Category: The Wealth Advisor

About 90 million Americans depend on life insurance for financial protection and retirement security. An almost equal number say that they either do not have any life insurance or need more life insurance. More than one-third say they plan to purchase coverage in the next year. 

With very few exceptions, life insurance can benefit everyone. Owning life insurance is necessary, especially if you have dependents. But while you might understand that buying life insurance is a good move, you may be unsure whether you have enough, how to determine the ideal amount for you and your family, and where life insurance fits into your overall financial and estate plans. 

Life Insurance Statistics and Trends

According to the 2024 Life Insurance Barometer Study from LIMRA and Life Happens, two nonprofit industry trade associations, about half of US adults report having life insurance. The study found that more than 100 million Americans are living with a life insurance gap—the highest number in the study’s 14-year history. This gap is higher among women than men and highest among Americans earning less than $50,000. 

For the last five decades, the percentage of American adults with life insurance has steadily declined, from over 80 percent in 1975 to just 52 percent in 2023, says Guardian Life. Coverage amounts are also declining, even as the cost of living continues to rise. 

Top Reasons to Buy Life Insurance

Most people buy life insurance to provide tax-free income replacement to their family in case they suddenly pass away.

Insurance experts recommend buying life insurance with a death benefit equal to at least 10 times your salary. For example, if you earn $50,000 per year, you would want to buy a minimum of $500,000 in coverage. 

A $500,000 policy might sound like a lot of coverage, but this amount does not exist in a vacuum. It must be considered alongside factors like family size, debt levels, and financial goals—all of which can change and require additional coverage. 

You may also need more coverage if you are using life insurance for a purpose other than (or in addition to) leaving money to your loved ones. 

Other reasons to buy life insurance beyond income replacement include the following: 

• Using the cash value to pay off a loan, protect existing assets, or build an emergency fund
• Making charitable contributions
• Funding buy-sell agreements for a business
• Providing flexibility to your estate plan
• Covering specific expenses, such as a child’s education, wedding, or travel, with a life insurance trust

How to Purchase the Right Policy and Amount

Most insurers offer coverage limits ranging from $100,000 to several million dollars per policy. Insurers often cap individual policies at $5 million to $10 million, although you can have more than one policy. There are many reasons why you might want to have multiple policies. 

From term life and whole life to variable life and group life to nontraditional policies like indexed life and supplemental life, you should focus on the policies that make sense for your needs and goals. However, this may not be as simple as it sounds. 

The reasons for buying life insurance—and the corresponding coverage amounts needed—can change over time. Here are some situations that could prompt you to reconsider your life insurance coverage: 

• You recently started a family, and your employer-provided group life insurance is no longer enough 
• Your family has grown, and your life insurance policy should grow accordingly
• You have taken on a significant amount of debt 
• You purchased term life insurance earlier and now want the benefits of whole life insurance later in life 
• You have retired and no longer have your employer-provided life insurance policy
• Your income increased
• Your stay-at-home spouse is uninsured 

Talk to an Attorney about Life Insurance and Estate Planning

The reasons for buying life insurance are as varied as the available policy types. If you are among the more than 100 million Americans facing a life insurance coverage gap, an attorney, working with a financial planner and insurance agent, can ensure you purchase the right policy and maintain the right amount of coverage. 

Your life insurance policies and estate plan should be revisited every three to five years. Even if you have enough insurance, we often see policyholders making mistakes such as naming their estate as the beneficiary, not updating beneficiary designations, not naming contingent beneficiaries, and naming minor children or special needs beneficiaries without setting up a custodian or trust. 

It can be a mistake to silo your financial planning, retirement planning, wealth management, and estate planning. By viewing them as parts of a whole, overarching plan that serves the same overall goals, you and your family will be better prepared for the future. 

Please meet with our attorneys today to start planning for your future. 

Gloria Vanderbilt: No Trust Fund Kids for Her

We are at the precipice of what is being called “The Greatest Wealth Transfer in History,” as baby boomers are set to pass down $84 trillion to younger generations.¹ Every parent wants to see their children succeed. But some may wonder whether an inheritance will help promote or hinder the future success of their children. Famous mom Gloria Vanderbilt was staunchly against trust funds for her kids. And at least one of them applauds her decision. 

Vanderbilt Heiress Makes Good on “No Trust Fund” Promise

Before she passed away in 2019, Gloria Vanderbilt, heiress to the Vanderbilt fortune (or at least what remained of it) that was created by her great-great-grandfather, railroad and shipping tycoon Cornelius Vanderbilt, made it clear to her three children that they should not expect a trust fund from her. 

Gloria was herself the beneficiary of a trust fund worth an estimated $2.5–$5 million in 1925, or around $35–$70 million today, and had a reported net worth of around $200 million when she passed away. 

But unlike her father, Reginald Vanderbilt, who squandered most of the family fortune, Gloria made more money than she inherited during her career as a fashion designer, actress, model, and artist, building a denim business that was worth an estimated $100 million. 

