New York Estate Planning Lawyer Blog

by Michael Ettinger, Esq.

Recently, a couple came in to see me. They were people of means, having accumulated an estate in excess of two million dollars. Sadly, the husband, a fine gentleman, had contracted an incurable form of cancer. They knew it was time for a review of their estate planning documents.

The couple had two sons, both in their fifties. One was an established professional, the other a successful entrepreneur.

The client produced their current will, written nine years earlier. Since their estate was over one million dollars, the will contained a "credit-shelter" or "bypass" trust. This means that, upon the death of the first spouse, the deceased spouse's assets would be held in a trust for the surviving spouse. This technique allows the surviving spouse to have the use and enjoyment of those assets without having them includable in her estate. On her death, husband's assets pass to the children, thus taking advantage of his one million dollar exemption.

I read the trust. The I read it again. I could not believe what I was reading. The will set up the credit shelter trust for the wife, with the Bank as trustee. This technique is sometimes used by attorneys to ingratiate themselves with the Bank. It is often not in the best interests of the client, since one or both of the sons could have been chosen as trustee thus saving the Bank's fees of approximately 1% of the trust annually, plus other fees as will be shown below.

But that was not the unusual part. The will also set up trusts for the sons, with the Bank as trustees FOR THEIR LIFETIMES, giving the Bank the following authority:

"The Trustee is granted the further absolute discretion to determine when, how, and whether to make any distribution of principal, the amount to be distributed, the specific purpose for making any distribution, and whether any distribution is advisable."

The Bank was also given authority to collect its fees as trustee "without offset or reduction for any other fees or other compensation paid to it or any other "affiliated entity" including fees or other compensation paid by any mutual fund or other investment vehicle agent. "Such compensation may be made without court approval." This means that the Bank, in control of the assets, would also collect fees as the investment advisor, effectively a "double-dip" and specifically excludes court scrutiny of the arrangement. There was no provision to change the trustee.

So, what happened under the trusts for the sons when they died. The assets were then put into trusts for the grandchildren with the Bank as trustee all over again! The Bank was also given control of the assets over the grandchildren's lifetimes with the following "suggestion":

"The Trustee may consider distributing: one fifth (1/5) of the trust estate upon the grandchild's attaining the age of thirty (30) years; three-eighths (3/8) of the trust estate upon attaining the age of thirty-five (35) years; and the balance of the trust estate upon the grandchild's attaining the age of forty (40) years. Nothing set forth herein shall be construed as providing a grandchild with the authority to require any distribution to be made from the trust at such ages" (emphasis added).

The client was appalled. They had no idea whatsoever these draconian provisions were in their documents. In our experience, most people do not know or understand what is in their estate planning documents.

Given the circumstances of the husband's health, within the week we had replaced all of the documents with trusts controlled by the family alone, much to their relief. There was a great deal of satisfaction on their part knowing that had the husband died without having the plan reviewed, they would have been stuck with the Bank, irrevocably, forever. All's well that ends well.

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.

Previously we wrote about the lawyer as co-trustee in the second marriage setting. The main concern there was to protect the share and the interests of the deceased spouse and their family. This was a situation ideally suited for the lawyer as trustee due to inadequate protection if one of the surviving spouse's children acts as co-trustee, and the inevitable conflict that arises if one of the deceased spouse's children acts as co-trustee.

For singles and couples without children, the lawyer as co-trustee fulfills an entirely different function. In the couples setting, we are really referring to the issues that arise after the first spouse dies. From an estate planning point of view, couples without children ultimately have the same issues as singles.

So whether you are single now or eventually become one your key issue is not planning for death, not who you are leaving it to and certainly not having a will. Your key issue is planning for disability. Should you be unable, at some point, to handle your financial and legal affairs due to accident or illness, who will take over? If you don't have a strong plan for disability, which they say eventually happens to about half of all people, you are at considerable risk of having the wrong person or a stranger take over your affairs. In the event of disability, virtually anyone (hospital, doctor, lawyer, social worker, neighbor, relative, friend, etc.) may commence a proceeding to have a legal guardian appointed for you. Once you enter into this bureaucratic process, usually involuntarily, it is exceedingly difficult to extricate yourself and you lose precious control over your affairs. We often say you are only as strong as your back-up plan. If you have set up a living trust, you are in charge now, but the trust says who takes over in the event of disability. You get the person or persons you have chosen, not a court appointed legal guardian, along with the many thousands of dollars in costs that such proceedings entail.

