On January 29, 2014, the New York Department of Taxation and Finance, Office of Counsel issued an advisory opinion in regards to a question regarding transfer of personal property from the settlor (creator) of the trust to the corpus of the trust. More specifically, a party inquired if “substituting” personal property from the settlor of the trust to the trust itself triggers sales tax liability. New York law now considers the transfer of assets from the personal property of the settlor to the trust as a taxable event. While the legal logic is sound, this adds to the list of taxes that one may have to pay when creating or funding a trust. Depending on different factors, the settlor must address a gift tax on the money or assets transferred to a trust. Any amount gifted above $14,000 per year is taxable by both the federal government and New York. The trust must also pay taxes on any income earned.


This scenario does not involve gifting, which has its own tax liability. The language used in the advisory opinion indicates that it speaks to a specific scenario, namely, when there is “a transfer of title or possession for consideration.” The logic that the New York Department of Taxation and Finance employed is simple. To exchange personal property to a trust involves a change in ownership, as the settlor and the trust are different legal entitites. At the same time, New York tax law imposes sales tax on the sale of every personal item, unless specifically exempt.


While previously a settlor thought that he or she could sell assets to the trust, without liability, or, just as important, without complication, now there is the need to address sales tax. What further complicates the matter is that New York City has its own sales tax of 8.875 percent while the rest of the state is at four percent. As such, the sale of a rental property for $1,000,000 now requires a payment of $40,000 dollars or $88,750 dollars, in addition to the various costs and taxes associated with real estate transfers.


California residents deal with similar issues to avoid the state’s high income tax. The manner in which it is accomplished is by converting a tangible personal item to an intangible. The settlor sells the property to an LLC, then passes the stock in the LLC over to the trust. This approach has already been addressed, at least in a peripheral way, two times in New York Division of Taxation and Finance advisory opinions. The advisory opinion of TSB-A-10(1)M, issued on April 8, 2010 approved of the avoidance of estate tax. While estate tax is obviously not sales tax, this opinion speaks to the same legal issues that are involved in analyzing whether or not sales tax applies, namely, location of the physical asset and transfer within New York state. The additional opinion of TSB-A-08(1)M, issued on October 24, 2008 addressed the same issue The larger lesson is that the LLC is a valid means to avoid tax liability.

Given the constantly changing nature of the law on estate planning, a consultation with an experienced estate planning attorney is well advised.


The Domestic Asset Protection Trust is becoming more and more popular lately in various jurisdictions. Alaska created the first such law, effective April 2, 1997, with Delaware’s law going into effect on July 9, 1997. Since that time, 13 additional states adopted some form of an asset protection trust scheme. At least one of them, Hawaii, openly states in the very language of the law itself, that it seeks to create favorable laws to attract foreign capital and entice wealthy individuals across the United States and world to deposit a portion of their net worth in Hawaii for asset and trust protection and management. It is designed to increase the assets within Hawaii’s financial sector, increase tax revenues and position itself as a leading jurisdiction in financial management. There is little uniformity across the jurisdictions. Some jurisdictions, such as Delaware, carve out an exception for child support and separate maintenance of a separated or ex-spouse, while others, such as Nevada, has no exception for child support or separate maintenance creditors.  


As with each of the 15 states, the protections afforded under New York law has its limitations. New York has not adopted an asset protection trust law, but had sufficient protections already in place, well before Alaska created its law. Those protections are permitted by discretionary trusts:

  • As early as 1926 New York held that a creditor cannot attach a trust to satisfy a judgment creditor. Hamilton v Drogo, 241 N.Y. 401 (N.Y. 1926).
  • This case was cited as valid and binding law almost 60 years later in 1984, when an appellate Court held that creditors cannot compel a trustee to satisfy a judgment creditor. Vanderbilt Credit Corp v. Chase Manhattan Bank, 473 N.Y.S.2d 242 (2d Dept.1984).

