Case Study: Asset Protection and the "Dumb Blonde"

If you watch television, you have probably seen (or at least heard of) the sitcom The Big Bang Theory. The show is about some nerdy, socially awkward scientists who befriend their attractive neighbor, a stereotypical “dumb blonde” named Penny. Penny is played by Kaley Cuoco, who plays the role brilliantly. She is so convincing, in fact, that the audience is tempted to believe that she, too, is a “dumb blonde.” But appearances can be deceiving. Let’s compare her to some other stars that have made the news in the past few years.

Almost everyone knows the musician Prince (AKA the artist formerly known as “The Artist Formerly Known as Prince”), who died in 2016. He was an incredibly talented musician who played 27 musical instruments, had a gifted set of vocal chords, and was considered by many to be a “musical genius” (though perhaps not an “acting genius” to those who have seen Purple Rain). He was so successful that at the time of his death, his estate was rumored to be valued between $150 and $300 million.

Frank Zappa, another renowned musician and producer, died in 1993. A musical legend, he was also (in)famous for the unique names he gave his four children — Dweezil, Moon Unit, Ahmet, and Diva. Zappa was forward-thinking and created the Zappa Family Trust, which owned (among other assets) all his rights to his massive music portfolio. He was survived by children and his wife, whom he left in charge of the trust. The estate was estimated to be worth $40 million at the time of his death. Zappa’s wife Gail died in 2015.

Of these individuals, who would you consider the smartest: the producer, the musician, or the “dumb blonde”?

In 2016, a Minnesota probate court judge denied the claims of 29 individuals seeking status as heirs of Prince’s estate. In addition, the judge required genetic testing for several of Prince’s alleged half-siblings. There was no Will, no Trust, no tax planning. The estate will eventually be divided among his siblings. There is also the matter of the federal estate tax, estimated to be more than $100 million. It’s safe to assume that lawyers, accountants, and creditors will take a similar “chunk” out of the estate before it ever gets to those siblings, all of whom will have carte blanche to spend their shares of the estate in whatever way they wish, without restriction. I would venture to guess most of Prince’s siblings don’t have experience handling multi-million dollar investment portfolios.

In 2015, shortly before her death, Frank Zappa’s wife — dying of lung cancer — said to her daughter, Moon Unit, “Do you forgive me for what I’ve done?” The daughter replied, “Sure”, not knowing what her mother was talking about. After her mother’s death, Moon and her siblings learned that Gail had put the two younger children — Ahmet and Diva — in charge of the family trust, giving Dweezil and Moon a smaller portion of the estate. Gail also left the trust millions of dollars in debt. Now, the four siblings are pitted against each other over the management and distribution of the trust estate, incurring fees and costs and, not surprisingly, creating a fracture in the family that may never heal.

Could both of these tragedies — the estates of Prince and Frank Zappa — have been avoided? Yes, and quite easily. With a Last Will and Testament, Prince could have dictated the distribution of his estate, instead of leaving it to a judge to decide. With a Trust, he could have kept the distribution of his estate private, provided for the future professional management of the estate, and limited distributions to heirs who might not be financially responsible. He also could have included provisions to potentially eliminate his estate tax burden and substantially reduced the costs and fees associated with the administration of his estate.

Frank was smart enough to have a Trust. However, with proper advice and counsel, he could have put professionals in charge of that Trust and not left the distribution to the whims of his wife. This simple change could have saved the estate millions of dollars and prevented a rift that threatens to ruin the relationships among his children. In the end, both of these musical “geniuses” were not so smart when it came to planning their estates.

But what about the girl who plays the “dumb blonde,” Kaley Cuoco? On December 31, 2013, she married tennis pro Ryan Sweeting. They had dated only six months. After just 21 months of marriage, they got divorced. At the time of the divorce, Cuoco had a net worth of more than $45 million. Yet, as a result of a professionally prepared prenuptial agreement she and Ryan signed before they said “I do,” she got to keep (1) her $72 million TV contract; (2) her Sherman Oaks home, valued at nearly $3 million; and (3) the LA house she purchased from Khloe Kardashian, valued at more than $5 million. All she had to do was pay her ex-husband $165,000, pay some of his $195,000 of debt, and pay $55,000 of his legal fees.

