In Episode 2, "Passing Your Wealth to Your Children: How to Ensure Your Children Benefit from Your Hard Work," hosts Danielle Friedman, Herb Fineburg, and Charles "Max" McCauley III, the complexities of estate planning through a poignant case study. Explore the repercussions of neglecting trusts in a $24 million estate, revealing how the absence of this vital component led to unintended consequences. Gain insights into the benefits of trusts, debunk common misconceptions, and discover the importance of comprehensive estate planning. Don't miss this episode for a concise guide to safeguarding your assets and securing your legacy.
If you are interested in learning more or have any questions, please feel free to contact Danielle at danielle.friedman@offitkurman.com, Herb at hfineburg@offitkurman.com, and Max at cmccauley@offitkurman.com.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Danielle Friedman (00:05):
Welcome to Trust Us Estate Planning Wisdom,
the podcast where we unravel thecomplexities of estates and
trusts to empower you with theknowledge needed for effective
estate planning.
Max McCauley (00:15):
This podcast is hosted by seasoned estates and
trust attorneys, DanielleFriedman, Herb Feinberg, and
Charles Max McCauley.
Herb Fineburg (00:23):
This podcast is your guide to the intricate
landscapes of estate planning,including wills, trusts, and
probate.
Danielle Friedman (00:31):
Thank you for joining us, and we hope you find
the discussion informative. Butremember, when it comes to legal
matters, always consult with aqualified attorney regarding
your specific case. Today'sepisode is episode two, passing
your wealth to your children,how to ensure your children
benefit from your hard work.Herb, can you give us the facts
(00:53):
for today's talk?
Herb Fineburg (00:55):
We have a client, a 65 year old married man, who
called our office about hisconcerns regarding his father's
estate plan. A client's fatheris 88 years old, happily married
to his second wife for forty oneyears. He had divorced the
mother of our client long ago.The father and stepmother had no
(01:16):
children together and thestepmother had no children. The
father was a very successfulentrepreneur and was now retired
with a material estate worth$24,000,000.
Our client had asked his fatherif he had a trust as part of his
estate plan. The father, anindependent businessman, said he
had a will which left his entireestate to a second wife but no
(01:39):
trust. The father confidentlynoted that he would likely
predecease and his attorney hadprepared a will for his wife,
the stepmother that lefteverything to the three
children. The son suggested thathis father use a trust for his
stepmother with her as abeneficiary for her lifetime
with the balance for his threechildren. The father said the
(02:00):
trusts were too complex andmessy and his attorney agreed.
Well, as things would have it,our client's father died about a
year later, and the stepmotherdied shortly after him. When the
stepmother fell ill before herdeath, we were told her sister's
two children, her nephews,visited her every day. After the
stepmother died, it wasdiscovered the stepmother's will
(02:22):
had been changed to leavevirtually everything of the
24,000,000 to her two nephews.
Danielle Friedman (02:27):
So herb, who do you think was at fault in
this result, which effectivelyleft the father's children, the
the stepchildren without anyassets after dad and stepmom
passed away?
Herb Fineburg (02:39):
Well, I can tell you that the client, the son,
was very angry with hisstepmother, But I'm not sure it
was her fault. I think more ofthe responsibility for having a
proper estate plan should havebeen with the father who had the
$24,000,000 in assets to makesure all his heirs got his
assets. What do you think, Max?
Max McCauley (02:58):
Well, I I agree, Herb. What would you have
recommended to avoid thisunintended result?
Herb Fineburg (03:03):
Well, I think it
would have been prudent for himto use a trust for his second
wife, make sure she was takencare of during her lifetime. I
think it would be worthdiscussing what the terms of
that trust would be.
Danielle Friedman (03:15):
Yeah. So, typically, when we set up these
trusts for our clients, when onespouse dies and you have a trust
for the benefit of the survivingspouse, usually, the surviving
spouse can have distributions ofincome and principal made by the
trustee at the trustee'sdiscretion, but you can modify
those terms and have mandatorydistributions of income if
(03:38):
desired or mandatorydistributions of principal based
on certain thresholds andcertain amounts. When you
prepare these types of trustsfor your clients, how do you
assure them that they're notadministratively burdensome and
that they're not messy, contraryto what the father, in our fact
pattern, believed?
