An Introduction to Dynasty Trusts

When people create estate plans, they typically focus on handing down their money and property to their children, grandchildren, and other living heirs. But some people want to leave behind a more enduring legacy. For those interested in multigenerational wealth transfer, a dynasty trust could be the answer. 

A dynasty trust is an irrevocable trust that offers the tax minimization and asset protection benefits of other types of trusts, but unlike a trust that ends with outright distributions to your children or grandchildren, a dynasty trust can span more than two generations. Also known as a perpetual trust, a dynasty trust theoretically can last forever—or at least for as long as trust money and property remain. Because the trust could last for many years, and the rules generally cannot be changed once the trust is created, a dynasty trust must be set up with great care. 

How Does a Dynasty Trust Work?

A dynasty trust starts the same way as any other trust. The trust’s creator (i.e., the grantor) transfers money and property into the trust, either during their lifetime or at the time of their death, in which case the trust is a testamentary dynasty trust. Regardless, as an irrevocable trust, once the dynasty trust is funded, it is set in stone. It cannot be revoked, and the rules the grantor sets for the trust can only be altered under certain state statutes governing trust modifications. 

Who Should Serve as Trustee of a Dynasty Trust?

One role that the grantor must seriously consider is who will act as the trustee. It is common for the grantor of a dynasty trust to name an independent trustee, such as a bank or trust company, to serve in this role, because they can administer the trust for as long as it lasts. 

While it is possible to choose a beneficiary of the trust to serve as the trustee, this raises potential tax and creditor protection issues. A beneficiary-controlled trust can have income and estate tax consequences depending on the terms of the trust and the scope of the beneficiary’s powers. Not only does a beneficiary’s ability to control the trust affect the degree of asset protection the trust provides the beneficiary, but it also risks family wealth to misappropriation. In addition, a corporate trustee, like the dynasty trust, has an indefinite legal life, allowing for uninterrupted administration across generations. Corporate trustees typically charge an annual fee based on the amount of money and property in the trust. 

Who Should Use a Dynasty Trust?

Estate planners like to remind people that trusts are for everyone, not just the wealthy. However, an exception to this general rule can be made for the dynasty trust. While you do not need to have the dynastic aspirations of the Medici family or the House of Windsor to set up a dynasty trust, most of the time, it is used by families with significant wealth. 

There is no law that says you need a certain amount of money to set up a dynasty trust. But practically speaking, a dynasty trust only makes sense if you have money and property that will last for two or more generations (although this depends on the monetary needs of your beneficiaries and how fiscally responsible they are). Grantors who are thinking about multiple generations after their children set up dynasty trusts. 

Another way to utilize a dynasty trust, other than handing down money to future generations, is to keep a family business in the family. Anyone who owns a family business is probably familiar with the dismal statistics about their longevity (e.g., 40 percent transition to a second generation, 13 percent make it to a third generation, and just 3 percent survive to the fourth generation or beyond). Using a dynasty trust, the grantor can place shares of the business in the trust to benefit multiple generations of beneficiaries. The trustee could be a professional trustee that can manage business affairs and maintain continuity of operations, while the beneficiaries benefit financially from the business. The grantor can include terms that help ensure the business is run competently, such as requiring the trustee to have an advisory council that effectively serves as a board of directors. 

Tax Benefits of a Dynasty Trust

Part of keeping your legacy in the family is keeping your hard-earned money from being taxed. The federal estate tax exemption amount of $12.06 million per individual in 2022, or twice that amount for couples) can be used to fund a dynasty trust so that the money and property transferred directly to your grandchildren will not be subject to gift or generation-skipping transfer (GST) taxes. By placing accounts and property in a trust and timely filing a gift tax return to allocate appropriate tax exemptions to the trust or pay some amount of wealth transfer tax, those items are not included in your taxable estate. This goes for your beneficiaries as well, as long as the trust is fully exempt from GST tax. 

Trust funds may be used to pay a beneficiary’s living expenses or invested in a home for the beneficiary’s benefit without contributing toward the beneficiary’s taxable estate. Even better, creditors and divorce courts cannot reach accounts and property that you leave to your loved ones in a properly drafted dynasty trust. You and your beneficiaries will not receive these benefits if you give them money outright. 

Dynasty Trusts Not Available in Every State

The rule against perpetuities is a common law rule that limits the duration of controlled property interests, including interests in trusts. Although not written specifically with trusts in mind, the rule against perpetuities effectively prevents people from using legal instruments such as deeds and trusts to control the ownership of property for many years after they have died. But the rule is notoriously difficult to decipher, leading many states to modify it to extend the applicable term or get rid of it altogether. Keep in mind, though, that you may be able to set up a trust in a state that you do not reside in with the help of an experienced estate planning attorney. 

