Last Minute Gift? Cashing A $100,000 Check

January 8, 2014,

Estate planning disputes can arise in any situation and based on any number of facts. However, one situation where disagreement is far more likely to arise is when planning steps are taken, gifts are made, or other actions pursued while an individual is on their death-bed or known to be very sick. Naturally, observers are skeptical of these actions, because they are more likely to involve fraud, mistake, coercion or other means.

That does not mean that all death-bed actions are unenforceable. On the contrary, many Wills are and signed and trusts created at just this time specifically because one wishes to get their affairs in order near the end. However, because of the potential for abuse and the natural skepticism, estate cases frequently involve last minute actions.

Was It a Legitimate Gift?
Consider, for example, a case discussed today in the Morning Sentinel. A former university professor died recently, leaving virtually all of his wealth to the university itself. The only exceptions were his car and a few valuable personal belongings that he left to his friend, a man named Daniel Toto.

However, a dispute is brewing regarding a check that the professor allegedly wrote to Toto for $100,000 a week before his death. When Toto went to the bank to cash the check--two days after the death--the bank refused to honor it. That is because the personal representative for the professor's estate (the executor) challenged the authenticity of the signature on the check.All of this has led to a lawsuit filed by Toto against the estate and the bank seeking to have the check honored.

It seems that the professor did a good amount of planning near the end of his life, as his Will itself was only signed about two months before his death. This may suggest that the $100,000 check was simply another action taken by the professor near the end to distribute his property according to his wishes.

On the other hand, the Will apparently lays out the professor's wishes in "meticulous detail." This may lead some to question why he would engage in such "off-the-cuff" actions (like writing a $100,000 check) if his other affairs were so neatly organized.

This particular case is an example of the scope of issues that may arise in these matters. Even when the Will is not challenged, as it does not appear to be in this case, ancillary issues (like a large check) may pop up and raise questions about one's actual wishes.

Estate Lawsuit Reinstated Involving Claimed Executor Fraud

January 6, 2014,

Famed rock music promoter Bill Graham made his name as the organizer of popular music festivals and concerts. His events are credited for launching the careers of legendary groups like the Grateful Dead, Jefferson Airplane, the Eagles, and many others. Unfortunately, Graham's life was cut short over twenty years ago, as he died in a helicopter crash in 1991.

In a testament to the longevity of many estate battles, just last week, a lawsuit involving Graham's estate was revived by a federal court. The case is yet another reminder of the need to be very careful about all aspects of estate planning--from use of trusts to selection of executors--in order to give your family the best possible chance of handling these matters without conflict.

The Estate Battle
As discussed in a recent SF Gate article, the original lawsuit was filed in 2010, when Graham's two sons claimed that the executor of their father's estate, a business partner names Nicholas Clainos, unlawfully sold concert posters and other valuable documents worth millions of dollars. Specifically, in 1997 a sale was made by the estate to a company that acquired "Bill Graham Enterprises." That sale allegedly included all of Graham's copyrights and trademarks in addition to valuable musical memorabilia, including original posts for performances by legends, like Bob Dylan and the Rolling Stones.

Unfortunately, Graham's two sons claim that they only learned about the sale 12 years later, in 2009, while going through old boxes at the former company's headquarters. In a suit filed shortly thereafter, the sons claim that their father's executive hid knowledge of the property from them in order to engineer the lucrative sale to a third party company

Originally, the federal suit was dismissed with a judge claiming that the property sale was a legitimate transaction and noting that the four year statute of limitations on the matter had passed. However, last month that lower court ruling was partially reversed. Noting that the sons claim they did not find out about the matter until 2009, the appellate court allowed the suit to proceed on the grounds that it was not time-barred. This does not mean that the sons will win the case, but it does allow them the chance to present evidence to prove their claims in the next stage of the legal fight.

