What Is a Dynasty Trust ?

Don’t be put off by the term “dynasty trust.” Just as every person has an estate, even if they don’t live in a million-dollar home, every person who owns assets could potentially have a dynasty trust, even if they don’t rule a continent. If you have assets that you wish to pass to others, you need an estate plan and you may also benefit from a dynasty trust, says this recent article from Kiplinger, “A Smart Option for Transferring Wealth Through Generations: The Dynasty Trust.”

When parents die, assets are typically transferred to their descendants. In most cases, the assets are transferred directly to the heirs, unless a trust has been created. Estate taxes must be paid, usually from the assets in the estate. Inheritances are divided according to the will, after the taxes have been paid, and go directly to the beneficiary, who does what they want with the assets.

If you leave assets outright to heirs, when the beneficiary dies, the assets are subject to estate taxes again. If assets are left to grandchildren, they are likely to incur another type of taxes, called Generation Skipping Transfer Taxes (GSTT). If you want your children to have an inheritance, you’ll need to do estate planning to minimize estate tax liability.

If you own a Family Limited Partnership (FLP) or a Limited Liability Company (LLC), own real estate or have a large equity portfolio, you may have the ability to use gifting and wealth transfer plans to provide for your family in the future. You may be able to do this without losing control of the assets.

The “dynasty trust,” named because it was once used by families like the DuPont’s and Fords, is created to transfer wealth from generation to generation without being subject to various gift, estate and/or GSTT taxes for as long as the assets remain in the trust, depending upon appliable state laws. A dynasty trust can also be used to protect assets from creditors, divorcing spouses and others seeking to make a claim against the assets.

Many people use an Irrevocable Life Insurance Trust (ILIT) and transfer the assets free of the trust upon death. Most living trusts are transferred without benefit of being held within trusts.

A dynasty trust is usually created by the parents and can include any kind of asset—life insurance, securities, limited partnership interests, etc.—other than qualified retirement plans. The assets are held within the trust and when the grantor dies, the trust automatically subdivides into as many new trusts as the number of beneficiaries named in the trust. It’s also known as a “bloodline” trust.

Let’s say you have three children. The trust divides into three new trusts, dividing assets among the three. When those children die, the trust subdivides again for their children (grandchildren) in their own respective trusts and again, assets are divided into equal shares.

The trust offers broad powers for health, welfare, maintenance and support. The children can use the money as they wish, investing or taking it out. When created properly, the assets and growth are both protected from estate taxes. You’ll need a trustee and a co-trustee and an experienced estate planning attorney to draft and execute this plan.

Reference: Kiplinger (Oct. 2, 2021) “A Smart Option for Transferring Wealth Through Generations: The Dynasty Trust”

 

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What Should I Know about a Do-Not-Resuscitate Order or DNR?

A do-not-resuscitate order, or DNR, is written document with instructions informing healthcare personnel not to perform cardiopulmonary resuscitation (CPR). However, The Petoskey News-Review’s recent article entitled “Do-not-resuscitate orders apply to use of CPR in critical situations” explains that many patients don’t completely understand what a DNR order is and its application to their medical care. The DNR is a legally binding order signed by a physician at a patient’s request that lets medical professionals know you don’t want to be resuscitated.

CPR is performed in only one situation — if a patient is unresponsive, doesn’t have a pulse and isn’t breathing. If that happens, medical personnel have two courses of action: (i) allow for a natural death; or (ii) try CPR. If you’re unresponsive, have no pulse and aren’t breathing, that is the only situation in which any medical provider should attempt CPR. Having a DNR doesn’t mean don’t treat. The fact that you have a DNR order means you should receive exactly the same treatment that another patient who doesn’t have a DNR receives, with all the same medications and procedures.

As such, patients should know the limitations that come with CPR.

If CPR is successful, it means just one thing – that someone has regained a pulse. That doesn’t have any implications about a patient’s cognitive or mental status after CPR is administered.

