One of the essential functions of an effective estate plan is efficiently distributing your assets upon death. Using a beneficiary designation on assets that transfer on death can be a tool to efficiently transfer certain assets with ease if properly completed. Assets that can be transferred to a designated beneficiary upon death include insurance policies, bank accounts, retirement accounts, or other investment vehicles that feature a transfer or payable on death designation.


Types of Beneficiary Designations


Beneficiary designations include primary, contingent, and sometimes default beneficiaries. Upon the death of the owner, the asset will be transferred or disbursed to the primary beneficiary. If the primary designation fails, then the contingent beneficiary will receive the transferred asset. The default beneficiary will receive the transferred asset in the event there are no other primary or contingent beneficiaries designated to receive the asset. In some cases the default beneficiary may be a trust established by the owner of the asset, or the owner’s estate.


Beneficiary Designations and Your Estate Plan


If beneficiary designations are properly placed with respect to your assets, they can serve as an efficient part of your estate plan to the extent you desire a straightforward distribution to one or more beneficiaries in either proportionate or disproportionate amounts. Furthermore, the designated assets will transfer outside of the probate process in the same way trust property would. Beneficiary designations are not a substitute for advanced estate planning or a will, but can serve as an effective piece of your estate plan under the right circumstances.


Reviewing Your Designations


You likely have multiple bank accounts, a 401(k) plan, individual retirement account, and/or brokerage account. Reviewing the designations on these assets are an important part of the estate planning process, and should be reviewed regularly with your estate planning attorney and financial advisor. Many times a person forgets the original designations made when the account was established. Changing your designations is straightforward, but you do want to be sure that you are accurately identifying the beneficiary and the percentage of the asset to be transferred so as not to cause the designation to fail.


Properly Documenting Designations


To use beneficiary designations effectively, you must ensure that they are properly worded and accurately reflect your intent in much the same way a will or trust disposes of your property. Designations may be as simple as providing the name of the primary or contingent beneficiary, or they may require you to provide specific information. For example, when designating a trust you would provide “John Doe, Trustee and any successor Trustees of the Jane Doe Revocable Living Trust under agreement dated June 30, 1987, as amended.” If you were designating multiple beneficiaries, you might designate “25% to Johnny Doe if he survives me, and 75% to Janie Doe if she survives me, but if either does not survive me, the other shall take 100%, and if neither survives me, 100% to the personal representative of my estate.” Because designations can become complex, you would be wise to review your designations as part of the periodic review of your estate plan.

A recent Forbes article reported that while most family business owners do have estate plans, many do not update their estate plans regularly. Many circumstances can change over just the course of a few years, which makes a regular review of any estate plan necessary in order to capture planning opportunities and evaluate risk. For small business owners, it is also a good way to review their family business succession plan, which can help ensure the continuity of their business assets, manage tax liability, and avoid dilemmas that typically occur in closely held family enterprises.


Business Succession and Estate Planning


For many family business owners their business not only represents their greatest source of wealth, it represents a heritage and opportunity for the next generation. As such, family business owners have a strong motivation and obligation to plan for the transfer of their business assets. By not implementing a business succession plan, the value created over so many years will be at risk. Depending on the size of the business and other sources of wealth, failing to plan over the long term can create a greater potential for estate tax liability and put the family business at risk in the event of an unplanned transition. For these reasons, family business owners should create and continuously monitor a business succession strategy as part of their estate planning process.


Decisions in Business Succession Planning


If you are a family business owner, there are a few questions you can consider to begin shaping your business succession plan. The first question to consider is whether you will sell your family business and distribute the proceeds of the sale, or transfer control to other members of your family? If you do plan on keeping the business in the family, who are you going to have run the business, and who will have ultimate control if there are multiple family members participating in the operation? Answering these basic questions will provide your business succession and estate plan with direction and provide your estate planning attorney with enough information to start building a strategy for planning your estate and business exit plan.


Executing a Business Succession as Part of Your Estate Plan
With your goals refined you can begin the execution of your business succession plan, which will take place over the course of many years. Over that period of time, you will have several estate planning opportunities to execute your strategy. Depending on your needs and the size of business and estate your estate planning attorney can advise you how to use tools such as buy/sell agreements, annual gifting, special purpose entities, valuation strategies, life insurance planning, and the utilization of trusts. There are many options to consider, but waiting until it is too late is not one of them. That is why you should begin thinking about the future of your family business today.

Maintaining government eligibility for a disabled child or family member is extremely important for their long term care needs because such programs will often be the primary source for medical care throughout their life. A special needs trust is a way to supplement the needs of a child or loved one without risking program eligibility. Special needs trusts include self-settled trusts (grantor and beneficiary are the same person) and third-party trusts.


