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When planning your next great travel adventure, you may decide that you can do it yourself. You know what you and your travel companions want to see and do, how much you are willing to pay, and the most convenient times to travel. While making travel arrangements may be okay to do yourself, you need to consider calling in a special planning team to make sure that you and your loved ones are protected during your travels and afterward. The following are some individuals you should schedule appointments with before you leave on your next adventure.

A financial advisor can help ensure your finances are in order and accessible. When traveling, you must make sure that you have access to your money and can reach your financial advisor if necessary. If an emergency arises, access to your funds is crucial. Additionally, while traveling, you may want to make a large purchase. But what happens if the item you want to buy exceeds the amount you brought with you? You may need a financial advisor’s assistance to gain access to your money to buy your once-in-a-lifetime memento. 

An insurance agent can help you review or obtain necessary insurance policies. First, if you have existing life insurance policies, it is important that you periodically review your policies and beneficiary designations. Preparing for a vacation is a great time to conduct this review. As you are reviewing your policy, consider the following questions:

• Who is listed as the primary and contingent beneficiaries? 
• Do you want to make any changes? 
• Does your beneficiary designation match your existing estate plan (especially if you have a trust and intend the trust to be the primary beneficiary of the life insurance policy and to govern how the policy proceeds are handled)? 

It is also important to know if participation in high-risk activities (skydiving, bungee jumping, rock climbing, etc.) will void your coverage under the life insurance policy. If this is a concern, you may want to reconsider your participation in such activities.

Second, travel insurance is an important level of protection that you may want to investigate. Because international travel can be more complicated than domestic travel and have more variables out of your control, travel insurance can help prevent additional costs that you could incur in the event of an unforeseen circumstance.

Lastly, you should check with your health insurance carrier to see if your health insurance plan covers your care in a foreign country. If not, it may be advisable, depending on the duration of your trip, to buy a temporary form of health insurance that will be valid in the country or countries you will be visiting.

A tax professional can help educate you on potential tax liability. When traveling abroad, you will be subject to the taxes of that country. If you are considering making any large purchases, it is especially important that you understand the potential impact. For example, countries that are part of the European Union may add a Value Added Tax on purchased items. However, you may be able to get a refund of this tax from the country you are visiting by completing the necessary paperwork and providing receipts. 

In addition, when returning to the United States, it is important to understand whether you will have to pay duties on your purchased items and how much that might cost. These rates could vary depending on the purchase price, where you made the purchase, and the type of item that was purchased.

An estate planning attorney can make sure that your wishes are properly documented. When people think about estate planning, they think about death. While a large part of estate planning does deal with death, proper planning can also benefit you while you are alive. By working with an experienced estate planning attorney to create a financial power of attorney, we can make sure that you have a trusted decision maker in the United States that can manage your financial affairs without court involvement. The world does not stop just because you are on vacation. Should you need something while you are away (e.g., a check deposited, legal documents signed, etc.), your chosen person can step in for you.

We can also ensure that you give the maximum authority to the person you have chosen to care for your minor children while you are away by preparing the appropriate state-specific documentation. This document will temporarily allow your chosen caregiver to make medical and other important decisions for your child. Should your child need to go to the hospital or have a field trip permission form signed, the chosen caretaker will be able to step in and keep your child safe, happy, and healthy.

Traveling the world can be an exciting adventure. By assembling a planning team, you can help make sure that you and your loved ones are fully protected while you are having the time of your life. We are here to assist you and any members of your planning team to ensure that your next great adventure is a success. Get in touch with us today.

Getting ready to embark on your next great adventure? Before you zip up the last suitcase, here are five issues you need to address to protect yourself and your loved ones.

Do you have a foundational estate plan? Has it been reviewed?

An estate plan is a set of instructions memorialized in legal documents that explains to your trusted decision makers and loved ones your wishes about your care, the care of any dependents, and how your money and property should be handled.

Last will and testament

Depending on your unique situation and needs, you may have a last will and testament (also known as a will) as the foundation of your estate plan. This document allows you to name someone to wind up your affairs (i.e., gather your belongings for safekeeping, create a list of everything you own, pay your outstanding bills and taxes, and give the remainder to the individuals and charities you have chosen). You can also name a guardian for your minor children if you have any. Because a will takes effect only at your death, using a will to outline your wishes will likely still require your loved ones to go through the probate process (a court process that can be expensive, time-consuming, and public) to carry them out.

Revocable living trust

On the other hand, you might have a revocable living trust as the basis of your estate plan. A revocable living trust is an entity that owns your accounts and property. In order for your trust to own your accounts and property, they will either be retitled in the name of your trust (instead of in your sole name) or the trust will be named as the beneficiary that will receive money and property at your death. Your trust instrument provides your chosen decision maker (trustee) with instructions for how to operate the trust. In the beginning, you can serve as the trustee of your own trust, which means that you are still able to control what happens to the accounts and property owned by the trust. Additionally, you can continue to benefit from the accounts and property because you are also a trust beneficiary. In the event you are unable to manage the trust (i.e., are incapacitated) or you die, someone you have chosen ahead of time can step in as trustee and continue managing the trust for your benefit (if you are still living) or for your chosen beneficiaries (at your death), without court involvement. Because the trust will be the owner or beneficiary of almost everything, for probate purposes, you will die owning nothing. If you own nothing in your sole name, there is nothing that has to be transferred through the probate process. A trust becomes effective as soon as you sign the trust agreement. 

