January 2013 Archives

Trusting Kids with Large Inheritances Remains a Challenge

January 30, 2013,

One of the most common concerns that parents have when creating an estate plan in New York is worrying about passing on too much wealth to children who cannot properly handle it. After a lifetime of hard work, ingenuity, and prudent planning, the last thing many families want is to see a child obtain an inheritance and then lose it. One need only check newspapers headlines to see celebrity examples of younger individuals with too much money whose lives take a turn for their worst as they fail to handle their wealth carefully.

A Wall Street Journal article last week discussed this issue in the context of the now seemingly permanent federal estate tax rates. Per the "fiscal cliff" agreement, the estate tax law will allow each individual to shield up to $5.25 million. For a couple, that allows $10.5 million to be given to others tax-free.

While this is good news for those who have this much wealth to pass along, it does raise some questions for families. Is your child--no matter what age--prepared to handle an inheritance of this size? Will it be lost to creditors? Taken by a spouse? WIll the money change the child's motivation or long-term goals?

It is entirely prudent to ask these questions and work with estate planning attorneys to come up with creative ways to protect against one's concerns.

Of course, the trust is the crucial legal instrument that allows wealth to be passed on with certain protections and limitations set up, depending on your specific situation. Every trust is managed by a trustee. The trustee can administer the legal entity to ensure that beneficiaries are taken care of while protecting the principal. For example, the trustee can work with the beneficiaries to dole out funds when necessary--for college or a wedding--while not giving the beneficiary free control right away. Alternatively, disbursements to the beneficiary can be made in pieces, with a certain percentage of the inheritance given in five year increments.

At the end of the day, there are many different options that are available to families of considerable wealth to ensure that they pass on an inheritance without concern about how it will be used or affect their children. The first step is to visit with an estate planning lawyer who can provide tailored advice about what legal tools can be used to meet the specific needs of your family.

Is the IRS Going to Crack Down on Non-Cash Charitable Deductions?

January 28, 2013,

Our estate planning attorneys often help New Yorkers create trusts that are used to pass on assets to charities. When structured properly, gifts to favorited causes is both a great way to give back and a smart financial move to save on taxes and ensure that your long-term inheritance wishes are met.

A Charitable Remainder Trust, for example, is sometimes a prudent estate planning tool. This is particularly useful for those with assets that have significantly appreciated who wish to save on taxes while generating an income stream on something that will eventually go to charity. Essentially, this works by creating a trust that is managed by the charity to which the asset will go. The trustee (the charity) then pays you a portion of the income generated by the trust for so many years or the rest of your life. Upon your passing the charity retains the principal.

These trusts have many benefits. They can take assets out of one's estate for estate tax purposes. Also, income tax deductions can be taken on the fair market value of the interest that remains in the trust. By using appreciated assets, the capital gains tax can also be avoided.

Changing in the Future?
All those considering leaving sums to favorite causes should learn more about the charitable remainder trust option to see if it is a good fit. It is also crucial for individuals to remain aware of any possible changes in the tax code which might alter how charitable donations affect one's tax obligations. With tight budgets on the federal level specifically, policymakers continue to make noise about limiting the tax benefits of giving to these organizations in certain ways.

Part of the problem, as discussed in a recent Accounting Today story is that many taxpayers may mistakenly take income tax deductions that violate current law. Specifically, the story points to a new Treasury Inspector General for Tax Administration report which found that nearly $4 billion of deductions are taken by taxpayers annually for "noncash" charitable contributions erroneously. While it is perfectly legal to take deductions on noncash contributions (like those that are often part of charitable remainder trusts), there are specific reporting requirements that must be met Many taxpayers are apparently skirting over those rules.

All of this may lead to IRS changes to crack down on those taking these deductions and lowering their tax liability without following proper protocols. The report itself identified six recommendations, such as better educating taxpayers and more aggressively enforcing the rules.

It is unclear what specific changes, if any, will be made in the coming year to deal with this issues. But, at the very least, this is a key reminder of the need to have professional help with all of these inheritance and tax issues to ensure that the law is following every step of the way.

The Legacy of Dr. Martin Luther King Jr.

