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Are Crummey Trusts Crumby … Or Good?

Actually the trusts are Crummey trusts named after one D. Clifford Crummey who won a decision in the Ninth Circuit in 1968, when I was just a high school lad.  Israel and Erna Mikel were just in Tax Court showing how powerful the Crummey power can be as they used it to shelter over $1.4 million in transfers to their family trust from gift taxes.  An arbitration clause that called for the use of a religious court caused the IRS to challenge the validity of the exclusions, but the Tax Court ruled in the taxpayer’s favor.

Trusts can have pretty funny names. Take the Crummey trust for example – doesn’t sound very good, does it? Who wants a “crumby” trust? Let’s explore this tool further.

A recent Forbes article, titled “Religious Arbitration Clause Does Not Hurt Million Plus Gift Tax Exclusion,” reminds us that there’s an annual exclusion from gift tax. Reminder: every year you can give the annual exclusion amount ($14,000 this year) to as many people as you want without any gift taxes or disturbing the unified credit against transfer taxes. However, to qualify for the exclusion, the gift has to be of a “present interest”.

When you make gifts to the kids and grandkids, you don’t want to hand them cash at that very moment, do you? Likely, you want the money in the hands of a trustee who will distribute it to them responsibly. This stuff is admittedly a bit technical, but that’s about the exact opposite of a “present interest,” which can be problematic.

The article explains that the Crummey power is a way around this problem. Money or property goes into the trust and the trustee is directed to notify the beneficiaries who get a short time to withdraw up to the annual exclusion amount. However, beneficiaries are discouraged from doing this, and it’s rarely done. But people worry about this and oftentimes put provisions in their trusts to discourage the beneficiaries from withdrawing the assets.

In the case of Israel and Erna Mikel, each made gifts to a family trust with an “asserted value” of $1.6M, and each claimed annual exclusions of $720,000. The annual exclusion in 2007 was $12,000, so if you do the math, it means 60 people had withdrawal rights. According to the court decision, they were all lineal descendants or spouses of descendants. The IRS disallowed the exclusions claiming that the beneficiaries lacked legally enforceable rights to withdraw the funds.

Once the Crummey power lapsed, there was no guarantee that any beneficiary would get anything from the trust. The trust provided that any disputes concerning the interpretation of its terms would be submitted before a “Beth Din” panel, which consists of three persons of the Orthodox Jewish faith. Along the same lines, there’s another trust provision which states that if a beneficiary litigates a distribution of the trust, the squeaky wheel’s interest will be revoked. This is called an “in terrorem” clause. With all these restrictions, the IRS argued that the withdrawal rights were not “legally enforceable.”

The Tax Court believed that the “in terrorem” clause was much more limited and was there to emphasize the trustee’s broad discretion to make distributions. It would only be triggered if a beneficiary brought a suit that challenged an actual distribution to another beneficiary. As a result, the beneficiary did have an enforceable right to demand a distribution during the Crummey window (even though beneficiaries never do that in practice).

Robert A, Gordon of Redkey Gordon Law Corp, an experienced estate planning attorney can explain this in greater detail. Make sure that you don’t have a crumby estate plan strategy.

Reference: Forbes (May 11, 2015) “Religious Arbitration Clause Does Not Hurt Million Plus Gift Tax Exclusion”

Woman Forges Will, Gets Arrested

A Walnut Ridge woman was arrested Thursday for forging a will after someone else had died.

Another scammer made the news recently, this time involving a forged will.

KAIT reported the story in an article titled "Woman arrested for forging new will after someone died."

An Arkansas woman, Kimberly Dement Dotson, has been arrested for allegedly forging the will of an elderly person.

She is believed to have forged the will after the victim passed away.

Naturally, the will stated that she should receive the entire estate.

Dotson told the court that the victim had no living relatives, which was not true. She also stands accused of using the man's debit card and withdrawing money from his bank account for her own personal use.

This is the latest incident of something that happens all too often.

It is very important that family members remain diligent and ensure that someone is not taking advantage of their elderly relatives.

If a relative passes away, it is also important to act quickly when filing wills with the court so that anyone who forges a different will can be caught before too much damage is done.

To learn more about protecting yourself and your elderly relatives, speak with Robert A. Gordon of Redkey Gordon Law Corp, an experienced estate planning and elder law attorney about what you can do.

Reference: KAIT, Region 8 Newsdesk (May 9, 2015) "Woman arrested for forging new will after someone died."

Guardianship and Conservator Selected for Bobbi Kristina Brown

“We are delighted to inform the public that the court has appointed Bobby Brown and Pat Houston as co-guardians of Bobbi Kristina Brown (‘Krissi’),” read a statement issued by David Long-Daniels, counsel for Pat Houston and Cissy Houston, and Christopher Brown, an attorney for Bobby Brown. “Both Mr. Brown and Ms. Houston are jointly responsible for decisions related to Krissi’s care and medical needs.” A court-appointed attorney, Bedelia Hargrove, will act as a conservator for the 22-year-old.

The court-appointed attorney specializes in fiduciary litigation, probate and estate administration, estate planning, personal injury and wrongful death cases, as well as general civil litigation.

As conservator, the attorney “is responsible for Krissi’s assets, including her likeness, rights and legal claims,” according to the statement read by attorneys for the family.

