msfiduciary

A Discussion Forum for the Mississippi Estate Planning Community

Category Archives: Family Legacy

Book Offered on Financial Caregiving

Book Cover I am pleased to announce the publication of my first book, What You Need to Know: The Adult Child’s Guide to Becoming a Financial Caregiver. The book is a culmination of both my professional and personal experience in working with older clients and their families, as well as working with my own parents. Three years ago, I became a financial caregiver to my parents. All of the years I had spent advising others about this reality came home and I realized that it’s one thing to advise others about this; quite another to actually be in the role. Even with my recent experience, I understand that my parents’ situation will be different from everyone else’s. I am less the “expert” than a fellow caregiver with thousands of others who entered this chapter in the relationship with their parents, not knowing what they need to know. I confess without hesitation that I am not the answer-man when it comes to the delicate issues surrounding this role. I doubt anyone is. Instead, the book focuses on what I refer to as the Four P’s – People, Property, Programs, and Plans – and what the financial caregiver needs to know about each.

The book can be ordered on Amazon for $14.95, or if you’d like a free copy, just email me at drussell@pinntrust.com and send me your mailing address. I’ll be glad to send it to you.

“Full-Nest Syndrome” and Boomerang Kids

 

Remember this commercial? Maybe when it aired, you had kids in junior high or just entering college. Maybe now it’s not so funny. According to its August issue, Harper’s magazine published data estimating that nearly 85% of this year’s college graduates were planning to head back to live with their parents. In 2010 researchers at Columbia University using the U.S. Current Population Survey found that 52.8% of 18- to 24-year-olds were living at home.

According to an article written by Suzanne McGee for Financial Planning, the problem is not just moving back with Mom and Dad; it’s that more and more, the grown children of affluent clients are expecting Mom and Dad to reach into their retirement savings to in order support a lifestyle that often the parents themselves projected onto their kids. Combine the expectation of a high-on-the-hog lifestyle with a sluggish economy and you have what McGee calls a “perfect storm.” 

To read the full article, see Full-Nest Syndrome – Financial Planning

When there is habitual support beyond ordinary gifting, it can wreak havoc on a trustee who may wind up holding the purse strings for these adult children. Trust documents often contain spendthrift provisions, or standards tied to “health, education, and maintenance” that may result in a trustee saying “no” to requests that Mom or Dad always said “yes” to. It’s important that parents exhibit giving behavior during their lifetime that is consistent with the terms that a trustee will have to adhere to.

Keeping the Condo in the Family

It seems common these days for clients to own a beach condo or other vacation property. An article in the Wall Street Journal Online discusses some or the techniques, challenges, and issues when creating a succession plan for vacation property.

A frequently expressed estate planning objective is that the property be retained in the family after the owners’ death so that the children and grandchildren can continue to enjoy it.  Without proper planning however, clients may just be setting up their children for future squabbles over who enjoys it the most. Trusts or LLC’s are common techniques used to hold vacation properties, and can spell out the rules for how the property is to be used by the family. But even before that step, clients need to really assess whether or not the vacation property will be as meaningful to their children as it has been to them. Sometimes the family dynamic changes after Mom and Dad pass away.

The first step is figuring out who is — and isn’t — interested in inheriting the cottage, says David Fry, an attorney in Rockford, Mich., and co-author of “Saving the Family Cottage.” For instance, children who live far away from the property, don’t earn much or have a vacation home of their own may not be interested in the cottage.

Next, put together a plan that fits your family’s circumstances. If you’re passing the house down to one person, you typically can give it to him or her outright as a gift while you are still alive or bequeath it in your will. But if you’re passing property down to multiple individuals, it’s best to form an LLC or a trust that will own the home. These structures set ground rules for joint ownership and can prevent one co-owner from forcing a sale at any time, says Meghan S. Johnson, a Bayport, Minn.-based attorney specializing in cottage law.

To read the full article, see: Create a Plan to Pass On the Family Cottage – WSJ.com

U.S. Trust survey finds parents are reluctant to discuss estate plans.

