5 VIP To-Dos Before Packing the Suitcase…
According to AAA, approximately 44.2 million people were to travel the weekend before the 2017 Independence Day holiday. Still, Americans are becoming more and more transient: Not just holidays, but graduations, vacations, and family reunions beckon lots of us away from the place we call “home.” With clients who are “snow birds,” non-U.S. citizen spouses, or dual citizenship partners, our firm has a unique perspective to share with you when it comes to protecting your loved ones as you “move freely about the cabin”: Advanced Directives, aka “Powers of Attorney.” Have them. Let your agents and successor agents know you’re travelling and how to contact you, even if you climbing Machu Picchu. Financial and Health Professionals. Copy them. Make sure your banks, brokerage houses, and doctors have copies of your Advanced Directives on file. Children’s Successor Guardians. Name them. Let them know you’re traveling with or without the kids and also how to contact you. If you have kids and are climbing Picchu, carrier pigeons may be an option. Destination Hospitals, Pharmacies, and Emergency Clinics. Know their locations in reference to your accommodations and their rules on treating patients or filling prescriptions for patients outside of their jurisdiction. “Check in” upon your return. Let your \”team\” know they can relax and maybe take a vacation, too. Nobody wants to become seriously ill while on vacation. However, with the right plan in pace and information in the appropriate hands, if you do become ill while travelling, you can focus on becoming better, knowing your trusted fiduciaries have your best interests under control just as you would. Happy, Safe, & Fun Travels!
Revisiting We ALL Do…
June is PRIDE month and to celebrate…all month long, we\’re revisiting the one of the most important decisions for our friends, family, and clients in the LGBTQ community: Obergefell v. Hodges, which gave the community marriage equality. To start things off, let\’s consider the 4 \”principles and traditions\” the Supreme Court of the United States used to justify its Opinion and, thus, marriage equality: \”Individual autonomy\” encompasses the right to decide who one will marry. See Loving v. Virginia. And in case you\’re wondering, \”individual autonomy\” is legalese that underpins the Declaration of Independence, the instrument that declares individuals free to pursue happiness. The union of marriage is a fundamental right because the intimacy of the marital union is unique and depriving same-sex couples from the recognition and protection of that intimacy is wrong. Marriage equality helps protect the emotional stability of children borne or adopted into same-sex marriages, by equalizing their families with heteronormative families. Marriage is one of the bases of America\’s social and legal order. Depriving same-sex couples from enjoying the benefits of marriage, which includes social stability, would be \”demeaning. Individuals must be free to pursue happiness. That happiness can be found in the remarkable closeness of the marital union. Generally, children are the fruit of marriages and children must be protected because they represent the future. Thus, marriage is a societal bedrock in which most adult individuals must be able to participate. Sounds simple, but it took us almost 50 years to get here.
A Mother\’s Love Doesn\’t Include Dad\’s New Wife
When a spouse dies, leaving behind a surviving spouse, children, and considerable assets, the surviving spouse should tread carefully with respect to estate planning instruments governing those assets. The 2016 Illinois Appellate case, Gwinn v. Gwinn, is a good example of this premise. Background Facts Ken Gwinn, Sr. and Betty were married with 4 children. In 2002, Betty established a trust, providing for Ken and their children. If Betty predeceased Ken, he was the designated Trustee, which meant that he had a fiduciary duty to abide by the terms of the trust. In 2009, Betty died. Her estate consisted of approximately $600,000 in liquid assets, a mortgage-free home in Illinois valued at approximately $750,000, and farm property. The terms of the trust gave Ken as much of the trust income as he wanted and a discretionary, albeit limited, amount of the trust principal. Upon Ken\’s death, the remaining trust assets were to be divided equally among the children. Two years after Betty’s death, Ken married Maria. After marrying Maria, Ken withdrew $475,000 from the trust to buy a home in Colorado for him and Maria. The Colorado home was titled solely in Maria\’s name and, thus, represented a gift from Ken Sr.’s late wife’s trust to his new wife. Needless to say, the kids were not