Microsoft’s Co-Founder Paul Allen’s Estate

It’s been a little more than a year since billionaire Paul Allen’s passing, but the course he charted to give away his fortune remains a private secret, described as a complicated work in progress by the Seattle Times in the article that asks and answers the question “What’s happening to Paul Allen’s billions? A year after his death, it’s complicated.”

There’s been some recent chatter that Jeff Bezos, founder of Amazon, was interested in buying an NFL team, and possibly the Seattle Seahawks. This has sparked renewed curiosity about what has happened to the Allen empire.

Paul Allen was a philanthropist and interested in many different endeavors, from sports to fine art, pop culture and nonprofits, real estate investing and science. What will be kept within the family, what will be sold and what shape will the promised philanthropy take?

The answer to the question of when all of this might happen is perhaps the only clear answer: not yet, and maybe not for a while. Experts say that it can take years for such a vast empire to be unwound. His estate includes businesses, investments, properties, world-class fine art, and other valuable assets.  Giving away what might be as much as $10 billion, or more, is not something to be done quickly.

As to who is in charge, that is Jody Allen, trustee, sister, and along with her family, the sole heir. A biography on the website of Vulcan, the business that Paul and his sister Jody co-founded, says that she has the responsibility for preserving and implementing his vision for generations to come. Jody’s intentions are unknown, outside of a tight and protective inner circle.

A Vulcan spokesperson said that the company is committed to tackling the world’s toughest problems, but nothing more.

The expectations are great, based in part on the long and varied record of philanthropy from Jody and Paul Allen. He gave away $2 billion during his lifetime to business, scientific, and cultural entities.

One of the main channels for philanthropy is the Paul G. Allen Family Foundation, which has given away at least $575 million. At the end of 2018, the foundation had assets worth more than $931 million and made more than $48 million in contributions.

Vulcan, the company, and the family foundation will continue to exist for many years, putting their stamp on science, the arts, environmental causes, and educational programs.

Reference: Seattle Times (November 26, 2019) “What’s happening to Paul Allen’s billions? A year after his death, it’s complicated”

How Do I Divide Up My Assets, Without Dividing Up My Family?

The decision of making unequal inheritances can be a hard process.

Considerable’s recent article, “More parents are leaving unequal inheritances to their adult kids,” says that a new study from Merrill Lynch Bank of America/Age Wave found that among those planning to leave an inheritance, parents with more than one child are open to leaving different sums to each child, depending on the situation. In addition, the study found that two-thirds of Americans think that under certain circumstances, an uneven split is okay.

However, this can result in ugly sibling fights, hurt feelings, and jealousy, especially if the deceased parent never said anything about it during their lifetime.

An Ameriprise survey found that among siblings who fought about money as adults, 70% of the issues centered around how their inheritance was divided. A recent survey from BMO Wealth Management reported that about 40% of respondents who had received unequal inheritances felt the distribution was unfair.

If you decide to do this, you need to manage expectations, so you don’t have one sibling blaming another, and then have them spend significant resources on fighting it out. While the standard advice is to divide an estate equally between the children, there are several reasons why parents consider another option.

In the Merrill Lynch study, about 25% of those surveyed said a child who has children of her own deserves more money than a child who doesn’t have any children. About 66% said a child who steps in as primary caregiver for an aging parent, deserves to inherit more than other siblings. Roughly 40% of participants with blended families said they don’t think they should treat stepchildren the same as biological or adopted children.

Parents may also believe that a child with a greater need is more deserving if one has a lucrative career, and the other is a stay-at-home parent. It could be that you have a child who has strong ties to a family business, or you’re planning for the care of a child with special needs.

Further, some parents want the dollar amounts of their bequest to be equal, but not the way it’s distributed. A parent may want to give one child the money outright, but to put the money in a trust with the other. This is usually an attempt to protect the child, not to punish them. If a child struggles with addiction or overspending, a trust can help to make certain that the child has access to money consistently and for a longer period of time. However, the trustee has control. In addition, parents may be worried that a child’s marriage is headed for divorce or feel uneasy about their son- or daughter-in-law.

Regardless of how you decide to divide your estate, if you think you have a good reason for not dividing your estate equally, talk to your children and tell them. This can help alleviate misunderstandings and misperceptions.

