CA Estate Planning

Gore-Tex Heiress Unable to Avoid Soaking!

F. Scott Fitzgerald observed that the rich are different, but that does not mean an heiress can adopt her 65-year-old ex-husband to increase her family's claim to a billion dollar inheritance.

You can pick your husband and, if you adopt, you can even pick your kids. However, according to at least one court, you can’t adopt your ex-husband to be your adopted child in order to cut your death tax exposure.

Just when you think you have seen it all in the exciting world of estate planning, along comes a gem. Enter a recent case concerning the Gore-Tex fortune.

As Reuters reported in an article titled “Court: Gore-Tex heiress can't adopt ex-husband,” the Gore-Tex fortune was set to pass through a family trust amongst the children and grandchildren of the aging founders. All of the first generation down – the children of the founders – had four children themselves, except for Susan Gore. Susan had three children with her husband Nathan Otto before they split in a divorce.

Once Susan did the math, she discovered her side of the family equation was getting stiffed an entire person’s share. Why? Because she was short an heir. Solution? Her ex-husband agreed to be adopted by Susan as her fourth child by way of a secret adoption.

When it came time to distribute the first trust to the beneficiaries, the trustee balked at the secret contrivance to seek out more shares. The court agreed.

While Susan should receive high marks for her creativity, it really was a bald-faced attempt to grab at the family fortune. Then again, it’s not uncommon for bickering heirs to do this sort of math and resort to just this type of contrivance.

As the old tax maxim goes, however, pigs live and hogs get slaughtered.

 

Reference: Reuters (May 23, 2012) “Court: Gore-Tex heiress can't adopt ex-husband”

 

 

Death &Taxes: Don't Forget the Decedent's Final Income Tax Return!

Death and taxes may be equally inevitable, but the taxman demands the last grim word. Death does not excuse a final accounting with the IRS.  Most people think about estate and gift taxes when it comes to the final IRS Tax Return; but, most people don't have to pay either.  What is frequently forgotten is filing the final income tax return for the decedent.  

I recommend reading a recent article in Kiplinger titled Death and Taxes. The burden of filing this final income tax return falls on the executor of the deceased's Will, or the Successor Trustee if the deceased had a trust; usually, they are one and the same person.  Do not neglect that duty if you occupy one of those roles.

Why? If you fail to file that last (postmortem) tax return, you will be on the hook for any sins of commission or omission. Even if an estate is not subject to extra taxation, this last rite to the IRS has to be observed.

Reference:http://www.kiplinger.com/features/archives/2007/01/deathinfamily.html 

 

Death & (Income) Taxes

Death and taxes may be equally inevitable, but the taxman demands the last word. Death does not excuse a final accounting with the IRS. In fact, taxes can further complicate the lives of survivors.

Of the two certainties in life – that is, of death and of taxes –the taxman always gets the grim last word. End-of-life taxes are, moreover, easily among the most onerous. For many loved ones, writing those last few checks to the IRS can be especially tough … and seem to never end. Enter the postmortem income tax return.

The death taxes are one thing, and inheritance taxes are generally another, since they are paid by the inheritor. However, as a recent article in Kiplinger makes clear, there usually is one final income tax return to file for the decedent. I recommend the article, titled Death and Taxes, for your reading.

The burden of filing this final income tax return is something you assign in your will, usually to the executor or administrator, or failing that it falls upon a survivor. Regardless, do not neglect that duty if you occupy one of those roles. Why? Because it is just basic estate planning and administration.

If you are planning your estate or if you are administrating one, this burden is not one to be taken lightly. To make matters worse, the fiduciary is on the hook for any sins of commission or omission. If ever there was a time to retain appropriate legal, accounting and tax advice, then this is one of them.

Bottom line: The income taxes likely are the least of your taxation concerns with the estate, inheritance, gift, and generation-skipping taxes all vying for attention. Unfortunately, that doesn’t diminish the importance of income taxes.

