Articles Posted in Asset Protection

Are you being told to avoid probate at all costs? The probate process is characterized as a long and tedious process of endless red tape and expense. In many cases avoiding probate can be a worthwhile goal; however, a closer look at the probate process may reduce the angst that is often associated with a sometimes inevitable end to the best laid plans.

Some Basic Vocabulary

If you have been exposed to the probate process in some capacity in the past in connection with a deceased relative or friend you may have had heard some terms not often used in everyday life. Here are a few basic terms you should know:

  • “decedent” means the person who died and whose estate is the now the subject of the probate proceeding;
  • “domicile” means the primary place of residence that establishes the venue for the probate proceeding;
  • “estate” means all the property or interest in property owned by the decedent at the time of death;
  • “personal representative” means the person with authority to administer the decedent’s estate; and
  • “issue” means a descendant from a common ancestor, such as children of the decedent, including adopted children.

What Does Probate Accomplish?

At a most basic level, the probate process in New York, like in other states, is a way for the decedent’s assets and debts to be settled and distributed in an orderly process in accordance with the decedent’s last will and testament, or the laws of descent and distribution if the decedent died without a will, also known as intestate. Probate is a court supervised process administered by a fiduciary of the estate, such as the decedent’s personal representative.

Steps in the Probate Process

Based the decedent’s domicile, a probate case will be opened and, assuming there is a will, the decedent’s personal representative will receive “letters” or authority to administer the probate estate. At this point it is important to understand the scope of the decedent’s estate. The probate proceedings are concerned with the estate of probate assets. This means assets disposed of by a trust or outside of the probate process, e.g. transfer on death accounts and deeds, are not within the jurisdiction of the probate court. Herein lies the widespread motivation to utilize non-probate transfers to reduce or eliminate the probate estate, and with that, the time, expense, and exposure related to probate administration. After an inventory of the probate estate is complete, the personal representative will settle the outstanding debts and claims of the estate. The assets of the estate are used to settle all proper claims submitted by creditors of the decedent. The final stage will be the final accounting and distribution of assets, which will close the estate. The foregoing represents the most basic sequence of a probate proceeding. There are many issues that can occur during the course of a probate case, including disputes brought by beneficiaries or creditors, that can add complexity to the proceedings.

Planning for Probate

There are estate planning steps you can take to avoid probate, including getting help from an estate planning attorney who can explain the nuances of the probate process in New York. If the estate is small enough, there are also summary proceedings available to lessen the burden and expense of the probate process. Having the knowledge of the process and what is included in the probate estate is a first step in dealing with the potential of probate for your or a loved one’s estate.

Trusts can be used as a useful tool in your estate plan to accomplish a variety of goals. One example is establishing a split-interest charitable trust. These charitable trusts are an irrevocable trust established for a charitable purpose of your choosing, while at the same time featuring a benefit to a non-charitable trust beneficiary. In addition to tax benefits received under federal law, charitable trusts offer the person establishing the trust, also known as the “settlor,” a controlled process to effectuate their gift to a selected charity. Examples of charitable trusts include a charitable remainder annuity trust (CRAT), charitable remainder unitrust (CRUT), and a charitable lead trust (CLT).


Establishing a charitable remainder annuity trust includes the transfer of property to a trust that first distributes a fixed annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt charity selected by the settlor. Similar to the charitable remainder annuity trust, a charitable remainder unitrust also includes the transfer of property to a trust that first distributes an annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt trust beneficiary; however, the amount of the annuity fluctuates with the value of the trust assets. A charitable lead trust differs from the charitable remainder annuity trust and charitable remainder unitrust in that the settlor will designate that the charitable beneficiary will first received a distribution of trust assets at least annually for a set period of time, after which the non-charitable trust beneficiary will receive the remainder of trust property. Each of these three split-interest charitable trusts offer dual benefit to a designated charitable purpose and the settlor’s non-charitable trust beneficiary.

New York Requirements for Charitable Trusts

After deciding to include a charitable trust in your estate plan, an estate planning attorney can help you create the trust vehicle to accomplish your goals. Charitable trusts established under New York law must adhere to several requirements and ongoing administration. The creation of a charitable trust under New York law is effectuated like other types of trusts where the settlor transfers property to a trustee for the benefit of a charity. Within six months of the settlement of a charitable trust, the trustee must register the trust with the State of New York Attorney General by completing the appropriate forms and submitting a copy of the trust document. Depending on the type and size of charitable trust established by the settlor, annual financial reports and fees may have to be submitted to the state. Charitable trusts are terminated upon their terms, or as a result of an action by an interested party or the State of New York on the basis that the ongoing administration of the trust assets of $100,000 or less is not beneficial.

