3 Money Problems from Inherited Wealth

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Many people fantasize about inheriting a huge sum of money, under the assumption that it will solve all of their financial problems, or at least set them on the path to comfortable living. Even for those accustomed to having money, such as people who grew up in wealthy families, the idea of receiving additional income may set off dreams of luxurious lifestyles.

 

Unfortunately, an inheritance can often cause more problems than it solves. Therefore, preventative measures should always be taken to prepare the heirs.

 

Barbara Blouin, the Founder of the Inheritance Project, found receiving a sudden inheritance presented a conflicted sense of identity as well as other issues. To raise awareness around the issues surrounding inheritances, she established The Inheritance Project. Blouin founded the organization in 1992 to “explore the emotional and social impact of inherited wealth and to show heirs how to claim their personal power and use it to bring meaning to their lives and benefit others.”

 

Below are three common issues new heirs have with receiving a sudden inheritance.

 

1. Lack of Money Understanding

Younger heirs, especially those in their late teens or early twenties, may not have a fully formed concept of money. In other words, a 19-year-old may perceive $100,000 to have the same spending power as $1 million, especially if they grew up having a lot of innate privileges. The solution here is financial education. If parents intend on giving their children inheritances in early adulthood, it’s important to address these issues through preparation.

 

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2. Adopting a Celebrity Lifestyle

There is no stop to the social media images of celebrities flaunting their enormous wealth. Reality TV shows like Keeping Up with the Kardashians idealize wealth, making it seem that wealthy people by default should have multiple luxury cars and a jet-setting lifestyle. For new heirs, especially younger ones, the desire to replicate a “celebrity lifestyle” through frivolous purchases is incredibly tempting. The key is to not let celebrity images direct the spending of newly inherited money. Inheritors need to sit down with an estate planning attorney to identify goals and create a strategic plan (that doesn’t include buying up the entire Dior Fall Collection).

 

3. Sudden Guilt

Some inheritors are overwhelmed with guilt when they receive an inheritance, especially those who have already been hard at work building their careers, or people trying to separate themselves from wealthy families. Even though images of wealth are widely celebrated in American culture, nepotism and acquiring sudden wealth can be cause for jealousy and resentment by peers or work colleagues.  Dealing with these issues can often be too much to bear, so inheritors may opt to donate a large portion—or even all—of their inheritance to charity.

 

Finding an estate planner who is familiar with the psychological impacts of wealth transfer can be helpful in preventing impulsive behavior, and creating a purposeful money management plan. Preventing money issues from inherited wealth begins with preparation, proper planning, and education. The easiest preventative step is to find a sophisticated estate planning attorney familiar with the psychological impacts of large amounts of wealth within families.

4 Signs There May be a Family Feud Over Your Estate

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Estate planning isn’t just a legal process, it’s an emotional process—and sometimes rife with drama. Dealing with the loss of a loved one is traumatizing on its own; adding an estate planning dispute can serve to heighten feelings of grief and lack of resolution. If your family is known for its sibling rivalries, lack of communication, or other such problems, it’s critical to reflect on these issues prior to solidifying any estate plan. By assessing what can go wrong from the outset, you can ensure that your wishes will be granted and potentially prevent unnecessary court battles.

 

Below are four signs there may be a family feud over your estate and what you can do to prevent future problems.

 

1. Sibling Rivalry

A parent’s, or parents’ death(s) can be the ultimate test to preexisting tensions between brothers or sisters. The grief of a parent’s passing on its own can trigger unresolved memories and feelings, leaving the settlement of an estate as a potential battleground to settle old fights. If you are already aware of tension between children, appointing a trustee who’s disassociated from the family or any rivalry may mitigate its effects. Even if your children appear to get along, an estate can often bring issues to the surface. It’s always wise to take preventative steps even if siblings seem to get along.

 

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2. Economic Differences Among Heirs

Differences in the financial standing of heirs can have its own set of pitfalls. For example, if you intend on leaving real property to three children, the less well-off child may want to sell the house for quick financial gain, while the more financially stable heirs may wish to move in the home, rent it out, or make other uses for it. This, in and of itself, can create tension and issues among heirs as they fight for the “best use” of the asset. This issue can be avoided by providing specific instructions as to the sale or maintenance of real property.

