May 2012 Archives

Misconceptions About Cost of Insurance

May 31, 2012,

Market Watch reported last month on new research that suggests that many community members are misinformed about the cost of certain types of insurance. As New York estate planning attorneys we understand the importance of life insurance policies in many local resident's financial planning efforts. Similarly, an important part of an elder law estate plan often involves securing long-term care insurance. Misinformation about the practicalities of these insurance options may leave local residents less legally and financially secure down the road.

The latest research focuses mostly on life insurance and was conducted by LIMRA and the non-profit group, LIFE (Life and Health Insurance Foundation for Education). Most surprisingly, the effort--conducted via surveys--found that consumers often overestimate the cost of life insurance. The confusion about the costs means that some families may have less protection than they need.

The research involved asking respondents to estimate the cost of different types of policies. The average estimates were four to seven times higher than the actual cost. For example, the annual cost of a 20-year, $250,000 life-insurance policy for a healthy 30-year old is about $150, but the average consumer guess was over $400.

Our New York City estate planning lawyers understand that buying more life insurance is not always in the best interest of local residents. However, there are times when it might be a prudent choice. Understanding whether it is a good fit requires an accurate understanding of the costs and benefits.

A 2012 "Insurance Barometer" study found that 66% of consumers admitted that they needed more life insurance. The main reason that they did not have it was because it was "too expensive." However, this latest research suggests that misconceptions about the cost may be influencing that assessment. The research found that women, minorities, and young adults were the most likely to be underinsured and misinformed about the costs of life insurance.

The CEO of LIMRA explained that it was the group's hope "that the broader industry will use these insights to help address the crisis of underinsurance this country faces."

At the end of the day, insurance needs must be based on each individual's very specific circumstances. Long-term care insurance, for example, will have very different costs depending on the age and health of the one purchasing the policy. Also, it is important to remember that insurance is one part of the overall financial and legal planning that should be conducted to ensure one's affairs are secure in the future.

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The Dynasty Trust May Keep Inheritance In the Family

Graduation Season is Perfect Time for Grandparents to Consider Gifts

May 30, 2012,

This is the time of year when many teenagers and young adults end one chapter of their lives and prepare for the next. It is also a time for many families to consider how far they've come and what the future holds for themselves and their loved ones. For those graduating high school, the obvious next step is college. Our New York estate planning attorneys are intimately aware of the challenges of paying for a college education these days--tuitions seem on a never-ending upward spiral.

No matter what the family financial situation, there is benefit to properly planning for these costs and understanding the implications of certain financial decisions. For example, Daily News published a story this week on the way that grandparent gifts to grandchildren heading to college can be properly tailored to meet tax goals. The story noted how the tremendous student loan burden faced by so many college graduates make tuition support one of the best gifts any grandparent (or other loved one) can provide to a young person.

But not only is the gift an act of generosity, it may be a particular prudent financial decision this year. Right now the lifetime gift and estate tax exemption rate is at $5 million. The level is set to drop down to $1 million next year. It may be logical to take advantage of these rates, so that assets can be passed on now instead of through one's estate.

A New York estate planning attorney can explain the many different ways that gifts can be passed down to young adults to pay for college tuition or other expenses. For example, trusts can be created for minors with the assets controlled by a trustee until the minor reaches a certain age. In this way, the trustee can ensure that the funds are used to pay for desired expenses, like college. When done properly, the trust not only helps the minor, but it ensures that the transfer qualifies as a gift, with the applicable tax benefits.

It is important to have professional advice for these matters, because there are other consequences to take into account. For example, certain trusts are irrevocable, and so they should not be entered into lightly. Also, the trust assets may be counted toward the minor's estate for financial aid purposes. As with all estate planning issues, it is prudent to be fully advised of the legal and financial details so that the exact transfer occurs in the most advantageous way.

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New Federal Bill Would Open More Estate Planning Options for Military Families

May 25, 2012,

Local families with disabled children often have added complexities when conducting New York estate planning. Parents of children with special needs have a clear desire to ensure that estate plans are in place so their loved one will have necessary resources throughout their lives--even after the parents are gone. Fortunately, New York allows parents to set up trusts which provide benefits to children without disqualifying them from Social Security and Medicaid programs.