Creating Your Dynasty

If you think a dynasty trust might be right for you, the next step is to speak with an estate planning attorney at our firm. Among the items to be discussed are the selections of the trustee and beneficiaries, tax and creditor protection considerations, state laws on perpetual trusts, and how a dynasty trust fits into your overall estate plan. To start planning your legacy today, please contact us.


Footnote

  1. Family Business Facts, SC Johnson Coll. of Bus., Cornell Univ. (last visited Sept. 20, 2022), https://www.johnson.cornell.edu/smith-family-business-initiative-at-cornell/resources/family-business-facts/.

What Is a Blind Trust?

Trusts are typically set up for the benefit of a trustmaker’s loved ones, a charitable organization, or a third party, with the trust money and property being distributed to the beneficiaries upon the trustmaker’s death. But there are situations in which a person may want to set up a trust to be used during their lifetime for their own benefit to maintain privacy or avoid a potential conflict of interest. In such cases, a blind trust might be appropriate. 

No state or federal laws require the use of blind trusts, but they can be an effective tool for complying with laws that prohibit insider activities. Blind trusts are also used by lottery winners to remain anonymous. 

How Blind Trusts Work

The “blind” part of a blind trust refers to the idea that the trustmaker, or grantor (i.e., the person who establishes the trust), remains in the dark about how the trust’s money and property are managed. Although they may lay out general parameters for the trust such as investment goals prior to creating it, once the trust is formally established, the trustee (the person designated to control the trust assets) has full discretion to handle the trust’s holdings and has no communication with the trustmaker. 

The beneficiary of a blind trust also has no knowledge of what goes on with the trust. However, in most cases, the trustmaker is also the beneficiary. That is, the trust contains their personal money and property, and the trustee manages that money and property for the benefit of the trustmaker-beneficiary—the trustmaker-beneficiary just has no knowledge of, or control over, the activities of the trust. 

Blind Trust versus Nonblind Trust

A blind trust differs from a normal trust in several ways. The biggest difference is that in a nonblind trust, the trustmaker has discretion over trust money and property. Often, they give explicit instructions to the trustee about how to run the trust, such as when and how to make distributions to a beneficiary. Usually, the trustmaker and trustee consult each other, and in some cases are the same person. And, while the beneficiary may be at the trustee’s mercy as far as receiving trust distributions from a blind trust, with a nonblind trust, the beneficiary may be in contact with the trustee and be aware of trust activities. 

Revocable versus Irrevocable Blind Trust

Blind trusts can be irrevocable or revocable. A trustmaker has the authority to modify or terminate a revocable trust and take back control of the accounts and property upon termination. An irrevocable trust cannot be modified or terminated by the trustmaker. In other words, once the trustmaker places money and property in an irrevocable blind trust, the trustmaker permanently gives up control over that money and property. 

Blind Trusts and Public Figures

Viewers of the television show Billions may be familiar with blind trusts, thanks to the character Chuck Rhoades. For anyone who has not seen the show, Chuck is a New York prosecutor known for his flawless record of winning insider trading cases. Chuck put his investments in a blind trust managed by his father to show the public that his actions as a public figure will not be influenced by his personal financial holdings. 

This is a tactic employed by real-life politicians as well. While no state requires public figures to use a blind trust while in office, most states and the federal government have laws that require government employees to recuse themselves and disclose when their public duties may affect their financial interests. These laws are intended to maintain trust in public institutions, helping to defend against legislative self-dealing, or the perception of it. 

Blind trusts are a workaround to real or perceived conflicts of interest. A public figure can place the money and property that might create a conflict of interest into a blind trust and turn the money and property over to an independent trustee. The official can then claim that they do not know how their actions in office will affect their private financial interests, because they have no control over those interests. 

A dozen states have laws that regulate blind trusts, and these regulations must be followed closely. Federal ethics laws also have rules about what qualifies as a blind trust and how it should function to comply with the law. 

Blind Trusts and Company Executives

Blind trusts are not just for government officials. Conflicts of interest can similarly impact officers, directors, and others who own shares in a company and have information not available to the public. Ownership of these shares can call into question whether a corporate insider is acting in the best interests of the company and its shareholders—as federal financial law requires them to—or in their own interests. 

The Securities Act restricts the sale of shares owned by corporate insiders for as long as they are affiliated with the company. Publicly traded companies usually only allow insiders to trade company stock during “window periods.” A blind trust set up during a window period can be a mechanism for avoiding these trading limitations. The trustee of the insider’s blind trust is given guidelines for selling company stock, and the trustee is then free to execute this plan without running afoul of insider trading laws. 