It is not uncommon for disagreements to arise between beneficiaries and an estate executor. To prevent complications it is always best to be up-front about one's plans, so that there are no surprises. Having the proper legal details documented ahead of time is critical. But it is also important to share those details with appropriate parties so as to avoid shock or confusion that can cause conflict.

The Basics: The Importance of Living Trusts in Estate Planning

January 2, 2014,

An important element of estate planning is ensuring the financial security of your family after you are gone. Like most people, we have worked our lifetime to provide financial stability for not only ourselves but our loved ones. An easy, burden-less way of providing for your loved ones is through a living trust.

As outlined here, a living trust holds many advantages compared to a will. Establishing a trust is fairly easily. Upon creating the living trust agreement, you essentially transfer a portion, or all, of your assets to a trustee. To retain control of the assets, people sometimes name themselves as the trustee. A grantor must name beneficiaries to the trust who will inherit the trust upon your death. Establishing a living trust bank account will allow you to solidify your savings while also easing any financial burden on your beneficiaries. The provisions of the trust can always be changed, or if you have second thoughts the entire trust can be revoked.

A living trust provides three important factors. Firstly, living trusts avoid the probate process. At the time of the person's death, the assets of the trust will pass directly to the named beneficiaries. Secondly, living trust provide privacy that wills cannot by avoiding probate. A last will and testament that has been admitted to probate becomes a public record that anyone can freely see and read. In contrast, a living trust agreement, the property, and the beneficiaries remain private. Lastly, a living trust avoids a will contest. A living trust goes into effect the moment it is created, and a contestant must prove the grantor was incompetent or under the influence at the time the trust instrument was signed and the assets were transferred. This is a very hard, possibly impossible, burden to overcome.

Learn from the Celebrities
Superstar Whitney Houston died with a valid will, but a surprise to many is that she did not have a living trust. Therefore, the details of the final wishes were made public for the world to see. Anyone is able to look up how much money Houston had and who she left it to after her death. Along with providing some estate tax benefits, the legal document of a trust allows you to keep your final wishes private. On the other hand, it is likely Steve Jobs, Apple co-founder and billionaire, protected his estate with living trusts because no one has ever discovered the full extent of his estate planning! When living trust are used the right way - and assets are funded into them before death - families are protected by privacy.

Proper estate planning is extremely important, especially with complicated family dynamics, such as second-marriages or estranged family members. To minimize family disputes after your death, it is important to make your intentions clear in your estate planning.

A Court Order Delays Life Support Termination

December 31, 2013,

Legal battles between families and hospitals over whether to disconnect life-support systems are nothing new. Optimistic family members plead with hospitals and insurance companies to keep their loved one on life support, while doctors argue the person has already died and the machines are the only thing keeping the heart beating. Such disputes gained national media attention when a California court blocked the hospital from disconnecting life support from a 13-year-old girl.

Jahi McMath checked into Children's Hospital & Research Center in Oakland, California for a routine tonsillectomy to treat her sleep apnea. After the December 9 surgery, Jahi's family said Jahi woke up and appear stable. Jahi then asked for a popsicle. Shortly thereafter, Jahi started bleeding profusely from her mouth and nose. Jahi went into cardiac arrest due to a lack of oxygen to the brain and was placed on life support. Three days after her surgery, a CT scan of her head revealed that two-thirds of her brain was swollen and she was declared brain dead.

Authorities from the Oakland coroner's office were told of Jahi's death, and began preparations to obey their obligation of investigating the cause of death. Although the coroner can request termination, Children's Hospital's policy is to work with the family to determine when the termination will occur.

Although doctors wish to take Jahi off life supports, her family is doing everything in their power to fight the hospital's decision. The family presented the hospital with a cease-and-desist letter aimed at preventing the hospital from taking Jahi off the ventilator. The family forced the hospital to seek authorization from a judge to terminate the life support, rather pressure the family into making a decision.

