Paul O. Dillon, Attorney at Law

Don’t Procrastinate on Estate Planning Moves

Planning for wealth transfers, whether you are the person doing the giving or the recipient, is essential to avoid expensive surprises, says a recent article from Go Banking Rates, “Wealth Transfers: 9 Unexpected Obstacles to Plan For Before It’s Too Late.”

Wealth transfers fall into two categories. Beneficiary wealth is wealth passed from your estate to beneficiaries. The second is legacy wealth, which is when entities, like trusts, are created to pass wealth on in perpetuity. The first step in planning for wealth transfer is deciding what you want to happen to the wealth you’re passing on.

The next step is figuring out the tax implications of the wealth transfer. A traditional IRA or 401(k) account is tax-advantaged, while non-qualified assets include stocks, bonds, investment accounts and Certificates of Deposit (CDs). Unless they fall into certain categories, an heir receiving an inherited traditional IRA must empty the account within ten years with Required Minimum Distributions and pay income taxes on those distributions. For this and many other reasons, estate planning includes tax planning.

Estate planning includes articulating your wishes for how wealth is to be passed. Without having a will prepared by an estate planning attorney, you risk your entire estate being tied up in court probate proceedings for months or even years. Fights among family members are more likely to occur when your wishes aren’t made clear through enforceable legal documents.

You’ll also want to discuss your estate plan with your family. A sudden inheritance, if not expected, could create tax issues, sow discord between family members and lead to expensive litigation if some feel they were treated unfairly.

People think they don’t need an estate plan because they are too young, still healthy, or don’t have enough assets to warrant taking the time to create an estate plan. This is simply not true. Anyone over the age of 18 will benefit from having an estate plan. An estate plan includes preparing for incapacity and creating documents, like a Power of Attorney and Healthcare Proxy, so someone else can take care of you if you are injured or too sick to communicate your wishes. As you accumulate more assets and age, these documents need to be reviewed and updated to reflect changes in status.

A commonly overlooked and often expensive mistake in estate planning is to neglect to check and update beneficiary designations. This lesson is learned when people get divorced or remarry. When the spouse passes, the new spouse is stunned to discover the recipient of these accounts goes to the prior spouse.

Don’t forget to leave specific instructions in writing for tangible assets. This may include real estate property, cars and houses. Some people want to give their children the family home but have them sell it immediately to take the cash. If your wishes aren’t expressed, don’t expect them to be followed.

Speak with an estate planning attorney before it’s too late to put your wishes into an estate plan. Talk with your family about your estate plan. Making sure everyone knows what you want and putting it down on paper will protect your wishes and your loved ones.

Reference: Go Banking Rates (Jan. 24, 2025) “Wealth Transfers: 9 Unexpected Obstacles To Plan For Before It’s Too Late.”

Estate Planning and the Business Side of Hugh Hefner

The Hefner estate is sophisticated and controlling, an unlikely counterpoint to a brand from the last century built on hedonism. The estate protected his children and widow. However, it came with strict conditions, says an article, “From Mansion to Management: Legacy Lessons From The Playboy Saga,” appearing in a recent issue of Forbes.

The Hefner saga offers lessons about the importance of estate planning, the power of intellectual property and the challenge of balancing a legacy with reinvention over decades. The question of how heirs can use family wealth while creating their own lives, even their own legacies, is part of the story.

Hugh Hefner sold a majority share of Playboy Enterprises in 2011 and placed the assets in a trust. His heir’s ability to access the assets was made subject to conditions. Unfortunately, by selling the majority share, he limited his family’s ability to be involved with the brand. In 2024, Playboy was struggling financially, and its stock value dropped from a $2 billion valuation in 2021 to around $53 million.

Hugh’s son Cooper attempted to reclaim the brand with a $100 million bid. However, the new owners rejected the bid. While his father ensured the family’s financial security by selling the company, he removed the ability of heirs to maintain the brand’s future. This is a classic example of how too much control can stifle innovation, while too little can lead to a lost legacy.

Hefner’s estate plan featured a lot of conditional gifting in his trusts. Heirs would lose their entire inheritance if they engaged in substance abuse. This is a growing trend among ultra-high-net-worth families wishing to ensure that wealth doesn’t equal reckless behavior. Conditional gifting encourages responsibility, requiring heirs to meet certain conditions before accessing funds. It can also preserve wealth for multiple generations by structuring payouts and providing guardrails against rapid depletion.

