Trusts

January 30, 2013

Trusting Kids with Large Inheritances Remains a Challenge

One of the most common concerns that parents have when creating an estate plan in New York is worrying about passing on too much wealth to children who cannot properly handle it. After a lifetime of hard work, ingenuity, and prudent planning, the last thing many families want is to see a child obtain an inheritance and then lose it. One need only check newspapers headlines to see celebrity examples of younger individuals with too much money whose lives take a turn for their worst as they fail to handle their wealth carefully.

A Wall Street Journal article last week discussed this issue in the context of the now seemingly permanent federal estate tax rates. Per the “fiscal cliff” agreement, the estate tax law will allow each individual to shield up to $5.25 million. For a couple, that allows $10.5 million to be given to others tax-free.

While this is good news for those who have this much wealth to pass along, it does raise some questions for families. Is your child–no matter what age–prepared to handle an inheritance of this size? Will it be lost to creditors? Taken by a spouse? WIll the money change the child’s motivation or long-term goals?

January 28, 2013

Is the IRS Going to Crack Down on Non-Cash Charitable Deductions?

by Ettinger Law Firm

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.

January 18, 2013

“Portability” for Married Couples

by Ettinger Law Firm

Estate planning is a personalized affair. While there are general rules and principles that apply in all cases, at the end of the day each plan is tailored for an individual’s exact situation. A one-size-fits-all approach to this work is misguided and often leads to problems down the road. For one thing, there is a world of difference between planning for married couples and singles. Failing to take those differences into account may be problematic. A recent article provides a helpful background on which to discuss those issues.

Portability Now Permanent

For example, married couples are able to take advantage of an option known as “portability.” Seemingly made permanent in the law thanks to the fiscal cliff compromise bill, portability refers to one spouse’s ability to use to use the other’s unused estate and gift tax exemption. Essentially, this allows a spouse to transfer up to $10.5 million tax free. In the past, bypass trusts were use in order to preserve exemptions. However, with this new law, those trusts may not be necessary for that exact tax-saving feature–though they still could prove useful for other purposes.

January 17, 2013

Telemundo Star’s Early Death Raises Questions About Holographic Will

by Ettinger Law Firm

Yet another celebrity has passed away unexpectedly, perhaps without conducting any estate planning. She left behind a complex family arrangement filled with disagreement and a fortune estimated at nearly $25 million. Telemundo star Jenni Rivera was a household name in Mexico when she died last month in a plane crash at the age of 43. The tragedy struck just as the singer was poised to make a breakout in the United States entertainment industry with a starring role in an ABC television show.

Complex Family Life

Obviously using trusts and having a will for inheritance issues is critical for all families but especially for those with large fortunes and complex family arrangements. Rivera fit the bill on both accounts. According to a recent Forbes article, she was married three times. The first two ended in divorce, with her second husband passing away in 2009. At the time of her death she was technically still married to her third husband, but that marriage was in the midst of divorce at the time. Rivera had four children in total from her first two marriages. There are significant age differences between the children, as she had her first when she was only 15 years old.

January 11, 2013

New York Estate Planning Beyond Taxes

by Ettinger Law Firm

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:

January 8, 2013

More Rumblings That Estate Tax Still Not Finalized?

by Ettinger Law Firm

Like the monster from a horror movie that will not stay still no matter what is thrown at it, there are already suggestions that the apparent “final” decisions related to the estate tax may not actually be all that final.

As we previously explained, as part of the fiscal cliff compromise bill certain estate tax issues were seemingly made permanent. The exemption level was kept at $5.12 million and indexed to inflation. The top rate was set at 40%. Both of these figures were less intrusive than that original proposals from the White House and far less severe than those mandated by the fiscal cliff itself. Many observers were happy with the outcome, no matter what their personal preferences, for the fact that it at least offered some stability. Having an uncertain tax rate is never a welcome prospect when planning for the future.

Also, as pointed out in a recent article discussed the estate tax components of the bill, the tax will continue to be “portable.” This means that one spouse may use their deceased spouse’s “unused” portion of the exemption level. This is a very helpful tool which allows more assets to pass tax-free without the need for more complex estate planning techniques.

