New York Estate Planning Lawyer Blog

Upon visiting an estate planning lawyer for the first time and learning about available options, many are surprised at the flexibility of different legal tools involved in the transfer of property. Far from simply doling out assets to specific friends and family members, one has immense control in deciding how those assets are used, when they are received, and what can trigger the loss of those assets. In this way, unique plans can be crafty which account for any number of family dynamics--multiple marriages, concerns about ex-spouses, children with special needs, relatives with poor money management skills, and more.

Similarly, the same flexibility often exists with gifts to charity. Many New Yorkers decide to share part of their assets with favorite non-profit causes. Those gifts can be one-time transfers or they may involve the creation of trusts for use in specific ways. For example, one of the most common charitable trusts involves setting up a scholarship fund to an alma mater to benefit future students. The trust may be funded with various assets, growing over the years and helping countless students.

Those creating these trusts can set many different terms on the gifts. Perhaps you'd like the funds to be used solely for those interested in pursuing nursing or for those who came from a certain disadvantaged background. In most cases, an attorney can help craft the legal arrangement so that your exact wishes are carried out.

The flexibility of trust details is vividly displayed in a story about an old scholarship trust that a university is hoping to modify. As discussed in The Chronicle, Columbia University asked a court to alter the terms of a trust that come with rigid requirements for those who benefit from it. Specifically, students who receive the "Lydia C. Roberts" Graduate Fellowship are required to have been born in Iowa and attended a Iowa undergraduate school. They must also move back to Iowa for at least two years after their graduation. In addition, they cannot pursue law, medicine, dentistry, veterinary surgery, or theology. Most egregiously, the trust--created in 1920--specifies that the recipients of the scholarship must be "from the Caucasian race."

Of course, this is a blatantly discriminatory requirement--a product of its time. That is why the University is seeking to have the race requirement thrown out by the court. While no one can support discrimination in this way, the fact that the university is still forced to seek court approval to modify the terms--nearly 100 years after the trust was created--is a testament to the extreme power of these legal tools. They allow individuals to exert significant control over their assets even a century down the road.

The New York Daily News reported this weekend on more developments in an estate feud case that we have previously touched on. It is yet another testament to the lengths that some are willing to go when significant sums of money are involved. It is also a reminder of how even the closest family bonds can be destroyed by fights over an inheritance.

Mother & Son At Odds
Generoso Pope was a highly successful publisher, creating the well-known tabloid still seen in many grocery store check out lines: The National Enquirer. Generoso Pope died many years ago, and the publishing business was sold for several hundred millions dollars. This represents a huge estate that was divided between Generoso's surviving wife and son. Per the terms of the inheritance plan, the man's wife, Louis Pope, received $200 million. The son, Paul Pope, received $20 million. Other siblings also received sizeable inheritances.

For most families, that amount of money would seems sufficient to live off for a lifetime. However, as so often happens with large estates, feuding came immediately, with accusations being hurled on both sides about wasteful spending and withholding of funds.

Over the ten years that the mother and son have been squabbling, multiple civil lawsuits have been filed. From accounts of the family discord, most of the problems stem from Paul's extravagant lifestyle. He reportedly has spent the majority of his inheritance, and has already been given an additional $5 million from his mother. However, that has not stopped him from filing suit against his mother claiming that she is mismanaging her own inheritance which will result in him not receiving as much as he might when she passes away.

All of that culminated this weekend in the arrest of Paul Pope. While the exact charges are unclear, it may stem from an order of protection that Louis Pope previously sought over her son after his money demands became aggressive. In seeking the court order, the mother explained that her son "maliciously and repeatedly harassed (her) with cruel behavior (that) is causing (her) to suffer substantial emotional distress and to genuinely fear for her safety." She went on to note that he lives "an excessive and extravagant lifestyle, but has never had meaningful employment."

While inheritances worth hundreds of millions of dollars are unique--the issue of adult children with questionable financial management skill is not. New York families frequently have questions about how to best arrange an inheritance so that spendthrift children are not cut out but protected from blowing through wealth with poor managements skills. In our area, a NY estate planning attorney can provide tailored advice and explain the range of unique options available to account for your situation.