ABC News Radio reported the story in an article on its website titled “Bobby Brown Granted Co-Guardianship of Bobbi Kristina.”

The judge for the probate court of DeKalb County in Georgia confirmed in paperwork from April 24 that Brown’s guardianship petition had been received.

Probate courts have jurisdiction over the appointment and supervision of guardians and conservators of adult persons who have been found to be so incapacitated by reason of physical or mental illness that they are no longer capable of making reasonable and rational decisions concerning management of their own money and property. Guardians make decisions concerning the person, and conservators manage and make decisions concerning the person’s income and property.

Conservators must be bonded for the value of all income and personal property of the person, and guardians also may be required to post bond. Guardians for an incapacitated adult in Georgia are required to file annual reports on the physical and mental status of the ward. Similarly, conservators must file an inventory of assets, an asset management plan, and annual financial accountings—all of which are subject to review or audit by the probate court.

Cissy Houston, Bobbi Kristina’s maternal grandmother, told “Entertainment Tonight” last week that Bobbi Kristina is “not progressing at all.” Houston said, “She’s not gone yet, but you know, whatever the Lord decides, I’m ready for her…I have nothing to do with that. That’s His job. It’s His territory, you know? And I understand it.”

Bobbi Kristina was hospitalized in January 2015, after she was discovered unresponsive in a bathtub in her home. She was moved into a rehabilitation facility in March.

Questions about Conservatorships and Guardianships? Contact Robert A. Gordon of Redkey Gordon Law Corp, an experienced estate planning attorney to discuss them and learn more.

Reference: ABC News Radio (May 11, 2015) “Bobby Brown Granted Co-Guardianship of Bobbi Kristina”

De-Clutter and Get Your Finances in Order

There are several corners of your financial life that can be simplified through consolidation.

If you feel like your finances are all over the place and hard to manage, you just need to take a moment to de-clutter and get a system going. Also, it’s ok to ask for help!

A recent article in The Tahoe Daily Tribune’s, titled “Simplify your financial life,”provides some very helpful advice on de-cluttering and organizing your important information:

1. Go Green. It’s very easy to find your financial documents online. Going paperless will help reduce the clutter, plus it’s also environmentally friendly. Start with credit cards and bank statements—get them electronically. Most companies send out an email when your statement or bill is ready each month, so you can download and store your statements electronically and make a hard copy to file if needed.
2. Merge! Retirement accounts are one of the areas that most folks can consolidate. The article notes that if you’ve worked for different employers in your career, you’ve probably have several different retirement accounts. Think about consolidating all of your 401(k) and IRA dollars by rolling them into a centralized retirement account.
3. Ask a professional. As you sort through your financial choices, enlist the right professionals to assist you. Helpful professionals include a qualified estate planning attorney who can provide guidance on how to put you in the best situation.

Set up an appointment with Robert A. Gordon of Redkey Gordon Law Corp, an estate planning attorney to see if he can help get your financial life organized.

Reference: The Tahoe Daily Tribune (May 11, 2015) “Simplify your financial life”

Survey Reveals Startling Estate Planning Concerns

"A lot of people think this is just about elderly parents, but it's a big issue for people with adult children away at school or on their own as an unmarried adult," said Carnick, president of Carnick & Kubik Personal Wealth Advisors. "Who's going to speak for them if they get in an accident?"

A recent Chicago Tribune article, titled “Checklist for updating, organizing estate planning documents,” reported some interesting survey results that show many adults are very unprepared and unaware when it comes to estate planning.

The Tribune reports that a new survey of 1,000 adults for www.caring.com shows these startling figures:

• Roughly 55% said their parents have a will or trust document;
• 25% of people 65 and older said they don't know where their elderly parents keep their estate planning documents; and
• 44% don't know what's in those documents.

Those are some big numbers!

The survey officials commented that many respondents reported situations where parents passed away without leaving behind legal documents. This has led to some sad stories about people having money tied up in court and not being able to pay their parents' final bills and funeral costs.

In addition, the survey revealed that very few families have health care directives for adult children. It’s not just about the elderly parents, the article reminds us. This is a major issue for people with adult children who are away at school or living on their own as an unmarried adults. What happens if they get in an accident?"

The article offered these tips to keep in mind when working on these tasks:

• Take Five: No, don’t take a break! Estate planning attorneys suggest that you update your will, trusts, powers of attorney, and health care directives at least every five years or when a major life event happens, such as a new child or grandchild, moving, a new job, or divorce.
• Share the Secret: If you have estate planning documents, it's very important to share the information with those who will be helping you as you get older. For example, your physician needs a copy of your health care directives.
• Get It Together: Many folks use binders for keeping important documents with notes on financial account information and passwords. While this is a great idea, the binders are usually locked away for safe-keeping. Keep the documents in an electronic format that can be accessed by your representatives when needed.

Some estate-planning attorneys also recommend designating trusts as retirement account beneficiaries, even though the accounts already might contain beneficiary designations.

These are very tricky issues to tackle, so talk to Robert A. Gordon or Redkey Gordon Law Corp, an estate planning attorney before taking action.

Reference: Chicago Tribune (May 10, 2015) “Checklist for updating, organizing estate planning documents”