Bielski Law Office, Ltd.

Want to Spare Your Kids From a Family Fortune?

From shirtsleeves to shirtsleeves in three generations, goes the early 20th-century American proverb. Then there's the 19th-century British version: Clogs to clogs in three generations. And from Italy, date uncertain: From the stable to the stars and back again. You'll find similar sentiments in almost every language, all expressing the same thought: It's nearly impossible to pass on family wealth and have it last beyond your grandkids. Statistics back up the folklore. Studies have found that 70% of the time, family assets are lost from one generation to the next, and assets are gone 90% of the time by the third generation. That's because a crucial element of successful inheritances is often neglected. Traditionally, the focus has been on the givers of wealth, but it should rather be on the receivers. Investing assets wisely and crafting a good estate plan are crucial to success, but so is preparing the heirs. "Estate planning is a process to transfer wealth, but it doesn't help the family develop an infrastructure to sustain it, or keep the family unified from one generation to the next," says Debbie Dalton, a Bay Village, Ohio, resident, whose family is learning how to successfully steward the wealth that her father, a chemical engineer, amassed as founder of cryogenic equipment maker Chart Industries.

The recent article in Kiplinger's Personal Finance, "5 Strategies to Keep Your Heirs From Blowing Their Inheritance," explains that preparing the next generation has a lot to do with financial literacy. In addition, it means passing down and putting into practice values that will sustain your family as well as your fortune. A successful inheritance requires parenting and money management – regardless the eventual estate size.

There are a number of challenges that come with a family windfall. Inheritors can lack self-esteem if they suspect that their success stems from their inherited wealth instead of their own efforts. Or they may feel guilty and have trouble accepting good fortune that wasn't earned, and their emotional development can be delayed if they never have to face important life challenges. They can get bored, which puts them at risk for substance abuse or other self-destructive behaviors. Lastly, heirs can get frazzled with too many options or be paralyzed by a fear of losing their wealth.

It's no wonder that rich folks like Warren Buffett and Sting have said they will "spare" their children from inheriting fortunes. They're going to give most of theirs away or spend it. Buffett said the ideal inheritance for kids is "enough money so that they would feel they could do anything, but not so much that they could do nothing." Sting told Britain's Daily Mail last year, "I certainly don't want to leave them trust funds that are albatrosses round their necks." But that attitude is rare among wealthy parents. Most parents don't want to disinherit their kids, but they want a game plan that will not only keep the family assets intact but also keep the kids grounded, healthy, and productive. There are programs to help prepare the next generation for the riches they'll inherit that are more than just money managers' advice.

Get over the money taboo. Family finances are often an unpopular topic of discussion, particularly when the parents think that family wealth might spoil their kids. Young people without preparation who suddenly come into a trust fund when they turn 21 or if both parents die in an accident can go totally out of control, just like some lottery winners. (The same goes for spouses.)

Heirs who are not ready frequently believe that their parents thought they were incapable of handling the information or couldn't be trusted with it. Be up front about the wealth you have and your plans for it.

Embark on a mission. Make sure your legacy is about more than money. Try writing a mission statement, and have family members write down the values they want to emphasize in their lives, such as education, philanthropy or self-sufficiency. This helps the family identify the long-term purpose of their wealth.

Raise money smart kids. Teach kids from an early age about budgeting and saving. Get kids a piggy bank with three slots or three separate piggy banks—one for spending, one for saving and one for giving. Tell grandparents who like to give cash to make them in multiples of three. In addition, allow older kids to budget an allowance to cover their expenses. That means looking at the monthly average spent on his or her car insurance, cell phone, and other "essentials." Give them an allowance to pay those bills. Without a budget, kids won't learn to prioritize or make decisions about money.

Give Your Kids "Financial Training Wheels." Don't wait and withhold all access to the family fortune in order to preserve it. Seed an investment account when children are in their late teens and let them make investment decisions and agree to match a percentage of the returns earned over a specific time period. The child can withdraw money from the account, but the parent can't add to the principal, which will teach them about investing and spending. It will also show them the power of compound growth as well as the opportunity cost of robbing a nest egg.

Assemble a good team. In addition to an experienced estate planning attorney, bring in mentors for the next generation, such as board directors and other successful businesspeople. This de facto advisory board is nice when your kids' friends and classmates start asking them for contributions to investment schemes or business start-ups. They want to help their friends, but the best way is to defer… so if the committee says "yes," they're a champ. But if it's "no," then it's not his fault.