The two parties prepared to argue their case in court. A court appointed physician concurred with prior medical opinions that the teenager is brain dead. Additionally, a judge declared Jahi brain dead as well. Legal statutes in California provide that if a person is determined brain dead, then no further medical intervention is warranted. Many would contend the law is unambiguous and the court must hold a opinion consistent with the law. However, a judge (initially) delayed disconnection of the machines until Monday, December 30 at 5 pm. But shortly before Jahi could have been cut off, the same judge extended his order to January 7 at 5 pm.

Brain Death in New York
New York regulations define brain death as the irreversible loss of all function of the brain. The diagnosis of brain death is conclusively performed with clinical examination, including assessment of brain stem reflexes and an apnea test. No other test are required. All New York hospitals are required to establish written policies that specifies the process for determining brain death which must include the clinical examination. The hospital must have a policy of notifying the individual's next of kin, as well as a procedure for the reasonable accommodations of the individual's religious or moral objection. New York does not implement a waiting period to exclude the possibility of recovery, rather the physician shall "wait an appropriate period of time, sufficiently long as is relevant to the patient's condition." It is well established in New York that the hospital has the authority to terminate life support so long as it has been determined that the person's condition does in fact constitute brain death as defined by the statute.

The case of Jahi is a very unfortunate and tragic situation. The family is currently seeking assistance from an un-named New York facility who will allow Jahi to be transferred there.

Family Fights for Years to Get Email Access After Untimely Death

December 26, 2013,

What is considered an "asset" today may not be the same as what was an asset one hundred years ago (or fifty years in the future!). Estate planning is one area of the law that changes with the times, as it must account for what is valuable, important, and logical for individual residents--something that changes through the decades.

That principle has no better demonstration than the challenges faced by many families to recover digital assets after the passing of a loved one. Digital estate planning has been a hot topic for several years, but it is far from resolved. Many families continue to experience immense hardship as they struggle to acquire various digital reminders of their loved one, from blogs and picture repositories to email accounts. Of course, there may be some situations where individuals want their digital lives to be left untouched after a passing, but, at the very least, it is important to put some final resolution on the matter to prevent families members from engaging in anguished struggles to gain access to the assets

Battle with Yahoo
Forbes recently profiled one family that spent years trying to gain access to their loved one's Yahoo email account after his untimely death. According to the report, the man was killed in 2006 after being struck by a car. After pursuing many avenues to access their loved one's account, they eventually considered their legal options. Unable to get the necessary username and password combination from Yahoo itself, they filed a civil suit seeking to force the company to provide that information.

However, in a ruling released earlier this year, a state appellate court refused to grant the family's request. The legal opinion was rooted in Yahoo's Terms of Use which do not allow divulging this information. The case is not over, though, as the matter was remanded to a lower court to consider whether a federal law known as the Stored Communications Act allows the log-in information to be released to the administrator's of one's estate.

Don't Leave It Open
The takeaway lesson for this and many other stories is the same: include relevant digital assets into your estate planning. It may not seem important now, but in the event of tragedy, these sorts of matters can prove invaluable to grieving family members. Perhaps you do not want anyone accessing this material after-the-fact. Maybe you do not care. But either way, it is critical to take away the uncertainty and make your wishes known. If you do want others to have access, you must take prudent steps so that necessary password, usernames, and other details are readily available without hassle.

Clarity in Estate Planning - Who Owns Fawcett's Warhol Painting?

December 23, 2013,

Unintended consequences are rampant in do-it-yourself Will creation and other estate planning. Even arrangements that seem simple at first blush may prove to have hidden ambiguities or uncertainties that only come to light during probate--when it is too late to fix.

Partner vs. University
To get an idea of how ambiguity in estate planning can lead to controversy, consider the brewing legal battle between actor Ryan O'Neal and the University of Texas at Austin. The dispute centers on an Andy Warhol painting of actress Farrah Fawcett.

Though they never married, O'Neal and Fawcett were long-time romantic partners. Fawcett died rather young, in 2009. Her possessions were distributed to many different parties, but the single issue in contention here are provisions that all of her artwork be left to the University of Texas. No side disputes that the University should receive her artwork. However, they do disagree on what art was owned by Fawcett and what was owned by O'Neal.

