New York Estate Planning Lawyer Blog

Yesterday was Groundhog Day--that storied time when a prognosticating animal is supposed to tell us how many more weeks of winter we have left this season. According to most reports, yesterday the nation's most famous groundhog, Punxsutawney Phil, saw his shadow and scurried back out of the cold. Apparently this is a sign of many more weeks of winter to come. Punxsutawney Phil was made a national celebrity in the early 1990s after being spotlighted in the popular Bill Murray movie titled "Groundhog Day." The film has gained legendary status among some, as it chronicles the exploits of Murray who wakes up in Punxsutawney every single morning on February second, forced to relive Groundhog Day over and over.

Our New York estate planning lawyers know a few things about repetition. That is because when it comes to planning for one's financial future, many local families seem to make the same mistakes over and over again. Yesterday CBS News published a Groundhog Day special report listing seven money mistakes that retirees consistently make. Many of the items on the list are quite familiar to the New York retirement attorneys at our firm.

For example, the first mistake is putting off estate planning altogether. The story's author noted that "failing to create a financial or estate plan isn't just a matter of missing out on investment opportunities or tax advantages. It can get you in trouble later in retirement when you're no longer at the top of your game mentally." It is always comforting to push off thinking about potential mental challenges in the future, but failure to account for it only leads to heartache for one's family. Nearly 50% of the nation's population over eighty years old suffers from some sort of cognitive impairment. A host of challenges are created if planning is not done before the problems set in.

Another big mistake that is repeated over and over by retirees is paying too much in taxes. It is vital to learn how withdrawals from retirement accounts, volunteer work, and other issues affect one's taxes. Many seniors fail to create a plan of gradual withdrawals from retirement accounts to minimize tax burdens. In addition, many seniors who do regular volunteer work do not use tax deductions for things like mileage and out-of-pocket expenses.

Far too many seniors fail to take full advantage of the planning tools available under the law to put themselves and their family in better financial shape. All local residents should take the time to visit with a professional to ensure that they do not make the same mistakes that so many others continue to make day in and day out.

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Do Not Let Long-term Care Destroy Your Retirement Planning

Ettinger Law Firm Attorney Shares Terminology of Elder Law Estate Planning

Uncertainty is almost always attached to discussions about the estate tax. As our New York estate planning attorneys have often shared, it is vital for those of certain income levels to pay close attention to the prevailing political winds to understand if estate tax changes might apply in their situation. When a New York estate plan is crafted it will take into account the current estate tax scenario. However, what is true now may not be true in the future. It is for this reason that estate planners must remain in close contact with clients to ensure modifications to a plan are made if necessary.

When it comes to the estate tax, many prognosticators make various predictions about what we can expect in the future. For example, a story this week at Producer's Web suggested that the future of the federal estate tax depends almost entirely on what will happen in the upcoming November elections. The author suggests that there are four possible scenarios.

1) If Congressional gridlocked continues after the election then the new law may be allowed to sunset. This means that that there will be a $1 million estate tax exemption and a 55 percent tax rate. This would take effect January 1, 2013.

2) If the legislature remains split between the parties, then there is also a chance that Congress could extend the current law. Under this scenario the exemption would remain near $5 million (though slightly higher after adjusting for inflation) with a top tax rate of 35 percent.

3) Some argue that the political winds are shifting in favor of the Democrats. If the party gains control of the House and retrains power in the Senate (and the Presidency), there may be more room to make widespread changes. While this might lead to a range of possibilities, the preference of the Democrats is likely to craft a plan close to the previous law, with exemption levels near $1 million and rates closer to 55 percent.

4) Conversely, if Republicans take control of Congress then there is a chance that the federal estate tax could be repealed altogether.

It will be interesting to see if any of these predictions actually materialize. In the meantime, it might be helpful to listen to what candidates--Presidential and Congressional--have to say about the estate tax while on the campaign trail. That is likely the best indicator of what might happen if either party gains control of the legislative process and is able to muster enough votes to make changes to the current plan.

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The Estate Tax Chess Match - We Are All Pawns

Proposed Tax Policy Changes May Affect Future Options For Estate Planners

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.

