2890 N. Main Street, Suite 206
Walnut Creek, CA 94597
(925) 943-2740
 

From Prince to Pauper?


What happens if you die without an estate plan?

If you’re the late rock star Prince, you lose half of your estate to state and federal estate taxes. It appears the government will be dancing to Prince’s “1999” all the way to the bank.According to news reports, when Prince died in April of 2016, he had no will and no other estate plan in place. As a result, almost $100 million of his estimated $200 million estate could wind up in the hands of the tax man. That’s because the estate will be subjected to a federal tax of 40 percent and a Minnesota estate tax of 16 percent. After the calculation has been completed, experts are predicting the tax burden will amount to approximately 50 percent of the total estate.

Clearly, dying without an estate plan can have devastating financial consequences. However, the consequences extend beyond the reduction of the value of the estate. Dying intestate also impacts how and to whom an estate is distributed. There is a very real likelihood that Prince’s estate may go to unintended beneficiaries and his intended beneficiaries may receive nothing.

For example, under California law, when a resident dies without a will or trust, the laws of intestate (without a will) succession apply. State law, not the estate owner, determines who inherits the estate.  A spouse receives all of the community property. But if other heirs exist, the spouse is required to share in the distribution of separate or personal property.  In addition, access to financial accounts titled only in the name of the deceased, such as checking and savings accounts, may be frozen until the estate goes through probate.  Quite literally, a spouse and/or dependents could be deprived of any financial support, and face homelessness or bankruptcy.

Prince left no surviving spouse behind, but a sister and five half-siblings have laid claim to his estate.  Even if Prince did not intend to bequeath equal portions of his estate to those relatives, his intent no longer matters.  Any business associates or friends he may have desired to benefit from his largesse will be left out in the cold.

Sadly, there are many estate planning strategies available that could have kept Prince’s estate intact and sheltered from excessive taxation. Those same strategies would also have ensured that Prince’s desires concerning the distribution of his estate be honored.  The best approach would have been to place Prince’s property, including copyrights and trademarks to songs and related items, in trust.  This approach has several benefits.

First, when property is transferred to a trust rather than a person, the value of the taxable estate is reduced. That means upon death, there is less to tax, resulting in a lower estate tax liability.  While the trust is required to pay tax upon earnings, and beneficiaries pay tax upon distributions, the assets themselves are not taxed.  In addition, the tax on earnings and distributions is much lower than an estate tax.

Second, a trust not only permits an estate holder to designate who will benefit from the income derived from assets placed in trust, it also permits the grantor to determine how, why, and when that income will be distributed.  This is useful when a grantor determines a potential beneficiary may lack the ability to appropriately manage finances or use any proceeds for bad pursuits, such as illegal drugs. In the alternative, a grantor may provide that trust income be used only for designated purposes, such as the payment of expenses for a college education or extraordinary medical expenses. In addition, distributions may be limited by age, financial and employment status, or used only to reward certain behaviors, such as philanthropy or an attending church.

Finally, a trust enables an estate holder to implement a vision for the future, beyond death. Say, for example, that Prince wanted to donate his writings and instruments to a museum or wanted the proceeds from the licensing of his music to be used for a specific purpose.  That vision can be specifically stated in a trust and the executor of that trust is bound to take designated steps to carry it out.

There are many types of trusts available and they can be used to accomplish a multitude of purposes.  Those purposes may include:

  • To provide for the continued support of dependents, such as spouses and children.
  • To donate assets or income from assets to specific causes or charities.
  • To protect the inheritance rights of heirs from prior marriages, or to permit children not related by blood from a blended family to inherit.
  • To protect assets from former spouses, family members, and creditors.
  • To provide multiple generations of heirs with support or assistance.
  • To remove an estate from probate.
  • To keep the details of an estate private.
  • To protect assets from excessive taxation upon the grantor’s passing.

Most people will not be subjected to the level of federal tax imposed on Prince’s estate.  Currently, estates valued at less than $5.45 million for individuals or $10.9 million for married couples are not taxed by the federal government. That does not, however, mean an estate plan is unnecessary. Some states do impose inheritance or estate taxes. In addition, prior to death, a testator can designate who benefits from their estate and how. Post-death, that option is no longer available.

Estate planning preserves wealth, as well as assets, ensuring that the only parties who benefit are your designated heirs. Why leave that to chance?

