New York Estate Planning Lawyer Blog

Modern New York estate plans require consideration of a range of issues that were unheard of even a few decades ago. Of course some of the core aspects remain the same, such as deciding how to pass on tangible assets like the house, car, and personal property. But in this digital age, our New York estate planning lawyers know that complete preparation now must take digital assets into account. Many researchers who have looked into the subject have found that even when an individual does not place any value in their own digital assets, the surviving family members usually have great interest in accessing them.

A story this week from KHAS TV explored the issue. Many community members--including a growing number of older residents--have a wide range of digital data. Interpersonal communication is tracked on Facebook, photos are stored on Flickr, articles are written on blogs, and a range of other information is stored on personal laptops. When a loved one passes on, having access to these sentimental items is something that many grieving family members deem very important. As the story explained, "those things that we sort of use as a vehicle to remember each other by, those things have now become digital." These days many more items are viewed on a screen than a piece of paper.

But when proper steps are not taken, it is not always easy for family members to access those digital items. As many estate planners are realizing, it is increasingly important for access to these digital assets to become integrated in long term plans. Stories continue to accumulate of widows and children who are desperately searching for information about computer passwords in order to get access to important photos, videos, stories, recipes, and other information that exists only in digital form.

To help deal with these issues there are two basic approaches. First, a list of all access information can be kept in a safe place with instructions included in estate planning documents (wills and trusts) indicating how the information can be found. Alternatively, a "digital executor" can be established, which acts just as a regular estate executor in safekeeping the information and dispersing it appropriately when one passes on. One advisor suggests asking "a trusted friend, or maybe even the executor of your estate, to serve as a digital executor, someone that would be digital savvy enough to take care of those assets for you."

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Few spouses are thinking clearly after they lose their partner. Yet, it is usually at that time when many major financial and legal decisions must be analyzed and made by the grieving widow or widower. Our New York estate planning lawyers know that families are able to provide much relief at this difficult time by preparing ahead. As a Wall Street Journal story this week explained, proper estate planning not only eases stress for the surviving spouse, but it also may prevent legal and financial mistakes being made by that spouse in the immediate aftermath of the death which could be impossible to undo down the road.

For example, some grieving widows and widowers believe that they have little need for insurance benefits following the tragedy. However, as one professional in the field explained, "if you have been living on income from two people, you should get an idea of what your monthly expenses are before you're magnanimous with the money you just received." In addition, many individuals make quick decisions about the sale of a home or the transfer of other valuable assets without fully considering the long-term effect of those actions.

Following a death in our area it is vital for families to contact a New York estate plan lawyer to receive assistance with the wide variety of tasks that must be completed. The estate transfer process can be time-consuming and stressful, especially if professionals are not consulted and mistakes are made. For example, pension plans need to be notified of the death. Those involved have to determine what debts of the deceased must be paid and which do not need to be paid. Survivors must also be cognizant of what funds they can use to pay for expenses after the death. Sometimes a spouse may have been using a power of attorney to write checks out of the deceased's account. That authority ends at death, which means that the survivor may not technically have the authority to access the funds.

The aftermath of a loved one's passing is always a wrenching time, and survivors should never try to sort through these financial and legal details on their own in the middle of that grieving process. Proper planning while both spouses are still alive can go a long way to ease the stress of this time. Not only that, but as the story notes, in the aftermath of the death, "just as crucial is the support of trusted family and friends, along with expert advisors and support groups." Trusted financial and legal professionals can help prevent the grieving family from making choices that they may regret down the road.

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Some local residents believe that they do not need to worry about creating a New York estate plan if they only want to divide all of their assets between their children equally. These community members are under the incorrect assumption that the default legal rules will ensure that everything works out as they wish. Unfortunately, this is rarely the case.

This weekend My SA News discussed this all-too-common mistake of voicing intent to be even-handed with asset distribution but not taking the proper legal steps to carry out that intent. For example, the story used the real example of a family with two parents and five daughters. Both parents had been married to one another their entire lives with no divorces. They did not conduct any estate planning because they always explained that they wanted everything to be divided equally among their children at their death. They did not even have wills drafted.

