Estate planning. We all know we should do it, but current studies estimate that 67% of Americans have not. The planning process varies by estate planner, but a handful of myths about the process stop many people from ever contacting an estate planner. This article addresses five of those myths.
Myth 1: Estate planning is only about death.
Estate planning conversations often start with death. Many estate planners ask the terrible question, “What do you want to happen with your assets after you die?” That highlights mortality–even though most people try hard not to think about their deaths. If that is the main topic, no wonder these conversations often grind to a halt.
There are other, more fulfilling topics in estate planning. They make estate planning about the much more palatable topic of living.
Parents dream about their children’s futures all the time. Estate planning discussions should focus on this. (Clients who are not parents have other people they want to support, such as nieces and nephews, and dream about helping them.) How would the conversation go if the question was, “Tell me something you want to help Xavier do in life.” Maybe the answer is practical, like “buy a house” or “have a nice wedding.” But perhaps it can be phrased broadly, like “learn to think for himself so he can assess situations and make a true-to-himself decision about how to proceed.”
True, these things may not happen until after a client has died. But planning to accomplish these kinds of objectives is not about death. It is about planning for the client’s life goals. It is about planning to help your important people in meaningful ways. It is about preparing for life.
Myth 2: Never tell your children about your plans.
The reading of the will is a famous scene on TV and in movies. The scenes bring us to the edges of our seats. It can bring tears of joy or frustration, sighs of relief, and shocked gasps. It is a terrible way for beneficiaries to learn about their interests. A cold reading of a document will not tell the beneficiaries anything about what the client was thinking.
Suppose Sarah gets a check for $100,000 and a cover letter describing the money as “full distribution of her interest under her father’s will.” How should she spend the money? Is it for her, or is it really for paying her son’s education expenses? What did her brother get? More? Less? And where did the rest of the money go? Should she talk to him about it, or will that make things uncomfortable between them?
Compare that messy situation to one where Dad explained his thoughts. Would Sarah feel better knowing her parents had committed to a charity, so part of their assets would sustain programs they found very productive? Would she feel better if she knew that her parents had decided to split everything else equally between her and her brother? Would she feel better if Dad had told her that he wished he had been more supportive of her gift for painting and wanted her to pursue that?
It may be difficult for a client to start these conversations. Children seem more reluctant than parents to raise the subject. Family dynamics might prevent it, but this writer finds that thoughtful discussion about estate plans brings another benefit. Children who have heard about a plan and had the opportunity to explore the reasons for the plan start to think of the plan as the “family’s plan,” not just “Mom and Dad’s plan.” This distinction is essential with the tremendous growth in trust and estate litigation. It reduces questions about what Mom and Dad were thinking and encourages acceptance of a plan the whole family crafted together.
Myth 3: My kids will become lazy if they know they will inherit.
Warren Buffett said he wants to give his kids enough so they feel they can do anything but not so much they can do nothing. He captured a common concern: If I talk to my kids about inheritance, they will stop being productive.
First, recognize that Mr. Buffett is in a very different situation to most of us. His children could do nothing and live on interest and dividends if reports are accurate that he plans to leave each of them $2 billion. The Federal Reserve’s statistics show that the average U.S. inheritance is about $46,000. Less than 3% of people inherit $1 million. Between 70 and 80% of households receive no inheritance at all. In other words, “do nothing” is not a real choice for most of our children.
So, what is the concern Mr. Buffett captured? Look at the first part of his comment. He wants to give his kids enough to feel they can do anything. He wants them to use their gifts and strengths, realize what will be fulfilling, and head in that direction, knowing they have support.
Many estate planners talk about keeping children productive, and the practical ones create plans that provide opportunities one way or another. The best planners encourage discussions between parents and children so they can talk about their hopes and dreams for their children instead of tasking an executor or trustee to figure things out on their own.
Myth 4: My kids don’t know we have a lot of money.
At lunch one day, a woman told her companion that her kids did not know the family had a lot of money, to which the companion replied, “Oh, please. They’ve never stood in a TSA security line.”
Today, a few internet searches will give a child a good sense of their family’s financial situation. Zillow tells them how much their house is worth. Kelley Blue Book tells them how much their family cars are worth. NetJet’s costs are available online. They see price tags on clothes. The internet is loaded with details about successful people, including their salaries. The information is there, so how do we approach it?
