August 2012 Archives

Irregularities with Estate of Monkee's Star Davy Jones

August 31, 2012,

The probate process is public, and so most families whose estate planning includes only a will usually have the details of the document laid out to anyone in the community who chooses to examine it. Yet, that rule is usually best exemplified by looking at the exceptions. While a will is generally a public document, a family can try to have the will "sealed." Most of the time this is not successful. In fact, the few cases where it is allowed often related to the death of celebrities or high-profile individuals. For example, Joe Paterno's will was sealed earlier this year.

Similarly, Financial Planning just reported that the family of Monkee's band member Davy Jones also successfully petitioned to have his will sealed. Jones died last February after a heart attack at age 66.

In this case, Jones's eldest daughter--the representative of the estate--argued in court documents that the will should be sealed because "public opinion [after reading the will] could have material effect on his copyrights, royalties and ongoing goodwill." Our New York estate planning lawyers appreciate this request is a good example of why most community members cannot have a will sealed. It is not sufficient to request these planning documents hidden from public view simply because one is a "private person"--there usually has to be real, demonstrable material reason to do so.

Of course, the sealing of Jones' will simply raised public curiosity about what might be in the documents which would influence public opinion. Some believe that it has to do with Jones' marriage. Davy Jones's widow is significantly younger than the star--and younger than two of his daughters. Much friction allegedly existed between the widow and the adult children.

Interestingly, the will did not even include the widow, because it was written years before they met and was not updated after the wedding. Yet, that does not mean that Jones' wife will not receive anything. That is because she took advantage of rules for spouses allowing them to take a share of the estate regardless of the details in planning documents.

Alternatively, some also suspect that the family wanted to will sealed in order to hide the fact that the estate was not strong. No one knows for sure how much money Jones had in the end. Various claims have already been made on the estate for unpaid bills.

In any event, the lesson from this case for most New York estate plans is that tools like trusts are always advisable to avoid this publicity issue entirely--ensuring affairs will be handled swiftly without any speculation, potential fights, or possible embarrassment.

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Contingent Beneficiaries for IRA Accounts

August 29, 2012,

Properly naming beneficiaries in things like Individual Retirement Accounts (IRAs) is obviously a crucial component of all New York estate plans. One of the most common planning mistakes is failing to update these beneficiary designations. These mistakes are serious, because assets in these accounts usually transfer at death automatically--outside of the probate process.

One common concern with IRA designations involves a beneficiary dying before you do. What happens if the beneficiary is deceased when the account holder (owner) dies?

If a contingent beneficiary is not named and the primary beneficiary is not alive, then the IRA may go to the account holder's estate. This can have serious adverse consequences, because the estate cannot "extend" the life of the account which will result in significant probate costs and potential tax-free growth lost. For planning purposes it is often the worst case scenario.

There is one way to get around this: naming a contingent beneficiary. The basic idea is that these secondary beneficiaries receive the funds if the primary beneficiary dies first or disclaims the assets. Virtually all IRA custodians allow the naming of these alternative individuals as a precaution. For tax an inheritance purposes, it is crucial for beneficiaries to understand the situation so that after-death estate planning and disclaimer opportunities are considered.

These after-death planning issues include determining whether the beneficiary decides to receive the entire balance immediately or defer it. There are significant tax consequences in these decisions. In most cases it is best to allow the IRA to grow as much as possible to prolong the period of tax-deferred growth. The specific rules about deferring generally depends on who receives the IRA. Differing options exist depending on if the beneficiary is an estate, spouse, non-spouse, and if there are multiple beneficiaries.

No matter what, New York CIty estate planning lawyers continue to advise that beneficiary designations be updated after all major life events. The obvious events include divorce, marriage, or new additions to the family (children or grandchildren). It is important not to forget, however, that updating plans may not be as simple as just changing a beneficiary name when divorced or married. Instead, the account must be balanced with other inheritance and tax issues. Perhaps the IRA to one will off-set something given to another. But no matter what, the potential tax consequences must be considered so that the final dispensation is exactly as desired.

Be sure to receive tailored professional advice when working through these and similar issues.

