King & Wood, P.A.

You Bet Your Life There’s Value in Life Insurance

 

“Life insurance is a very valuable financial solution in many situations.”

Life insurance can be very complicated and confusing. It’s also an area where mistakes can be made very easily.

A recent study that looked at the life insurance purchased by 94 ultra-wealthy business owners with a net worth of $30 million or more showed that roughly 40% of them didn’t have the appropriate level or type of life insurance—or it wasn’t properly structured to meet their needs and goals.

A recent Forbes article, “How The Ultra-Wealthy Avoid Life Insurance Missteps,” says that there were several reasons for these results. The most common mistake made by more than 80% of the business owners was buying more life insurance than actually was necessary. Also, for 60% of these uber-wealthy business owners, their life insurance wasn’t effectively integrated with their estate plans.

For example, if the policies are not held in irrevocable trusts, then the proceeds are included in the estate values and are subject to estate taxes. About 75% of these surveyed business owners had policies that were simply wrong for their specific situations. Each of us should have the type of life insurance that addresses the particular needs of our individual situations.

While the study was just exploratory, it demonstrates the need for working with a highly experienced and reputable life insurance specialist. Choose to be like one of the remaining 60% of successful business owners in the study who have the right amount of the right kind of life insurance that is properly structured.

The results of the research also suggest the practicality of a second opinion. If you have questions or uncertainty about the appropriateness of a life insurance policy, there’s no harm in getting a second opinion. Whether you are ultra-wealthy or an ordinary purchaser of life insurance, there’s the possibility of making costly mistakes or not being able to get the desired results.

We all should be discerning when talking with a life insurance specialist, as not all have our best interests in mind. Don’t forget to speak with your estate planning attorney to make sure that the insurance you have is properly structured.

Reference: Forbes (June 7, 2016) “How The Ultra-Wealthy Avoid Life Insurance Missteps”

Exploring Long-Term Care

“About 70 percent of people over age 65 need some type of long-term care during their lifetime.”

The Huffington Post says that more than 40% of people over age 65 need care in a nursing home for some period of time. The article, “What is Long Term Care?”, quotes the National Institute of Health (NIH), which states that what’s termed long-term care (LTC) can—in reality—be a long time or a short time. Long-term care can be in an institution or at home, based on the patient’s specific situation and needs.

LTC is now a very broad term and has evolved into a term for the type of care required instead of the time period. The need for this care can be because of a sudden event like a fall, or it can develop gradually. Before someone reaches the point where total personal care is required for his or her activities of daily living (ADLs), other ancillary services might be necessary. There are adult day care and senior centers to help them socialize and keep active.

Even when elder care doesn’t mean admission to a facility, caregiving demands may make paid LTC with a home health aide a necessity. AARP found that more than 40 million Americans provided unpaid care to adults last year, with an average of 44.6 hours for spouses or partners. And 10 percent of those caregivers were elderly themselves—age 75 years or older.

Beyond an individual’s personal savings, long-term care insurance is available with many options and levels of coverage. It’s more affordable the earlier you sign on. LTC insurance will typically cover care not covered by health insurance, Medicare, or Medicaid. It can guard your savings accounts from becoming depleted by increasing healthcare expenses, and premiums may be tax deductible. LTC insurance can also eliminate the burden on family members who would be providing this care.

An elder care and estate planning attorney can help with strategies to help fund this care. Government programs like Medicare and Medicaid should be explored—as well as any veteran’s benefits and Social Security. In light of the expense of nursing home care and Medicaid eligibility requirements, elder law attorneys can discuss spending down assets to qualify for Medicaid.

Reference: Huffington Post (June 8, 2016) “What is Long Term Care?”

Have Control of Your Assets from the Grave!

 

"Estate planning is a key element in any financial plan, no matter what your age."

Estate planning lets you determine how you want your assets distributed upon your death. Not to be morbid, but for those under 40, be advised that dying doesn't just happen to old people. In many instances, young people believe that's the case, which is an impediment to getting this last piece of the financial plan completed.

