Gonna Be a Prince of a Mess

Well, I guess since Prince didn’t have one, you don’t need one either . . .

Prince’s sister has said the superstar musician had no known will and that she has filed paperwork asking a Minneapolis court appoint a special administrator to oversee his estate.

Something tells me this will neither go smoothly nor end well.

(You Gotta) Plan to Be a Rothschild

From Bloomberg:

“For more than a half-century, Mr. Bartley’s Burger Cottage has been a Harvard Square institution. Six days a week, college students line up around the block for creations that include the People’s Republic of Cambridge, a hamburger topped with coleslaw and Russian dressing, and the Chris Christie, which is fortified with marinara sauce and mozzarella. General Manager Bill Bartley was born in 1960, the same year his father, Joe, started the Cambridge, Mass., restaurant. Although all four of his siblings have worked there at some point in their lives, Bill is the only one still there. ‘I was groomed to take over, like a veal calf,’ he jokes. ‘They kept me in that confined area in the kitchen so I didn’t get too big.’

“Mr. Bartley’s is somewhat of a rarity: Only about a third of family-owned businesses survive into the second generation, 12 percent make it into the third, and a mere 3 percent to the fourth, according to the Family Business Institute. ‘Succession planning has become a hot item with every organization we work with,’ says Castle Wealth Advisors’ Gary Pittsford, an Indianapolis-based financial planner. ‘There are more than 27 million closely held businesses, and baby boomers are now in that 65 to 70 age bracket. There’s upwards of 5 million boomer owners trying to figure out what to do.’”

LinksI’ve read similar statistics year in and year out, and yet family business succession planning–including succession on family farms and ranches–remains an issue. I’m guessing those who haven’t done it, but should, have two reasons or excuses: 1. I’m too busy right now, and 2. it costs too much.

In response to the first, I’d remind them, none of us have time; we’re all very busy. And that will never change, so you’re going to have to change your priorities.

In response to the second reason, I’ll repeat what I’ve said before, because it obviously needs saying again: if you think succession planning costs too much, you ought to see what it costs when you  don’t do it. Remember this little fact from the quote above:

 “Only about a third of family-owned businesses survive into the second generation, 12 percent make it into the third, and a mere 3 percent to the fourth . . .”

I don’t have the facts at hand, but I’ll bet those businesses that make it to the 2nd, 3rd, and 4th generations are successively much better off than the same business in the generation before.

Quote for the Day

A lot of wisdom in this quote and just one more reason to consider leaving your children’s inheritance in trust rather than giving it to them outright:

“Those who inherit fortunes are frequently more of a problem than those who made them.”

 Congolese Proverb

Don’t Put Off Till Tomorrow . . .

lightbulbYesterday I read an interview in the April 2016 issue of WealthCounsel Quarterly with Neel Shah, a business and estate planning attorney in Monroe, New Jersey. The last interview question was of particular interest to me, because occasionally I find myself wondering whether I’m simply selling something when I encourage people to do their estate and business planning, preferably with me. By simply selling I mean selling something they don’t really need. I know better, of course. I’ve seen too many cases where what should have been planned hadn’t been, and people got hurt, loved ones left in a lurch as a consequence.

And I’m not alone, I discovered–yet again. In response to the question, “Can you point to a particular experience that has changed the way you approach your practice?” Shah told the story of a client who had come to him to do some simple will planning. He was young, in the prime of his life. He had some 20 interconnected businesses. They all seemed to be doing well, and the client, Shah says, “looked like he was on top of the world.”

Less than six weeks later, the client was dead–before Shah and he had been able to do much planning. It was then that Shaw discovered that all was not well. The client’s businesses were in hock–for those unfamiliar with the term, they were in debt up to their gills. His personal life wasn’t much better. He had a child from a short-term relationship and other family members he wanted to provide for with his wealth, but in short order his “empire” came crashing down, his dreams for others unfulfilled. As Shaw reports:

“What I saw in that client was the prototypical business owner who simple couldn’t make time to get his planning in order. He had told me that he wanted to provide for his nieces and nephews and he believed–and all evidence supported–that he had many more years ahead of him. His example showed me just how quickly and dramatically things can change.

“By seeing through that client how fragile life can be, now I don’t hesitate to grab a client by the collar and shake them into reality. I also don’t feel like I’m ‘selling’ anything anymore. I feel a lot more like an emergency room physician, telling clients that their business is in dire need of help. After seeing what happens when clients drag their feet, I now have a greater sense of urgency on their behalf. It has made me more passionate in my conversations with clients, and more aggressive in advocating the importance of moving ahead to get good planning in place.”

Somewhere else on this site, I write that the cost of planning is greatly outweighed by the cost of not planning. This story vividly illustrates that point. I could tell more. Want to hear them?

Estate Administration in 25 Essential But Not Always Easy Steps

For your reading pleasure, an excellent but brief article titled, “Estate Planning and Administration – Be Prepared for the Year That Follows the Death of a Loved One.” Worthy of a read if only to put you on notice that there’s a lot to do following the death of a loved one.

