How Did Rock Star’s Estate Planning Help Future Musicians?

The Mr. Holland’s Opus Foundation, a nonprofit supporting music education in at-risk public schools, announced it had received a “transformative donation” from the late Eddie Van Halen.

MSN’s recent article on this is entitled “Eddie Van Halen left a huge donation in his will to support music education for kids”

Before his death in October 2020, Van Halen was involved with the foundation and supported the nonprofit over the years.

He made numerous appearances at the organization’s events and took part in various opportunities helping teach music to kids. As part of his will, Van Halen made a considerable donation that will have a profound effect on the foundation for many years.

The Mr. Holland’s Opus Foundation was inspired by the movie titled Mr. Holland’s Opus. It is the story of the profound effect a dedicated music teacher had on generations of students. Michael Kamen, who wrote the score for the film, started the foundation in 1996 as his commitment to the future of music education.

The foundation says that Van Halen’s donation “will enable MHOF to fulfill requests from a greater number of schools, add employees to its staff, improve the foundation’s technology and more.”

“Eddie’s support and friendship over the years meant the world to us and to his fans. His passion for music and our work created a strong bond, which is evident in his extraordinary bequest,” Felice Mancini, President and CEO of MHOF said in a statement.

“To know how much our foundation meant to Eddie is intensely humbling and gratifying to all of us – and we know that Eddie’s family is confident that his powerful legacy and values live on through our efforts.”

Van Halen’s son, Wolfgang Van Halen, will continue the family’s involvement and support of the organization. He has donated proceeds from his single “Distance” to the foundation in support of school music programs across the country and as a dedication to his father.

“Mr. Holland’s Opus Foundation and the work they do for music education was always something that was important to my father,” Van Halen said in a statement. “I am incredibly proud to help facilitate this donation as he wished. Mr. Holland’s Opus are champions for our musicians of the future, and it is my privilege to continue supporting that mission and carrying on my pop’s legacy.”

Reference: MSN (April 21, 2022) “Eddie Van Halen left a huge donation in his will to support music education for kids”

What are Benefits of Putting Money into a Trust?

For the average person, knowing how a revocable trust, irrevocable trust and testamentary trust work will help you start thinking of how a trust might help achieve your estate planning goals. A recent article from The Street, “3 Powerful Types of Trusts that Can Work for You,” provides a good foundation.

The Revocable Trust is one of the more flexible trusts. The person who creates the trust can change anything about the trust at any time. You may add or remove assets, beneficiaries or sell property owned by the trust. Most people who create these trusts, grantors, name themselves as the trustee, allowing themselves to use their property, even though it is owned in the trust.

A Revocable Trust needs to have a successor trustee to manage the assets in the trust for when the grantor dies or becomes incapacitated. The transfer of ownership of the trust and its assets from the grantor to the successor trustee is a way to protect assets in case of disability.

At death, a revocable trust becomes an Irrevocable Trust, which cannot be easily revoked or changed. The successor trustee follows the instructions in the trust document to manage assets and distribute assets.

The revocable trust provides flexibility. However, assets in a revocable trust are considered part of the taxable estate, which means they are subject to estate taxes (both federal and state) when the owner dies. A revocable trust does not offer any protection against creditors, nor will it shield assets from lawsuits.

If the revocable trust’s owner has any debts or legal settlements when they die, the court could award funds from the value of the trust and beneficiaries will only receive what’s left.

A Testamentary Trust is a trust created in connection with instructions contained in a last will and testament. A good example is a trust for a child outlining when assets will be distributed to them by the trustee and for what purposes the trustee is permitted to make the distribution. Funds in this kind of trust are usually used for health, education, maintenance and supports, often referred to as “HEMS.”

For families with relatively modest estates, a trust can be a valuable tool to protect children’s futures. Assets held in trust for the lifetime of a child are protected in the event of the child’s going through a divorce because the child’s inheritance is not subject to equitable distribution when not comingled.

Many people buy life insurance for their families, but they don’t always know that proceeds from the life insurance policy may be subject to estate taxes. An insurance trust, known as an ILIT (Irrevocable Life Insurance Trust) is a smart way to remove life insurance from your taxable estate.

