Trusting Your Trustee—Doris Duke’s Trustee Bilked Estate for $1Million

Choosing a trustee is a very personal matter and should never be left to chance. Doris Duke, heiress of Duke’s energy and tobacco fortunes, didn’t seem to know her trustee very well at all.  After Duke passed in 1992, her trustee bilked the estate for over $1 million. It begs the question:  How well do you know yourtrustee?

In our experience, choosing the people to nominate as fiduciaries through your estate plan is one of the hardest tasks that our clients’ face. That is why we work with each client to help them decide the best people to name in the all important roles that fiduciaries must take on when named in an estate plan.

The Butler Did It:

That old saying certainly fits in this situation because Doris Duke had her butler appointed as her estate’s trustee. The estate was reportedly worth $1.3 billion at the time of her death. Perhaps all that money was too much temptation for Bernard Lafferty, an Irish immigrant with only a grade school education. 

After Duke’s death in 1992, Lafferty went on a bit of a spending spree. It was reported that he spent over $1 million on himself, including:

1. Charging hundreds of thousands of dollars on luxury store items onto estate charge cards

2. Traveling all over the world, whenever he felt the urge

3. Redecorating Doris Duke’s old bedroom for himself

Lafferty apparently had very expensive taste as he spent over $60 thousand on the bedroom redecoration alone. 

The final straw was when he borrowed more than $825,000 from the U.S. Trust Company, the estate's co-executor, apparently without having to pay interest. He was removed as the trustee three years later.

5 Characteristics of a Good Trustee:

Your trustee will ultimately manage your financial future as well as the disposition of your estate. While it’s tempting to choose a family, friend, or say – your butler – it might be wiser to treat your choice as a strict business decision. 

Trustees have a “fiduciary” responsibility toward the trust. That means they owe the highest duty of care, good faith, honesty and diligence when it comes to managing it. Five characteristics of a good trustee include someone who is:

1. Organized

2. Dependable

3. Detail-oriented

4. Experienced in business matters

5. Confident in their understanding of your intentions

Whomever you choose, keep in mind that anyone who is dissatisfied with the terms of your trust might try to influence your trustee. In many cases, family relationships are wrought with various types of emotion. Those close bonds could put your trustee in the middle of a situation they can’t handle – especially when it involves someone where saying no simply isn’t an option. Therefore, let’s talk about whether a professional trustee would be appropriate.

Protect Your Assets, Heirs & Wishes:

Whether it’s choosing a trustee, creating a will, or coming up with a comprehensive estate plan, we can help you make the right choices. Protect your assets, your heirs, and your wishes. We can show you how to select the best trustee for your individual situation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Celebrities Who Failed To Recognize Unborn Children in Their Wills: An Avoidable Problem

Having an estate plan that protects and provides for your loved ones is not only smart, it’s necessary. Without one, your family, friends, or the charitable organizations you wish to provide for may not receive your gifts. 

It’s also important to remember to update your estate planning documents whenever something changes which would affect your intentions. Two famous artists failed to recognize their unborn children in their Wills, which lead to unintended consequences. Unintended consequences that could have been avoided.

1. Michael Crichton. Crichton was a best-selling author, physician, producer, director, and screenwriter. He was most known for his work in science fiction including books such as Jurassic Park, Andromeda Strain, The Lost World, and many more.

a. Sadly, he died of cancer in 2008 leaving behind a grown daughter from a previous marriage as well as his current wife, Sherri Alexander, who was pregnant with his son.  As a self-admitted workaholic, Crichton never got around to updating his estate plan to provide for his unborn son.

b. When he passed, his net worth was approximately $175 million. Sherri Alexander filed a lawsuit against the estate to include her son in the will. However, Crichton's grown daughter, Taylor, opposed the lawsuit and a long and drawn out court battle ensued. A judge ruled that the son would inherit, but it likely cost millions of dollars in attorneys’ fees and much stress before that decision was made. 

2.Heath Ledger. Ledger, an Australian director and actor, was most known for his role as the Joker in Dark Knight. Although only 28-years-old, his estate had a net worth of approximately $16 million. His will left his entire estate to his parents and three sisters.  He failed to update his will even when he had a child (Matilda) with Michelle Williams and died from an accidental overdose of prescription drugs in 2008. 

a. The ensuing family legal battles lasted for over five years. Similar to Crichton’s situation, Ledger’s daughter was able to inherit – but again, not without spending a lot of money on litigation.

