June 2011 Archives

Dispelling Common Retirement Myths

June 29, 2011,

On Monday the Metro West Daily News discussed some myths about retirement. Popular culture, water-coolers chats, and other daily interactions often spread misconceptions about what it means to plan for retirement and what it takes to be financially secure in the future. Many area residents put in a lifetime of hard work, and it is important that theirs effort not be compromised through misunderstandings about the retirement process or failure to conduct proper New York retirement planning.

The article noted that one of the biggest misunderstandings relates to the overall cost of retirement. It is often a mistake to believe that reaching a certain net worth or portfolio value will mean that one can retire in luxury. The expanding length of retirement is one of the main reasons that this is no longer true. Sixty years ago, most individuals retired at sixty-five years old and usually lived until they were seventy. With life expectancy now at eighty years and beyond, the total money needed to retire at a certain lifestyle has increased.

There is a significant difference between funding a five year retirement and one that may be twenty years or more. Most will not have a "magic number" that will guarantee decades of luxurious retirement. Instead, residents need to take what they have accumulated and conduct proper planning to maximize their retirement value while preparing for contingencies.

Another of the myths shared was that individuals need not worry about planning for nursing home costs, because Medicaid will cover it. However, as anyone who has had to go through the process can attest, it is not that easy. Various requirements of need must be shown before the program will provide aid. In particular, if nursing home care is needed, there is a five year "look back" period. That means that Medicaid investigators will examine the asset transfers that have been made in the last five years to determine if property was given to others that could have been used to fund long-term care. Area residents can avoid this issue by having a proper New York Medicaid strategy in place to protect assets while ensuring access to the care they need.

The importance of preparation is why the article mentioned that perhaps the most harmful myth about retirement is that someone does not need any help in planning for it. Retirement planning encompasses a variety of components, each of which may require complex understandings of tax, financial, and legal issues. Without assistance strategic mistakes are often made.

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Marriage Equality May Change New York Estate Planning Needs for Same-Sex Couples

June 27, 2011,

Late Friday evening New York Governor Andrew Cuomo signed a bill that had just been passed by the state Senate giving same-sex couples the right to marry in New York. The signature was the culmination of an intense week of politicking at the statehouse which drew national attention. Passage of the measure will have important consequences for the lives of same-sex couples in our area, not least of which include effects on those individuals' New York estate plans.

New York became the sixth state to allow these unions and in doing so provided same-sex partners with a variety of financial benefits and legal rights. Before having the option to marry, many gay couples conducted unique planning in order to protect their assets, provide for their loved ones, and plan for their futures. With passage of the gay marriage law, those couples may rightly wish to reevaluate to understand how marriage rights will affect their previous New York estate planning efforts.

This weekend the New York Times blog discussed the way that the measure will alter the financial lives of gay couples who decide to marry. For example, those with large estates may now benefit from the unlimited amount of assets that New York allows their spouse to transfer at death. Previously, those individuals were subject to an estate tax on all gifts over $1 million. The federal tax will not be affected.

Also, couples may now file joint state income tax returns. Depending on the income level of those individuals, this may either increase or decrease the couple's overall state tax burden. However, spouses in gay marriages must still file individual federal tax returns.

Partners who had previously taken advantage of domestic partnership insurance will no longer be required to pay state taxes on those benefits (they will still owe taxes at the federal level). New York state employees will now be able to treat their spouses like their heterosexual counterparts, making them eligible for health insurance, pension survivor benefits, and other rights. In addition, same-sex spouses now have access to workers' compensation benefits and the ability to bring wrongful death lawsuits on behalf of their partner.

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Adult Children Often Remind Senior Parents of Estate Planning Importance

June 24, 2011,

Proper New York estate planning has ramifications beyond the lives of the planners themselves. Whole families are impacted by these decisions. The far reaching consequences mean that it is often appropriate for concerned family members--like adult children--to remind parents of the value in proper estate preparations.