Whether you can have an ILIT depends on policy ownership at the time of the insured’s death. In most cases, the insurance trust must be the owner and the insurance trust must be named as the beneficiary. If the trust is not drafted before the application for and purchase of the life insurance policy, it may be possible to transfer an existing policy to the trust. However, if this is done after the purchase, there may be some challenges and requirements. The owner must live more than three years after the transfer for the policy proceeds to be removed from the taxable estate.

Trusts may seem complex and overwhelming. However, an estate planning attorney will draft them properly and make sure that they are used appropriately to protect your assets and your family.

Reference: The Street (May 13, 2022) “3 Powerful Types of Trusts that Can Work for You”

What Is the Best Way to Leave Money to Children?

Parents and grandparents want what’s best for children and grandchildren. We love generously sharing with them during our lifetimes—family vacations, values and history. If we can, we also want to pass on a financial legacy with little or no complications, explains a recent article titled “4 Tax-Smart Ways to Share the Wealth with Kids” from Kiplinger.

There are many ways to transfer wealth from one person to another. However, there are only a handful of tools to effectively transfer financial gifts for future generations during our lifetimes. UTMA/UGMA accounts, 529 accounts, IRAs, and Irrevocable Gift Trusts are the most widely used.

Which option will be best for you and your family? It depends on how much control you want to have, the goal of your gift and its size.

UTMA/UGMA Accounts, the short version for Uniform Transfers to Minor or Uniform Gift to Minor accounts, allows gifts to be set aside for minors who would otherwise not be allowed to own significant property. These custodial accounts let you designate someone—it could be you—to manage gifted funds, until the child becomes of legal age, depending on where you live, 18 or 21.

It takes very little to set up the account. You can do it with your local bank branch. However, the funds are taxable to the child and if an investment triggers a “kiddie tax,” putting the child into a high tax bracket and in line with income tax brackets for non-grantor trusts, it could become expensive. Your estate planning attorney will help you determine if this makes sense.

What may concern you more: when the minor turns 18 or 21, they own the account and can do whatever they want with the funds.

529 College Savings Accounts are increasingly popular for passing on wealth to the next generation. The main goal of a 529 is for educational purposes. However, there are many qualified expenses that it may be used for. Any income from transfers into the account is free of federal income tax, as long as distributions are used for qualified expenses. Any gains may be nontaxable under local and state laws, depending on which account you open and where you live. Contributions to 529 accounts qualify for the annual gift tax exclusion but can also be used for other gift and estate tax planning methods, including letting you make front-loaded gifts for up to five years without tapping your lifetime estate tax exemption.

You may also change the beneficiary of the account at any time, so if one child doesn’t use all their funds, they can be used by another child.

From the IRS’ perspective, a child’s IRA is the same as an adult IRA. The traditional IRA allows an immediate deduction for income taxes when contributions are made. Neither income nor principal are taxed until funds are withdrawn. By contrast, a Roth IRA has no up-front tax deduction. However, any earned income is tax free, as are withdrawals. There are other considerations and limits. However, generally speaking the Roth IRA is the preferred approach for children and adults when the income earner expects to be in a higher tax bracket when they retire. It’s safe to say that most younger children with earned income will earn more income in their adult years.

The most versatile way to make gifts to minors is through a trust. There’s no one-size-fits-all trust, and tax rules can be complex. Therefore, trusts should only be created with the help of an experienced estate planning attorney. A trust is a private agreement naming a trustee who will manage the assets in the trust for a beneficiary. The terms can be whatever the grantor (the person creating the trust) wants. Trusts can be designed to be fully asset-protected for a beneficiary’s lifetime, as long as they align with state law. The trust should have a provision for what will occur if the beneficiary or the primary trustee dies before the end of the trust.

Reference: Kiplinger (May 15, 2022) “4 Tax-Smart Ways to Share the Wealth with Kids”

What about House Contents when Someone Dies?

Probate law does not allow anyone to take items from a loved ones’ home after they die, until the will has been probated. Learning about probate, what it entails and how to prepare for it may make it a little easier when a family member dies, says a recent article titled “Can you empty a house before probate? from Augusta Free Press. Knowing what to expect can avoid common pitfalls and mistakes, some of which often lead to family fights and even litigation.

