CA Estate Planning

Alzheimer’s Miracle Cure on the Horizon?

In a clinical trial that could lead to treatments that prevent Alzheimer’s, people who are genetically guaranteed to develop the disease — but who do not yet have any symptoms — will, for the first time, be given a drug intended to stop it, federal officials announced Tuesday.

In today’s world, planning for old age can be a challenge- both financially and legally. Additionally, supporting an elderly loved one who is almost certain to be diagnosed with Alzheimer’s becomes even more troubling.

Are you or someone you love at risk for Alzheimer’s in the future? What if the disease could be “cured” before it struck? There may be hope on the horizon, as reported in a New York Times article titled, “New Drug Trial Seeks to Stop Alzheimer’s Before It Starts.”

While nearly two years away from having even preliminary data, researchers have isolated the genetic family bearing the Alzheimer’s blueprint and are working on a new experimental drug that could cure the problem before it strikes millions bearing the offending gene. These breakthroughs take time.

In the meantime, it’s necessary to make financial and legal plans as if the miracle drug won’t come to pass. Accordingly, long-term care financing (e.g., long-term care insurance and/or elder law planning) ought to be considered, along with implementing (or refreshing) your most fundamental legal instruments (e.g., powers of attorney and advance health directives).

As always, consult competent financial and legal counsel before proceeding. This is not a DIY (do-it-yourself) exercise. Too much is at stake.

Reference: The New York Times (May 15, 2012) “New Drug Trial Seeks to Stop Alzheimer’s Before It Starts”

 

 

Using Easements to Preserve Posterity Property

If you have property that you would like preserve in its present form, there is nothing so close to a free lunch as the donation of an easement. Out in the country, you will call it a conservation easement. In the big city it is a facade easement. In either case, the principle is the same.

Sometimes one of the greatest charitable gifts you can bestow is the mere promise not to do anything with, or to, what you own. Of course, this common conundrum occurs most frequently when you happen to be sitting on a piece of history.

Whether the property is in the country or in the city, the challenge is the same: how to protect the property from development in perpetuity. Sometimes, however, the key is convincing the IRS of the charitable value of the property itself. If you have an asset worth this kind of consideration, and the hope to preserve it, then an “easement” may be necessary.

In the city there are “façade” easements, and in the country there are “conservation” easements. Both are worthwhile means to a charitable end.

Consider Peter Reilly’s recent post in Forbes, titled “Donating TriBeCa Facade Easement Is Like Renouncing Your Super Powers,” about an illustrative case in TriBeCa, Manhattan. The story highlights some possible, practical complications that may arise when the situation seems too good to be true. After all, an easement is a unique way of giving to charity and your neighborhood, but only when the IRS agrees.

A practical concern, if successful in obtaining the easement with IRS approval, is in finding a charity to enforce your charitable gift and the easement of your property.

Ultimately, the end result may be worth the work if you preserve your posterity property in perpetuity from development in the hands of an inevitable McDonalds or Starbucks franchisee. The charitable tax deduction can come in handy, to boot. 

Reference: Forbes (May 7, 2012 “Donating TriBeCa Facade Easement Is Like Renouncing Your Super Powers”

 

 

Involving the next generation of heirs in the management of family wealth, and its eventual transfer to them, is often overlooked. Survey shows majority of heirs want to be included and learn how to be good future stewards.

Planning the transfer of your family's wealth can be complicated, usually involving many professional advisors occupied with minimizing transfer taxes. However, it is ironic that planners often overlook the most important element is ensuring the successful transfer: the beneficiaries.

Financial Planning magazine recently weighed in on this issue with an article titled, “Younger Inheritors, Women Concerned About Pitfalls of Wealth.” The article featured the results of a new survey by Campden Wealth and Morgan Stanley Private Wealth Management that studied the opinions of the next generation of high-net worth families regarding their roles in planning for the future transfer of wealth to multiple generations.

