April 2012 Archives

Beneficiary Designations and Asset Titles - Simple, But Crucial Planning Issues

April 27, 2012,

One of the most common estate planning mistakes is failure to change names on the title of assets and beneficiary designations. This rarely a problem when one first visits with an estate planning lawyer to create a new plan, because, so long as the work is competent, the professional will ensure these issues are properly handled. However, when one tries to handle matters on their own or does not properly update their plan to account for life changes, then even a plan that was good at the time will not work when needed.

Wills and trusts are legal documents that name beneficiaries for assets that pass via the will or are placed in the trust. However, regardless of what is said in a will or a trust documents, many significant assets may have their own beneficiary designations. Those designations will control who gets the asset.

Beneficiary designations apply frequently with assets like IRAs, 401(k)s, company benefit plans, and insurance plans. These assets have their own "payable upon death" designations which decide who will receive benefits, regardless of what other estate planning documents indicate.

In New York, real property assets, like a house, designate ownership via deed. Property laws allow individuals to own these assets in various ways, such as retitling to a trust. If titled in this way, at an individual's death, the real property will be distributed to those beneficiaries named in the trust.

Our New York estate planning attorneys appreciate that these errors occur frequently. They are most common in situations where estate plans are not thoroughly reviewed after a second marriage. For example, it is common for retirement or insurance plans to name a spouse as a beneficiary. That may not automatically change upon divorce. Even if a subsequent document indicates a different intent, the beneficiary designation will control.

Proper checklists and consistent review of one's plan are the best avenues to avoid mistakes with titles or beneficiary designations. Unfortunately, some residents are under the mistaken assumption that new planning documents will somehow automatically trump old designations.

When these mistakes are made the consequences can be far-reaching. Of course, it means assets may flow to the wrong person. There also may be unintended estate and income tax consequences. Well-tailored estate plans have interconnected components. Careful calculations are made about who is getting what and how they are getting it in order to account for tax laws. If those calculations are off because of unknown beneficiary or title designation issues, then the entire tax strategy might not work as desired.

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Protecting Fine Wine & Other Collections

April 23, 2012,

Most local families have traditional assets that need to be dealt with as part of their New York estate planning efforts: a house, car, stocks, bonds, retirement accounts, and the like. However, some families have very different (but valuable) assets that must be considered vital parts of their estate. For example, collections often present unique estate planning challenges. Should the collection be split up and sold? Is there another in the family who appreciates the collection as much as the original owner? How much is the collection worth? What ramifications might it have on taxes and long-term healthcare support? All of these issues must be considered when thinking about elder law estate planning.

Popular collections or antiques can be quite valuable with significant consequences on financial planning efforts. For example, according to Advisor One, a 3,000 bottle wine collection is set to be auctioned later this month in New York. The total haul is expected to be over $2 million. Some of the individual bottles will likely sell for thousands and thousands of dollars each.

Wine values may seem foreign to many, but there are a surprising number of local families that have significant wine portfolios. For many high-net-worth families, wine collections are viewed as a part of an actual investment diversification strategy. The investment performance of wine has actually been strong. The Live-ex Fine Wine Investables index has been tracking values of certain wines for the past few decades. In the last twenty years the overall index of the top 200 wines has increased in value by about 1200%.

Our New York estate planning attorneys appreciate that all collections must be properly considered in planning efforts. Even those without significant financial value may be wrought with emotional significance, and so it is essential to ensure the collection is handled delicately.

Collections with significant value come with other considerations. For one thing, unlike many other assets, collections must be very carefully protected to ensure that they are properly cared for to maintain their value. This is obviously crucial with wine. Bottles that are dropped, frozen, overheated, or otherwise damaged will lose significant value with ramifications on overall planning.

For wine collections, it is important to keep a proper inventory and to accurately track value. Values change, and so these records should be updated regularly. In addition, insurance is important for particularly valuable collections, including wine. Regular homeowners insurance rarely covers damage to collections. Some collectors can obtain market-value coverage that protects against short-term price increases. Those with many bottles may prefer "blanket" coverage which provides protection for the overall value of the collection without the need to list the value of each individual bottle.