Conversely, for the benefit of the jugdment creditors,

  • The Court noted that this is not the case if the settlor and the beneficiary are the same person, in which case the whole of the corpus of the trust can be attached. Id. At 244
  • New York statutory law also provides that if the trustee and the beneficiary are the same person and the beneficiary may distributions from the trust without any guiding standards, such legal protections fail and the judgment creditor can reach the assets of the trust. NYEPTL 10-7.2.
  • New York statutory law further provides that a settlor who also serves as the trustee is barred from making discretionary distributions to him- or herself unless:
    • the trust document allows for such distribution;
  • it is revocable by the settlor during his or her lifetime; and
  • is for the “health, education, maintenance and support.

NY EPTL 10-10.1.

It is noteworthy that if a discretionary trust of created such the trustee and beneficiary are different people and the beneficiary has no ability whatsoever to control distribution, even the IRS cannot attach the trust, as it is a separate legal entity, which a Court issuing a judgment for the creditor against the debtor will not have jurisdiction.  


Gift tax liability and estate planning sometimes intersect.  The tax Court case of Steinberg v. Commissioner, 141 T.C. No. 8 (Sept. 30, 2013) deals with an interesting issue, if tax law can ever be interesting, where gift tax liability and estate tax liability intersect.  It is important to note that the opinion deals with gift tax liability and how to measure gift tax liability, it nonetheless deals with some important estate tax implications.  In 2007, Ms. Jean Steinberg gifted approximately $71,000,000 in cash and securities to her four daughters.  In exchange, the daughters agreed to pay the gift taxes as well as the estate tax on the transfer should Ms. Steinberg pass away within three years of the gift transfer.  An appraiser valued that the daughters assumed approximately $6,000,000 in tax liability for the estate taxes alone.  When Ms. Steinberg filed her tax return, the IRS disagreed with the $6,000,000 write off, as the daughter’s assumption of estate tax liability did not increase the value of the estate.  The Internal Revenue Service (IRS) claimed that Ms. Steinberg owed an additional approximately $2,000,000 in taxes and mailed her a notice of deficiency.  


Under 26 U.S.C. § 2035 the value of an estate increases by the amount of any gift tax paid by the decedent or the estate on any gift made by the decedent in the three year period of time prior to the death.  When the recipient pays the tax on their gift, tax liability is affected, since the donor receives the value of the tax liability from the recipient.  Gift tax liability is determined by the value of the transfer from the donor, not the value to the recipient.   As such, in the case at hand, when the recipients paid the gift tax for the donor, they escaped the increase in the value of the estate as required by 26 U.S.C. § 2035.  

The lesson that you should take away from the case is that decisions motivated by altruism and generosity, decisions that do not take into account tax law implications, such as giving a gift to your loved ones prior to you passing away, may have dramatic estate tax implications.  While the case deals with issues other than what is being fleshed out here, it is still provides an important illustration point for estate law issues.  If, as in the Steinberg case, the issue is a future payment of taxes, how does one measure that in present time? What if the future payment of taxes is based on a triggering event and the triggering event never occurs?  What if the person who agreed to pay the future tax passes away prior to the triggering event?  All of the contingencies can be planned for and addressed, but the key to dealing with them is foresight and deliberation.  

The transmission of your wealth after you pass away should be treated with the same amount of planning that you put into it building it. Nobody but an experienced estate law attorney attorney should be trusted for this important issue.   


On April 20, 2015 the Department of Labor officially published a proposed rule change in the federal register.  To put the matter in dollars and cents is approximately $17 billion dollars per year, according to one estimate by the White House council of economic advisors.  The proposed plan seems simple enough, but whenever $17 billion dollars is at stake, many voices on both sides of the debate will weigh in and drown out that which seems simple.  To add urgency to the matter, over 10,000 people per day are slated to retire over the next 15 years.  Most particularly, the rule would require that retirement advisers give investors advice that is in the client’s best interest.  The rule itself is called the “conflict of interest” proposed rule.  Another name for the client’s best interest is the “fiduciary rule”.  Registered-Investment advisors are already held to the higher standard, while brokers-dealers are held to a lower, “suitability” standard.  