However, it is crucial to work closely with an estate planning lawyer on these "supplemental needs trusts," because there are very specific rules about what can and cannot be purchased with the funds without risking benefit payments to the child. In particular it is usually best to make distributions from the trust "in kind" instead of direct cash payments to the child.

Military families with disabled children may have even more challenges when planning for the long-term well-being of their children. For example, as reported this week in Forbes, a military retiree can set aside up to 55% of his monthly stipend to provide for family members upon the retiree's death. Yet, those benefits are counted as income when given to other family members. If the one who receives it is a dependent child with disabilities then the income may risk the child's participation in Medicaid and Social Security Disability Insurance programs.

A piece of legislation has been introduced to help these families provide the resources to their children without forfeiting benefits: The Disabled Military Child Protection Act of 2012. The measure would allow retired servicemembers who participate in the set-aside program--known as the Survivor Benefit Plan--to transfer the disbursements into a special needs trust. A special needs trust is another name for the supplemental needs trust.

By allowing the military family to transfer Survivor Benefit plan funds into the trust, the families will be able to take advantage of the trust which provides resources to the child without compromising their program benefits. The military retirement benefit payments would not be considered an asset that counts toward the child's qualification for Social Security or Medicaid. Instead, the resources can be used to supplement program support--the same rules about "in kind" payments would apply.

The bill is being pushed by the National Military Family Association. The measure has been introduced in the U.S. House of Representatives. Considering that this is an election year, it is unclear how much progress will be made on any legislation in the coming weeks and months. However, the bill does not invoke much of the partisan division of other legislation, so it might stand a chance of making it out of the Congress and signed into law.

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Special Needs Trusts for New York Families

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Supreme Court Rules on Survivorship Benefits in Posthumous Birth Case

May 23, 2012,

We previously discussed the Supreme Court case Astrue v. Capato. At root in the case was the issue of whether or not children conceived after the death of a parent are entitled to federal survivorship benefits. It is important to note that this refers only to those whose actual conception occurred following the passing, usually using frozen sperm that was saved while the parent was still alive. While representing a relatively small group of children, our New York City estate planning lawyers know that these sorts of techniques are actually growing in popularity. Cancer patients and military servicemembers are the most likely to take advantage of this option.

The father of the children that sparked this case had his sperm frozen after being diagnosed with cancer in 2000--he passed away in 2002. Not long after his passing, his wife became pregnant with twins. After their birth she applied to the U.S. Social Security Administration for survivorship benefits. The agency denied the claim, sparking a lawsuit.

The district court sided with the SSA in denying the claim because application of the state intestacy laws would not have allowed the children to recover. On appeal, the U.S. Court of Appeals reversed. The U.S. Supreme Court agreed to hear the case and arguments were made in the middle of March.

This week the nation's highest court issued its opinion in the case--reversing the U.S. Court of Appeals and siding with the district court. In other words, the decision agrees with the Social Security Administration, allowing them to deny benefits to the children conceived after the death of their father. Estate planning lawyers understand that this decision will need to be taken into account when families who may be in this situation conduct long-term financial planning.

The ruling holds that the Administration is free to interpret the Social Security Act to allow benefits to children only if those children could inherent from a father under state intestacy laws. The Court found that this reading of the law better matched the purpose of providing support to those who were supported by the deceased wage earner during his or her lifetime.

Court observers noted that there seemed to be genuine disagreement between the justices during the arguments on this issue. However, those disputes must have been worked out, because the final decision was a 9-0 opinion with all justices in agreement.

For local families, this ruling means that a genetic link to a parent is not necessarily enough to trigger Social Security survivorship benefits. This should be taken into account when conducting estate planning or when deciding whether to take advantage of new assisted reproduction technology.

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

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More Options to Account for Animals in Estate Planning

May 21, 2012,

Many senior residents have concerns about outliving their beloved pets. That concern can be met as part of a thorough New York estate plan. Our state allows residents to create "pet trusts" that work just like regular trusts. Individuals can transfer assets into these entities with the funds to be managed by a trustee (or multiple trustees) to arrange proper care for the animal for the remainder of their lives.

While trusts are a helpful way to account for the long-term care of pets, a pet trust may not be the only option. Our New York elder law estate planning attorneys also know that some additional programs exist to help residents--particularly seniors--create alternative care arrangements for their dogs, cats, and birds. A recent Business Insider article discussed some special programs that animal shelters have set up to help care for pets after a senior dies.