Review your documents

Because life circumstances often change, it is important that you periodically review your existing estate planning documents. Do they still reflect your wishes? Have there been any major changes in your life that might necessitate another look at your documents? Also, if you have a revocable living trust as part of your estate plan, it is crucial that any accounts or property that are supposed to be owned by the trust have been properly retitled and, if there are any accounts or property that should name the trust as a beneficiary, the appropriate paperwork has been completed.

Can someone manage your financial affairs when you cannot?

If you are out of the country, it will likely be more difficult to handle your personal financial matters (e.g., writing a check for rent, following up on an insurance claim, etc.). However, just because you are unable to do these things does not mean that no one else can do them for you. 

A durable financial power of attorney enables you to name a trusted decision maker to handle your financial matters. When crafting a financial power of attorney, your estate planning attorney will discuss when you want the document to be effective. In some states, you can choose to give your trusted decision maker the authority to act on your behalf immediately or only upon the occurrence of an event (which is usually a determination that you are no longer able to manage your own affairs). In the case of international travel, you may want to consider giving the power immediately so that your chosen decision maker can respond as soon as there is an issue, regardless of whether you are capable of making a decision for yourself. In addition, you can tailor how much authority you give your chosen decision maker in the financial power of attorney. You may want to limit the person’s authority to actions related to a specific transaction, such as a real estate closing, or you may want to allow that person to carry out almost anything you could do for yourself. This is a personal decision based on your unique circumstances.

How will you manage your health while you are away?

Even the healthiest person can develop a health issue while traveling. This is why it is important for you to choose a trusted decision maker to make medical decisions for you. A standard estate plan typically includes a medical power of attorney that appoints a person to make medical decisions, a living will or advance directive document that gives instructions for your end-of-life wishes, and a HIPAA authorization form that grants named individuals the right to obtain your private healthcare information. These forms can be state-specific and may not be accepted in another country, so if you are traveling internationally and will be staying in a particular country for a long period of time, it may be beneficial to look into how to name a medical decision maker under your vacationing country’s laws.

Another thing to consider is whether your health insurance will be accepted overseas. In some cases, your health insurance may be valid only in the United States. It is important that you research this and, if necessary, look for a short-term policy that will cover you while traveling.

Speaking of insurance, do you have adequate insurance?

In addition to health insurance, there are two other types of insurance that may be important for protecting yourself while you are traveling. First is travel insurance. International travel can be more complicated than domestic travel, and having additional insurance can help you navigate the curve balls life can sometimes throw at you. Depending on the cost of your trip and the items you are taking, getting travel insurance may save you money in an emergency.

Life insurance is also important to have and review. It is essential to fill out your beneficiary designations correctly so your loved ones will receive what you want in the way you want. It is also important to review the policy terms to see whether any of the activities you want to engage in while on vacation will void your coverage. Sometimes insurance companies will not pay out if the insured has engaged in extreme activities like bungee jumping, skydiving, and scuba diving. This means that if you are in an unfortunate accident while engaged in one of these activities, your loved ones may receive nothing.

What arrangements have you made for your minor children?

If you have minor children, taking care of them does not stop when you go on vacation. If your minor children will be traveling with you, they will likely require a passport. It is important to remember that a passport for a child needs to be renewed more frequently than a passport for an adult. Also, some countries may require proof that you are the children’s parent or legal guardian. With the threat of international kidnappings and human trafficking, customs officers want to ensure that children remain safe when traveling internationally.

If your minor children will be staying with someone while you are traveling, it is important that you have the proper documentation in place so the chosen adult can fully care for your children. Many states have a document that will allow you to designate someone to make medical and other decisions on your minor children’s behalf on a temporary basis. The document’s name and effective duration can vary by state, but having this document can ensure that whomever you leave your child with will be able to fully care for your children in your absence. 

Additionally, whether you are traveling or not, it is important that you have a last will and testament that designates someone to care for your minor children in the event you and their other legal parent die or are unable to care for them. Some states allow you to name someone to care for your minor children in the event you die or are otherwise unable to care for them in a document other than a last will and testament, such as a durable power of attorney or nomination of guardian. Although these documents will not avoid court involvement, they will help ensure that your wishes are honored.

We know that preparing for international travel has a lot of moving parts. We want to offer our assistance to ensure that you are properly protecting yourself and those you love during your amazing journey. Give us a call to schedule an appointment before you go.

The notion that your estate plan contains a defect would not normally be welcomed as good news. But despite the moniker, an intentionally defective grantor trust (IDGT) can be an advantageous tool for minimizing estate taxes and maximizing the money and property that are passed on to a spouse, descendants, or other beneficiaries. 

The defect in this case refers to trust provisions that make the grantor (the person creating the trust)—not the trust—the trust owner and therefore liable for trust income taxes. By not having annual income taxes come directly out of the trust’s money and property, more value remains for beneficiaries. Further, the appreciation of accounts and property is excluded from the trust owner’s taxable estate.

How an Intentionally Defective Grantor Trust Works

Typically used by wealthy families to preserve intergenerational wealth, IDGTs are a type of irrevocable trust best suited to holding appreciating assets, such as real estate and securities. 

