March 2012 Archives

Estate Planning Challenges For the "Asset Rich and Cash Poor"

March 29, 2012,

This week the USA Today shared a helpful story that analyzed some estate planning difficulties faced by certain families, often farmers, who have many physical assets but few liquid cash stockpiles. One obvious challenge for these families is dealing with the uncertainty of the estate tax. Estate tax considerations are of clear concern, because the family may be unable to pay the tax burden that comes with inheriting the assets without being forced to actually sell those very assets.

Currently, there is a $5 million exemption level for the estate tax. However, without federal action, that exemption level will drop to $1 million by the end of the year. All inherited assets that exceed that level will then be taxed at various rates up to 55%, with a 5% surcharge on estates over $10 million.

Our New York estate planning attorneys appreciate that these estate tax issues are of paramount importance to certain community members, like farm families or those with family-owned businesses. For example, it does not take much for farms of various sizes to cross over that $1 million threshold when taking into account land, buildings, and equipment. In addition, for many farmers, land values have risen steadily with advances in natural resource technology because of the increased profitability of available minerals. Many resources can now be extracted from land that was previously unattractive to the mineral industry. This increases the value of land but makes estate tax considerations a real concern for more families.

The tax uncertainty can present some tough estate planning choices. For example, in order to take advantage of the current $5 million gift tax exemption rate, there may be a temptation for families to shift assets to children now. However, some parents may regret that decision down the road, because it requires ceding control of a farm or business to the child. Many parents may not be yet ready to do that. In addition, capital gains tax considerations for the children need to be considered if they have to sell later.

With uncertainty reining, some families may be tempted to simply wait, do nothing, and see what happens in the future. This is often a tragic mistake. While uncertainty affects how estate planning is conducted, it should never be considered a reason to avoid that planning altogether. Stories abound of family farms and business that were forced to close when an owner died without having conducted any planning to ensure the heirs would be positioned to pay taxes and take over operations.

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Tax Season Reminder to Plan Ahead to Cut Bill to Uncle Sam

March 27, 2012,

For many the end of March represents the beginning of spring, warming weather, and the looming approach of baseball season. For others, this time of the year is consumed with the dread of having to deal with a fast-approaching tax deadline. There is usually little to look forward to in tax season other than completing piles of paperwork and learning how much was lost in the last year to Uncle Sam. However, our New York estate planning attorneys suggest that the trudge through tax season can be turned into a positive and used as motivation to come up with long-term strategies to lower tax burdens for the future.

Death and taxes are inevitable. But the process of aging and the stress of tax-paying can vary tremendously depending on how well one plans ahead. Helping with these issues is what our New York City elder law estate planning lawyers do each day. Much can be gained by putting affairs in order and crafting long-term tax saving strategies. Tax season is the perfect time to finally take the plunge.

A recent article from USA Today Money explores the ways that planning ahead can (and can't) help local residents save down the road. On one hand, it is undeniable that that short-term tax picture is hard to predict, because so much hinges on federal legislative conduct in the next year. Barring action, various tax rates are set to rise at the end of the year (expiration of the so-called "Bush tax cuts"). Top income tax rates, capital gains, dividends, and estate taxes may all rise. In addition, the "marriage penalty" will return along with an increase in payroll taxes.

The tax uncertainty extends to assets that are frequently part of inheritance and retirement planning. For example, without Congressional action, the capital gains tax rate will rise from 15% to 20% at the end of the year and the stock dividend rate will be taxed as ordinary income. It is highly unlikely that any of this uncertainty will be resolved before the election. Therefore, some investors may be tempted to sell these investments before the end of the year to lock in the low tax rates. However, it is important to note that these tax changes won't affect those with 401(k)s or tax-deferred retirement plans.

There is no way to entirely eliminate tax uncertainly. However, individuals and business should not mistake uncertainty as a reason to avoid long-term planning. Accountants, financial planners, estate planning lawyers and other professionals can explain in detail what can and cannot be done in the future to better position yourself, your family, and your business to save on taxes down the road.

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Estate Planning Lessons from Etta James

March 23, 2012,

Classic female crooner Etta James left the world an indelible collection of timeless musical standards. Beyond her music, estate planning attorneys have explained that since her passing earlier this year, Ms. James has also left the world a wealth of estate planning lessons regarding both the good and bad ways to conduct these financial, legal, and medical preparations. In fact, The Discovery Channel is set to shoot an episode of a series it runs called "The Will" on the lessons to be learned from the Etta James estate case.

Like in so many families, feuding began in Ms. James' case even before she passed away. Ms. James son, Donto James, and her husband, Artis Mills, began fighting in court over control of the ailing singer's care last year. Spouses and step-children often engage in these disagreements.

