STATE SPECIFIC PROTECTIONS

        The current aggregate value of retirement assets in America is roughly $21 trillion, with individual retirement accounts (IRAs) amounting to the largest single investment asset.  While many, if not most, types of retirement assets and accounts are protected against creditors, the IRA is not necessarily one of them.  The various protections for IRA are dependent on the amount, how long ago you put the money into your account and the state or jurisdiction you live in.  Employer sponsored plans are covered by protections found in federal law, so it is much easier to talk about what protections exist for such plans.  The Employer Retirement Income Security Act of 1974 (ERISA) created a large host of protections for employees, including protections against creditors, except when the creditor is the Internal Revenue Service (IRS) or a spouse or former spouse for debt incurred through domestic relations.  

The protections found under ERISA have expanded over time through both Congressional action and judicial interpretation of the law.  ERISA plans must provide periodic updates to the employees, information about the plan features, creates fiduciary responsibilities for the plan administrators as well as things such as an appeal process for certain decisions that the employee disagrees with.  One large collective group of accounts that are not protected, however, are IRAs.  IRAs, as the name implies, are owned by an individual and thus do not fall under the protections of ERISA.  Most protections for IRAs are found in state law.  

PROPOSAL TO MOVE BACK TO PREVIOUS TRUST LAWS

As this blog discussed in the recent past, dynasty trusts are trusts that allow for a benefactor to pass wealth on to future generations via various legal mechanisms that allow a trust to carry on for literally hundreds of years, overcoming the traditional rule against perpetuities that limited trusts to a life in being plus 20 years, thereby ending the legal life of a trust essentially at about 90 to 100 years.  In March, 2016 President Obama submitted a proposed budget that includes a provision that would effectively eliminate these state trusts at about 90 years.

Every year, the Department of Treasury prints what is called a green book which outlines proposals, which, among other things, contains suggestions that the presidential administration believes are needed and appropriate changes to the law, policy or other regulatory and legal matters.  It also contains information regarding exceptions and issues that are unique to dealing with the federal government.  Under President Obama’s proposal, as found in after page 190 in the green book, this would be done by eliminating the generations skipping tax exemption at 90 years from the date of its creation.  

AN IMPORTANT AND SOMETIMES THANKLESS JOB

There are times in life when we all will have to do or engage in a thankless job.  One such time is when a close friend or a family member asks you to be the executor of their estate.  The difference between an executor and an administrator of an estate is small but noteworthy.  An executor is someone who is appointed by the terms of the will itself to administer the estate.  If there is a trust document to convey property to heirs, they are then known as trustee.  

An administrator is the title for the person who appointed to administer the estate by the Court when someone dies intestate, or without a will, or when the appointed executor refuses or cannot complete the task.  In either event the probate Court Judge must approve of the selection.  A recent survey by U.S. Trust found that three-quarters of high net worth individuals choose a family member or close and trusted friend to be the executor of their estate and two-thirds of the same people chose a friend to be the trustee for their testamentary trust.  The process is started when the executor presents the will and a death certificate to the Surrogate Court in the County in which the deceased resided.  The Court then issues letters testamentary to the executor, which is when the hard work begins.

SPRING CLEANING TIME MEANS CLEARING OLD PAPERWORK

        With tax day over and the need to collect and forward any number of financial and tax documents to the government and with the coming of spring, it is time to turn to spring cleaning.  The question should be asked, what paperwork can I throw out, should I throw out and what paperwork should I keep.  To be accurate, you should never throw out any financial paperwork, you should shred or incinerate such documents.  It is inevitable that in any such endeavor, you will come across documents that matter for purposes of your estate planning, such as wills, trusts and the various financial documents that speak to your estate planning.  In any event, you should rely on a system to help you collate these important documents for future use.  

