Articles Posted in Estate Planning

DAVID BOWIE BONDS

        As the world learned, David Bowie passed away on January 10, 2016.  Mr. Bowie was always on the leading edge of creativity, an advocate for meaningful social change and a musical genius to boot.  He started his musical career at the same time as the Beatles, Rolling Stones and the Who and remained just as socially relevant, if not more so, compared to his contemporaries.  As well as being a singer and songwriter, Mr. Bowie was also an accomplished actor and painter.  More pertinent to the topic of estate planning, Mr. Bowie was a trailblazer in financial or investment products.  In 1997, Mr. Bowie issued Bowie bonds, the first of any celebrity bonds.  Since their initial offering, many credit agencies downgraded Bowie bonds status to just one level above junk bond status.  True to form, Mr. Bowie was a first, with many other talented artists following suit.

BACKGROUND TO MR. BOWIE’S FORTUNE

In the early 1970s Mr. Bowie entrusted his management to outsiders who profited from his talent and earnings, while paying him only a small salary compared to his earnings – $35,000 per year.  In the late 1970s he renegotiated this contract with an to a less onerous, but still exorbitant fifty percent of earnings price tag, reduced to 16% after a set period of time.  In 1982, while he was still under the thumb of these high fee contracts, he found a trusted accountant to invest his rather large intellectual property portfolio.  By 1997 he was estimated to be worth approximately $900 million, despite the high costs of his management contracts.  He listed his domicile in Switzerland to avoid the higher taxes of Britain and Manhattan, even though he allegedly lived in Manhattan year round.  

That is when he issued the first celebrity bonds or Bowie bonds as they were known and sought to free himself from high cost management contract that he was under.  Bowie bonds assured the holder a percentage of income from Mr. Bowie’s then intellectual property portfolio.  It is reported that he garnered an additional $30 million advance for a record (yes, they still sold records, even in those days) at about the same time.  While Mr. Bowie did not necessarily need the additional cash at the time, he simply chose to mortgage his intellectual property for cash up front.  It is estimated that he earned $55 million from his Bowie bonds sale and that he had to pay up to $80 million in return.  If these figures are correct, Mr. Bowie was indeed a shrewd investor, as the stock market was red hot in those days and Mr. Bowie’s trusted accountant bragged that he could double an investment in seven to ten years.  Bowie bonds matured in ten years time.  

CURRENT ESTATE ESTIMATES

        Mr. Bowie was known for being reclusive and extraordinarily private with his money and income.  Many people who followed Mr. Bowie through the years noted that $800 million dollars of his wealth cannot be accounted for.  It is hard to imagine that Mr. Bowie did not know where this money went or otherwise went unaccounted for.  It is a more likely scenario that Mr. Bowie and his trusted accountant found some secure financial haven for him to invest and secure his money.  The more people know his worth, the more people will prey on him or, more properly, his fortune.  Depending on where his estate is settled, the full story may not come to light.  If U.S. authorities have any part in settling the estate, it is likely that there will be heightened fees for keeping his monies overseas.  Since Mr. Bowie was a British citizen, who domiciled in Switzerland, it is not likely that this will occur.  

As such, it is hard to approximate Mr. Bowie’s true current worth at the time he passed.  Many experts believe that his very large and lucrative intellectual property portfolio will dwarf Michael Jackson’s $2 billion posthumous earnings. Perhaps Mr. Bowie’s estate will act consistent with his life time habit of being a trailblazer and show a novel or new way of trust or estate planning.  It is simply too soon to tell.  While most of us did not invest in Bowie bonds, he was a trailblazer for celebrity bonds in general.  For those of us who will never invest in celebrity bonds, he left us to feel like heroes, even for just one day.