Specifically, the well-known pop artist Andy Warhol painted two identical pictures of Fawcett and gave them to the couple in the 1980s. The University of Texas is already in possession of one of those pieces. However, they are now suing O'Neal to receive the other one. For his part, O'Neal claims that Warhol gave the couple each one of the pieces. Therefore, O'Neal claims that he himself owned one of the paintings, not Fawcett, and so it should not pass to the University.

As discussed in an AP news story, the case went to trial late last month. Expectedly, much of the testimony revolved when the couple received the paintings and what terms were implicit in the transfer of the items from Warhol to the pair. For example, O'Neal's legal team had a former hairdresser of the star explain on the stand that Fawcett told her in 1994 that one of the paintings belonged to O'Neal.

Interestingly, the trial also included dispute about the value of the work. O'Neal claims that a 2009 appraisal had the item pegged at less than $1 million. The University of Texas has their painting insured for $600,000. Yet, at trial testimony from an expert witnesses suggested that each painting was worth upwards of $12 million.

The bottom line: always have the support of an experienced estate planning attorney when doing this work. Experienced professionals can identify possible problem areas from the outset, finding solutions that give you and your family the best chance to settle these matters efficiently and conflict-free when the time comes.

Gift Tax Benefits Expiring At End of Year?

December 20, 2013,

Timing is critical in estate planning for many reasons. Most obviously, because plans are intended to help ease the burden in the aftermath of a death, they must be in place before one dies (or loses the capacity to make legal decisions). But timing also matters to the extent that the law changes and alters the options available to planners.

This is most clear when it comes to taxes. Different tax rates, allowable deductions, and other details are frequently changing. Many individuals act quickly to take advantage of certain favorable situations before they are set to expire.

IRA Gift Tax Break
For example, a provision is currently set to expire which allows those over 70 ½ years old to save on taxes when donating part of an individual retirement account (IRA) to charity. Specifically, the law allows account holders over the age threshold to donate up to $100,000 without the donation being taxed as an early withdrawal.

A Wall Street Journal story on the soon-to-be ending tax benefits explores the how taking advantage of the charitable IRA rollover provision may also be used strategically to help legally lower one's burden on new taxes. For example, those in higher income brackets will soon be hit with a 3.8% tax on net investment income. Withdrawals from the IRA may therefore help lower one's income and avoid meeting threshold where newer taxes kick in or deductions are limited. In addition, taking advantage of the charitable donation can lower overall income to the point where Social Security benefits taxes are reduced or Medicare premium increases are avoided.

Just because the IRA gift tax benefit may disappear at the end of the year does not automatically mean that it is prudent for you to take any specific action. Every New Yorker is in a slightly different position, and it is critical to have tailored advice before taking action. For example, it still may make more sense in your case to make a donation of appreciated assets from outside the IRA, allowing a fair-market value tax deduction and avoiding capital gains tax. An individualized analysis would need to be conducted to see what makes the most sense in your case.

If you would like help understanding how gifts, retirement accounts, trusts and other details can be used to best position you and your family, please contact our NY estate planning lawyers today.

Beyond Pet Trusts -- The Rise of Pet Hospice Care

December 17, 2013,

In recent decades, "pet trusts" have grown in popularity as a way for residents to include their beloved animal companions in their estate plans. Our estate planning attorneys work with residents in this regard, setting aside appropriate assets to ensure pet dogs, cats, and other animals have funds available to pay for their well-being for the remainder of their lives. Considering that many New Yorkers consider their pets in similar terms as children, it is only natural to provide for them in Will and trust documents.

But there is now a move to take long-term animal planning to another level with the growth of pet hospice services.

Helping your Dog Pass on Gracefully
As New York Times story discussed recently, more and more veterinarian offices are providing end-of-life care for animals that are being deemed 'pet hospice. The goal is to help families find a gentle way to provide a comfortable, less stressful passing for their pets. As with human hospice, the idea is to ease up on aggressive medical treatment and provide at-home support for ailing animals.

