Redkey Gordon P.C.

Trust Myths Busted!

They can be incredibly useful tools, and thanks to the publicity, more people may consider using them, but many people misunderstand how trusts work. Let's take a look at -- and dispel -- three common myths about them.

Are trusts too much work? Are they only for the rich and famous? Do you really need to establish a trust before you die?

Trusts can be very useful tools, but few people understand how trusts work. Daily Financerecently posted an article titled "3 Myths About Trusts That You Can't Afford to Believe." This article examines and dispels three common myths about trusts.

Trusts really are only for rich people. Stop thinking about trust fund babies and the lifestyles of the rich and famous! There are all sorts of trusts that can be used in a variety of situations. These trusts are used frequently by regular folks just like you and me.

Trusts involve too much effort to work effectively. Some people think it is a lot of work to set up a trust. Sure, assets have to be moved into the trust, which usually means changing the formal designation of ownership from one or more individuals to the name of the trust. But creating a trust need not be complicated. As the original article notes, you can implement simple methods like naming the trust as a pay-on-death or transfer-on-death beneficiary to fund the trust without having to take immediate action. These designations keep the trust out of probate. In addition, they save on court costs and delays, but allow you the flexibility to handle your own affairs as long as possible.

You don't need a trust before death. Not so! Trusts can be a part of your financial life even while you are still around and kicking. A trust established while you are alive can manage your assets if you are incapacitated and unable to do so on your own.

Trusts offer a great deal of estate planning flexibility and let you achieve a variety of specific needs. Do not believe the myths! Read more in the original article, then consult your Sacramento estate planning attorney at Redkey Gordon regarding whether a trust might be beneficial in your own estate planning.

Reference: Daily Finance (September 20, 2014) "3 Myths About Trusts That You Can't Afford to Believe"

Is Estate Planning Only for the Wealthy?

So who needs estate planning? The answer is just about everyone. Although it is true that the planning that is required for a person with very limited wealth versus that of a person with great wealth, should not be as complex or costly, some degree of planning is required nevertheless.

Who exactly needs estate planning? Only the wealthy? Wrong! Everyone needs to do some form of estate planning.

Although the planning may vary based on the overall wealth and intentions of individuals, some degree of planning is required regardless if you are a prince or a pauper… or somewhere in between. The recent article in the Capital Gazette, titled "Estate planning, it's not just for the rich," reminds us of some very simple tasks you can do to get your estate organized. Communication is important when it comes to estate planning and end-of-life decisions. Consequently, you should talk with your loved ones and the executor of your will about your plans and wishes. You should also speak with an experienced estate planning attorney and do the following:

• Get a will. This lets you to decide how your assets will be distributed when you die and (if applicable) who will be the guardian of your minor children.
• Stay up-to-date regarding the beneficiaries of your insurance policies, retirement plans, and other documents. The original article reminds us that beneficiary designations are a very easy way to transfer property, and the designation trumps a contrary designation in a will.
• Create durable powers of attorney, which let you appoint someone you know and trust to make decisions on your behalf if you become incapacitated.

You also should calculate your net worth. If your estate is less than $5.34 million, then your estate will not be subject to the estate tax.  If your net worth is more, then you should speak with Robert A. Gordon your Sacramento estate planning attorney to develop a strategy to minimize or eliminate the estate tax burden. Proper estate planning will make sure more of your estate goes to your loved ones and not to paying taxes.

Reference: Capital Gazette (September 19, 2014) "Estate planning, it's not just for the rich"

Should You Use Mediation To Discuss Elder Law Issues?

Mediation has emerged as a valuable tool for seniors and their families as an alternative to costly litigation. Mediation can be a useful instrument to prevent post death conflict by dealing with a family's issues during the senior's life.

A recent issue of the New York Law Journal, titled "Mediation: Prevent Estate Litigation, Preserve Relationships," explains when a family has a positive relationship and is making decisions together, difficult issues can be dealt with little or no hard feelings. On the other hand, if family members disagree or have competing interests, there is a chance that conflicts may arise. These disputes can lead to contested guardianship proceedings when the senior is alive and contested estate proceedings after he or she is gone. Either one of these disputes can take an immense toll financially and emotionally on a family.

Elder law attorneys help seniors address and resolve the issues that face them at their stage of life. This can include long-term care matters, retirement benefits, estate planning, housing, abuse and neglect of a vulnerable senior, potential guardianship, and health care. Elder law attorneys can also assist with post-death issues relating to probate and estate administration.

The original article notes that mediation is becoming a valuable tool for seniors and their families. This is preferable to the expense and pain of litigation. Mediation can be useful to avoid post-death conflict in the family and to discuss issues during the senior's life.

Mediation is one way to solve these types of issues. Speaking with an experienced Sacramentoestate planning attorney at Redkey Gordon P.C. can also help you to clarify the senior's wishes and get the entire family on the same page. Who needs more stress when a loved one has become incapacitated or passed away?

