Articles Posted in Living Trusts


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.


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 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.

Our government is based on federalism, which is why we have different laws in individual states as well as federal laws. This allows for legal “experimentation,” with representatives in each state free to make different rules in many areas, from taxation and healthcare to marriage and even crimes.

One complexity in living in such a system exists when laws conflict and individuals do not necessarily live in one state or another. Sometimes the conflict is easy to resolve. For example, if one state allows you to drive while talking on the phone and another does not, then citizens are forced to abide by the law of the state they are in at any given moment.

But sometimes it is not that easy. There is often much complexity when it comes to different estate planning and tax rules.

NY Income Taxes For “Snowbirds”
Late last month Forbes published an article that touched on one of those complexities, discussing how New York residents who winter in warmer states struggle with tax obligations. The story notes that it is often difficult for someone who splits time between two states to convince the higher tax state that their primary residence has changed, leading to no tax obligation.

A recent New York Division of Tax Appeals case illustrates the point. The couple at issue spends most of the year in a Queens home in the Malba neighborhood. In the mid-1990s the couple transferred the house to a QPRT. This refers to a “qualified personal residence trust” and usually used to transfer a home to others (in this case the couple’s children) with gift and estate tax savings. Even though the couple’s children technically own the home now, the seniors still live there most of the time and pay rent to the children. In addition, the seniors own a Florida home where they live in the winter.

The tax dispute in question was whether the couple owed New York income tax. They did not technically own a home in New York. In a somewhat complex ruling, the state of New York won, successfully arguing that the couple met both “domicile’ and “residence” requirements. There are detailed rules and requirements about how these two locations are decided as a legal matter.

While this case related specifically with income tax, similar disagreement may arise with inheritance and estate taxes, as seniors may split time between different locations. For help understanding how different state tax rules may apply to your family, be sure to get help from an estate planning lawyer.

Yesterday was a blockbuster moment for those who believe in equal marriage rights for all couples, as well as all those who follow important developments at the U.S. Supreme Court. That is because he Court issued two opinions that will surely be included in some Constitutional Law textbooks in the years to come.

Perhaps most importantly, the Court ruled in the case of Windsor v. U.S. that a portion of the federal law known as the Defense of Marriage Act (DOMA) is unconstitutional. In so doing, the Court’s decision will have immediate impact on the rights and long-term planning of all married same sex couples in New York–as well as the other eleven states that allow such unions.

The Ruling
Justice Kennedy wrote the opinion for the divided 5-4 Court. Many observers expected Kennedy to be the swing vote in the case, but if he decided to strike DOMA (which he did), it was unclear what his underlying arguments would entail. More specifically, many thought that Kennedy might base his decision entirely on “federalism” grounds, arguing that, regardless of the merit of the law, it was not the federal government’s role to make such sweeping decisions about marriage when those decisions have almost always been left to the states.

Yet the logic used in the opinion is far more sweeping. The crux of DOMAs unconstitutionality, said the court, was in its violation of gay couples rights to equal protection implicit in the 5th Amendment to the U.S. Constitution. Kennedy wrote, “The avowed purpose and practical effect of the law here in question are to impose a disadvantage, a separate status, and so a stigma upon all who enter into same-sex marriages made lawful by the unquestioned authority of the States.”

Kennedy goes on to make clear the harm of the law, “Under DOMA, same-sex married couples have their lives burdened, by reason of government decree, in visible and public ways. By its great reach, DOMA touches many aspects of married and family life, from the mundane to the profound.”

The Implications
So what does this mean for New York same-sex couples? Essentially, the “second-class” status of their marriages are now gone. All couples legally married in New York receive the same federal benefits (and obligations) as every other. This will apply to estate tax exemptions, Social security benefits, income tax filing options, immigration concerns and much more.

This marks an incredibly positive development for those who value equality and fairness under the law. For assistance understanding how this decision may affect your family’s elder law or estate planning, please contact our team of attorneys today.

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.

Residents are often warned to complete their estate planning–wills and trusts–before it is “too late.” Most assume that the planning is only “too late” if they die before getting it done. But that is a mistake. In many cases “too late” actually refers to losing the competency to create the legal documents. As a practical matter, it may even mean before one even has the appearance of mental health issues, because even a hint of problems may open the door to legal challenge from others.