However, their actions did not reflect that voiced intention, and there was no plan in place to protect the family. For example, after the father died, the mother deeded the family home to the first sister. Later, a second sister deeded another house to the mother, but upon the mother's death that sister wanted the home back. A third sister visited an attorney and asked for help. She wanted the family home and the second home to be divided equally among the children as the parents always wished.

Unfortunately, without any estate plan there is often little that can be done to enforce the verbal assurances of parents. Actions such as signing deeds over to others have important legal ramifications that cannot be undone. Failure to visit with an estate planning attorney to understand the consequences of these decisions often leaves those involved without legal recourse. In this case, the family home will likely remain with the first sister. The second home may be divided among all the children according to the intestacy rules of the state, because the second sister will likely be unable to force return of the house if she gave it to her mother free and clear.

An important take away from this convoluted story is that clear legal planning must be done to ensure that all vocal intentions are respected. Beyond that, it is important to remember that proper preparation in these matters does more than simply pass on property at death. By visiting a New York estate planning attorney those in our area can also keep certain assets in the bloodline, save on estate taxes, and provide for disability.

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Most New York estate plans have various components and include several legal documents. Most will have a Revocable Living Trust, Medicaid Asset Protection Trust, or both. A pour-over will is also frequently added as a failsafe to cancel an old will and ensure that any assets left outside the trust are brought into it after death. The plan will have various other facets, including a Power of Attorney, Health Care Proxy, burial instructions, and other final instructions for a family.

In addition, a common practice is to leave a list which indicates which valuables will go to each heir. This list is usually handwritten and specifically requests that a trustee honor its terms. In this way, if a client changes their mind about the distribution of their personal property they can simply handwrite a new list without needing to visit their attorney to cement the change. This step is important because many local families experience in-fighting when trying to distribute sentimental personal property without the guidance offered by a New York estate plan. When more than one family member wants the same item, the stage may be set for strong disagreements that often profoundly and permanently affect relationships. Most family members are under immense stress at the time of a passing which makes the situation even worse.

A few online web services have recently sprung up which claim to help families distribute this property in a fair manner. For example, one of the more popular services is eDivvyup. The website essentially sets up a family auction using non-monetary "credits." A family first selects an "executor" to set up the auction by cataloging personal items, inviting family members to participate, and assigning credits. Each family member then visits the site and places bids on items of interest to them using the non-monetary credits they are provided. The auctions usually work like eBay, spanning anywhere from a day to several weeks. The goal is that by the end of the auction each family member will have gotten the fair chance to indicate which items mean the most to them.

While these online tools may offer a helpful way for some families to have discussions about the distribution of personal items, it is absolutely essential that users not be misled into substituting these tools for actual legal planning. The eDivvyup website itself specifically notes that it is intended to be used aside from proper legal efforts at property distribution. Our New York estate planning attorneys know well that the utmost care must be taken with every legal document crafted to ensure that it is capable of withstanding legal challenge. Online and "do-it-yourself" resources may be helpful and convenient tools for some residents. However, they cannot act as a substitute for proper legal planning because they generally have no legal effect and are readily challenged.

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When many area residents are told to consider visiting a New York estate planning lawyer their mind immediately envisions someone who will craft a will or a create a trust. However, estate planning is much more than document creation. Instead, it is best viewed as a process by which an individual works to eliminate future uncertainties and reduce potential financial complications for their loved ones. Wills and trusts may be a component of that process, but they are by no means its sum total.

This multifaceted approach to estate planning was nicely summarized this weekend in an article at Today Online. Most local community members spend a large part of their lives on asset accumulation--the process of building up their estate. Yet the important considerations of asset preservation and distribution are often given only minimal thought. That is where the New York estate planning attorney comes in.

Beyond mere drafting of wills and trusts, these professionals are capable of helping you determine what strategies will ensure that extended medical costs, taxes, and other factors swallow as little of your accumulated wealth as possible. This may involve the creation of a Medicaid Asset Protection Trust or perhaps advice on the acquisition of long-term care insurance. In any event, the most important part of the process is figuring out what needs to be done to best save your wealth--the creation of documents to actually carry out those wishes only occurs later.

