Ultra high net worth individuals (UHNWI) will transfer an estimated $3.9 trillion to the next generation over the next 10 years, enough to purchase the 10 largest companies in the world, as shown by a Wealth-X and NFP study. Considering the fact the the average UHNWI is almost 60 years old and 64% of this demographic is self-made, many will be dealing with complex estate-planning matters for the first time in the not-so-distant future. Here’s what’s at stake.

The report found that 64% of the UHNWI population (defined as those with $30 million or more in assets), created their own wealth and did not inherit it, making it likely that any given individual within this segment will be considering the transfer of significant wealth for the first time in their lives.

Without proper planning, this group could lose up to half their wealth through inheritance taxes. These assets could be subject to as much as 40 percent of their value in inheritance taxes, with state taxes ranging between zero and 16 percent.

The question is whether UHNWI and their heirs will be prepared. To keep any fortune intact as the baton is passed, effective estate planning has to be a top priority—and early on—to accommodate various types of asset holdings.

For example, private businesses make up the largest category of wealth from HNWI in this study, at 36% of total value. This means decisions need to be made about whether these businesses will be transferred or sold, and succession plans need to be implemented—a process that doesn’t happen overnight.

Other assets such as public holdings (24 percent), cash (34 percent) and real estate (6 percent) require additional tactics for preservation. Philanthropic transfers make up yet another category of planning.

Successful wealth transfer is an effort that doesn’t rest on the shoulders of the affluent individual alone. Educating the future generation and discussing options with knowledgeable advisors are essential to building a strong financial legacy.

And while the UHNWI from this report have enough at stake to warrant immediate attention, so does any family with a business, real estate holdings, household property, liquid savings, or stock investments. Whether your assets make up part of the $3.9 trillion to be transferred over the next decade or not, the only way to make sure more of your money goes to the people and causes you’d prefer to have it (over the IRS) is to plan for it with your advisors.

Source: www.wealthx.com September 15, 2016

The battle between Michael Jackson and the Internal Revenue Service over what the late entertainer owes rages on. In the years after his death in 2009, Jackson has experienced what some might call a commercial rebirth thanks to the savvy executors who have managed the late musical artist’s assets. Now the IRS wants its fair share, claiming the value of Jackson’s name and image upon death amounted to more than $434 million. The estates own valuation? Only $2,105.

It doesn’t take an estate tax specialist to notice that’s an enormous discrepancy. The stakes will most likely be even higher when it goes to trail at a Los Angeles tax tribunal in 2017. With interest and penalties, the case could be worth more than an estimated $1 billion. 

Howard Weitzman, the estate’s lead attorney, claims the IRS hasn’t explained how its independent auditor determined the valuation of Jackson’s Estate. Executors John Branca and John McClain oversaw a remarkable turnaround after Jackson’s untimely death, eliminating his debt and making enough revenue to generate roughly $100 million in tax payments since his passing. Weitzman estimates that Jackson earned no more than $50 million from the licensing of his name and image was alive, even during his prime “Thriller” days.

What is at issue between the IRS and the estate, is the value of Jackson’s name and likeness at the time of his death, not after his executors worked their magic. Given that this may very well be the first time the IRS is pursuing estate taxes for name and likeness, it’s hard to say how the proposition that many entertainers are more valuable (in an purely economic sense) dead than alive will factor into the outcome of this landmark estate case.

Getting agreement from the IRS on an estate’s value doesn’t just affect the likes of pop stars and celebrities. It’s true very few of us deal will have to deal with the marketability of our name and likenesses after death. -But even so, making sure appraisals of stocks, real estate, businesses, or any other more tangible assets are defensible can make all the difference when it comes to sailing swiftly through a potential audit – and maybe even avoiding one altogether.

The death of Grammy award-winning artist Prince last week ignited worldwide disbelief and mourning for the enigmatic star, but it’s also raised an important issue many people don’t want to think about: estate planning. Prince had 16 platinum albums to his name and tight control over his brand, yet it’s still unclear if he had a will. In the latest turn of events, Prince’s sister, Tyka Nelson, filed paperwork in court saying that Prince, who died on Thursday at age 57, did not leave a will.

On Tuesday, Tyka Nelson filed court documents to open a probate case in Minnesota’s Carver County, which is where her brother’s Paisley Park estate is located. Tyka Nelson is the only full sibling of the late musician. Prince was not married and had no living children or parents who could potentially inherit the millions from his estate.

Prince’s sister has requested a special administrator be appointed to deal with the late singer’s assets. Prince was worth up to $300 million according to various estimates and his estate is expected to grow as sales of his music have grown rapidly since his death.