Probate is a court-supervised period when the estate of the decedent is on pause. Assets may not be distributed, including personal items in the home. The goal is to ensure that assets are distributed only after the will has been ruled valid by the court and following the instructions in the will.

Probate includes the legal appointment of the executor, who is named in the will with specific statutory responsibilities, to include ultimately distributing assets.

For many people, estate planning includes preparing assets to avoid the probate process. An estate plan includes a review of the entire estate to see which assets are best suited to be taken out of the estate. Living trusts, joint ownership, transfer-on-death (TOD) and many other estate planning strategies can be used, depending on the person’s finances.

Certain tasks can be accomplished during probate relating to the home and other property. This includes changing the locks on the home to protect it from criminals and unauthorized people who have keys. The decedent’s mail can be forwarded to the executor or another family member’s address. A review of the decedent’s bills, especially monthly payments, can take place. If there’s a mortgage on the home, the mortgage company needs to be contacted and the payments need to be made.

As the end of the probate period nears, it may be time to contact an appraiser to get an unbiased, professional appraisal of the home’s value. This will be needed if the home is to be sold, or if the estate plan needs a valuation of the home.

Probate is often a necessary process. It can create challenges for the family, especially if no estate planning has been done. In some jurisdictions, probate is quick and painless, while in others it is a long and expensive process. Prior planning by an experienced estate planning attorney prevents many of the issues presented by probate.

After probate has been completed, the executor distributes the assets, including the personal property in the home. Personal property with sentimental value often sparks more family fights than assets of greater value. Administering an estate when emotions are running high is a challenge for all concerned.

Another reason to have an estate plan in place is to delineate very specifically what you want to occur after your death. That way there is no room for family members to stake a claim and do something contrary to your wishes.

Reference: Augusta Free Press (May 13, 2022) “Can you empty a house before probate?

Can You Inherit a House with a Mortgage?

Inheriting a home with a mortgage adds another layer of complexity to settling the estate, as explained in a recent article from Investopedia titled “Inheriting a House With a Mortgage.” The lender needs to be notified right away of the owner’s passing and the estate must continue to make regular payments on the existing mortgage. Depending on how the estate was set up, it may be a struggle to make monthly payments, especially if the estate must first go through probate.

Probate is the process where the court reviews the will to ensure that it is valid and establish the executor as the person empowered to manage the estate. The executor will need to provide the mortgage holder with a copy of the death certificate and a document affirming their role as executor to be able to speak with the lending company on behalf of the estate.

If multiple people have inherited a portion of the house, some tough decisions will need to be made. The simplest solution is often to sell the home, pay off the mortgage and split the proceeds evenly.

If some of the heirs wish to keep the home as a residence or a rental property, those who wish to keep the home need to buy out the interest of those who don’t want the house. When the house has a mortgage, the math can get complicated. An estate planning attorney will be able to map out a way forward to keep the sale of the shares from getting tangled up in the emotions of grieving family members.

If one heir has invested time and resources into the property and others have not, it gets even more complex. Family members may take the position that the person who invested so much in the property was also living there rent free, and things can get ugly. The involvement of an estate planning attorney can keep the transfer focused as a business transaction.

What if the house has a reverse mortgage? In this case, the reverse mortgage company needs to be notified. You’ll need to find out the existing balance due on the reverse mortgage. If the estate does not have the funds to pay the balance, there is the option of refinancing the property to pay off the balance due, if the wish is to keep the house. If there’s not enough equity or the heirs can’t refinance, they typically sell the house to pay off the reverse mortgage.

Can heirs take over the existing loan? Your estate planning attorney will be able to advise the family of their rights, which are different than rights of homeowners. Lenders in some circumstances may allow heirs to be added to the existing mortgage without going through a full loan application and verifying credit history, income, etc. However, if you chose to refinance or take out a home equity loan, you’ll have to go through the usual process.

Inheriting a house with a mortgage or a reverse mortgage can be a stressful process during an already difficult time. An experienced estate planning attorney will be able to guide the family through their options and help with the rest of the estate.

