Lineage With Nothing Is Still Nothing

Posted on: October 10th, 2014 | No Comments

There’s an old Yiddish phrase “un kinder aus yachsen mit bupkes ist immer bupkis!” (a child from a distinguished heritage with nothing is still nothing). In other words, it doesn’t matter how important or distinguished someone’s lineage is if each generation doesn’t otherwise live up to the family’s standards.


I think about that phrase from time to time when I hear complaints about adult children who haven’t lived up to their parents’ expectations in one way or another. Perhaps they spend too much money relative to what they earn, or they bounce from job to job without advancing their career, or they fail to finish their education.


Oftentimes the complaining parents are quite successful. They might be doctors, lawyers, engineers, business owners or community leaders. Most of the time the patriarch and matriarch themselves arose from modest backgrounds and had to earn and scrape for everything they now enjoy.


Their children, on the other hand, don’t have the same frame of reference. The parents wanted their children to have it much easier than they had, so the children’s lives were easier. The children had more handed to them – they didn’t have to work and earn for everything that they have.


So is it any surprise that the children don’t have the same drive and ambition that their parents had?


Which leads me to today’s estate planning lesson. It’s not uncommon to hear a client say that they don’t want the inheritance to take their children’s drive and ambition away. A trust might be built that provides supplemental income but cannot be used for sole support.


These are all good ideas. But isn’t it a little too late to teach these lessons through a will or trust? The average life span for someone who is currently sixty-something years old is eighty-six. In other words, today’s sixty year old can expect to live another twenty-six years all things being equal.


If the children are thirty years younger, then they will become trust beneficiaries in their fifties – or maybe even their sixties. Will an incentive or supplemental needs trust really work to change habits that have been ingrained for several decades by that point?


Somehow the lessons and values that made the parents what they are need to be ingrained at a much earlier age. Anyone with any means struggles with these issues – myself included. I grew up in a very modest setting, and have worked to earn my own way from a very early age. While I didn’t want my own children to have to work like I did, somewhere there’s a line that one doesn’t want to cross.


I think that it is certainly more difficult today than it was a generation or two ago. Smart phones, the Internet, Netflix, and many other modern conveniences tend to distract us from having important family dinner discussions.  Travel soccer teams take away time that would otherwise be spent learning morals and values in synagogue or at church.  Two-income households mean that both Mom and Dad are exhausted at the end of the day and don’t have the stamina to oversee homework or to attend school functions.


Somehow we all must work to change this dynamic.


This isn’t to say that all children are on the wrong path and will become irresponsible spendthrifts later in life. I actually believe quite the contrary. There are a lot of good kids out there who work hard to earn good grades and are quite ambitious.


But there are also many who don’t appreciate what their parents have built for them, and what their parents had to sacrifice to get the family where it currently is. And that, my friends, is not necessarily the kids’ fault.


It’s all of ours.


Hopefully the pendulum will swing back as many realize what’s happening. Until then, I’m afraid there will be many more estate planning discussions centering on how to protect our children from themselves when they inherit the assets that took so long and hard to earn.


©2014 Craig R. Hersch

Double Check Your Bank & Brokerage Statements

Posted on: October 3rd, 2014 | No Comments

Many of you who have revocable living trusts understand the importance of transferring your assets into the trust. Simply referencing the assets or property on a schedule at the end of the trust is insufficient to constitute a transfer, instead it is important that the deed (in the case of real property) or the bank and brokerage accounts name the trust directly on the statements.


As an example, rather than having a brokerage account titled in the name of “John Q. Client,” the brokerage account should instead be titled as “John Q. Client, Trustee, for the John Q. Client trust dated January 10, 2014.”


And be very careful about the date.


Sometimes the account date is transposed, missing or otherwise incorrect. This can create major headaches upon the disability or death of the grantor – the person who creates the trust.


Suppose for example that John Q. Client creates a trust on January 10, 2000. His broker accidentally titles the account: “John Q. Client, Trustee for the John Q. Client Trust dated January 1, 2000.”  Note that the date is incorrect. It says January 1st and not January 10th of 2000. Everyone proceeds on their merry way until one day John gets sick and his wife Jane takes over as trustee.


