Author Archives: Robert Mondo

Just about a year ago, I examined the case of In Re Gregory Hall Trust, No. 361528 (Mich. Ct. App. March 16, 2023) In Hall, the upper court affirmed a lower court opinion holding that a spreadsheet created by the decedent years after executing his Estate Plan and prior to his death constituted an amendment to his Trust, notwithstanding that the document was not in the form of a typical Trust amendment and notwithstanding that it did not conform exactly to the terms of amendment set forth in the Trust. Earlier this year, the Supreme Court of California examined a similar case, Haggerty v. Thornton, San Diego County Superior Court 37-2019-00028694-PR-TR-CTL (February 8, 2024), and allowed a handwritten amendment of a Trust which failed to follow the method for modification set out in the Trust itself. Let’s explore.

Jeane Bertsch (“Bertsch”) created a revocable trust in 2015 naming an accountant and professional fiduciary as her successor Trustee. The Trust left several bequests to friends and family members, including $50,000 to her niece, Brianna Haggerty (“Haggerty”). The terms of the Trust split the remainder after the specific distributions between two non-profit organizations. In 2016, Bertsch amended the trust naming her niece as the successor Trustee in place of the accountant and increasing her niece’s bequest by naming her as remainder beneficiary of the Trust in place of the non-profit organizations. Sometime thereafter, Bertsch had a disagreement with Haggerty and subsequently created a handwritten amendment in 2018 removing Haggerty as beneficiary and fiduciary. The 2018 amendment was signed by Bertsch, but it was not notarized. Bertsch sent the amendment to the attorney who had drafted the Trust and the 2016 amendment along with a note to the attorney to place the document with her Trust and noting that the attorney could verify her handwriting. Bertsch died in late 2018.

Shortly after Bertsch died, Haggerty and the successor Trustee named in the 2018 amendment submitted competing petitions to the probate court both asking to be named as successor Trustee. Haggerty’s petition alleged that the handwritten document was invalid because it was not notarized and therefore not “acknowledged” as required by the Trust. Of note, the Trust contained the following reservation of rights: “[t]he right by an acknowledged instrument in writing to revoke or amend this Agreement or any trust hereunder.” The probate court found that the Trust amendment was valid. Haggerty appealed that decision to the Court of Appeal, Fourth Appellate District, Division One. The Court of Appeal affirmed the lower court’s decision holding that the 2018 amendment was a valid modification pursuant to the statutory method.

California Probate Code Section 15402 provides that “[u]nless the trust instrument provides otherwise, …the settlor may modify the trust by the procedure for revocation” which is set out in California Probate Code Section 15401. That section allows modification as provided in the Trust instrument and explains that if the Trust clearly declares that method exclusive, then the Trust may not be modified in any other way. Absent such a clear instruction, the Trust may be modified as set forth in the California Probate Code. The California Supreme Court affirmed the Court of Appeal decision holding that because “the method of revocation and modification described in the trust agreement is not explicitly exclusive” Bertsch modified her Trust under the procedure set forth in the statutory method which allows modification by “a writing, other than a will, signed by the settlor…and delivered to the trustee during the lifetime of the settlor…” Bertsch’s handwritten amendment met the statutory requirements and therefore was a valid modification under California law. For those interested, the California Supreme Court does an excellent job detailing the various lower court holdings, reviewing the applicable statutes, and pulling it all together: https://cases.justia.com/california/supreme-court/2024-s271483.pdf?ts=1707415308.

Without question, this case will have a lasting impact on Trust modification in California.

This case, like Hall, demonstrates that courts have begun moving away from strict adherence to the methods of amendment set forth in a Trust agreement itself in favor of complying with the deceased Trustor’s probable intent when evidence exists supporting that intent. While it’s possible to find opinions that require strict compliance with the terms of the Trust or applicable statute, Hall and now Haggerty mark a shift toward “substantial compliance” under the statute. Of course, this shift could result in increased litigation or dispositions that fail to meet a decedent’s true intent which makes proper Estate Planning with a qualified Trusts and Estate practitioner all the more important. Don’t leave your legacy to chance. Make sure that your Estate Plan says and does what you want it to do. After all, you never know when a disgruntled beneficiary may try to obtain more or less than the share to which they are entitled under your plan. Let me ensure that you have left nothing to chance and that your estate will pass to your intended beneficiaries.

layer turned actor; his relationship with Nicole was volatile, even after their divorce. When Nicole and Ron were found dead outside her condo, he was the prime suspect. It would have been difficult to script a better “made for television” scenario. Ultimately, O.J. was acquitted of the criminal charge but he continued to face legal obstacles for the remainder of his life.

Perhaps the most detrimental legal obstacle came in the form of a civil judgment against him in favor of the families of Nicole and Ron in the amount of $33.5 million. O.J. was forced to surrender many of his valuable possessions, including his Heisman Trophy, to raise funds to pay the judgment. He was in and out of the limelight in the years since that trial but that didn’t dampen the public’s fascination with the “Juice.”