You should keep certain original documents in an easily accessible but safe place, such as a fire proof safe or perhaps even a safety deposit box.  Things such as birth certificates or adoption paperwork, licenses and passports, marriage certificates, judgments of divorce, military discharge papers and social security cards.  Other documents do not necessarily need to be kept as an original, they should be regularly review, at least bi-annually, if not more often.  Documents such as a will, trust or other testamentary documentation will be kept by your attorney or law firm, but it still always best to maintain a copy or, better still, several copies on hand.

CHOOSING THE RIGHT PERSON AND STEPS TO TAKE

        As noted in a previous blog, being an executor of an estate can be a thankless job.  There are ways, however, that can allow you to make the job and life of an executor easier and less painful.  It is a job that carries with it much responsibility, so taking a few proactive steps may help to save the executor a lot of heartache.  One of the first steps you need to do, even before helping a named individual is to name the individual.  In other words, pick the right person; in fact it is even better to pick a few individuals as successors in the event that the executor passes away before you or is otherwise unable to serve as the executor of your estate.  Even better is to pick two people who will serve as co-executors; if you do this, you must make someone the primary person who shall serve and who has the final authority to make whatever decision needs to be made in the event that there is a disagreement.  

It is important to keep in mind that the person you chose is going to in charge of your assets that you amassed throughout your life.  All other things being equal, it is best to have someone who lives local and in the same state as you.  Few things in life provide such a stark choice.  It may be more important to you and the heirs, however, that you pick someone who is familiar with you, your wishes and your assets, even if they live further away or in a different jurisdiction.  If you choose a professional, such as an attorney, it is important to keep in mind that there will be costs associated with this.  If you permit and allocate a specific payment structure into the will or testamentary trust, it may not matter, since even a family friend or relative may also be entitled to a fee.  Finally, it is best to speak with that person in advance to ensure that they understand that they are being named as the executor of your estate and that they will do so.

VERY SIMPLE CONCEPT

This blog examined the dynasty trust in the past but it is time to reexamine certain aspects of the dynasty trust.  The dynasty trust is a trust designed primarily to avoid the generation skipping transfer tax when a person wants to leave money to their grandchildren or great grandchildren (or even generations beyond that).  Before getting into the nuts and bolts of what a dynasty trust is, it is best to outline some of the basic tax issues inherent in the generation skipping transfer tax.  

Grandfather wants to leave an asset to his son, with the intention that he will leave it to his son and for him to leave it to his son and so on.  Just to make the dollar figures simple, let us assume that it worth $10 million.  For further simplicity, let us also assume that grandfather’s estate already went through the federal (and state) estate tax exemption.  That means that son has to pay the current top estate tax rate of 40%, which means that the asset is no longer worth $10 million.  Instead it is only worth $6 million.  For further simplicity, father’s estate also passed through all of his estate tax exemption, so instead of the asset being worth $6 million when it passes to the grandson, it is now worth $3.6 million in light of the 40% estate tax.  And the process goes on and on.  

RULE OF HALVES

Many people find themselves going into nursing homes earlier than expected and without the appropriate planning.  Things happen in life to derail our best laid or thought out plans.  With more and more elderly Americans living longer, the need for nursing home care is increasing and will continue to increase indefinitely.  Whenever someone does not properly plan for going into a nursing home, often their personal funds will be the basis upon which they will pay for their nursing home care.  Certainly, there are those amongst us who purchase long term care insurance but for the majority of us, we rely on utilizing Medicare or private insurance or some combination of the two.  

This is a misconception, insofar as the most that Medicare will pay for is 20 days for full nursing home care and up to 80 days partial care, for a total of 100 days.  Moreover, this stay must be preceded by a three day hospital stay.  Any more time in the nursing home requires that the patient either pay through private insurance or by private pay.  Granted entry into a nursing home often comes as a surprise to many, but for those who have an idea that they may have to enter into a nursing home, they scramble last minute to dispose of their assets with the mistaken belief that they will be able to show to the government that they do not have any assets and are thus eligible for Medicaid, to pay for their further nursing home stay.

