Category: The Wealth Advisor

A vacation property can be one of the most valuable things you can pass down to your loved ones, from both a sentimental and financial standpoint. 

However, mixing money and family can be tricky. Without a well-thought-out strategy for the ownership transition, hard feelings and disputes could arise, and the vacation home could be used in ways you did not intend. 

Beyond family dynamics and legacy objectives, transferring a vacation property to the next generation also has legal and tax implications that need to be addressed in an estate plan. 

Vacation Homes Are a Store of Memories—and Wealth

It is that time of year when you and your loved ones may be preparing to spend time on the beach or in the mountains at the family vacation home. Around 5 percent of all housing units in the United States are second homes. There was a more than 16 percent surge in new vacation home purchases during the pandemic.¹ From humble cabins and beach cottages to luxurious mountain estates and lake houses, vacation homes are owned by an estimated 4 out of 10 Americans.² 

Many second homes are dual-purpose, serving as a family gathering spot as well as a revenue source. Sites like Airbnb and VRBO have made it easier to rent out property. In 2023, the US short-term rental market, comprising more than 785,000 individual hosts, 2.5 million available listings, and 207 million nights stayed, generated approximately $64 billion in revenue.³

Vacation Home Estate Planning Considerations

As you clean up your vacation home and prepare to welcome your children, grandchildren, and other family members for another season of memory-making moments, estate planning may be a distant thought—if it is even on your mind at all. 

But ensuring that the home remains a place for the family to gather for generations to come requires addressing it in your estate plan now, while you still own and control it. Here are some points to consider as you balance finances, feelings, and fairness in your vacation home estate plan: 

• Are you still spending time at the vacation home? This can affect whether you pass the home to your loved ones now or after you die. It is not an all-or-nothing proposition, though. You could establish what is called a life estate that allows you to transfer the vacation home at death but continue using it during your lifetime. 
• Who is interested in the property? There might be interest among all your children in keeping the property, only one child who is genuinely interested in owning and using it, or nobody interested in it at all. 
• Do you want to set limits on what can be done with the property? Think about whether the vacation home can be used as a rental, if family members should have the right to sell the vacation home or their interest in it to people outside the family, the conditions for one family member buying out another’s interest, and other limits on what can and cannot be done there. 
• How compatible are your loved ones? If everybody gets along and has similar income levels, you might not be concerned about their ability to equitably divide ownership rights and responsibilities. But disagreements could still arise over things like who is responsible for paying for upkeep, taxes, and insurance, and who can use the property—and when. And the more family members there are who have a right to use the home, the greater the potential for conflict. 

These big picture estate planning issues for a vacation home can inform specific strategies such as the following about how to pass the property down: 

• Selling the home to a family member
• Gifting the home to family during your lifetime 
• Passing down the home to loved ones through the probate process via your will 
• Transferring the property outside of probate, either while you are alive or after your death, with a trust or a transfer-on-death or pay-on-death deed (if your state recognizes them) 
• Creating a limited liability company (LLC) or family limited partnership (FLP) to own the vacation home

Each of these strategies has a different set of pros and cons that you should further discuss with an estate planning lawyer. 

Talk to a Lawyer About How Best to Keep a Vacation Home in the Family

Family can be complicated. Adding a treasured family vacation home to the mix only adds to the complications. 

We recommend talking to your loved ones about the vacation property. Once you get answers to questions like who wants the vacation home, how much they might use it, and if they can take on ownership responsibilities, reach out to us to create a strategy that aligns with your personal circumstances and objectives.

1. Theresa Landicho, 17 Second Home Statistics Every Investor Should Know in 2024, Fit Small Bus. (Feb. 13, 2024), https://fitsmallbusiness.com/second-home-statistics. ↩︎
2. Andrew Lisa, 40% of People Have Vacation Homes: Where You Can Find One for Your Budget, GoBankingRates (June 16, 2023), https://www.gobankingrates.com/investing/real-estate/where-to-find-vacation-home-in-your-budget. ↩︎
3. 2023 Short-Term Rental Statistics You Need to Know, AirDNA (Jan. 28, 2024), https://www.airdna.co/blog/2023-short-term-rental-statistics-key-numbers-to-know. ↩︎

Ballots to Beneficiaries: How Potential Presidential Policies Could Shape the Future of Your Estate Plan

Ready or not, we are entering another presidential election season. 

