You’ve worked hard to create opportunities for your loved ones, and you want to make sure they enjoy the benefits as part of your legacy. So, how do you decide what amount to leave them? A Merrill Lynch survey of high-net-worth individuals says that they believe for every $100 million, $26 million is too little for one child, but $63 million is too much. Estate planning isn’t only about how to mitigate your estate tax burden or the quantity to bequeath, but in what form to leave it, in what increments, and how to prepare benefactors to make the most of their futures with it.

These are tough, emotionally charged questions every affluent family is faced with at some point, whether they have $100 million or $10 million to bequeath to one or more children, nieces and nephews, or grandchildren. Leave too much and it’s possible to create a sense of entitlement; leave too little and you could spark resentment. The right number is decidedly a personal one, both from a philosophical standpoint and in regards to each family’s tax profile.

As we noted in an earlier post, in the U.S. alone, $6.04 billion will be transferred to the next generation over the coming 30 years. These assets could be subject to as much as 40 percent of their value in inheritance taxes, with state taxes ranging between zero and 16 percent. The individuals surveyed in  Bank of America Corp.’s Merrill Lynch unit all had a minimum of $5 million in investible assets, very close to the threshold at which the estate tax is triggered.

What’s right for the next family isn’t necessarily the best course of action for yours. One might have a business to sell or to designate a successor for, another may have real estate investment property across multiple state lines. These situations require different courses of action in order to retain as much value for benefactors instead of the IRS. In some cases, beginning the distribution process during one’s lifetime via gifts and other vehicles may be the best choice after considering all parties’ interests.

Money figures aside, affluent families are tasked with ensuring heirs are properly educated on the full scope of management responsibilities for the types of assets inherited, and that they have time to recover from natural missteps that come with the territory. Structuring an inheritance in stair-step fashion based on factors such as age is one approach some families take in hopes of protecting heirs against permanent losses.

The only real way to arrive at the right number, structure and tax strategy for you and your benefactors is by discussing your options with the help of estate planning professionals. Whether your children are 5, 15, or 25, it’s not too early or too late to get started. The more time you build into the process, the longer you have to prepare everyone involved, including yourself.

August 22, 2014

Late Actor Robin Williams Took Measures to Help His Children Inherit Responsibly

Robin Williams was a beloved comedian, actor and entertainer who won over legions of fans by bringing some of the most eccentric characters to life, including Mork from Ork, Mrs. Doubtfire, and Peter Pan. Media outlets describe Williams as a deeply compassionate person, always helping to make his fellow actors feel at home on the set and lifting the spirits of friends through humor, including his former college roommate Christopher Reeve after his debilitating accident.

His fans will miss him dearly, but like most famous talents, those closest to him, including his three children Cody (22), Zelda (25) and Zachary (31), will likely feel the most profound loss from his passing. Williams expressed his love for his children and their positive impact on his life in many interviews. According to documents obtained by TMZ, he also took care to ensure his children came into their inheritance responsibly.

The documents obtained show that, at one point, Williams established a trust in which each of his children received one-third of their share of the principal at the age of 21, half at 25, and their full share at 30. Though Williams’ publicist has since stated that these documents are outdated, they still serve us in bringing to mind important questions many affluent families contend with: how and when to distribute assets to their beneficiaries.

Williams chose to provide his children with their inheritance during his life. Families that decide to follow this path can help provide financial guidance and impart wisdom to their children to encourage thoughtful decision-making with the money gifted to them. Doing so also allows benefactors to enjoy the rewards of seeing what opportunities these gifts make possible. And, not to be forgotten, there can be significant tax advantages to making gifts in your lifetime. Even so, creating a trust that distributes money to beneficiaries before one’s death isn’t always preferred or feasible, especially if the assets are needed in your lifetime. Every family is different.

Like Williams, you may decide that the best option for your family is to set up staggered payments based on a beneficiary’s age. This approach has its upsides, including the chance to help protect children from making one poor decision with financially permanent consequences. No matter what distribution scenario you choose to define in a trust, leaving money without providing the proper education for its conscientious use is never a good idea.