Estate planning attorneys frequently urge residents to be careful about creating long-term plans to avoid family feuding. Careful consideration of inheritances, open communication between families, and prudent use of tools like trusts are usually the best way to ensure that families are not torn apart after a passing.

Some seniors appreciate certain inherent conflicts within the family and work to counter those risks. However, many others assume that such feuding only affects "others" and their family members would never fall into arguments and ruin relationships over property or other end-of-life matters. The reality is that no one knows for sure how things might play out. Reactions to the loss of a relative often spur deep psychological impulses with emotions askew. That can spur problems for even the most stable families.

Estate Planning Murder Plot
The extreme lengths that some go in the heat of an inheritance feud were demonstrated in a sad case reported this week in The Chronicle. The bizarre case involved the Wolf family of two sisters and brother fighting over an inheritance. The feud began in 2006 following the death of the adult-children's parents. An estate valued at about $3 million was at stake.

Reports indicate that fighting broke out immediately as the children sought to maximize their inheritance. The brother, in particular, seemed willing to do anything to increase his share of the family fortune. All told, more than six different criminal charges were filed, several civil lawsuits were pursued, and hundreds of thousands of dollars in legal fees were racked up.

All of that peaked in 2010, when one of the sisters was seriously injured when out of nowhere a box of candy blew up in her face as she opened it. The box was filled with pieces of pipe,glass, tacks, and other explosives. The second sister was also targeted for murder. It was only later that the brother was connected to the plot. He apparently tried to hire a ex-convict to kill his sisters to secure as much of the inheritance as possible.

This week he was officially sentenced to life in prison for his actions.

In summarizing the case, an observer noted, "Just a tragic situation coming out of probate. People get so wrapped up in those things, they lose sight of what's important."

Few cases of probate feuding will end with an attempted murder conviction. However, far too many families will find relationships destroyed following disagreement spurred by the process. That is why it is critical for families to use trusts and other planning measure to avoid probate and pass on assets in a seamless process void of opportunity to spur fighting.

The more complex a family arrangement, the more tailored estate plan is likely needed. For local residents this often takes the form of second or third marriages, with children and different step-relatives. The "default" rules may not be good at accounting for these various relationships and balancing the unique needs of wishes of each family member. Yet, even in the most extreme cases, an estate planning attorney is able to craft the best possible arrangements, provided participants are open and honest about their situation.

But, things can get particularly sticky when there are secret relationships or other family dynamics that are not incorporated into a plan.

Mistress & Children Fight for Inheritance
This concern was vividly demonstrated in bizarre and tragic case that is making national headlines. A millionaire businessman, Ravi Kumra, was murdered in late November. A group of men apparently broke into his home, bound the man, and ransacked the home for valuables. Kumra eventually died from asphyxiation as a result of being gagged.

Kumra divorced his wife in 2010. However, his ex-wife still lived with him at the time of the attack--she too was bound and beaten, but survived.

In the aftermath of the murder, much has come out about Kumra unique lifestyle, eventually involving a feud over his inheritance.

Most notably, Kumra apparently was intimately involved with many different prostitutes who often stayed in the home (where the ex-wife still lived). In fact, the group of attackers (who were arrested) were allegedly connected to some of those prostitutes.

Initially Kumra wealth was going to be split between a group of family members, including his two adult daughters from his previous marriage. However, one of the former prostitutes eventually came forward and claimed that she was entitled to a family inheritance because she gave birth to two children (now 9 and 7 years old) who were fathered by Kumra. She sought the inheritance on their behalf as living descendents of the slain millionaire.

The matter was brought to court where, according to a Weekly Times story, a judge recently agreed that there was "clear and convincing evidence" that the children were indeed fathered by Kumra. As a result, the judge awarded the woman and her children $1,800 per child per month for the allowance. According to the mother, Kumra had the children with her intentionally and, since her pregnancy until his death, paid her several thousands dollars every month to be a stay-at-home mother.

This is obviously a unique situation. However, it is a testament to the complexity that can arise in any number of cases when various living arrangements are not handled as part of established estate planning efforts.

The New York Times published a story last week that reminds residents of the complexity of many estate planning matters. The story reiterates two key principles when it comes to long-term financial and inheritance planning: (1) It is a critical task for families of all income levels; (2) It requires frequent pruning and updating.

