Monday, October 13, 2014
Family Foundations: What, Why, and How
Families with significant net worth who have a tradition of philanthropy often consider establishing a charitable foundation as part of their estate plans. While there are a number of advantages to using family foundations as a philanthropic vehicle, families need to seek guidance from estate planning and tax professionals to ensure it is the best option for achieving their objectives.
According to The Foundation Center, there are over 35,000 family foundations in the US, responsible for more than $20 billion in gifts per year. While some foundations have tens of millions in assets, more than half report holdings totaling less than $1 million.
Minimizing various tax burdens is one benefit of creating a family foundation. However, if tax issues are your primary concern, then a different asset management and distribution vehicle will probably better suit your needs. While it is true that family foundations offer certain tax advantages—both in terms of current income tax obligations and future estate tax burdens—family foundations are also under many legal and regulatory obligations. These ongoing obligations mean that your family should choose to build a family foundation only if ongoing philanthropic giving is an enduring family goal.
Non-tax-related benefits of a family foundation include the following:
- Managing the foundation may provide employment for one or more family members
- A family foundation allows founders to involve family members in family wealth management, especially those who lack interest in the family business
- The foundation founder can maintain influence over recipients of charitable giving for generations to come
- A family foundation makes an excellent repository for all charitable giving requests. A formal process can be established to ensure grant applicants are not arbitrary.
- A family foundation can serve as a formal manifestation of a family’s philanthropic culture.
Types of Family Foundations
There are many different types of family foundations, each with certain advantages, disadvantages, and tax and regulatory obligations. The main types of family foundations include:
- Private non-operating family foundations which receive charitable donations from the family, invests those funds and makes gifts to other charitable organizations or individuals.
- Private operating family foundations which actively engage in one or more philanthropic activities, as opposed to making donations to other foundations that perform active charitable work.
- Supporting organizations which are designed to provide financial support to one or more specific public charities
- Publicly supported charities can be seeded with family philanthropic funds but then also take donations from the public. Publicly supported charities must meet specific Internal Revenue Service requirements to maintain their status as publicly supported charities.
Issues to Consider when Establishing a Family Foundation
- How much money do you plan to give to the foundation at its inception?
- Do you anticipate volunteer help from your family to run the foundation, or will the foundation need to pay one or more salaries?
- Does your family wish to support one or more specific charities, or do you want to fund a foundation which can ultimately choose among other charities in specific fields of philanthropic work?
- Does your family want to actively engage in philanthropic work or make gifts to other organizations that are already engaged in such work?
- Does the foundation founder prefer to exert strict control over gifts the foundation makes, or only to generally specify the types of philanthropic work he or she wishes the foundation to support?
Once you and your family have carefully thought through these considerations, you should consult with an estate planning attorney and other tax advisors to determine which type of family foundation most effectively meets your family’s giving objectives.
Monday, October 06, 2014
How to Keep Your Affluent Children From Turning Into … Well, … Brats
Congratulations are in order—you have accumulated enough wealth to be concerned about eventually passing it along to your children and grandchildren in a manner that will encourage them to lead positive and productive lives. Like many, your objective is to allow your children to enjoy the rewards of wealth without becoming irresponsible, overindulgent or feeling entitled to anything money can buy.
When it comes to sharing one’s wealth with adult children, there are some general principles that may help you guide your children as they shape their values. Two quotes about sharing wealth with children are an excellent starting point:
I wanted my children to have “enough money so that they would feel they could do anything, but not so much that they could do nothing.” – Warren Buffett
“It’s better to give with warm hands than with cold ones.” – Unknown
Establish Inter Vivos Trusts for Your Children, And Use Restrictions Creatively
You can establish inter vivos trusts (trusts that go into effect during your lifetime) and appoint professional trustees during your lifetime. Consider some combination of the following restrictions on the trust funds to help your children develop into competent, capable adults:
- Make receipt of funds dependent on employment
- Use trust funds to match income from employment
- Prohibit distribution of trust earnings until the child reaches a certain age (it is not unheard of to distribute trust earnings to children once they reach age 65)
- Make attaining a certain level of education a prerequisite to distribution of trust income
- Consider establishing a charitable trust or family foundation, with room for employment of your adult child in the foundation’s management
Consider a generation-skipping trust, so that your wealth is shared directly with grandchildren
Make Gifts or Loans During Your Lifetime—And Not Just Gifts of Money
This is the meaning behind the quotation above regarding warm hands and cold ones. It is better, in so many ways, to give gifts during your lifetime rather than after your death. In addition to gifts, consider making strategic, interest-free loans to your children to help them achieve certain goals without losing a lot of their own income to interest payments:
- Interest-free loans for higher education
- Interest-free loans for private education for grandchildren
- Interest-free loans for home purchases
In addition to giving gifts of money or making strategic loans, there are other “gifts” you can give your children to help them learn to live with wealth. Consider the following suggestions,:
- Hire a professional to teach your children how to manage their money, instead of banking on your children listening to your own lessons.