You have saved and invested throughout your life to build enough wealth to fund your retirement. You have worked with your estate planning attorney to establish an estate plan to leave behind assets to your loved ones to share after you pass away. However, like many individuals, you are now considering giving your children or beneficiaries their inheritance before your death. There are many advantages to giving an early inheritance, but also some important considerations.


Advantages to Giving an Early Inheritance


Providing an early advance could provide your children with some needed financial help. Whether your children are experiencing financial difficulty, starting a new business venture, or are planning a big purchase, such as a house or getting married, providing them an early gift may be of greater value now than after your death.


For purposes of tax planning, New York does not have an inheritance tax, however, a handful of states do. If you were to relocate to a state with an inheritance tax, giving early may help alleviate that tax burden depending on the applicable state’s tax law. Giving early will also reduce the size of your estate for federal estate tax purposes, and therefore any estate tax that may be due if you have a sizable estate. Keep in mind that gifts within your lifetime may be subject to federal gift tax to the extent they exceed the annual exclusion, which in 2015 is $14,000 for each you and your spouse ($28,000 total).


Another advantage of an early inheritance is the that it gives you the opportunity to see your gift put to use. For many this provides a benefit to those they love, and provides them with lasting memories and a greater sense of satisfaction.


Additional Considerations


You will have to consider the overall effect your early gift will have on your financial future. Of course, you will have to consider if an early gift will compromise the funding of your living expenses and goals for the remainder of your life. You will want to meet with your financial advisor to ensure you are not overextending yourself with an early gift. You will also want to consider your family dynamic and the possibility of potential disputes among your beneficiaries in cases where you are giving unequally.


If you intend for early gift to be an advance on the donee’s share of your estate, you will have to take additional steps with the help of your estate planning attorney. For example, assume you have two children and your will provides that each child shall share equally in your estate. Assume you give child A $20,000 as a down payment on a new home while you are alive, and you give child B nothing. Now assume that upon your death, your estate has a value of $80,000. Per your will, child A and child B will each receive $40,000, even though you already gave child A $20,000.

Under New York law, if you intend for the $20,000 gift to child A to be a true advancement of their share of your estate you will have to execute a document evidencing your intention that the gift be treated as an advancement. If you intend the $20,000 gift to be an advancement and executed the proper documents at the time of the gift, child A would receive $30,000, and child B would receive $50,000 upon your death. Planning your gifting strategy with the help of financial and legal advisors will ensure your gifts are effectuated as you intended them to be.

When you create an estate plan, you face many decisions. One of those decisions will be how you should divide and distribute your property. You will spend a great deal of time deciding who will get what upon your death. One area that may need special attention is the distribution of your tangible personal property, especially those items that may not have significant monetary value, but may hold substantial sentimental value to you and your loved ones.

What is tangible personal property?


Under New York law, property is anything that may be the subject of ownership. The property specifically devised by your will or trust commonly includes real property, cash, stocks, motor vehicles, and other items of value you wish to pass on to those named in your will or trust. It is a good idea to define what you mean to include as part of your tangible personal property, which typically excludes cash, securities, and tangible evidence of intangible property. Generally, tangible personal property will include property, other than real estate, whose value is derived from the item itself, or its uniqueness, such as furniture, decor, jewelry, coin collections, photos, and other personal items you use in daily life. While you may consider your pets as members of your family, the law classifies pets as tangible personal property.


Ways to distribute sentimental items you leave behind.


After you identify what tangible personal property is included within your estate, the next step is to determine the best way to effectuate your decision as to who receives the property. You should discuss the relationships and dynamics of those receiving property with your estate planning attorney who can help craft provisions to help avoid confusion or later disputes. After addressing any potential issues that may come up among those who are receiving the property, you should identify the manner in which your personal representative or trustee will distribute the estate property. Because your list of tangible personal property may be very lengthy, and subject to constant change until your death, one practical method is using a document separate from your will or trust that outlines your wishes.


Because New York law does not provide for incorporating such a document in your will or trust in a way that would be legally binding, one practical approach would be to empower your personal representative or trustee with the discretion of dividing up your tangible personal property in their sole discretion or under a separate memorandum of wishes you may provide during your lifetime. In using this option, you should be sure that you are very comfortable with your selection of your personal representative or trustee and their commitment to carrying out your wishes. Also, your will and/or trust must also include the necessary provision that empowers the person to distribute the property and what to do in certain situations you may not have expected at the time of creating your estate plan or memorandum of wishes.


Other Considerations.


Certain property may require additional considerations. For instance, tangible personal property that has significant value may be better suited for specific reference in your estate plan, especially if the property is to be divided. Also, while frequent flyer miles and other reward point programs may fall outside the traditional definition of tangible personal property, these programs sometimes carry significant value, and you should check with your program for details on how these benefits may be transferred upon your death. Lastly, if you have pets, consider a trust for your pet that includes funds for its care. Just as your tangible personal property is unique, so are the alternatives for ensuring your property is distributed and cared for after you pass on.