Previous planning efforts by Ms. James named her husband as the one in charge of her personal care and health care. However, interestingly, end of life care was supposed to be made jointly by her husband and two sons. This is a unique approach that, while good-intentioned, is rife with potential complications. As our New York estate planning attorneys would have explained, without a "tie-breaking" mechanism to settle disagreements about such life-ending care, these sorts of split decisions leave the door to in-fighting wide open. Of course it is always hoped that these sorts of situations can be resolved amicably. But the entire purpose of planning for these affairs is to anticipate potential issues and plan for them to avoid fighting, stalling, and legal complications. Clear planning should provide fair, logical, and streamlined decision-making.

On the financial front, Ms. James' son argued that his mother created a trust in 2008. However, her husband challenged the trust, claiming that Ms. James was not competent at the time that she signed the documents involved. To avoid this possibility, it is always important to obtain proof of competency when creating these plans to nip this sort of challenge before it is even raised. This can be accomplished by having a psychiatric evaluation if necessary. In addition, when conversations are kept between an estate planning lawyer and a client, the charge of undue influence by a third-party is less potent.

However, even if it was conclusively shown that Ms. James was competent when she created the trust, there was another glaring problem--the trust wasn't funded. No matter how well-developed a trust might be, if assets are not transferred into it, than the legal tool serves little purpose. Failing to fund a trust is a common problem for many families. It is vital to be diligent about the trust creation process to ensure it is fully completed so that it functions as intended when necessary.

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U.S. Supreme Court Hears Arguments on Benefits for Posthumously Conceived Children

March 21, 2012,

Last week the United States Supreme Court heard arguments in a case that our New York estate planning attorneys know may effect on how some families in unique situations craft estate and inheritance plans to provide for their children in the future.

The case, Astrue v. Capato, revolves around one key question: are children conceived in vitro following their father's death entitled to survivor benefits. While the issue may seem to apply only to a very small group, many more families are having sperm preserved in order to keep options open down the road. The process is particularly common for families with fathers who have cancer or are in the military.

For example, as explained in a CNN article, the father of the family involved in this particular litigation had his sperm frozen in 2000 after being diagnosed with cancer. He died in 2002. Shortly after his death his wife used the preserved sperm to become pregnant--she ultimately gave birth to twins. After the birth, the mother applied to the Social Security Administration for survivor benefits. The agency denied the claim, sparking the legal claim which is now at the Supreme Court level.

The U.S. Court of Appeals found that because the children were "undisputed biological children" of the parents, then they should qualify for survivor benefits. Conversely, the government has argued that the children in this case do not fit the definition outlined in Social Security law to trigger the benefits. Instead, the government argues that state law dictates whether posthumously conceived children are entitled to the benefits. The state where the plaintiffs are from in this case, Florida, holds that children conceived after a parent's death are not entitled to inherit property via intestacy rules.

Observers of last week's Supreme Court hearings suggest that the justices seemed legitimately split on the issue.

It is important to remember that these arguments apply to children conceived after death, not just born after death. If a parent died while a child is in the womb, there is agreement that the child's inheritance rights will be the same as children who were alive when the parent died.

This is a very delicate area of inheritance law, and each New York estate planning attorney at our firm appreciates that the rules dictating how the law treats these children still needs to be fleshed out. The ultimate outcome of this Supreme Court case will guide future Social Security survivorship benefit decisions, but many other inheritance questions will remain open. No matter what, it is vital for families where posthumous inheritance is a potential issue to seek out experienced legal help to plan ahead for all contingencies.

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Increase in Blended Families Cited For Causing "Uglier" Estate Fights

March 19, 2012,

The world is a different place today than it was in 1950. Several decades ago the vast majority of families were of similar make-up: father, mother, kids, dog, house, and car. Inheritance planning in those situations often followed very predictable patterns. A spouse received the assets after a death, and the children split the remaining assets when the second parent moved on. However, our New York estate planning lawyers know that there is much more complexity these days.

That is true for several reasons. On one hand, the law has changed, with different tax situations, legal tools, long-term care concerns and other realities forcing estate plans to take more into account. In addition, families are much more diverse these days than in the past.

Blended families are quite common, necessitating families take special care to account for their inheritance wishes. "Default" statutory inheritance rules may have been a bit less off-putting several decades ago. However, considering the unique make-up of most families these days, it is incumbent upon local residents not to risk their estate being split via default intestacy rules. As a new USA Today story explains, it is no longer a luxury to have the help of an estate planning lawyer--it is a necessity.

