Delaying Social Security: Should You Do It?

August 30, 2013,

There is no such thing as universal financial advice. When reading any news story, blog post, or magazine article, one must remember that any advice or discussion about financial topics are general--they may not be best choice in your particular case. Many decisions about investments, use of trusts, and similar matters should only be undertaken after consultation with a professional upon explaining your exact situation.

But that is not to say that it isn't important to learn about some of the general issues beforehand to better understand common financial planning themes. For example, what are the pros and cons of delaying the receipt of Social Security benefits?

A Q&A story from the Herald provides a helpful summary of the issue. A questioner just turned 62 years old. He was wondering if he should start taking Social Security now ($1,800 a month), wait until he is 66 years old ($2,4000 month), or wait even longer.

The answering financial advisor provides an overview of how the system works. For those born before 1954, the retirement age is 66. Collecting Social Security early, at 62, results in payment of 75% of the monthly benefit. On top of that, if you are still working at that point, you will take a 50% cut of any amount over $15,120 annually.

Conversely, delaying until 70 actually results in a large bump--around 32% higher than the "regular" payment amount at 66 years old. In fact, this figure may be even higher, because annual cost of living increases may be applied to deferred payments. For the man in the above scenario, his monthly amount would be around $3,200--or even higher.

So which option is best?

There is no easy answer. One on hand, waiting until 70 obviously results in the highest monthly payments. Those payments are guaranteed for life, which is a huge perk. Considering the benefit of delay, it may be prudent to do everything possible to survive financially without taking Social Security early by using all other resources first (savings accounts, IRAs, etc.).

However, not everyone has those alternative sources of income to survive until 70. At that point the assessment is a balance between working longer (if that is an option) or deciding to bite the bullet and take the earlier Social Security payments.

Many other factors come into play in these decisions, as well. At the very least, it is critical to evaluate all of your options and closely consider your long-term needs and goals before making any permanent financial decisions.

New Rules: Reverse Mortgages Will Be Harder to Get

August 29, 2013,

One tool that seniors can use to receive funds for long-term care are known as "reverse mortgages." A reverse mortgage works by converting home equity into cash--either a line of credit, monthly payments, or lump sum. The individual can remain in the home at this time, with the loan (and interest) due either upon the borrower's death or moving out of the home. Reverse mortgages are only available to those who are at least 62 years old.

Shifting Rules
As reported recently in the Wall Street Journal, the rules about reverse mortgages are about to change. The U.S. Federal Housing Administration insures these mortgages and has power to regulate how they work. Not long ago the FHA decided to modify the program. The underlying goal of the changes are apparently to lower default rates and ensure borrowers are not unknowingly biting off more than they can chew.

More specifically, borrowing limits are changing. The FHA is enacting a lower cap on the amount a borrower can take in the first year--up to 60%of the appraised value of the home. This is down from a previous high of 75%. There are some exceptions to this rule, which will allow homeowners to borrow 75% of the appraised value immediately, but doing so will trigger a high loan fee.

Also changing are requirements on lenders before approving these loans. For example, lenders will now be required to evaluate the borrower's ability to pay property taxes, homeowner's association fees, and similar costs. Not only that, but the lenders may require those receiving the loans to set aside money to cover those costs.

In short: The new rules will make it a bit tougher to obtain a reverse mortgage and may limit the size of the loan. There is not much time before these rules go into effect. The FHA is pushing to have some (or all) of the changes take effect on October 1, 2013. To work under the older system, borrowers would need to finish the preliminary steps--a counseling session on receipt of case number--within the next month.

Get Professional Help
There is a lengthy list of New York seniors who have taken on these loans with rather harsh terms only to find that they are unable to live off the loan for long or pay it back entirely. When researching all options regarding long-term care, it is important to visit with an elder law estate planning attorney who can walk you through the details of each and help you make informed decisions to ensure goals are met in the most prudent fashion possible.

How Does New York Stack Up for Retiree Taxes?

August 26, 2013,

Do you have enough money to retire? It is a questions that tens of thousands of New Yorkers ask themselves every day. When talking with attorneys and financial advisers, many factors are weighed to determine whether enough resources are available for one to have the type and length of retirement that they want and need.

