New York Estate Planning Lawyer Blog

October 18, 2010

Estate Planning for Art Collections

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.

September 22, 2010

55% Federal Estate Tax Rate Returns on 1/1/11

by Ettinger Law Firm

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.

September 14, 2010

Charitable Remainder Trust (CRT) as an Estate Planning Tool

by Ettinger Law Firm

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.

September 8, 2010

What is Elder Law Estate Planning?

by Ettinger Law Firm

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.

August 13, 2010

The Irrevocable Life Insurance Trust (ILIT)

by Ettinger Law Firm

by Michael Ettinger, Esq.

Many clients are surprised to learn that the death proceeds of their life insurance are subject to federal estate taxation. They believe that life insurance escapes estate taxes and passes to their loved ones intact.

This confusion probably began when the client was told that life insurance is income tax-free. For married clients, the confusion is compounded by the belief that the unlimited marital deduction somehow magically insulates the client’s death proceeds from ever being taxed. Often the marital deduction merely postpones the heavy tax burden on such death proceeds until the second spouse dies.

August 9, 2010

The Worst Estate Plan I Ever Saw

by Ettinger Law Firm

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.

June 28, 2010

“You Give Lawyers a Good Name”

by Ettinger Law Firm

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.

June 14, 2010

Singles and Couples Without Children – The Lawyer as co-Trustee

by Ettinger Law Firm

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.

June 7, 2010

Second Marriage Planning – The Lawyer as Co-Trustee

by Ettinger Law Firm

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.

May 13, 2010

Pitfalls of Will Planning

by Ettinger Law Firm

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.