The article reminds readers that complex family situations "are turning the already-prickly matter of inheritances into a gargantuan challenge." Part of the cause is that many families are now filled with ex-spouses, stepchildren, grandkids, siblings who live thousands of miles apart, and many other components. Default rules of inheritance simply no longer fit. Plans need to be tailored to meet each case uniquely.

In addition, some adult children are finding themselves in tricky financial situations after counting on an inheritance than never comes. Some planners have noted that they've seen adult children dig themselves into financial holes expecting to be helped by an inheritance only to find that the inheritance is split differently than they expected. Also, on many occasions that overall inheritance is smaller because of changing healthcare needs. With seniors living longer and elder care costs rising, it is not difficult for a once robust family estate to be eaten up.

All of these pressures are making family inheritance feuds more common than ever. According to the latest Pew Research Center data, about 40% of Americans have at least one step-relative. New additions to the family heighten the tension of inheritance issues. Stories abound of step-children fighting with surviving step-parents, money passing to step-children instead of blood relatives, and similar dynamics. There is no one-size-fits-all piece of advice to avoid these situations. The only universal wisdom is to ensure that families meet with planning professionals early on--before a senior's health deteriorates--so that some plan is in place when necessary.

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Broken Estate Plans May Need to be Fixed

March 15, 2012,

There is a tendency to view estate planning as a static skill and the process of having an estate plan created as a one-time task. Both are misconceptions. While certain basic estate planning principles have held true over the years, new strategies are developed, arguments are made, and legislation is passed which alter what the law is in this area and how it is applied. Similarly, proper estate planning is rarely just a one-time event. Besides accounting for legal changes, the plan must also be modified down the road to account for life changes.

On top of accounting for legal and life changes, when an estate plan for local residents is created poorly the first time, often by those without direct experience in this area of the law, it is often necessary for more seasoned New York estate planning attorneys to "fix" the "broken" plan. The process of correcting or changing parts of an estate plan was discussed last week by Forbes.

The story noted that changing items in revocable arrangements (wills and revocable trusts) is usually pretty straightforward--so long as the settler or testator is still alive and competent. Altering a will or trust is much more difficult after that time. Considering that many estate planning documents get placed into a safe place and only examined after death, many are often challenged to "fix" the plan at the very moment when it is supposed to be put into action. This process is very case specific, and so it is hard to make generalizations about legal ways to correct potential problems in irrevocable planning documents. However, some basic methods of doing so come up time and again.

For example, there may be some ambiguity in one of the documents that requires some sort of correction, such as two different heirs being given the same bequest. Correcting this problem usually requires a court proceeding where the construction of the legal document will be analyzed. In these cases the court will generally try to read the document in such a way that the overall intention of the trust or will is respected. Some statutory law may guide the court in how it conducts its analysis. Also, if a "scrivener's error" occurs--essentially a typo or accidental omission--then a court proceeding seeking a reformation may be necessary.

Outside of the courtroom, amendments can sometimes be made to these documents. Revocable trusts, by their nature, allow for amendments. Irrevocable trusts generally do not. However, in certain situations to correct problems that may not impact dispositive provisions of the document, amendments might be allowable.

Finally, one of the more sophisticated ways of correcting problems with an irrevocable trust involves "decanting." Decanting is only explicitly allowed in a few states--including New York. Essentially, it refers to the process of pouring one irrevocable trust into another which has more favorable terms. In this way, decanting may allow for updated trust provisions, changes to administration/management, elimination of restrictions, and many other alterations. Obviously, these actions can get quite complex. To explore these options in our area, seeking the advice of experienced New York estate planning attorneys is essential.

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New York Estate Planning Attorney on Funding of Trusts

March 13, 2012,

This weekend the Times Herald-Record published an article written by our New York elder law estate planning attorney, Bonnie Kraham, discussing a basic estate planning concept--the proper funding of trusts. There is often a misunderstanding among some residents about the effect of signing the trust documents. Signing the trust documents is a necessary but not sufficient way to ensure the overall estate planning process works as intended. It is also crucial to actually transfer assets into the trust. This does not happen automatically. Transferring assets into a trust--known as "funding" the trust--usually requires changing title of those assets to the name of the trust. This process should also involve identification of the trustee and date of the trust's establishment.

Of course, the delicate nature of the funding process makes it imperative that it be done in conjunction with one's estate planning lawyer. In this latest article Attorney Kraham discusses some of the ways that funding occurs for various types of assets. For example, real estate is one of the most common assets that area residents might have and want to protect by putting into a trust. To transfer real estate into a trust one must sign a new deed in the name of the trust. That deed must be recorded at the county clerk's office. Considering that one's home is often the largest single asset that a community member has, understanding this process and performing it properly is crucial.

