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Olivia Newton John

Olivia Newton-John had an Estate Plan that carried out all her wishes.

Olivia Newton-John had an Estate Plan that carried out all her wishes.

Olivia Newton-John had an Estate Plan that carried out all her wishes.The Australian singer and actress was worth $60million (£56million) at the time of her death on August 8, 2022 but spent her last years giving as much as she could to charity.

Olivia Newton-John would have celebrated her 74th birthday on September 26. The Cambridge-born star earned millions for her efforts in music and entertainment, and a staggering final act of charity saw Newton-John’s family splitting their inheritance with her charities.

Newton-John was first diagnosed with breast cancer in 1992 – in a tragic twist, her diagnosis came the same weekend her father died of cancer.

The Xanadu singer underwent extensive treatment including a partial mastectomy and was given the all-clear.

But in 2013, Newton-John was told she had breast cancer a second time and once again she beat the disease, getting another all-clear after treatment.

Shortly after her second diagnosis, the singer founded the Olivia Newton-John Cancer & Wellness Centre, which reportedly cost $189million (£156million), at a Melbourne hospital.

In 2015 she founded the Olivia Newton-John Cancer Research Institute and in 2020 launched the Olivia Newton-John Foundation Fund which sponsors research in herbal cancer treatments.

Unfortunately, in 2017 the star was diagnosed with stage four breast cancer.

She started selling off parts of her impressive real estate portfolio which spanned multiple countries with all of the proceeds going towards her charities.

She reportedly sold her incredible Australian abode for $4.6million (£3.8million). Newton-John had originally purchased the 187-acre property in the eighties and rebuilt her home in the early nineties.

Over her decades at the home, the star allegedly planted 10,000 trees on the property and sold it with the intent that someone equally involved and loving of wildlife would continue her work.

Newton-John also reportedly wanted to sell her Californian horse ranch, believed to be listed for $5.4million (£4.46million), but later decided to rather live out her last days at the home and transferred the ownership to her husband John Easterling, 70.

The Physical singer had married actor Matt Lattanzi in 1984 and although they would split up just over a decade later, their marriage did produce their only child Chloe Rose Lattanzi, now 36.

Newton-John got married to John Easterling, 70, in 2008, who is reportedly expected to inherit her fortune alongside Chloe.

Newton-John first rose to fame in the music industry, releasing her first single in 1966 and, seven years later, her hit Let Me Be There hit number one on the Billboard Hot 100.

Her debut album in 1971, If Not For You, held an array of tracks that peaked in Australia, North America and the United Kingdom

Over her career, Newton-John released over 25 albums and her successful singing career soon translated into Hollywood stardom.

The singer was already a well-known face on Australian television by the star of the seventies.

In 1964, while still in high school, Newton-John’s acting prowess shone through as she starred in her school’s production of The Admirable Crichton and became the runner-up for the Young Sun’s Drama Award for best schoolgirl actress.

Following this award, Newton-John often appeared in Australian shows and telefilms, with her fame catapulting when she won the televised talent contest Sing, Sing, Sing in 1965.

In 1970 the singer was a part of the group Toomorrow which starred in a science fiction movie musical named after the group.

Unfortunately, most of the group’s projects failed and they ultimately disbanded.

After Toomorrow, Newton-John embarked on her successful solo music career and returned to film in 1978 for what would become the role of a lifetime.

Newton-John starred alongside John Travolta for the first time in Grease. The dream team appeared on screen again in 1983’s romantic comedy Two of a Kind.

Although she starred in less than 20 films during her life, her role as Sandy Olsson seemed to be enough to cement her star as a prominent actress.

Alongside her lucrative musical and acting careers, Newton-John was also a successful author of her memoir Don’t Stop Believin’ and some healthy eating cookbooks.

Read more related articles here:

Olivia Newton-John’s $100 million dying wish

Olivia Newton-John’s legacy: Her net worth, philanthropic efforts and beyond

Also, read one of our previous Blogs here:

The Queen’s clothes and jewels: Who inherits her enormous collection?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Healthcare Proxy

Be Leery of Generic Health Care Proxy Forms.

Be Leery of Generic Health Care Proxy Forms.

If you go to the hospital, you may be presented with a health care proxy form to sign on being admitted. While it might seem easy to sign a generic health care proxy form, having a document that is specifically tailored to your needs is very important.

A health care proxy form, also known as an advance medical directive, allows you to appoint someone else to act as your agent to make medical decisions for you when you are unable to make them yourself. It should also include a Living Will that states what your wishes are for end of life care.

An advance medical directive takes effect only when you require medical treatment and a physician determines that you are unable to communicate your wishes concerning what that treatment should be. Appointing someone to serve as your agent helps ensure that your wishes will be carried out when a crisis occurs.

While an advance medical directive serves to appoint an agent to speak for you, you can also use it to give the agent guidance about your medical wishes. The following are some issues that can be addressed in an advance medical directive:

  • The name of the person authorized to act for you. It is good to appoint an alternate as well in case your primary agent is unable to assist you.
  • If you are terminally ill, in a coma, or have brain damage with no hope of recovery, you can explain the kind of treatment you do not want. For example, do you want to be kept alive by machines if you are in a persistent vegetative state?
  • Under what circumstances you want pain medication to be administered.
  • Whether you want to donate your organs.
  • Whether you want to be cremated or buried and where and how your remains should be disposed of.

