Tag Archives: trusts

What you need to know about Isabella Stewart Gardner’s Will (before listening to WBUR’s “Last Seen”)

300px-Rembrandt_Christ_in_the_Storm_on_the_Lake_of_GalileeWBUR’s new podcast series – Last Seen – provides a new look at the 1990 Isabella Stewart Gardner Museum art heist.  If you grew up in Boston or have lived here since the 90s, you’ve no doubt heard a lot about the St. Patrick’s eve theft of thirteen works of art – valued today at half a billion dollars – that remains unsolved.  But “Last Seen” provides investigative journalism way beyond what you’ve already heard.  I have been listening each Monday morning on the edge of my car seat, wishing my commute were longer.  It is truly that good.

If you have visited the Gardner Museum, you cannot help but be struck by the empty frames that remain on the walls where the stolen paintings used to hang.   The frames and spaces remain empty – like a crime scene – to remind visitors that the paintings remain at large.  Gardner museum director of security (and candidate for Secretary of State) Anthony Amore has committed his work and life to finding the stolen artwork, and wants the FBI and the community to have the same commitment.

But there is another reason the frames remain empty – the terms of Mrs. Gardner’s Will require it.   In her Will, Mrs. Gardner left the museum, her artwork, and an endowment to be held for public enjoyment, but the Will also included very stringent restrictions.  The museum was to remain unchanged from the time of her death, and any change would cause the museum and its artwork would pass to Harvard College.  The terms of the Will mean that artwork is not to be moved, with no exceptions.

There is however a precedent for change to the museum.  In the years after the heist, the Trustees believed the museum needed an update and expansion so the Trustees sought court approval for a restoration and expansion project – a deviation from the terms of the Will.  In 2009, a Massachusetts court approved the project, holding that the deviation was reasonable and consistent with Mrs. Gardner’s primary purpose.   The new wing, designed by Renzo Piano, is beautiful and modern, and totally different from the rest.

The museum Trustees have never sought to obtain court approval to deviate again from the Will’s terms to fill or cover up the spaces left by the thieves.  I suspect they never will.  To do so would be to give up on their quest to retrieve the artwork.

Image of Rembrandt, The Storm on the Sea of Galilee, from Wikipedia.

Aretha died intestate. What happens if you do?

ArethaYou may have heard the news that Aretha Franklin died on August 16, 2018 without a Will or Trust.  This means she died “intestate”.   With an estimated net worth of $80 million, her failure to prepare an estate plan was clearly a mistake.  Many are left wondering what will happen to her estate.

The recent news may leave you wondering – what will happen to your estate if you die intestate?

What happens if you die intestate?

If you die intestate, a state court will appoint someone as the Personal Representative or Administrator of your estate.  That person’s job will be to distribute your assets among your family members as state law requires.  He or she will not have discretion to determine how assets are distributed or held, but will be bound by state law and the court’s authority and instruction.

If you reside in Massachusetts at your death, your assets will be divided among your family members pursuant to Massachusetts Probate Code.   Essentially, Massachusetts law imposes a plan for division of your assets because you did not make a plan yourself.

Is intestacy a bad thing? 

Many people die intestate – celebrities like Aretha, Prince, and Picasso, and many ordinary people.  There are a lot of downsides to dying without an estate plan.  Here are a few of the most important:

  1. You may have wanted a disposition of your assets among your family members that is different from what state law requires.
  2. The process of disposing of your assets will be more costly and time consuming.
  3. Your creditors will be able to reach all of your assets to satisfy any debts or claims.
  4. Your family may be more likely to fight or disagree with one another, resulting in hurt feelings and fractured relationships.
  5. The court will choose who will serve as Personal Representative or Administrator from among your family members based on relationship, not ability. The person appointed may not be the best choice or do the best job.
  6. Outright distributions of cash and other assets may be made to minors, disabled persons or spendthrifts, resulting in bad consequences.
  7. More federal and/or state estate taxes may be due.

State intestacy laws are merely default rules.  I do not recommend relying upon them to accomplish your goals or protect your family.

Image by Brett Jordan from flickr.