Days after O.J.’s death, his Will was filed in Clark County Court in Nevada. The Will appointed Simpson’s longtime attorney, Malcolm LaVergne, as Executor of his estate. LaVergne acknowledged that O.J. failed to pay most of the judgment he owed the families of Nicole and Ron, and sources indicate that amount has ballooned to $114 million with interest. As the Executor of O.J.’s estate, he will need to address that judgment. Earlier this month, he raised eyebrows when he told the Las Vegas Review-Journal during a telephone interview that “[i]t’s my hope that the Goldmans get zero, nothing” and that he would “do everything in my capacity as the Executor or personal representative to try and ensure that they get nothing.” Turns out that’s not the job of the Executor.

An Executor serves as a fiduciary which imposes a duty to do what’s in the best interest of the estate. An Executor should start by reading and understanding the Will. The Will serves as a set of instructions to the Executor regarding what to do with the assets of the decedent. It may include instructions regarding how assets should be distributed or how debts, expenses, and taxes should be paid. In most states, whoever holds the Will needs to deposit it with the court within a certain time after the death of the decedent. This marks the beginning of the probate process during which a judge oversees the many steps involved in this public proceeding. The judge issues Letters of Administration or similar documents that give the Executor power to marshal the assets of the estate. The Executor may use the Letters of Administration, a death certificate, or completed forms to collect the assets. That’s one of the most important functions of the Executor. In fulfilling their duties, the Executor may need to hire one or more appraisers to value those assets, either for the court proceeding, for dividing the estate appropriately, or for purposes of completing the decedent’s tax returns.

In addition to collecting assets and filing tax returns, the Executor needs to determine which bills remain unpaid at death and to decide which expenses incurred during administration should be paid. As part of the process, the Executor follows statutory preference in paying the creditors, but the Executor cannot exercise discretion to give preference to one creditor over another. That would be a breach of the Executor’s fiduciary duties. It seems that someone advised LaVergne regarding this because days after his original statement he told ABC News that “[n]ow that I understand my role as the Executor and personal representative, it’s time to tone down the rhetoric and really get down to what my role is as personal representative.” A wise decision, indeed.

As this article demonstrates, who you choose as Executor matters because of the vital role the Executor plays in estate administration. Any fiduciary you appoint will be responsible for ensuring the smooth transition of your estate at your death to your intended beneficiaries. Let’s hope that Mr. LaVergne continues to heed the advice he’s been given and administers O.J.’s estate appropriately. 

Some of my earliest memories of my grandfather is centered around his skill as a tool and die maker and his tools. I found many treasures in his basement tool chest and workbench and loved to visit my grandparents just to explore. My favorite part was when he would invite me to help him work on whatever project he had going. My grandfather was an avid tinkerer and made rings using silver spoons he bought at garage sales and always gave them away. While I wasn’t involved, I’m certain my grandfather spent hours, days, and likely weeks curating the various projects her had going. My favorite thing to do with him was to work on the 1973 Cutlass S that I ultimately received as my first car. I drove that car until the tires were bald and all of my friends affectionately remember all of the adventures we had in that car.

When he passed, all of his (and my grandmother’s) personal property were in their Trust. As such, valuation of these assets is often daunting. That’s often an issue for someone who inherits tangible personal property; no one has educated them on how to maintain or value a collection. These beneficiaries might only see a fraction of the true worth of the collection because they lack the skills necessary to determine, let alone obtain, top dollar for the collection.

Some articles have warned us that tangible personal property has less value than ever and that the next generation doesn’t want to deal with selling grandmother’s lot of jewelry. Others have reported the opposite and encourage an understanding of the value of tangible personal property. These sources provide a plan for maintaining collectibles and provide instructions for recipients of that property. The remainder of this blog will do the same.

Collections come in many forms such as jewelry, art, furniture, books, dolls, or baseball cards. Regardless of the type of collection, it’s important to inventory the items in the collection. While this seems like an obvious first step, you’d be surprised how many people skip it. It’s usually the collector who understands what pieces belong and how to determine their value. Yet that same collector has failed to list the items of the collection together, or worse yet, failed to keep the collection together. Perhaps the collector has sold, gifted, or loaned pieces over the years. The collector needs to understand that an estate inventory might establish a lower price for an item to keep potential taxes and fees for the estate to a minimum. For that reason, the inventory should include a list of all items, preferably with photographs and disclosure of location. The inventory should include the dates of creation or acquisition, including any bills of sale, licenses, assignments, or copyrights associated with the collection along with the names and contact information for any galleries housing the items as well as any auction or exhibit catalogs that depict the items. The collector should use a certified appraiser to value the collection and update the inventory regularly.

The second step involves aggregation. A collection may be more than tangible items. As noted above, it may include documents, catalogs, notes, letters, bills of sale, and associated paperwork. These items taken together help determine the provenance and value of each item making it vital to group them together. This helps streamline the collection and determine which assets have more value than the others. It may make sense to break the bigger collection into smaller groups based upon the market volatility or the intended recipient. Aggregating the items properly helps the individual who inherits the items receive top dollar for the collection if later sold. If there are items that are exceptionally valuable in the collection, it’s important to alert the beneficiaries to that value during life so that they know the importance of a particular piece and understand the importance of hiring a professional for valuation and sale purposes.

