Garden State Trust Company Blog

Lotteries have grown in popularity in recent years, as jackpots have grown in size.

In October, the multistate Mega Millions jackpot grew to more than $1.5 billion if taken as annuity payments, and the largest jackpot on record won with a single ticket.

Lotteries are seen by some as the shortcut to financial security, even though the odds of winning are so low (1 in 302,575,350 for the recent Mega Millions jackpot). Ironically, some studies show that as many as 70% of lottery winners end up broke or filing for bankruptcy. In fact, 44% of winners have spent the entire jackpot within five years!

Some people earn very high compensation for a very short period of time, playing professional football is one example. According to a 2015 study, the median career earn­ings of an NFL player, expressed in inflation-adjusted dollars, were $3.2 million. That is far above the median lifetime career earnings of most Americans. Yet after 12 years of retirement, 15.7% of the players had filed for bankruptcy, a rate that is roughly three times greater than that of the rest of the male population of comparable age. The study did not try to pinpoint the causes.

Similarly, many notable actors and celebrities (For example, Johnny Depp) found themselves in a financial crises despite their large earnings.

Did they have a plan for their financial windfalls?

The phrase “sudden wealth” may be associated with lot­tery winners, but life provides many other opportunities for a sudden increase in net worth. Lump sum distribution of retirement benefits, insurance settlements, inheritance, or the sale of a business or investment real estate can create large sums of money for talented people who, like most lottery winners, do not have experience with wealth management.

Taxes are the first concern when sudden money is com­ing into one’s life. Taxes simply need to be assessed and addressed as part of the process. For lottery winners, for example, there isn’t much tax planning to do. The tax rules for retirement distributions are pretty straightforward as well. Planning a liquidity event, such as the sale of a business, can get more complicated. A legal consultation is likely advisable.

The harder talk is about the friends who may show up, looking for a loan or offering an “investment oppor­tunity.” Most difficult of all is broaching the idea that one’s family might not act honorably.

Garden State Trust Company has experience with wealth man­agement. We know all about financial transitions and attendant emotional adjustments. When you come into significant sums, call upon us for:

• personal investment accounts, with asset allocation planning, unbiased investment advice and fees linked to account value (not transactions);
• revocable living trusts, for an added measure of finan­cial flexibility, including protection in the case of disabil­ity and probate avoidance;
• rollover IRAs to extend the tax-deferral benefits for your retirement money.

If you be will creating sudden wealth for someone else

If your estate plan includes a substantial legacy for a younger family member who lacks full financial maturity, consider using a trust for the bequest. Your trust will be a gift of more than financial resources. You will be includ­ing our investment and financial management expertise as well. A gift or bequest in trust can provide for a lifetime of financial security.

We look forward to being of service.

New Jersey may not be part of New England, but its reputation for the beautiful changing leaves could be extended to our trees and changing colors too.

New Jersey’s peak fall colors are usually between October 19^th and the 29^th, so it’s the perfect time to plan a trip.  Many factors contribute to the exact timing of the leaves changing, from temperature to rainfall and elevation. In the category of “I didn’t realize they tracked that information”, you can now get a better sense of exactly what’s going on by looking at up-to-date reports from:

http://www.foliagenetwork.com

Where to go for the best views depends on your capabilities and time investment. If you’re healthy and ready for hike, you may want to consider going to the highest elevation in New Jersey on the Appalachian Trail. You can see NJ, PA, and NY from the top of the obelisk there.

There are many parks that may be hiked, and a wonderful list of them has been compiled here:

https://www.njhiking.com/best-fall-foliage-hikes-in-new-jersey/

While it may not have made their list for the best foliage hikes, Double Trouble State park is close to where we are in Toms River, and has some easy trails that can be walked too.

Hiking can be strenuous for all ages, so be careful out there! Don’t push yourself too hard or think that you have to hike to experience the foliage.

New Jersey has also has three scenic byways that are particularly good for experiencing the fall foliage, so you can enjoy the views from the comfort of your vehicle:

• Delaware River Scenic Byway (32.8 miles)
• Millstone Valley Scenic Byway (27.5 miles)
• Palisades Scenic Byway (13 miles)

Here’s a link to New Jersey Department of Transportation’s website for more information about the byways:

https://www.state.nj.us/transportation/community/scenic/

Enjoy the fall, while it lasts!

The queen of soul, Aretha Franklin, has passed away from advanced pancreatic cancer at the age of 76 a month ago, and we mourn the passing of a bright star.

Aretha was a prodigy from the very beginning. She learned to play the piano by ear as a child, and by age 12 was already performing and earning money for the family in various churches. Her first album, “Songs of Faith,” was released when she was only fourteen.

From spiritual music, to blues, to R&B, to rock and roll, Aretha connected with her audience.  She was recognized for it. She was the first female performer to be inducted into the rock and roll hall of fame in 1987. She was awarded the presidential Medal of Freedom, and was ranked in 2008 to be the greatest singer of all time by the Rolling Stone magazine. She won 18 Grammy awards, and has sold more than 75 million records worldwide.

Remarkable achievements from an extraordinary woman.

How did Aretha Franklin handle the finances from such success? What will happen to her estate now? Since she was diagnosed with an illness in 2010, did she make arrangements?

Here’s an interesting story from Billboard that answers some of those questions:

https://www.billboard.com/articles/news/8471888/aretha-franklin-business-estate

Some of the highlights:

• Aretha Franklin demanded to be paid in cash, to make sure everything stayed honest.
• She never made Forbes highest-paid celebrities list, but they estimated that her annual income was in the low seven figures.
• She was very strict in creating an environment to work in.
• One estate planning firm suggests her legacy could be worth as much a $1 billion when the recordings, the publishing, the goodwill, the name and likeness are added into the picture (Other sources have suggested ~$80 million).