- Pay for family vacations that serve a philanthropic purpose, such as travel to Africa to deliver medical equipment to a remote town or travel to South America to help clean a national park.
- Begin or continue a family tradition of local volunteer work with disadvantaged people in your own community to ensure that your children get firsthand knowledge of how fortunate they are to have the resources your family has accrued.
In general, experts agree that families fare better when their wealth is used to enrich their lives and to help others less fortunate. Give your children opportunities to learn to use money in responsible ways, from as early in their lives as possible. Show them the difference between buying a new sports car and donating the same amount of money to a program that sends food to people in need. That isn’t to say a new sports car shouldn’t be on the shopping list – but perhaps it shouldn’t be the only thing on the shopping list.
Wednesday, September 17, 2014
A Simple Will Is Not Enough
Minneapolis Estate Planning and Probate Lawyer Explains the Minimum Documents You Need to Protect Your Family
I sometimes hear comments like "I just need a simple will" or "Why can't I just get my will on the internet"? I want to be clear that a basic last will and testament cannot accomplish every goal of estate planning; in fact, it often cannot even accomplish the most common goals. This fact often surprises people who are going through the estate planning process for the first time. Or worse, the family left behind finds this out when they attempt to settle a loved ones estate. In addition to a last will and testament, there are other important planning tools which are necessary to ensure your estate planning wishes are honored.
Do you have a pension plan, 401(k), life insurance, a bank account with a pay-on-death directive, or investments in transfer-on-death (TOD) form?
When you established each of these accounts, you designated at least one beneficiary of the account in the event of your death. You cannot use your will to change or override the beneficiary designations of such accounts. Instead, you must change them directly with the bank or company that holds the account. It is crucial that you update these as life changes.
Special Needs Trusts
Do you have a child or other beneficiary with special needs?
Leaving money directly to a beneficiary who has long-term special medical needs may threaten his or her ability to qualify for government benefits and may also create an unnecessary tax burden. A simple vehicle called a special needs trust is a more effective way to care for an adult child with special needs after your death.
Conditional Giving with Living or Testamentary Trusts
Do you want to place conditions on some of your bequests?
If you want your children or other beneficiaries to receive an inheritance based on certain prerequisites (life events such as marriage or at certain ages), you must utilize a trust, either one established during your lifetime (living trust) or one created through instructions provided in a will (testamentary trust). You can further use a trust if you would like any assets remaining at the death of your beneficiary (spouse) to be given to someone of your choosing. This is a popular estate planning tool used for blended families.
Estate Tax Planning
Do you expect your estate to owe estate taxes?
A basic will cannot help you lower the estate tax burden on your assets after death. If you think your estate will be liable to pay taxes, you can take steps during your lifetime to minimize that burden on your beneficiaries. Certain trusts operate to minimize estate taxes, and you may choose to make some gifts during your lifetime for tax-related reasons.
Joint Tenancy with Right of Survivorship
Do you own a house with someone “in joint tenancy”?
“Joint tenancy” is the most common form of house ownership with a spouse. This form of ownership is also known as “joint tenancy with right of survivorship,” “tenancy in the entirety,” or “community property with right of survivorship.” When you die, your ownership share in the house passes directly to your spouse (or the other co-owner). A provision in your will bequeathing your ownership share to a third party will not have any effect.
Financial Power of Attorney
Do you need someone to assist with your financial matters if you're incapacitated?