In a 1985 interview with the New York Times, Gloria said, “I’m not knocking inherited money, but the money I’ve made has a reality to me that inherited money doesn’t have.”² 

Decades later her son, CNN news anchor Anderson Cooper, echoed his mother’s stance on inherited wealth when he called it a “curse” and an “initiative sucker” and questioned whether he would have been so motivated if he felt like there was a “pot of gold waiting for [him].”³ 

“We believe in working,” he told radio host Howard Stern when Stern argued that leaving your children an inheritance is a loving gesture.⁴

Like his mother, Cooper did just fine on his own. Although he ended up receiving $1.5 million from Gloria’s estate, his net worth prior to his inheritance was thought to be more than $100 million—hardly the mark of a trust fund kid. 

The Case for and against Leaving Your Kids an Inheritance

It is becoming something of a trend among the super-rich to not leave their fortunes to their kids. Mick Jagger recently revealed that he will be leaving his $500 million fortune to charity rather than to his eight children, joining the ranks of mega-wealthy celebs and business people like Warren Buffet, Mark Zuckerberg, and Bill Gates who have made similar vows. 

Others, including famous foodie Guy Fieri, actor Jackie Chan, and composer Andrew Lloyd Webber, want their kids to work for their inheritances. Fieri’s recipe for his children’s success?  The children are not allowed to take over his dining empire until they achieve postgraduate degrees. 

Research suggests there is wisdom to avoiding the silver spoon scenario. The Williams Group wealth consultancy, for example, found that 70 percent of wealthy families lose their wealth by the second generation, and 90 percent lose it by the third generation.⁵ A survey by U.S. Trust found that only 42 percent of high-net-worth individuals have a high degree of confidence that the next generation is financially responsible enough to handle an inheritance.⁶ 

The Vanderbilts present a compelling case study—and counterpoint—to the narrative of heirs wasting the family fortune. Despite receiving a trust from her profligate father with enough funds to live comfortably, Gloria’s inheritance did not dull her desire to achieve independent success. Cooper also had a strong work ethic. He went to Yale, interned at the CIA, and became one of the most recognizable faces in the media. 

It could be that Gloria, like every mother, knew her child best and knew he would succeed on his own. Perhaps equally as important was the good example she set for her children.

One of the main reasons why family fortunes are squandered is because those who create the initial wealth do not pass on detailed instructions or restrictions regarding how heirs should spend it. Attitudes towards wealth, like wealth itself, are often inherited. Kids need to learn good foundational money habits to be financially successful. And estate planning tools like trusts that specify how and when the money can be used offer an enforcement mechanism. 

Having a trust fund or substantial inheritance does not guarantee that heirs will be successful in life. Conversely, not leaving an inheritance could be a strong motivator for loved ones to find their own path forward.

What is good for one kid may not be necessarily good for every kid. While some make the most of their inheritance with no strings attached, others benefit from safeguards and incentives. 

Another option you have as a parent is to gift money to your children now, when it might benefit them more and you can keep an eye on how they spend it. For 2024, you can give gifts of up to $18,000 per recipient to as many people as you want without having to pay any taxes on the gifts. Also, gifts over $18,000 per recipient will not necessarily result in a gift tax but will instead chip away at your lifetime gift tax exclusion amount of $13.61 million. These threshold amounts double for couples. 

Intergenerational wealth-building and estate planning go hand in hand. For help crafting a plan that puts your heirs in the best position to succeed, reach out to our attorneys and schedule a meeting. 

Aretha Franklin: Too Much Estate Planning

Too little estate planning can put your heirs in a bind and tie up your estate in time-consuming and costly probate litigation. But as the legal saga of Aretha Franklin’s estate shows, too much estate planning—in particular, planning that introduces uncertainty about your final wishes—can also be problematic. 

After her death, there are lessons to learn from the Queen of Soul about how to R-E-S-P-E-C-T your legacy—and your heirs—with a well-thought-out, professionally prepared estate plan. 

Four Sons, Two Wills, and One High-Stakes Court Drama

Aretha Franklin, one of the most influential and successful singers in American history, passed away at her Detroit, Michigan home in 2018 at the age of 76. Her passing marked the end of a storied musical career—and the beginning of a five-year court battle among her children over her last will and testament.  

Initially, it appeared as though Franklin died intestate—that is, without a will—which would have left the court to decide how her personal property, real estate, music and copyrights, and other money and property would be divided among her four sons. But the surprise discovery of not one but two wills raised legal questions about how Franklin wanted her money and property distributed. 

One will from 2014 was found under couch cushions and written in a spiral notebook. The other, dated 2010, was in a locked cabinet. Both were handwritten and had detailed lists of her accounts and property and named who should get what, but neither was prepared by a lawyer or listed witnesses. Further complicating matters, the two wills contained key differences about how the estate should be divided up, and Franklin’s sons disagreed about which version should control the estate. 

