Trusts

January 23, 2012

Protecting Assets When Facing Uncertainty

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 12, 2012

The Sociology of Giving Back in Inheritance Planning

by Ettinger Law Firm

On Tuesday we discussed a few ways that our New York estate planning lawyers incorporate charitable giving into strategies to reduce taxes during inheritance planning. Of course, for most local families who want to give some of their wealth away, the motivation is not just to save tax money for themselves or their heirs in the process. Instead, as an interesting new article discussing the matter in Financial Planning noted, there are many emotional connections behind giving back. A mix of empathy, gratitude, and the desire to make an impact for others are often behind philanthropic efforts included in New York estate plans.

One sociologist suggests that empathy is at the root of most charitable giving–the ability to actually experience the struggles faced by others. Many donors providing support to certain charitable causes see much of themselves, their children, parents, or other family members in those that they are helping. The ability to care for others as an extension of ourselves is one of the most valued human abilities, and many of our clients share that attribute, wanting to incorporate it as part of their long-term planning.

The time that many are conducting estate planning is usually a time when they are winding down their efforts to collect more wealth. As a result it is a natural opportunity to consider other objectives, goals, and wishes. A sociologist familiar with this time in life explained how residents “then face the question of how to live next and impart to their children a moral biography. Most will want to give back because giving is a natural source of happiness.” When reflecting on how far one has come in life, many consider that they themselves were helped along the way. Giving aid to others (financial and otherwise) is a way of returning the help one personally received at a time when it was needed most.

January 10, 2012

Adding Charitable Giving As Part of Your Estate Plan

by Ettinger Law Firm

New York estate planning is primarily concerned with passing on assets to family members and saving taxes in the process. While the inheritance planning portion of the effort may seem straightforward, there are many considerations involved. It is much more than simply saying that John gets the house and Jane gets the car. When done right, the process should include consideration of many issues like what legacy one wishes to leave, how they’d like their children to remember them, and what values they wish to pass on. For many families this process involves leaving some assets to a charity of choice.

A story in this weekend’s Western Farm Press emphasized how charitable giving is an important part of estate planning for many families. It was a follow up to an article that had been recently written about the value that farm families have in visiting an estate planning attorney to keep a farm alive in the future. The latest story noted that including valued charities in one’s inheritance is a helpful way do some good while saving on taxes in the process.

It was explained how using these charitable donations in combination with estate tax exemptions can go a long way to pass along assets to desired family, friends, and causes without losing it to the government. Many assets that have appreciated significantly in value can be given to charity which may allow them to avoid being eaten up by capital gains taxes. Also, retirement savings, like IRAs, can be included in estate planning efforts to benefit charity. This often helps to reduce or eliminate tax liabilities. When done properly it can increase the funds that are going to heirs while also increasing the amount provided to a charity.

December 28, 2011

Farm Assets Protected By Estate Plan

by Ettinger Law Firm

Western Farm Press published a story yesterday reminding readers of the importance of conducting proper estate planning. The publication, geared toward those in the agricultural industry, explained that many farms had been saved that otherwise would have been split up because of savvy planning ahead of time. The story reminded readers of a basic principle that ourNew York estate planning lawyers wholeheartedly endorse. It noted that planning is important regardless of the size of one’s estate so that “if something happens to you today, your assets will go where you want them to go, to the people you want to have them.”

In the context of farms, it is particularly important to consider the tax implications of asset transfers upon death. It was explained that many farms have been lost when one party in the operation dies, leaving others unable to pay the taxes that come due. Estate taxes are hard to pay without selling the very property that one acquires. Farmers are often asset and land rich, but cash poor. That means that those who inherent a farm are often required to sell the land itself to come up with the cash needed to pay the tax bill. Estate tax issues may not be a problem for those in certain income brackets, but there remains constant volatility in the area. For many families their tax liability could change dramatically from year to year depending on what the laws happen to be at the time that one passes on.

Regardless of estate tax concerns, however, there are many basic estate and inheritance planning issues that are important for farmers to consider. The story suggests that it is helpful to think of one’s estate as in either accumulation mode, conservation mode, or transfer mode. The younger generations are often still acquiring assets, while older community members are likely to want to preserve what they have or pass it along. Estate planning helps most clearly with preservation and transfer.