No One Likes To Think About Death, But It’s Necessary:

Most people don’t like to think about their own death and dealing with estate planning documents often forces us to do just that. However, as these situations show, it’s an important and necessary task to undertake. 

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Are Handwritten Intentions Enforceable? Princess Diana Thought So…

Princess Diana of Wales was one of the world’s most loved celebrities – and one of the richest.  Her tragic death in 1997 was world news. The majority of her estate, reportedly worth $40 million at the time of her death, was divided between Prince William and Prince Harry in her estate plan. 

However, she also wrote a “letter of wishes” that directed her executors to give a number of personal effects to her godchildren. Those executors, her mother and her sister, went to court and had it ruled unenforceable. 

Holographic Wills – Sometimes Enforceable, Sometimes Not:

Princess Diana’s letter of wishes is similar to what’s known as a “holographic” will in the United States. In its most simple terms, it is a handwritten document which may or may not have to be signed. 

State laws vary on whether holographic wills can be enforced and how they must be prepared.  Approximately half of U.S. states allow them and those require the matter to be probated. Some of the issues which frequently arise concerning holographic wills include:

1. Validity. Did the decedent write the will? In contested cases, handwriting experts are often used to determine validity.

2. Undue Influence. Was the decedent unduly influenced to create the will? That’s difficult to prove – or disprove – as they do not have to be witnessed.

3. Intentions. Does the will accurately describe the decedent’s intentions? Again, without witnesses (creating an actual last will and testament generally requires two), that becomes difficult to answer.

The question becomes – if you believe that no one will contest your holographic will (and it is legal in your state), should you skip the lawyers altogether? The answer is NO.

Don’t Subject Your Wishes to Scrutiny:

The whole purpose of creating a document, any document, which spells out your intentions upon death is to make it enforceable. Although last will and testaments still go through probate, they provide the court with a signed and witnessed document which is likely to reflect your intentions. Holographic wills are less likely to hold up in court and will be subject to a great deal more scrutiny.

The bottom line is that creating a will, a trust, or any other type of estate planning document is easy – when handled by an estate planning attorney. In effect, the process is simple and consists of having a conversation about your intentions, listing assets, and creating a legal document which will carry those intentions out. Sadly, Princess Diana’s godchildren got nothing. Don’t let someone else decide what you did, or did not, intend. 

Contact our office now and we’ll show you which types of estate planning documents are best for you and your goals.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

3 Mega-Celebrities Who Died Without Any Estate Plan: Let’s Learn From Their Mistakes

A Will or more comprehensive revocable trust-based estate plan, documents who gets what (and when) after you die. Without a Will or estate plan in place, the state decides how to distribute your belongings. In many cases, your assets may end up in the hands of complete strangers.  That’s exactly what happened to these three mega-celebrities:

1. James Dean. Dean died intestate (without a will) in 1955 at the age of 24. State law awarded most of his meager estate (he had only made three movies) to his father – now most of that is in the hands of his father’s relatives. 

His father did use some of that money to create a foundation to maximize the commercial value of his name, likeliness, and image. Ironically, Dean has consistently been one of the top 10 highest earning deceased celebrities up until 2012. His income in 2015 alone was $8.5 million and he’s been deceased for over 60 years!

2. Jimi Hendrix. Legendary singer and guitarist Jimi Hendrix died intestate in 1970 at the age of 27. Like Dean, the state awarded most of his estate to his father who created a family trust. 

By 2002, his father had grown trust to $80 million. Jimi’s father left the fortune to his adopted daughter. In turn, she created trusts for almost everyone in the family – except Jimi’s own brother Leon. Although he sued, he never got a dime of the estate now worth $175 million. Clearly there’s another story there.

3. Pablo Picasso. Famous painter Pablo Picasso died intestate in 1973 at the age of 91. Given his age, it’s surprising that he did not assign a beneficiary to his estate (which today would have been valued at nearly $200 million). 

His heirs, including Paloma Picasso, battled in courts with everyone who wanted part of his fortune – including the French government who alleged that Picasso owed millions in back taxes. His children received the bulk of his estate in the end, but not without a great deal of heartache.

Despite the differences in age, the above celebrities left millions of dollars on the table and started an avalanche of lawsuits by those who wanted a piece of the pie. The takeaway? Do not follow in their footsteps!