Over the next five years, the sons would face off in court over these tangled legal questions. The case became combative, and a rift reportedly developed in the family. A jury finally put the saga to rest when it determined that the 2014 document found in the late singer’s couch represented her true final wishes. 

Takeaways from Franklin’s Will Dispute

Estate planning is about cementing your legacy as you envision it and making sure that your heirs have minimal burdens when they inherit your money and property. 

Aretha Franklin’s legacy, at least from a musical standpoint, cannot be questioned. But her failure to put her personal finances in order before her death led to a messy legal situation that could have been easily avoided with the following basic estate planning strategies: 

• Let loved ones know where documents are stored. A will must be presented to the court and verified before it takes effect. If it cannot be found, it is effectively useless. You need to make sure that your loved ones know where your will is stored, along with your additional estate plan documents like trusts, powers of attorney, and life insurance policies. Keep them some place secure, such as a bank safe deposit box, a fireproof safe, a filing cabinet, or an encrypted online cloud. Anyone needing access to the documents should also have access codes. Document copies can be given to your estate planning attorney, the local probate court, a trusted friend or family member, or the executor as a fail-safe.
• Keep just one version of estate planning documents. Only one will is admissible to probate. As it did in Franklin’s case, the most recent version of a will or other estate planning document typically prevails in court over an older one. If you update your will or create new documents, destroy the older version to prevent confusion. 
• Avoid handwritten wills. Unless you find yourself on your deathbed without a will, desperately scrawling one out at the last minute, there is not really a good reason to use a handwritten will, known as a holographic will. Although holographic wills are considered legally valid in many states, there are some states that do not allow them at all, and in the states that do allow them, they must meet certain criteria. In some states, for example, the material issues (what you have and to whom you want to leave what you have) must be in your own handwriting and signed and dated by you. Working with an attorney is a much better way to ensure that the document is legally prepared and executed. 
• Do not send mixed messages. Having more than one will is an estate planning blunder that is easily avoided. But you will also need to make sure that your wishes are properly reflected in the beneficiary designations on your retirement accounts and in the way you have created jointly owned accounts and property.   

Estate Planning Is a Lifelong Process

An estate plan is not something you complete once and then leave in a cabinet (or under couch cushions). It needs to be revisited and updated throughout your life as things change. The earlier you start estate planning, and the more vigilant you are about revising it, the better. Ignoring it or waiting until the last minute to make revisions could have unintended consequences that your heirs are left to deal with. 

To complete or review your estate plan, please reach out to schedule a meeting with our attorneys.  

Lucille Ball: Dangers of Being the First to Die

Lucille Ball was the queen of television comedy to an older generation of Americans. Today, more than 70 years after I Love Lucy premiered, reruns still air on late-night networks, making it the longest-broadcasted TV show of all time and endearing Ball to a new generation of fans. 

Rankings of the best I Love Lucy episodes can be found across the web. There are also real-life lessons to learn from Ball, including from a lesser-known episode involving her daughter and her widower’s second wife that provides important estate planning lessons about remarriage. 

How Some of Lucille Ball’s Prized Possessions Ended Up at Auction

Ball had two children with her first husband, actor Desi Arnaz: Lucie Arnaz and Desi Arnaz Jr. The beneficiaries of the Lucille Ball Estate, estimated at $40 million when she died in 1989, were her two children and her second husband, Gary Morton. ⁷

But it is what Lucy’s daughter Lucie did not end up inheriting that sparked a fierce legal battle between her and Susie McAllister, whom Gary Morton later married after Lucy’s death. 

Morton died in 1999, and in 2010, more than 10 years after Morton’s death, McAllister consigned several items to Heritage Auction Galleries, including love letters between Ball and Morton, photos of the couple, a Rolls Royce, and some of Ball’s personal items like an address book, backgammon boards, and lifetime achievement awards. ⁸

When Lucie learned about the auction, she demanded some of the items be returned, threatening legal action against McAllister to stop the sale. According to a countersuit filed by McAllister against Lucie seeking a judge’s ruling to let the auction proceed, Ball left the personal effects in question to Lucie in her estate plan—but Lucie never claimed them from the estate. They then passed to Morton and eventually to McAllister from her late husband. 

The judge ultimately ruled in favor of Lucie and said that the auction could be stopped if she posted a $250,000 bond, but Lucie unfortunately could not afford it. Not all was lost, though, as her legal team reached an agreement with the auction house to have the lifetime achievement awards returned. The other items were auctioned off. ⁹

Estate Planning Lessons from the Ball Auction Debacle 

An attorney representing Lucie had strong words about the auction, saying it was insulting to Ball’s legacy and contravened her “express desire that these items were to belong to her daughter after her death.”¹⁰

One of the stranger and unexplained aspects of the Lucille Ball auction saga is why Lucie would have forfeited the items that ended up being offered for sale. While McAllister contends they were never collected, both women agreed that Ball left them to her daughter in her will. 