As noted in the CBS Boston article, titled "The Boomers' Kids: Estate Planning," if you die without a will, your state laws will provide one for you—and it won't be what you want. The state will dictate the order in which your assets will be distributed. Along the same lines, if you are married with young children and both parents die, then your failure to appoint guardians means the court system will decide this for you.

Your estate plan doesn't need to be fancy, expensive, or complicated. You begin with a will through which you designate an executor/executrix to carry out your wishes and distribute your assets. Again, if you have minor children, you can name a guardian for them. However, appointing a guardian can be done less formally in some states.

Speak with the people you are considering to raise your children. Ask them if they are comfortable with that responsibility. Make certain you understand their values and their patience level.

A durable power of attorney is also needed while you're still alive. This document lets you appoint someone to act on your behalf legally and financially if you're not able to do so.

A health care proxy allows you to choose someone to make medical decisions for you if you are unable to make them. Like those you ask to be your children's guardians, talk to the individual you've asked to be your proxy. Tell them how you feel about death, dying, and life support. This person will need to be the one to carry out your wishes if you cannot do so for yourself.

Reference: CBS Boston (June 3, 2016) "The Boomers' Kids: Estate Planning"

Media Mogul Has Estate Planning Mess

 

"Sumner Redstone brought this mess on himself."

Given that he has a fortune estimated at more than $5 billion, Sumner Redstone could hire the best estate planning help that money could buy. But instead, he bought himself a big mess—regardless of the results of all of the litigation concerning the 93-year-old media mogul.

The New York Times' article, "In Sumner Redstone Affair, His Decline Upends Estate Planning," explains that a lawsuit brought by Manuela Herzer, one of Redstone's girlfriends, revealed humiliating details about his physical and sexual appetites and his diminishing mental capacity. A medical expert testified that Redstone suffers from dementia that's "toward the severe end of moderate." That case was dismissed last month; however, the testimony about Redstone's mental state will be important in a showdown between Redstone's previously estranged daughter Shari and the man who looked to be his heir apparent, Philippe Dauman. The fate of the Redstone's CBS and Viacom mega-corporations is what's at stake.

Dauman is the CEO of Viacom and was—until last month—Redstone's longtime confidant and a trustee of the trust that controls 80% of National Amusements (his daughter owns the remaining 20 percent), which owns 80% of the voting stock in both CBS and Viacom. People around Redstone now appear to be competing for control—and each one has his or her own objectives, but many of them are attempting to influence decisions related to his estate, the trust and Viacom.

Redstone's problems are a billion-dollar example of what's happening throughout the country. Caregivers, often younger women, are ingratiating themselves into the lives of older men—often beginning as caregivers then becoming romantic suitors. As Americans live longer and more families must cope with late-in-life issues like dementia, the problem is expected to continues getting worse. Seniors are susceptible to the influence of people who happen to be around them during their final days. And this is an issue for many people of even modest wealth.

Regardless the size of their net worth, a good number of those people will consult with estate planning attorneys to create a trust—either revocable (which can be changed later) or irrevocable. A trust anticipates problems and can define what the creator of the trust means by incapacity, which could be a much less rigorous standard than is typically applied by courts. The trust should define the meaning of incapacity and who determines incapacity.

Summer Redstone created this type of trust, but it gives very little control to others as long as he's alive. In addition, it doesn't specifically define incapacity. His lawyers say that his trust is irrevocable, but Redstone is the sole beneficiary as long as he's alive; he has the power to remove or add trustees unless he's incapacitated. But that can only happen if and when he's judged incompetent by a court or by the opinion of three doctors who say that, based on medical evidence, he's not able to manage his affairs in a competent manner.

The critical issue in all of this is who controls the seven-trustee board of his trust: the National Amusements trust will control Redstone's assets, including his dominant stakes in CBS and Viacom, if he dies or is deemed to be incapacitated.

Dauman and his co-trustee filed to have their dismissal deemed invalid on grounds that Shari has isolated her father and is exercising undue influence over him. She denies these claims. Redstone's lawyers filed suit in Los Angeles, seeking a ruling that the trustee changes were valid. His mental capacity is a crucial issue in both lawsuits.