The NYT story notes that, "A big part of the job [is] relieving pet owner guilt, giving them an emotional bridge to a pet's death, and letting them grieve at home -- rather than in a clinic or animal shelter."

The services include the use of pain and anti-anxiety medication for the pet. Unlike human hospice, euthanasia is then an option at the home. Instead of going to the institutional setting for the services, the euthanasia can be performed in the dog's own home--usually at about a 25% premium over typical costs for the service. Altogether the typical pet hospice service costs around $250, though the prices may rise in costlier locations, like New York.

This service has a large nationwide network, with a 200-member strong group known as the International Association for Animal Hospice and Palliative Care. The group is made up of veterinarians, therapists, and even lawyers. Observers report that more and more veterinary schools are coming to teach the process.

That is not to say that there is not some disagreement within the community. Just as with human hospice, advocates disagree on when and how to decide the right time to "let go." For example, some argue that euthanasia should never be an option and that palliative care should be provided until the animal dies naturally.

For helping understanding how to create an estate plan that incorporates all your loved ones--including pets--feel free to contact our attorneys today.

Rock N' Roll Estate Fight - Decades After Death

December 16, 2013,

One of the biggest misconceptions about settling an estate is that all of the loose ends will be handled within weeks or months of the passing. In reality, it often takes years or more before all of the details are finalized. In cases of sizeable wealth, unique assets, or complex administration arrangements, the estate details may linger for decades.

Consider a story in last week's New York Post regarding the estate of former New York Dolls guitarist Johnny Thunders. Thunders was only thirty eight years old when he died in 1991. Yet, even though the death occurred more than 23 years ago, there is a legal estate planning battle brewing over control of his assets.

Thunders Estate Fight
Thunders had little to his name when he died--with an estate valued only at $4,000. Not having a Will, the singer's assets were set to go to his estranged wife, their two children, and a third child from a second mother from Sweden. The singer's sister was named Executor of the estate and she worked on its administration.

Over the years, the sister was quite savvy with the estate management, taking advantage of some re-birth in popularity of New York Dolls songs to generate significant income for the estate. As part of her role as administrator of the estate, the sister made twice yearly payments to the singer's children and wife. These payments lasted for decades until the sister's death in 2009.

It was at that point that another estate battle was put into motion. Originally, the singer's Swedish daughter from outside of his marriage was set to take control of the estate. Yet, the daughter, now 26 years old, could not afford the sizeable bond payment needed to oversee the fund. These bond payments are often required by the court to ensure that the administrator does not abuse their discretion and control of the funds.

Yet, even though the daughter could not afford the bond, no one else was named administrator. The estate funds--around $160,000--have set unused without payment to any of the children. All of this means that no one is around to take advantage of the continued interest in the New York Dolls legacy to capitalize on royalty and licensing funds.

To make matters worse, Thunder's other two children with his wife recently filed a suit seeking to bar their half-sister from ever taking control of the estate. Both sides are set for a court date in January but are hoping to reach a settlement beforehand.

"Donor Advised Funds" Gaining in Popularity

December 13, 2013,

Every day thousands of New York residents give donations of all sizes to popular charities. From dropping a few bucks in a local red bucket during holiday season to making multi-million dollars gifts to universities and everything in between, millions of residents are committed to giving a portion of their wealth to others.

Charitable giving is an important part of many long-term financial plans and estate planning efforts. While giving to charity may seem like a straightforward process--no different than buying a birthday gift--in reality, these donations can be structured in sophisticated ways to benefit both the donor and donee. New Yorkers are advised to speak with legal professionals to learn about their options.