Tuition bill got you down? These new 529 Plan rules may help.

college move inThe IRS recently released new guidance for Section 529 plans.  529 plans are tax-advantaged investment accounts established to fund a child’s or grandchild’s education.  New laws – including the 2017 Tax Cuts and Jobs Act – changed Section 529 laws.  In July, IRS issued Notice 2018-58 as temporary guidance about the changed laws.  This temporary guidance will ultimately become part of more permanent regulations.

There are three changes addressed in the Notice.

Elementary or Secondary School Tuition. The new guidance allows distributions from 529 plans to be used to pay for tuition only at elementary and secondary private and religious schools up to $10,000 per year.  Previously, 529 plan distributions could only be used for higher education.   Parents and grandparents now have more flexibility to fund a child’s complete education in a tax-advantaged manner.

How can this help you?  You wish to fund your grandchild’s complete education, including her tuition at a private elementary and secondary school as well as a college education.  You make contributions to a 529 account for her.  Each year she attends private school, distributions of up to $10,000 can be used to pay the private school tuition.

Tuition Refunds May be Recontributed to the 529 Account. If a distribution from a 529 is made to an educational institution and is subsequently refunded for any reason, the refunded money can be recontributed to the 529 plan.   Previously, the refund would have been subject to tax and potentially a penalty.   The IRS requires that the refund be recontributed to the account within 60 days of receipt.

How can this help you?  You took a distribution from your child’s 529 account and paid the full year’s tuition to the university.  Your child leaves school after first semester and the university refunds the second semester’s tuition.  The refund may be recontributed to the 529 account.

Rollovers to ABLE Accounts. ABLE accounts are tax-advantaged savings plans for disabled individuals that can be used to pay for qualified disability expenses.  The IRS now allows funds in a 529 plan account to be rolled over to an ABLE account without taxes or penalties, subject to contribution limitations.  This allows the parents or grandparents of a disabled minor or young adult who is unlikely to go to college to move 529 assets to a more appropriate ABLE account.

How can this help you?  You funded a 529 account when your child was young to fund his college education.  The child is now college age, but due to his or her disability, is unable to attend college.  You can rollover the 529 to an ABLE account and use the funds to pay for certain expenses arising from the child’s disability.

The benefits of funding 529 plans are numerous.  Most importantly, 529 contributions by parents and grandparents result in income and estate tax savings.  In addition, 529 plans are simple to set up and inexpensive to administer.  For a more in depth discussion of the benefits of 529 plans, see my prior post.

The “Tarses Family Toilets” at MASS MoCA. Named museum “gallery” or estate planning joke?

IMG_2682 (002) 16605260788_20d34384f0_zThe “Rachel and Jay Tarses Emergency Exit”? The “Tarses Family Toilets”?  I spotted these unusual (and somewhat amusing) named “galleries” on my recent visit to the Massachusetts Museum of Contemporary Art (MASS MoCA) in North Adams, Massachusetts.

Walking through the museum, my initial thought was that this was evidence of charitable gift planning gone awry.  Here’s what I theorized may have happened.  Mr. and Mrs. Tarses made a generous charitable donation to MASS MoCA – during their lifetimes, from a Trust, or even after their deaths – without imposing any restrictions on its use.  Out of available galleries to name, scholarships to endow, or other respectable naming opportunities, MASS MoCA decided to take the money but be utilitarian and name the emergency exit and the toilets in their honor.  Poor Tarses family!  I can only imagine the angry call that was made to that Estate Planning attorney!  Perhaps, I thought, I should reconsider my typical recommendation that clients give unrestricted charitable gifts to avoid future hassles and litigation.

But, after a little research, I think my initial thought was wrong.  The named emergency exit and toilets were an irreverent joke – a snub to stuffy art museums, overeager museum development officers, and stodgy estate planning attorneys.  How do I know?  Jay Tarses is a very successful American television comedy writer and producer.  He started in the 1960s as a production assistant for Candid Camera.  He made his name (and presumably his money) in the 1970s as the creator of The Carol Burnett Show and The Bob Newhart Show, and later produced The Slap Maxwell Show and The Days and Nights of Molly Dodd.  He’s been credited as a maverick in the development and popularity of the half-hour comedy series, and proclaims himself a Hollywood outsider.  He’s also a MASS MoCA Trustee.