So, who should you choose? Our advice is to choose two people. One a friend or relative who is willing to undertake the responsibility and then the lawyer as co-trustee. The lawyer will see to it that the trust is run properly and that all of your affairs are handled according to law. It takes a considerable amount of the anxiety, pressure and responsibility off of your friend or relative who has so kindly agreed to undertake this task. Further, you have two people signing off on all decisions, and everyone knows what two heads are better than. Not only is the possibility of a mistake being made greatly reduced, but it also eliminates the risk of misappropriation of assets. In some cases, where clients do not have a friend or relative available for this purpose or where they do not want to burden anyone with the responsibility, the lawyer may act as sole trustee.

New York trustee's fees, which only take effect when the trustee is called upon to act, are 1.05% of the first $400,000, .45% of the next $200,000 and .3% of any amounts over $600,000. So, for example, on a one million dollar trust, the trustee's commission would be $6,300.00 per year.

Perhaps the greatest insight your writer has gained in over thirty years of practicing law, is that planning for disability is more important than planning for death. The lawyer as co-trustee may be an invaluable asset to the childless person in the event of disability.

By Michael Ettinger, Esq.

One of the situations that call for the lawyer to recommend himself as trustee is in second marriage planning.

It is a firmly established legal principal that there is no ethical prohibition against the attorney recommending himself to act as a trustee on behalf of a client or client's estate. And for good reason. In many situations the counselor can provide invaluable assistance that no one else is able or willing to provide.

In second marriage planning, we often recommend that the lawyer act as co-trustee on the death of the first spouse. While both are living and competent they naturally run their trust or trusts together. But when one spouse dies, what prevents the other spouse from taking all of the assets and diverting them to their own children? Nothing at all, if they alone are in charge. While most people are honorable, and many are certain their spouse would never do such a thing, strange things often happen later in life. A spouse may become forgetful, delusional or senile or may be influenced, sometimes unduly, by other parties. Not only that, but what are the children of the deceased spouse going to feel when they find out their stepmother is in charge of all of the couple's assets? They are going to imagine the worst case scenario and feel very insecure and possibly even hostile to the surviving spouse. As my esteemed professor of The Law of Trusts said to us over thirty years ago "you would be surprised by how fast the family glue becomes undone."

Now, if you choose one of the deceased spouse's children to act as co-trustee with the surviving spouse what have you done? Created a potential minefield. The biggest issue is the conflict that exists whereby the stepson may be reluctant to spend assets for the surviving spouse, because whatever is spent on her will come out of his ultimate share. Then what if she gets remarried? How will he react to that event? What if it turns out he liked her when his dad was with her, but not so much or not at all afterwards? These things happen, and often.

Here's where the lawyer as trustee may provide an ideal solution. When husband dies, the lawyer steps in as co-trustee with the wife. He helps her invest for her benefit as well as making sure the principal grows to offset inflation, for the benefit of the heirs.

Wife in this case takes care of all her business privately with her lawyer. The trusts cannot be raided. These protections may also be extended for IRA and 401(k) money passing to the spouse through the use of the "IRA Contract" pioneered by Ettinger Law Firm. Surviving spouse agrees ahead of time that she will make an irrevocable designation of both of the couple's children as beneficiaries when the IRA is left to her and further agrees that any withdrawals in excess of the required minimum distribution (RMD) may only be made on the consent of the lawyer.

What about the deceased spouse's children? When the trust terms are read they now feel very secure that the lawyer their father chose will continue on for the stepmother's lifetime, looking after and protecting their share of the assets. They are relieved by the protection that has been set up for them, have no animosity or concern about the stepmother's sole control of the assets and the relationship between the families continues smoothly and may even continue to grow and flourish. All because the lawyer took the time to explain the advantages to the client and was willing to shoulder the responsibility that acting as trustee entails.

A word about trustee's fees. Trustee fees in New York are 1.05% of the first $400,000, .45% of the next $200,000 and .3% of any amounts over $600,000. So, for example, on a one million dollar trust, the trustee's commission would be $6,300.00 per year. These fees take effect only on the death of the first spouse, when the lawyer as trustee is called upon to act.

As you can see, having the lawyer step in for the deceased spouse can help both of the spouse's families avoid a world of trouble after the first spouse dies.

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, Attorney at Law

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Historically, estate planning consisted of setting up a will and leaving everything to one's children in equal shares, "per stirpes". The "per stirpes" is latin for "by the roots", meaning that if any of the children predecease their parents then their share goes to their children, if any.

Today, however, adolescence lasts much longer than it used to. Some say that "30 is the new 20" and, anecdotally, we see much evidence of this. Another recent phenomenon is children coming back home to live with their parents, for many reasons, but often having to do with their inability to deal with the vicissitudes of life.