Not a Problem for the Wealthy
There remains a misconception that estate planning is a concern only for the wealthy. If one does not have assets over the $5.25 million federal estate tax exemption level, then there is no need to worry about visiting an attorney or otherwise handling this inheritance details, right? As we often point out: this is a huge misconception. The truth is that estate planning deals with a wide-range of issues beyond the estate tax. From ensuring proper designation of life insurance policies and retirement accounts to using trusts to avoid probate and save on expenses, properly planning for transfer of assets is necessary for families of all income levels.

Consider one of the most common problems: a will that contradicts provisions in beneficiary designation forms. Many New York families find themselves in sticky situations when someone creates a will that leaves provisions to one family member, even though the name on a beneficiary designation form for a retirement account or life insurance leaves it to someone else. In those cases, the will is overridden, even if it represents the true desire of the benefactor.

Not a "One Time" Task
Similarly, because of changes in the law and life circumstances, estate planning cannot be viewed as a chore that is finalized once completed. Instead, it must be a frequently updated process, with alterations to those beneficiary designations, will provisions, trust assets, and more. Understanding when a part of the plan needs to be updated is where professionals like an estate planning attorney are vital. These details are complex and serious enough that they should not be left to those unfamiliar with how it all works.

Obviously the birth of new children or grandchildren, a divorce, marriage, acquisition of a new asset, or other change in condition must be folded into an existing plan. In addition, many different legal changes may influence what options are available and when. Those legal changes go well beyond the estate tax, which seems to generate all the media attention. Many different kinds of tax rules can shift at any time, including types of available trusts, extent of charitable deductions, and more.

Forbes recently reported on a unique case that illustrates what happens when one fails to conduct any NY estate planning and does not have close heirs to take an inheritance via default intestacy rules.

The article explained how a man named Roman Blum died in January of this year. A former real estate developer, Mr. Blum was worth about $40 million at the time of his passing. He was 97. Remarkably, for one with such wealth, Blum did not have any estate planning conducted--no use of trusts or even a will to designate final wishes and property distribution.

When one dies without a will special rules apply which include a ranking list of possible inheritors. In New York, for example, an estate is usually split between a spouse and children (with a special $50,000 addition to the spouse). If there are no children, then everything goes to the spouse. If there is no surviving spouse, then everything goes to the children. If one has no spouse or children, then everything goes to parents, and absent living parents, siblings.

Importantly, these designations are made "by representation." That means that heirs of the intended beneficiary can claim in the other's name. For example, consider a man who dies intestate in New York. His spouse died first. He had two children, but one of them already passed away. He has four grandchildren, three from the child who is still alive, and one from the child who passed away. Under the law, the inheritance is split between his actual children--one alive and one deceased. Because it is divided "by representation," the deceased child's share will be given to that child's own issue (the grandchild).

The important thing to remember is that these rules generally ensure that at least some heir is found to receive an inheritance following a death. However, sometimes no heirs can be found at all. That is what seems to have happened in Mr. Blum's case. Officials have been searching for relatives to collect the $40 million but have thus far turned up nothing. If no one is found after three years, then in most cases the inheritance will go to the state government.

Of course, virtually no one, if given the choice, would simply give all of their assets to the government. Even if one does not have relatives or friends who they'd like to have funds, steps can be taken to give assets to a favorite charity or cause. All that it takes is simple visit to an estate planning lawyer to share wishes and get the details written up while following proper legal protocols.

Celebrity estate planning complications and feuds are often used to illustrate basic planning principles or common problems. Perhaps none of those examples are as well-known, especially for New Yorkers, as the sad case of the estate of Brooke Astor. The legendary socialite and philanthropist died several years ago. Since her passing, a wide-range of claims were made regarding the distribution of her assets and criminal activity on the part of those responsible for her care and affairs in the later years of her life.

Astor reportedly suffered from Alzheimer's at the end of her life--an affliction that similarly affects many New York seniors. Unfortunately, also like many others, it seems that her condition was abused by the very people who were supposed to look-out for her.

Astor's son, Brooke Marshall, was criminally charged with exploiting his mother to funnel more money to himself. Marshall was ultimately convicted, along with a co-defendant, of illegally giving himself a $2 million "raise" to administer the estate. Claims also suggested that an amendment to Astor's will in 2004 included a forged signature.