Many local residents may also have assets like stocks, bonds, and mutual funds that should be placed in a trust. Ownership changes for these assets usually require filling out certain paperwork providing by those in charge of managing the asset--a broker, investment company, or transfer agent. Similarly, savings bond transfers require filling out a reissue form from the Federal Reserve Bank of New York. Moving a brokerage account into a trust is a bit more extensive. A trust account application must be completed along with an account transfer request. The transfer request essentially authorizes the broker to close the account and transfer the securities into the new trust. To transfer a stock certificate one must fill out a "stock power" and W-9 form. Those items must then be mailed with the original stock certificates to the "transfer agent" of the stock company.

Local residents may have various other assets that should be transferred into trusts as well--like bank accounts and certificate of deposits (CDs). Each has its own unique transfer process. Please do not try to do this on your own. Ensure that everything is done properly so that the trust works as intended by having the help of your New York elder law estate planning attorney at all times.

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DOMA Developments May Have Implications for Married Same-Sex New York Couples

March 9, 2012,

The Defense of Marriage Act (DOMA) is a federal law passed in 1996 that defines marriage for federal purposes as only between one man and one woman. As our New York estate planning lawyers have often discussed, this means that same-sex couples married in our state are still not considered married for federal purposes. This has serious implications for tax preparation, estate planning, and a host of other concerns facing these residents. DOMA prevents married individuals from filing joint federal tax returns, receiving Social Security benefits, or having tax-free inheritances.

Many advocates on all sides of the aisle are working to overturn the law. Bills have been advanced in Congress which would repeal DOMA. However, with the current partisan split it appears unlikely that these legislative measures are likely to pass anytime soon. But that does not mean DOMA is here to stay. Most of the recent action on the issue has taken place in the courts. Several federal lawsuits have been filed which challenge the constitutionality of the legislation. President Obama has refused to defend the measure, and so the law is currently being defended under the auspices of the Republican leadership in the U.S. of Representatives.

Last month a U.S. District Court judge in one of those cases found that DOMA (or at least section 3 of the law) violates the equal protection clause of the U.S. Constitution. The case is being appealed to the federal appellate court. This particular ruling relates only to one provision of the law as applied to one couple. However, it is a clear indicator that the entirety of DOMA may one day--perhaps soon--be found unconstitutional.

Each New York estate planning attorney at our firm appreciates the impact that changes to DOMA will have for these couples. We are not alone. According to a Forbes article this week, many local business owners dealing with the complexities of the dual federal/state rules regarding marriage have actually called for repeal of the law as well. In an amicus brief filed in the case challenging the constitutionality of DOMA, several large businesses noted that lack of fairness in federal law essentially forces employers to treat their employees differently. Federal law provides workers with certain benefits. The brief notes that "these protections provide security and support to an employee grappling with sickness, disability, childcare, family crisis, or retirement, allowing the employee to devote more focus and attention to his work." Unequal federal treatment of these couples, therefore, has negative effects on the businesses' work environments.

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Make Plans for Dividing Up or Preserving Collections in Estate Plan

March 7, 2012,

One important part of the elder law estate planning process involves working out inheritance details. This comes with unique concerns for each family as various assets have different meanings for each individual, far beyond their market-value. Accounting for these emotional attachments is a delicate process that should not be done hastily. For example, one valuable that may present unique inheritance challenges are collections. Our New York estate planning lawyers appreciate that many residents have spent years building collections--from holiday villages and marbles to art--and have strong feelings about how they'd like to see the valuables handled after they are gone. A recent story in The Ledger argues that planning is paramount.

Collections, like other art and antique valuables, can present somewhat complex inheritance concerns. Large collections can be hard to physically manage, have difficult value estimates, and still may have tax implications. On top of all of that, collections are often laden with emotional value--some family members may love the collections, others may not. But it may not even be as simple as passing it on to one who cares for the objects. Some children may have no desire for the objects beforehand but may become emotionally attached after their parent's passing because of the way that the collections helps them remember their loved one. In this way, family fights over what to do with collections--particularly large ones that are hard to manage--can be common.

For local residents, avoiding the potential inheritance mess comes down to one thing: have a specific New York inheritance plan in place. The planning process will involve asking tough questions about the best options for the future.

Many different options exist. Some seniors who know that their children or grandchildren do not have the same passion for the collection will decide to sell it while they are still alive. Others sell parts of it--keeping the most cherished items, selling others, and listing which items should be should at a later time when values increase.

