Q&A on Estate Planning and Charitable Giving
Interview by Roosevelt Review Editor Tom Karow
Roosevelt Review, Fall 2012 [ PDF ]
Roosevelt University Trustee Susan Bart decided to become an attorney when she was 12 years old. “My parents started pushing me to become a doctor so I rebelled and started thinking about becoming a lawyer,” she recalls with a laugh.
Today the Michigan Law School graduate and partner at Sidley Austin LLP is one of the nation’s top attorneys practicing in trusts and estates, an area of the law that suits her affinity for math and tolerance for detailed and complicated regulations. “It’s comparable to corporate tax work,” she says, “but you deal with people as opposed to corporations.”
A fellow and regent of the American College of Trust and Estate Counsel, she is an industry leader who occasionally is asked by the U.S. Treasury Department to provide comments on tax and estate laws. She’s written two books on estate planning, has been a visiting professor at the University of Michigan, has written numerous articles for publications like the Illinois Bar Journal and Trusts and Estates magazine and regularly writes a column on college savings plans for Morningstar, the investment data firm.
Bart’s practical advice and deep knowledge of state and federal laws is highly sought out by many individuals developing their estate plans. In a Q&A with Roosevelt Review Editor Tom Karow, she shares useful advice on how to begin estate planning and charitable giving.
TOM KAROW: What do you like most about trusts and estates?
SUSAN BART: I like to help clients figure out what their money means to them and what sort of legacy they would like to leave. I find the family, business and philanthropic issues to be very interesting.
TK: Do you find most people do a good job of estate planning?
SB: I think a mistake that a lot of people make is thinking that their estate plan is something that they do once and they’re done. Because of changes to tax and trust laws and changes to family situations, people should be reviewing their estate plans every three to five years or whenever there are significant changes in their personal lives. Estate planning works best if it is built incrementally.
TK: When should people get a will?
SB: When they turn 18. I emphasize to my clients that when a child turns 18 at the very least he or she should sign a health care directive. Although it’s unlikely that they will become disabled, if they do, you want to make sure that some individual, usually a family member, has the right to make decisions for them. At 18, they can also make decisions about where they want their money and assets to go, including bank accounts and personal effects.
TK: You really believe in starting early.
SB: One of the best things parents can do is to encourage their children to grow up to be financially astute and responsible, and from my perspective the right training for that really starts when they’re about three or four years old. You should incrementally introduce children to saving, investment and spending decisions, budgeting and eventually estate planning.
TK: When should people create a trust?
SB: One rule of thumb in Illinois is when your assets exceed $100,000. The reason for that guideline is that in Illinois if your assets are under $100,000, they can be distributed pursuant to your will without having to go to court for probate. Once you get over $100,000, your estate would have to go through the probate proceedings. If you’re going to a lawyer for a will, it’s not much more complicated to create a revocable trust.
TK: What about putting your estate in joint tenancy so both husband and wife own it?
SB: If something is in joint tenancy, it’ll go to the surviving spouse without estate taxes. However, for couples with large estates, there will be estate taxes when the survivor dies. A couple can get a much better result in the long term if they do the right estate planning before one of them dies so that they make sure that they are using both of their exclusions for estate taxes.
TK: Can you give an example of a mistake that people make in estate planning?
SB: One mistake is for parents with young children not to have a will. Let’s say that one of the parents dies without a will. Under Illinois law if you don’t have a will, the state of Illinois writes a will for you. And what that would say is, if you are married and have children, half of the assets go to the spouse and half go to the children. That creates two problems. One, the surviving spouse might need all of the assets to pay for the family’s living expenses, especially if the children are young. And the second problem is if children are under the age of 18, then guardianships will have to be established for the minor children. So you will have court-supervised guardianships, with restrictive rules on how to use the money. It’s a potential disaster.
TK: In that instance, what happens when the children turn 18?
SB: They can do whatever they want with the money. They don’t have to use it for college; they don’t have to save it. They may use it in ways that are actually harmful to themselves.
TK: Do you think parents should tell their children about their estate plan?
SB: If a particular child is going to be treated differently, I like all the children to hear it from their parents. That way the parents can explain their reasons and the children can ask questions. Similarly, if there are significant gifts to charity, it’s only fair for the parents to prepare the children who might be assuming they’re going to inherit everything. I also think parents should explain to their children who’s going to make health care and financial decisions for the parent if the parent becomes disabled.
TK: Do you advise clients with family businesses on succession issues?
SB: Yes. This can be a very challenging area because it forces individuals to face up to particular family situations and potential conflicts within the family. We discuss with them questions like what’s the right succession plan, how do you finance estate taxes, and how do you buy out certain family members who don’t want to be involved in the business? It’s much better to deal with these issues when the parents are alive. If they’re left unaddressed, you could potentially have litigation.
TK: You mentioned estate taxes. How do they affect a family business?
SB: The IRS wants its money nine months after death, so business owners need a plan to pay the estate taxes. Liquidity is often a big issue for the family business trying to pay these taxes. There are special provisions in the tax law to defer payment of estate taxes, but you have to make sure you qualify to take advantage of them.
TK: Let’s talk about another important part of your practice, philanthropy.
SB: There are many different options for people to consider in charitable planning. The tax laws by themselves are so complex that people need help in understanding the basic tax rules. I’ve had clients tell me that they want to establish a private foundation. After we’ve talked about what’s involved in administering a private foundation, they often decide that a donor advised fund or outright gift to charity would be better.
TK: What motivates people to give?
SB: Some clients are very focused on a particular mission such as providing an opportunity for someone to get a college degree or helping to support a museum. They may be motivated by good memories or loyalty to the organization. Others like to see their names listed on a plaque or wall. Charitable giving can even be a social activity between friends and colleagues.
TK: What are some of the things to consider when making a major gift to an organization like Roosevelt University?
SB: First of all, make sure that what you want to give is something that the university can actually use. Then your estate planner and the university should work together on the particular language of the gift. For example, if you’re setting up a special scholarship, you want to have some agreement on the criteria for choosing the recipients and on how the funds are going to be held by the university. You also might want to provide for a way to modify the agreement if some provisions become unfeasible or cumbersome.
TK: You have written considerably about 529 College Savings Accounts. How do they fit into estate planning?
SB: 529 accounts are one way to save for college and they have certain tax advantages. But whether it’s a 529 account or a special type of trust for a child’s education, it’s important for parents or grandparents to plan ahead and start saving. I help clients plan for education expenses in the most tax-efficient way.
TK: Can you give me an example of how you’ve helped someone develop the right plan?
SB: Setting up education trusts are some of the most rewarding things I’ve done with clients. In one case, a client who doesn’t have children of his own decided to establish an educational funding program for his 30 grandnieces and grandnephews. Part of the plan was to let the kids know at a relatively young age that there was money available if they wanted to go to college. He used it as an incentive for them to work hard.
TK: You seem very passionate on this topic.
SB: This is one of the reasons I give time to Roosevelt. I really believe that the opportunity to obtain a higher education is one of the largest factors in creating mobility in our society and letting people control their own destinies. So making a college education possible for someone is personally very important to me.