These assets are held outside of the grantor’s estate for transfer tax purposes (gift and estate tax), but for federal income tax purposes, they are treated as though they are owned by the grantor. Thus, the grantor pays income tax on the appreciation of the assets placed in the trust, but the appreciation of those assets is excluded from the grantor’s estate, which amounts to a tax-free gift to the trust. In other words, once the assets are placed in the trust, their value is effectively frozen. Any appreciation that occurs does so outside of the grantor’s estate. 

The “defective” part of this arrangement is the intentional inclusion of a right of power that results in the grantor being treated as the trust owner from an income tax standpoint. These powers are found in §§ 671–679 of the Internal Revenue Code and include the right to take the following actions: 

• Reacquire assets already placed in the trust and substitute them for other assets 
• Take loans from the trust
• Change the beneficiary of the trust 

As an example, suppose the grantor wants to set up an IDGT to benefit the grantor’s children. The grantor funds the trust with $10 million in assets that earn 5 percent annually. Over thirty years, the $10 million initial investment would grow to $43 million.¹ If those same assets were held in a nongrantor trust, that $10 million would grow to only $24 million as a result of the trust paying income taxes on the assets. As a result, assets held in an IDGT would be worth almost $20 million more over the thirty-year period. 

At the time of transfer (i.e., when the grantor dies and the trust transfers to the beneficiaries), only the initial $10 million investment—not the current $43 million value—counts towards the federal unified gift and estate tax exemption ($12.06 million in 2022). Transfers that exceed this amount are taxed at 18–40 percent. 

Even better, as time passes and the value of the trust assets continues to grow, the tax-free benefit of this growth only increases. As an added benefit, the assets placed in the IDGT enjoy protection from creditors and other parties, such as the spouse of a divorcing beneficiary. Plus, since the trust is a grantor trust, the grantor has some ability to control the trust during their lifetime. This differs from most irrevocable trusts that do not contain grantor trust provisions and which force the grantor to give up all rights and powers over the trust and its assets. 

Two Ways to Fund an IDGT

IDGTs can be funded in one of two ways: with a completed gift or an installment sale. 

• Funding an IDGT with a gift is the most common and straightforward way to place assets in the trust. It simply entails deciding which assets will be held in the trust and then making an irrevocable gift to the trust. This method is most beneficial for appreciating assets because it allows the grantor to pay income taxes on the assets over the years, but additional transfer taxes are avoided if the assets appreciate. However, the grantor may have to pay gift taxes on the gifted trust assets if they exceed the annual exclusion amount ($16,000 in 2022).²  
• Funding an IDGT with an installment sale is also an option. In this scenario, the grantor makes a small seed gift to the trust. Absent a guarantee of the note, a seed gift is necessary to give the installment sale transaction economic substance. An installment sale involves selling appreciating assets to the trust in exchange for an interest-bearing promissory note payable by the trust. The IDGT is a grantor trust, which means that the installment sale amounts to the grantor selling assets to themselves. The benefit of this arrangement is that any gains from the sale are tax-free. The grantor may choose to earn income from the installments or make interest payments to the trust and grow its value for the benefit of heirs. 

Important IDGT Legal Considerations

An IDGT can be set up as a dynasty trust (a trust spanning multiple generations) to provide for long-term wealth preservation that is not subject to estate taxes when the beneficiary passes away. But dynasty trusts cannot be established in every state due to the rule against perpetuities that limits how long a trust may legally exist. Some states, including Delaware, Nevada, and South Dakota, have eliminated the rule against perpetuities, while others have modified it. If you want to set up an IDGT as a dynasty trust, be mindful of state laws where you live. 

To fully realize the benefits of an IDGT, the trust must be properly structured. The Tax Adviser, a publication of the American Institute of CPAs, notes that an improperly structured IDGT could result in the trust being included in the grantor’s estate, which might increase the amount of estate taxes owed. This could happen, for example, if the grantor keeps certain powers over the trust. Another possible outcome of an improperly structured IDGT is that the trust would no longer be considered a grantor trust, eliminating the added flexibility that this type of trust gives to the grantor. 

A well-considered estate plan can contain tools like IDGTs that help maximize the money and property that are passed on to the next generation and protect family wealth. An IDGT can provide benefits to both grantor and beneficiaries but must be appropriately drafted and funded to get the most out of it. Some in the tax and legal community feared that the Inflation Reduction Act would lower the estate and gift tax exemption. While these provisions were not included in the law, funding an IDGT now at the current historically high exemption amounts might be a smart move. 

A basic estate plan that includes a will, powers of attorney, and healthcare directives is just the start. High-net-worth individuals may require a more sophisticated plan that involves tools like an IDGT. To discuss this unique type of trust and your unique estate planning needs with our attorneys, please schedule an appointment and let us know how we can help.

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Footnotes

1. Andrew Seiken, Maximize Next Generation Assets with Intentionally Defective Grantor Trusts, BNY Mellon, https://www.bnymellonwealth.com/articles/strategy/maximize-next-generation-assets-with-intentionally-defective-grantor-trusts.jsp (last visited Oct. 25, 2022).
2. Frequently Asked Questions on Gift Taxes, IRS.gov, https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes (last visited Oct. 25, 2022).
3. Barbara Bryniarski, Helping a Client Benefit from an Intentionally Defective Grantor Trust, Tax Adviser (Nov. 11, 2021), https://www.thetaxadviser.com/newsletters/2021/nov/helping-client-benefit-intentionally-defective-grantor-trust.html.