January 22, 2013,

Yesterday marked the official federal holiday chosen to honor civil rights hero Dr. Martin Luther King Jr. It also happened to be Inauguration Day for President Barack Obama. In a unique twist, the President chose to be sworn in on the Bible that was read by Dr. King on the day that he gave his "I Have a Dream" speech in Washington D.C. It is a stirring reminder of the connections that echo throughout history.

As we often point out, in the world of estate planning and elder law, history is also a great guide to understanding what should or should not be done to help prepare yourself and your family for whatever the future might hold. Dr. King himself was taken far too soon, dying in 1968 at the age of thirty nine as a result of an assassin's bullet. Because he passed away so suddenly--and relatively young--he had not conducted much estate planning at all.

The King Estate
At the time of his death in April of 1968, Dr. King did not have a will or any other estate plans in place. This has subsequently led to significant disagreement between involved parties. Many are surprised to learn that some of that disagreement continues today, many decades later.

According to various reports, Dr. King had about $30,000 when he died. Most of those funds passed along to his widow. However, the real confusion began only later, when the value King's legacy and other materials connected to the national legend began to increase in value. This is a common occurrence for those with some national celebrity. It is not uncommon to find estate battles raging between parties related to high-profile. writers, actors, politicians, and others fifty or one hundred years after their passing.

Right now, for example, Dr King's family is currently mired in litigation with the relatives of a former secretary of the civil right's leader. At the center of the dispute are papers written by Dr, King's that the family claims should have been part of the estate. The secretary's son, conversely, argues that those papers were given to his mother as a gift by Dr. King. Some of the material may be of significant value, including a handwritten letter from Dr. King to Rosa Parks.

In a sign of how complex many of these matter's become, years ago a corporation was actually created to handle Dr. King's estate. Known at the Estate of Dr. Martin Luther King, Jr., Inc it is charged with handling the many different issues that arise related to the slain civil rights hero. It was that corporation that filed suit seeking ownership of the papers owned by the son of the former secretary.

At the end of the day, because there was no legal documentation in place, the litigation may come down to a "he said, she said" battle. What matters is Dr. King's intent when he gave the papers over. If he intended the secretary to have them permanently, then that ends the matter. But if he intended for her to hold them for safe-keeping, then they may not belong to her. Yet, divining this intention decades later may be next to impossible.

Estate Planning Help
For help with these issues in New York City, Albany, White Plains, and many other communities throughout the state, please get in touch with the estate planning attorneys at our firm to see how we can help.

The Pitfalls of Going It Alone--The Forged Will

January 21, 2013,

Drafting a will can be a delicate process, because various legal requirements must be met before the document will have any legal effect. Cases abound of wills which were thrown out because they did not conform to the technical requirements. Ensuring that everything will be done pursuant to legal rules is one key reason to have the aid of an estate planning attorney.

Beyond that, when planning professionals are not involved in these matters, there is a far greater chance that fraudulent and illegal practices might be undertaken. When money is on the line, sometimes the worst characteristics in everyone seeps out. For one thing, it is not uncommon for entire wills to be forged, and when outside observers to the planning are few and far between, those forgeries sometimes even work.

Forged Will
Recently, RTE News published a story of this nature, as several men stand accused of trying to create fake papers following the passing of an 82-year old farmer. It is a cautionary tale, and an important reminder not to leaves loose ends when it comes to ensuring your inheritance wishes are locked in.

The man in this case died over fourteen years ago, on Christmas Day in 1998. At the time of his passing he owned 162 acres of land, property, and assets in various accounts. When he died a Last Will and Testament was produced which suggested that the man left everything that he owned to a distant relative. The will was allegedly signed about four month before the man's passing. The executors of the will happened to be the distant relative's best friend and the friend's brother.

Little did the authorities know at the time, but the will was apparently a fake--forged via agreement between the distant relative and two executors.

The crimes were only uncovered years later when one of the executors, for reasons that are not clear, felt guilty and confessed his crimes to local authorities. He explained how the distant relative was the instigator, convincing the other two men to participate with promises to pay money.

The three men involved in this case will face jail time and significant fines. However, it is impossible to know how many similar crimes are committed every year that never result in accountability. It is important for New York families to act prudently to forestall any chance of another using their passing as an opportunity to become unjustly enriched. You cannot speak for yourself after you are gone, so it is vital to ensure your voice is heard loud and clear via preparations made early on.