Make Your Intentions Crystal Clear Through Your Estate Plan:

Regardless of whether you’re a famous actor, singer or painter – or a regular working Joe or Jane, you have the power to make sure that your family, friends, or organizations get what you want them to have. The process is simple – make your intentions crystal clear by creating your estate plan, which we refer to as a Family Legacy Protection Plan, properly drafted by an experienced estate planning attorney.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Over 70% of Elvis Presley’s Estate Paid in Taxes & Fees: How To Avoid Unnecessary Taxes

Legendary singer and actor, Elvis Presley, earned over a billion dollars throughout his somewhat short career. That’s a Billion [with a capital B]. However, when the “King of Rock & Roll” died in 1977, his estate’s net worth was only $10 million. 

Of that, over 70% went to pay taxes and fees. That left someone who had earned over a billion dollars with only about $3 million (this time with an M) in the end. So, where did the money go and, more importantly, how can you avoid the same trap?

Where Did The Money Go?

It seems incomprehensible that someone who earned so much ended up with so little. Since Presley’s death, there have been many accusations made about his business manager, “Colonel” Tom Parker,” and his financial manager—Elvis’s very own father Vernon.

1.    “Colonel” Tom Parker.  Presley’s manager may have discovered him, but he was later accused of charging unreasonable and exorbitant commissions compared to industry averages. In fact, unlike most managers who get 10 or 20 percent, Parker’s deal with Elvis was 50/50.

a. It was later revealed that Parker was actually an illegal immigrant from Holland, who was born under an entirely different name, never obtained a green card, and refused to let Elvis tour overseas because he couldn’t go with him.

b.    If that weren’t enough, Parker also had a gambling problem and rumors say that he often lost more than $1 million in a night. After the truth came out, Parker’s rights to Elvis’s estate were terminated.

2.    Vernon Presley. Elvis’s father, Vernon Presley, was very involved with his son’s finances. However, many believe that he may not have had enough business savvy to manage such a large enterprise. 

 a.  Very little was done to invest profits and a trust was never created to avoid millions of dollars in estate taxes and fees which nearly bankrupted the estate itself. Had he sought the help of advisors, things might have turned out differently.

After Vernon died, Elvis’s only child, Lisa Marie, sold most of Elvis’s trademark rights for over $100 million. Perhaps she should have gotten involved sooner…

How To Protect Yourself Against Unnecessary Taxes:

Regardless of whether you earn a billion dollars and are known as a “King” or are simply a hard working Joe, do everything you can to protect yourself against taxes. In most situations, that means creating a trust that, if properly funded, will not be subject to probate and some of the taxes that associated with passing assets from one generation to the next.

Make the most of your hard earned income! Call our office today to find out about estate planning and how it can provide for and protect you and your family for generations to come.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Kaley Cuoco’s “Ironclad” Prenup Challenged: Can A Prenup Be Bulletproof?

The Big Bang Theory actress Kaley Cuoco, is one of the highest paid actresses on television. She earns one million dollars per episode and has a net worth of Forty-four million dollars ($44 Million). Before she married tennis star Ryan Sweeting in 2013, Cuoco asked him to sign a prenuptial agreement (generally referred to as a “Prenup”). 

After less than two years of marriage, Cuoco filed for divorce. She assumed the prenup would be valid. However, Sweeting alleges that the prenup shouldn’t be enforced and he wants spousal support. So, is The Big Bang Theory star’s Prenup ironclad? A better question might be—is it possible to create a Prenup that is bulletproof?

Cuoco Was Smart, But…

Cuoco was certainly smart to have Sweeting sign a prenuptial agreement as his net worth was only about two million dollars versus her 44 million. However, while a well-written prenup generally addresses asset division and support issues, they are not always ironclad. 

In this case, Sweeting alleges that his circumstances have substantially changed due to numerous sports injuries and an addiction to pain killers which have prevented him from earning a living as a tennis player. So, while he didn’t need support when the prenup was signed, he does now. 

3 Ways to Invalidate a Prenup:

There are generally three ways to invalidate a prenup, by proving:

1. Unconscionability. This is a legal term of art meaning that, under the circumstances, it would be grossly unfair to enforce the document. To overcome it, Cuoco would likely have to prove that Sweeting was represented by an independent attorney who advised him of the consequences before signing.  

2. Coercion. Legal contracts can be deemed void when one party was coerced into signing it. In its harshest terms, that equates to being forced to sign something at gunpoint. In this case, it means that either Sweeting wasn’t given enough time to read it or didn’t voluntarily sign it. 

3. Fraud. Sweeting could also allege that Cuoco lied about her net worth and that, based on her fraudulent activity, the prenup shouldn’t be enforced.

If Cuoco’s attorney did his or her job correctly, which seems to be the case, it’s most likely that she’ll prevail.

