October 2010 Archives

The Race to the Courthouse

October 25, 2010,

We received a call last Friday from a woman who said that her father had died but her stepmother was claiming that he did not have a will. The daughter was certain that he did, in fact, have a will.

What happens in such a case? Regardless what the daughter believes, unless a will can be produced there is no will. A check of the county probate court would be in order as some clients traditionally filed their wills in court for safekeeping, but this is rarely done today. There is also the possibility that the father destroyed the will he had, for whatever reason.

Another possibility is that all of the assets may have been made joint with the father's second wife and that she was also named beneficiary of any other assets, such as IRA's, annuities and insurance policies. In this case, all of the assets pass to the surviving spouse without any court proceeding and there is no need for a will or, if there is a will, there is no need to file it.

The remedies for the daughter would be two-fold. First, she could file a legal proceeding against the stepmother to compel an accounting of her father's assets. This may be costly and her claim against the stepmother, if all the assets were made joint or beneficiary designated, would depend on her ability to prove fraud or duress - a highly unlikely scenario.

Second, she may go to the probate court and request to be appointed "administrator" of her father's estate. An administrator, similar to the "executor" under a will, is appointed by the court as the legal representative of the deceased person. It is said they "step in the shoes" of the decedent and have full rights to act in their name. This way, daughter can approach any banks or investment houses where her father had assets and they must respond to her. She can obtain his mail and check for statements there as well. She can compel the stepmother to turn over all documents concerning her father's financial affairs. In the event that her father did have assets in his own name or assets that were left to his estate, these would be shared, by law, as follows. The first fifty thousand dollars would go to his wife and the rest would be split with fifty percent going to his wife and fifty percent going to his children, in equal shares.

Here is where the race to the courthouse comes in. Nothing stops the stepmother from going to court herself to be appointed administrator and gaining control of the estate. In such a case, the first to the courthouse, with a properly prepared petition, wins. We advised the daughter to come in to our office the following Monday and have the petition prepared on the spot and filed the same day. As this was written over the weekend in between, it remains to be seen what she will do.

Estate Planning for Art Collections

October 18, 2010,

Wassily Kandinsky, Farbstudie.jpgWith the economy improving, seasoned collectors are now watching the fine art estimates in New York's upcoming auctions. Collecting art, a passion and hobby for many, is also a way to accumulate and transfer wealth for next generations. The disposition of art, however, should include careful planning with a trusted and experienced New York estate planning attorney.Families often employ the "empty hook" method when it comes to art collections. When a collector dies, heirs quietly take valuable art work out of a home, sometimes claiming what is "theirs" by name tags placed on the objects. This creates an "empty hook."

There are many potential pitfalls when attempting to avoid the Internal Revenue Service's various taxes on the purchase, sale and transfer of fine art. The first and most dastardly is the limitless statute of limitations on estate tax fraud or on a taxable gift for which no return was ever filed (Internal Revenue Code Section 6501(c)). Because art never truly "disappears," one does well to remember that neither does a tax liability. An error of disclosure, e.g. not properly planning to gift art in adherence to IRS rules and regulations, may become a costly legacy to bestow on the next generation. (Tax fraud is not something to pass on.)

Heirs can also be liable for a penalty of 20 percent of the tax due if there is an underreporting of an asset's value by 50 percent, and a penalty of 40 percent of the tax due if the value of the property is underreported by 75 percent (IRC Section 6662). Failure to report assets at all subjects the owner to a fraud penalty set out in IRC Section 6663. These fines can also raise the transfer cost on an unreported piece of artwork to over 80 percent.
A valuable collection may best belong inside of a trust for proper administration after death.

A New York estate planning attorney is able to advise on when this is appropriate and why.

Tax code citations in this blog post were taken from Trusts & Estates Magazine, June 2005