The main critic of the proposed rule, not surprisingly, is the very industry who stands to have its ox gored by the proposed regulation.  One trade group, representing broker-dealers, banks and asset managers argues that the data used to support the conclusion that the rule will accomplish its intended goal is flawed.   The same trade group further argues that there is a serious risk of “unintended consequences” in the form of driving out a large number of investors.  

On October 28, 2015 the House of Representatives passed a bill aimed at blocking the proposed rules.  Entitled the “Retail Investor Protection Act”, it is not likely to be signed by President Obama and, as judged by the 245-186 vote, not likely to be able to overcome a presidential veto.  One supporter noted that “the fiduciary rule will take away investment advice from hundreds of thousands, if not millions of low to moderate income people.”


Supporters of the rule cite the obvious and self evident conclusion that those who advise you on your financial decisions should take your best interest into account and not some compromise which would allow for only “suitable” advice.  Furthermore, allowing for advice when the broker profits from creates inherent conflicts of interest.  In one widely discussed Washington Post article, a former Department of Labor economist contacted nine firms to elicit advice on how to handle his federal retirement Thrift Savings Plan.  Eight of the nine gave him advice that was clearly against his best interest.  The same article notes that in 2013 alone, workers pulled $10 billion dollars alone.  For federal employees, the cost between their default thrift savings plan and the average 401(k) plan is approximately 20 times as much.  

Protecting your nest egg for retirement should be a top priority, which should be revisited periodically.  Given the current state of the law, with all of the various claims on both sides and a potential change in the law, it is best to consult with an experienced contact an attorney to help determine for yourself what is in your best interest.  


In New York, as well as perhaps every other jurisdiction, an attorney may not serve as an attorney as well as a witness in the same case.  Rules of Professional Conduct, Rule 3.7 is mandatory and not permissive.  It does not matter if it is a bench trial, jury trial, traffic court case or surrogate’s court case.  In fact, the rule is so important to judicial administration that even partners and members of the same firm cannot act as a witnesses.  Courts refer to the issue as the lawyer-witness rule and it comes up often enough in surrogate court cases.  The June 2, 2015 case of Will of Lublin, 2015 NY Slip Op 31038(U) is a good example of how estate lawyers face these issues.  While the lawyer in Lublin avoided the issue of Rule 3.7, a small change could have made it not so.  Very briefly, the decedent, Mr. Irving Lublin, executed a will in 1997 and passed away in 2010. Someone objected, claiming that the decedent did not have sufficient mental capacity to create such a will, the will was not properly executed and that the will was the result of fraud and undue influence.  The lawyer who drafted the will was deposed during the discovery phase.  If, perhaps, the attorney who created the will also represented the executor, an entirely plausible and even relatively normal scenario, the attorney would be disqualified, as he/she would be a material witness.  


It is not surprising that the attorney who drafted a will would have unique insight into the mental state of the decedent.  It is not unusual for a will to go through several drafts before it is  properly worded and structured.  During this time, the attorney may be able to determine if the decedent is subject to undue influence.  Moreover, the drafting attorney often witnesses the signing of the will, even if they are not listed as a witness on the will.  They can offer an insight into any particular events or unusual circumstances that allow for the inference of fraud.  


While experience alone is not going to save every attorney in every situation from making a mistake, lawyers and lay people alike know that the more experience an attorney has the better they are able to avoid mistakes.  Experienced attorneys know how to insure that there is sufficient evidence to avoid a surrogate court battle.  Here are some simple steps to avoid such a batte:

  • Disinterested witnesses sign the will and certify that they found the testator to be of sound mind;
  • If there is a drastic change in the terms from a previous will, the reason for the change should be sufficiently explained;
  • If a child or other potential heir, who would inherit in the event the will is invalidated, is cut out, the reason for that must be explained;
  • If the testator decided to grant gifts or otherwise depleted the estate, the reason for this should be outlined

When you decide to create or review your will, it is is essential you speak with an experienced estate planning attorney to help avoid these issues and to see to it that your will is administered without complication.  


