Articles Posted in Estate Planning

Some local residents might be tempted to come up with short-cut methods of New York estate planning. Unfortunately, many of these efforts not only fail to work as intended, but they may actually lead to many unintended consequences. For example, some senior residents may be tempted to protect their family home–often their largest asset–by transferring ownership of the home to an adult child. There is a misonception that this is a smart way to protect the home from potential long-term care costs, save on estate taxes, and avoid probate.

While this step is well-intentioned, it is crucial that local families understand the serious risks of this move and the superior alternative methods of accomplishing the same goals.

A Huffington Post story this week shared a cautionary tale of one senior that took this step, only to learn of the unintended consequences far too late. An adult daughter and her family moved into the elderly man’s home after the man’s wife died. Eventually, for the purposes mentioned above, the senior transferred ownership interests in his house to his daughter. However, not long after this step, tragedy struck–the adult daughter died unexpectedly. The 34-year old had not conducted any estate planning–she did not even have a will.

New York estate planning is a family affair–husbands, wives, children, grandchildren and others all have a stake in ensuring that planning is done properly and timely. This might lead some to wonder whether each individual with a stake in the planning needs their own lawyer. In particular, in blended families (involving subsequent marriages), does each individual spouse have adverse interests such that a single lawyer cannot represent them both in their planning?

That was a question discussed in a Forbes story this week.

Of course, in certain family situations it is usually vital that couples have separate counsel. For example, while certain types of uncontested divorces exist, in most cases couples going through a separation must have their own legal advocate, because the entire process is contentious.

TV Star Gary Coleman died unexpectedly nearly two years ago in May 2010. He was only 42 years old. Coleman had some previous estate planning measures handled, because his former manager was apparently named as executor and beneficiary of his estate as early as 2005. However, the plan does not seem to have been updated in any way in the intermediate five years, even though many changes took place in his life.

This has led to an on-going feud that continues to drag out under the public eye–a reminder of the need to update estate plans and the value of privacy that these plans provide.

In 2005, Coleman met a woman, Shannon Price, on the set of a movie. The two began dating and were married about two years later. However, the marriage was apparently a rocky one, and the two divorced less than a year after the wedding. The couple remained living together after the divorce. In fact, it was Coleman’s ex-wife who discovered that he had fallen in the home in 2010. And it was his ex-wife who made the decision to take Coleman off life support after suffering a severe head injury in the fall.

A New York elder law estate plan usually includes a range of features, from a trust and pour-over will to a Power of Attorney and Health Care Proxy. Yet, no two plans are identical. While inheritance, retirement, and long-term care issues are common to all, the exact way to accomplish those goals depend on one’s situation, perspective, and values.

For example, religious belief can have very obvious implications on some of these issues. End-of-life decisions delineated in a living will reflect an individual’s personal perspective on advanced life support measures–often guided by a particular faith. In some case an advanced medical directive might include a clause that indicates such end-of-life decisions must be made by an individual with a particular religious perspective–perhaps an Orthodox rabbi with an expertise in Jewish law.

Religious traditions and inheritance issues are usually the most controversial way that one’s faith can affect their estate plan. Many families have individuals with varying kinds and degrees of religious faith. This is often a recipe for feuding for a family when religious issues are involved in how assets will be dispersed. Often there are few easy answers.

Most discussion about taxes and death involve the “estate tax.” This is a tax imposed on certain assets usually given to others as an inheritance by a deceased individual. However, after a passing there are still other tax issues that surviving family members have to deal with, even if estate taxes are not a concern. For example, Kiplinger News published a helpful story last month that discusses the federal income tax issues faced after a death. The IRS demands a final accounting–an added stress for families dealing with an already stressful situation.

A final income tax return must be filed after one’s passing. This task usually falls to an executor or administrator of an estate. However, if none are named then a surviving family member must deal with it. Figuring out what income needs to be included on that final tax return is not easy. Depending on when income is earned or received it may be included on the deceased’s tax return or instead taxed as part of the estate. For example, interest earned on accounts is only considered income on the personal tax return up to the date of the passing. The interest that accrues after that date is taxed to either the beneficiary or the estate.

In general, actual monetary inheritances are not subject to the federal income tax. However, the article highlights one major exception–funds in IRAs, company retirement plans, like 401(k)s, and annuities. These funds are treated as “income in respect of a decedent” and taxed to the heir. Then again, Roth IRAs and Roth 401(k)s are an exception to the exception, with unique rules all their own.

Well-known architect and designer Eliot Noyes died thirty five years ago, in 1977. Some of his prized possessions were large mobiles by famous sculptor Alexander Calder. Calder was a personal friend of Noyes, and the artwork was commissioned especially to fit the family home. Upon Noyes’s death there was no major issue with what would happen to the sculptures, because his wife inherited all of the family assets. Estate planning had been conducted such that she could keep the mobiles without having any complicated tax issues.

However, Molly Noyes passed away in 2010, leaving behind four children who will split the family assets. Unfortunately, the family did not specifically decide how certain possessions would be divided after the matriarch’s death, and so they were left in a conundrum. At first the children did not want to give up the unique, valuable art that had been in their family home for decades. Eventually they decided that it would be best to sell the pieces. When talking about the valuable sculptures one child explained, “There are four of us and two of them. The math didn’t work.”

That is why two sculptures will be auctioned off at Christie’s next week. One of the pieces, Untitled, is expected to fetch $3 – $4 million while the second, Snow Flurry, is valued slightly higher at $3.5 – $4.5 million.

One of the most common estate planning mistakes is failure to change names on the title of assets and beneficiary designations. This rarely a problem when one first visits with an estate planning lawyer to create a new plan, because, so long as the work is competent, the professional will ensure these issues are properly handled. However, when one tries to handle matters on their own or does not properly update their plan to account for life changes, then even a plan that was good at the time will not work when needed.

Wills and trusts are legal documents that name beneficiaries for assets that pass via the will or are placed in the trust. However, regardless of what is said in a will or a trust documents, many significant assets may have their own beneficiary designations. Those designations will control who gets the asset.

Beneficiary designations apply frequently with assets like IRAs, 401(k)s, company benefit plans, and insurance plans. These assets have their own “payable upon death” designations which decide who will receive benefits, regardless of what other estate planning documents indicate.

Most local families have traditional assets that need to be dealt with as part of their New York estate planning efforts: a house, car, stocks, bonds, retirement accounts, and the like. However, some families have very different (but valuable) assets that must be considered vital parts of their estate. For example, collections often present unique estate planning challenges. Should the collection be split up and sold? Is there another in the family who appreciates the collection as much as the original owner? How much is the collection worth? What ramifications might it have on taxes and long-term healthcare support? All of these issues must be considered when thinking about elder law estate planning.

Popular collections or antiques can be quite valuable with significant consequences on financial planning efforts. For example, according to Advisor One, a 3,000 bottle wine collection is set to be auctioned later this month in New York. The total haul is expected to be over $2 million. Some of the individual bottles will likely sell for thousands and thousands of dollars each.

Wine values may seem foreign to many, but there are a surprising number of local families that have significant wine portfolios. For many high-net-worth families, wine collections are viewed as a part of an actual investment diversification strategy. The investment performance of wine has actually been strong. The Live-ex Fine Wine Investables index has been tracking values of certain wines for the past few decades. In the last twenty years the overall index of the top 200 wines has increased in value by about 1200%.