One of those factors, as always, is taxes. Retirement income is frequently taxed, with a portion of money going to state and local government. These are not necessarily trivial amounts, as the exact size of the tax burden may affect whether or not the nest egg is large enough to cash in one's chips and begin the next phase of life.

Federal taxes will obviously be the same everywhere, but the rules about retirement taxes vary considerably from state to state. When making long-term plans regarding finances, it is critical to understand how state tax rules will affect your retirement

New York Retirement & Taxes -- High Burden
One recent report from Kiplinger includes a helpful map that compares relative state retirement tax burdens nationwide. New York is rated as one of the "worst" for retirement purposes, because of its relative lack of senior-related retirement tax benefits. As you can see in this full map, New York is one of ten group into the "least tax friendly."

The designation was based on analysis of various factors, including: state sales tax, social security tax, income tax, estate/inheritance taxes, and other special treatment of income used for retirement.

For example, New York has a 4% sales tax, an income tax ranging from 4-8.82%, and a relatively aggressive state inheritance tax. Compare that to a relatively senior "tax friendly" state like Florida, which has a 6% sales tax but with no state income tax and no state inheritance tax.

None of this is to say it is all bad news for local retirees. New York does not tax Social Security benefits or public pensions, and provides some tax exemptions for private and out-of-state pensions. However, our state does have some of the highest property tax rates in the country, which can hit seniors hard.

More and more seniors are at least taking a look at this data when making future plans, including any thoughts about relocating. Even if the tax issue does not ultimately affect your retirement decision, it is still important to appreciate the differences if you are moving out of New York or into it. Those families entering the state should account for the effect that our relatively high rates may have. While those moving elsewhere should be sure to check on their eligibility for different senior-based retirement tax breaks.

IRS Valuation & Taxes - The Michael Jackson Examples

August 23, 2013,

Death and taxes; the two constants in life. There has been significant discussion in the past few years over the one tax that is itself most closely tied to death: the estate tax. At the federal level, the President and Congress have debated the exact rate of the the tax and at one point it should kick in.

But once those details are set, it is still not entirely easy to determine what one's total estate tax bill is. That is because most individuals have assets whose value is hard to gauge. It would be straightforward if all of one's wealth was in a bank account with a set balance or stocks with a clear value.

That's not how it works in the real world, however. Instead, many have assets that must be "valued" before added to a tax bill. Who does the valuing and what decisions they reach may ultimately have significant effects on how much of an estate goes to Uncle Sam. As you might imagine there is frequently considerable disagreement regarding this matters.

The MJ Example
For example, Bloomberg News is reporting that Michael Jackson's estate is challenging the estate tax bill which the IRS calculated. The estate claims that some assets were overvalued, leading to a requested payment in excess of what should have been owed.

The process has included some back-and-forth. First, the estate hired its own appraisers to value everything in the estate. Then, based on those appraisals, the estate paid the estate taxes that were due. Later, the IRS issued a "notice of deficiency." This is the government's way of claiming that the estate didn't pay enough and owes more. In response, attorneys for the estate have fired back, filing their own suit challenging the notice of deficiency.

The court filing lists many different assets that the estate claims were overvalued by the IRS. This includes real estate, automobiles, Jackson's share of a business, items in two trusts, and smaller personal property. In addition, there are disagreements about how much the singer's "image and likeness" are worth as well as the value in a "contingency non-appearance and cancellation" policy which was part of a scheduled concert series.

In short, there is a lot of room for conflict here, and with so much money ultimately at stake, this estate tax dispute will likely rage on for some time. It is yet another reminder of the critical need for experienced estate planning help both before and, sometimes, after a passing.

DOMA Ruling & Retirement for Same Sex Couples

August 21, 2013,

Much discussion around the Windsor case that struck down DOMA dealt with the estate tax. As a result of the decision, married same sex will indeed be privy to the same federal estate tax exemptions as their heterosexual counterparts. But the effects will go well beyond taxes at death. In fact, it is important for same sex couples to remember that federal recognition of their marriage will also affect retirement planning.