Estate planning is about ensuring one’s wishes are carried out and maximizing the preservation of assets without controversy. Limiting that controversy includes completing the planning early and efficiently, minimizing the risk of problems down the road. Thought of in that way, “too late” is far earlier than simply “before you die.”

John duPont Estate
Legal issues related to the inheritance planning and mental stability recently made headlines with the passing of multi-millionaire (and convicted murderer) John duPont.

An accomplished natural scientists, duPont was known as a renaissance man of sorts, with a wide range of interests and quirks. He collected a shells and birds that now don the halls of natural history museums. He even authored and illustrated several books on birds that are highly regarded in the field. DuPont maintained an extensive stamp collection, at one point paying nearly $1 million for a single stamp from Britain. He also was an athlete, became a coach, and was a financial backer for various U.S. Olympic teams.

However, all of these interests were apparently tempered by mental instability. Eventually, in 1997, he was convicted of murdering a man in his home–a wrestler that he coached. At trial he was deemed mentally unstable, and many have assumed him to be a paranoid schizophrenic. The official adjudication was “guilty but mentally ill.”

DuPont died in prison two years ago. At the time, his estate was valued at over $500 million. In the subsequent two years, much of the state was liquidated, and many of his famous collections and property continue to reach auction.

Since his passing his family and other interested parties have engaged in endless fighting over the future of the fortune. DuPont had several wills, but the most recent was signed only three months before his death. That document left most of the estate to a Bulgarian wrestler as well as some to his attorney. However, the duPont family is challenging the will, claiming that his previous adjudication as mentally unstable invalidated the most recent will. If a court agrees, they may go back to a previous will signed at a time he was stable or come up with alternative modes of dividing the assets.

Reports suggest that even though the feuding has been ongoing for years, it is far from complete. It now stands as another tragic example of the complexities of estate planning–a reminder of the need to act early and comprehensively to avoid infighting and settle matters outside the purview of the courts.

Our estate planning attorneys often help New Yorkers create trusts that are used to pass on assets to charities. When structured properly, gifts to favorited causes is both a great way to give back and a smart financial move to save on taxes and ensure that your long-term inheritance wishes are met.

A Charitable Remainder Trust, for example, is sometimes a prudent estate planning tool. This is particularly useful for those with assets that have significantly appreciated who wish to save on taxes while generating an income stream on something that will eventually go to charity. Essentially, this works by creating a trust that is managed by the charity to which the asset will go. The trustee (the charity) then pays you a portion of the income generated by the trust for so many years or the rest of your life. Upon your passing the charity retains the principal.

These trusts have many benefits. They can take assets out of one’s estate for estate tax purposes. Also, income tax deductions can be taken on the fair market value of the interest that remains in the trust. By using appreciated assets, the capital gains tax can also be avoided.

Changing in the Future?
All those considering leaving sums to favorite causes should learn more about the charitable remainder trust option to see if it is a good fit. It is also crucial for individuals to remain aware of any possible changes in the tax code which might alter how charitable donations affect one’s tax obligations. With tight budgets on the federal level specifically, policymakers continue to make noise about limiting the tax benefits of giving to these organizations in certain ways.

Part of the problem, as discussed in a recent Accounting Today story is that many taxpayers may mistakenly take income tax deductions that violate current law. Specifically, the story points to a new Treasury Inspector General for Tax Administration report which found that nearly $4 billion of deductions are taken by taxpayers annually for “noncash” charitable contributions erroneously. While it is perfectly legal to take deductions on noncash contributions (like those that are often part of charitable remainder trusts), there are specific reporting requirements that must be met Many taxpayers are apparently skirting over those rules.

All of this may lead to IRS changes to crack down on those taking these deductions and lowering their tax liability without following proper protocols. The report itself identified six recommendations, such as better educating taxpayers and more aggressively enforcing the rules.

It is unclear what specific changes, if any, will be made in the coming year to deal with this issues. But, at the very least, this is a key reminder of the need to have professional help with all of these inheritance and tax issues to ensure that the law is following every step of the way.