Families throughout New York who have children with disabilities are frequently questioning how to best provide for their children’s needs–both now and in the future. It can be a complex issue, because relatives must balance their ability to provide help via their own private resources with available support through Medicaid and Supplemental Security Income (SSI). SSI is designed to help those with certain disabilities with basic needs and is funded through general tax revenues, not Social Security taxes.

The government programs hinge on the specific income available to those with disabilities, and so relatives who provide support may unintentionally lead to disqualification of their loved one from Medicaid or lower SSI payments.

Special Needs Trusts in New York
Special Needs Trusts (SNTs) are critical in these situations, allowing parents, grandparents, or others to provide supplemental resources without affecting the individual’s access to important government programs.

SNTs are relatively straightforward in concept, but the specifics of setting them up and using them properly can prove complex. For example, there are two general types of SNTs: First party and third party.

Third party SNTs are usually more common for New York families in situations where a parent, grandparent, or guardian wishes to provide funds for the child. The trust then operates to provide support for the individual with disabilities throughout their life. At death, the remaining assets in the trust are paid out to relatives–the disabled individual’s own children (if there are any), siblings, or other close relatives.

Alternatively, first party SNTs use the disabled individual’s own funds to create the trust–not money provided by others. These are slightly more complicated in that they have a “payback” requirement. The disabled child is able to benefit from the trust funds without losing eligibility in government programs. However, upon the individual’s death, the funds remaining in the trust must be used to pay back the government for benefits received throughout their life.

Because first party SNFs require use of the disabled individual’s own funds and have a payback provision,they are not used as often as third party trusts. However, they may be appropriate in certain situations. Some common examples include: when the child with special needs receives a large inheritance or is granted sizeable funds from a lawsuit verdict or settlement.

Evaluate the Whole Picture
In most cases, the creation of a special needs trust is only done in combination with other planning that may include life insurance, unique inheritance planning, and similar work. Elder law estate planning includes many interconnected parts, and so it is crucial not to view any specific legal tool in isolation. An attorney can explain what combination of steps are needed to best protect you and your family.

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.

You’ve built a nest egg after years of consistent work, prudent planning, strategic risk, a lot of focus, and a bit of luck. You want to retire peacefully and provide a legacy that will hopefully secure some degree of wealth for you family for generations to come.

But what are the odds of wealth making it decades (or even centuries) after you are gone? If history is any indication, most inheritances won’t make it long at all. Wealth surviving into the third generation only happens in one out of ten cases. As a recent Senior Independent story on the subject reminded, this principles takes the form of an often-used refrain: “Shirtsleeves to shirtsleeves in three generations.”

The story points out that over the course of their lifetimes about two-thirds of Baby Boomers in the United States will inherit about $7.6 trillion. Yet, those same individuals will lose about 70% of that wealth before passing any of it on to their own children or other relatives.

Can you do anything to prevent this rapid dissipation in your case?

While it is usually impossible to have a 100% guarantee that wealth will survive indefinitely, there are many different steps that can make it far more likely. Those steps usually take two forms: (1) Taking advantage of legal tools that structure the inheritance in smart ways; (2) Having open conversations with beneficiaries so they understand money management and the importance of financial acumen.

In the first regard, various legacy trusts and “spendthrift” trusts exist which may be able to insulate wealth from beneficiaries who are not prepared to handle too much wealth too early (or all at once). An estate planning attorney can explain the prudent moves in your case. It usually depends on the size of your assets, type of assets, and unique family situation.

Regardless of specific legal planning, it is also critical to have honest conversations with family members about money management and financial responsibility. Also, it may be helpful to provide some inheritance early on, to get a feel for how the children will handle it. This may serve as a lesson for them in prudent financial smarts as well as provide you an opportunity to evaluate if safeguards needs to be put in place to protect their inheritance down the road. If family businesses are involved it may similarly be helpful to allow a second-generation family members to exert some control early on, so that are not completely blindsided by the decision-making process when you are not there to provide guidance and support.

Do I have enough to retire? Countless New Yorkers ask their financial advisers, estate planning attorneys, and other professionals that very question each and every day. There is no one-size-fits-all response, as retirement is a personal matter based on individual expectations, goals, and perspective.

Mountains of pages have been written about how much money you should have before retiring and what you should do with it. Perspectives abound.

Interestingly, there is less disagreement about general characteristics that make one more or less likely to be financially secure enough to retire. For example, the Wall Street Journal pointed to a new study last week which found that married couples are far better positioned to make the leap and officially enter retirement.

Couples Save More
Fights about money are common. Many relationships are made of one partner who is more frugal than the other, and disagreements about what to buy and when to buy it are persistent. The frugal partner in the relationship might daydream about the amount of money that they could save if they were on their own, without the compromises necessary for any healthy relationship.