Establishing a Special Needs Trust

In many ways a special needs trust is established just like many other kinds of trusts. Special needs trust differ with respect to some specific provisions on the use and disposition of trust assets. Any special needs trust should clearly illustrate the purpose of establishing the special needs trust as providing supplemental benefits for the disabled beneficiary without compromising or reducing benefits received through government programs. The terms of the trust should also take into account the source of the trust assets. If a special needs trust is self-settled and funded with the beneficiary’s assets, the trust document must adequately address the requirements of New York and  federal law relating to the treatment of trust accounts and benefits under state plans. Special needs trusts that are settled and funded by parties other than the beneficiary need to provide for discretionary distributions of the trust assets for supplemental support so as to avoid being classified as assets available to the special needs beneficiary. Assets available to the special needs beneficiary will be counted as resources for means-testing for government benefit programs. Other important features of a special needs trust include requirements that the trustee:

  • is empowered to make distributions at their discretion;
  • should consider the settlor’s intention of establishing the trust as a source of supplemental resources, and not in lieu of government benefit programs;
  • is prohibited from making cash distributions to the special needs beneficiary, except as expressly provided by the trust document; and
  • should consider the effect that any distribution may have on eligibility.


Determining if a Special Needs Trust is Right For You

A qualified estate planning attorney can help you determine if a special needs trust makes sense for your estate plan. In determining if a special needs trust is the right tool for your situation, you will have to consider the applicable government program that the beneficiary will need, as some programs may not be means-tested and thereby reduce the need to restrict resources through a special needs trust. If you do decide a special needs trust is right for you, it is critical to have the appropriate provisions in the trust document to ensure that eligibility for needed public benefits is unaffected by the existence of the trust.

If you have included a special needs trust as part of your estate plan, you need to know the importance of making sure the distributions from that trust are permissible per the terms of the trust and do not defeat the purpose of the trust by affecting eligibility for needed government programs.


Effect of Distribution

A special needs trust is one way to supplement the needs of a disabled loved one without compromising eligibility for means-tested government benefits, including Supplemental Security Income and Medicaid coverage. With respect to means-tested programs, federal law will require a reduction in benefits to the extent the beneficiary receives income or assets are otherwise made available to the beneficiary. For example:


  • cash distributions from a special needs trust to the beneficiary will generally reduce benefits dollar for dollar;
  • distributions made to third parties for food and shelter for the beneficiary will reduce benefits (“food and shelter” include food, mortgage payments, property taxes, rent, heating, gas, electricity, water, sewer, and garbage removal); and
  • distributions of property made to third parties for the beneficiary that are not easily converted to cash, food, or shelter will likely not serve to reduce benefits, but property that can be easily converted to cash will be considered as cash equal to the fair market value of the property.


Distributions That Will Not Affect Benefits

De Minimis Gifts. With respect to Supplemental Security Income, the above rules do not apply to the first $20 per month received by the beneficiary, regardless of purpose or form

Certain Personal Items and Transportation. Payments for the purchase of items such as clothing and furnishings will not serve to reduce benefits so long as such items are not included as food or shelter. Transportation provided to the beneficiary is also excluded as an available resource and will generally not affect benefits.

Burial and Funeral Arrangements. A special needs trust may purchase burial space and pre-pay funeral costs for the beneficiary without penalizing the beneficiary or being included as an available resource.

Loans to the Beneficiary. A special needs trust may extend a bona fide loan to the beneficiary. It is important that any loan include feasible payment terms and be sufficiently documented.

Educational and Vocational Services. Payments for education and vocational services will likely not affect benefits as long as such disbursements are not for food and shelter, e.g., room and board.

Medical Expenses. Any distribution made for medical or dental care will not be characterized as income or otherwise reduce benefits.


Planning Your Distributions

Establishing a special needs trust is a way to help a disabled loved one receive supplemental benefits needed for their care and comfort. When making distributions from a special needs trust to the beneficiary or for their benefit, you need to consider the effect on existing government benefits and eligibility.

The State of New York’s estate tax does not mirror the federal estate tax regime in many ways. A lack of careful planning may result in a New York estate tax liability even where the estate is not taxed at the federal level.

New York’s Estate Tax

New York’s estate tax, like its federal counterpart, is a tax levied on the value of the decedent’s estate upon death, and before distribution. New York’s estate tax parallels the federal estate tax with some exceptions.

What is Taxable?