Blind Trusts and Lottery Winners

While politicians and company insiders may use a blind trust to avoid conflicts of interest, a lottery winner or person who receives a financial windfall may use this type of trust for a different reason: financial privacy. 

Let us say that you are the lucky winner of the $1 billion Powerball lottery. As excited as you are to spread the news and raise the big cardboard check on television, you decide that you want to remain anonymous. There are plenty of reasons to keep a low profile—reporters, scammers, harassment, and requests for money from friends and family, to name just a few. But not all states allow lottery winners to remain anonymous. 

If you do not live in one of those states and you want anonymity, you can use a blind trust to protect your identity. However, “blind” trust is a bit of a misnomer in this situation. It is just a regular trust that uses a name other than your legal name. You retain control of the trust and its money and property, but you are “blind” to the public because the trust is not easily linkable to you. 

Don’t Go Blind into a Blind Trust—Talk to a Lawyer

Establishing a blind trust can be complex. Depending on its use, there may be federal and state laws to comply with, including rules related to conflicts and disclosures, reporting requirements, who may serve as trustee, and allowable communications between the trustee and beneficiary. 

Blind trusts are set up for very specific reasons, and for them to function as intended, they must be set up carefully. If you want to prevent conflicts of interest or maintain privacy, it is vital that you work with an experienced estate planning attorney to ensure the accuracy and validity of your blind trust. Please contact us to schedule an appointment.

Will Our Child Have to Handle Multiple Trusts after Our Deaths?

When a married couple creates an estate plan using a revocable living trust, they have the option of creating a single joint trust or two separate individual trusts. While the pros and cons of each are beyond the scope of this article, spouses may choose to create separate trusts for a variety of reasons including the following: 

  • the desire to leave property to different beneficiaries or for greater asset protection from the financial risks of one spouse
  • the ability to keep inherited or individually owned property separate from jointly acquired property, or
  • the need for greater flexibility or more certainty with respect to tax planning after the death of the first spouse. 

Whatever the reasons for creating separate trusts, when the ultimate beneficiary is the same for both spouses’ trusts (often the couple’s child or children), the question that inevitably arises is whether the beneficiary of these separate trusts will always have multiple trusts to deal with? Keeping track of the property owned and invested by each trust and filing tax returns for multiple trusts can be an administrative headache. The good news is that, in general, if multiple trusts have similar terms and neither the trust agreement nor state law prohibits the consolidation of the trusts, then the trusts can usually be combined into one. 

Under section 417 of the Uniform Trust Code (UTC), which has been adopted (either completely or in some form) in thirty-five states and the District of Columbia as of the date of this writing, a trustee, after giving notice to the qualified beneficiaries, may combine two or more trusts into a single trust, “if the result does not impair rights of any beneficiary or adversely affect achievement of the purposes of the trust.” Keep in mind that this provision of law would be overruled by any contrary provision in the trust agreement, so it is essential to know and understand what the trust agreement provides. 

While the UTC does not require that the trust terms be identical to be combined, the more that the terms governing distribution of trust property of the trusts to be combined vary, the more likely it is that the rights of a beneficiary would be impaired as a result of the combination. Therefore, it would be less likely that the combination would be approved. Where the trusts to be combined are the separate trusts of a married couple, which likely have identical or very similar provisions, there should be little to no impediment to combining trusts.

In fact, if the trusts do have identical provisions, it could be argued that the trustee has a responsibility to combine the trusts to provide for a more efficient and economical trust administration. Combining trusts could result in the reduction of trustee fees, filing one trust tax return instead of two or more, and more effective investing opportunities.

The UTC does not require a trustee to obtain consent of the beneficiaries or a court prior to combining multiple trusts. It does, however, require that the trustee give the beneficiaries notice prior to doing so. And, although the law may not require the consent of either the beneficiaries or a court, if the terms of the trusts to be combined vary significantly, a prudent trustee would seek the consent of the beneficiaries or the court prior to combining the trusts.

For married couples who are considering or have chosen separate trusts as part of their estate plan, the good news is that their child does not always have to handle multiple trusts after their death. Rather, if the terms of the trusts or state law permit the combination of trusts, the trustee may do so, thus taking advantage of certain economies in trust administration. If you have questions about whether your separate trusts can be combined into one for the benefit of your beneficiaries, please give us a call.

What if I Cannot Find a Beneficiary?