Whatever choices you make, you should take time to consider your health care wishes before drafting an advance medical directive. For this reason, signing a generic hospital form is not a good idea, as such a form will not take your individual wishes into account. Instead, you should work with an estate planning attorney to have a proper advance medial directive prepared that reflects your personal wishes. In addition, if you already have an advance medical directive as a part of your estate plan, the generic form will revoke your more personal advance medical directive.

Read  more related articles here:

Be Cautious of Generic Health Care Proxy Forms

All You Need To Know About Naming A Health Care Proxy

Also, read one of our previous Blogs here:

Why Do I Need an Advanced Healthcare Directive?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

 

QTIP Trust

QTIP Trusts: What They Are, And How They Work.

QTIP Trusts: What They Are, And How They Work.

What Is a Qualified Terminable Interest Property (QTIP) Trust?

A qualified terminable interest property (QTIP) trust enables the grantor to provide for a surviving spouse and maintain control of how the trust’s assets are distributed once the surviving spouse dies. Income generated from the trust, and sometimes the principal, is given to the surviving spouse to ensure that the spouse is taken care of for the rest of their life.

KEY TAKEAWAYS

  • A qualified terminable interest property (QTIP) trust allows an individual, called the grantor, to leave assets for a surviving spouse and determine how the trust’s assets are split up after the surviving spouse dies.
  • Under a QTIP trust, income is paid to a surviving spouse while the balance of the funds is held in trust until that spouse’s death. At that point, the remainder is paid to the beneficiaries specified by the grantor.
  • QTIP trusts are used in estate planning and are especially helpful when beneficiaries exist from a previous marriage, but the grantor dies before a subsequent spouse does.
  • In QTIP trust, estate tax is not assessed at the point of the first spouse’s death but is determined after the second spouse has passed.
  • A QTIP trust is established by making a QTIP trust election on the executor’s tax return.

How Qualified Terminable Interest Property (QTIP) Trusts Work

This type of irrevocable trust is commonly used by individuals who have children from another marriage. QTIP trusts enable the grantor to look after their spouse and ensure that the assets from the trust are passed on after that spouse dies to beneficiaries of their choice. Beneficiaries could be children from the grantor’s first marriage, other family members, or friends.

Aside from providing the living spouse with a source of funds, a QTIP trust can also help limit applicable death and gift taxes. The property within the QTIP trust providing income to a surviving spouse qualifies for marital deductions, meaning the value of the trust is not taxable after the first spouse’s death. Instead, the property becomes taxable after the second spouse’s death, with liability transferring to the named beneficiaries of the assets within the trust.

Additionally, QTIPs can assert control over how the funds are handled should the surviving spouse die, as the spouse never assumes the power of appointment over the principal. This can prevent these assets from transferring to the living spouse’s new spouse should they remarry.

  • QTIP trusts are reported on tax returns using IRD Form 706.1

Qualified Terminable Interest Property Trustee Appointments

A minimum of one trustee must be appointed to manage the trust, though there may be multiple named simultaneously. The trustee or trustees will be responsible for controlling the trust and have authority over the management of the assets.

Examples of possible trustees include, but are not limited to, the surviving spouse, a financial institution, an attorney, and other family members or friends.

Spousal Payments and QTIP Trusts

The surviving spouse named within a QTIP trust typically receives payments from the trust based on the income the trust generates, similar to stock dividends. Payments can be made from the principal if the grantor allows it when the trust is created.

Payments will be made to the spouse for the rest of their life. Upon death, the payments cease, as they are not transferable to another person. The assets in the trust then become the property of the listed beneficiaries.

QTIP Trust vs. Marital Trust

 QTIP  Marital Trust
Irrevocable Irrevocable
Only names the spouse as beneficiary Only names the spouse as beneficiary
Unlimited marital deduction Unlimited marital deduction
Defers taxes until spouse’s death Defers taxes until spouse’s death
Control does not pass to spouse Control passes to spouse
Income from assets or principal paid to spouse Surviving spouse controls asset distribution

Each type of trust can help you achieve similar estate planning goals. However, the key differences lie in how the assets in the trust are controlled. For example, a QTIP lets the grantor dictate how assets within the trust are distributed to their spouse and requires that distributions be made at least annually.

A marital trust allows the surviving spouse to dictate how the assets are distributed—it doesn’t require distributions, and that spouse can even add new beneficiaries. A marital trust has more flexibility as this type does not require the surviving spouse to take annual distributions. The surviving spouse of a marital gift trust can also appoint new beneficiaries following the death of the original grantor.

As the surviving spouse is never the true property owner, a lien cannot be put against the property within the trust or the trust itself.

Benefits of a QTIP

While QTIPs are similar to marital trusts, there are benefits in certain situations.