Among the superheroes, Batman is unique because he has no superpowers. Although he is trained in the martial arts and possesses a range of high-tech gadgetry that allows him to fight crime, Batman is entirely human. He does not have genetic mutations, X-ray vision, overpowering physical strength, flying ability, genius-level intellect, or any other god-like powers. 

But Bruce Wayne does possess something that is key to his moonlighting as Batman: money. As the heir to an enormous fortune, Wayne is one of Gotham’s wealthiest citizens. He is also a major philanthropist who donates money to various causes. While his philanthropy is overshadowed by his masked vigilantism, neither would be possible without the money left to him by his parents. 

Carrying on the family legacy means different things to different families. You probably do not want your heirs to follow in the footsteps of Batman—at least when it comes to crime fighting. You might, however, want to inspire them to the philanthropy of Bruce Wayne. If so, your estate plan should be structured in such a way that it gives your loved ones the finances—and the flexibility—to do good on their terms. 

Batman’s Birthright

Most superheroes are fated to become who they are due to forces beyond their control. Spiderman and the Incredible Hulk were the unwitting victims of radiation. The X-Men were born with genetic mutations that made them societal outcasts. Captain America received an experimental “super-soldier serum.” And Superman hailed from the alien planet Krypton. 

Bruce Wayne developed the ability to overcome powerful foes, but he does so primarily through his personal drive and ingenuity, with an assist from his family fortune, which he inherited at age eight when his parents, Martha and Thomas, were killed. Also instrumental in his development was Alfred, the family butler who became his legal guardian. Alfred looked after Bruce at the family mansion, Wayne Manor, while he was growing up.  

The Batman universe is vast, and there are different versions of this hero’s journey. In the Christopher Nolan cinematic trilogy, Bruce blames himself for his parents’ death and abandons Wayne Enterprises, the multibillion-dollar company his late parents bequeathed to him. Bruce then travels to the Far East and trains with Ra’s al Ghul and the League of Shadows, leaving Alfred to tend to Wayne Manor. 

After nearly a decade away from Gotham, Bruce returns and accepts his place as the rightful head of Wayne Enterprises, a vast holding company for his inherited wealth. Wayne Enterprises has numerous branches,¹ including Wayne Technologies, which Batman uses to acquire new crime fighting technologies, like the Batmobile, grapple guns, an armored suit, and explosives. Forbes ranks Wayne Enterprises as the eleventh-largest fictional company, valued at more than $31 billion.² 

Bruce Wayne as Philanthropist

There is plenty to suggest that, in addition to fighting bad guys in his Batsuit, Bruce Wayne used his billions to improve Gotham in other ways. 

The Wayne Foundation, a holding company for the Thomas Wayne Foundation and the Martha Wayne Foundation, addresses social problems. The Thomas Wayne Foundation is focused on medicine, and it funds free clinics throughout Gotham. The Martha Wayne Foundation supports arts and education, including orphanages and free schools.³ 

There are multiple examples of Bruce directing Wayne Foundation resources to help needy Gotham residents. These include funding drug rehab clinics, rebuilding the city’s viaduct, and even sending money to an overseas refugee camp.⁴ Bruce Wayne has built hospitals, libraries, and orphanages, and every Wayne Enterprises employee has their college education paid for in full. 

Some have argued that Bruce could have better served Gothan by using his fortune to do more philanthropic work. Yet a pivotal part of the Batman mythology is Bruce’s conclusion that giving money away to charity did not get to the root of the corruption plaguing Gotham. Crime bosses like Carmine Falcone and the Joker cannot be bought. They rely on intimidation and operate outside of the law. As Bruce told Ra’s al Ghul in Batman Begins, Bruce’s desire is “to fight injustice. To turn fear against those who prey on the fearful.”⁵

Thus Batman was born. Throughout the Batman storyline, it is made clear that his philanthropy complements his crime fighting. Batman does what Bruce Wayne the philanthropist cannot do, and Bruce Wayne the businessman uses his money to fund legitimate causes that help Gotham citizens in ways beyond beating up bad guys. 

Inspiring the Bruce Wayne in Your Life

One of the top deathbed regrets revealed by a longtime hospice care social worker is that people wish they had done more for others.⁶ The social worker reveals how many patients made the dying decision to donate money to a charitable cause so they could make a difference before it was too late. 

The good you do in the here and now can not only make a difference in the lives of those you support, but it can also inspire the next generation to follow in your charitable footsteps, just as Bruce Wayne was inspired by his parents’ efforts to make Gotham a better place.

Martha Wayne, for example, worked at a free medical clinic and organized fundraisers. Thomas Wayne instructed Bruce to “honor the Wayne Family legacy, and commit yourself to the improvement of Gotham City, its institutions, and its citizens. Invest in Gotham, treat its people like family. Watch over them and use this money to safeguard them from forces beyond their control.”⁷

Thomas Wayne implored his son and heir to take care of Gotham but did not give a specific prescription for doing so. If he had, there is no doubt that this plan would not have included his son becoming Batman. Nevertheless, if Bruce had been duty bound to sit behind a desk at the Wayne Foundation and follow his late father’s dictates, rather than having the freedom to use his wealth as he saw fit, Gotham may well have been worse off. 