You'll have the best chance of preserving both your wealth and your family with a multigenerational effort that starts when your kids are born, not when you die.

An experienced estate planning attorney can help guide you throughout.

Reference: Kiplinger's Personal Finance (November 2015) "5 Strategies to Keep Your Heirs From Blowing Their Inheritance"

Estate Planning for Your Works of Art

Art investors are nearly always advised not to invest in art at all, but to collect it. Buy what you like, the conventional wisdom goes, not what you expect to increase in value. But collectors still must contemplate financial matters, especially related to inheritance, advisers say. It's essential for them to consider what will happen to their art when they are no longer around to appreciate it. "As somebody's art portfolio gets more valuable, it becomes a more significant item in their financial and tax lives," said Michael Delgass, managing director of Sontag Advisory, a financial planning firm in New York. Like collecting itself, the planning surrounding it has tangible and intangible aspects, especially involving legacy issues, Mr. Delgass said. There are often unpleasant tax consequences for heirs, who may not be related to the collector and who may not be connoisseurs if they are. "If you have a very valuable art collection, you may feel responsibility to the public to preserve it," he said. Meanwhile, "It's not a given that just because you love it, your kids will love it. Do you want to allocate family resources to hold that forever?"

The New York Times article, titled "Estate Planning Can Get Tricky When Art Is Concerned," explains that that there are specialist advisers to handle these issues, concentrating on tax and legal concerns in estate planning and philanthropy. Their art expertise is typically "a niche within that niche." They fill a different role from art advisers who help clients find works of specific artists based on their tastes, budget, and the state of the market.

Because it's tough to put a price on art, that can work to investors' favor when doing estate planning. While it isn't an asset that's going to solve lifestyle or retirement goals, it has a distinct advantage as a wealth-transfer tool. If you'd like to pass your Monet to your kids, it's better if it's valued as low as possible because transfers to heirs are taxed at high rates in many countries (but the dollar figure usually has to be pretty big for the tax to kick in). Use an independent appraiser and remember that rules on valuation and tax treatment vary from country to country.

A lack of liquidity can help in estate planning, but it can also hurt. When you sell your stock, the transaction is recorded in a public market, but when you give that Picasso to your lucky kids, it may create a taxable event which will one day catch up with the new owners.

Transference of property should be documented properly to avoid major issues down the line.

Financial planning for collectors can involve certain techniques for transferring ownership of art without transferring the art itself. For example, collectors can sell art to heirs for cash or a promise to pay—or place it in a trust or similar entity like a corporation—then lease it back. These strategies can have tax advantages, but are based on the laws of the state and country. Experts say that without the leasing agreement, these types of arrangements may not survive scrutiny by the tax authorities.

Trusts or corporations can also help collectors and their heirs avoid what the article calls "tragically bad luck" as many tax codes say that the property is subject to estate tax wherever it is situated when the owner dies. So if an asset is located in the U.S. but you're not a U.S. taxpayer, when you die it will be subject to U.S. estate tax because it's physically here. Good planning can avoid such a result.

Collectors wanting to donate to a charity and get a tax break while maintaining ownership of a piece of art (at least for a while) may be able to lend the work to an institution or remain a part-owner and donate the rest. Under American law, a collector can allow the institution to use the artwork for part of each year and take a prorated charitable deduction based on its value. However, the collector has to give away the artwork entirely within 10 years or at death, whichever comes first. The tax deduction is based on the value then or when the fractional interest was donated, whichever is lower. And penalties are due if deductions are found to have been excessive.

Talk to your estate planning attorney if you have some Picassos or Monets that you plan to give to your children. He or she will be able to work through the details and make sure it's done legally and with the least amount of tax impact.

Reference: The New York Times (October 3, 2015) "Estate Planning Can Get Tricky When Art Is Concerned"

Will Declared Invalid Because of Missing Signature

When people write their own wills without the assistance of attorneys, they often forget important steps and risk having their will invalidated. Such is the case with the will of one man from Minnesota.

Gary Kruger was very close to his cousin. The two shared a birthday and referred to each other as soul mates. Despite living in different states, the two talked often and traveled together.