  • You control where the assets end up: You control who your assets pass to after both you and your spouse die. This means that no matter what your spouse does after you pass on, any assets left in the trust are passed on to the secondary beneficiaries you name. These could be your children, grandchildren, or children from a previous marriage.
  • QTIPs protect all assets and income: As your spouse ages, they may be unable to make the sound financial decisions they once could. Dictating how income or principal is distributed and used protects the assets for all beneficiaries you name. Your assets cannot be accessed by thieves, or scammers, be accidentally signed away or be used in ways you didn’t intend for them to be used.

How Does a QTIP Trust Work?

A QTIP trust is an irrevocable trust that pays income generated from the assets to a spouse. When that spouse dies, the assets pass to the beneficiaries named by the grantor.

What Is the Difference Between a QTIP and Marital Trust?

The two are similar, except that a QTIP cannot be changed by the surviving spouse and requires that at least one annual distribution occur.

What Are the Requirements of a QTIP Trust?

A QTIP is required to pay all of its income to the spouse beneficiary. There can also be no other beneficiaries until that spouse passes away.

The Bottom Line

Qualified Terminable Interest Trusts are designed to be a method of ensuring you can leave assets to your spouse and other named beneficiaries while the terms you want are enforced throughout the trust’s existence.

QTIPs may not be suitable for everyone or every situation. For example, if you’re not concerned with how your estate is distributed after your spouse dies, you might not need a QTIP. But if you’re leaving an estate to your spouse when you die and want any remaining assets and income to go to specific people after your spouse passes on, a QTIP is an excellent way to ensure your wishes are followed.

Read more related articles here:

How Does a QTIP Trust Work?

What is a QTIP trust and how does it work?

Also, read one of previous blogs here:

What Is a Marital Trust?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Protect Inheritance

I Want to Leave An Inheritance to My Child, But Not Their Spouse.

I Want to Leave An Inheritance to My Child, But Not Their Spouse.

It’s natural for parents to want to protect their children, even their adult children. While many parents love their children’s spouses, when they are estate planning their #1 priority is protecting their children, and not necessarily their child’s spouse.

Parents who have worked hard to earn a home, some treasured items and savings, and want to pass that legacy to their children after their death and to keep that legacy in the family for their grandchildren. While often money that is inherited during a marriage is considered marital property, with proper estate planning you can ensure that your legacy is left to your children and their children, and not to their spouse due to a potential future divorce or death.

3 Ways To Ensure Your Child’s Inheritance Stays In the Family

1. Inheritance Through A Trust 
If you leave money to your children through an irrevocable trust, technically the trust owns the money – not the beneficiary. An irrevocable trust can protect your assets and require the trust executor to follow your exact wishes for the distribution of your assets, even if your child dies or becomes divorced.

2. Gift Your Child While You Are Still Living 
Recent changes in the tax code make it easier to gift money to your heirs before you die. In 2020 the annual exclusion is $15,000 – which means you can gift anyone up to $15,000 per year without triggering gift taxes That number could rise in the future as inflation impacts the value of the U.S. dollar.

3. Generation-Skipping Transfer Trust or GST
A GST skips a generation, and assets are passed down to the grantor’s grandchildren, not the grantor’s children. A Generation-skipping trust avoids having your estate taxed twice — when your children inherit, and when your grandchildren later inherit your assets. GST allows you to give your grandchildren or great-grandchildren up to $11.40 million — the same as the estate tax exemption — in a generation-skipping trust and only the estate tax applies, or $22.80 million if you’re married.

Ideally, your child can sign a prenuptial or postnuptial agreement to negotiate that their future inheritance is separate from marital property. If you want to secure your adult child’s inheritance after you are gone, it can be stressful for your child to say that their future inheritance as not a part of marital property and will not be shared with their present or future spouse.

An experienced estate planning attorney can help you determine the best options to protect your family and secure their futures after you are gone, and ensure that their inheritance is not considered marital property.

Read more related articles here:

Can I Leave Money to My Kids But Not Their Spouses?

How to Leave Money to Your Kids – But Not Their Spouses

Also, read one of our previous blogs here:

CAN A TRUST PROTECT YOUR CHILD’S INHERITANCE?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

 

 

Lisa Marie Presley

Lisa Marie Presley’s Estate: A Legal View on Challenges Ahead

Lisa Marie Presley’s Death Highlights Estate Challenges of Multigenerational Fame

Lisa Marie Presley’s Estate: A Legal View on Challenges Ahead. Nothing educates the public about estate law (and, sometimes, probate litigation) like the death of a celebrity. The passing of Lisa Marie Presley is likely no exception. High-profile deaths often shine a light on the sometimes complex post-death proceedings to shuttle a person’s wealth to his or her heirs or beneficiaries — assuming the estate is solvent when all is said and done and there is something to distribute. This process is referred to as “post-death administration” and, often, with famous decedents, it is marred by complications such as pending lawsuits and claims by creditors. By all accounts, it appears Ms. Presley’s estate will encounter the same fate.

Ms. Presley’s untimely death presents complex estate administration issues that will need to be sorted out in the coming months and, likely, years. What typically happens, or should happen, when a person dies is for her representative (i.e. executor or trustee) to marshal all of her assets, pay her debts (including applicable federal estate taxes), and then distribute any balance to her heirs or beneficiaries. This process is meant to be simple and streamlined but, in reality, can take years.

