Testamentary Capacity and Family Businesses

Bessemer Trust provides this fascinating brief study of the testamentary capacity and other issues arising from the recent sale of the LA Clippers basketball team by the Sterling Family Trust to former Microsoft CEO Steve Ballmer for a cool $2 billion, following the publication of Mr Sterling’s racist comments and ensuing fine and lifetime ban from the NBA. As people begin to live longer (a good thing), we will see higher stakes contests in and out of court to prove someone did (or didn’t) have testamentary capacity – they could (or couldn’t) have validly signed a will, trust, living will, or power of attorney. Look for some high profile cases to emerge as highly contentious court battles – think celebrity or billionaire divorce trials. And look for creative attorneys to design provisions that hold up better in court or keep these matters out of court using improved negotiations and family dynamic consultations.

My law firmJohnson Law KC LLC, is experienced counseling clients on all aspects of estate planning, asset protection, and helping to structure charitable giving. We can help you answer these questions with confidence and friendly expertise. If we can serve you or your family with your charitable giving questions, please call (913-707-9220) or email us (steve@johnsonlawkc.com) to schedule a free, convenient consultation.

(c) 2014, Stephen M. Johnson, Esq.

 

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Collins: Choosing Your Funeral Plan in a Medical DPOA

Thursday I attended a Kansas City Estate Planning Society meeting. The luncheon speaker presented fascinating and thought provoking perspectives on fiduciary litigation. She highlighted the recent Collins decision, which dealt with selecting funeral plans under a Missouri medical durable power of attorney. Look for more posts soon discussing other fiduciary litigation cases in Missouri (and Kansas).

Collins focused on the right of sepulcher, choosing your funeral plans under a medical durable power of attorney. The facts: Betty Jean Collins was diagnosed with cancer, and on June 12, 2012, executed a medical durable power of attorney (with springing powers). (Springing powers only go into effect when your doctor certifies you as disabled or incapacitated. Immediate powers, by contrast, are effective the moment you sign the document.) Importantly, Mrs. Collins did not consult an attorney – she filled out a blank medical durable power of attorney form herself. Four days later, Mrs. Collins was killed instantly in a tragic car accident. Believing Mrs. Collins wanted to be cremated after she passed away, Mrs. Collins’ grand niece, Tina Shoemaker, wanted to have Mrs. Collins’ body cremated and give the remains to Mrs. Collins’ daughters. Mrs. Collins’ medical durable power of attorney had appointed Shoemaker to make this decision. But Mrs. Collins’ daughters went to court in Benton County, Missouri and argued Shoemaker didn’t possess authority to make the decision because Mrs. Collins was never found incapacitated, so the powers hadn’t sprung into effect, but  lay dormant for all of time in the deceased’s document. Mrs. Collins died, but she wasn’t certified as disabled or incapacitated, so the Collins daughters argued her power of attorney document was a worthless scrap of paper. One month later, the Benton County Probate Court sided with Shoemaker and said she had authority to have Mrs. Collins’ body cremated and give the remains to Mrs. Collins’ daughters. But the daughters appealed to the Missouri appellate court in Kansas City. And about 1 year later, the Missouri Court of Appeals reversed the Probate Court and sent shockwaves through the Missouri probate and elder law bar. The Collins Court strictly interpreted Mrs. Collins’ document and noted that while she could have chosen immediate powers, she chose springing powers instead, so since she was never certified as disabled or incapacitated, Shoemaker never had authority to act for Mrs. Collins.

The Missouri Court of Appeals decided Collins on August 6, 2013 per Judge Ellis. In Missouri, the right of sepulcher is “the right to choose and control the burial, cremation, or other final disposition of a dead human body.” Missouri law gives the final decision to the deceased person’s next of kin. And Missouri law defines “next of kin” by degrees of consanguinity (blood relation), similar to intestacy law (dying without a Will). Collins sparked a flurry of debate among the bar. If you’re dead, are you incapacitated? “No,” the Court said. This past week, the Missouri bar released these sample durable power of attorney documents (here for the complete DPOA packet or here, the fillable DPOA), and all Missouri attorneys should ensure their clients’ documents comply with the new provisions. Because of the complexity of these legal issues, Missouri residents should consult with their estate planning attorney to ensure their medical durable powers of attorney reflect their wishes and intent about the right of sepulcher. And if you live in Missouri and do not have estate planning documents in place, do yourself and your family a favor and execute documents at your earliest convenience. Use your freedom to make your own decisions. Don’t leave your estate planning to politicians in Jefferson City.