The results are telling. 79% of next-generation heirs responded that they wanted to be good stewards of the family wealth. In fact, they wanted more involvement in the finances.  It’s clear that families planning for wealth transfers should consider bringing the inheritors to the table sooner rather than later. The educational opportunity is profound when an interest is present.

Interestingly, 79% of the women in the study indicated concern over how the impact might affect them, and their lack of control over potential mismanagement of wealth. Education is certainly essential regardless of gender, but it would seem that women may have a different approach to the management of great wealth.

The biggest take-away from the original article is this: today’s inheritors are eager for information and inclusion. Whether your estate is large or modest, involving the heirs in the management and future transfer will go a long way toward ensuring the preservation of the family fortune for future generations.

Reference: Financial Planning (May 8, 2012) “Younger Inheritors, Women Concerned About Pitfalls of Wealth” 

DO YOU REALLY WANT TO DISINHERIT THAT NEPHEW?

The motives clients give for cutting a relative out of their estates are endless; ranging from the rational ("My daughter never visits me even though she lives only one mile away") to the hopelessly irrational (My son has been abducted by aliens and replaced by one of "them.")

But one person's rationale for disinheriting an heir may actually be irrational after careful thought.

Consider the following: Parents have three children, their elder son is a highly successful surgeon and does not need for anything; the younger son is gainfully employed and unambitious; and, the youngest, their daughter is a struggling artist. Their decision is to leave the bulk of their estate to their daughter "because she needs it most."  Is that rational?  Maybe?  

But is it right?  You could say the successful son  is being penalized for his success and might very well be confused, hurt and angry when he finds out what his parents have done. He will never know the real reason for his disinheritance.  Fortunately, the estate-planning attorney suggested the parents sit down with their children and explain their proposed estate plan.  They did, at Thanksgiving.  The reaction from the successful son?  

He didn't need the money, that was true, and all he wanted was Grandma's Meissen dinner service.  But had his parents not consulted him, he said he would have felt grievously offended and hurt by their planned distribution.  

Fortunately, the parents in that case were willing to discuss their plans with their heirs.  But often that is not the case.  Inheritance and disinheritance are emotionally charged concepts. The motivations that go into disinheritance are especially complex, as was discussed in a recent article in The Trust Advisor titled Why Are Family Members Disinherited?.

To disinherit is your choice and right, but make sure it is for legitimate reasons.  And, make sure your legal documents can withstand legal challenge by the disaffected heir although contesting a will is increasingly difficult in California where I practice estate planning.  

Reference: The Trust Advisor (April 15, 2012) “Why Are Family Members Disinherited?”

 

 

 

Business Owners – Exiting Gracefully

The wealth of many boomers is tied up in businesses they own. And that can be a problem when it comes time to retire.

If you’re a small business owner, then you probably speak of your business and your life in the same breath. There’s nothing wrong with that. In fact, you are in good company.

All told, your business is one of the biggest challenges and accomplishments in your life. That said, it’s rare that the business is the only fulfilling thing in your life – there’s family, for one. In addition, do you really want to continue working in and on your business until the day you die, with no retirement or with old-age eventually getting in the way?

With your life and your business so intertwined, it makes it all the more necessary to plan properly.

The Wall Street Journal took up this matter in a recent article titled Preparing to Leave. I recommend this article to your reading list because it both warns of mistakes and offers solutions.

To whet your thirst, here are the “mistakes” identified:

1. Creating a business that’s too dependent on the owner.
2. Ignoring the tax benefits of planning ahead.
3. Incorrectly valuing the business.
4. Rushing to accept a rich number.
5. Hiring your brother in law to do the deal.
6. Underestimating the emotional impact of selling a business.

Like one of the old movie matinees, I am going to leave your pondering the solutions to these “cliffhangers.”

In the end, only you know when to hold’em and ergo when to fold’em when it comes to the continuation of your business. However, don’t delay. You, your loved ones and others dependent on the business will be glad you didn’t.

