Category Archives: estate planning

Estate Planning in History: Madam C.J. Walker

I’m a huge proponent and user of bibliotherapy – reading books to relax and heal.  And during these challenging times, I have found myself turning to stories of inspirational women.  I recently read and learned about Madam C.J. Walker, a black businesswoman and philanthropist who is recognized as the first female self-made American millionaire.   Her life story is told in the book “On Her Own Ground” by news journalist A’Lelia Bundles who is Walker’s great-great-granddaughter.  I also recommend the new Netflix mini-series “Self-Made” starring Octavia Spencer which was inspired by Walker’s life.

Madam C.J. Walker’s story was especially interesting to me because it includes an Estate Planning strategy I have yet to see in my practice.  Madam was born Sarah Breedlove in Delta, Louisiana in 1867.  She was the first in her family to be born free, rather than a slave.  Her life was hard.  She was orphaned at age 7, was subsequently abused by a brother-in-law who was her guardian, and then mistreated by three (3) husbands.  For years, she worked as a laundress and a domestic servant to support her daughter and herself.

But that was not the life Madam had hoped for.  So in 1910 she started her own company – the Madam C.J. Walker Manufacturing Company – to make and sell hair care products for black women.  She had very little support initially, but within just a few years the company because wildly successful and grew nationwide.  Madam employed and empowered thousands of other black women as sales agents, stylists and salon franchise owners.  She gave much of her fortune during her lifetime and at her death to charitable causes including the National Negro Business League, the NAACP, and the Tuskegee Institute. 

Her business was valuable, and Madam believed that the continued success of her business after her death would improve the lives of other black women.  She knew she needed a business succession plan but she didn’t have a successor.  Madam’s daughter, Lelia Walker, was involved in the business but not capable enough.  So Madam made an unusual Estate Planning decision – she sought out a child whom she believed could become her heir and continue the business.  That child – Mae Walker – was adopted as a young teenager by Lelia in 1912.  She became an adored granddaughter and Madam sent her to Spelman College. 

After Madam’s death in 1919 and Lelia’s death in 1931, Mae Walker became president of the company and then was succeeded by her own daughter, the fourth in line of Walker women company presidents.  Unfortunately, none of Madam’s heirs had her business acumen.  The company suffered during the Depression and never did as well under other leadership. 

Client Update – The SECURE Act

At the end of December, Congress passed a new law – the SECURE Act – that dramatically changes the post-death income tax treatment of retirement accounts, including IRAs and 401(k) plans.  The new law affects many clients, and may require you to make changes to your estate plan.

Changes to distributions after death

The SECURE Act eliminated the “Stretch IRA” – the opportunity for most retirement account beneficiaries to receive distributions slowly over the remainder of their lifetime.  Now, most beneficiaries who inherit a retirement account in 2020 or later must withdraw all the assets within ten (10) years of the account owner’s death.  In most cases, the 10-year required withdrawal period will increase income taxes.

Some beneficiaries are still eligible for a lifetime payout period.  These “Eligible Designated Beneficiaries” are exceptions to the 10-year required withdrawal rule and include:

  • The surviving spouse of the retirement account owner;
  • A disabled or chronically ill beneficiary;
  • A minor child of the retirement account owner (but not a minor grandchild); and
  • A beneficiary who is less than 10 years younger than the retirement account owner.  

Other changes during account owner’s lifetime

The SECURE Act also amended the laws governing retirement accounts in other important ways.  It increased the age at which the account owner must begin required minimum distributions from 70 ½ to 72 for those who did not reach 70 ½ by the end of 2019.  It also eliminated the age limit for deductible IRA contributions. 

Under the new law, if you are over 70 ½, you may still make qualified charitable distributions up to $100,000 per year from your IRA.  However, that amount is reduced by deductible IRA contributions you made in the same year. 

Do these changes impact you?