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Gifts & New York Estate Planning

April 17, 2012,

Passing on wealth to subsequent generations is a crucial part of New York elder law estate planning. At times, giving assets to others as a gift may be an important part of that strategy. While giving a gift may seem like a straight-forward step, in the overall estate planning process it comes with various complications. Tax consequences are at the heart of gifting, and so it is vital to understand how gifts fit into an overall asset transfer plan.

Giving gifts to others is one helpful way to lower a taxable estate. After all, if assets are given away while one is still alive then the total value of one's estate at death will be lower leading to a smaller tax burden. If an individual planned on giving the asset away at death anyway, why not give it away while alive to save on taxes.

However, it is not necessarily that easy. For one thing, there are limits to what can be given as a gift tax-free each year. Under current law, transfers up to $13,000 per year per person are tax-free. Married couples can pool their exemption and give $26,000 to a person each year without paying taxes. Over a lifetime, the gift tax exemption is connected to the estate tax exemption. Right now the lifetime exemption level is $5.12 million. In other words, currently an individual can give away $5.12 million total without paying taxes while alive and the total amount given away will be applied to the estate tax exemption level at death for estate tax purposes.

In addition, there are some transfers that are always exempt from the gift tax. Gifts to spouses, academic institutions, and medical care providers often escape the tax. Transfers to political organizations and charitable organizations are also exempt.

Our New York estate planning lawyers often help clients figure out if gifting is a helpful part of their own planning process. It can become a complex determination. Sometimes even figuring out the value of the gift can be tricky. Real estate and antique gifts must be appraised. Stock values are an average of the high and low price on the day that the stock is given away. The value of a bond is the present value of its future payment.

In addition, some transfers that might seem to be gifts are not. Most notably, "future" gifts generally do not apply and are fully taxable. For example, if a property is gifted to another but with restrictions on when that property can be used for a period of time, then the gift may not apply for the gift tax exclusion.

It is obviously crucial to have professional help to avoid these and similar issues when working out an overall transfer strategy.

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Mike Wallace's Passing Reminder of Planning Needs for Dementia

April 13, 2012,

Dementia refers to the loss of cognitive ability to a degree beyond what is expected from normal aging. It is not a specific disease but simply a phrase to collectively refer to a set of symptoms. In later stages of the condition, the affected may have severe impairments, becoming disoriented in time and place. They may also be unable to understand who they are or who is around them. Alzheimer's disease is perhaps the most common form of dementia, but there are many others including semantic dementia vascular dementia, and dementia with Lewy bodies.

Dementia is far more common among the geriatric population. For example, according to the Alzheimer's Association, one out of every eight Baby Boomers will get Alzheimer's disease after they turn 65. However, "early onset dementia" can also occur, affecting those under 65 years old. The risks posed by dementia and the uncertainty with which it strikes makes it common sense for elder law estate planning efforts to be put into place ahead of time to guard against the risks. As a Forbes article notes, the recent passing of veteran newsman Mike Wallace is a reminder of this.

Wallace's son, news anchor Chris Wallace admitted that his father suffered from dementia in his later years. "Physically, he's okay. Mentally, he's not. He still recognizes me and knows who I am, but he's uneven," the son explained. Our New York elder law estate planning lawyers know that many local residents have families in the same situation. Fortunately for the Wallace family, planning had been conducted to account for this possibility.

Dementia has obvious estate planning consequences. Most clearly, once one loses capacity they generally cannot make changes to their estate plan. If preparations are not made ahead of time, families may face significant challenges in getting the legal authority to make basic decisions for the senior to help with their safety and well-being. Courts and court-appointed guardians often must get involved--a prospect that no family wants to face.

There is an assumption that dementia symptoms arise slowly and so there will be time to make proper plans down the road. A sense of urgency is often lacking. This may be a mistake. For one thing, in some situations families may not notice capacity faltering until it is too late. In addition, there is no way to know what the future holds--it is not at all uncommon for one to suffer a stroke, face a serious fall, or otherwise end up in a state mental disability. Without a plan in place it will be a challenge for the family to take control after the incident to ensure the loved one's financial, medical, and general well-being.