Working hard and having nice things is part of the American dream. Buying and appreciating an expensive watch may bring moments of happiness. But when the watch becomes essential to happiness, something has gone wrong. The hope is that our children do not confuse spending power with happiness. It is especially harmful when children conclude that their parents’ spending power is somehow their spending power. If their happiness comes from something they will not be able to sustain on their own, they are set up for disappointment.
Turning back to the myth, children know more than we want to admit. They have a good idea of their family’s wealth. Talking with them in appropriate ways will help both parent and child navigate the pitfalls of wealth.
Myth 5: I’m not ready to make long-lasting decisions.
Perfection can be the enemy of progress. Clients can get bogged down trying to the create a perfect estate plan. Just the thought of addressing complicated issues can stop the process.
Take the choice of guardians as an example. Who will raise your young kids if you can’t? Mom thinks of her parents, and Dad thinks of his brother. Just the potential for tense conversations over this issue is enough to stop the process.
The reality is that Mom and Dad do not need to be in complete agreement on this. If Mom convinces Dad to name her parents and if Dad outlives Mom, he can change the instructions. On this topic, the surviving parent gets the last word (subject to the court’s review of whether living with Dad’s brother is in the children’s best interests). This fact can get the process moving again, although it should be handled carefully to avoid minimizing the importance of this decision.
The choice of guardian brings up another issue. Suppose Mom and Dad agreed that Dad’s brother is a good choice. Brother is married. Are Mom and Dad naming just the brother? Or are they naming both the brother and his wife? What if the brother divorces his wife after they have become guardians? The kids might end up in a custody battle between the brother and his ex-wife. Mom and Dad surely did not intend that to happen. So, if the brother is the person Mom and Dad want to have the job, they should only nominate him. Mom and Dad should not mention the wife unless they want to give her legal rights over their kids.
On a broader note, the foundational estate planning documents (living trust, pour-over wills, health care directives, durable powers of attorney for finance, and guardian nominations) are changeable until incapacity or death. Estate planners encourage clients to review them every few years in case a life change means the plan needs to be updated. This means clients can put a viable plan in place today, knowing it can – and should – be changed as time goes by.
* * * * *
Estate planning crosses people’s minds at certain pivot points – typically, when a second child is born, the youngest finishes college, the oldest gets married, and retirement approaches. The five myths addressed in this article often stop people from taking the important steps of creating or updating an estate plan. When a client focuses on their personal objectives for their beneficiaries and discusses them with their children, the myths dissolve. And estate planning becomes much about life than death.
Five Estate Planning Myths Debunked
Estate planning. We all know we should do it, but current studies estimate that 67% of Americans have not. The planning process varies by estate planner, but a handful of myths about the process stop many people from ever contacting an estate planner. This article addresses five of those myths.
Myth 1: Estate planning is only about death.
Estate planning conversations often start with death. Many estate planners ask the terrible question, “What do you want to happen with your assets after you die?” That highlights mortality–even though most people try hard not to think about their deaths. If that is the main topic, no wonder these conversations often grind to a halt.
There are other, more fulfilling topics in estate planning. They make estate planning about the much more palatable topic of living.
Parents dream about their children’s futures all the time. Estate planning discussions should focus on this. (Clients who are not parents have other people they want to support, such as nieces and nephews, and dream about helping them.) How would the conversation go if the question was, “Tell me something you want to help Xavier do in life.” Maybe the answer is practical, like “buy a house” or “have a nice wedding.” But perhaps it can be phrased broadly, like “learn to think for himself so he can assess situations and make a true-to-himself decision about how to proceed.”
True, these things may not happen until after a client has died. But planning to accomplish these kinds of objectives is not about death. It is about planning for the client’s life goals. It is about planning to help your important people in meaningful ways. It is about preparing for life.
Myth 2: Never tell your children about your plans.
The reading of the will is a famous scene on TV and in movies. The scenes bring us to the edges of our seats. It can bring tears of joy or frustration, sighs of relief, and shocked gasps. It is a terrible way for beneficiaries to learn about their interests. A cold reading of a document will not tell the beneficiaries anything about what the client was thinking.
Suppose Sarah gets a check for $100,000 and a cover letter describing the money as “full distribution of her interest under her father’s will.” How should she spend the money? Is it for her, or is it really for paying her son’s education expenses? What did her brother get? More? Less? And where did the rest of the money go? Should she talk to him about it, or will that make things uncomfortable between them?
Compare that messy situation to one where Dad explained his thoughts. Would Sarah feel better knowing her parents had committed to a charity, so part of their assets would sustain programs they found very productive? Would she feel better if she knew that her parents had decided to split everything else equally between her and her brother? Would she feel better if Dad had told her that he wished he had been more supportive of her gift for painting and wanted her to pursue that?