If my law firm, Johnson Law KC LLC, can help you or your family with your estate planning needs, call (913-707-9220 or email me (steve@johnsonlawkc.com) for a complimentary and convenient consultation.
(c) 2014, Stephen M. Johnson, Esq.

Estate Planning in 2014

Some recent online highlights from the estate planning literature. Steve Akers of Bessemer Trust offers this helpful summary of the Fall 2013 ACTEC meeting. Here’s his take on Heckerling 2014. And Wealth Counsel recently sponsored a Heckerling Nuggets 2014 webcast – slides here. The ABA’s report of Heckerling 2014 is here – part 1 and part 2.

My firm has experience working with individuals and families throughout the business and estate planning processes. I’ve enjoyed working with clients ranging from single young professionals who want to plan for the future to business owners with complex trusts and tens of millions in assets. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment. I want to make business and estate planning simple and straightforward to serve your legal needs and help protect you and your business from lurking liabilities.

(c) 2014, Stephen M. Johnson, Esq.

Protecting Your Business and Assets

The Kansas City Business Journal has this helpful article with strategies for protecting your business and assets if a divorce or other unpleasantness arises in your life.

While divorce or creditor lawsuits are never welcome developments in someone’s game plan, the best offense is a good defense. My firm has experience working with individuals and families throughout the business and estate planning processes. I’ve enjoyed working with clients ranging from single young professionals who want to plan for the future to business owners with complex trusts and tens of millions in assets. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment. I want to make business and estate planning simple and straightforward to serve your legal needs and help protect you and your business from lurking liabilities.

(c) 2014, Stephen M. Johnson, Esq.

 

Estate Planning Like a Billionaire

Bloomberg has this fascinating article exploring grantor retained annuity trusts (GRATs) and grantor retained income trusts (GRITs) and how they are used by very wealthy business owners to pass assets to the family without incurring estate or gift taxes. (Longtime readers may recall our discussion of Mitt Romney’s large scale estate planning for his family’s estimated $750 million fortune.) Many estate planning attorneys and accountants make a sport of devising creative methods to help clients save money and pass their wealth on to future generations. The ideas aren’t illegal or unethical, they simply utilize gaps in the IRS Code that Congress and/or the Treasury haven’t solved that yield big savings to clients when multiplied by millions of shares in a given company. Estate planners are careful when practicing on the cutting edge of tax law to gauge how much risk the client is willing to take on (e.g. whether the IRS will void a transaction and send the client a tax bill), how much money is at stake, and how reliable/tested a technique is. While the estate planning techniques discussed in the Bloomberg article have been blessed by various authorities (the IRS, the Tax Court, or others), many advanced trust or tax techniques are in a legal grey area – we know X is illegal and we know Y is OK, but what about something between X and Y?

In law school, the first day of estate planning class with Prof. Martin Dickinson, he told us a story about a family business in a small town where a father gave his wife and each of his 4 children a 20% stake in the family business (worth about $5,000 each at the time, the annual gift tax exemption) in 1953. 60 years later, that family business is called Wal Mart and each 20% stake is worth $20 billion. So $100 billion was transferred without estate or gift tax liability. Sam Walton relates the story in his autobiography Made in America and credits his fraternity brother and banker, R. Crosby Kemper Jr., of UMB Bank with helping him develop the business. Here’s Bloomberg’s visual of some of the tricks of the estate planning world.

Inheriting in trust is better than inheriting money in your individual name, as it protects your inheritance from lawsuits, creditors, and divorcing spouses, among other unpleasant life surprises. Inheriting in trust using a discretionary trust provides asset protection. Asset protection uses a separate entity (e.g. a trust or LLC) to hold an asset and protect it from your creditors, divorcing spouses, spendthrift kids, or others. Asset protection trusts are not allowed under Kansas law (see K.S.A. 33-101), but Kansas and Missouri residents can use a Missouri trust to protect assets for generations. Missouri (unlike Kansas) welcomes dynasty trusts – irrevocable trusts designed to pass wealth across families for generations – and allows them to last indefinitely. For clients who anticipate inheriting over $400,000, we recommend a Missouri inheritor’s trust. An inheritor’s trust allows you to protect the assets and keep them off your balance sheet for tax purposes (so you don’t have to worry about estate, gift, or generation-skipping taxes) while having the assets available for your use and enjoyment.