The trust account should now read: “Jane R. Client, Trustee, for the John Q. Client Trust dated January 10, 2000.” But when Jane presents the trust to the brokerage firm verifying that she is the successor trustee, the brokerage firm’s legal department says that they can’t make the change. When they examine the trust that says Jane is the successor trustee, the date is something different than the date that they have in their records. They inquire if there might be a different trust that owns this account.


You can imagine the frustration. The error is plain and simple to explain. But the brokerage firm’s legal department fears liability. What if there really is another trust of that date? And what if that trust has a different named successor trustee and different beneficiaries? Eventually these sorts of problems can be worked out, but usually not without a lot of aggravation and attorney time and expense.


Date errors happen more frequently than you care to imagine. Consider if John Q. Client has a trust dated January 10, 2000 but then he restates it on September 23, 2010 and amends it again on November 15, 2012. John goes into his local bank branch and asks them to title his most recent certificate of deposit in his trust dated November 15, 2012.  Except that’s not really the date of the trust. That’s the date of the amendment! This is usually easier to explain but also can cause problems.


Even worse – I’ve seen it where a bank not only accidentally used the amendment date of the trust, but got the amendment date wrong! In my example above it would be like John Q. Client put the certificate of deposit into his trust dated November 25, 2012.  There is no such trust – neither is there an amendment to his trust of that date!


Another problem exists when you have both husband and wife as trustees of each other’s trusts at the same time, but the bank or brokerage department doesn’t fully title the account. Suppose that John Q. Client has a trust dated January 10, 2000 and his wife Jane is also a trustee. Here, the correct title to the account would read: “John Q. Client, Trustee and Jane R. Client, Trustee for the John Q. Client Trust dated January 10, 2000.”


Let’s suppose that Jane signed her trust the same day, which is common. Further assume that her husband John is a co-trustee of her trust as well. The correct title to her trust may therefore be: “Jane R. Client, Trustee and John Q. Client, Trustee for the Jane R. Client Trust dated January 10, 2000.”


So who’s trust is the account in when it is titled like this: “John Q. Client, Trustee and Jane R. Client Trustee under trust dated January 10, 2000?” Note that the title on the account isn’t specific. This can also create a mess that would take time, energy and money to untangle.


The bottom line is to pay attention to account titles. Banks and brokerage firms often abbreviate titles such as “TTEE” for trustee and will date numerically such as “1/10/2000”. This is fine so long as all of the other information can either be found on the account statement title or on the account application form when the account was established.


©2014 Craig R. Hersch

Put Off Decisions for a Year

Posted on: September 26th, 2014 | No Comments

I’m usually not a big proponent of procrastination. The longer one takes to act, the more difficult the decision usually becomes.


Unless you’ve just lost a spouse or significant other.


When that happens, there are many fears and concerns. Will there be enough income to pay all the bills? Should I put the house on the market? What about our health insurance or supplemental Medicare plan? Do I change financial advisors?


After the death of a loved one, it seems that the world becomes unhinged. Normal routines are no more. After the flurry of the funeral with family and friends surrounding you is over, meals are often spent alone, meaning that there is too much time to dwell on all of the fears and insecurities that arise. On top of that, it’s difficult if not impossible to think clearly through the mourning and grief.


So what I’m advising is to not make major decisions during this emotional and difficult period – unless you absolutely have to.


Don’t put the home on the market.


Don’t change financial, legal and tax advisors.


Don’t sell all the investments and go to cash.


Don’t buy that new car that you’ve been eyeing.


This is not to say that you should put everything on hold. There will be tasks that you have to complete within a time frame. If your spouse’s will or trust has to be probated or administered, visit with your attorney and get that going. Waiting too long could result in adverse legal or tax consequences, for example. Provided that you have confidence in your attorney, let him or her guide you through the process.


Let your attorney help you make death claims such as life insurance, annuities, VA or other government benefits. Make sure that the checks are deposited in the correct accounts if you or your spouse created a revocable trust. If a federal estate tax return is going to be due, make sure that you ask for a Form 712 from the insurance company when they pay the claim, as your CPA will need that.