"Portability" for Married Couples

January 18, 2013,

Estate planning is a personalized affair. While there are general rules and principles that apply in all cases, at the end of the day each plan is tailored for an individual's exact situation. A one-size-fits-all approach to this work is misguided and often leads to problems down the road. For one thing, there is a world of difference between planning for married couples and singles. Failing to take those differences into account may be problematic. A recent article provides a helpful background on which to discuss those issues.

Portability Now Permanent
For example, married couples are able to take advantage of an option known as "portability." Seemingly made permanent in the law thanks to the fiscal cliff compromise bill, portability refers to one spouse's ability to use to use the other's unused estate and gift tax exemption. Essentially, this allows a spouse to transfer up to $10.5 million tax free. In the past, bypass trusts were use in order to preserve exemptions. However, with this new law, those trusts may not be necessary for that exact tax-saving feature--though they still could prove useful for other purposes.

A few caveats on portability. First, as of right now, same sex couples do not receive this benefit. Even though these couples are afforded the same protections under New York law, the same is not true according to federal law. That all may change this summer when the United States Supreme Court hears arguments in a case challenging the constitutionality of the Defense of Marriage Act. However, until that time, same sex couples need to be mindful of how the rules affect them differently. More complex estate planning is still necessary to provide full protection.

Second, portability only applies to spouses who are U.S. citizens. If the surviving spouse is not a citizen, then that spouse cannot take advantage of their spouse's remaining exemption.

Third, it is critical not to assume that portability works automatically. It doesn't. Spouses who want to take advantage of this benefit must be proactive in their efforts. Specifically, an estate tax form must be filed after the first spouse's passing--even if no tax was due. This seem like a simple affair, but without proper professional help, it is easy to forget this step and lose the ability to apply the spouse's exemption later on. Literally millions of dollars may be lost in taxes by failing to file this simple tax form.

Telemundo Star's Early Death Raises Questions About Holographic Will

January 17, 2013,

Yet another celebrity has passed away unexpectedly, perhaps without conducting any estate planning. She left behind a complex family arrangement filled with disagreement and a fortune estimated at nearly $25 million. Telemundo star Jenni Rivera was a household name in Mexico when she died last month in a plane crash at the age of 43. The tragedy struck just as the singer was poised to make a breakout in the United States entertainment industry with a starring role in an ABC television show.

Complex Family Life
Obviously using trusts and having a will for inheritance issues is critical for all families but especially for those with large fortunes and complex family arrangements. Rivera fit the bill on both accounts. According to a recent Forbes article, she was married three times. The first two ended in divorce, with her second husband passing away in 2009. At the time of her death she was technically still married to her third husband, but that marriage was in the midst of divorce at the time. Rivera had four children in total from her first two marriages. There are significant age differences between the children, as she had her first when she was only 15 years old.

It is obvious from even that brief explanation that there are a seemingly endless possibilities for infighting over the fortune. But it gets even more mysterious. That is because Rivera's sister has come forward with a letter that she claims laid out the singer's wishes. The letter seems to indicate that the singer wanted the sister to inherit her assets, manage her business affairs, and take care of her minor children.

So how will this all shake out if the singer did not use trusts or have an official will? It is impossible to predict, as the court battle will undoubtedly drag out for a length of time before any resolution is reached. On one hand, the state where the singer's affairs will be probated have intestacy rules that would seem to give half of the estate to the third husband. Unless they had put some legal documents in place ahead of time, the fact that they were in the midst of divorce is of no consequence. They were still technically married at the time of her passing, and that fact would determine the outcome.

It is also unclear whether the letter will be considered a valid holographic will. This refers to a will written by hand and signed by the individual who died. In New York, holographic wills are generally not acceptable, so the letter would likely have no effect here (even more reason for New Yorkers to visit with an estate planning professional). However, this rule differs state to state and so it may complicate matters in resolving this particular affair.

In any event, the sad passing of Jenni Rivera is yet another reminder of the fact that none of us knows for sure what tomorrow might bring. That is why prudent planning now--no matter what your age--is a wise choice.