An article yesterday in the Monterey County Herald discussed the role that adult children often have in encouraging their parents to adequately create and update estate plans. A concerned daughter had contacted the paper to ask for help working with her parents through the process, because she noted that "their estate is a mess." Apparently several years ago the woman's parents contacted a small firm with only one office seeking help to create a living trust. The trust was created and then forgotten about. Several years later the family wanted to update the plan. However, the employee who created that trust had left town without leaving any contact information. The senior couple eventually gave up trying to contact the man and have resigned themselves to being satisfied with the outdated documents.

The couple's daughter explained that, like many area residents, her parents did not like to discuss the issue. The adult child knew that her parents' most valuable real estate holding was not in the trust and she was completely unaware if they had valid wills, list of assets, life insurance, or burial insurance.

Expectedly, the daughter was strongly encouraged to have her parents get in touch with a new, competent estate planning professional to update the plan. It was explained how it was imperative that the parents trust, will, and medical directives be in place and reflect the couples' current assets and wishes. The failure of valuable assets to be included in the trust would lead to unnecessary and costly probate.

These issues are often tough for many parents to discuss with their children. That is why it is sometimes necessary for children and other loved ones to take time to ask about estate planning matters and provide encouragement to ensure that the task is not ignored. The protection of important assets, security of long-term care plans, and necessity of clear medical directives affect everyone in a family.

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New York Estate Planning Attorney Shares Common Estate Planning Mistakes

June 22, 2011,

Earlier this week an article authored by our New York estate planning lawyer, Bonnie Kraham, Esq., appeared in the Times-Herald Record. The story discussed the need to avoid two of the biggest estate planning pitfalls--failure to address all relevant issues and failure to properly update the plan. The planning process is usually more than the creation of a single document or solution to one particular issue. Instead it should be a comprehensive review of a client's entire situation. The plan should address potential disability issues, minimize or avoid estate taxes, streamline the cost and duration of the settling of an estate after death, and protect assets from nursing home costs. Seeking professional help in this area ensures that each and every one of these issues is addressed and included as part of the overall plan.

Ms. Kraham explained the importance of taking stock of life contingencies that may alter the legal position of an individual and affect an estate. New marriages, divorces, children, and deaths have significant impacts on New York estate planning matters--a proper plan accounts for them. One example is a situation where a client's children are in a second marriage but have their own children from a previous marriage (the client's grandchildren). Special steps may need to be taken to protect the rights of those grandchildren to appropriate assets from the client. If the client's child predeceases her second spouse then the family assets may pass to the second spouse while leaving the grandchildren with nothing. An inheritance trust is one way to avoid this scenario and provide protection to all those in the family who need it.

Besides accounting for as many contingencies as possible, a proper estate plan must also be updated on a regular basis. There is no way around that fact that life changes will alter the family situation in ways that may require modification to a plan. Also, changes in the law may also have occurred which require alterations to previous strategies. Therefore, our attorneys suggest that the plan be reviewed at least once every three years. The important point is to remember that the best plans are not documents that are drafted and then collect dust in a drawer for decades.

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Estate Planning May Be A Family Decision

June 20, 2011,

New York estate planning is often delayed by some local residents because it generates unpleasant thoughts about mortality, personal loss, and difficult healthcare issues. Like other uncomfortable tasks, many community members put off the process even when they honestly accept the need to properly get their affairs in order. In many cases, proper planning is only commenced when an entire family comes together to discuss the issue.

Yesterday, a Question and Answer section of the Northwest Times included a query from a woman who was having trouble getting her husband to meet with an attorney to discuss their estate plan. She explained how the two of them had scheduled several meetings but that he had always come up with an excuse at the last minute to cancel it. She was asking for advice on ways to better explain the importance of the issue to her husband and get him to proceed.

It was shared how individuals have different reasons for their reluctance to getting the ball rolling. For some, there is a misconception that they do not have enough wealth to require any kind of plan. Others wrongly assume that they do not really need a will or other fancy legal documents because they know someone who died without one. Still others have concerns about the time and cost of these plans.