Hefner’s best financial move may have been to transition his business from a publishing empire to an intellectual property model. When he sold the majority stake in Playboy Enterprises, he also positioned the company to rely on licensing deals and branding partnerships for future revenue.

In many families, intellectual property is an often-overlooked asset class. The Playboy Bunny logo is among the most recognized logos in the world. Three key lessons are found here. Brand equity can live long after the original business model is long gone; intellectual property can provide a financial safety net; future generations need to understand the value of intellectual property. Cooper Hefner clearly did, which is why he attempted to purchase the business.

When creating an estate plan, finding a balance between control and flexibility is not always easy. Wealthy families who wish to continue a business’ success need to motivate heirs, while at the same time leaving opportunities for them to make their own mark.

Regardless of your family’s situation, an estate planning attorney can create a plan to pass wealth onto the next generation, while leaving room for children and grandchildren to create their own legacies.

Reference: Forbes (Jan. 26, 2025) “From Mansion To Management: Legacy Lessons From The Playboy Saga”

Estate Planning for Americans Living Overseas

There are many nuances to estate and inheritance taxes for Americans and more for Americans living outside of the United States. While the current federal estate tax levels are extremely high, there are different rules in other countries, and a clear understanding is needed, as reported in the Tax Management International Journal/Bloomberg Tax article, “Americans Living Overseas Need Cross-Border Estate Planning.”

At the very least, expatriates will want to understand the federal estate tax and how it works with state-level taxes and how European taxes work, which are very different than the American model.

The current 2025 federal estate tax exemption is $13.99 million per individual, and estates below this threshold don’t pay federal taxes. The exemption will likely remain at elevated levels in the foreseeable future. Estates exceeding this level are taxed at rates up to 40%. However, most high-net-worth individuals have strategic estate planning to minimize their tax liability. Lifetime gifting, charitable donations and trusts shelter assets and pass wealth on to future generations.

Several states have their estate taxes, which are typically far lower than the federal level. Oregon, Rhode Island and Massachusetts have the lowest exclusions at $2 million or less. New York State's estate tax exclusion is $7.16 million. However, there’s a so-called “cliff tax” if the estate value exceeds the exemption even slightly. In most states, the estate tax ranges from 0.8% to 20%. Your estate planning attorney will know what your state’s exemptions are.

Inheritance taxes are levied only by a few states, including Iowa, Nebraska, Kentucky, Maryland, New Jersey and Pennsylvania. Maryland, known as a corporate haven for its low business taxes, imposes both estate and inheritance taxes. These taxes are based on the value of the inheritance and the relationship to the decedent.

In Europe, U.S. citizens are subject to more inheritance taxes, where exemptions tend to be lower, and rates are far higher than in the U.S. If you live overseas, you’ll need to consider the cost of your exposure to two tax systems. U.S. federal estate taxes apply wherever you live, in or outside of the U.S., and European inheritance taxes are based on where the decedent lived.

Estate planning for expats requires a multi-national approach. Find out if your country has a U.S. Estate and Gift Tax Treaty, which may allow credits to offset taxes paid in one country against those owned in another.

American citizens may gift up to $19,000 per person every year tax-free. Some European countries have a similar situation where lifetime gifting is based on the relationship between the grantor and the recipient.

Trusts recognized in the U.S. may not be recognized in other countries, so be sure the structure works in both the U.S. and your country of residence to avoid unexpected taxes.

The will you created in the U.S. may not be in compliance with another country and could lead to problems in estate administration.

Speak with an experienced estate planning attorney who can help you navigate the estate taxes and estate planning needs for living outside of the U.S. You’ll need to plan strategically to navigate American and your adopted nation’s estate tax structures.

Reference: Tax Management International Journal/Bloomberg Tax (Jan. 28, 2025) “Americans Living Overseas Need Cross-Border Estate Planning”

Why Is Estate Planning Important?

Estate planning is part of long-term planning, no matter what the size of a person’s investment portfolio or their total net worth. It protects the individual and their property, which is why everyone needs an estate plan. Estate planning is an umbrella term used to refer to everything from asset allocation after death to planning for incapacity and end-of-life healthcare decisions, according to a recent article in The Daily News, “What to know about estate planning.”