Management is the last step. Once the client cultivates the collection, then the client needs to determine whether the intended beneficiaries possess the skills required to manage the collection once the client dies. That means understanding the market fluctuations in the collection and deciding whether it makes sense to buy additional items for the collection or sell the collection. Multiple collections likely require several professionals involved with management. The individual managing the collection carries significant duties in managing it responsibly, limiting potential losses, and maintaining an unbiased view of the collection. Depending upon the terms of the estate planning documents, one or more fiduciaries may handle the collection before transferring it to the beneficiary and those fiduciaries need to understand the various steps necessary for proper management. The collection may need insurance to offset any additional administrative costs or taxes, storage and transport may require special skills or tools. The fiduciary may need to establish the provenance of the items. Finally, it’s important to consider intellectual property including copyrights for published images or music.

As this article demonstrates, Estate Planning includes planning for tangible personal property. Not every item belongs in a collection or has monetary value, but if an estate contains items that do, then the collector should take steps during life to help protect those items for the intended beneficiaries.

Clients desiring to make gifts often ask about the conditions that they can place upon the gift thereby requiring or forbidding some act prior to receipt. Requests run the gamut from prohibition on tattoos to no children outside of wedlock to divorce of a spouse. If the condition goes against public policy, for example, requiring divorce or a criminal act, or is otherwise impossible to meet, for example, transmuting into an inanimate object, then it will be ignored. Recently, a Michigan case, Marine-Adams v. Tenerowicz (In re Boutet), (2024 Mich. App. LEXIS 643), examined what happens when the intended donee decided against meeting the prerequisite conditions for receipt of the gift.

In 2005, Bernard Boutet created a revocable trust naming himself and his wife, Marilyn, as co-Trustees which they amended later that year. Upon the death of Marilyn and Bernard, the trust was to benefit their three children, Darrell, Dale, and Diane. Marilyn died in 2009. Their son, Dale, died in 2014. Bernard amended the trust twice in 2019, both on the same day. One amendment named the attorney who drafted the trust as successor Trustee of the trust. The other amendment inserted language that conditioned Diane’s receipt of a portion of the trust upon her disclosing her son’s father to her son and providing scientific evidence of the same within 60 days of Bernard’s death. Bernard died about six months after executing the 2019 amendments. After Bernard’s death, Diane met with the drafting attorney to discuss the last amendment. The case indicates that Diane understood that she would forfeit her inheritance if she failed to meet the conditions imposed upon the gift, that she was not certain which of two men was the biological father, and that she was estranged from her son at that time. The case further indicates that Diane failed to take any action because she thought that the terms of the conditions were unenforceable, although she took no steps to have the conditions declared unenforceable.

In 2021, the successor Trustee petitioned the court to modify the trust and for instructions regarding what to do with Diane’s share. The successor Trustee failed to notice the other trust beneficiaries and the probate court denied the petition. Shortly thereafter, the other beneficiaries filed a petition to remove the successor Trustee. In their petition to the court, they argued that the successor Trustee breached his duties by failing to follow the terms of the trust by doing what was necessary to forfeit Diane’s share of the trust based upon her failure to fulfill the conditions placed on her gift by her father. The court removed the successor Trustee and granted the beneficiaries’ request for forfeiture of Diane’s share. Diane appealed and lost. The appellate court found that the Trust had clearly defined the acts that Diane needed to take to receive her share of the Trust and that she failed to provide any information to her son and failed to undertake any steps to comply with the conditions or have them declared invalid. Dicta in the concurring opinion seemed to indicate that if Diane had raised the issue of the conditions being invalid as against public policy, she may have prevailed. Of course, because Diane failed to raise the issue in the lower court, she was precluded from raising it on appeal.

While it’s unclear whether Diane would have prevailed in having the condition set aside were she to have objected earlier in the proceedings, it’s important to take the lesson of being proactive when faced with seemingly unreasonable conditions. Had Diane sought court intervention earlier in the process instead of doing nothing, she may have walked away with something, even if only through settlement. Instead, her inactivity caused her to lose out on her inheritance. If you are thinking about imposing conditions on a gift, make sure to reach out to a qualified Trusts and Estate Practitioner for help in crafting the provisions in a way that will withstand judicial scrutiny. Likewise, if you are a beneficiary receiving a gift subject to a condition, make sure that you abide by that condition.

In the days preceding and following the Super Bowl, Taylor Swift seemed to be everywhere. I read numerous articles ranging in topic from her love life to conspiracy theories to her societal influence and back again. As I read, it occurred to me that blogs must exist about Taylor Swift and Estate Planning. Several authors have written on the interrelationship of those topics and it’s easy to see why. Arguably, 2023 was the year of Taylor Swift’s “Wildest Dreams.” Time magazine named her Person of the Year, she headlined the highest-grossing, billion-dollar, worldwide tour which nearly broke Ticketmaster, and began a high-profile romance with now three-time Super Bowl champion Kansas City Chiefs tight end, Travis Kelce. Call me “Enchanted.”

Naturally, I wanted something relevant for Estate Planning and decided that regardless of whether we have “Bad Blood” toward Taylor Swift, it’s hard to deny her “Style” or impact on the “Cruel Summer” that was 2023. Let’s review the empire that she has built that involves not only her earnings from record deals and concert ticket sales but also lucrative endorsement deals, merchandising, and significant real estate holdings. Turns out that Taylor Swift knows “All Too Well” what she wants and understands how to get it. She’s a savvy businesswoman.