Herb Fineburg (03:59):
Well, know, these kind of trusts are not new. The
use of these marital trustsfirst came into existence during
Ronald Reagan's presidency.Ronald Reagan was married to
Nancy, and that was his secondwife. A law was passed that said
you could set up a trust foryour second wife, and required
that only she receive only theincome from the trust.
Danielle Friedman (04:22):
Yeah. QTIP trust, qualified terminal
interest and property trust.
Herb Fineburg (04:26):
Yes. So I would have used that long outstanding
straightforward trust documentfor the stepmother, and she
would have been the beneficiaryfor her whole life, would have
gotten the marital deduction, notax when dad died, and the
children would have inheritedeverything.
Danielle Friedman (04:43):
And who typically serves as the trustee
of that trust? Does she have to,you know, go ask a third party
for money when she needs it?Because that sometimes becomes
uncomfortable. You don't wantyour spouse to have to go answer
to a third party trustee.
Herb Fineburg (04:58):
Well, you can just have the surviving spouse
be the trustee of the trustbecause her authority would be
pretty straightforward as towhat she would be entitled to.
Under the Ronald Reagan typetrust, you would be entitled to
the income.
Max McCauley (05:13):
Would a revocable living trust been appropriate
here?
Danielle Friedman (05:16):
For the father's estate plan?
Absolutely. So rather than awill, he should have had what we
refer to as a pour over willcoupled with a living trust. So
his will would have been veryshort. It would have said that
everything flows into his livingtrust, and then his living trust
would contain the substance ofhis estate plan.
(05:36):
Now, of course, he could haveset up a trust for his wife
under his will, but we preferthe living trust structure
because it adds some moreprivacy, and it's easier to
change in the future by theclient creating the trust. And
there are other numerousbenefits to having a living
trust. So, generally, arevocable living trust would
have been advised had the fatherbeen our client. The beauty of
(06:00):
the trust is that it locks infather's estate plan. No matter
who visits stepmom on herdeathbed, she cannot change who
the beneficiaries are of thetrust when she dies.
Max McCauley (06:13):
So the father could have changed the terms of
his revocable living trust whilehe was alive, but his wife would
never be able to change thoseterms
Danielle Friedman (06:22):
That's right.
Max McCauley (06:23):
Whether he's alive or dead.
Danielle Friedman (06:24):
Absolutely right.
Max McCauley (06:25):
Once the trust would have been drafted, is
there any additional cost goingforward to that structure?
Danielle Friedman (06:31):
Not really. And as far as the actual
planning of it, whether you'redrafting a will or a living
trust, the work is the same whenyou're preparing the documents.
So if father was concerned aboutlegal fees in the preparation of
his estate plan, that wasmisguided because if your living
trust is essentially a willsubstitute, the amount of work
(06:53):
to prepare a living trust isakin to the amount of work to
prepare a will. After dad dies,I don't think there's really
much added cost or expense withadministering a living trust,
ensuring that your assetsultimately end up where you want
them.
Herb Fineburg (07:09):
You could only imagine the shock that the
father would have if he learnedthat his entire lifetime of
earnings went to two nephews whohe had potentially no
relationship with. This is thecore of estate planning, is to
make sure that your assets don'tend up in the hands of third
parties, to make sure that yourchildren are taken care of, and
(07:32):
often to many clients, to makesure that your grandchildren get
the benefit of it.
Danielle Friedman (07:37):
Right. With 24,000,000, that could have
benefited generations of hisfamily, not just his kids. These
are the types of conversationsthat his attorney should have
had with him. Becauseoftentimes, I'm asked, well,
what's the difference betweenyou and me just going on
LegalZoom or another website andcreating a will online? And this
(08:00):
type of analysis and this typeof planning and understanding
family dynamics and reallyensuring that your client's
desires are met is, I think,what distinguishes a good estate
planning attorney from a clientjust going online or going
elsewhere and saying, oh, I'mjust gonna leave everything to
my surviving spouse.
Max McCauley (08:21):
So to recap, was this result avoidable?
Herb Fineburg (08:24):
Yes. And would it have
Max McCauley (08:26):
been cumbersome and costly to do so?
Danielle Friedman (08:28):
No. I don't think so. I think that the
alternative ended up being a lotmore costly.
Max McCauley (08:35):
$24,000,000.
Herb Fineburg (08:36):
Yeah. 24 out of 24,000,000.
Max McCauley (08:39):
1 hundred percent lost.
Herb Fineburg (08:41):
Yeah.