In short, it seems Jay Tarses is an irreverent, funny guy who likes to be unique.  The manner in which he has made charitable gifts seems to be no exception.  If you, like Jay Tarses, wish to accomplish a unique goal as part of your estate or charitable gift planning, a good estate planning attorney can help.  Just be sure it’s one who’ll get the joke.

Image of emergency exit from flickr, Frank Hebbert.

This Cobbler’s Kids Have Nice Shoes (Nike Kyrie 4s, to be exact)

Kids shoesI’m sending my children away this summer – one to overnight camp for the first time and the other for an extended stay with her grandparents thousands of miles away.  For me, it will mean (albeit temporarily) a return to a kid-free lifestyle – a busy parent’s “dream come true”.  I can’t deny my excitement, but I also find myself worried.  What if something were to happen to them while they are away – a medical emergency, for instance?  Who will make the medical decisions for them?  Could delays in medical decisionmaking have bad consequences?

To ease my worries, at least in part, I’m sending my daughter to her grandparents’ house with a legal document in hand that authorizes them to make medical decisions for her.  The document is an Appointment of Temporary Agent for the Care of a Minor.  In the Appointment, my husband and I will authorize her grandparents to make medical decisions in an emergency.  This may include taking her to an emergency room or authorizing needed diagnostic or surgical procedures.  In addition, it will authorize them to take her to a pediatrician or urgent care center for more routine care to treat minor illnesses, such as an ear or respiratory infection.

To be effective under Massachusetts law, the Appointment must be signed by both my husband and me.  It must state that we temporarily delegate to the grandparents our parental powers, including the authority to consent to medical treatment.  It must be signed by them and witnessed by two adults.  It may remain effective for up to sixty days.

If you too are sending your kids away this summer or in the future, be a responsible parent and consider executing an Appointment of Temporary Agent for the Care of a Minor.

Charitable Remainder Trusts – A Versatile Estate Planning Tool

SwissA Charitable Remainder Trust (CRT) is an irrevocable trust that provides for periodic payments to be paid to individual beneficiaries with a remainder paid to a charity.  CRTs are versatile estate planning tools that can be used to meet various goals – to reduce income taxes, to defer capital gains taxes, to generate lifetime income for the donor or others, and to benefit charities.

A CRT may be funded by a donor with cash, securities, real estate or tangible personal property (such as artwork).  The CRT terms must provide that the donor (and/or his or her spouse or other family member) receive periodic payments for life or a term of years.  The payments may be a percentage of the trust assets (a “unitrust” percentage between 5% and 50% of the total trust assets) or a fixed annuity amount.  The payments may be made annually or more frequently.  The CRT terms may vary in other ways.

At the end of the term or on the death of the surviving beneficiary, the remaining assets in the CRT are paid to a charity or charities selected by the donor.  The donor may select the charities when the CRT is established, but may change the charities at a later time.  To qualify under tax laws, the remainder passing to charity must be at least 10% of the total fair market value of the trust assets.

CRTs offer significant tax benefits.  When the CRT is established, the donor receives an income tax deduction for the value of the remainder that passes to charities.  In addition, capital gains taxes are deferred until distributions are made.

CRTs are a versatile estate planning tool.  We have used them in our practice to meet a variety of client goals.  Stay tuned for an upcoming post on case studies from our practice.

Image from flickr/Jinho Jung

Will your Executor have access to your emails?

cellphoneAre you wondering what will happen to your Facebook account, emails, online photos and other digital assets after your death?  If so, you may soon have a clearer answer under Massachusetts law.  Norfolk Probate Court will soon decide whether a Personal Representative appointed in Massachusetts may access the emails of a deceased person in the case of Ajemian v. Yahoo!.  The case has worked its way through the Massachusetts courts for the last several years.

Ajemian is an interesting case with potentially significant implications.  John Ajemian died in August 2006.  He died intestate (without a Will) and at the time of his death owned a Yahoo email account.  His siblings were appointed as Personal Representatives (PRs) of his estate by Norfolk Probate Court.  After their appointment they asked Yahoo for access to John’s email account.  Yahoo denied their request.  So the PRs brought an action in Norfolk Probate Court to obtain access, but the court denied their petition.  The court held that Yahoo was prohibited from disclosing the emails under the Stored Communications Act (SCA), a federal law designed to maintain the privacy of electronic communications held by internet service providers.