Don’t rush to transfer joint accounts into individual name, either. Sometimes checks will arrive made out to the deceased. If a joint account isn’t still open, the only way to deposit that check may be to open a probate, which is time consuming and expensive. If a probate is not otherwise necessary, (the usual case when the deceased owns a fully funded revocable trust, for example) then it is important to have a place to deposit the rogue checks made payable to the deceased that may come in over the next few months.


Provided that you are over 59½ let your financial advisor help rollover any 401(k) or IRA accounts. If you are under 59½ and if you were relying on IRA distributions that your spouse was taking prior to his or her death, don’t roll over the account right away. If someone under 59½ rolls over the IRA account into his or her own name, then he or she generally can’t take distributions before that age without incurring an 10% excise tax penalty.


Certainly if financial realities require a change in spending habits or force the sale of certain assets, you can’t wait too long to make certain financial decisions. Here you may lean on your CPA and financial advisor to create budgets and to lay out a prudent plan to keep you living in reasonable comfort.


Aside from those situations, nearly everything else can wait. The advice of most mental health professionals is to wait a year before making any major decisions. That amount of time allows one to process the grief and loss of a loved one, and return to a state where logic and careful thought are more likely to govern your actions.


While family and friends may have the best of intentions, try to take their advice with a grain of salt. Even if something works for them, it may not work for you as everyone’s individual circumstances is different. Surround yourself with an excellent team of professionals and rely on them.


It’s always tragic when we lose a loved one. Try not to compound the tragedy by making difficult decisions on your own and too early.


©2014 Craig R. Hersch

Writing in the Margins

Posted on: September 19th, 2014 | No Comments

Growing up, I watched my great-grandmother, who I affectionately referred to as my “Bubby,” cook family meals with an old cookbook that had a worn spine and dog-eared pages smeared with stains. When Bubby discovered how to improve a recipe, she would write notes on the margins of the pages. Her modifications were always first rate.


But I want to tell you not to write notes or changes in your legal documents like a will or a trust. I can’t describe how many times I’ve seen wills where changes have been written in the margins. Some changes delete beneficiaries, others add beneficiaries. Some change the dollar amount of bequests, while others alter who is to receive what property.


Unlike the alterations my Bubby made in the margins of her cookbook, the writings in the margins of these folks’ wills and trusts almost always has no significance. They won’t serve to change the will or trust.


Why? You might ask.


Because the law clearly states how a testamentary (after death) bequest must be both signed and witnessed in a very specific manner. In Florida, a testator must sign a legal document that contains testamentary bequests at its end. The testator must sign in the presence of two witnesses, who sign as witnesses in the presence of the testator, as well as in the presence of each other.


Then, so you don’t have to get the witnesses’ testimony about the signing after the testator’s death, the will is usually “self proved.” In order to be self-proved, a notary must witness the whole process in much the same manner and sign a statement using the exact words found in the Florida statute.


So if Bernice signs her will, but later goes back and writes changes in the margins, those changes will have no legal effect. The only result of Bernice’s action is likely litigation between the beneficiaries. After the beneficiaries spend thousands of dollars on attorney fees, the end result will be that the margin changes will be disregarded.


What Bernice needs to do if she wants to change her will is to add a codicil to her will (or an amendment to her trust) that is signed with the same statutory formalities that her original document was signed with.


Sometimes individuals will type up their own codicils and amendments rather than have their attorney do it. They may not want to pay the attorney for a “simple change.” Do this at your own risk, as oftentimes a codicil or amendment isn’t so simple. If it isn’t prepared correctly it could cause more problems than it solves.


Consider, for example, that Robert has a will that says something to the effect of “I give my home to my son Christopher.” At the time of the creation of the original will, Robert’s home is located in Detroit. Robert later gives his Detroit home to Christopher and then purchases a new home for himself on Sanibel. Robert feels that he should give his daughter Katherine a large specific bequest to “even out” the gift of the Detroit residence to Christopher, so he writes in the margin of his will, “I give $150,000 to my daughter Katherine” but doesn’t remove the language in his document giving his home to Christopher.


Robert then dies.


What happens? The margin note of the $150,000 bequest is disregarded. It wasn’t signed with the statutory formalities.