Research shows that the likelihood of CPR being successful (in regaining a pulse) is in the range of 15-20% of patients. Thus, out of 100 patients who experience cardiac arrest and have CPR, about 80 to 85 of the patients will still die.

Note that there’s a difference between a hospital DNR and an out-of-hospital DNR. An out-of-hospital DNR is for those who don’t want to be resuscitated, if they have problems at home or anywhere outside of a medical facility. Those forms follow the patient, whether they are at home or not.

You should discuss these sensitive matters and signing a DNR when no one’s under pressure from a medical emergency.

The main part of advance care planning is appointing someone you trust to speak for you, if you can’t speak for yourself. With an advance care directive, you can state your preference or opposition to a DNR order.

In addition, everyone should have a healthcare power of attorney, an advance directive, or a patient advocate designation. This is where you are selecting someone to make medical decisions, when you are unable to do so for yourself.

Reference: The Petoskey News-Review (Sep. 23, 2021) “Do-not-resuscitate orders apply to use of CPR in critical situations”

 

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Is My Will Void If I Get Divorced?

If you neglect to update your estate plan after a divorce, everything you gave to your ex in your original will could very well add up to a nice post-divorce inheritance. Even in the most amicable divorces, it’s probably not what you had intended. Yet, as reported in the article “Rewriting Your Will After Divorce” from Investopedia, people do this.

Depending on where you live, there might be a law that automatically revokes gifts to a former spouse listed in a will. In Florida, there is a statute addressing this. In New York, a law revokes gifts to the former spouse and their relatives. However, unless you know the laws of your state as well as an estate planning attorney, it’s best to let the estate planning attorney protect your estate.

What happens if you die before you are legally divorced?

If your will leaves everything to your surviving spouse and you are currently in the process of separating and divorcing, it’s time for a new will, as soon as possible.

Don’t forget assets passing outside of the will. Assets with beneficiary designations, like life insurance, investment accounts and some retirement plans, go directly to the beneficiary listed on the account. If the beneficiary is your ex, you should also make those changes as soon as possible.

Your estate plan must also update any property gained or lost during the divorce. If any assets are specifically identified in your will, be sure to update them.

The executor (the person named in your will to oversee the distribution of assets) probably has to be changed as well. If you had previously named your ex-spouse, it’s time to name a new executor.

Your will is also used to name a guardian for minor children. If you have children with your ex, you will want to appoint a guardian in case both you and your ex are not alive to raise them. If you die unexpectedly, your spouse will raise them, but you should still name a guardian. If a surviving parent has a serious problem, like addiction, child abuse or incarceration, naming a guardian in your will and documenting the reasons you believe your ex is an unfit parent may be a deciding factor in how a judge awards custody.

A will can be updated by writing a codicil, which is an amendment to a previous or a prior will. However, since there may be many changes to a will in a divorce, it is better to tear up the old one—literally—and start over. A prior will is revoked by physically tearing up and destroying the original and including language in the new will that it will revokes all prior wills. Your attorney will know how to do this properly.

Your ex may have the legal right to challenge your will. This is why an estate planning attorney is so necessary to create a new will. There are provisions in some states that may give your ex more rights than in other states. In a divorce situation, the use of an experienced estate planning attorney can make the difference in your ex receiving a windfall and your new spouse or children receiving their rightful inheritance.

Reference: Investopedia (September 14, 2021) “Rewriting Your Will After Divorce”

 

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What Items Should Not Be Stored in a Safe Deposit Box ?

We’re reminded daily about living in a digital world where anything of importance is stored in the cloud. However, if you were thinking about getting rid of your safe deposit box, says the article “9 Things You’ll Regret Keeping in a Safe Deposit Box,” from Kiplinger, think again.

By all means keep your prized possessions like baseball cards in a safe deposit box. Some documents also do belong in a bank vault. However, it’s not the right place for everything.