It may be difficult for a client to start these conversations. Children seem more reluctant than parents to raise the subject. Family dynamics might prevent it, but this writer finds that thoughtful discussion about estate plans brings another benefit. Children who have heard about a plan and had the opportunity to explore the reasons for the plan start to think of the plan as the “family’s plan,” not just “Mom and Dad’s plan.” This distinction is essential with the tremendous growth in trust and estate litigation. It reduces questions about what Mom and Dad were thinking and encourages acceptance of a plan the whole family crafted together.
Myth 3: My kids will become lazy if they know they will inherit.
Warren Buffett said he wants to give his kids enough so they feel they can do anything but not so much they can do nothing. He captured a common concern: If I talk to my kids about inheritance, they will stop being productive.
First, recognize that Mr. Buffett is in a very different situation to most of us. His children could do nothing and live on interest and dividends if reports are accurate that he plans to leave each of them $2 billion. The Federal Reserve’s statistics show that the average U.S. inheritance is about $46,000. Less than 3% of people inherit $1 million. Between 70 and 80% of households receive no inheritance at all. In other words, “do nothing” is not a real choice for most of our children.
So, what is the concern Mr. Buffett captured? Look at the first part of his comment. He wants to give his kids enough to feel they can do anything. He wants them to use their gifts and strengths, realize what will be fulfilling, and head in that direction, knowing they have support.
Many estate planners talk about keeping children productive, and the practical ones create plans that provide opportunities one way or another. The best planners encourage discussions between parents and children so they can talk about their hopes and dreams for their children instead of tasking an executor or trustee to figure things out on their own.
Myth 4: My kids don’t know we have a lot of money.
At lunch one day, a woman told her companion that her kids did not know the family had a lot of money, to which the companion replied, “Oh, please. They’ve never stood in a TSA security line.”
Today, a few internet searches will give a child a good sense of their family’s financial situation. Zillow tells them how much their house is worth. Kelley Blue Book tells them how much their family cars are worth. NetJet’s costs are available online. They see price tags on clothes. The internet is loaded with details about successful people, including their salaries. The information is there, so how do we approach it?
Working hard and having nice things is part of the American dream. Buying and appreciating an expensive watch may bring moments of happiness. But when the watch becomes essential to happiness, something has gone wrong. The hope is that our children do not confuse spending power with happiness. It is especially harmful when children conclude that their parents’ spending power is somehow their spending power. If their happiness comes from something they will not be able to sustain on their own, they are set up for disappointment.
Turning back to the myth, children know more than we want to admit. They have a good idea of their family’s wealth. Talking with them in appropriate ways will help both parent and child navigate the pitfalls of wealth.
Myth 5: I’m not ready to make long-lasting decisions.
Perfection can be the enemy of progress. Clients can get bogged down trying to the create a perfect estate plan. Just the thought of addressing complicated issues can stop the process.
Take the choice of guardians as an example. Who will raise your young kids if you can’t? Mom thinks of her parents, and Dad thinks of his brother. Just the potential for tense conversations over this issue is enough to stop the process.
The reality is that Mom and Dad do not need to be in complete agreement on this. If Mom convinces Dad to name her parents and if Dad outlives Mom, he can change the instructions. On this topic, the surviving parent gets the last word (subject to the court’s review of whether living with Dad’s brother is in the children’s best interests). This fact can get the process moving again, although it should be handled carefully to avoid minimizing the importance of this decision.
The choice of guardian brings up another issue. Suppose Mom and Dad agreed that Dad’s brother is a good choice. Brother is married. Are Mom and Dad naming just the brother? Or are they naming both the brother and his wife? What if the brother divorces his wife after they have become guardians? The kids might end up in a custody battle between the brother and his ex-wife. Mom and Dad surely did not intend that to happen. So, if the brother is the person Mom and Dad want to have the job, they should only nominate him. Mom and Dad should not mention the wife unless they want to give her legal rights over their kids.
On a broader note, the foundational estate planning documents (living trust, pour-over wills, health care directives, durable powers of attorney for finance, and guardian nominations) are changeable until incapacity or death. Estate planners encourage clients to review them every few years in case a life change means the plan needs to be updated. This means clients can put a viable plan in place today, knowing it can – and should – be changed as time goes by.