The SECURE Act has broad impact.  Many clients will need to make changes to their beneficiary designations or their estate plans.   If you have a retirement account, you may need to make changes to your estate plan if:

  • Your retirement accounts are large (valued at several million dollars and more).  The impact of the increased income tax will be significant.
  • You named as beneficiary a minor or young adult, or a trust for his or her benefit. 
  • You named as beneficiary a disabled or chronically ill person, or a trust for his or her benefit.
  • You want your retirement account to provide long term support to a beneficiary who is disabled, ill, or unable to manage money.

Please reach out to us so we can provide specific, expert advice to benefit your family.

How can we help you?

The SECURE Act also offers some new estate planning opportunities to consider.

  • You may wish to do a Roth conversion of all or part of an existing IRA to save your beneficiaries income taxes.  Although income taxes will be due at conversion and the 10-year rule will still apply, the beneficiaries will not pay income taxes on the accelerated distributions.
  • If you are charitably inclined, you may wish to leave all or part of your retirement account to charity or to a charitable remainder trust, which do not pay income taxes, and leave other assets to individual beneficiaries.
  • You may want to reconsider the division of assets among your beneficiaries.  For instance, you may want to leave your retirement account to a disabled child (who is an Eligible Designated Beneficiary and qualifies for a lifetime payout period) and leave other assets to other beneficiaries.
  • You may consider purchasing additional life insurance to replenish retirement assets lost to income taxes.

What about your trust?

Most clients will not have to revise their trust to accommodate the new law, even if retirement benefits will pass to the trust at death.  The trust provisions will still work.  Nonetheless, an amendment to the trust may be required if a trust beneficiary is disabled or chronically ill. 

Make Your 2020 Estate Planning Resolutions

It’s early January which means it’s time to make your New Year’s resolutions.  Consider adding these Estate Planning resolutions to your 2020 list. 

Resolution #1 – Confirm and/or Change your Beneficiary Designations 

If you have been advised to make changes to the beneficiary designations of your retirement accounts and life insurance policies (as we often do) and you haven’t yet done so, make the changes in 2020.   If you have not yet received good advice, seek it out.   Proper beneficiary designations are essential to ensure your Estate Plan works as intended. 

Resolution #2 – Understand how the SECURE Act will affect you 

The SECURE Act – a federal law signed on December 20, 2019 – dramatically impacts the post-death treatment of IRAs and other retirement accounts.  The most significant change is the elimination of the “stretch” life-expectancy payout for most beneficiaries.  The new 10-year payout rule will mean higher income taxes for many IRA beneficiaries.  You should understand how your family is affected. 

(One of my own resolutions is to understand the new law, how it will impact our estate planning clients, and new planning opportunities.  More advice from us to come soon!)

Resolution #3 – Plan for State Estate Taxes

Although the federal exemption is now very high, the Massachusetts exemption remains $1 million.  Many Massachusetts residents must plan for state estate taxes.  Make sure you have an estate plan that includes state estate tax planning.  

Resolution #4 – Make Lifetime Taxable Gifts

Lifetime taxable gifts (gifts in excess of the annual exclusion) can substantially reduce both federal and Massachusetts estate taxes.  If you have significant assets, consider making taxable gifts to (or for the benefit of) your children or grandchildren in 2020.  It is important to seek out good advice before you do!

Resolution #5 – Name a Guardian for your Minor Children

If you have minor children and have not yet named a guardian in the event of your death, prepare an estate plan in 2020 that names one.  This can be a difficult and emotional decision for some parents.   Remember, an imperfect choice is better than no choice at all.  If you do not choose, a court may choose for you. 

The Extraordinarily Odd Estate Plan of Ventriloquist Edgar Bergen

I’ve had the opportunity to read many unusual estate plans.   And I’ve certainly heard of highly unusual (and problematic!) celebrity estate plans.  But the story of vaudeville performer Edgar Bergen’s Will may “take the cake” as the most unusual. 

Edgar Bergen was a vaudeville actor, comedian, and performer who was most well known as a ventriloquist.   He performed with his dummy, Charlie McCarthy, for over forty years, beginning in the 1930s, first in theatre, then radio, and later in television and films.   Bergen was also the father of actress Candice Bergen, most famous for her role as Murphy Brown in the television series Murphy Brown which first aired in 1988. 