The issue of how to deal with the collection of fine art that you amassed over the years should be dealt with now rather than allowing your heirs decide for you.  Perhaps your heirs do not have any appreciation for your original Ansel Adams or Edward Curtis photo collections.  If you view it as an investment, then timing your sale to maximize profit should be the most important criteria.  Timing may not be right for several years or it may be right now.  If you are looking to maximize profit which will only go to to your estate, you may consider waiting to pass it on.  If, you happen to value your art collection because of its intrinsic artistic value, you have another set of criteria by which to make your decision.  Perhaps you have a family member you know would appreciate it more than say your son or daughter.  Perhaps you should sell it to insure that the artistic value continues to be appreciated.   Country Living spotlighted an artistic marble collector who decided to sell his collection to insure that it would continue to be appreciated.  In any event, Capital gains tax on collectibles, gift tax and estate tax, both state and federal, must all be considered.  


The top 2015 federal estate tax rate is 40 percent, while the federal estate exemption is 5.43 million dollars.  That means that you can pass just under 5.43 million dollars to your heirs without incurring any federal estate liability.  In 2014 the New York legislature passed a bill which changed the state estate tax to mirror the federal tax exemption, but with a variable tax rate, depending on the size of the estate.  


The current capital gains rate for collectibles is 28 percent.  If the art is an investment, this is obviously a better tax rate than the 40 percent required if it is included in an estate.  But the discussion does not end there.  If you intend on passing that cash on in your estate, depending on the amount, it may be double taxed.  If you gift the cash to someone, you also may be double taxed.  In 2015, you can gift up to 14,000 dollars per year without any gift tax liability with a lifetime maximum of 5.34 million dollars. If you gift away more than 14,000 dollars, it is included against your estate tax exemptions.  


  • As noted above, the first thing you need to decide is how do you want to deal with the art itself.  Is it an investment or something more?  
  • If you are passing on certain items, they may be subject to further documentation.  Not surprisingly items of military historical value, such as historical guns are all subject to numerous state and federal laws.  It is best to gain a basic understanding of that those laws are.  
  • Get appraisals of your works of art.  Three different groups to contact aht may be able to help are:


There are no numerous ways to avoid the issues that are involved in estate planning.  You can create a trustee, with a trusted friend or family member as the appointed trustee.  You can create a corporation with only a limited group of people able to own the stock.  You can create the rules of that corporation, that decides in advance who gets to sell, under what circumstances they can sell their stock.  You can decide what and when certain items are sold.  

Whatever your decision, it will require legal counsel to guide your decision every step of the way.  Only an experienced

estate planning attorney should be considered for these decisions.


Some animals are undoubtedly beloved pets.  They provide us with love and companionship, while there are other animals that are more than pets.  For example, horses are an investment, they are a partner in exercise, they help some children with therapy and a comrade to see the world with if you ever had the distinct pleasure of exploring the wilderness on horseback.  Seeing eye dogs or other therapeutically trained animals are literal life savers in some cases.  All of these animals are deserving of the full legal protections that you can provide to them.  Pet trusts are not tools reserved for the rich and eccentric.  As of 2012, 46 states (and the District of Columbia) have laws in effect that allow for pet trusts.  In 1996, the New York legislature enacted NY EPTL §  7-8.1, which allows for the care of any pet or animal by way of a trust, which terminates when the beneficiary animal dies.  In fact, pet trusts are so popular and well ingrained in the law, that there is a model, uniform law, found at Uniform Trust Code 402.  Pet trusts are now practically commonplace.


There are some distinct issues that you will need to address if planning for your pet.  The first is whether you want to plan for your pet in your will or create a trust.  If you address the matter in your will, it is generally more inexpensive and easier to plan for.  Wills, however, dispose of property, they do not impose enforceable promises upon the caretaker.  Wills are more likely to be invalidated by a Court and wills only fund for the caretaking of the pet one time.  If you have an expensive animal, such as a horse, you may need to insure continued funding and care.  Trusts generally require more planning and involvement in its creation, but allow a greater degree of peace of mind and assurance that your wishes will be carried out.  Trusts allow for a stream of income over time.  If the trustee or caretaker is unable to fulfill their obligation the law allows for a Court to appoint another trustee or caretaker.  In addition, you do not need to wait for the trust to be administered as you do a will.  


