13 Rock Star’s Old Will Illustrates A Typical Mistake

morrisonJim Morris on, the lead singer of the popular rock band The Doors, died in 1971 at age 27. Before his death he had signed a simple, one-page will that left everything to his girlfriend, Pamela Courson (or if she died before he did, to his brother and sister).

Jim Morrison was more successful at music than at estate planning. As a result of the will, Pamela inherited his entire estate, Pamela herself died shortly afterward of a heroin overdose. Because Pamela didn’t have a will, most of Morrison’s fortune then went by law to Pamela’s closest living relatives – her parents.

Now, Pamela’s father was a former Navy officer and a high school principal in conservative Orange County, California, He probably never imagined that he would spend decades collecting millions of dol­lars in rock-and-roll royalties, or that he would have artistic control over a counterculture legend’s poetry and a major say in how Morrison was portrayed in movies such as The Doors.

It’s probably safe to assume that Morrison didn’t anticipate this either, and it probably wasn’t exactly what he had in mind.

Morrison could easily have avoided this fate by setting up a trust that would have cared for Pamela, but that would have directed his fortune to own family if something happened to her, and put someone he knew and trusted in charge of his artis­tic legacy.

How is all this relevant to today’s seniors who aren’t rock stars?

The truth is, many seniors sign simple or “form” wills, sometimes out of a book or from the Internet, and they make a similar and tragic mistake.

For instance:

Alan signed a “form” will leaving his estate to his second wife. She inherited his estate, and when she died, the assets went to her blood relatives. Alan’s own children from his first marriage received nothing.

Beth signed a “form” will leaving her estate to her son, who had children from his first marriage. But when her son died, Beth’s assets went to the son’s second wife – and not her own grandchildren.

This is why it’s essential to talk to an attorney about your wishes. A good estate plan considers all the “what-if s,” and will make sure you accomplish your objectives, even if something you didn’t anticipates happens along the way.


Creating ‘Conservation Easements’ To Save Taxes Is Easier

grassIf you own land that you want to pass on to your heirs, but you also want to make sure that some his­toric, scenic, or agricultural value will be maintained and not destroyed by future development, you might be able to accomplish this with a “conservation ease­ment”..and also save taxes at the same time.

A conservation easement is a restriction on your land that says it can never be developed in certain ways. When you create such an easement, you give it to a charity – usually one that has been created to preserve some historic, scenic or agricultural her­itage. In some cases you can also give the easement to a government agency.

After that, the charity or agency has the right to enforce the easement and prevent such future development.

Despite giving away the easement, you still own the land and you can engage in any activities there that aren’t prohibited by it. You or your heirs can also sell the land, although any buyer will be subject to the same easement.

There are two big tax advantages to a conservation easement. The first is that it s a charitable contribu­tion, so you can take a charitable deduction on your income taxes. Second, the easement reduces the value of your property, because instead of your property being valued based on its potential for development, it has to be valued subject to the easement. So when you pass away, the value of your estate will be smaller, and your family may have to pay less in estate taxes.

The big drawback to a conservation easement is that it’s forever – so if your heirs someday decide they want to sell the property for development, they won’t be able to.

Recently, a federal appeals court in Washington, D.C. issued a decision that makes these easements easier.

The case involved two row houses in a historic dis­trict in Washington. The owner gave a “facade ease­ment” to a charity interested in architectural preser­vation. The easement stated that the historic facades of the buildings could not be changed. However, the agreement also said that the charity had the right to consent to such changes if it chose to do so at some later point, even if they weren’t historically consistent with the area.

The IRS claimed that this wasn’t a real conserva­tion easement because the charity had the option not to enforce the deal.

But the court sided with the taxpayer. It said the fact that the charity had the ability to agree to neces­sary but unforeseen changes in order to make the property livable and useable for future generations didn’t undermine its essential purpose.

This flexibility should help preserve the value of easement land, and make charities more willing to make such agreements, without losing the tax advan­tages for landowners.

What if you want to keep a farm, ranch, or similar property in the family for a number of years, but you don’t want to completely give up the right to develop it in the distant future? You might still be able to gain an estate tax advantage with something called a “spe­cial use valuation.”

This valuation allows an estate to value land for tax purposes based on its current use for farming or ranching, rather than its presumably much higher value for development. To obtain this valuation, your heirs have to promise not to develop the land for a certain period of time. (If they break this promise, the IRS can come back and collect addi­tional taxes.)

The special use valuation is not a charitable con­tribution, and while it might save on estate taxes, you won’t get an income tax deduction. However, it pro­vides more flexibility for your heirs down the road than a permanent conservation easement.

Have you picked the right person as your executor or trustee?

Choosing the right person on a group of business people. HiringBefore you name someone as an executor or a trustee in your will – or before you agree to be an executor or a trustee – it’s a good idea to review exactly what respon­sibilities are involved.

These are serious jobs, and sometimes people don’t give enough thought to which person should be chosen.

Often, people simply name a spouse, a child, or a family friend. This might seem like a logical choice, and the person might expect to be given such a role, but that doesn’t mean they’re necessarily the best person for the job – particularly if they’re not detail-ori­ented, good with figures, and adept at handling money. Many peo­ple who quickly agree to act in these roles later come to regret it.