Remember that when you create this type of trust, you should have clear standards and procedures for determining capacity. Different decisions might require different standards for determining capacity, but the real question is does someone have the capacity for the decision at issue?

Redstone could have avoided many of these concerns if he would have created a trust that allowed a majority of trustees to determine that he didn't have the capacity to remove trustees. Many trusts will have a term that's automatically effective when the creator of the trust hits a designated age, such as 75 or 80. However, sometimes no amount of legal advice can save people from their unwillingness to make plans for their own demise and cede control while they're still in full control of their faculties.

Reference: New York Times (June 6, 2016) "In Sumner Redstone Affair, His Decline Upends Estate Planning"

What If I Don't Want to Be an Executor?

 

"My sister made me the executor of her will, but I don't really want the job."

A recent New Jersey 105.com article explains that the executor's role is very significant and has considerable responsibility. The article is entitled "What if you don't want to serve as executor?"

If you are chosen to be an executor, think about why you were chosen. Your friend or loved one may see you as the person in his or her life who's most qualified to handle the various tasks and responsibilities associated with the role.

In addition, there may be no one else to whom he or she can turn. This person may not feel he or she has a good second option to serve as the executor.

Think carefully before telling someone that you won't serve as the executor of his or her estate: confidence in the person selected as executor is a critical part of realizing the peace of mind that comes with a well-planned estate.

In addition, the executor's day-to-day responsibilities are in many instances shared or delegated to an estate planning attorney hired by the executor to help with the administration of the estate. The attorney and his or her staff can deal with many of the more time-consuming and difficult tasks in settling an estate.

Nonetheless, the executor is still responsible for the oversight of all aspects of the administration. This includes collecting, maintaining, and valuing assets; paying debts and expenses of the estate; filing estate and income tax returns; and distributing the assets per the directions in the will.

The executor's task may be very difficult if the estate has tough issues to address, such as insolvency, unpaid taxes, or real property disputes. However, if the estate is fairly simple as far as its assets and issues, the executor's job could be a breeze.

An individual is free to decline or renounce an appointment after the testator's death, so a decision doesn't have to be made right away.

Reference: New Jersey 105.com (June 6, 2016) "What if you don't want to serve as executor?"

Do You Understand Today's Estate Planning?

 

"You have certainly heard of ‘estate planning. ‘And, if you are like most people, you probably have at least some understanding of what it means."

Cincinnati.com's May 27, 2016 post, "Getting started is the first step in estate planning," points out that a definition for estate planning is "the creation, preservation, and maximization of assets for the future." This now includes a lifetime component, known as "financial planning," and a component that concerns the planning for the orderly preservation of assets after death and their distribution.

You may have started to do some estate planning with the purchase of life insurance, which is creating an asset—a death benefit—and planning for its distribution through a beneficiary designation. It's the same when you name a beneficiary for a qualified retirement plan.

But how do you get started in the process of formal estate planning?

The first step is to find a qualified estate planning lawyer and meet him or her for an initial interview.

You can find a qualified estate planning attorney by asking friends and associates for a recommendation. This is the start of your estate planning team. He or she will consult with your other advisors to create the best possible options for achieving the planning goals that you've established with their assistance.

Some folks' estate planning consists of a simple will, but for others, it may include a will, trusts, new life insurance, powers of attorney, a living will, and other legal instruments. Once you have these documents executed, you need to review them periodically with your lawyer because circumstances, affections, and family dynamics change. Your estate planning documents will in many cases need to be changed and updated accordingly.

Here are a few other reminders:

• Your planning should coordinate your insurance policies with the provisions of your will to be sure that your goals are achieved;
• Designate in your will specifics as to how you want your property distributed and who you want to serve as the guardian of your underage children. Without a will, the state decides these important issues; and finally,
• Resist the temptation to go online and write your own legal documents. Estate planning attorneys are trained to make certain that no mistakes are made, no laws are ignored, and no invalid provisions are included. Errors or confusion can make for messy, lengthy, and expensive contests of the will in court.
• Be proactive about your estate planning. To choose for yourself who takes care of your children or who gets your assets after you have passed, you must have a valid will.