LEGALLY DEAD BUT STILL ALIVE

New York like every other state in the nation has a law to deal with people who go missing and are presumed dead. Most states follow the common law time of seven years, although New York has a three year requirement for which it will wait to declare someone deceased. It is not unheard of for a Court to issue a death certificate only for the dead person to show up and show themselves to be very much alive. In Ohio the law prohibits a Court from vacating a death certificate three years following its issuance. Of course there was a case, very recently, in 2013 wherein a man was declared deceased in absentia, passed the three year statute of limitations to vacate or modify the death certificate and appeared in Court to request that the Court nullify the death certificate so he could get a driver’s license.

Another recent case out of Pennsylvania was in the news where a mother of two kids simply disappeared one day in 2002, declared legally dead in absentia and the resurfaced after 11 years, in 2013. Perhaps the strangest case was the case of Ben Holmes, who disappeared in 1980, declared deceased after eight years by his wife and then tried to reconnect with his wife in the 1990s. When he learned she was in a relationship with another man he confronted her and she shot him. He never tried to nullify the death in absentia although he did collect a personal injury settlement from his wife.

NEW YORK LAW AND HOW TO PROCEED FOLLOWING THREE YEARS

Most states also have a provision to allow for a disaster, such as the September 11 attacks, so as to allow for death certificates to be issued soon after the calamity rather than forcing families and others to wait the requisite three years. The death certificate is necessary for families to collect on life insurance proceeds, to proceed with any probate proceedings or initiate similar such legal proceedings and to allow for spouses to remarry. A death certificate usually only issues when a doctor can verify that a person is indeed actually deceased. When a body does not exist, the legal requirements to have someone declared dead is more rigorous. A person can be declared deceased at any point, it is simply that the law creates certain presumptions after a certain period of time. Tom Hanks was declared deceased in less than four years in Cast Away. Cases dealing with findings of death in absentia have been litigated since the beginning of courts, as the classic case is of a shipwrecked sailor who resurfaced years later.

WHAT HAPPENS IF THEY RESURFACE?

To nullify the legal finding of death is not the difficult procedure to accomplish. What is difficult is how to deal with the property of the estate that has transferred. It is common place for innocent, bona fide third party purchasers to purchase property of the estate and have good title. Some states, such as California, have laws to deal with a person who is legally dead but still actually alive. Pennsylvania requires that any such estate that is settled as a result of a finding of death by absentia, a “refunding bond” must be posted for any property that he/she receives from the estate. 20 Pa. C.S. § 5703. New York, like most, does not have any such law. In states such as California and Pennsylvania, it is relatively easy to unwind such estate distribution, in New York not so easy.  

FEDERAL COURTS ARE COURTS OF LIMITED JURISDICTION

There is little question that Federal Courts are courts of limited jurisdiction. If there is neither original jurisdiction, meaning a question of federal law or rights that arise as a result of federal legislation nor complete diversity of the parties, meaning that all of the defendants domicile in a different jurisdiction from the plaintiffs home state, then there is no jurisdiction for a federal Court to preside over a case. In all matters of diversity jurisdiction, the matter has to involve  at least $75,000 in property or damages. Certainly at least some probate cases fit into the requirements of diversity jurisdiction. Yet, there is generally a federal Court hands off approach to dealing with probate cases, known as the probate exception to federal jurisdiction.

A famous case from 1946 in the United States Supreme Court held that a federal Court can adjudicate various suits against a decedents estate, so long as they do not assume general jurisdiction over the probate proceeding itself or assume control over the property that is properly in the hands of the state probate Court. Markham v. Allen, 326 U.S. 490, 494 (1946). The meets and bounds of this holding have caused volumes of case law and law journal articles. It was not until 2006 with the celebrity, Anna Nicole Smith case that came before the United States Supreme Court that the Court expounded on the federal probate exception in any meaningful regards. Specifically the Supreme Court held that when one court is adjudicating a claim over a specific piece of property (or in the case of an estate, a bundle of property rights) a second court will not assume jurisdiction over the same property.