The article shared the story of an 84-year old woman who adopted a dog from a local shelter a few years after her husband died. The companionship of a trusted dog or cat has long-been shown to provide significant health and well-being benefits to seniors living alone. The woman in this case had concerns that she might not outlive her new pet. The dog was only six years old, and as a Shih Tzu mix it was expected to live for many years ahead.

To account for her concerns, the woman enrolled in a special program through the shelter. In exchange for a certain donation to the "no kill" shelter, the facility guaranteed that it would take care of the animal throughout his life.

This was a simple way for the senior to gain the peace of mind of knowing that a plan was in place for her animal friend for the rest of his days.

Yet, that sort of pet estate planning may not be for everyone. For one thing, only certain shelters have such programs in place, and many of them only allow one to participate if the animal was adopted from the shelter itself. In addition, many residents do not enjoy the idea of their pet living out their years in a shelter. In those situations a pet trust likely remains the best available option.

Provisions can be made in a will to pass on ownership of an animal to another. However, the problem with will transfers is that they place no obligations on the individual who receives the pet. There are no guarantees that the person will keep the animal or ensure that the pet is properly cared for. Trusts provide much more accountability. They also avoid the probate process so the new caregiver can take ownership of the animal immediately without the limbo period while the court process works itself out.

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New Yorkers Worry About Outliving Their Retirement Funds

May 17, 2012,

The economic recession of 2007 and 2008 hit many residents quite hard. Retired and those near retirement in New York were often hurt hardest as the values of many assets were decimated. Our New York estate planning lawyers appreciate that fears about outliving one's money are very real for thousands of local residents.

Even without the current economic challenges, the process of figuring out exactly how much money one will need in retirement is inherently speculative. The U.S. Social Security Administration explains that a 50-year old man today is expected to live to age 82; for woman the average life expectancy is 85. Younger generations are expected to have life spans averaging 90 or 100 years. That is why figuring out ways to survive financially for the long-term is daunting for everyone, not just the retired or nearly-retired.

No matter what way you slice it, retirement planning is intimidating. That is probably why the latest research indicates that only 13% of Americans are on track to meet their retirement goals.

Last week Next Avenue published an interesting article that shares some tips to help ensure you do not outlive your money. Expectedly, the first suggestion is to act as soon as possible to put a retirement plan into place. The details of the plan will be different for everyone, but it must include consideration of a range of issues: do you have chronic health concerns; do you want to work in retirement; will you need to support other family members; and similar questions.

In addition, retirement planning requires one to think long and hard about what they truly want to do in their later years. Retirement doesn't necessarily mean not working--it often means simply having the freedom to make your own choices about when and how to work.

The story suggests that it is important to have professional help from an estate planning lawyer, financial advisor, and perhaps tax experts. These individuals will be able to share information on more complex issues that must be considered, such as coming up with realistic projections about monthly retirement needs, total savings requirements, and the best tax saving strategies. In the past, financial planners often used the rule of thumb that one could withdraw 4%-5% of their investment portfolio each year without worrying about running out of money. That rule of thumb is less applicable in today's economic environment, and so experts must be consulted to provide specific advice about how these money rules will play out today.

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Do Not Let Long-term Care Destroy Your Retirement Planning

Ettinger Law Firm Attorney Shares Terminology of Elder Law Estate Planning

Not All Children Treated Alike

May 16, 2012,

Two of the most common claims local seniors give for failing to visit with a New York estate planning lawyer are:

(1) I do not have much wealth, so I don't need fancy planning.
(2) I just want my children to split everything and make decisions together.

Neither of these situations actually makes elder law estate planning unnecessary.

For one thing, this planning involves issues that affect everyone, regardless of how many assets they have. Keeping their affairs out of the courtroom, saving on taxes, ensuring family members won't have complex paperwork to deal with, saving costs on long-term care, preparing for alternative decision-making in case of disability, and similar issues shouldbe a concern to everyone--not just the rich.

In addition, assuming that everything about the planning should involve splitting things equally between the children may not be appropriate. That doesn't necessarily mean that all the children will not receive the same inheritance, but allocating assets is just one part of the New York estate planning effort.