But has Robert also bequeathed his Sanibel residence to Christopher? Florida has an ademption statute that says in part, “Property that a testator gave to a person in the testator’s lifetime is treated as a satisfaction of a devise to that person, in whole or in part, only if the will provides for deduction of the lifetime gift, the testator declares in a contemporaneous writing that the gift is to be deducted from the devise or is in satisfaction of the devise, or the devisee acknowledges in writing that the gift is in satisfaction.”


Even if the margin note gifting $150,000 to Katherine is not a valid amendment, could it be construed as a “contemporaneous writing” that the lifetime gift of the Detroit home satisfies the bequest found in Robert’s will? That position would be a stretch even if it can be established that the gift was made in an attempt to “even the score.” In this fact pattern the statute would seem to require Christopher to acknowledge in writing that the gift of the Detroit residence satisfied his father’s bequest. What if Christopher isn’t willing to sign such a statement?


There are many laws governing estates and trusts. Writing your own document without the knowledge of what those laws are and how those laws affect your own plan may lead to unintended consequences.


So it’s generally unwise to alter your own “recipe” without the help of a qualified professional. If you need to make notes to remind yourself of what you want changed, first make a copy of your legal document, then write in those margins and discuss what you want with your estate planning attorney.


©2014 Craig R. Hersch

Naming a Guardian for Minor Children

Posted on: September 12th, 2014 | No Comments

Last week I travelled to Boston to drop off my eldest daughter at college. This is her sophomore year at Brandeis University. I enjoyed watching her excitement at being back at school and among her friends.


My wife and I have two other daughters, one a high school senior and the other a high school freshman. They grow up fast. In a few weeks only one will still be a child while the other two have reached adult status.


So my wife and I are almost at the point where we can delete the provision in our Last Will & Testament that names a legal guardian for our children in the event of our deaths. When our eldest was born nearly twenty years ago, we struggled with the decision of whom to name in such a tragic event.


Should it be my sister or my wife’s brother? What about the grandparents? Would they be too old by the time the kids grew up? Do they have the energy for the job? If the kids moved to be with a relative, what school district would they be in? What about their friends? There’s so much to consider.


Today, I’m going to remind those who still have young children of the importance of naming a guardian. Without naming a legal guardian for your children, it would be up to the courts to decide who gets to raise the kids in the event of your death. If you only have one relative who is willing to step up to the plate, then that issue may take care of itself. But why leave it up to chance? What if a number of different persons, all with the best of intent, would want the job? Then it could get messy without a legal provision in your will.


In addition to naming a guardian, you should name a trustee. The two functions are different. The guardian is the person who actually raises the child. The trustee is the person, bank, trust company or entity that manages and invests the inheritance for the child, distributes the money for the child’s needs, and ultimately makes decisions related to the inheritance where the will or trust doesn’t give specific direction.


I don’t advise that you name the same person as both the guardian and the trustee. Generally speaking, it is better to have checks and balances between the two jobs.


Suppose, for example, that the guardian needs to add a room to his home to house the child. Should the inheritance be used to build the addition? Probably not. While it would be reasonable for the trust to pay rent to the guardian, the child will only be in the home for a stated period of time. The guardian could use the rent to help pay for the entire addition to the home, but to actually pay for the improvement benefits the guardian at the expense of monies that would otherwise be used to fund college educations or first home purchases for the child.


When naming a guardian, it is usually a good idea to discuss the idea with the person you intend to name. Are they up for the responsibility? What questions and concerns do they have? What is their parenting style? Do they see anything in your parenting style that they couldn’t follow? Why not? Does your intended guardian get along with members of the family and would they do their best to have your child remain in contact with the other side of the family if there is one? These can be delicate but necessary conversations.


The same holds true with whomever you entrust with the trustee responsibility. Do they have investment experience? Do you want them to work with the same investment team that you currently work with? How much money or assets would be available – counting life insurance? How do you envision this money being spent? Is it acceptable if the child wants to consume a large portion of the inheritance on an expensive private college or should he or she attend a state school?


Finally, consider whether the guardian and the trustee would be able to work with one another. Any animosity between the two could be detrimental to your child.