If you are like most Americans, the economy is top of mind when it comes to evaluating the candidates. But even if you do not intend to vote, the tax policies of the next administration could have a major impact on your personal wealth and estate planning strategies. 

Tax Legislation Is on the Horizon

In the area of tax policy, the 2024 election is set to leave its mark. 

The Tax Cuts and Jobs Act of 2017 (TCJA) is expiring at the end of 2025, and with its expiration will come the undoing of its individual and other tax provisions, including lower personal income tax rates, higher standard deductions, increased estate tax exemptions, and the expensing of business investments. 

Many tax experts have said that major new tax legislation to replace the TCJA is all but assured from the incoming Congress. What the candidates promise on the campaign trail over the next few months could go a long way toward setting tax policy priorities.

Evaluating the Candidates Through an Estate Planning Lens

There is historical precedent for tax policy changes following a candidate’s promises made during campaign season. 

John F. Kennedy promised to lower income taxes in 1960, paving the way for lower individual and corporate tax rates in the Revenue Act of 1964. In 1980, Ronald Reagan hinted at what would become the Economic Recovery Act of 1981, which lowered estate and capital gains taxes. And in 2016, Donald Trump foreshadowed tax policies of the TCJA in speeches and debates. 

Candidates are unlikely to use the term estate planning, but they frequently use the language of tax policy to discuss issues that affect a person’s estate value and the inheritance they leave behind. Here are some key policy terms to pay attention to from an estate planning perspective:

• Capital gains tax: A tax on the profit earned from selling an asset (such as stocks or real estate)
• Estate tax: A tax on the transfer of property upon one’s death
• Gift tax: A tax on the transfer of property from one individual to another during their lifetime without receiving full value in return
• Income tax: A tax on the income of an individual or entity
• Tax credit: An amount that taxpayers can subtract from their total tax liability
• Tax deduction: A reduction in taxable income, potentially decreasing or eliminating tax liability
• Tax exemption: A monetary exclusion that reduces the amount of taxable income
• Trust income tax: A tax on the income generated by a trust

What the 2024 Candidates Are Saying About Estate-Planning Related Taxes¹

The publicly stated views of the 2024 candidates reveal clear contrasts in their visions for America’s economic future. Here is what the candidates have said about estate, wealth, and capital gains taxes. 

President Joe Biden

President Biden would reportedly tax long-term capital gains and qualified dividends at ordinary income tax rates for taxable income over $1 million and tax unrealized capital gains at death for amounts exceeding a $5 million exemption ($10 million for joint filers).² He has also proposed a minimum effective tax of 20 percent on unrealized capital gains from assets such as stocks, bonds, and privately held companies; higher top individual income tax and corporate income tax rates; and tighter estate tax rules to reduce inherited wealth accumulation.³

Former President Donald Trump

Former president Donald Trump has said he plans to make permanent the 2017 individual tax cuts that he enacted during his term under the TCJA.⁴ He also wants to make the expiring estate tax cuts from the TCJA permanent.⁵ The unified gift and estate tax exclusion amount is set to expire on December 31, 2025, and revert to pre-TCJA levels that are expected to be around half of what they are in 2024 ($13.61 million per individual/ $27.22 million per married couple).

Robert F. Kennedy Jr.

The only major tax policy that RFK Jr. has announced, according to the Tax Foundation, is exempting Bitcoin from capital gains taxes when the cryptocurrency is converted to or from US dollars.⁶ He has also expressed a desire to make tax code changes to discourage corporate ownership of single-family homes.⁷

Chase Oliver

Although the Libertarian Party’s candidate, Chase Oliver, has addressed many issues during his campaign, such as immigration, student loans, and closing regulatory loopholes that reward businesses with close relationships with government officials,⁸ he has not spoken on too many issues that would impact estate planning. However, the Libertarian Party has traditionally been in favor of limited government, the repeal of the income tax, and the abolishment of the Internal Revenue Service.⁹

Jill Stein

The Jill Stein 2024 platform calls for raising taxes on the richest Americans. This includes applying the Social Security payroll tax to capital gains and dividends, as well as increasing the estate tax.¹⁰

Cornel West

West’s platform is focused on economic justice but light on economic policy details. His campaign site says that the candidate would impose a wealth tax on all billionaire holdings and transactions and close all tax loopholes for the oligarchy.¹¹

Future-Proofing Your Estate Plan

Changes to the law are one of the primary reasons to revisit your estate plan. We will be following this year’s election closely so we can keep you informed about policy changes that will help you make proactive adjustments to your plan, such as using estate planning tools to lock in the “bonus” estate tax exemption and manage possible capital gains exposure. 