The criminal conviction actually came more than three years ago, when the pair was sentenced to serve between one to three years in jail for their conduct. However, they have yet to serve a day as various appeals are worked out.

As reported by the New York Post, Marshall was in court again a week ago. The Manhattan Supreme Court justice handling the matter allowed Marshall to remain out on bail while his final appeal request to the highest court in the state--New York's Court of Appeals--is considered. If the Court decides not to hear the case, then Marshall and his co-defendant will be completely out of options and likely report to jail in mid-June. That would mark the end to the most drawn-out, contentious, high-profile inheritance controversy in recent New York memory.

Seamless Estate Planning
While most may not have the wealth of Brooke Astor, the other dynamics of the situation are the same for many: declining health, disagreement among children about inheritance amounts, pressure from in-laws, last-minute will changes, and more.

The general lessons are myriad. Be sure to seek out the help of legal professionals with a reputation for honest dealing and whom you trust. Be forthright about various family dynamics that may come into play in the aftermath, even if it involves difficult conversations about family members. Do not delay, as one's health is never certain.

By following these basic principles, one can be in the best position to ensure an inheritance is handled efficiently and exactly as one wishes

Residents are often warned to complete their estate planning--wills and trusts--before it is "too late." Most assume that the planning is only "too late" if they die before getting it done. But that is a mistake. In many cases "too late" actually refers to losing the competency to create the legal documents. As a practical matter, it may even mean before one even has the appearance of mental health issues, because even a hint of problems may open the door to legal challenge from others.

Estate planning is about ensuring one's wishes are carried out and maximizing the preservation of assets without controversy. Limiting that controversy includes completing the planning early and efficiently, minimizing the risk of problems down the road. Thought of in that way, "too late" is far earlier than simply "before you die."

John duPont Estate
Legal issues related to the inheritance planning and mental stability recently made headlines with the passing of multi-millionaire (and convicted murderer) John duPont.

An accomplished natural scientists, duPont was known as a renaissance man of sorts, with a wide range of interests and quirks. He collected a shells and birds that now don the halls of natural history museums. He even authored and illustrated several books on birds that are highly regarded in the field. DuPont maintained an extensive stamp collection, at one point paying nearly $1 million for a single stamp from Britain. He also was an athlete, became a coach, and was a financial backer for various U.S. Olympic teams.

However, all of these interests were apparently tempered by mental instability. Eventually, in 1997, he was convicted of murdering a man in his home--a wrestler that he coached. At trial he was deemed mentally unstable, and many have assumed him to be a paranoid schizophrenic. The official adjudication was "guilty but mentally ill."

DuPont died in prison two years ago. At the time, his estate was valued at over $500 million. In the subsequent two years, much of the state was liquidated, and many of his famous collections and property continue to reach auction.

Since his passing his family and other interested parties have engaged in endless fighting over the future of the fortune. DuPont had several wills, but the most recent was signed only three months before his death. That document left most of the estate to a Bulgarian wrestler as well as some to his attorney. However, the duPont family is challenging the will, claiming that his previous adjudication as mentally unstable invalidated the most recent will. If a court agrees, they may go back to a previous will signed at a time he was stable or come up with alternative modes of dividing the assets.

Reports suggest that even though the feuding has been ongoing for years, it is far from complete. It now stands as another tragic example of the complexities of estate planning--a reminder of the need to act early and comprehensively to avoid infighting and settle matters outside the purview of the courts.

One of the challenges of estate planning is that some of the rules are constantly subject to change. A few of the principles are seemingly timeless, like deciding inheritances and determining alternative decision-makers in the event of disability. But the more sophisticated matters, usually involving minimizing tax liability, are frequently open to modification, providing complexity to the task of putting future plans into place.

For example, the tax benefits of certain trusts or the eligibility rules for New York Medicaid can all be altered by lawmakers on yearly basis. As a practical matter, those changes are most common in times like these--when budgets are stretched to the max and lawmakers are looking for ways to avoid cuts to programs without passing obvious tax increases. Often, when policymakers refer to closing "loopholes," they are referring to various tax savings strategies or other aspects included in sophisticated estate planning. Local residents should look closely at the specifics of these "closing loophole" proposals when they are offered to determine if it may impact their own situation.