When her first recording label sold her recordings to a well-known manager, Taylor Swift spoke against the sale and began re-recording and re-releasing songs titled “Taylor’s Version” followed by the original song title. If this sounds like an easy way to expand her music catalog, it’s much more than that. It’s an “Invisible String” to ensure that anytime an individual downloads or plays the “Taylor’s version” of the song, she herself, rather than the company that purchased her recordings, receives the royalties from the song. Not only has Taylor found a way to control royalties from her early work, but she’s also found a way to prevent others from using her likeness and phrases by trademarking them. Taylor Swift prevents their use with anything other than her products and services. She has even trademarked her name! This “Fearless” business strategy allows her to control her image and career and protect both.

Taylor has extensive real estate holdings in several states, including California, New York, Tennessee, and Rhode Island. These properties have a value exceeding $150 million. She owns these properties through a trust demonstrating that she has enlisted the help of appropriate advisors to help fill in any “Blank Space.” Finally, Taylor has increased her intrinsic value by associating herself only with brands that she uses herself. In 2022 FTX offered her a $100 million sponsorship deal and she walked away, perhaps thinking to herself “We Are Never Ever Getting Back Together.” Shortly thereafter, several other celebrities initiated a class action lawsuit against the company. Clearly, Taylor saved herself from becoming involved in the lawsuit or associated with the company in any way.

As this article demonstrates, Estate Planning lessons (and opportunities) surround us. Estate Planning matters not just to prevent things from going wrong, but also serves to ensure that they go right. The lessons that this article explores remind us as Trusts and Estates practitioners not only to use reliable methods to achieve desired results, but also to think creatively when problems arise. When her first recording company sold her recordings, Taylor could have had “Bad Blood” or thought “Is it Over Now?” Instead, she found a way to “Shake it Off” and reclaim her music. Likewise, she employs multiple means of protecting her empire, as should anyone who wants to leave a legacy. If you have questions about your Estate Plan or want to discuss your legacy, “You Need to Calm Down” and reach out to me and we can discuss how best to support your intended wishes with best outcomes.

On January 1, 2024, the Applicable Exclusion Amount (“AEA”) reached a record high amount of $13.61 million. The AEA is the amount that any person can pass to a non-spouse without incurring an estate tax. An individual can pass an unlimited amount to the U.S. citizen spouse without worry about incurring a gift or estate tax. In 2011, legislation set the “permanent” exclusion amount at $5 million, as adjusted for inflation. The Tax Cuts and Jobs Act of 2017 (“TCJA”) temporarily doubled the exclusion amount from $5 million to $10 million, as adjusted for inflation. Provisions of the TCJA cause the doubled amount to sunset on December 31, 2025. Thus, on January 1, 2026, the exclusion will return to $5 million, and with inflation adjustment it’s expected to be around $7 million at that time. Any transfer exceeding the AEA will be taxed at a rate of 40% on the overage. Given the nearly $7 million difference between the current AEA and the reduced AEA in the future, individuals whose estates exceed $6.5 million need to think about how to take advantage of today’s AEA. Using the AEA now ensures that individuals get to utilize the higher amount before it sunsets.

Let’s look at a quick example. Assume that an unmarried client has $15 million. They could give away $13.61 million this year and retain $1.39 million. At the client’s death in 2026, they’d only owe tax on the $1.39 million in their estate. If the client were married, that client could use a Spouse And Family Exclusion (SAFE) Trust, (sometimes called a Spousal Lifetime Access Trust (SLAT)) to hold the gift. Such a trust is set up by one spouse for the benefit of the other spouse and their children. The SAFE Trust appeals to many married individuals because even though the donor spouse gifts assets to the SAFE Trust, because the gift benefits their spouse, the donor spouse has indirect access to the assets.

For persons with wealth that exceeds twice the AEA, it may make sense for each spouse to consider establishing a SAFE Trust for the benefit of the other. This allows each spouse to utilize their AEA while having direct access to the assets in the trust of which they are the named beneficiary and indirect access (through their spouse) to the assets of the trust for the benefit of their spouse. Of course, this structure carries some risk. The spouses need to ensure that sufficient differences exist between the two trusts to avoid the “reciprocal trust doctrine.” Under the reciprocal trust doctrine, if the trusts are mirror images of one another, or relatively mirror images, the IRS will recharacterize two trusts and treat the trusts as if each spouse created a trust for himself or herself which will cause inclusion of the assets in the trust in the donor/decedent spouse’s estate.

Let’s assume that Amy and Sheldon have $30 million, $15 million each, and wanted to take advantage of the temporarily increased AEA. Sheldon gifts $13.61 million to a trust for the benefit of Amy and their children. Likewise, Amy gifts $13.61 million into a trust for the benefit of Sheldon and their children. Each spouse now only has $1.39 million left in their respective estates. The attorney drafting the trusts needs to design them in a manner that avoids the reciprocal trust doctrine. Generally, that means creating as much difference between the trusts as possible. For example, one trust might name one of the spouses as Trustee, but the other trust might name a third party as Trustee. Perhaps the trusts have different standards for distribution of income and principal. One trust might give the spouse a 5 and 5 power and the other might give the spouse a limited power of appointment. The more differences that that the trusts have, the less likely that they run afoul of the reciprocal trust doctrine.