Now who’s the dumb blonde?

Prince did nothing. Why? Maybe he wasn’t planning on dying.

Frank Zappa had an estate plan but didn’t quite think it all the way through. What was his error? Putting the wrong person in charge of his estate.

Of the three examples, Kaley Cuoco is the only one who got it right when it comes to asset protection. With proper legal representation, she avoided what could have been a catastrophic loss and many years of court battles (i.e., years of legal fees and other expenses).

Asset protection — whether preparing for death, incapacity, divorce, or some other contingency — is more than just filling in documents. It takes thoughtful consideration of all the “what ifs” and the expertise and experience of an attorney who can help you achieve your goals. Contact Postic & Bates today for a free, no-obligation consultation to determine how you can best protect your assets.

Estate Planning in the Digital Age

Who gets your Facebook account when you die? What happens to your Twitter? Your Instagram? Your e-mail account? The Digital Age and the advent of Internet- and cloud-based assets have created a new category of estate planning. Your Internet accounts are your property, and property stored online that has any value requires the same level of protection you give to other tangible and intangible assets.

You May Have More Digital Assets Than You Think

Cutting-edge technology continues to evolve at a rapid pace while estate planning and probate laws struggle to keep up. Some companies, such as Facebook, have private user agreements that allow you to designate someone to "inherit" your account after your death. Similarly, banks may allow you to transfer online access along with your account balance by naming a "pay on death" beneficiary. But there are many other assets that may not offer the same ability to control their disposition at your death, such as:

  • Online financial accounts (credit card, brokerage, retirement plan, credit, online payment and insurance)
  • Online retail accounts and apps
  • Digital wallets and prepaid apps
  • Social media accounts
  • Blogs and websites
  • E-mail accounts and text messages
  • Phone passcode
  • Software, music, movie, and television show collections
  • Photo and video-sharing sites

Digital estate planning is a relatively new area of law and regulations on the topic are sparse and incomplete. Oklahoma has laws mandating court orders or provisions in a will that allow executors to access e-mails, blogs, and other social networking accounts; however, this authorization applies only to personal representatives, so other fiduciaries (such as an attorney-in-fact) may be limited by the private terms-of-service agreements required by various companies hosting your digital accounts. For example, pursuant to their terms of service, a fiduciary is not allowed to access your Facebook or Gmail accounts; however, he or she may access your iTunes account if authorized.

Proactive Protection of Your Privacy and Legacy

Just as you would pass on assets to your loved ones, you should ensure that your family or other designated representative can open your online accounts for various reasons, including:

  • Accessing valuable assets that include bank and investment accounts
  • Downloading personal property, including photos and videos posted online
  • Removing an online presence to minimize reminders of the deceased
  • Deleting private data to prevent identity theft

Digital estate planning is not as simple as including screen names and passwords in your Will. In fact, because wills are made public when admitted to probate, putting that information in your Will means that your financial or social media accounts could be at risk when your estate enters probate. A better practice could be to list the information in a separate document but refer to it in your Will.

Take Action Sooner Rather Than Later

No one likes to think about death, but — like social media — it is a fact of life. So the next time you revise your estate plan, consider how you want to dispose of your digital assets. Your family is entitled to the peace of mind that comes with not only legal documents formally expressing your wishes, but also the proactive strategies necessary to protect your online legacy. Contact Postic & Bates today for a free, no-obligation consultation to determine how to incorporate your digital assets into your estate plan.

The Estate Tax Explained

It has been called an inheritance tax, a transfer tax, and a wealth tax. However, the estate tax, as it is presently called, has been part of world history dating back to Egypt in 700 B.C. and to the Roman Empire, nearly 2,000 years ago, where Emperor Caesar Augustus imposed the Vicesina Hereditatatium. The estate tax has been a part of our country's culture and laws since almost the beginning. The first federal "estate" tax was passed by the 5th Congress in 1797 to pay for a naval build-up in anticipation of a possible war with France. It was then called “An Act Laying Duties on Stamped Vellum, Parchment, and Paper” and required payment of 25 cents on distributions by estates of between $50 and $100; 50 cents on the next $500; and $1 on each additional $500. When a treaty with France was signed to avoid the war, the tax was repealed in 1802.

