unscrupulous family member will be far more difficult.
If I didn't have very long to plan, and Mr. Carroll was incapacitated, I would do the following, which is more expensive and harder to do (which is typically the case for estates that lack planning).
If incapacity is at all questionable, I would seek an neuro-psych evaluation to declare him incapacitated. With incapacity being proven, I would see a conservatorship hearing to appoint another person in charge of Mr. Carroll's financial affairs, which basically renders him unable to transfer funds without the conservator's consent. With this court order, I would send it to the financial institutions and record in the county where real estate is located in order to put fair warning out there that any assignments of assets are at their own peril. Sure this is expensive and cumbersome, but your best option. Just sending a letter from a doctor and a power of attorney stating that the agent has authority to sign will not, in my opinion, be enough to restrict the transfer of an asset or be considered sufficient notice to third parties that accept transfer of an asset.
A good estate plan, in advance, would have been the best defense to the occurrence above. While he is able, Mr. Carroll is more than free to manage his own affairs, but when necessary, safeguards are in place to protect him for potentially overreaching family and caregivers.
Wednesday, May 6, 2009
Estate Planning Using Beneficiary Designations - Oh My!
Let me explain the problem with this Get Out of Probate for Free method of estate planning with an example story. This story is all based on real events that gave rise to the same problematic ending but uses various clients to create the entire story:
Ms. Sally Retired owns a house and three bank accounts. She has three children. She comes into our office and creates a will leaving everything equally to the three kids. The estate plan deals with all issues. Afterwards, because her banker tells her of a way for her bank accounts to avoid probate, she decides to save on probate costs and creates POD (pay-on-death) beneficiaries on each bank account, one child per account. In other words, each account transfers to one child, based upon the beneficiary designation on that account. She then dies from a serious illness.
Once the children get the death certificates, they collect on their account mom left to them. Unfortunately, the accounts are various values since she used one for some medical bills and another received additional funds that she received from an inheritance before she died. Needless the say, the children are not happy. They are further upset to learn that mom had refinanced the house because the mortgage broker told her about a great refinancing deal and she used the funds to pay off credit card bills. Like most Arizonans, her mortgage exceeds the equity on the house and is inverted. Come to find out that because she refinanced the house, it is not a purchase money mortgage so if the house is foreclosed, the lender can collect the deficiency amount owed. Furthermore, because mom only had Medicare, the large amounts still owing the medical providers are coming in and they want paid.
Outcome: The kids ask the lawyer if they can not file probate on the Will and just ignore the creditors. Our office tells them that they still need to file probate to resolve these creditors. Even if they don't file probate, creditors can petition the court 45 days after mom's death, get themselves appointed as executor (Persona Representative in Arizona), and sue each of the children to return what they received outside of probate, namely the bank accounts that named them directly as beneficiary, to pay off these debts. I think you know how this ends up. One child feels the others should pay more since they received more from mom's bank account. The others feel that this is a debt of the estate and each heir is equally obligated. Not being able to resolve this, and pretty much hating each other at this point, they get sued by the creditors, then they sue each other, and spend a lot of money in attorney fees to resolve what mom thought was a inexpensive means to avoid probate.
Comments: This story is too often the case. I have yet to see an estate distribute equally and without probate using this beneficiary designation method of estate planning. Too often probate ends up being required and in almost every case, at least one child is hurt and no one is speaking. How much easier if mom would have either just relied upon the Will to divide the assets AFTER the debts were paid or, to avoid probate, placed her house and bank accounts in a trust for a non-probate method to transfer the assets to her kids. So even though there may be a way to equally divide the assets between all the heirs, you still have the issue of debts. The only way to resolve the debts is by probate of a Will or under a trust administration, which tends to be the least expensive method of estate administration.
Ms. Sally Retired owns a house and three bank accounts. She has three children. She comes into our office and creates a will leaving everything equally to the three kids. The estate plan deals with all issues. Afterwards, because her banker tells her of a way for her bank accounts to avoid probate, she decides to save on probate costs and creates POD (pay-on-death) beneficiaries on each bank account, one child per account. In other words, each account transfers to one child, based upon the beneficiary designation on that account. She then dies from a serious illness.
Once the children get the death certificates, they collect on their account mom left to them. Unfortunately, the accounts are various values since she used one for some medical bills and another received additional funds that she received from an inheritance before she died. Needless the say, the children are not happy. They are further upset to learn that mom had refinanced the house because the mortgage broker told her about a great refinancing deal and she used the funds to pay off credit card bills. Like most Arizonans, her mortgage exceeds the equity on the house and is inverted. Come to find out that because she refinanced the house, it is not a purchase money mortgage so if the house is foreclosed, the lender can collect the deficiency amount owed. Furthermore, because mom only had Medicare, the large amounts still owing the medical providers are coming in and they want paid.
