New York Estate Planning Lawyer Blog

February 23, 2012

Avoiding Lump Sum Inheritances for Young Adults

Parents often worry about their children–even their adult children. In many cases, no one knows about a child’s strengths and weaknesses better than their parents. Local residents often take this into account when crafting New York estate plans. For those whose children may not be ready to handle a large inheritance, many parents reasonably want to know what options they have to both pass on assets to children but protect them from getting the funds before they can handle them.

In fact, this issue has been getting a bit of media coverage over the past two weeks upon the death of pop star Whitney Houston. As reported in Forbes this week, speculation abounds regarding the star’s estate planning. Most suspect that the singer is likely to have left her entire fortune, reportedly worth $20 million or more, to her only daughter–18-year old Bobbi Kristina. The young girl is undoubtedly fragile at this stage in her life, especially after just losing her mother. In addition, many family members have voiced concerns that the young woman has also battled substance abuse problems over the past few years. This is leading many to question the daughter’s ability to handle a lump sum payout from her mother’s estate.

Early reports suggest that Ms. Houston had done some estate planning–but not much. She apparently had a will which left everything to her daughter. Because her daughter is a legal adult, under a will she will receive the money immediately. As most community members appreciate, few 18-year olds are truly ready to handle millions of dollars. However, without any other advance planning, the only option for the family is likely to go to court and try to get the teenager declared legally incompetent to manage her finances. They could then seek a conservatorship which would allow a third party to control the inheritance until such time that the court finds the daughter able to handle the responsibilities of the inheritance.

February 21, 2012

Fixed Annuities and the Benefit of Longevity Insurance

by Ettinger Law Firm

It is a common question asked by area seniors conducting New York estate planning: How do I know if I have enough money to last the rest of my life? There are no easy answers. A lot depends on the source of income that one has when conducting their planning and exactly how those funds are being used. However, some financial planning tools exist which can provide peace of mind for those who want it, particularly in volatile market conditions. As explained this weekend by Investment News, one of the options is a deferred-income fixed annuity, often known as the main type of “longevity insurance.”

Fixed annuities are essentially investment contracts with an insurance company. This means that the insurance company agrees to pay out a set income based on the value of the investment. These annuities can be either deferred or immediate. For estate planning purposes, deferred annuities often allow those thinking ahead to make investments before hand for guaranteed payouts down the road. Many different types of fixed annuities exist. Some are for a set rate of income while others take into account market conditions to some extent–blunting the effect of marketing downturns while allowing the recipient to share in some of the market booms. In this way, our New York retirement planning lawyers realize that lifetime annuities are often beneficial for those thinking about their long-term finances.

While they may be important investment tools for some, annuities are not for everyone. When compared to other investments, this type of insurance can offer lower rates of return. Many advisors suggest that the insurance is best when higher interest rates are present. This means that investors can put less money up front to get the same guaranteed income stream down the road. Often annuities are used in combination with other investment tools. Yet, many annuity plans have steep penalties for early withdrawal, which is unattractive to some.

February 17, 2012

Tax Changes in the President’s 2013 Budget Proposal

by Ettinger Law Firm

Earlier this week President Obama unveiled his proposed 2013 federal budget. The mammoth document details how much money he proposes the government take in from taxes, possible changes to the tax code, and information on how that money should be spent. Considering the proposal includes various changes to what is taxed and at what rate, estate planning attorneys always pay attention to the details of the proposal. The budget applies to the federal fiscal year 2013, which actually begins on October 1, 2013.

However, each New York estate planning lawyer at our firm appreciates that this bill is simply a blueprint–a starting off point to begin discussions about the budget, not a detailed map of what will likely occur. That is especially true this year, because election years are always known for their lack of compromise and avoiding of controversial tasks. It is important to read this proposal from that perspective. That doesn’t mean that the budget proposal has no value when it comes to estate planning. The ideas set forth in the proposal are indicative of at least some ideas that will likely be brought forward for consideration that may become law. For one thing, contrary to the claims made by many reformers on both sides of the political aisle, the budget does little to simplify the tax code. Instead it suggests a range of increased layers of tax complexity.

