1st Sep 2014

POWER POINTS

+ Your estate plan can remain private and avoid court involvement when drafted and maintained properly.

+ Have an ongoing relationship with your advisor; a proper estate plan is not something you should stick in the closet and forget about.

+ It is important to understand and consider the process of estate administration and what you can do now to make it easier on your loved ones.

Over the past few years, we have seen several celebrities pass away unexpectedly with questionable estate planning or no planning at all. Whitney Houston1, James Gandolfini2 and Phillip Seymour Hoffman3 left wills to be viewed and analyzed by the public. It appears that Robin Williams knew better. One of the greatest benefits of Williams’ estate plan to his family is that we may never have a chance to analyze it.

Following his death, media reports indicated that Williams had established irrevocable trusts4 for the benefit of his children in 1989 and 2009. The trusts had to be filed with the court due to a drafting oversight, and thus became public. The trustee believed that the grantor (Williams) and the beneficiaries (Williams’ children) intended that there be two trustees serving at all times, but the trust document did not grant the trustee the power to appoint a co-trustee or successor trustee. The public filing of the trusts and the court costs could have been avoided if the documents had been drafted properly. Following his death, Williams’ publicist stated that those trusts were no longer part of his estate plan, but they do give us insight into Williams’ thoughts on passing his estate to his children. Even without seeing his last will and trust documents, there are several estate planning lessons that we can learn from Robin Williams’ life and death.

Keep Your Wishes Private

Whether you are a celebrity or not, one of the benefits of a trust is that it is a private document. The only individuals who have a legal right to view the trust document are the trustee and the current beneficiaries. On the other hand, a will must be filed with the county court after the individual’s death and may be viewed by anyone.

The last will that was executed by Williams will have to be filed with the Marin County court. However, if he had one or more existing trusts at the time of his death, then his will may divulge very little information to the public, possibly limited to the individual he named as the executor of his estate. Of course, his trust may be leaked to the media or, if another legal issue arises, may have to be filed with the court, but barring those scenarios, the terms of his trust will remain private.

Keep Your Estate Plan Current

The fact that an irrevocable trust that was prepared as recently as 2009 was no longer part of his estate plan indicates that Williams’ estate plan received the attention that it deserved and was being updated when the need or opportunity arose. There are several reasons why the trusts may have been terminated. The trustee of the 2009 trust may have “decanted” the trust assets to a new trust, paid out the principal of the trust for purposes allowed under the trust, such as education, medical expenses or living expenses, or if the trust was established to own life insurance on Williams’ life, Williams may have decided to let the policy lapse.

It is important to have an ongoing conversation with your estate planning attorney. If your documents are drafted properly, formal amendments should only be necessary if there is a change in your family or financial situation or if there is a significant change in the state or federal laws. However, ensuring that your documents continue to reflect your wishes5 and taking advantage of any available planning opportunities will help your estate avoid unintended consequences.

Protect Your Beneficiaries

Like Philip Seymour Hoffman, Williams had indicated during his life that he did not want his children to fall victim to the perils of celebrity and “affluenza.” Williams’ 2009 irrevocable trust provided for distributions to his children of one-third at age 21, one-half at 25 and the balance at age 30. Without any such restrictions, an heir is entitled to his or her entire inheritance upon reaching the state’s age of majority, which in California and Illinois is age 18. Most parents are not comfortable with their children receiving a large windfall at such a young age and therefore need a proper estate plan to prevent it from happening.

A growing trend amongst parents and grandparents is to not allow for any outright distributions to their descendants, but rather to only allow for distributions at the trustee’s discretion for the purposes stated in the trust document. The effectiveness of this plan can be increased by appointing an unrelated trustee6 who will strictly adhere to the terms of the trust and deny distributions when necessary.

What We Can Learn

Too many people underestimate the size of their estates and the need for a proper estate plan; instead, they assume that simple is always best. However, when they are presented with certain scenarios, such as a large inheritance for young children, court involvement or a potential divorce of a beneficiary, they realize that estate planning requires and deserves considerable attention. The problem with a shortcut estate plan, such as a basic will, is that it is only simple for the individual having the document prepared and will result in far more cost and complexity for the family. Investing in a proper estate plan will ensure that your estate is administered privately outside of the courts, that your beneficiaries are protected from not only outside threats but also from themselves and that taxes and administrative costs are minimized so that the greatest amount of your assets possible are distributed to your beneficiaries.

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1.  April 2012 Newsletter, Lessons from Whitney Houston’s Estate.

2.  August 2013 Newsletter, The Estate of “Tony Soprano.”

3.  March 2014 Newsletter, Phillip Seymour Hoffman’s Questionable Estate Plan.

4.  An irrevocable trust (as opposed to a revocable trust) is generally utilized when the individual has a taxable estate and would like to remove assets from his or her estate without giving the beneficiary complete control of the assets. As the name indicates, an irrevocable trust may not be amended or revoked by the grantor.

5.  Please see “Reviewing Your Existing Estate Planning Documents” in the October 2010 Newsletter.

6.  August 2014 Newsletter, Choosing the Right Trustee for You and Your Family.

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