When someone has named you as the executor (also known as a personal representative) of their will or the trustee of their trust passes away, you are obligated to distribute that person’s money and property according to the document’s terms to the designated beneficiaries. (For convenience, the roles of executor and trustee will be referred to throughout this article as the general term fiduciary.) Sometimes, perhaps because of a family conflict or just falling out of touch, the whereabouts of a will or trust beneficiary are unknown. What should you, as the fiduciary, do if you cannot locate a beneficiary of the will or trust?

As a fiduciary, you have an obligation to use reasonable diligence to locate a missing beneficiary. What is considered reasonable depends on the circumstances, including what efforts have been made to locate the missing beneficiary and how much money or property is at stake.

At a minimum, a fiduciary should call the last known phone number and send notice of the estate or trust administration to the last known address. If this initial effort yields no results, then the fiduciary should contact known family members or friends for information that may lead to the beneficiary’s location, search social media and people-search sites on the Internet, publish notice in the newspaper, check property records, and otherwise use their best efforts to locate the missing beneficiary.

If the value of property to be distributed to the missing beneficiary is very small, then the fiduciary will likely not be required to spend a lot of the estate or trust’s money to locate the missing beneficiary. If, however, the property value is significant, then the fiduciary may have to take additional efforts to locate the missing beneficiary to satisfy the reasonable diligence requirement. Such additional efforts may include hiring a private investigator or using an heir search service.

Heir Search Services

Heir search services are dedicated specialists to find missing beneficiaries. They employ forensic genealogists and estate investigators who conduct extensive searches throughout the United States or the world to locate missing beneficiaries. They often have access to additional records, such as birth, marriage, and death certificates, adoption and other court records, and genealogical databases.

Heir search services can provide the added benefit of verifying the identity of the beneficiary to ensure that you, as the fiduciary, make distributions to the proper person and not someone pretending to be the beneficiary to take advantage of a fiduciary’s ignorance.

If the missing beneficiary cannot be found even with the help of a professional heir search service, you can petition the court to allow you to make a preliminary distribution of money and property to the beneficiaries who have been located. The court will likely order that the missing beneficiary’s property be held in trust for a certain period of time, as specified by state law, allowing time for the missing beneficiary to claim it. You may also be able to obtain indemnity insurance to protect you in case a missing beneficiary later appears and makes a claim after the estate or trust has already been distributed.

Work with an Attorney

Locating a missing beneficiary can take considerable time and cause significant delays in an estate and trust administration. Meanwhile, beneficiaries who have been located and expect to receive their share can become impatient. In situations where a missing beneficiary adds a layer of complexity to an administration, it can be advantageous to hire a legal professional who has experience in navigating the demands of impatient beneficiaries while protecting your interests as the fiduciary.

Further, in cases where a missing beneficiary cannot be located and it becomes necessary to petition the court to allow a preliminary distribution to the known beneficiaries, using a legal professional’s expertise of the state’s laws and procedures can lead to a quicker resolution of the issue.

Being named as the fiduciary of a will or trust carries a large responsibility to locate the beneficiaries and make distributions to them in accordance with the terms of the will or trust. When a beneficiary cannot be located, the fiduciary has an obligation to be diligent in their efforts to find the beneficiary, including hiring a professional heir search service. We have the expertise and resources to help you navigate the additional complexities that come with a missing beneficiary. Contact us if you would like to discuss how we can help you with your administration or craft your own plan to provide your loved ones with a smooth administration.

Why a Trust Is the Best Option to Avoid Probate

Ideally, when someone passes away, the paperwork and material concerns associated with the deceased’s passing are so seamlessly handled (thanks to excellent preparation) that they fade into the background, allowing the family and other loved ones to grieve and remember the deceased in peace.

In fact, the whole business of estate planning—or at least a significant piece of it—is concerned with ease. How can money, property, and legacies be transferred to the next generation in a harmonious, stress-free, fair process? To that end, many people strive to avoid burdening their loved ones with the complications and costs involved with probate.

There are numerous tools of the trade that a qualified attorney can use to keep your money and property out of probate, for example, establishing joint ownership on bank accounts and real estate titles, designating beneficiaries for life insurance policies and certain accounts, and so on. However, setting up a revocable living trust is quite often the best, most comprehensive option for avoiding probate. Let’s discuss why this is true.

What is a trust?

Often touted as an alternative to a will, a trust is a legal structure that owns your accounts and property or is named as the beneficiary of certain accounts and property (like a retirement account) and is managed by a trusted decision maker, also known as a trustee, on your and your beneficiaries’ behalf. A living trust is established while you are still alive, as opposed to being created upon your death. You can be the trustee for your own living trust until you are no longer able to manage your financial affairs or you pass away, at which point your chosen backup trustee, also known as a successor trustee, steps up and assumes the responsibility for managing the trust on your or your beneficiaries’ behalf.