Therefore, the probate exception reserves to state probate Courts the distribution of property in line with a decedent’s will. A federal Court cannot then take over the distribution of the same property when a state Court already asserted jurisdiction over it. A federal Court may entertain suits dealing with matters peripheral to the distribution of property of the estate. Marshall v. Marshall, 547 U.S. 293 (2006).

EXCEPTION TO THE PROBATE EXCEPTION

One of the exceptions to the federal probate exception with federal exercise of jurisdiction over matters involving the transfer of property rights over a decedents estate is in the context of trust litigation and generally breach of fiduciary claims against a trustee. The Fifth Circuit Court of Appeals ruled on a case interpreting the Marshall decision and fashioned a two part test to help better clarify if a federal trial court can or should assert jurisdiction, assuming that there is at least federal diversity jurisdiction over the case.

  • First, the Court must ask if the property in dispute is property of an estate for which a state probate Court has jurisdiction over; and
  • Second, if the case would require the federal Court to assert jurisdiction over the property itself (as opposed to jurisdiction over a person).

If the answer to both is yes, the federal Court cannot assert jurisdiction over the case. Curtis v. Brunsting, 704 F.3d 406 (5th Cir. 2013). While it remains to be seen if this holding will take hold across other sister circuits, it is a good approach to the practical questions that are dealt with in federal Courts across the nation.

When a married person applies for Medicaid, the government looks at the collected, or, pooled, resources of the two to determine if one of the two spouses is eligible for Medicaid. If the combined income of the two spouses is above the income threshold set by law, the balance must be paid to the nursing home of the dependent spouse.  But what income provisions are allowed for the spouse who remains in the community?  What do the get to keep?  Is the community spouse allowed to tap into the income of the dependent spouse if his/her income is not enough?

 

The legal, financial benefits that allow for the community spouse to keep a certain amount of income has the terrible name of spousal impoverishment standards. This contains an amount of money, known as the minimum monthly maintenance needs allowance (commonly known as or referred to as the MMMNA). The figure from July 1, 2015 to June 30, 2016 is $1,991.25 per month. Starting on January 1, 2016 the maximum monthly maintenance needs allowance is set at $2,980.50 per month. This is the maximum the community spouse may keep before being required to contribute to the medical needs of the dependent spouse (NOT minimum, so not to be confused with the MMMNA).

 

WHAT IF THIS IS NOT ENOUGH?

 

If the community spouse makes less than the minimum amount, he/she may keep all of that income, plus tap into the dependent spouse’s income to insure that their income rises to that minimum monthly maintenance threshold. If the community spouse can establish that their housing costs are more than 30% of their monthly needs, then the community spouse can add that additional amount for excess shelter allowance. The formula or means by which the community spouse determines their income is called the Community Spouse Monthly Income Allowance (also known as the CSMIA). To determine the CSMIA involves four steps:

  • First step – Determine minimum monthly community spousal need. As noted, from July 1, 2015 to June 30, 2016 that figure is $1,991.25.
  • Second step – Add any additional shelter costs that exceed 30% of their monthly need. Say for example the community spouse can establish that their housing or shelter costs $1,000. 30% of $1,991.25 is (rounded) $598. So the excess of that is $402 per month.
  • Third step – Add the first two steps above together. In the example provided the sum is (rounded) $2,393. Since this amount does not exceed the maximum monthly maintenance need, the community spouse keeps this amount.
  • Fourth step (if needed) – If the community spouse made less than the MMMNA, you subtract this amount from the figure from step three above. In the simple example above, say the community spouse earns $1,000 per month. Subtract $1,000 from $2,393, which equals $1,393. This is the amount that the community spouse may utilize of the dependent spouse.

 

If for any reason this amount exceeded the maximum monthly maintenance need,the community spouse would only be entitled to keep the maximum monthly maintenance amount and provide anything in excess of the maximum monthly maintenance amount for the care of the dependent spouse.
Medicaid planning is intricate and extraordinarily fact sensitive. Only a consultation with an experienced elder law attorney will do to provide the level of assurance and peace of mind needed.  