Clients often respond to this discussion by explaining that they don't need to appoint a financial agent because they're married and all assets are jointly held. However, the largest asset in most of your estates is likely your retirement account and that is held only in your name. If your spouse ever needs to contact someone regarding your retirement plan, the company will refuse to speak with them without a Power of Attorney.
Medical Power of Attorney/Health Care Directive
Would you like to appoint the person who will make medical decisions on your behalf?
You are able to appoint someone to make your medical decisions if you can't by using a health care directive. Without one, that person (even a spouse) will be forced to go to court to be appointed as a guardian to make such decisions. This can be a costly and lengthy process.
As you can see, there are many things to consider to ensure you have a full and comprehensive estate plan.This is such an important topic that the New York Times published an article how important it is to have more than just a will in the September 5, 2014 issue.
Please contact a Minneapolis estate planning lawyer to help work through the details of your estate.
Monday, September 01, 2014
Getting Married? Prenup Considerations Before You Say "I Do"
Although not every couple establishes a prenuptial agreement, there are several good reasons for having a smart prenup in place before saying those magical words, “I do.”Read more . . .
Thursday, August 28, 2014
Don't Disinherit with a Dollar
There are a lot of myths and misconceptions surrounding estate planning. Many people think that a last will and testament is the only estate planning document you really need. This of course is false. Others assume that you only need to have an estate plan in place if you’re a millionaire. This too is false. Another popular myth in the world of estate planning is that the best way to disinherit a relative (particularly a child) is to leave him or her a single dollar in your will. You probably guessed it- this too is entirely false.
The truth of the matter is that you must be very careful with leaving someone you really want to disinherit a token gift of $1 or some other small amount. By doing so, you have now made that person a beneficiary of your estate. It is possible, if not likely, that state law will require your executor to provide all beneficiaries with copies of all pleadings, an accounting, and notice of various administration activities. This may make it easier for this "beneficiary" to now complain about things and may cause problems for your executor which could cost your estate money.
Instead of leaving a token amount, you might consider mentioning the person by name so it is clear that you have not simply overlooked them. Then, you would specifically state you are intentionally disinheriting them from your estate. Also, consider if you wish to disinherit that person's children or more remote descendants and if so specifically state that as well in your will. You should consult with an estate planning lawyer to assist you in the proper wording as you will want to make sure there is as little likelihood of a will contest as possible.
Monday, August 18, 2014
Can You Remove A Trustee?
In creating a trust, the trustmaker must name a trustee who has the legal obligation to administer it in accordance with the trustmaker’s wishes and intentions. In some cases, after the passing of the trustmaker, loved ones or beneficiaries may want to remove the designated trustee.Read more . . .
Tuesday, July 29, 2014
Is a copy of a will sufficient?
Many people keep their important documents at home where they are easily accessible. It’s not at all uncommon to find people with a filing cabinet or even a shoe box containing passports, account statements, deeds, tax returns, birth certificates and social security cards. Wills are often added to these files once the estate planning process is completed. In choosing to store your important estate planning documents at home, however, you risk having the originals lost or destroyed in the case of fire, flooding or theft. So what happens if the original version of your will is lost or ruined?
When a person dies, Minnesota law determines what must happen in the state probate proceeding. In most cases, the "original" of the will must be submitted to the probate court in the county where the person resided. If the original of the will cannot be located and provided to the court, Minnesota's probate code does permit the submission of a photocopy of that signed will though it may cause a delay.
Should you lose the original copy of your will, the best practice would be for you to execute a new will which would make things easier for your family and loved ones upon your death. In that case there would be better assurances that your wishes were followed and carried out. Preparing a new will should not take much time for your attorney. If you work with Unique Estate Law, we can easily finalize a new original for you. In addition, if you have our Foundational Estate Plan, then you received a free account with Legal Vault and copies of your documents should all be online for your, or your loved ones, to access in case of emergency. If for some reason this is not done, you may wish to execute a document stating the original was destroyed in a flood or fire but that you did not intend to revoke it.
Another option to consider to keep the originals of your estate planning documents safe, even in the face of disaster, is purchasing a fireproof/waterproof safe for your home or rent a safe deposit box with a local bank where you can still easily access your documents but keep them secure off-site. Many of my clients have gun safes and have decided to put their plan in the safe. Also, each county in Minnesota will, for a small fee, store your original will.