How does a trust help you avoid probate?

The purpose of probate is to transfer property ownership for all accounts and property that are owned in your sole name and that do not have a beneficiary, pay-on-death, or transfer-on-death designation when you pass away. A trust can bypass this process completely because your accounts and property are either transferred to the trust while you are alive, or the trust is named as the beneficiary at your death. Therefore, when you die, there is nothing that needs to be transferred by the probate court (everything is already in your trust or was transferred to the trust automatically at your death). Furthermore, a trust can cover virtually any type of account or property, from real estate to heirlooms to stock to bank accounts. When a trust is structured correctly with the help of an experienced estate planning attorney, your affairs can stay out of probate court entirely. This process not only limits court costs but also maintains the privacy of your financial records while enabling your beneficiaries to enjoy the benefits of the trust without disruption or delay.

Establishing a trust can seem a bit complicated, and the process can cost a bit more initially than preparing a will. However, if you are willing to invest a little more up front, a trust can be your best option for avoiding probate later.  The key to effective planning that minimizes the likelihood of a drawn-out, contentious, expensive process is to work with highly qualified, trusted people. Find a lawyer who genuinely cares about you and your loved ones and who knows how to forge the right strategy for all of you. Give us a call today to learn more about the next steps for achieving the peace of mind you deserve.

Three Reasons to Avoid Probate

When you pass away, your family may need to sign certain documents as part of a probate process in order to claim their inheritance. This can happen if you own property (like a house, car, bank account, investment account, or other assets) in your name only and you have not completed a beneficiary, pay-on-death, or transfer-on-death designation. Although having a will is a good basic form of planning, a will does not avoid probate. Instead, a will simply lets you inform the probate court of your wishes—your loved ones still have to go through the probate process to make those wishes legal. 

Now that you have an idea of why probate might be necessary, here are three key reasons why you may want to avoid probate, if at all possible.

1. It is all public record. 

Almost everything that goes through the courts, including probate, becomes a matter of public record. This means that in order to properly wind up your affairs (i.e., pay your bills, file any remaining tax returns, and distribute your money and property to your chosen recipients), documents—including associated family and financial information—could become accessible through the probate court to anyone who wants to see them. This does not necessarily mean that account numbers and Social Security numbers will be made public, as the courts have at least taken some steps to reduce the risk of identity theft. But what it does mean is that the value of your accounts and property, creditor claims, the identities of your beneficiaries, contact information for your loved ones, and even any family disagreements that affect the distribution of your money and property may be publicly available. Most people prefer to keep this type of information private, and the best way to ensure discretion is to keep your affairs out of probate.

2. It can be expensive. 

Thanks to court costs, attorney’s fees, executor fees, and other related expenses, the price tag for probate can easily reach into the thousands of dollars, even for small or simple matters. These costs can easily skyrocket into the tens of thousands or more if family disputes or creditor claims arise during the process. Your money and property should be going to your loved ones, but if it goes through probate, a significant portion could go to the courts and legal fees instead.

Of course, setting up an estate plan that avoids probate does have its own costs. Benjamin Franklin wrote, “An ounce of prevention is worth a pound of cure.” Like the “ounce of prevention,” costs you incur now to put a plan in place are more easily controlled than uncertain costs in the future, especially when you consider that your loved ones may be making decisions while grieving. With proper planning, you can minimize the risk of costly conflict and also reduce or eliminate some costs; if there is no probate case, there will not be any probate filing fees or court costs.

3. It can take a long time. 

While the time frame for probating an estate can vary widely by state and by the value, amount, and complexity of the deceased person’s accounts and property, probate is not generally a quick process. It is not unusual for probates, even seemingly simple ones, to take six months to a year or more, during which time your beneficiaries may not have easy access to the money and property you intended to leave them. This delay can be especially difficult for loved ones experiencing hardship who might benefit from a faster, simpler process, such as the living trust administration process. Bypassing probate can significantly expedite the disbursement of money and property so that beneficiaries can benefit from their inheritance sooner. If you have property located in multiple states, a version of the probate process must be repeated in each state in which you hold property. This repetition can cost your loved ones even more time and money. The good news is that with proper trust-centered estate planning, you can avoid probate in all of the states, simplify the transfer of your financial legacy, and provide lifelong tax savings and asset protection to your family. To learn more, call us to schedule an appointment. One of our experienced attorneys will be happy to strategize with you.