In today’s society it is common, to say the least, to have a single parent household. Most of the time the parents are divorced or simply not together and one of the parents is less hands on than the other. Perhaps this is a because of distance, as the other parent may live quite some distance away or perhaps due to work obligations and can only physically parent a month or two out of the year. Then there are truly single parents insofar as the other parent has passed away or perhaps the other parent is just not in the picture for any number of reasons or there is a history of domestic violence and the other parent’s custodial rights are extremely curtailed.  

 

For this population, their will serves not only to memorialize how they want their possessions and property to be disposed of, it also allows for them to indicate who they want to take custody of their children.  To be sure, if the other parent is named as the father/mother to the child and the primary custodian passes away, the other parent has the legal authority to take custody, absent good cause. There are, however, other ways of addressing these concerns outside of the four corners of the primary custodians will. Enter the standby guardianship which was specifically designed in response to such situations.

 

SUPERIOR TO CUSTODY ORDER

 

New York has a standby guardianship law, which creates a safety net for the children to insure that their basic everyday needs and well being is met in the event the primary custodian cannot care for them. New York was the first state in the nation to create such a law, which was originally designed to address the needs of those suffering through the AIDS epidemic in the 1980s and 1990s. It’s utility is obvious. For single parents who may have a terminal illness and are concerned more for the future of their children than anything else, the standby guardianship may indeed be the perfect legal device.

 

While there is a need for a standby guardian to obtain court approval via a Court Order, they have some breathing room to insure that their actions are legally proper and the immediate needs of the children are met. If the parent has a progressive terminal illness or condition, they may not be able to care for the child even before they pass away. The standby guardian can be there to do what needs to be done. In many ways, the vehicle of the standby guardian is superior to a typical custody Order, as a custody Order may entitle the non-parent custodian a right to custody in the future, even after the parent is able to reobtain custody, on grounds that the non-parent custodian stood in loco parentis. Absent a standby guardian, after a single parent passes away, it is likely that the children may go into foster care, which will only magnify any emotional distress the children are already experiencing. The standby guardianship can go into effect at any time that the parent and standby guardian define in the guardianship documents; perhaps on a date certain or if the single parent’s medical condition deteriorates past a certain point.

As with any decision regarding such important issues it is best to consult with an experienced estate planning attorney to insure that your intentions and decisions are given full legal effect.

It happens often enough that a parent for many reasons decides to disinherit one, several or all of his/her children.  At the same time, this is often not a controversial decision and is just as common both understandable and predicable.  Perhaps a person promised their estate to a specific child, stepchild or niece or nephew for taking care of them instead of being required to be sent to a long term continuing care facility.  Perhaps the parent provided financial largesse to his/her via college education, graduate school and even helped them purchase a house but had one child who had special needs who always lived at home and insured that child’s future by funding a trust during his/her lifetime and then disinherited all of his/her other children by putting the whole of the estate into the trust.  

 

Mickey Rooney was a very well known and well paid actor that had a long career, with many children and many marriages and disinherited his children.  He instead left his estate to his stepson and explained that his kids were better off than he was.  By the time Mr. Rooney passed, his estate dwindled to just about $18,000, so there was little incentive for any of his kids to contest the will, although the same did not hold true for Mr. Rooney’s then current spouse.  Unfortunately for some families, this can be a shock and there are sufficient incentives for the family to contest the will.  

 

INVALIDATING THE WILL

 

Louisiana is the only state that allows for a disinherited child to elect to take a statutory share against the stated wishes of a parent’s will.  If the parent did not dispose of everything in the will, due to perhaps an heir predeceasing him/her, the children may inherit that property via intestacy statutes.  If a parent, however, leaves all of his/her property to someone else via his/her will, the only thing the child/children can do is to invalidate the will.  In New York, if a person dies intestate – meaning without a will – the spouse inherits the first $50,000 and half of the remainder.  The children then split the other half between themselves.  The child/children must also consider if there was a previous will, and, if so, what treatment is afforded to them in that will.  But the matter gets more complicated from there.  Property held in joint tenancy (with a business partner for example), by the entireties (held as a marital asset with the spouse) takes those assets out of the estate.  

