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HOW AN ESTATE PLAN COULD HAVE CARRIED ON PRINCE’S CHARITABLE LEGACY

May 27, 2016/in Estate Planning /by Riley Pennington

In the wake of rock & roll legend Prince’s untimely death, a number of issues have arisen regarding his estate plan – or lack thereof.  One of the biggest issues is that none of the charities that Prince donated to throughout his life will inherit from his approximately 150 million dollar estate.

CNN Political Commentator, friend, and philanthropic partner of Prince, Van Jones, described Prince as “The Silent Angel.”*  During Prince’s lifetime, he anonymously donated millions of dollars to dozens of charities.  Unfortunately, since Prince died without a will, the charities that used to receive substantial donations from Prince will inherit nothing.  Instead, his estate will be distributed pursuant to Minnesota’s intestacy laws.  For those who die without a will, intestacy laws are a state’s default estate plan.  The estate is usually distributed among the decedent’s heirs.  Prince dying intestate is strange because of the the size of his estate, and his propensity to give to charity.

It is uncommon for someone with an estate as big as Prince’s to not do any kind of estate planning.  In fact, those with big estates often do what is referred to as “advanced estate planning.” One advanced estate planning practice is to create a charitable trust.  A charitable trust is an estate planning vehicle that can fulfill your philanthropic endeavors, all the while, having your estate receive beneficial tax treatment.  There are generally two kinds of people that set up charitable trusts: those who are charitably inclined and those who take advantage of the tax benefits.

For those who are charitably inclined, a charitable trust can and should be tailored to accomplishing your philanthropic undertakings.  A charitable trust allows an individual to make charitable donations during life and after death.  Setting up a charitable trust is a way to ensure that a charity will continue to receive donations after the settlor has passed away.  Other benefits of creating a charitable trust, and an estate plan, include, but are not limited to, avoiding probate, minimizing conflict during trust administration, and fulfilling the settlor’s intent.

For those who are primarily tax-driven, there are various tax benefits of which one can take advantage.  In short, there are different kinds of charitable trusts.  Each receives different kinds of tax treatment, has different formation requirements, and other distinguishing characteristics.  If creating a charitable trust is something that you want to do, or are at least considering, meeting with an experienced estate planning attorney is imperative, because estate planning requires expertise and precision when determining which avenues should be taken.  Had Prince set up a charitable trust during his life, not only would the charities that relied upon his generous donations be taken care of, but his estate would be taking advantage of the tax benefits.

Unless a will is found, we will never know how Prince would have wanted his estate to be distributed. It is likely that he would have had wanted a portion of it to go to charity.  If you possess a philanthropic disposition, creating a charitable trust is something that should definitely be considered.  A few of the benefits of creating a charitable trust are accomplishing your charitable goals, helping those who need it, and receiving tax benefits.

If you are interested in creating a charitable trust or have any questions regarding your current estate plan, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information.  The attorneys at Lonich Patton Erlich Policastri have decades of experience handling complex estate planning matters, including charitable trusts, and we are happy to offer you a free consultation.  Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.



* http://www.cnn.com/2016/04/22/opinions/prince-eight-things-to-know-jones/

https://www.lpeplaw.com/wp-content/uploads/2021/05/LPEP_PC.png 0 0 Riley Pennington https://www.lpeplaw.com/wp-content/uploads/2021/05/LPEP_PC.png Riley Pennington2016-05-27 12:54:582021-12-22 20:17:20HOW AN ESTATE PLAN COULD HAVE CARRIED ON PRINCE’S CHARITABLE LEGACY

You Say Estate Planning is Terrifying: We Say, Meet the BDIT

June 18, 2013/1 Comment/in Estate Planning /by Michael Lonich

In theory, setting up a trust and reaping its many benefits sounds great. In practice, however, giving up all control of your assets can be downright frightening. Well, now you can avoid “Estate Planning FOMO” (Fear Of Missing Out) and cozy up to the Beneficiary Defective Irrevocable Trust without fear.

