I was walking my dear Old Dog weekend, now that spring has finally come to the east coast, and since his walks are now more of a slow-stroll, I was listening to some neighborhood children playing outside. “I want a do-over” one yelled and then the 5 or 6 of them got into a very heated argument of whether you really could have a “do-over” culminating in one yelling “there are no do-overs in real life!” I spent the next part of my “Twenty Meter Mosey” thinking about times I’d love to “do-over” but also, being the lawyer, moved on to thinking about legal “do-overs.”
We spend a lot of time thinking about estate planning and financial plans, setting up documents and structures that will last after our deaths. I often counsel clients to look at their estate documents in a 5-10 year window – if you died TODAY, what needs to happen. We then end up crafting thoughtful and detailed documents to create trusts, provide for distributions, protect beneficiaries, ensure orderly succession, etc. There is usually a lot of focus on the tax angles as well, even though the rates and structures will change. They finish the process and are extraordinarily pleased to find that yes, its really done, and this activity they have been delaying (and dreading) is now behind them for the time being. At this point, I am usually torn between helping to celebrate or pointing out “y’know, it can all be set aside easily once you are gone.”
The legal world gives us a lot of “do overs” – Jackie Kennedy Onassis is often lauded for leaving her estate to a carefully crafted charitable lead trust, which would have minimized the estate taxes and provided a twenty-four year distribution to charities before the remaining assets would pass to John Jr. and Caroline. The children however had to disclaim the assets in order for the CLT to be funded; they did not, the assets went to them instead of to the charities and they had a nice sale at Sotheby’s with some of the excess stuff. By giving her children the ability to direct the assets through the use of the disclaimer, she allowed them to determine when and how assets would pass and taxes would be paid. The world of post-mortem estate planning can seem daunting but actually is quite important to plan for and for executors and fiduciaries to understand.
When someone dies, the real tax planning often begins. Active post-mortem planning, particularly if the estate (like Jackie O’s) was structured to allow for this flexibility, can result in significant savings. Your executor will have the ability, for example, to set the fiscal year for the estate, which was very helpful for decedents in 2012 as the executor could effectively elect to extend the lower 2012 tax rates for the estate for at least the first fiscal year.
Other decisions should be discussed as part of the planning process. The disclaimers used with Jackie O, for example, should be thought through and clarified. I worked with a family years ago where the parents wanted their assets be divided equally but one son had significantly more than his siblings. He wanted to disclaim in favor of the siblings but the default provisions in the will would have assets pass to his children, who were already “too wealthy” in his opinion. After some discussion, the parents agreed to allow a disclaimer that would permit the son to redirect assets to the other children if, at the time of his parent’s death, he did not need the assets, and the parents were able to put in the trust provisions they wanted to protect these siblings from any additional inheritance. As it turned out, the son’s company went bankrupt quite unexpectedly (Ticker: LEH) so the disclaimer is likely to go unused… More to come on post-mortem planning.
Now, if only I could get a “do over” on my Lehman experience… I would have been certain my signing bonus vested a lot earlier!