Although Ms. Presley’s passing is very recent, publicly-available information indicates her estate administration may teeter on the complicated side. The reasons for this include the fact that Ms. Presley is what one would call a “legacy celebrity.” Her fame didn’t simply start and end with her. She inherited more than wealth from her father, who was none other than the King of Rock and Roll. Simply being the daughter of Elvis Presley gave Ms. Presley icon status, arguably in perpetuity. Adding to her legacy status is the fact that Ms. Presley’s mother, Pricilla Presley, is a famous actress. The fact that Lisa Marie Presley herself acted and released albums added additional layers of fame. Of course, we would be remiss if we didn’t mention Ms. Presley’s (albeit brief) marriage to Michael Jackson, the King of Pop. Most go through life not even coming remotely close to being associated with any sort of musical juggernaut, and yet, Ms. Presley was closely linked to two of the most talented musical giants of all time. While all that fame should and typically does come with a lot of wealth, sadly, in Ms. Presley’s case, that may not be the reality for her heirs.

All of that messy litigation raises at least one burning question: What will Ms. Presley’s three daughters inherit from her? In other words, how much of that Elvis Presley legacy is still left to be passed down to his granddaughters, two of whom are still minors? We know that Ms. Presley personally owned Graceland and her father’s personal effects, so there is a possibility that her daughters will inherit Ms. Presley’s interest in those assets. That is assuming those assets are not consumed by their liabilities. Ms. Presley’s heirs may also inherit any intellectual property rights that Ms. Presley owned and monetized. Finally, Ms. Presley’s untimely death may generate future revenue for her heirs in the form of post-mortem book deals and movies.

Read more related articles at:

All Shook Up: What’s Left in Lisa Marie Presley’s Estate?

These Are All the Plans for Graceland After Lisa Marie Presley’s Death

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

Succession Plan

My Lawyer Retired-What Happens to my Estate Planning Documents Now? 

My Lawyer Retired-What Happens to my Estate Planning Documents Now?

What happens to your Will or estate plan if your estate planning attorney dies, retires, quits practicing, or is otherwise not available when you or your family need estate legal services in the future?

Clients mistakenly believe that their estate legal program will fall apart if the attorney who prepared and implemented the plan is not around at a later date.

People who put an estate legal program in place typically have either a Will-based plan or a Living Trust-based plan.

Over the years, many people have gone to “other” attorneys or firms to get their Will done. Later, when they need to change their Will (perhaps change the heirs; or change the executor) they go to another attorney to either make the changes, or, when someone dies, to handle the probate,When new services are provided,  the previous attorney or firm does not have to be located or communicated with. It is often easy to make the transition.

When someone creates a Living Trust-based estate planning program, they often mistakenly believe that legal documents must be updated every time they buy or sell property, or even open an investment account. That assumption is incorrect. The key is, simply, to buy the new property, or open the investment account, in the name of the trust. And when the Settlor of a trust dies, note that many Living Trusts are settled with no attorney involvement whatsoever. So if the attorney who helped you implement your Trust-based plan is not around when you need to name new beneficiaries, or settle the trust when you die, it’s OK.

It is not unlike when you lose the services of your doctor, your CPA, or your financial advisor. You simply find someone else that you know, like, and trust to pick up where you left off with the other professional service provider.

Read more related articles here:

What Happens if Your Estate Planning Attorney Dies Before You?

Why Should A Solo Practitioner Do Succession Planning?

Also, read one of our previous blogs here:

Succession Planning vs. Estate Planning – Why They Are Both Important

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

 

POA-Healthcare Proxy

Avoid Disagreements Between Your Power of Attorney Holder and Health Care Proxy

Avoid Disagreements Between Your Power of Attorney Holder and Health Care Proxy

A durable power of attorney and a health care proxy are two important but different estate planning documents.  Both allow other people to make decisions for you in the event you are incapacitated.  Because the individuals chosen will have to coordinate care with your income and resources, it is important to pick two people who can  get along.A power of attorney allows a person you appoint – your agent or “attorney-in-fact” – to act in your place for financial purposes when and if you ever become incapacitated.  A health care proxy (sometimes called a health care power of attorney or advance directive) is a document that gives an agent the authority to make health care decisions for you if you are unable to communicate such decisions.

While the health care proxy is the one who makes the health care decisions, the person who holds the power of attorney is the one who needs to pay for the health care.  If the two agents disagree, it can spell trouble.  For example, suppose your health care agent decides that you need 24-hour care at home, but your power of attorney thinks a nursing home is the best option and refuses to pay for the at-home care.  Any disagreements would have to be settled by a court, taking  time and draining your family’s resources in the process.

The easiest way to avoid conflicts is to choose the same person to do both jobs.  But this may not always be feasible – for example, perhaps the person you would choose as health care proxy is not good with finances.  If you pick different people for both roles, then you should think about picking two people who can get along and work together.  You should also talk to both agents about your wishes for medical care so that they both understand what you want.