The budget would change basic income tax rates, particularly for those in higher income brackets. For example, the budget calls for an increased minimum income tax rate of 30% for those making over a million dollars. In addition, the proposal assumes that the current income tax breaks for those making over $250,000, which were first passed by President Bush, will be allowed to sunset. Without Congressional action, these income tax rates will return to higher levels at the end of this year. In addition, the estate tax would rise in the current proposal to 45% from 35%, with the exemption rate dropping to roughly $1 million from $5 million.

February 14, 2012

U.S. Senate Proposal to Alter Inherited IRA Rules

by Ettinger Law Firm

Policy changes at the state and federal levels often have implications on New York estate planning. For example, we have frequently discussed the uncertainty that exists over the estate tax. Exemption levels and tax rates may very well hinge on exactly who wins various federal elections in November. While it may dominate headlines, the estate tax is not the only policy with implications for local residents’ estate planning. For example, yesterday Bloomberg Businessweek discussed the latest news regarding proposed legislation that would impact inherited IRAs.

Inherited Individual Retirement Accounts (Inherited IRAs) are accounts left to a beneficiary after the owner’s death. As the name implies, these are accounts that an individual has contributed to over a lifetime in order to provide financial resources upon retirement. More often than not a spouse is named as the beneficiary. The IRA offers a variety of tax benefits depending on how the account is “cashed out.” As it currently stands, a beneficiary can stretch the ultimate income tax payment over a lifetime. Because of this benefit, our New York estate planning attorneys know that IRAs often act as an important way for individuals to pass on assets to loved ones while saving on taxes.

However, some federal lawmakers are seeking to limit the tax benefits of Inherited IRAs for beneficiaries. Various proposals are being offered, but in general they all seek to prevent beneficiaries from stretching out the income tax payment over a lifetime. Instead, some legislators have proposed changing the law so that those who inherit the IRA have to distribute (cash out) the sum over five years. The practical effect of the change is that beneficiaries would be required to pay more taxes on the income from that inherited account. All versions of the change thus far would exempt spouses from this requirement.

February 9, 2012

Bizarre Estate Planning Strategy: Adopting A Girlfriend

by Ettinger Law Firm

A media wildfire spread this week after word got out about a particularly exotic estate planning strategy crafted on behalf of a Florida man. According to a report yesterday in The Huffington Post, the new estate planning strategy involved the man adopting his 42-year old girlfriend. Apparently this was done in an effort to strengthen their relationship legally without marriage while ensuring she has access to resources down the road.

The situation might make a bit more sense in context. The client in this case, John Goodman, is a wealthy man, having created a trust years earlier that is now worth hundreds of millions of dollars. The trust was created for the benefit of Mr. Goodman’s descendants–his children. Two years ago Mr. Goodman was involved in a particularly deadly auto accident. According to criminal charges filed against him, he was apparently driving drunk, ran a stop sign, and hit another car–killing the other driver. A civil lawsuit has been filed by the surviving family members of the car accident victim. However, because the trust was set up years before the accident, the plaintiffs in the civil case will not be able to access those trust funds regardless of the outcome of the legal matter.

Having already had one marriage end in divorce, Mr. Goodman did not want to walk down the aisle a second time. However, he was in a very serious relationship with a 42-year old woman named Heather Laruso Hutchins. He wanted to strengthen that relationship without resorting to marriage. That’s when he was advised to adopt her. By adopting Ms. Hutchins, she now becomes a legal descendant of Mr. Goodman’s and is therefore entitled to distributions from the trust that was created earlier for the benefit of his heirs. In addition, Mr. Goodman himself may now be able to access the trust funds indirectly via his girlfriend/adopted daughter.

February 7, 2012

Will Estate Tax Limbo End This Year?

by Ettinger Law Firm

Last week we discussed the uncertain future of the estate tax. It was noted that the issue would likely hinge on the outcome of the 2012 elections. As with all legislation, action usually requires support from sufficient members of Congress and the President. Therefore, the rates and exemption levels for the estate tax would likely depend on the partisan affiliation of most members of Congress and the White House. Each New York estate planning attorney at our firm appreciates that the uncertainty over the issue presents complications for those families who are hoping to create strategies to minimize their estate tax burden. The idea of waiting for the outcome of an election is cold comfort for prudent planners who are working to provide for contingencies and bring stability to the process as soon as possible.