Even if an estate will not be subject to extra taxation, this last rite to the IRS has to be observed. 

Reference: Kiplinger (March 2012) “Death and Taxes”

 

 

 

Changing trustees of a trust may be easier said than done!

Deciding how future trustees of your trust are to be selected and changed can be as important as deciding who shall benefit from the trust.  

A trust creator often names a corporate trustee to administer a wealthy trust.  But what happens when the beneficiaries want to change the corporate trustee?  The trust may determine who and how a new trustee is to be selected, but beneficiaries often do not look closely at the contract governing the administration of the trust by the new corporate trustee.  Its terms may run counter to the wishes of the trust creator.

A timely lesson in the problems this can raise can be seen in the case of the Tompkins family and their suit against the Chevy Chase Bank. Recently, the Wall Street Journal reported on the matter in an article titled A Family Loses Its Faith in Trust.

As reported in the original article, the Tompkins family has a massive trust established from the family wealth of the old family construction business. Indeed, the construction company worked to build many of the Washington monuments, like the reflecting pools at the Lincoln Memorial, and the trust they established has a current valuation of around $100 million. Today, the trust resides with the Chevy Chase Bank, having been moved there seven years ago.

Now, however, the family, or some members of the family, desperately want to move the trust and can’t. Why? A trust is a legal arrangement subject to myriad laws, not to mention the formative intentions of the original trust creator. In addition, when the trustee is a corporation, then the trust is further subject to corporation’s rules and contracts. In this case, the Tompkins signed up with the utmost haste (as they escaped another former bank as trustee) and apparently they simply didn’t pay attention to the fine print in the Chevy Chase Bank trustee contract.

According to the fine print, the trust can only be moved from the Chevy Chase Bank when all of the beneficiaries agree. This is nigh impossible in this case, especially given that there are 94 beneficiaries, each of whom must agree. In the meantime, the bank refuses to release the trust and its assets because, they argue (and rightly under the contract), the bank has a duty to all the beneficiaries.

One of the teaching points to take from this case is the importance of reading the fine print when appointing a trustee. That is a given. However, when a trust is intended to span multiple generations you really need to consider this issue of who (or what) will serve as the trustee. Competent counsel can help you navigate your options.

Reference: The Wall Street Journal (March 21, 2011) “A Family Loses Its Faith in Trust” 

 

The funeral is not the end; it is only the beginning of what has to be done after the loved one dies. There is always a long list of tasks to be carried out, but what could be simple chores make for a major headache if the loved one was not well organize

Death and taxes, Benjamin Franklin aptly noted, are the only two certainties in life. Mr. Franklin perhaps should have added a footnote regarding the paperwork both certainties generate.

A New York Times blog (The New Old Age) recently published a “public service” announcement of sorts titled Death's Companion: Paperwork. The article showcases the experiences of the Foreman family as an object lesson for what one of the family members’ termed “administrivia.” This is in an appropriate one-word description for one family’s experience with the trials and tribulations of postmortem paperwork and minutiae.

Think about it. While we are living, we establish myriad relationships with bureaucracies. Whether the IRS, Social Security, Medicare, banks, hospitals, creditors, social media platforms, car companies or gym memberships. We all have long lists of identification numbers, account numbers, customers’ numbers, and user passwords. And the list goes on and on. So, what happens when you die? How do all of these relationships end? How many trees must die (in the form of paperwork) to achieve legal and financial closure?

It has been said that a shortcut to wisdom is to learn from the experiences of others. Accordingly, the experiences of the Foreman family provide excellent lessons and the original article provides important pointers for you to consider in your own estate planning.

In short, proper planning is about seeing both the forest and the trees. Be sure to seek competent probate counsel to help you with the big picture when it comes to your own estate planning. However, the difference between the success and failure of any estate plan hinges on careful attention to the details.

Reference: The New York Times – The New Old Age Blog (March 15, 2012) “Death’s Companion: Paperwork”