Houston Estate Planning Law Blog

LAWYERS TELL TEXAS COLLEGE TO USE ENDOWMENT TO HELP PAY MORTGAGE

“Where a charity’s endowment money goes after a bankruptcy filing is a gray area for the Bankruptcy Code, and it’s rarely explored.” It’s a statement made this month by the Wall Street Journal that highlights the issue some Texans have been having with Lon Morris College recently.

The problems began when the college was struggling to pay the mortgage on its dorms. It wasn’t until after the school’s collapse that bankruptcy lawyers suggested that they pay off their final bills using charitable funds located in the school’s endowment fund. Though this would likely solve many of the school’s financial problems, this is unlikely the wish many people had when they left the school approximately $11 million in various wills and family trusts.

Despite the fact that the money could right the school’s financial situation, the Texas Methodist Foundation, which holds the money, has filed a lawsuit to protect some of the endowment money stating that spending the money on creditors “‘is not consistent with the charitable intent’ of the endowment.”

This isn’t the first time that courts have had to decide on whether an endowment, left by people in their wills and trusts, can be used to bail organizations out of bankruptcy. In fact, in 1987, a court denied a request from a college’s bankruptcy attorney to take charitable money declaring that it was not property of the bankruptcy estate.

As for the recent case, the attorney for the Texas Methodist Foundation says that “each of the endowments was created with the intent and the purpose of furthering educational, charitable and religious endeavors” not to pay off the school’s debts. It is unclear who the court will rule in favor of at this time.

Source: The Wall Street Journal, “College’s Bankruptcy Lawyers Target Endowment Money,” Katy Stech, Nov. 26, 2012

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HOW YOUR GENEROSITY NOW MAY HURT YOU FINANCIALLY IN THE LONG RUN

With Christmas just around the corner, many people in Texas and across the nation are preparing for the shopping season with lists in hand and generosity in their hearts. Despite the troubling economy and even worse-off wallets, the general consensus this year is to try to spread a little more holiday cheer than last year. For many grandparents, this could even mean spending more than they may be able to afford.

But it’s within our nature to want to spoil our family members; they give so much to us, we want to return the favor. But many financial planners say this could be a huge mistake for grandparents whose desire to give gifts now could greatly reduce the amount of money they leave in their wills in the future.

“It’s a delicate balance between wanting to help your family and making sure that down the road you’re not a burden,” says one gerontologist who directs the MetLife Mature Market Institute. She suggests instead that elderly people use gifts as teaching tools that teach their grandchildren about the importance of financial planning at an early age. She also suggests leaving tax-free gifts after they die to make sure that they don’t run out of money now.

So how do you help your grandchildren without wrecking your own financial future? Many experts agree that scaling back on the amount of money you want to spend can make all the world of difference in the future. Though you might want to put away $10,000 a year towards your grandchild’s trust fund, you may only be able to afford $5,000 a year. As mentioned above, using gifts as teaching moments are also a good way to feel like you’re being generous, even if you may only be giving a small amount. A financial planner in Connecticut suggested that one of his clients give his grandchildren appreciated stocks as a gift. That way, he gets the stocks out of his estate meaning it may be subject to less tax when he dies.

It’s never too late to start planning for your future. With estate planning you can make sure that you’re helping yourself now, while also helping your family in the future.

Source: The Wallstreet Journal Market Watch, “The smart way to give to your grandkids,” Kelly Greene, Nov. 13, 2012

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IT’S NOT THE AMOUNT THAT COUNTS: LEAVING MONEY IN WILLS FOR THE RIGHT REASONS

Everyone in Texas has heard the saying “it’s the thought that counts,” but many people are saying that this really is the case when it comes to leaving money to others in your will.

It’s not a new concept to leave people money in your will but now a small-but growing-group of people are taking a public pledge to leave money to charities despite the fact that they may not have an exorbitant amount of wealth.

According to Giving USA, the research arm of the Center on Philanthropy at Indiana University, nationally, donations totaled approximately $218 billion, and not just from people with large fortunes. “As people have more confidence in their income, not only from their job securities but from the investments, then they feel more confident in giving their money away,” says Pierce Goglia, a spokeswoman for the Dallas-based nonprofit group Communities Foundation.

The nonprofit has seen an increase in donations since the economic crisis ended. Their annual Giving Day campaign raised a record $14.4 million this year from thousands of people in the Dallas-Fort Worth area, up from the $10.7 million in 2011.

Inspired by celebrities who are currently encouraging fellow millionaires to leave money to charities in their wills, a modest philanthropy movement has cropped up in cities across the nation. Dubbed “giving circles,” these groups allow for like-minded people to pool their money and give to causes they deem important. They are becoming the easy way for people who may not have a lot of money to help give a large donation to a charity or organization.

For many people, planned giving has to involve attorneys and legal advice, but according to some, that’s simply not the case. Though many aspects of estate planning do require legal help, some people would be shocked to learn that it can be as simple as changing the beneficiary on an IRA or adding a charity’s name as a “Transfer-on-Death” to a mutual fund.

Many people also have the idea that you have to leave thousands of dollars to people or organizations in their wills. More and more, people are beginning to see that this is not necessarily the case and that sometimes, it’s the sentiment behind the donation that really makes all the difference.

Source: The Dallas Morning News, “Charitable giving not just for the ultra-rich,” Hanah Cho, Nov. 10, 2012

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SELLING LUCASFILM SAID TO BE SOLID ESTATE PLANNING MOVE FOR FILMMAKER

When Disney announced its purchase of LucasFilm, there seemed to be mixed reviews across the nation, including many from loyal Star Wars fans here in Texas.

Many saw George Lucas’ sale as a cash-out on an industry that hadn’t even reached its peak yet; while others, mostly financial experts, saw Lucas’ decision as “an estate-planning move worthy of a Jedi Master.”

The $4.05 billion buyout came at the perfect time for the Lucas family, said many reporters, who pointed out that none of the three adopted children in the family have any plans of taking over the family business. By cashing out now, experts say the filmmaker has made it easier for his family to distribute his estate in the future.

Because a majority of his fortune was tied up in stock in the Star Wars franchise, some financial experts said that it would be a long and difficult process of managing the inheritance if the 68-year-old filmmaker were to unexpectedly pass away.

For several years now, Lucas has been involved in charitable endeavors such as Edutopia and the George Lucas Educational Foundation. Having the headache of estate-planning out of the way now gives him time to focus the remaining years on his various philanthropy projects.

Though Lucas’ situation may make estate-planning look simple, this type of planning may be more complicated for smaller mom-and-pop businesses, points out one financial advisor in Dallas. “They may have to bring on a junior partner or work out a royalty arrangement with a new buyer,” he says. After all, he jokes, not every company has the luxury of being bought out by a Fortune 500 company when it comes time to sell.

Source: The Wall Street Journal, “George Lucas’s Jedi estate planning,” Quentin Fottrell, Nov. 1, 2012

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