We cannot predict election outcomes, but we can create an estate plan that protects your estate, your legacy, and your heirs through political shifts. To learn more, please contact us. 

1. These are potential presidential candidates as identified by CNN. See 2024 Presidential Candidates, CNN Politics, https://www.cnn.com/interactive/2024/politics/presidential-candidates-dg (last visited July 2, 2024). ↩︎
2. Garrett Watson et al., Details and Analysis of President Biden’s Fiscal Year 2024 Budget Proposal, Tax Found. (Mar. 23, 2023), https://taxfoundation.org/research/all/federal/biden-budget-tax-proposals-analysis. ↩︎
3. Garrett Watson & Erica York, Proposed Minimum Tax on Billionaire Capital Gains Takes Tax Code in Wrong Direction, Tax Found. (Mar. 30, 2022), https://taxfoundation.org/blog/biden-billionaire-tax-unrealized-capital-gains ↩︎
4. Tracking 2024 Presidential Tax Plans: Where Do the Candidates Stand on Taxes?, Tax. Found. https://taxfoundation.org/research/federal-tax/2024-tax-plans/#Candidates (last visited June 27, 2024). ↩︎
5. Id. ↩︎
6. Id. ↩︎
7. Jing Pan, “Robbing Americans of the Ability to Own Homes:” RFK Jr. Has Promised Wall Street Reforms. Here’s His Plan, Yahoo!Finance (May 30, 2024), https://finance.yahoo.com/news/robbing-americans-ability-own-homes-101400283.html. ↩︎
8. Platform: What Chase Stands For, Chase Oliver, https://www.votechaseoliver.com/platform (last visited July 1, 2024). ↩︎
9. Platform, Libertarian: The Party of Principle, https://www.lp.org/platform/ (last visited July 1, 2024). ↩︎
10. Platform: People’s Economy, Jill Stein 2024, https://www.jillstein2024.com/platform (last visited June 27, 2024). ↩︎
11. Policy Pillars for a Movement Rooted in Truth, Justice, & Love: Economic Justice, Cornel West 2024, https://www.cornelwest2024.com/platform (last visited June 27, 2024). ↩︎

Creative Uses for Life Insurance

According to a new study from LIMRA and Life Happens, two nonprofit industry trade associations, a record-high number of American adults—approximately 102 million—either do not have life insurance or do not have enough coverage. 

Misunderstandings about how much life insurance costs and what type to purchase are the largest barriers to purchasing a policy. Even among those with a life insurance policy, there are knowledge gaps about how it can be used to meet their financial and estate planning goals. 

Two Types of Life Insurance for Estate Planning

About half of US adults (52 percent) report having life insurance coverage. Forty-two percent acknowledge a coverage gap, while 37 percent say they intend to purchase coverage in the next year. You may wonder where you fall on the life insurance continuum. 

There are two types of life insurance to consider when engaging in estate planning: 

• Term life insurance pays out a death benefit if you pass away during the policy’s “term,” typically 10 to 30 years. 
• Whole life insurance remains in effect for the entirety of your life and can build cash value over time. 

Several variations exist within these two types of policies, each providing different benefits at different price points. Life insurance policies designed to meet specific purposes, such as those that cover loan balances and final expenses and those that insure two lives (for example, first-to-die and second-to-die policies), are also available. 

Life Insurance Perks You Might Not Know About 

On the surface, life insurance is a straightforward financial product: you pay premiums in exchange for a tax-free cash benefit that the insurance company pays to your loved ones after your death. 