Reference: The Wall Street Journal (April 29, 2012) “Preparing to Leave”

 

 

Death & (Income) Taxes

Death and taxes may be equally inevitable, but the taxman demands the last word. Death does not excuse a final accounting with the IRS. In fact, taxes can further complicate the lives of survivors.

Of the two certainties in life – that is, of death and of taxes –the taxman always gets the grim last word. End-of-life taxes are, moreover, easily among the most onerous. For many loved ones, writing those last few checks to the IRS can be especially tough … and seem to never end. Enter the postmortem income tax return.

The death taxes are one thing, and inheritance taxes are generally another, since they are paid by the inheritor. However, as a recent article in Kiplinger makes clear, there usually is one final income tax return to file for the decedent. I recommend the article, titled Death and Taxes, for your reading.

The burden of filing this final income tax return is something you assign in your will, usually to the executor or administrator, or failing that it falls upon a survivor. Regardless, do not neglect that duty if you occupy one of those roles. Why? Because it is just basic estate planning and administration.

If you are planning your estate or if you are administrating one, this burden is not one to be taken lightly. To make matters worse, the fiduciary is on the hook for any sins of commission or omission. If ever there was a time to retain appropriate legal, accounting and tax advice, then this is one of them.

Bottom line: The income taxes likely are the least of your taxation concerns with the estate, inheritance, gift, and generation-skipping taxes all vying for attention. Unfortunately, that doesn’t diminish the importance of income taxes.

Even if an estate will not be subject to extra taxation, this last rite to the IRS has to be observed. 

Reference: Kiplinger (March 2012) “Death and Taxes”

 

 

 

The Separation of Church … And Estate

For many people, estate planning isn't just about financial assets and other practical concerns. It's also about honoring their religious beliefs and passing those values on to family members. That can be very tricky ground.

Planning your estate may seem like a simple matter of deciding who gets your stuff when you’re gone. What if you are a person of great faith and religious conviction? How does a person of faith plan for his or her estate when life (and especially life beyond) is so much more than mere “stuff”?

The problem of mixing religion and estate planning – that is, the problem of doing it well – is a issue taken up by the Wall Street Journal in an article titled Joining Church and Estate.

If your decisions during life are guided by your faith, then likely your estate decisions will be too. For example, end-of-life, disposition of remains and even charitable giving decisions are oftentimes determined by ones religious beliefs. These are personal decisions that directly impact you and collaterally impact others.

However, an entirely different matter, and one that can be the source of much trouble, are the religiously motivated decisions you may make in regards to others.

Given the numerous alternative planning strategies and tools available to plan your estate, it is possible to make (or attempt to make) religious decisions for your heirs. This is where problems can arise.

In the extreme, you can move beyond encouraging to requiring the observance of certain religious principles, rituals, or lifelong membership in the given religion to secure any inheritance. As the Wall Street Journal article illustrates, this is where problems can arise. In short, requiring heirs to uphold religious principles they do not share can work to undermine them.

The article discusses some particularly poignant examples, and real life court battles, but as a general principle it may be worth avoiding this type of planning.

Reference: The Wall Street Journal (April 30, 2012) “Joining Church and Estate”

 

 

The Conversation: Mind Your Own Beeswax!

Have you ever tried to talk to your aging parent or parents about finances and been told to: "Take a Hike"," “Just mind your own business," and  "I’ll be fine."  But it may well come your business at some time.

 

Taking care of  elderly parents can be difficult, especially when it comes to talking money, either for their current finances or future planning. Have your elderly parents ever told you to butt out and not worry?

This is a position many adult children with aging parents will have to face. If you’re in this situation (or fear you may be one day) a recent article in Forbes titled Has Your Aging Parent Told You to "Mind Your Own Business"? is worth a read.

For many Depression-era survivors and many baby-boomers, money is an important symbol of control. In addition, for elderly parents who don’t have “enough” money, talking to them about their financial future can be troubling to them. In essence, it disempowers them. Ironically, this is all the more reason it should be discussed (especially if they will be in need of expensive medical care).