Retirement "Loopholes"
Along those lines, the President's proposed budget unveiled earlier this month, if passed, would alter various retirement tools that community members now enjoy. A story from the Benefits blog offers a helpful summary of some of these possible changes.

Of particular note is a provision in the budget which calls for reigning in tax-saving retirement accounts. These accounts, like an IRA, are used by virtually everyone to build up a nest egg while deferring immediate tax payments. The President's proposal would cap the use of tax-preferred accounts at $3 million. This is roughly the amount needed to finance a $205,000 per year annuity in 2013.

As the post notes, however, these changes actually open up a whole new level of complexity. It is unclear if defined benefits are included in that cap amount. The plan does not explain if Roth IRA earning are included. The cap would likely need to adjust every time interest rates rose or fell to account for annuity changes. The list of complications goes on.

It is important to remember that this is merely a proposed budget, with provisions that may or may not become law. Yet, it is also a reminder that all sorts of legal changes, even"closing loopholes," can have very real effects on the planning of so many New Yorkers. As always, the prudent step when unsure about how legal changes may affect your specific case is to ask your estate planning attorney and financial advisers for tailored advice.

Do I have enough to retire? Countless New Yorkers ask their financial advisers, estate planning attorneys, and other professionals that very question each and every day. There is no one-size-fits-all response, as retirement is a personal matter based on individual expectations, goals, and perspective.

Mountains of pages have been written about how much money you should have before retiring and what you should do with it. Perspectives abound.

Interestingly, there is less disagreement about general characteristics that make one more or less likely to be financially secure enough to retire. For example, the Wall Street Journal pointed to a new study last week which found that married couples are far better positioned to make the leap and officially enter retirement.

Couples Save More
Fights about money are common. Many relationships are made of one partner who is more frugal than the other, and disagreements about what to buy and when to buy it are persistent. The frugal partner in the relationship might daydream about the amount of money that they could save if they were on their own, without the compromises necessary for any healthy relationship.

But according to a new study from the National Bureau of Economic Research (NBER), on a system-wide scale, married couples are significantly better prepared for retirement than single individuals.

According to the NBER study, married couples who may be considering retiring (between 65 and 69 years old) on average have a nine-times larger nest egg than their single counterparts. That "nest egg" includes IRAs, 401(k)s, savings, and investments for the purposes of the study. Excluded were housing wealth and available Social Security.

The disparity is even more stark in raw numbers. In 2008 (the year that the study data was culled) married couples had saved, on average, $111,600. That compared to only $12,500 in savings for singles.

The Causes
The NBER did not delve into actual causation. But many different ideas are speculated about regarding the root reason for this disparity. For example, single parties are unable to take advantage of the "economies of scale" that allow married couples to pool resources and split costs that each would otherwise have to pay wholly on their own.

Divorce is also a costly endeavor, and it often takes years before divorced partners have the same income level they did during the marriage. Similarly, single parties are usually hit harder by tough economic times or catastrophic events. Whereas a couple can rely on one another for aid during difficult times, a single party may be decimated, requiring years (or decades) to deal with all of the financial ramifications.

Digital estate planning has attracted more and more attention in recent years as online assets become more central to our lives. On a legal front, the rules regarding inheritance destruction, and/or preservation of these online accounts remains unclear. That is because most rules are based on the terms and conditions of each individual social network or online program. For example, the process of taking down a Facebook page of someone who has passed away is not the same as taking down a Twitter account. There is little uniformity.

However, as the issues related to passing on access to these accounts grows, more social networking companies are working to enact different procedures and protocols to make the transition easier.

Passing on Google Account Data at Death
For example, last week the internet giant Google announced a new plan to help account users pass on access to their account in a seamless manner. According to reports on the policy change at the Wall Street Journal, this means that Google "became one of the first major Internet companies to put control of data after death directly into the hands of its users."

Per the policy changes, users of various Google services can now use a dashboard to set up a plan to take effect upon a certain period of inaction. Specifically, users can either delete account data or pass on data to a third party after either 3, 6, or 12 months of inactivity. This service is known as Google's "Inactive Account Manager," but most have colloquially begun referring to it as setting up your "Google heirs." The manager allows one to set up this process for most of Google's major services, including Gmail, Google Drive (cloud storage system), the Google+ social network, and more.

