Inheritance

Estate Planning for Blended Families Takes Special Consideration

Published on: October 12, 2015 | By McCulloch & Miller, PLLC

Anytime a blended family includes children from prior marriages, estate planning becomes more challenging, as reported in The Meridian Star, in “Estate planning after a second marriage.” If there are young children, how can you ensure that the surviving spouse will take care of them? And what if you pass away and your surviving spouse remarries? One way to prepare for this possibility is to make a child the primary beneficiary of a life insurance policy, place certain property under joint ownership with the child or set up a trust for your children. But none of these steps are simple, and all require the hard conversation with your spouse and with an experienced estate planning attorney.

If you have a written a will, it may require an update. Be extremely specific about which heir gets what and state bequests convincingly. The more convincing your bequest, the less ambiguity and the fewer issues that will arise. Also, update your beneficiary designations for retirement plans, investment accounts, and insurance policies. However, if you’ve been divorced, you may be precluded from changing beneficiaries in certain cases. Talk to a qualified estate planning lawyer. Take a copy of your divorcee decree with you and ask if revising your beneficiary designations will violate it.

You can also take a look at irrevocable trusts, which can be used to provide for your spouse and your kids. Some people establish a separate property trust to provide for their spouse after their death and designate their real property to their children. Parents can also create irrevocable trusts to direct assets to particular children. These can be great estate planning vehicles because: (i) a trust agreement isn’t a public document; (ii) assets within irrevocable trusts are shielded from creditors and from inheritance claims of spouses of the adult children named as heirs; and (iii) an irrevocable trust represents a “finalized” estate planning decision—which guarantees that particular assets transfer to a parent’s biological children. In addition, irrevocable trusts are rarely undone.

Intrafamily Loans: An Estate Planning Tool for Houston Families

Published on: October 6, 2015 | By McCulloch & Miller, PLLC

Utilizing intrafamily loans and trusts is one way that wealthy families can maximize their estate planning strategies. A recent issue of Barron’s features, “How Family Loans and Trusts Can Create Big Wins,” and outlines the specifics on intrafamily loans as an estate planning tool. The note has a fixed value, no matter how big the underlying asset grows.

With low interest rates, families with taxable estates can benefit from structured trusts and intrafamily loans. Not that these intrafamily loans have their own rates and rules – the rates on intrafamily loans allow parents to lend their children cash at rates far lower than a comparable commercial loan. Plus, they can be part of a broader wealth-transfer strategy.

For instance, an aging millionaire can fund a trust for his children’s benefit with a $100,000 gift. He then loans it $900,000 at the allowable 1.82 percent interest rate for five years, which the trust invests. The trust makes regular payments on the loan and then repays the principal in full at the term’s end. Any investment gains over that extremely low interest rate are tax-free in the trust for the next generation – it’s all legal and great planning.

Son’s Inheritance Funded Pursuit and Conviction of Mother’s Murderer

Published on: September 4, 2015 | By McCulloch & Miller, PLLC

It’s not exactly what most parents would want their children to use their inheritance for, but we suspect that this mother would have been very proud of her son.

John Bickman Walls told his son Pelle Walls, who was then 17, that his mother, Walls’ ex-wife, had committed suicide. Walls said that his ex-wife, Uta von Schwedler, a well-respected scientist, was found drowned in a bathtub.

Pelle was devastated, and before too long he began to suspect that his father had a hand in his mother's death. His father began acting strangely and saying things like "What if I did do it?" This behavior continued. When he reached the age of 18, Pelle moved out on his own. He eventually managed to get his siblings out of his father's control, due to the latter's erratic behavior.

Texas Politics: High Profile Guardianship Case

Published on: September 1, 2015 | By McCulloch & Miller, PLLC

Naming a guardian for minor children is never a pleasant task, but this situation makes a compelling argument for why it is so important. A Texas Attorney General with legal problems was appointed guardian of a large trust for two minor siblings and certain facts don’t seem quite right. That no investigation is being made makes one wonder if this is what their father had in mind.