Remember, discussing your rationale is critical. Work with an experienced estate planning attorney for ideas and strategies to accomplish your goals.

Reference: Considerable (December 3, 2019) “More parents are leaving unequal inheritances to their adult kids”

4 Alternatives to Nursing Home Care

As our parents continue to advance in years, questions about how best to care for them often come up, especially after whirling through the holidays. Maybe they’re slowing down a bit. Perhaps their memory is slipping. Is it time to shop for nursing homes? Maybe. However, there are alternatives to consider, when it comes to caring for aging parents.

Alternative #1 – In-Home Care

According to studies of aging Americans, this population prefers to remain in their own homes, if possible. They want to retain their personal autonomy, have familiar surroundings, and mostly, they don’t want to be filed away and forgotten. Most seniors that choose to remain in the home are cared for by family, and to a lesser extent, professional home healthcare workers.

While in-home care can be less expensive than a semi-or private-unit in a nursing home, it does have its downsides. This is particularly true when it is a family member that is providing care. A sense of inequality often arises in the family dynamic, when one person is taking on all of the caregiving duties. When considering in-home care, it is critical to communicate with all family members and come up with an agreement, as to the division of labor for mom and dad.

Alternative #2 – Adult Daycare

Adult daycare may be used as an alternative to nursing home care, or in concert with in-home care. These types of centers enable elderly members to maintain a sense of community. These community centers are growing in popularity, due to the fact that the cost of care is more than 50% less than nursing homes, according to the MetLife National Study of Adult Day Services. Studies have also shown that these types of facilities improve quality of life in older adults and their caregivers.

Adult daycare centers can provide social activities, door-to-door transportation services, meals and snacks, assistance with activities of daily living and other therapeutic services, as needed. There are even specialized facilities for people with dementia or other developmental disabilities.

Alternative #3 – Assisted Living Communities

If the family home has become a hazardous environment for your aging parents, the next step could be an assisted living community. This type of facility offers some of the autonomy that the older “young-at-heart” family members still crave while offering a scaled level of service onsite. These communities can provide:

  • Transportation
  • Medication Management
  • Healthcare monitoring
  • Entertainment
  • Community Activities
  • Help with Activities of Daily Living
  • Housekeeping
  • Laundry Services

These facilities are more affordable than nursing homes and offer active older people the assistance they need while encouraging autonomy.

Alternative #4 – Accessory Dwelling Units

Bridging the gap between in-home care and other offsite care facilities, the accessory dwelling unit can be a viable option for those with property that will accommodate an extra unit. Also referred to as “granny flats,” these smaller dwellings provide privacy and autonomy for an aging parent, while also providing proximity of family and caregivers.

Depending on the layout of your property, units may be built over garages or adjacent to the family home. Costs vary by location, property, and needs. However, in the long run it may be less expensive than full-time nursing home care.

Before deciding to place family members in a nursing home, do your research. There are plenty of alternatives out there that may be more affordable and socially-preferable to nursing home life.

Resources:

ElderLawAnswers. “Alternatives to Nursing Home Care” (Accessed November 28, 2019) https://www.elderlawanswers.com/elder-law-guides/7/alternatives-to-nursing-home-care

National Adult Day Services Association. “Comparing Long Term Care Services” (Accessed November 28, 2019) https://www.nadsa.org/

Caring on Demand. “7 Alternatives to Nursing Homes” Accessed November 28, 2019) https://www.caringondemand.com/blog/alternatives-nursing-homes

I’m a Fiduciary —What Does That Mean?

There are any number of pitfalls that may occur when administering an estate, a trust or another person’s finances under a Power of Attorney (POA). Fiduciary duties are the highest under the law, and the fiduciary is legally required to put the interests of the person they are representing above their own. The most common problem for a fiduciary is not taking their responsibilities seriously enough, says the article “What does it mean to serve as a fiduciary? from the New Hampshire Union Leader.

