The vast majority of my estate planning clients are part of the more than 99% of America who has never had the need to familiarize themselves with the estate planning concept called GRAT which stands for Grantor Retained Annuity Trust. Rather, they come to my office seeking a living trust, a will, a power of attorney, and an advance health care directive.

GRATs have been extremely important to one prominent family – the Sam Waltons from Bentenville, Arkansas. You may know the name as the founder of Walmart. Mr. Walton not only founds the company, but unlike a lot of great businessman, he was keenly aware of estate planning almost from the beginning. More about him in a moment.

A GRAT allows an individual to transfer assets to a trust and receive an annuity payout for a term of years. Typically, it is a short period of time (2 to 3 years). The annuity payout is based on a government set interest rate. Today that rate is 3.2%. All of the appreciation of the asset in an amount greater than the interest rate is outside of the estate and is therefore not subject to estate taxes when the individual dies. Moreover, there is not a gift tax.

It is a form of estate planning that has almost no down side. In the event that the asset appreciates at a rate less than the rate of interest, then the individual has only lost the legal fees that it cost to establish the GRAT. Also, the individual has to live at least the length of the term of the GRAT. In the event that he/she dies before the term of the GRAT, then the assets get pulled back into his/her estate.

Now, it looks like Washington is going to change all of that. The House in the last week passed a bill that, among other things, requires the term of GRATs to be at least 10 years. This will make their benefit a lot less for older people. It is assumed that the Senate will do the same and that ultimately President Obama will sign the legislation.

Back to Sam Walton. He used GRATs to such a degree, that there is such a thing as a “Walton GRAT” that estate planners use. It is one of many reasons that he was able to pass down such a large percentage of his fortune to his children. Many other business barons have not been as savvy in their estate planning and their heirs got a smaller percentage of the estate whether it has held in trust or not and whether it had to go through probate or not.

As an estate planning attorney who works daily with clients’ and their living trusts, I frequently see clients with a fair amount of their net worth in IRAs and/or qualified plans. It is with that in mind that I discuss the following.

What the government giveth, it taketh away. In late 2008, then President Bush signed into law the Worker, Retiree, and Employment Recovery Act (WRERA) which contained a suspension of the law that requires a minimum distribution for both IRAs and defined contribution plans for 2009. It was a one year only suspension and the primary purpose of it was to not make individuals take a distribution because many of their accounts were greatly reduced due to great decline in the stock market in 2008.

Ed Slott, one of the preeminent IRA experts in the country, prepares a newsletter each month. In his April edition, he points out that the required beginning date for most individuals is April 1 of the year following the calendar year in which the individual became 70½. However, most of the time the taxpayer does not need to take a required minimum distribution until December 31 of that year.

Remember, RMDs will be based on the year-end balance of 2009 even though there was no RMD for 2009. This is true even for people who turned 70½ last year!

So says a panel of the United States Court of Appeals for the Ninth Circuit.  Anna Nicole Smith died in 2007.  Until the end of her life, she was seeking to be an heir of the husband that she married in 1994 when she was 26 and he was 89. 

While J. Howard Marshall spent lavishly on Anna Nicole during their 14 months of marriage, his estate planning documents left his estate to his son, Pierce.  Almost from the moment he died in 1995, fourteen months after his wedding to Anna Nicole, the fighting began.  The widow alleged that he promised her $300 million or more.  Pierce countered that the will and trust did not provide for that and 15 years later it looks like the finish line is in sight.

The panel from the 9^th Circuit ruled on Friday, March 19 that Ms. Smith (and now her estate) was not entitled to any money.  Her estate’s attorney indicated that it is not the end of the line.  The estate may appeal to the full Ninth Circuit and ultimately to the United States Supreme Court.  The Supreme Court probably will not take the case again.

It is my opinion that Anna Nicole Smith’s estate is fighting on fumes with the end being near and I think that ultimately the probate court in Houston’s 2001 ruling will stand and Anna Nicole’s Smith’s daughter as her sole heir will not receive anything from the estate of J. Howard Marshall.

To follow up on my post from September 16, 2009, here is another interesting article regarding estate tax reform published by Reuters this afternoon.

http://www.reuters.com/article/email/idUSTRE5B03HZ20091201

The article that I have linked on estate taxes is very interesting.  When I ask clients what they want to accomplish, virtually everyone says the avoidance of probate and the avoidance of estate taxes.  Of course, the vast majority of couples have estates that are more than seven million dollars so generally estate taxes should not be a legitimate concern.  However, if the estate tax were eliminated by law, there would be other taxes.

http://online.wsj.com/article/SB10001424052748704224004574489581033118194.html

Yesterday TheHill.com published an article titled “Debate Over Estate Tax Likely to Wait till 2010,” which suggests that the most likely scenario for estate tax reform is a “one-year extension and then tackling the issue as part of broader tax reform next year.”

The full article is available online at http://thehill.com/homenews/senate/58665-debate-over-estate-tax-likely-to-wait-until-2010. (For those of you unfamiliar with TheHill.com, it is self-described as the publication “for and about Congress, breaking stories from Capitol Hill, K Street and the White House. The Hill stands alone in delivering solid, nonpartisan reporting on the inner workings of Congress and the nexus of politics and business.”)

Asset protection is on a lot of people’s minds.  For some it may be on their minds unnecessarily.  Others do not have asset protection on their minds, but should.

Who should be thinking about asset protection?

The obvious answer is anybody that has some likelihood of being sued.  Thus medical doctors are an obvious group of people who need to be aware that at any time a patient could bring suit.  However, it does not have to be a patient; it could also be a partner or an employee.

Another high risk field is that of builders and developers.  Obviously, a project could go south because of a change in the market.  Eventual owners could sue and once again partners could also sue.