Lottery Winnings, Murder, & Estate Planning

January 15, 2013,

The Daily Jeffersonian published a story recently on the bizarre details of a case involving a lottery winner's apparent murder and the subsequent estate battle. Like the plot of a Hollywood crime drama, the tale includes a mysterious death, a series of hidden family feuds, and considerable money on the line. While quite dramatic, it is a vivid example of the difference that common sense estate planning can make in the aftermath of a death.

Money & Murder
The case centers of the estate of Urooj Khan who immigrated from India in 1989 and established several successful businesses. In 2010 he hit a jackpot and won a state lottery; his actual take-home from the winnings were about $425,000. According to reports, he planned on using the windfall to pay off his mortgage, expand his business, and donate a sizeable sum to a local children's hospital.

Unfortunately, his long-term planning was for naught. A few days before he was set to collect his winnings, after a dinner with family, he became very ill. He collapsed that night and ultimately passed away. It was only later that the strange circumstances of his death became known.

According to published reports, officials at first assumed the death was due to natural causes. However, when a relative came forward with suspicions, investigators looked closer. A toxicology report was authorized and a lethal amount of cyanide was found in his system. He had been murdered.

No Estate Planning
As you might expect, the murder of a middle-aged man just after he won the lottery led to immediate speculation about who could have been involved. Authorities have yet to arrest anyone for the crime or name suspects; the man's body is set to be exhumed, indicating that authorities are still working to collect evidence.

Money is the likely motive in the murder, and speculation is rampant about who may have played a role. For one thing, Khan apparently did not conduct any estate planning before his untimely death. No trusts exist to pass on assets seamlessly, and there is no will to indicate who he wanted to have his assets.

As often happens in these cases, a court battle ensued. Intestacy laws in the state suggest that the man's wife and daughter (from a different relationship) would split the assets. However, Khan's siblings have voiced concerns about the inheritance and have suggested that their brother's wife might not properly protect Khan's daughter's share of the money. Khan's ex-wife has also come forward claiming that she did not even know that Khan or her daughter was still in the country, as she assumed they had moved back to India.

Considering that Khan's wife is set to inherit, many have questioned whether she played a role in his passing. For example, reports indicate that Khan's wife previously claimed that she, her husband, her daughter, and her own father ate the same meal the night before his passing. However, the meal was lamb curry, which the wife would not have eaten on account of her vegetarianism. In addition, her own father has come under suspicion, as he owes over $124,000 in federal tax liens.

The saga truly has the makings of who-done-it murder mystery. One can only hope that authorities are able to get to the bottom of the situation to ensure justice and fairness.

New York Estate Planning Beyond Taxes

January 11, 2013,

Some mistakenly assume that estate planning only deals with minimizing taxes. With all of the focus on the estate tax in recent weeks it is easy to see how this assumption might gain ground. And it is true that for some families, significant planning must be conducted to ensure that as large a portion of an estate as possible makes its way to the intended beneficiary instead of the pockets of Uncle Sam.

But it is a mistake to suggest that taxes are the only or even the most important factor for most long-term planning for New Yorkers. The reality is that many tangential issues are just as important and often even more important. A recent WRALTechwire article reminds readers of several "non-tax" issues that are critical and must be addressed in estate planning efforts.

Some of those issues include:

***Protecting assets in subsequent generations. Far from being taken by the government, many have concerns that an inheritance might be taken by a relative's creditors, angry spouse, or other. Fortunately, in certain situations steps can be made to provide protection so that any inheritance is secured from the uncertainties of the future. After all, if an asset is properly passed on only to be snatched away by a third-party, then it makes no difference if taxes were paid on the inheritance or not.

***Protecting confidentiality. One overlooked aspect of the planning is simply the speed at which it allows the process to unfold. When all assets must pass through the court's probate process, then the timelines to resolve everything are dragged out. In addition, probate records are public, and so anyone can learn of the details of the situation Keeping this private requires use of trusts and other tools that an estate planning attorney can explain.

***Plan for incapacity. Estate planning is not just about passing on assets. It also involves planning for possible disability or incapacitation. Who will make end-of-life medical decisions? Who will handle family finances if you cannot? It is a grievous error to assume any sort of "default" rules for this decision-making are sufficient. They usually are not. That is why a power of attorney and health care proxy need be used to leave no doubt about your wishes in these situation. Often family members remark on how grateful they were for these legal documents so that they were not required to make difficult choices in the midst of the stressful situation.