The sweeping ruling granting federal equality will likely mean that many same sex couples will need to "re-do" planning that they previously undertook to account for their unequal status under the law.

Retirement Planning
For one thing, many couples previously set up separate trusts in the hopes of bypassing excessive taxation and/or probate challenges upon one's passing. In the past a same sex couple usually named each other as executors of their separate trusts. Those trust arrangement may need to be re-worked. Now, the couple can have a consolidated trust with both named as co-trustees.

In addition, couples may have to re-evaluate their available assets and income in retirement prep. For example, shared health benefits between spouses will no longer be taxed and couples will likely qualify for larger Social Security spousal benefits. All of this will need to be taken into account when planning for access to sufficient resources in retirement.

Those issues will need to be balanced on top of other basic retirement planning concerns that affect everyone. For example, many same sex couples have children. On average, same sex parents are older than the average heterosexual parent. This means that same sex couple may be facing children in college at the same time that they are close to retirement. Preparing for the significant financial crunch at that time is not easy, necessitating careful planning.

Time to Update
Are you a same sex couples who had legal documents drawn up before the DOMA ruling in order to protect your family? If so, it is critical to reevaluate to determine if changes need to be made.

Estate planning attorneys frequently discuss the need to "update" a plan in the face of major life changes, like a divorce or birth of a child. That same rule applies following major changes in the law, which includes this Supreme Court ruling. In fact, in many ways this ruling is akin to couples suddenly getting married for federal legal purposes--a change that demands a review of all long-term planning efforts.

Issues with Family Vacation Homes

August 19, 2013,

Many New York families have vacation homes. While the reference often conjures up images of the super-wealthy wintering in palacial estates, the truth is that owning a second piece of real estate in a favorite location is not only for the elite. Middle class families who prudently save often decide to purchase a second home for investment purposes.

Considering the frequency of these homes, it is important for families to be aware of some financial and estate planning issues that they may create. A Forbes story from last week provides a helpful introduction into the topic.

Unfortunately, the use and future ownership of these homes is often cause for confusion, misunderstanding , and argument. For one thing, parents and children often have different ideas about the property. Is it meant to be a family keepsake that is passed down through the generations as a meeting place and memory maker? Or is it simply an investment item that can be sold if necessary without much thought? Often different family members have different levels of attached to these homes. One sibling may hold the location dear and never dream of getting rid of it while another may have few memories of the home and not wish to hold onto the property if it does not make financial sense.

The Forbes discussion notes that the single most common mistake made with regards to these issues is parents who decide to just "let the kids figure it out." Without honest discussion and legal planning ahead of time it is likely problems will arise. It is easy to see why. Adult children may live far away from one another. Those who live near the home may use it, while others may get nothing from the property. Those with a larger family and more immediate financial needs may view the property as a windfall, while others may not.

Solving these disputes is not as easy as simply giving the property to those who most enjoy it. After all, many parents seek to split their assets evenly between children. Because a second home may be one of the family's largest assets, it is often impossible to offset that value with something else.

On top of all of this there are tax issues to consider. What is the best way to pass on the asset? Children can receive it via will or perhaps as part of a trust (QTIPs are common in these cases). Alternatively, it may even be appropriate to use a limited liability company to make the transfer. These choices can literally save families tens of thousands of dollars (or more!).

In other words, there are many complex estate planning issues that come into play with vacation homes, and it is critical not to discount them or fail to anticipate them.

New York Taxes & Part-Time Residents

August 16, 2013,

Our government is based on federalism, which is why we have different laws in individual states as well as federal laws. This allows for legal "experimentation," with representatives in each state free to make different rules in many areas, from taxation and healthcare to marriage and even crimes.

One complexity in living in such a system exists when laws conflict and individuals do not necessarily live in one state or another. Sometimes the conflict is easy to resolve. For example, if one state allows you to drive while talking on the phone and another does not, then citizens are forced to abide by the law of the state they are in at any given moment.

But sometimes it is not that easy. There is often much complexity when it comes to different estate planning and tax rules.

NY Income Taxes For "Snowbirds"
Late last month Forbes published an article that touched on one of those complexities, discussing how New York residents who winter in warmer states struggle with tax obligations. The story notes that it is often difficult for someone who splits time between two states to convince the higher tax state that their primary residence has changed, leading to no tax obligation.