However, it is often more difficult for those goals to be met that some realize. One advocate in the agricultural community explained that "many successful farm families often do a poor job of estate planning." In particular, many of the families fail to ensure that they have proper documents in place and ready to go when they might need them, such as a Power of Attorney and Health Care Proxy. Others fail to keep a plan updated. A sophisticated effort to save on estate taxes one year may be futile if not altered to account for changes in the law down the road.

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Consider Alternatives to a "Last Will & Testament"

Not All New York Elder Law Attorneys Are Alike

This week Barron's--a publication of the Wall Street Journal--discussed how many favorable tax breaks, rates, and regulations are either set to expire or may soon be eliminated by policymakers. It was explained how those at the top of the income ladder have seen a steady stream of tax cuts over the past ten years. Under President Bush the top income tax level was cut, the capital-gains tax was slashed, and dividend tax rules were changed. Our New York estate planning lawyers know that there were also many alterations to trusts, gift rules, and other wealth transfers issues over the past decade.

However, many speculate that changes will now be made in the other direction as policymakers look for ways to tackle growing debt and budget deficits. As one observer explained, "acting now on any kind of tax break is wise given the mood in Congress these days." For example, perhaps that largest benefit set to expire is the $5 million gift and estate tax exclusion. The exclusion allows couples to essentially give away $10 million tax-free. The rates are currently set to revert back to $1 million at the end of 2012 unless legislative action is taken. This alone should be motivation for some families to focus immediate attention on their estate planning.

Other tax-saving tools may also not last indefinitely. For example, Grantor Retained Annuity Trusts (GRATs) are popular for some. GRATs are created for a set term (often two to five years) with an annuity stream from the trust being given to the one who set it up over that term. When the term expires the remainder above a set interest rate goes to heirs. When an experienced estate planning attorney helps create the trust, it can be "zeroed out" so that the annuity stream is set such that there are no gift tax consequences. However, there are currently discussions about changing GRATs. They may soon require a ten year term and zeroing out may no longer be allowed.

Dynasty trusts may also be on the way out. These tools allow families to shelter assets from taxes indefinitely, keeping certain assets inside a family for generations. However, the President has proposed changing the rules such that all estate tax exemptions expire after ninety years. That would essentially remove the possibility of setting up these trusts.

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The Estate Tax Chess Match - We Are All Pawns

Tips for Giving Financial Aid to Family and Friends

Local residents with a taxable estate over $5 million need to conduct New York estate planning to ensure that they are best positioned to save on estate taxes. The estate tax is essentially a tax on one's right to transfer property at death, and it can result in substantial liability for those with large estates. However, there are seemingly endless political debates about who should be taxed and at what level. The law in this area changes with surprising regularity. For example, in 2004 the tax applied to all those with taxable estates over $1.5 million. A few years later that threshold amount was increased to $2 million. In 2010 the tax was eliminated altogether. While it currently stands at $5 million, it is unclear whether policymakers will change that figure in the coming years. Of course, our New York estate planning attorneys closely monitor all estate tax developments, as these laws are important factors in our work helping residents conduct inheritance planning.

Criticism of the estate tax and the political wrangling around it is common. For example, a Forbes editorial last week called for repeal of the tax entirely. Pointing to the seeming randomness of the rates, the article author noted that "over the past ten years the federal estate tax rules have bordered on the ridiculous." The author explained that planning plays a crucial role in helping residents legally avoid much estate tax liability. Proper planning can actually pay dividends for entire families. He wrote that "with a little bit of planning, not only would the estate of a person who died in 2010 be excludable from estate tax, but the future estate of the surviving spouse would be free of estate tax as well." At the end of the day, the amount of tax paid often hinges on whether or not an individual has prepared a proper estate plan ahead of time or not.

Currently the estate tax generates about 2% of the annual federal revenue. The editorial author suggests that it would be logical to shift the tax system so that the 2% is paid as part of a more progressive income tax system. He specifically suggests increasing tax rates for capital gains and qualified dividend income. It is argued that even slight alterations to these taxes could generate $200 to $250 billion in additional revenue from those making more than $300,000 annually. The goal of this tax shift, claims the proponent, would be to provide a more logical taxation system that is easier to administer without sacrificing much needed public revenue at a time of tight budgets.

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High-Profile Example Highlights Need for Clarity in the Estate Planning Process

New York Estate Planning is Much More than Wills & Trusts

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.