If you are interested in knowing more about different ways to set up a trust or if you have established one for your heirs but haven’t reviewed it recently, make time to attend to this important task. Divorces, the arrival of children and grandchildren, a beneficiary’s readiness for financial responsibility, and shifts in your own financial position all signal important times to review your plan and ensure it best meets your family’s needs. Talley and Company can help.

March 7, 2014
Sadly, this isn’t the first time we’ve seen a story like acclaimed actor Philip Seymour Hoffman’s play out. Early this month, the headlines announced the lead Capote star’s premature death from an apparent drug overdose. This week, we find that as his loved ones attend to their grief, so must they contend with complicated issues arising from his poorly planned estate. Though Hoffman had thoughtfully created a will, it was over a decade old. Consequently, it not only contained gross omissions but was poorly designed to minimize the tax burden on his benefactors.
While Hoffman’s will included his son Cooper, his two daughters born after the will was made (and never amended) were effectively disinherited. New York law attempts to protect children with a special provision for this kind of scenario, but there’s no guarantee it will apply. These are not the kinds of matters you want to leave for the courts.
 Then there’s the mother of Hoffman’s three children-his longtime companion Marianne O’Donnell. She will reportedly inherit Hoffman’s estate outside the money allocated for his son. Had the couple been married, O’Donnell would have received an unlimited amount tax-free. Because they weren’t, O’Donnell will hand over anywhere from $11 to $15 million in taxes if the actor’s $35 million estate figure is right. No matter how the two felt about the institution of marriage, Hoffman’s estate planners could still have mitigated some tax expenses through other strategies, including trusts and gifted amounts during his lifetime.
Celebrities may be more likely to make the news, but they are far from the only ones with poorly planned estates. We understand how periodic reviews can seem less than urgent against the barrage of all of our growing to-do lists. So what’s our best advice? Schedule a regular time with your advisory team to review your will and update your estate. Once built into your calendar, you’ll not only have peace of mind but a signed legacy of caring and responsibility your loved ones will appreciate.
 So go ahead, make that appointment.
February 21, 2014
Michael Jackson had an amazing 13 number 1 hits as a solo artist, but the enormous disparity between the IRS and his estate’s executors in the valuation of his assets – to the tune of more than a billion – really tops the charts. 
How bad is it? Well, the IRS will tell you Michael Jackson’s estate was worth $1.125 billion at his death. Yet if you ask the estate’s executors, they’ll say it was more like $7 million. Yes, you read that right: billion versus million. From the IRS’s point of view, the estate’s undervaluation is so egregious that it qualifies for double the typical 20% penalty for underpayment. The agency is asking for the $505 million in taxes it finds the estate owes and an additional $197 million in penalties, totaling over $702 million.
There are points of contention between the two sides on almost every kind of asset, from music rights to automobiles. For starters, the IRS believes the use of Jackson’s likeness to create income is worth $434 million, yet Jackson’s executors assert it’s worth just $2,105. We can’t be sure who’s right on this one, but come on, there are washer/dryers worth more than that. Here’s another one – the IRS claims Jackson’s rights to certain Beatles songs are worth $469 million, not $0 as executors claim. Again, we’ll never know for sure who’s more on target, but a CPA did previously testify that Jackson borrowed $320 million against the music catalog.
As for MJ’s share to the rights of Jackson 5 master recordings? The IRS believes it’s worth $45.5 million, and the Jackson estate says $11.193 million. The battle that ensues over the taxable value of all these assets will be a big one, with both teams already singing vastly different tunes.
Getting agreement from the IRS on an asset’s value doesn’t just affect the likes of pop stars and celebrities. It’s true few of us deal with assets as unique and challenging to appraise as Beatles songs, master recordings, and the marketability of our likenesses. But even so, making sure appraisals of stocks, real estate, businesses, or any other more standard assets are fair and creditable can make all the difference when it comes to sailing swiftly through a potential audit – and maybe even avoiding one altogether.