This does not mean you cannot nudge people in the right direction. Incentives in your estate plan can reward a loved one for doing charitable work, without telling them exactly what work to do. You could, for example, add a provision directing additional money and property to a child or grandchild who dedicates a certain number of hours per week, month, or year to a charitable cause. You could guarantee their material needs will be provided for if they take up full-time charity work in lieu of a career. Or, like the Wayne Foundation, you could pay for their college education in exchange for service. 

With Great Wealth Comes Great Responsibility 

Those fortunate enough to have money to spare may feel a sense of responsibility to the wider community beyond their own family. The example you set in this life can resonate far into the future as your loved ones continue to give time and money to charities. You can also structure your estate plan in such a way that makes giving back a family tradition, even when you are no longer around. 

If philanthropy is near and dear to your heart and you want your loved ones to carry on the spirit of giving, your estate plan should reflect your charitable goals. While inspiring a real-life Batman is probably  not on the agenda, our attorneys are here to ensure that your legacy of generosity is reflected in your estate plan. We can identify planning tools that maximize tax savings and leave more money for charitable giving. To start planning today, please contact us.

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Footnotes

1. Wayne Enterprises, Branches, Batman Fandom, https://batman.fandom.com/wiki/Wayne_Enterprises#Branches (last visited Oct. 17, 2022).
2. Michael Noer, The 25 Largest Fictional Companies, Forbes (Mar. 11, 2011), https://www.forbes.com/sites/michaelnoer/2011/03/11/the-25-largest-fictional-companies/?sh=4c2cb6725d81.
3. Wayne Foundation, New Earth, DC Database, https://dc.fandom.com/wiki/Wayne_Foundation#New_Earth (last visited Oct. 24, 2022).
4. Dashiel Reaves, Gotham’s True Hero Was Always Bruce Wayne, Not Batman, Screen Rant (Sept. 24, 2022), https://screenrant.com/bruce-wayne-gotham-charity-money-billions-philanthropy-batman/.
5. Caroline Fox, Batman Begins: How Long Bruce Wayne Trained to Become the Dark Knight, Screen Rant (Dec. 14, 2020), https://screenrant.com/batman-begins-bruce-wayne-training-how-long/.
6. Grace Bluerock, The 9 Most Common Regrets People Have at the End of Life, mgbmindfulness (Feb. 24, 2020),  https://www.mindbodygreen.com/articles/the-most-common-regrets-people-have-at-the-end-of-life.
7. Thomas and Martha Wayne, Batman Arkham Wiki, https://arkhamcity.fandom.com/wiki/Thomas_and_Martha_Wayne (last visited Oct. 24, 2022).

No one wants to pay more taxes than they have to. To carry out this objective, many people search for the perfect estate planning tool that will allow them to control as much of their money and property as possible while reducing the amount they or their loved ones will have to pay the government. If you have looked for the tax-saving estate planning tools, chances are you might have come across the spousal lifetime access trust (SLAT). Here are some important things you should know before you settle on this tool as your estate planning solution.

What is a spousal lifetime access trust?

A SLAT is a type of irrevocable trust created by one spouse (trustmaker spouse) for the benefit of the other spouse (beneficiary spouse) that is used to transfer money and property out of the trustmaker spouse’s estate. This strategy allows married couples to take advantage of their lifetime gift and estate tax exclusion amounts by having the trustmaker spouse make sizable, permanent gifts to the SLAT that decrease the value of their estate while maintaining some limited access to the money and property that is gifted for the beneficiary spouse’s benefit.  

How does it work?

The trustmaker spouse gifts money or property (of which they are the sole owner) to the SLAT for the benefit of the beneficiary spouse. If the couple resides in a community property state, they will likely need to convert community property into separate property through a partition agreement. The trustmaker spouse reports the gift on a gift tax return. The beneficiary spouse can receive distributions from the trust, from which the trustmaker spouse may also indirectly benefit. Upon the death of the beneficiary spouse, the trust assets are transferred to the remaining trust beneficiaries (usually children and grandchildren of the couple), either outright or in trust.

What are the pros and cons?

SLATs offer several advantages to those looking to minimize the value of their estate:

• Not only is the value of the property that is gifted to a SLAT removed from the trustmaker spouse’s estate, but all future appreciation is also removed. The trust property is also excluded from the beneficiary spouse’s estate, even though the beneficiary spouse may receive distributions from the SLAT.
• SLATs are typically structured as grantor trusts, meaning that all the trust’s taxable income is taxed to the trustmaker spouse, further reducing the trustmaker spouse’s estate. Plus, no separate trust tax return will be required for the SLAT while the trustmaker spouse is living. However, if the SLAT is not structured as a grantor trust, a separate trust tax return will be required.
• SLATs provide a way to “have your cake and eat it too.” While spouses may be concerned about losing control over money and property that is gifted away and whether that property will be needed in the future, a SLAT can address this uncertainty by allowing the trustmaker spouse indirect access to the property through the beneficiary spouse.