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Be Careful of Credit Card Debt at Death

August 27, 2012,

What happens to all of the money that you owe at death? Does someone else pay for it or does it just disappear? Our New York estate planning attorneys know that many local residents have questions about these sorts of issues when thinking about their long-term financial and inheritance issues. All of these preparations require understanding about the effect of debt after a passing, because that debt must be taken into account when figuring out inheritances, disability planning, and similar details.

In general, upon one's death all of their debts are paid off by their estate, and the remaining assets are split according to inheritance wishes spelled out in legal documents If one's debts are larger than available assets, then some creditors are likely to receive less than they are owed. Yet, there are a few special circumstances where survivors may be hit with obligations on that debt. It is crucial for estate planning to be done to identify all of these issues ahead of time to avoid an unwelcome surprise.

For example, take credit card debt; many residents have it. When one dies with a balance, their estate must pay that debt. If there is not enough in the estate, then the credit card company may eat the balance. But not always.

Perhaps the most obvious example when that occurs involves joint cardholders. Many people co-sign a credit card with their spouse or an elderly relative, even though only one of the individuals will actually use the card. In fact, over time you may forget that you are named on the card. If one party dies, the co-signer may be responsible for the debt, regardless of who actually make the purchases with the card. There are different types of joint cardholders, with various rules about liability upon death.

There is even more complexity following divorce. Terms of a divorce settlement often involve one spouse agreeing to pay off joint card debt. But what if that ex-spouse dies before paying it off? In most cases the credit card company can seek recourse against the other party, regardless of the divorce decree.

In addition, many different challenges arise if one uses a credit card after the cardholder's death or when they are near-death knowing that it is unlikely to be paid off. This may occur when you use a senior's credit card for some purchases knowing that they are in dire straights. When uncovered, this conduct may actually lead to criminal charges.

It goes without saying that, in our area, it is crucial to receive tailored advice from a New York estate planning lawyer to understand how this will apply in your case. Besides avoiding the surprise of new debt upon a death, the professional can suggest unique planning tools which might ensure as many assets as possible are protected from debt and pass on as desired.

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Hidden Complexities in Basic Estate Planning

August 24, 2012,

Some estate planning concepts may seem so straight-forward that community members try to go it alone. After all, a will is just a document that clearly spells out one's wishes and lists who gets what on a piece of paper. Other assets, like retirement funds, just need a beneficiary named. What could be complex about that?

The answer, of course, is many things.

Take the retirement funds. It may not be as simple as just picking someone. A New York estate planning attorney knows that sometimes special steps have to be taken to guarantee that the desired beneficiary actually receives the funds in as hassle-free a manner as possible. For example, there may be problems when one wants to name children as the beneficiary of an employer retirement plan--like a 401(k). The rule in most cases requires a spouse to give their consent when anyone other than the spouse is named beneficiary This is true even if the named beneficiary is someone like a child-- a stepchild, adopted child, or even a natural child.

Even when that consent is present (or there is no spouse), it is important to be very specific. Leaving a retirement to one's "children" may not be enough if those children are stepchildren. It is not unheard of for the court or an administrator to believe that "stepchildren" do not meet the definition of children as mentioned in the retirement beneficiary designation. For that reason it is usually necessary to list the specific names of the children on top of having some clear language on the definition of children not named who may also be included.

Because you will no longer be around to tell them exactly what you meant, it is critical to have your wishes spelled out clearly, eliminating all chance at ambiguity. These sorts of confusing issues are often mixed-up when doing this legal work yourself.

The same general problems comes with creating a basic will. There are specific rules that must be followed for the document to hold water in court--those requirements are laid out in New York statutes. For example, there must be at least two witness signatures, and those signature must be made in the testator's presence (the person making the will). The address of those individuals need to be included, because they will be called upon to verify the process when the time comes for probate. Those witnesses should also be "disinterested." A court may not give any sort of gift in a will to a witness unless there are at least two other "disinterested" witnesses.

The bottom line is that you only get one bite at the apple with these situations. If a mistake with even a basic process like beneficiary designation or will is not uncovered, then the entire plan will not work as intended when the time comes For this and many other reasons, there is simply no replacement to visiting a New York estate planning attorney and ensuring that things are done right the first time.