Three years before passing away, Kruger made out a handwritten will that left his home and checking account to his cousin. He went to the bank and had the will notarized. What Kruger intended for his assets after he passed away seemed clear. However, his cousin did not receive the home or checking account. Instead, Kruger’s nieces split the assets between themselves.

Kruger’s handwritten will was invalidated because under Minnesota law, a will must be witnessed by two people. The notary counted as one witness. There was not a second witness to Kruger’s will. As he had no living parents, siblings or children by law his estate went to the nieces.

CBS Minnesota reported this story in “Missing a Signature, Minneapolis Man's Last Will Invalidated.”

While many states will accept these handwritten wills and forgive some technical flaws in their execution, Minnesota will not do so. This illustrates the danger of not hiring an estate planning attorney to draft your will. An estate planning attorney would have known that the law required two witnesses to the will. A notary public may not know that, which appears to have happened in this case.

By writing his own will Kruger may have saved some money at the time, but it came at the cost of not being able to have his final wishes obeyed.

Reference: CBS Minnesota (September 22, 2015) “Missing a Signature, Minneapolis Man's Last Will Invalidated.”

Special Needs Trust Fairness Act Passes in Senate

People with special needs have won an important victory in the Senate where the Special Needs Trust Fairness Act passed unanimously. However, the fight is not over.

For people with disabilities, special needs trusts are often a vital way to protect assets and ensure that they have the resources needed to meet their expenses. It has become common for parents of children with special needs to make these trusts a part of their estate plans.

But if a person with special needs wants to set up their own special needs trust, they cannot do so without first going to court and going through a long, complex process to get permission.

The Social Security Act provision that allows for these trusts is written such that only a person’s parents or grandparents can create the trusts. So, disabled people without living relatives able to create the trusts for them face a long, uphill battle to create the vital trusts.

Thus, it was a resounding victory for people with special needs when the Senate unanimously passed the Special Needs Trust Fairness Act that would allow people to create the trusts for themselves.

Special Needs Answers reported this development in “Senate Passes Special Needs Trust Fairness Act; Focus Shifts to House.”

Unfortunately, this legislation appears to be currently stuck in a House subcommittee. It is not expected to make it out of committee in the House without additional support. People who are interested in seeing this legislation passed should contact their representatives and encourage support of the Special Needs Trust Fairness Act.

Reference: Special Needs Answers (September 24, 2015) “Senate Passes Special Needs Trust Fairness Act; Focus Shifts to House.”

Homeless Man Claims His Inheritance Is Being Wrongfully Held From Him

A homeless man in New York City claims that he was left an inheritance of $100,000 that the executor of the estate has refused to give him for three years.

Winfield Huppuch, a publishing executive, let his friend Raphael Lebron live with him for 12 years. When Huppuch passed away, his brother, acting as the executor of the estate, locked Lebron out of the apartment.

Lebron unsuccessfully sued to be allowed back in the apartment and became homeless. Now, a new dispute over the estate between Lebron and the executor has made its way to court.

Huppuch’s will left Lebron an inheritance of $100,000, money which Lebron says he needs to find a new home. However, in the three years since Huppuch passed away, the executor has refused to give the money to Lebron.

The executor’s attorney claims that Huppuch had second thoughts about his will and shortly before his death, went to the attorney and asked for a new will to be drafted. To provide guidance, Huppuch marked up his then current will with the changes that he wanted to make.

One of the changes was removing the bequest to Lebron. But before the new will could be drafted and executed, Huppuch passed away.

DNAinfo reported this story in “Homeless Man Says He's Been Waiting Three Years to Get $100,000 Inheritance.”

This is one of those cases that presents courts with problems. Even though it might be clear that Huppuch intended to not leave anything to Lebron, ordinarily the will that was in effect when a person passes away is the ultimate say about who gets what. Consequently, the will legally in play would leave an inheritance for Lebron.

While exceptions can be made, it is not yet clear whether that is appropriate in this case.

Reference: DNAinfo (September 25, 2015) “Homeless Man Says He's Been Waiting Three Years to Get $100,000 Inheritance.”

Estate Planning Attorney Pleads Guilty to Fraud and Other Charges

A Wisconsin estate planning attorney who faced 33 federal charges stemming from fraudulent activity and stealing her wealthy clients’ money has reached a deal and will plead guilty to five of the charges.