Of course many are not ready to sell a collection and instead want to pass it on. These individuals often consider it a "stewardship of the collection" and want the objects to remain in the family as long as possible. However, if this route is decided upon, potential estate tax issues must be taken into account. Sometimes it is best to pass on the collection in pieces while alive using the annual gift tax exclusion. At other times passing along collections in trust is a superior option.

Finally, beyond selling it or passing it down, depending on the collection, it may be appropriate to give the items away to a museum or other body that can find use for them.

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New Survey Results: More than Half of Adult Americans Still Without a Will

March 5, 2012,

The Chicago Tribune published a story this weekend on new survey results which indicate, yet again, that many residents are taking big risks with a lack of even basic estate planning. A new Harris Interactive phone survey has found that more than half of adults still do not have a will, let along more sophisticated and helpful planning tools like trusts. The numbers are much starker for young residents. A staggering 92% of those under thirty five years old admit that they have not conducted any estate planning at all.

Interestingly, these figures actually represent slight increases in the number of residents taking the time to ensure estate and tax planning. However, there obviously remains much room for improvement. Each New York estate planning attorney at our firm continues to share information with local community members on the necessity of this planning, regardless of age or income. There is simply too much at risk to do otherwise. Those risks are maximized when one has children, substantial assets, or other special circumstances.

At the very least, all community members should have a will, durable power of attorney, and healthcare proxy. These basic documents ensure that assets are distributed as desired, financial decisions can be made in case of incapacitation, and a specific individual is named to make medical decisions on one's behalf if necessary.

Beyond those basics, many families have much to gain from conducting a bit more sophisticated planning--particularly via use of trusts. There are a wide range of trusts, each serving as a different tool depending on one's family situation and goals. In general, trusts provide residents the ability to keep the inheritance process private, make it automatic (without the need to go to court), and tailor the inheritance to meet one's desires. For individuals with substantial assets that might trigger estate tax costs, various arrangements (including trusts) can be used to save on taxes and ultimately pass on more assets to your family, instead of losing it to the government.

The first step is always to visit with a professional to have the plan created in the first place. On top of that, it is vital to maintain a good relationship with your planning professional, because the plan should be actively monitored and updated when necessary to account for major life events. Marriages, divorces, the birth of new children, the acquisition of new assets, and similar events often require modification of legal documents. That is why our New York estate planning lawyers include lifetime tracking of every client's plan, including individual tri-annual reviews.

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Rumors About the End of Living Trusts Have Been Greatly Exaggerated

March 1, 2012,

A small minority of misguided observers might suggest that using estate planning tools like revocable living trusts are becoming less necessary in recent years because of increases in the federal estate tax exclusionary amount. According to this line of thinking, use of the trust was limited solely to avoiding estate taxes--taxes on the assets given as part of an inheritance. Because community members can currently pass on up to $5 million individually without triggering the tax, there may be a mistaken assumption that those with fewer assets do not have much need for trusts. Of course, our New York trust lawyers work with thousands of clients who are living proof that this suggestion is a drastic oversimplification of the use of these legal tools.

An article last week in LifeHealth News made the same point, reminding readers of the various benefits that trusts provide beyond estate tax savings. Just two of the many benefits include: (1) avoiding probate; (2) allowing flexible inheritance arrangements

Perhaps most importantly, use of these trusts allows families to avoid the time-consuming, stressful probate process that is required when only a will is used. The probate process is court supervised, which means that judges ultimately decide how everything shakes out. Depending on the circumstances, the judge's final decision might be far different than what the family thinks appropriate or even what the one who passed on might have wished. Using trusts and keeping the process out of the courts is a huge benefit for those who want to ensure that their wishes are actually carried out in the most straight-forward manner possible.

Not only is the trust process easier for the families, but it may also be cheaper. Fees and court costs that need to be paid to settle an estate via probate are often anywhere from 3% to 10% of the assets of the estate. That means that tens of thousands of dollars of an inheritance can be lost just in the process of having the court determine where it should all go. Trusts avoid this, because they operate automatically upon one's death. In that regard, trusts are also private, whereas the probate process is made public. This is a very real concern for those who do not want names and information about beneficiaries to be available to everyone.

Beyond avoiding probate, our New York estate planning lawyers appreciate that use of trusts give planners much more flexibility and control over how they'd like to disperse their assets. Wills simply give assets to certain people. Trusts, conversely, can pass along assets with very specific conditions and limitations. This, for example, allows parents and grandparents to pass on assets while putting in place some protections so that those assets are safe even in the event of divorce, bankruptcy, or even spendthrift relatives.

The list of trust benefits is long. In any event, it is important to remember that those benefits are apparent for community members of all income and asset levels. These are not legal tools just for the well-to-do.

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