pleased. So 3 of the 4 children filed a lawsuit against their father claiming breach of trust and breach of fiduciary duty because this gift was “extraordinary” (a legal term of art for gifts that are beyond the scope of intent) and went beyond trust terms. The lower court ruled in favor of the father and the children appealed. Appellate Court Analysis and Findings The Appellate Court agreed with the children, in finding that the trust was established for their benefit in addition to their father’s benefit. However, the Court also asserted that their father was the intended primary beneficiary during his lifetime and, as trustee, had broad discretion over distributing gifts from the trust to himself as beneficiary. Nevertheless, that discretion was not absolute. After considering the cardinal rule of the “intent of the testator or settlor,” specific limiting language in the trust, relevant case law, and persuasive legal treatises, the Court ruled that the discretion of gifting from the trust was limited to Betty’s descendants. Clearly, Maria was not Betty’s descendant. Additionally, even if Ken tried to cloak the gift to Maria in his own beneficiary status, the law precluded him, in his capacity as trustee, from increasing any beneficiary’s gift, including his own. The Illinois home was sufficient; taking $475,000 from the $600,000 corpus was deemed an “extraordinary gift.” The Court, therefore, found that the nearly half-million-dollar gift from Betty’s trust to Maria was not Betty’s intent (ya think?!) and, thus, Ken breached the trust terms. In breaching Betty’s trust terms, he also breached his fiduciary duty to all of the beneficiaries. This year, if your Valentine’s Day gift requires retitling, think twice, just in case.
The Other 1%*
In the beginning of my career as an estate planner, like many Americans, I was constantly bombarded with news about the “one-percenters” – Americans who were the wealthiest of our population. With respect to estate planning, these folks had all kinds of complex trusts – GRATs, SLATs, DAPTs, CRATs, pick your trust acronym – to suit their particular needs. The one-percenters have so much wealth that in addition to lack of anxiety over financial matters, future generations of their families generally share this liberating lack of anxiety. Because our community beat the drum so loudly in an effort to assist the one-percenters in preserving their wealth, when asked what I did for a living invariably, upon hearing the response, someone would say: “Oh, you help the one-percenters; that’s not me. I’ll call you when I get there.” Yet, as an estate administrator, I also know that those who rejected the notion of needing planning help because they weren’t a one-percenter were gravely (pun intended) mistaken. Folks in the 99% category are adversely affected in a much greater proportion by loss of wealth or earning potential than the one-percenters who experience loss of wealth. On a dramatic scale, a one-percenter who loses significant wealth may go from a McMansion to a bungalow; a 99%r may go from a bungalow to a homeless shelter. I witness it nearly every time I step into probate court. Consider this example: Ben owns thousands of acres that includes a successful dairy farm, a few oil wells, a couple of streams, and farmland that produces various grains. Ben’s family has not had any financial worries in more than a century; so, yes, they’re in the one-percenters. Several years ago, Ben assumed running the family “business” from his mother and when he did so, he spent about $100,000 in estate, retirement, and business planning fees. He now spends a nominal fraction of that annually between the 3. Ben’s plan safeguards the land and income it produces, and the initial fee structure represented less than 1% of the value of his family’s wealth. Now, consider your own wealth or your family’s wealth, whether you’re at the beginning, middle, or end of your “peak” wealth accumulation period. Next, consider your health. If you were to become seriously ill, is your earning potential, current capacity, or nest egg protected? Just like Ben, the one-percenter, you too, can use less than one-percent of your wealth or earning potential to protect what you have earned or your capacity; you can safeguard you and your loved ones and even future generations with just 1% of your family\’s annual earnings. After the popularity whirling about the one-percenters cooled, we started hearing a lot about “leaning in.” I recommend we zoom in. Focusing on the one-percenters while fun is also futile; instead, focus on the other one-percent – the 1% of you that can 100% help your family. *Credit for the title goes to my dear colleague, Stephen L. Hoffman.