You can avoid some common pitfalls if you keep the following in mind:

Know the governing instrument. A fiduciary must abide by the terms of the governing instrument, which might be a Power of Attorney (POA), trust, or another legal document. The powers you hold are limited to those granted in the document. There are times when even though you have a power or the ability to do something, it’s not in the best interest of the grantor. Let’s say the trust gives you, as a trustee, the power to make distributions to a beneficiary. If the beneficiary has sufficient independent resources, doing so might be a breach of your duties. In the same way, just because the ability to make gifts is given by a POA, that doesn’t mean you should automatically start making gifts.

Maintain extremely detailed records. Do this for two reasons: you have a duty to do so, and you need good records in case anyone claims that you did something wrong. Make sure that your records have enough details so that any expense or expenditure can be documented and explained.

Transparency is the best approach. Every situation is different, and family dynamics differ, but if you can, speak with family members before making any transactions. If they object, you can decide whether or not to proceed or to petition the probate court to give the court’s blessing in advance. In this case, it is better to ask permission in advance, than ask for forgiveness after the fact.

Never mix your personal or business funds with that of the estate. This is one of the biggest problems for people who have never been a fiduciary before. If you are a fiduciary for more than one estate, then you’ll need to have funds and property completely separate from each other. Even if you are a fiduciary for just one estate or person, you should always pay costs and expenses associated with the estate or person from those funds, and you should never transfer money from those funds into your own accounts unless it is properly documented and tracked as a reimbursable expense or as compensation.

Fiduciary duties need to be treated with great care to avoid any liability and litigation. If you are not prepared to be a fiduciary, you could decide to decline the role. Speak with an estate planning attorney to talk about what will be required with your specific case if you have any reservations about taking on this responsibility.

Reference: New Hampshire Union Leader (December 7, 2019) “What does it mean to serve as a fiduciary?

Gig Workers, Don’t Forget Retirement Savings

For better or worse, the gig economy is here to stay. It offers flexible hours, choice in their clients and projects, and the benefits of working remotely. However, freelancers and other gig workers miss out on the benefits offered by more traditional employment, says Forbes in the recent article “What Gig Workers Should Know About Self-Directed Retirement Accounts.” One aspect that can have significant implications is that they are completely responsible for their own retirement savings, health care expenses and any other forms of long-term savings.

How can a freelancer build a nest egg? It can sound quite simple: establish a retirement account early on and start contributing, no matter what the amount. There is no lack of retirement plans available today for self-employed professionals and part-time workers, including traditional IRAs, self-employed 401(k) plans, and simplified employee pension IRAs, among others. The challenge comes from having the income and the discipline to do this.

IRAs: Freelancers may set up individual retirement accounts directly with a custodial institution, contributing up to $6,000 annually. For those who are 50 and over, there’s an additional catch-up contribution of $1,000 permitted. A freelancer can decide to go with a traditional IRA or a Roth IRA.

SEP IRAs: Simplified Employee Pension IRAs allow freelancers to contribute up to 25% of their income, or $56,000, whichever is less. This may be a good option if you are a one-man show and intend to keep it that way. If you are an employer, you have to contribute to the SEP-IRA of every eligible employee whenever you contribute to your own SEP-IRA.

Self-employed 401(k) or solo 401(k): This plan offers the most flexibility for retirement contributions. The person can contribute up to $62,000 each year. These plans also have a lower maintenance cost and investment options that go beyond the stock market, since there is no requirement that the plan has a custodian. The accounts can include real estate property, commercial property, private lending, tax liens or multifamily syndication.

The Good and the Bad of Self-Directed Retirement Plans

Self-directed retirement accounts allow participants to invest in alternative investments. That can be a good thing; for example, a self-employed professional can leverage their industry experience to make long-term limited period investments, and not be limited to the offerings of a traditional custodian. For a self-directed IRA, the plan holder does need a custodian to act as a trustee of the account. That could be a bank, brokerage firm, insured credit union or a legal entity approved by the IRS. The custodian is not authorized to provide investment advice to plan participants.

The self-directed solo 401(k) is structured with a 401(k) trust, used as a vehicle to hold the assets. The account holder is the trustee and has total control over how the assets are used. Solo 401(k) plans allow post-tax Roth contributions to be made to a separate designated Roth account under the same plan. That lets investments grow tax-free, as well as tax-free qualified distributions.

