March 2010 Archives

Same Sex Couples and The GLBT Community

March 19, 2010,

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by Michael Ettinger, Esq.

Same sex couples face unique estate planning issues since, in many jurisdictions, their unions are not legally protected. New York, for example, does not permit same sex marriages although the state does recognize same sex marriages performed elsewhere (i.e., Massachusetts, Connecticut, Vermont, Iowa and D.C.).

Living trusts are often the estate planning vehicle of choice for the GLBT community for a number of reasons.

1. They provide for your partner to be able to handle your assets should you become disabled. Powers of attorney and health care proxies/living wills are ancillary documents that also help insure that your partner will be in charge of all legal , financial and medical decision-making in the event of disability, free of interference from other family members.

2. Will planning has fallen into disfavor because (a) wills are significantly easier to challenge than trusts (b) a notice of the proceeding must be given to your closest legal heirs, providing them with an opportunity to object (c) the will is a public record, eliminating privacy, and (d) the legal process may be time consuming possibly delaying the surviving party's access to needed funds.

3. Simply putting your partner's name on your assets, or joint tenancy, seems to be a simple solution to many, until they learn of the pitfalls. First, for appreciated assets, such as stocks and real estate, there are tax disadvantages to receiving assets from a joint tenant. While inheriting from a will or trust at death eliminates taxable capital gains for the survivor, joint tenancy only eliminates one-half of those capital gains since you are only "inheriting" one-half of the property. Secondly, you may be exposed to the debts and liabilities of your partner. Thirdly, you lose control over where the assets go after your surviving partner dies. Perhaps you may want to provide for your partner for life, but state where the unused assets will go after he or she passes. Finally, once you make your assets joint with your partner, you may have more difficulty in getting those assets back in the event of a break up in the relationship.

4. Funeral and burial arrangements are often contentious matters. New York law allows you to designate the person you wish to have control of the arrangements as well as providing in writing the specific type of funeral and burial that you may wish.

5. On the other side of the coin, the inability of same sex couples to marry in New York does offer a couple of distinct Medicaid planning advantages in later years. Whereas for married couples the combined assets of the couple are available for the care of the ill spouse, such is obviously not the case for unmarried couples. So your assets are legally protected from your partner's cost of care. Further, while married couples who wish to plan ahead five years be setting up a Medicaid Asset Protection Trust (MAPT) may not name each other as trustee, such is not the case for unmarried couples. So if you wish to protect your home and life savings from nursing home costs, and cannot obtain long-term care insurance for any reason, you may each establish MAPT's for each other and need not go outside the relationship to put someone else in charge in order to protect your assets.

In our experience, crafting an estate plan for a same sex couple, that is thought through addressing all the potential social, legal, financial, health and tax issues, is a loving act that provides peace of mind knowing your choices will be legally protected and honored.

What to Do About Children Who Can't Handle Money

March 12, 2010,

by Michael Ettinger, Esq.
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It's an estate planning epidemic. So many successful parents we meet have children who are poor or worse at handling money, have not achieved significant success in life where they have garnered enough experience in handling money or they simply refuse to grow up. What's a parent to do?

Enter what has been termed the greatest invention of English common law: the trust. Trusts are legal entities that may hold and use assets for a beneficiary (your son or daughter) but have them managed by a trustee (one of more responsible adults, including a professional trustee).

Let's say your son Richard is the problem child. Your estate plan using a living trust would provide that upon your death or, if you have a spouse, upon the second death, Richard's share would go into the Richard (your last name) Trust with perhaps a family member and your attorney as co-trustees. The Richard Trust would continue for his lifetime, or until a stated age, perhaps sixty of sixty-five, when it would pay out to Richard. In the meantime, the trustees may use the money for Richard's health, education, maintenance and support. The trust can help him start a business or buy a house or, alternatively, purchase a house for him. Alternatively, the trust may go on for his lifetime and then, upon his death, to his children (at a stated age).

The sprinkling trust is often used in this context as well. Let's say Richard has two children and you are very concerned about them as well. You may set up a trust for Richard and his children and direct the trustee to "sprinkle" the income and principal amongst the beneficiaries, in equal or unequal amounts, whenever it is needed or will do the most good. So if one of Richard's children is accepted to Harvard, while the other goes to the local community college, the trust may help both. An added bonus with these trusts is that they keep the assets out of the hands of Richard's spouse who, in some cases, is a large part of the financial problem.

For children in dire financial straits or perhaps headed in that general direction, the effects of a potential bankruptcy on the inheritance and estate administration must be addressed. Noted New York bankruptcy lawyer, Jay Fleischman, Esq., has written about what happens if your son or daughter files for bankruptcy within six months of the date of your death. According to attorney Fleischman, "under the bankruptcy laws, people who receive the right to an inheritance within 180 days of the date on which they file for bankruptcy risk losing that money or property - even if they do not take actual legal title within that period of time. The right to receive that money or property is considered an asset of the bankruptcy that, depending on applicable bankruptcy exemptions (these vary from state to state), could be seized and distributed to creditors".

Nevertheless, by leaving assets to your son or daughter in a trust, giving the trustee discretion to distribute income and principal as the trustee sees fit, you may protect those assets from being lost in a subsequent bankruptcy proceeding.

There is a lot to talk about in a consultation concerning setting up a trust for an adult child, such as the pros and cons of naming siblings, other relatives, friends and professionals as trustees. Other considerations are how long the trust should go on, what payments the trust should allow or disallow, and who the back-up trustees might be. All your choices have their pluses and minuses which need to be fleshed out so as to provide the plan that best suits your family's needs.

Finally, one of the key features of our Lifetime Estate Planning Process, is the free review we provide every three years. This means that we will continue to monitor the estate plan so that if your son Richard turns things around and no longer needs the trust later on, an event we have experienced many times, the trust may be eliminated by the parent later on, before it is too late to undo it.