Reference: New York Law Journal (September 22, 2014) "Mediation: Prevent Estate Litigation, Preserve Relationships"

Passing on Artwork? How To Divide the "Picassos" of Your Estate

Serious art collectors might roll over in their graves—or never marry—if they knew what feuds their purchases were destined to inspire. On the other hand, lots of friction can be avoided if lovers of art and their families acquaint themselves with a few legal and tax basics.

So, who's getting the Picasso? Dividing assets of artwork can be a challenge.

A recent Wall Street Journal article, titled "Tips for Dividing Art in a Divorce or Death," warns that fighting can be avoided if art lovers and their loved ones learn a little about some legal and tax basics. The original article offers some ideas on how to decide—in a fair and civilized manner—who gets what, and the ways of disbursing an art collection to minimize taxes.

First, after an art collector dies—before anyone starts eying their walls for a new masterpiece—the entire estate must be finalized in probate court, which can take some time (maybe even years). If the deceased's home is not occupied, the original article advises to upgrade the security to transfer the art to a climate-controlled fine-art storage facility. None of the art should be removed before the court-approved distribution, and the decisions about the art should be part of the overall estate planning, as art that passes at death is subject to a step-up in value for tax purposes. All artwork will need to be appraised professionally.

Even if an art collector specifies who gets what, there still may be problems. For instance, if a collector wills a painting to one person and gives everything else to another, the second individual will be responsible for paying the estate tax for the painting. The original article suggests that the will should specify that each heir will pay his or her share of taxes on the assets received.

For a person who dies in the current year (2014) there is a federal estate tax threshold of $5.34 million, so an estate worth less than that has no estate tax liability. However, the article reminds us that you only need one Picasso or Warhol to put you over that line and make your estate taxable. This tax could be as much as 40%! To make matters worse, some states also tax up to 20% above a $1 million threshold.

The original article also describes how collectors will sometimes sell art to help defray anticipated estate taxes. Alternatively, you should read the original article and talk to your Sacramento estate planning attorney, Robert A. Gordon about setting up a tax-exempt charitable remainder unitrust and gift artwork into the same.

If there is a Degas in your dining room or maybe a Dali in your den, speak to an experienced estate planning attorney at Redkey Gordon P.C. about a strategy to pass your collection to your family in the most prudent manner.

Reference: Wall Street Journal (Sept. 21, 2014) "Tips for Dividing Art in a Divorce or Death"

Tom Clancy's Unintended Thriller: His Estate Battle

A tax battle is brewing over his $83 million estate, pitting Mr. Clancy’s wife against the adult children of his former marriage. His widow Alexandra Clancy is taking legal steps aimed at shifting all state and federal estate taxes—estimated in court papers at as much as $16 million—to the portion of the estate Mr. Clancy willed to the four grown children he had with his first wife.

A high-profile estate battle is brewing for a certain famous author. The late Tom Clancy likely didn't anticipate adding this "thriller" to his list of works.

Tom Clancy’s estate includes a 12% stake in the Baltimore Orioles baseball team—estimated to be worth $65 million—and a collection of unique items, such as a World War II tank "with very low mileage,” according to Maryland probate court filings. He died in Baltimore back in 2013 and had a daughter with his then wife.

As covered in a recent Speakeasy blog on The Wall Street Journal titled "Tax Battle Brews Over Tom Clancy’s $83 Million Estate," Mrs. Alexandra Clancy is the sole or main beneficiary of two-thirds of the estate. She says the estate’s executor has wrongly decided that $6 million of the tax burden should be paid by a family trust. Note: Alexandra is the primary beneficiary of the family trust. Her lawyers say that is not what Tom Clancy intended. Consequently, the lawsuit is to prevent an "improper, inequitable and unjust result.” The petition filed in Maryland probate court by Mrs. Clancy argues that Tom Clancy modified his will in 2013 to ensure the family trust fell under the marital deduction—her share would owe $0 in estate taxes, and the share of the adult children of Tom Clancy would owe the whole amount.

A judge has ordered the attorney for the estate to file a response and has also temporarily limited his powers over the estate. Ms. Clancy wants the judge removed.

The court filings also detail some of the assets held by Tom Clancy, who had a well-known fascination with military equipment. Court papers show he had a collection of 26 “handguns and long guns of various makes and models” valued at roughly $35,000. The tank is a rare 1943 M4A1 Sherman known as a "Grizzly." There were just 188 built. He kept the tank at his 535-acre Chesapeake Bay estate, which is valued at $6.9 million. Clancy's other listed possessions include a 2001 Ford F150 truck, a 1993 Cadillac Allante—both listed in good condition. He also had about $44,000 worth of telescopes, watches, memorabilia, and other personal items. There could be more assets out there.

Before the final gavel comes down, there likely will be more chapters to this unintended Clancy thriller.  A simple Trust could have avoided this public disaster, speak with your Northern California estate planning attorney at Redkey Gordon P.C. to learn how to avoid Tom Clancy's estate battle.

Reference: Wall Street Journal, Speakeasy blog (September17, 2014) "Tax Battle Brews Over Tom Clancy’s $83 Million Estate"