Posted in Asset Protection, Beneficiaries, Beneficiary Designation, Distribution of Assets, Estate Administration, Estate Planning, Estate Taxes, Finances, Gifting, Inheritance, Probate, Probate Administration, Tax Planning, Trust Administration, Trusts, Wills | Comments Off on From Prince to Pauper?

Death and Estate Taxes Don’t Take Holidays, Even for Celebrities


A carefully crafted estate plan may have avoided the multi-million dollar battle over Michael Jackson’s estate currently taking place in the U.S. Tax Court.

By disposing of his assets primarily by Will, his estate has been subjected to a myriad of red tape as well as the scrutiny of the Internal Revenue Service. Maybe, as his attorneys have argued, his estate had no value, justifying a simple Will. However, the IRS clearly feels otherwise. I would argue that much of the hoopla over estate taxes could have been avoided with proper planning.

In California, an estate can wind up in probate for two reasons, to settle a testator’s estate as set forth in a Will, or to determine the appropriate distribution of assets should someone die without a Will. Typically, an executor is appointed by Will or by the court. That person inventories and then values assets, and pays outstanding bills and obligations, such as taxes. Only then can the estate be distributed to heirs.

The valuation of an estate, however, becomes more difficult when a celebrity is involved. Under California’s Celebrities Rights Act, the publicity rights of a celebrity are property and can be bequeathed to designated beneficiaries. Publicity rights may consist of a deceased celebrity’s likeness, photos, voice, or works. After the celebrity’s death, his or her heirs are entitled to the proceeds generated from the use of those rights. Sometimes, a celebrity’s likeness may be used in advertising, while his or her works could be used in anything from a movie or theatre production to a musical performance by other artists.

Copyrights, trademarks, and patents—intellectual property, all have continuing value beyond death. For estate tax purposes, the value of those assets at the time of the owner’s death is critical. It could have a financial impact on the total value of an estate, as well as state and federal tax liability.

The dispute between the executors of Michael Jackson’s estate and the U.S. Internal Revenue Service (IRS) points to the difficulty of valuing a celebrity’s intellectual property rights. The executors claim that at the time of his death, Michael Jackson’s reputation was so damaged that the value of his intellectual property was $2,105. However, the IRS initially set the value at more than $434 million. It has since reduced that value to $161 million, but the tax implications are still pretty extreme.

The IRS is arguing that the impact of his death upon the value of the estate should also be considered. Jackson’s estate has benefited from a use of his image and works since his death. For example, Box Office Mojo reports that the documentary, This Is It, grossed more than $261 million worldwide, while Cirque du Soleil’s Michael Jackson ONE grossed more than $100 million just in 2013. There is no question licensing deals and royalties from the use of his music and his image since his death have been lucrative. However, the real question is whether those post-mortem earnings should be included in his estate for estate tax purposes.

Generally, the valuation of an estate occurs at the time of death. The IRS seems to be claiming that the licensing potential post-death actually existed at the time of Michael Jackson’s death and therefore, must also be included in the value of the estate.

The outcome of this case could have significant implications for the right of publicity for other celebrities. If the IRS is permitted to use post-death earnings as part of the estate valuation process, what will prevent them from pursuing existing high-earning celebrity estates? This could be one of those ‘once in a lifetime cases,’ as some legal experts claim, or it could strike a blow to those celebrity estates that through savvy marketing, found a way to increase the value of a celebrity’s intellectual property after death.

The Michael Jackson case makes it more important than ever for those whose estates may profit from their fame after death to plan ahead and get their ducks in a row. An estate planning attorney can craft a strategy for not only protecting intellectual property rights upon death, but also minimizing estate tax liability.

For example, placing intellectual property rights in a trust can minimize estate taxation, as well as ensure that any profits from those rights benefit intended heirs. The right kind of trust takes property out of the estate, which means it is not subjected to probate and is outside the reach of the IRS. Only the earnings distributed to the heirs are taxed, but as income, which is a better result than subjecting the entire amount to estate taxes.

It is a bit surprising that Jackson’s intellectual property was not placed in a trust for the benefit of his children. By subjecting those rights to probate and estate taxation, the value to his heirs will be substantially reduced.

Perhaps he thought he had more time to address his estate planning concerns and properly provide for his children after death. Unfortunately, as we all know, when death knocks on your door, it doesn’t ask whether you have an effective estate plan in place. Death has its own timetable and the only thing you can do is be prepared.