However, with all this freedom comes risk. If investments don’t work out, there’s no safety net.  There are also many regulations around these self-directed accounts. Some transactions are prohibited and there are rules regarding withdrawals and participant loans. If you are a freelancer, you should consult with an attorney or financial advisor to figure out the best way you can contribute to your own future.

Reference: Forbes (December 5, 2019) “What Gig Workers Should Know About Self-Directed Retirement Accounts”

From Gentle Persuasion to a No-Nonsense Approach, Talking About Estate Plans

Sometimes the first attempt is a flop. Imagine this exchange: “So, do you want to talk about what happens when you die?” Answer: “Nope.” That’s what can happen, but it doesn’t have to, says The Wall Street Journal’s recent article “Readers Offer Their Advice on Talking to Aging Parents About Estate Plans.”

Although these discussions can be a challenge to have, many people have successfully begun this difficult conversation with their aging parents. The gentle persuasion method is deemed to be the most successful. Treating elderly parents as adults, which they are, and asking about their fears and concerns is one way to start. Educating, not lecturing, is a respectful way to move the conversation forward.

Instead of asking a series of rapid-fire questions, provide information. One family assembled a notebook with articles about how to find an estate planning attorney, when people might need a trust, or why naming someone as power of attorney is so important.

Others begin by first talking about less important matters than bank accounts and bequests. Asking a parent for a list of utility companies and all the information associated with it, such as the account number, online login, and password is an easy entry to thinking about the next steps. Sometimes a gentle nudge is all it takes to unlock the doors.

For some families, a more direct, less gentle approach is what gets the job done. That includes being willing to tell parents that not having an estate plan or not being willing to talk about their estate plan is going to lead to disaster for everyone. Warn them about taxes or remind them that the state will disburse all of their hard-earned assets if they don’t have a plan in place.

One son tapped into his father’s strong dislike of paying taxes. He asked a tax attorney to figure out how much the family would have to pay in estate taxes if there were no estate plan in place. It was an eye-opener, and the father became immediately receptive to sitting down with an estate planning attorney.

A daughter had tried repeatedly to get her father to speak with an estate planning attorney. His response was the same for several decades: he didn’t believe that his estate was big enough to warrant doing any kind of planning. One evening the daughter simply threw up her hands in frustration and told him, “Fine, if your favorite charity is the federal government, do nothing…but if you’d rather benefit the church or a university, do something and make your desires known.”

For months after seeing an estate attorney and putting a plan in place, he repeated the same phrase to her: “I had no idea we were worth so much.”

Between the extremes is a third option: letting someone else handle the conversation. Aging parents may be more receptive to listening to a trusted individual who is of their generation. One adult daughter contacted her wealthy mother’s estate planning attorney and financial advisor. The mother would not listen to the daughter, but she did listen to her estate planning attorney and her financial advisor when they both reminded her that her estate plan had not been reviewed in years.

It’s important to set up documents, but it’s equally important that everyone in the family is on the same page. Even when it is difficult, it is often worth it for peace of mind to find a way to get this conversation going.

Reference: The Wall Street Journal (December 16, 2019) “Readers Offer Their Advice on Talking to Aging Parents About Estate Plans”

The Key Health Document Most Americans Don’t Have but Should

You may not like the idea of contemplating your own mortality, or that of a loved one. You may procrastinate for many years about putting your final wishes in place. However, there is one document that is important for yourself, your loved ones, and your life. The health care directive. Forbes’ recent article titled “Two-Thirds of All Americans Are Missing This Estate Planning Document” explains why you shouldn’t put it off any longer.

A health care directive is a legal document that an individual can use to give specific directions for caregivers, in case of dementia or illness. It directs end of life decisions. It also gives directions for how the person wishes their body to be cared for after their death.

This document is known by several different names: living wills, durable health care powers of attorney or medical directives. However, the purpose is the same: to give guidance and direction to loved ones when making medical and end-of-life decisions.

This document itself is a relatively new one. The first was created in California in 1976, and by 1992, all fifty states had similar laws. The fact that the law was accepted so fast across the country, indicates how important it is. The document provides the family with stability and certainty for a loved one during the time a person is impaired, and even after their death. That is at the heart of all estate planning.