The next easiest way is anticipate and plan for the conflict by giving someone the power to settle disputes.  This person should be named in the papers and could be anyone other than the named agents.  The person should be authorized to consult with all the stakeholders (the family members, etc.) and then given specific authority to direct that in the case of dispute, one agent or the other will prevail.  Many disputes are probably avoided by knowing that this power exists: one need not see the dog to have second thoughts when the sign shouts to beware the canine.

Finally, it’s useful for everyone to consider what might happen when dementia or some other disorder takes over for the person giving and getting authority.  Especially when one spouse appoints another, age will be a factor to consider.  Careful writers will consider including  language to override protests in health care proxies (in Virginia, to avoid civil commitment hearings, Virginia Code § 54.1-2986.2.), and including alternate agents and the procedure for removal of impaired agents.

If you have questions about whom to name for these roles, or you haven’t yet executed these all-important documents, address these issues, and then talk with your attorney.  You and your family will be happy you did.

Read more related articles at:

When a Health Care Proxy and Power of Attorney Disagree

Living Wills, Health Care Proxies, & Advance Health Care Directives

Also, read one of our previous Blogs at:

Do I Really Need a Health Care Proxy?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

 

 

 

pot trusts

What Is A Pot Trust In Estate Planning?

What Is A Pot Trust In Estate Planning?

Pot trusts (also called discretionary or sprinkling trusts) are a type of trust where the trustee is allowed to disperse funds according to the needs of the beneficiaries. Family pot trusts are created by parents for their children, usually in case something were to happen to them. Unlike many trusts where the trustee must follow strict instructions from the creator of the trust, family pot trusts allow parents to grant almost unlimited flexibility for the trustee to give funds to their children as needed, sometimes only to one beneficiary. Parents may want their children to receive different amounts from the trust as expenses arise such as medical bills or college tuition.  Family pot trusts have great advantages for flexibly allocating trust assets, but they come with the disadvantage of possibly allowing a trustee to manage the trust against the interests of the trust creator. Given the level of discretion given to the trustee, it is extremely important to choose the right trustee and define the intentions of the parents. Also, the trust typically does not end until the youngest child reaches the age of 18 or another age set by the trust. So, older children who might need the money in the trust might not be able to access it until late in life.

About Dynasty Trusts.

Dynasty trusts are now more en vogue than ever due to the highest federal gift, estate and generation-skipping transfer (GST) tax exemption amounts in history. In addition, more states have modified or abolished the common law rule against perpetuities, and the modernization of trust law under the Uniform Trust Code (UTC) now allows for a variety of ways to modify irrevocable trusts. Consider that trusts funded in 2022 with the $12.06 million of available exemption stand to grow to over $30 million in just 20 years when compounding at a modest 5% rate of return. This means that trusts established and funded with that amount today are likely to last more than just one generation, warranting a perpetual trust structure. Many states’ laws now allow for such dynastic trusts, permitting assets to be held in trust without running afoul of the maximum duration for trusts under common law. The cherry on top is that in UTC jurisdictions, clients need not shy away from a perpetual trust for fear of creating a static vehicle that can’t be modified for unanticipated changes in family circumstances. Moreover, decanting, modification agreements and nonjudicial settlement agreements are now available in many states, adding newfound flexibility to planning with long-term trusts.

Separate Share Trusts

For many years, the default trust design was to divide trust assets immediately into either per stirpital or per capita shares to be held in separate share trusts for descendants. This was especially true with lifetime trusts that give the trustee complete discretion in making income and principal distributions. This tried-and-true method of drafting addresses the majority of clients’ goals in: (1) treating children equally in the initial division of trust assets, and (2) protecting the beneficiaries’ inheritances from the claims of creditors. And yet, while this common approach to trust structuring does address most clients’ main objectives in architecting their estate plans, rarely do clients understand that the immediate splitting of the trust estate into separate trusts can result in disparate treatment of beneficiaries just one generation lower.

Take, for example, a situation in which one child proves to be more of a spendthrift than their siblings or another very common situation in which one child chooses to have more children than their siblings. In either scenario, a client’s grandchildren may inherit disproportionate fractions of the assets the grandparents left in trust for the family based solely on decisions made by their parents. Rarely, if ever, however, does a client endeavor to treat their grandchildren differently, yet clients aren’t always advised of this consequence when defaulting to a separate share trust structure. A hyperbolic example is a family with two children in which one child has 10 children, and the other child has one child. In this example—assuming all else is equal—the one grandchild ends up with 10 times what their cousins inherit in traditional per stirpital planning. Each generation only compounds this problem.

This potential issue with the separate share trust design is only magnified under the current landscape where trusts are funded with historically high amounts, given the increased federal gift and GST tax exemptions available under the Tax Cuts and Jobs Act, which is still in effect until it sunsets at the end of 2025. It’s therefore incumbent on practitioners to discuss the potential impact of separate share trusts when working with clients to address their estate-planning goals and educate them on what alternatives may be available in architecting the client’s dynasty trust.