Even if the bank’s ATMs are open 24/7, access to the safe deposit box is limited to hours when the bank is open. If you need something in an emergency on a weekend, holiday or at night, you’re stuck. The same goes for natural disasters, which seem to be happening more frequently in certain parts of the country. Reduced operations and branch closures happened because of the pandemic and today’s hiring problems might mean a longer wait even during regular business hours at a bank branch.

Here’s a look at what not to put in your safe deposit box:

Cash money. Most banks are very clear: cash should not be kept in a safe deposit vault. Read your contract with the bank. The FDIC does not protect cash, unless it’s in a bank account.

Passports. Unless you travel often enough to keep a passport next to your wallet, it may be tempting to put it in the safety deposit box. However, if an emergency arises, or you get a great last minute travel bargain, you won’t have quick access to your passport.

An original will. Keeping copies of your will in a safe deposit box is fine, but not the original. After death, the bank seals the box until an executor can prove they have the legal right to access it.

Letters of Intent. A letter of intent, or letter of instruction, is a letter to your family, telling them what your wishes are for your funeral or memorial service and giving details on specific bequests. However, if it’s locked up in a safe deposit box, your final wishes may not see the light of day for months. Keep the letter of intent with your original will. You might also wish to send the letter of intent to anyone who is designated to receive a specific item.

Power of Attorney. Similar to the will, the POA needs to be accessible any time, day, or night. Keep it with your original will and provide copies to anyone who might need it. The same goes for your Advance Directives for Health Care or Living Will. It won’t do you any good to say you don’t want to be kept alive on a heart and lung machine if your agents can’t get to these documents.

Valuables, Jewelry or Collectibles. The FDIC does not insure safe deposit boxes or their contents. There are no federal laws governing safe deposit boxes and no law says the bank has to reimburse you for stolen items. Protect valuables with a supplemental policy or a rider to your homeowner’s insurance policy and keep them at home.

Spare House Keys. How likely are you to be able to get to your house keys even if the bank is open, if your key to the safe deposit box is in your home? Enough said.

Illegal, Dangerous, or Liquid Items. When you opened your safe deposit box, you signed a contract listing what you may and may not keep in a safe deposit box. Firearms, explosive, illegal drugs, and hazardous materials are among the things prohibited from being kept in a bank box. The same goes for less dramatic items: if you have a collection of rare whiskey, keep it at home.

Reference: Kiplinger (Sep. 24, 2021) “9 Things You’ll Regret Keeping in a Safe Deposit Box”

 

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How Did Hayley Mills Lose Her Fortune?

Hayley Mills was just a teen when she starred in perhaps her biggest role— a dual part in which she played rival identical twins Susan and Sharon in the 1961 classic The Parent Trap.

The Wealth Advisor’s recent article entitled “How Former Child Star Hayley Mills Lost Her $17 Million Disney Movie Fortune” said that Mills worked so hard as a child by the time she was 21, she’d starred in over a dozen films, including Tiger Bay (1959), Whistle Down the Wind (1961), In Search of the Castaways (1962), Summer Magic (1963), The Trouble With Angels (1966) and The Moon-Spinners (1964).

However, now, in her new book, Forever Young, Hayley Mills reveals that a trust was set up for her to access at age 21 — and what happened to leave her destitute. She says that when she went to claim her Disney fortune, she was shocked to find that it had been taxed by the British government at a rate of 91%.

She wrote that her lawyer Stanley Passmore broke the unpleasant news. “Well, my dear, basically, the Revenue have attacked your trust company,” he explained. “They’re going to tax you at the full rate: 91 percent of the entire trust.”

She remembers the feeling of dread that followed. “I felt the blood drain from my face,” she wrote in Forever Young. “Nothing you can do, really,” Passmore told her. “You could contest it but if I were you, I’d leave the country!”

Mills claims that Passmore told her she should have “repudiated” the trust before turning 21 and said it was too late to do anything about it. Rather than sue her father or her lawyer over the bad advice on her paychecks, she filed repeated tax appeals. In 1972, she briefly won a ruling stating that she’d already paid taxes on her money.