Reference: Investopedia (April 12, 2022) “Inheriting a House With a Mortgage”

Half of Americans Making More than $100K Don’t Have a Will

About 70% of participants in a new survey from Wealth, an estate planning platform, said that they want to pass wealth down to their loved ones. However, only about half (53%) have an estate plan. And only about a third (32%) say they have a will in place.

Think Advisor’s recent article entitled “Nearly Half of Families Earning $100K or More Lack an Estate Plan: Survey” reports that the survey found that people of color, in particular, face accessibility barriers. This group is 14% less likely to have an estate plan in place than their counterparts in the sample.

Wealth’s findings were based on a survey conducted in the U.S. by WALR in partnership with Manifest in the last two weeks of last year among 10,000 employed respondents ages 30 to 55 with a household income of more than $100,000.

The survey results showed that the main factor keeping people from securing their financial legacy is the notion that estate planning should be done in the future rather than now — possibly because 45% of respondents said they avoid thinking about death.

Another misperception is that estate planning is only for the very wealthy: 42% of survey participants said they don’t own anything valuable and as a reason they do not have a plan, and 30% said they don’t have enough money.

Wealth said it behooves employers to make employees aware of estate planning in their benefits packages.

Just 13% of the sample said they receive estate planning as an employee benefit.

About 72% of the respondents who don’t have a plan said they’d be more likely to create a will if the services were offered by their employer.

“Estate planning should not only be available to high-net-worth households,” Rafael Loureiro, Wealth’s co-founder and chief executive, said in a statement. “Employees of all income levels and walks of life can benefit from financial clarity and emotional peace of mind that comes with having an estate plan.”

The survey found that 40% haven’t gotten around to setting up an estate plan, although 70% say they eventually will do it and about 45% say that they actively avoid thinking about death (especially men and 51% of millennials). Almost half (45%) also think it’s inappropriate to talk about money with friends, missing out on valuable financial advice.

Reference: Think Advisor (March 29, 2022) “Nearly Half of Families Earning $100K or More Lack an Estate Plan: Survey”

What Assets are Not Considered Part of an Estate?

In many families, more assets pass outside the Last Will than through the Last Will. Think about non-probate assets: life insurance proceeds, investment accounts, jointly titled real estate assets, assuming they were titled as joint tenants with right of survivorship, and the like. These often add up to considerable sums, often more than the probate estate.

This is why a recent article from The Mercury titled “Planning Ahead: Pay attention to your non-probate assets” strongly urges readers to pay close attention to accounts transferred by beneficiary.

Most retirement accounts like IRAs, 401(k)s, 403(b)s and others pass by beneficiary designation and not through the Last Will. Banks and investment accounts designated as Payable on Death (POD) or Transfer on Death (TOD) also do not pass through probate, but to the other person named on the account. Any property owned by a trust does not go through probate, one of the reasons it is placed in the trust.

Why is it important to know whether assets pass through probate or by beneficiary designation? Here’s an example. A man was promised half of this father’s estate. His dad had remarried, and the son didn’t know what estate plans had been made, if any, with the new spouse. When the father passed, the man received a single check for several thousand dollars. He knew his father’s estate was worth considerably more.

What is most likely to have happened is simple. The father probably retitled the house with his new spouse as tenants by the entireties–making it a non-probate asset. He probably retitled bank accounts with his new spouse. And if the father had a new Last Will created, he likely gave 50% to the son and 50% to the new spouse. The father’s car may have been the only asset not jointly owned with his new spouse.

A parent can also accidentally disinherit an heir, if all of their non-probate assets are in one child’s name and no provision for the non-probate assets has been made for any other children. An estate planning attorney can work with the parents to find a way to make inheritances equal, if the intention is for all of the children to receive an equal share. One way to accomplish this would be to give the other children a larger share of probated assets.

Any division of inheritance should bear in mind the tax liability of assets. Non-probate does not always mean non-taxed. Depending upon the state of residence for the decedent and the heirs, there may be estate or inheritance tax on the assets.

Placing assets in an irrevocable trust is a commonly used estate planning method to ensure inheritances are received by the intended parties. The trust allows you to give very specific instructions about who gets what. Assets in the trust are outside of the probate estate, since the trust is not owned by the grantor.