In addition to preserving your estate, the planning process also involves a discussion of its ultimate distribution. This includes both ensuring that your estate is divided as you wish but also that the division occurs in as quick and straightforward a manner as possible. Many clients remain surprised by the type of advice and information that they receive about how their estate can be distributed. For example, many conditions can be placed on when an inheritance is dispersed or how it is spent for certain family members. The options are essentially unlimited. Understanding those choices and matching them with your wishes is a vital part of the process.

Continue reading "New York Estate Planning is Much More than Wills & Trusts" »

Over the last two years, four sets of estate tax rules have been in effect, with the individual exemption ranging from $2 million (2008) to $3.5 million (2009) to unlimited (2010) to $ 5 million (2011). Besides these varying exemption levels, another major change in the new estate rules includes the "portability" factor.

Portability allows each partner of a married couple to use the rest of the other's estate-tax exemption. It facilitates planning when one spouse has a relatively large, indivisible asset.

The Tax Relief Act of 2010, Title III provision illustrates how portability works:

Assume that Husband 1 dies in 2011, having made taxable transfers of $3 million and having no taxable estate. An election is made on Husband 1's estate tax return to permit Wife to use Husband 1's deceased spouse unused exclusion amount. Wife has made no taxable gifts. Thereafter, Wife's applicable exclusion amount is $7 million (her $ 5 million basic exclusion amount from Husband 1), which she may use for lifetime gifts or for transfers at death.

A New York estate planning attorney should then prepare a federal estate tax return for the wealthy surviving spouse's deceased husband. At a 35% tax rate, the unused $ 2 million dollar exemption could someday be worth $700K to beneficiaries.

Like the $ 5 million exemption, portability is in effect for two years only - and in order to qualify for the provision, an accountant or attorney must prepare and file the estate tax return calculating the unused portion and elect to pass it on. Potentially the more valuable the unused exemption, the more modest the estate of the deceased spouse.

Because of the complexity of the Title III provision, it will help to have an experienced attorney explain the portability rule and if it makes sense to file the necessary tax forms as part of your comprehensive elder law estate plan.

Written by A.K. Lehmann, ABA Paralegal

by Michael Ettinger, Esq.

Commonly used in estate planning today, disclaimer trusts allow the surviving spouse great flexibility in optimizing estate tax savings.

Here's how they work. Each spouse sets up their revocable living trust. Husband and wife are co-trustees of his trust, using his social security number and, similarly, they are both co-trustees of her trust with her social security number. Let's say husband dies first. His trust says "leave everything to my wife except that, whatever she disclaims, i.e. refuses to take, will remain in my trust. The disclaimer is a legal document that lists the assets disclaimed and their value. Wife remains as trustee on husband's trust after he dies and may use the funds in his trust for her health, maintenance and support. She may also remove 5% of the trust every year for any reason or $5,000, whichever is greater.

The reason wife is limited to health, maintenance and support is that, if she had the right to take whatever she wanted at any time for any reason, the IRS would say that she had complete control of the funds and would then seek to tax those funds in her estate. The access for health, maintenance and support, however, is sufficiently broad so as not to cause a problem for her. She may also continue to buy, sell and trade assets in the husband's trust. This trust continues for her lifetime and pays out to the heirs at her death along with her own trust.

Husband's social security number died with him so his trust took out a trust tax identification number when he died and reported as a separate taxpayer during her lifetime. It is not includable in her estate. Indeed, what has happened is that husband's trust was settled on his death and left to his heirs, but subject to wife's lifetime use and enjoyment of the trust assets.

The benefit of the disclaimer is that it allows the wife to decide (or the husband if wife dies first) how much to leave in the deceased spouse's trust based on her age, health and the tax laws at that future time. Formerly, attorneys would simply do their best to split the assets between the two trusts and simply say whatever was in the deceased spouse's trust remained there for the surviving spouse's lifetime. This yielded some unfortunate results.

Let's say husband's trust had over one million dollars but the tax exempt amount was one million even (as it currently is in New York State). Formerly, wife would be required to pay tens of thousands of dollars in estate tax based on the amount over one million. With the disclaimer trust, wife may take the excess over one million out of his trust for herself and claim the unlimited marital deduction which avoids estate tax on assets left to a spouse. Perhaps her estate will be under one million dollars and no taxes will ever have to be paid on that money, she may spend it down under one million during her lifetime or the exemption may be raised during her lifetime. In any event, worst case scenario is that taxes on those monies are deferred until after she dies and, in the meantime, she has the use and enjoyment of monies that would have formerly gone to the government.