Without a will, Minnesota law states that his estate would go to his sister and his half-siblings. They would control his brand, including Prince’s NPG record label and thousands of unreleased songs.

While there’s also the possibility that Prince did determine what he wanted to do with his estate in the event of his death by establishing a trust, it is likely a lawyer would have come forward by now if Prince had in fact drafted a trust.

You don’t have to a part of the “Millionaires Club” to face estate planning challenges. Any individual or family with a business, real estate holdings, household property, liquid savings, or stock investments will want to establish a thorough estate plan before unforeseen circumstances intervene. The only way to make sure more of your money is transferred to the people and causes you care about (over the IRS) is to plan for it with your advisors. Talley & Company is here to help.

If you’re planning on doing estate planning for the first time in 2016, or want to make sure your current planning documents aren’t out of date, staying on top of the latest changes is important. Here are several updates to keep in mind if you need to establish or revisit your estate plan in 2016:
The estate-tax exemption. For 2016 you can leave bequests (gifts to other individuals upon your death) worth up to $5.45 million (up from $5.43M last year) free of any federal estate tax. If you’re married, both you and your spouse are entitled to separate $5.45 million exemptions. If one spouse dies and does not use up his or her full exemption, the leftover exemption amount can be transferred to the surviving spouse.
The gift-tax exemption. You can also give away a cumulative total of up to $5.45 million to whomever during your life without owing any federal gift tax. If you’re married, both you and your spouse are entitled to separate $5.45 million gift-tax exemptions. If one spouse dies and does not use up his or her full exemption, the leftover exemption amount can be transferred to the surviving spouse.
The $14,000 annual gift tax exclusion remains the same. For those with large estates, the $5.45 million estate-tax exemption isn’t enough. That’s where the $14,000 annual gift tax exclusion rule can help. Gifts made under the $14,000 annual gift tax exclusion rule (more on that below) will not trigger any federal gift taxes, nor will they reduce your federal gift-tax or estate-tax exemptions. However, gifts in excess of the $14,000 will reduce both your federal gift-tax or estate-tax exemptions dollar for dollar.
The benefit of making gifts up to the exclusion amount: they reduce your taxable estate, and they shift any taxable income generated by the gifted money to your kids, who are probably taxed at a lower rate than you. Gifts under the annual gift tax exclusion rule don’t cut into your $5.45 million gift-tax or estate-tax exemptions, but they chip away at your taxable estate. So your estate tax exposure can over time be reduced by taking advantage of the annual gift tax exclusion.
For a full list of the must-know facts that will affect estate planning in 2016, contact Talley & Company today.
When Maurice Laboz, a New York real estate mogul, died earlier this year, he bequeathed a generous fortune to his daughters, but with strings attached. Though each of his two daughters are to receive $10 million upon turning 35, he set up conditions in his will where the payouts could start earlier. Though setting aside money with stipulations is nothing new in the realm of estate planning, Laboz’ terms and conditions for an early pay-out to his daughters warrant a closer look.
For example, one of his daughters, Marlena, will receive $500,000 when she marries, “but only if her husband signs a sworn statement promising to keep his hands off the cash” according to the New York Post. She will also receive an additional lump sum of $750,000 if she graduates from an accredited university and writes a paragraph (100 words or less) about what she proposes to do with the money. Marlena’s “essay” must be approved by the trustees Laboz appointed to oversee the monies disbursed to his daughters.
In a post-mortem effort to incentivize his children to find gainful employment, both of Laboz’ daughters stand to receive a check worth three times the income listed on their personal tax returns each year from their trust if they decide to work. If they choose not to be employed and decide to have children instead, they will receive 3% of the value of their trust each year, granted the child is born in wedlock.
How’s that for parenting from beyond the grave?
All joking aside, while Talley & Company and our affiliated partners do not advise anyone attempt to be this “creative” with their estate planning, Laboz’ case exemplifies the amount of control individuals have when deciding what to do with their assets in the event of incapacity or death. Though the options are virtually limitless, proper estate planning -deciding on the “who, what, when, and how” and executing this with the least amount paid in taxes, legal fees and court costs possible can be a challenging affair to wrestle with alone. For more information, contact Talley & Company today.

In a landmark estate tax settlement the IRS netted $388 million in a record settlement with the estate of Bill Davidson, a noted philanthropist and owner of the Detroit Pistons, the WNBA’s Detroit Shock and the NHL’s Tampa Bay Lightning. The IRS claimed an astounding $2 billion deficiency of estate/gift/generation-skipping taxes with the former Pistons owner’s estate. To put it perspective, the Treasury took in a total of $12.7 billion in estate tax revenue in 2013. Where did Davidson go wrong?