Your estate planning attorney will be able to review probate and non-probate assets to determine the best way to achieve your wishes for your distribution of assets.

Reference: The Mercury (April 12, 2022) “Planning Ahead: Pay attention to your non-probate assets”

My Children Really Don’t Want My Stuff?

Next Avenue’s recent article entitled “Your Top 10 Objects Your Kids Don’t Want” gives us a list of these items and what to do with them.

Books. Unless your grown children are professors, they don’t want your books. If you think the book is rare, call a book antiquarian.

Paper Ephemera. Snapshots, old greeting cards and postcards are called paper ephemera. Did you know that? Me neither. Old photos are not worth anything, unless the subject is a celebrity or linked with an important historical event. Old greeting cards are not valuable, unless handmade by a famous artist or sent by a celebrity. Postcards are valued mainly for the stamps. Take all your family snapshots and have them made into digital files. The other option is to sell those old snapshots to greeting card publishers who use them on funny cards or give family photos to image archive businesses, like Getty. If the archive is a not-for-profit, take the donation write-off.

Steamer Trunks, Sewing Machines and Film Projectors. Thrift stores are full of these items. Therefore, unless your family member was a professional and the item is top-notch, yours can go there as well.

Porcelain Figurine Collections and Bradford Exchange Pieces. Your collections of frogs, shoes, flowers, and trolls, as well your Hummel’s, and Precious Moments won’t be wanted by the children. See if you can find a retirement home that does a gift exchange at Christmas and donate the figurines. If you want to hold on to a memory of your mom’s collection, have a professional photographer take a photo for your wall. Collector’s plates won’t sell. Donate these as well.

Silver-Plated Stuff. Your children won’t polish silverplate, so if you give them platters, serving bowls, tea services and candelabra, you won’t enhance your standing. The exception may be silver-plated items from Tiffany or Cartier but give these away to any place or person who will take it.

Heavy, Dark, Antique Furniture. There’s still a market for this sort of furniture at secondhand shops. However, you’ll get less than a quarter of purchase price, if you sell on consignment. Unless your furniture is mid-century modern, there’s a good chance you will have to pay someone to take it off your hands. Instead, donate it and take a non-cash charitable contribution using fair market valuation.

Persian Rugs. No, these aren’t really in vogue for younger adults. However, the high-end market is still collecting in certain parts of the country, like Martha’s Vineyard. However, unless the rug is rare, it’s one of the hardest things to sell these days. If you think the value of the rug is below $2,000, it will be a hard sell. Like antique furniture, it may be best to donate these.

Linens. No, they don’t want them. They might not even own an iron or ironing board, and they definitely don’t set that kind of table. Give these to needlewomen who make handmade Christening clothes, wedding dresses and quinceañera gowns. You may also donate linens to costume shops of theaters and deduct the donation. A site like P4a.com has auction results to establish the fair market value of such objects.

Sterling Silver Flatware and Crystal Wine Services. Matching sets of sterling flatware are tough to sell because they rarely go for “antique” value. Do the children do a lot of formal entertaining? The same is true for crystal. These sets are too precious, and the wine they hold is too small a portion. Sites like Replacements.com offer matching services for people who do enjoy silver flatware and have recognized patterns. Because they sell per piece, and therefore buy per piece, sellers get a rather good price.

Fine Porcelain Dinnerware. Your grown children may not want to store four sets of fancy porcelain dinnerware and won’t see the benefit of unpacking it once a year for a holiday or event. China is something to consider selling. Know your pattern to get a quote. Some replacement companies buy per piece, so the aggregate of the selling price is always more than a bulk sale at a consignment store, which might be the only other option.

Reference: Next Avenue (March 1, 2018) “Your Top 10 Objects Your Kids Don’t Want”

Why Is Communication Important in Estate Planning?

Successful transition of wealth from generation to generation is best accomplished when family members have a shared understanding of the overall use of the family wealth. While the initial wealth creators have final say about how their assets are distributed, awareness and agreement on the part of the receiving family members regarding how the wealth is used can help preserve assets as they move to the next generation.