 

Posted in Asset Protection, Baby Boomers, Beneficiaries, Beneficiary Designation, Distribution of Assets, Estate Administration, Estate Planning, Estate Taxes, Finances, Gifting, Inheritance, Probate, Probate Administration, Trust Administration, Trusts, Wills | Comments Off on Death and Estate Taxes Don’t Take Holidays, Even for Celebrities

Worth Consideration: Corporate Trustees


A trustee of a trust must carry out the terms of the trust and safeguard trust assets for the beneficiaries’ benefit. A trustee can be one person, multiple people, or a corporate trustee such as a bank trust department or trust company with employees who help manage and grow the trust assets.  Whether or not you should appoint a corporate trustee depends on various factors including the type of trust you are establishing, the complexity of administration (including tax concerns), and family dynamics. Here are some general reasons why a corporate trustee is worth considering:

  • A Practical Trustee Choice
    A corporate trustee or co-trustee is a practical choice if you are elderly and have no one you can trust to take care of your financial affairs, have no children or other trusted relatives capable of serving as trustee (or you don’t want to burden them), or live far away from the person you would otherwise name as trustee.
  • Avoiding Arguments
    If you worry your estate plan may cause hostility among beneficiaries and family members, appointing a corporate trustee as trustee or co-trustee may be wise since a corporate trustee can be an unbiased trustee removed from family drama.
  • Experience
    Corporate trustees generally have more experience in managing trust assets then most individual trustees and, unlike family and friends who have their own busy lives, manage trusts professionally! Further, corporate trustees are motivated to help your assets grow and may be a better choice than an inexperienced or reckless relative.
  • Corporate Trustee as Co-Trustee
    One option is having a relative or corporate trustee work as co-trustees. This gives you the professional benefits of a corporate trustee and personal involvement of someone you know and love.
  • Keep Control
    Many people fear they will lose control if they appoint a corporate trustee. However, if the trust is properly drafted, you or your beneficiaries can change your corporate trustee at any time if you or they are unsatisfied.
  • Held to a Professional Standard
    A trust is a legally binding document. Although an individual trustee can be sued and removed by a court, a corporate trustee has a professional duty to follow the terms of your trust during your lifetime and after your death.
  • Bundled Services, One Fee
    Corporate trustees do charge a fee for their services. You will want to establish what fees a corporate trustee charges before engaging a corporate trustee. However, many corporate trustees include investment management, tax planning, and tax preparation services in their fees. Depending on the size and complexity of your trust, paying a corporate trustee may be well worth it.
  • Security of Assets
    Trust assets managed by a corporate trustee are fairly secure because corporate trustees are required to keep trust assets separate from all other bank or company assets and guarantee assets against fraud and theft. Trust assets cannot be loaned out by the bank, mixed with the corporate trustee’s own assets, or used to satisfy institutional creditors.

Questions to Ask A Potential Corporate Trustee:

If you can, talk to several corporate trustee candidates before selecting one. Ask the following questions:

  • How long has the trust department been in business?
  • How many trusts do they manage?
  • What is the minimum and average size of the trusts they manage?
  • How much experience does the trust department employees have managing trusts?
  • What are their fees for trust management? What services are included?

Remember, a corporate trustee is not right for everyone. If your trust is fairly simple, you may be fine being your own trustee or having a family member or friend you trust step in for you when you can no longer manage your own affairs. However, if your estate is more complicated or you doubt your relatives’ capabilities or intentions, you may wish to consult with Kirsten Howe and consider whether appointing a corporate trustee as trustee, co-trustee, or investment advisor is appropriate

Posted in Advance Directives, Asset Protection, Baby Boomers, Distribution of Assets, Estate Administration, Estate Planning, Finances, Trust Administration, Trust Bank Accounts, Trusts, Wills | Comments Off on Worth Consideration: Corporate Trustees

Don’t Neglect The Small Stufff


The most frequent fights upon the passing of a parent are not about the money, but about the objects that have sentimental value; your mother’s wedding ring, the family bible that has been passed down for generations, or your grandmother’s quilt.  These are objects that may have very little financial value, but are filled with meaning and memories, and are irreplaceable in the eyes of your family.

You can’t save your family from the grief and pain that comes with the death of a parent, but you can avoid fights and hurt feelings that can accompany the distribution of personal belongings by creating a Personal Property Memorandum.  This is a document in which you name the particular gifts you would like to give to specific people (the coin collection to your nephew, the antique dolls to your sister).

A Personal Property Memorandum is easy to create, and our firm provides each of our clients with one. The Memorandum is a template on which you list each piece of property you wish to distribute, and the person who is to receive the item.  Our firm also takes care to mention your Personal Property Memorandum in your trust, which ensures that your personal representative is aware of the memorandum and can carry out your wishes appropriately.