There are several issues that best practice dictate you should address, whether you choose a will or trust.  

  • Ownership:  Pets are property, hence the need for an owner.  A trust document can still control even with a third party owning the pet.
  • Financing:  Paying for a pet rabbit is easy.  This issue rears itself for more expensive animals such as a horse or exotic animals.  You should also take into account the medical care for the pet.  Horse owners know that horses even have their own dentists.  If you have an large animal, transportation is necessary.  Additional insurance costs may be incurred to transport them.  The caretaker’s homeowners policy may increase or require a separate liability policy.  
  • Remainder beneficiary:  If there is money left in the trust when the animal passes, who gets that money?
  • Income generated: If the pet is also an investment, such as allowing for stud fees, who receives the income?

Whatever your decision, it will require legal counsel to guide your decision every step of the way.  Only an experienced estate planning attorney should be considered for these decisions.


There are many reason why people decide to adopt an adult, but there is essentially only one legal effect: the adopted child is legally treated as if they were a biological child.  Most people would be right to think that the primary legal result is a creation of inheritance rights in the newly adopted adult.  There are, however, more rights attendant to being a child of some.  Some veterans have the right to have their children attend a military academy without concern for the state quota or be eligible for certain scholarships as well as other benefits.  A parent can add a child to their health insurance the age of 26, even if they are married.  


Perhaps the most common reason for adoption is simply love.  Step parents sometimes raise kids as if they are their own and love them just the same.  Perhaps the child reached adulthood and expressed a desire to be legally recognized as the child of the only mother or father that the young adult has known.  The same can be said of a long term foster parent to the foster child.  Other times the “parent” wants to recognize a long time caretaker or loyal employee.  A person may only leaves money to their grandchildren, in which the child of the grandparent can adopt, so as to insure that their adopted adult can legally be considered grandchildren, as what happened to the heir to the founder of IBM.  The reasons can be endless.  


Compared to other states, New York has little restriction on who can adopt and practically no restriction on who can be adopted.  The only legal impediment to adoption in New York is if the person to be adopted is over 14, they can object.  For estate planning purposes, adoption is superior to leaving money in a will, as the adopted parties’ inheritance rights are less likely to be cut out, as to do so would require a Court to overturn an adoption.  It is more likely for a Court to invalidate a will than overturn an adoption.  The adoption also ends any legal relationship that may exist as a result of biology.  This obviously applies to the biological parent-child relationship, but what of an adult child vis-a-vis minor child sibling relationship?  New York state carves out this exception in some limited circumstances, although the issue of the right to sibling visits following an adult adoption is unaddressed in New York in a broader context.  


The Florida case of Goodman v. Goodman, 126 So. 3d 310 (Fla. DCA 2013), is a good example of some of the issues that arise as a result of a failure to plan.  The most critical thing that you have to do with any adoption is notice.  In the Goodman case, the notice at issue was that the adoptive party stood to inherit under the adopting parties family.  Other heirs to that estate stood to lose at least a portion due to the new adoptive parties inclusion.  The Florida appeals Court found that the adopting parties’ family had a right to notice.  While the circumstances of the Goodman case are specific to Florida, all potential heirs should always be put on notice, so as to avoid any future potential issues.

Whatever your decision, it will require experienced legal counsel to guide your decision every step of the way.  

On June 24, 2015 a trial Court in California invalidated a California law as unconstitutional, which created a default surrogate decision maker when that individual is mentally incapacitated and does not have a family member, or anyone else for that matter, to make key decisions for them.  The law and the issues addressed are not limited to California.  Even though by definition, the law deals with individuals with no proxy decision maker, that does not mean someone did not exist in the past or could not step up to become one.  Proxy decision makers pass away themselves, they move or simply just fade away and no longer attend to their responsibilities.  New York law deals with these issues in a rather collaborative way.  In 2010, New York enacted the New York Family Health Care Decisions Act, which creates a decision ladder for medical professionals who need to know with whom to check with for certain critical decisions.  It was designed to avoid the parade of horribles that the California law dealt with.  Certainly, no one wants a loved one or relative, even a distant relative, to have to rely on these provisions; they are used as a last resort.