Some mistakenly assume that estate planning only deals with minimizing taxes. With all of the focus on the estate tax in recent weeks it is easy to see how this assumption might gain ground. And it is true that for some families, significant planning must be conducted to ensure that as large a portion of an estate as possible makes its way to the intended beneficiary instead of the pockets of Uncle Sam.

But it is a mistake to suggest that taxes are the only or even the most important factor for most long-term planning for New Yorkers. The reality is that many tangential issues are just as important and often even more important. A recent WRALTechwire article reminds readers of several “non-tax” issues that are critical and must be addressed in estate planning efforts.

Some of those issues include:

***Protecting assets in subsequent generations. Far from being taken by the government, many have concerns that an inheritance might be taken by a relative’s creditors, angry spouse, or other. Fortunately, in certain situations steps can be made to provide protection so that any inheritance is secured from the uncertainties of the future. After all, if an asset is properly passed on only to be snatched away by a third-party, then it makes no difference if taxes were paid on the inheritance or not.

***Protecting confidentiality. One overlooked aspect of the planning is simply the speed at which it allows the process to unfold. When all assets must pass through the court’s probate process, then the timelines to resolve everything are dragged out. In addition, probate records are public, and so anyone can learn of the details of the situation Keeping this private requires use of trusts and other tools that an estate planning attorney can explain.

***Plan for incapacity. Estate planning is not just about passing on assets. It also involves planning for possible disability or incapacitation. Who will make end-of-life medical decisions? Who will handle family finances if you cannot? It is a grievous error to assume any sort of “default” rules for this decision-making are sufficient. They usually are not. That is why a power of attorney and health care proxy need be used to leave no doubt about your wishes in these situation. Often family members remark on how grateful they were for these legal documents so that they were not required to make difficult choices in the midst of the stressful situation.

Late last year the U.S. Supreme Court agreed to hear two separate cases impacting various same-sex marriage issues. As we have frequently discussed, in ruling on these issues the Supreme Court may set precedent which impacts marriages across the country, including in New York. In so doing the Court may set in motion legal changes that impact estate planning issues for all of the thousands of same sex couples living throughout the state.

However, we will have to wait a while longer before anything is finalized. That is because agreeing to hear the case was just the beginning of the process. The next step was the setting of specific dates for hearings in which both sides argue their case and answer questions posed by the nine justices.

This week the Court released its schedule for those gay marriage cases. As reported in the Huffington Post, the hearings will take place over two days in late March. First, on March 26th the court will hear arguments in Hollingsworth v. Perry. Perry is the case related to Proposition 8 out in California. Beyond “standing” issues, this legal matter may clarify what the U.S. Constitution has to say about the substantive right to marry for same-sex couples. Depending on what they decide, nothing can change, gay marriage may be allowed in California, or, theoretically, gay marriage could become the law of the land across the country.

On the following day, March 27th, the Court will conduct hearings on the second case, United States v. Windsor. This is the legal matter that originated with a New York couple and has more direct bearings on the rights of local same sex couples. The Windsor case, if it survives past the standing issues, will decide whether or not the Defense of Marriage Act (DOMA) is constitutional. As readers know, DOMA acts a bar that prevents federal recognition of even state marriage for same sex couples. This has implications on issues like estate taxes and qualification for federal benefits, including Social Security.

Obviously it is important for all couples who may be affected to follow as these cases are argued and then decided. Following these March hearings, it will likely be several months before the justices reach their opinion and release it to the public. While the final date is impossible to predict it is likely that the judgement will be issued sometime in late June. Also, the changes may not take effect immediately. Depending on what is decided it could be weeks or even months before the implementation date of certain components. In any event, it remains critical for same sex couples to be diligent about their planning so that they are protected right now, no matter what the future holds.

A perennial hot-button topic in estate planning and the creation of inheritance documents involves the passing on of personal values. Of course, the majority of work related to estate plans invovles physical assets: who gets the house, the bank accounts, the stocks, the insurance, the family china, and more. Making these allocations efficiently and saving on taxes are the hallmarks of these preparations. But our team often discusses the other aspects of estate planning, including setting in place material that ensures one leaves a legacy for those they are leaving behind.

