Monthly Archives: August 2023

Losing a spouse is emotionally challenging. During this difficult time, managing finances can become overwhelming. The following are tips for widows or widowers dealing with financial matters after the death of a spouse:

1. Take Your Time: Grief can cloud your judgment, so give yourself time to process your emotions before making major financial decisions.
2. Gather Important Documents: Collect essential documents such as the will, death certificate, insurance policies, bank statements, retirement account details, property deeds, and investment information. These will be necessary for managing the financial aspects.
3. Notify Institutions: Inform relevant institutions about your spouse’s passing, including banks, credit card companies, insurance providers, and government agencies. This helps prevent any unauthorized access to accounts.
4. Update Beneficiary Designations: Review and update beneficiary designations on insurance policies, retirement accounts, and other assets. Make sure they reflect your current wishes.
5. Create a Financial Snapshot: Compile a comprehensive list of your assets, liabilities, income sources, and monthly expenses. This will help you understand your financial situation and make informed decisions.
6. Seek Professional Advice: Consider consulting a financial advisor, estate attorney, or tax professional who specializes in dealing with estates and inheritance. They can guide you through the legal and financial aspects.
7. Evaluate Immediate Expenses: Determine the immediate expenses such as funeral costs, outstanding debts, and any legal fees. Use available assets or insurance proceeds to cover these costs.
8. Review Social Security and Pensions: If your spouse was receiving Social Security benefits or a pension, understand how these benefits might change for you. Social Security survivor benefits and pension options may be available.
9. Assess Your Income: Understand your sources of income after your spouse’s death. This may include salary, pensions, Social Security, investments, and rental income.
10. Review Insurance Policies: Review your insurance policies to ensure you have adequate coverage for your needs. Update beneficiaries and assess whether any adjustments are necessary.
11. Manage Debt: Address any joint debts you and your spouse had. Determine how they will be paid off and consider seeking advice on handling them appropriately.
12. Create a Budget: Establish a new budget based on your changed financial circumstances. Prioritize essential expenses and allocate funds for savings and future goals.
13. Consider Downsizing: If your housing situation is no longer suitable, think about whether downsizing or relocating would be financially beneficial.
14. Update Legal Documents: Update your will, estate plan, and power of attorney documents to reflect your new circumstances and wishes.
15. Embrace Long-Term Planning: Start planning for your long-term financial future. This might involve retirement planning, investments, and estate planning to ensure your financial security.
16. Educate Yourself: Take the time to learn about financial matters if you’re not already familiar. Understanding investments, taxes, and other financial concepts can empower you to make informed decisions.

Not all this information applies, but it’s a helpful reminder about the many elements of finances that need to be addressed after a loved one dies.

The late Richard Blum, a billionaire investment banker and late husband of Dianne Feinstein, the Senior United States Senator from California. Anyone watching the news with any regularity knows that Dianne has had her fair share of press lately. Recent articles indicate that her daughter, Katherine Feinstein, acting as Attorney-in-Fact for Dianne, has initiated a third lawsuit in as many months against the Trustees of the Marital Trust established by Feinstein’s late husband accusing them of elder abuse. Obviously, starting here would be like starting a story in the middle, so let’s start at the beginning. This first part of a three-part series will explore the issues raised by the first lawsuit. The second part will delve into the issues raised by the second lawsuit and the third will explore the issues raised by the third lawsuit.

Richard and Dianne were married in 1980 and lived together in the community property state of California until Richard’s death in February 2022. During their marriage, Richard and Dianne established the Richard C. Blum & Dianne Feinstein Joint Property Revocable Trust, dated January 10, 1996 (“JPT”), and amended and restated it several times. They amended and restated the JPT in 2015 and that iteration forms the basis for the various lawsuits filed by Katherine on Dianne’s behalf. Richard and Dianne served as co-Trustees of the JPT until Richard’s death at which time, Michael Klein became co-Trustee with Dianne. On August 1, 2022, Dianne resigned as co-Trustee and Katherine became co-Trustee serving with Michael. The JPT holds title to three separate parcels of real property, one located in San Francisco, California, another in Stinson Beach, California, and one in Kauai, Hawaii.

The terms of the JPT require the Trustees to divide the trust estate into a survivor’s share and marital share upon Richard’s death. Dianne’s separate property along with her share of the community property will fund the survivor’s share which will pass through the Survivor’s Trust to the survivor’s separate property trust, the Dianne Feinstein Trust u/a/d June 23, 1978, as amended (“DF Trust”). The remaining assets constitute Richard’s share of the community property and comprise the marital share which will be distributed through a Marital Trust to Richard’s separate property trust, the Richard C. Blum Revocable Trust dated January 9, 1996, as amended (hereinafter “RCB Trust”). Michael Klein, along with Verett Mims, and Marc Scholvinck became co-Trustees of the RCB Trust upon Richard’s death.