On appeal, the Massachusetts Supreme Judicial Court held in October 2017 that Yahoo was not prohibited from releasing the emails to the PRs under the SCA.  The reason was two fold.   First, the emails were property of John’s estate over which the PRs could exercise control and ownership.  Second, the PRs could “lawfully consent” to the release of the emails, an exception to the disclosure prohibition of the SCA.

While the SJC decision was a victory for the PRs, the court declined to determine whether Yahoo was required to disclose the emails under Yahoo’s terms of service agreement (TOS) with John.  Yahoo argued that the TOS gives it the authority to terminate the account at any time which allows it to deny the PR’s access.  The SJC remanded to the Probate Court to determine whether Yahoo could withhold the emails under the TOS.

Yahoo petitioned to the Supreme Court, but the Supreme Court declined to hear the case in late March 2018.   This means the case is now in the hands of Norfolk Probate Court again to determine whether Yahoo can deny the PRs access to the emails based on the provisions of the TOS.

I am eagerly awaiting the decision of Norfolk Probate.  It will have widespread implications in determining whether and how PRs may access the digital assets of a decedent in Massachusetts.  Even after Norfolk Probate decides, questions will likely remain.  Will a PR be able to access a digital asset if the TOS explicitly prohibits access by a PR or states that the account terminates at death?  Will the PR’s authority over the decedent’s assets trump the provisions of the TOS?  What if access to the digital assets is not addressed in the decedent’s estate plan?

Stay tuned for additional updates about the Ajemian case and estate planning for digital assets.  This is an interesting and developing area of the law.

Your Living Will and Dementia

elderlyA Living Will is a legal document that is typically part of an Estate Plan.  In a Living Will, you express your wishes about the medical care you would like to receive at the end of your life.  It includes instructions about when and under what circumstances you want medical care to be withheld or withdrawn resulting in your death.  The instructions in your Living Will guide the person named as your health care agent in your Health Care Proxy in making end of life health care decisions for you when you are unable to do so.   To put it bluntly, you are instructing the health care agent when it is okay to “pull the plug”.

If you do not have a Living Will, Massachusetts law presumes that you wish your life to be extended as long as possible with all available medical treatments and interventions, even if you have a poor quality of life with little chance of recovery.  If that is not your wish, you should put your wishes in writing by signing a Living Will that expresses your wishes.  Verbal instructions to family members are not legally binding.

A recent and interesting NPR program focused on a team of doctors at the University of Washington who are advising patients, while still healthy, to sign a dementia-specific Living Will.  Their sample dementia directive form includes specific instructions about end of life care for those suffering from Alzheimer’s or other forms of dementia.  It allows the patient to express different wishes about desired care at different stages of illness – mild, moderate and severe

These doctors believe specific language for dementia should be included in a Living Will because dementia is unique and as dementia progresses patients become increasingly unable to express wishes about medical care and the side effects of that care become increasingly intolerable.   The University of Washington doctors also cite the increasing number of people who will be suffering from dementia in the future as another reason to specifically address this issue.

I advise all my clients to sign a Living Will and offer my clients recommended language.  The Living Wills I recommend do not yet include specific instructions for dementia.   Although I do not specifically endorse the University of Washington sample dementia directive form, I believe this is an important issue and intend to pay more attention to it in the future.   If you wish to explore this issue further, consult an estate planning attorney or check out the resources available at The Conversation Project.

Themes and Highlights from the 2018 Heckerling Institute on Estate Planning

Letter HDale and I recently attended the 52nd annual Heckerling Institute on Estate Planning in Orlando, Florida.  The passage of the Tax Cuts and Jobs Act in 2017 meant that there was even more to learn and discuss this year.  The following are some of the themes and highlights that we found most interesting.

The federal estate tax exemption has substantially increased.  The new tax law raised the federal estate tax exemption substantially, but did not repeal the federal estate tax.  The new higher exemption (with the chained CPI adjustment) is expected to be $11.18 million per person in 2018.

