New York Estate Planning Lawyer Blog

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.

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.
The political struggle between the two major parties over the Federal estate tax, or "death tax" as its opponents prefer to call it, continued with the expiration of the estate tax on January 1, 2010 for one year. On January 1, 2011, the estate tax is scheduled to reappear but not for estates over 3.5 million at a tax rate of 45%, as in 2009 when the tax expired. Under the Bush era tax cuts, enacted in 2001, the estate tax in 2011 and beyond will be imposed on estates over one million, at a tax rate of 55%. Where do these latter figures come from? Those were the exemptions and tax rates in 2001 when the new law took effect. It was assumed that Congress would pass amending legislation some time over the intervening nine years to correct the problem.

Politics being what it is, the parties could not agree. A proposal to extend the 3.5 million exemption of 2009 for an additional year, giving Congress an additional year to negotiate a new estate tax regime, died in the Senate.

The irony of it all is this. Dick Patten, President of The American Family Business Foundation, a Washington lobbying group campaigning for repeal of the estate tax gleefully reported that "for the first time since 1916, there will be no estate tax." You have to wonder, however, who his constituency really is. If the 2009 rule had been extended for one year, the estate tax would have affected about 6,000 families. But because the repeal of the estate tax brings back the capital gains tax (which the estate tax eliminated on assets passed at death), over 70,000 families will now face new capital gains taxes. According to the Center of Budget and Policy Priorities, "a t least 62,500 of these are estates that would not owe any estate tax if the 2009 rules were continued and that thus would be adversely affected by estate repeal. Farms and businesses would constitute a disproportionately large share of the group."

For couples with estates over one million dollars, it is essential that they review their estate plans for unintended consequences should one spouse die in 2010, the year of no estate tax. If there is no tax planning then tax language should be added to avoid the potential 55% Federal estate tax on estates over one million starting in 2011. For couples with tax language in their plans, you must look for disclaimer language (typically used by Ettinger Law Firm since 2006), which allows the surviving spouse to determine the amount, if any, to leave in the deceased spouse's trust on the first death. These plans have the flexibility to "roll with the punches" no matter what Congress ultimately decides.

Couples who have old trust language that has not been updated are most at risk. Typically, these old trusts (and wills) provided that the amount that was exempt from the Federal estate tax remained in the deceased spouse's trust. If a spouse with the old "formula" language dies in 2010, then nothing stays in their trust, since there is no estate tax, and it all comes out to the surviving spouse. Not only may this create a huge tax in the estate of the surviving spouse (potentially $550,000 on the one million that could have been left in the deceased spouse's trust) but you may also lose $99,600 in New York State estate tax savings by not having the choice of leaving the million in that deceased spouse's trust.

Tax professionals, commentators, Congressmen and Senators are all predicting that some sort of settlement will be reached early in 2010 to alleviate these and other problems arising out of the failure to pass amending legislation on time.

We say, don't bet on it.

These are the same professionals who said the problem would be settled long before the December 31, 2009 expiration date. The parties couldn't even agree to a simple extension of the 2009 rule one year, buying time to reach a compromise solution. With the impending retirement of two democratic Senators, and the likely loss of a democratic super majority in the Senate, there is a very real possibility of gridlock resulting in no agreement being reached and the estate tax exemption dropping down to one million at the end of 2010. In other words, the great estate tax chess match may end up in a stalemate.