Yet just as so many Americans don’t have wills, only a third have a health care directive. That’s a surprise since both estate planning attorneys and health care professionals regularly encourage people to have these documents in place.

A key part of a health care directive is selecting an agent. This is the person who will act as the proxy to make decisions for another person, consistent with their wishes. They will also have to advocate for the person with respect to having treatment continue or shifting to pain management and palliative care. The spouse is often the first choice for this role. An adult child or other close and trusted family or friends can also serve.

The agent’s role does not end at death but continues to ensure that post-mortem wishes are carried out. The agent takes control of the person’s body, making sure that any organ donations are made if it was the person’s wish.

Once any donation wishes are carried out, the agent also makes sure that funeral wishes are done according to the person’s wishes. Burial is an ancient tradition, but there are many different choices to be made. The health care directive can have as many details as possible or simply state burial or cremation.

Having a health care directive in place permits an individual to state his or her wishes clearly. Talk with your estate planning attorney about creating a health care directive as part of your comprehensive estate plan.

Reference: Forbes (December 13, 2019) “Two-Thirds of All Americans Are Missing This Estate Planning Document”

How Does a Conservatorship Work?

Millennials, now in their 30s, need to begin thinking about caring for their boomer parents, as medical, financial and mental health needs come up. For lucky families, this will mean conversations with travel agents and financial advisors. For those not so fortunate, it will mean conversations with doctors, nursing home staff and, in some cases, with lawyers regarding conservatorships, says KAKE.com in the article “What is a Conservatorship and How Does It Work?”

A conservatorship is a form of legal guardianship of an adult. The conservator has legal authority over certain parts of the person’s life. It may be a “limited conservatorship,” where only specific matters are under the conservator’s control, like health or finances. The “full conservatorship” gives the conservator complete control over the person’s life, in the same way, that a parent has legal control over a child.

Conservatorship is granted when you can show the court that the person no longer has the capacity to make decisions on their own behalf. In almost all cases, this is based on their mental capacity. While it can happen, physical incapacity alone rarely is acceptable for a conservatorship to be awarded.

Some common reasons for conservatorship include if the person is in a coma, suffers from Alzheimer’s, dementia or severe mental illness, or has a permanent or genetic mental disability that prevents them from ever reaching the maturity or independence necessary for them to make all the decisions necessary to care for themselves.

Conservatorship is a legal proceeding, and the appointment of the conservator must be granted by an officer or appointee of the court. It is typically handled by a state probate court or family court. Hearings are usually held by a judge or a magistrate. A conservatorship may be part of estate planning. Most conservatorships require medical paperwork, but in all instances, the potential ward must have the opportunity to be heard by the decision-maker and to present their case, if they wish, as to why a conservatorship should not be granted. An individual also has the right to challenge the conservatorship in open court at any time, if they disagree.

If this sounds like a lot of complexity and trouble, that’s because it is. To avoid this, a Power of Attorney (“POA”) may be used to accomplish some of the things that would otherwise require a conservatorship. A POA gives a person the ability to make legally binding decisions for someone else, and the scope can be narrow or broad, depending on the person executing the POA. The person creating the POA can decide exactly how much power to give to another person, and it is depending on that person’s willingness to allow someone else to have control over their finances.

An estate planning attorney will be able to discuss all of the rights, responsibilities and fiduciary obligations of a conservator. Most have had experience with conservatorship and will be able to help the family and the individual make informed decisions in the best interest of the individual.

Reference: KAKE.com (December 11, 2019) “What is a Conservatorship and How Does It Work?”

Making a Clean Start for 2020? Here’s Help

Some people like to start their New Year’s off with a clean slate, going through the past year’s files and tossing or shredding anything they don’t absolutely need. However, many don’t, in part because we’re not sure exactly what documents we need to keep, and which we can toss. This article from AARP Magazine provides the missing information so you can get started: “When to Keep, Shred or Scan Important Papers.”

Tax Returns. In general, you only need to keep the tax returns and supporting documents that extend back to the IRS’s window of time to audit taxpayers. The can only audit you for three years after the end of the taxable year, or when you submitted your tax return, whichever is later. This means unless you’re planning on running for office, keeping the tax returns and supporting documentation for the last three tax years is usually enough. However, if the IRS finds that there is a substantial error, which usually means you omitted 25% or more of your income, in any of those three years, then the time period doubles to six years.

