What Joan Rivers’ Death Teaches Us About End-of-Life Planning

The world lost a marvelous comedic talent when Joan Rivers passed away on September 4, 2014. Rivers was born “Joan Alexandra Molinsky”, the daughter of Russian immigrants in Brooklyn. Her father was a doctor and he reportedly threatened to have Joan committed if she pursued a career in acting. Joan instead worked in fashion and retail after earning undergraduate degrees in anthropology and English.

Joan got serious about acting in the theatre following the end of her first marriage; she then changed her name and started performing comedy. She was on the tonight Show with Johnny Carson in 1965, released her first album shortly thereafter, and had her own TV show by 1968. The rest is history. Over the course of her career, Joan Rivers starred in movies, authored books, performed thousands of stand-up shows, hosted and starred in television productions and performed on Broadway. Her perseverance following the suicide of her husband, her battle with eating disorders, and her issues with depression played out on the public stage, as did her death.

Joan Rivers once told a reporter that her estate documents said that she was not to be revived “unless she could do an hour of stand-up”. The document she was likely referring to is an Advance Directive or a Living Will, in which an individual lays out his or her wishes about being kept alive by artificial means. Joan died as a result of a complication that arose during a procedure on her vocal chords after the oxygen supply was cut off to her brain. She was placed on life support as a result of the complication and her family elected to terminate the life-sustaining treatment several days later.

There are a number of “what-if’s” to consider when preparing your estate plan. One of these questions should be “What if I should become incapacitated and cannot communicate: who will make decisions about my medical care and what sort of guidance should I give them about keeping me alive through tube feeding, ventilation, etc.?” Each state has its own rules about which documents control these decisions, so consult with an attorney in your state if you’ve got questions on this end-of-life planning.

“E-Z Legal Form” at Center of Dispute in Florida’s Highest Court

A family in Florida recently took their dirty laundry to the State Supreme Court, after Ann Aldrich died with a poorly-drafted Last Will that she had prepared online. The Last Will included a list of specific gifts of property, including disposition of her home, car, and life insurance proceeds, which were all left to her sister; or in the event her sister did not survive Ann, then to her brother. Unfortunately, Ann Alderich’s sister died before Ann did. The deceased sister left property to Ann, becoming Ann’s benefactor, rather than Ann’s beneficiary.

When Ann died she owned the specific property listed in the “E-Z Legal Last Will” plus the property she received from her sister’s estate (which was not addressed in the “E-Z Last Will”). The will form Ann downloaded did not include a residue clause which would have provided for the disposition of everything in her estate that was not listed as a specific gift in the Last Will.

Ann Aldrich’s brother assumed that all of Ann’s property would pass to him. Ann’s nieces disputed that reading of the Last Will, arguing instead that, since there was no residuary clause, a portion of everything not listed should pass to them under Florida’s intestacy laws (as they would step into the shoes of their deceased mother, Ann’s sister).

The Florida Supreme Court ruled that because Ann Aldrich’s Last Will did not have a residue clause, the nieces were correct and should receive a portion of the assets not specifically listed as going to Mr. Aldrich (Ann’s brother). This case illustrates the importance of seeking a professional’s help when drafting your estate plan. A competent attorney knows the importance of each aspect of a client’s will or trust. He or she creates estate planning documents around the individual client, rather than forcing the client to work within the confines of an inflexible “one-size-fits-all” form downloaded from the cloud.

Ann Aldrich likely used the online form to save money, but ended up costing her family thousands of dollars in attorney fees—a decision which one Justice on the Florida Supreme Court called “penny-wise and pound-foolish.”

Our firm is not licensed to practice law in Florida and does not give advice on issues regarding Florida law. We do, however, work with clients in the Pacific Northwest that deal with the issues outlined above. Our firm will be hosting a complementary discussion about some of the online pitfalls our clients regularly fall into later this month. If you are interested in learning about how recent developments in digital currency, privacy and property are affecting families (and their businesses) in Oregon and Washington, you can find the breakfast seminar details here:

SYK Seminar Series: Estate Planning & the Rise of Virtual Currencies and Assets

Recent Tragedies Confirm the Importance of Oregon’s Advanced Directive

Jahi McMath is a 13 year-old California girl who was recently declared brain dead after a routine surgery went wrong. Jahi’s family has been engaged in a high profile legal battle in order to keep their daughter on life support. Meanwhile, in Texas, a woman is being kept alive, against her family’s will, by a hospital determined to save the life of the fetus inside her. Both of these tragic cases illustrate the confusion that can surround end of life care.