Donor Advised Funds
Recently, Forbes discussed a rise in using one particular method of giving to a charity known as "donor advised funds." The author notes that these funds were colloquially referred to in the past as the "poor man's private foundation." These funds are simply legal vehicles which are created to manage the charitable giving of an entity (or family or individual). The fund has some tax advantages as compared to direct charitable giving but come with less cumbersome administrative details as private foundations. In addition there are fewer distribution rules. Private foundations usually must give out 5% of their assets annually, while donor advised funds have more flexibility on when and how much to give out.

A recent 2013 Donor Advised Fund report released by the National Philanthropic Fund illustrates that use of these tools is rapidly increasing. Specifically, the report explains how in the last year alone, the total assets held in these funds went from just over $38 billion to nearly $45.35 billion. In addition, in the last five years there was an increase of about 40,000 individual fund accounts.

Some speculate that use of these funds skyrocketed in 2012 as a result of uncertainty related to the extent of charitable tax deductions allowable under federal law. Use of these funds is, in essence, a way of "pre-giving" in order to ensure that the deduction will apply. The tax deduction can be taken when the money is moved to the fund, even though it does not have to be given to charity until later. Those tax rule changes did not take effect in 2012, though proposals are still on the table which may curb the overall tax benefit of charitable giving moving forward.

Contact our NY estate planning attorneys today for help weaving charitable giving into your estate plan.

Modifying a Will - Don't Just Scratch Things Off

December 12, 2013,

Our attorneys frequently advise New Yorkers of the immense benefit of using trusts to conduct estate planning instead of relying solely on a Will. More and more residents are recognizing the value of trusts and incorporating them into their planning. However, Wills remain the most well-known and used tool to pass on assets upon death.

There are specific laws which dictate when a Will can be deemed valid by courts in probate. For this reason, it is always prudent to have an attorney draft your Will to ensure it will work as desired when the time comes.

However, even those who have an attorney draft a Will may make the later mistake of trying to modify the WIll on their own, without legal help. This is a significant problem and may result in the entire Will being thrown out. It is not uncommon for an individual's assets to be divided via intestacy rules instead of per their actual wishes in a Will because of modifications made ad hoc.

One common urge may be for a resident to simply take a Will prepared by an attorney and scratch a few names out, write in new names, or change the exact assets that each is to receive. But this is a mistake. Modifications or additions to a Will, often referred to as "codicils," still have to follow the same witnessing, capacity and signature requirements as a new Will. Therefore, making haphazard alternations as a time-saving measure will likely not be upheld.

In fact, considering that most Wills today are created and stored digitally, there is virtually no reason to engage in the complex use of codicils or slight modifications. Instead, most of the time it makes more sense to simply have an attorney help draft a new Will to ensure that all formalities are followed and fewer questions will be asked in probate when the WIll is brought forward.

At the end of the day the takeaway is clear: have the aid of an attorney every time you create a Will or want to update a Will. Holographic Wills--handwritten and unwitnessed documents--generally will not be upheld in New York Probate Court except in very limited situations (like for members of the armed services who are overseas). For this reason, without the counsel of an attorney you always risks having a home-made Will thrown out and rendered ineffective, adding an extra challenge to grieving families at the exact moment that they do not need it.

Will Contests & the Super Wealthy

December 9, 2013,

In the emotional tumult following a passing it is common for disagreement to arise regarding property and other matters between friends and family members. Jealousy and greed can cause bitter family feuds for years to come. It is for this reason that, at the very least, all New York residents need a will to ensure that loved ones are taken care of in the manner you see fit.

It is critical not to think that just any document will suffice as a will. There are very specific legal rules regarding what documents will be used by the court to settle these matters, and will contests are startlingly common. In order to have a valid will in New York, the documents must be signed in front of a minimum of two witnesses; the witnesses must sign the document in front of each other; the person whose will it is must be of sound mind; and the person cannot be under any undue influence or duress.

Will contests are not isolated only for those in dire financial straits, disputes can arise even among those who do not have any financial need at all.

