AARP Probate Wars of the Rich and Famous by Russell J. Fishkind

Author:Russell J. Fishkind
Language: eng
Format: epub
Publisher: Wiley
Published: 2011-08-19T16:00:00+00:00

Legacy Lesson #15: The Grim Reaper’s Silver Lining

When Leona Helmsley died in 2007, the federal estate tax rate was 45 percent on assets over $2 million. If her estate was valued, after administration costs, at $5 billion less the $2 million federal estate exemption amount, her estate tax liability could have exceeded $2.2 billion. Instead of incurring such an enormous liability, Leona Helmsley chose to provide her brother, Alvin, with an outright bequest of $10 million and two of her grandchildren, David and Walter, with outright bequests of $5 million each. In addition to the outright bequests, her will created three separate charitable remainder unitrusts: one funded with $10 million for Alvin for his lifetime, one for her grandson David funded with $5 million, and another for her grandson Walter, also funded with $5 million. The terms of these trusts are straightforward. The trustees are to determine the value of each trust annually, then pay out to the beneficiaries 5 percent of the net fair market value of the trust for the beneficiaries’ lifetimes. As an example, if the trusts’ values were constant, Alvin would receive $500,000 a year for life, and each grandchild would receive $250,000 a year for life.

By creating these trusts, Leona accomplished three objectives:

1. First, these payments for life, combined with the fixed bequests in her will, gave her assurances that all three would always have a roof over their heads and enough money to survive without worrying.

2. Second, her estate would be entitled to an estate tax deduction equal to the value of the remainder interest going to the Leona M. & Harry B. Helmsley Charitable Trust. By way of example, if her grandsons were both 45 years old, the foundation would have to wait approximately 38 years before receiving the balance of the trust funds. Therefore, depending on interest rates, her estate would receive an estate tax charitable deduction of approximately 20 percent of the $5 million contributed into the trust, or $1 million. However, if her brother Alvin was 80 years old at the time of her demise, the foundation would have to wait approximately only 10 years until, actuarially, Alvin dies, and depending on the then current interest rate, her estate would be entitled to an estate tax charitable deduction of approximately 67 percent of the $10 million contributed into his trust, or $6.7 million.

3. Third, Leona knew with certainty that after each beneficiary dies, their trust would further fund the Helmsley Charitable Trust.

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