Persons owning real and tangible personal property located in New York are subject to New York’s estate tax. At a high level, the equation is straightforward, taking the gross estate, less deductions, then applicable credits and exemptions.

Your Gross Estate

Generally, your gross estate under New York law will mirror that under federal law, which includes all property, probate and nonprobate, owned at the time of death. If you are a resident of New York, your gross estate does not include real and tangible property outside the State of New York. If you are not a resident of New York, your gross estate includes real and tangible property located in New York. For nonresidents of New York, intangible property is only included in the gross estate if it is used in connection with a business in the state. Your gross estate is valued at the time of death, unless your personal representative elects the alternate valuation date, which is six months later.


Your taxable estate is determined by reducing the gross estate by allowable deductions. Common deductions include funeral and estate expenses, charitable donations, the marital deduction, Q-Tip trusts, and certain family-owned business interests. The estate tax is calculated based on the taxable estate. New York estate tax rates range from 3% to 16% based on the value of the estate.


At the federal level, no estate tax is due for estates below the exclusion amount, $5,430,000 in 2015. New York’s exclusions do not currently parallel the federal estate tax exclusion amounts. For 2015, the basic exclusion amount in New York is $3,125,000. If the taxable estate is less than the exclusion amount, no estate tax is due. It is important to note that unlike the federal estate tax, there is no portability of unused exclusion amounts. Generally, if your estate is valued at more than 105% of the basic exclusion amount, no exclusion applies.

Estate Tax Planning
With the help of a New York estate and trust attorney, you can effectively plan for the impact of New York’s estate tax. Common techniques aimed at reducing or eliminating an estate tax burden include a gifting strategy to reduce the taxable estate, implementing life insurance trusts, utilizing charitable deductions, and structuring trusts to capture the allowable exclusions.

Are you being told to avoid probate at all costs? The probate process is characterized as a long and tedious process of endless red tape and expense. In many cases avoiding probate can be a worthwhile goal; however, a closer look at the probate process may reduce the angst that is often associated with a sometimes inevitable end to the best laid plans.

Some Basic Vocabulary

If you have been exposed to the probate process in some capacity in the past in connection with a deceased relative or friend you may have had heard some terms not often used in everyday life. Here are a few basic terms you should know:

  • “decedent” means the person who died and whose estate is the now the subject of the probate proceeding;
  • “domicile” means the primary place of residence that establishes the venue for the probate proceeding;
  • “estate” means all the property or interest in property owned by the decedent at the time of death;
  • “personal representative” means the person with authority to administer the decedent’s estate; and
  • “issue” means a descendant from a common ancestor, such as children of the decedent, including adopted children.

What Does Probate Accomplish?

At a most basic level, the probate process in New York, like in other states, is a way for the decedent’s assets and debts to be settled and distributed in an orderly process in accordance with the decedent’s last will and testament, or the laws of descent and distribution if the decedent died without a will, also known as intestate. Probate is a court supervised process administered by a fiduciary of the estate, such as the decedent’s personal representative.

Steps in the Probate Process

Based the decedent’s domicile, a probate case will be opened and, assuming there is a will, the decedent’s personal representative will receive “letters” or authority to administer the probate estate. At this point it is important to understand the scope of the decedent’s estate. The probate proceedings are concerned with the estate of probate assets. This means assets disposed of by a trust or outside of the probate process, e.g. transfer on death accounts and deeds, are not within the jurisdiction of the probate court. Herein lies the widespread motivation to utilize non-probate transfers to reduce or eliminate the probate estate, and with that, the time, expense, and exposure related to probate administration. After an inventory of the probate estate is complete, the personal representative will settle the outstanding debts and claims of the estate. The assets of the estate are used to settle all proper claims submitted by creditors of the decedent. The final stage will be the final accounting and distribution of assets, which will close the estate. The foregoing represents the most basic sequence of a probate proceeding. There are many issues that can occur during the course of a probate case, including disputes brought by beneficiaries or creditors, that can add complexity to the proceedings.

Planning for Probate

There are estate planning steps you can take to avoid probate, including getting help from an estate planning attorney who can explain the nuances of the probate process in New York. If the estate is small enough, there are also summary proceedings available to lessen the burden and expense of the probate process. Having the knowledge of the process and what is included in the probate estate is a first step in dealing with the potential of probate for your or a loved one’s estate.