Assuming this is true, it means that Lucie made a mistake by not claiming the property she was gifted. Typically, unclaimed inheritances pass to the next beneficiary in line—presumably in this case Gary Morton.

However, in leaving the unclaimed heirlooms to McAllister, Morton may also have erred. It is plausible he did not know that Ball wanted Lucie to inherit the personal effects. But he probably should have known that they were better off with his stepdaughter than with McAllister, to whom they could not possibly have had any sentimental value. Put yourself in McAllister’s position: she lived with reminders of the couple’s life together for more than ten years out of respect for them and finally parted with the items as she remodeled her house and sought a fresh start. 

The entire situation between McAllister and Lucie might have been avoided if Morton had asked himself why McAllister would want the old love letters, photos, and awards. So the second lesson that can be learned from this legal drama is that if you inherit property from a previous spouse and later remarry, you need to think carefully about who should inherit it. 

Fitting the Small Details into the Big Picture of Your Estate Plan

Whether you are on the giving or the receiving end of an estate plan, we have your needs covered. 

If you were named as an estate beneficiary and are not sure how to claim the accounts or property gifted to you or need to take action to protect your beneficiary rights, our estate administration attorneys can help. We can also assist with the often complicated estate planning decisions that come with remarriage and blended families. 

Thoughtful, proactive action is the key to successful estate planning. To discuss your estate plan goals and concerns, schedule a meeting with our attorneys. 

1. Jennifer Wines, How Might the Great Wealth Transfer Change Society?, Kiplinger (Dec. 5, 2023), https://www.kiplinger.com/retirement/how-might-the-great-wealth-transfer-change-society.
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2. Antoinette Bueno, Why Gloria Vanderbilt Did Not Leave an Inheritance for Son Anderson Cooper, ET (June 18, 2019), https://www.etonline.com/why-gloria-vanderbilt-did-not-leave-an-inheritance-for-son-anderson-cooper-127225.
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3. Michelle Singeltary, Gloria Vanderbilt Reportedly Did Not Leave Her Heirs Much Money. Maybe You Should Follow Her Lead., Wash. Post (June 24, 2019), https://www.washingtonpost.com/business/2019/06/24/gloria-vanderbilt-is-reportedly-not-leaving-her-heirs-much-money-maybe-you-shouldnt-either.
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4.  Id.
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5.  ​​See ​​Rhymer Rigby, Disinheriting Your Children Might Be for Their Own Good, Fin. Times (Oct. 14, 2019), https://www.ft.com/content/eb4a390a-d926-11e9-9c26-419d783e10e8. ↩︎
6. U.S. Trust, U.S. Trust Insights on Wealth and Worth: The Generational Collide 14 (2017), https://www.truevaluemetrics.org/DBpdfs/ImpactInvesting/UST-BoA-Wealth-Worth-Overview-Broch-2017.pdf.
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7. Neetha K, Lucille Ball: Life, Death & Money: What Was “I Love Lucy” Star’s Net Worth at the Time of Her Death?, Meaww (Jan. 9, 2021),  https://meaww.com/lucille-ball-life-death-money-i-love-lucy-star-net-worth-at-death-reelz-documentary-estate-heirs-war.
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8. Lucille Ball Memorabilia from the Estate of Gary Morton—Including Love Letters, Rolls Royce, Awards and Artwork—at Auction in Beverly Hills, Heritage Auctions (July 6, 2010), https://news.cision.com/heritage-auctions/r/lucille-ball-memorabilia-from-the-estate-of-gary-morton—including-love-letters–rolls-royce–awards-and-artwork—at-auction-in-beverly-hills,g502294.
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9. Jason Pham, Here’s Where Lucille Ball’s Kids Are Now & How Much They Inherited after Their Mom’s Death, Yahoo! Fin. (Mar. 7, 2022), https://finance.yahoo.com/news/where-lucille-ball-kids-now-133309434.html.
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10. Catherine Saunders-Watson, Heirs Spar over Upcoming Auction of Lucille Ball Items, LiveAuctioneers (July 15, 2010), https://www.liveauctioneers.com/news/top-news/crime-and-litigation/heirs-spar-over-auction-of-lucille-ball-items.
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Your Guide to Understanding the Generation-Skipping Transfer Tax 

Generation-Skipping Transfer Tax 101 

Many people are familiar with the existence and some aspects of estate and gift taxes. If you are part of an ultra-high-net-worth family, it is important to also understand the generation-skipping transfer (GST) tax and how it may affect your particular situation. During the planning process, it is vital to consider unique family dynamics, financial goals, and values when deciding the best tax strategies to distribute your generational wealth.  

What Is the Generation-Skipping Transfer Tax?  