When minors are to receive an inheritance and no guardian has been named, it is normal for a court to name a Guardian ad Litem. This is typically an attorney who is expected to represent the minors and look out for their best interests. When Tanner Hunt, the son of Texas billionaire Ray Hunt, passed away, he left behind a large trust fund and two minor daughters.

In the Hunt case, current Texas Attorney General Ken Paxton was appointed as the Guardian ad Litem for the minor daughters. Questions are being asked about Paxton's role in participating in negotiations that would have potentially bought the daughters out of any interest in the Hunt trust for a substantially lower amount than they would have otherwise been entitled to.

Australia Court Upholds Promise Based Upon Family Secret

Published on: August 28, 2015 | By McCulloch & Miller, PLLC

A promise to give an inheritance that is not fulfilled in a will can be challenged, if the promise can be proven and if the court agrees. The nature of the promise made to one woman in Australia is a sad reflection of a troubled family, but it does illustrate how courts treat promises.

Not every family story is a happy one, as illustrated in a case reported in The Age Victoria, "Woman sues mother over inheritance after keeping father's sexual abuse secret. A woman was sexually abused by her father starting when she was 14. The abuse continued for a year. She told her mother, who promised to end the abuse, but who did not leave the marriage. The mother asked her daughter not to tell the police.

The mother's reasoning was that the couple was putting together a large estate and if she left the marriage, her daughter would not get any of it. In exchange for not telling authorities about the abuse, the mother promised the daughter half of her estate.

New EU Rules May Impact Estate Planning for Land Owners Outside U.S.

Published on: August 24, 2015 | By McCulloch & Miller, PLLC

The European Union has put into effect new rules on inheritance laws that allow people to select which country’s laws they want to have applied to their wills. Americans who own property in the EU that they wish to pass on through their estate need to prepare for this change.

In the past, if you had a will written and executed in one country, and you died in that country, the law of that country would govern the distribution of your estate. A new rule from the European Union that is currently in effect will give you the option to choose which country’s laws you want to apply to your will. The country you have chosen must be designated in your will.

Thus, for example, if a German is living in Italy, he or she can write a will to be used in Italy but that applies German law. This is not limited to nations in Europe. An American living in Europe could chose to apply US law. The Connexion reported on this new rule in "New EU inheritance rules now in force ."

Houston Families Should Take Note of Pending IRS Changes

Published on: August 20, 2015 | By McCulloch & Miller, PLLC

The word is out in the estate planning bar that the IRS is looking at making an announcement this September about a favorite tax benefit gained from the use of family partnerships and LLCs. New regulations would effectively raise the taxable value of assets transferred into these entities, which currently enjoy a generous discount. Wealthy clients are being advised to set up partnerships now to capture what remains of these discounts before the new rules take effect.

According an article in Barron’s titled “IRS Considers New Tax on Wealthy Families,” any changes to tax benefits affection family partnerships and LLCs could have significant consequences.

The article explains that partnerships and LLCs currently let families pass on a minority stake in the family business or in a pool of privately-held investments to their children with little or no tax consequences. This is because minority shares in a private business are illiquid, or unable to be easily sold or exchanged for cash without a substantial loss in value. They are worth less, from a tax perspective, than their stated market value. This is a big help to families who want to lower the taxable value of their assets, and in some cases below the $5.43 million gift-tax exemption. It also works even if the underlying investments getting passed on are liquid. The discount could be as much as 20% to 25%.

Can Estate Plans Control Kids After Your Death?

Published on: August 5, 2015 | By McCulloch & Miller, PLLC

It is not unusual for wealthy parents to guide their children in their life choices while they are alive, and it’s also not unusual to control how heirs spend their inheritances. But using an inheritance as an incentive to reach specific benchmarks is a new one on us – and perhaps typical of the type of personality it takes to amass great wealth.

When New York real estate tycoon Maurice Laboz passed away, he left behind an estate worth approximately $35 million dollars, two daughters, 21 and 17, and an unusual estate plan.

As is often the case, Laboz did not leave all of that money to his daughters right away. Instead, they must wait until they are 35 years old to receive their inheritances.