U.S. Supreme Court Sets Date for Gay Marriage Case Hearings

January 9, 2013,

Late last year the U.S. Supreme Court agreed to hear two separate cases impacting various same-sex marriage issues. As we have frequently discussed, in ruling on these issues the Supreme Court may set precedent which impacts marriages across the country, including in New York. In so doing the Court may set in motion legal changes that impact estate planning issues for all of the thousands of same sex couples living throughout the state.

However, we will have to wait a while longer before anything is finalized. That is because agreeing to hear the case was just the beginning of the process. The next step was the setting of specific dates for hearings in which both sides argue their case and answer questions posed by the nine justices.

This week the Court released its schedule for those gay marriage cases. As reported in the Huffington Post, the hearings will take place over two days in late March. First, on March 26th the court will hear arguments in Hollingsworth v. Perry. Perry is the case related to Proposition 8 out in California. Beyond "standing" issues, this legal matter may clarify what the U.S. Constitution has to say about the substantive right to marry for same-sex couples. Depending on what they decide, nothing can change, gay marriage may be allowed in California, or, theoretically, gay marriage could become the law of the land across the country.

On the following day, March 27th, the Court will conduct hearings on the second case, United States v. Windsor. This is the legal matter that originated with a New York couple and has more direct bearings on the rights of local same sex couples. The Windsor case, if it survives past the standing issues, will decide whether or not the Defense of Marriage Act (DOMA) is constitutional. As readers know, DOMA acts a bar that prevents federal recognition of even state marriage for same sex couples. This has implications on issues like estate taxes and qualification for federal benefits, including Social Security.

Obviously it is important for all couples who may be affected to follow as these cases are argued and then decided. Following these March hearings, it will likely be several months before the justices reach their opinion and release it to the public. While the final date is impossible to predict it is likely that the judgement will be issued sometime in late June. Also, the changes may not take effect immediately. Depending on what is decided it could be weeks or even months before the implementation date of certain components. In any event, it remains critical for same sex couples to be diligent about their planning so that they are protected right now, no matter what the future holds.

More Rumblings That Estate Tax Still Not Finalized?

January 8, 2013,

Like the monster from a horror movie that will not stay still no matter what is thrown at it, there are already suggestions that the apparent "final" decisions related to the estate tax may not actually be all that final.

As we previously explained, as part of the fiscal cliff compromise bill certain estate tax issues were seemingly made permanent. The exemption level was kept at $5.12 million and indexed to inflation. The top rate was set at 40%. Both of these figures were less intrusive than that original proposals from the White House and far less severe than those mandated by the fiscal cliff itself. Many observers were happy with the outcome, no matter what their personal preferences, for the fact that it at least offered some stability. Having an uncertain tax rate is never a welcome prospect when planning for the future.

Also, as pointed out in a recent article discussed the estate tax components of the bill, the tax will continue to be "portable." This means that one spouse may use their deceased spouse's "unused" portion of the exemption level. This is a very helpful tool which allows more assets to pass tax-free without the need for more complex estate planning techniques.

Not Over?
However, that actual permanence of that estate tax situation is in doubt. For one thing, there is actually never any assurance that any current tax will remain indefinitely. That is because Congress always retains the ability to pass new legislation to alter things. In practical terms, "permanent" is usually used to refer to tax rates that have no sunset date (like the current one).

But there are already some concerns that the estate tax is not necessarily out of the woods. That is because this compromise bill does nothing about the possible spending cuts. Congress and the White House will again have yet another showdown in the coming months to hash out agreement over those cuts and possible need to raise the debt ceiling. Anytime that the parties are in negotiation over these large budget issues, virtually all taxes are theoretically on the table. That means that it is not out of the question that the estate tax rate or exemption level may be edited in some way as part of those future deals.

At the end of the day, none of this alters the inescapable fact that estate planning should be done now. As the last year has demonstrated explicitly, there will never be complete certainty about these issues. But planning by experienced professionals is able to adapt to those permanent uncertainties to provide the security you need.

