Estate Planning

February 14, 2012

U.S. Senate Proposal to Alter Inherited IRA Rules

Policy changes at the state and federal levels often have implications on New York estate planning. For example, we have frequently discussed the uncertainty that exists over the estate tax. Exemption levels and tax rates may very well hinge on exactly who wins various federal elections in November. While it may dominate headlines, the estate tax is not the only policy with implications for local residents’ estate planning. For example, yesterday Bloomberg Businessweek discussed the latest news regarding proposed legislation that would impact inherited IRAs.

Inherited Individual Retirement Accounts (Inherited IRAs) are accounts left to a beneficiary after the owner’s death. As the name implies, these are accounts that an individual has contributed to over a lifetime in order to provide financial resources upon retirement. More often than not a spouse is named as the beneficiary. The IRA offers a variety of tax benefits depending on how the account is “cashed out.” As it currently stands, a beneficiary can stretch the ultimate income tax payment over a lifetime. Because of this benefit, our New York estate planning attorneys know that IRAs often act as an important way for individuals to pass on assets to loved ones while saving on taxes.

However, some federal lawmakers are seeking to limit the tax benefits of Inherited IRAs for beneficiaries. Various proposals are being offered, but in general they all seek to prevent beneficiaries from stretching out the income tax payment over a lifetime. Instead, some legislators have proposed changing the law so that those who inherit the IRA have to distribute (cash out) the sum over five years. The practical effect of the change is that beneficiaries would be required to pay more taxes on the income from that inherited account. All versions of the change thus far would exempt spouses from this requirement.

February 9, 2012

Bizarre Estate Planning Strategy: Adopting A Girlfriend

by Ettinger Law Firm

A media wildfire spread this week after word got out about a particularly exotic estate planning strategy crafted on behalf of a Florida man. According to a report yesterday in The Huffington Post, the new estate planning strategy involved the man adopting his 42-year old girlfriend. Apparently this was done in an effort to strengthen their relationship legally without marriage while ensuring she has access to resources down the road.

The situation might make a bit more sense in context. The client in this case, John Goodman, is a wealthy man, having created a trust years earlier that is now worth hundreds of millions of dollars. The trust was created for the benefit of Mr. Goodman’s descendants–his children. Two years ago Mr. Goodman was involved in a particularly deadly auto accident. According to criminal charges filed against him, he was apparently driving drunk, ran a stop sign, and hit another car–killing the other driver. A civil lawsuit has been filed by the surviving family members of the car accident victim. However, because the trust was set up years before the accident, the plaintiffs in the civil case will not be able to access those trust funds regardless of the outcome of the legal matter.

Having already had one marriage end in divorce, Mr. Goodman did not want to walk down the aisle a second time. However, he was in a very serious relationship with a 42-year old woman named Heather Laruso Hutchins. He wanted to strengthen that relationship without resorting to marriage. That’s when he was advised to adopt her. By adopting Ms. Hutchins, she now becomes a legal descendant of Mr. Goodman’s and is therefore entitled to distributions from the trust that was created earlier for the benefit of his heirs. In addition, Mr. Goodman himself may now be able to access the trust funds indirectly via his girlfriend/adopted daughter.

February 7, 2012

Will Estate Tax Limbo End This Year?

by Ettinger Law Firm

Last week we discussed the uncertain future of the estate tax. It was noted that the issue would likely hinge on the outcome of the 2012 elections. As with all legislation, action usually requires support from sufficient members of Congress and the President. Therefore, the rates and exemption levels for the estate tax would likely depend on the partisan affiliation of most members of Congress and the White House. Each New York estate planning attorney at our firm appreciates that the uncertainty over the issue presents complications for those families who are hoping to create strategies to minimize their estate tax burden. The idea of waiting for the outcome of an election is cold comfort for prudent planners who are working to provide for contingencies and bring stability to the process as soon as possible.

Some policy insiders are now suggesting that estate planning lawyers will not need to wait long after the election to see what happens next with the estate tax. According to a report in Advisor One, the consensus opinion among those most familiar with Washington thinking on the issue believe that Congress will decide what to do with the issue this year–in the lame-duck session in December.

We’ve previously explained how, without any action, the current tax rate (created as part of the so-called “Bush tax cuts”) would expire at the end of 2012. That means that by January 1, 2013 the rate would be 55% (up from 35%) and at a $1 million exemption level (down from $5 million).

February 3, 2012

Like Groundhog Day: Mistakes Retirees Make Over and Over

by Ettinger Law Firm

Yesterday was Groundhog Day–that storied time when a prognosticating animal is supposed to tell us how many more weeks of winter we have left this season. According to most reports, yesterday the nation’s most famous groundhog, Punxsutawney Phil, saw his shadow and scurried back out of the cold. Apparently this is a sign of many more weeks of winter to come. Punxsutawney Phil was made a national celebrity in the early 1990s after being spotlighted in the popular Bill Murray movie titled “Groundhog Day.” The film has gained legendary status among some, as it chronicles the exploits of Murray who wakes up in Punxsutawney every single morning on February second, forced to relive Groundhog Day over and over.