Yesterday, I blogged about the possible disconnect between the affluent and their advisors when it comes to leaving an inheritance. According to U.S. Trust’s Insights on Wealth and Worth Survey, only half of those surveyed felt that leaving an inheritance to their children was an important goal.

Perhaps it’s not surprising then, that the same survey finds that the affluent are also reluctant to discuss their wealth with their children, citing many reasons that seem to point to poor communication as the chief reason for these feelings. 

I submit that we in the professional advisor community are at least partially to blame for this. After all, we go to great lengths to show our clients how to leave more wealth to their children and grandchildren when many of them have great apprehensions about doing so.  But evidently, we don’t talk to our clients about how to resolve this conflict. Fully half of the respondents have never discussed ways of teaching children to handle wealth responsibly or any of the emotional aspects of wealth; and 31% have never discussed the financial needs or expectations of their children with their advisors. Let’s face it; they’re not going to ask. We have to start the conversation. 

US Trust Graph2

Do advisors and clients see eye to eye on inheritance planning?

Much has been written of late regarding the “window of opportunity” for the the ultra wealthy to take advantage of soon-to-expire allowances for passing large amounts to heirs. In a recent article by Gail Butler for Fox Business entitled, “To Give or Not to Give? The 2-Year Estate Planning ‘Opportunity”, Attorney Harold Zaritsky a nationally-recognized expert on estate planning reflects the attitude of many advisors, stating that the current two-year window is “a rare opportunity for making large gifts to future generations by gifting assets to a trust for the benefit of children and grandchildren.”

The problem with all this discussion is it seems to run counter to the attitudes held by the very clients these “windows of opportunity” are supposed to benefit.  According to the most recent survey of the wealthy* by U.S. Trust, slightly less than half (49 percent) of those surveyed feel that leaving a financial inheritance is personally important. And, even if leaving an inheritance was important, they don’t feel very good about what happens to it afterwards. Only about one-third (34 percent) of parents agree strongly that their children will be able to handle the inheritance they plan to leave them, and only 36 percent of parents strongly agree their children will be able to work together to make decisions to manage the family wealth after they are gone. To read the survey, click here.

US Trust Graph

So is there a disconnect between those of us in the professional community and the clients we advise? Or, is the best estate plan to simply die broke?

*All respondents to U.S. Trust Insights on Wealth and Worth have in excess of $3 million in investable assets.

Jefferson’s Last Will & Testament

Thomas Jefferson – author of the Declaration of Independence for which we celebrate this Fourth of July – put equal eloquence into the language of his own last will and testament, reproduced below. Absent from the will is the irritating language of estate tax planning. Present however, is creditor protection language due to the circumstances of his son-in-law, Thomas Mann Randolph, as well as charitable bequests, and generous bequests to others.

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In Terrorem clause upheld: may cost beneficiary $17 Million

In Shelton, Tamposi v. Tamposi, Jr. & Tamposi, a New Hampshire judge enforced the in terrorem clause of the decedent’s trust, which could result in the beneficiary being forced to disgorge nearly $17 Million in trust benefits received. In terrorem clauses are typically found in wills and are more commonly known as no-contest clauses. Such clauses seek to discourage legal challenges to the provisions of a decedent’s will, often leaving no share to the individual who challenges the will’s provisions.

Elizabeth Tamposi, one of twelve beneficiaries of the Sam A. Tamposi, Sr. trusts, had a history of bringing actions against her brothers, Sam, Jr. and Steven Tamposi, for allegedly breaching their fiduciary duties as investment directors of the trusts, but avoided the application of the in terrorem clause until her last unsuccessful attempt which began in 2007. Apparently this judge had seen enough, and ruled that the in terrorem clause had been violated.

In addition to the in terrorem clause, this case is fascinating not just for its notoriety but for the number of fiduciary issues it examines.