The story concluded by advising the woman that she might want to share with her husband that these plans are actually important family decisions that affect everyone, including children. Besides ensuring that as many assets are passed along to them as possible, these plans also help with issues like who will raise the children in case something happens. Proper estate planning requires careful thought, discussion, and document review. The best plans sometimes require entire families to explain their thoughts, concerns, and goals. These and similar decisions are much better made by family members ahead of time than by state lawmakers and courts using default rules.

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Succession Plans Are Essential for Family Businesses

June 16, 2011,

Emil Deister founded the Deister Machine Company in 1912. The business makes pieces of equipment known as vibrating screens which are used in the mining industry to separate different sizes of gravel, stone, coal, and sand. Despite ups and downs, the company is still in business today shipping products around the world and employing 160 individuals in its four plants. In fact, not only is the company still running, but because of solid business succession planning it is still family owned and operated.

This weekend the Journal Gazette profiled the current CEO and chairman of the enterprise, 82-year-old Irwin Deister Jr. The man was recently honored by his company for his 60th official year as an employee of the family business. He represents the third generation of family leaders of the company founded by his grandfather.

Unfortunately, the Deister family is unique its ability to maintain its family business throughout the years. Ninety percent of American businesses are family owned, but less than one-third of them survive to the next generation. Even fewer make it into the third generation like Deister Machine Co. Many family businesses in our area fail to survive throughout the transitions because of a lack of a New York business succession plan.

The process of ensuring the smooth transition of a business into the next generation is a difficult one for many. It involves tough discussions about mortality, family preferences, and conversations about letting go of a venture that may be a life's work for those involved. Yet the challenges of the process should not be a deterrent to responsible planning.

For example, while still going strong after 60 years on the job, Irwin Deister and his family co-owners have long had a proper succession plan in place to ensure that the business carries on. He has worked with his cousin to divide responsibilities. Details in his will provide for his interested relatives to buy his shares of the business. In addition, the family has had preparations made to determine which of the younger children are interested and capable in succeeding in running the operation.

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The Dynasty Trust May Keep Inheritance In the Family

June 14, 2011,

Some area residents assume that they do not need a New York estate plan because they have no special requests, just a desire to pass on their inheritance to their children. They often wrongly assume that the "default rules" would work just as well as anything that a professional could create. Yet, the rules that the state will apply to inheritances are often much different than what one might suspect. For one thing, it takes specific, careful effort to ensure that large taxes and potential creditors are kept from the inheritance. In addition, without planning, there is a chance that your inheritance may leave the bloodline once you are gone. Unique strategies are often required to ensure that the assets you have worked a lifetime building stay with your children and grandchildren.

A New York estate planning lawyer can explain alternative options like inheritance trusts, heritage trusts, and dynasty trusts which all seek to keep an inheritance in a family long after you (and even your children) move on. An article in the Napa Valley Register recently discussed one of the options in more detail, the dynasty trust. This trust is often particularly helpful for those who want to ensure that their children do not lose their inheritance because of problematic creditors, a lawsuit, or to an ex-spouse in a divorce.

The general idea is that the grantor leaves an inheritance to children in the form of this trust. In that way, the inheritance is not the specific property of the child but is instead a unique legal entity from which the child benefits. The separation provides more protection against creditors. In addition, it is easier for your child to claim the trust as separate non-marital property out of the reach of a spouse in divorce proceedings.

A dynasty trust also takes advantage of tax rules which often mean that no additional estate taxes will have to be paid on your death or even the death of your descendants. Of course there are usually rules against having the trust last indefinitely, with laws often requiring that a trust be completely distributed within 90 years of your death. The details of this possible limitation can be shared by trust creation professionals.