* * * * *
Estate planning crosses people’s minds at certain pivot points – typically, when a second child is born, the youngest finishes college, the oldest gets married, and retirement approaches. The five myths addressed in this article often stop people from taking the important steps of creating or updating an estate plan. When a client focuses on their personal objectives for their beneficiaries and discusses them with their children, the myths dissolve. And estate planning becomes much about life than death.
No more scary engagement letters.
A client recently told me my engagement letter was scary.
At my last firm, an engagement letter with attachments was about 12 pages long. That was a Big Law engagement letter, and I wanted something different for my solo practice.
“Scary” was a legitimate surprise to me. The letter I sent was about 2-1/2 pages long. I was proud of its brevity and plain English wording.
I studied my letter carefully. I asked a couple of people to read it, too. I remembered my college days in UGA’s advertising program when we discussed the letter.
I read everything David Ogilvy wrote about advertising. I admired him, especially his comment that “you should use their language” when engaging with customers.
I re-read the letter with that comment in mind. And I decided to write an entirely new engagement letter because my form came from my lawyer’s brain, not my I-own-a-business-and-need-to-think-like-my-customers brain.
I owe that client a big thanks. The “scary” comment highlighted something many lawyers forget — our clients are our customers.
Former clients’ philanthropy has a direct impact on my family.
People willing to commit their resources to a public objective get my utmost respect. They are the highlight of my work life.
A few years back, I met a couple who were both research ophthalmologists. Both had also been diagnosed with macular degeneration. Back then, treatments were limited, and it was only a matter of time before they lost sight.
When I met them, they wanted to promote research of treatments and hopefully cures. I worked with them to endow research chairs at the top five eye research facilities. They put about $15 million of their money into these chairs.
Fast forward a decade. My dad has been fighting macular degeneration for several years. Last fall, his doctor said one eye had stopped responding to treatment. It was a depressing day.
At the beginning of this year, the doctor told them a new treatment was getting FDA approval, and they should remain hopeful.
He’s now using this new treatment, and the results are promising.
I asked the doctor where this new treatment came from.
Can you guess?
From one of the schools where my clients had endowed research work.
I can’t draw a direct line between them, but can it be a coincidence?
Sometimes when I talk with clients about giving, there’s a tension between giving now versus giving at death. There is tremendous value when donors can see the impact of their philanthropy. It often stimulates even bigger gifts at death.
“Health” is more than medical issues.
Most trusts allow for distributions for health, education, maintenance, and support because the IRS and the revenue code see those kinds of distributions as safe. I mentioned the HEMS standards in my last post. In more advanced planning, HEMS may be abandoned in favor of giving an independent trustee broad discretion over distributions. Of course, that requires an independent trustee, an entirely different can of worms.
Despite the wide use of the HEMS standards, there are few broadly accepted definitions of each category.
Today, I want to focus on health. What counts as health?
It isn’t defined in the California Probate Code.
The Restatement, a multi-volume explanation of trust issues written by the American Law Institute, says that “health” merely provides health and medical benefits appropriate to a beneficiary’s standard of living.
When I talk to my clients, I start with a definition from the World Health Organization in 1948. “Health is a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity.”
Physical health is what I think most estate planners mean when they use the term health, but that’s only part of the picture.
Mental health is crucial but often overlooked. A while back, a colleague who works in a national trust company told me about a situation. A beneficiary in her 40s asked the trustee to pay for IVF treatment. She had spent years focusing on her career (something strongly encouraged by the trust) and had started feeling anxious and stressed by the idea of creating a family.
The bank’s committees had internal discussions about whether this fits into the “health” standard, but these discussions stretched over a few months. As the bank concluded they would pay for IVF, they got word that the beneficiary’s mental state had deteriorated, and her doctors had put her on suicide watch. She had underplayed the importance of having a family and had become depressed.
Suddenly, the question of her physical health became priority #1. And that risk stemmed from her mental health, which had been affected by an issue that even the bank decided was a “health” issue.
That’s a long story, but the point for me is simple.
We estate planners should not rely on four words the IRS likes. We must get comfortable with questions where no IRS ruling offers an answer. We need to have deeper discussions with our clients about the HEMS standards.
Our clients will thank us. Beneficiaries will (probably) thank us. Trustees definitely will.
Where has education gone?
I’ve noticed an alarming trend in the way revocable trusts are drafted.
I’d bet you 50 cents that more than 90% of revocable trusts allow distributions based on the four “standards” accepted by the IRS — health, education, maintenance, and support (aka the “HEMS” standards).
Lately, I’ve seen a lot of revocable trusts that don’t allow distributions for the surviving spouse’s education. I can’t figure that out.