 

GROUNDS TO CONTEST WILL

 

There are many many factual scenarios that enable a party to contest a will.  The first consideration is who may contest the will, or, more properly stated, who has standing to contest the will?  In New York, only people who have a material interest that may be prejudiced if the will as written is fully probated.  Perhaps the heir stands to inherit more if the intestacy law controlled or perhaps the heir stood to gain more under an older will.  There are several grounds to contest the validity of a specific will:

 

  • Undue influence, coercion or duress;
  • Revocation;
  • Incapacity or lack of capacity;
  • Fraud;
  • Forgery; and
  • Improper execution.

Think about this, you were born to your mother and father. At a wee young age your mother and father separated and your mother raised you. Nothing unusual there. Say then your mother later married another man and he started to raise you as his own; while your stepfather may have always been known as a stepfather, he still loved you and treated you as his own without distinction as to his own biological children. Then at a certain point your stepfather moves to adopt you. Adoption can be a lengthy process, with a mandatory minimum three month waiting period. During that process your stepfather passes away intestate. You are not legally his child so there are no inheritance rights; so what do you do?

 

Perhaps you seek various government benefits that you would be entitled to if you were adopted, such as Social Security benefits if you are still a minor, benefits through the Veterans Administration, et cetera. This scenario is entirely plausible and actually happened in the case of Matter of Mazzeo, 466 N.Y.759 (A.D. 3rd Dept 1983). Mazzeo shows some of the problems that goes beyond what was outlined above, in that in Mazzeo after the necessary parties filed the adoption petition for an adult adoption, the stepmother (Rose Mazzeo, hereafter Mrs. Mazzeo) passed away intestate and her niece filed for letters of administration, claiming that under New York’s intestacy statute, Mrs. Mazzeo’s only surviving heirs were her five nieces. The stepson (Joseph Mazzeo, hereafter Mr. Mazzeo) opposed this move and claimed that he was equitably entitled to be considered the child of the deceased. The New York Appellate Court agreed with Mr. Mazzeo and found that under principles of equity, or, fundamental fairness, an adoption should be construed for purposes of considering Mr. Mazzeo as the heir to Mrs. Mazzeo.

 

COMMON TOOL

 

Many states and territories have statutes or case law that enable Courts to find an equitable adoption. Even federal Courts recognize and enforce this legal principle, as found in Kuchenig v California Co., 410 F.2d 222 (5th Cir. 1969). Moreover, it is a doctrine with a long history. In fact one of the best quotes describing equitable adoption in New York case law comes from New Jersey case law from 1933, which states, in essential parts, equitable adoption will be found where there has been “full and faithful performance” but was never memorialized with a formal Judgment of adoption.

 

With the death of the parent, however, “equity and justice” require that there be a finding and the law and Courts treat the child as if there was an adoption and the child be entitled to the same rights of inheritance that is not disposed of by will and be treated as a natural born child. Burdick v Grimshaw, 113 NJ Eq. 591, 595 (Ch. 1933), as quoted in Matter of Riggs, 109 Misc. 2d 644 (Surrogate’s Court, 1981). No doubt it is a fact sensitive determination that a Surrogate’s Court must carefully weigh after hearing all of the evidence.

If you believe that you are entitled to an inheritance but for formal adoption proceedings memorializing this arrangement, you must speak with an experienced estate planning attorney today.  Any delay could be to your prejudice.

         

Contrary to the European model, American parents are legally free to disinherit their children, but at the same time, they cannot simply forget or omit their children in their will by mistake. If the child is specifically addressed in the will and, at the same time, the will either fails to pass any property or assets on the child or specifically disinherits the child, there is nothing that the child can do to inherit something from the estate, aside from invalidating the will and potentially inheriting under the intestacy statutes. Children born after a will is created and not properly addressed in the will, via language that is expansive and inclusive that undoubtedly includes even children born or adopted after the specific will is created are referred to in the law by the ungainly term pretermitted children.