There’s a lot to consider, and no easy answers. But you’re way ahead of the game if you consider these and related questions. At least take solace in the knowledge that the guardian and trustee will not likely have to act. Like me, you will likely have to suffer through the teenage years only to find yourself paying tuition bills at some college or university.


If that’s the case, consider yourself fortunate!



©2014 Craig R. Hersch

Helping or Enabling?

Posted on: September 5th, 2014 | No Comments

A client of mine, “Sarah,” often complained about how much money she had to lend (give?) her son. “It’s one thing after another,” she would say.  “He lost his job and can’t make his mortgage payment. Then he got divorced. Then his car broke down.”


With each successive tragedy, Sarah stepped in and wrote a check. One after the other. Year after year.


Sarah had the money. It didn’t really affect her lifestyle to continue making the gifts. She called them loans, and would often have me write out a promissory note including a stated interest rate at the lowest “applicable federal rate” that the IRS allows. Even if the borrower doesn’t pay the interest, in related-party loan transactions the IRS expects the lender to impute interest on her tax return.


If the lender doesn’t impute the interest then there’s a chance that the IRS reclassifies the loan as a gift resulting in the use of the lender’s gift/estate tax exemption.


So over the years, Sarah made loan after loan, bailing her son out from one financial disaster after another.


Then she died.


In her will, the loans/gifts that she made were to be treated as counting against her son’s share. There were four other children, so the estate was to be divided into five shares. The other children weren’t so understanding of their brother’s situation. When they computed the outstanding balance of the loans, along with the unpaid interest compounded over the years, and applied that against his one-fifth interest of the estate, he didn’t inherit much.


So there he was. Nearly sixty years of age. Jobless. No savings to speak of, and very little inheritance coming his way.


I therefore ask this question: Did Sarah help him out over the years or did she enable him to continue to make poor choices?


It’s difficult for a parent to not help a child. I’m a father of three daughters, and I hope that I never find myself in Sarah’s predicament. When we see our children suffering, we want to do something to help. If it’s within our means, why not write the check?


Seeing what I see from behind my desk, I would suggest that sometimes writing that check only makes the situation worse.


And it starts at a place well before our children become adults. When daughter calls from high school and asks us to bring the essay to her that she forgot from home – should we do it or allow her to suffer the consequences of not turning in her assignment on time? When son wants to quit the recreational basketball team because he discovers practices are hard and he isn’t having as much fun as he’d hope, do we make him keep his commitment to his team or allow him to find something he considers to be better?


Where should the parent step in to buffer his child from life’s disappointments, and where should the parent step away and let the child experience the consequences of his or her choices?


I’m not smart enough to tell you the answer to those questions. I suppose that it depends largely on the facts and circumstances of each individual situation. A kid who otherwise is an exemplary soul but who finds herself in a tough situation might and probably should be treated differently than the “serial offender.”


But I do know this. Sarah’s situation is a no-win situation for everyone involved. One of her daughters said it best, “We can all be hard on him now,” she said, “but he’s going to show up on our doorsteps now that Mom is gone. What are we going to say then?”


©2014 Craig R. Hersch

End of Life Decisions

Posted on: August 29th, 2014 | No Comments

We’ve all been there. A loved one is in the hospital, or perhaps in hospice care. We’re holding hands, praying and remembering the good times.


That’s part of being human, of course. Life begins. Life ends. Hopefully there’s a lot of happiness in between. In the end, though, it’s all about comfort and being in control of your own end.


That’s what a “Living Will” is for. This is the document that Terri Schiavo should have had. You may remember her. She was the woman from Dunedin (next to Clearwater just up the coast from here) who was on a feeding tube from 1990 to 2005 after suffering a heart attack that left her comatose in a hospital bed supported by feeding tubes that kept her alive indefinitely.


Her husband and parents disputed whether Schiavo met the medical precondition under Florida law that would allow the doctors and hospitals to remove her feeding tube. Her parents maintained that she was responsive to stimuli while her husband (who was dating another woman for several years prior to Schiavo’s death) believed her to be unresponsive and in a persistent vegetative state.


Schiavo’s parents and husband also disagreed as to what she would have wanted even if she met the legal precondition necessary to remove life support.