For example, the plan will likely require naming an executor to handle various affairs after a passing. While it is possible to name all the children, it is usually best to name only the one who is best with these sorts of management responsibilities. The duties of the executor are not only confusing, but they must be handled at the most stressful of times. Forcing children to decide all of these issues jointly is setting them up for even more drama. In many cases, in fact, it may be appropriate to choose a third-party to take this role, like a trusted friend or professional.

It might also be appropriate to treat children differently in the form of their inheritance. For example, even though one wants to split an inheritance equally, it is rarely as easy or simple as writing checks for equal amounts to each beneficiary. Instead, it is often necessary for each child's specific situation to be considered. Children with special needs are usually best served by receiving an inheritance via a special needs trust, instead of outright. Similarly, if a child has substance abuse problems or otherwise might have many creditors, it is often far superior to leave the child an inheritance via trust.

At the end of the day it is impossible to know for sure what strategies will be best in your situation without first talking to a legal professional about your family. In virtually all cases there is a benefit to planning ahead. Leaving issues to random intestacy rules and the probate process is more costly, time-consuming, and stressful.

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Clumsy Estate Planning: Transferring A House to A Child

May 14, 2012,

Some local residents might be tempted to come up with short-cut methods of New York estate planning. Unfortunately, many of these efforts not only fail to work as intended, but they may actually lead to many unintended consequences. For example, some senior residents may be tempted to protect their family home--often their largest asset--by transferring ownership of the home to an adult child. There is a misonception that this is a smart way to protect the home from potential long-term care costs, save on estate taxes, and avoid probate.

While this step is well-intentioned, it is crucial that local families understand the serious risks of this move and the superior alternative methods of accomplishing the same goals.

A Huffington Post story this week shared a cautionary tale of one senior that took this step, only to learn of the unintended consequences far too late. An adult daughter and her family moved into the elderly man's home after the man's wife died. Eventually, for the purposes mentioned above, the senior transferred ownership interests in his house to his daughter. However, not long after this step, tragedy struck--the adult daughter died unexpectedly. The 34-year old had not conducted any estate planning--she did not even have a will.

Under intestacy laws in the state, all of the daughter's property was split between her husband and her 4-year old son. As the minor child's parent, the son-in-law effectively became sole owner of the home in which his father-in-law lived. Eventually, the son-in-law began dating again and decided that he did not like his father-in-law living in the same home. He asked the senior to find other living arrangements. There was little that the elderly man could do.

Even though this chain of events might seem remote, similar situations occur more than many might expect. When assets are transferred to children, those assets are exposed to the adult child's vulnerabilities, including things like divorce, bankruptcy, and judgment creditors.

In addition, home ownership transfers come with other complications. For example, protecting assets from long-term care costs is rarely as simple as transferring title to a child. New York Medicaid has a "look-back" period, and so if the transfer occurred within five years of the senior's application for program participation, there may be a penalty. Also, all transfers may have gift tax implications. Failure to take those implications into account can be troublesome.

Each New York City elder law estate planning attorney knows that local residents are almost always better off when they have professional help with these issues. Various trusts can be created to accomplish the same goals--saving taxes, avoiding probate, protecting assets from healthcare costs--without the risks.

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Does Each Spouse Need Their Own Estate Planning Lawyer?

May 11, 2012,

New York estate planning is a family affair--husbands, wives, children, grandchildren and others all have a stake in ensuring that planning is done properly and timely. This might lead some to wonder whether each individual with a stake in the planning needs their own lawyer. In particular, in blended families (involving subsequent marriages), does each individual spouse have adverse interests such that a single lawyer cannot represent them both in their planning?

That was a question discussed in a Forbes story this week.

Of course, in certain family situations it is usually vital that couples have separate counsel. For example, while certain types of uncontested divorces exist, in most cases couples going through a separation must have their own legal advocate, because the entire process is contentious.

Do some of the same issues apply when it comes to elder law estate planning? Not usually.

While divorce involves a "tug-of-war" over property splitting and other issues, estate planning is a collaborative process where families talk together with the counsel of experienced legal professionals to discuss their long-term financial wishes and potential care needs. There is much less inherent conflict. This does not necessarily mean that that husbands and wives will automatically agree on ever single detail of a plan, but the resolution of those disagreements are generally not so contentious that they necessitate each party have their own individual legal counsel.