In light of the foregoing, and the fact that trusts, which have become as common as wills today, may continue for many years after the death of the parent, new planning options are available to clients.

For example, one popular plan of distribution is 20% at age thirty, one-half of the remaining balance at thirty-five and the remainder at forty. The theory here is that the child can get the 20% and spend it all, but they have to wait five years before they get one-half of what's left and then, finally, ten years later, when they have hopefully made their mistakes and matured somewhat, they still have about one-half of the inheritance left. A twist on this plan is 20% on the death of the parent, one-half of the remaining balance five years after the parent's death and the remainder ten years after the parent's death. This latter formula is often accompanied by a "cap". For example, upon attaining the age of fifty, any undistributed amounts shall then be distributed outright to the adult child beneficiary.

Hopefully, this gives the reader some flavor of the versatility of using living trusts as an estate planning tool to continue the planning out for many years after the parents' death - perhaps enough time to give late blooming children time to fully develop.

by Michael Ettinger, Esq.

With people living much longer than in the past, the frequency of remarriage is increasing, even in later years. This latter phenomenon is raising a host of elder law estate planning issues. On the other hand, we are also seeing with increasing frequency the blended family with "his, hers and theirs" children, creating another set of potential pitfalls.

Most of these estate planning issues can be resolved with thoughtfulness on the part of the clients and the compassionate guidance of their estate planning attorney.

Here are some of the key issues and potential solutions for planning for second marriages.

1. The duration of the second (or third) marriage and also the relative financial positions of the parties. Recently a client came to see us whose husband has early Alzheimer's. His IRA named his children as beneficiaries many years ago. The couple have now been married for thirty-five years and the wife would be left destitute without her husband's IRA. Hopefully, husband has the capacity to understand the situation and make a change. One option: husband may leave his IRA to his wife on the condition that she name his children as the beneficiary on her death.

2. In our experience, a great deal of thought should be given to what the children of the first marriage will receive should their parent be the first of the couple to die. By looking at the matter from the heirs' point of view, we can often provide an outright bequest of a portion of the estate, or name them as beneficiaries on an insurance policy, so that they feel loved and cared for by their parent and not relegated to an inferior position. This is especially important if the parent has married a much younger spouse. Needless to say, this will also greatly affect their future relationship with the surviving step-parent. Thoughtlessness is this area alone has led to a lifetime of hurt and anguish for many a child of a remarried parent. Wills, at the very least, should provide recognition to the children of the prior marriage.

3. The use of living trusts is often an essential tool where the surviving spouse needs the majority of the combined assets to survive on. Here, the issue becomes how to guarantee that the predeceased spouse's children will receive their fair share on the surviving spouse's death. Typically, we set up one trust if the estate is not subject to estate taxes, or two trusts if needed to reduce or eliminate estate taxes, and make both spouses co-trustees of the trusts. The trusts provide for equal distribution among his and her families after the second death. What prevents the surviving spouse from raiding the trust and giving everything to his or her own children? Generally, we recommend a professional co-trustee to serve with the surviving spouse, so as to prevent this occurrence.

4. The estate planner must consider any prenuptial agreement as well as any obligations to children arising out of a divorce decree. These may need to be changed after a number of years to reflect the current situation which may have been greatly altered. For example, after many years one spouse will often wish to provide life rights in the marital home to the other, should he or she be the survivor, something expressly forbidden in the prenuptial agreement drawn up many years earlier.

5. Long-term care obligations have proven to be intimidating to many couples later in life. Even a prenuptial agreement providing that the spouses' assets are separate and that they have no financial obligations to each other is not binding vis-a-vis Medicaid. Medicaid considers the combined assets of the married couple as being available for the care of the ill spouse, regardless of whose name they are in. Hence, the need, amount and availability of long-term care insurance is often a factor to be considered in second marriages. Medicaid planning as well as setting up a Medicaid Asset Protection Trust for one or both spouses must also be considered in this context.

6. For wealthier couples, one spouse may wish to take care of his or her less well off spouse for their lifetime but then have the unused funds revert to their biological family. Here a QTIP (Qualified Terminable Interest in Property) trust may be set up for the surviving spouse, which will (a) provide a lifetime income, (b) delay, reduce or often eliminate estate taxes, and (c) protect the inheritance for the children of the predeceased spouse.

As you can see, with a little thoughtfulness on your part and the help of an experienced elder law estate planning attorney, often gleaned from hundreds of cases, second marriage couples have the ability to "do the right thing" for all concerned and avoid acrimony or even litigation in estate administration and probate.