When used correctly, the BDIT is as sensible as it is beneficial, offering substantial asset protection and tax planning benefits. So how does it work?

  • First, a third party such as a grandparent or parent, creates a trust and names you as beneficiary and trustee to that trust.
    •  This gives you management rights over the trust.
  •  Second, the trust should name an independent trustee to choreograph the trust and make strategic decisions regarding things like trust-owned life insurance, discretionary distributions, and tax matters.
    • Since you (the client) didn’t set up the trust on your own or initially fund the trust with your own money, you can benefit from all the wonders the trust world has to offer.
  •  Third, you can sell large appreciated assets to the trust in return for a promissory note for the purchase price, without triggering capital gains tax implications.
    • By doing this, you essentially “freeze” the value of your taxable estate.
    • For example, if you sell your family business to the BDIT, any growth of income and assets within the BDIT can benefit you and your family without being touched by estate taxes.

If it isn’t clear already, why is a BDIT a good idea? It’s not—it’s a GREAT idea. If executed properly, the BDIT can shield your assets inside the trust from claims against creditors. Also, you will receive a multitude of rights as trustee and beneficiary of the trust. For example, you’ll be able to:

  • Receive income from the trust;
  •  Make withdrawals from the trust assets (usually limited items related to health, education, or support);
  • Remove and replace the independent trustee;
  •  Use trust property rent-free;
  •  Generally manage the trust assets, and;
  •  Have the power to rewrite the trust under special circumstances.

Notably, a BDIT is “income tax defective,” which means that as the grantor and trustee, you are “granted” with withdrawal powers and other benefits, but you are required to pay the trust’s income taxes. “Hmm…well, why would I want to pay more income taxes?” With grantor trusts like the BDIT, paying the income tax is a big trade-off, allowing the trust’s income to grow outside of your estate, allowing you to use the income as you wish, let it grow inside the trust, and reducing your taxable estate by the amount of taxes you have paid. Over time, you and your descendants will be thrilled with your prudent choice to embrace the BDIT.

This is complicated, of course, but the extra effort can really pay off in the end. If you have any questions regarding your estate or are interested in creating a BDIT, please contact the experienced estate planning attorneys at Lonich Patton Erlich Policastri for further information. The attorneys at Lonich Patton Erlich Policastri have decades of experience handling complex estate planning matters, including wills and living trusts, and we are happy to offer you a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

https://www.lpeplaw.com/wp-content/uploads/2021/05/LPEP_PC.png 0 0 Michael Lonich https://www.lpeplaw.com/wp-content/uploads/2021/05/LPEP_PC.png Michael Lonich2013-06-18 10:27:262021-12-22 21:24:04You Say Estate Planning is Terrifying: We Say, Meet the BDIT

Estate Taxes Cause Some to Plan their 2010 Death

November 22, 2010/in Estate Planning /by Michael Lonich

Estate Taxes Cause Some to Plan their 2010 death.

Recently the AP press reported, U.S. Rep. Cynthia Lummis says her constituents are planning to die just to avoid estate taxes.[1] Currently, there is no estate tax for individuals who pass away in the year 2010. However, if legislators do not act quickly then the estate tax will revert back to a one million dollar exclusion with a 55% top rate.  Many had speculated with recent current events that Congress would not be able to pass any estate tax legislation prior to the November elections. Now that the November elections are finished, it is hopeful that some guidance will be given to the future of estate taxes.

Sometimes the Estate Tax is nicknamed the Death Tax. In reality the tax is imposed on the inheritance of wealth. For much of the country a one million dollar exclusion is generally enough to exclude their inheritances from being taxed. However, in the Silicon Valley area where detached single family homes are nearly a million dollars this exclusion can be used up rather quickly.