The article mentions an added benefit of going through the New York estate planning process together, noting that "it builds greater trust and more open communication between the two of you, and possibly with all of the children in your lives."

All of this does not necessarily mean that there are no situations where separate representation may have benefits. But that situation is much more an exception than a rule. Certain situations are more likely to result in strong disagreement between spouses which might necessitate separate attorneys for each partner. It is usually a combination of those factors which might result in significant dispute. Those situations include: where only one spouse has a child, where one spouse is much wealthier than the other, if the relationship is still very new, if there is a prenuptial agreement, if there is a large age difference between spouses, or if one spouse has certain privacy issues that they might not want exposed during the process.

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Gary Coleman Estate Feud Continues--Rocky Relationship Made Public

May 8, 2012,

TV Star Gary Coleman died unexpectedly nearly two years ago in May 2010. He was only 42 years old. Coleman had some previous estate planning measures handled, because his former manager was apparently named as executor and beneficiary of his estate as early as 2005. However, the plan does not seem to have been updated in any way in the intermediate five years, even though many changes took place in his life.

This has led to an on-going feud that continues to drag out under the public eye--a reminder of the need to update estate plans and the value of privacy that these plans provide.

In 2005, Coleman met a woman, Shannon Price, on the set of a movie. The two began dating and were married about two years later. However, the marriage was apparently a rocky one, and the two divorced less than a year after the wedding. The couple remained living together after the divorce. In fact, it was Coleman's ex-wife who discovered that he had fallen in the home in 2010. And it was his ex-wife who made the decision to take Coleman off life support after suffering a severe head injury in the fall.

Now Ms. Price is engaged in a very public dispute with Coleman's former manager for control over his estate. Our New York estate planning lawyers understand that situations like this--with possible ambiguities in the legal documents--often lead to prolonged estate battles. Failing to update documents to account for life events, like marriage and divorce, remain one of the most common planning mistakes. Many often assume that there will be plenty of time to handle those details later, but no one knows for sure when the documents will be necessary.

The Coleman case is also a reminder of the value of privacy that comes with estate plans that use tools like trusts to avoid probate and keep matters out of the public eye. One doesn't have to be a celebrity to desire keeping unflattering details or disagreements about one's life private. However, the legal proceedings related to these issues are almost always public matters.

For example, the Washington Post reported on a recent hearing in the case where details about Coleman's rocky relationship were made public. The former manager seeking to gain sole control over his estate claims that he and his ex-wife frequently fought and that Price was physically abusive to Coleman. Allegations were also made that the ex-wife treated the TV star like a child--walking him around by his wrist. A former neighbor testified that the former couple's home was a mess.

No matter what the truth, it is likely that Coleman--like anyone--would have preferred not to have all of these unflattering details made public even after his passing.

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Passing On Religious Values at Death

May 4, 2012,

A New York elder law estate plan usually includes a range of features, from a trust and pour-over will to a Power of Attorney and Health Care Proxy. Yet, no two plans are identical. While inheritance, retirement, and long-term care issues are common to all, the exact way to accomplish those goals depend on one's situation, perspective, and values.

For example, religious belief can have very obvious implications on some of these issues. End-of-life decisions delineated in a living will reflect an individual's personal perspective on advanced life support measures--often guided by a particular faith. In some case an advanced medical directive might include a clause that indicates such end-of-life decisions must be made by an individual with a particular religious perspective--perhaps an Orthodox rabbi with an expertise in Jewish law.

Religious traditions and inheritance issues are usually the most controversial way that one's faith can affect their estate plan. Many families have individuals with varying kinds and degrees of religious faith. This is often a recipe for feuding for a family when religious issues are involved in how assets will be dispersed. Often there are few easy answers.

The most conflict-ridden of these issues relates to parents who wish their children to marry someone within the tradition. These parents often seek to disinherit those who marry outside the faith. Disinheritance on these grounds may lead to family divisions and costly legal fights. That is why it is important to talk with experienced professionals about these concerns to be made fully aware of one's options and the potential ramifications of certain actions.

Clauses in inheritance documents that hinge on marriage decisions by heirs have been upheld in many courts so long as they are not deemed to encourage divorce. Yet, one purpose of planning is to account for possible legal challenges before they occur to hopefully prevent them altogether. One common alternative that may be less divisive is to leave assets to heirs in trust with a trustee given broad criteria to make distributions. In that way, religious conduct may play a role in the inheritance while allowing special circumstances to be taken into account.