Some potential drawbacks to using a SLAT are as follows:

• Gifts made to a SLAT are final and cannot be undone. 
• If the beneficiary spouse dies before the trustmaker spouse, the trustmaker spouse loses all access to the money and property that was gifted to the SLAT. This would also be the case if the couple were to divorce. The trustmaker could potentially regain indirect access to the trust assets by remarrying.
• The property gifted to a SLAT will not receive a step up in cost basis at the death of the trustmaker spouse. This drawback could be minimized by including a trust provision that allows the trustmaker spouse to swap trust property, thus allowing the trustmaker spouse the ability to substitute low-basis property with high-basis property or cash of equal value.
• Spouses looking to create SLATs for each other to utilize each spouse’s exemption amount fully will need to ensure they do not run afoul of the reciprocal trust doctrine. If the Internal Revenue Service interprets the two trusts as being substantially similar, it can undo the trusts and include the trust property in the spouses’ taxable estates, thus defeating the purpose of creating the SLAT. This drawback can be avoided by creating the SLATs at different times, using different trustees, choosing different beneficiaries, or providing for different terms for distributions. Given the complexity and tax implications, it is highly recommended that you consult an experienced estate planning attorney.

Why are people talking about them so much?

In 2022, the gift and estate tax exemption amount is $12.06 million for individuals and $24.12 million for married couples—a historically high amount. However, under current law, this amount is slated to shrink to $5 million (adjusted for inflation) on January 1, 2026. This decrease in the exemption amount could happen even sooner if Congress acts to change it. Last year, the House Ways and Means Committee proposed cutting the gift and estate tax exemption in half effective January 1, 2022. Because the law could change at any time, the window of opportunity to take advantage of this estate planning technique is very narrow. 

Married couples who are considering taking such a step should contact an estate planning expert as soon as possible. We can help talk you through the pros and cons of using a SLAT and whether this technique makes sense for your situation.

Cohabitation without marriage is becoming more common in the United States. Among eighteen- to forty-four-year-olds, the percentage of adults who have lived with an unmarried partner at some point is now higher than the percentage of adults who have been married. 

When you live with a romantic partner, it may feel as though you share everything. And to some extent, this may be true, legally speaking. For example, there is a trend toward unmarried couples buying homes together. While this might make economic sense, especially at a time when household budgets are being stretched, it can also create legal complications. 

Gifts that are given purely out of affection can create unintended consequences as well. This includes gift taxes and the relinquishing of control over the gift once it is accepted. Your heart might be in the right place, but without understanding gifts and joint ownership, you could be making a decision that you will come to regret. 

Unmarried Partners and Cohabitation: A New Norm

Decades ago, it was rare—and even scandalous—for unmarried couples to live together. However, like many aspects of American life, this is changing. 

Over the last two decades, the number of unmarried partners living together has almost tripled from 6 million to 17 million.¹ Among young adults ages eighteen to twenty-four, cohabitation is now more common than living with a spouse.² Among adults ages eighteen to forty-four, 59 percent have cohabitated as compared to 50 percent who have ever been married. Since 2002, the share of U.S. adults who are married is down. Over the same period, the share of adults living with an unmarried partner has more than doubled.³  

As marriage and cohabitation trends change, Americans are becoming more accepting of unmarried couples living together, according to Pew Research Center.⁴ In addition, some arrangements that were previously only available to married couples, such as car insurance, have been extended to unmarried couples. Today, most insurers allow a significant other (e.g., a boyfriend, girlfriend, domestic partner, or fiancé(e)) to be added to a car insurance policy.⁵  

Sharing a single auto insurance policy with a domestic partner can save both of you money on premiums. However, if your significant other has a bad driving history or they get into an accident on a policy that you share, it could increase your rate. 

Joint Ownership and Unmarried Couples

As the number of cohabitating partners has increased, so has the number of unmarried couples buying homes together. According to the National Association of Realtors, 9 percent of homebuyers in 2020 were unmarried.⁶  

Although it might make financial sense to buy a home together, a property that is jointly owned by both partners presents legal risks and obligations to each co-owner. These same risks and obligations can arise if one partner already owns a home (or another asset) and adds their partner to the title. 

First, adding another person to the title of a property can trigger gift tax consequences in states in which the joint owner does not have the right to sever their interest. In such states, the gift is typically valued at half of the property’s value.⁷ If the value of the gift is over the annual gift tax exclusion amount ($16,000 in 2022), then a gift tax return will need to be filed by the person giving the gift (i.e., the original owner). Due to the high lifetime estate and gift tax exclusion amount ($12.06 million in 2022), it may be unlikely that any gift tax would be owed; however, the value of this gift will be deducted from the giver’s lifetime exclusion amount at their death.

In addition, once a joint owner is added to the property, that property can immediately be susceptible to the new joint owner’s creditors. Obviously, this has implications for the original owner if a new joint owner’s creditor goes after the now jointly owned property to satisfy the debt. 

Finally, depending on how the property is titled, unmarried partners who buy a home together could inherit each other’s share of the property automatically. This happens when the property is deeded to the new owners as joint tenants with right of survivorship. The following alternatives to joint tenancy do not trigger survivorship rights:

• the owners holding the property as tenants in common 
• having a trust own the property, with the nonowner partner having a right to occupy the property for a designated period of time 
• creating a limited liability company to own the property with a retained right of occupancy for the surviving owner 

A cohabitation property agreement that protects each partner’s property interests should also be considered. An agreement of this type can include a dispute resolution process, an exit strategy, a buyout agreement, and a plan for account and property division if and when the couple splits up. 