Danielle Friedman (08:44):
Herb, thanks for bringing this topic up
today. I think it's reallyinteresting and, again, delves
into all sorts of issues thatcome up on a regular basis in
estate planning, whether it'strusts or fees associated with
planning and trusts, all the wayto, you know, selecting who's
(09:05):
the right trustee for your trustand ensuring ultimately that
your estate plan is followed andthat your wishes are met when
you pass away.
Welcome to Trust Us Estate Planning Wisdom,
the podcast where we unravel thecomplexities of estates and
trusts to empower you with theknowledge needed for effective
estate planning.
Max McCauley (00:15):
This podcast is hosted by seasoned estates and
trust attorneys, DanielleFriedman, Herb Feinberg, and
Charles Max McCauley.
Herb Fineburg (00:23):
This podcast is your guide to the intricate
landscapes of estate planning,including wills, trusts, and
probate.
Danielle Friedman (00:31):
Thank you for joining us, and we hope you find
the discussion informative. Butremember, when it comes to legal
matters, always consult with aqualified attorney regarding
your specific case. Today'sepisode is episode two, passing
your wealth to your children,how to ensure your children
benefit from your hard work.Herb, can you give us the facts
(00:53):
for today's talk?
Herb Fineburg (00:55):
We have a client, a 65 year old married man, who
called our office about hisconcerns regarding his father's
estate plan. A client's fatheris 88 years old, happily married
to his second wife for forty oneyears. He had divorced the
mother of our client long ago.The father and stepmother had no
(01:16):
children together and thestepmother had no children. The
father was a very successfulentrepreneur and was now retired
with a material estate worth$24,000,000.
Our client had asked his fatherif he had a trust as part of his
estate plan. The father, anindependent businessman, said he
had a will which left his entireestate to a second wife but no
(01:39):
trust. The father confidentlynoted that he would likely
predecease and his attorney hadprepared a will for his wife,
the stepmother that lefteverything to the three
children. The son suggested thathis father use a trust for his
stepmother with her as abeneficiary for her lifetime
with the balance for his threechildren. The father said the
(02:00):
trusts were too complex andmessy and his attorney agreed.
Well, as things would have it,our client's father died about a
year later, and the stepmotherdied shortly after him. When the
stepmother fell ill before herdeath, we were told her sister's
two children, her nephews,visited her every day. After the
stepmother died, it wasdiscovered the stepmother's will
(02:22):
had been changed to leavevirtually everything of the
24,000,000 to her two nephews.
Danielle Friedman (02:27):
So herb, who do you think was at fault in
this result, which effectivelyleft the father's children, the
the stepchildren without anyassets after dad and stepmom
passed away?
Herb Fineburg (02:39):
Well, I can tell you that the client, the son,
was very angry with hisstepmother, But I'm not sure it
was her fault. I think more ofthe responsibility for having a
proper estate plan should havebeen with the father who had the
$24,000,000 in assets to makesure all his heirs got his
assets. What do you think, Max?
Max McCauley (02:58):
Well, I I agree, Herb. What would you have
recommended to avoid thisunintended result?
Herb Fineburg (03:03):
Well, I think it
would have been prudent for himto use a trust for his second
wife, make sure she was takencare of during her lifetime. I
think it would be worthdiscussing what the terms of
that trust would be.
Danielle Friedman (03:15):
Yeah. So, typically, when we set up these
trusts for our clients, when onespouse dies and you have a trust
for the benefit of the survivingspouse, usually, the surviving
spouse can have distributions ofincome and principal made by the
trustee at the trustee'sdiscretion, but you can modify
those terms and have mandatorydistributions of income if
(03:38):
desired or mandatorydistributions of principal based
on certain thresholds andcertain amounts. When you
prepare these types of trustsfor your clients, how do you
assure them that they're notadministratively burdensome and
that they're not messy, contraryto what the father, in our fact
pattern, believed?
Herb Fineburg (03:59):
Well, know, these kind of trusts are not new. The
use of these marital trustsfirst came into existence during
Ronald Reagan's presidency.Ronald Reagan was married to
Nancy, and that was his secondwife. A law was passed that said
you could set up a trust foryour second wife, and required
that only she receive only theincome from the trust.
Danielle Friedman (04:22):
Yeah. QTIP trust, qualified terminal
interest and property trust.