You need to plan for what you will do during the first couple of years of retirement to ease away from a career’s worth of hustle and bustle. One of the first things I’ll do when I retire from practicing law is get my master’s degree from St. John’s College in Annapolis.
Education *is* my plan, and that’s true for many others.
Just last week, I talked with someone whose mother got her GED, a bachelor’s degree, and a master’s degree after she turned 60.
It’s not just formal education. I can’t begin to count the times I’ve seen surviving spouses busy themselves by taking painting, ceramics, cooking, or gardening classes. One of my clients took up rock climbing at age 65.
And what about the educational experiences of traveling?
Why the trend of removing education? Are there real reasons for telling the surviving spouse, “Nope, sorry — you missed your chance for education, and the trust isn’t going to help you on that front?”
I’m legitimately curious about this and welcome your thoughts and comments on the topic.
Thinking about a private foundation? First consider a donor-advised fund.
I have had a lot of experience with private foundations. During the first five years of my practice, I helped clients form more than 100 private foundations. In the following 20 years, that number probably hit 300.
A client who wants to sponsor her own scholarship program or send money to charities outside the US may need a private foundation. But I won’t form a private foundation now unless the client has had a meaningful discussion with a donor-advised fund sponsor. That’s because DAFs are likely to be more efficient.
So, what is a DAF?
It’s a giving account established at a public charity. Community foundations were pioneers in this area, but there are now more than 50 national DAF organizations. The largest ones are associated with investment firms such as Schwab, Fidelity, and Vanguard, which established tax-exempt related organizations to hold and manage grants from the accounts while the investment firms invest donated assets.
You put money into a DAF, take a charitable income tax deduction for the gift, and direct distributions to specific organizations over the years. You can create private foundation-like committees and structures, like boards, junior boards, and family councils, to engage family members in the family’s philanthropy. But you sidestep the administrative burdens of running a private foundation, such as filing annual state and federal tax returns, monitoring conflicts of interest, and worrying about the special taxes imposed on private foundations and their officers and directors.
Surprisingly, DAFs offer better tax deductions than private foundations.
A donor can only deduct a certain percentage of their adjusted gross income based on charitable donations. A private foundation donor’s deduction is limited to 30% of AGI (although, in some cases, the limit drops to 20% of AGI), while DAF donors can deduct up to 50% of AGI — or even 60% if their donation is in cash.
Forming a DAF is usually a simple process. I created mine online in about 15 minutes. If I had started a private foundation instead, I would’ve been lucky to get the foundation up and running in less than nine months.
What happens if I want to get rid of my DAF? I zero out the account by sending all the money to charities.
Getting rid of a private foundation is a substantial undertaking. It involves coordinating the IRS and your state’s taxing agency, Attorney General’s office, and secretary of state.
If you’re thinking of formalizing your charitable giving, let’s talk.
Do you need an independent trustee?
Yes, you CAN name your brother as trustee of the irrevocable trust you created for your kids.
Next month marks 26 years of my being an estate planning lawyer. One of the statements I’ve heard repeatedly is that when you create an irrevocable gift trust, you *must* name an independent trustee.
That’s just wrong, and I’ll tell you why. But first, let me clarify that this post isn’t about whether trust companies and private fiduciaries are good ideas. This is just about requirements in the tax code.
Suppose I create an irrevocable trust meant to benefit my kids and give the trustee complete discretion. “Full discretion” means the trustee can distribute assets for any purpose or decide not to make any distributions. “Irrevocable” means I can’t change the trust once it’s in place.
Of course, I want to be the trustee so I retain control. But the tax code makes it clear: if I can control the “beneficial enjoyment” of the trust assets, they will be included in my estate for estate tax purposes. I gave the trustee complete discretion over the assets, so if I were the trustee, I would control the beneficial enjoyment of the assets, and the assets would be taxed as if I owned them.
I don’t want that. These kinds of trusts are meant to get assets OUT of my taxable estate.
So if I can’t be the trustee, can I control who will be? If I don’t think the trustee is doing a good job, can I remove them and put someone else in the role?
The tax code says I can remove the trustee and put someone new in the job, but I can only put an independent person in the role. Here, “independent” means someone who isn’t “related or subordinate” to me. My spouse, parents, kids, and siblings are all identified explicitly in the tax code as “related or subordinate” to me.
So, why do I say you can still have your brother be your trustee?
Because in 1995, the IRS issued a ruling that said I could name related people as my initial trustee and successor trustees so long as I did it in the trust document.