Even though Aretha likely knew the end was nigh, reports indicate that she died without utilizing a will or trust services for the disposition of her estate.

Perhaps she felt that the laws of intestate succession were sufficient, and she didn’t need to keep the family financial affairs private. Perhaps she felt she would keep on going, so there was no need. We cannot know.

We do know that there are some benefits she missed out on by not utilizing trust services. Benefits such as: an easier way of transferring the assets, retaining a greater degree of privacy, or preventing possible family disputes.

Fifty years ago a goal of inclusion for those with special needs was set through the establishment of the Special Olympics, and this year we celebrate getting closer and closer to that goal each year. The community supporting those with special needs grows larger each year ,as well as the community of Special Olympics athletes themselves.

At this point, there are 4.9 million Special Olympics athletes from 172 countries!

Why sports? Their website says it well:

“Through sports, our athletes are seeing themselves for their abilities, not disabilities. Their world is opened with acceptance and understanding. They become confident and empowered by their accomplishments. They are also making new friends, as part of the most inclusive community on the planet — a global community that is growing every day.”

To celebrate, last month the organization put a festival on Soldier Field with celebrities and live entertainment among other events, such as a historical and cultural walk and the first ever Special Olympics Unified Cup.

To see videos that show some of the milestone moments from their history, click here.

Supporting those with special needs.

This has been a real goal in the trust industry, far beyond when “Special Needs Trusts” or “Supplemental Needs Trusts” have been around.

One of the fundamental motivations for creating a trust often can be to create a professionally managed lifetime income stream, for a spouse or child who does not have a way to earn an income stream themselves. When you add into the scenario a case where the person’s needs are greater than average due to disabilities, creating a trust seems like it would be the natural choice.

So… why the distinction of “Special Needs Trust”?

It’s because the usual ways of providing for your loved ones with special needs such as gifting or inheritance may place governmental assistance programs in jeopardy. Many government programs have strict need-based requirements, and if the assets were transferred directly they may end up paying for basic services instead of the quality of life improvements that could be otherwise created by an outside provider.

There are other benefits too, such as the trust being able to be customized to provide the disabled beneficiary’s specific needs, and avoiding family conflict regarding who the caretaker would be.

Special Needs Trusts are complex, so a qualified attorney should be consulted to ensure that they are properly drafted.

Garden State’s trust professionals have years of experience working with special needs trusts. We’re glad that the community that supports those with special needs is growing, that we get to be part of it, and look forward to many more years of increasing inclusion.

When Paul Newman died in 2008, he left his ownership of Newman’s Own food company to Newman’s Own Foundation. The food company is a for-profit venture, but it gives all of its after-tax profits to charity.

The Foundation acquired all “Publicity and Intellectual Property Rights” of the Newman estate. He urged vigilance upon his executors in protecting his image after his death, hoping that his likeness would never be used in ways that he did not approve of during his life, nor to sell food products inferior to the current Newman’s Own line.

The problem is that the tax code prohibits private foundations from owning more than 20% of a for-profit company (35% in some circumstances). This law is meant to prevent individuals from using private foundations as a tax shelter for their active businesses. The Foundation had until November 2018 to divest 80% of its ownership of the food company, or it would face crippling excise taxes.

It has lobbied for years to be able to continue on its current path, and a legislative change to the tax law this year added into the Bipartisan Budget Act of 2018, called the Philanthropic Enterprise Act of 2017, allows it to do just that.

This case is exceptional, because there is no individual who could be benefiting from a potential tax shelter. Nevertheless, a legislative exception can’t be made for a single business, and generalities could cause potential misuse.

Thus, the legislation has been very carefully constructed to restrict the usage of this exception – so much so that it’s unlikely that it will ever apply to any other entity. On the other hand, perhaps Paul Newman’s estate planning could become a model for future charitable estate planning of those in a similar situation to his.

The primary restrictions for this exemption include:

• The private foundation has exclusive full ownership of the for-profit business, which was acquired under the terms of a will or trust.
• The for-profit business gives 100% of its profits to the private foundation.
• The private foundation can’t be controlled by its original creator, or family members.
• The for-profit business cannot have outstanding loans to substantial contributors to the private foundation or family members.

Basically – It would have to follow Newman’s Own story.

The full text of the exception can be found here.

Paul Newman’s estate planning beyond the foundation

The cornerstone of Paul Newman’s estate plan, mentioned in his will, is the “Amended and Restated Living Trust Number One,” executed before the will. The terms of that trust were not published, nor what assets it held. We do know that the living trust was the residuary beneficiary of Newman’s estate; that is, any property not identified and transferred specifically by the will passed to the trust. We know from a provision in the will that the living trust provided for Newman’s descendants, and that for descendants less than 35 years old when Newman died, separate trusts were to be created. Finally, we can tell from the will that a marital deduction trust was carved out of the living trust for the benefit of Newman’s surviving spouse, Joanne Woodward. The will provided that the marital trust would be funded with Newman’s interests in production companies and the royalties and residuals due Newman from his acting career. Newman’s will also mentions that he may provide a memorandum to his executors.

The memorandum would suggest various gifts, but it would not be binding on the executors, nor would it be published, securing an additional zone of privacy. Somewhat more detail was provided regarding the legacy to Newman’s Own Foundation, which has continued his philanthropic work.

Key takeaways: An estate plan can support philanthropy as well as private beneficiaries. A living trust is a great mechanism for managing wealth that will stay in the family.

Interested in how trust services might help your family? Contact a Garden State Professional to learn more.

Photo By TriviaKing at English Wikipedia, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=4939146