Here’s the quick breakdown in dollars: $187 million in gift taxes, $152 million in estate taxes, $49 million in generation-skipping taxes, and a $133,000 gift tax penalty.

The IRS took note of two main issues that led to the deficiencies:

The estate undervalued corporate stock. The IRS claimed the estate reduced the value of privately held Guardian stock held in trust for children and grandchildren. Estates with hard-to-value assets such as privately-held stock, real estate or art need to pay close attention to the valuations for gift and estate tax purposes.

The estate also improperly valued self-cancelling installment notes (SCIN’s). Although they are a well-recognized means of tax mitigation, the IRS questioned the computations Davidson employed and claimed Davidson was making taxable gifts he should have reported. The IRS takes a tough stance on how you value the notes and what you need to do to establish that it’s a fair exchange of assets for the notes.

You don’t have to a part of the “Billionaires Club” to face estate planning challenges. Any individual or family with a business, real estate holdings, household property, liquid savings, or stock investments will want to establish a thorough estate plan before unforeseen circumstances intervene. The only way to make sure more of your money is transferred to the people and causes you care about (over the IRS) is to plan for it with your advisors. Talley & Company is here to help.

You’ve worked hard to create opportunities for your loved ones, and you want to make sure they enjoy the benefits as part of your legacy. So, how do you decide what amount to leave them? A Merrill Lynch survey of high-net-worth individuals says that they believe for every $100 million, $26 million is too little for one child, but $63 million is too much. Estate planning isn’t only about how to mitigate your estate tax burden or the quantity to bequeath, but in what form to leave it, in what increments, and how to prepare benefactors to make the most of their futures with it.

These are tough, emotionally charged questions every affluent family is faced with at some point, whether they have $100 million or $10 million to bequeath to one or more children, nieces and nephews, or grandchildren. Leave too much and it’s possible to create a sense of entitlement; leave too little and you could spark resentment. The right number is decidedly a personal one, both from a philosophical standpoint and in regards to each family’s tax profile.

As we noted in an earlier post, in the U.S. alone, $6.04 billion will be transferred to the next generation over the coming 30 years. These assets could be subject to as much as 40 percent of their value in inheritance taxes, with state taxes ranging between zero and 16 percent. The individuals surveyed in  Bank of America Corp.’s Merrill Lynch unit all had a minimum of $5 million in investible assets, very close to the threshold at which the estate tax is triggered.

What’s right for the next family isn’t necessarily the best course of action for yours. One might have a business to sell or to designate a successor for, another may have real estate investment property across multiple state lines. These situations require different courses of action in order to retain as much value for benefactors instead of the IRS. In some cases, beginning the distribution process during one’s lifetime via gifts and other vehicles may be the best choice after considering all parties’ interests.

Money figures aside, affluent families are tasked with ensuring heirs are properly educated on the full scope of management responsibilities for the types of assets inherited, and that they have time to recover from natural missteps that come with the territory. Structuring an inheritance in stair-step fashion based on factors such as age is one approach some families take in hopes of protecting heirs against permanent losses.

The only real way to arrive at the right number, structure and tax strategy for you and your benefactors is by discussing your options with the help of estate planning professionals. Whether your children are 5, 15, or 25, it’s not too early or too late to get started. The more time you build into the process, the longer you have to prepare everyone involved, including yourself.

Social media has become an intimate part of our everyday lives, and it will remain so even in our deaths. Platforms like Facebook and Google are still developing their policies for what happens to your social profile and data once you head into the afterlife, who if anyone can handle your account, and what aspects of it they can manage. In the latest update, Facebook announced a policy change allowing users to designate “legacy contacts” posthumously. Here’s what you should know.

Until recently, what happened on Facebook stayed on Facebook, even after your death. Once the platform learned of a user’s passing, it would simply freeze the account, memorializing it just as it was left for all of time. Now, Facebook is still forever, but only if a user wants it to be, because members can choose to set their accounts for deletion once they’re gone.

Or, members can now select one legacy contact to manage their account. This person will be able to post a memorial note at the top of the deceased person’s page, change their profile picture, and accept friend requests. If the account user chooses, they can also give their legacy contact permission to download an archive of photos and posts.

So, what about that embarrassing snapshot from the college frat party? That’ll stick. Legacy controls are vastly different from what users themselves are able to do by logging in. Legacy users won’t be able to make, edit or delete posts in any way, and private messages will not be accessible to them for viewing. Facebook shows users how to adjust their settings here for its new options.  