We received a call last Friday from a woman who said that her father had died but her stepmother was claiming that he did not have a will. The daughter was certain that he did, in fact, have a will.

What happens in such a case? Regardless what the daughter believes, unless a will can be produced there is no will. A check of the county probate court would be in order as some clients traditionally filed their wills in court for safekeeping, but this is rarely done today. There is also the possibility that the father destroyed the will he had, for whatever reason.

Another possibility is that all of the assets may have been made joint with the father's second wife and that she was also named beneficiary of any other assets, such as IRA's, annuities and insurance policies. In this case, all of the assets pass to the surviving spouse without any court proceeding and there is no need for a will or, if there is a will, there is no need to file it.

The remedies for the daughter would be two-fold. First, she could file a legal proceeding against the stepmother to compel an accounting of her father's assets. This may be costly and her claim against the stepmother, if all the assets were made joint or beneficiary designated, would depend on her ability to prove fraud or duress - a highly unlikely scenario.

Second, she may go to the probate court and request to be appointed "administrator" of her father's estate. An administrator, similar to the "executor" under a will, is appointed by the court as the legal representative of the deceased person. It is said they "step in the shoes" of the decedent and have full rights to act in their name. This way, daughter can approach any banks or investment houses where her father had assets and they must respond to her. She can obtain his mail and check for statements there as well. She can compel the stepmother to turn over all documents concerning her father's financial affairs. In the event that her father did have assets in his own name or assets that were left to his estate, these would be shared, by law, as follows. The first fifty thousand dollars would go to his wife and the rest would be split with fifty percent going to his wife and fifty percent going to his children, in equal shares.

Here is where the race to the courthouse comes in. Nothing stops the stepmother from going to court herself to be appointed administrator and gaining control of the estate. In such a case, the first to the courthouse, with a properly prepared petition, wins. We advised the daughter to come in to our office the following Monday and have the petition prepared on the spot and filed the same day. As this was written over the weekend in between, it remains to be seen what she will do.

by Michael Ettinger, Esq.

"Elder Law Estate Planning" is a niche area of the law which combines the features of elder law and estate planning that pertain most to the needs of the middle class.

Estate planning was originally for the wealthy few. Middle class families did not consider themselves as having "estates" to plan. During the Reagan years (1980-1988), a great economic expansion occurred, raising the asset level of the middle class into the realm of estate planning. With middle class people suddenly exposed to "estate taxes", the need arose for estate planning, to reduce or eliminate those taxes. A few years later, in 1991, the American Association of Retired Persons (AARP) published "A Consumer Report on Probate" which concluded that probate was a process to be avoided, in all but the most exceptional cases. This marked the beginning of the end of traditional will planning and started the "living trust revolution". AARP recommended that families start using trusts rather than wills, to avoid probate and save their beneficiaries tens of thousands of dollars in the estate settlement process.

Since then, millions of people have set up trusts to:

• Save time and money in settling the estate

• Avoid legal guardianship if they become disabled

• Avoid having their personal and financial matters made public

• Reduce the chance of a "will contest"

• Keep control in their family and out of the court system

At about the same time as living trust planning became popular, the field of elder law emerged to help people navigate the increased complexity of state Medicaid rules and regulations, the soaring costs of nursing home stays, and the fact that people were living considerably longer.

Historically, estate planning was handled primarily by "white shoe" law firms in the deep canyons of downtown Manhattan, while elder law planning emerged out of the Department of Social Services. State employees began to take their expertise in Medicaid rules and regulations into the private sector.

To this day, these two fields continue to grow independently of each other, sometimes to the detriment of the clients lawyers are meant to serve. Estate planning lawyers mostly see estates averaging from the low hundreds of thousands to about two million dollars. Families with estates under one million dollars often cannot afford long-term care insurance. They may now or later need a Medicaid Asset Protection Trust (MAPT) to protect their estates from being depleted in the event a nursing home is required. Since the estate planning attorney is often unfamiliar with elder law, the client never gets the MAPT they need, and the estate plan to avoid probate proves useless when a nursing home stay ends up consuming all of the assets.