Reference: Cincinnati.com (May 27, 2016) "Getting started is the first step in estate planning"

Estate Issues Look to be Settled for Media Mogul Redstone

 

"This time last year, Sumner Redstone and his daughter Shari were on the rocks."

Sumner Redstone, the elderly media mogul, offered his daughter Shari $1 billion for her 20% stake in his empire. This was in part to make certain that she'd never succeed him as chairman. She declined his offer. With that, his two girlfriends were set as the principal beneficiaries of his personal estate.

CNN Money reports on all of this in "Sumner Redstone's Viacom battle, how did it get so bad?"

At present, Shari is a fixture in her father's affairs and the girlfriends are out—out of Redstone's mansion and out of his will. Instead Sumner's decisions about the future of Viacom and CBS—where he is chairman emeritus—are now back in line with his daughter.

Sumner recently removed Viacom CEO Philippe Dauman, who was a trusted adviser and long described as Sumner's second son, as well as Viacom director George Abrams from his trust. The move signals Shari's power over the future of the company. This sudden change in the ailing Redstone's decision-making has led many, including Dauman, to claim that Shari is manipulating her father. Shari's spokesperson calls the accusation "absurd."

At stake is the future of a $40 billion media empire that includes Paramount Pictures, CBS and cable channels like MTV, Comedy Central and Nickelodeon.

Before Shari intervened, the CNN article reports that Redstone intended to leave Manuela Herzer and Sydney Holland—his two longtime, live-in girlfriends who were roughly half his age—$75 million each when he died. If Shari tried to interfere with that plan, Redstone planned on giving the family cemetery plots to the two ladies—effectively settling their right to be with him not just for life but for eternity. The argument now is whether Shari intervened in accordance with her father's wishes or despite them.

Herzer says that Shari "brainwashed" her father and that she worked in concert with Redstone's nurse to have Herzer thrown out of the mansion to help her gain control over the future of her father's empire. But her court case was dismissed. Herzer has filed a second lawsuit against Shari for $70 million, which is the inheritance she lost when Redstone cut her out of his will.

If Shari gets control of Viacom and CBS, many analysts believe she might reunite the two companies—which were split in 2005—and put them under the control of a single executive. In that case, Shari's chosen executive would likely be Leslie Moonves, the longtime chief executive of CBS Corporation.

Reference: CNN Money (May 25, 2016) "Sumner Redstone's Viacom battle, how did it get so bad?"

Should I Fear Probate?

 

"What is probate and why do people say it's a bad thing?"

Probate creates a public record of the will. It's the process after death whereby a will is presented to the probate court to be recognized as valid and the last will of the decedent—the person who died.

NJ 101.5's recent article, "What probate means for your estate," explains that the probate court will grant "letters testamentary" to the executor named in the will. This gives the executor the authority to administer the decedent's estate.

If a loved one who has passed did his or her homework in advance of death and properly prepared and executed a self-proving will, probate can be a pretty easy process. The individual designated as the will's executor takes the original will, along with the decedent's original death certificate, to the probate court of the county in which the decedent resided at the time of death.

The will cannot be admitted to probate until a set time, such as ten days from the death of the decedent, but the probate papers typically can be filed during that time. The probate court can assist the executor with completing the necessary forms, or an estate planning attorney can help. There will be court fees.

Once the will is probated, it's a public document and available for anyone to see and get a copy. Because of this, some folks chose to create revocable trusts and pour over their testamentary assets into their trusts. These documents aren't recorded with the court.

In the event there's no will or if there are issues that arise with the will, the process becomes more complicated.

The testator will typically waive the requirement that the fiduciary posts a bond in his or her will. If there's no will or if the will fails to include such a waiver, a bond has to be posted, and the judge will set the amount of the bond based on the size of the estate.

If the will is not self-proving, the witnesses must be found and brought to the probate court to testify to the execution of the will by the testator.

If there is no will, letters of administration are usually issued to a spouse, or if none, they are issued to adult children. If there are no adult children, then other relatives are selected, according to state statutes. The decedent's estate is administered as intestate by the statutes.