But according to a new study from the National Bureau of Economic Research (NBER), on a system-wide scale, married couples are significantly better prepared for retirement than single individuals.

According to the NBER study, married couples who may be considering retiring (between 65 and 69 years old) on average have a nine-times larger nest egg than their single counterparts. That “nest egg” includes IRAs, 401(k)s, savings, and investments for the purposes of the study. Excluded were housing wealth and available Social Security.

The disparity is even more stark in raw numbers. In 2008 (the year that the study data was culled) married couples had saved, on average, $111,600. That compared to only $12,500 in savings for singles.

The Causes
The NBER did not delve into actual causation. But many different ideas are speculated about regarding the root reason for this disparity. For example, single parties are unable to take advantage of the “economies of scale” that allow married couples to pool resources and split costs that each would otherwise have to pay wholly on their own.

Divorce is also a costly endeavor, and it often takes years before divorced partners have the same income level they did during the marriage. Similarly, single parties are usually hit harder by tough economic times or catastrophic events. Whereas a couple can rely on one another for aid during difficult times, a single party may be decimated, requiring years (or decades) to deal with all of the financial ramifications.

Digital estate planning has attracted more and more attention in recent years as online assets become more central to our lives. On a legal front, the rules regarding inheritance destruction, and/or preservation of these online accounts remains unclear. That is because most rules are based on the terms and conditions of each individual social network or online program. For example, the process of taking down a Facebook page of someone who has passed away is not the same as taking down a Twitter account. There is little uniformity.

However, as the issues related to passing on access to these accounts grows, more social networking companies are working to enact different procedures and protocols to make the transition easier.

Passing on Google Account Data at Death
For example, last week the internet giant Google announced a new plan to help account users pass on access to their account in a seamless manner. According to reports on the policy change at the Wall Street Journal, this means that Google “became one of the first major Internet companies to put control of data after death directly into the hands of its users.”

Per the policy changes, users of various Google services can now use a dashboard to set up a plan to take effect upon a certain period of inaction. Specifically, users can either delete account data or pass on data to a third party after either 3, 6, or 12 months of inactivity. This service is known as Google’s “Inactive Account Manager,” but most have colloquially begun referring to it as setting up your “Google heirs.” The manager allows one to set up this process for most of Google’s major services, including Gmail, Google Drive (cloud storage system), the Google+ social network, and more.

Importantly, even under this new protocol, Google does now allow a third party to actually control access to these accounts. This only refers to passing on data (emails, messages, pictures, etc.). That means that if you’d like to ensure your heir has actual access to manage these accounts, you will need to come up with alternative arrangements. Those alternatives might include having a running list of passwords and account names to be given to a set party upon death. There are many online versions of these “password lock boxes” which one can use. Some are free while others offer more advanced dissemination of online account for a fee.

At the end of the day, it is a good sign that Google is taking step to address the digital assets issue. Hopefully more and more networks take the same steps, preventing what is becoming a clear estate planning problem that many families must deal with in the midst of grief.

Earlier this year we touched on the possible estate planning implications of the compromise law that averted the so-called “fiscal cliff” in early January. As with many of these issues, the full implications are hard to evaluate immediately, only playing out as planners get to work crafting options for clients. In the first few months of the year, many estate planning attorneys and financial advisers have done just that, getting a better understanding of how the altered legal landscape will affect common techniques to pass on assets securely and with minimal tax implications.

For example, an “On Wall Street” article last week explored a few of these issues, noting how the fiscal cliff deal actually has widespread implications. The main issue, claims the article, is that the apparent permanent federal estate tax will limit the need for many families to engage in complex maneuvers to avoid the significant tax bite. Bypass trusts are pointed to as a tool which may be less necessary because many families will fall well below the federal estate tax exemption level ($5.25 million, pegged to inflation). Yet, one must not forget that this permanently high estate tax level has no impact on estate taxes levied by the state. New Yorkers must still pay that state rate, and it hits far lower than the federal level. In addition, these sorts of trusts are often crucial in addressing other risks, like divorce, remarriage, etc.

The article also touches on potential effects on charitable giving. The fiscal cliff law also calls for a phase out of itemized deductions and personal exemptions for all income over $250,000 annually ($300,000 for couples). This may alter some previously common charitable planning. Though the article points out that it may make charitable remainder trusts more common. These trusts are particularly useful for gifting assets which will appreciate, allowing the defference of capital gains taxes.

In addition, the permanent tax increases for high income earners may make the tax benefits of certain life insurance protections even more popular. The story notes how the fiscal cliff law “substantially enhance the benefit of investment buildup inside the protective skin of an insurance policy.”

Of course these issues barely scratch the surface of specific financial planning changes caused by the tax rules in the fiscal cliff bill. Ensure that you speak with an experienced estate planning attorney and other professionals for more tailored advice on your own situation.

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