A Nod to Philosophers and Poets
“Change is the only constant in life.” – Heraclitus This year, 2016, will likely be determined by historians as one of the most politically chaotic in the history of the West. First, there was Brexit; then there was USAmerexit. And regardless of where you stand on either outcome, two things are certain, both: (1) were unfathomably unpredictable; and (2) represented a fundamental recognition of opinion divergence in the representative countries. Whether the diverging opinions are based largely in fact or fake news is debatable, but that the world has and will continue to change is not. So…what to do? To paraphrase the world-renowned mater poet, Maya Angelou: If you don’t like something, then change it; if you can’t change it, then change how you respond to it. Yet, often, people do nothing; they simply accept the change in quiet, unnecessary resignation. As an attorney, it is my duty to consider the pending political climate and respond accordingly by recommending pragmatic planning for changes to current policy that will affect our clients. Yet, changing political climates do not change how we always approach planning for our clients and the question we always consider: What if? Nothing is guaranteed, not good health, not good fortune, nothing except death. So, what if a loved one, who owns a nice home and has a good retirement plan, is diagnosed with a serious, long-term illness that may result in death or permanent disability? What if this kind of emotional, potentially life-changing shift occurs? Your loved one can: Fight the diagnosis aggressively, using all resources at their disposal. Doing so may work, in which case the diagnosis will change. Doing so may not work, but the fight may be a necessary catharsis or expression. Accept the diagnosis and do nothing, which will likely result in long-term and serious anguish for their immediate loved ones and squander precious resources – theirs and yours. Change the way they plan to spend retirement, by establishing a care plan and an estate plan, which will result in long-term peace and benefit for all. Most importantly, providing them with the highest quality of life possible under the circumstances. Our office has witnessed all 3 of the above scenarios and cannot emphasize how unnecessary the heartbreak – or family feuds – that inertia in cases such as the above is. The term \’chaos\’ comes from the Greek word \’kaos\’, which meant a void or an abyss; now it means utter disorder. Presuming Heraclitus’ was correct and that change is the only constant, just because we cannot predict what the change will be and the consequential effects, does not mean we cannot appropriately adjust our attitudes, plan for those effects, and avoid chaos, whether in the form of an abyss or utter disorder. Thank you, Maya Angelou and Heraclitus.
Time to Make the Soup
Recently, our office, sent a client alert regarding IRS news that hit the estate and financial planning communities late this summer. If you or someone you know has a small business, the information below will probably be of interest. What Is Given Can Be Taken Away In August, the Internal Revenue Service (“IRS”) issued Proposed Regulations that could have a dramatic impact on estate and business succession planning by eliminating valuation discounts traditionally available to closely held businesses. Discounts are currently used to help protect a family or closely held small business from the risks of future divorce, lawsuits, or malpractice claims while maximizing the value of the underlying assets. When a Valuable Business Can\’t Be Sold: Discounts Explained Consider this example: Thomas has a $7M estate that includes a $5M family business. He gifts 40% of the business to a trust to grow the asset out of his estate. The gross value of the 40% business interest is $2M. Since a minority 40% shareholder (the trust) cannot force a sale or redemption of its interest, the non-controlling interest in the business transferred to the trust is worth less than the pro-rata fair market value of the underlying business. Thus, the value of the business interest should be reduced to reflect the difficulty of marketing the non-controlling interest. As a result, the value of the 40% business interest transferred to the trust might be appraised, net of discounts, at $1.2M. The discount has reduced the estate by $600,000. From another perspective, consider the issue if Thomas\’ children buy the business and the taxes they would have to pay for a business interest that isn\’t \”marketable\” were it not for the valuation discount. Timing Is Everything Once the Proposed Regulations eliminating or decreasing discounts are effective, which could be as early as December 31 of this year, the ability to obtain discounts might be substantially reduced or eliminated, thus curtailing wealth planning flexibility. Furthermore, as the 2016 year–end gets closer, it will become more difficult and, at some point, will become impossible to have banks and trust companies create trust accounts. If you’re unsure of what you might wish to do, you may want to take the preliminary steps as soon as possible. For example, if you don’t already have trusts that could serve as appropriate receptacles for 2016 discounted gifts, it would be wise to establish trusts immediately. You can always determine later which assets and how much to transfer. Get in the Kitchen Make that alphabet soup, i.e., contact your planning team. A collaborative effort is essential to solid, effective wealth planning. Your wealth transfer strategy team, i.e., your attorney, CPA, CFP, and insurance professional, can review strategic wealth transfer options that will maximize your benefit from discounts while still meeting other planning objectives. Projections completed by your wealth manager could be essential to confirming how much planning should be done and how. ***Disclaimer*** The Law Offices of Max Elliott advises clients on legal strategies regarding estate and wealth planning issues; we do not provide financial planning or tax planning advice. We\’re only one letter – albeit a good one – in the alphabet soup.