 

Not surprisingly it comes from a latin verb meaning to overlook or forget. New York’s law that addresses pretermitted children and found at NY EPTL §5-3.2, only addresses children born after the creation of a last will and not otherwise provided for by other means, such as life insurance proceeds, a trust or other assets. The children that fall under the pretermitted law protections are entitled to whatever the other children who are addressed in last will. Oddly enough, if the children born before the creation of the will are mentioned but unprovided for, the pretermitted child will not inherit anything. Indeed, the law specifically addresses this possibility, insofar as it indicates that “(1) If the testator has one or more children living when he executes his last will, and: (A) No provision is made therein for any such child, an after-born child is not entitled to share in the testator’s estate.” NY EPTL §5-3.2. Certainly there are many problems with this, insofar as some parents specifically disinherit their children. Anna Nicole Smith disinherited her son in her last will and then had a baby daughter only a short time prior to her passing away, without any change in her will.

 

RATHER COMMON PROBLEM WITH SIMPLE SOLUTION

 

It is a rather common scenario for a person to create a will, forget about it and move on with life by having kids, buying a house, investing in a retirement account and growing their assets. A number of celebrities left these problems in their wake by their failure to properly plan.

 

This blog reported on the problems with Philip Seymour Hoffman and Paul Walker in the past. Heath Ledger was another famous celebrity with similar issues. Fortunately for Mr. Ledger’s daughter, Matilda, she had a very altruistic family. Mr. Ledger’s family clearly live the adage that just because you can do something does not mean you should do it. There are many people, however, who would handle things differently, even if they were still altruistic, in that they would perhaps create a trust wherein they are the trustee or somehow or another exert control over the money. The remedy to all of these issues is simple and obvious, have an experienced estate planning attorney review all of your estate documents to insure that there is a coherent plan and the legal documents properly effectuate these plans. Furthermore, it is best to review these documents on a periodic basis in light of major, life changing events, such as marriage, divorce, the birth of children or grandchildren, et cetera.  

WRONGFUL INTERFERENCE WITH WILL

It is known by many different names, depending on the state and the era. Most recently it made its appearance in news headlines with the name – intentional interference with expected inheritance, sometimes even shortened it IIEI. The United States Supreme Court referred to it as “a widely recognized” cause of action and as the “tort of interference with a gift or inheritance” in the Anna Nicole Smith case. Marshall v. Marshall, 547 U.S. 293, 296 (2006). The matter has surfaced in the news over at least the last century, most famously (perhaps infamously) in the Father Divine case in New York, in 1949. Latham v. Father Divine, 299 N.Y. 22 (1949).

 

The American Law Institute published the The Restatement of Torts (Second) of Torts in 1979.  That was the first time that the tort, known by many names, was formally recognized as such. Prior to this, the principal and concept was recognized but only in the most egregious of circumstances. There are several seminal cases that speak to the larger concept, one of which was the New York case dealing with Father Divine case noted above.

 

The vast majority of Trial Court cases barely survived dismissal for failure to state a claim, as the right to such a cause of action was in question, despite the seminal cases. The law is a living thing that evolves and even comes around waves. As one of the twentieth century cases that broke the mold of nineteenth century reasoning noted that under Roman Law, interference with inheritance was a criminal act.

 

CURRENT NEW YORK LAW

 

New York Law does not recognize this cause of action per se. The New York Appellate Division of the Supreme Court summed it up perfectly when they held that no such cause of action exists in the state for tortious interference with an inheritance. It will, however, create a constructive trust for the intended heir under certain equitable circumstances. Schneider v. David, 602 N.Y. 2D 130 (1993). Is this the same thing? For example, Iowa permits such a cause of action, which is litigated in its Trial Courts, not its Probate Court, allowed for attorney’s fees and punitive damages for intentional and malicious conduct. Huffey v. Lea 491 N.W. 2D 518 (Iowa 1992).