Jahi McMath underwent an elective tonsillectomy to help her with her sleep apnea on December 9, 2012. Tragically, something went wrong during the surgery and she experienced intense hemorrhaging and cardiac arrest. Childrens Hospital Oakland declared Jahi brain dead on December 12. Jahi’s family members argued that their daughter was not dead, since her heart was still beating, and went to court to stop the hospital from removing life support. On Monday, December 30, a judge extended the life support until January 7. On January 5 she was taken to a private facility.

On November 26, Erick Munoz found his pregnant wife Marlise unconscious on the kitchen floor of their home. He rushed her to the hospital where she was declared brain dead. Despite Marlise’s oral expressions of her wish to not be kept alive through the use of machines, Texas law prohibits withholding life support from pregnant women. Marlise was only 14 weeks into her pregnancy. Her husband wants to respect Marlise’s wishes to be kept off life support and he is worried about raising the baby alone, particularly since it is unclear how long the fetus was kept without oxygen. Mr. Munoz filed a lawsuit on January 14 arguing that his wife is dead, and is therefore no longer covered by Texas law and no longer a patient of the hospital.

While the particularly heartbreaking nature of these cases has generated many news stories, situations similar to these happen to families every day. This is why it is so important to make sure your family knows and understands your wishes for end-of-life care. Oregonians can express their wishes regarding end-of-life care through the Advanced Directive Form. This form allows you to give instructions to your family in a number of areas including life support and tube feeding. It also allows you to appoint a family member or friend as your health care representative, so that they can make medical decisions for you if you are unable to make them yourself. The unfortunate stories of Jahi and Marlise show just how confusing it can be for families when they lose a loved one. You can make it easier on your own family by making your wishes clear through an Advanced Directive.

Recent Tragedies Confirm the Importance of Oregon’s Advanced Directive

Jahi McMath is a 13 year-old California girl who was recently declared brain dead after a routine surgery went wrong. Jahi’s family has been engaged in a high profile legal battle in order to keep their daughter on life support. Meanwhile, in Texas, a woman is being kept alive, against her family’s will, by a hospital determined to save the life of the fetus inside her. Both of these tragic cases illustrate the confusion that can surround end of life care.

Jahi McMath underwent an elective tonsillectomy to help her with her sleep apnea on December 9, 2012. Tragically, something went wrong during the surgery and she experienced intense hemorrhaging and cardiac arrest. Childrens Hospital Oakland declared Jahi brain dead on December 12. Jahi’s family members argued that their daughter was not dead, since her heart was still beating, and went to court to stop the hospital from removing life support. On Monday, December 30, a judge extended the life support until January 7. On January 5 she was taken to a private facility.

On November 26, Erick Munoz found his pregnant wife Marlise unconscious on the kitchen floor of their home. He rushed her to the hospital where she was declared brain dead. Despite Marlise’s oral expressions of her wish to not be kept alive through the use of machines, Texas law prohibits withholding life support from pregnant women. Marlise was only 14 weeks into her pregnancy. Her husband wants to respect Marlise’s wishes to be kept off life support and he is worried about raising the baby alone, particularly since it is unclear how long the fetus was kept without oxygen. Mr. Munoz filed a lawsuit on January 14 arguing that his wife is dead, and is therefore no longer covered by Texas law and no longer a patient of the hospital.

While the particularly heartbreaking nature of these cases has generated many news stories, situations similar to these happen to families every day. This is why it is so important to make sure your family knows and understands your wishes for end-of-life care. Oregonians can express their wishes regarding end-of-life care through the Advanced Directive Form. This form allows you to give instructions to your family in a number of areas including life support and tube feeding. It also allows you to appoint a family member or friend as your health care representative, so that they can make medical decisions for you if you are unable to make them yourself. The unfortunate stories of Jahi and Marlise show just how confusing it can be for families when they lose a loved one. You can make it easier on your own family by making your wishes clear through an Advanced Directive.