The Long-Term Pot Trust

A single share or pot trust is held for the benefit of a group of beneficiaries rather than for only one primary beneficiary. A typical pot trust may include a large class of beneficiaries, such as the descendants of a client’s maternal and paternal grandmothers, to preserve the flexibility for the dynasty trust to serve as a “family bank,” benefiting more than just the client’s nuclear family should the trust assets be of exceptional size or should family circumstances change. If the trust is structured such that the trustee maintains full discretion over trust distributions, the inclusion of additional family members as merely permissible beneficiaries may be that much more desirable as this design merely provides the opportunity—but not the requirement—to benefit other family members should a need arise.

This highlights one of the most attractive features of the pot trust structure: the flexibility to defer decisions on hard-to-answer questions until later on down the road. One of the most challenging questions for clients to answer can be whom they ultimately want to benefit from the trust assets. It’s nearly impossible to imagine or foresee how family circumstances may change and evolve decades into the future, and yet trusts funded with high exemption amounts today have the potential to continue for several generations. Asking clients to choose up front as to the total pool of beneficiaries to be included now may not be prudent or desirable for many clients. As such, the best recommendation may be to offer up a structure that allows the client to defer that decision until the client or a trustee is better equipped to make such a choice after seeing how trust assets perform over time and how the client’s family matures.

Benefits of Pot Trusts

One of the key benefits of a pot trust is that it allows the flexibility to defer decisions on hard-to-answer questions until later. But there are other benefits to consider.

A pot trust allows the trustee to distinguish among beneficiaries just as the settlor likely did during life. One beneficiary may have the skills and temperament to thrive in an Ivy League setting, while another beneficiary may be much better suited to art or design school. One beneficiary may have substantial health needs while another is fit as a fiddle. While some parents may ultimately try to equalize overall distributions between these two beneficiaries, our experience tells us that most parents don’t keep score this way, focusing instead on giving each beneficiary what they need. Removing the temptation to equalize allows the trustee significantly better chances of responding to each beneficiary’s actual needs and interests.

Families with dynastic intent who want to see their wealth grow and support not only children and grandchildren but also descendants further down the line often may find the pot trust a better option. In working with what we call “100-Year Families,” we notice that pot trusts lend themselves to more effective management by bringing members from different branches of the family tree who have different life experiences and goals into the management of the trust. A grandchild who participates on a trust advisory board with members from both older and younger generations will likely develop strong relationships with their family members, which will, in turn, lead to decision making that fosters multigenerational benefit from the trust. Involving younger family members in the management of the trust also keeps the trust relevant and meaningful over the years.

Income tax planning is another benefit of a pot trust structure. If the trustee can pick from a large group of beneficiaries, they can make distributions that shift taxable income to lower bracket taxpayers. They might also decide to make distributions in kind to reduce tax recognition. In the aggregate, these tax savings should result in more wealth to reinvest, increasing the family’s overall wealth.

Overall costs of administering a single share instead of separate shares should be lower. Record keeping, accounting, costs associated with managing real estate and back-office costs will be incrementally higher with five or six shares than with only one share. Pot trusts allow trustees to take advantage of economies of scale, saving costs in performing basic trustee functions.

Duty of Impartiality

Balancing the needs of many beneficiaries will be more difficult than managing the needs of a single beneficiary with a separate share.

The biggest concern is the duty to act impartially in administering assets held for multiple beneficiaries with different needs, tolerance and risks. Without a specific waiver of this duty in the trust document, a provision that would require careful discussion with the settlor, the conflict exists even if the trustee has absolute discretion over distributions. This duty (and the related duty of acting in good faith) doesn’t mean that overall distributions among beneficiaries should result in equitable distributions. Instead, it means that the trustee can’t make decisions based on personal favoritism or animosity toward a beneficiary. A trustee shouldn’t make “better” distributions to a beneficiary who simply has more access to the trustee or is more aggressive than other beneficiaries. This may be more complicated with multiple beneficiaries, but it’s no less or more important than in a separate share trust.

Trustees should always communicate with their beneficiaries, but this is especially true while administering pot trusts. To satisfy the duty of impartiality (and the related duty of acting in good faith), a trustee must take reasonable steps to discover a beneficiary’s needs, and consistent communication with the beneficiaries of a pot trust is vital in that respect. Conversely, the trustee has a duty to keep beneficiaries informed, including the reasons discretionary distributions have been or will be made. Regular discussions with beneficiaries along with written reports or emails summarizing discussions and decisions sent to all or at least a fairly representative group of beneficiaries will offset the worry a trustee feels in making discretionary decisions for a pot trust. Creating a family advisory board or a committee of trustees composed of a fairly representative group of beneficiaries may help achieve the trust’s purpose (as discussed above); it may further reduce the risk a single trustee may feel in making discretionary decisions.

Perhaps the most helpful tool for a trustee with discretionary authority is a letter or statement of wishes from the settlor. The trustee’s duty to comply with the terms of the trust and their duty of impartiality require the trustee to discern the purposes of the trust from the trust document and other contextual information about the trust’s objectives. That can be exceedingly difficult once the settlor can’t answer questions from the trustee. Although letters and statements of wishes are precatory in nature, they guide the settlor on various matters, including the special issues discussed above, giving trustees much needed information to consider in making discretionary decisions.