Estate Tax Planning Remains Important Step for Some Houstonians

Published on: July 31, 2015 | By McCulloch & Miller, PLLC

Estate taxes are seen by some as instruments of public policy, an attempt to fight economic inequality by diminishing the ability of wealthy families to aggregate vast amounts of wealth. Others see estate taxes as a “death tax” that penalizes those who are financially successful. Whatever your opinion, estate tax rates are still quite high compared to other taxes. This creates an incentive to plan in advance and use sophisticated methods to reduce estates taxes.

Thirteen different brackets might make you think that estate tax planning is all about college basketball! According to a Fox Business article, “2015 Estate Tax Rates: How Much Will You Pay?” the rate structure for the estate tax has remained virtually unchanged since 2013, even with these numerous brackets. See the chart below for a birds-eye-view of the 13 different brackets:

Amount of Taxable Estate	Tax Bracket
$0-$10,000	18%
$10,001-$20,000	20%
$20,001-$40,000	22%
$40,001-$60,000	24%
$60,001-$80,000	26%
$80,001-$100,000	28%
$100,001-$150,000	30%
$150,001-$250,000	32%
$250,001-$500,000	34%
$500,001-$750,000	37%
$750,001-$1 million	39%
Over $1 million	40%

Source: IRS

Before you do any number crunching, remember that the federal government has an estate tax exemption for all estates more than $5.43 million (in 2015). The “lifetime exemption amount” is the cut-off mark for how much wealth each person can pass to their heirs without owing any estate tax.

The article explains that the exemption is different than a standard deduction. What you do is look at all your taxable estate assets and knock out the first $5.43 million. If you have more than that, the estate tax will be at the maximum rate of 40 percent on the portion of the estate that’s above the $5.43 million threshold. For instance, if your estate is $5.44 million, then your estate's tax liability would be $4,000 — which is 40 percent of the $10,000 above the $5.43 million threshold.

An estate planning attorney can help you with some ways to reduce or even eliminate your estate tax liability. This can include gifts during your lifetime to reduce your estate assets at your death. The law says that you can give an individual up to $14,000 annually without having to pay any gift tax. If you give more than that amount, you'll start using up your lifetime exemption. You don’t want that!

There are also many more-complicated methods of giving money to potential heirs during your lifetime that can reduce your eventual estate tax bill. Talk with your estate planning attorney about these more complex strategies and leave more money for your heirs and less for taxes.

For additional information on estate tax planning and elder law topics in Houston, please click here to visit my website.

Reference: Fox Business (July 16, 2015) “2015 Estate Tax Rates: How Much Will You Pay?”

Two Key Documents for Houston Estate Planning

Published on: July 28, 2015 | By McCulloch & Miller, PLLC

When a man who had remarried passed away, his children were less upset about his leaving everything to their stepmother as they were about her decision to liquidate the family home and furnishings. Rather than give them an opportunity to enjoy things that had special meaning to the children, she took the position that they could come to the auction and bid on the items, just like anyone else who attended the auction. The heartbreak and hard feelings that resulted could have been prevented with the use of two documents: a Letter of Instruction and a Personal Property Memorandum.

While it seems that listing out personal assets like jewelry, books, photo albums and home furnishings might be tedious and not really necessary, a recent article in Forbes, “Simple Steps To Prevent Future Family Inheritance Rifts,” points the way to using two documents that can ensure that your personal property goes where you want it to go, and also saves your heirs from losing personal items that may hold a great deal of meaning to them.

A Personal Property Memorandum is a legally binding document. It is to be referred to in the will that is to list all the personal property you want to leave to your heirs and loved ones. A personal property memorandum is recognized in 30 states and must be referred to in the will. But the document doesn’t need to be notarized or witnessed. The article suggests that you clearly describe these items so they aren’t confused with others. For example, “All of the Barry Manilow LPs in my collection are to go to Cousin Buddy.” Make sure your executor or executrix has the correct information, as well. You don’t want the wrong relative to walk off with your disco records!