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The Complex Issues of Disinheritance

April 10, 2012,

Delineating what family members, friends, and charities will inherit after one's death is a large part of New York estate planning. However, intrinsic in the process is also distinguishing who will not receive any part of one's estate. Disinheritance is therefore just as much a part of the process as anything else. There are many high-profile stories of wealthy families who have children intentionally ignored in the inheritance process.

Perhaps the most well-known example involves "Mommie Dearest," Joan Crawford, who disinherited her children "for reasons known to them."

However, the issues involved affect all families, not just the rich. An MSNBC story last month touched on some of the complex motivations woven into disinheritance.

The story emphasizes that the reasons for disinheritance are long and they "can be spurred by hurt, spite, fear...or because the head of the family estate feels the heirs are 'manifestly unsuitable' to manage the estate." The situation is perhaps a bit more intentional for families that have businesses, farms, or other large legacies to leave behind. Many residents have spent their lives building an estate and may rightly want to ensure that the work is not squandered by a child who may not be capable of properly handling things.

However, in many cases there are ways for residents to use legal tools to both protect an estate without completely disinheriting a child. For example, our New York estate planning lawyers often help families create trusts that have income-only provisions. A trustee can also be named to monitor a child's behavior. These often protect a business or other parts of an estate while still providing some support to an heir.

Of course there are many other reasons for disinheritance that may not be driven by any malice or ill-will. One child may be perceived as not needing the money, and so they could be left out of a will in favor of another child with more pressing needs. However, these sorts of issues often have unintended consequences on a family dynamic. As the story explains, "the shame and the reality about the situation is that the [person disinherited] may really need the inheritance and just hasn't been open about his situation." This is yet another reason why local residents should seek the counsel of an experienced estate planning attorney who has likely encountered these issues in the past and who can provide guidance on potential implications of various inheritance decisions.

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Farm Families Reminded of Need for Estate Planning to Smooth Transition to Next Generation

April 6, 2012,

Over the past few months there has been a surge in awareness efforts by agricultural publications around the need for farm families to take estate planning seriously. For example, late last week Agri-View published an article re-emphasizing the need for families to get serious about their succession planning if they would like to preserve their farm for generations to come. Our New York estate planning lawyer appreciates that the principles outlined in the article can be applied to contexts outside of farm families and are apt for all families with small businesses which may wither without proper preparation for transitioning from one generation to the next.

The article reminds readers that a succession plan is not the same thing as an estate plan. The estate plan is best viewed as one part of the process to prepare for business transitioning. The overall succession plan in not a one-time event--it is a gradual process that is completed with consultation with a variety of professionals, including estate planning lawyers. The estate planning component of the process will strategize ways to transfer assets to ensure tax savings and a smooth transition of property and responsibilities to younger generations.

Getting legal documents in place is just the beginning. In addition, the succession planning process will also involve the family elders answering questions about what they'd like their future to hold. For example, the older generation of the farm family should think seriously about what they'd like to do when their time isn't filled with farming. The answer to this and similar question will dictate how much money will be needed to meet those goals in retirement. From there, concrete strategies can be crafted which provide the older generation with needed resources while preserving the younger generation's ability to inherit and continue family business endeavors in the future.

The ability to retire securely while still passing on farm or business assets to children hinges on a range of factors. For one thing, diversification of assets is important. If all of a family's assets are tied up in illiquid property then it is often a challenge to have funds for retirement. In addition, illiquid assets can make it difficult to craft inheritance plans that allow the next generation to pay estate taxes without having to sell the very assets needed to continue to run the farm or business. No matter how complex one's situation, however, it is crucial for families not to bury their head in the sand. Coming up with solutions to these problems is exactly what professionals in these areas are trained to do.

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New York Estate Planning Feud Ends for Astor Family

April 4, 2012,

The New York Times reported last week on the seeming end to one of the most high-profile New York estate planning feuds in decades. For almost five years Brooke Astor's only son was engaged in a prolonged battle to settle his inheritance and control over other portions of the family estate. The extended legal saga was yet another reminder of the perils of trying to transfer significant assets in a straight-forward, conflict-free manner.

