December 2006

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MONTH YEAR: Lead Article: 1 ¾ pages
Lead Article Title: James Brown Estate: Lessons for AllJames Brown Estate Lessons: Brown left an amazing legacy of music and good deeds, but sadly family problems too. Some valuable lessons can be learned by all from those problems. “Papa Don’t Take No Mess”, but Papa seems to have left a mess, as the partner (widow, according to some press reports) of the deceased Godfather of Soul, James Brown, was reportedly locked out of his home “for estate legal reasons”. I’m “Bewildered” about how did Mr. Dynamite leave such problems? Tomi Rae Hynie was said to have been married to another man when she married Brown, so their marriage was ineffective. Because Brown and Tomi Rae never married after the termination of Tomi Rae’s former marriage, they remained merely partners. The press reports that Brown’s home, where Tomi Rae stayed with their 5-year old son, was padlocked and she was denied access. A lawyer reported that “legal formalities” and “protocols” needed to be followed, and that Brown’s estate was left in trust for his children. That’s why the world loves lawyers. Tomi Rae was quoted as stating that some were trying to discredit her to cut her out of inheriting his estate.Don’t Mar Brown’s Reputation with Legal Wrangling: The real facts remain foggy, but as too often happens with famous personalities, a lifetime of brilliant accomplishments, 50+ albums and so much more for Brown, sadly become tarnished by post death haggling over legalities and money. Brown’s memory and heirs all deserve more. But this post death posturing and rumor-mongering can be minimized or avoided with a modicum of careful planning. Clearly written legal documents (will, trusts and more), proper ownership of assets, and a plan that addresses real issues not just legal technicalities, can avoid the problems that appear to have so quickly affected Brown’s estate and memory. Did Brown want the mother of his 5-year old son padlocked from his (their?) home? Did he really want “legal formalities” adhered to if this would be the result? Hard to imagine. If the lawyer says that assets were left to his children in trust, why are a young 5-year old child and his mother locked out of his home? But not to worry, the lawyer has assured the press that it was not an act of “unkindness or an act of a lack of sympathy”. Maybe, but the result doesn’t seem that way.

Planning is Key: How careful was Brown’s planning? While time may tell, in most celebrity cases the spin becomes so thick that Brown’s real wishes may never be known. Many people, especially those with an unmarried partner, can at least learn some lessons from the “Hardest Working Man in Show Business” on how not to handle an estate.

What Might Really be Going On: The facts still aren’t known so it’s impossible to tell. Trusts and other legal documents are not always available for public scrutiny, so that only a few selected people might actually know what is happening. It might be possible, as some media reports implied, that Tomi Rae is posturing for more of the estate than left to her. It’s just as possible that mistakes were made and Brown’s partner and son are being harmed unintentionally. Too few facts are available to know. The lawyer’s comments, although they sound harsh, are not unusual. In many estates, especially those of celebrities, homes have to be secured to prevent people from walking off with art work, memorabilia, cash, jewelry and other valuables before they are catalogued so that they can be valued for tax purposes, and then distributed to the specific people the deceased wanted to benefit. This is serious. The executor of Brown’s estate is personally obligated to make sure all assets are valued properly and reported on the estate tax return, and that those assets are distributed to the people Brown designated. If the executor fails to do these things he can be sued personally. It’s a real responsibility that has to be fulfilled to avoid potentially significant liability. But those goals can be achieved without harming loved ones.

Trusts: Some media reports indicate that Brown’s assets are being left in trust for his children. Well, Tomi Rae’s 5 year old is Brown’s son. It’s common to name the surviving parent of a child along with a bank or family adviser as co-trustees. If that were the case Tomi Rae would have some input and control. It’s also common to name multiple beneficiaries of a trust. For example, Brown could have left his house to a trust for his son, and that trust could have given Tomi Rae the right to live in the house until the son attained the age of 18. A trust for a minor child could provide that support payments be made to the child’s parent or guardian while the child is a minor (or for any other period). Tomi Rae is the obvious person to raise, live with, and have input on what her son gets. If Brown felt she didn’t have the temperament or ability to serve as a co-trustee, he could have included provisions in a trust requiring the trustees to consider her needs, and her wishes, for their son. As for Tomi Rae, it’s unclear what the status of the relationship was, but if Brown intended to provide for her, he could have also established a trust for her. He could have established almost any parameters for what Tomi Rae could receive from the trust. That trust, after some period of time (e.g., the son’s attaining the age of majority, Tomi Rae’s life, etc.) could end and distribute the remaining trust assets to any one of, or all, of his children. What was done by Brown remains to be seen, but there were a myriad of options for how he could have handled this. If Brown didn’t provide for Tomi Rae was it intentional or due to the lack of legal guidance? There simply is not enough information to determine, but it’s hard to believe that a man as talented as Brown didn’t have the wherewithal to communicate his wishes clearly if the options were really explained to him.