For the couple with over one million dollars in assets, estate planning is essential to reduce or eliminate estate taxes. In this case, they should split their assets into two trusts, thereby creating two estates, and doubling the exemption from one million to two million dollars. Still, this couple, while they may be able to afford long-term care insurance, may find one or both of them uninsurable due to health reasons. Perhaps what they really need are two MAPT's, not just to save estate taxes but to also protect the assets from nursing home costs, but they never get them because the estate planning lawyer is not experienced or trained in drafting these documents.

What happens when the estate planning client actually becomes disabled and needs long-term care? They, or the family, often consult with the estate planning lawyer who prepared their plan, but who may be unable to help them, due to his or her unfamiliarity with state Medicaid rules. Many families lose assets that might have been saved. Unknown to the estate planning attorney, elder law attorneys have developed numerous techniques to protect hard won assets, even when the nursing home is imminent, such as "spousal refusal" and the "gift and loan" strategy.

On the other side of the coin, what happens when the older single or couple meets with an elder law attorney instead of an estate planning attorney? These clients are usually sixty-five or over, and are looking for asset protection. The elder law attorney knows how to create a MAPT and often recommends them. However, on the estate planning side of matters, the elder law attorney may miss the need to set up two trusts for the couple to avoid the estate tax. He or she may have little knowledge about estate planning for second marriages, a growing segment of the population, or using Inheritance Trusts to keep the assets in the blood and protect the inheritance from children's divorces, lawsuits, and creditors.

While some of the family's needs may be met, such as asset protection, other needs are left unserved, often because the clients are unaware that these two fields of law complement and overlap one another. In other words, they may get what they want but
not necessarily what they need. These oversights are often visited on the heirs.

Your writer made the conscious decision twenty years ago to develop expertise in these two fields of law simultaneously. This has proven to be invaluable to thousands of families. Clients who originally came in for estate planning services later became elder law clients, converting their revocable living trust estate plans into MAPT's as they got older, or through the use of Medicaid planning services to protect assets when the need for nursing home care actually arose.

Looking back on our experiences in over ten thousand cases at Ettinger Law Firm, we conclude that we have assisted in the creation of a new niche, "Elder Law Estate Planning".

We define this area of law as:

• Getting your assets to your heirs, with the least amount of taxes and legal fees possible

• Keeping those assets in the blood for your grandchildren and, in the meantime, protecting those assets from your children's divorces, lawsuits, and creditors

• Protecting your assets from the costs of long-term care and qualifying for government benefits available to pay for care

While estate planning involves tools for well-to-do families, with acronyms like GRITS, GRATS, and GRUTS, and where elder law serves the diverse needs of our growing senior population, including the less fortunate, through Medicaid, Medicare and Social Security, "Elder Law Estate Planning" addresses the concerns of the vast majority in the middle.

By Michael Ettinger, Esq.

Reflecting on this comment made to us by a client recently, the following thoughts came to mind. What do we actually do at Ettinger Law Firm?

All we do is save our clients a lot of time, many thousands of dollars and the not so petty annoyances they might otherwise have in settling their family's affairs on the death of a loved one. We help them reduce or eliminate taxes on the estate so that more passes down to help their children and grandchildren. These days, we also protect the inheritances our clients leave so that it is not lost should the heirs get sued or divorced and, better yet, we assure them that their wishes will carry on for decades after they are gone, by passing the inheritance on to their grandchildren one day. Should disability occur, our clients have had their assets protected years earlier through asset protection planning. For many who come to us in their hour of need, without preparation, we take on the burden of helping them through the Medicaid maze and help them save and protect much more of their assets than they ever thought possible.

On the planning side, we talk to our clients about their hopes and dreams, despairs and disappointments. Then we craft a plan to reflect the client's life and lifestyle, taking into great consideration the needs and feelings of the heirs and how it will be received. We are thoughtful to avoid unintentionally hurting loved ones and creating rifts between them with well intentioned, but ultimately misguided, gifts and bequests.

Yet none of the above good works were what the client was referring to with her causal remark that "you give lawyers a good name". We also hold three to four seminars for the public each week where we invite hundreds of people to dinner at our expense and explain all they need to know about elder law and estate planning, providing professionally prepared materials for them to take home and study. We maintain a 150 page website for their further research and review, together with an online video seminar to watch if they wish.

