Category: Beneficiary Designation

Librarian’s Estate Plan Includes $4 Million Gift to School

 

A former University of New Hampshire librarian’s $4 million gift to the school has received considerable attention due to the way the school opted to use the funds. This uproar is a reminder that estate planning is important, especially if you’re particular about the way you want your money used. 11-02-16

This is the message in the credit.com article “The Lesson We Can All Learn From the Librarian Who Left a Fortune to His Former Employer.”

Robert Morin, a university librarian for nearly 50 years, gave his entire estate to the school when he died in 2015. He designated that $100,000 go to the library but didn’t say how the remaining money should be spent, according to UNH. The school said it plans to spend $2.5 million of the proceeds on a student career center, and another $1 million on a video scoreboard for the school’s football stadium.

The scoreboard upset some people. They said using 10 times the amount dedicated to the library for a scoreboard goes against Morin’s interests—especially his austere lifestyle—which is the reason he could save such a large sum of money.

Think about the amount of flexibility we have in dictating our wishes when it comes to leaving money to others in our estates. A will or living trust can give instructions to do anything that’s not illegal, so you can put in pretty much anything you want.
Here are a few things to consider when deciding who will receive proceeds from your estate and how much:

Specific Amounts. Use caution when stating specific dollar amounts in your will or trust, especially when coupling charities and family as beneficiaries. An estate can lose value over time, so the $100,000 you want to leave to the Alley Cat Allies can sound terrific when your estate is valued at $1 million. However, if it plummets to $150,000, it will leave little for your family. Instead, use a percentage of the estate instead of a specific dollar amount and add a restriction that the amount is not to exceed a specific dollar amount.

Name Charities as Beneficiaries. Rather than mixing charities and family members in your will, make a charity a beneficiary of a retirement account. The money will then go to the charity tax-free, and, if you want to change which charity receives your donation, you only need to change the beneficiary on your IRA or 401K instead of rewriting your will.

As with most estate-planning issues, it’s smart to speak with a qualified estate planning lawyer instead of trying to do it yourself—especially if you have substantial assets and/or multiple beneficiaries.

Reference: credit.com (Sept. 19, 2016) “The Lesson We Can All Learn From the Librarian Who Left a Fortune to His Former Employer”

Children Challenge Pittsburgh Publisher’s Will After Being Left Out

10-13-16Two times in the past four years, the attorney for the late publisher Richard Mellon Scaife unduly influenced the billionaire to change his estate planning documents to disinherit his daughter Jennie Scaife and give assets to newspapers and foundations the lawyer controlled, according to a court petition Scaife’s daughter filed recently.

The Pittsburgh Post-Gazette reported, in “Daughter of Scaife files new petition challenging will,” that Jennie got nothing after her father’s 2014 death because she wasn’t included in his 2013 will or a 2010 codicil. Those changes followed a 2008 will that left her family memorabilia, according to the courts papers filed in Westmoreland County’s Orphans Court Division.

The will changes benefited the Tribune-Review newspapers, the Allegheny Foundation and the Sarah Scaife Foundation. Each of these were controlled in part by attorney H. Yale Gutnick, the petition claims.

As a result, everything from an estimated $1.4 billion to the family knickknacks went to those beneficiaries. Jennie claims that this 2010 change “was all part of a carefully orchestrated plan by Gutnick to prohibit Scaife family members from having the ability to contest Richard Mellon Scaife’s will.”

The amended petition adds allegations to those she first made a year ago and looks to strengthen her case, which was complicated by the 2010 codicil. If a judge disqualifies a will due to undue influence, the assets are distributed according to any prior, legitimate will. If there isn’t an earlier will, it goes to the children.

So, if Jennie is going to successfully recover some of the estate, she’ll have to show she was included in the last will that was free of undue influence. She says that’s the 2008 document.

Jennie argued that during her father’s battle with cancer, Gutnick persuaded him to bequeath nearly everything to the newspapers and foundations, which the attorney directed and which were his big legal clients. She also alleged that her father’s bodyguard guided his hand as he scratched his initials on the 2013 will.

“As a person in a confidential relationship with Mellon Scaife, an alcoholic who suffered from many medical issues, an addiction to medication, and weakened intellect for many years prior to his 2014 death, Gutnick received a substantial benefit under both” the 2013 will and the 2010 codicil, Jennie’s amended petition states.

Gutnick was chairman of the Tribune-Review’s board until January. He was aware that, according to the petition, the newspaper’s losses were in the tens of millions of dollars every year and were likely to increase. Because of this, Jennie said the attorney influenced the publisher to put a large part of his estate into a trust fund to support the newspaper.

Jennie’s petition also noted that the estate paid $100 million in state estate taxes, and hundreds of millions of dollars are said to be owed by the estate for federal estate tax. The petition estimates those taxes at $300 million.

Likewise, the late publisher’s son was left out of his father’s will. However, he didn’t join his sister’s case. Instead, he’s a party in a separate challenge filed by the daughter and son in another county. That case alleges that Gutnick and two other trustees improperly allowed Scaife to drain a family trust fund of $450 million, which was primarily used to support The Tribune-Review.