Potential Heir in Huguette Clark Case Dies During Inheritance Feud

January 4, 2013,

Timing is of critical importance with estate planning matters. Obviously, a plan must be in place early enough to be of use before one falls ill or suffers from mental issues. For example, creating a will or trust may be impossible after one suffers a stroke or succumbs to serious effects of Alzheimers. This is why we continue to encourage residents to make plans early and consistently update them.

Time also factors into matters after a death. Many beneficiaries may face hardship if they are forced to wait months (or even years) to have an estate settled. One of the key benefits of an inheritance plan is to minimize the risk of a long delay between the actual passing on of assets, often focused on avoiding probate and preventing feuding.

Celebrity Example
The latest developments in the estate battle of Huguette Clark offers an example of the consequences of a drawn-out legal battle. Ms. Clark was the reclusive daughter of Guilded Age baron Senator William Andrews Clark. He amassed a fortune in the copper and railroad industries and is known as the founder of the city of Las Vegas. An intensely private individual, Huguette spent the last three and a half decades in Manhattan hospitals, even though she was not actually ill. In the several decades before that she rarely left her Fifth Avenue apartment.

Ms. Clark died over a year and a half ago, in May of 2011. However, her assets--valued between $300 and $400 million--have yet to be distributed. That is because a dispute arose between the woman's extended family and others close to her. Two wills were apparently found, signed by the heiress six weeks apart. The first will gave most of the fortune to her extended family while the most recent will left them nothing. The extended family contested the second will, as they have concerns about the undue influence her network of nurses and doctors may have had over the elderly woman. There are claims of coercion related to gifts totaling tens of millions of dollars that were given to some of those individuals.

The legal battle is still unresolved. However, according to a Huffington Post story from this week, one of the potential heirs recently died. A 60-year old great nephew of the heiress was found last week under a bridge in Wyoming. The man was apparently homeless and died as a result of exposure to the elements on the cold winter's night. Had he survived he may have stood to gain nearly $20 million as a result of the inheritance. His cut of the inheritance will now go to his other relatives.

The case is a sad reminder of the many ancillary consequences of not having detailed estate plans in place to handle matters as efficiently as possible.

The Fiscal Cliff Agreement & What It Means For You

January 3, 2013,

Chances are you have already heard that a bipartisan agreement was reached on New Years Day which averts the significant tax increases and spending cuts demanded by the so-called "fiscal cliff." The agreement certainly went down to the wire, with the Senate passing a bill on the last day of the year and the House passing the same bill the following day. Up until the end it was unclear if a compromise could be reached, as House leaders initially claimed that they would amend the Senate bill and send it back to that chamber. In the end, however, a vote was taken on the Senate bill without any changes, passing with support from members of both parties.

The compromise legislation does not resolve all of the issues in disagreement between the parties. More negotiation and legislation will be needed in the coming months to settle those other matters.

The Basics of the Deal
A few aspects of the compromise have direct bearing on long-term planning for New Yorkers. Perhaps most obviously, the estate tax levels have been set, presumably for the indefinite future. Per the agreement the highest tax level will be 40%, with a $5 million exemption level pegged to inflation. That is a far higher exemption level and lower rate than would have taken effect if the fiscal cliff proposals were enacted. It is also better for opponents of the tax than the main proposal offered by the Obama Administration of a 45% rate and $3.5 million exemption level.

Additionally, the agreement makes tax changes to retirement accounts that many community members use as part of their long-term financial planning. The new law will convert 401(k)s into Roth IRAs. Essentially, the change alters when the funds put into these special retirement accounts are taxed. While 401(k) contributions can be deducted right away (providing a tax savings on the front-end), Roth IRA contributions cannot be deducted. Conversely, while a Roth IRA withdrawal is not taxed, a 401(k) withdrawal is taxed. Lawmakers are pushing residents away from 401(k)s so that more tax revenue is collected in the short-term instead of the long-term.

In addition, many different changes were made on tax rates in general. The 2% payroll tax reduction was allowed to expire, which will affect virtually all residents. The income tax on high-income earners ($400,000 for individuals and $450,000 for couples) will rise, and the capital gains tax on those same high-income households will also rise.

If you have any questions about how these federal legal changes might affect your estate planning in New York, be sure to contact our office to see how we can help.