The RCB Trust directs the Trustees to hold the property from the JPT in a marital trust (“RCB Marital Trust”) for the benefit of Dianne during her lifetime. Upon Dianne’s death, the assets in the RBC Marital Trust will pass to Richard’s daughters, Annette Blum, Heidi Blum, and Eileen Blum Bourgade. In addition to the property from the JPT, RCB Trust directs the Trustees to fund RCB Marital Trust with $5 million in cash and marketable securities. The terms of the RCB Marital Trust require the Trustees to provide Dianne with $1.5 million per year if the trust has sufficient liquidity.

The first lawsuit filed on June 27, 2023, contains four counts and various allegations found here: In the matter of The Richard C. Blum & Dianne Feinstein Joint Property Revocable Trust, u/t/a Dated 01/10/1996.

First, Katherine alleges that in the fifteen months since Richard’s death, the JPT co-Trustees failed to distribute any assets from the JPT to either the DF Trust or the RCB Trust. Further, Katherine alleges that Dianne desires to sell the Stinson Beach property as she no longer wants to use it or continue to pay for the carrying costs and has made several requests to the co-Trustee of the JPT regarding the same to no avail. The lawsuit alleges that no action has occurred on the property at least in part because Blum’s daughters want to limit the liquidity in RCB Marital Trust. Limiting its liquidity means smaller distributions to Dianne during her life with a greater portion of the trust going to Blum’s daughters as the remainder beneficiaries. Katherine’s lawsuit asks the court to direct Michael to sign documents to transfer the marital share to RCB Trust, surcharge Michael the costs of bringing the lawsuit, and prohibit Michael from using the JPT funds to defend himself. The lawsuit alleges that Michael has breached his duties as co-Trustee by failing to administer the trust.

Thankfully, this lawsuit has a narrow focus: Michael’s failure as co-Trustee of the JPT to fund the sub-trusts thereunder. The lawsuit focuses on the Stinson Beach property and Dianne’s desire to make improvements and sell it. Given this narrow focus, it’s easy to pull lessons from the lawsuit. Most importantly, Richard and Dianne should have planned exactly what would happen to the Stinson Beach property upon the death of either. By sending half to the DF Trust and the other half to the RCB Trust, they increased the tension between the surviving spouse and the children of the decedent spouse. Anytime an Estate Planning attorney deals with a blended family, they need to be sensitive to this issue. Many blended families sit before the attorney and promise that everyone gets along and that everyone agrees to a particular plan. Imagine the attorney’s surprise upon discovering that’s not the case after one spouse dies. I shy away from any arrangement that requires the surviving spouse and children from a previous relationship to agree by appointing an independent Trustee. While that’s what happened here, those independent Trustees have not done what’s required under the terms of the JPT or the RCB Trust. The Estate Planning attorney needs to encourage the parties to consider what should happen, be it sale, transfer in total to one trust, or decision solely by an independent Trustee, should the unthinkable occur and the parties have a falling out after death. Too often, as is the case here, that’s exactly what happens.

The other valuable lesson here is to encourage the Trustee to administer the trust expeditiously. Based upon what’s available publicly, it’s hard to determine whether the Trustees really breached their duties in administering the trusts or whether Katherine initiated the lawsuit early. Either way, the Trustees have a duty to administer the trust and should commence taking steps in that direction as soon as possible after the death of the Trustor. Sometimes delays result because of the assets of the trust, other delays result because the Trustee procrastinates. The former requires transparency by the Trustee whereas the latter may require a lawsuit.

While it’s unclear exactly where the parties stand in the proceedings, it appears that few or none of the usual actions required by a successor Trustee after taking office have occurred as of the filing of the lawsuit. While fascinating, it’s unfortunate that this matter will play out on a public stage. Typically, when litigation ensues, only the lawyers benefit as will no doubt be the case here. Litigation takes time and costs money during periods of significant grief. Stay tuned for next week’s installment which will focus on the second lawsuit.

Earlier this year the IRS released Revenue Ruling 2023-2. That Ruling examined a common situation in advanced estate planning. The grantor had set up an irrevocable trust and had gifted assets to the trust in what was a completed gift for gift tax purposes. The taxpayer retained powers which caused the trust to be taxed to the grantor for income tax purposes but did not cause inclusion for estate tax purposes. There are several such powers, such as the power to substitute assets under Code Section 675(4). The Ruling did not specify exactly which power had been retained to trigger grantor trust status.

A trust that is taxed to the grantor for income tax purposes (under the provisions of Code Sections 671 and following) is often called a “grantor trust.” A grantor trust which is not included in the taxable estate of the grantor is often called “intentionally defective.”