 

A tale of two families and the wealth they (did not) pass on to their children

We spoke about some well-executed and some not-so-well-executed estate plans at the firm’s recent seminar on famous and infamous estates. Two of the issues we discussed were transfers of business interests and the importance of planning for multiple generations. Here are two examples we did not get a chance to discuss at our seminar, but which are relevant:

First, Bloomberg recently reported that Aerin and Jane Lauder, the granddaughters of the founder of Estee Lauder (the founder was named Estee Lauder, of course), became two of the youngest billionaires in the world this year; due to the appreciation of their Estee Lauder stock. Aerin and Jane are each in their third decade of work at Estee Lauder and each own some stock shares individually while other shares are held in trust for their benefit. Through smart planning, it looks like the family has managed to avoid the “shirtsleeve to shirtsleeve in three generations” story that so many families fall into. The patriarch’s direct descendants appear to have learned enough about the family business (and about the values that it takes to guide the business) to maintain a promising fiscal outlook going into the fourth generation of wealth.

This is a significant achievement. Consider:

Cornelius Vanderbilt borrowed $100 from his mother and turned that $100 into a railroad empire worth over $100 million dollars at the time of his death in 1877. $100 million in 1877 is worth approximately $185 billion in today’s dollars. For a little perspective, Warren Buffet’s net worth is around $64 billion and Sam Walton’s is around $65 billion in todays dollars.

Vanderbilt’s heirs spent the money like Montgomery Brewster. Six years after Cornelius Vanderbilt’s death, his heirs built the first of ten Vanderbilt mansions on Fifth Avenue in New York. Cornelius’ heirs built similarly opulent “cottages” in Newport, RI and one of them, George Washington Vanderbilt II, built the fantastic Biltmore Estate in Asheville, NC – the largest privately owned house in the United States (250 rooms and 178,926 square feet).

Cornelius Vanderbuilt’s heirs were prominent horse breeders, yacht racers, auto racers, and film producers (and alcoholics). Many of the heirs married multiple times. As a result of these career and life choices, by 1920 one of Cornelius’ descendants died penniless, by 1960 the last of the Fifth Avenue mansions was torn down, and by 1977 a survey of family members at a reunion at Vanderbilt University turned up 120 Vanderbilts and not one millionaire.

Planning for the second and third generations is important for any business, no matter how big or small. A proper plan often involves instilling the patriarch’s work ethic in children and grandchildren, communicating with each generation about the direction of the business, properly assessing and preparing for risk, and making informed legal decisions.

Michael Jackson’s tax bill: Off the Wall? Bad? Can they ‘Beat it’?

Michael Jackson spent over forty years singing, dancing and "weird-ing" his way to owning the title "King of Pop". Michael was six years old when he debuted as part of the Jackson 5 in 1964 and was 24 when he dropped the album "Thriller" and the ground-breaking videos for "Beat It", "Billy Jean" and "Thriller". Michael recoded 13 number-one singles and won 13 Grammy Awards during his prolific career and "Thriller" remains the best-selling album of all time. Sadly, Michael died of acute propofol and benzodiazepine intoxication on June 25, 2009. He was 50 years old.

An estate tax return was due for the estate of Michael Jackson on March 29, 2010 (which was probably extended to September 29, 2010). This return listed the assets owned by Mr. Jackson at the time of his death and included valuations on each asset. As you can imagine, Mr. Jackson’s estate probably owned some things that many of us will own when we die: bank accounts, automobiles, real estate, etc. Mr. Jackson also owned some things that were unique to his celebrity status and his profession: recording rights, rights to his likeness and image, his endorsement deals with Pepsi and other corporate sponsors, etc.