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Annual Gift Tax Exclusion Is Not Going Anywhere

August 22, 2012,

With so much attention focused on the future of the estate tax rate and exemption levels, it is easy to forget about other tools to save on taxes while passing on assets. Perhaps the most easily understood is the "annual gift tax exclusion." Each New York City estate planning lawyer at our firm knows that this is a very helpful way to transfer property tax free--and it will likely remain in effect regardless of what Congress does in the future.

The exclusion exists above and beyond the estate tax exemption. It allows each taxpayer to give up to $13,000 per year to anyone tax free. Because the exemption applies to individuals, couples have two bites at the apple and are able to transfer $26,000 yearly to each individual they chose. In fact, due to inflation the annual gift exclusion level is likely to jump to near $14,000 next year according to a recent Wall Street Journal article.

Estate planning lawyers often advise that, considering the uncertainty of the federal estate tax next year, it is helpful to use the annual gift exclusion now to transfer assets beyond the reach of taxes at death. This is especially true in states like New York with state estate tax exemption levels below the federal rate. Therefore, even if one currently has an estate below the federal exemption level ($5.12 million per individual), there will be a state tax so long as the estate is above the state exemption level ($1 million).

This annual gift exclusion is just one of various other ways to pass on assets tax-free regardless of how the federal estate tax ends up. For example, the annual gift exclusion does not even count toward tuition and medical care paid for another if provided directly to the provider (instead of the individual benefitting).

On top of that, gifts can be made to a special fund known as a "529 education savings account." The account is used for education funds for others--like children or grandchildren. However, unlike all other gifts, the one who created the account is able to withdraw the original gift amount if necessary without incurring a penalty. This means that the account truly offers little risk, because the gift can be made with applicable tax benefits while the funds can be "taken back" down the road if some situations arises and the money is needed.

The bottom line is that many options exists to pass on assets smartly. Those tools exist no matter what the federal estate tax rules. In our area, contact a New York estate planning attorney today to learn more.

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Feuding Continues Over Rosa Parks Estate

August 20, 2012,

Forbes posted earlier this month on the continued squabbles over the estate of civil rights pioneer Rosa Parks. Unfortunately, our New York estate planning attorneys appreciate that the higher the profile of the individual (and the more assets at stake), the more common an inheritance fight is to arise. That is true no matter who is involved, including a beloved icon like Rosa Parks.

This case is also a testament to the drawn-out nature of these disagreements. Parks died nearly seven years ago, in mid-October of 2005 at ninety-two years old. In 1998 she created a will and trust indicating that she wanted all her belongings given to a charitable endeavor she created. A close friend and judge were named executors, with the friend to receive 90% of subsequent royalties. Parks nieces and nephews were set to receive the remaining 10%.

The relatives contested the will and at one point the friend was removed as executor by the probate judge over claims of undue influence. Shortly before trial the parties were able to settle the matter, re-appointing the friend in her role as head of the charitable organization--the Rosa and Raymond Parks Institute for Self-Development.

The settlement did not end the fight over the estate plan.

Disagreement arose over fees paid to those participating in the legal battle. That disagreement eventually reached the state's supreme court where a unanimous panel criticized the probate court judge and restored the plan as originally written--90% to the friend and 10% to relatives.

Amazingly, even after the high court ruling, the battle continued. That is because the one party eventually took the bizarre step of suing the probate judge charged with overseeing the estate. Allegations of bribes and other forms of cronyism were alleged. The fight is still ongoing as the party appealed the judge's decision not to recuse himself from the case.

What is the lesson for those conducting a New York estate planning?

First, the earlier plans are in place, the better. If planning is done in old age, the possibility of challenges based on capacity and undue are far higher. Also, it is vital to have the help of legal professionals who are experienced in common pitfalls in the planning. The lawyers will point out if any part of the plan is vulnerable for challenge or likely to cause complications down the road. Sometimes problems will arise no matter how well the plan was created, but identifying possible problems ahead of time significantly limits the risk of challenge down the road.

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Giving a Gift or Inheritance With Strings Attached

August 17, 2012,

The possibilities to tailor an estate plan to one's exact specifications is virtually endless. That is perhaps most evident in the various ways that heir's can be required to meet certain guidelines as part of a gift or inheritance. The Wall Street Journal dove into this idea last week with an article on "controlling heirs from the grave." While that phrasing likely conjures images of busybody relatives, the basic concept of securing one's wishes after death is entirely prudent

The story explains that many consider adding "strings" when passing on assets to others. The conditions can be placed both on inheritances and gifts given while still alive. Our New York City estate planning lawyers appreciate that many community members are strategically making sizable gifts this year in order to take advantage of favorable exemption levels and tax rates that are set to expire at the end of December.