Most people who buy life insurance do so because they have financial dependents. However, life insurance policies can also provide important benefits to the policyholder. From married couples with kids to couples without children, empty nesters, retirees, business owners, and investors, life insurance can provide several perks you may not have thought about. 

Here are some creative ways to fit life insurance into your estate plan: 

• Funding a trust. Maybe you have a child with special needs or another dependent who requires ongoing care or support. You may want to set aside money to help fund a child’s education, first home, or travel. Or, like many modern families, you may have a blended family with you or your spouse having children from previous relationships. You could even have a beloved pet you want to ensure is cared for if you pass away unexpectedly. 

Each of these situations—and many others—can be well-served by naming a revocable or irrevocable trust as the beneficiary of your life insurance policy rather than an individual beneficiary or beneficiaries directly. Funding a trust with life insurance proceeds allows you to set terms on how the money is used and provide for the unique needs of your loved ones. An irrevocable life insurance trust can also avoid probate and may, in some circumstances, reduce estate taxes. 

• Paying taxes and debts. For the most part, your debts do not just disappear when you die. In addition to any outstanding creditor claims and income taxes that may be due upon death, dying can trigger estate and inheritance taxes that, if not planned for, can easily drain your estate. You can purchase life insurance to cover your estate’s tax payments and other debts and eliminate the need to liquidate your accounts or sell illiquid assets (like a business or art collection) to satisfy these claims.
• Equalizing inheritances. The death benefit of a life insurance policy can be used to help equalize the inheritances for multiple heirs when you would like to give each beneficiary equal value but have assets you do not want to liquidate (for example, a family business, family home, or cottage) to truly make things even. For example, if one child wants to keep the family vacation home and the other wants to sell it, you can gift the home to the former and buy a life insurance policy equal to the home’s value to benefit the latter. As another example, if you want to give your family business to a child who works in the business but have no assets or insufficient assets to give your other children, a life insurance policy can give an equalized inheritance to those other children.
• Making philanthropic donations. Nothing says you have to name a loved one as a life insurance policy beneficiary. Your policy, in part or in whole, can be a gift to a charity or a nonprofit organization. However, before structuring a life insurance policy to benefit a charitable cause, check with the organization to ensure all applicable procedures are followed. 
• Paying final expenses. It is not just the cost of living that has gotten more expensive. Funeral and burial expenses are also surging and can easily run $8,000 to $10,000 or more. Further, approximately 6 percent of US adults owe over $1,000 in medical debt, which may still be owed at the time of a person’s death. A specialized type of life insurance policy, or final expense life insurance, can be purchased to cover end-of-life expenses like funeral and medical bills. 

How to Fit Life Insurance into Your Estate Plan

Life insurance, like estate planning, is for everyone. No matter your stage of life or circumstances, adding life insurance to your estate plan can give you and your loved ones flexibility to deal with expected and unexpected expenses in the future. 

If you are one of the more than 100 million Americans facing a life insurance coverage gap, we can help you and your trusted advisors craft a plan to bridge that gap with policy advice that fits your needs, situation, and budget. Schedule a meeting with our attorneys to discuss how life insurance can strengthen your estate plan. 

The proceeds from your life insurance policy can benefit your loved ones in many ways, from paying off your outstanding debts to providing supplemental income for your spouse and children to covering funeral and burial expenses. 

Life insurance policy payouts average $168,000. As the policyholder, you can—and should—name beneficiaries of the policy. Generally, however, when a policyholder passes, the named beneficiaries receive their share of the death benefit outright and in a lump sum without stipulations or conditions.

You likely purchased life insurance to protect those who depend on you. To make the most of your policy, consider who you name as a beneficiary and how the death benefit distribution method fits into your overall estate plan.  

Who Can Be Named as a Beneficiary

A life insurance policy can name a single individual, two or more people, the trustee of a trust, a charity, or your estate as a beneficiary. 

You must name both “primary” and “contingent” beneficiaries. The primary beneficiary is the first to receive death benefits from the policy. A contingent beneficiary serves as a backup if the primary beneficiary cannot be located or is dead. If none of the primary or contingent beneficiaries can be found, the death benefit is generally paid to the policyholder’s estate. However, this is not always the case; it is important to review your life insurance policy’s terms to ensure you understand what will happen when you pass away. 