My firm has experience working with individuals and families to serve their business, estate planning, and nonprofit/charitable/philanthropic needs. I enjoy working with a variety of clients – ranging from single young professionals with minimal assets to multimillionaire business owners with complex trusts. My firm has strong relationships with local and national trust companies to help administer all types and ranges of trusts. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, including a Walton GRAT, a GRIT, or other sophisticated trust planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment.

IRS CIRCULAR 230 Disclosure: Unless expressly stated otherwise, any U.S. federal tax advice contained in this blog post or links is not intended or written by Johnson Law KC LLC to be used to avoid IRS or other tax penalties, and any tax advice cannot be used to avoid penalties that may be imposed by the IRS.

(c) 2013, Stephen M. Johnson, Esq.

Good Estate Planning – How to Prevent Disputes

The WSJ has this helpful article with tips on how to prevent estate disputes. Among their tips:

(1) talk with your family,

(2) write a memorandum,

(3) unequal treatment after death means family discord,

(4) hire a professional executor, and

(5) share your values.

In my practice, I’ve seen each of these techniques work well for individuals or families doing estate planning. I’ve also worked on numerous estate and/or trust litigation cases where major disputes arose because people didn’t communicate (and the only winners in estate or trust litigation are the lawyers who get paid by the hour to go to court). Kansas and Missouri law both include provisions for incorporating a written memorandum into your will or trust (a/k/a a separate personal property list) – see K.S.A. 59-623 and V.A.M.S. 474.333 – and I encourage all my clients to make a written memorandum at their convenience to supplement their will’s instructions to their executor and/or their trust’s directions to their trustee.

My firm has experience working with individuals and families throughout the business and estate planning processes. I’ve enjoyed working with clients ranging from single young professionals who want to plan for the future to business owners with complex trusts and tens of millions in assets. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment.

(c) 2013, Stephen M. Johnson, Esq.

Supreme Court Applies Valuation Misstatement Penalties

The U.S. Supreme Court unanimously decided this morning, per Justice Antonin Scalia‘s pen, that an IRS penalty applies for misstating a value on property (U.S. v. Gary Woods, 2013), reversing the Texas-based federal 5th Circuit Court of Appeals. Mr Woods and his employer, Mr McCombs, participated in an income-offsetting tax shelter in the 1990s marketed to high income earners. The tax shelter used a complicated series of investments and partnership interests to reduce their income for tax purposes. The district court found their partnership a sham – not surprising, since partnerships or corporations must have a legitimate business purpose, and avoiding taxes isn’t a legitimate business purpose. (Partnerships, corporations, or LLCs with legitimate business purposes are great for streamlining taxes, but the IRS doesn’t allow shams just to lower the tax bill. Lowering your taxes can be the icing, but you need a cake underneath the frosting, not just a pile of frosting you dub a “cake.”) But the courts wrestled with interpreting the IRS Code: the taxpayers had misstated property values. Could the IRS penalize them for misstating property values (e.g. “you lied about the value, and now owe a penalty for your dishonesty”), or would the IRS say “oops, you wrote down the wrong number, just pay us the difference”? The Supreme Court decided 9-0 that the IRS could penalize them for misstating the property value. The moral of Woods is the IRS can exact penalties for misstating property values, so be sure you have accurate appraisals and carefully prepare or review your tax filings. While Woods has some nice statutory interpretation quotes that legal eagles will enjoy (Justice Scalia has strong views on interpreting texts and statutes that often surface in scathing and witty dissents on various cultural issues, and is a lively writer and speaker – see A Matter of Interpretation (1997), Making Your Case (2008), and Reading Law (2012)), it’s not clear that Woods will have much impact beyond deciding that the IRS can penalize misstatements in property value.

My firm has experience working with individuals and families throughout the business and estate planning processes. If my law firm can help you or your family with your estate planningelder lawasset protectionbusiness law needs, or digital estate planning, call me (913-707-9220) or email me (steve@johnsonlawkc.com) for a free, convenient appointment.