 

The difference between whether a case is litigated in front of a probate judge versus a trial court matters, insofar as you are entitled to a jury in a trial court. In addition, attorney’s fees and punitive damages also matter, but, probate court judges could award attorneys fees if the case warrants it. But the measure of economic damages, which is indeed the merits of a case, is still the same. To further elaborate on New York law, the 1988 case of Dawson v. Vasques quoted the 1919 case of Beatty v. Guggenheim Exploration Co. which stated that equity requires that a constructive trust be created, but it is nothing more than the means by which fairness acts and that it will not “restrict itself” to any specific form of harm for which it will provide justice. Instead, equity will fix whatever chicanery that people can implement.

 

For more information all all issues related to inheritances, wills, and trusts, be sure to reach out to a NY estate planning attorney today.

IRREVOCABLE TRUSTS COSTS AND BENEFITS

Trusts are valuable estate planning devices that allow for the transmission of wealth with lower tax liability. When proper estate management is picked, they also allow for the creation of future income, potentially allowing for the life of the trust in perpetuity. Trusts also allow for the beneficiaries to benefit from the income of the corpus of the trust, yet insure that their creditors cannot obtain the income producing assets itself. The same also applies for a financially irresponsible beneficiary, in that it provides income but prevents the financially irresponsible beneficiary from squandering the income producing asset. One of the most popular types of trusts is the irrevocable trust. As with anything in life, there are upsides and downsides; one of the downsides to an irrevocable trust is that in most circumstances, and, more particularly, most states, an irrevocable trust is usually irrevocable. Unwinding an irrevocable trust when it no longer functions as it should, due to, for example, a major change in the estate and gift tax law is possible but must be done correctly, whereby the assets from the trust may be transferred or gifted to the beneficiaries or the settlor if still alive.

WHY TO MODIFY OR REVOKE?

There are times when a trust no longer accomplishes the stated intention of the settlor. For example, in December 2010 Congress raised the estate tax exemption to five million dollars, but for only two years. So, at the end of 2012 many people thought that the estate and gift tax exemption was going to go back down to the previous one million dollars and thus created irrevocable trust.

With hindsight we now know that Congress made the then hitherto heightened estate and gift tax exemptions permanent. In addition, in 2011, Congress allowed for a surviving spouse to inherit any unused estate tax exemption. Prior to this, individuals believed that the much lower estate and gift tax exemptions would remain and created trusts optimized to the then lower tax amount. Finally, let us not forget that personality conflict occurs. Sometimes there may be very valid professional reasons why a beneficiary may want to do things according to a certain school of thought, while the trustee favors the opposing school of thought.

NEW YORK LAW

New York law allows a settlor to amend or revoke an irrevocable trust if he/she obtains the informed, express consent permission of the beneficiaries. If the beneficiaries include a minor, the law forgoes the need for informed, express consent of the minor if the amendment or revocation is beneficial to the minor. If it is the trustee that wants to amend the terms of trust by “decanting” or transferring the assets from the trust in issue to a different trust, he/she may do so, although the means by which he/she goes about doing so depends on the specific authority granted to the trustee. Assets can be transferred to a different trust. If the terms of the trust grants the trustee discretion to invade the corpus of the trust for the benefit of the beneficiaries, provided that three things occur:

  1. that the beneficiaries current right income is not negatively effected; and
  2. the choice is in the interest of the beneficiaries (“objects of the trust”); and
  3. the amendment does not reduce the trustee’s responsibility to exercise reasonable care or otherwise increase the trustee’s commission.

The document that memorializes this change must also mention whether some or all of the corpus of the trust is effected. If only some then the percentage of value of the trust effected must be noted.

As with any trust creation or modification, it is best to consult with an experienced estate planning attorney.

Contact Information