If you have any questions on storage of your documents, please contact an estate planning attorney at Unique Estate Law.
Monday, July 21, 2014
How Long Until You Receive Your Inheritance?
If you’ve been named a beneficiary in a loved one’s estate plan, you’ve likely wondered how long it will take to receive your share of the inheritance after his or her passingRead more . . .
Monday, July 07, 2014
Testamentary vs Revocable Living Trust
The world of estate planning can be complex. If you have just started your research or are in the process of setting up your estate plan, you’ve likely encountered discussions of wills and trusts. While most people have a very basic understanding of a last will and testament, trusts are often foreign concepts. Two of the most common types of trusts used in estate planning are testamentary trusts and revocable living trusts.
A testamentary trust refers to a trust that is established after your death from instructions set forth in your will. Because a will only has legal effect upon your death, such a trust has no existence until that time. In other words, at your death your will provides that the trusts be created for your loved ones whether that be a spouse, a child, a grandchild or someone else.
A revocable living trust is created by you while you are living. It also may provide for ongoing trusts for your loved ones upon your death. One benefit of a revocable trust, versus simply using a will, is that the revocable trust plan may allow your estate to avoid a court-administered probate process upon your death. However, to take advantage this benefit you must "fund" your revocable trust with your assets while you are still living. To do so you would need to retitle most assets such as real estate, bank accounts, brokerage accounts, CDs, and other assets into the name of the trust.
Since one size doesn’t fit all in estate planning, you should contact a qualified estate planning attorney who can assess your goals and family situation, and work with you to devise a personalized strategy that helps to protect your loved ones, wealth and legacy.
Monday, June 23, 2014
Top 5 Overlooked Issues in Estate Planning
In planning your estate, you most likely have concerned yourself with “big picture” issues. Who inherits what? Do I need a living trust? However, there are numerous details that are often overlooked, and which can drastically impact the distribution of your estate to your intended beneficiaries. Listed below are some of the most common overlooked estate planning issuesRead more . . .
Wednesday, June 18, 2014
Can I Get In Trouble With the IRS for Trying to Reduce the Amount of Estate Tax That I Owe?
You’ve likely heard that one of the many benefits of estate planning is reducing the amount of federal, and state, taxes owed upon your passing. While it may seem like estate tax planning must run afoul of IRS rules, with the proper strategies, this is far from the case.
It is very common for an individual to take steps to try to reduce the amount of federal estate taxes that his or her "estate" will be responsible for after the person's death. As you may know, you may pass an unlimited amount of assets to your spouse without incurring any federal estate taxes. You may pass $5.25 million to non-spouse beneficiaries without incurring federal estate tax and if your spouse died before you, and if you have taken certain steps to add your spouse's $5.25 million exemption to your own, you may have $10.5 million that you can pass tax free to non-spouse beneficiaries.
If your estate is still larger than these exemption amounts you should seek out a qualified estate planning attorney. There may be legal, legitimate planning techniques that will help reduce the taxable value of your estate in order to pass more assets to your loved ones upon your death and lessen the impact of the estate taxes. After your death, the duty normally falls on your executor (or perhaps a successor trustee) to file the appropriate tax returns and pay the necessary taxes. Failure to properly plan for potential estate taxes will significantly limit what your executor/trustee will be able to accomplish after your passing.
If you have taken steps to try to reduce the taxes owed, it is possible that the IRS may challenge the reported value or try to throw out the method you used. This does not mean that the executor/trustee will be in trouble; it just means that they will need to be prepared to support their position with the IRS and take it through an audit or even a tax court (or other appropriate court system). In the event of a challenge, a good attorney will be critical to ensure all of the necessary steps are taken.
From within Hennepin County Unique Estate Law represents estate planning and elder law clients throughout Minnesota, including Minneapolis, Edina, Bloomington, St. Louis Park, Minnetonka, Plymouth, Wayzata, Maple Grove, St. Paul, and Brooklyn Park. The Minnesota law firm of Unique Estate Law focuses on all aspects of estate planning, including specialized wills, trusts, powers of attorney and medical directives for married couples, young families, blended families, single parents, gay families and those going through a divorce. Unique Estate Law also handles probate administration, asset protection, Medical Assistance planning, elder law, business succession planning, adoptions and cabin planning.