The Ruling looked carefully at Code Section 1014, which provides for a “step-up” in income tax basis when property is included in the estate of a decedent. The Ruling looked at the clear language of the Code and determined that it did not apply to property that was merely income taxable to the decedent since such property wasn’t acquired or passed from the decedent by bequest, devise, inheritance, or otherwise, as required by the Code section. (Sometimes, even property included in the taxable estate will not qualify for the step-up in basis, such as “Income in Respect of a Decedent,” e.g., an IRA.)

This Ruling did not break new ground. It merely confirmed what I already knew. Under Section 1014, a “step-up” in basis is only available when the assets are included in the taxable estate of the decedent.

The step-up in basis under Section 1014 may be one of the biggest tax loopholes. It allows the gain to escape income taxation entirely. For example, let’s say a taxpayer owns an asset, “Blackacre,” which they purchased for $50,000. Years later, moments before the taxpayer’s death, Blackacre is worth $500,000. If the taxpayer sold Blackacre before their death, they would owe tax on the appreciation of the asset. ($500,000 less their “basis” of $50,000, for a gain of $450,000.) Let’s say the tax rate on their gain was 20%, then they would have owed $90,000 in tax. However, if the taxpayer died before selling Blackacre, Blackacre would have received a new “basis” of the property’s market value as of the date of the taxpayer’s death, or $500,000. (While this is commonly known as the “step-up” in basis, if the value decreased, there may be a “step-down” in basis.) Thus, in this case the taxpayer’s estate or beneficiaries would owe no income tax when they sold the property after the taxpayer’s death for the stepped-up value.

However, to qualify for this loophole, the assets must be included in the decedent’s taxable estate. As the Ruling demonstrates, the fact the assets are in a trust which is income taxable to the taxpayer isn’t sufficient to qualify for this loophole, unless the assets are also included in the decedent’s taxable estate.

Recently, I received a question about interpretation of a simultaneous death clause and whether the individual could modify the clause. At first blush, I thought it was an easy answer, but as I thought through the various issues that the question raised, I realized the underlying complexity of the question. I thought if thinking through that issue caused me to pause, then it might do the same for others. I suspect that next week’s blog will return us to recent legislation or failure of celebrity planning, but this topic piqued my interest. As regular readers of this blog know, everyone needs a comprehensive Estate Plan. That comprehensive Estate Plan consists of a Revocable Trust, Will, Property Power of Attorney, Healthcare Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act (HIPAA) Authorization. While each document plays an important role in the plan, only two survive death, or have testamentary effect: the Revocable Trust and the Will.

Most married couples choose to create a plan that benefits the surviving spouse during life and thereafter goes to the couple’s children, or other beneficiaries. This plan works properly as long as it’s clear that one spouse survived the other. What happens if both spouses die at the same time or so close in time that it’s impossible to tell who died first? That’s where the simultaneous death provisions save the day. Simultaneous death clauses presume that one spouse survived the other so that the plan works the way intended. Without the simultaneous death clause, both estates might end up going through the probate process and their respective loved ones might spend significant time, money, and energy determining what goes where. It’s important for the drafting attorney to think through these issues to ensure that the plan structure works best for the family, regardless of which spouse the simultaneous death clause presumes survives. If the documents do not contain provisions regarding survivorship in a simultaneous death situation, then state statutes will make the presumption for the individuals.

Nearly every state has enacted the Uniform Simultaneous Death Act (the “Act”) in its original form, or the revised version promulgated in 1993 (the “Revised Act”) found here: https://www.uniformlaws.org/viewdocument/final-act-122?CommunityKey=09a6e8d3-0ee6-4b94-bd85-2386ed145502&tab=librarydocuments. The Revised Act expanded the narrow application of the Act to include more than simply situations in which it was unclear who died first.

The preamble to the Revised Act details some of the cases that led to revision of the Act. As originally promulgated, application of the Act often led to litigation whereby representatives of each side tried to produce medical evidence that one or the other survived by mere seconds. The preamble uses the word “gruesome” to describe the evidence. The Revised Act addressed that by inserting a 120-hours survivorship requirement which was originally inserted in the Uniform Probate Code years prior. The Revised Act included the “clear and convincing” standard to prove survival by that amount of time in the hopes that would reduce litigation. According to the Revised Act, in a situation when two or more individuals die at the same time, or within 120 hours of one another, then each individual will be treated as having predeceased the other. Thus, if John and Mary die together, for purposes of John’s estate, he will have died first, leaving Mary as the survivor, and for purposes of Mary’s estate, she will have died first leaving John as the survivor. Both the Act and the Revised Act make clear survivorship provisions contained in the documents themselves trump the provisions of the Acts. For this reason, it’s vital to review those provisions and ensure that they accomplish a client’s goals and work together. When both a Revocable Trust and Will are involved, the importance increases as there’s increased opportunity for typographical errors or mismatches in the provisions.