What Was Tomi Rae ‘s Status: The media has continually brought up the strife that the couple had in the past. But it seems that they were together after those episodes. The media reports commented that Tomi Rae hadn’t seen Brown for weeks, but the reports don’t say why. The statements were made as if to imply that if Tomi Rae was important to Brown she would have been with him in his last days. But no one knows why she wasn’t there; it might have been Brown’s wishes. Not seeing Brown for weeks doesn’t provide any information on how often they saw each other, or the nature of their relationship between the break up several years ago and the two weeks before Brown died. The negative implications may be wholly inappropriate. This may all have relevance to the determination of what Tomi Rae’s relationship was with Brown, and her rights to his estate.

What Might Tomi Rae Do: Tomi Rae should have an attorney review the will and all relevant documents to see what she and her son really are left, but legal action may be necessary to get copies of documents that are not public record. Depending on state law, Tomi Rae’s first step might be to have her attorney file a legal objection to the probate of Brown’s will (caveat), or appear and voice objection to the admission of the will (on her own behalf and/or on her son’s behalf). If Brown’s estate was held in trusts formed and funded before he died, Tomi Rae’s attorney may have to proceed against those trusts before assets are distributed, but that may be a harder if the trusts were irrevocable trusts. Tomi Rae might litigate the status of her relationship with Brown and try to show that she was in fact his wife. In most states, the wife of a deceased husband is entitled to a minimum percentage or amount from the husband’s estate even if she was specifically left out. This is called a spousal right of election. In some states this can be a third of the value of the entire estate. If Tomi Rae cannot prove that she was legally Brown’s wife, she might try to find a legal argument to assert that because of their apparently attempted marriage, bearing his son, perhaps her and Brown’s living together as husband and wife, and so forth, that she should be entitled to the treatment of a wife. She might claim that because of those facts Brown’s estate should be prevented (estopped) from arguing that she was not entitled to be treated as his wife for inheritance purposes. In some states an argument that Tomi Rae should be treated as if she were his wife (common law spouse) might be made. Tomi Rae might bring an action for palimony against Brown’s estate claiming that something akin to post-death alimony should be paid. Tomi Rae might assert that Brown had promised her support. She might produce letters, witnesses and so on to corroborate these assertions and then try to enforce those promises against Brown’s estate. Tomi Rae may separately bring actions against Brown’s estate for child support for their son’s care. Clever attorneys may devise a host of actions if Tomi Rae was left out.

Conclusion: It’s a shame that reports on Brown’s demise focus on issues other than his accomplishments. It’s a shame that Tomi Rae and her son have to face these difficulties. It’s a shame that the media has the right to make such private matters public, but it does. Careful planning, dealing with the real personal issues affecting your estate, informing people what you are doing while you are alive, treating tough issues compassionately even if you would prefer a different result, can prevent these issues whether you’re a celebrity, or just an average Joe.

Checklist: Second Article 2 lines less than One Page:
Checklist Article Title: Checklist: Tomi Rae Protection

If you’re a partner (or possibly a second or later spouse) in a situation like Tomi Rae, there are many steps you can take to avoid the problems and legal entanglements facing Brown’s estate: √
√ Write a will that clearly explains what your partner will be left, what her rights are, and so on. Hire a lawyer specializing in estate planning and get it done right. List in the will all key family and other relationships. Brown might have listed Tomi Rae as his partner, wife, or former partner or former wife. Clarifying the relationships, and your intentions, is vital to minimizing legal entanglements. It’s simple, and doesn’t take much time or legal cost.
√ Communicate your personal concerns and wishes to your lawyer. Focus on the people you want cared for (or not), not just taxes and legalities. If your lawyer advises that your requests could be problematic, seek his counsel on better ways to achieve your goals. It’s easy for a lawyer to “yes” you and write whatever you say in your will, but often that’s not protecting your goals or your heirs. Example: Brown could have given Tomi Rae the right to live in his home for life (a life estate) and following her death the house could pass to his children. Sounds easy, but how would she pay for upkeep? What if a repair or improvement were needed? A better approach may be a trust with an independent trustee and sufficient cash to fund upkeep. Life estates can be really problematic. In a second or later marriage/relationship you might want to grant your partner some period of time, say 90-days, to live in your residence even if it is bequeathed to others. During the emotional trauma following your death, a loved one (even if not intended to inherit your house) should not be thrown out by children from a prior marriage, or a lawyer doing his job as executor, etc.
√ Write a personal note of instruction to family, friends and other important people explaining what you are doing and why. In many cases a simple note can take the edge off the pain heirs feel. Perhaps Brown felt that Tomi Rae had adequate housing and that his home should be made into a museum to encourage some of the values dear to him. A note explaining that might have avoid some of the problems.
√ Never make your estate plan or will vindictive. If you have an ax to grind deal with it while you are alive and able to, not at the end. Even if Brown felt he didn’t want to provide for Tomi Rae, they still had a child and many years of a relationship. Perhaps some bequest to help her out, even if not what he thought necessary, may have minimized or eliminated the problems and pain.
√ Watch how assets are owned (“title” in legal terminology) and note beneficiary designations (e.g., IRA, insurance). Title and beneficiary designations determine where you assets go regardless of what your will says. It all must be coordinated. Brown could have had his house owned jointly with Tomi Rae if he wanted her to have it. If Brown wanted to protect Tomi Rae, avoid the media circus, and then have the house to go to charity to establish a museum, he could have transferred ownership of the house to a revocable living trust which reserved 90-days for Tomi Rae to live there following his death, and then transfer the house to the charity.
√ Take steps to keep your estate decisions out of the limelight. Set up trusts now to avoid publicity. But this won’t work unless you tie up loose ends and address key issues that could create problems later. Celebrities are often better off using lifetime transfers (inter-vivos) to minimize post-death media attention. Also, to minimize the success of a post-death lawsuit, set up a pattern of benefiting the people you bequeath your estate to, especially if there are others that view it differently. Example: If Brown wanted to minimize what Tomi Rae would receive, he should have made lifetime gifts to other heirs intentionally leaving Tomi Rae out to demonstrate consistency with his will that may provide limited bequests for her (if that turns out to be the case).
√ Have a family law attorney prepare a legal document to protect your partner. If Brown thought he was marrying Tomi Rae he should have had a pre-nuptial agreement signed. If Brown knew he and Tomi Rae were not married he should have had a living together agreement signed. If Brown wanted to assure Tomi Rae of certain bequests he could have signed a document committing to make certain bequests to her in his will (a will contract). This would have prevented Brown from changing his will to cut out Tomi Rae.
√ Assure your partner has sufficient assets in her name to get her through the transition period following your death but before bequests or trust for her benefit can be effectuated