A recent New York Division of Tax Appeals case illustrates the point. The couple at issue spends most of the year in a Queens home in the Malba neighborhood. In the mid-1990s the couple transferred the house to a QPRT. This refers to a "qualified personal residence trust" and usually used to transfer a home to others (in this case the couple's children) with gift and estate tax savings. Even though the couple's children technically own the home now, the seniors still live there most of the time and pay rent to the children. In addition, the seniors own a Florida home where they live in the winter.

The tax dispute in question was whether the couple owed New York income tax. They did not technically own a home in New York. In a somewhat complex ruling, the state of New York won, successfully arguing that the couple met both "domicile' and "residence" requirements. There are detailed rules and requirements about how these two locations are decided as a legal matter.

While this case related specifically with income tax, similar disagreement may arise with inheritance and estate taxes, as seniors may split time between different locations. For help understanding how different state tax rules may apply to your family, be sure to get help from an estate planning lawyer.

Reminder: More Estate Planning Opportunities for Couples After Windsor v U.S.

August 14, 2013,

A JDSupra post from last month offers a helpful reminder of the changing legal landscape for New York same sex couples who are married.

As virtually everyone knows, in late June the U.S. Supreme Court declared the main portion of the federal law known as the "Defense of Marriage Act" (DOMA) unconstitutional. The crux of the particular case, Windsor v. United States, related to the estate tax. Windsor, a New York resident, was forced to pay over $350,000 in estate taxes following the death of her wife, Thea Spyer. The couple's marriage was legally recognized in New York, but the federal government treated the pair as strangers.

Estate Planning Options
With the Supreme Courts ruling, issued by Justice Kennedy, the federal government is now required to treat all couples the same who are properly married under state law. This opens up a large number of new estate planning tools for married same sex couples in New York.

Most obviously that includes claiming the marital deduction on gift and estate taxes. As pointed out in the article, this deduction applies both to assets that pass directly (in a will) and those transferred via a trust. In these cases a trust known as a QTIP is common. QTIP refers to "Qualified Terminable Interest Property" trust and is often used to allow a surviving partner to benefit from asset before they eventually pass to another, like an adult child.

In addition, same sex couples can now take advantage of each other's exemption amounts when making gifts and transfers. For example, the partners can "split" gifts to third parties and double the annual tax-free exclusion amount for federal purposes. Similarly, married same sex couples can now elect portability. This is a legal tool that allows the spouse of one who is deceased to essentially borrow the "unused" exemption amount of the spouse who has passed away. In essence, it is another way that partners can jointly pass on assets to loved ones with as small a tax burden as possible.

As we have previously pointed out, other legal details, like the increased Social Security benefits and the filing of joint tax returns, are also open to same sex couples married in New York.

Critically, the article makes the unique point that as a result of the unconstitutional ruling, section 3 of DOMA is deemed to have been void from the outset. In other words, those adversely affected by the law in the recent past (usually three years), may be able to file amended tax returns and recoup some of their overpaid tax.

Following the Windsor decision, it is critical that all New York same sex couple visit with an estate planning attorney to update their current documents or have new plans created to account for the new legal options open to them.

Children on Famed Football Coach Challenge Will

August 12, 2013,

The State recently reported on another "will contest" involving a well-known South Carolina family. The story is an example of a very common estate planning problem, disagreement between adult children and a second (or third) spouse.

The basics of the family situation are well known. The patriarch, former University of South Carolina football coach Jim Carlen, had three children with his first wife, Sharon. In the early 1980s, Carlen divorced Sharon and married his second wife, Meredith. Carlen and Meredith had one child together. While specific details are sparse, it seems that Meredith and the Carlen children from the first marriage may not have had the best relationship. Tension of this sort is quite common among all families with parents who re-marry following divorce or death.

In Carlen's case, the children are claiming that the man's second wife exercised undue influence on him in his waning years, taking advantage of his dementia. Carlen apparently wrote a series of wills (among other estate planning documents). The first, in 1970, left his assets to his wife and children. All subsequent wills were similar, with the children left substantial property.