“My tax case went up before the Master of the Rolls, Lord Denning,” Mills wrote. “Pointing out that I’d already paid tax on my earnings and shouldn’t have to pay a surtax, he ruled that the money belonged to me.”

Nonetheless, she wasn’t able to hold onto her $17 million in earnings. The House of Lords appealed the ruling two years later. “The state had plundered my trust like a horde of pirates,” wrote the star. “The Disney money was all gone.”

She did manage to act after Disney, starring in The Family Way (1966), Pretty Polly (1967) and others, leading up to several Parent Trap sequels in the 1980s.

In a September 2021 interview with the Los Angeles Times, she compared the loss of her Disney fortune to a dream. “I never saw it,” she told the newspaper. “I knew it was there, and one day I would have it, but it was just sort of a dream, and then one day the dream was gone.”

Reference: The Wealth Advisor (September 10, 2021) “How Former Child Star Hayley Mills Lost Her $17 Million Disney Movie Fortune”

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What are Digital Assets in an Estate?

Planning for what would happen to our intangible, digital assets in the event of incapacity or death is now as important as planning for traditional assets, like real property, IRAs, and investment accounts. How to accomplish estate planning for digital assets is explained in the article, aptly named, “Estate planning for your digital assets” from the Baltimore Business Journal.

Digital asset is the term used to describe all electronically stored information and online accounts. Some digital assets have monetary value, like cryptocurrency and accounts with gaming or gambling winnings, and some may be transferrable to heirs. These include bank accounts, domains, event tickets, airline miles, etc.

Ownership issues are part of the confusion about digital assets. Your social media accounts, family photos, emails and even business records, may be on platforms where the content itself is considered to belong to you, but the platform strictly controls access and may not permit anyone but the original owner to gain control.

Until recently, there was little legal guidance in managing a person digital files and accounts in the event of incapacity and death. Accessing accounts, managing contents and understanding the owner, user and licensing agreements have become complex issues.

In 2014, the Uniform Law Commission proposed the Uniform Fiduciary Access to Digital Assets Act (UFADAA) to provide fiduciaries with some clarity and direction. The law, which was revised in 2015 and is now referred to as RUFADAA (Revised UFADAA) was created as a guideline for states and almost every state has adopted these laws, providing estate planning attorneys with the legal guidelines to help create a digital estate plan.

A digital estate plan starts with considering how many digital accounts you actually own—everything from online banking, music files, books, businesses, emails, apps, utility and bill payment programs. What would happen if you were incapacitated? Would a trusted person have the credentials and technical knowledge to access and manage your digital accounts? What would you want them to do with them? In case of your demise, who would you want to have ownership or access to your digital assets?

Once you have created a comprehensive list of all of your assets—digital and otherwise—an estate planning attorney will be able to update your estate planning documents to include your digital assets. You may need only a will, or you may need any of the many planning tools and strategies available, depending upon the type, location and value of your assets.

Not having a digital asset estate plan leaves your estate vulnerable to many problems, including costs. Identity theft against deceased people is rampant, once their death is noted online. The ability to pay bills to keep a household running may take hours of detective work on your surviving spouse’s part. If your executor doesn’t know about accounts with automatic payments, your estate could give up hundreds or thousands in charges without anyone’s knowledge.

There are more complex digital assets, including cryptocurrency and NFTs (Non-Fungible Tokens) with values from a few hundred dollars to millions of dollars. The rules on the valuation, sale and transfers of these assets are as yet largely undefined. There are also many reports of people who lose large sums because of a lack of planning for these assets.

Speak with your estate planning attorney about your state’s laws concerning digital assets and protect them with an estate plan that includes this new asset class.

Reference: Baltimore Business Journal (Sep. 16, 2021) “Estate planning for your digital assets”

 

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What are the Key Documents in Estate Planning?

A basic estate plan with a Last Will can be fairly straightforward to create with the help of an experienced estate planning attorney.