Unmarried Couples and Gifts

Love can make people act irrationally. Somebody might be convinced that they have met the love of their life, and this can prompt them to make decisions they regret in hindsight. “Look before you leap” is good advice when considering marriage. But prior to marriage, “Think before you gift” is equally applicable. 

Gift has a specific legal meaning rooted in contract law. It is something that is transferred from one person to another for a nonbusiness reason and without compensation. A few conditions must be met to make a gift valid: 

• The person giving the item intends it as a gift.
• The giver actually delivers the gift to the receiver (and does not simply promise to do so at some point in the future).
• The receiver accepts the gift from the giver.

If a gift meets these requirements, contract law recognizes it as a valid gift. As a result, the gift is enforceable and, in most cases, it cannot be taken back. That is, once a gift is successfully made, the giver loses control over the gifted money or property. 

Gifting an object of relatively little value probably will not be a big deal in the event of a breakup. It is unlikely that somebody will ask for a birthday or Christmas present back so they can return it for a refund. But if the gift is something large—like joint ownership in a property— major issues can arise. 

Imagine that you add your partner to the title of your house so that legally, half of the house is theirs. After a split, they are unwilling to return their share to you. To get it back, you would have to buy it from them. But what if they do not want to sell it to you? Alternatively, they could buy your share or they could sell their share to another party. They could also petition the court to perform a forced sale of the property and distribute the proceeds among the two of you, or ask the court to partition the property. In any case, these are probably not scenarios you would have agreed to if you had thought through your gift of joint tenancy ahead of time. 

A house is a dramatic example of the perils of gifting, but the same legal considerations apply to any gift, with the possible exception of an engagement ring. Because it is a conditional gift that is predicated on a future event taking place, the giver may have the right to get the ring back if the future event (the wedding) does not take place. However, courts have taken different views of this issue, and it could come down to the specifics of the broken engagement. 

Love and the Law: It Is Okay to Ask Questions

Even though cohabitation without marriage is more popular than ever, unmarried couples still do not have all the legal protections that married couples enjoy. You might be certain that you have met “the one,” and you may be right. But before you hand over the keys—literally and figuratively—to another person, or sign on the dotted line with them, there is no shame in talking to a lawyer about how to protect yourself. If you have any questions about how to gift property to your significant other, please contact us.

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Footnotes

1. Benjamin Gurrentz, Unmarried Partners More Diverse Than 20 Years Ago: Cohabitating Partners Older, More Racially Diverse, More Educated, Higher Earners, U.S. Census Bureau (Sept. 23, 2019), https://www.census.gov/library/stories/2019/09/unmarried-partners-more-diverse-than-20-years-ago.html.
2. Benjamin Gurrentz, For Young Adults, Cohabitation Is Up, Marriage Is Down: Living with an Unmarried Partner Now Common for Young Adults, Census.gov (Nov. 15, 2018), https://www.census.gov/library/stories/2018/11/cohabitation-is-up-marriage-is-down-for-young-adults.html.
3. Juliana Menasce Horowitz et al., Marriage and Cohabitation in the U.S., Pew Research Center (Nov. 6, 2019), https://www.pewresearch.org/social-trends/2019/11/06/marriage-and-cohabitation-in-the-u-s/.
4. Id.
5. Car Insurance for Unmarried Couples, Progressive, https://www.progressive.com/answers/car-insurance-for-unmarried-couples/ (last visited Oct. 25, 2022).
6. Kate Dore, Buying a Home Unmarried? What to Know Before Signing the Deed, CNBC (Nov. 5, 2021), https://www.cnbc.com/2021/11/05/buying-a-home-unmarried-what-to-know-before-signing-the-deed.html.
7. Thomas J. Stemmy, Creating Joint Ownership: Avoiding the Tax Trips and Other Pitfalls, J. Acct. (Jan. 31, 2009), https://www.journalofaccountancy.com/issues/2009/feb/creatingjointownership.html.

Anne Heche’s recent accidental death was a shocking reminder of how the everyday can quickly turn into the tragic. While driving through the Mar Vista neighborhood of Los Angeles on August 5, 2022, Heche was involved in a car crash and succumbed to her injuries a week later. The official cause of death was burns and smoke inhalation. 

As the media reflects on her legacy as an actress and celebrity, and as some corners of the internet are awash with conspiracy theories around the circumstances of her death, Heche’s situation also provides some tough lessons about the need for estate planning. 

Not having a will can place surviving family members in a difficult position and undermine the privacy that public figures try so hard to maintain. An email was presented to the court purporting to appoint her ex, James Tupper, as the administrator of her estate and dividing everything equally among her two children to be given to them at the age of twenty-five.¹ It has been speculated that this document will not meet the standards of a valid will in California, however, because it was not in Heche’s handwriting, she did not sign it, and there were no witnesses. Rather than Heche’s estate being distributed according to her final wishes, it is now subject to state law and a very long and public probate court proceeding. 