December 21, 2011

Preparing Children for Wealth Transfers

by Ettinger Law Firm

Our New York estate planning lawyers ran across a Forbes article last week that began with the provocative claim that “70% of intergenerational wealth transfers fail.” The story was discussing a new Williams Group study which examined the long-term effects of wealth transfers in 3,250 families. “Failure” in the study was characterized as situations where wealth was dissipated by heirs, often with the family assets becoming a source of disagreement and friction.

The researchers were quick to note that poor professional assistance was not to be blamed; estate planning attorneys, financial advisers, and tax experts were not found to play a role in the wealth transfer problems. In fact the researchers noted that “these professionals usually did well for their clients.” Instead, the transfers that ended with problems were usually caused by poor family transition planning. In other words, the authors explained that “no one in the unsuccessful transferring families was preparing their heirs for the multiple kinds of responsibilities they would face when having to take over the reins.”

To combat the problems that arise when large sums of wealth are given to unprepared children and grandchildren, it is important to identify long-term lessons and values that must pass on along with the assets. Some suggest identifying a “family mission” and a strategy to ensure that the family mission is carried out. The heirs should understand that mission and be aware of ways to honor it. For example, it is likely that the mission would include a range of philanthropic goals, family business development plans, and other targets. It is helpful for the heirs to have experience practicing those family duties well ahead of time, perhaps by assisting with a few family business matters or charity efforts.

December 13, 2011

New York Estate Planning Attorney Discusses Beneficiary Designations

by Ettinger Law Firm

This weekend our New York estate planning attorney Bonnie Kraham had an article published in the Times Herald-Record where she explained the importance of beneficiary designations in New York estate plans. These designations are often less well-known than other aspects of an estate plan, such as trusts, wills, health-care proxies, and powers of attorney. The designation is a contractual document that directs where an asset will go upon your death. They are most often involved in IRAs, annuities, and insurance policies. Beneficiary decisions must be made in conjunction with other aspects of any estate plan to protect assets from outside costs and keep them in the bloodline.

For example, Attorney Kraham discussed beneficiary designations in the context of inheritance trusts. These trusts are increasingly popular and useful legal tools to protect a child’s inheritance from the child’s creditors or divorcing spouse. If you have an asset in a qualified plan, it is important for the contingent beneficiary designation to be that child’s inheritance trust, instead of the child as an individual. Essentially what this does is ensure that the benefit of the inheritance trust applies to the qualified asset. A spouse will typically be named the beneficiary with the child’s trust named as contingent beneficiary, ensuring that the funds remain in the bloodline and are protected from outsiders.

Similarly, when your New York estate plan involves use of a Medicaid Asset Protection Trust (MAPT), it is vital that beneficiaries be considered closely. In particular, Attorney Kraham explains that it is helpful to name the MAPT as the beneficiary of a life insurance policy. Life insurance policy proceeds are never assets held in the name of the policy holder, and so when those proceeds are passed directly into the MAPT they do not count toward the “penalty period” that otherwise applies to asset transfers within five years of applying for Medicaid. As the article explained, we recently had a client in this exact situation. The man had a $500,000 life insurance policy on his wife with the couple’s MAPT named as the beneficiary. If the insurance proceeds were paid directly to the surviving spouse, those funds would have been unprotected from possible nursing home costs. In addition, the MAPT funds can still be used to pay for things like real estate taxes, home insurance, and home repairs. However, this option is only logical when the surviving spouse does not need the life insurance policy proceeds while alive for day-to-day living expenses.

December 5, 2011

Art and Antique Succession Planning Should Not Be Overlooked

by Ettinger Law Firm

In many cases the most difficult aspect of conducting proper New York estate planning is ensuring that everything necessary is taken into account. Experienced New York estate planning lawyers usually know what options make the most sense in any given situation, but those plans are less effective if certain aspects of a community members’ situation are not accounted for within the overall plan. Few individuals forget to discuss assets like bank accounts and real estate. Fewer take the time to conduct less common planning needs, such as ensuring proper business succession details are in place.