Typical components of an estate plan include a last will and testament, power of attorney, healthcare directives and trusts. Most surveys conducted in the last few years show only a third of all American adults have a will, and more than half think they don’t need an estate plan because they don’t own enough assets.

Here’s all you need for an estate plan to protect yourself and your loved ones:

A will is the document used to distribute assets after your death. Working with an estate planning attorney who knows the laws of your state is the best way to ensure that your wishes are followed. Trying to do this on your own or with an online platform puts your will at risk of being deemed invalid by the court, which would put your entire estate into the hands of your local probate court.

The will is used to name an executor to carry out the directions you’ve expressed in the will. It is also used to name a guardian if you have minor children. Without a will, or if a will is found to be invalid, the court will name someone to take over distributing your assets. If you have young children and both parents are deceased, the court will decide who should raise your children.

Trusts are used to protect assets, minimize taxes and safeguard assets for beneficiaries. There are many different types of trusts, and an experienced estate planning attorney will know which type is best for your family. For instance, if a family member is disabled, you may need a Special Needs Trust. Your estate planning attorney will also discuss whether you need a Revocable or Irrevocable Trust.

Trusts are used to shield assets from creditors and may be part of Medicaid planning. Another benefit is that assets in a trust don’t go through the probate process. If you are concerned about disgruntled family members poring over your will—which becomes a public document after it is entered into probate—you may wish to use a trust to keep your estate and your assets private.

Planning for incapacity is an integral part of an estate plan. Suppose you become incapacitated without any estate planning. In that case, your family will need to go to court to be able to speak with your doctors, talk with the health insurance company and take part in your healthcare decision-making. Court proceedings are costly and take time; they are not something you want to be embroiled in during a health emergency.

Your estate plan should include a Power of Attorney, which names another person to act on your behalf if you are incapacitated. You’ll also want a Healthcare Proxy to permit another person to make medical decisions on your behalf. An Advanced Directive will express your wishes for what kind of care you want if you can’t communicate your wishes.

Having an estate plan expresses your wishes for more than your property distribution. If you don’t have an estate plan, contact an estate planning attorney to discuss your intentions for assets, beneficiaries and your future. Most people are surprised at how relieved they feel once this task is taken care of. The peace of mind knowing you and your family are protected is well worth the effort.

Reference: The Daily News (Jan. 30, 2025) “What to know about estate planning”

What Is a Flexible Irrevocable Trust?

Estate planning attorneys use a variety of trusts and often recommend irrevocable trusts, according to a recent article from Kiplinger, “Sophisticated Planning with Flexible Irrevocable Trusts.” Irrevocable trusts are commonly used for Special Needs Trusts to help individuals become eligible for Medicaid and veterans’ benefits and to minimize tax liabilities.

The term “irrevocable” can cause concerns for people who are used to maintaining complete control over their assets. However, careful drafting of these documents can allow indirect control over assets, income and ownership, while providing flexibility usually not associated with irrevocable trusts. A flexible irrevocable trust provides the ability to respond to changes in circumstances, a welcome option for many.

How do flexible irrevocable trusts work? Assets are not transferred directly into the irrevocable trust. Instead, they are transferred to a legal entity like a Limited Liability Corporation (LLC), an S-Corporation, or a Family Limited Partnership (FLP) controlled by an individual. An interest in the entity is then transferred to the irrevocable trust. Nonvoting interests in the entity are then transferred to the trust. Done correctly, the individual retains control of both the entity and the asset.

In this situation, the person who is directing the creation of the trust will need to designate the initial trustee who will oversee transactions and activities for the trust. Some people are more comfortable appointing themselves as the initial trustee. However, it’s better in this case if they are not the initial trustee. For instance, if they are the initial trustee for a trust created for their children, distributions will be limited to pay for the health, education, maintenance and support, known as HEMS, if the goal is to exclude assets from the estate for tax purposes.

HEMS distributions, however, could eliminate or impede beneficiary protection from creditors. The creditor could say the beneficiary has a right to the HEMS distribution and take this amount from the trust.

The trustee, when not the individual who created the trust, may have total control to make distributions, which provides better asset protection to the trust’s beneficiaries. You must be 100% certain that the trustee will act on your instructions.