Regardless of how you earn your income, start by visiting MySocialSecurity.gov account before shredding to make sure that your income is being accurately recorded. Having your tax records in hand will make it easier to get any figures fixed.

As for documents regarding homeownership, keep records related to the home until you sell the house. You can use home-improvement receipts to possibly reduce taxes at that time.

Banking and Investments. If you or your spouse might be applying for Medicaid/Medi-Cal to pay nursing home costs, you’ll need to have five years of financial records. That includes bank statements, credit card statements, and statements from a brokerage or financial advisors. This is so the government can look for any asset transfers that might delay eligibility.

If that’s not the case, then you only need banking and financial statements for a year, except for those issued for income-related purposes to provide the IRS with a record of tax-related transactions. Your bank or credit card issuer may have online statements going back several years online. However, if not, download statements and save them in a password-protected folder on your home computer.

Stocks and bond purchases should be kept for six years after filing the return reporting the sale of the security. Again, this is for the IRS.

If you have a stack of canceled checks, shred them. Almost every bank and credit union today have an electronic version of your checks.

Medical Records. These are the records you want to keep indefinitely, especially if you have had a serious illness or injury. The information may make a difference in how your physicians treat you in the future, so normal or not, hang on to the following documents: surgical reports, hospital discharge summaries, and treatment plans for major illnesses. Put these in a password-protected folder in your computer or a secure cloud-based account, so they can be shared with future healthcare providers. You should also keep immunization and vaccination records. The goal is to have your own medical records and not to rely on your doctor’s office for these documents, as many doctor’s offices do not have accessible or electronic records. This is especially true if you have had appointments with multiple offices for your care.

Maintain proof of payments to medical providers for six years, with the relevant tax return, in case the IRS questions a health care deduction.

Use the information above as a guideline to help you make a clean start with your paperwork for 2020, and remember to put your documents in one secure place that your successor agents can find.

Reference: AARP Magazine (August 5, 2019) “When to Keep, Shred or Scan Important Papers”

Tips for Choosing a Fiduciary

One of the important tasks in creating a complete estate plan is selecting people (or financial institutions) to represent you, in case of incapacity or death. Most people think of naming an executor in their will, but there are many more roles, advises the article “What to consider when appointing a fiduciary?” from The Ledger.

Here are the most common roles that an estate planning attorney will ask you to select:

  • Executor or personal representative: a person named in your will and appointed by the court to administer your estate.
  • Agent-in-fact (under a durable power of attorney): a person who manages your financial affairs while you are living, if you are unable to do so.
  • Health care surrogate or agent: a person who makes health care decisions on your behalf while you are living, if you are incapacitated.
  • Trustee of a trust document: administers the trust that you have created.
  • Guardian or conservator: a person who makes health care and financial decisions on your behalf, if the court determines that other roles, like health care surrogate or agent-in-fact, are not sufficient.
  • Guardian for minor children: person(s) who make decisions for your children, if you are not able to because of death or a loss of capacity before the children reach adulthood.

The individuals or financial institutions who take on financial roles are considered fiduciaries; that is, they have a legal duty to put your well-being first. Their responsibilities may include applying for government benefits, managing and invest your assets and income, deciding where you will live, working with your attorneys, financial advisors, and accountants.

Many people name their spouse or eldest child to take on these roles. However, that’s not the only option. A few questions to consider before making this important decision include:

  • Does this person have the experience, skill, and maturity to manage my financial affairs?
  • Does this person have the time to serve as a fiduciary?
  • Would this person make the same health care decisions that I would make?
  • Can this person make a difficult decision for my health care?
  • Does this person live near enough to arrive quickly, if necessary?
  • How old is this person, and will they be living when I may need them?
  • What kind of response will my family have to this person being named?
  • Are my assets substantial enough to require a financial institution or accountant to manage?

These are just a few of the questions to consider when choosing fiduciaries or health care agents in your estate plan. Speak with your estate planning attorney to help determine the best decision for you and your family.

Reference: The Ledger (Oct. 16, 2019) “What to consider when appointing a fiduciary?”