IRS CIRCULAR 230 Disclosure: Unless expressly stated otherwise, any U.S. federal tax advice contained in this blog post or links is not intended or written by Johnson Law KC LLC to be used to avoid IRS or other tax penalties, and any tax advice cannot be used to avoid penalties that may be imposed by the IRS.

(c) 2013, Stephen M. Johnson, Esq.

Settling Large Estates

The NY Times has this interesting article about an estate and trust litigation settlement that has been reached in the Huguette Clark case in New York. Ms. Clark, who died in 2011 at age 104, leaving behind a roughly $300-500 million estate, elected to be a recluse for much of her adult life. Her story is told sympathetically and even-handedly by the recent book Empty Mansions (2013). (The title comes from a series of news stories about her mansions in Santa Barbara, CA, New York, and Connecticut which were left untouched and sat vacant for decades) Settling the estate was a wise decision by the various parties involved: ”Both the family and the beneficiaries had reasons to settle. Rolling the dice at a trial can mean losing everything. Both sides had already spent a great deal on pretrial research and legal fees. And a trial would be an exhausting endeavor, expensive for everyone, last weeks or months.” Empty Mansions, 345

 

The legal dispute over Clark’s estate arose because she executed 2 wills a few weeks apart in 2005: 1 Will left most of her estate to her surviving relatives (distant cousins, nieces, nephews), and another Will created a foundation in the Santa Barbara mansion and left large gifts to her healthcare providers, attorney, accountant, and mostly excluded her family. The distant relatives weren’t as concerned about inheriting part of her fortune as they were about the apparent manipulation of her by doctors, nurses, accountants, attorneys, and others, who took advantage of her generosity for private lucre. (More about those issues in future posts.) Still by all accounts, Ms. Clark ”lived a surprisingly rich life of love and loss, of creatively and quiet charity, of art and imagination. Though the platitude – money can’t buy happiness – may be comforting to those who are less than well heeled, great wealth doesn’t ensure sadness either.” Empty Mansions, 353.

Huguette was a daughter and an heir of Sen. W.A. Clark, a copper baron of the Gilded Age whose wealth was of a similar magnitude to Rockefeller, Carnegie, Mellon, and other Gilded Age business owners. Unlike his Gilded Age contemporaries, Sen. Clark did not due smart estate or business succession planning: ”The W.A. Clark business empire was not built for longevity, collapsing soon after its founder handed it to his children. While his Gilded Age contemporaries typically operated through hierarchies of executives and managers, creating vast corporate entities, W.A. ran his companies as essentially sole proprietorships, which he ruled autocratically. Having attended to every detail of his companies personally W.A. failed in succession planning.” Empty Mansions, 142.

One of her distant relatives summed up the issues she faced as the steward of a large estate: ”I think having such wealth can lead some people to have a lack of self-worth because of not having developed a lucrative career of their own or even having investigated their own potential. Having an overabundance of wealth can make people insecure around others who have far less than they do, since the former might wonder if potential partners or even friends are ‘only’ after them for their money. Well-meaning people of excessive wealth can feel anxious about the lack of perfection of charities they support, and about the fact that even as willing patrons they are powerless to obliterate suffering – all the while knowing that any small amount of money that they might spend on themselves is still enough to change or even save some lives. Wealth can lead to guilt over the unfairness of people working endlessly for them who have never been included fully into the family. In sum, having immense wealth can lead one to feel isolated and to have a false sense of being special.” Empty Mansions, 328 – 329.

Look for more posts soon on the Huguette Clark saga and lessons we can all learn from her story. In the meantime, if you need an experienced attorney to serve your estate planning needs (anything from a simple will, living will, and power of attorney, to complex business and tax planning with dynasty trusts for multiple generations), call my firm (913-707-9220) or email me (steve@johnsonlawkc.com) for a convenient, free consultation. My firm is also experienced handling probate and trust administration – ensuring your Will proceeds smoothly through probate, or that your Trust works seamlessly to avoid probate and ensure your legacy for your family, business, and favorite charities. My law firm, Johnson Law KC LLC, can serve you or your family’s estate planningasset protectionelder law, or business needs, . My firm looks forward to serving you and your family with reliable, friendly experience and counsel at an affordable cost. One valuable lesson for us all from Huguette Clark’s life is don’t leave your legacy and your family’s inheritance at the mercy of a court settlement.

(c) 2013, Stephen M. Johnson, Esq.