Her case involved 14 appeals and numerous motions, petitions, and hearings in the Florida courts; five suits in federal district court; legislation struck down by the Florida Supreme Court; federal legislation and four denials of certiorari from the United States Supreme Court.


After all attempts at appeals through the federal court system upheld the original decision to remove the feeding tube. Staff at the Pinellas County hospice facility where Schiavo was being cared for disconnected the feeding tube on March 18, 2005, and after almost two-weeks of being starved and dehydrated, she died on March 31, 2005.


I think it’s safe to say that nobody would want his or her end to look like Terri Schiavo’s. Mrs. Schiavo did not have a living will – a legal document that states to the outside world what medical treatments and procedures you would want if you were unable to communicate those desires. The living will goes beyond a health care surrogate document as it deals specifically with end of life decisions.


In other words, the living will does not apply unless certain preconditions are met. The first precondition under Florida law is that the patient is in an “end stage” terminal condition or is in a persistent vegetative state with no hope of recovery as certified by two physicians. The life prolonging procedures being performed would be determined at that time to only be prolonging the dying process. The patient’s health care surrogate is also consulted as to whether he or she agrees that the patient has met the precondition.


Once that determination has been made, then the provisions of the living will apply. Those provisions usually indicate whether the patient would want the continuation of feeding and/or hydration tubes. It may also go on to more specifically to indicate what medical procedures should or should not be performed. When one completes the living will document, one’s decisions and choices are declared. For obvious reasons, not everyone’s living wills are therefore alike.


Anecdotally, most patients indicate that if the circumstances are hopeless, then they should be kept comfortable. Further, they usually do not want any more “heroics” performed if those measures won’t bring back quality of life, but would only serve to prolong the process of dying.


When reviewing this important document, some of my clients express reservations about the determination that the precondition has been satisfied. “The doctors told the family that my Uncle Larry was gone only to have him make an unexpected recovery,” they relay. “I don’t want them cutting off life support before it’s clear that I’m not coming back.”


While this is a legitimate concern, one can build safeguards into one’s living will document. First, you are naming a surrogate to speak for you.   This can be a trusted family member or friend.  It’s wise to have a conversation with this person to advise that you have named them to serve you in this important role, and what your expectations are related to their helping with these decisions.


The living will is therefore a serious document. It tends to intimidate people. But don’t leave your end-of-life decisions to chance. Complete a living will and discuss it with your loved ones. Even if you aren’t sure about some of the decisions the document calls for, you can always make your best judgment now – and change the document later if you have a change of heart, as you can change your wishes so long as you remain competent.


©2014 Craig R. Hersch

Conditional Inheritance?

Posted on: August 22nd, 2014 | No Comments

This just in from the “reaching out from the grave” department: Can you impose conditions on your grandchildren’s inheritance, such as requiring them to marry someone within your faith or else they lose the trust funds? The Illinois Supreme Court ruled that you can impose such restrictions.

Looking at In re Estate of Feinberg, Max Feinberg created a trust in which he declared that any grandchildren or lower descendants who marry outside of the Jewish faith are to be treated as if the grandchild predeceased the grandparents, thereby denying the grandchild a share of the inheritance unless the spouse of such descendant has converted to the Jewish faith. The parties to the litigation call this “the Jewish clause.”

An Illinois circuit court held that this Jewish clause was invalid and an appellate court confirmed, both finding the clause unenforceable and against public policy. Generally speaking, courts will find such constraints against public policy if they either encourage divorce or discourage marriage itself.

One of the judges of the appellate court disagreed, stating that the clause should be held valid. “Max and Erla had a dream…to preserve their 4,000 year old heritage,” Justice Alan J. Greiman noted.

Max and Erla Feinberg were survived by five grandchildren. All of the grandchildren married, but only one married a Jew. Several cases erupted against the estate plan. They were consolidated into one case and the question about the Jewish clause went to the appellate court.

One of the grandchildren, Michele Trull, who had married a non-Jew, sued the co-executors of the estates. Those executors happened to be Michele’s father, her aunt and uncle. Michele claimed that the three had engaged in a conspiracy to evade estate taxes and had misappropriated millions of dollars from her grandparents’ estates. Apparently the amounts left in the grandchildren’s shares exceeded the Feinberg’s generation skipping tax exemption. So the executors sought to enforce the Jewish clause to pull amounts back to the children’s generation, to which the executor’s belonged.