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Many Forget to Include "Letter of Instruction" As Part of Estate Plan

June 10, 2011,

Over the past several decades many more local community members have come to understand the importance of crafting a New York estate plan. From the drafting of wills to the creation of complex trusts, the value of conducting asset preparation for one's family is much more appreciated now than at times in the past. Yet, many New Yorkers stop a bit short in their preparation--often leaving uncertain whether their exact wishes will be fulfilled once the decision is in the hands of others.

One thing often forgotten is a "letter of instruction." As reported by SmartMoney, a recent survey suggests that 56% of Baby Boomers have a will but very few have appropriate "letters of instruction." These documents are generally not legally-binding--unlike a will--but they are instead explanatory instructions to help others understand your specific wishes.

These letters may include a variety of information that your heirs would want to know when you are gone. They are perhaps best viewed as supplements to your official estate plan, providing more explanation for the choices made in the legal documents of the plan. The letter may also include specific explication of funeral wishes or even more practical information like PIN numbers and computer access codes.

In addition, it may be important to have "letters of instruction" sent to third parties as part of your estate plan. For example, upon creating a Medicaid Asset Protection Trust, our attorneys advise that letters of instruction be sent to those who prepare your taxes and perhaps your homeowners insurance company. No matter what your circumstances, these explanatory letters are important additions to your overall estate plan, complimenting documents like your will, living will, and durable power of attorney. They may go a long way in easing the stress and confusion of your surviving family members.

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Cost of Nursing Home Care Increases Nationwide

June 8, 2011,

Few residents understand the often staggering cost of long-term care, such as a private nursing home, until they are faced with the dilemma first-hand. It is only when they or a loved one is already to the point of needing that care that many people first realize the expense of securing a spot in a quality nursing home. In fact, beyond dictating how assets will be dispersed later, gaining advice and planning preparation for future medical and caretaking needs is one of the most important parts of creating a New York estate plan.

The need for the preparation becomes clear once many realize the cost of long-term care facilities. The latest figures calculated in Genworth's Cost of Care Survey were recently released showing that the median cost of nursing home care nationwide rose 3.4% last year--to $77,745. Of course, this is only an average from across the country. In our area many quality facilities charge much higher rates, around $140,000-$150,000 per year.

Those costs are much higher than the average family income in many American homes, meaning without proper long-term care planning some families are forced to use up a lifetime of assets to pay for the necessary costs. But if thought is given to these matters ahead of time, then options exists to reasonably provide for these expenses in a coordinated manner that protects family wealth.

For example, all of a family's assets may be protected ahead of time with the use of a Medicaid Asset Protection Trust (MAPT). These trusts usually have to be created at least five years before the care is needed, so forethought goes a long way in ensuring a positive financial future for families in these situations. An even better option is the purchasing of long-term care insurance--which ultimately provides the most flexibility when seniors reach the point that they need extra care. With this insurance a loved one may have the assets for expensive home-care, without the need to move into a nursing home at all.

However, even if the MAPT and long-term care insurance options do not apply, other choices are available. The "Gift and Loan" Strategy allows one to save part of an inheritance from the costs that Medicaid would usually take while still ensuring that Medicaid pays for the care needed. It is not an ideal choice, but meeting with a professional to discuss its applicability is still much better than facing it alone without any assistance--a visit to a New York Medicaid attorney is invaluable.

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How to Take Advantage of New Tax Relief Act

June 6, 2011,

Many in our area have decided to visit a New York estate planning attorney this year in order to learn how they can take advantage of Tax Relief Act which President Obama signed in December. As many are aware, the law allows individuals to give gifts up to $5 million without triggering any tax losses. Couples can give twice that amount. This is five times more than under previous law. The rule changes only apply until 2012, however, so it remains vital that all families take advantage of this favorable condition while they still can.

Worth.com recently provided a nice summary of a few ways that residents can act while the tax law is in effect. Perhaps the simplest way to use the increased exemption rate is to give a gift to a responsible adult child or grandchild. If you were considering creating a portfolio for a loved one, now might be the ideal time to do it.