Mrs. Astor had a fortune estimated at roughly $100 million at the time of her death. Reports indicate that Mrs. Astor had dementia in her later years, dying in 2007 at the age of 107. Three years ago her son, Anthony D. Marshall, was convicted of stealing from her. Another man who handled Mrs. Astor's affairs was also convicted of similar crimes. Both men were sentenced to one to three years in prison for their conduct, but they remain free pending appeal. The criminal proceedings are separate legal affairs from the probate process which resolves Mrs. Astor's estate. However, the conduct of Mr. Marshall as revealed in the criminal matter likely affected the ultimate resolution of the New York estate plan dispute.

Mrs. Astor signed a will in 2002 that left a sizeable amount of money to charity. However, the will was amended in 2003 and then twice-again in 2004. The changes essentially gave Mr. Marshall more money as inheritance and control over her estate. The legal fight centered on whether Mrs. Astor was tricked into signing those subsequent revisions and whether she was competent at the time.

A settlement appears to have finally been reached last Wednesday which may end the matter for good. The agreement essentially reverts back to the designations outlined in the original 2002 will. According to the settlement, which was ratified in the Westchester County Surrogate's Court, Mr. Marshall will receive about $14.5 million. That is less than half of the $31 million his was originally slated to receive. In addition, he will be unable to control any aspect of the family's charitable bequests. Per the settlement terms, $30 million will be earmarked for the Brooke Astor Fund for New York City Education and other assets will be given to various parks, playgrounds, and local cultural institutions.

The settlement was negotiated by Mr. Marshalls' attorney along with the office of Attorney General Eric T. Schneiderman, who represented the interests of the unnamed charities and beneficiaries. Our New York estate planning attorneys know that in the settling of large estates with potential charitable donations, there are often various parties with legal interest in the affairs beyond family members.

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Mental Capacity Issues in Estate Planning Fights

April 2, 2012,

"Lawsuit-proofing" an estate is a common goal in estate planning. Of course, this refers to use of strategies and tools to ensure the inheritance process does not lead to legal fights down the road. A benefit of having an experienced New York estate planning lawyer involved in the preparations is that the legal professional will be able to anticipate possible challenges and incorporate those risks into the work that is performed. In this way, proper planning requires strategizing and unique legal maneuvering, not simply filling out lines on legal documents.

For example, one of the most common ways that an inheritance plan in attacked is by questioning the capacity of the settlor. If one is unhappy with the way that a senior decided to manage their estate or dispose of their trust assets at death, challenging that senior's mental capacity is a common. A Lake County News article last week discussed this possibility by highlighting real appellate cases where capacity was at issue.

In one case, an elderly settlor decided to leave most assets to his long-term romantic partner instead of his children. The senior, who was known to be forgetful, changed his trust documents to leave the majority of the assets to the partner. He also named her as beneficiary for his retirement accounts. The man's children, with whom he had strained relationship, did not find out about these changes until the man's death. They initiated a legal suit seeking to attack the changes to the trust and retirement plan. The argument that they made in the legal challenge was that their father did not have the requisite capacity to control his affairs at the time that he made changes to his trust documents. A key issue in that case is obvious: what level of understanding is required to make the senior's actions legally sufficient?

The court found that the level of understanding required in all of these cases depends on the specifics of the situation. In other words, the nature of the activity dictates the capacity requirements. When making basic changes about who receives what in trust documents, the court will likely apply a capacity standard that is similar to those used to determine capacity in the creation of a will. This is known as "testamentary capacity" and it is generally the "lowest" standard. In other words, much deference will be given to the actions of the senior in these cases. However, other alterations to the documents that are more complicated may require higher levels of capacity.

Our New York elder law estate planning attorneys know that there are ways to blunt attempts to argue lack of capacity if one suspects that it might become an issue down the road. Being aware of these potential issues ahead of time is crucial in avoiding extended legal fights and ensuring that planning works as it should when the time comes.

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