January 3, 2013

The Fiscal Cliff Agreement & What It Means For You

by Ettinger Law Firm

Chances are you have already heard that a bipartisan agreement was reached on New Years Day which averts the significant tax increases and spending cuts demanded by the so-called “fiscal cliff.” The agreement certainly went down to the wire, with the Senate passing a bill on the last day of the year and the House passing the same bill the following day. Up until the end it was unclear if a compromise could be reached, as House leaders initially claimed that they would amend the Senate bill and send it back to that chamber. In the end, however, a vote was taken on the Senate bill without any changes, passing with support from members of both parties.

The compromise legislation does not resolve all of the issues in disagreement between the parties. More negotiation and legislation will be needed in the coming months to settle those other matters.

The Basics of the Deal

December 28, 2012

Thomas Kinkade Estate Feud Continues, Hearing Postponed

by Ettinger Law Firm

One of the many goals of proper estate planning is to prevent family feuding. This is obviously to ensure that the worry, stress, and cost of these legal battles is avoided. But on top of that, done right, avoiding costly disputes saves an immense amount of time. It is well known that the legal system often does not act swiftly. It is important not to underestimate the simple benefit of having property matter resolved right away after a passing, instead of making surviving loved ones wait months or even years–preventing them from obtaining necessary funds and moving on with their lives.

The prolonged nature of the resolution exists anytime there is no estate planning (probate takes time). But the delay is especially pronounced where there is feuding and legal battles are fought.

For example, the Patch recently reported on a delay in a hearing for one high-profile estate fight over the property of painter Thomas Kinkade. We have previously blogged about the legal fight between Kinkade’s estranged wife, four children, and live-in girlfriend. The girlfriend has produced two handwritten wills which seem to leave Kinkade’s house to her while establishing a museum. The wife and children contest the wills.

December 26, 2012

End of Year Estate and Gift Tax Dilemma

by Ettinger Law Firm

Only a few days remain in the year, and most financial activity for 2012 has come to a close. However, the end of year action has already brought one of the most active seasons ever. Financial advisors, estate planning attorneys, and others have all seen community members of all different income brackets seek out help understanding how possible legal changes in the new year might affect their own financial health and long-term prospects.

A Forbes story last week explored one of the main reasons for confusion and the seeking out of help: the “give now or pay later” problem. This is an issue that mostly affects those with significant assets who may be affected by gift and estate tax changes. As has been documented exhaustively, Congress is considered what to do with the gift and estate tax. Over the past ten years the tax rate has steadily fallen and the exemption level has risen. In 2010, the estate tax was eliminated altogether. However, what will happen in the new year remains to be seen.

Many different options are on the table–from a permanent elimination of tax (unlikely) to a return to pre-2001 rates. A table from the Tax Policy Center (viewed here) offers a helpful snapshot of the options and how many people would be affected by each. One comparison offers the range of possibilities. If the current rate continues, about 3,800 estates will be affected next year. Those estates would bring in about $12 billion in taxes. Conversely, if the 2001 rates returned then 47,000 estates would be affected and over 300% more tax revenue would be generated.

December 20, 2012

Fiscal Cliff Negotiations Move on to Estate Taxes

by Ettinger Law Firm

The political wrangling to avoid the so-called “fiscal cliff” continued this week. Many different issues are all tied up in the negotiations, including income tax rates, defense spending, entitlement spending, and control of the debt limit. However, various reports suggest that the both sides in the political battle–primarily the Obama White House and U.S. House Republican leaders–are now trying to work out some agreement on estate taxes.

Still Wide Disagreement

Most discussion of tax issues and the fiscal cliff affecting upper income Americans revolved around the income tax. There is disagreement about whether current income tax rates for those in the highest bracket should increase slightly or stay the same. Both sides publicly believe that current rate should be extended for middle tax brackets. Because of the focus on income taxes, real negotiation of estate taxes has been pushed to the side. That appears to be changing.