Also, this year is the perfect time to create an irrevocable life insurance trust, because the trust can be funded with the new $5 million exemption. Even without the increased tax-free amount these trusts are important parts of an estate plan. They pay for life insurance premiums and can also be used to help settle how much each heir will receive in the future.

Another option might be the creation of a qualified personal residence trust (QPRT). The QPRT is helpful for those who have value tied into residential property. If the individual seeks to have their children own that property than the new law is helpful because it allows them to allocate a larger amount to this trust. A defective grantor trust may be used this year to take advantage of the exemption. As the article notes, "if you seed a defective grantor trust with, say, $1 million, then sell assets worth up to nine times that amount with the trust issuing a note to the grantor, any gains in the trust assets in excess of the note's interest grow tax-free."

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Parents Grapple with Effect of Inheritances and the Meaning of Money

June 4, 2011,

New York inheritance planning involves passing on values as well as assets. No matter how large the family estate, most parents think long and hard about how their inheritance will affect the lives of their children. For many there are no easy answers to questions like how new wealth will affect their children's independence or how much wealth is the appropriate balance between proper inheritance and philanthropy.

As a story last week in the Belleville News Democrat explained, many parents are taking steps to share important information about the meaning of money as part of their inheritance plan. Most families strive to pass on the right amount of money so that children are provided for but still maintain the incentive to work, strive, and succeed.

One hardworking family, including a 60-year old retired teacher and 62-year old real estate broker, explained how they have worked with their now 30-year old daughter on financial matters, noting "We really want to encourage her to develop a personal financial plan, a personal philosophy, and become really familiar with the types of investments." The family admits that frankness and early discussions about these issues is important. Children should know what to expect and parents should not be afraid to share their concerns with their loved one.

Some are worried that their loved ones may be unprepared to handle the estate that they receive. Those families often face issues with asset planning for spendthrift children. They are aware that their children are poor at handling money or inexperienced with such matters. Many options exist for parents in those situations. For example, trusts are perfect tools to ensure that a child has access to reasonable assets but is unable to abuse the overall value of the estate. In these situations a designated "trustee" manages the actual estate with rules about what the child receives and when they receive it.

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$100 Million Estate Finally Reaches Relatives After 92 Years

June 2, 2011,

An important benefit of visiting with a New York estate planning lawyer to help with your asset planning is that on top of carrying out your wishes, the professional can share avenues available to you of which you may not be aware. For example, many area residents are under the impression that their will is nothing more than a document that specifically divvies up assets. In reality wills can be crafted in virtually unlimited ways depending on specific family dynamics and the ethical values of the testator.

Perhaps no high-profile case better illustrates the complexity with which a will can be drafted than the story of Wellington R. Burt. At one point one of the richest men in America, Mr. Burt made his wealth in the robber baron age and was primarily involved in the lumber industry. Mr. Burt lived to age 87, passing away in his Michigan mansion in 1919 with an estimated net worth around $60 million.

The lumber giant gained notoriety following his death as the details of his will were revealed. Mr. Burt was particularly careful to ensure that his living relatives received only a small part of his fortune. To avenge an apparent family feud, Mr. Burt left his children relatively small annual payments from $1,000 to $5,000--except for one favored son who received $30,000 yearly. The rest of the man's estate was held in trust until 21 years after the death of his last direct descendant alive at the time of his death.

ABC News reported recently that that final requirement was met in 2010--92 years after Mr. Burt's passing. Mr. Burt's last grandchild died in 1989, triggering the 21 year wait which finally expired in 2010. Last month the twelve descendants of the lumber tycoon reached an agreement to split up the estate now valued over $100 million. Based on seniority, the individuals received values ranging from $16 million to $2.5 million.

While a "spite clause" is perhaps not advisable for many area families, the case of Wellington Burt stands as an evidence of the immense flexibility that exists to all those considering what to do with their assets following death.

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