People in all types of businesses and professions need to be on guard.  That includes owners of apartment buildings, duplexes, or simply those who rent out a house.  I know of a situation where an owner of an apartment building was sued for a lot of money because there was a shooting on the property.

We are the most litigious society in the world. As most reading this know, even businesses who serve hot coffee have to be on their toes!

Another reason to do asset protection is to protect yourself when an investment goes bad.  Recently I read that the coach of the University of Michigan football team, Rich Rodriguez, was sued for $3.9 million due to a loan default in a condominium project.  What makes it interesting was that the money was borrowed by a limited liability company of which Rodriguez was a partner.  Ironically, one of the reasons that someone forms a LLC is for asset protection as I will discuss in a future blog.  However, Coach Rodriguez, it is alleged, gave a personal guarantee, and therefore may be liable for whatever the difference is between $3.9 million and the assets in the LLC.  It is true that the creditor can and probably is seeking repayment from all of the partners and not just Coach Rodriguez.  On the other hand, creditors often attempt to get repaid from the easiest source(s).

In future blogs, I will discuss other reasons to do asset protection and what are some asset protection mechanisms including trusts.

For those above a certain age and/or for those from New York City, the Astor family name is synonymous with wealth and charity.

Brooke Astor lived a long and storied life.  She died in 2007 at age 105.  Her son, and an attorney, Anthony Morrissey, who did estate planning for her are on trial in a Manhattan courtroom for among other things, larceny, scheming to defraud and forgery.

The basic prosecution case is that while Mrs. Astor was suffering from Alzheimer’s disease for the last seven years of her life, her son caused her to change her will, forged her name on a codicil, and sold a painting that she was attached to while pocketing a 20% commission.

The prosecution called 72 witnesses over the almost 17 weeks it took to put on its case.  Many of its witnesses had no direct connection to the case, but testified because the prosecution wanted to demonstrate that Mrs. Astor was not competent during the time period that the “acts” were committed. 

Every day in southern California, estate planning attorneys are asked by someone’s child to prepare a trust, or a will, an amendment to a trust, or a codicil to a will, when it is evident to the estate planning attorney, that the parent is not leading the child, but rather the child is leading the parent.  Frequently the motive of the child is harmless – in fact it will be of benefit to the parent.  However, sometimes the motive is not harmless and the primary motive is to alter the wishes of the parent.  It is in those situations that the attorney can become either the defendant in a civil lawsuit or the defendant in a criminal prosecution.

Probate litigation frequently involves claims of undue influence.  Whether or not Mrs. Astor actually signed one of the codicils to her will is important, but almost beside the point.  The key questions are whether it was something that she wanted to do, that she knew what she was doing, that she was not unduly influenced, and that she was competent to do so.

The numbers are staggering.  At least one in two of us — that is you and me – are going to require long term care at some point in our lives.  I would doubt that half of those reading this have a plan in place for their long term care.    

Most of my clients are going to require long term care.  And yet when I ask whether they have a plan in place, the vast majority indicate that they do not.  Let me point out the flaw in the inactivity.

Here are a few numbers.  For a couple turning 65, there is a 70% chance that at least one of them will need long term care.  The percentages obviously increase as the couple ages to the point that for those people over age 85, 97% will require assistance in the last year of life. 

Long term care is not cheap.  Some are estimating that by 2018, a private room will cost $500 per day.  Twenty-four hour care in the home will cost approximately the same.

Long Term Care is defined as when a chronic condition, trauma, or illness limits the ability to carry out activities of daily living (ADLs) which may include bathing, dressing or eating or instrumental activities of daily living (IADLs) which may include household chores, meal preparation, or managing money.

For those over age 50 (I realize most 50 year olds are thinking that they are too young to be thinking about long term care), ask yourself the following questions:

If you ever need long term care, where do you want to receive it?

Who will provide that care?

Are there potential care providers?  Are there arrangements that can be successfully implemented?  For how long?

How will you pay for it?  (Do you have savings?  insurance? government assistance?)

Is your home safe for you to stay in if you require long term care?  If not, can it be made safe?

Will you have to move?

Have you looked at retirement communities, assisted living facilities and skilled nursing facilities in your community?

If you have not developed answers to the above questions by the time you require long term care, there is a large chance that others will make the decisions for you.  Some people are fine with that, but others given the choice will want to decide for themselves.

Meeting with your estate planning attorney is an important first step in analyzing the issues as they relate to you.  The estate planning attorney will make recommendations based upon your situation.  He/she may then suggest speaking to a financial planner and/or insurance professional.

Almost every client asks me where should they keep their estate planning documents.  And every time I explain that there is not a perfect answer.  Historically, many people left the originals with the attorney who drafted the documents.  I am not a proponent of that and in fact retain only two clients original documents.  Both of those clients requested that I do so.

I think that one of the reasons some estate planning attorneys kept the documents was because it insured that they would get future business from the client’s family when the trust will was executed.  I recommend that my clients keep their living trust; wills and other estate planning documents in an easily accessible place.  Moreover, I suggest that they inform their successor trustee/executor where they are kept.

What about safe deposit boxes?  In the event that you wish to keep the originals there, the safe deposit box should be titled in the name of the living trust so that the successor trustee can have easy access.  Otherwise, more than one person has said, it is like locking the keys in the safe.  Moreover, the successor trustee should be informed as to where the safety deposit box is located.   I am currently administering a large estate and my client (the successor trustee) went to more than 10 banks before finding the location where the decedent kept his safe deposit box. 

Ultimately, I am a believer in keeping the documents at home in a safe, but accessible place.  In any event, inform the successor trustee/executor where the documents are kept.