Developed in response to the same posthumous challenge in the social era, Google’s policy allows users to select an “Inactive Account Manager” to determine the fate of their Gmail accounts, Google drive documents, and other data. That still leaves Twitter, LinkedIn, Pinterest and half a dozen other accounts, all of which have their own policies.

While legislation is very much in its infancy in this area, the next time you meet with your estate planner, you’ll want to add this to your checklist of discussion points. If you have active social profiles, some of which may even be tied to your business contacts or networks, adding a social media clause to your will is a good move. To start the planning process, you can explore action points from USA.gov here and bring your answers to your attorney on your next visit.

Regardless of his well-crafted preparations to protect his children’s inheritance rights, his wife and children are litigating ownership of his personal effects.

In an article we published in August, 2014, we described how Williams carefully established a tiered trust in which each of his children were to receive received one-third of their share of the principal at the age of 21, half at 25, and their full share at 30, most likely to ensure their maturity in decision-making regarding the disposition of their assets. 

Williams’ Trust also included specific instructions on what personal effects he wanted to pass on to his three children, including all of his clothing, jewelry, personal photos prior to his marriage to Susan, all memorabilia and awards he earned in the entertainment industry, as well as all tangible personal property in Williams’ Napa Valley property.

So What Went Wrong?

Susan’s legal proceedings present several arguments over William’s estate.  First, she challenges that the word “memorabilia” should be read to include only “specific items of tangible personal property as it relates to Williams’ acting career.”  Susan also feels that the term “jewelry” should exclude his collection of watches and that the contents of the Tiburon home should include items that are not actually on the premises of the home, but may be kept in storage off-site.  Susan also includes a request that the court interpret the list of property going to children to exclude all items in the Tiburon house, even though the trust explicitly states they are to receive the majority of personal property on the premises.

Williams’ Trust is a lesson that even though sometimes the best wills and trusts cannot avoid legal disputes, regular check-ups will make any potential disagreements less difficult, costly and drawn-out. You may have concerns or questions about the details involved in making arrangements regarding the inheritance of your estate. Talley & Company can provide the best available options for financial structure and personal effects disposition.  For more information, please contact Talley & Company.

August 22, 2014

Late Actor Robin Williams Took Measures to Help His Children Inherit Responsibly

Robin Williams was a beloved comedian, actor and entertainer who won over legions of fans by bringing some of the most eccentric characters to life, including Mork from Ork, Mrs. Doubtfire, and Peter Pan. Media outlets describe Williams as a deeply compassionate person, always helping to make his fellow actors feel at home on the set and lifting the spirits of friends through humor, including his former college roommate Christopher Reeve after his debilitating accident.

His fans will miss him dearly, but like most famous talents, those closest to him, including his three children Cody (22), Zelda (25) and Zachary (31), will likely feel the most profound loss from his passing. Williams expressed his love for his children and their positive impact on his life in many interviews. According to documents obtained by TMZ, he also took care to ensure his children came into their inheritance responsibly.

The documents obtained show that, at one point, Williams established a trust in which each of his children received one-third of their share of the principal at the age of 21, half at 25, and their full share at 30. Though Williams’ publicist has since stated that these documents are outdated, they still serve us in bringing to mind important questions many affluent families contend with: how and when to distribute assets to their beneficiaries.

Williams chose to provide his children with their inheritance during his life. Families that decide to follow this path can help provide financial guidance and impart wisdom to their children to encourage thoughtful decision-making with the money gifted to them. Doing so also allows benefactors to enjoy the rewards of seeing what opportunities these gifts make possible. And, not to be forgotten, there can be significant tax advantages to making gifts in your lifetime. Even so, creating a trust that distributes money to beneficiaries before one’s death isn’t always preferred or feasible, especially if the assets are needed in your lifetime. Every family is different.

Like Williams, you may decide that the best option for your family is to set up staggered payments based on a beneficiary’s age. This approach has its upsides, including the chance to help protect children from making one poor decision with financially permanent consequences. No matter what distribution scenario you choose to define in a trust, leaving money without providing the proper education for its conscientious use is never a good idea.

If you are interested in knowing more about different ways to set up a trust or if you have established one for your heirs but haven’t reviewed it recently, make time to attend to this important task. Divorces, the arrival of children and grandchildren, a beneficiary’s readiness for financial responsibility, and shifts in your own financial position all signal important times to review your plan and ensure it best meets your family’s needs. Talley and Company can help.