An executor’s job typically lasts about a year, and involves a lot of responsibility. Most executors hire an attorney and sometimes other professionals to help them through the steps and make sure they don’t make any mistakes. However, you’ll still want to pick someone who is willing and responsible enough to handle the often difficult and time-consuming tasks.

These tasks typically include:

  1. Locating the deceased person’s will (the original, not a copy) and filing it for probate.
  2. Obtaining a death certificate, obtaining an estate tax ID number from the IRS, and setting up an estate bank account.
  3. Notifying beneficiaries and other potential heirs.
  4. Placing an ad in a newspaper to provide information to poten­tial creditors.
  5. Making a list of all the estate’s assets and liabilities, collecting assets (which may be in other people’s hands), liquidating bank and other accounts, and protecting all assets from loss or harm.
  6. Obtaining appraisals to determine the value of the property.
  7. If the property includes a business, making sure the business continues to run successfully.
  8. Paying valid claims from creditors. If nothing else, it will be necessary to pay funeral expenses, probate fees, professional fees and taxes out of the estates funds.
  9. Filing tax returns on time, including any income tax and estate tax returns.
  10. Distributing property to heirs. This can include selling property to fund a bequest. It can also include setting up trusts as indicated in the will.
  11. Keeping detailed records of all expenses, and fil­ing an accounting with a court.

An executor is entitled to be reimbursed for rea­sonable expenses, and in some cases can receive compensation.

The job of a trustee can be even more important, because it doesn’t end when the estate is closed – it continues for the life of the trust.

A trustee is responsible for managing the assets of a trust for the benefit of the beneficiaries, while act­ing in accordance with the trust’s terms. If a trustee makes a mistake and a beneficiary loses money as a result, the trustee could potentially be legally responsible – which is one reason why being a trustee is such a serious job.

Here are some of the issues that trustees can run into:

  1. Trustees are usually required to keep detailed records of assets, income and distributions. Further, they often have to provide copies of these records at regular intervals to all benefi­ciaries – including people who may become beneficiaries only years later. This is a big job.
  2. Trustees have a duty to use good judgment in managing the assets. That includes understanding and using basic investment principles such as diversification of assets. This can be an issue, for instance, if a trust is funded with stock in a family-run company. While everyone might want the trustee to keep the stock, the trustee might have a legal duty to sell some of it to reduce the risk of having the trust assets heavily concentrated in a single investment.
  3. Trustees have a fiduciary duty, which means they must always act in the best interest of the beneficiaries – and never in their own interest.
  4. Trustees sometimes have to manage conflicting expectations. For instance, suppose a trust pro­vides income to a second spouse during the spouse’s lifetime, after which the trust assets go to the children from a first marriage. The sec­ond spouse might pressure the trustee to invest so as to maximize current income, while the children might want the trust invested for long-term capital gains. A trustee typically has to be fair to all beneficiaries while acting within the terms of the trust – which might not make him or her the most popular person in the family.
  5. Trustees may be entitled to compensation, but it’s very important to make clear upfront how that compensation will be calculated in order to avoid future conflicts. Will the trustee be paid annually? Will he or she receive a set fee, or a percentage of the trust assets? Will this change over time?

Executors and trustees have important jobs, and in many ways they’re the linchpin of a successful estate plan. It’s worth thinking carefully about the people you choose in order to make sure they really are, or still are, the best person for the job.

Can You Avoid Probate By Placing Your Assets In Joint Names?

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Often, older people will add the name of one or more of their children to their checking accounts or brokerage accounts .They might do this to make it easier for the children to help them with their financial affairs. Or they might think that it’s a clever way to avoid probate.

Joint ownership can be good in some cases, but there are dangers in setting things up this way.

To illustrate, imagine that Anna has three chil­dren -Barry, Louise, and Todd -and she adds their names to some of her various accounts so they can help her with her finances. What could go wrong?

  • A CHILD’S DEBT | Suppose Barry loses his job, and runs up large debts. Since Barry is a joint owner of one of Anna’s accounts, his creditors could poten­ tially come after Anna for repayment Or suppose Barry owns a business and guarantees a loan.If the business goes under, Anna could be on the hook.
  • A LAWSUIT | Suppose Louise causes an auto ac­ cident, and the injured driver sues her. The driver might be able to empty Anna’s bank account as well as Louise’s.
  • A DIVORCE | If Todd gets divorced, his wife could potentially claim some rights over a joint account. If Todd’s wife makes a claim to divide an account, Anna might be required to trace and prove the entire his­ tory of her contributions to it.If she can’t do so, then Todd’s wife might have a claim on it.
  • A FAMILY FIGHT | When Anna dies, any assets in her joint accounts will go to the co-owners named on those accounts. If Anna has a will that divvies up her other property, it won’t cover the joint accounts. If Anna intended to ultimately split her property evenly among her children, that might not happen. And even if one sibling wants to make things right and offers to even things up with the others, this might create gift tax problems.

An estate planner can suggest alternative ways to avoid probate and allow children to help with finances.