First, a little background: Samuel A. Tamposi, Sr. (Sam, Sr.) was a hugely successful real estate developer from New Hampshire. Sam, Sr. had six children including Sam, Jr., Betty and Steve. In his plans for his million dollar estate, Sam, Sr. established the SAT, Sr. Trust (trust) in 1992. The trust was amended multiple times after its creation—the pertinent provisions of which affirmed that the trustee may retain “real estate interests” as a substantial part or all of the trust property and named Sam, Jr. and Steve as investment directors. The trust was to be divided into 12 separate trusts for Sam, Sr.’s children and their children. Perhaps most importantly, the trust contained an in terrorem clause specifying that should any person challenge the trust’s validity and attempt to have it set aside or contest any part of it, that person would forfeit his right in the trust, with his or her share distributed “in the same manner as would have occurred had such person died prior to the date of execution of this trust.”

Upon Sam, Sr.’s death in 1995, his estate was valued at $20.5 million, consisting of various real estate holdings, limited partnerships and corporations (one of which was an interest in the Boston Red Sox). Sam, Jr. and Steve assumed responsibility as investment directors for the 12 subtrusts. Elizabeth was not pleased with her father’s selection of Sam Jr. and Steven, however and sought to have them removed or their actions curtailed. It’s a sad story of family discord, but one that has many lessons for practitioners which I shall examine in subsequent posts.

See “The Cementing of Family Bonds” Trusts & Estates.

Hat tip: Wills, Trusts, & Estates Prof Blog

AFR Rates Favor Charitable Lead Trusts

I have always liked the concept of Charitable Lead Trusts. Take a windfall sum, put it into a Charitable Lead Annuity Trust (CLAT) or Charitable Lead Unitrust (CLUT), and personally participate in the trust’s annual charitable distribution. At the end of the term, the trust corpus is either distributed to children or grandchildren; or in some instances, returned to the grantor at a later time in life. With the right combination of interest rates and terms, the entire value of the trust can be transferred for zero gift or estate tax. For the past couple of years, the near-zero interest rate environment coupled with the newly increased federal estate tax exemption to $5 Million makes them even more attractive. Consider the following situation:

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Could Mediation Clauses in Estate Documents Reduce Contest Litigation?

Lela P. Love, Professor of Law and Director of the Kukin Program for Conflict Resolution and Stewart E. Sterk, Mack Professor of Real Property Law at the Benjamin N. Cardozo School of Law, explore the use of mediation clauses in estate planning documents as a method for reducing the emotional and financial costs of litigating a will contest. In Their paper, “Leaving More than Money: Mediation Clauses in Estate Planning Documents” opens with these remarks,

The family that built the Dodge company, the Johnson family of Johnson & Johnson fame and fortune, and the legendary Jarndyce family in Charles Dickens’ Bleak House, have several things in common—protracted litigation over an estate that involved generations of a family in a bitter dispute, wasting of estate assets, embitterment of family members towards each other, and the absence of a mediation clause in the disputed wills. In those and other family disputes over estates, the presence of such a clause might have influenced the other unfortunate events favorably.
At its best, mediation avoids the zero-sum, winner-loser aspects of litigation as a mechanism for dispute resolution and also avoids the havoc that an adversarial process can wreak on relationships. Those features, when combined with mediation’s potential cost advantages, explain much of the explosion in the use of mediation to resolve a wide variety of disputes, including emotionally charged controversies among family members. In recent years, a number of states have developed mediation programs for resolution of probate disputes. Measured by surveys of participant satisfaction, these programs have been successful.

To access the complete paper, click here.

A Grandfather’s Letter

My Friend and CELA Lawyer, Richard Courtney of Jackson, Mississippi, penned a moving letter to his two grandsons in his monthly email series he calls “Mid-Month Musings.” I found it an incredibly profound yet simple expression of the heart of estate planning. At the end of the day, it really isn’t about techniques but about one generation’s desire to pass down a heritage to a younger generation. With Rick’s permission, I have included the full text of his letter. Enjoy…and be inspired to do the same.

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