The government collects federal estate taxes to generate revenue when wealth is passed down to subsequent generations. When people die, they usually leave their money first to their spouses, then to their children, then to their grandchildren, and then to more distant relatives. At each passing of generational wealth, the government collects an estate tax.    

Wealthy families found a way to avoid estate tax by skipping a generation and transferring wealth directly to grandchildren and great-grandchildren, allowing them to pass down more wealth to future generations. Estate taxes were avoided when the skipped generation (in our example, the children) died because the children never owned the money or property.    

The government responded with legislation in 1976 and again in 1986, attempting to eliminate the transfer tax advantage of skipping a generation by imposing a GST tax when a skip occurs. This ensured that large estates still paid estate tax at each generation.

The GST tax rate is currently 40 percent (the same as the highest federal estate and gift tax rate) so the tax burden on high-net-worth individuals can be substantial. Luckily, there is a GST exemption amount of $13.61 million for individuals in 2024 (the same lifetime exemption as the federal estate and gift tax exemption) that can be used when someone wants to make gifts or leave an inheritance that would otherwise be subject to the GST tax. If you have a significant estate, your family may need to use their GST tax exemption in addition to the estate and gift tax exemptions.  

Who Are the Parties Involved in a Generation-Skipping Wealth Transfer?  

There are typically three parties involved in a generation-skipping wealth transfer:  

• The transferor: the person making the wealth transfer to an individual or a trust 
• The skip person: the person receiving the money or property, who must be two or more generations removed from the individual making the transfer or is at least 37 ½ years younger than the transferor; a skip person may also be a trust in some instances   
• The non-skip person or skipped person: the generation between the individual transferring wealth and the one receiving it  

Why Should You Be Mindful of This Tax?  

If you have a substantial estate and are considering making sizable gifts or bequests to skip persons, you need to work with experienced professionals to ensure that the right strategy is used to maximize your gift and minimize the tax consequences.   

The earlier you can get started, the better your results will be. It will take time and collaboration with trusted advisors to ensure the best possible outcome. After your estate plan is created, you will need regular reviews for updates due to changing circumstances.  

Professionals to Align Legal and Tax Planning Strategies  

You and your loved ones will need comprehensive advice when creating your estate plan to ensure that legal, financial, and tax implications are all considered in your estate planning strategy. We welcome the opportunity to collaborate with your existing advisors. When strategizing the best outcome for you, your loved ones, and your hard-earned money, it takes expertise from multiple areas to create the best plan possible. 

You may have considered creating a trust to transfer wealth to your grandchildren and great-grandchildren. But you may not have considered how the generation-skipping transfer (GST) tax could affect this inheritance. To better explain how the tax would impact a gift in trust, we are going to take a look at some math. 

Generation-Skipping Transfer Tax Rate   

The federal GST tax rate matches the highest federal estate tax rate, currently set at 40 percent. For high-net-worth individuals, effective GST tax planning is crucial in managing combined estate, gift, and GST tax burdens.  

Generation-Skipping Transfer Tax Exemption   

You can transfer a specific value of money and property to skip persons (grandchildren, great-grandchildren, other distant relatives, someone at least 37 ½ years younger, or a trust for a skip person), either during your lifetime or after death, before triggering the GST tax. This exemption equals the federal estate and gift tax exemption amount ($13.61 million in 2024). Be aware that there is no portability for the GST tax exemption. Meaning, you will need to use it or lose it.     

Exceptions to the Generation-Skipping Transfer Tax   

You and your family members may have already established a trust. If so, certain irrevocable trusts established before September 25, 1985, are grandfathered and exempt from the GST tax provisions in Section 26.2601-1(b)(1) of the Treasury Regulations. Modifications or additions to these trusts can jeopardize the exception. Additionally, gifts for educational or medical expenses to skip persons, such as Health and Education Exclusion Trusts (HEET), are excluded from the GST tax application.  

Calculating Generation-Skipping Transfer Tax  

To understand how the GST tax will affect the inheritance you leave behind, you need to do some math. The GST tax calculation relies on an inclusion ratio, indicating the extent to which a transfer is subject to GST tax. This ratio is determined by the applicable fraction, based on the amount of your GST tax exemption. An inclusion ratio of one means the direct skip or trust is fully taxable. Any number between zero and one indicates the transfer is partially subject to GST tax.   

The amount of the GST tax exemption allocated to the transfer is divided by the value of the property involved in the transfer. The fraction is rounded to the nearest one-thousandth (.001) and looks like this:   

The next step is determining the inclusion ratio by subtracting the fraction from the number one. Depending on the ratio, the trust is either fully exempt, fully taxable, or partially taxable.   

Fully Exempt Trust  

Let’s say you create an irrevocable trust for the benefit of a grandchild and their descendants in 2024 when your entire GST tax exemption of $13,610,000 is available and you can allocate it to the trust.   