Bay Area Estate Value Much Higher then Average

Take for example, an estate valued at $1.5 million dollars. Although mere mention of the word million suggests this is not the type of estate that affects the majority of the population. It is actually very common in the Bay Area. Home values in the Bay Area are much higher than national average values. In a recent report, Cupertino, CA median home value is over $1,000,000.00. The median home value in Sunnyvale, CA is reportedly over $750,000.00. Since the value of a home is much more in California the one million dollar exclusion does not allow for much of the estates to transfer without tax.

Practical Calculation How Estate Tax is Applied

To calculate the Estate Tax on $1.5 million dollar estate, we must examine the Estate Tax Tables below.

Estate Tax Rates Table
Subject to Exemptions and Maximum Tax Rates Table
Estate Amount Exceeding: Up to: Is taxed at a rate of:
$1,000,000 $1,250,000 41%
$1,250,000 $1,500,000 43%
$1,500,000 $2,000,000 45%
$2,000,000 $2,500,000 49%
$2,500,000 $3,000,000 50%
$3,000,000 $10,000,000 55%
$10,000,000+ $17,184,000 60%
$17,184,000+ 55%
Exemptions and Maximum Tax Rates
Year Estate Tax Exemption Highest Rate
2003 $1 million 49%
2004 $1.5 million 48%
2005 $1.5 million 47%
2006 $2 million 46%
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 N/A (taxes eliminated) 0%
2011 $1 million 60%

In 2010, the estate would incur no estate tax and the inheritance would be the full 1,500,000.00.

In 2011, the estate would have a $1,000,000.00 exclusion, and the balance would be taxed.  The table below shows my tax calculation on a $1,500,000.00 estate in the year 2011.

Tax Rate Calculation Tax Total Inherited
0% 1,000,000 exclusion $  1,000,000.00
$1,000,000-$1,250,000 @ 41% 41% of $250,000.00 $  102,500.00 $      147,500.00
$1,250,000-$1,500,000 @ 43% 43% of $250,000.00 $  107,500.00 $      142,500.00
$  210,000.00 $  1,290,000.00

In 2010, the estate would be free of estate tax but in 2011 the estate tax would be $210,000.00. Estates of even higher values would have even more drastic tax differences in 2011. Simply put a 2 million dollar estate would have to pay nearly a million dollars in estate taxes.

This is only a theoretical computation and many people are hopeful that Congress will pass new estate tax legislation, while others argue that estate tax relief is not an important issue. Although there is no way to be certain if Congress will act, many believe that the only certain thing in life is death and taxes. However, no one says that you have to pay the maximum tax rate. In fact, each individual is permitted a $13,000.00 gift tax exemption per year.  That is only one of the many ways an attorney can assist in your estate planning.

For more information about Estate Planning, please contact us.  Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may include legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.


[1] CHEYENNE, Wyo. (AP) — U.S. Rep. Cynthia Lummis says some of her Wyoming constituents are so worried about the reinstatement of federal estate taxes that they plan to discontinue dialysis and other life-extending medical treatments so they can die before Dec. 31. The Associated Press: US rep.: Estate tax rise has some planning death, http://www.google.com/hostednews/ap/article/ALeqM5iE6x5QNARlHHqT8EKF-KUYWflVpg?docId=01c363eeccd542fe9dc9f9742699686b (last visited Nov. 4, 2010).

https://www.lpeplaw.com/wp-content/uploads/2021/05/LPEP_PC.png 0 0 Michael Lonich https://www.lpeplaw.com/wp-content/uploads/2021/05/LPEP_PC.png Michael Lonich2010-11-22 14:54:042021-12-22 22:00:41Estate Taxes Cause Some to Plan their 2010 Death
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LONICH PATTON EHRLICH POLICASTRI

Phone: (408) 553-0801
Fax: (408) 553-0807
Email: contact@lpeplaw.com

1871 The Alameda, Suite 400
San Jose, CA 95126

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