The executors of the estate sought to have Michele’s case dismissed because the Jewish clause deemed Michele to have predeceased her grandparents and therefore she had no interest in the estate.

The appellate court’s opinion explored the public policy argument voiding the Jewish clause. Such a clause is invalid if it encourages disruption of a family relationship, discourages formation or resumption of such a relationship, or seriously interferes with a beneficiary’s freedom to obtain a divorce or exercise his or her freedom to marry.

It is conceivable that such clauses “could just as well result in the courts being required to enforce the worst bigotry imaginable,” Justice Quinn noted. “Courts are not well suited to decide all the various questions that might arise in the enforcement of such conditions. What would happen if one of Max and Erla’s grandchildren initially married a non-Jewish person but subsequently married a Jewish person? Would the grandchild be resurrected upon the second marriage?”

Justice Greiman, on the other hand, who dissented, examined a multitude of cases from outside Illinois. Most were decided in the 1950s or earlier and sided with enforcing such a clause. According to those cases, “partial restraints on marriage are valid unless they are unreasonable, and therefore conditions on gifts prohibiting a beneficiary from marrying a specific individual have been upheld.”

Given the heated exchange between justices Greiman and Quinn, the Illinois Supreme Court agreed to hear the case and reversed the lower and appellate court’s rulings, holding in a unanimous ruling that the Jewish clause was valid and enforceable.

“Although those plans might be offensive to individual family members or to outside observers, Max and Erla were free to distribute their bounty as they saw fit and to favor grandchildren whose life choices they approved,” Illinois Justice Rita Garman wrote.

The appellate court’s concern as to whether the clause “encouraged heirs to divorce and remarry to claim an inheritance” was rejected by the Illinois Supreme Court. “Erla did not impose a condition intended to control future decisions of their grandchildren regarding marriage or the practice of Judaism; rather, she made a bequest to reward, at the time of her death, those grandchildren whose lives most closely embraced the values she and Max cherished,” Garman wrote.

James Carey, an attorney representing Trull, said his client “was disappointed with the Supreme Court’s decision.”

Steven Resnicoff, co-director of the DePaul College of Law’s Center for Jewish Law & Judaic Studies, hailed the court decision as consistent with Illinois public policy. “It’s not just a Jewish clause. It’s a Catholic clause, it’s a Muslim clause,” Resnicoff said. “It’s not uncommon that people want to encourage their children to follow in their footsteps.”

©2014 Craig R. Hersch

Beneficiaries of Trusts

Posted on: August 15th, 2014 | No Comments

When a person passes away, he or she oftentimes will leave a trust that names a spouse, child or other loved one as a beneficiary. It might be a lifetime income trust, or sometimes it includes principal distributions as well for the beneficiary’s health, education, maintenance and/or support.

Sometimes the existence of these trusts just becomes a part of one’s life. The beneficiary doesn’t think much about it. They know that they’re going to receive an income deposit in their checking account every month.

But when you are planning your estate, it is it is important to let your estate planning attorney know that you are a beneficiary of a trust. There may be several legal, tax and financial ramifications that you may have some control over and want to plan for. If you don’t tell your attorney that the trust exists, then your estate plan may be incomplete.

When you are a beneficiary of the trust, the relevant information to give to your attorney includes providing him or her a copy of the trust instrument, an inventory and current value of the trust assets and income, and the name and address of the trustee. If a Federal Estate Tax Return Form 706 was filed upon your loved one’s death who established the trust for your benefit, then you should give a copy of that return to your estate planning attorney. Similarly, if a state death tax return was filed, your estate planning attorney would probably want a copy of that return as well.

There are a few reasons for this. First, the trust assets might be included in your estate for estate tax purposes. Your estate planning attorney needs to determine if this is the case, and if so, if there are any proactive planning opportunities available that can mitigate those taxes.

Second, you may have the power to change the disposition of those trust assets at your death. A trust may pay the income beneficiary for life, and then at the end of the income beneficiary’s lifetime the assets are commonly distributed to that beneficiary’s children. Sometimes, however, the trust contains something known as a “power of appointment.” That power of appointment may allow the current income beneficiary to reroute the assets – to his or her spouse, as one example. The way this is accomplished is by exercising the power through one’s own will.