Some policy insiders are now suggesting that estate planning lawyers will not need to wait long after the election to see what happens next with the estate tax. According to a report in Advisor One, the consensus opinion among those most familiar with Washington thinking on the issue believe that Congress will decide what to do with the issue this year–in the lame-duck session in December.

We’ve previously explained how, without any action, the current tax rate (created as part of the so-called “Bush tax cuts”) would expire at the end of 2012. That means that by January 1, 2013 the rate would be 55% (up from 35%) and at a $1 million exemption level (down from $5 million).

February 3, 2012

Like Groundhog Day: Mistakes Retirees Make Over and Over

by Ettinger Law Firm

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.

February 1, 2012

Four Possible Estate Tax Scenarios

by Ettinger Law Firm

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.

January 30, 2012

Famous Feuds and New York Estate Planning Lessons for Every Family

by Ettinger Law Firm

A Reuters story late last week suggested that while estate planning feuds of the famous usually involve millions, the principle issues are the same as those faced by all local residents. Every case must be evaluated individually, but the same main issues are found again and again. That is why our New York estate planning lawyers urge residents to visit with experienced professionals when making preparations because they have likely seen similar issues in the past and can help anticipate problems that might come up down the road. As this latest story explained “anyone thinking about wealth transfer faces the same issues: dysfunctional families, potentially unequal positions in the family business, perhaps multiple marriages with kids from each.” This applies whether one has $50,000 or $50 million.

For example, second marriages often create planning problems. When crafting an estate plan, one must balance the needs of the second spouse with the children of the first marriage. If one doesn’t do it, as the author notes, “you’re basically buying a litigation case.” For example, the longest estate litigation case of the last century was that of Anna Nicole Smith. She was a second wife of a billionaire investor. The children from the man’s first marriage engaged in a prolonged battle to ensure that Ms. Smith did not receive any substantial portion of the man’s wealth. The case was still not resolved with Ms. Smith herself passed away.

Family businesses also present common issues for those in all income brackets. Much family wealth is wrapped up in a business. Often some of the children participate in the business while others do not. This often creates significant estate planning issues regarding who gets what share of the business. One of the most well-known examples of this is that of the Koch family in New York. The patriarch had created a fortune after developing a new cracking method in oil refinement. However, upon his death the man’s four sons engaged in a prolonged legal dispute over control of the business. As the article notes, “there are a lot of ticking time bombs in family businesses that creates litigation.”

January 26, 2012

Huguette Clark’s Only Friend Has Her Own New York Estate Plan Settled

by Ettinger Law Firm

One of the most well-known New York estate planning stories (and mysteries) of recent years is that of Huguette Clark. The extremely reclusive heiress recently passed away, leaving hundreds of millions of dollars with many wondering where exactly the money will end up. Of course, in most cases an inheritance will go to surviving close family members, dear friends, or well-known charitable causes. However, Ms. Clark had very few surviving family members, and it is now being reported that she only one “real” friend, a French woman named Suzanne Pierre.

Ms. Pierre had become somewhat of a liaison between Ms. Clark and the rest of the world. It was alleged that Ms. Pierre was one of the few people who was privy to the heiress’s estate planning documents. In fact, according to the New York Observer, Pierre once helped anonymously sell some of Ms. Clark’s impressive art collection. She was also the recipient of a $10 million gift of a rare painting from the estranged heiress. Before Ms. Clark’s passing some predicted that Ms. Pierre would actually be named heir to much of Ms. Clark’s fortune. However, that possibility vanished when Ms. Pierre herself passed away a few months before Ms. Clark moved on.

One of Ms. Pierre’s own most valuable assets, her Park Avenue apartment, was recently sold during the disposition of her estate. City records indicate that the unit sold for just under $2 million. The sale comes as many in the real estate world speculate on the prospects of Ms. Clark’s own, massive Park Avenue apartment. The 42-room unit is expected to fetch somewhere around $70 million. Many are calling the unit the most sought-after apartment in the entire city and “the listing of the young century.”