 

3. Advanced Benefit to One Heir Over the Others

Whether the goal is to help an heir’s small business, to provide startup funding, or money for graduate school, it is understandable and not uncommon to want to support an eventual heir financially, often earlier than planned. In advancing a benefit to one heir over the others, however, you can create strained relations among siblings, as they may resent the heir who received the benefit.

 

4. Late Marriage

Although it’s not the norm, sometimes relationships form in the very last years of life, even leading to marriage. Existing heirs may perceive the new spouse, especially when female, as having ulterior motives and become resentful. To avoid potential issues, it’s important for people to regularly review and update their trusts—especially when married.

Like most estate planning issues, prevention, education, and communication are essential. By speaking with an experienced estate planning attorney, you can effectively avoid future problems.

4 Ways to Prepare Adult Children for an Inheritance

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One of the biggest concerns among parents planning to distribute large sums of wealth to their children is in how they will manage the money. Will the sudden inheritance quash their drive? What if they gamble the funds away? Or worse, what if they become involved in poor investment deals and end up with dried up inheritances and even in debt?

 

These are common questions, and even some inheritors are fearful they may be inclined to sit on the couch watching sitcom reruns than go out and build a business or make an impact. The good news is, like most things, solid preventative steps can assist adult children with proper inheritance management, so everyone wins in the end.

 

1. Create Incentives

Rather than just allocate a specific sum to go to an heir, consider setting up incentive tiers. For example, the trustee may be instructed to disperse $15,000 upon attainment of a Bachelor’s Degree while another $30,000 may be dispersed upon attainment of a Professional or Doctoral Degree. While the degrees themselves are not necessarily indicative of the adult child’s income stream, they do reflect a level of ambition and drive that may warrant such rewards. Also, the dispersed sums will help the adult children in paying off student debt, or, at least in creating a safety net as they build their professional careers.

 

2. Match Inheritance Distributions to Income

Consider matching inheritance distributions to income. If one adult child makes $50,000 a year, the trustee will disperse $50,000. If another child, conversely, isn’t so driven and only pulls in $20,000 a year, the trustee will disperse $20,000. This way, adult children are incentivized to keep working hard rather than await inheritance distributions “just because.” But what if the adult child is an activist and unable to pull in much money? For adult children wishing to work on a nonprofit or some other social-impact cause, you can add language ensuring appropriate distributions for these types of scenarios.

 

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3. Involve Adult Children in a Personal Foundation

If you have a private charitable foundation, involving children from an early age is a fantastic way to teach them the importance of purpose, giving back, and money management. By allowing children to see the difference wealth can have on others first hand, you can grow their sense of responsibility—not just for matters concerning the foundation, but also in their future adult lives.

 

4. Tie Distributions to Ages and Events

Think back to your late teens or early twenties. Would you have been emotionally and intellectually prepared to receive a large inheritance? The answer is likely no. Many parents opt to create their trust so their kids receive a small increase in their inheritance each year, to ensure proper sophistication and mental preparation to receive larger sums of money.

 

By taking preventative measures to prepare your adult children for your inheritance, you create an optimal situation for everyone. Consulting with an experienced estate planning attorney familiar with the technical and emotional aspects of estate planning is a crucial first step to success.

 

Differences Between a Trust and a Will

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When people discuss estate planning, the two terms we hear the most are “trust” and “will.” In fact, these terms are used almost interchangeably, despite the two being completely different from one another.

 

The key distinction between a trust and a will is that one goes into effect only after a person dies, whereas the other takes effect immediately upon creation.

 

A will is a document that designates who will receive assets and property after death. A legal representative (executor) is also appointed to carry out the wishes of the deceased. A trust, however, can be used to begin distributing assets before death or afterwards. A trust is a legal arrangement by which an individual (or an entity, such as a law firm or bank), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” A trust typically has two types of beneficiaries — one set that receives income from the trust during their lives and the other that receives whatever is left over after the first set of beneficiaries dies.