No matter what the economic or political climate, trusts remain a primary tool to flexibly transfer assets and save on taxes. A variety of different trust mechanisms remain available to residents to customize their estate planning and gifting strategies. Grandparents can set aside funds for grandchildren by using a generation-skipping trust. Charities can be provided for through use of a charitable remainder annuity trust. Of course the first step in tailoring a plan to meet your specific goals is visiting an area estate plan attorney to explain your wishes and learn how they can best be fulfilled.

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Federal "Super Committee" May Target Gift Tax in Deficit Reduction Scheme

Proposed Tax Policy Changes May Affect Future Options for Estate Planners

The gift tax has implications in a variety of New York estate planning situations, from deciding the best way to provide aid to loved ones to conducting business succession planning. As with many other tax issues, timing is important because lawmakers at the federal and state level can change these rates. While the risk of rate changes always exists, there has been significant discussion as of late about a variety of potential changes involving the 12-member federal "Super Committee." The Super Committee has been charged by Congress with reducing the federal deficit by $1.5 trillion over the next ten years. To do so, the group will have to enact a combination of spending reductions and tax changes. No matter what combination they ultimately decide upon, it is highly likely that their work will have effects on local residents crafting their New York estate plan.

For example, last week the Wall Street Journal's Market Watch published a story explaining proposed changes to gift tax exclusions. The specific committee meetings are mostly private, so some of the recent thoughts on the committee's actions are speculative. However, it is known that one of the President's proposed recommendations to the committee includes reducing the estate, gift, and generation-skipping transfer tax thresholds. The proposal would reduce the tax-free gift threshold to its 2009 level of $1 million. Currently the tax-free threshold is supposed to stay at $5 million until the end of 2012. However, many are speculating that the committee may decide to return the exclusion back to $1 million a year early as a cost-saving measure.

The story's author summarizes the changes by noting, "Overall tax planning and gift tax thresholds that are now available could be at risk for families...not much good can come from the committee's recommendations from a wealth preservation perspective." Clearly, the potential actions by this group may make it important for some local residents to take long-term financial actions now. Our New York estate planning attorneys urge all community members who may be affected by these changes to visit with a professional to either create a plan or update an existing one. Depending on the advice received, it may be prudent to accelerate planned lifetime gifts, review estate-tax funding mechanisms, or otherwise revise estate plans.

Under the current schedule the Super Committee is expected to present its recommendations to Congress on November 23rd. Congress will then have a month to take action on the proposal, and no amendments will be considered. If Congress does not pass the measure as proposed then automatic spending cuts will be triggered.

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Proposed Tax Policy Changes May Affect Future Options For Estate Planners

Economic Uncertainty Leads to Rise in Estate Planning Interest

Thousands of same sex New York couples have wed since the state became the sixth to legally allow such unions last month. At the time our New York estate planning attorneys noted how the change means that these couples are no longer required to pay state taxes on domestic partnership benefits, will gain access to worker's compensation benefits, can bring wrongful death lawsuits on behalf of their spouse, and can file joint state tax returns. In addition, surviving same sex spouses are no longer subject to New York estate taxes on assets they receive from their partners at death.

However, the fight for equality continues. Same sex marriages are specifically repudiated at the federal level through the Defense of Marriage Act (DOMA). This has significant repercussions on the estate planning needs of married same sex couples. These couples cannot file joint tax returns or joint bankruptcy petitions. Upon the death of one spouse the other cannot inherit veterans benefits or Social Security benefits. Also, property passing to a surviving spouse is subject to federal estate taxes.

Our New York estate planning lawyers work with families on plans that account for both state and federal tax and asset transfer issues. We understand the complexities that same sex couples continue to face when preparing for the future as a result of the divergence in the law at the state and the federal levels. These inequalities led several area publications to issue joint appeals last week calling for DOMA to be declared unconstitutional. For example, the Syracuse Post-Standard noted that "the law discriminates by denying homosexual spouses significant federal benefits that flow automatically to heterosexual spouses."