One common concern about large gifts is the requirements that one give up control of the asset entirely--they are usually given as part of an irrevocable trust. Yet, it is important to realize that some strings can still be attached to those gifts. In general, gifts can be given with any requirement attached, even when the requirement seems silly--like demanding that family members spell their name a certain way. One of the most common provisions are "spendthrift clauses" which strive to protect a gift given to one who is known to have poor financial acumen.

In most cases the only limit are requirements that are deemed "contrary to public policy." There is no hard and fast rule to determine when a court will strike down a provision on those grounds. However, past cases over a good indicator of what sort of strings attached to a gift would not be allowed. For example, in the past various will provisions have been axed which encouraged divorce, committing crimes, or involving racial discrimination.

An estate planning lawyer can explain if your unique requests are likely to be upheld. The attorneys will also be able to explain how various gift or inheritance requirements might spawn unintended consequences. No one likely wants to leave a "legacy of ill will." In addition, the professional can ensure that the gift is arranged such that the desired tax benefits accrue. The gift will generally not be open to the tax exemption if the one who sets up the trust retains control directly or via an agent.

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Entire Estate Left to a Dog?

August 16, 2012,

Ken5 News reported on a unique estate planning case this week involving a man who left a fortune to his favorite canine.

The report explains how the man amassed a large collection of various valuables over his lifetime, from fine china to antique furniture. His possessions were enough to fill ten homes. Wanting to ensure his wishes were carried out after his passing, the man contacted an estate planning lawyer to ensure legal documents were in place. Trusts were used to protect the valuables and delineate ownership in the event of death or disability. Our New York estate planning lawyers know that all of this is similar to steps taken by local families (of all net worths) when planning for the future.

What was different in this case, however, was who was set to receive all of these valuables at the man's death. Interestingly, the man's will left everything to his dogs--only one of which, named "Lucky," was actually alive when the man passed away.

One the man's friends explained that "his dogs were basically his children, his family."

Considering the important role that pets play in so many lives it is not uncommon for residents to leave inheritances to animals. Though leaving vast wealth to a non-human creature is somewhat unique.

But what does this mean in practical terms?

Several high-profile local legal cases have involved what to do when a pet inherits vast sums of wealth. Perhaps the most well-known is that of Leona Helmsley--who left millions to her beloved dog. The main lesson from all of the cases is that part of the actual inheritance will be spent on reasonably caring for the animal for the rest of his or her days. The remaining funds are likely given to relatives, charities, or other designated beneficiaries. It is crucial to understand what funds will or will not actually reach the animal when doing this planning.

In our area, be sure to get in touch with a New York City estate planning lawyer who can share information on pet trusts to guarantee that your animal friends are taken care of no matter what the future holds.

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Naming Guardians for Children in New York Estate Plan

August 14, 2012,

Designating inheritances is not the only purpose of a New York estate plan. Some local residents may feel like there is no rush to have a plan in place, because they do not have many assets to pass on or have no particular wishes about their possessions. But inheritances are just a part of the planning. For one thing, all families with children--regardless of their net worth--need to have a plan in place to designate alternate caregivers for their children in the event of death or disability.

Naming an appropriate guardian is one of the most important preparatory steps that a parent can take to ensure their child's well-being no matter what the future holds. If the parents do not make their wishes known in appropriate legal documents, then the decision is left to the court. While the court will work to make the best decision with the information in front of it, there is obviously no replacement for a parent's choice.

In our area it is crucial to have a New York estate planning lawyer guide your family through this process. That is both to ensure the legal formalities are met and also to have an experienced third-party involved in the event of disagreement.

As a recent high-profile case demonstrates, sometimes parents are split on the best people to designate as alternative-caregivers. In early May, groundbreaking rapper Adam Yauch died at age 47 after a bout with cancer. Fortunately, the Beastie Boys founding member had taken steps ahead of time to create a trust and a will. The provisions of the trust are private, and so the family was able to keep those details out of the public eye. However, the will was made public when filed with the New York City Surrogate's Court earlier this month.