Yet another reason that you would want your estate planning attorney to review any trust under which you are a beneficiary is due to the control factor. In some instances, you have no control over the trust. Perhaps a bank or trust company controls the assets. In other instances, however, you may act as the trustee, or you may even be able to remove and replace the trustees of the trust. Depending upon a variety of factors, you may want to change the named trustees.

I’ve personally had several clients that failed to mention trusts where they receive an income or other beneficial interest. This could cause unexpected and adverse consequences to the estate plan. So it’s usually a good idea to point this out during your consultation meetings.

Too Many Choices

Posted on: August 8th, 2014 | No Comments

About twenty years ago, when my wife and I had our first daughter, we hired an au pair from Sweden named Sara. Patti was still working, and we didn’t have family nearby to help with our new infant.

You should have seen Sara’s face upon entering Publix for the first time. She couldn’t believe the vastness of what we considered our every-day grocery store. “In Sweden we have a choice of only three cereals. Here you have hundreds!”

Generally speaking, we all like a lot of choices in life. Everything today can be individualized to our own specifications. You can go online to design running shoes, sunglasses, cars – almost everything.

But are all these choices good? Can they become overwhelming?

When considering advanced estate planning strategies, for example, I often tell my clients that there is no “right” way or “wrong” way to achieve goals – whether those goals are to minimize taxes, protect our children’s inheritance from predators or creditors or to provide for a surviving spouse. No one knows whether one has made the right decision until after the fact – until everything has happened and we are blessed with 20/20 hindsight.

So, I generally lay out different strategies with explanations of each strategy’s unique set of advantages and disadvantages. When one seeks to minimize taxes in larger estates, for example, you may also sacrifice future flexibility as many of those choices involve placing assets in irrevocable trusts that cannot be changed.

Balancing the needs of your surviving spouse who may not be the parent of your children can be delicate when you consider that each dollar he or she consumes is one less dollar that your children will one day inherit. Each year that he or she lives is one more year that your children will wait for their inheritance.

When you consider all of the possibilities to achieve your goal – whatever that goal may be – you may end up being paralyzed by indecision. No decision seems right. Everyone wants that silver bullet that doesn’t exist.

To make matters even more confusing, as the attorney/advisor it’s difficult to voice my own preference. First off, it is not my estate that is affected – it is my client’s estate. Second, I can’t possibly walk in my client’s proverbial shoes. I haven’t lived his or her life – and I can’t get inside of his or her mind to decide who gets priority and in what way.

That’s why I typically begin an initial meeting asking what is most important to my client. “Is it most important,” I may ask a married couple, “that the survivor of you have complete control over all of your assets and be able to consume every last asset taking care of yourself – or is it more important to leave at least some amount to your children,” I may ask.

Consider, for example, the client who wishes to retain their Sanibel residence for their children. She may envision multiple generations enjoying the residence as a family vacation and holiday retreat.

What if after the death of one spouse, the surviving spouse wants to move into a Shell Point or Cypress Cove? The buy-ins for those institutions can be several hundred thousand dollars along with a healthy monthly maintenance fee. In return, one is guaranteed life care. This could take a significant burden off children or other relatives – but could also mean the destruction of the dream of the Sanibel residence being held in the family for generations, as it may have to be liquidated to generate the cash necessary to purchase into the life-care community.

You can’t let these decisions paralyze you. In most instances, your estate plan can be flexible. Revocable living trusts can be amended – and should be reviewed periodically to ensure that they are up to date with your current situation and with your current goals.

Your choices will also change over time. They may change because your family situation has changed. They may change because your net worth is higher or lower than it was before. The tax and trust laws change. There are a variety of reasons to reconsider the choices that you have when your originally planned or updated your estate.

And as I said, as your situation changes you are confronted with choices.

But consider this – it’s usually better to have those choices then to have limited options.

Sara, our au pair of twenty years ago now is a married mother of three living in Norway. I wonder if her grocery carries more than three different kinds of cereal?

©2014 Craig R. Hersch

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