In addition, late last month our New York Attorney General Eric Schneiderman filed a friend-of-the-court brief in a federal case related to a surviving spouse who was forced to pay estate tax on the inheritance of her female partner. Mr. Schneiderman noted that "The State of New York has long recognized out-of-state, same sex marriages and the enactment of the Marriage Equality Act further cements our state's position on this critical civil rights issue." The case is working its way through the federal system and is expected to reach the U.S. Supreme Court. However, the law is still on the books making it important for all married same sex couples in our area to seek professional assistance to ensure that their long-term financial and caregiving preparations are tailored to account for issues at both the state and federal level.

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Married Same-Sex Couples Need to Consider Effect of Defense of Marriage Act

Marriage Equality May Change New York Estate Planning Needs for Same Sex Couples

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.

A couple came in to see me today for the husband's 88 year old father who is a nursing home in Florida. They now wish to bring him up to New York to be nearer to the family. He has about $600,000 in assets, including his home.

They told me about the very nice lawyer he has down on the west coast of Florida, who set up a revocable living trust for Dad and for Mom who died last year, in February of 2006, and amended it in March of 2010.

They had a great deal of confidence in the lawyer, especially since he had won an award as one of the top lawyers in the locality.

Regrettably, while the attorney prepared a fine estate plan, he was not an elder law attorney and took no steps to protect the couples' assets back in 2006, when they were well into their eighties.

Had the lawyer been knowledgeable in elder law, which unfortunately so many estate planning attorneys are not, he would have set up a Medicaid Asset Protection Trust (MAPT) and started the five year "look back" period running. It is now February, 2011, five years later. Had the MAPT been set up when it should have, in February 2006, instead of the revocable living trust, all of Dad's assets would now be protected and he would be eligible for Medicaid benefits to pay for the cost of his nursing home care.

Instead, the couple will only save half the assets by using the "gift and loan" strategy developed by elder law attorneys to save half the assets on the nursing home doorstep when the client has failed to set up the MAPT. The technique is also call "half a loaf" planning after the old expression.

Nevertheless, the "nice" lawyer ended up costing the family $300,000.00 and it is not the first time we have seen it happen. Indeed, it is the reason your writer published "Ettinger on Elder Law Estate Planning", available on Amazon.com. We believe that clients need a new york "elder law estate planning" attorney and not just an "estate planning" attorney so mistakes like this no longer happen to good people.

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.

With the economy improving, seasoned collectors are now watching the fine art estimates in New York's upcoming auctions. Collecting art, a passion and hobby for many, is also a way to accumulate and transfer wealth for next generations. The disposition of art, however, should include careful planning with a trusted and experienced New York estate planning attorney.Families often employ the "empty hook" method when it comes to art collections. When a collector dies, heirs quietly take valuable art work out of a home, sometimes claiming what is "theirs" by name tags placed on the objects. This creates an "empty hook."

There are many potential pitfalls when attempting to avoid the Internal Revenue Service's various taxes on the purchase, sale and transfer of fine art. The first and most dastardly is the limitless statute of limitations on estate tax fraud or on a taxable gift for which no return was ever filed (Internal Revenue Code Section 6501(c)). Because art never truly "disappears," one does well to remember that neither does a tax liability. An error of disclosure, e.g. not properly planning to gift art in adherence to IRS rules and regulations, may become a costly legacy to bestow on the next generation. (Tax fraud is not something to pass on.)

Heirs can also be liable for a penalty of 20 percent of the tax due if there is an underreporting of an asset's value by 50 percent, and a penalty of 40 percent of the tax due if the value of the property is underreported by 75 percent (IRC Section 6662). Failure to report assets at all subjects the owner to a fraud penalty set out in IRC Section 6663. These fines can also raise the transfer cost on an unreported piece of artwork to over 80 percent.
A valuable collection may best belong inside of a trust for proper administration after death.

A New York estate planning attorney is able to advise on when this is appropriate and why.

Tax code citations in this blog post were taken from Trusts & Estates Magazine, June 2005

by Michael Ettinger, Esq.

The year 2001 was a space odyssey in more ways than one. It was also the last time we faced Federal estate tax rates as high as 55%, and exempt amounts as low as one million dollars. Nevertheless, this appears to be what we are going to see take effect on 1/1/11, due to the expiration of Bush era tax cuts enacted in 2001. No one would have predicted what has come to pass.