When selecting a trustee, keep two things in mind: while you are living, you want the trustee to follow your instructions, and after your death, you want someone whose judgment you trust implicitly. The best candidate may be an adult child if the family dynamics and history support this decision.

Having the ability to remove the trustee and designate a new one without cause is another critical part of drafting the trust.

If the need to replace the initial trustee occurs, be careful not to select someone who is related to you, a lineal descendent, or an uncle or aunt. Don’t name someone who is an employee of a business of which you own a significant share. While a related or subordinate person may be a successor trustee, they should not be the primary trustee.

These types of trusts require the knowledge of an experienced estate planning attorney. Consult an estate planning attorney if your circumstances warrant a flexible, irrevocable trust.

Reference: Kiplinger (Jan. 30, 2025) “Sophisticated Planning With Flexible Irrevocable Trusts.”

How to Protect Your Inheritance

Receiving an inheritance, expected or not, can be life-changing. We’ve all read articles about people who lived frugally and never hinted at their savings, then left a fortune to heirs or a beloved pet. In reality, few families receive any inheritance, and most of those are less than $50,000. However, if you receive an inheritance, you should protect it, according to an article from Kiplinger, “Manage an Inheritance Like a Pro in Just Seven Steps.”

Before making any decisions, be sure to understand what you are inheriting. Most estate plans include a variety of assets, from real estate, investments, cash, retirement savings plans, life insurance proceeds and personal property.

Be patient. Estates don’t settle quickly. The executor will need to gather up all of the assets, and some may take longer than others to track down. Without a will, this process would be further complicated by court involvement and probate.

The inheritance rules differ depending on the asset, the state of residence, and the relationship. Spouses enjoy certain tax breaks that are unavailable to adult children or heirs. Some states impose an inheritance tax on family members based on kinship.

Depending upon the assets and your relationship with the deceased, you may or may not have to pay taxes. Unless your benefactor was ultra-high net worth, it’s not likely you’ll need to pay a federal estate tax. However, there are state estate taxes, depending on where you live, to be aware of.

Certain investments are taxable. Inherited stocks, mutual funds, or investments in a taxable account may enjoy a step-up in basis. The cost basis for these taxable assets, including stocks and mutual funds, is “stepped up” to the investment’s value on the day of the original owner’s death.

This tax treatment may make a taxable-account inheritance suitable for a short-term goal, like paying off high-interest debt or making a downpayment on a home. If you keep the money invested, make sure to review your entire portfolio to see how it impacts your investment strategy.

Tax-deferred retirement accounts can be complicated when inherited. Spouses may roll assets into their own IRAs and postpone distributions and associated taxes until they’re 73. However, an inherited IRA to most  peoplewill need to be emptied within ten years of the original owner's death, with Required Minimum Distributions. Your estate planning attorney can help you map out the withdrawals.

If you inherit a home, the property's value is stepped up to its value on the date of the owner’s death. Let’s say you inherit a property purchased for $150,000 but is now valued at $300,000. The basis is now $300,000. Selling an inherited home gets complicated, so rely on your estate planning attorney to work through the tax details.

Life insurance proceeds aren’t usually taxable as income. However, the money might be included in your estate to determine the value for federal or state estate taxes. If a death benefit is paid out in a lump sum instead of installments, the interest on the death benefit is taxable.

What about spending your inheritance? Once you’re sure you have the money to pay any taxes, enjoying the benefit of an inheritance makes good sense. For some, this is an opportunity to pay off student loans, lower or eliminate credit card debt and set some aside for retirement.

Most people overestimate how long their windfall will last and underestimate how quickly wealth can evaporate. To protect your inheritance, deposit the money in a secure account and don’t quit your day job. If you don’t have an estate plan, you’ll need one to protect your heirs. Make an appointment with an estate planning attorney now to guide you and prepare for the future when you might be the benefactor.

Reference: Kiplinger (Jan. 24, 2025) “Manage an Inheritance Like a Pro in Just Seven Steps”

Estate Planning Adds a Fresh Start to New Year

The first quarter of any year is always busy at estate planning attorney offices when people are catching up with the creation of an estate plan or revisions they meant to get done before the year ended but didn’t get around to finalizing. A recent article from the Press-Telegram, “New Year, new motivation for your estate plan,” shares some pointers for how to get this important to-do done.