Unique Investment Assets

Certain assets are better suited to the unified ownership structure provided by a pot trust: for example, a vacation home that multiple individuals use across generations in a family. Owning such an asset in a pot trust allows the trustees to coordinate use, maintenance and improvements without requiring the cooperation or consent of numerous family members.

Holding personal use real estate in separate trusts for different family members, by contrast, raises issues of fairness and coordination. Although ownership of the property could be unified by titling it in the name of a limited liability company (LLC) with the various trusts as members, the LLC manager would be in the unenviable position of allocating usage of the home and seeking pro rata reimbursement for expenses from different trusts, whose trustees and beneficiaries may have greatly differing opinions regarding the property, its use and upkeep and even whether it should be retained or sold. Unless the LLC is funded with significant liquid assets, its member trusts will occasionally be required to make additional capital contributions to maintain and improve the property. If one beneficiary never or rarely uses the property, they (or their trustee) are unlikely to agree to an expensive renovation. Even if the LLC operating agreement contemplates that a majority or supermajority vote can compel all members to make additional capital contributions, doing so may cause resentment and family conflict. While the overall economics may be identical in the pot trust and separate trust scenarios, pot trust ownership discourages the perspective of “mine” versus “yours” money among family members, which is likely to give rise to intrafamily tension.

Not all assets are well-suited to a pot trust ownership structure, however. Consider a closely held operating business in which some, but not all, family member beneficiaries participate in running the business. While a settlor might be tempted to transfer such a business into a pot trust to ensure continuity and consolidation of ownership, there’s significant potential for conflict between beneficiaries involved in the business’ operation and those who aren’t. The family business managers may prefer to boost their compensation rather than increase income or appreciation that benefits the trust because trust assets must be shared among a larger class of beneficiaries.

General Investment Considerations

Even in the absence of unusual assets, different investment approaches may be appropriate for pot trusts and separate trusts. The larger size of a single pot trust might seem to permit a higher risk investment strategy, and its larger purchasing power may open up investment opportunities unavailable to smaller trusts. However, the fiduciaries of a pot trust must consider the circumstances of all beneficiaries, and it may be difficult to appropriately balance the risk appetites of beneficiaries of different generations and life situations. Separate trusts permit a more individualized investment approach. In either case, the trust instrument should be drafted to reflect the settlor’s wishes regarding investment strategy.

The Best of Both Worlds

Pot trusts offer flexibility that can’t be found in separate share trusts. They: (1) allow planning for families with young children whose needs and interests aren’t yet clear, (2) reduce the risk of inequity for future generations based on access by earlier generations, (3) reduce the costs of administration, and (4) provide opportunities for involving multiple generations in trust management. They also offer unique investment advantages for various assets. However, separate share trusts may still be a better choice based on a specific client’s facts and circumstances, particularly when primary beneficiaries are older and have clearer needs, a relationship with a primary beneficiary is difficult and keeping things separate will likely reduce family tension, particularly when multigenerational planning isn’t as important.

Like so many estate-planning decisions, those around multigenerational trust structure require careful discussion with clients, particularly because pot trusts can be designed to split into separate shares on a certain event (for example, the young beneficiary’s reaching a certain age) or at any point the trustee determines separate shares make more sense. The trustee can divide the entire pot or bifurcate a particular percentage in creating separate shares. These options allow clients to have their cake and eat it too. As a result, divisible pot trusts deserve to be considered more often than the current default regime of per stirpes.

Read more related articles here:

Pot Trusts: Why They’re the Fairest (Trust Structure) of Them All

How Does a Pot Trust Work?

Also, read one of our previous blogs here:

How Does the Generation-Skipping Transfer Tax Work in Estate Planning?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

 

 

Per stirpes in florida

What Does Per Stirpes Mean In Florida?

What Does Per Stirpes Mean In Florida?

What Does Per Stirpes Mean In A Last Will In Florida?  Last wills and testaments include a number of unique terms which often confuse individuals who are not familiar with the probate process. One of the most common terms that confuses individuals is “per stirpes”, which literally is translated to English as “by the branch”. This term refers to how the testor’s assets will be distributed to beneficiaries if they were to predecease the testor.

As an example, let’s say a testor with two children has instructed in their Last Will and Testament that their assets be equally distributed amongst their children “or to their issue, per stirpes”, if they were not to survive the testor. This means that the assets will be divided equally between their children if they were to not survive them.

Sometimes however, a beneficiary will pass before the testor. If this is the case, then the assets originally willed to the beneficiaries would be distributed to their descendants, or closest surviving relatives if there are no direct descendants. So in this example, if one of the two beneficiaries of the testor were to pass, then the assets originally willed to them would be passed onto the direct descendants of the beneficiaries, with the other half going to the original surviving beneficiary.

DYING WITHOUT A WILL IN FLORIDA

When someone dies without a valid will, their assets are declared intestate. It’s important to note that “intestate” does not mean that the property now belongs to the State. In fact, Florida has a specific process in determining who receives the decedent’s assets in the absence of a valid will.

Flowchart representation of Florida intestacy laws for probate without a will. The infographic shows which family member receives the estate starting with the spouse down through the entire paternal and maternal family of the decedent.