Healthcare Privacy and the \”Ick!\” Factor
In our most recent newsletter, we shared with readers the importance of maintaining privacy when preparing advanced directives. Folks tend to have no problem with understanding privacy and money, but when it comes to privacy and health, the same deference is often not given. Still, if we’re fortunate, many of us will live a long time. Given that good fortune, it’s also likely that some of that living will entail having to overcome or manage illnesses or health challenges we would rather loved ones not know about. Moreover, if the illness is irrelevant with respect to addressing our current medical issue, there’s no reason for them to know. Yet, how often do individuals find themselves in emergency rooms, signing paperwork, unaware that all of their medical history may be released to the person they designate while they\’re sitting in excruciating pain? Right. Not cool. This particular potential angst can be avoided with a few steps and considerations: Ensuring the advanced directives for healthcare are tailored uniquely to the needs of the current situation. Ensuring that the directives – power of attorney for healthcare, mental health treatment declaration, and HIPAA forms – work in tandem with each other. Thinking about not just who should receive the information but when the information should be released. For example, do our parents really need to know about the yeast infection we were treated for a few months ago when we’re in the ER because of appendicitis? Probably not. ***Disclaimer: This is not to say that we, lawyers, know how medical treatment is determined, especially when Botox, the stuff to make wrinkles disappear is now purported to calm muscle spasms. No, we are not doctors licensed to make treatment decisions.*** Conversely, if you’re incapacitated and feverish and the doctors can’t determine the cause, then a loved one may, in fact, need your complete medical history in order to make a fully-informed decision about your medical treatment. Thus, we are brought back to the issue of who should be our agent. In this situation, perhaps instead of a parent being designated an agent, because of the information \”ick factor,\” designating a close friend would be more advisable. Finally, but equally important is that we make these decisions are made before a visit to the ER is even contemplated, let alone needed.
Update and Answer (?) to the Mendelson Mess…
***The most recent update*** The Illinois Trust Code finalized the rule about transferring property to trusts: Transfer of real property to trust. The transfer of real property to a trust requires a transfer of legal title to the trustee evidenced by a written instrument of conveyance. Update to First Post (Below). The bill was signed into law by Governor Rauner and becomes effective on January 1, 2017. BUT… questions, of course, are still unanswered, such as what is an \”interest\” in property for the purpose of this law. Well, we will continue to muddle through… First Post In October of 2015, we reported about a case that caused a slight sensation in the Illinois estate planning, title, and probate communities by providing that property need not be titled to a trust in order to be considered part of the trust estate. In response to the quiet uproar, on appeal, the court retraced some of the steps, but still left the issue about whether property needs to be titled to a trust in a questionable state. So, 2 Illinois legislators came to the rescue and introduced a bill in February 2016 requiring a title transfer to a trust and that the transfer be made via a written instrument, e.g., a deed to the trust. The measure, SB 2842, has passed both legislative chambers and is waiting for the Governor\’s signature. So stay tuned…
Illinois Court & AG Provides Life Preserver to Underwater Homeowners
In our probate practice, my firm occasionally provides services to individuals who inherited homes but can\’t afford the existing mortgage. Depending on the circumstances, we either assist the estate administrator in obtaining a loan modification or selling the home because a loan modification isn\’t feasible or wise. These circumstances usually arise because someone died intestate, i.e., without a will. Unfortunately, thousands of Illinois homeowners are still recovering from the sub-prime lending crisis and own homes that are “underwater,” where the balances on home mortgages exceed actual home values.Consequently, they seek loan modifications in order to prevent their homes from being foreclosed upon or to mitigate the stress on their budgets. Still, even in the wake of millions of people losing employment and homes, predatory subprime service providers haven\’t stopped. Nefarious actors can no longer offer subprime loans without impunity, so they now offer subprime loan modification services, instead. And to add insult to injury, in a