It’s only a problem if I can remove an acting trustee and replace them. I can name related people up front, but I can’t interrupt the administration of the trust by changing the trustee to someone else who is related to me.
That makes it look like I have the power to affect the beneficial enjoyment of the trust by playing games with who is the trustee.
This means that I can name a parent or a sibling as the trustee of my irrevocable trust. But once they’re in control as the trustee, I can’t pull them out and put someone else in who is related to me.
THAT is when I can only name an independent trustee.
Here’s why I’m cautious about incentive trusts.
How?
When the trustee likes what a beneficiary is doing, they’ll give bigger distributions. They’ll reduce or hold back distributions when they don’t like what they see.
Bribery is the word that comes to my mind. One colleague goes so far as to call it extortion.
Here are some classic incentive trust provisions:
“The trustee will pay you 50 cents for every dollar you earn.” (So what if you’re a teacher doing good work but not making much money? So what if you’ve decided to leave the workplace and serve as a caregiver for an ailing family member?)
“When you get your bachelor’s degree, the trustee will pay you $25,000.” (So what if you’re a talented chef and chose to pursue that instead?)
“Every time you have a child, the trustee will pay you $25,000.” (So what if your brother and his wife can’t have kids? They get the short end of the stick here.)
These incentives can discourage a beneficiary’s personal interests by setting the example that life is only measured by having or getting more money.
The chef might take a more traditional path even though they’re good enough for a spotlight on Chef’s Table.
The teacher may feel judged by provisions that ignore work that society needs but undervalues.
The excellent student might decide that their natural curiosity has been hijacked and turned into a job. Their curiosity takes the hit.
Stanford psychology professors have spent three decades studying how externally imposed rewards can wreck an internal interest that already values the subject of the reward.
A school of wealth psychologists worries that intellectual and emotional pleasure diminishes when you find yourself on a treadmill someone else put you on – even if the treadmill encourages you do keep doing something you like.
I’m not saying incentive trusts are bad.
I’m not saying they don’t work.
They need to be implemented thoughtfully so they don’t backfire.
How about structuring an incentive trust that rewards contributions to art, science, culture, and education? It can be done – especially if you help a client figure out what things they value most in the world.
I’m pretty sure the answer will (almost) never be “I want my kids to measure their lives using money.”
Are pot trusts still useful?
Why do I still talk to my clients about pot trusts?
Suppose a client dies while her three kids are still young. There are a few choices about how to hold assets for the kids.
The trust could say: create equal one-third shares, so each kid has their own share. That way, the kids are treated equally. If the oldest one gets into Harvard, their education costs come from their share without implicating the two other kids’ shares. It’s a widespread approach because it seems fair. Three kids, three shares.
But there’s a real risk of creating disparity. Let’s skip down the road a bit.
The oldest child has one son. When that child dies, the grandson will inherit a 33% share.
The middle child has two children. Those grandchildren will inherit shares worth about 16.5% of the estate.
The youngest child has five children. Each of them will inherit shares worth about 6.6% of the estate.
Does it still seem fair? Will the grandchildren with 6.6% shares receive the same benefits as the grandson with a 33% share?
As more families amass estates that should last beyond the kids’ lifetimes, it’s a meaningful discussion.
Would my client prefer a pot trust that allows all the kids and grandkids equal opportunity to benefit from the trust? Especially if the pot trust splits when the youngest child dies, meaning all grandkids end up with equal shares?
Clients generally aim to be fair to their kids and grandkids, and using a trust structure that focuses on those two generations is often a good idea.
It may only work sometimes, but clients should get to think about the possibility.
Make sure your charitable contribution acknowledgment is complete.
The devil is most definitely in the details regarding income tax deductions for charitable contributions.
When you give more than $250 to a charity, the tax code says you cannot deduct that contribution unless the charity gives you a contemporaneous written acknowledgment for it.
The acknowledgment must contain three statements.
First, it must identify the amount of cash and a description (but not the value) of any property other than cash contributed.
Second, it must state whether the donee organization provided any goods or services in consideration, in whole or in part, for the contributions.
Third, a description and good faith estimate of the value of any goods or services provided to the donor.
It seems like three easy things to work into an acknowledgment form, but recently the tax court got nitpicky. It denied a donor’s entire deduction to a museum because the acknowledgment didn’t say explicitly that the museum hadn’t provided any goods or services in consideration of the contribution.
Talk with an experienced charitable planning attorney if you contribute significantly to charity. I’m here to help.