Importantly, even under this new protocol, Google does now allow a third party to actually control access to these accounts. This only refers to passing on data (emails, messages, pictures, etc.). That means that if you'd like to ensure your heir has actual access to manage these accounts, you will need to come up with alternative arrangements. Those alternatives might include having a running list of passwords and account names to be given to a set party upon death. There are many online versions of these "password lock boxes" which one can use. Some are free while others offer more advanced dissemination of online account for a fee.

At the end of the day, it is a good sign that Google is taking step to address the digital assets issue. Hopefully more and more networks take the same steps, preventing what is becoming a clear estate planning problem that many families must deal with in the midst of grief.

A case recently came before a New York court that delved into a very unique inheritance issue. The case, Matter of Svenningsen involved the inheritance rights of "rejected" adopted children. "Rejected" is a harsh word, but refers to children who were adopted and whose adopted parents terminate parental rights. It is a rare occurrence, but various health issues or circumstantial factors may make such change in parental rights necessary in some cases.

The circumstances in the Svenningsen case are somewhat complex. Essentially, a New York family adopted a child, Emily, from China in 1996. The family had executed a trust in 1995 the had specifically included adopted children. A second trust was executed in 1996 that specifically named Emily. Sadly, the patriarch of the family died the following year, in 1997.

Eventually, Emily began attending a boarding school for children with special needs. Apparently Emily developed a close bond with those working at the school. As such, several years later, in 2003, Emily's adopted mother agreed to terminate her parental rights under the assumption that Emily would be adopted by one of the director's of her boarding school. No mention of Emily's trust was provided during that second adoption hearing.

Emily's Inheritance Rights
Eventually the new adopted parents learned that Emily's first adopted father had created the trust in her name to pay for her medical and educational needs. The new parents sought to obtain access to those funds, but the first adopted family rebuffed the effort. The case escalated and ended up in a New York court. The original adopted family claimed that Emily's interests in the trust were terminated upon the second adoption.

However, in a first impression ruling, the court determined that Emily's inheritance rights were not actually terminated. The New York Surrogate's ruled that her interests in her original adopted father's estate (via trusts and inclusion in the will) were complete. Those interests had "vested" and she did not lose those inheritance rights because she was "adopted out" several years later.

The case is ultimately a re-affirmation that adopted children have equal standing with biological children in all regards. Previous courts had ruled that biological children who are "adopted out" do not lose inheritance interests in this regard. As a result of the ruling in this case, the same applies to adopted children who are "adopted out" again.

However, it is still important for families with adopted children to be careful to update estate plans following an adoption or other change in family structure. Depending on how trust documents or wills are written, children may be left out or desired protections may not actually be in place. Be sure to speak with your estate planning attorney after any major life event such as this.

Last week we discussed the release of President Obama's proposed budget. For estate planning purposes, one of the most obvious red flags in that proposal was a call for yet another edit to the federal estate tax. The President wants to raise the tax rate and lower the exemption level again, altering what was some thought was a more permanent fix agreed upon in the law passed in January.

But the estate tax is not the only aspect of the budget proposal which might affect long-term planning for New York residents. For example, the President is also calling for changes to how charitable contributions implicate tax matters. The possible change is being suggested in an attempt to increase tax revenues to plug budget holes.

The Future of Charitable Deductions
As discussed in a Forbes story, the proposal calls for a reduction in the value of charitable tax deductions. This is an idea that is not new, as the Administration has been calling for it for several years. The change would reduce from 35% to 28% the amount of any charitable deduction that can be taken for tax purposes.

Critics of the idea have been quick to pounce, one noted: "The White House proposal would raise the cost of giving to charity from 60 cents per dollar to 72 cents per dollar. That's a 20 percent increase in what can be called the 'charity tax.'" Some point to studies which indicate that anywhere from $2-$9 billion in fewer charitable contributions will be made each year as a result in the tax deduction shift.