Outcome: The kids ask the lawyer if they can not file probate on the Will and just ignore the creditors. Our office tells them that they still need to file probate to resolve these creditors. Even if they don't file probate, creditors can petition the court 45 days after mom's death, get themselves appointed as executor (Persona Representative in Arizona), and sue each of the children to return what they received outside of probate, namely the bank accounts that named them directly as beneficiary, to pay off these debts. I think you know how this ends up. One child feels the others should pay more since they received more from mom's bank account. The others feel that this is a debt of the estate and each heir is equally obligated. Not being able to resolve this, and pretty much hating each other at this point, they get sued by the creditors, then they sue each other, and spend a lot of money in attorney fees to resolve what mom thought was a inexpensive means to avoid probate.
Comments: This story is too often the case. I have yet to see an estate distribute equally and without probate using this beneficiary designation method of estate planning. Too often probate ends up being required and in almost every case, at least one child is hurt and no one is speaking. How much easier if mom would have either just relied upon the Will to divide the assets AFTER the debts were paid or, to avoid probate, placed her house and bank accounts in a trust for a non-probate method to transfer the assets to her kids. So even though there may be a way to equally divide the assets between all the heirs, you still have the issue of debts. The only way to resolve the debts is by probate of a Will or under a trust administration, which tends to be the least expensive method of estate administration.
Friday, May 1, 2009
Where is the Estate Tax going?
I think I get asked this question more than any other. So, to be fair, I ought to give my opinion, or better said, an educated-guess, early in this blog. A year from now I will come back and revisit this topic and we'll see how close I came. Here goes:
It is my opinion, based upon the most recent events in the US Congress, that the Estate Tax will remain well past 2010. Sure, it may go away completely that year as currently on the books, but from 2011 forward, I believe there will be an estate tax. When it will officially change is any one's guess, and my opinion is certainly my best guess as well.
We will very likely see a 3.5 million unified credit per individual, with married couples being able to protect up to 7 million before an estate tax will apply. Of course the married couples will need certain provisions in their trust to take advantage of this double-the-savings advantage.
The tax rate will likely be the 45%. See example below to see how this works.
The step-up in basis will likely continue since the talk about removing the step-up in basis was more in line with what changes would be made to the income tax code if the estate tax was removed.
Let me give you an example. Robert E. Lee, who is widower, has an estate valued at $4,500,000. Royalties from all his Civil War books have paid well. He dies in the year 2011 and the estate tax code provisions that I suggested above is put into place. The first 3.5 million he leaves to his children passes without an estate tax. Of the remaining $1,000,000, Mr. Lee's estate will need to pay $450,000 in estate taxes to the IRS. (It is very unlikely the State of Arizona will see any of this unless the State of Arizona passes an estate or inheritance tax, something that I do not believe is even being discussed at this time). Therefore, the first 3.5 million will go to the kids tax-free and the remaining $550,000.00 after the payment of the estate tax will go to his children for a total of $4,050,000.00.
It is my opinion, based upon the most recent events in the US Congress, that the Estate Tax will remain well past 2010. Sure, it may go away completely that year as currently on the books, but from 2011 forward, I believe there will be an estate tax. When it will officially change is any one's guess, and my opinion is certainly my best guess as well.
We will very likely see a 3.5 million unified credit per individual, with married couples being able to protect up to 7 million before an estate tax will apply. Of course the married couples will need certain provisions in their trust to take advantage of this double-the-savings advantage.
The tax rate will likely be the 45%. See example below to see how this works.
The step-up in basis will likely continue since the talk about removing the step-up in basis was more in line with what changes would be made to the income tax code if the estate tax was removed.
Let me give you an example. Robert E. Lee, who is widower, has an estate valued at $4,500,000. Royalties from all his Civil War books have paid well. He dies in the year 2011 and the estate tax code provisions that I suggested above is put into place. The first 3.5 million he leaves to his children passes without an estate tax. Of the remaining $1,000,000, Mr. Lee's estate will need to pay $450,000 in estate taxes to the IRS. (It is very unlikely the State of Arizona will see any of this unless the State of Arizona passes an estate or inheritance tax, something that I do not believe is even being discussed at this time). Therefore, the first 3.5 million will go to the kids tax-free and the remaining $550,000.00 after the payment of the estate tax will go to his children for a total of $4,050,000.00.
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