To raise revenue for the Civil War, a federal inheritance tax was enacted in 1862. The share of an estate passing to ancestors, to issue (children), or to siblings was 0.75%; to nephews and nieces was 1%; to aunts, uncles, and cousins was 3%; second cousins 4%; and to more distant relatives or to unrelated persons 5%. Surprisingly, there was also a 100% marital deduction, meaning no estate tax was due on a surviving spouse's share of the estate. Such a deduction did not become part of the present estate tax law until 1982. Nevertheless, the federal inheritance tax was repealed in 1870, after the end of the war.

In 1898, another inheritance tax was passed to help finance the Spanish-American War. This tax had a top rate of 15% on estates over $1 million. However, that tax was also repealed in 1902, after the war ended.

In 1916, as the U.S. prepared to enter World War I, Congress passed yet another form of the estate tax. After an exemption of $50,000, the rates started at 1% and had a top rate of 10% on estates over $5 million. Although modified many times, our current estate tax comes from this 1916 Act. Initially, there was no marital deduction, even if the entire estate passed to a surviving spouse.

Historically, then, estate tax laws have been enacted primarily to fund our involvement or possible involvement in a war. After World War I, though, estate taxes became a more permanent feature of our tax system. In 1926, the top estate tax rate was 20%. During the Depression, the top rate soared to 70% in 1935. During World War II, the top estate tax rate was 77% on taxable estates greater than $10 million.

The rate was still as high as 70% with only a $175,000 exemption in 1980, when President Reagan sought passage of The Economic Recovery Tax Act of 1981. That act dropped the top estate tax rate from 70% to 50% and increased the deduction from the estate tax (in the form of a tax credit) to $600,000 by 1987. In 1997, Congress passed The Taxpayer Relief Act, which would have increased the exemption over time to $1 million in 2006. However, The Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA, AKA the “Bush Tax Cuts”) increased the estate tax exemption to $3.5 million in 2009, and then repealed the estate tax for 2010. On December 17, 2010, President Obama signed The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which reinstated the estate tax, but with a $5 million exemption and a 35% maximum marginal rate.

The federal exemption and marginal rate have changed slightly over the past few years. For 2017, is $5.49 million for individuals or $11.98 million combined for a married couple, with a top marginal tax rate of 40%. Oklahoma repealed its estate tax in 2010. Although 99.8% of estates pay no estate taxes — and those that are taxed pay roughly a 17% effective tax rate — it is still important to craft an estate plan that aims to avoid estate taxes. For more information on how you can minimize or avoid estate taxes, contact our office for a free, no-obligation consultation appointment.

Website Re-launch

After a great deal of thought and effort, we at Postic & Bates decided to redesign our website and other online resources to better meet the legal needs of the 21st Century. Although our attorneys have over 70 years combined experience in the practice of law, we want to stay cutting-edge to provide you with the best legal representation possible. Our redesign focuses on three key aspects:

Education

Our website is a great way to get our contact information or to schedule a free, no-obligation consultation appointment. But a law firm website can (and should) be so much more! Through detailed descriptions of our services, as well as topical and relevant blog posts, we hope to de-mystify the legal process. Even if you choose not to engage our services, we want you to have the best information possible so that you can make intelligent, informed decisions about your legal needs.

Accessibility

Social media has revolutionized the way people communicate. By re-engaging our social media outlets on Facebook and Twitter, we aim to make ourselves available to you wherever you are. Send us a message or tweet at us with your questions -- whatever is most convenient for you. And of course, you can always contact us by phone, e-mail, or by coming into our office.

Painlessness

Going to a lawyer does not have to be a difficult, painful process. At Postic & Bates, we value your time and energy, and we want to provide you with a simple, seamless process for meeting your legal needs. By making valuable resources, such as our Estate Planning Guide, available for free download online, we hope to make it as easy as possible for you to consult an attorney and determine your best course of action.

At Postic & Bates, our attorneys care about your experience. That is why this website redesign revolves around you, the client. If there is any way we can assist you, or if you would like to suggest how we can better meet your needs through our online services and resources, please contact us. We would love to hear from you.