Reference: NJ 101.5 (May 27, 2016) "What probate means for your estate"

More Fighting Over Late Businessman's Estate

 

"Sandin eventually increased the time she spent with Kerkorian until his death last June 15 at age 98, according to the creditor claim papers, which say Kerkorian ‘benefited greatly from Ms. Sandin's companionship.'"

An attorney representing the estate of the late millionaire Kirk Kerkorian claimed that a lawsuit by a woman who claims that Kerkorian promised her $20 million if she agreed to be his companion has no merit.

The Los Angeles Daily News reported in "Kirk Kerkorian ‘companion' seeks $20 million from estate" that much of the breach-of-agreement suit was blacked out but that in a creditor's claim filed in January, the real estate agent said she modified her work and child care schedules to accommodate her commitment to Kerkorian in the last year of his life.

The creditor's claim was rejected in March by the executor of the Kerkorian estate, Anthony Mandekic, who is secretary-treasurer of Kerkorian's Tracinda Corp. Mandekic received $7 million in Kerkorian's will. He's the sole defendant in Sandin's lawsuit.

According to her claim, near the end of 2014, Kerkorian asked Sandin to increase the time she spent with him and "informed her that he would make sure that she was well cared for and would never have to work again, by providing for her at least the amount of $20 million."

Sandin says she found out that despite his promise to her, Kerkorian's estate planning documents didn't include any provisions for her.

She claims that she would suffer unconscionable injury and that it would be inequitable if Kerkorian's promise to provide for her weren't enforced by the court.

Reference: Los Angeles Daily News (May 25, 2016) "Kirk Kerkorian ‘companion' seeks $20 million from estate"

Will My Heirs Be Hit with a Double-Whammy: State Estate Taxes Along with Federal?

"The federal estate tax exemption is very high – your heirs owe the IRS no taxes on the first $5.45 million – but some states hit those with much lower net worth. Find out if you live in one of them."

The estate tax is a tax on property transferred at your death, and recent changes in the tax laws have increased the amount that you are allowed to pass on to your heirs before you owe the IRS. For those who die in 2016, the $5.45 million (per spouse) threshold is high enough to keep most Americans from having to consider federal estate taxes. However, Motley Fool notes in "Does My State Have an Estate Tax?" that 14 states and the District of Columbia have estate taxes of their own. These laws frequently impose taxes on much smaller estates.

The big challenge for residents in these states is that the maximum size of an estate you can pass to heirs without owing state estate tax doesn't have to match the federal exemption. You have Hawaii and Maine, which currently match the federal $5.45 million exemption amount. Maryland, New York, and Washington, D.C. each have laws that are gradually raising their state exemption amounts to match the federal amount. But there are other states with much lower exemptions, like New Jersey. Its state estate tax exemption only goes up to $675,000. Oregon and Massachusetts have $1 million exemptions. Similarly, and Rhode Island's $1.5 million and Minnesota's $1.6 million thresholds are all much lower than the federal exemption.

The tax rates that states impose are also frequently very hefty. Some states that are tied to the old federal pick-up system typically charge graduated rates from 0.8% up to 16%. Washington State's top rate is 20%, and Oregon and Hawaii reflect the old systems maximum rate of 16%.

Also note that many states offer deductions against estate taxes that in some cases can prevent an estate from having to pay tax. For example, the same marital deduction that allows you to pass assets to your spouse estate tax-free at your death typically applies in state estate tax situations as well. Talk with a qualified estate planning attorney about a sound estate planning strategy to help you reduce or eliminate potential "state" estate tax liability.

Be aware of the possibility of having to pay estate taxes at the state level because of where you live. Decisions about where you want to spend your retirement should weigh state estate tax provisions. While estate taxes at the federal level typically impact those who are extremely wealthy, because state estate taxes in some locations apply to much smaller amounts of wealth, you need to pay close attention to make sure that you won't end up handing your loved ones a huge tax bill when you pass away.

Reference: Motley Fool (May 20, 2016) "Does My State Have an Estate Tax?"