Then we invite every person, regardless of their means, to come into our offices and spend up to an hour with us, free of charge, where we share the vast knowledge, experience and insights we have gleaned in over twenty years of exclusive practice in this area. We also analyze and critique their current planning, letting them know where they stand, what to do and why.

Finally, we advise countless people each day, week, month and year that they do not need our services, that they are fine for the time being with the plan they have and can afford to wait, when they would be better off doing their planning with another firm, and then refer them to one with more expertise in solving their particular issues. For clients who do need us, we search for ways to achieve their goals with the least expense possible.

Clients see that we derive as much satisfaction from telling them that they are fine, that they do not require our services, as we do when our services are needed. Clients see that we are just happy that they took the time to come in to see us. And when clients see that we are on their side, that our true purpose is to serve them without regard to ourselves, then they say "you give lawyers a good name".

By Michael Ettinger, Esq.

So many clients are advised that they need a will. In fact, will planning is becoming obsolete for persons over sixty for many reasons.

Instead of actually solving problems, wills often create them. First, they must be proven to be valid in a court proceeding, the infamous probate, for estates in New York over $30,000.00. Court proceedings can be expensive, time-consuming and things often go wrong. Also, when the client dies, that will is usually out-of-date, having been created decades before. The executors may be the wrong persons, the beneficiaries or their percentages may be wrong or other changes in the family have not been taken into account.

Notice of the court proceeding must be given to certain relatives who may be difficult or impossible to locate. Complications arise with relatives in foreign countries who may need to go to the American Consulate for notarization or "consularization" of legal documents. If there is a disabled child, the court will appoint a lawyer to represent their interests, including preparing a report to the court, and your estate must pay that attorney's fees.

Proof problems with the will lead to delays that often prevent needed funds getting to surviving spouses or children. It is fairly common for real estate to be tied up, while the probate process drags on, causing potential buyers to be lost. In some cases, stock cannot be sold even though it may be falling in value rapidly. Law firms routinely commence probate proceedings as a courtesy for families who cannot even afford the legal fees to get the matter started. Needless to say, the cost of court proceedings today may be expected to be in the five figure range.

Two other pitfalls of will planning bear mentioning. First, since the will is filed in court, it becomes a public record. Anyone may then go into the courthouse and order a copy of your will to see what you had and who you left it to. Your privacy is out the window. Secondly, since notice must be given to the heirs you may have left out, or left less than they may feel they are entitled to, you run the risk of a will contest if your estate is distributed in anything but equal shares.

When you are in probate court, who is in charge? The judge, not you or your lawyer. Don't suppose that the Judge will always act in your best interests, as the court may have other interests to consider.

Always better to stay out of court, in our opinion. By using a living trust, instead of a will, you avoid probate court and keep control, or at least control rests with those you have chosen, if you die or become disabled. The expenses are so much less without court proceedings that you may easily save tens of thousands of dollars.

The other problem with a will? It only takes effect when you die. Today, about half of all people eventually become disabled. Since the will does not provide for disability, you risk guardianship proceedings. These proceedings occur later in life when someone becomes unable to handle their affairs and does not have an adequate plan set up. In a guardianship, the court will appoint someone to handle your affairs. Not only may it not be the person you would have chosen, it may not even be someone you know. Trusts, which take effect while you are living, are considered a highly effective tool to avoid guardianship proceedings and guarantee that the person or persons you choose will be in charge. This way, you may be certain that your best interests will be looked after.

In short, when someone tells you that you need a will, think again. It may be a living trust that you need instead.

By Michael Ettinger, Esq.

In our experience, a majority of New Yorkers are unaware (blissfully?) that New York State levies an estate tax.

New York's estate tax starts on estates over one million dollars. What is your estate for tax purposes? All of your real and personal property, your bank accounts, investments, IRA's, etc. as well as any life insurance that you own. Add it all up and, if you're under a million, then no problem.

But, if you're over a million, the tax rate starts at 41% (yikes!) and gradually goes down to about 10%. Below is a New York Estate Tax schedule prepared by our firm to help you see where you stand.