Don’t make the mistake that so often splits a family down the middle.  When you take care of the big documents in your estate plan, don’t neglect the small stuff.

Posted in Beneficiaries, Beneficiary Designation, Digital Assets, Distribution of Assets, Estate Planning, Trust Administration, Trusts | Comments Off on Don’t Neglect The Small Stufff

Kirsten’s LIVE Radio Interview – Listen to it HERE


279051052606635.065d01ASh84Y4ACqIGlB_height640In the spirit of educating, I’m very excited to share my LIVE radio interview on KSFO, and their sister station KGO, from the Greg O’Donnell Financial Hour broadcast on February 25, 2017.   My twenty minutes of fame explained the importance of having an estate plan, what to think about when choosing your executor or trustee, why it’s very important to document specific wishes to keep your beneficiaries safe, and so much more.  Click on the link below for the full interview.

https://www.youtube.com/watch?v=HtLc912wcCs

 

Posted in Uncategorized | Comments Off on Kirsten’s LIVE Radio Interview – Listen to it HERE

Estate Planning Advice From William Shakespeare


“So long as men can breathe, or eyes can see,
So long lives this, and this gives life to thee.”

(Sonnet XVIII by William Shakespeare, b. Apr. 23, 1564, d. Apr. 23, 1616)

People do some strange things with their last wills and testaments, and Shakespeare was no exception. One item in William Shakespeare’s will, for example, is often cited as being a curious one; “I give unto my wife my second best bed with the furniture.” Why the second best bed? One might wonder if Shakespeare was having some fun at his wife’s expense. Perhaps the author of such comedies as The Taming of the Shrew and Much Ado About Nothing was eccentrically trying to interject some comedy into the last document he ever wrote?

With a little research we discover that giving the “second best bed” to his wife was actually a perfectly natural bequest for 1616, and even more interestingly, Shakespeare did not, in fact, write his own will. This is not to imply that the will is not authentic, but research suggests that even Shakespeare, arguably the most brilliant writer of all time—not to mention he of the quote, “first thing we do, let’s kill all the lawyers”—hired a lawyer to help him write his will and dispose of his property.

Creating a valid will is even more complicated now than it was in the 1600s, and getting the advice of a legal professional even more essential. If your estate planning documents are incomplete or unclear it can result in costly court delays and legal fees, not to mention heated fights between family members that can leave lasting scars.

Even Shakespeare wasn’t afraid to ask his lawyer for help. When the time comes to write your will, follow Shakespeare’s example and let your attorney worry about the legal details, leaving you free to consider the more important questions such as. . . To whom will you give your second best bed?

www.blogprofs.com

Posted in Estate Planning | Comments Off on Estate Planning Advice From William Shakespeare

6 Key Elements of a Health Care Directive


April 16th is National Healthcare Decisions Day, a day dedicated to “ensuring that all adults with decision-making capacity in the United States have the information and opportunity to communicate and document their healthcare decisions.”  Our firm is in complete support of such a goal.  In fact, we include a Health Care Directive as an important component of each estate plan we draft.

Every adult should have a Health Care Directive, whether they anticipate a forthcoming hospital stay or not.  Executing a Health Care Directive will ensure that, in case of emergency, you receive the medical treatment you need—and want—and prevent the receipt of treatment to which you are opposed.

A complete Health Care Directive (sometimes known as a Healthcare Power of Attorney) will consist of the following key elements:

1.      Nomination of Agents—those who will make your decisions if you are unable

2.      Instructions as to your wishes for healthcare and invasive treatment

3.      Whether or not to include a “Do Not Resuscitate” (DNR) order

4.      Nomination of a Primary Care Physician

5.      Your intention (or not) to donate organs

6.      Burial/Cremation instructions

There is one more key element to a truly complete Health Care Directive, and that element is discussion.  It is absolutely essential that you discuss your wishes for your health care with the people who will be involved should something happen to you; this includes your family, any friends you have named as agents, and your doctors.

Once you have executed your Health Care Directive, give a copy to your doctors and to each of the people you’ve named as agents.

Executing your Health Care Directive early will take the pressure off your loved ones if anything should happen to you, and make it easier for them to ensure you get the care you want and need.  Don’t put off this important document; create your Health Care Directive today.

www.blogprofs.com

Posted in Current Events, Estate Planning | Comments Off on 6 Key Elements of a Health Care Directive

How to Review Your Estate Plan; 5 Essential Components


The second law of thermodynamics states that:

     “the entropy of an isolated system which is not in equilibrium will tend to increase over time, approaching a maximum value at equilibrium.”

