Financial Planning

October 5, 2012

Too Much Inheritance, Too Soon

Some parents are understandably concerned about how a large inheritance might affect their children. That concern is heightened the younger the child is. Eighteen years old may be the official “adult” demarcation line. But being a legal adult and having the actual maturity to handle large sums of money are two different things. Considering that many eighteen years olds are just out of high school–or even still in high school–it is clear that many may not be in a position to manage sophisticated financial situations. Unfortunately, without proper planning ahead of time, it may be difficult to prevent young adults from having significant inheritances dropped in their lap before they are ready for it.

Take, for example, the current legal wrangling around the inheritance given to the daughter of Whitney Houston. Houston died suddenly last February. Her mother and sister-in-law/business manager were named executors of the estate. Virtually all of Houston’s assets were left to her daughter, Bobbi Kristina.

However, in the months since Houston’s passing, the executors have become concerned about Bobbi Kristina’s ability to handle the sizable inheritance she is receiving. According to the Hollywood Reporter, late last month the executors filed a petition with the local court seeking to restructure the plan. Presumably, they are seeking to lower the funds available to the young woman who is now 19 years old. The petition argues that Bobbi Kristina “is a highly visible target for those who would exert undue influence over her inheritance and/or seek to benefit from [her] celebrity.”

September 24, 2012

Death & Student Loan Obligations

by Ettinger Law Firm

Not many years ago student loans and estate planning were rarely discussed in the same sentence. That is because in decades past far fewer individuals took out student loans and, even when they did, the size of the loans were smaller. Things are changing, however. Higher education is becoming more and more crucial to long-term employment and the cost of that education is increasing. These changes mean that more individuals have to take student loan obligations into account when conducting long-term financial planning. Those loans may the planner’s own loans or (even more likely) loans for children on which they co-signed.

In any event, more and more families have to take these issues into account in long-term planning. One issue on which there is much confusion is the discharge (or lack of discharge) of these obligations upon death.

Student Loan Obligations & Death

June 25, 2012

Should You Take Advantage of Tax Situation Now?

by Ettinger Law Firm

The New York Times published a story this weekend on the continued uncertainty regarding the gift and estate tax and the questions it raises for many families. As each New York estate planning lawyer at our firm explains to local residents, the current tax situation is in flux, requiring many different considerations when engaging in estate planning. As it now stands, residents can each give up to $5.12 million tax free and then pay a 35% tax rate on any gift above that amount. The tax-free amount will drop and tax rate rise at the end of the year without Congressional action.

The uncertainty about the future of the tax details present very obvious challenges to many families. Giving away money to heirs now means reducing an eventual tax bill down the road. However, there are many questions about whether couples will have enough money to live on themselves after giving large sums to others. Obviously these considerations all depend on the value of the family estate. In general, only comparatively wealthy families are impacted by these issues. But for those families who are “on the cusp” and stand to pay more in taxes when the changes take effect, tough decisions will need to be made in the next six months.

One consideration beyond basic tax savings for estate planning purposes is the amount the any money passed on might grow over the years. For example, if a couple gave their child $5 million to take advantage of the favorable exemption, the gift could grow to nearly $30 million in about 30 years based on reasonable return rates.

March 29, 2012

Estate Planning Challenges For the “Asset Rich and Cash Poor”

by Ettinger Law Firm

This week the USA Today shared a helpful story that analyzed some estate planning difficulties faced by certain families, often farmers, who have many physical assets but few liquid cash stockpiles. One obvious challenge for these families is dealing with the uncertainty of the estate tax. Estate tax considerations are of clear concern, because the family may be unable to pay the tax burden that comes with inheriting the assets without being forced to actually sell those very assets.

Currently, there is a $5 million exemption level for the estate tax. However, without federal action, that exemption level will drop to $1 million by the end of the year. All inherited assets that exceed that level will then be taxed at various rates up to 55%, with a 5% surcharge on estates over $10 million.

Our New York estate planning attorneys appreciate that these estate tax issues are of paramount importance to certain community members, like farm families or those with family-owned businesses. For example, it does not take much for farms of various sizes to cross over that $1 million threshold when taking into account land, buildings, and equipment. In addition, for many farmers, land values have risen steadily with advances in natural resource technology because of the increased profitability of available minerals. Many resources can now be extracted from land that was previously unattractive to the mineral industry. This increases the value of land but makes estate tax considerations a real concern for more families.

March 27, 2012

Tax Season Reminder to Plan Ahead to Cut Bill to Uncle Sam

by Ettinger Law Firm

For many the end of March represents the beginning of spring, warming weather, and the looming approach of baseball season. For others, this time of the year is consumed with the dread of having to deal with a fast-approaching tax deadline. There is usually little to look forward to in tax season other than completing piles of paperwork and learning how much was lost in the last year to Uncle Sam. However, our New York estate planning attorneys suggest that the trudge through tax season can be turned into a positive and used as motivation to come up with long-term strategies to lower tax burdens for the future.