 

A will can cover any assets in a person’s name after death, but won’t cover property held in joint tenancy or in a trust. A trust, on the other hand, covers only property that has been transferred to the trust. In order for property to be included in a trust, it must be put in the name of the trust.

 

There is another key difference between wills and trusts. Wills pass through probate, meaning a court oversees the administration of the will to ensure the will is valid and the property gets distributed in accordance with the deceased’s wishes. A trust, on the other hand, passes outside of probate, which removes the necessity of the court. This can save time, money, and unnecessary stress. Trusts also remain private, whereas wills are considered public records and technically accessible by anyone.

 

Many people don’t know that California is a trust-based jurisdiction, so the key estate planning document will be a trust, rather than a will.  With that being said, a Pour-Over Will should accompany every trust and be included in any California revocable trust-based plan.  

 

5 Celebrity Estate Planning Mistakes We Can Learn From

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In our celebrity-obsessed culture, it seems that people’s eyes and ears are constantly on alert for the latest celebrity gossip, especially when it concerns wealth. Though not every celebrity lives an extravagant lifestyle, the vast majority possess sizeable assets and aren’t shy about flaunting it. The unfortunate reality is that celebrities often forget that they, like “normal people” must exercise due diligence when it comes to protecting their assets, filing taxes, and maintaining privacy.  Many celebrities fail to secure their assets prior to their deaths, triggering years of court battles and millions lost to heirs.

Here are five celebrities who made major estate planning mistakes and what we can learn from them.

 

Prince

Prince’s death was both untimely and devastating for family and fans. The “Purple Rain” singer and icon passed away at just 57 years old, in 2016. Prince, like many other people who die abruptly, may have believed that he’d live for many more years. Prince had no will, and hadn’t taken any measures to protect his assets. Since there was nothing in writing to express who would receive Prince’s assets, random people—including a federal inmate—cropped up to make claims of familial relation. Per Andrew Mayoras, a trust and estate planning attorney and coauthor of Trial & Heirs: Famous Fortune Fights, approximately 60% to two-thirds of adults do not have a last will or testament.

 

Whitney Houston

When Whitney Houston died in 2012 from drug intoxication and subsequent drowning, she died without an updated will. The last update to her will came before her daughter, Bobbi Kristina Brown, was born. That was in 1993. The will incorporated a provision that noted Bobbi was to inherit $2 million when she turned 21 and the rest later. She was 18 years old when Whitney Houston died. Tragically, Bobbi suffered the same demise as her mother – three years later in 2015 she also died of drug intoxication and drowning.

 

Philip Seymour Hoffman

Academy Award winner Philip Seymour Hoffman’s big estate planning mistake is in his failure to use trusts pragmatically. The actor had expressed concern about his future heirs becoming “trust-fund kids,” so he opted to not create a trust. When he passed away in 2014, the entirety of his $35 million estate went to the mother of his three children. While this may not seem problematic, it creates large estate tax bills for each beneficiary. Rather than seek clarification from an estate planning attorney on how to customize his trust to ensure monies were allocated to beneficiaries under specific guidelines, he assumed that by virtue of creating a trust, his kids would become “spoiled.” Unfortunately, these types of assumptions can cost future heirs more in the long run.

 

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Michael Jackson

Michael Jackson’s estate planning mistakes may be the most publicized, given the superstar’s huge estate and large family. It goes without saying that the first step is to create a trust that clearly outlines who will receive what, how much, and who will manage the trust. The second stage is to fund the trust. Michael Jackson, unfortunately failed to properly fund his trust, causing his beneficiaries to spend many hours in probate court. The estate is still open, and all matters relevant to it are subject to court approval. Because of the public nature of probate, the process can be as emotionally consuming as it is time consuming.