Heche’s Legacy

When Heche passed away on August 11 at age fifty-three, it spurred many questions. Was she really involved in three separate car accidents in a span of thirty minutes? Why did her crash into a two-story home cause such a massive fire? How was it possible that it took sixty firefighters nearly an hour to extinguish the blaze and get Heche out of her vehicle? And why was she initially reported to be in stable condition and expected to survive when her injuries ended up being fatal? 

Putting these questions aside, from an estate planning perspective, the death of Anne Heche has highlighted questions that arise when somebody dies and does not have a will. Heche is hardly alone in this regard. About two-thirds of Americans have not established an estate plan of any kind.² Every adult should have a basic estate plan, regardless of their net worth. But in general, the more money and property a person has, the more risk they are taking by not having an estate plan, since their money and property could be distributed in a way they would never have intended or approved of. 

According to the filings with the court, Heche had about $400,000 in accounts and property in her name, and it is expected that she had a similar amount in residuals and royalties annually.³ She was not married when she passed away but left behind two sons from two fathers: Homer Laffoon (twenty years old) and Atlas Tupper (thirteen years old). Heche and Coleman Laffoon, the father of Homer, were married in 2001 and divorced in 2009. Heche split up with Atlas’s father, James Tupper, in 2018, but the two were never married. 

How the Estate of Anne Heche Will Be Settled with No Will 

In California, where Heche lived, probate records are public.⁴ This means that members of the public will be able to access personal information such as the type and extent of all of her accounts and property. 

With careful estate planning, probate can be minimized or eliminated using tools like trusts and gifting. But because Heche died without a will—known as dying intestate—her estate must go through probate. In addition, her estate is subject to California intestacy laws. Here is how her estate will be settled based on those laws: 

• Heche died without a surviving spouse or domestic partner. Therefore, her children will inherit everything, divided equally between them.⁵ 
• Normally, somebody in the will specifies an administrator (a person who oversees settling of the estate). California intestate law specifies that, absent a surviving spouse or domestic partner, children are next in line to serve as administrator, or executor.⁶ In fact, Heche’s son Homer has already petitioned the court to assume control of his mother’s estate in this role. If appointed administrator, he will represent the estate of Anne Heche in California probate court. 

Another issue that will need to be addressed is the fact that Atlas Tupper is a minor, and as such, requires representation (a guardian ad litem) during probate. In California, the court may appoint a guardian ad litem. It could also name Homer as the guardian to his little brother, which Homer has requested in court filings.⁷ Atlas will also need somebody to manage his share of the inherited estate until he is legally an adult (eighteen years old). Again, this appointment could come from the court in the form of a court appointed conservator. 

In Heche’s case—an unmarried woman with two clear heirs—probate may not be terribly complicated. Most likely, if she had had a will, it would have named her sons as the beneficiaries, resulting in the same outcome produced by intestate law. Not creating a will leaves everything you have accumulated during your lifetime at the mercy of the state, with automatic succession (i.e., inheritance) laws and judges taking on the responsibilities you abdicated. Instead of letting the state choose a guardian ad litem and court-appointed conservator for her minor son, for example, Heche could have simply created a trust to manage his inheritance until he came of age. She could have also personalized the trust by attaching conditions, making his inheritance dependent on certain life achievements, such as graduating college or getting a job. 

Take Control of Your Legacy—Talk to an Estate Planning Attorney

Nobody plans to die unexpectedly. If you die without a will, though, you are ceding control of your estate to impersonal government forces that may not have your best interests, or those of your heirs, in mind. Estate planning is a way to take charge of your legacy and ensure that your money and property end up where you want. Your plan can be as general or as specific as you want, but even the most basic estate plan is better than no plan. To start planning today, reach out to our office and schedule a meeting with an estate planning lawyer.

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Footnotes

1. Miguel A. Milendez, Anne Heche’s Ex James Tupper Files to Become Legal Guardian of 13-Year-Old Son Atlas, ETOnline (Oct. 4, 2022), https://www.msn.com/en-us/movies/celebrity/anne-heches-ex-james-tupper-files-to-become-legal-guardian-of-13-year-old-son-atlas/ar-AA12BxWK.
2. Lorie Konish, 67% of Americans Have No Estate Plan, Survey Finds. Here’s How to Get Started on One, CNBC.com (Apr. 11, 2022), https://www.cnbc.com/2022/04/11/67percent-of-americans-have-no-estate-plan-heres-how-to-get-started-on-one.html.
3. Gregory Yee, Judge Denies Anne Heche’s Ex-Boyfriend Control of Estate as Court Battle Continues, Los Angeles Times (Oct. 11, 2022), https://www.latimes.com/california/story/2022-10-11/anne-heche-ex-boyfriend-son-control-of-estate-court-battle.
4. Sacramento Superior Court, Probate—General Information and Usage, Public Case Access System, https://services.saccourt.ca.gov/PublicCaseAccess/Probate (last visited Oct. 25, 2022).
5. Cal. Prob. Code § 6402 (West, Westlaw through Ch. 997 of 2022 Reg. Sess.).
6. Cal. Prob. Code § 8461 (West, Westlaw through Ch. 997 of 2022 Reg. Sess.).
7. Mike Reyes, Anne Heche Died with No Will. What’s Going on with Her Estate, CinemaBlend (Sept. 1, 2022), https://www.cinemablend.com/movies/anne-heche-died-with-no-will-whats-going-on-with-her-estate.

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.