Here’s the middle paragraph:

Estate Administration is a Process. The estate administration process generally takes one to three years to complete and is supervised by attorneys. There are numerous steps in the estate administration process, including the following: (1) get the executor appointed by the Surrogate’s Court, (2) open an estate checking account, (3) gather assets, consolidate and retitle them in the name of the estate, (4) address claims and expenses, (5) obtain date of death values for all assets, including appraisals for hard to value assets, (6) prepare estate tax returns (federal and state), (7) prepare income tax returns (including decedent’s final life income tax return and the estate’s income tax return, (8) obtain a closing letter and appropriate tax waivers from the IRS and state tax authorities, (9) distribution of the estate and funding of trusts, including allocation of assets among various beneficiaries, and (10) prepare accounting (formal or informal) and obtain receipt and releases from the estate beneficiaries.

Some of these steps may not come into play depending on the size of the deceased’s estate and how it’s set up. Nevertheless, lots to do.

Quote for the Day

From the article “Communicating an Estate Plan to Heirs,” posted at Successful Farming at Agriculture.com:

“For some children, money equals love. Therefore, if they receive fewer dollars, they assume they are loved less. With farm distribution, there are times when the farming heir appears to get a financial advantage on paper. Sometimes this may be very legitimate if the farming heir has worked hard and helped to grow the farm. Other times, the truth is that person has just hung around waiting for the farm to fall into his or her lap. Know the difference and be honest with that in your planning, and it will be much easier to explain to all.”

Quote for the Day

Shot:

“For clients who are planning to stay in their homes, a reverse mortgage can be a good source of needed cash flow. This allows them to tap their home equity and supplement their retirement income.

“Additionally, most reverse mortgages are Home Equity Conversion Mortgages (HECM), which are non-recourse loans insured by the FHA. If the balance outstanding exceeds the value of the property, the government covers the difference and the homeowner will not be evicted from his or her home.”

Chaser:

“Fees and costs associated with many reverse mortgages are common and in some cases can be pretty steep. There can also be servicing fees during the life of the loan. They will be included in the amount owed when the mortgage comes due.

“Many reverse mortgages have variable interest rates. The amount you owe could increase significantly if inflation returns and interest rates rise drastically from current low levels. Note that an adjustable rate can work in the borrower’s favor as well in terms of allowing them to borrow funds both at closing and at a later date in some cases.

“The interest on a reverse mortgage is deductible, but only to the extent that it is actually paid. Most reverse mortgages are never repaid, so there is no interest deduction unless the borrower actually writes a check for payment, of which some will be interest and principle. The limit to which an interest deduction can be taken is up to the repayment of $100,000 in principle. If the loan is paid off after the death of the borrower, than whoever pays off the loan—generally either the heirs or the estate—can deduct actual interest paid.

Both quotes are from Reverse Mortgages: When They Make Senseby Roger Wohlner

Quote for the Day

“While many people have an inherent aversion to talking about both death and taxes, leaving a positive legacy is something we all care about. Unfortunately, numerous studies show that over 50% of Americans have no estate plan, no will and no medical directives. Why do so many people fail to properly plan for what happens at the end of their life? Simon & Garfunkel may have gotten to the heart of things in one of their songs: So I’ll continue to continue to pretend / My life will never end….

“The tragedy of failing to properly plan is not visited upon the dead. It is the living that suffer its unexpected and unforgiving consequences. By failing to properly plan, many of us are creating problems for our loved ones that do not exist. Estate planning sounds as if it is for the über-wealthy when in fact it applies to everyone. Below are some of the areas that need to be addressed as a part of the estate planning process.”

John J. Scroggin, AEP, J.D., LL.M., Wall Street Journal

Social Security: Myths Debunked?

That’s the claim in this piece by the Motley Fool.

  • Myth 1: Social Security benefits will disappear in the future.
  • Myth 2: You should always take Social Security benefits as soon as you qualify.
  • Myth 3: What you do with your Social Security has no effect on your family.

I won’t take time here to review the answers. The article linked to is short enough to read in a few minutes. But there’s little doubt that Social Security is on the minds of more and more people–aka Baby Boomers–and rightly so.

By the way, the piece ends with a paragraph bearing this heading: The $15,978 Social Security bonus most retirees completely overlook. I clicked on the link and, well, I found the sales pitch pretty compelling. Unfortunately (fortunately?) the link to the thing being sold was down, so I can’t say more. I will when I have a chance to read more.

 

The IRS Wants Consistency in Basis Reporting

From the article New Basis Reporting Requirements for Executors and Beneficiaries:

Recent federal legislation adds fresh compliance burdens to an old concept in federal tax law: the step-up in tax basis of appreciated property at death.  New reporting requirements will apply to estates required to file a federal estate tax return after July 31, 2015 and are effective beginning June 30, 2016. Executors and beneficiaries who do not comply with the new rules may be subject to penalties.

When a person sells an asset that has appreciated in value, the gain recognized generally equals the sale price minus the seller’s “tax basis” in the property, usually the amount paid to acquire the asset. When a person dies owning appreciated property, the property generally acquires a new tax basis equal to its fair market value as of the date of death. This “step-up” in basis has the effect of wiping out the income tax burden on all pre-death appreciation in the property. (Property can also depreciate in value and receive a “step-down” in basis at the decedent’s death.)

More at the link.

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