In addition, our New York estate planning lawyers often advise clients on the benefit of crafting an "ethical will." These wills are not legally binding but instead are exercises undertaken by thinking about one's overall legacy. An ethical will is often given to a family while one is still alive. It acts as a way to pass on the values, wisdom, and perspective gained over the course of a lifetime. Quite often an ethical will shares morals and lessons rooted in the author's spiritual faith. It is yet another way for one to pass on those faith-based beliefs to loved ones.

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Filing Taxes After Death

May 3, 2012,

Most discussion about taxes and death involve the "estate tax." This is a tax imposed on certain assets usually given to others as an inheritance by a deceased individual. However, after a passing there are still other tax issues that surviving family members have to deal with, even if estate taxes are not a concern. For example, Kiplinger News published a helpful story last month that discusses the federal income tax issues faced after a death. The IRS demands a final accounting--an added stress for families dealing with an already stressful situation.

A final income tax return must be filed after one's passing. This task usually falls to an executor or administrator of an estate. However, if none are named then a surviving family member must deal with it. Figuring out what income needs to be included on that final tax return is not easy. Depending on when income is earned or received it may be included on the deceased's tax return or instead taxed as part of the estate. For example, interest earned on accounts is only considered income on the personal tax return up to the date of the passing. The interest that accrues after that date is taxed to either the beneficiary or the estate.

In general, actual monetary inheritances are not subject to the federal income tax. However, the article highlights one major exception--funds in IRAs, company retirement plans, like 401(k)s, and annuities. These funds are treated as "income in respect of a decedent" and taxed to the heir. Then again, Roth IRAs and Roth 401(k)s are an exception to the exception, with unique rules all their own.

It is easy to see how these tax issues can get quite complicated very quickly. Depending on other assets owned by the deceased, many other complex issues might arise when filing the last federal income tax return.

Ensuring these taxation and other "paperwork" issues are handled as smoothly as possible following a passing is one of the key goals of all New York estate plans. Families should be able to go through the grieving process at their own pace and in their own way. Worries about tax issues should not be an added stress. In our area, families are well served by visiting with a New York estate planning lawyer to ensure that they will have professional support throughout the entire process.

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Auction of Calder Sculptures Example of How Art Can be Handled at Death

May 1, 2012,

Well-known architect and designer Eliot Noyes died thirty five years ago, in 1977. Some of his prized possessions were large mobiles by famous sculptor Alexander Calder. Calder was a personal friend of Noyes, and the artwork was commissioned especially to fit the family home. Upon Noyes's death there was no major issue with what would happen to the sculptures, because his wife inherited all of the family assets. Estate planning had been conducted such that she could keep the mobiles without having any complicated tax issues.

However, Molly Noyes passed away in 2010, leaving behind four children who will split the family assets. Unfortunately, the family did not specifically decide how certain possessions would be divided after the matriarch's death, and so they were left in a conundrum. At first the children did not want to give up the unique, valuable art that had been in their family home for decades. Eventually they decided that it would be best to sell the pieces. When talking about the valuable sculptures one child explained, "There are four of us and two of them. The math didn't work."

That is why two sculptures will be auctioned off at Christie's next week. One of the pieces, Untitled, is expected to fetch $3 - $4 million while the second, Snow Flurry, is valued slightly higher at $3.5 - $4.5 million.

The family actually has a third Calder object, a stabile called Black Beast. However, many years ago Eliot Noyes donated Black Beast to the Museum of Modern Art. The donation will finally be realized this spring as the piece is moved to its permanent location in the museum.

Our New York estate planning attorneys appreciate that in many circumstances selling valuable artwork like this is truly the best option for families. In those cases, children or other close relatives simply do not have a passion for the art or there are other complications that make liquidating the asset a sound choice.

Yet, it is important for local families to remember that just because there may not be an easy to way to perfectly split prized art or collections between children, that does not necessarily mean that the only option is to liquidate the items. New York estate plans can be personalized so that these issues are taken into account. A distribution can be arranged that perhaps offsets the value of art to one child with different assets going to another child. The most important step is simply recognizing the potential issue ahead of time and taking the time to plan for it.

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