Yet, in 2010, that changed. Already in poor mental and physical health and unable to drive on his own, Carlen was allegedly driven to a new attorney. He had been diagnosed with dementia in 2009. At that time the attorney presented him with a re-drafted will. Carlen signed the document.

The petition that the three adult children filed while challenging the will lays out the situation: "Unlike the 2007 will which provided for both Coach Carlen's children and his wife, Meredith, the 2010 will left all of his property to his wife Meredith and left nothing whatsoever to his children or grandchildren: not money; not personal property; not a photograph; (nor) memorabilia from any point in Coach Carlen's career or a token for them to remember him by."

It wasn't even until after the coach's death last year the adult children learned of the latest will and the fact that they had been totally disinherited. All told, the estate valued at about $10 million would pass to his second-wife, Meredith. Carlen's three adult children and twelve grandchildren would receive nothing.

In seeking to have the 2010 will declared void, the children petitioned the court claiming that it was the product of undue influence at a time when he had diminished mental capacity.

Preventing these sorts of "will contest" should be up paramount important to all New Yorkers when crafting an estate plan. Please contact our office to see how we can help.

Adding Candidates & Political Parties to Your Estate Plan

August 8, 2013,

How should you decide who you should name as beneficiaries in your estate planning documents? For many, the answer is not too complicated: leave it all to the children. However, just because that model is the most common form of passing on assets does not mean that there are not others who you might like to leave something. For many, designating beneficiaries in a will and trust documents is an important way to re-iterate their values, morals, and interests one final time. After all, estate planning is about legacy-building.

Charitable contributions are common, as New Yorkers seek to help out their favorite causes one final time. Similarly, many residents decide to leave assets to political causes. The total amount donated to political parties and candidates this way is actually quite substantial. However, because of campaign finance laws, there are some additional complications when making these bequests.

Political Beneficiaries
As discussed in a recent USA Today analysis, nearly $600,000 have been given to individual federal office candidates alone by deceased individuals in the last four years. This total, culled from Federal Election Commission (FEC) data, does not include any money left to political parties or other-politically connected organizations.

Federal law allows these contributions as part of an estate plan in a similar way to donations to charities. However, one key difference are the general restrictions on all political donations, made even by the living. Current law limits individual donors to $5,200 per candidate and $32,500 to a political party on a yearly basis. All estate planning which involves political beneficiaries must take those campaign finance rules into account.

Yet, it may not be as simple as remembering not to leave too much. That is because recent U.S. Supreme Court decisions related to campaign finance laws are leading some to argue that those restrictions are unconstitutional. Most notably, the 2010 Citizen's United decision struck down laws which placed caps on a corporation's ability to donate unlimited funds to these causes.

Another suit is pending which would essentially do the same for individual donors. That latest suit was filed by the Libertarian Party,which is arguing that the $217,000 that a man left the party in his will should be given in a lump sum--instead of in annual installment falling below the campaign contributions limit.

It is impossible to say now if the law around contributions to political parties and candidates will change. Right now,it is important to reiterate the importance of having professional help with including political parties or candidates in an estate plan.

Taxes & Withdrawal From Retirement Accounts

August 7, 2013,

Planning for retirement is rarely a simple task. For one thing, a resident must carefully ask the basic question: How much do I need? Sophisticated models and projections exists to help make educated guesses about this answer. But it is never an exact science. That is because it is impossible to say with certainty how long the retirement will last or what the future financial world will look like.

On top of that, however, there is also significant complexity regarding the accounts, trusts, and other tools used to provide the assets and income needed in retirement. It is critical to understand tax issues with retirement accounts and investments to appreciate exactly how much money will be available for you to live in your golden years.

Take, for example, the issue of taxes and individual retirement accounts (or any other tax-deferred plan). Do you know how much of the account will be taxed on withdrawal?

A Wall Street Journal story this week explored how many investors are not familiar with the specific tax rules related to IRAs. Most appreciate that the federal government will take a tax bite out of those withdrawals (no taxes were paid when initially put into the account). But will states take out an income tax as well?