Trusts can be used as a useful tool in your estate plan to accomplish a variety of goals. One example is establishing a split-interest charitable trust. These charitable trusts are an irrevocable trust established for a charitable purpose of your choosing, while at the same time featuring a benefit to a non-charitable trust beneficiary. In addition to tax benefits received under federal law, charitable trusts offer the person establishing the trust, also known as the “settlor,” a controlled process to effectuate their gift to a selected charity. Examples of charitable trusts include a charitable remainder annuity trust (CRAT), charitable remainder unitrust (CRUT), and a charitable lead trust (CLT).


Establishing a charitable remainder annuity trust includes the transfer of property to a trust that first distributes a fixed annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt charity selected by the settlor. Similar to the charitable remainder annuity trust, a charitable remainder unitrust also includes the transfer of property to a trust that first distributes an annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt trust beneficiary; however, the amount of the annuity fluctuates with the value of the trust assets. A charitable lead trust differs from the charitable remainder annuity trust and charitable remainder unitrust in that the settlor will designate that the charitable beneficiary will first received a distribution of trust assets at least annually for a set period of time, after which the non-charitable trust beneficiary will receive the remainder of trust property. Each of these three split-interest charitable trusts offer dual benefit to a designated charitable purpose and the settlor’s non-charitable trust beneficiary.

New York Requirements for Charitable Trusts

After deciding to include a charitable trust in your estate plan, an estate planning attorney can help you create the trust vehicle to accomplish your goals. Charitable trusts established under New York law must adhere to several requirements and ongoing administration. The creation of a charitable trust under New York law is effectuated like other types of trusts where the settlor transfers property to a trustee for the benefit of a charity. Within six months of the settlement of a charitable trust, the trustee must register the trust with the State of New York Attorney General by completing the appropriate forms and submitting a copy of the trust document. Depending on the type and size of charitable trust established by the settlor, annual financial reports and fees may have to be submitted to the state. Charitable trusts are terminated upon their terms, or as a result of an action by an interested party or the State of New York on the basis that the ongoing administration of the trust assets of $100,000 or less is not beneficial.

You have saved and invested throughout your life to build enough wealth to fund your retirement. You have worked with your estate planning attorney to establish an estate plan to leave behind assets to your loved ones to share after you pass away. However, like many individuals, you are now considering giving your children or beneficiaries their inheritance before your death. There are many advantages to giving an early inheritance, but also some important considerations.


Advantages to Giving an Early Inheritance


Providing an early advance could provide your children with some needed financial help. Whether your children are experiencing financial difficulty, starting a new business venture, or are planning a big purchase, such as a house or getting married, providing them an early gift may be of greater value now than after your death.


For purposes of tax planning, New York does not have an inheritance tax, however, a handful of states do. If you were to relocate to a state with an inheritance tax, giving early may help alleviate that tax burden depending on the applicable state’s tax law. Giving early will also reduce the size of your estate for federal estate tax purposes, and therefore any estate tax that may be due if you have a sizable estate. Keep in mind that gifts within your lifetime may be subject to federal gift tax to the extent they exceed the annual exclusion, which in 2015 is $14,000 for each you and your spouse ($28,000 total).


Another advantage of an early inheritance is the that it gives you the opportunity to see your gift put to use. For many this provides a benefit to those they love, and provides them with lasting memories and a greater sense of satisfaction.


Additional Considerations


You will have to consider the overall effect your early gift will have on your financial future. Of course, you will have to consider if an early gift will compromise the funding of your living expenses and goals for the remainder of your life. You will want to meet with your financial advisor to ensure you are not overextending yourself with an early gift. You will also want to consider your family dynamic and the possibility of potential disputes among your beneficiaries in cases where you are giving unequally.


If you intend for early gift to be an advance on the donee’s share of your estate, you will have to take additional steps with the help of your estate planning attorney. For example, assume you have two children and your will provides that each child shall share equally in your estate. Assume you give child A $20,000 as a down payment on a new home while you are alive, and you give child B nothing. Now assume that upon your death, your estate has a value of $80,000. Per your will, child A and child B will each receive $40,000, even though you already gave child A $20,000.

Under New York law, if you intend for the $20,000 gift to child A to be a true advancement of their share of your estate you will have to execute a document evidencing your intention that the gift be treated as an advancement. If you intend the $20,000 gift to be an advancement and executed the proper documents at the time of the gift, child A would receive $30,000, and child B would receive $50,000 upon your death. Planning your gifting strategy with the help of financial and legal advisors will ensure your gifts are effectuated as you intended them to be.

When you create an estate plan, you face many decisions. One of those decisions will be how you should divide and distribute your property. You will spend a great deal of time deciding who will get what upon your death. One area that may need special attention is the distribution of your tangible personal property, especially those items that may not have significant monetary value, but may hold substantial sentimental value to you and your loved ones.