The article is very clear: first, find an attorney. You aren’t expected to walk into an estate planning attorney with all the information you need or the answers. Their title, after all, is “counselors.” They help people work through all of the details. Most experienced estate planning attorneys also have organizers they provide to help guide you in listing assets, family members and ideas about what you’d like your plan to achieve. An estate planning attorney will keep you focused and organized.

Most people meet with two or three attorneys to see who they are most comfortable with. Is the office convenient for you, or can most discussions take place by phone or video chat? Did they explain how their own process works? Did they answer all of your questions? Were you treated with kindness? Or, if your estate is complicated, did they understand the complexity of your estate and the challenges about which you are concerned?

The article explains how searching for the least expensive attorney can create problems in the future. You want a professional with experience and understanding of estate planning techniques and the nuances of estate planning. For the same reason, don’t try doing your own estate planning with an online platform. These platforms have narrowed options down to the simplest and most common, and you won’t get the guidance you need regarding whether these are the best options for you.

The recent Los Angeles fires are a dramatic reminder of how quickly everything can change. If you don’t have a will, power of attorney, health care directives and trusts, and something unexpected occurs, what will happen to your family and your property? Who will know what you want regarding healthcare if an illness or accident occurs, and you can’t communicate your wishes?

Knowing where your estate planning documents are and sharing their location with people you trust is an oft-overlooked part of estate planning. If your documents are hidden deep within your home, will the person you named as a healthcare proxy be able to access these documents in a timely manner? Who knows the combination if they are locked up in a home safe?

Estate planning documents are often needed in an emergency. Make sure the people who will be using them can find them. Some estate planning attorneys provide clients with a binder and a thumb drive, so documents can be easily stored and shared. Where should the binder go? Don’t put this in a safe deposit box. If the safe deposit box is in your name and you are incapacitated or have died, no one will be able to retrieve the documents.

You hope you won’t need estate planning until your eventual demise. However, as we know, life happens, and the documents could make managing your affairs far more manageable for those you love. Start the new year off right by taking care of your estate plan and, by extension, your loved ones.

Reference: Press-Telegram (Jan. 19, 2025) “New year, new motivation for your estate plan”

Be Careful of the Latest Social Security Scam

Every time one type of scam gets squashed, another five pop up. This is especially true when it comes to scams trying to get Social Security accounts. According to a recent U.S. News & World Report article, “Don’t Fall for This Social Security Scam,” more than 330,000 people reported business impersonation scams in 2023. How can you avoid becoming a victim?

If you receive a phone call or an email from someone claiming to be from the Social Security Administration, feel free to be rude and hang up, even if the caller ID says Social Security or another government agency name. It’s very easy for thieves to change the display on caller ID.

This scam usually starts with a call from a person or a robocall. When you answer, you’ll hear the message in a frightening tone telling you your Social Security number has been suspended. The Social Security Administration doesn’t suspend numbers. Once you’re assigned a Social Security identification number, it’s yours for life.

The next point of contact will be with someone who will tell you the number was suspended because you committed a crime or the government has filed a lawsuit against you. A scared victim is instructed to call a particular number where they will be asked to provide personal information and told they need to pay a fine and make arrangements for payment.

Some victims are told their Social Security number has been suspended because of “suspicious activity,” and they need to speak with a representative to reinstate the number. They’ll need to tell the alleged agent their Social Security number to have this happen. They may also be asked for information like a bank account number, home address, or critical personal information.

If you receive a call about your Social Security number being suspended, rest assured this is false. Not only does the Social Security Administration never “suspend” a Social Security number, but they don’t call local police to arrest citizens for crimes either.

What should you do if you receive this kind of scam call? Experts say hang up. If you are concerned, look up the phone number of your local Social Security office and call them directly. You can also look at your phone and see if you can block the number the scammer used to contact you.

Finally, never, ever share your Social Security number with anyone who calls and asks for it. Hang up. No matter how threatening they sound or how friendly they seem. Hang up and congratulate yourself: you’ve just avoided becoming a victim.

Reference: U.S. News & World Report (Jan. 22, 2025) “Don’t Fall for the Suspended Social Security Number Scam”

Think of Estate Planning as a Gift to Loved Ones

When you think of a gift for your family, you might think about matching sweaters or a family vacation. However, the gift of an estate plan will be remembered because it demonstrates your ability to take care of your family and could help build wealth across generations. A recent article from CNBC Money Report, “Here’s why estate planning is a gift to your family,” explains how this works.