The Pros and Cons of Probate

In estate planning circles, the word “probate” often carries a negative connotation. Indeed, for many people—especially those with valuable accounts and property—financial planners recommend trying to keep accounts and property out of probate whenever possible. That being said, the probate system was ultimately established to protect the deceased’s accounts and property as well as their family, and in some cases, it may even work to an advantage. Let us look briefly at the pros and cons of going through probate.

The Pros

For some situations, especially those in which the deceased person left no will, the system works to make sure all accounts and property are distributed according to state law. Here are some potential advantages of having the probate court involved in wrapping up a deceased person’s affairs:

  • It provides a trustworthy procedure for redistributing the deceased person’s property if the deceased person did not have a will.
  • It validates and enforces the intentions of the deceased person if a will exists.
  • It ensures that taxes and valid debts are paid so there is finality to the deceased person’s affairs rather than an uncertain, lingering feeling for the beneficiaries. 
  • If the deceased person had debt or outstanding bills, probate provides a method for limiting the time in which creditors may file claims, which may result in discharge, reduction, or other beneficial settlement of debts.
  • Probate can be advantageous for distributing smaller estates in which estate planning was unaffordable.
  • It allows for third-party oversight by a respected authority figure (judge or clerk), potentially limiting conflicts among loved ones and helping to ensure that everyone is on their best behavior. 

The Cons

While probate is intended to work fairly to facilitate the transfer of accounts and property after someone dies, consider bypassing the process for these reasons:

  • Probate is generally a matter of public record, which means that some documents, including personal family and financial information, become public knowledge.
  • There may be considerable costs, including court fees, attorney’s fees, and executor fees, all of which get deducted from the value of what you were intending to leave behind to your loved ones.
  • Probate can be time-consuming, holding up distribution of your beneficiaries’ inheritance for months and sometimes years. 
  • Probate can be complicated and stressful for your executor and your beneficiaries. 

Bottom line: While probate is a default mechanism that ultimately works to enforce fair distribution of even small amounts of money and property, it can create undue cost and delays. For that reason, many people prefer to use strategies to keep their property out of probate when they die.

An experienced estate planning attorney can develop a strategy to help you avoid probate and make life easier for the next generation. For more information about your options, contact us today to schedule a consultation.

Three Celebrity Probate Disasters and Tragic Lessons

One would assume that celebrities with extreme wealth would take steps to protect their estates. But think again: some of the world’s richest and most famous people enter the pearly gates with no estate plan, while others have made estate planning mistakes that tied up their fortunes and heirs in court for years. Let us look at three high-profile celebrity probate disasters and discover what lessons we can learn from them. 

1. Prince

The court battle over musician Prince’s estate was a probate disaster. 

  • When the ‘80s pop icon died in early 2016, he left no estate plan (reportedly due to some previous legal battles that left him with a distrust of legal professionals). 
  • The probate court had the task of determining Prince’s heirs among all of the people who stepped forward claiming an interest in Prince’s money and property. In 2017, the court ruled that his five half-siblings and his sister were to inherit from Prince. 
  • The court battle among Prince’s potential heirs cost millions of dollars, and all matters involving Prince’s money and property took about six years to resolve. 

Lesson learned: Accurate legal documentation protects your legacy. Do not let a general distrust or a bad experience propagate through generations, leaving your loved ones to fight or lose their inheritance.

2. Whitney Houston

Whitney Houston’s failure to update her estate plan ended up leaving her daughter with more than she probably intended.

  • Whitney Houston executed a will in 1993 and died in 2015 without making any updates to the distribution instructions in her will.
  • Her will left everything to her nineteen-year-old daughter, Bobbi Kristina Brown.
  • According to the will, one-tenth was to be given to Bobbi at age twenty-one (about $2 million), another one-sixth at age twenty-five, and the remainder at age thirty. 
  • Unfortunately, Bobbi died in 2015 at the age of twenty-two, of drowning.
  • Many people have speculated that Bobbi was not mature enough to have received $2 million when she turned twenty-one.

Lesson learned: Naming your child in your estate plan is not enough. You must periodically review the documents and assess whether your original plan to leave your money and property is still in the best interest of your child.

3. Michael Crichton

  • Michael Crichton, author of Jurassic Park, had a will prepared and died leaving behind a daughter from a previous marriage and his surviving wife. His surviving wife had signed a prenuptial agreement and was not considered an heir when he died. She was, however, pregnant with his son.
  • He did not update his will to provide for his soon-to-be-born son.
  • A court battle was fought between his daughter and his wife, on behalf of her son, to determine what share he was to receive. Was he to split the inheritance fifty-fifty with his half-sister, or a smaller amount as a pretermitted (omitted) heir?
  • His son ultimately inherited from his father, but the cost of the litigation reduced the inheritance, the process took a considerable amount of time, and the conflict most likely damaged familial relationships.