The answer: it depends. Each state has somewhat different rules. Those living in the seven states that have no income tax obviously will not have a state tax burden. But even those in states with a state income tax, like New York, may have some special rules apply which minimize the tax.

As in most states, in New York, a resident is able to deduct their IRA contributions when they are actually made. This means that the tax is applied years later, when the money is withdrawn. However, under New York law, the first $20,000 of retirement plan withdrawals are actually exempt (at least for those over 59.5 years old). In other words, the state tax bite on the retirement withdrawal may be a bit less than expected.

An added complexity comes if one move to a different state. Which state's law applies: the one where you set up the account or where you live when you withdraw from it? In most cases, the latter is true, the rules of your current state apply. Therefore those who move into or out of the state need to investigate the area's particular tax rules to understand exactly what their obligation will be on what funds will actually make it to their bank account.

GRATs - A Good Idea in this Low Interest Rate Environment?

August 6, 2013,

A post over at Think Advisor last week provides some helpful insight into one financial and estate planning tool which might be appropriate for some New York residents. The tool is know as a GRAT - Grantor Retained Annuity Trust. As with many other trusts, one key purpose of the GRAT is to minimize tax liability, particularly for those with significant assets.

How It Works
The basic concept behind the GRAT is straightforward. Assets are placed in trust. The grantor (person creating the trust) then retains the right to receive fixed payments from the trust. Those payment can last either for a set period of time designated in advance or over the grantor's life. At the end of the trust's life the assets placed in the trust then fall to the beneficiaries.

Timing: Why to Consider it Now
Grantor Retained Annuity Trusts have been available for quite some time. However, there has been a push by some in recent years for increased use of the GRAT. This renewed interest is based two factors, current interest rates and the political dynamic which may close the window of their availability.

1) Interest Rates - For the past few years, interest rates have been quite low. As financial advisors often explain, a GRAT can be particularly valuable in a low interest rate environment. Here's why: the 'taxable" portion of the transfer into the GRAT is based on the value of the property minus the estimated value that the grantor will retain as part of the annuity. The larger the retained estimate, the lower the taxable amount. Therefore, in a low interest rate environment, the portion of the transfer that is taxable will ultimately be lower. As the Think Advisor article points out, in some cases, this scenario can effectively reduce a tax liability to zero.

2) Politics - On top of the benefit with today's interest rates, there may be a push for use of GRATs now because the ability to use this tool may be taken away. Recent federal proposals have included elimination of the benefits available in these types of trusts. Therefore, if the GRAT is a good fit in your situation, it is important to act now.

There are many other issues to consider with regard to GRATs, like the possible need to combine with a life insurance trust. For help understanding the many different types of financial and estate planning tools that might be available to meet the needs of your family, please contact our estate planning attorneys today.

Think Twice Before Disinheriting A Child

August 2, 2013,

Families are complicated. No matter how well intentioned, virtually all family histories include some situations, dynamics, and incidents that cause immense disagreement, tension, stress, and frayed relationship. Virtually all families have some level of "dysfunction," and no family is perfect.

Estate planning attorneys are acutely aware of this reality, as we worked with every manner of family on issues which must take into account their unique situations. Simply "splitting everything between the children" is not an ideal option for many. In certain cases parents have serious concerns about their child's ability to manage an inheritance or the fairness of dividing things equally.

In the most extreme cases, some parents consider disinheriting a child altogether. This may be based on many different reasons: the child is estranged, they have significant means and do not need an inheritance, or perhaps they have drug and alcohol problems.

But is disinheritance the best option? Perhaps, but it should not be decided upon lightly. A planning professional can provide specific advice to discuss the pitfalls and ramifications of such a move.

A Bloomberg story from this month touched on the same topic, arguing that many parents who think that they want to cut their child out of their will may need to think twice.

The most obvious concern about cutting out a child is the door that it opens for subsequent litigation. As one professional interviewed for the story explained, "A good attorney will assume a will or trust will be contested. You do everything you can to cut off potential litigation in advance."

A disinherited child may pursue legal redress. Even if it is unsuccessful it requires resources and delays a final resolution. But even if the party left out does not do anything, a disinheritance also places immense pressure on those who did receive an inheritance. For example, cutting out one child automatically creates a rift between those children left in and left out--even if that rift did not exist before. It is a template for family drama.