What this means for our purposes is that things are always changing (unless you’ve reached absolute equilibrium, in which case you have my hearty congratulations).  When your life changes, as we’ve established it will, it’s important that your estate plan change with it.  Reviewing your estate plan every 1-3 years is essential to keeping it up to date and working the way you intended it to work. Luckily, reviewing your estate plan can be quick and easy if you know what you’re looking for.  Here are 5 key components you’ll want to review:

1.    Fiduciaries

2.       Assets

3.       Distribution and Beneficiaries

4.       Health Care

5.       Legal Updates

If we’re lucky, our lives are constantly changing—our families evolve, our finances improve or decline, we meet and form strong relationships with knowledgeable friends and professionals. It only makes sense that your estate plan should change too.  What seemed best for your family 4 years ago might not be the ideal situation now.  By reviewing and updating these 5 components on a regular basis, and touching base with your attorney, you will insure that your estate plan will continue to protect yourself and your family the way you intended it to when you first created it.

www.blogprofs.com

 

Posted in Estate Planning | 1 Comment

Estate Planning Lessons from George Washington (And Other Presidents)


With all the attention we pay to wills and trusts—how necessary one might be, what the options are, how and to whom property should be distributed—it is easy to forget that these documents are actually… well, they’re interesting.  These are the documents in which we make our final wishes known.  This is often where our true selves come out; who we liked best and what we valued most.

A trust is a private document and not available to the general public, but luckily for all the genealogists and historians out there, a last will and testament, once it has gone through probate, is a matter of public record.  Here, for example, in honor of President’s Day, is an online copy of George Washington’s Will.  What a telling document!  In it, among other things, Washington expresses his desire to free his slaves (and the obstacles to that wish), and his desire to fund a university, chiefly in order to prevent the youth of the newly independent United States from being—

sent to foreign Countries for the purpose of Education, often before their minds were formed, or they had imbibed any adequate ideas of the happiness of their own; contracting, too frequently, not only habits of dissipation and extravagance, but principles unfriendly to Republican Government & to the true and genuine liberties of mankind.”

A last will and testament can be very revealing indeed.  Interestingly, President Abraham Lincoln left no will—and he was a prominent lawyer who should have known better!  President Harry S. Truman included careful tax planning in his last will and testament.  President Warren G. Harding must have had some kind of premonition when he conveniently decided to write his will 6 weeks before his sudden death.

It is John F. Kennedy whose will is the most haunting, though.  He seems to have had the curse of foresight that occasionally attends us all, when he began his will with the words “I, JOHN F. KENNEDY, married, and residing in the City of Boston, Commonwealth of Massachusetts, being of sound and disposing mind and memory, and mindful of the uncertainty of life…”

www.blogprofs.com

Posted in Estate Planning, Probate Administration | 1 Comment

Estate Planning Can Help You Pass On Your Values


Most of us would like to think we’re leaving behind more than just a financial estate when we pass away.  We’d like to think we’ve impressed our values upon our children and grandchildren as well, giving them a foundation of knowledge and belief to serve them when we’re not there.  The good news is that creating a thoughtful and comprehensive Estate Plan can help you do just that.

One of the many benefits of a trust is that it allows you to specify to whom your estate will be distributed, as well as when and how.  You can impress upon your grandchildren the importance of education by leaving an inheritance to them in an Educational trust.   Help your kids learn to follow their dreams by earmarking part of the trust principal to be distributed should they want to start their own business.  Or pass on your belief in the value of family by creating a special trust to support stay-at-home parents.  Whatever legacy you wish to pass on, a good trust can help you accomplish it.

A really good trust can serve as a teacher in addition to allowing you to pass on your values.  By leaving an inheritance in trust, you can choose to have distributions made gradually, helping your beneficiaries learn how to handle their finances responsibly and with maturity before they are handed the keys to the kingdom.  Another option for giving them freedom while teaching financial responsibility is to require that the beneficiary serve as co-trustee with a more experienced family member or friend.  None of these choices are available to you if you execute a simple Will.

With the help of a caring and attentive attorney, a good trust can help you not only protect and provide for your beneficiaries financial future, but also leave behind a legacy of the most memorable kind.

www.blogprofs.com

Posted in Estate Planning | Comments Off on Estate Planning Can Help You Pass On Your Values