Wisconsin attorney Sarah E.K. Laux ran two businesses. The first business was an estate planning service where she targeted wealthy clients through free seminars and lunches. The second business purported to be an insurance agency.

For several years, there were complaints that her estate plans were not very effective. However, it was the alleged theft of nearly $3 million that landed her in trouble with federal investigators. Two of her wealthy clients claimed that she converted their money for her own personal use.

Apparently, she would convince her elderly clients to transfer their money to her so she could invest in annuities supposedly offered by her insurance business. However, she spent the money on herself. Laux was indicted on 33 charges and has agree to plead guilty to five of them, one count each of bank fraud, mail fraud, wire fraud, money laundering and filing a false tax return.

The Milwaukee Wisconsin Journal Sentinel reported this story in “Estate planning lawyer facing prison in fraud plea deal.”

While the overwhelming majority of estate planning attorneys are honest and work in their clients’ best interests, there are bad apples such as Laux that people need to watch out for.

One big clue that Laux was not on the up and up that her clients missed was that she was also running an insurance company and asking her clients to invest with it. It is always advisable to seek a second opinion if an attorney requests that you invest in a business he or she owns. The attorney cannot give you unbiased legal advice about investing in her own business.

Reference: Milwaukee Wisconsin Journal Sentinel (September 27, 2015) “Estate planning lawyer facing prison in fraud plea deal.”

Why People Do Not Have Estate Plans

A recent survey reveals something that we already know: most Americans do not have estate plans. However, the survey also reveals the reason why people do not get estate plans is because they feel they lack the financial know-how to even get started.

A recent survey by Everplans concluded that only 34% of Americans have created a will. This is not a surprising result, as numerous previous surveys have reached the same conclusion.

The usual reason given for why so many people have not created estate plans is that death is a taboo subject in American culture. People do not want to think about their own deaths and what will happen to their families and property afterwards.

However, only 18% of the respondents to the survey gave that as a reason that they did not have an estate plan. Instead 95% of those without wills cited a lack of information about creating estate plans and services to create them as part of the reason they have not acted.

Fox Business reported on this survey in an article titled “The Sad State of Estate Planning: Why Only 34% Have a Will in Place.”

It is unclear why people think they do not have the information needed to create an estate plan. People are not required to make their own estate plans or draft their own wills. In fact, it is extremely inadvisable to do so. Instead, people should seek out experts who have the information and can do all the required drafting.

And those experts are not hard to find. They exist in all but the smallest, rural communities. They are estate planning attorneys.

If you think that you do not have the information that you need to draft your will, contact an estate planning attorney who will be happy to help you.

Reference: Fox Business (September 28, 2015) “The Sad State of Estate Planning: Why Only 34% Have a Will in Place.”

Can I Survive Financially if I Live to be 100?

How long will you live? It’s a key question in retirement planning. If you’re healthy and your family tree has branches with staying power, you may figure that you have decades ahead. If your parents died early of natural causes, you may assume a shorter life. Yet research shows that behavior is more crucial than genes in determining longevity. If you are eating better, smoking less, and exercising more than your parents did, there’s a good chance you’ll live longer than they did. You’ll also need to consider how much money to live on. With low expenses, you may be able to get by with as little as 55 percent of your preretirement income. But based on a survey of recently retired readers, Consumer Reports estimates that 85 percent of income from your last year of work is about right.

How can you ensure your nest egg’s longevity? The Boston Globe asks “Can you afford to live to 100?” and provides some helpful strategies.

Delay claiming Social Security. This is the least costly way to add to your income later in life. For example, those born in 1949 are now reaching “full retirement age.” They are able to earn a benefit that’s 8% higher each year they delay, up to age 70. At the minimum, you should wait to claim until your full retirement age, which ranges from 66 (for people born from 1943 to 1954) to 67 (for people born in 1960 and later).

Buy an Annuity. Consumer Reports’ surveys of retired readers show that having a pension as a guaranteed income correlates with satisfaction in retirement. With these becoming less available, insurers are providing annuities, which have pension-like, lifetime income. If you have a small nest egg, the less you’ll want to devote to an annuity, as this effectively locks up your savings. A 65-year-old could cover all spending after age 85 by earmarking 10-15% of his or her current assets toward purchasing a longevity annuity.