Our New York estate planning lawyers know a few things about repetition. That is because when it comes to planning for one’s financial future, many local families seem to make the same mistakes over and over again. Yesterday CBS News published a Groundhog Day special report listing seven money mistakes that retirees consistently make. Many of the items on the list are quite familiar to the New York retirement attorneys at our firm.

For example, the first mistake is putting off estate planning altogether. The story’s author noted that “failing to create a financial or estate plan isn’t just a matter of missing out on investment opportunities or tax advantages. It can get you in trouble later in retirement when you’re no longer at the top of your game mentally.” It is always comforting to push off thinking about potential mental challenges in the future, but failure to account for it only leads to heartache for one’s family. Nearly 50% of the nation’s population over eighty years old suffers from some sort of cognitive impairment. A host of challenges are created if planning is not done before the problems set in.

February 1, 2012

Four Possible Estate Tax Scenarios

by Ettinger Law Firm

Uncertainty is almost always attached to discussions about the estate tax. As our New York estate planning attorneys have often shared, it is vital for those of certain income levels to pay close attention to the prevailing political winds to understand if estate tax changes might apply in their situation. When a New York estate plan is crafted it will take into account the current estate tax scenario. However, what is true now may not be true in the future. It is for this reason that estate planners must remain in close contact with clients to ensure modifications to a plan are made if necessary.

When it comes to the estate tax, many prognosticators make various predictions about what we can expect in the future. For example, a story this week at Producer’s Web suggested that the future of the federal estate tax depends almost entirely on what will happen in the upcoming November elections. The author suggests that there are four possible scenarios.

1) If Congressional gridlocked continues after the election then the new law may be allowed to sunset. This means that that there will be a $1 million estate tax exemption and a 55 percent tax rate. This would take effect January 1, 2013.

January 30, 2012

Famous Feuds and New York Estate Planning Lessons for Every Family

by Ettinger Law Firm

A Reuters story late last week suggested that while estate planning feuds of the famous usually involve millions, the principle issues are the same as those faced by all local residents. Every case must be evaluated individually, but the same main issues are found again and again. That is why our New York estate planning lawyers urge residents to visit with experienced professionals when making preparations because they have likely seen similar issues in the past and can help anticipate problems that might come up down the road. As this latest story explained “anyone thinking about wealth transfer faces the same issues: dysfunctional families, potentially unequal positions in the family business, perhaps multiple marriages with kids from each.” This applies whether one has $50,000 or $50 million.

For example, second marriages often create planning problems. When crafting an estate plan, one must balance the needs of the second spouse with the children of the first marriage. If one doesn’t do it, as the author notes, “you’re basically buying a litigation case.” For example, the longest estate litigation case of the last century was that of Anna Nicole Smith. She was a second wife of a billionaire investor. The children from the man’s first marriage engaged in a prolonged battle to ensure that Ms. Smith did not receive any substantial portion of the man’s wealth. The case was still not resolved with Ms. Smith herself passed away.

Family businesses also present common issues for those in all income brackets. Much family wealth is wrapped up in a business. Often some of the children participate in the business while others do not. This often creates significant estate planning issues regarding who gets what share of the business. One of the most well-known examples of this is that of the Koch family in New York. The patriarch had created a fortune after developing a new cracking method in oil refinement. However, upon his death the man’s four sons engaged in a prolonged legal dispute over control of the business. As the article notes, “there are a lot of ticking time bombs in family businesses that creates litigation.”

January 26, 2012

Huguette Clark’s Only Friend Has Her Own New York Estate Plan Settled

by Ettinger Law Firm

One of the most well-known New York estate planning stories (and mysteries) of recent years is that of Huguette Clark. The extremely reclusive heiress recently passed away, leaving hundreds of millions of dollars with many wondering where exactly the money will end up. Of course, in most cases an inheritance will go to surviving close family members, dear friends, or well-known charitable causes. However, Ms. Clark had very few surviving family members, and it is now being reported that she only one “real” friend, a French woman named Suzanne Pierre.

Ms. Pierre had become somewhat of a liaison between Ms. Clark and the rest of the world. It was alleged that Ms. Pierre was one of the few people who was privy to the heiress’s estate planning documents. In fact, according to the New York Observer, Pierre once helped anonymously sell some of Ms. Clark’s impressive art collection. She was also the recipient of a $10 million gift of a rare painting from the estranged heiress. Before Ms. Clark’s passing some predicted that Ms. Pierre would actually be named heir to much of Ms. Clark’s fortune. However, that possibility vanished when Ms. Pierre herself passed away a few months before Ms. Clark moved on.