For example. a high-profile inheritance lawsuit taking place in New Jersey's Hackensack Civil Court, Revlon billionaire Ron Perelman's daughter, Samantha Perelman, is suing her uncle, Jamie Cohen, for almost $600 million from her grandfather, Robert Cohen's, estate. Despite being the daughter of a one of the richest men in the world, Samantha wanted anywhere from one-third to half of her grandfather's estate. A thirty carat jewel, lavish real estate and life insurance worth $30 million dollars that Robert Cohen left Samantha were not enough for the 23 year old.

Samantha and her lawyers argued that she is entitled to a larger piece of her grandfather's estate as a matter of right. A Superior Court previously ruled that it was unreasonable to say that Robert Cohen was obligated to leave Samantha with one-third to half of his entire state. Additionally, Samantha and her expensive legal team tried to get her grandfather's will voided by arguing that he was not legally competent when he made the will. This line of argument was also rejected by past courts.

It will be interesting to see how this case turns out. Samantha Perelman has lost all 18 court decisions so far, between three states and five different courts, all before her grandfather passed away. Additionally, Samantha also lost an appeal in October of this year.

Protect Your Estate With A Will
As this case illustrates, wills can be a source of contention in families and cause years of feuding between family members and loved ones. Estate disputes are not exclusive to the rich; people from all walks of life can be affected. In order to avoid (or mitigate) such a result, you should incorporate a properly drafted will and perhaps use of trusts into your estate planning. This can also cut down on future legal disputes.

For help with estate planning matters throughout New York state, please contact our attorneys today.

Later-Life Marriages and Prenuptial Agreements

December 8, 2013,

The "Golden Years" - that peaceful time of life after retirement; a time to watch the grandchildren grow up, to take that long-awaited vacation and to....get married? Statistics indicate that both men and women are getting married later in life, and although the rate of marriage and remarriage significantly declines with age, an estimated 500,000 Americans 65 and older get married (or remarried) every year.

While marriage at any age raises a number of legal and financial concerns, individuals 65 and older who marry later in life tend to bring significantly more assets to a marriage than individuals who marry earlier in life. In addition, those entering into in these later-life marriages are more likely to have adult children, and even grandchildren. For these reasons, it is critical that those who rediscover love during their "Golden Years" be mindful that the failure of these types of marriages can create complex estate planning legal issues.

A unique problem for later-life marriages involves potential disputes between a surviving spouse and the adult children from a previous marriage. Most states require that a portion of the deceased spouse's estate pass to the surviving spouse. This portion is known as the elective share. In New York, that share is equal to 1/3 of the deceased spouse's estate. New York, like most states, does not allow the disinheriting of a spouse to his elective share unless the spouse to be disinherited legally consents. Consequently, spouses who want to determine the terms of possession of their assets upon their death should consider creating a prenuptial agreement, one made by the spouses prior to marriage that concerns the ownership of their respective assets in the event of divorce. Without a prenuptial agreement, a "Golden Years" divorce has the potential to lead to a disastrous, and often disheartening, outcome.

Take the hypothetical later-life marriage of John and Nancy. John took the steps to create a new will once he married Nancy, generously leaving her $75,000 and the rest of his million dollar estate in equal shares to his three daughters from his previous marriage. John and Nancy did not, however, create a prenuptial agreement. Upon John's death, Nancy could, under New York law, claim her elective share of John's estate if she so desired, leaving her with far more than the $75,000 designated by the will...and leaving his three daughters with far less. One can only imagine the nightmare this could create where the relationship between Nancy and John's three daughters was already contentious. A well-drafted prenuptial agreement between John and Nancy would have allowed each of them to structure his estate as he desired, thereby avoiding a distribution that may have John rolling in his grave.

Indeed, marriage at any age can be exciting and fulfilling, yet newlyweds in their "Golden Years" must be sure not to let their love blind them to the critical role a prenuptial agreement can play in later-life marriages where one or both spouses has children and grandchildren and/or substantial assets that were acquired before the marriage.

Would Changes to Charitable Tax Deductions Affect American Gifting?