Death and taxes are inevitable. But the process of aging and the stress of tax-paying can vary tremendously depending on how well one plans ahead. Helping with these issues is what our New York City elder law estate planning lawyers do each day. Much can be gained by putting affairs in order and crafting long-term tax saving strategies. Tax season is the perfect time to finally take the plunge.

A recent article from USA Today Money explores the ways that planning ahead can (and can’t) help local residents save down the road. On one hand, it is undeniable that that short-term tax picture is hard to predict, because so much hinges on federal legislative conduct in the next year. Barring action, various tax rates are set to rise at the end of the year (expiration of the so-called “Bush tax cuts”). Top income tax rates, capital gains, dividends, and estate taxes may all rise. In addition, the “marriage penalty” will return along with an increase in payroll taxes.

March 19, 2012

Increase in Blended Families Cited For Causing “Uglier” Estate Fights

by Ettinger Law Firm

The world is a different place today than it was in 1950. Several decades ago the vast majority of families were of similar make-up: father, mother, kids, dog, house, and car. Inheritance planning in those situations often followed very predictable patterns. A spouse received the assets after a death, and the children split the remaining assets when the second parent moved on. However, our New York estate planning lawyers know that there is much more complexity these days.

That is true for several reasons. On one hand, the law has changed, with different tax situations, legal tools, long-term care concerns and other realities forcing estate plans to take more into account. In addition, families are much more diverse these days than in the past.

Blended families are quite common, necessitating families take special care to account for their inheritance wishes. “Default” statutory inheritance rules may have been a bit less off-putting several decades ago. However, considering the unique make-up of most families these days, it is incumbent upon local residents not to risk their estate being split via default intestacy rules. As a new USA Today story explains, it is no longer a luxury to have the help of an estate planning lawyer–it is a necessity.

March 9, 2012

DOMA Developments May Have Implications for Married Same-Sex New York Couples

by Ettinger Law Firm

The Defense of Marriage Act (DOMA) is a federal law passed in 1996 that defines marriage for federal purposes as only between one man and one woman. As our New York estate planning lawyers have often discussed, this means that same-sex couples married in our state are still not considered married for federal purposes. This has serious implications for tax preparation, estate planning, and a host of other concerns facing these residents. DOMA prevents married individuals from filing joint federal tax returns, receiving Social Security benefits, or having tax-free inheritances.

Many advocates on all sides of the aisle are working to overturn the law. Bills have been advanced in Congress which would repeal DOMA. However, with the current partisan split it appears unlikely that these legislative measures are likely to pass anytime soon. But that does not mean DOMA is here to stay. Most of the recent action on the issue has taken place in the courts. Several federal lawsuits have been filed which challenge the constitutionality of the legislation. President Obama has refused to defend the measure, and so the law is currently being defended under the auspices of the Republican leadership in the U.S. of Representatives.

Last month a U.S. District Court judge in one of those cases found that DOMA (or at least section 3 of the law) violates the equal protection clause of the U.S. Constitution. The case is being appealed to the federal appellate court. This particular ruling relates only to one provision of the law as applied to one couple. However, it is a clear indicator that the entirety of DOMA may one day–perhaps soon–be found unconstitutional.

February 21, 2012

Fixed Annuities and the Benefit of Longevity Insurance

by Ettinger Law Firm

It is a common question asked by area seniors conducting New York estate planning: How do I know if I have enough money to last the rest of my life? There are no easy answers. A lot depends on the source of income that one has when conducting their planning and exactly how those funds are being used. However, some financial planning tools exist which can provide peace of mind for those who want it, particularly in volatile market conditions. As explained this weekend by Investment News, one of the options is a deferred-income fixed annuity, often known as the main type of “longevity insurance.”

Fixed annuities are essentially investment contracts with an insurance company. This means that the insurance company agrees to pay out a set income based on the value of the investment. These annuities can be either deferred or immediate. For estate planning purposes, deferred annuities often allow those thinking ahead to make investments before hand for guaranteed payouts down the road. Many different types of fixed annuities exist. Some are for a set rate of income while others take into account market conditions to some extent–blunting the effect of marketing downturns while allowing the recipient to share in some of the market booms. In this way, our New York retirement planning lawyers realize that lifetime annuities are often beneficial for those thinking about their long-term finances.

While they may be important investment tools for some, annuities are not for everyone. When compared to other investments, this type of insurance can offer lower rates of return. Many advisors suggest that the insurance is best when higher interest rates are present. This means that investors can put less money up front to get the same guaranteed income stream down the road. Often annuities are used in combination with other investment tools. Yet, many annuity plans have steep penalties for early withdrawal, which is unattractive to some.

February 14, 2012

U.S. Senate Proposal to Alter Inherited IRA Rules

by Ettinger Law Firm

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 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.