Edgar Bergen died in 1978 and his Will included a very unusual provision. Bergen left $10,000 for the benefit of his dummy, Charlie McCarthy.   He directed his Executor to pay the gift to the Actors Fund of America, a charity still in existence today, to establish a fund to be known as the “Charlie McCarthy Fund”, so that Charlie could continue to perform.  Bergen expressed his wish that the money be managed and invested so that Charlie could give charitable performances for those in need, especially destitute and disabled children.  Bergen explained in the Will that the gift was intended for “sentimental reasons” because of the companionship he had received from Charlie throughout his life.  Notably, Bergen failed to leave anything to his daughter whose career had not yet taken off. 

A trust for a dummy!  That’s a new, and certainly strange, one for me!  You may be wondering… would this even be legal now?  Sort of.  Massachusetts law does not allow trusts to be established for the benefit of tangible personal property (which a dummy is).  It does however allow charitable purpose trusts – trusts without specified (human) beneficiaries that are established for certain charitable purposes.  This law became effective in Massachusetts in 2012 when the Uniform Trust Code was enacted.  I believe the Charlie McCarthy Fund is a charitable purpose trust that would be legal in Massachusetts. 

I am not sure if Charlie ever actually performed after Bergen’s death.  Charlie was later gifted to the Smithsonian Museum by the Bergen Family Foundation.  If you want to learn more about Bergen’s Will and the impact of this unusual gift on his family, check out Candice Bergen’s 2015 autobiography, A Fine Romance. 

Summertime Estate Planning … with Low Interest Rates

When interest rates are low – as they are this summer – some estate tax planning strategies become particularly advantageous.  In my last post I wrote about the benefits of intra-family loans with a low applicable federal rate (AFR).  It is also a good time to consider the following other estate tax planning strategies – Grantor Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATs).

Grantor Retained Annuity Trusts (GRATs)

A GRAT is an irrevocable trust funded by a grantor for the ultimate benefit of children, grandchildren, or other beneficiaries.  During the trust term, the grantor retains the right to an annual annuity.  In a “zeroed-out” GRAT, the value of the annuity is equal to the value of the original gift to the trust plus interest at the Section 7520 rate set by the IRS each month.  Any appreciation above the annuity amount passes to the beneficiaries gift tax-free.  It is a tax-advantaged way to pass assets to children or grandchildren. 

GRATs work especially well when interest rates are low.  The 7520 rate has been falling since the beginning of 2019.  The August 2019 rate is 2.2%, which is low.  For that reason, it may be a good time for you to established and fund a GRAT.  You will retain the right to an annuity for the GRAT term and your children or grandchildren will benefit from a tax-free gift at the end of the term. 

Charitable Lead Annuity Trusts (CLATs)

A CLAT is another type of irrevocable trust that is effective when interest rates are low.  During the CLAT term, an annuity of a set amount is paid to a charity.  At the end of the term, whatever is left in the trust passes to the trust beneficiaries – typically children and grandchildren – gift and estate tax-free. 

The present value of the charitable annuity must be equal to the initial gift to the trust, but the present value is discounted by the 7520 rate.  A low 7520 rate means that more will pass to children and grandchildren.  CLATs are a great tax-advantaged way to support a charity as well as benefit your family.  A low 7520 rate makes CLATs an even more appealing estate tax planning strategy.

Summertime is the Time to Make Intra-Family Loans

Interest rates have hit a low point this summer.  Low interest rates set each month by the IRS (the applicable federal rate (AFR) and the 7520 rate) make some estate tax planning strategies particularly effective.  For this reason, it may be a good time to take a break from the heat and sun this August to do some estate tax planning.  It will save your family some money, and perhaps pay for next year’s summer vacation. 

One estate tax planning strategy that is very effective when interest rates are low are intra-family loans.  Intra-family loans are loans to family members.  They can be made outright to a family member or to a trust for his or her benefit.  Often parents or grandparents wish to loan money to children or grandchildren to buy a new home, renovate an existing home, or make a business investment.    The loans can be forgiven over time to take advantage of the lender’s gift tax annual exclusion and to maximize wealth transfer planning. 