The Internal Revenue Service has charged the Jackson estate with undervaluing the assets on the estate tax return, as the estate reported a taxable estate of $7 million. The IRS has sent the estate a tax deficiency notice for $702 million ($505.1 million in taxes and $196.9 million in penalties). The primary arguments surround the estate’s valuation of Mr. Jackson’s likeness and image (valued by the estate at $2,105 and by the IRS at $434 million) and the value of some of Mr. Jackson’s recording contracts owned by "MJ/ATV Publishing Trust Interest in New Horizon Trust II" (valued at $469 million by the IRS and not listed on the estate tax return.)

Most of the audits we come across on estate tax returns feature disagreements over the valuation of assets. When filing these returns, it is often wise to obtain a written appraisal of real property and business interests and then discuss the valuations of these assets (for return purposes) with a tax professional. The IRS has provided a good deal of guidance when it comes to properly valuing assets, following this guidance may save the taxpayer’s family from the headaches (and financial costs) of an IRS audit and appeal.

It is uncommon that the IRS disagrees with tax assessments by over $900 million, as is the case with Mr. Jackson’s estate. It will be interesting to see how the arguments over the value of Mr. Jackson’s assets plays out on TMZ and it will be equally interesting to see the justifications used by the estate and the IRS regarding the valuation of Michael’s likeness.

Two final notes about Michael Jackson: First, today would have been his 55th birthday, so happy birthday Michael. Second, it looks like he has got some new music on the way:

http://www.youtube.com/watch?v=76VC2Dsy1SU

James Gandolfini’s estate: Disaster or well-executed plan?

I recently read an article about the “disasterous” estate tax planning done by the attorneys for late James Gandolfini. The article pointed out that the actor left the majority of his $70 million estate to his children, family and friends; while “only” leaving his wife 20%. The crux of the article was that, by allowing 80% of assets to pass to people other than his spouse, the estate will unnecessarily pay tax on about $50 million. (The $50 million that would have otherwise been passed tax-free if Mr. Gandolfini had left everything to his wife). The tax bill is reportedly going to be in the neighborhood of $30 million.

$30 million is a substantial check to write to the government; but to assess whether the estate plan is a “disaster”, we need to dig a little deeper. James Gandolfini was married twice and he had a child with each wife: Michael, born in 2000, and Liliana, born in 2012. He met his second wife in 2006 and they were married in 2008. Mr. Gandolfini’s mother was a lunch lady and his father a mason and custodian. He did not land his first acting job until he was 26 and his life changed forever when he landed the role of gangster Tony Soprano in 1999 then became a millionaire many times over at the age of 40.

James Gandolfini’s life was far from ordinary, but the issues that his attorneys had to deal with in preparing his estate plan were very common: multiple marriages, children with different spouses and the unique challenges presented by first-generation wealth. It is not uncommon or “disastrous” for people to pass assets to their loved ones knowing there will be an estate tax to pay as a result, due to the unique nature of the beneficiaries and the assets. What is important is that potential taxes are laid out ahead of time to allow the individual to make informed decisions. Sometimes it is worth the tax bill for someone to pass assets outside of the “traditional” family map of everything-to-the-surviving-spouse.

In Mr. Gandolfini’s case, he chose to establish trusts for the benefit of his children at his death so that he could provide for the children’s well-being immediately and so that he could have some control over how (and when) assets are distributed. He also chose to leave substantial amounts to his sisters and friends. These choices cost the estate tens of millions of dollars in taxes, but that may have been a choice Mr. Gandolfini made. Only he and his lawyers know if the result was “disastrous” or exactly as planned.

It is worth noting that Mr. Gandolfini could have left the assets in trust for his wife’s benefit, then provided for the distribution of these assets to his beneficiaries on upon her death. This strategy is fairly common. In this case, however, Mr. Gandolfini’s surviving spouse is only 45 years old and that hypothetical distribution to the kids may not take place for thirty or forty years. Mr. Gandolfini may also have been advised to transfer some of his assets during his lifetime, at this point it is not clear whether any sort of plan was in place.

Properly executed planning documents can help parents protect their children from themselves and from creditors and predators. Our firm will be hosting a seminar to discuss the planning challenges that families face when planning for minor children. We will talk about the red flags that parents should be looking out for and then discuss the legal and financial variables that emerge when we add a child to the mix. The seminar will be held from 7:30-9 AM on July 25, 2013. To register for this seminar, please contact us at events@samuelslaw.com or 503-226-2966. Space is limited, so be sure to contact us soon.