Remember, there’s no relationship between creating a will and signing documents and something happening to you immediately afterward. This notion keeps many otherwise responsible adults from taking care of their estate plans. Don’t fall prey to it.

Another point is that families fight over money and possessions, even when relationships are good. Without clear instructions provided in an estate plan, a family undergoing the loss of a parent is vulnerable to fighting and litigation.

You’ll want to have a Last Will and Testament and, depending on your situation, possibly trusts, a Power of Attorney for financial and legal matters if you are incapacitated and a Healthcare Proxy (sometimes called a Healthcare Power of Attorney), so someone can make medical decisions and talk with treating doctors in case you can’t communicate.

What happens when there is no estate plan? The courts will make all of your decisions, regardless of the wishes of your loved ones. Your entire estate will go through probate, and a stranger could be named to take charge of it, with a hefty fee to compensate them for their services.

If you have minor children and no will, the court will name a guardian to raise your children. Will it be someone you would have picked or your distant cousin who lives hundreds of miles away? There’s no way to know.

Assets titled properly or those with a named beneficiary will go directly to those named on the accounts without going through probate. This is one of the attractions of trusts, which never become public.

Part of creating an estate plan includes reviewing your accounts and beneficiary designations to ensure that the people named as your beneficiaries are still correct. If you have any old accounts you haven’t looked at in decades, now is the time to ensure that you’re not leaving your pension to an old college pal—unless that’s your intention.

Estate planning is about empowering the present and planning for the future. Chances are you’ve read many news articles about celebrities with massive estate problems because they failed to plan. Leaving a mess for your family to deal with is probably not the legacy you had in mind.

Give yourself and your loved ones the peace of mind knowing you’ve taken care of your estate plan. Be remembered as someone who cared enough to do the right thing. Consult with an experienced estate planning attorney today.

Reference: CNBC Money Report (Jan. 7, 2025) “Here’s why estate planning is a gift for your family”

Keep Your Life Private with a Trust

Jacqueline Kennedy Onassis signed a will in March 1994 after receiving a cancer diagnosis and died two months later. Her will is readily available on the internet since it becomes a public document when submitted for probate, according to an article from the American Legion, “Living Trusts vs. Wills.”

She remembered family members and friends in the will and also planned to make a large transfer to a Charitable Lead Trust. However, things didn’t work out the way she wanted. Her two children received her personal property and quickly put the items up for sale, netting $35 million. The rest of the estate was needed to pay taxes, and the CLT was never funded.

Bing Crosby, an American singer and celebrity, had a trust created for his estate plan. When his first wife died in 1952, she had a will transferring her separate and community property, which became public because of the probate process. After marrying again, Crosby created several trusts for his children from his first marriage, his new wife and the children from his second marriage. He wanted his privacy back.

There are many reasons to have a will. The will is used to name an executor for your estate, a guardian for minor children and express wishes for asset distribution. A last will and testament is a good starting point for an estate plan. If you are young and don’t have a lot of assets, a will may be all you need to distribute assets and plan for your children’s future.

As one moves through life and acquires property and perhaps wealth, it may be time to consider the use of trusts. Some people find a living or revocable trust to be the right solution. It allows the person creating the trust, the grantor, to retain complete control over the trust. You can change the terms, add and subtract beneficiaries and make changes whenever you want.

A living trust names a successor trustee. If you become incapacitated, the successor trustee can step in and manage the property owned by the trust. They can use the funds in the trust to pay for Long-Term Care or medical expenses.

If you own property in more than one state, a trust is an excellent means of avoiding having to go through probate in each state. With a living trust, your estate won’t have to go through multiple probate processes.

The privacy a trust offers can reduce the risk of someone contesting the estate. When a document about your property becomes public, distant relatives, creditors and thieves can connect the dots of your wealth and target your estate via litigation or scams.

Talk to your estate planning attorney about whether a trust is right for you and your family. If you do go forward with a trust, remember that the final step is to fund the trust. Don’t leave this out, or your trust won’t perform as planned.

Reference: American Legion (Jan. 15, 2025) “Living Trusts vs. Wills”