Lesson learned: There are four major events that should trigger a review of your estate plan: a birth, death, divorce, or move. These milestones could have a lasting impact on your estate plan. When they occur, review your plan and contact an experienced estate planning attorney to make the necessary changes.

These celebrity probate disasters serve as stark reminders that no one’s wealth is exempt from the legal trouble that can occur without proper estate planning. As always, we are here to help you protect your loved ones and legacy. Give us a call today to discuss protecting your hard- earned money and property and your loved ones.

Three Tips for Overwhelmed Executors

While it is an honor to be named as a trusted decision maker, also known as an executor or personal representative, in a person’s will, it can often be a sobering and daunting responsibility. Being an executor requires a high level of organization, foresight, and attention to detail to meet responsibilities and ensure that all beneficiaries receive the accounts and property to which they are entitled. If you are an executor who is feeling overwhelmed, here are some tips to lighten the load. 

1. Get help from an experienced attorney.

The caveat to being an executor is that once you accept the responsibility, you also accept the liability if something goes wrong. To protect yourself and make sure you are crossing all the “t’s” and dotting all the “i’s,” hire an experienced estate planning attorney now. Having a legal professional in your corner not only helps you avoid pitfalls and blind spots, but it will also give you greater peace of mind during the process. In fact, in some states it is a requirement that an executor be represented by competent legal counsel, so it is always a good idea to discuss your responsibilities with an attorney before you take action. It is also important to note that the expense of hiring an attorney does not have to be borne by you. As an executor, you are allowed to hire professionals to assist you in carrying out your responsibilities, and they can be paid from the deceased person’s money. This includes professionals such as financial advisers and certified public accountants.

2. Get organized.

One of the biggest reasons that you may feel overwhelmed as an executor is that the details can come at you from all directions. Proper organization helps you conquer this problem and regain control. We will advise you of what to do and when. You will need to gather several pieces of important paperwork to get started. It is a good idea to create a file or binder so you can keep track of the original estate planning documents, death certificates, bills, financial statements, insurance policies, and contact information of beneficiaries. Bringing all of this information to your first meeting will be a solid start. As you continue with the administration process, you may be required to open or manage the deceased person’s bank accounts. It is important that you keep records of all transactions that occur because you will be required to account for how money has been spent. It is also important that you keep all of the deceased person’s finances separate from your own. Do not deposit money into your personal account.

3. Establish lines of communication.

As an executor, you are the liaison between multiple parties involved in the probate process: the courts, the creditors, the Internal Revenue Service, the beneficiaries, and the heirs. Create and maintain an up-to-date list of everyone’s contact information. Also, retain records such as copies of correspondence or notes about phone calls you make as executor. Open and honest communication helps keep the process flowing smoothly and reduces the risk of disputes. It is worth repeating because it is so important: keep records of all communications, so you can always recall what was said to whom.

If you have been appointed as an executor and are feeling overwhelmed, we can provide skilled counsel and advice to help you through the process. We can also help you draft your own estate plan so your family can avoid the stress of probate. Give our office a call today for an appointment. We look forward to hearing from you.

Things to Consider Before Accepting Your Inheritance

The news that you will be receiving an inheritance is often bittersweet because it means that somebody close to you has passed away. But you might also have mixed emotions about your inheritance for reasons that have to do with the actual accounts or property you are inheriting. 

On the one hand, you might not want to reject your inheritance out of respect for the person who put you in their will or trust or named you as the beneficiary of an account or policy. On the other hand, depending on what you have been gifted, an inheritance might pose unintended logistical or financial difficulties that you are unable—or unwilling—to take on. 

An inheritance, like the loss of a loved one, can be life-changing. While there is no law that requires you to accept an inheritance, there are sometimes good reasons for doing so. And if you choose to turn down a gift, that does not mean it will end up in the hands of the state. Prior to accepting or rejecting an inheritance, you might want to seek legal and tax advice about the implications of either decision. 

When Estate Planning Does Not Go To Plan

An estate plan contains instructions for distributing a person’s money and property when they pass away. Some families discuss who will receive certain accounts or property. For example, maybe all of the kids are asked if they would like to inherit an item from mom’s collection of family heirlooms. 

In an effort to be fair, most testators (i.e., persons who have made a will or created an estate plan) or trustmakers divide their money and property equally among heirs. There are cases where one child or heir may be given a larger inheritance based on a larger caregiving role or contribution of their time to the family in some other way. But typically, there are family talks about such matters to ensure that everyone is in agreement and the unequal inheritance does not spur intrafamily resentment and conflict. 

