Many families count on the transfer of general wealth and the transfer of assets from generation to generation. A report from Cerulli Associates says approximately $84 trillion will be passed from today’s older generation to heirs by 2042.

For this wealth transfer to succeed, parents and heirs should consider the pointers in a recent article from yahoo! finance, “Don’t Make These 5 Mistakes When Passing Down Generational Wealth to Your Family.”

Prepare heirs for their inheritance. Speak with family members about how their inheritance might change their lives. Educate them early on about personal finance, and introduce them to your advisors, including your estate planning attorney, financial advisor, and CPA.

Teach heirs how to be financially independent. Another problem can occur if children expect to receive an inheritance and don’t think they’ll need to work. This could get in the way of their personal and professional growth. You want them to know how to support themselves and the value of money earned.

Make sure to diversify your portfolio. When did you last increase your 401(k) contributions or diversify your portfolio? Be mindful of your investments. You don’t want to overestimate the value of your wealth or leave your children with an out-of-date investment portfolio.

Involve your children in the family business. If your legacy includes a family business, you need to consider the importance of ensuring that your children are fully involved in how the business operates and its financial needs and goals. If you simply toss the children into the business without completely understanding it, the transition may not work. As a result, your years of hard work could disappear quickly. A succession plan should be in place, so everyone knows what is expected of them.

Don’t neglect your estate planning. Sit down with an estate planning attorney and create a comprehensive estate plan, including a last will and testament, power of attorney, health care power of attorney, living will, and any trusts needed to pass wealth to the next generation. Do this long before you expect it to be needed. If you fail to create an estate plan, heirs will end up in probate court. It could take years before they receive the assets you want them to inherit.

Contact us to speak with one of our experienced estate planning attorneys.

Reference: yahoo! finance (June 5, 2023) “Don’t Make These 5 Mistakes When Passing Down Generational Wealth to Your Family”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

So far, part of the Presley legacy appears to be the failure to create effective estate plans, says a recent article from Kiplinger, “Five Estate Planning Lessons We Can Learn From Elvis’ Mistakes.” An effective estate plan transfers assets and legacy to the right people at the right time, while keeping the wrong people out.

In this case, the right people would be the people whom Elvis and Lisa Marie wanted to benefit, and a good estate plan would have ensured that their desired beneficiaries or heirs received their inheritance. The right time would be to give control of assets to loved ones when they are mature enough to benefit for a lifetime. Keeping the wrong people out would mean minimizing tax and administrative costs and protecting heirs from lawsuits, divorce, creditors and a second level of estate taxes upon their own death.

Most recently, Priscilla Presley challenged a 2016 amendment to Lisa Marie’s trust which would have removed Pricilla as co-trustee from serving alongside Lisa Marie’s former business manager, Barry Siegel. This may have been her intent. However, the amendment didn’t include basic legal formalities. A confidential settlement was recently reached on this issue.

Priscilla had grown Elvis’ estate after his death. Despite his fame, he left an illiquid estate worth $5 million in 1977—adjusted for inflation, roughly $20 million in today’s dollars. The IRS successfully asserted that the estate was worth far more and asserted $10 million in estate taxes.

The estate didn’t include as much royalty income as expected because Elvis’ business manager, Colonel Tom Parker, sold the music catalog to RCA for $5.4 million, of which only $1.35 million went to the estate. Priscilla then assumed control of the estate. From her wise use of Graceland profits, merchandising and royalties for music recorded after the RCA deal, Priscilla grew the estate to $100 million.

In 1993, Lisa Marie turned 25 and was eligible to receive and control her inheritance. She established a revocable trust to hold her inheritance, then appointed a businessman as her co-trustee with primary control over her assets. In two years, he sold 85% of her interests in Elvis Presley Enterprises, an entity The Elvis Presley Trust created to conduct business, including Graceland and worldwide licensing of Elvis Presley Products.

The deal was worth $100 million but brought the estate only $40 million after taxes, plus $25 million in stock in a future holding company of American Idol, later made worthless due to bankruptcy by its parent company.

Careful planning could have avoided substantial income tax on the sale and provided the family a much better financial return. Siegal was removed as trustee in 2015 when lawsuits between Siegel and Lisa Marie began, which were pending when she died unexpectedly in 2023.

The lessons from the Elvis estate:

Use a trust, not a will. The trust removes delays, and higher costs and keeps private details private.

Make sure that your estate plan addresses estate tax issues. The goal is to reduce the value of the taxable estate and increase the value of your legacy to family and loved ones. The estate tax must be paid in cash within nine months from the date of death. This often requires a sale of estate or trust assets to pay the tax and can lead to heirs getting less than the full value of assets because of the need to come up with the cash. A simple testamentary charitable lead annuity trust (TCLAT) could have prevented the estate tax assessed after Elvis’ death and provided substantial benefits to Lisa Marie.

Plan for a lifetime legacy. Lisa Marie gained complete control over her inheritance at age 25. First, however, she needed to prepare for the complexity of the business and other assets she inherited and learn how to maintain a lifetime of living within her means.

Plan for estate taxes on the sale of the family business. Careful planning can almost always reduce the tax triggered by the sale of appreciated property. Unfortunately, no tax mitigation planning was taken before the $100 million sale of Elvis Presley Enterprises. As a result, the maximum capital gains tax, federal and estate combined, can be more than 40%.