Here are the main items you need in an estate plan. However, ask your estate planning attorney about what else you may need in your specific circumstances.

Bankrate’s recent article entitled “Estate planning checklist: 3 key steps to making a successful plan” says there are three things you need in every good estate plan: last will, a power of attorney and an advance healthcare directive – and each serves a different purpose. Let’s look at these:

A Last Will. This is the cornerstone of your estate plan. a last will instructs the way in which your assets should be distributed.

Everyone needs a last will, even if it’s a very basic one. If you do nothing else in planning your estate, at least create a last will, so you don’t die intestate and leave the decisions to the courts.

A Power of Attorney (POA). This document permits you to give a person the ability to take care of your affairs while you’re still alive. A financial power of attorney can help, if you’re incapacitated and unable to manage your finances or pay your bills. A medical power of attorney can also help a loved one take care of healthcare decisions on your behalf.

With a financial power of attorney, you can give as much or as little power over your financial affairs as you want. Note that when establishing this document, you should have a conversation with your power of attorney agent, so if called upon, he or she will have a good understanding of what they can and can’t do financially for you. A healthcare power of attorney also allows a person to make healthcare decisions, if you’re unable to do so.

An advance healthcare directive. This document instructs medical staff how you want them to handle your health-related decisions, if you’re unable to choose or communicate. It includes resuscitation, sustaining your quality of life, pain management and end-of-life care.

Reference: Bankrate (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

 

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Can You Make Heirs Behave from the Grave?

Imposing strange or amusing conditions upon heirs may make for good novels. However, in the real world, terms and conditions are limited by the law. A last will or trust contains language specifying how you want assets to be distributed after your death. There are some conditions and terms included, but others should be left for fiction authors, according to a recent article titled “What Can You Force Your Heirs to Do To Get Your Wealth” from Forbes.

If something is illegal or against public policy, it is not acceptable in a last will. Defining public policy is not as easy as whether something is illegal, but it can be described effectively enough, or clarified by your estate planning lawyer. For example, making a gift of land to the town on the condition that an offensive statue be placed in the middle of the land would be against public policy. Requiring heirs to not marry a specific person or type of person before they can inherit is considered illegal in a last will. Beneficiaries are not to be prevented to live their lives freely through the force of a last will.

Whether a condition is valid also depends upon whether it is a precedent that existed at the date of your death or a condition that occurs after your death. For instance, a requirement for a beneficiary to live in a specific location at the time of your death might be considered valid by a court. However, a condition requiring a spouse to never remarry would not be valid.

Blatantly illegal terms of an inheritance are easy terminated. Leaving money to a known terrorist organization or requiring an heir to commit a crime is an easy no-go. However, sometimes things get murky. Restraints on getting married or selling or transferring property are two of the biggest problems, and often the stories behind the last wills are sad ones.

A condition of not marrying, divorcing, or remarrying is not legal. However, a condition that heirs do not marry outside of the faith has been enforced as a valid last will condition. A complete prohibition of a second marriage by a surviving spouse has been deemed void. It should be noted that certain requests have been permitted, like having a surviving spouse lose payments from a trust when they remarry. As antiquated as it may sound, courts have affirmed the concept of the specific limitation to provide financial support only until the surviving spouse remarries and is, therefore, not void.

A probate court will not void a condition on a bequest automatically, even if it is clearly illegal. The beneficiary, or another interested party, must file with the probate court to have the condition voided. If you fail to do so, when the last will or trust is allowed, it is possible to lose your right to void the condition.

A better way to go: don’t try to control your heir’s behavior from the grave. It creates terrible ill will and may cloud a lifetime of happy memories. If you don’t want to give something to someone, your estate planning attorney will help you create an estate plan, and possibly a trust, to control how your assets are distributed.

Reference: Forbes July 21, 2021 “What Can You Force Your Heirs to Do To Get Your Wealth”

 

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What’s a Pot Trust ?