Another often overlooked planning area involves art and antique collections. Last week Wealth Management discussed some tips for art succession planning. The authors noted many families have considerable wealth invested in their antique or art collections, but many fail to take much planning care with these items. The articles notes that “Many don’t realize the true value of their ‘stuff,’ thinking that the antique toy collection, family jewelry, or painting passed down by grandpa have no significant worth for which succession planning is essential.” Often that idea is misguided. A new Social Welfare Institute study from researchers out of Boston College found that in a few decades inter-generational asset transfers will total $41 trillion, of which roughly 10-13% will be art and antiques.

Considering that sizeable sum, it is incumbent that these objects be properly accounted for in all estate plans. Failure to do so is a serious preparation mistake. Not accounting for these assets may result in significant tax liabilities. Also, without proper evaluation there may be large discrepancies in the asset allocation to heirs–with one child getting much more than another accidentally. Even worse, heirs may dispose of collectibles at rates much less than their actual worth if they do not suspect something is valuable and are not given any guidance on its worth.

November 18, 2011

Forbes Shares Information on Celebrity Estate Planning Stories

by Ettinger Law Firm

Families across the country will come together to celebrate the Thanksgiving holiday next week. As a Forbes article recently explained, the holiday is a perfect time to discuss estate planning issues, because the planning is all about helping out one’s family. One of the main goals of an estate plan is to ensure that surviving family members will be taken care of and not forced to endure stressful, complicated, and costly procedures to get financial affairs in order following a death.

One way to broach the topic over Thanksgiving dinner, say the article authors, is to frame the talk in the context of high-profile celebrity stories. The article includes a list of the “Top 5 Celebrity-Based Estate Planning Conversation Starters.” Kim Kardashian’s story made the list to highlight the role that marriages have on one’s estate. The socialite ended her seventy two day marriage last month. Of course all marriages (short and long) have significant effects on one’s estate planning documents, and estate planning attorneys should be consulted when a marriage is entered into or ended. It is smart to make appropriate changes even before a divorce is finalized; otherwise the estranged spouse may still retain control if a death occurs before the separation is official.

The feud over Michael Jackson’s estate is also ripe with lessons. It was explained how the music pop star created a trust before he died and named his mother, three children, and personal charity as beneficiaries. Two trustees were named to help manage the trust. Our New York estate planning lawyers help clients in our community create these legal entities all the time. However, besides creating the trust, it is vital that the trust be “funded.” Funding is the process where assets are moved from an estate and into the trust. Failure to do this makes the trusts seemingly ineffective. That is where problems have arisen for the Jackson estate.

November 7, 2011

An Estate Planning “Perfect Storm”

by Ettinger Law Firm

Investment News published a story yesterday declaring that the current financial, political, and social climate made it a “perfect storm” for estate planning. It was explained how tax policy proposals, low interest rates, and a relatively weak economy make now a particularly worthwhile time for local families to take steps to plan for their long-term financial future. Our New York estate planning attorneys continue to help many local families do just that. As one observer explained in the article, “If individuals are trying to transition assets to the next generation, we currently have a perfect storm–in a good sense–to do it.”

Any time is a good idea to visit a professional and make future financial preparations. However, it may be particularly valuable to do so now, because planning strategies currently available might soon be gone. For one thing, large estate tax and gift tax exemptions now make it possible for individuals to transfer up to $5 million (or $10 million for couples) tax free. However, it is unlikely that the current tax scheme will remain–it is only a matter of what changes will be made and when. Observers have noted that estate rules have been changed 19 times in the last quarter century alone.

The current climate may present particularly attractive options encouraging some families to make major decisions to save on taxes and pass on assets. But many advocates explain that the tried and true planning tools that have long been available often remain the best way for many community members to accomplish their long-term estate planning goals. For example, while it may be favorable to give large gifts in the current environment, many families are uncomfortable making extremely large gifts. Instead, their goals may be best met by making smaller gifts under the $13,000 annual exemption amount. Those families can then save on estate taxes down the road by setting up trusts that distribute money more conservatively along the way.