The IRS requires that the lender charge interest on an intra-family loan at the applicable federal rate (AFR).  This rate is set each month by the IRS, and has been trending downward since early 2019.  The August 2019 AFR for a mid-term loan (with up to a 9 year term) is very low – 1.85%.  In fact, quite surprisingly, the mid-term AFR (1.85%) is lower than the short-term AFR (1.89%) which means the loan can be for a longer term with a lower rate. 

A low interest rate makes intra-family loans an appealing estate tax planning strategy.  If you are considering a loan to your children or grandchildren, this may be a good time to make one.  In addition, if you have an existing outstanding loan, this may be a good time to refinance it. But be careful, and get good advice.  The loan must be documented by a Promissory Note and the lender must charge interest at the AFR.  Otherwise the IRS may view it as a taxable gift. 

If I Had a Million Dollars….

Dale Ann Kaiser receiving the Trust’s lottery winnings at the Massachusetts Lottery Commission.

Estate planning attorneys are often the recipients of bad news – news of death, illness, disability and divorce.  But playing this role also means we get to hear our clients’ good news too – news of new babies, college graduations, and well-planned inheritances.  A client recently called with some fun, exciting news that we had never heard before.  Larry* had won the Massachusetts lottery, and he had won big – a $1,000,000 prize. 

Larry called because he had some legitimate concerns about how to handle the lottery money.  He and his wife had already decided that they would take the lump sum payment, rather than a twenty year annuity.  That meant that his take home winnings, less income tax withholding, would leave them with about $460,000.  They intended to use the money to pay off some debts and contribute to retirement savings.  They were very concerned about anonymity.  They didn’t want anyone – including their adult children and close family – to know about the winnings.  They feared they would demand money.

We helped Larry solve this problem.  We established a Trust to receive the lottery winnings.  The Trust was a declaration and had no donor.  Dale Kaiser was named as Trustee.  The name of the Trust did not identify Larry.  The Trust received the money and then immediately distributed it outright to Larry.  He could then use it as he planned.  The Trust ensured Larry total anonymity. 

In early June, as Trustee, Dale went to the Massachusetts Lottery Commission to get the lottery proceeds check payable to the Trust.  A couple days later, the Trust distributed the winnings to Larry.  It was an exciting week at the Kaiser Law Group!

*Not our client’s real name.

Estate Planning is a Family Affair: The Legal Documents your young adult children should have

Every summer we have the opportunity to meet with several newly minted 18 year olds before they head off to college for the first time.   These super responsible young adults come to us – often at the urging of their parents who are our clients – to sign some basic and very important estate plan documents that will enable a parent to make important life decisions for them in an emergency.

We had our first meeting this week with the daughter of a client who came in to sign her Health Care Proxy, Living Will, HIPAA release, and Durable Power of Attorney before she headed off on her summer and college adventures.  These meetings are especially fun ones for us estate planning lawyers.  We get to meet some responsible young adults and relive (if only for a few short minutes) the excitement of pre-college preparation and anticipation. 

If you have a young adult child heading off into the real world this fall, we recommend that he or she sign estate plan documents.  When a child turns 18 and becomes a young adult, his or her parents no longer have the legal ability to make medical and financial decisions for the child.   Yet, in an emergency the young adult may need the parent to step in to make decisions.  Without legal authority in place, the parent may not be allowed to do that.  To be sure the parent is able to help, the young adult child should in advance sign the following documents:

Health Care Proxy – In this document, the child authorizes the parent to make health care decisions on his or her behalf.

Living Will – In this document, the child expresses his or her wishes about health care, particularly end-of-life health care, so that a parent has the ability to make end-of-life decisions on the child’s behalf.

HIPAA Release – In this document, the child releases his or health care information to the parent get access to the child’s health care information.