recent Illinois case, wrongdoers argued that they could not be found liable for their misdeeds because they weren’t providing loans. Well, the Illinois Appellate Court in the First District disagreed. In People v. Wildermuth, the Illinois Attorney General sued lawyer and non-lawyer business partners who “aggressively” targeted African American and Latino communities to obtain clients who were faced with losing their homes. The pair falsely promised above-average loan modification results, while charging thousands of dollars for average results or worse. On behalf of Illinois citizens, the Illinois AG hauled the 2 into court on the grounds of reverse redlining, which the AG argued was a violation of the Illinois Human Rights Act. Redlining is the infamous discriminatory practice of refusing to provide mortgages in certain communities, such as minority communities. Reverse redlining is extending credit on unfair terms in “redlined” communities. The Illinois Human Rights Act protects citizens from such commercial discriminatory practices. The defendants in Wildermuth argued that because loan modifications didn’t involve new loans, i.e., they weren’t providing mortgages, that the reverse redlining theory didn’t apply to them. The Illinois Appellate Court, siding with the Illinois Attorney General, rejected their argument, stating that [R]everse redlining includes a broader scope of discriminatory practices involving real estate transactions and “target[ing] distressed African American and Latino homeowners … with regard to loan modification services and other actions including negotiation and procurement of loan modifications and short sales” was, included within that scope. So, Illinois citizens who suffer from predatory reverse redlining practices now have a remedy available when they fall victim to such practices. Lesson 1: The most basic of estate planning tools – life insurance that is sufficient to pay off the mortgage – would eliminate this issue for beneficiaries. Lesson 2: If it seems too good to be true, it usually is.
5 Years and 5+ Lessons!
It\’s true; \”time flies when you\’re having fun!\” So The Law Offices of Max Elliott is looking forward to 5 more years of \”fun\” or, more precisely, taking great satisfaction from servicing our clients as diligently as possible, protecting them, their interests, and future generations. To prepare this \”Anniversary\” piece, I reviewed our inaugural article to determine if 5 years\’ experience would cause me to change any of the positions I held at the beginning of this sojourn. One: A young married couple with a home, moderate income, and no dependents AND no wonky family dynamics could likely have a will prepared online. However, I would still recommend that an experienced attorney in their jurisdiction review it. With that exception – and the fact that I need a new photo, I agree with me on everything else. Okay, now what? What are additional takeaways from 5 years as an attorney providing wills, trusts, advanced directives, guardianship assistance, adoptions, negotiations between beneficiaries and fiduciaries, winding up estates, and wealth preservation guidance? Families need to talk more and talk sooner, reaching across the generations to gather history, empathy, and love. Today\’s world is too unpredictable and many of the squabbles are based on a lack of understanding because we haven\’t taken the time to actively listen to our loved ones. AND tolerance goes a long way. Most lawyers need to listen way more, talk way less, and be willing to educate and collaborate with our clients. Just because we\’re in the 21st century doesn\’t mean that 20th century values involving civility, integrity, and reasonableness should be not applicable in all of our professional relationships. Technology cannot send you a referral and cannot sooth the emotions of a disillusioned client. If I cannot bring my integrity into your sandbox, I can be happy playing in another sandbox, regardless of the plastic toys offered. Life is precious. Breathe, laugh, and yes, smell some flowers. The Plus: It is awesome being in on amazing, wonderful, legal change. When our office launched during Pride month in 2011, we were in the battle for marriage equality and 5 years later – it is the law of the land! \”NO MO DOMA!\” is a reality and, while the fight for rights in the LGBTQ community along other very important lines still goes on, the LGBTQ community and its allies, such as our firm, can rest a tad easier now on the marriage equality front. What an awesome 5th Anniversary Gift – Happy Pride Month! I don\’t want to name names but let it be sufficient to say that our firm has had amazing supporters from all walks of life during these last few years. It is our hope that we continue to learn and grow and provide the services that make our supporters proud and clients happy. Thank you all and here\’s to the next 5!