Times are a-changin’ … So should your documents.

“The line it is drawn, the curse it is cast
The slow one now will later be fast
As the present now, will later be past
The order is rapidly fadin’
And the first one now will later be last,
For the times they are a-changin’.”

Bob Dylan wrote these lyrics to ‘the times they are a-changin’ in September of 1964, while probably examining the political and racial upheaval he saw around him. When I hear the song these days, however, I’m convinced that the last verse is actually about updating business and estate planning documents. Bear with me…

2013 has brought changes to the tax structure that impact all of us and our clients: higher income and capital gains rates, higher estate tax exemptions, expiration of the 2% payroll tax holiday, the extension of portability, and the long-term patch to the Alternative Minimum Tax, to name a few. In the tax world, the times they are almost always a’ changin’, so it makes sense to occasionally review your estate and business documents to make sure this important paperwork reflects these changes appropriately.

Many of our clients’ families are going through transitions. (“The present now will later be past, the order is rapidly fading”). The birth or death of a family member, marriage, divorce, graduation, retirement, changes in jobs, receipt of an inheritance, and similar events often prompt the question: Does this change need to be addressed in my estate planning documents or the organizational documents for my business? If you think the answer might be “yes”, you are probably right.

Many of our clients also come to us because their businesses are going through a transition where the order is changing, or is going to change in the near future. Drawing the proper lines around how the next generation will inherit and manage a business can be done in many different ways. Some arrangements provide a business owner’s heirs with equal shares in managing the business and splitting its profits (and risks), and some arrangements hire a property manager to take over the day-to-day operation while the constantly-fighting children inherit profit rights and nothing more. There are many agreements that fall in between these extremes. There is a lot of room to customize the plan to the business (and family) involved, depending on taxes, family dynamics, and other factors. Some of these transitions go really well and some go terribly wrong. The ones that go smoothly usually involve well thought out written plans, open lines of communication, and children that are on good terms.

I am often asked how often our clients should review their estate and business planning documents. The answer is: whenever the times are a-changin’.

I hope this post has not ruined Bob Dylan’s music for any of our readers.

You can watch Bob Dylan perform ‘The times they are a changin’ at the White House here:

http://www.youtube.com/watch?v=k2sYIIjS-cQ

Through the force, higher taxes you will see.

A galaxy’s worth of nerds rejoiced when news broke that George Lucas sold the Star Wars franchise to Disney in October, 2012. More movies are on the way, and this nerd is excited about them. At the time of the sale, Mr. Lucas said that he always envisioned the Star Wars empire (no pun intended) would live on long after he was gone and that he felt he was leaving the franchise in good hands. What he was probably thinking was, “my CPA and my lawyer told me to do it.”

The Star Wars sale was closed in late-October, 2012, when there was a great deal of uncertainty in the tax world and the “fiscal cliff” was looming on the horizon. What was certain at the time was that the Bush era long term capital gain tax rate of 15% was set to expire at midnight on December 31st. It was widely expected that the tax rate on these gains, especially for individuals in the highest income tax brackets, would be the target of democratic lawmakers in the fiscal cliff negotiations. It was also known that the new Unearned Income Medicare Contribution tax of 3.8% would kick in for gains recognized by high-income taxpayers like Mr. Lucas, in January, 2013.    

So what did Mr. Lucas do? He sold in 2012 for just over $4 billion: $2 billion in cash and 40 million shares of Disney stock (valued at $2,000,800,000 on 10/31/2012). It is impossible to know the exact tax figures without information on Mr. Lucas’ tax basis in the Star Wars franchise at the time of the sale, but we can make some educated guesses. Mr. Lucas probably recognized close to $2 billion in gain in 2012 and he owes the IRS approximately $300 million in long term capital gains tax on receipt of this cash. Mr. Lucas will recognize (and be taxed on) gains on the Disney stock whenever he decides to sell his shares. It has been speculated that Mr. Lucas may donate the shares to charity which could reduce or eliminate the tax bill when the stock is sold.