If the trusts have been structured properly, then neither estate will include the assets of the trust. Unfortunately, without estate tax inclusion, the assets in the trusts do not receive a step-up in basis at death. For this reason, it’s important to consider what assets to use for funding the SAFE Trust. Given that the estate tax rate exceeds the long-term capital gains tax rate, the benefit of removing the assets from the estate likely outweighs the potential for capital gains taxes in the future.

The SAFE Trust has certain risks. First, there’s the risk that one spouse fails to create a SAFE Trust for the other. There’s always the risk of the spouses divorcing. Finally, there’s the risk that one spouse dies prematurely thereby causing the surviving spouse to lose indirect access to assets in the SAFE Trust for the benefit of that decedent spouse. Everyone has unique circumstances, including different levels of risk tolerance, which means that the SAFE Trust is not a one-size-fits-all solution. Regardless, given the sunset of the doubled AEA on January 1, 2026, it’s a great time to open the discussion about ways to take advantage of the AEA before the sunset.

Congress enacted the Corporate Transparency Act (the “Act”) for Fiscal Year 2021 as part of the National Defense Authorization Act with an effective date of January 1, 2024, which this blog first reviewed herein The Not-So Transparent Corporate Transparency Act. The Act requires any “Reporting Company” to file “Beneficial Ownership Information” (“BOI”) reports with the Financial Crimes Enforcement Network (“FinCEN”) for its “Beneficial Owners” and if created after January 1, 2024, its “Company Applicants.” Failure to report the required information may result in civil penalties of up to $500/day until corrected or criminal penalties of 2 years imprisonment or a $10,000 fine.

The Act originally imposed a 30-day deadline to report for any entity created on or after January 1, 2024. Thankfully, FinCEN published proposed and final regulations on November 30, 2023, extending that deadline to 90 days after confirmation of creation of the entity. Reporting Companies in existence prior to January 1, 2024, have until January 1, 2025, to file their BOI report. Reporting Companies created on or after January 1, 2025, have 30 days to file their initial BOI report. Note that pending legislation may extend the deadline for companies in existence prior to January 1, 2024, to file their BOI an additional year, until January 1, 2026; however, unless and until passed, all Reporting Companies existing on December 31, 2023, should follow the January 1, 2025, deadline. FinCEN has published “Beneficial Ownership Information Reporting Frequently Asked Questions” and guidance on how to complete the report (www.fincen.gov/boi) to help explain the Act and the reporting requirements.

The Act defines a Reporting Company as any entity formed by a filing with a secretary of state or any foreign entity that’s registered to do business in the United States by filing with a secretary of state. This intentionally broad definition means that most privately owned businesses such as any corporation, limited liability company, limited partnership, or limited liability limited partnership, along with any other entity formed by filing a document with a secretary of state, will be subject to the duty to report. General partnerships, sole proprietorships, and trusts do not file documents with a secretary of state upon creation and thus are exempt from reporting. The Act exempts twenty-three categories of organizations such as banks, credit unions, depositories, securities brokers and dealers, tax-exempt entities, and large operating companies, all of which are already highly regulated.

Every Reporting Company needs to report its legal name, any names under which it does business, a principal business address, the jurisdiction of formation, its taxpayer identification number, and its Beneficial Owners. The Act looks at two separate “tests” to determine Beneficial Owners: the substantial control test and the 25% ownership test. Beneficial Owners are individuals who own or control 25% or more of ownership interest or any non-owner that exercises substantial control over the company. While those categories seem clear, a deeper investigation reveals they aren’t.

The “substantial control test” means any individual exercising substantial control over the company fits the Act’s definition of Beneficial Owner and therefore the Reporting Company needs to report the individual as a Beneficial Owner. A President, CEO, CFO, COO, general counsel, or any other individual performing similar functions exercises substantial control. Additionally, under the Act, anyone with the authority to appoint or remove certain officers, a majority of directors, or similar group of the Reporting Company exercises substantial control. Finally, any individual with the authority to make loans, undertake debt, modify governing documents, or otherwise make or influence important decisions for the entity exercises substantial control. If the definition seems broad, it is and that’s intentional. If it’s unclear whether an individual’s duties meet substantial control, prudent advice dictates disclosing the individual as a Beneficial Owner to avoid any potential penalties.

The “ownership test” requires a Reporting Company to identify all individuals who own or control at least 25% of the ownership interests of the company. Ownership interests include equity, stock, voting rights, capital or profits interest, convertible instruments, options, non-binding privileges to buy or sell any of the foregoing, and any other instrument, contract, or mechanism used to establish ownership. The Act does not require family attribution although it does require attribution for direct and indirect interests of an individual.

