Estate Planning Devices That May Help Greedy Heirs to Your Assets

Several widely used estate planning devices may actually assist greedy heirs in helping themselves to your assets. A recent article warns of what these estate planning devices are.

The first device is a power of attorney for finances. This is a document that allows you to specify who you would like to make financial decisions for you should you become unable to make such decisions yourself. Depending on what your specific power of attorney document states, the person who holds your durable power of attorney may be able to write checks out of your bank account, buy and sell your securities, and collect your social security payments.

To avoid abuse of these privileges, it is important not only to carefully choose an agent whom you trust, but also to speak with your estate planning attorney about broadening or narrowing your agent’s power based on your unique situation.

Another device that may easily lend itself to abuse is the joint bank account. If two people jointly own an account, either can make a deposit or withdrawal. Furthermore, at the death of one joint owner, the bank account automatically reverts to the other owner. This reversion occurs even where the deceased joint owner’s will specifies that they would like the account to be inherited by someone else.

Exit-Planning for Business Co-Owners

Many times, the last thing entrepreneurs consider in the process of starting a new business venture is how they will handle the departure, on good terms or otherwise, of a co-owner. As a recent article explains, it is never too soon to begin crafting an exit plan.

By its very nature, co-ownership of a business by its founding individuals cannot last forever. Consequently, the article suggests that co-owners need to address and have an action plan for three important questions:

  1. When will a co-owner have an option or obligation to sell or otherwise divest himself of his ownership interest?
  2. In situations where an ownership interest will be sold, how will the co-owners determine an appropriate purchase price?
  3. After an appropriate purchase price is determined in sale situations, where will the money to pay it come from?

“Trigger events” are events that lead to the option or obligation to sell an ownership interest in a business. Some of the more common trigger events occur when a co-owner dies or becomes disabled, or terminates his employment with the business. Although planning for these decisions may involve difficult or uncomfortable discussions, wise co-owners will maintain and update a well-documented exit plan.

Justice Department Seeks $28M Restitution in Estate-Planning Scheme

As reported in The Chicago Tribune, two men have been indicted in an estate-planning scheme that yielded $28 million from 120 investors. According to the Justice Department, Robert C. Pribilski and John T. Burns III fraudulently obtained the money by persuading wealthy retirees to invest in Turkish bonds. The ponzi-like scheme was in place from 2005 to 2010.

The men found investors through mass mailings that invited them to local estate-planning seminars. The investors were “absolutely and unconditionally” promised that, at the note’s maturity date, they would receive the principal and interest due on their note. In reality, the invested funds were paid out to other investors. The Justice Department alleges that Pribilski and third defendant Mahmut Erhan Durmaz – who has fled the country – took over $2.5 million of the investor’s funds to make payments to themselves, their friends, and their families. The pair also used invested funds to speculate in real estate and restaurants.

Counsel for Burns, Joseph Lopez, has stated that Burns should not have been indicted because he was simply an employee of Pribilski and Durmaz. He “didn’t get any proceeds” from the scheme beyond his usual compensation, Lopez said. The Justice Department hopes to retrieve the $28 million.

Learning From Celebrity Mistakes: The Case of the Houston Estate

English: Whitney Houston talking to the audien...

The premature death of six-time Grammy winner Whitney Houston should serve as a somber reminder that wills not only need to be created, but updated every few years. As estate planner Andy Mayoras points out, “Celebrity stories like this are a great educational tool to share with clients and highlight what should be done, what was done wrong, and what was done right.”

According to the Investment News, Houston’s will named daughter Bobbi Kristina Brown as the main beneficiary. Surprisingly, Houston drafted her will in 1993 – while still married to Bobby Brown – and never updated it. The will specifies that if Houston had no living children at the time of her death, her estate would pass to Bobby Brown and specified members of Houston’s family. Furthermore, Brown is named as the guardian for their daughter Bobbi Kristina.

Even if this is what Houston wanted, she should have clarified her intentions in a modified estate plan after her split with Brown. Estate plans should be routinely updated after major life events such as divorce, death of a beneficiary, or birth.

Also interesting is that Houston’s will created a testamentary trust for her daughter. A testamentary trust is created by a will, and therefore must pass through probate. By passing through probate, it becomes a public document. Had Houston wanted to keep the associated financial information private, she could have created a “living trust.” Living trusts pass outside of probate, and therefore remain hidden from the public eye.

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