No matter what, it is prudent to at least learn about the alternatives available, like trusts for spendthrifts and "sprinkle" trusts. These legal tools may be able to more accurately address concerns without the need to completely disinherit a child. The spendthrift trust can structure the inheritance in such a way that it cannot be exposed to creditors and does not allow the child to blow through it all at once. A 'sprinkle" trust may allow for an inheritance to be based on the child's need down the road, to account for different financial situations for each child.

Understanding "Portability" in Estate Planning

August 1, 2013,

The last major piece of federal tax legislation was the American Tax Relief Act (ATRA). It was signed by President Obama on January 1st of this year and was passed in order to avert to so-called fiscal cliff (we went over that cliff a few months later anyway). The tax rules made permanent in ATRA have significant effects on estate planning. One such issue relates to the concept of "portability." A recent Forbes article provides a helpful primer of some of basic portability concepts.

The first question: what is portability?

Essentially, the principle of portability applies to the estate tax exclusion amounts between couples. Right now an individual has $5.25 million that is excluded from estate taxes. That means, as a couple, two individual have $10,5 million in exclusion available. But what often happens is that one spouse dies first and transfers most (perhaps all) of their assets to the surviving spouse. Transfers to a spouse are entirely exempt, and so there is no estate tax burden.

However, what happens when the second spouse dies? Generally that spouse would only be able to have $5.25 million of the estate exemption. If the estate is worth more than that, then there would be an tax obligation.

Portability changes that by allowing the surviving spouse to use the unused portion of the first spouse's exclusion amount. This is often referred to as DSUE amount - "deceased spousal unused exclusion" amount. In other words, this allows the estate of the second spouse to exempt millions more from their estate tax burdens. In practical terms, because of portability, adult children and other heirs often receive a much larger tax-free inheritance when their only surviving parent dies.

The basic idea behind this option is logical. Because married couples almost always act as a single unit, it does not make sense for the pair to lose their own exempt amount merely because they likely will not die at the same time.

Importantly, taking advantage of portability does not happen automatically. One must explicitly elect to take it. There are timing and paperwork requirements to take advantage. Considering the significant resources at stake, it is obviously very important not to go it alone. Having professional support is essential to take full advantage of the legal tax savings tools available to you.

For help in New York, contact the estate planning attorneys at our firm today.

"Funeral Shopping" - The Basics

July 26, 2013,

Last week Forbes dove into a topic that families give little attention until the task is thrust upon them: picking burial and funeral vendors. For obvious reasons, most of us have little direct experience evaluating different options for quality or negotiating to receive the best value.

For starters, as the story points out, it is important to have a specific idea of what you want at the services before calling any funeral parlor director. That is because, without an idea ahead of time, you may be persuaded to purchase many different things that you do not truly need or want. Having detailed plans in place as part of a comprehensive estate plan ahead of time can help narrow the focus.

There is a lot of pressure in any sales situation, and it can be made worse when it comes to funeral services. When a certain item is offered by the funeral parlor, a family may feel as if not agreeing to the most expensive options reflects on the value of the one who passed away. Of course this is not true, but the pressure is there. Having one's wishes laid one with clarity ahead of time takes away much of that burden from the surviving family.

Beyond being clear about wishes, it is also helpful to ask for a specific price list from the funeral parlor. It is easy to agree to many different services or features without appreciating the cost of each. As the story points out, by having a list in hand ahead of time, a family can weigh the value of each service with the cost to make the best choices on their own time after careful consideration.

Perhaps the most logical (but overlooked) tip is to shop around for services. Considering the emotional turmoil of the situation and time pressures, many families simply make a single call and go with whatever they hear. Even individuals who are normally prudent about getting the best deal fail to consider different options from different vendors when dealing with funeral services. This is a mistake. Prices vary considerably, and using a parlor just because your family has used it in the past or because it is close may result in significant over-payment. Assign someone to call around and get a feel for the basic price difference between a few relatively close options.

For more tailored advice about planning for these services, paying for them, and putting plans into place to ease the transition for family members, feel free to contact our estate planning attorneys today.