One of the interesting things about the details of the will is the terms of the guardianship details in the event Adam and his wife passed away. Interestingly, the details hinged on whether the singer died in an even or odd numbered year. If he died in an even numbered year then his parents would be guardians with his wife' parents used as back-ups. If he died in an odd numbered year then the opposite would be true.

Our New York City estate planning attorneys know that this was likely the result of a compromise. The couple was probably split on who to designate, and this arrangement was reached during the planning process to accommodate both parties. Working with those who understand the common pitfalls opens the door to unique agreements being worked out that best meet the needs of the family.

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Professional Guidance Helps Avoid IRA Scams

August 10, 2012,

The financial world is a complex one. It is easy for local residents to get lost in the mire of special accounts and various loopholes to maximize their savings while protecting their hard-earned dollars. As always, the professional guidance of financial experts, estate planning attorneys, and others is usually the only foolproof way to ensure costly mistakes aren't made. This also comes with the added benefit of having a trained set of eyes ensuring that one doesn't fall for one of the many financial scams.

For example, the Wall Street Journal published a story late last month discussing the prevalence of Individual Retirement Account (IRA) scams. A growing number of states have opened investigations into fraud as a result of "self-directed IRAs. These special retirement accounts allow investors to use funds in a range of ways, including things like hedge funds and land purchases. The investments involved in these efforts are not publicly-traded which, officials advise, makes them far more susceptible to fraud.

For example, in one high profile case several defendants were accused of convincing individuals, mostly seniors, to roll their retirement accounts into these self-directed IRAs. Those doing so thought that the decision was a safe alternative to stocks or bonds. In this case, the investors were told that the money would be used to fund profitable small businesses.

In fact, the situation was nothing more than a Ponzi scheme, with the funds used to pay off other investors and fund personal expenses of the ringleader. Many individuals lost substantial sums of money--their entire retirement account--as a result of the scam.

Our New York estate planning attorneys work with residents all over the state on their retirement issues. Unfortunately, too many residents have their golden years filled with financial worry, anxiety, and trouble as a result of being victimized by faulty or downright fraudulent deals. To avoid this fate it is prudent to seek out help with all of these matters; never jump into decisions without professional advice.

It is also helpful to be aware of the situations where scams are most likely to strike. SEC officials explains that for these IRA scams, many investors are courted in organized settings Churches, for example, are prime locations where the unscrupulous try to convince many congregation members at once of the value of the self-directed IRA. Some scammers also try to obtain the approval of the church leader as an endorsement of the opportunity, making it more likely that church members will feel comfortable with the situation.

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New Study: Online Will Templates Full of Pitfalls

August 8, 2012,

Consumer Reports came out with a helpful new report which is of value to all local residents thinking about creating a New York estate plan.

The study examined the value of "Do It Yourself" (DIY) websites for legal documents, including wills. Obviously everyone values efficiency, and maximizing value while minimizing time and expense is of value in the legal arena. But it is crucial to properly balance those needs. The cheapest option, for example, often proves costly if it results in errors that led to serious problems down the road. Unfortunately, that is the case with most DIY wills.

The Consumer Reports analysis on the effectiveness of these wills found clearly that there is no replacement for actually visiting an estate planning lawyer. The testing found that the most popular DIY wills were not only ineffective for all but the simplest of plans, but in many cases they likely led to "unintended consequences" which distorted the actual intent of the involved parties.

Experts used a blind test to evaluate the services offered by companies like Rocket Lawyer, LegalZoom, and Nolo They all found that none of the services were close to the advice of an actual lawyer. Some of the programs are far too limiting, and others open the door to clauses being added that are contradictory to other parts of the will.

Another common problem is that documents are rarely tailored to specific jurisdictions. Our New York estate planning lawyers know that this can cause serious problems, as rules and procedures are different depending on where one lives--if DIY programs do not take that into account fully, serious problems are bound to creep up.

Perhaps the biggest problem is that even the best template wills of the bunch are woefully lacking in opportunities for those needing anything but the simplest wills. Tremendous tax savings can often be had with more tailored work, and more detailed inheritance issues are often needed for families splitting assets among various people. When actual attorneys are not consulted, many crucial strategies are not taken advantage of, with serious financial and time-saving opportunities lost.

