Interesting News from the World of Estate Planning

Frank Sinatra Planned Well

Sinatra at the Liederkranz Hall in New York, 1947. [Photo: William P. Gottlieb/Ira and Leonore S. Gershwin Fund Collection, Library of Congress.]

Sinatra at the Liederkranz Hall in New York, 1947. [Photo: William P. Gottlieb/Ira and Leonore S. Gershwin Fund Collection, Library of Congress.]

Frank Sinatra died in 1993. A corporation he controlled owned his most valuable asset — the right to his name and likeness. He was well aware of the bitterness between his second wife, Barbara, and his kids from a prior marriage to Nancy. This awareness did not stop him from leaving the valuable corporation to Barbara, even though it was managed by his daughter, Christina Sinatra.

Worried that his wishes might provoke a fight in probate court upon his death, Sinatra included a “no-contest” clause in his will. It spelled out that any family member who took adverse legal action upon his death would be completely disinherited, specifying thirteen different legal actions that would invoke this “no-contest” clause. While his “no-contest” clause may have disappointed his children, it seems to have spared his family from an expensive, emotional and public court battle.

Here in California, the legislature determined that the existing no-contest law was so complex and unpredictable that it was unworkable, and a new law became effective January 1, 2010. The new law applies to any instrument (a legal document such as a contract, a will or a trust), whenever executed, that became irrevocable on or after January 1, 2001.

Giving it All for Love

The Duchess of Alba in 2006 [Photo: Wikimedia]

The Duchess of Alba in 2006 [Photo: Wikimedia]

Maria del Rosario Cayetana Alfonsa Victoria Eugenia Francisca Fitz-James Stuart y de Silva (yes, that’s one name), is, or was, one of the wealthiest women in all of Spain. The Duchess of Alba, as she is known, had assets of up to $5 billion until she announced that she would marry the man she loves. The Duchess’s six children were dubious about their 85 year old mother’s plans to marry Alfonso Diez, a civil servant who is 24 years younger. The Duchess remarked, “Alfonso doesn’t want anything. All he wants is me.”

To help assuage their fears that the love may not be genuine, the Duchess gave juicy chunks of her vast estate, including mansions and palaces, to her children and grandchildren, in an effort to appease them. Her son Jacobo did not attend the lavish wedding, reportedly because he was unhappy with his slice of the family fortune.

Supreme Court Says Inherited IRAs Are Not Protected in Bankruptcy

The U.S. Supreme Court has ruled that inherited IRAs are not protected in bankruptcy under the “retirement funds” exemption (See 11 U.S.C. § 522(b)(3)(C) due to key legal distinctions between inherited IRAs and those that you set up and fund yourself. The Court pointed out that true IRA owners are subject to penalties designed to encourage them to keep the money available for retirement. These penalties justify the “retirement funds” exemption for true IRA owners.

Because money in an inherited IRA allows easy penalty free withdrawals, the Court held that the “retirement funds” exemption does not apply. This means that spousal rollovers will become even more popular. A spouse who inherits has the ability to roll the assets into his own IRA to maximize tax savings and have the protection of the “retirement funds” bankruptcy exemption. If the spouse chooses not to rollover, the account is considered an inherited IRA and those assets would not be protected in bankruptcy. Clark v. Rameker, 573 U.S. __ (2014).

About the author:

ogradyJohn O‘Grady, O’Grady Law Group, APC,  was the 2012 chair of BASF’s Estate Planning, Trust & Probate Section.