Leaving an inheritance
An alumnus offers practical tips for gifting your loved ones.
Tim Emmitt, JD’65, an expert in estate planning and inheritance in the Chicago office of Clark Hill PLC, offers advice for both leaving and accepting an inheritance. When we spoke with Emmitt, a fellow of the American College of Trust and Estate Counsel since 1985, he was looking forward to his 50th Law School reunion in May.
Biggest mistakes he sees in wills
Not being clear on exactly what the testators’ intentions are, specifically if they want to leave a gift to a person and don’t want it to go to his or her children if that person predeceases them. You should say, I want to give X amount to John Smith if he survives me. Make it conditional.
Not getting the proper name of a charitable beneficiary. There is no “the Salvation Army.” There are all kinds of regional and metropolitan branches. If you’re talking about a college, you need to say if you have a specific cause in mind—scholarships or a specific school or general purposes.
Giving away your car collection?
If the asset is out of the ordinary—farmland or art collections—you require somebody well seasoned in trusts and estates to help. We advise the testator to talk with the beneficiaries, ask if this is something they would keep up and enjoy. If not, think of a different disposition: a museum or other entity.
Even if it’s just a stock portfolio, a lot of children haven’t had the experience of accumulating a portfolio. They might not be prepared to think how it should be rebalanced in the future.
In my generation you didn’t talk to your kids about your wealth. Now we try to encourage people to talk to their beneficiaries. If you have a closely held business, find out who wants to go into it and who wants to do something else.
Death and taxes
It used to be a lot of what we did was make arrangements to put people’s property where it could go without the federal government and state getting an extraction. That’s not as much a part of it now that the government [in 2010] increased the federal estate tax exemption from $1 million to $5 million per person, indexed for inflation. Now it’s $5.43 million that you can own at death without having to pay a federal tax.
However, income taxation is still a concern, and there are ways to lower your current tax burden and benefit a charity or educational institution without dying (see FAQ in this issue for more).
Keep a little control
You can keep the property in trust, managed by a trustee you designate—a bank, a trust company. They give the beneficiaries professional management, make investment decisions. But there is a fee.
We prepare trusts for people whose children have special needs, a drug addiction, or other issue. The trustee doles out funds based on instructions you’ve set up. We also do incentive trusts. The person says, My child has the potential to be a brain surgeon. I’ll give him a bonus of $100,000 when he graduates college, $500,000 after med school, and $1 million when he becomes board certified. Or the child wants to do good works—be a missionary, teach in inner city schools. The parents set up a trust to say as long as my child is doing this thing, they get a stipend. They can add a provision that if certain conditions are not met, the trust defaults to their favorite charity.
Avoid sibling spats
The thing we see the most is arguing about things that aren’t significant monetarily but have emotional baggage. Nothing brings out sibling rivalry like, “I don’t know why mom gave you those pearls.”
Specific bequest items also promote a lot of argumentation. If you’re going to give away a ring, you need to describe it—the diamond ring, the string of pearls with 30 beads, the double strand. Don’t say “the one grandma gave me” because not everyone knows.
Use a professional
I strongly suggest that people who have any significant wealth work with people highly qualified in the trusts and estates business. Ask for their credentials: what organizations they belong to, whom they’ve done business with. Unless they do exclusively trusts and estates, I would tell a client to be careful.
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