One of Ms. Pierre’s own most valuable assets, her Park Avenue apartment, was recently sold during the disposition of her estate. City records indicate that the unit sold for just under $2 million. The sale comes as many in the real estate world speculate on the prospects of Ms. Clark’s own, massive Park Avenue apartment. The 42-room unit is expected to fetch somewhere around $70 million. Many are calling the unit the most sought-after apartment in the entire city and “the listing of the young century.”

January 23, 2012

Protecting Assets When Facing Uncertainty

by Ettinger Law Firm

NuWire News published an interesting blog post last week that runs down a few ways that community members can use estate planning techniques to protect assets in “uncertain times.” Of course, our New York estate planning lawyers realize that uncertainty exists at all times, because no one knows for sure what tomorrow might bring. However, there are always some circumstances when future financial trouble seems particularly likely–such as when one might need long-term care either at home or a long-term care facility. The article authors note that it is always beneficial to shield assets before they become a target, otherwise, depending on the circumstances, there are a range of penalties that may attached to the conveyance. For example, when it comes to applying for New York Medicaid, it is vital that asset transfers be made at least five years before applying. Strategies exist to protect assets even when on the nursing home doorstep (without five years to wait), but there is much more than can be done the earlier one takes the time to plan for these issues.

Outside of the long-term care context, there is similar benefit from protecting assets well ahead of time, before they may be targeted by a creditor. The article discusses ten different techniques that may be applicable, depending on one’s circumstances. For example, the story discusses spousal gifting trusts. These are special trusts (also known as irrevocable grantor trusts) that allow married couples to protect assets from creditors and estate taxes while still retaining control and use of the assets.

Obviously insurance considerations are also important for protecting assets in uncertain times. After all, insurance is all about having security in the face of potential problems down the road. Long-term care insurance is clearly helpful to account for senior care costs. Unfortunately, that particular insurance is often out of reach for middle class community members. However, even basic life insurance should not be forgotten when thinking about estate plans. For younger families with children life insurance provides security in the case of untimely death. For wealthier families the insurance can also be important to protect assets from estate taxes.

January 19, 2012

Golden Globe Winning Film Explores the Trust Industry

by Ettinger Law Firm

Estate planning usually doesn’t come to mind when one thinks about award winning Hollywood movies. Most popular films are about great adventures, tragedies, and disasters. Planning for one’s long term financial and medical well-being, on the contrary, is all about prudently working to avoid major crisis or drama. However, a film that many movie buffs believe has the inside track to win this year’s Academy Award for Best Film actually involves estate planning, with a trust and a trustee at the center of the action. This weekend the movie won the Golden Globe Award for Best Dramatic Film.

“The Descendants” tells the tale of a man who is dealing with the impending death of his wife who suffered a traumatic injury and is on life support. The film’s protagonist, played by George Clooney, is the victim’s husband. As his wife slips away he is forced to deal with the consequences of handling her estate. She had come from a very wealthy family, and the couple (along with their two children) had lived on acreage of land in Hawaii that was held in trust.

Clooney, as the husband, is the trustee of his wife’s multi-generational estate worth billions. The other trust heirs (his cousins) want to sell the land to generate income to meet their personal needs. However, Clooney remain unsure of the best long-term decision. He knows that the original intent of the family was to preserve the land for succeeding generations.

January 17, 2012

Common Estate Planning Mistakes

by Ettinger Law Firm

Last week an article in the Mansfield Patch listed “Five Vital Estate Planning Mistakes” made by local community members. The list touched on a few issues that each New York estate planning lawyer in our firm has seen time and again. Like history, these errors tend to repeat themselves. Being aware of the common problems is the best way to ensure you don’t make them yourself.

Of course common mistake number one is putting off estate planning efforts entirely. Passing on is usually not a topic that most enjoy thinking about. Estate plans inherently involve some considerations and preparations in the event that one is no longer alive, and so many simply avoid the idea altogether. This delay ultimately serves no purpose. As the article author remarks tough-in-cheek, “If you don’t die before retirement, chances are pretty good you’ll die sometimes afterwards.” Considering that death is inevitable, there is simply no logical reason to do no planning and risk paying more in taxes, the uncertainty of the probate process, or the potential squabbling of family members.

Second on the list was failure to consider naming guardians for one’s children. While most local residents conducting New York estate planning have adult children, planning is important for younger community members as well, particularly those who have young children. When crafting an elder law estate plan for clients, we always take into account the family dynamics involved. When young children are present it is important to make plans for those children in the event something happens to you, the parent. This is another task that is often put off, because it is not pleasant to think about orphaned youngsters. However, at the end of the day failing to name a guardian only means that the buck will be passed to some other decision maker if anything happens–usually the court. No one is better positioned than a parent to name a potential replacement in case of tragedy, and so it is always prudent for parents to do so.