  • When the decedent has a surviving spouse and has no living children, grandchildren, parents, etc, then the spouse shall receive the entire estate.
  • If the decedent has a spouse and also has one or more living family members who are family members of the spouse (i.e children), the spouse shall receive the entire estate.
  • If the spouse has additional living immediate family members that are not immediate family of the deceased individual, the spouse shall receive one-half of the estate with the other half going to the spouse’s descendants.
  • In cases where the decedent was not married at the time of their passing, the immediate family members will receive the entire estate. The assets will then be divided in accordance with Florida law.
  • If the deceased person was not married and also has no living immediate family members, the inheritance will pass to surviving parents of the decedent.
  • In cases where someone dies without any surviving close family members, spouses, or relatives, the State of Florida will search for more remote heirs in accordance with intestate law.

The full process can be found in Chapter 732 of The Florida Statutes. This process is very in-depth and often causes confusion/disagreements among beneficiaries. As a result, it’s vital to work with a Florida probate attorney that’s experienced with issues involving intestate succession.

DIFFERENCES WITH PER CAPITA

Another common term associated with Last Wills and Testaments is “per capita”, which can create further confusion when discussing the distribution of assets. While per stirpes will ensure that the shares originally willed to surviving beneficiaries will stay the same regardless of whether other beneficiaries pass on, per capita will instead divide the amount evenly among all living descendants.

This means that per the earlier example, if one of the beneficiaries passed away and had three children, the estate would actually be divided into four separate and even parts – one part for the original surviving beneficiary and the other three for each of the deceased beneficiary’s children. Essentially, in a will with per capita, you never create a share for an already deceased beneficiary as would occur in per stirpes.

WHAT THIS MEANS FOR YOU

The meaning of per stirpes may be different depending on whether you’re having the will prepared or if you’re the beneficiary of the estate. If you are creating a will for your estate then having per stripes included will ensure that your estate is passed down to your children or the next closest descendants in line.

In the event that you are on the other side of the will as a beneficiary or heir and notice per stirpes mentioned in it, it means that the share for any deceased close relatives will go to their descendants if any. Otherwise it will be split evenly between the closest surviving relatives as the will outlines.

Sometimes it can be challenging to understand the details of a will, particularly if there are many beneficiaries listed. In that case, most find it beneficial to work with an attorney specializing in probate and estate planning to help not only formulate the will but also to understand a will, especially when per stripes is involved.

 

Read more related articles at:

Per Stirpes: Meaning and Uses in Estate Planning

What does per stirpes mean?

Also, read one of our previous Blogs at:

WHAT HAPPENS WHEN SOMEONE DIES WITHOUT A WILL?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

 

Retirement risks

Assessing the Risks Workers Face Going Into Retirement

Assessing the Risks Workers Face Going Into Retirement

According to the brief, titled “How Well Do Retirees Assess the Risks They Face in Retirement?,” recent studies have identified five major risks: the risk of outliving one’s money (longevity risk), the risk of investment losses (market risk), the risk of unexpected health expenses (health risk), the risk of unforeseen needs of family members (family risk) and the risk of retirement benefit cuts (policy risk).

The analysis shows that these risks affect different cohorts of the working population differently. For example, for single men reaching retirement, the top three sources of risk are longevity, health and market risk. According to the CRR, the typical single man would be willing to give up as much as 27% of his initial wealth to fully eliminate longevity risk.

Health risk ranks second in this cohort due to the unpredictability of medical expenditures in late life, including the cost of long-term care, the brief says. Market risk ranks third due to retirees’ relatively long—about 20 years—investment horizon. The brief suggests that policy risk is small because Social Security reform is unlikely to have a significant impact on people who have already retired or who will do so soon.

The risk ranking for married couples was similar to the results for single people, though the relative value of the risk is larger overall for couples, the brief says. This means that a couple would be willing to give up 33% of their initial wealth to avoid longevity risk, compared with 27% for a single man.

The brief also shows the most serious subjective risks perceived by different groups tend to be different from their actual risks. For example, for single men, market risk tops the list of perceived risks, followed by longevity, health, family and policy risks. According to the CRR, single men and couples alike tend to significantly underestimate their medical expenses in old age.

Perceived longevity risk and health risk rank lower because retirees are pessimistic about their survival probabilities, the brief says. This implies that retirees do not have an accurate understanding of their true retirement risks.

Additionally, the analysis highlights the importance of longevity and market risk, which underscores the need for lifetime income either through Social Security or private sector annuities, the brief says. Long-term care is also a significant risk faced by retirees that they often underestimate. Better-designed public programs and private products, possibly integrated with life annuities, could help to protect retirees with limited financial resources from this potentially catastrophic risk, the brief concludes.

Read more related articles at:

Retirees are underestimating retirement risk, study finds

HOW WELL DO RETIREES ASSESS THE RISKS THEY FACE IN RETIREMENT?

Also, read one of our previous Blogs here:

When Should I Start Saving For Retirement?

Click here to check out our On Demand Video about Estate Planning.

Click here for a short informative video from our own Attorney Bill O’Leary.

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