Opponents of this shift also contend that the charitable tax deduction is unlike similar tools which may rightly affect only the affluent. For example, deductions can be taken for home interest mortgage payments. That deduction obviously benefits those with expensive homes more than those with smaller homes. In the same way, the charitable deduction benefits those capable of donating the largest sums more than those who are only able to give a little. But, there is a big difference between using taxes to incentivize the purchase of a large home versus using it to incentivize charitable giving.

As with the estate tax proposal, it is important to remember that many ideas in these budgets are merely opening salvos in negotiations--nothing is certain. But it is important for New York residents to be aware of this possibility and talk with an estate planning lawyer and financial advisers to see if it alters the feasibility of any long-term plan.

Last week we discussed the release of President Obama's proposed budget. For estate planning purposes, one of the most obvious red flags in that proposal was a call for yet another edit to the federal estate tax. The President wants to raise the tax rate and lower the exemption level again, altering what was some thought was a more permanent fix agreed upon in the law passed in January.

But the estate tax is not the only aspect of the budget proposal which might affect long-term planning for New York residents. For example, the President is also calling for changes to how charitable contributions implicate tax matters. The possible change is being suggested in an attempt to increase tax revenues to plug budget holes.

The Future of Charitable Deductions
As discussed in a Forbes story, the proposal calls for a reduction in the value of charitable tax deductions. This is an idea that is not new, as the Administration has been calling for it for several years. The change would reduce from 35% to 28% the amount of any charitable deduction that can be taken for tax purposes.

Critics of the idea have been quick to pounce, one noted: "The White House proposal would raise the cost of giving to charity from 60 cents per dollar to 72 cents per dollar. That's a 20 percent increase in what can be called the 'charity tax.'" Some point to studies which indicate that anywhere from $2-$9 billion in fewer charitable contributions will be made each year as a result in the tax deduction shift.

Opponents of this shift also contend that the charitable tax deduction is unlike similar tools which may rightly affect only the affluent. For example, deductions can be taken for home interest mortgage payments. That deduction obviously benefits those with expensive homes more than those with smaller homes. In the same way, the charitable deduction benefits those capable of donating the largest sums more than those who are only able to give a little. But, there is a big difference between using taxes to incentivize the purchase of a large home versus using it to incentivize charitable giving.

As with the estate tax proposal, it is important to remember that many ideas in these budgets are merely opening salvos in negotiations--nothing is certain. But it is important for New York residents to be aware of this possibility and talk with an estate planning lawyer and financial advisers to see if it alters the feasibility of any long-term plan.

Earlier this week we touched on the fact that estate tax issues need to be on all New Yorkers' radar, because the state tax kicks in at a far lower level than the federal tax. The federal rate was seemingly fixed as part of the compromise legislation that averted the "fiscal cliff" earlier this year. While any law can be changed, the passage of this legislation was assumed by most to signal some level of finality on the matter. Debate had raged for months (even years) about the exemption level and rate. The uncertainty was a challenge for estate planners, because it is more difficult to craft complex protection plans when the tax rules are a moving target

In that vein, regardless of one's own opinion of the estate tax, passage of the compromise bill was a welcome relief--offering stability. But that stability may be short lived, as proposals about changing the federal estate tax have are already making their way back into national political discussions.

Here We Go Again
As reported this week, President Obama released his administration's proposed budget. Part of that proposal calls for changing the estate tax in five years, back to the level and rates that existed in 2009. More specifically, this would mean an exemption level of $3.5 million and a top rate of 45%. That proposal is closer to what the President was hoping to achieve when in the midst of the fiscal cliff avoidance talks--he ultimately settled for a less aggressive tax. According to a Washington Times story, the exemption level in the latest proposal would likely affect about 3 out of every 1,000 taxpayers. According to the President's budget proposal this new rate and level would raise about $79 billion over a ten year period. Obviously he plans to use those funds to fill gaps in the federal budget.

Importantly, the same proposed budget includes various other tax changes and elimination of certain currently available planning tools.

It is unclear how likely it is that the President's budget will pass in any version similar to this proposal. There is a big difference between offering a budget and actually having it become law. That is especially true considering the House of Representatives is controlled by Republicans who have very different ideas about these issues. At the very least, it will be important to see how the debate around these issues take shape to get an idea of what tax changes may actually make their way through the system and affect estate planning strategies.