Do your heirs know how much they stand to inherit from you? Have you ever received an unexpected inheritance? Many clients debate how they should notify their heirs of the amount and extent of the expected inheritance. On April 22, 2013, the Wall Street Journal published an aptly-titled article “The Inheritance Conversation. Ugh.” Many fear the inheritance topic and avoid the subject just as they avoid adequate estate planning. However, there are practical steps you can take to assure that your heirs are prepared for the receipt of assets and property.
Most recognize the importance of preparing and disclosing information about inheritance to their heirs, yet few take the time properly prepare their heirs. Children should not receive much financial information until they reach their 20s. While certain teenagers may be precocious and able to comprehend the value of a dollar, clients must be cautious to avoid undermining their work ethic. Simply telling children how much they stand to inherit can weaken the determination of even the most capable individuals.
Importantly, children of wealthy parents will not learn financial management by osmosis. Parents must take an active role in educating and informing their children about financial planning and management. Several advisors recommend a mentorship whereby the heirs are given an opportunity to manage a smaller portion of the assets. As the heirs gain in knowledge and ability the children or others can be given more knowledge of the family’s wealth.
One crucial element is requiring heirs to secure and maintain jobs. With their earnings, the heirs can be instructed on the importance of saving and sharing their assets. Most successful wealth transfers occur where children have learned the value of work and wages earned.
I continually remind clients that their best laid plans can be undone by unexpected health concerns or other financial catastrophes (see the most recent recession). For those who have a revocable living trust, I urge them to remind their children that the children’s shares are not fixed and can be altered. No one should expect or rely upon a set amount of money or assets passing to them.
Simply start with a basic conversation with family members and other heirs. Avoiding this topic can cause confusion, mistrust and leave heirs unprepared to manage the family’s wealth. For those who need assistance in this process, our office is experienced in wealth transfer planning.
Jason C. Morris, Esq. will present a three-hour continuing legal education seminar on asset protection planning. The seminar, “Nevada: the Premier Asset Protection Jurisdiction,” will be held at the Bruce Thompson Federal Courthouse, 400 S. Virginia Street, Reno, NV 89501 on Thursday, March 21, 2013 from 1:00 p.m. to 4:15 p.m. The seminar is sponsored by the Washoe County Bar Association and qualifies for 3 hours of continuing legal education credit.
Recently, a Probate and Property magazine article listed Nevada as the premier domestic jurisdiction for asset protection trusts. In the November/December 2012 issue, Barry Engel, founding principal of the Denver, Colorado firm of Engel & Raiman PC, was interviewed on “Asset Protection Developments.” Mr. Engel co-authored the 1989 amendment to the Cook Islands International Trust Act. Mr. Engel complimented Nevada by stating:
In terms of domestic jurisdictions, we have used Nevada over the years more than any other state. We like it for the protective legislation is has on the books, the quality of trustees available, its proactive attitude and approach toward domestic asset protection law, and how it seems to strive to make what it has even all the better.
Nevada continues to surpass other states in regard to its asset protection trusts and the protections available to debtors. Our office can help you protect assets from creditors and assure your wealth preservation.
One tax element overlooked in the negotiations over the “fiscal cliff” is how Congress and the President will resolve the future of the estate tax. The Wall Street Journal reports that several Democratic senators from conservative states will not embrace President Obama’s plan to raise the estate tax. Under current law, the estate tax exemption amount will be lowered to $1 million with a 55% tax rate starting January 2013. President Obama proposes to return the estate tax exemption amount to $3.5 million with a 45% rate, the same terms as 2009.
Senator Mary Landrieu of Louisiana, Max Baucus of Montana, and Mark Pryor of Arkansas said they would prefer not to raise the estate tax. This week, Ms. Landrieu took a very strong position by stating that she would oppose any deficit-reduction package that raises the estate tax. One common element among Landrieu, Baucus, and Pryor is their party affiliation, another more important aspect is that all three are up for re-election in 2014. The three are diverging from the Democratic party’s position to endorse a position likely favored by their conservative constituents.
Republican lawmakers continue to support estate tax repeal altogether. At the very least, the Republican leaders expect a continuation of the Bush-era tax cuts which would maintain the estate tax exemption at $5 million and a 35% tax rate. Under the current policy, the Tax Policy Center estimates that $161 billion of tax revenue will be generated over the next 10 years. Under President Obama’s proposal, $276 billion would be raised. Considering the highly-charged political climate, we may not have a resolution to the future of the estate tax in the near future.
A Carson City man, Walter Samaszko, passed away in June with apparently no heirs and very little personal wealth. However, cleaners preparing his house for sale discovered he held over $7 million in gold. The Mercury News reports that a San Rafael, California woman appears to be the sole heir to the fortune.
Mr. Samaszko, an anti-government champion, was dead for at least one month before neighbors discovered his corpse. Months later, the vast fortune was uncovered and includes stock accounts valued at over $165,000 and cash of $12,000. The estimates of the $7 million estate are solely based on the weight of the gold. However, there are rare, antique coins in the collection which could drive the total value far higher.
While this case is extremely unique for a number of reasons, there are lessons to be learned:
One, never assume the size or extent of anyone’s estate. Despite appearances to the contrary, there are many wealthy individuals who show no signs of their wealth.
Two, plan now for incapacity and death. There is no telling what Mr. Samaszko intended to do with his gold collection. However, some simple estate planning could have assisted him in avoiding over $1 million in taxes. Likely Mr. Samaszko would be abhorred to think that the government will be the beneficiary of his failure to plan.
Three, keep in contact with relatives, whether distant or remote. You never know if you might end up becoming the lucky recipient of a gift or bequest from a family member.