Plan ahead, be clear, don’t be vindictive, establish a pattern…clean up loose ends and minimize the problems.
Recent Developments Article 1/3 Page:
The fact that a trust cannot be changed (irrevocable) doesn’t mean that changes cannot be effected if the trust agreement or state law permit it. But even if change is possible, care must be taken to consider the tax consequences of these changes. A recent private letter ruling addressed trust division issues. In PLR 200651028 a trust that was exempt from the generation skipping transfer (GST) tax was to be divided (partitioned). A trust was formed for beneficiary 1 and GST exemption allocated to it to assure a zero inclusion ratio (i.e., no GST tax). The trust agreement permitted the trustee to partition the trust into separate trusts when more beneficiary 2 was born. The trust was divided on a fractional basis. The terms of the new trust were identical but for beneficiaries. The new trust also provided for the same succession of interests as the old trust. The IRS held that the partition was a “qualified severance” under IRC Sec. 2642(a)(3) so both the old and new trusts will be treated as separate trusts, and both remain GST exempt. The IRS further held that no beneficiary would be considered to have made a gift to the other as a result of the partition. This was because the trust agreement required the creation of the second trust, and after the partition of the trust each beneficiary had substantially the same beneficial interests both before and after the partition. Therefore, no transfer of property was deemed to occur and no gift tax triggered. The ruling also confirmed that the partition of the trust did not cause the trust assets to be included in the estates of any of the beneficiaries under Code Sections 2036, 2037 or 2038. Again, the rationale was that the beneficiaries had the same interests before and after the partition. See also: PLR 200651005 and PLR 200651005 both dated September 20, 2006.

Potpourri ½ Page: ***LIV SAVE THIS ARTICLE AS A CHECKLIST WHEN YOU DO IT***
FLP/LLC Audit: Is your FLP/LLC audit ready? An IRS audit of an estate owning an LLC asked for the following items: List of all owners since inception (legal documents should support any member joining/leaving the LLC, more owners may support the business purpose of the LLC).

o Distributions to owners since inception (pro-rata distributions demonstrate respect for the LLC form; too many distributions or distributions tracking personal expenses of the owners make the entity look superfluous).

o Who suggested the entity be formed (you want more than just tax reasons).

o Was the creation of the LLC a matter of negotiation (trusts with independent trustees with fiduciary obligations as members, or non-family members, or a charity as a member, may give more credibility then just mom and dad as members).

o When were assets transferred to the entity (the more time between transfer and death the better). o What was the decedent’s age and health when the LLC was formed (the younger and healthier the better; get a copy of a recent medical report on those setting up the LLC to show that the LLC wasn’t set up in anticipation of death).

o Were transfers made under a power of attorney (its better for the parent to sign assignment documents themselves then under a POA).

o Copies of all LLC records (if it’s a real business entity it should have records. Regular Quicken reports are a good thing). Minutes of LLC meetings (although not required by law, since the IRS asks for them, have meetings and sign minutes corroborating who attended and what was discussed).

o How, when and by whom were LLC assets acquired and used (personal use assets, such as a parent’s home, never belong in an LLC). o How were assets managed before contribution to the LLC and after (to avoid the IRS argument that assets were merely “recycled”, there should be a change in management responsibility after contribution that you can demonstrate).

There are pages more of questions by the IRS on the audit, but you should get the drift. Be a Boy Scout and “Be Prepared” for your FLP/LLC audit.

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