Herb Fineburg (04:26):
Yes. So I would have used that long outstanding
straightforward trust documentfor the stepmother, and she
would have been the beneficiaryfor her whole life, would have
gotten the marital deduction, notax when dad died, and the
children would have inheritedeverything.
Danielle Friedman (04:43):
And who typically serves as the trustee
of that trust? Does she have to,you know, go ask a third party
for money when she needs it?Because that sometimes becomes
uncomfortable. You don't wantyour spouse to have to go answer
to a third party trustee.
Herb Fineburg (04:58):
Well, you can just have the surviving spouse
be the trustee of the trustbecause her authority would be
pretty straightforward as towhat she would be entitled to.
Under the Ronald Reagan typetrust, you would be entitled to
the income.
Max McCauley (05:13):
Would a revocable living trust been appropriate
here?
Danielle Friedman (05:16):
For the father's estate plan?
Absolutely. So rather than awill, he should have had what we
refer to as a pour over willcoupled with a living trust. So
his will would have been veryshort. It would have said that
everything flows into his livingtrust, and then his living trust
would contain the substance ofhis estate plan.
(05:36):
Now, of course, he could haveset up a trust for his wife
under his will, but we preferthe living trust structure
because it adds some moreprivacy, and it's easier to
change in the future by theclient creating the trust. And
there are other numerousbenefits to having a living
trust. So, generally, arevocable living trust would
have been advised had the fatherbeen our client. The beauty of
(06:00):
the trust is that it locks infather's estate plan. No matter
who visits stepmom on herdeathbed, she cannot change who
the beneficiaries are of thetrust when she dies.
Max McCauley (06:13):
So the father could have changed the terms of
his revocable living trust whilehe was alive, but his wife would
never be able to change thoseterms
Danielle Friedman (06:22):
That's right.
Max McCauley (06:23):
Whether he's alive or dead.
Danielle Friedman (06:24):
Absolutely right.
Max McCauley (06:25):
Once the trust would have been drafted, is
there any additional cost goingforward to that structure?
Danielle Friedman (06:31):
Not really. And as far as the actual
planning of it, whether you'redrafting a will or a living
trust, the work is the same whenyou're preparing the documents.
So if father was concerned aboutlegal fees in the preparation of
his estate plan, that wasmisguided because if your living
trust is essentially a willsubstitute, the amount of work
(06:53):
to prepare a living trust isakin to the amount of work to
prepare a will. After dad dies,I don't think there's really
much added cost or expense withadministering a living trust,
ensuring that your assetsultimately end up where you want
them.
Herb Fineburg (07:09):
You could only imagine the shock that the
father would have if he learnedthat his entire lifetime of
earnings went to two nephews whohe had potentially no
relationship with. This is thecore of estate planning, is to
make sure that your assets don'tend up in the hands of third
parties, to make sure that yourchildren are taken care of, and
(07:32):
often to many clients, to makesure that your grandchildren get
the benefit of it.
Danielle Friedman (07:37):
Right. With 24,000,000, that could have
benefited generations of hisfamily, not just his kids. These
are the types of conversationsthat his attorney should have
had with him. Becauseoftentimes, I'm asked, well,
what's the difference betweenyou and me just going on
LegalZoom or another website andcreating a will online? And this
(08:00):
type of analysis and this typeof planning and understanding
family dynamics and reallyensuring that your client's
desires are met is, I think,what distinguishes a good estate
planning attorney from a clientjust going online or going
elsewhere and saying, oh, I'mjust gonna leave everything to
my surviving spouse.
Max McCauley (08:21):
So to recap, was this result avoidable?
Herb Fineburg (08:24):
Yes. And would it have
Max McCauley (08:26):
been cumbersome and costly to do so?
Danielle Friedman (08:28):
No. I don't think so. I think that the
alternative ended up being a lotmore costly.
Max McCauley (08:35):
$24,000,000.
Herb Fineburg (08:36):
Yeah. 24 out of 24,000,000.
Max McCauley (08:39):
1 hundred percent lost.
Herb Fineburg (08:41):
Yeah.
Danielle Friedman (08:44):
Herb, thanks for bringing this topic up
today. I think it's reallyinteresting and, again, delves
into all sorts of issues thatcome up on a regular basis in
estate planning, whether it'strusts or fees associated with
planning and trusts, all the wayto, you know, selecting who's
(09:05):
the right trustee for your trustand ensuring ultimately that
your estate plan is followed andthat your wishes are met when
you pass away.
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