Gifting may still make sense.  For those with federally taxable estates, gifting up to the increased federal exemption amount may make sense.  The experts predict that the IRS is unlikely to impose “clawback” if the exemption returns to its 2017 level after 2025 when the increased exemption is scheduled to sunset.  Upcoming regulations will likely formally address “clawback”.

Keep your eyes on the sunset.  Some portions of the new tax law sunset in 2025.  Some do not.  The increased federal exemption sunsets at the end of 2025.  This illustration from the Tax Policy Center explains the sunset provisions.

Family entities may be targeted by the IRS.  In Estate of Powell v. Commissioner, the Tax Court agreed with the IRS and held that all assets in a family limited partnership (FLP) were includible in a decedent’s estate under Section 2036(a)(2) of the Internal Revenue Code even though the decedent owned only a limited partnership interest because the decedent retained the right to dissolve the FLP in conjunction with other family members.  The court also addressed the possibility of “double inclusion” of the assets under Section 2043.  Because the IRS may use Powell to attack other family entities in the future, it may be wise to rethink the structure and terms of those entities.

Managing tax basis and federal income tax planning are essential.  The increased federal exemption means federal income tax planning is even more important.  Clients and advisors must focus on estate planning strategies to maximize tax basis and reduce capital gains taxes by passing high basis assets to future generations.

Attitudes about charitable giving are changing.  The new tax law, as well as new attitudes about charitable giving and philanthropy, are changing the landscape of charitable planning.  Many younger clients are focused more on charitable impact and less on tax savings.   Crowdfunding websites like Kickstarter and Go Fund Me offer new giving opportunities that may appeal to young philanthropic clients more than traditional strategies.

Look at Roth conversions in a new light.  Natalie Choate discussed some interesting opportunities for planning with retirement accounts, including an in depth discussion of the rules regarding Roth conversions and opportunities for income and estate tax planning with Roth conversions.  Importantly, the new tax law eliminated the opportunity to “recharacterize” (or undo) a Roth conversion.

 

Think you no longer need a good Estate Plan? You’re probably wrong.

Long roadThink you no longer need a high quality Estate Plan now that the Tax Cuts and Jobs Act has taken effect?  Think again!  You do, and here’s why.

The Tax Cuts and Jobs Act of 2017 increased the Federal estate and gift tax exemption to $11.2 million.  This means that individuals with $11.2 million and married couples with $22.4 million will not be subject to Federal estate taxes at their death.   Nonetheless, even for those of us who will likely never have such substantial wealth, it is still essential to have in place a high quality Estate Plan.  The following are three important reasons.

  • State estate tax laws remain in place. Massachusetts (and thirteen other states plus the District of Columbia) still impose a state estate tax.  In 2018, the Massachusetts estate tax exemption is $1 million and the top estate tax rate is 16%.   The Massachusetts estate tax is unlikely to change substantially in the near future.  Massachusetts estate taxes can be substantial and failing to plan for them is a mistake.
  • The Federal tax laws may change. A future Democratic Congress may amend the new tax law and reduce the Federal exemption back to the 2017 level ($5.49 million per individual) or even lower.   For this reason, it is important to have in place a flexible estate plan with estate tax planning provisions that are designed to minimize or eliminate both state and Federal estate taxes, regardless of the specifics of the existing law.
  • Estate taxes are not the only reason to have a good Estate Plan. There are lots of reasons – other than estate tax planning – to have in place a high quality estate plan.   Estate planning is essential to ensure that all family members are provided for properly.  This includes minor children, disabled adults, second spouses, adult children likely to divorce, adult children with unique needs or lifestyles, spendthrifts, and more.  More complex planning is also required for those who own family businesses or unique assets.  In addition, a good estate plan simplifies the process of estate administration and may avoid unnecessary delays, costs, and family conflict.  Finally, an estate plan can ensure that your assets can be managed properly for your benefit during you lifetime if you become incapacitated.

The change in the Federal tax laws may change the nature of estate planning and may even create new opportunities for planning.   But it does not eliminate the need for planning.  We intend to offer more advice on this in future months.  Stay tuned!