What is tangible personal property?


Under New York law, property is anything that may be the subject of ownership. The property specifically devised by your will or trust commonly includes real property, cash, stocks, motor vehicles, and other items of value you wish to pass on to those named in your will or trust. It is a good idea to define what you mean to include as part of your tangible personal property, which typically excludes cash, securities, and tangible evidence of intangible property. Generally, tangible personal property will include property, other than real estate, whose value is derived from the item itself, or its uniqueness, such as furniture, decor, jewelry, coin collections, photos, and other personal items you use in daily life. While you may consider your pets as members of your family, the law classifies pets as tangible personal property.


Ways to distribute sentimental items you leave behind.


After you identify what tangible personal property is included within your estate, the next step is to determine the best way to effectuate your decision as to who receives the property. You should discuss the relationships and dynamics of those receiving property with your estate planning attorney who can help craft provisions to help avoid confusion or later disputes. After addressing any potential issues that may come up among those who are receiving the property, you should identify the manner in which your personal representative or trustee will distribute the estate property. Because your list of tangible personal property may be very lengthy, and subject to constant change until your death, one practical method is using a document separate from your will or trust that outlines your wishes.


Because New York law does not provide for incorporating such a document in your will or trust in a way that would be legally binding, one practical approach would be to empower your personal representative or trustee with the discretion of dividing up your tangible personal property in their sole discretion or under a separate memorandum of wishes you may provide during your lifetime. In using this option, you should be sure that you are very comfortable with your selection of your personal representative or trustee and their commitment to carrying out your wishes. Also, your will and/or trust must also include the necessary provision that empowers the person to distribute the property and what to do in certain situations you may not have expected at the time of creating your estate plan or memorandum of wishes.


Other Considerations.


Certain property may require additional considerations. For instance, tangible personal property that has significant value may be better suited for specific reference in your estate plan, especially if the property is to be divided. Also, while frequent flyer miles and other reward point programs may fall outside the traditional definition of tangible personal property, these programs sometimes carry significant value, and you should check with your program for details on how these benefits may be transferred upon your death. Lastly, if you have pets, consider a trust for your pet that includes funds for its care. Just as your tangible personal property is unique, so are the alternatives for ensuring your property is distributed and cared for after you pass on.

Saving for the cost of your child’s or grandchild’s college education can be intimidating. Participating in a qualified tuition program, also known as a 529 college savings plan, that is administered by the State of New York can be an effective part of your estate plan, and a great way to save for college tuition.


What is a 529 Plan?


When you (the “participant”) enroll in a 529 savings plan, you open a special account with the sponsoring state program. This account is a tax-advantaged account that helps you pay for your designated beneficiary’s qualified higher education expenses, including tuition, fees, room and board, and required books.


What are the Advantages of Saving Through a 529 Plan?


The major advantage of a 529 college savings plan is that the earnings generated from your contributions are not subject to federal income tax. In addition, New York’s 529 plan will provide you with a state income tax deduction up to $5,000 for individuals, and $10,000 for married couples.


How to Get Started with a 529 Plan


The first step you should take is to review the disclosure documents of the 529 plan you are considering. If your plan has a favorable expense ratio, and provides additional state tax benefits, you should consider enrolling to set up an account. As part of that process you should consider any investment options offered by the plan. Next, you will begin to contribute to the plan through an automatic investment plan. When the time comes for the designated beneficiary to enroll in an eligible institution, you can begin to take withdrawals to pay for eligible expenses.


What Happens if the Designated Beneficiary does not Attend College?


Funds in your 529 savings account can also be used at a qualifying two year college, vocational, or technical institution. Also, you can always name a different designated beneficiary if your original designee does not attend college. If you do not use the entire account balance for eligible expenses, you can use the funds for other higher education endeavors, transfer the balance to a different qualified beneficiary, or withdrawal the balance. Withdrawing money for non-educational purposes may be subject to tax and penalties.


How does a 529 Plan Fit in my Estate Plan?


It is important to consult your estate planning attorney or tax advisor when structuring your contributions. Generally, your 529 account is not counted as part of your taxable estate for federal estate tax purposes. Contributions to a 529 plan are subject to gift and generation-skipping transfer taxes; however, contributions qualify for the annual gift tax exclusion. You will want to consider this if you make other gifts to the designated beneficiary. You will also need to consider how your participation in a 529 plan may affect your medicaid eligibility. In New York, accounts established in your name may be counted as part of your assets for determining medicaid eligibility. Under the right circumstances, participation in a 529 college savings plan can be an effective piece of your estate and financial planning.

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