However, unexpected inheritances are not out of the question. Testators or trustmakers are under no legal obligation to be fair. Generally, they are entitled to divide up their assets however they see fit. Furthermore, family dynamics can shift and force changes in an estate plan. 

For instance, maybe there are three siblings, and two of them have rocky marriages. The testator may have a provision in their will that gives the executor discretion to address this situation and keep their assets out of the hands of a sibling’s soon-to-be ex-spouse, such as by disinheriting a sibling or reducing their inheritance if their marriage is on the verge of failing at the time of probate. Or, a testator could simply decide to write an heir out of the will altogether and assign their share of an estate to somebody else. 

Similarly, the death of an heir could result in estate assets being reassigned. Indeed, there are many situations that could result in a surprise inheritance. Maybe you have a childless uncle or friend who wanted to surprise you with a windfall. Up until the moment a person passes away, a person is free to amend their will. Heirs usually have some idea of what they will be inheriting from whom, but estate planning does not always go according to plan. 

Weighing the Pros and Cons of an Inheritance

Accepting an inheritance is a free and voluntary act that is also affected by personal circumstances. If you were informed that you have an inheritance coming your way, you will have to decide whether to receive or reject it. Here are some factors that may impact your decision: 

  • Outstanding debt. Your inheritance could include a big ticket item, such as a house, car, or RV, that carries outstanding debt. As the inheritor, you may be responsible for servicing the loan or mortgage and will have to figure out if you can afford to pay it off or refinance and continue making the payments.1 You could always sell the item, but if more than one heir inherits a home, that would have to be a group decision. Also, keep in mind that real estate and other valuable property will need to be insured, at added cost to you. 
  • Oversized items. You could inherit a car, truck, RV, or other large item or collection that comes with no debt obligations but poses a storage problem. This is particularly true if you do not have your own home or if you live in an apartment or condo with limited space. Paying for additional storage is an option, but if you do not really want the item in the first place, storing it may not be worth the cost. 
  • Logistics. Taking possession of an item might sound good in theory but turn out to be a logistical nightmare. You might have to travel a long distance and pay for a trailer to haul it. Shipping may be an option, but who will pay for the transport? The money could come out of the estate or out of your own pocket. 
  • Tax consequences. Six states impose an inheritance tax on beneficiaries: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.2 In addition to a potential inheritance tax, which ranges from 1-20 percent of the value of the assets you inherit,3 income-producing assets such as real estate, securities, and retirement accounts can increase your taxable income and could even place you in a higher tax bracket. Be clear on the tax implications of your inheritance and how inherited assets may affect your overall financial situation. 
  • Personal considerations. Perhaps you just do not want to take possession of an item that somebody left to you in their will. You may also realize that somebody else in the family really does want it and would feel hurt if you got it instead. Inheritances can produce hurt feelings and irritate existing tensions. To squelch conflicts before they get out of hand and lead to legal disputes, consider taking the high road.

Whichever path you choose—acceptance or refusal—be prepared to file documents stating your intentions. Another thing to keep in mind is that if you refuse an inheritance, you will have no say in who receives it. If the will does not name a backup (contingent) beneficiary, it will pass back to the estate and on to the next beneficiary according to state law. To make sure that a specific person receives what you are rejecting, you have the option to accept it and then gift it to them. However, as the giver, giving a gift comes with possible tax implications. 

Managing Your Inheritance and Planning for the Future

An inheritance could be a pleasant surprise, but most people expect to receive an inheritance at some point in their life. Whenever that day comes, you will want to make the most of your inheritance. Working with a trusted advisory team can help you assess your finances, preserve your wealth, plan for the future, and establish an estate plan of your own. For wealth and estate planning advice, reach out to our office to schedule an appointment.


Footnotes

  1. Victoria Araj, Inheriting a House with a Mortgage, Quicken Loans (Sept. 17, 2021), https://www.quickenloans.com/learn/inheriting-a-mortgage.
  2. Anna Hecht, Millennials Will Inherit $68 Trillion by 2030—Here’s What to Know If You Receive a Windfall, CNBC: Make It (Jan. 16, 2020), https://www.cnbc.com/2020/01/16/receiving-an-inheritance-four-things-experts-say-you-should-know.html.
  3. What Are Inheritance Taxes?, Intuit TurboTax (Oct. 16, 2021), https://turbotax.intuit.com/tax-tips/estates/what-are-inheritance-taxes/L93IUc3sC.