Taking effect on January 1, 2002, The Economic Growth and Tax Recovery Act was to be amended at some point during the next nine years. It was widely expected that something close to the high water exemption of 3.5 million dollars, existing at the end of 2009, would be made permanent. Health care reform, however, dominated the legislative agenda at the end of 2009, pushing estate tax reform to the sidelines. Political bickering then prevented an extension of the 2009 exemption, at least until a solution was found.

Then came 2010, the year of no Federal estate tax. This saved, amongst others, the late George Steinbrenner's family an estimated 500 million dollars in estate tax and probably allowed the Steinbrenners to keep ownership of the New York Yankees in the family as well.

The predictions of the majority of pundits, of a fix occurring in 2010 with retroactive application to January 1 of this year, have not panned out. Instead, over the past summer, one poll of attorneys, accountants and trust officers found that 68% believe that nothing will happen in 2010 to remedy the estate tax problem with one wag adding "nothing is what they do best".

Some commentators feel that each party now has a stake in the reversion to the one million dollar exemption. For the Democrats, they say, it is a "revenue raiser" without a tax increase. For the Republicans, they say, it is both a campaign issue and a significant fund raising issue.

The latest news from thehill.com is that Senate Majority Leader Harry Reid (D-Nev.) will bring the issue up this month with a possible package hitting the floor in late September. Nevertheless, one sticking point unlikely to be resolved are the opposing forces of those in favor of extending Bush era tax cuts for income earners over $250,000, on the basis that this group tends to prop up solely needed consumer spending, versus Obama's campaign pledge to raise tax rates for families earning over $250,000.

With the added tumult of the run up to the mid-term elections, it is difficult to see how issues as polarizing as income and estate taxes, unresolved for nine years, will suddenly be settled.

With a 55% Federal estate tax looming, now is the time to be talking to your estate planning lawyer. If you are married, you may double the one million dollar exemption by splitting your estate with your spouse into two estates, preferably using trusts to avoid having to probate the estate twice. Keep in mind that your estate consists of all of your assets, including any life insurance that you own. On a two million dollar estate, your tax savings for planning ahead would amount to $550,000. This type of estate planning must occur before the first spouse dies to maximize the amount that may be sheltered.

Historically, charitable giving rises about one-third as fast as the stock market. While the stock market gains of 2010 remain slight (Dow is up 1.13% at the time of this writing), New York residents may still want to consider using the charitable remainder trust (CRT) in their estate planning.

This trust works well for those who:
• hold highly appreciated assets
• desire an income stream off of the assets
• want to donate to charity; and
• achieve tax benefits.

Because the CRT is irrevocable, this planning should be done with an experienced estate planning attorney.

How the CRT Works, in brief
Your assets and/or property are transferred to a CRT whereby your charity administers the trust. The charity serves as trustee, managing or investing your assets.
The charity pays you and/or your beneficiary a portion of the income generated by the trust for a certain number of years, or for the remainder of your life. At your death or the end of the set period, your charity receives the trust's remaining principal.

CRT Tax Benefits
By establishing a CRT, you avoid capital gains tax on the donated assets, because the charity is exempt from taxes. An income tax deduction may also be declared on the fair market value of the remainder interest in the trust. Additional savings are effected by removing these assets from your estate, reducing subsequent estate taxes.

Two Types of CRTs:
With the charitable remainder unitrust, the percentage rate on the value of the assets determines your and/or beneficiaries' annual payment. If the trust value changes, the payment to you and/or your beneficiaries changes.
A charitable remainder annuity trust is set up to pay a fixed rate of return based on the initial valuation at the time the property is placed in the trust. The trust's assets are never re-valued, so if the assets of the trust increase, the income portion does not change.

Conclusion
The remaining principal of the trust reverts to the charity of choice upon death and/or the end of the set term. (The trust life may be based on the life expectancy of the income beneficiary). Because some grantors may object to the loss of principal, they may purchase life insurance to replace the principal assets. An estate planning attorney then uses an Irrevocable Life Insurance Trust in conjunction with the CRT to assure the trust's value is also distributed to the income beneficiaries.

Online resources to charitable giving:
• The National Center for Family Philanthropy

This website promotes philanthropic values, vision and excellence across generations of donors.

• The American Institute of Philanthropy

This website rates and grades public charities to help donors make informed decisions.

• The Foundation Center

This website provides news on charitable activities and links to private and public foundation websites.

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.