Don’t Risk Your Wealth:

Prenuptial agreements, part of a strong estate plan, should always be prepared by experienced attorneys (a different one for each party) who know how to comply with the laws of that particular state and take into account what changes in the relationship might affect the validity of the prenup. 

Today, 50% of all first marriages end in divorce; more than 70% of all second marriages do so. It makes sense to plan for the worst and hope for the best. Certainly, don’t risk your wealth and future by failing to have as ironclad a Prenup (or “Postnup” – an agreement made after marriage) as possible. It’s easier to accomplish than you would think and we can provide you with the tools you need to do just that.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Investment, Insurance, Annuity, and Retirement Planning Considerations

If your clients choose to use a Standalone Retirement Trust (SRT) to provide asset protection benefits for their beneficiaries, then the tax-related asset allocation strategy would be essentially the same as without an SRT, with one small exception.

 Consider skewing your investment plan toward: 

1. Loading retirement accounts and inherited retirement accounts with bonds, Real Estate Investment Trusts (“REITs”), and other assets that produce income taxed as ordinary income;

2. Housing stocks, Exchange-Traded Funds (“ETFs”), and other qualified-dividend generating investments in taxable accounts; and

3. Placing any high-growth assets in Roth or inherited Roth IRAs.

WARNING: SRT Tax Consequences:

That one small exception is that if your SRT is designed as an accumulation trust (necessary for asset protection), then the undistributed Required Minimum Distributions (RMDs) accumulating in the trust will face tightly compressed trust tax rates. If the undistributed annual RMDs exceed $12,400 (2016), the SRT is hit with a 39.6% marginal tax rate, possibly much higher than a beneficiary's personal income tax rates. For this reason, you might select very low-growth assets you believe belong in a client’s total portfolio for the accumulation SRT. Examples of these assets might be cash, short-term bonds, etc.

Always Use an SRT?

1. Of course not. No planning is one-size-fits all. There may be cases where your client’s circumstances do not warrant the hassle and expense of creating an SRT. An example might be if the inherited IRA is quite small in relation to all the other assets your client is protecting. In such cases, here are some other approaches to consider:

2. For clients who are still working but not fully funding their workplace retirement plan (e.g. 401(k), 403(b), 457, SIMPLE IRA, SEP IRA, etc.) accelerate the depletion of the beneficiary IRA and use the extra taxable cash flow to max out tax-deferrals into the workplace plan. If for every dollar pulled from the inherited IRA an additional dollar is contributed to the workplace plan, the tax impact is neutral but the assets are now easily consolidated into a single account.

3. For clients who are in retirement, if the optimal liquidation strategy in their case is to consume qualified assets first (as might be the case for those who enjoy a window of low income tax rates between retirement and deliberately delayed Social Security benefits), then consider consuming the inherited IRAs first of all.

4.       Depending on the circumstances, it may make sense for the client to hasten withdrawals from the inherited IRA to fund 529 plan contributions, to fund life insurance premiums, to fund Roth IRA conversions, HSA contributions, etc., in order to pass assets to heirs through those sorts of channels instead.

As a note to insurance agents or annuity-oriented brokers, though qualified longevity annuity contracts (QLACs) were approved in 2014 for a portion of the assets in one’s own IRA, they are not allowed in inherited IRAs.  And while life insurance is allowable in ERISA plans, it is not allowable in inherited IRAs any more than in one’s own IRA.

Team Up with Us:

We’d be happy to answer all SRT and retirement protection questions.  Please feel free to call with questions or if you’d like help planning for a client.  It takes a village.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

Caution: Creditors Now Have Easy Access to Inherited IRAs

Do you have IRAs or other retirement accounts that you plan to leave to your loved ones?  If so, proceed with caution.  Most people don’t know the law has changed: inherited retirement accounts no longer have asset protection, meaning they can be seized by strangers.

How Can Inherited IRAs Be Protected?  Enter the Standalone Retirement Trust

Fortunately, retirement account protection still exists but only if you take action.  Many people like you are using Standalone Retirement Trusts (SRT) to protect retirement assets.  The SRT is a special type of revocable trust just for retirement accounts. 