It is understandable for some of these programs to be tempting to local residents in order to save time on this process. But corners should never be cut. If estate planning is worth doing, it is worth doing right. That means visiting with a local attorney, explaining your goals, and learning about all of the very specific options available to plan for the future securely.

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Estate Tax "Portability" Trap

August 6, 2012,

Nothing is easy when dealing with the Internal Revenue Service (IRS). Even situations that seems straightforward or streamlined invariably involve developing complications that present headaches to taxpayers. Our New York estate planning attorneys know that this bears out in many planning issues.

Take, for example, the estate tax. As helpfully explained in a recent Wall Street Journal story, if not careful estate executors may cause spouses to miss out on millions in estate tax exemptions. This June the IRS intended to help families by streamlining the process for receiving the exemption. The new guidance sought to fix the complications caused by one spouse leaving all their assets to the other. Each spouse has a $5.12 million exemption individually, but when leaving assets to one another one of those exemptions was oftenlost. The new rules clarify the "portability" of the exemption from one spouse to another. In the past, various trusts were needed to get around this problem.

Yet, the new portability of the exemption does not mean that nothing need be done after a death to take advantage of the spouse's exemptions. An estate tax return must be filed within nine months of the partner's death to receive the benefit. Many executors may be under the mistaken impression that the return does not need to be filed. Failure to complete this step may be the difference between sheltering $5 million from the tax instead of over $10 million. Estate planning lawyers appreciate that this is no small error--literally millions of dollars might go to Uncle Sam which would have stayed with a family.

Many argue that those most affected are likely to be executors for those with farms or small businesses. Without the help of professionals with estate tax experience, the paperwork may not be filed correctly, resulting in serious problems for the families involved. To ensure your advisors takes account of this in our area, be sure to contact New York estate planning lawyer with experience dealing with these issues.

Some might decide to avoid push off this concern because of the current state of limbo with the estate tax. It is true that current exemption levels and tax rates are set to end at the end of the year. However, most believe that these new rules will apply no matter what the estate tax situation. In other words, it will remain crucial for to be aware of this trap when a spouse passes on.

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Prenuptial Agreements: What if Couples are from Different States?

August 4, 2012,

Prenuptial agreements commonly make headlines as celebrities getting hitched try to protect their fortunes. But the focus on celebrities (or the ultra-rich) is misleading. In reality, average Americans should, and frequently do, make use of the benefits of prenuptial agreements. In our area, New York estate planning attorneys know that these agreements are an important part of one's long-term planning, particularly in the event of late-in-life or second marriages. These agreements allow for an individual to prepare and protect themselves and their families. But the creation of these legal documents is not without some pitfalls.

The Basics
A prenuptial agreement is essentially a contract between two people planning to get married. They agree prior to marriage on how they will divide their assets if they are divorced and on any number of other issues. While this process can be emotional, especially because the couples are naturally optimistic and excited about their future, forming this agreement while everyone still cares for each other and wants the best for each other is always the preferred model. If the good feelings should disappear, this agreement allows a couple to separate as fairly and painlessly as possible.

One Common Challenge
In today's global world it is more and more common for couples who live in different states to meet and make plans for marriage. Often the laws for prenuptial agreements vary between the two states. Writing the prenuptial agreement for these couples is proving to be challenging for their lawyers who have to find a way to make the agreement valid despite significant differences in the law.

To overcome some of the difficulties, the Uniform Law Commission has begun drafting model laws that they hope all states will eventually adopt. This Commission is comprised of lawyers, judges, legislatures and law professors. Right now, it is quite a complex process for different-state couples to create agreements. The Commission's hope is that once states have similar laws, the process will be more straightforward.

On top of that, the Commission wants to make the laws for prenuptial agreements fairer. One example is ensuring the law has provisions to prevent one party from having greater bargaining power. A common example of this is a wealthy spouse pressuring his fiancé to sign an agreement preventing him or her from receiving any of his assets if they divorce. Unfair agreements such as this are not the intent of prenuptial laws, and the Commission hopes to prevent such agreements. With different fairness precedents and rules in different states it is often not easy to draft agreements that will be upheld in different locations.