LARGE NEED TO REDUCE AND PREVENT FINANCIAL EXPLOITATION

        The American  Bankers Association is looking to serve a large market that is only getting larger by the day.  At the same time, they are working to shore up the larger financial markets in a larger effort to prevent financial fraud perpetrated against seniors.  As one banker noted during a speech on the topic, the banking community responded to the need to protect those with diminished ability to discern the difference between a real deal being sold by a legitimate vendor and a scam by predators.  In February, 2016 it launched the Safe Banking for Seniors program, with various state bankers association across the nation rolling out their own version modeled on the American Bankers Association.  

As of the inception of the program, 30 states joined in to help usher in the program.  The New York Bankers Association is not one of the 30 states and does not currently such a program.  Nevertheless, it is gaining popularity across the nation and many states bankers associations are seeing the utility and popularity of such a program.  Furthermore, the program is not restricted to states bankers associations, individual banks, regional banks and bank chains can join in the program.  As the American Bankers Association notes, 30% of the population of the country will be 60 or older by 2025.  The Consumer Finance Protection Bureau and the American Bankers Association both note that $2.9 billion per year is lost to fraud perpetrated against elder Americans.  Some estimates are as high as $36 billion per year, with only one in 43 cases of financial fraud against an elderly American properly documented and reported.  The primary program is designed for banks and bankers associations, which will in turn filter down to individual elderly bank customers.

COMMON PROBLEM

There is much talk lately of how to deal with email, facebook, twitter accounts, et cetera of people who pass away.  For those of us who have friends or family who passed away and see their facebook account send a reminder to all of their friends on their birthday or some other event, it is nothing short of strange, even ery to see their former friend live into perpetuity in the digital realm.  Many people use it as an opportunity to post memories and give a public shout out to the living that their friend or family is still alive in their heart.  Others find the matter to be a painful memory.  

Facebook instituted a policy whereby a legacy contact can delete your account or transition the account to a memorialized account, whereby your name will be changed to a remembered account (more properly a “remembering account“).  Currently, New York does not allow an executor, or anyone else for that matter, to access the emails, online drives and various other digital accounts owned by a person after they pass away.  If it was private while the person was alive, shouldn’t it be alive after they pass away?  Yet, this is a rapidly evolving area of the law, with private corporations creating their own rules in the absence of legislative pronouncements to the contrary.   In the 2012-2013 legislative session, Representative M. Kearns introduced a bill that would address the issue of access to such accounts by an executor.

PRINCE APPARENTLY DID NOT HAVE A WILL

The world learned recently that Prince joined the long list of celebrities who passed away intestate or without a will.  Some of the names on the list are surprising, others not so.  The Honorable Salvatore Phillip “Sonny” Bono, Michael Jackson, Howard Hughes, Abraham Lincoln, Pablo Picasso, Martin Luther King are all grouped together with such musical greats as Jimmy Hendrix, Curt Kobain and Amy Winehouse.  Pablo Picasso’s estate was valued at approximately $30 million upon his passing in 1973 and is now valued at several billion dollars and took several years to sort out.

 If a will does not surface, which seems likely, the local probate Court will follow Minnesota’s intestacy laws to divvy up at his estate which is initially estimated at at least $100 million and very well likely be worth several hundreds of millions of dollars.  While Prince was no doubt a creative genius on par with others who were considered truly great, his creativity did not go into the realm of financial planning, as a will is the most basic of all legal documents.  No doubt he could have afforded the most well paid team of lawyers to easily and without much interference value his estate and develop a legal strategy to help prevent public drama which could cost millions in legal fees as well as untold emotional costs to his family members and very well may cause an irreparable rift in family relations.  Prince and the other above celebrities, however, are in the majority, as the American Bar Association estimates that approximately 55% of Americans pass away without a will.  Forbes estimates that the number may be as high as approximately two out of three Americans.

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