If you transfer $13,610,000 (or less) worth of accounts or property to the trust and allocate your entire GST exemption, the inclusion ratio would be zero:  

1 – (13,610,000 / 13,610,000) = 1 – 1.000 = 0  

The trust would be fully exempt from GST tax.  

Fully Taxable Trust  

Now, let’s assume that you have previously used your GST tax exemption and there was none available to allocate to your grandchild’s irrevocable trust, the inclusion ratio would be one:  

1 – (0 / 13,600,000) = 1 – 0 = 1  

The trust would be fully subject to GST tax. 

Partially Exempt Trust  

Partially exempt trusts have a portion of money or property subject to the GST tax, while another portion may qualify for an exemption.     

If you put $15,500,000 in the irrevocable trust, and your entire exemption was available, the inclusion ratio would be:  

1 – (13,610,000 / 15,500,000) = 1 – .877 = .122   

The applicable fraction is .878, and the inclusion ratio is .122. The trust would be partially subject to GST tax. When distributions are made to the grandchild, there will be a tax due. To calculate how much will be owed, we first must know what the tax rate is at the time of the distribution. For example, if the rate is 40 percent,

40 percent x .122 = 4.88 percent

If your grandchild receives a taxable distribution from the trust of $125,000, the GST tax would be $6,100.

For gifts or an inheritance left directly to the skip person, the formula works similarly, the inclusion ratio is multiplied by the GST tax in effect at the time of the transfer.

Tailoring Trusts for Success  

Working closely with your other trusted advisors, we can customize your estate plan based on your unique circumstances and goals. This also ensures compliance with federal and state tax laws, preventing a significant combined estate, gift, and GST tax burden that could diminish your family’s wealth and legacy over time.  

If you have significant wealth, things like estate, gift, and generation-skipping transfer (GST) taxes need to be discussed. If you want to make a gift or leave a large inheritance to a grandchild (while your child is still alive) a more in-depth conversation surrounding the GST tax, the impact it can have on the inheritance you leave behind, and the additional steps that may occur during the administration process after your death, will be warranted. Several different returns involve the GST tax. The appropriate form that needs to be filed with the Internal Revenue Service (IRS) will depend on the situation.  

What Is Form 709?

This form would be used when a client decides to make a gift to a skip person during their lifetime. Form 709 is used to report transfers that are subject to federal gift and certain GST taxes. This also includes the allocation of lifetime GST exemption to property transferred during the transferor’s lifetime. The IRS has provided instructions for the transferor to complete the form.

What Is Form 706-GS(D-1)?

Form 706-GS(D-1) is used for trustees of a trust to report distributions from a trust to a beneficiary that are subject to the GST tax. For additional assistance, the IRS has published instructions for completing the form.

What Is Form 706-GS(D)?

Form 706-GS(D) is used for skipped persons to report tax due on distributions made from a trust to them, that is subject to the GST tax. Like the other forms from the IRS, some instructions walk through the completion of the form.

What Is Form 706-GS(T)?   

Form 706-GS(T) helps your trustee and any other entities or responsible parties to calculate GST taxes and report what is due from certain distributions and terminations subject to the generation-skipping tax. It includes instructions for tax computation and separate sections for required information for the transferor (you) and the trust.   

You and your advisors can work together to develop a detailed list of documents and information required to determine the value of the money and property transferred to your trust or given outright as a gift or part of an inheritance.  

Understanding the complex calculations when applying the GST tax, exemption amount, and any exceptions is critical. This is where professional tax advice is essential. They can calculate the amount of the GST tax exemption allocated to wealth transfers by dividing the value of the property involved in the transfer. The fraction is rounded to the nearest one-thousandth (.001) and looks like this:   

The next step is determining the inclusion ratio by subtracting the fraction from the number one. Depending on the ratio, the trust is either fully exempt, fully taxable, or partially taxable.  

Completing the Form  

To fill out the applicable forms, you need to gather a significant amount of information. Here is a list of information that may be needed:  

• The legal name of the trust and its federal tax identification number   
• Name and Social Security Number (SSN) or Employer Identification Number (EIN) of theindividual making the GST  
• A list of all beneficiaries, including their names and relationships to the transferor  
• The generation of each beneficiary in relation to the transferor (skip person or non-skip person)  
• Name and address of the trustee(s) responsible for managing the trust  
• A detailed list of all assets held within the trust, including values at the time of the GST 
• Appraisals of assets to determine their fair market values  

• Information about any other gifts or transfers made by the transferor during their lifetime that could be subject to the GST tax  
• Indication of how the transferor’s GST tax exemption will be allocated among the trusts  
• Allocations to skip persons, including any direct skips, indirect skips, or taxable terminations  
• Details aboutthe transferor or any beneficiary who is deceased  
• Copies of the trust agreement and any amendments  
• Any legal documents relevant to the GST  
• Specific dates of GSTs

Filing Deadlines  

Generally, these forms must be filed by April 15 of the year following the calendar year when distribution or termination occurred. Be organized and prepared throughout the year to provide accurate information. Maintaining clear records will streamline the process of completing the filing on time.    