Had Mr. Lucas waited to sell Star Wars until 2013, the $2 billion he received in cash would have been taxed at the new 20% rate agreed to under the American Taxpayer Relief Act of 2012, adding an additional $100 million to his capital gain tax bill. The 3.8% Medicare Contribution tax would have added another $75 million, bringing his total tax bill to about $475 million.

Whether this sale strategy was outlined by a CPA who was reading the Congressional tea leaves or Mr. Lucas turned to a more trusted source for his tax planning (“Through the force, the future – and rising taxes – you will see…”), the result is the same: Mr. Lucas probably saved close to $175 million in taxes by selling when he did. The gains from the sale will be going to educational charities, who will put the extra $175 million to good use. You can read more about Mr. Lucas’ charitable plans here:

http://www.hollywoodreporter.com/news/disney-deal-george-lucas-will-384947

The sale of the Star Wars franchise presents a good opportunity to analyze some of the effects that the American Taxpayer Relief Act of 2012 has on a high-income earning taxpayers. We will be discussing these recent changes to the income and estate tax calculations at a seminar in our office on March 7, 2013, at 7:30 am. A light breakfast will be served. If you would like to attend this complementary seminar, please RSVP to events@samuelslaw.com or 503-226-2966. May the force be with you.

Court orders Thomas Kinkade’s former girlfriend to pay $11,000 a month in rent to Kinkade’s estate

The probate process continues to unfold in the administration of the estate of American painter Thomas Kinkade. This week, lawyers from both sides argued in court about the amount of rent that Amy Pinto-Walsh (Mr. Kinkade’s girlfriend at the time of his death on April 6, 2012) must pay to Mr. Kinkade’s estate. The judge set the amount at $11,000 per month, without utilities, dated retroactively to July 1, 2012. The property is under 24 hour surveillance. The judge added the security costs to the rental estimate to arrive at the $11,000 figure.

I wrote earlier blog posts about the issues surrounding Mr. Kinkade’s Last Will(s) and the other issues that have come up in the administration of his estate. These issues will be decided in future hearings.

Most estates will never own mansions that require 24-hour security details; however most estates will own interests in real property of some sort. These property interests can lead to all sorts of disputes, including fights like the one that is playing out in the administration of Mr. Kinkade’s estate.

One reason that real estate can be a cause of confusion is that it can be owned in a number of different ways – individually, jointly (with or without survivorship rights), in trust, or by an entity like an LLC. The picture has been further complicated in Oregon by the adoption of the transfer-on-death deed (“TOD Deed”) in early 2012. The TOD Deed allows a property owner to record testamentary transfer instructions on the deed itself. At the owner’s death, the property transfers subject to the instructions on the deed, not as directed under the owner’s Last Will or trust. With all of the different ways real property can transfer, confusion is common.

Revocable living trusts and Last Wills usually include provisions to deal with the distribution of real estate that an individual owns at death, and some of these documents allow for tenants to continue then-existing rental agreements. If a person dies without a Last Will, the property will likely pass to the decedent’s heirs at his or her death. Estates occasionally have to act as landlords and sometimes even evict tenants after a property owner has died. The best way to avoid problems with the administration of real estate is to plan properly by discussing all of your property interests (and their ownership) with your financial and legal advisors.

There are many lessons to be learned from the administration of Mr. Kinkade’s estate. Like many celebrities, Mr. Kinkade had complicated family relationships and a lot of money. Mr. Kinkade did not leave clear instructions for the handling of his affairs, and now the dirty laundry is being aired in public. History is littered with examples of celebrities who planned properly, those who planned poorly, and those who did not plan at all. Michael Walker and I will be discussing the lessons that can be learned by analyzing some of these examples at an upcoming seminar in our office. We will review the estates of Jacqueline Kennedy Onassis, Michael Jackson, Marilyn Monroe, "MCA" and others

If you would like to join us for a discussion about "Famous and Infamous Estates" from 7:30-9:00 am, on October 11, please rsvp by calling our office at (503) 226-2966 or by email at events@samuelslaw.com. Light refreshments will be provided