Carefully choose the successor trustee or executor and provide at least two alternatives. Elvis appointed his father Vernon as the executor. Elvis died tragically in 1977 when Vernon was elderly and not well. Appointing a business manager as a trustee creates an inherent conflict of interest due to the business manager’s ability to profit from decisions made. A professional trustee would have been a better choice due to the complexity of the estate and Lisa Marie’s age.

Reference: Kiplinger (May 18, 2023) “Five Estate Planning Lessons We Can Learn From Elvis’ Mistakes”

Contact us to review your estate plan with one of our experienced estate planning attorneys!

Sims & Campbell, LLC- Annapolis and Towson Estate Planning Attorneys

As with many things related to estate planning, do-it-yourself solutions appearing to be fast and easy fixes often become problems for parents and their children. Trying to simplify asset protection by gifting is loaded with risks, says a recent article, “SENIOR SCENE | Pitfalls of gifting and joint ownership of assets” from The Sentinel-Record.

Most notably, the laws governing eligibility for Medicaid used for nursing home care require a 60-month “look-back” period, where any transfer of assets for any reason makes the person ineligible for Medicaid benefits up to 60 months or even longer from the date the gift was made.

Secondly, creditors of the person making a gift could claim any transfer was a fraudulent transfer made in an attempt to defeat the rights of creditors to make a claim. Both parent and child could end up in costly, time-consuming litigation over creditor claims.

Third, and perhaps most problematic, is the chance for the child’s creditors to attach the assets in order to satisfy a claim against the child. This could also occur if the child is embroiled in a divorce—the assets could be considered a marital asset by the court.

Gifting assets was a popular estate planning strategy to reduce or eliminate estate taxes in the past. Nevertheless, in light of the very high current federal estate tax exemptions, this is only used for some families.

Another disadvantage of gifting is the transfer of tax cost basis from the parent to the child for capital gains tax purposes. As a result, the child would be forced to pay capital gains taxes on the increase in value from the parent’s tax cost—typically the original purchase price—versus the ultimate sales price.

Contrast this with a child who inherits an asset at death from a parent. When the child inherits the asset at death, the asset receives a step-up in tax basis to its date-of-death value. This is one of the most favorable tax rules remaining, which is lost when gifting during life is used.

Another problem occurs when seniors make assets jointly owned, especially bank accounts. The bank often encourages this, trying to be helpful so the child may pay the parents’ bills. However, by placing the child’s name on the account, the parent may be subjecting their account to potential creditor claims of their children.

In addition, the jointly owned account passes only to the surviving owner, so the estate plan may be circumvented by having the assets in the account pass to the one child rather than passing to all the remaining trust under a will or trust.

An estate plan created by an experienced estate planning attorney can eliminate many pitfalls of gifting and joint ownership. Before making gifts or establishing joint accounts, meet with an estate planning attorney to learn how to achieve your goals, including planning for Medicaid, without putting your assets at risk.

Reference: The Sentinel-Record (May 28, 2023) “SENIOR SCENE | Pitfalls of gifting and joint ownership of assets”

Contact us to review you estate plan with one of our experienced estate planning attorneys!

Sims & Campbell, LLC- Annapolis and Towson Estate Planning Attorneys

Legal documents pertaining to health care, end-of-life treatments and allowing others to access medical records are vital to protecting adults at any age. However, they are especially important for seniors, says a recent article from The News-Enterprise, “All seniors need legal documents for medical issues.”

These documents include a living will, health care power of attorney and HIPAA authorization. In addition, they give you the ability to name the individuals you want access to secure medical information and who will be able to make decisions about your health care during incapacity.

The health care power of attorney is the broadest and most important medical estate planning document. Depending upon where you live, it may be known as medical power of attorney, healthcare proxy, or healthcare surrogate.

Here’s where an estate planning attorney is needed: like many estate planning documents, the health care power of attorney can be broad, encompassing both a living will, and a HIPAA authorization within one single document, or it can be extremely limited. By having a document created for you, rather than using a boilerplate form, you can ensure your exact wishes are followed.

The health care power of attorney generally makes specific determinations. The document needs to name one person or agent and a backup agent to act on your behalf. Many people think they can change their agent if the agent becomes incapacitated or unavailable. Still, all too often, they need to remember to have their document updated, and then, when they need to have an agent act on their behalf, no one can do so.

Without an appointed agent, court intervention becomes necessary, which is time-consuming and costly.

The health care power of attorney should specify when the agent may act on behalf of the person and address both access to information and decision-making. The ability to immediately make decisions is critical when the individual is at an advanced age or has urgent medical needs. In addition, other provisions are included to ensure the agent has the full ability to act.

A living will, sometimes called an advance medical directive, may be a separate document or contained within the health care power of attorney. It includes instructions for end-of-life decisions. These may be as detailed as outlining when artificial nutrition and hydration may be used or as simple as naming an agent with the right to remove the person from life support. If you have strong feelings about using life-prolonging devices, your wishes can be legally enforceable through a living will.

Lastly, a HIPAA authorization permits another person to have access to review medical records.

These health care documents should be created with the help of an experienced estate planning attorney to ensure the person carrying out your wishes is the person whose judgment you trust and to clarify your wishes. Preparing for these tough decisions in advance is hard. However, this is a gift to those you love, who will otherwise be left hoping they did what you would have wanted.

Reference: The News-Enterprise (May 27, 2023) “All seniors need legal documents for medical issues”

Contact us to review you estate plan with one of our experienced estate planning attorneys!

Sims & Campbell, LLC- Annapolis and Towson Estate Planning Attorneys