Sailing Through Tax Season  

Working with your trusted advisors ensures accuracy and compliance with the GST tax rules. When we work together, we can provide you and your loved ones with the best possible service and help you protect the legacy you are leaving behind.  

What Is a Dynasty Trust and Why Should You Consider One?

If you have significant wealth, one of the best ways to protect your family and transfer your wealth is through a dynasty trust. However, setting one up requires considerable financial and estate planning knowledge. As experienced estate planning attorneys, we can explore all options available to protect your legacy and decide if a dynasty trust is right for you. 

Who Could Benefit from a Dynasty Trust?

If you have worked hard to grow your money, property, or business and want to create a lasting financial legacy for your family and future generations, creating a dynasty trust may be a great choice. Protecting your substantial wealth means addressing your specific concerns about taxes, potential creditors, lawsuits, or other financial risks while ensuring responsible management and distribution of money and property to your family. 

As a high-net-worth individual, you may need more complex estate planning strategies to achieve these goals. A successful estate plan is not just about transferring your wealth to the next generation. It is about sharing your vision for your family’s financial future along with setting certain guideposts for the management and distribution of wealth to ensure responsible financial stewardship.

How a Dynasty Trust Works

Creating and funding a dynasty trust should be done by an experienced estate planning attorney, often in collaboration with other professionals. Your team can guide you in deciding which cash, real estate, investments, or other valuable property should be transferred to the trust. You may be able to use your lifetime gift tax exemption to successfully transfer these items while minimizing tax consequences for yourself and your heirs in the future. Tax-efficient growth creates an even greater legacy for successive generations.

A dynasty trust is designed to be perpetual or of long duration. Unlike other trusts with limited or fixed termination dates, a dynasty trust will likely last for multiple generations and continue to accumulate and grow wealth over time.

A dynasty trust often involves appointing a professional trustee, such as a bank or trust company, to oversee the management and administration of the trust. They must follow specific terms and guidelines, ensuring responsible governance and distribution of money and property according to your wishes. These terms may include flexible distribution provisions to provide income to beneficiaries, an option for the trustee to make discretionary decisions based on specified criteria, or permitting the trustee to adjust distributions in response to changing family circumstances.

Why Would You Want a Dynasty Trust?

By placing money and property in a well-structured dynasty trust, you ensure that the wealth you have worked hard to accumulate remains protected within your family.

Life is unpredictable, and unforeseen circumstances, such as lawsuits, creditors, or divorces, can pose threats to your family’s financial stability. Since money and property are legally owned by the dynasty trust rather than any individual family member, they can be safeguarded from creditor claims and legal judgments in many cases. 

Estate taxes can significantly erode the wealth passed down to your heirs. Dynasty trusts are structured to minimize the impact of estate taxes over multiple generations. Additionally, the appreciation in value of trust resources while you are alive will occur outside your taxable estate, allowing for potential growth free from estate tax implications. 

Customized provisions in a dynasty trust can govern how money and property in the trust are managed and distributed. This level of control is particularly beneficial if you are concerned about a beneficiary’s financial acumen or spending habits. You can ensure that your wealth is managed responsibly while still providing for your family. 

If you have accumulated significant wealth and are looking for a way to create a lasting financial legacy for your family, we are available to discuss sophisticated estate planning tools, like dynasty trusts. By leveraging the benefits of perpetual duration, tax-efficient growth, asset protection, and responsible governance, you can address your family’s unique needs and goals over multiple generations. If you are interested in learning more about dynasty trusts and whether they are the right tool for you, give us a call.

Love Is in the Air: Have You Protected Your Loved Ones?

Valentine’s Day is approaching, when many people express just how much their loved ones mean to them by giving gifts and cards. But this year, you could try something different to show your love: think about your estate plan and how you can protect and provide for your loved ones. Preparation can help guide your loved ones through life’s challenges, and your love will be your legacy.

The New Year Has Begun 

The beginning of a new year is an opportune time to focus on family. A comprehensive estate plan can act as a roadmap, shielding your loved ones from uncertainties and providing peace of mind for both you and your family.

Protecting Relationships

Unmarried Partner

Today, it is common for adults to be in long-term committed relationships but be unmarried. If you have a life partner and are unmarried, it is imperative that you have an estate plan if you want your partner to receive your money or property at your death or if you want them to make financial or medical decisions on your behalf if you are alive but unable to make your own decisions. If you rely on your state’s laws, an unmarried partner will likely receive nothing at your death and will have no authority to make decisions on your behalf.

Spouse

Under most states’ laws, if a person does not have an estate plan, a judge usually chooses the spouse to make decisions for them if they cannot or to wind up their affairs when they pass away. The spouse is also typically given a large part of the person’s money and property if they die without an estate plan. However, a proactive and documented estate plan can help alleviate complications and misunderstandings among other family members. This is especially important in a blended family, where, for example, you may want your surviving spouse and children from a different relationship to receive your money and property at your death or you want an adult child to make medical decisions for you instead of your spouse. 