Forbes’ recent article entitled “Communication Can Be The Key To Creating Harmony In Multi-Generational Estate Planning” says that coming to an agreement can sometimes be difficult, especially if family members bring their own perspectives and values to the estate planning process. However, good communication can help head off potential multi-generational conflicts before they happen.

One of the most significant challenges in achieving multi-generational wealth preservation is that each individual and generation has a different outlook on wealth. Today’s families could include four or even five generations. This big gap in ages could mean differing perspectives on many topics, including:

Personal values. Family members may have different belief systems and values, including how they view work, social and political systems, relationships, and other topics.
Investing priorities. Some generations may give greater importance to socially conscious investing than others. This could create a conflict when it comes to how and where to invest.
Shifting economic environments. Older generations who have lived through various economic scenarios may have very different perspectives than younger generations, particularly those just coming of age in a time of high inflation and a slowing economy.
Communication. Not every generation or family member is comfortable talking openly about money, especially when it comes to sharing how much is involved and how to spend it.
View of the role of a financial advisor. Some family members may see a financial advisor as a trusted partner, and others may be more skeptical.

While these differences can create challenges in the estate planning process, you can resolve them and reach an agreement about how to best manage the family’s wealth. Begin with a plan designed for the long-term, spanning current and future generations that’s flexible to meet the family’s changing needs and shifting economic environments.

Reference: Forbes (April 18, 2022) “Communication Can Be The Key To Creating Harmony In Multi-Generational Estate Planning”

Should an Estate Plan Include a Cabin on the Lake?

If you don’t plan appropriately and thoughtfully, problems may arise with respect to this property and your family when you are gone, says Kiplinger’s recent article entitled “Your Vacation Home Needs an Estate Plan!”

Speaking with your spouse and children is a good first step to help determine interest in retaining the property for the next generation and financial ability to maintain it. Let’s look at three ways you can plan for your vacation home.

Leave a Vacation Home to Children Outright During Life or at Death. An outright transfer of the home via a deed to children is the easiest way to transfer a vacation home.

However, if your children all own the property equally, they all have an equal say as to its use and management.

As a result, all decisions require unanimous agreement, which can prove challenging and be ripe for disagreement. Suggest that they create a Use and Maintenance Agreement to determine the terms and rules for the property usage. The contract would require all children to agree.

Form a Limited Liability Company (LLC). This is a tool often used by families, where each family member has a certain amount of membership interests in a home or to give away a home in a controlled manner. The operating agreement states the rules for governing the use and management of the property.

Put the Vacation Home in a Trust. A trust is another way to help with the ownership and transfer of vacation homes. Ask an experienced estate planning attorney about how this might work for your family.

Planning for your family’s vacation property is important to help avoid litigation and maintain family peace.

Addressing how the property will be paid for and setting aside money for it—as well as selecting the right structure for your family to use and enjoy the property—will help avoid issues in the future.

Reference: Kiplinger (Feb. 1, 2022) “Your Vacation Home Needs an Estate Plan!”

Estate Planning Blog Articles

Estate & Business Planning Law Firm Serving the Providence & Cranston, RI Areas

How Did Rock Star’s Estate Planning Help Future Musicians?

What are Benefits of Putting Money into a Trust?

What Is the Best Way to Leave Money to Children?

What about House Contents when Someone Dies?

Can You Inherit a House with a Mortgage?

Half of Americans Making More than $100K Don’t Have a Will

What Assets are Not Considered Part of an Estate?

My Children Really Don’t Want My Stuff?

Why Is Communication Important in Estate Planning?

Should an Estate Plan Include a Cabin on the Lake?

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How Did Rock Star’s Estate Planning Help Future Musicians?

What are Benefits of Putting Money into a Trust?

What Is the Best Way to Leave Money to Children?

What about House Contents when Someone Dies?

Can You Inherit a House with a Mortgage?

Half of Americans Making More than $100K Don’t Have a Will

What Assets are Not Considered Part of an Estate?

My Children Really Don’t Want My Stuff?

Why Is Communication Important in Estate Planning?

Should an Estate Plan Include a Cabin on the Lake?

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