As with every dark cloud, there is a silver lining. Discussions about assets can easily segue into revealing concerns over the meaning of money, and the proper disposition of family assets, even a family business.  

In the end, there is a psychology to old age and money. I recommend the original article and the examples therein. Practically speaking, however, your parents might have a point – have you taken care of your own (estate planning) business yet? Perhaps if you have your own house in order, you will have more credibility when addressing these issues with your parents?  

Reference: Forbes (April 17, 2012) “Has Your Aging Parent Told You to "Mind Your Own Business"?”

 

 

 

Archie’s Successors … Arch-Enemies?

Just because two business partners get along well doesn’t mean the next generation will do so as well. When succession planning is done in advance, partners can agree on how potential disputes among the generation of owners can be resolved without resort messy, protracted battles among the successors.

Are you a Baby Boomer, or the child of one? If yes, then perhaps you recall the Archie Comics. Unfortunately, that halcyon world of yesteryear has given way to litigation and lawyers. Archie’s Comics has been in a state of war since the passing of the founders and the dysfunctional antics of their successors. There is at least one more lesson to learn from Archie and the gang: proper succession planning.

The story of the succession and rapid rise in hostilities can be followed in an article in onwallstreet.com titled Archie Comics Power Struggle Provides Valuable Succession Planning Lessons.

In the end, the Archie Comics tale is too commonly repeated. According to the article, one of the successors actually is accused of slashing the other’s tires; the accuser apparently is under a restraining order keeping them from the company – a restraining order which they have allegedly violated. In short, ugly stuff.

Too often ugly feuds can break out, even in once idyllic companies. The Archie Comic Publications has been around since 1941, after all, and it was only in 2007/2008 that the newest generation came on board.

When thinking about your company, it is vital to consider the future beyond your ownership. Who will be the successors? Will they be compatible partners to carry the business forward?

These and other fundamental issues are better resolved now, rather than later.

Reference: onwallstreet (April 18, 2012) “Archie Comics Power Struggle Provides Valuable Succession Planning Lessons”

 

 

 

Dying without a will is the unkindest cut of all. Yet 70% of Americans do!

The bottom line is: If you love and cherish your family, you MUST take the time to at very least write your will. Writing your Last Will is the most basic act of estate planning.

 A will  ensures your assets go to the people you want to receive them when you die. Pretty basic, huh?  But some 70 percent of Americans have no Last Will!  Without a will, the state decides who receives your estate. You may not agree with the state's decision, but it will be a little too late for you to do anything about it!

Many people who have a will believe that their estate won't have to go through probate.  That is incorrect.  If you live in California, your will can avoid probate only if your estate is valued at less than $150,000.  Otherwise your will has to go through probate; but at least your estate goes to the people you want to receive it.  As mentioned above, if you have no will, the State has an estate plan for you.  Probate can be avoided by setting up a revocable ("living") trust. 

 But first of all, you must stop procrastinating.  Everyone has excuses for not having a Will, especially if you are young; after all you are immortal. But if you have a family and no will, you are condemming them to dealing with your probate, and they will not thank you for it.  The most loving action you can take is at least preparing a will.  

As reported in a recent article in Forbes, Tell Your Family You Love Them -- Write Your Will, there are certain fundamentals only you can control when it comes to your estate.

In reality, there isn’t a single moment in your life when you’re ready to plan your estate. You don’t just reach some magical “pause button” where everything stops and there’s nothing new happening in your life, your business, your investments, or with your loved ones. Likewise, there is no time to stop planning, and for the same reasons.

Estate planning is not an event, but rather a lifetime process. Beginning today, you can put a plan in place with enough flexibility to cover many of life’s twists and turns. And, of course, you should always update your plan to reflect major changes – whether in the law, your life, your assets or the lives of your loved ones. 

Reference: Forbes (March 30, 2011) “Tell Your Family You Love Them -- Write Your Will”