This often includes spiritual issues but can just as well include secular notions like hard work, the importance of charity, and other values.

But how are these issues woven into an estate plan?

For one thing, as discussed in a recent article, “spiritual” estate planning is on the rise. This includes making inheritance allocations based on values, such as donating to religious charities or non-profits that support favored causes. In fact, according to one industry group–Charity Navigator–bequests to charities are up 19% this year as opposed to last year. Working with a professional beforehand can be crucial if one wants to leave sums to charity, because the gifts can be structured in various ways to ensure they are of maximum value for all parties.

On the other hand, some may want to incorporate their faith or values more directly into their plans, including trying to influence the actions of heirs with regard to respecting the faith. For example, a recent Wall Street Journal story on the tricky subject of using an estate plan to pass on religious values.

The article explained how there are a wide range of throny legal issues tied up in connecting inheritances with these faith-based requirements. Perhaps the most common heavy-handed approach invovles disinheriting those who are not spiritually devote or who marry outside of the faith. In most cases courts have upheld these requirements so long as they are not written to encourage divorce. Yet, even when legal, those familiar with these situations frequently explain that this often comes with very severe family controversy and confusion. As such, while the intentions are to honor one’s religion, the ultimate consequences of this sort of feuding often do little to advance that cause.

In most cases, the best bet is still to share one’s faith and values while alive, instead of trying to force the matter via inheritance details in an estate plan.

See Our Related Blog Post:

Passing on Religious Values At Death

Thinking Beyond the Paperwork–Creating an Ethical Will

DNA Info in New York shared an interesting story on the intersection of a custody dispute, estate planning, and a one billion trust fund waiting in the wings. The tale is a reminder of how money and the emotions following a death are a breeding ground for feuding and conflict among many different parties. It is always best to proceed with the assumption that strong disagreement will arise and to crafts plans and take those into account. Perhaps those worst fears won’t materialize, but, if they do, they must be accounted for.

The situation in this story concerns two teens who are set to inherit the $1 billion inheritance from their great aunt’s fortune–the New York philantropist Doris Duke. Duke was a tobacco heiress andspent much of her time in a $44 million Upper East side apartment. Duke obtained the fortune after the death of her husband–Lucky Strike cigarette magnante “Buck” Duke–and holding from her own mother’s fortune. Upon Doris’s death in 1993, the fortune passed down to her nephew with whom she was close–the father of the twins. Sadly, he died in 2010 at age 57 due to a methodone overdose. He had divorced the teens’mother in 2000 and was awarded custody at that time.

As one might expect, confusion broke loose following the father’s death. The children’s biological mother was given custody at first, though serious concerns have been raised about her ability to raise the children, with past reports identifying her as suffering from paranoia and post-traumatic stress disorder. The twins’ stepmother has been trying to obtain custody of the children but has thus far been unsuccessful.

In this midst of this tragedy and custody fighting, the children’s mother has been making strange requests of the $1 billion trust fund that the two teens will inherit when they turn 21 years old. The large fund is currently managed by JPMorgan with specific rules about how much funds are dispersed to the children while they remain minors. Recently, the mother has been making large, somewhat bizrre requests of the trustees, claiming that the children “feel like they are poor” because of the trustee’s denial of many of the requests.

Right now the family received a range of monthly allotments, including $8,000 for housing, $1,800 for food, $3,600 to rent a car, $500 for gas, $2,000 for random monthly expenses, and pre-pad nanny service, tuition, medical insurance, and more. All of this, however, is apparently not enough and the mother has been making repeated calls for more money. For example, $6,000 was requested for a Halloween party, with the trustee providing only $2,800. At Christmastime, the mother asked for $50,000 to cover expenses for gifts and several trips. That request was denied.

In the midst of all of these financial requests, the trustee asked a Manhattan Court for guidance on how to respond to the financial requests. As often happens in these cases, the court has appointed an independent guardian to act in the children’s best interest in the matter. It is still pending with the court.

See Our Related Blog Posts:
Court Rules Woman Must Give Up Kafka Papers She Inherited

Protecting Assets While Facing Uncertainty

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