Durable Power of Attorney – In this document, the child authorizes the parent to make financial decisions on his or her behalf.  This will enable the parent to assist a child in financial matters, such as paying bills, opening or closing bank accounts, negotiating leases, and dealing with health insurance companies.

Although most young adults will name a parent in these documents, it is not required.  The young adult child can name another trustworthy adult – a guardian, aunt or uncle, grandparent, or older sibling.

Entering the real world for the first time can be complicated.  We’re happy to help your family get these documents in place.  It’s fast, easy and inexpensive.  And we’ll have the pleasure of meeting your young adult children!

The Estate Planning Prize Buried in your Breakfast Cereal

The story of the Kellogg brothers – inventors of Kellogg’s Corn Flakes – offers a surprisingly interesting lesson about Estate and Charitable Planning.  Their story is told by historian Howard Markel in “The Kelloggs: The Battling Brothers of Battle Creek”. 

“The Kelloggs” is about food history, business, and family dynamics, but also about the brother’s estate plans and charitable foundations.

John Harvey Kellogg was a medical doctor who founded the Battle Creek Sanitarium in 1886.  The Sanitarium (or “San” for short), located in Battle Creek, Michigan, was a health and wellness resort spa at which John Harvey treated patients and preached his views on health and wellness.  He believed that a healthy breakfast was essential to good health and required his patients to eat his own Toasted Corn Flakes while at the San.  John Harvey was a physician, author, and preacher who became the father of the modern wellness movement. 

The younger Will Keith (W.K.) Kellogg started his career as John Harvey’s business manager but later used his business acumen to commercialize and distribute Toasted Corn Flakes across the country.  He founded the Battle Creek Toasted Corn Flake Company, later the Kellogg Company.  He was a successful businessman who revolutionized American food production and the way we eat.

The brothers spent most of their lives at odds with one another – personally and in business.  They spent years litigating who owned the rights to their Toasted Corn Flakes.  (W.K. won, for the most part.)  As a result, both men died unhappy, but wealthy (W.K. considerably more so) and left the bulk of their estates to charities.  Their charitable goals and success at achieving those goals were very different.

Upon his death in 1943, John Harvey left his entire estate to his foundation, the Race Betterment Foundation, which was devoted to promoting eugenics, the science of improving the population’s genetics.  Within twenty years of John Harvey’s death his Foundation’s endowment was depleted because of its controversial and questionable charitable goals as well as trustee misuse.

W.K. had far greater charitable success.  In 1931, he founded the W.K. Kellogg Foundation, a charitable foundation devoted to promoting the welfare, health and education of children.  He was motivated largely by personal tragedy.  His young grandson had fallen out of a window as a toddler, suffered a severe head injury, and required lifelong care.

In 1934, W.K. endowed the Foundation with more than $66 million in Kellogg company stock and other assets.  He left the bulk of his remaining estate to the Foundation at his death in 1951.   The W.K. Kellogg Foundation still exists today with an endowment of over $9.5 billion, one of the largest charitable foundations in existence.  It continues its mission to help vulnerable children, and its headquarters remain in Battle Creek. 

To learn more about how to achieve your charitable goals in your estate plan, consult with a good estate planning attorney. 

The Kaiser Law Group Legal Team

As we at the Kaiser Law Group plan for 2020 and beyond, we decided it was time to update our firm photos.  We want our photos and images to project our goals and visions for our firm.  We strive to work together as a team to offer collaborative and seamless estate planning and administration services to our clients in a kind and thoughtful manner.  We think this photo of our legal team shows our commitment to that goal, and we hope you agree. 

Dale Ann Kaiser (middle) established the Kaiser Law Group in 1998 to offer her clients superior legal services with personal attention.  Rachel Ziegler (right) joined Dale in 2008 to help support and grow the practice with a team approach.  Davina Lewis (left) joined in 2017 to work with Dale and Rachel.  We work collaboratively on all estate planning and administration matters to provide efficient and high quality legal services. 

Not pictured are Leisha Fontecchio and Megan Lenzi who provide important paralegal and administrative support and are integral members of our team.  They were invited to join the photo, but are surprisingly camera shy.