A pot trust can give you added flexibility as to the way in which the trust assets are used, if you plan to leave your entire estate to your children, says Wealth Advisor’s recent article entitled “How Does a Pot Trust Work?” It’s also called a discretionary, sprinkling or common pot trust and is a type of trust that can be used by families to pass on assets. Minor children serve as beneficiaries with a trustee overseeing the management of trust assets. The trustee has discretionary power to decide how the trust funds are used to pay for the care and needs of beneficiaries.

Flexibility is key in family pot trusts, since the assets are distributed based on the children’s needs, rather than setting specific distribution rules as to who gets what. You might consider this type of trust over other types of trusts if: (i) you have two or more children; and (ii) at least one of those children is a minor. As long as the trust is in place, the trustee determines how trust assets may be used to provide for the beneficiaries’ well-being. This trust is designed to address the financial needs of individual children as they arise, and there’s no requirement for trust assets to be divided equally among them.

Pot trusts can offer an advantage to parents who want to make certain the needs of their children will be met in the event something happens to them. If both parents were to die, a pot trust could provide money to cover basic living expenses, as well as other costs that might arise. You can decide when the trust should end, based on the ages of your children, if ever. Children can also still get distributions from the trust once it terminates, if all trust assets haven’t been used.

However, pot trusts don’t ensure an equal distribution of assets among multiple children. A family pot trust can also put an increased burden on the trustee because the trustee must in effect assume a parental role when it comes to financial decision-making. There’s no predetermined set of instructions left behind by the trust grantor.

However, if you’re worried about issues of fairness or older children having to wait to receive trust assets, ask an experienced estate planning attorney about creating individual trusts instead, so that you can designate specific assets to be added to each trust and provide instructions to the trustee on how those assets should be managed. An individual trust gives you more control over what happens with the trust assets. You can also say what portion of your estate each child should receive.

Reference: Wealth Advisor (Aug. 31, 2021) “How Does a Pot Trust Work?”

 

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No Children ? What Happens to My Estate?

Just because you don’t have children or heirs doesn’t mean you should not write a will. If you decide to have children later on, a will can help protect their financial future. However, even if you die with no children, a will can help you ensure that your assets will go to the people, institutions, or organizations of your own choosing. As a result, estate planning is necessary for everyone.

Claremont Portside’s recent article entitled “What Happens to Your Estate If You Die With No Children” says that your estate will go to your spouse or common-law partner, unless stated otherwise in your will. If you don’t have any children or a spouse or common-law partner, your estate will go to your living parents. Typically, your estate will be divided equally between them. If you don’t have children, a spouse, or living parents, your estate will go to your siblings. If there are any deceased siblings, their share will go to their children.

The best way to make certain your estate goes to the right people, and that your loved ones can divide your assets as easily as possible, is to write a will. Ask an experienced estate planning attorney to help you. As part of this process, you must name an executor. This is a person you appoint who will have the responsibility of administering your estate after you die.

It’s not uncommon for people to appoint one of their children as the executor of their will. But if you don’t have children, you can appoint another family member or a friend. Select someone who’s trustworthy, responsible, impartial and has the mental and emotional resources to take on this responsibility while mourning your death.

You should also be sure to update your will after every major event in your life, like a marriage, the death of one of your intended beneficiaries and divorce. In addition, specifically designating beneficiaries and indicating what they will receive from your estate will help prevent any disputes or contests after your death. If you have no children, you might leave a part (or your entire) estate to friends, and you can also name charities and other organizations as beneficiaries.

It’s important to name who should receive items of sentimental value, such as family heirlooms, and it’s a good idea to discuss this with your loved ones, in case there are any disputes in the future.

Even without children, estate planning can be complicated, so plan your estate well in advance. That way, when something happens to you, your assets will pass to the right people and your last wishes will be carried out. Ask an experienced estate planning attorney for assistance in creating a comprehensive estate plan.

Reference: Claremont Portside “What Happens to Your Estate If You Die with No Children”

 

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