What about Long-Term Care Insurance? The average cost of nursing home care in a semiprivate room is about $80,300 per year. Although 44% of men and 58% of women currently age 65 will need nursing home care at some point, those stays will average less than a year for men and less than 18 months for women. Most of the care is provided at home or another community setting. Half of nursing home and retirement care expenses are typically covered by either Medicare or Medicaid. Nonetheless, in assisted living facilities, where stays are around 22 months and the cost is about $43,200 annually, they might not accept Medicaid. You’ll need long-term-care insurance to fill the gap.

Don’t Forget Medicaid. If you believe you may require long-term care, either in your home or in a care facility, you should see where you stand as far as Medicaid. An experienced elder law attorney may be able to help you legally transfer certain assets before you submit your application.

Reference:  Boston Globe (September 11, 2015) “Can you afford to live to 100?”

Don’t Forget Estate Planning for Your Family Business

Skilled estate planning is essential to the tax-efficient transfer of the family business across the generations. While the majority of family business owners have estate plans, the majority of these plans can be considered dated. Family businesses are responsible for more than 70% of global production and are one of the principal creators of private wealth. Often critical to the continuity of the family business and to the perpetuation – if not enhancement – of family wealth is estate planning.

Forbes’ article, “Most Family Business Owners Should Update Their Estate Plans” reports that an international survey of 336 middle-market family businesses found that more than 90% of family members who are senior executives with equity in the firms have estate plans. That’s the good news. Now the bad new: only 22% of these estate plans have been updated within the last two years. About a quarter of them have been updated between two and five years ago, and the rest—almost half—have not been reviewed in over five years.

Most estate plans become “old” after a few years. This means that situations change, such as family relationships, business matters, and their net worth—making it prudent to review and potentially refine their estate plans.

In addition to out-of-date estate plans, the quality of these plans must be questioned, as some family business owners don’t take advantage of strategies to reduce estate, gift, and other taxes. In some situations, there are ways to improve the financials of the business and provide economic benefits to the family at the same time.

Speak with an experienced and qualified estate planning attorney to make sure that your estate plans is up-to-date and is designed to take into account the latest advanced planning strategies.

Reference: Forbes (September 15, 2015) “Most Family Business Owners Should Update Their Estate Plans”

Come on, Kids! Start Estate Planning!

If you think estate planning is for only the elderly or wealthy individuals, think again. Everyone has collected some stuff, what professionals like to call assets, possessions, investments — and don’t forget the liabilities (debt), like student loans, car or credit card balances. Even if you do not think you have much, it’s important to have a plan for what you do have, and what you want to do with the stuff after you pass away. There are some basic documents everyone should consider having. If you do not complete the appropriate documents, the state you reside in has its own statutory regulations and procedures to dispose of your property. If you do not plan right, you not only surrender your control over your things, but your things may not go to the party you want — such as a partner, life partner, friend or charity. So what can you do?

The website credit.com addresses important tasks that everyone needs to address, in “Why Everyone Needs a Will (I'm Talking to You, Millennials).”

Designate Your Beneficiaries. You can list your beneficiaries on your retirement accounts (401(k), 403(b), IRA, etc.) when you complete the application. Likewise, you can designate your beneficiaries on bank and investment accounts by setting up a TOD (Transfer on Death) designation. It’s easy to do and costs nothing. Remember that beneficiary designations supersede any wish you make in a will.

Draft Your Will. A will is a legal document and is a written statement of your intentions, including where you want your possessions to go and how you want the orderly disposition to happen. See an attorney, as each state has different laws.

State Your Health Care Wishes. Use a Health Care Proxy to let someone you trust make health care decisions and carry out your health care wishes in the event that you are incapacitated.

Sign a Durable Power of Attorney. This form allows someone you trust to make financial decisions in the event you are unable to do so. There is a huge difference between a limited power and durable power of attorney. Talk to your estate planning attorney about these documents.

An experienced estate planning attorney can spend time with you and review your estate issues, complete a will, health care proxy, durable power of attorney, and check beneficiaries, as well as any tax issues. Use an attorney who specializes in this area to ensure your wishes are properly documented and you achieve what you are trying to accomplish, now and in the future.

Reference:  credit.com (September 11, 2015) “Why Everyone Needs a Will (I'm Talking to You, Millennials)”