December 4, 2013,

Many New York residents make charitable giving a part of their estate plan. Whether for estate tax benefits to pass on values and ethics to family members and many other reasons, residents commonly set aside certain assets to go to causes about which they are passionate.

However, according to a new report from a conservative "think tank" if any changes are made to federal rules about charitable tax deductions, then one can expect total giving in the country to decrease by billions each year. Before delving into the details it is critical to point out that the group releasing the study, the American Enterprise Institute (AEI), is known as a long-time opponent of all changes which would increase tax revenues. In addition, this AEI estimate is far higher than that found in similar studies by other groups.

The Charitable Giving Report
According to an article from discussing the new estimates, AEI researchers found that a limit to the value of charitable deductions--proposed by President Obama--may cause donors to give up to $9 billion less to charities each and every year. That large reduction in giving would have serious effects, the authors claim, on many non-profit organizations that rely exclusively on the gifts of donors for their yearly operations.

If the President's proposal passes, it is claimed that overall donations would fall by about 4.4 percent. The researchers used that figure against total giving nationwide to come up with the $9.4 billion amount that may be lost with changes to the tax law. The AEI report argues that the largest donors in particular would likely cut back on giving with the changes, because it is the "top 1 percent" of earners who are most likely to itemize their deductions and benefit from the charitable giving tax break.

All of this is being used to push back against the President's proposal to curb deductions that certain high earning individuals can take on these donations. Right now the upper limit is at 39.6 percent and the proposal calls for its shift down to a 28 percent limit. For his part, the President and his supporters argue that current law is unfair in that it provides more benefit to high earners to donate than it does to lower income donor. In addition, the additional revenue raised by the tax changes would be used to bolster programs supported by most non-profit organizations.

For help understanding how charitable giving can be incorporated into your estate plan, seek out the help of an experienced attorney today.

New Decision on Valuation of New York LLC for Estate Tax Purposes

December 2, 2013,

Last month the United States tax court issues a decision in a case which caught the eye of many involved in estate planning matters. The main issues in the case, Tanenblatt v. Commission of Internal Revenue, was the value of a deceased individual's interest in a limited liability company. As most know, estate taxes are based on the value of the total assets owned by an individual at the time of passing. Consequently, determining the exact value of items like a business interest are critical in determining the tax burden. As you might imagine, there is frequently disagreement between surviving family members and the IRS regarding the overall assessments.

LLC Value
The tax court opinion (viewed in full online here) explains how the case involves a family that received a notice of deficiency from the IRS, claiming that an additional $309,000 in federal estate taxes was due. The discord was caused by confusion over the value of the decedent's interest in a New York LLC (the 37-41 East 18th Street Realty Co.). As the name implies, the LLC's main asset was a building on 18th Street in New York City. In preparing their tax return, the family essentially determined the value of the building (using an income capitalization approach), added a few smaller assets, applied "net asset value" (discounts for various reasons), multiplied by the individual's percent interest and determined the value of the share in the LLC -- around $1 million.

The government disagreed however. Their math showed that the property interest was worth around $2.5 million. The disagreement ultimately made its way to court and went to trial.

In deciding the disagreement, the court's main focus was on the specific methods used to calculate the overall value and taxable amount. Interestingly, there was significant disagreement about whether certain appraisals could be introduced at trial. Some tax court rules were not followed, and one favorable opinion from the family's perspective was not counted by the court. Essentially, the court determined that this favorable expert's opinion did not count because she was not officially qualified as an expert in this case--she only issued a report and did not testify at trial.

Ultimately, the court determined that the fair market value was around $2.3 million--slightly less than the IRS initially claimed but significantly more than the family argued. The family will therefore have to come up with funds to pay for the additional estate tax burden.

As this case shows, many of these valuation issues are quite complex. Even relatively small differences can have a sizeable effect on estate tax burdens. As a result, it is always prudent to seek out the help of estate planning lawyers before and after a passing for clear guidance and advocacy.