New Child or Grandchild

Welcoming a new family member is a joyous occasion, but it also comes with added responsibilities. Providing for a child or grandchild at your death in an estate plan involves nominating a guardian for your minor child and creating the terms for the inheritance you would like your child or grandchild to receive. By creating or revising your estate plan after the birth of a child or grandchild, you can help ensure the wellbeing and financial security and support the future aspirations of your young family members.

In-Laws

In-law relations such as a son-in-law, daughter-in-law, or parent-in-law may not typically be included in an estate plan, but you may want to leave an in-law relation something upon your passing. Alternatively, you may want your in-law to receive another family member’s inheritance if they predecease you or pass away before they have received their entire inheritance. By default, most state laws will not provide for an in-law if you pass away without an estate plan, so if this is your desire, you need to proactively plan for it. You should also reevaluate what you leave newly married family members in your will or trust, focusing on protecting their inheritance from their new spouse in the event of a divorce.

Protecting Your Family During Your Job Changes

Life is dynamic and so are your financial circumstances. It is essential that you update accounts and beneficiary designations with each job change or significant change in income. Failing to do so may have unintended consequences on life insurance policies, retirement accounts, flexible spending and health savings accounts, and more. Talk to your human resources benefits advisor to take an inventory of investments tied to your former employer and any new employer. Even if you have been at the same company for years, you should periodically check your beneficiary designations to make sure everything is up-to-date.

Estate planning is not a one-and-done task. It should evolve with changing circumstances. Regular reviews ensure that your estate plan aligns with changes in your relationships, financial situation, and life events. An estate plan is made up of documents that require accurate information to protect and provide for those you hold dear.

In February, the month of love, take the time to create or revisit your estate plan. Through thoughtful planning, you can continue to express love and care for your family, even after you are gone. If you have any questions or would like to review your existing estate plan, give us a call.

As your trusted estate planning attorney, if we do not have an immediate answer or solution for you, we can often get one by contacting another attorney or advisor who works in an area that falls outside of our expertise—a vetted professional that we have developed working relationships with or perhaps your trusted advisor who can be brought in to enhance the services provided to you. 

When this happens, we must adhere to specific ethical guidelines, including those outlined in the American Bar Association’s (ABA) Code of Professional Conduct Rule 1.6, regarding client confidentiality and obtaining informed consent before disclosing information related to your planning. According to ABA Model Code Rule 1.6, “[a] lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent.”

Attorney-Client Privilege 

You are surely familiar with attorney-client privilege—confidential communications between you and your attorney stay between you and your attorney. This is one of the oldest legal privileges, with boundaries respected by the courts. However, there are times when attorney-client privilege is waived, such as when information is shared outside of the attorney-client relationship. 

Lawyers often include other individuals as part of their “team,” specifically to provide the best and most comprehensive representation to their client. For example, lawyers may often seek out a trusted accountant, tax advisor, financial planner, or insurance agent to help translate complex financial information, tax strategies, or policy information for advanced estate planning. However, when these individuals are brought in, we want to make sure that you are informed and protected.

The Third-Party Waiver Form

In situations where nonclients, including your family members and advisors, are integral to the estate planning process, we may ask you to sign a third-party waiver form. This form serves a dual purpose:

1. It allows us to share confidential information that is otherwise protected by the attorney-client privilege with relevant third parties to complete the estate planning process.
2. It allows third parties to be present during our estate planning meetings where sensitive details are discussed. 

The third-party waiver is not only an ethical requirement but it also serves as a practical tool for permitting effective communication and collaboration among various experts. This can help to cultivate a comprehensive and transparent approach to estate planning. By seeking informed consent through the third-party waiver, we adhere to legal and ethical standards that prioritize your best interests.

Knowing What to Expect from Your Estate Planning Attorney

If you are ready to start the estate planning process and have other trusted advisors you feel would help the process, you can expect to sign a third-party waiver form. Your privacy is of the utmost importance. 

If you want to include family members or friends in your estate planning meetings, you will need to sign a waiver permitting us to share your private planning information with them as well. In some instances, we have found it helpful to include family members in a meeting once the estate plan is complete, especially if those individuals have been given a role as an executor, trustee, or agent under a financial or medical power of attorney. We will explain what their roles involve and your intentions for them in decision-making processes. We can be there to provide them with advice and support and navigate tough conversations if needed. 

We are your attorneys, and it is our responsibility to represent you and your interests. In some areas of the law, this may mean excluding people; however, in estate planning, it may be to your benefit to include outside professionals, family members, or loved ones. Regardless of the situation, we are here for you to ensure that you have an estate plan that is comprehensive and carries out your wishes.