The Act requires any Reporting Company to disclose the name, date of birth, street address, a unique identifying number from a passport, driver’s license, or another such document, and a copy of that document for each of its Beneficial Owners determined under both the substantial control test and the ownership test. Additionally, any Reporting Company created on or after January 1, 2024, needs to report the individual who filed the formation or registration document for the Reporting Company, called the Company Applicant, and if different, the individual “primarily responsible for directing or controlling such filing,” limited to two individuals. This requirement has numerous implications for attorneys; a partner may direct an associate or paralegal to make the filing, thus both individuals would meet the definition of Company Applicant. The Act permits individuals who anticipate being Company Applicants to register for a FinCEN number that such individuals will provide to the Reporting Company instead of their personal information.

Also the Act considers a trustee who can dispose of trust assets that include at least 25% of a Reporting Company as a Beneficial Owner of that Reporting Company. Similarly, the Act includes the sole income and principal beneficiary of a trust owning at least a 25% interest in a Reporting Company as a Beneficial Owner of such Reporting Company. Any beneficiary with the ability to withdraw substantially all of the assets of a trust containing at least 25% of an interest in a Reporting Company will also be a Beneficial Owner of such Reporting Company.

As this article demonstrates, the Act has some complex provisions that have broad applicability. This article provides only a brief synopsis of the most relevant provisions. All company owners need to familiarize themselves with the provisions of the Act as it will affect any person with a privately-owned business (S-Corp, LLC, C-Corp, etc.).

Matthew Perry was probably best known for his role as the sarcastic, neurotic, and always witty, Chandler Bing on the hit-tv show, Friends. He died suddenly at the age of 54. He was unmarried, had no children, and was survived by his parents, five half-siblings, and legions of fans. His Estate Plan differs from many of the cases that this blog examines because there likely won’t be a huge fight in court over his substantial fortune at least in part because he created a Revocable Trust and, as of this writing, no other documents exist. This lack of public fighting doesn’t mean that we can’t draw important lessons from this situation.

At the time of Matthew’s death, it’s estimated that his estate exceeded $120 million. He earned most of that from his time on Friends and the continued royalties from the show. While tragic, Matthew’s death and an examination of what we know about his Estate Plan remind us, regardless of the size of your Estate, it’s vital to have a comprehensive Estate Plan suited to your particular needs. While Matthew had a Revocable Trust, he didn’t have a Will. In many celebrity cases, the celebrity dies with no estate plan, or an insufficient Will, or a document that purports to be a Will which causes the fighting and gives the public insight into the decedent’s affairs. That likely won’t happen here because Matthew chose to create a Revocable Trust.

The Revocable Trust avoids many of the problems typically associated with celebrity estates. First, a Revocable Trust serves as a Will substitute thereby avoiding probate that a Will requires. Additionally, the Revocable Trust provides centralized management of assets, allows for disability planning during life, and protects the privacy of the decedent, the plan, and the beneficiaries. In creating the Revocable Trust, Matthew ensured the privacy of his plan and beneficiaries and avoided the probate process altogether. He did that right; but that alone is not a comprehensive Estate Plan. Any good Trust and Estate practitioner would advise their clients to create both a Will and a Revocable Trust to direct what happens at death because each document serves different functions. In addition to being the only instrument that does certain things (for example nominate guardians for minor children), the Will acts as a backstop to the Trust. If the decedent failed to retitle any assets in the name of the Revocable Trust prior to death, then the Will contains provisions directing distribution of those assets to the Trust, but first, those assets need to go through probate which can be a long and expensive process depending upon the state of residence. Except rarely, probate is a public process.

While it’s unclear how Matthew’s assets will pass because of the privacy a Revocable Trust affords the family, it’s clear that unless certain provisions were included in the Revocable Trust, they will bear significant taxes. When Matthew died, the Applicable Exclusion Amount was $12.92 million, about 10% of his net worth. In other words, the other 90%, or approximately $107 million will be subject to estate tax at a rate of 40%. That means there will be a federal estate tax bill of approximately $42.8 million ($107 million * .40). While it’s possible that the trust included provisions that would have decreased the tax liability, for example, by naming a charity as a beneficiary, we likely won’t know that because the terms of the Revocable Trust remain private. Interestingly, shortly after the actor’s death, the National Philanthropic Trust created the Matthew Perry Foundation. Had Matthew established that Foundation either through the terms of his Trust or as a stand-alone entity, assets given to the Foundation would have provided a charitable deduction for his estate saving substantial taxes.

Celebrity estates make great blogs. They demonstrate the myriad of issues that arise when an individual fails to undertake appropriate Estate Planning. No one is immune from having an Estate Plan regardless of the size of their Estate. It’s important to speak with me regarding your Estate Plan and your unique circumstances. I recommend the use of Revocable Living Trusts as Will substitutes to avoid probate and to provide certain other protections during life, including simplified asset management during periods of disability or incapacity. But, as this article demonstrates, Revocable Trusts alone do not cover every circumstance. Had Matthew created a proper Estate Plan, he could have ensured that his legacy would live on in the way that he desired, quite possibly through the Matthew Perry Foundation or any other charitable organization he created. Allow me to guide you through the creation of your Estate Plan. Your family will consider you a true “Friend” if you do.