Reference: Pittsburgh Post-Gazette (July 27, 2016) “Daughter of Scaife files new petition challenging will”

Fred Thompson’s Adult Children Battle Second Wife in Estate Contest

The widow of former U.S. Senator Fred Thompson of Tennessee has asked a probate judge to dismiss a claim filed against his estate by his two adult sons, arguing that their allegations of misconduct are a "gross misrepresentation." 9-21-2016

Nashville’s newschannel5.com reports in “Fred Thompson's Widow Asks Judge to Dismiss Estate Claim” that the attorneys for Jeri Thompson filed the motion for summary judgment last week, insisting that she never "conspired" with a prominent Nashville law firm to reconfigure the former senator's estate.

The court documents state that Jeri Thompson, as executor of her husband's estate, made just one change, which was a change to a contingent beneficiary designation on two term life insurance policies. This change had no impact on the rights of the plaintiffs, Jeri argued, because they weren’t primary or contingent beneficiaries of the policies—either before or after the change.

The late Senator Thompson's two adult sons from his first marriage, Tony and Dan, filed their lawsuit last week against Jeri and the estate, alleging that she exercised "undue influence" on Fred in many last-minute changes to the estate. The plaintiffs’ suspicions look to have been aroused by an invoice for $40,000 in legal work conducted on behalf of Thompson's estate in the month prior to his death.

Jeri Thompson’s latest court pleading states that the only change made to the estate planning documents was to add their youngest son, Samuel, as a 50% contingent beneficiary along with his sister, Hayden. Jeri remained the 100% primary beneficiary on the policies, the court motion says. The result of the change was the same: Jeri received 100% of the net death benefit of the policies, just as she would have if the change had never been made, according to the motion.

"Plaintiffs cannot show that they incurred any harm or loss that was cause by any action of Executor," the motion declares.

The motion had attached copies of insurance documents showing those beneficiary changes. These were changes that, according to the lawsuit filed by Fred’s two adult sons, Jeri was previously unwilling to share with them.

Reference: (Nashville TN) newschannel5.com (August 8, 2016) “Fred Thompson's Widow Asks Judge to Dismiss Estate Claim”

An IRA Trust Might Be Preferred Over Naming Individuals or a Revocable Living Trusts as the IRAs Beneficiaries

If you maxed out your work 401(k) by taking advantage of matching funds and rolled this to an IRA when you retired, you might not need all of that money—especially if you are a spouse with a pension and Social Security. One thought is to designate children or grandchildren as primary beneficiaries of the IRA. However, you don’t want them to be able to withdraw more than the required distribution based on their life expectancy. 9-20-2016

The Charlotte News-Observer’s article, “To ‘rule from the grave,’ establish an IRA trust,” suggests that you speak with a qualified estate planning attorney and explore the benefits of establishing an IRA standalone trust—which is also known as an "IRA trust,” an “IRA stretch trust” or an “IRA protection trust.”

This type of trust is approved by the IRS and may be more advantageous than designating individual children or grandchildren—or naming revocable living trusts as beneficiaries of IRAs. If you name your revocable living trust as a beneficiary, you must be certain that it has the appropriate conduit-trust language and that the wording of the beneficiary designation is correct to take advantage of the stretch-out of the required minimum distributions (RMDs).

Remember that if you go ahead and designate individuals as beneficiaries, you may create some headaches for them—including requiring a guardian to request permission from the courts to make distributions if the beneficiary is a minor. Also, the beneficiary may take higher distributions than necessary—often leading to increased taxation, eliminating the value of tax-free compounding and possibly running out of money. If the beneficiary is disabled, there is a risk of potentially losing needs-based government benefits. Other potential issues include the loss of control as to who will ultimately inherit the IRA after the death of the primary beneficiary and—if the beneficiary is not the spouse—the IRA being fair game for creditors.

Typically, a surviving spouse beneficiary can make the IRA his or her own and take RMD based on his or her life expectancy. The RMD doesn’t need to begin until the spouse reaches age 70 ½ or April 1 of the following year. An IRA inherited by a spouse and converted to his or her own IRA will still be protected from creditors from personal injury lawsuits, bankruptcy and the like. Distributions from an IRA inherited by a non-spouse are required to commence the year after the death of the IRA owner. The RMD is based on the beneficiary’s life expectancy.

A non-spouse inherited IRA isn’t protected in bankruptcy and may be hit with the claims of the beneficiary’s creditors. But the assets in a standalone IRA trust are protected by trust law, and they’re also protected from creditors. The trust can also control distributions so that they’re limited to the RMD based on the beneficiary’s life expectancy. That will defer the payment of income tax within the IRA, providing the greatest “stretch-out” of benefits to the beneficiary.

Your estate planning attorney can help you decide if the trust should be a conduit or an accumulation trust. The RMDs have to be distributed to the beneficiary in a conduit trust, but with an accumulation trust, RMDs may be accumulated in the trust. The accumulation trust is better if you require additional protection for the beneficiary who’s in a bad marriage, a high-risk profession, has addictions or has special needs.

It's a very complex issue. Again, work with a qualified estate attorney to create a sound action plan based on your personal situation and objectives.

Reference: Charlotte News-Observer (July 30, 2016) “To ‘rule from the grave,’ establish an IRA trust”