A properly drafted SRT:

●       Protects the inherited retirement accounts from creditors as well as predators and lawsuits

●       Ensures that inherited retirement accounts remain in your bloodline and out of the hands of a daughter-in-law or son-in-law or former daughter-in-law or son-in-law

●       Allows for experienced investment management and oversight of the assets by a professional trustee

●       Prevents the beneficiary from gambling away the inherited retirement account or blowing it all on exotic vacations, expensive jewelry, designer shoes, and fast cars

●       Enables proper planning for a special needs beneficiary

●       Permits you to name minor beneficiaries such as grandchildren without the need for a court-supervised guardianship

●       Facilitates generation-skipping transfer tax planning to ensure that estate taxes are minimized or even eliminated at each generation of your family

 The Bottom Line on Protecting Inherited IRAs

Unfortunately, the Supreme Court decision has made outright beneficiary designations for IRAs and other retirement accounts risky business.  However, we are here to help you decide whether an SRT is a good fit for you and to answer your questions about protecting your retirement accounts.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

5 Reasons to Protect Your Retirement Accounts Now

During your lifetime, your retirement account has asset protection, but as soon as you pass that account to a loved one, that protection evaporates. This means one lawsuit and POOF! Your life long, hard earned savings could be gone.

Fortunately, there is an answer.  A special trust called a “Standalone Retirement Trust” (SRT) can protect inherited assets from your beneficiaries’ creditors.  We’ll show you what we mean.

When your spouse, child, or other loved one inherits your retirement account, their creditors have the power to seize it and take it as their own.

If you’re like most people, you’re thinking of protecting your retirement account?  Here are 5 reasons we think you’re right.

1. You have substantial combined retirement plans.  Spouses can use an SRT to shield one or the other from creditors. 

2. You believe your beneficiary may be “less than frugal” with the funds.  Anyone concerned about how their beneficiary will spend the inheritance should absolutely consider an SRT as you can provide oversight and instruction on how much they receive – and when. 

3. You are concerned about lawsuits, divorce, or other possible legal actions.  If your beneficiary is part of a lawsuit, is about to divorce, file for bankruptcy, or is involved in any type of legal action, an SRT can protect the assets they inherit from those creditors. 

4. You have beneficiaries who receive assistance.  If one of your beneficiaries receives, or may qualify for, a need-based governmental assistance program, it’s important to know that inheriting from an IRA may cause them to lose those benefits. An SRT can avoid disqualification. 

5. You are remarried with children from a previous marriage.  If you are remarried and have children from a previous marriage, your spouse could intentionally (or even unintentionally) disinherit your children.  You can avoid this by naming the spouse as a lifetime beneficiary of the trust and then having assets pass onto your children after his or her death.

 You’ve Worked Hard To Protect & Grow Your Wealth – Let’s Keep It That Way

You worked hard to save the money in those retirement accounts and your beneficiaries’ creditors shouldn’t be able take it from them. Let us show you how an SRT can help you protect your assets as well as provide tax deferred growth. NOW is the best time.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.

How To Avoid Creditors Inheriting from You

Most people plan to leave a retirement account, such as an Individual Retirement Account (“IRA”), Roth IRA, 401 (k) Plan, 403 (b) plan, Employee Stock Ownership Plan (“ESOPs”), for their surviving spouse to live on when he or she passes away.

Surprisingly, this oft used planning device can be nullified—because it can be seized in a divorce, lawsuit, or bankruptcy. As such, your spouse can end up lacking the resources he or she planned on having as a source of retirement income.

3 Options Available To Surviving Spouses:

When your surviving spouse inherits your IRA, he or she generally has three options:

 1. Cash out the inherited IRA and pay the associated income tax. 

 WARNING: The cashed-out IRA will not have creditor protection and accelerates taxation.

 2. Maintain the IRA as an inherited IRA. 

  WARNING: The cashed-out IRA will not have creditor protection.

 3. Roll over the inherited IRA and treat it as his or her own.

  WARNING: The cashed-out IRA will not have creditor protection.

It is understandable why man become frustrated when realizing that a predator can swoop in and take their hard earned money; fortunately, there’s a solution and that solution is a retirement trust.

 Standalone Retirement Trusts Provide Protection:

A Standalone Retirement Trust (“SRT”) is a special type of trust designed to be the beneficiary of your retirement accounts after you die. It can protect your assets from creditors.  In fact, we can include trust provisions which specifically benefit your spouse in situations such as:

1.      Second marriages

2.      Divorce

3.      Lawsuits from car accidents, malpractice, or tenants

4.      Business failure

5.      Bankruptcy

6.      Medicaid qualification 

 Want To Know More? 

The bottom line is that a properly drafted SRT is often your best option for protecting your retirement assets (and providing the bonus of tax deferred growth). Want to know more?  Contact us today to schedule a conversation.

If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.