January 1, 2024, marked exactly two years until the planned reduction by half of the current Applicable Exclusion Amount (“AEA”). The AEA is the amount that an individual can pass to anyone either during their life or at death before imposition of a transfer tax. For those needing a refresher, the Tax Relief Act of 2010 set the AEA at $5 million (adjusted for inflation) and the Tax Cuts and Jobs Act of 2017 temporarily doubled that amount to $10 million per person ($20 million per couple), as adjusted for inflation. The inflation-adjusted number in 2024 is $13.61 million per person ($27.22 million per couple). Thus, in 2024 each United States resident or citizen may pass an unlimited amount to their spouse and $13.61 million to whomever they want without worrying about gift or estate taxes. The provisions of the Tax Cuts and Jobs Act of 2017 sunset on January 1, 2026, which means that individuals who may have an estate tax issue when the AEA returns to $5 million per person need to consider more sophisticated Estate Planning techniques. A “Dynasty Trust” presents a good opportunity for wealthy individuals to leverage the doubled AEA for future generations and prevent taxation of those same assets for several generations.

While many folks think Dynasty Trusts are complex, they don’t have to be. In simple terms, a Dynasty Trust continues for the longest possible time allowed by state law. Some states have a “Rule Against Perpetuities” (“RAP”) that limits the amount of time that a trust can exist. Under common law, the RAP provides that the asset must vest, if at all, no later than 21 years after the death of a “life in being” determined when the trust became irrevocable, typically the death of the grantor of the trust. In practical terms, this means that upon the death of the grantor, the Trustee needs to distribute the assets in the trust no later than 21 years after the death of the last of the beneficiaries alive at the grantor’s death. For example, let’s assume that the grantor establishes a trust for his children and grandchildren, the youngest of whom is 4 years old upon the grantor’s death. If that grandchild lives until their 104^th birthday (100 years after the grantor’s death), the trust can continue for another 21 years or 121 years after the grantor’s death.

Many states have adopted the Uniform Statutory Rule Against Perpetuities, which allows a trust to last either the traditional RAP period (a “life in being” plus 21 years) or 90 years, if longer. Some states have modified the RAP so that a trust might last 150, 365, or even 1,000 years. Other states have repealed the RAP completely thereby allowing the trust to last forever! You may be wondering why anyone would want to leave their assets in trust that long. First, the grantor could name a professional Trustee to manage the assets to prevent the beneficiaries from squandering them. Second, leaving assets in trust this long ensures that the Trustee distributes the assets in the manner decided by the grantor for future generations. Finally, a Dynasty Trust helps save on taxes for those with a taxable estate thereby allowing the assets to grow for multiple generations without diminution by estate taxes.

Let’s look at a quick example. For the sake of simplicity, we will ignore the impact of the AEA on each estate, assume a tax rate of 40%, and assume that the inheritance grows at a rate of 7.2% annually. John (age 80)(1st generation) dies and leaves $5 million to his daughter, Sally (age 50)(2^nd generation), outright. The $5 million turns into $40 million by Sally’s death. Sally’s estate will pay a tax of $16 ($40 million * .40). Sally leaves the $24 million ($40 million inheritance less $16 million tax) inheritance to her child, Beth (3rd generation). Beth lives another 30 years and the $24 million she inherited from Sally grows to $192 million. Beth’s estate will pay a tax of $76.8 ($192 million * .40). Beth leaves the $115.2 million ($192 million inheritance less $76.8 million tax) inheritance to her child, Josh (4^th generation), who invests similarly. Thus, the $115.2 million he inherits grows to $921.6 million. At Josh’s death, his estate owes tax of $368.64 million ($921.6 million *.40), leaving $522.96 million for future generations. So, by the end of the 4th generation, the $5 million inheritance from John has grown, after transfer taxes, to $522.96 million in 90 years. That’s an impressive return however, each generation has paid taxes on the assets.

There is a better way, a way that avoids taxation at successive generations. If at his death John (1st generation) left the $5 million to a Dynasty Trust for the benefit of Sally (2nd generation) and her descendants and allocated his Generation-Skipping Transfer Tax exemption, the assets would have been excluded from Sally’s estate. At Sally’s death, the $40 million in the Dynasty Trust would have escaped the 40% reduction due to the estate tax. Instead, the full $40 million could have continued to grow for the benefit of Beth (3rd generation) and her descendants. After 30 more years it would have increased to $320 million and at Beth’s death, again, it would have escaped taxation and would have passed to Josh without further estate taxes. After another 30 years of prudent investing by the 4^th generation, the inheritance would have grown to $2.56 billion, or approximately 5 times the amount that it was without using the Dynasty Trust.

Without a Dynasty Trust, the assets increased significantly; however, with a Dynasty Trust, the assets ended up 5x more over the same period and with the same investment assumptions. A Dynasty Trust offers several benefits. It keeps the money in the family and may prove a better option than a nuptial agreement because the Dynasty Trust existed well before the couple and avoids the awkward situation of asking a fiancé to agree to a nuptial agreement prior to or just after the marriage. It allows the grantor to control distributions many years into the future. It provides the assets an opportunity to grow without imposition of estate taxes. Finally, it offers significant asset protection. While a Dynasty Trust may not work for everyone, it provides some great advantages if properly structured.