 

Marlon Brando

Classic film star Marlon Brando made a mistake that’s surprisingly still common: he made verbal agreements and promises that were not incorporated into his trust. When Brando died in 2004, his written plan omitted several oral promises he had apparently made to his longtime housekeeper, Angela Borlaza.  Borlaza filed two separate lawsuits alleging that she was unlawfully kicked out of Brando’s California home, and expressed the house was a gift to her from Brando. The star, however, never completed any paperwork to transfer the property title to Borlaza to grant her ownership. The housekeeper sued for over $600,000 and ultimately received a settlement of $125,000.

 

4 Questions Your Estate Planning Attorney Should Ask You

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Whether you’re an accomplished executive, multi-business owner, or a single mother, sitting down for the first time with an estate planning attorney can be nerve wracking. In a society with so many options—including estate planners—feeling comfortable with important decision making is easier said than done.

 

A sophisticated estate planning attorney covers a lot of terrain, from assessing the assets that comprise your estate, to helping you consider the best executor, to whether you need a Will, a living trust, an irrevocable trust, a testamentary trust, or a combination of all of the above. . As a prospective client, you may wonder if your research was thorough enough, or if your list of questions truly address the complicated legal issues you hope to tackle in a preliminary meeting. The good news is an experienced estate planning attorney should ask at least five crucial questions during your first consultation.

 

What would you like to accomplish with your estate plan?
Estate planning attorneys who value quality client relationships want to know exactly why you have sought their services and any personal or specific goals. To clearly identify the needs of the potential client, the attorney may ask about existing children or grandchildren; varying needs of heirs; and outstanding tax issues.

 

Do you own property out of state or the country?
You may be startled by some of the personal questions that are asked by a solid estate planner. Some of these questions will invariably connect to any existing or future real estate. If a work relocation is in the future, you may be advised to obtain an attorney in the new state, or may opt to utilize a will or trust subject to the laws of your future state and primary residence. In California, it’s common for people to have assets abroad. Your estate planning attorney will ask questions about the location of assets, or may inquire about when they were obtained.

 

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Who would you want to fill the roles of executor, trustees of different trusts, guardian for minor children (if applicable), and who can act as an agent under a financial and/or medical Power of Attorney?
In any estate plan, determination of the fiduciaries (the people or institutions that will fill each role) are crucial. Your estate planning attorney should carefully define each job for you and advise how to select the various people, banks, or trust companies to fill each role.

 

Do you understand and feel comfortable with the fees you will pay for the services?
This is a question, regardless of specialization, that any qualified attorney will ask. Trust and Estate planning attorneys can have different fee structures. Some attorneys may bill on an hourly basis while others may work on a flat fee basis. In terms of fees, transparency is truly the best, there is one golden rule: transparency and disclosure.

 

Make sure to hire an estate planning attorney with the skills, experience, and charisma that makes you look forward to building a relationship with them. Estate planning is not an easy or quick process and it only makes sense to work with a professional who’s prepared to offer top level service. If you haven’t found an estate planning attorney who fits your needs, you can contact us here.

How to Identify Digital Assets

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Very little of our lives are free from digitization. Our socialization has taken to social media and livelihoods to the Internet. Another facet of our lives that exists in the online space? Assets.

 

What type of property constitutes a digital asset? People may immediately envision their online bank accounts. Technically this is a digital asset, but, most people already take measures to protect their bank accounts, whether they use online banking or not.

 

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3 Benefits of Establishing a Private Foundation

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Per the 2017 Giving USA report, foundational giving comprises 15% of America’s nonprofit contributions, coming in second after individual contributions which comprise a total of 72% of America’s giving. In total, the individual contributions represent approximately $281 billion, while the 15% represent approximately $59 billion. In reviewing the numbers, it’s clear that a pretty sizeable chunk comes from foundations.

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4 Asset Protection Strategies for Entrepreneurs

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With the rapid advancements in technology, there has been a massive rise in self-identified entrepreneurs. In 2015, the Global Entrepreneurship Monitor reported that 27 million working Americans had started new businesses. Entrepreneurs are necessary for the growth of the Global economy. When successful, entrepreneurs’ advances can improve the standard of living, create jobs, and form new opportunities for other burgeoning business owners.  

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