Fortunately, if you have a spouse, you can avoid paying up to about $100,000 of these estate taxes by creating two estates, one for the husband and one for the wife, and get two one million dollar exemptions.

For example, let's say a couple has two million in assets. Essentially, what happens here is that each spouse sets up a trust and we put one-half of the house and other assets into each trust. Both spouses are trustees, or managers, of both trusts. Now, say husband dies. Before, everything went to wife and while there is no tax on what you leave to your spouse, when she dies her estate has the whole two million and generates a $99,600.00 tax bill. Instead, with the two trusts, husband's assets stay in his trust, wife is in charge and can buy, sell, trade and spend. But when wife dies, husband's trust goes to the children, or preferably their inheritance trusts, and "bypasses" her estate. He passes one million tax-free. Her estate is also only one million and also passes tax-free. Savings = $99,600.00. Why don't more people do this? In fact they do. Ettinger Law Firm has used this technique for over twenty years in more than 10,000 estate plans to save thousands of New York families many millions in estate taxes.

Remember, you don't get the two exemptions just because you have a spouse. You only get the two exemptions if you set up the two trusts before the first spouse dies...in other words, if your estate is over one million dollars and you have a spouse, the time is now.

by Michael Ettinger, Esq.

It's an estate planning epidemic. So many successful parents we meet have children who are poor or worse at handling money, have not achieved significant success in life where they have garnered enough experience in handling money or they simply refuse to grow up. What's a parent to do?

Enter what has been termed the greatest invention of English common law: the trust. Trusts are legal entities that may hold and use assets for a beneficiary (your son or daughter) but have them managed by a trustee (one of more responsible adults, including a professional trustee).

Let's say your son Richard is the problem child. Your estate plan using a living trust would provide that upon your death or, if you have a spouse, upon the second death, Richard's share would go into the Richard (your last name) Trust with perhaps a family member and your attorney as co-trustees. The Richard Trust would continue for his lifetime, or until a stated age, perhaps sixty of sixty-five, when it would pay out to Richard. In the meantime, the trustees may use the money for Richard's health, education, maintenance and support. The trust can help him start a business or buy a house or, alternatively, purchase a house for him. Alternatively, the trust may go on for his lifetime and then, upon his death, to his children (at a stated age).

The sprinkling trust is often used in this context as well. Let's say Richard has two children and you are very concerned about them as well. You may set up a trust for Richard and his children and direct the trustee to "sprinkle" the income and principal amongst the beneficiaries, in equal or unequal amounts, whenever it is needed or will do the most good. So if one of Richard's children is accepted to Harvard, while the other goes to the local community college, the trust may help both. An added bonus with these trusts is that they keep the assets out of the hands of Richard's spouse who, in some cases, is a large part of the financial problem.

For children in dire financial straits or perhaps headed in that general direction, the effects of a potential bankruptcy on the inheritance and estate administration must be addressed. Noted New York bankruptcy lawyer, Jay Fleischman, Esq., has written about what happens if your son or daughter files for bankruptcy within six months of the date of your death. According to attorney Fleischman, "under the bankruptcy laws, people who receive the right to an inheritance within 180 days of the date on which they file for bankruptcy risk losing that money or property - even if they do not take actual legal title within that period of time. The right to receive that money or property is considered an asset of the bankruptcy that, depending on applicable bankruptcy exemptions (these vary from state to state), could be seized and distributed to creditors".

Nevertheless, by leaving assets to your son or daughter in a trust, giving the trustee discretion to distribute income and principal as the trustee sees fit, you may protect those assets from being lost in a subsequent bankruptcy proceeding.

There is a lot to talk about in a consultation concerning setting up a trust for an adult child, such as the pros and cons of naming siblings, other relatives, friends and professionals as trustees. Other considerations are how long the trust should go on, what payments the trust should allow or disallow, and who the back-up trustees might be. All your choices have their pluses and minuses which need to be fleshed out so as to provide the plan that best suits your family's needs.

Finally, one of the key features of our Lifetime Estate Planning Process, is the free review we provide every three years. This means that we will continue to monitor the estate plan so that if your son Richard turns things around and no longer needs the trust later on, an event we have experienced many times, the trust may be eliminated by the parent later on, before it is too late to undo it.