Welcome to 2024! The year 2023 left many feeling unsettled. Chat GPT burst onto the scene, and it seemed AI was destined to take over everything. War continued in Ukraine and broke out in the Gaza Strip. Finally, COVID-19 seems to be the new norm. Calendar year 2023 taught us some tough lessons, most of which focus on preparing for the unexpected and unthinkable. Creating an Estate Plan helps give us a feeling of control and peace of mind, knowing that your loved ones will endure when you leave this earth.

Simply put, an Estate Plan serves as a set of instructions regarding how you want your affairs handled if something happens to you. The plan sends a message to your loved ones that you care enough to tell them what to do in your absence. A basic Estate Plan consists of documents that provide instructions for what happens both during your life and at death. Those documents consist of a Living Trust, also known as a Revocable Trust (a “Trust”), a Will, a Property Power of Attorney, a Healthcare Power of Attorney, a Living Will, and a Health Insurance Portability and Accountability (“HIPAA”) Authorization.

Although we list Trust first, let’s start with a discussion of the Will. A Will determines distribution of your assets upon your death and allows you to select an individual or company to make the disbursements of those assets. The Will allows you to nominate guardians to care for any minor children that you have at your death. Finally, some states allow their residents to pass tangible personal property through a separate writing without the formalities required of a Will. These documents must follow state statutes concerning requirements for validity, but generally, these documents need only reference the tangible personal property sought to be distributed, the desired recipient of the property, and have the testator’s signature along with the date signed. Usually, states that allow a separate writing require that the Will contain a direction regarding passing the tangible personal property according to such document. These states typically do not have companion statutes that allow a Revocable Trust to reference the memorandum. If you do not have a Will, then your state’s intestacy laws will govern dispensation of your assets at your death. Often, the state’s distribution pattern does not match your own. Even if state laws match your desired disposition, state laws contain no provisions to account for a beneficiary’s specific circumstances, for example, a beneficiary with special needs. Finally, state intestacy laws may appoint a stranger to handle these important tasks.

Regardless of whether you have a Will or your state’s intestacy laws determine property division and distribution of your assets upon your death, the individual in charge must petition the court for permission to transact the business of your estate through a probate proceeding. Depending upon the laws of your state, probate can be a lengthy, costly, and public process. If you want to avoid probate and maintain your privacy, a Trust serves as a Will substitute and provides the opportunity for you to do that. With a Trust, you transfer the assets to the Trust during your lifetime and manage them as the Trustee. You avoid probate altogether by using a Trust because the Trust contains provisions regarding what happens upon your death and vests a successor Trustee with the power to make distributions from the Trust without court oversight. The Trust also protects against incapacity by giving a successor Trustee the power to make distributions from the Trust for your benefit should you become incapacitated. Due to cases of fraud, institutions more readily recognize a successor Trustee acting on your behalf than an agent under your Property Power of Attorney.

The Property Power of Attorney allows you to appoint someone as your “Agent” to act on your behalf concerning your financial affairs. If that Agent is unwilling or unable to act, you can appoint one or more successor Agents. Through the Property Power of Attorney, you give someone else (the Agent) powers you inherently already have yourself. Property Powers of Attorney come in several flavors. Some vest immediately meaning that the Agent has the power to make decisions regarding your financial assets right away and without regard to your ability to make those decisions for yourself. In most states, they also may vest upon incapacity meaning that the Agent’s powers “spring” into action only upon your incapacity. Practitioners refer to these types of Property Powers of Attorney as “springing” Powers of Attorney. You may hear the term “durable” in conjunction with the Property Power of Attorney. This means that the Property Power of Attorney continues to be effective notwithstanding your incapacity. A Property Power of Attorney that is not durable does not allow your Agent to act during your incapacity.

A Healthcare Power of Attorney allows you to appoint an agent to make medical decisions for you if you are unable to do so for yourself. If you can make these decisions, then your agent cannot veto any medical decision you make. A Living Will, sometimes called an “Advance Directive” expresses your wishes regarding end-of-life decisions. Without this document memorializing your wishes, doctors and medical professionals must keep you alive even if you have no reasonable chance of recovery notwithstanding that doing so only prolongs your suffering. Often the Living Will and Healthcare Power of Attorney are combined into one document. The Health Insurance Portability and Accountability Act of 1996 mandates that healthcare providers keep your protected healthcare information confidential. While most of us would agree that generally makes sense, sometimes you want others to have access to that information, especially the fiduciaries that you have nominated to act upon your incapacity. A HIPAA Authorization allows you to appoint one or more individuals to access or receive protected health information.

It’s important to keep your Estate Plan updated. Reviewing these documents often ensures that you always have trusted and capable individuals serving in these important roles and that you do not leave your loved ones wondering what to do upon your incapacity or death. While we hope 2024 will be better than the last several years, it’s important to begin the year by creating an estate plan, if you do not yet have one, or reviewing the plan that you already have in place to ensure that it accomplishes your goals. This will provide you and your loved ones with peace of mind for anything that 2024 brings. If the last few years have taught us anything, it’s to expect the unexpected. Even a basic Estate Plan provides peace of mind. Resolve now to get your estate planning done this year, sooner rather than later.