While you might assume that the simultaneous death clause only applies when an individual is married, that’s not the case. These clauses apply anytime two people die at nearly the same time. Most Revocable Trusts and Wills have separate provisions regarding presumption of survivorship for a spouse versus that for a beneficiary. Next time you draft a plan, make sure to consider the implications of the simultaneous death clause and make sure that it works for the individual’s assets and family.

On July 14, 2023, the Internal Revenue Service (“IRS”) released an advance copy of Notice 2023-54 (the “Notice”) that provides relief to plan administrators, payors, plan participants, IRA owners, and beneficiaries in connection with the change in required beginning date for required minimum distributions (“RMDs”) under §401(a)(9) of the Internal Revenue Code (“Code”) regarding RMDs for 2023. The Notice warns that final Regulations relating to RMDs yet to be issued will apply beginning on January 1, 2024. To better understand the impact of the Notice, let’s review some of the basics of the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act, the associated Treasury Regulations, and SECURE Act 2.0 (“the Act”).

SECURE changed the landscape of retirement planning by increasing the age at which a taxpayer could contribute to their Individual Retirement Account (“IRA”), creating a new class of beneficiary called the “Eligible Designated Beneficiary” (“EDB”), and eliminating the lifetime stretch for any beneficiary who is not an EDB and instead implementing the 10-year rule. For those needing a quick refresher, EDBs consist of surviving spouses, children who have not yet reached the age of majority, chronically ill or disabled individuals, and any other individual not more than ten years younger than the participant, or appropriately structured trusts for the benefit of those individuals. EDBs are the only beneficiaries exempt from the 10-year rule, which operated like the 5-year rule from pre-SECURE Act. Thus, under the 10-year rule, a non-EDB need not worry about RMDs and only needed to withdraw all funds by December 31^st of the year of the tenth anniversary of the participant’s death.

In February 2022, the United States Treasury released much-anticipated proposed regulations updating, among other things, the rules regarding RMDs from IRAs. The proposed regulations backtracked on some of the published guidance by adding the requirement of lifetime distributions to any non-EDB in years 1-9 after the participant’s death if the participant died after his or her Required Beginning Date (“RBD”). Now, any non-EDB needs to take annual distributions based upon the beneficiary’s life expectancy over the nine years following the participant’s death and exhaust the IRA by December 31^st of the year of the tenth anniversary of the participant’s death if the participant reached their RBD prior to death. Thankfully, the Internal Revenue Service realized that this represented a sharp departure from the advice that many advisors were giving their clients and promulgated Notice 2022-53 that confirmed waiver of any excise taxes resulting from failure to take RMDs in either 2021 or 2022.

SECURE 2.0 passed at the end of 2022 and built on the foundation of SECURE by extending, clarifying, and expanding provisions of the original SECURE Act. Notably, the Act increased the age at which the participant needs to begin taking RMDs to 73 beginning in 2023 and lasting until 2032, at which time the age increases to 75. SECURE also tied the RBD to April 1^st in the year after the participant reached the applicable age rather than age 72 specifically to accommodate this change. However, this change caused a bit of confusion because anyone reaching age 72 in 2022 would have had to begin taking RMDs in 2023 prior to the Act but given that the Act passed late in 2022, many failed to realize that they had no RMD due in 2023 and took those distributions and many plan administrators mischaracterized them as RMDs. This mischaracterization made the distributions ineligible for the 60-day to roll over to another plan or IRA.

The Notice fixes this issue by recharacterizing distributions from IRAs taken in 2023 and allowing individuals born in 1951 (or that participant’s surviving spouse) who took distributions between January 1, 2023, and July 31, 2023, to roll them over by extending the 60-day roll over deadline to September 30, 2023. Thus, if you received a lump sum distribution in January 2023, part of which was treated as ineligible for the roll over because it was characterized as an RMD, you now have until September 30, 2023, to roll over the mischaracterized part of the distribution. This same rule applies for certain IRA distributions made to an owner (or their surviving spouse) made between January 1, 2023, and July 31, 2023, to an IRA owner born in 1951 (or their surviving spouse) that would have been an RMD but for the change in RBD under the Act. The roll over is permitted even if the participant or spouse already rolled over a distribution in the last twelve months but will preclude any roll over in the next twelve months.

As should be clear, this article applies to a specific subset of people – only those born in 1951 who received a distribution in 2023. If you would like to read the Notice in its entirety, here’s a link: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-drop/n-23-54.pdf. This Notice provides a great opportunity to connect with clients and advisors to see if they want to take advantage of the extended roll over period.