The bottom line, however, is clear: no matter what your situation, it is prudent to seek legal help on these sorts of issues when preparing for marriage. It not only protects assets, but these agreements protect both spouses from the chaos and frustration of a divorce, should that happen.

In our area, be sure to get in touch with a New York estate planning lawyer for advice on how a marriage might affect long term property, inheritance, and elder law issues.

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Senate Democrats Drop Estate Tax Plan

August 3, 2012,

The estate tax saga wages on in the halls of Congress as both sides seem to be engaging in more symbolic acts on the measure with little progress on reaching an agreement which might actually become law. New York estate planning lawyers appreciate the limbo this places on many local families.

For example, Politico reported late last month on changes to the Democrats proposed tax plan. The changes come, insiders say, in order to present a united Democratic front during the election season--there is still not actual consensus among Democrats on the appropriate estate tax level. The move is likely an attempt to re-focus the election debate away from estate taxes (on which there is intra-party disagreement) and toward another tax issue--whether or not to extend Bush-era tax rates or let them expire.

The main concerns over the estate tax has been explained often by estate planning attorneys. Right now estates worth more than $5.12 million face a 35% tax rate. However, if Congress does not act, next year estates over $1 million will be hit with a 55% tax rate. Disagreement reigns regarding whether to extend current rate, let them expire to old rates, or find some middle ground.

While Republicans are generally aligned in their hope of extending the lower rates or ending the tax altogether, Democrats are split. Recently, the Senate Democratic caucus issued a tax plan that rolled the estate tax rate back to its old $1 million exemption and 55% rate. Yet, over fear of Democratic defections, that proposal has been removed. The hope is that the removal will allow the party to attract a majority of votes in the body for a tax bill focused solely on the Bush era income tax rates (though still below the 60 needed for passage) in order to make a political point about the cause of the failure to act.

So what does this mean for local families? Not much.

The truth is that it is almost impossible for this issue to be resolved before the election. Agreement or compromise is next to impossible in the months leading up to a heated presidential election. But compromise is exactly what is needed for this issue to be resolved and for local families to have the stability they need to plan their long-term affairs with an accurate understanding of what the law is and will likely be in the future. No matter what, however, this situation is not at all a reason to forgo New York estate planning altogether. Accommodations can be made in the future to account for possible changes.

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Improvement in the IRS Art Value Appraisal Services

August 1, 2012,

An appraisal is an expert assessment of the value of a particular asset at a given time. Many factors involved in the appraisal of a property can easily distort its value--overvaluing or undervaluing it.

The IRS uses appraisals in the process of assessing property taxes, which requires the appeal of experts in the subject. As such, the IRS's Art Appraisal Services' (AAS) job consists of assessing the value of works of art for tax purposes. Our New York estate planning lawyers work with families who have valuable art collections and whose tax burden is significantly affected by these appraisal services.

A recent article in Accounting Today discusses the IRS' need to improve its appraisal of the value of art and the Government Accountability Office (GAO) report on the matter.

The GAO report set the spotlight on the lack of comprehensive quality review and continuing education requirement for the IRS' appraisers, which consistently result in a misstated and most times unfavorable appraisal for the taxpayer.

The report examined not only the appraised values of artwork but also other categories of property such as real estate, automobile and businesses, reaching the conclusion that the burden on taxpayers could be reduced and selected practices improved.

Concerning art appraisals, the report found that the valuation of the property has a huge impact on the tax liabilities of individuals who make non-cash charitable donations or who receive inheritances or gifts of property. Appraisers' task requires them to be familiar with the subject matter and be able to note any factors that may affect the value of the property (e.g., location, surrounding area and condition of the property). But, some properties such as art, real estate, businesses and easements have very unique characteristics, making an independent appraisal essential to determine exactly how much the taxpayer should report to the IRS.

The GAO recommended that the IRS offer a continuing education program to its appraisers, along with a comprehensive quality review program, specifically for the AAS staff. They also suggested that Congress should consider raising the dollar threshold at which qualified appraisals are required for noncash contributions to reflect inflation.

The IRS having agreed with the GAO's recommendations, we should be expecting some changes which may have ramifications for future New York estate plans.

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