In the absence of a health care proxy, The New York Family Health Care Decisions Act begins to shape decisions, for all intents and purposes, at the time of the determination of incapacity.  

  • First, there is an in house decision making process by which specially licensed individuals may decide if a patient lacks the capacity to decide certain health care decisions;
  • Second, if there is a determination that the patient lacks capacity, the patient and the prospective surrogate;
  • If the patient objects to the determination, or the choice of surrogate, the patient’s decision controls;
  • Unless there is a legal determination of incapacity by a Court.

Each step outlined above has further breakdowns in procedures to help avoid the matter escalating to the next step.  For example, step two notes that if there is a determination of incapacity, the first person who may act is a court appointed guardian, if there is one, next is a spouse, an adult child, a parent, a sibling, even a close friend.  The surrogate decision maker’s consent is not necessary if the patient already made a decision, even if only made orally and not memorialized in writing.  The decision must be in line with the moral and religious beliefs of the patient.  


The New York Family Health Care Decisions Act by definition does not cover those who have a valid health care agent via a health care proxy, as well as other circumstances, such as when a guardian is appointed due to mental or cognitive limitations.  The issue of allowing essentially a stranger, albeit a well intentioned and competent one, can be avoided by creating a well crafted health care proxy with multiple contingencies built into it.  Health care proxies can allow for a second health care agent in the event that the first health care agent is not available. A third and fourth even can be named in the event that the the first two or three are not available.  

There is no better way to deal with these issues than by consulting with an elder law attorney who can create a road map to avoid these issues.   

Say you live here in New York and made significant plans to avoid probate.   You have a will, own a business that you pass on and even set aside significant assets for your grandchildren. You worked hard to put your financial house in order.  Now you find out that you have to move to another jurisdiction for work and will likely be there for some time.  More likely than not your will and other plans to avoid probate will survive as legally enforceable documents in the new jurisdiction.  Nevertheless, you worked hard for your plans to be finalized and do not want to live with the idea that “more likely than not” your plans will be followed.  As such, it is always best to check with a local estate planning and review your plans.  


There are a few things to keep in mind when it comes to decisions on where to live and changes in law and nuances on how to handle the change.  Most laws are relatively uniform throughout the country.  Procedure may be different but substantive laws are similar in many cases.  Except when they are not.  Some issues have two different ways of handling things.  A good example is common law states versus community property states.  Community property states are generally Rocky Mountain states and west (Louisiana and Wisconsin are the exceptions).  There are some important differences in their approach to passing on assets between the two camps.  Another factor to address is that you need to clarify your residence or domicile or you may end up paying taxes in two different states, as what happened to the heir to the Campbell’s soup fortune in 1939.


If you acquired property during the life of the marriage in a common law state, it is not necessarily part of the marital estate.  The normal, almost default form of ownership of significant assets is tenancy by the entireties.  This seemingly simple issue has important estate planning implications.  Most importantly, the whole of the basis in the property in issue of the community property steps up from the original basis cost to the current market value.  Half of the difference between original basis and the new, higher basis must be accounted for in the decedent’s estate, which may or may not have tax implications depending on many factors.  What is sure is that the surviving spouse will have lower capital gains tax liability, due to the new, higher basis amount when he or she sells that property.  Compare that with common law states approach, which only allows for the deceased spouse’s basis to step up.  


Different states have different estate taxes thresholds.  Some states tax the estate of the deceased while others tax the inheritance that heirs receive.  All states allow spouses to inherit tax free.  The federal government taxes any estate above five million dollars.  Some states have higher thresholds and others lower.  

Gifting, trust creation and asset allocation or financial planning are all legal and appropriate estate planning tools. Only with the assistance of a trusts and estate attorney can you assure yourself that all of your planning will not be for naught.  

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