When filling out beneficiary designation forms, you should name beneficiaries as clearly as possible by including their full legal names and Social Security numbers (if necessary). Some forms request phone numbers and addresses as well. While this information is usually optional, it is always a good idea to be as complete as possible. In addition, your beneficiary designation forms should be periodically checked and kept up-to-date to reflect life changes, such as the birth of a child, marriage, or divorce. 

Although you—the policyholder—name beneficiaries, the beneficiaries choose how they collect the death benefit payout if there is more than one way the insurance company will distribute death benefits. Most insurers allow for lump-sum, installment, specific income, or annuity payouts. One benefit of designating beneficiaries is that this money passes outside of probate (the court-supervised process of settling your affairs at your death). 

Surviving Spouse and Child Beneficiaries

If you are married and have kids, you will likely name your spouse and children as policy beneficiaries. The death benefit you leave them can be a significant financial change. It could help pay off a mortgage, assist the children with college expenses, or fill the cash flow gap resulting from the loss of your contribution to household income. Naming a spouse or children as beneficiaries of a life insurance policy comes with a few potential catches, though. 

Spouse   

Naming your spouse as a life insurance beneficiary is an obvious choice. The policy proceeds can be used to pay off debts you owe individually or as a couple. 

Because the money passes outside of probate, your creditors likely will not have access to the death benefit. However, the death benefit is fair game to your spouse’s creditors once the money is paid out to them. 

While using a life insurance death benefit to pay off debt may ultimately be in your spouse’s best interest, you should make sure that you purchase enough insurance to adequately cover your debts—and their debts—if this is your intention. 

Adult Children

Unlike your spouse, as it relates to certain debts, your children likely will not be personally responsible for your debts after you die, at least not directly. But they may have to pay your creditors from the accounts and property you leave behind at your death through the probate or trust administration process. A life insurance policy can help ensure that other accounts and property (for example, your family home, bank accounts, and investment accounts) go to your loved ones, not debt obligations. 

Also, keep in mind that once your adult children receive a life insurance payout, their own creditors can access the money. While paying off debt could benefit them, you might prefer that the money be utilized for something else, like schooling or living expenses. 

Minor Children

Insurance companies are not permitted to pay life insurance benefits directly to minor children because they cannot legally own or receive accounts or property in their name until they reach the age of majority. A guardian or conservator might have to be appointed to manage the funds until the child comes of age. This entails added court costs, and the proceedings could hold up the payment depending on your state. Once your child reaches the age of majority, they will likely receive the balance of their share of the insurance proceeds outright in a lump sum.

Some life insurance policies allow a custodian to be assigned to a minor child beneficiary without probate court involvement. A custodian manages the money on behalf of the minor child until they come of age, at which point the money is turned over to them, again, usually in a lump sum.

Charity 

Your legacy and estate plan might extend beyond your family and include a charity or nonprofit organization. 

You could purchase a new life insurance policy to make a charitable gift, change the beneficiary designation of an existing policy to a charitable organization, transfer policy ownership to a charity, or give the gift of policy dividends to a charity. Each option can provide tax benefits that leave more money in your estate. 

Creating a Trust for a Loved One

By creating a trust as the beneficiary of the life insurance policy, you can protect the proceeds from creditors and exert more control over how the death benefit is spent. 

For example, a life insurance trust can be used to do any of the following: 

• Leave money to minor beneficiaries
• Retain means-tested government assistance eligibility for a disabled loved one
• Keep a young adult from spending the funds all at once or for nonapproved purposes, such as personal expenses instead of their college education 
• Prevent commingling the insurance proceeds into marital property if your spouse remarries or your adult child gets divorced 

Life insurance proceeds held in trust add assurances that a death benefit will be spent in accordance with your wishes. Trust funds are exempt from probate and may reduce estate taxes, depending on the type of trust used. 

Life Insurance and Your Estate Plan

Purchasing life insurance is one of the best ways to provide financial security for your loved ones after you are gone. But if you are not careful and thoughtful about naming beneficiaries, they may not receive the protection you hoped for. 

To make the most of life insurance in your estate plan, schedule a meeting with our attorneys to review your plan. 

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.
   ↩︎
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.
   ↩︎
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.
    ↩︎

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.