If you have included a special needs trust as part of your estate plan, you need to know the importance of making sure the distributions from that trust are permissible per the terms of the trust and do not defeat the purpose of the trust by affecting eligibility for needed government programs.


Effect of Distribution

A special needs trust is one way to supplement the needs of a disabled loved one without compromising eligibility for means-tested government benefits, including Supplemental Security Income and Medicaid coverage. With respect to means-tested programs, federal law will require a reduction in benefits to the extent the beneficiary receives income or assets are otherwise made available to the beneficiary. For example:


  • cash distributions from a special needs trust to the beneficiary will generally reduce benefits dollar for dollar;
  • distributions made to third parties for food and shelter for the beneficiary will reduce benefits (“food and shelter” include food, mortgage payments, property taxes, rent, heating, gas, electricity, water, sewer, and garbage removal); and
  • distributions of property made to third parties for the beneficiary that are not easily converted to cash, food, or shelter will likely not serve to reduce benefits, but property that can be easily converted to cash will be considered as cash equal to the fair market value of the property.


Distributions That Will Not Affect Benefits

De Minimis Gifts. With respect to Supplemental Security Income, the above rules do not apply to the first $20 per month received by the beneficiary, regardless of purpose or form

Certain Personal Items and Transportation. Payments for the purchase of items such as clothing and furnishings will not serve to reduce benefits so long as such items are not included as food or shelter. Transportation provided to the beneficiary is also excluded as an available resource and will generally not affect benefits.

Burial and Funeral Arrangements. A special needs trust may purchase burial space and pre-pay funeral costs for the beneficiary without penalizing the beneficiary or being included as an available resource.

Loans to the Beneficiary. A special needs trust may extend a bona fide loan to the beneficiary. It is important that any loan include feasible payment terms and be sufficiently documented.

Educational and Vocational Services. Payments for education and vocational services will likely not affect benefits as long as such disbursements are not for food and shelter, e.g., room and board.

Medical Expenses. Any distribution made for medical or dental care will not be characterized as income or otherwise reduce benefits.


Planning Your Distributions

Establishing a special needs trust is a way to help a disabled loved one receive supplemental benefits needed for their care and comfort. When making distributions from a special needs trust to the beneficiary or for their benefit, you need to consider the effect on existing government benefits and eligibility.

The State of New York’s estate tax does not mirror the federal estate tax regime in many ways. A lack of careful planning may result in a New York estate tax liability even where the estate is not taxed at the federal level.

New York’s Estate Tax

New York’s estate tax, like its federal counterpart, is a tax levied on the value of the decedent’s estate upon death, and before distribution. New York’s estate tax parallels the federal estate tax with some exceptions.

What is Taxable?

Persons owning real and tangible personal property located in New York are subject to New York’s estate tax. At a high level, the equation is straightforward, taking the gross estate, less deductions, then applicable credits and exemptions.

Your Gross Estate

Generally, your gross estate under New York law will mirror that under federal law, which includes all property, probate and nonprobate, owned at the time of death. If you are a resident of New York, your gross estate does not include real and tangible property outside the State of New York. If you are not a resident of New York, your gross estate includes real and tangible property located in New York. For nonresidents of New York, intangible property is only included in the gross estate if it is used in connection with a business in the state. Your gross estate is valued at the time of death, unless your personal representative elects the alternate valuation date, which is six months later.


Your taxable estate is determined by reducing the gross estate by allowable deductions. Common deductions include funeral and estate expenses, charitable donations, the marital deduction, Q-Tip trusts, and certain family-owned business interests. The estate tax is calculated based on the taxable estate. New York estate tax rates range from 3% to 16% based on the value of the estate.


At the federal level, no estate tax is due for estates below the exclusion amount, $5,430,000 in 2015. New York’s exclusions do not currently parallel the federal estate tax exclusion amounts. For 2015, the basic exclusion amount in New York is $3,125,000. If the taxable estate is less than the exclusion amount, no estate tax is due. It is important to note that unlike the federal estate tax, there is no portability of unused exclusion amounts. Generally, if your estate is valued at more than 105% of the basic exclusion amount, no exclusion applies.

Estate Tax Planning
With the help of a New York estate and trust attorney, you can effectively plan for the impact of New York’s estate tax. Common techniques aimed at reducing or eliminating an estate tax burden include a gifting strategy to reduce the taxable estate, implementing life insurance trusts, utilizing charitable deductions, and structuring trusts to capture the allowable exclusions.

Are you being told to avoid probate at all costs? The probate process is characterized as a long and tedious process of endless red tape and expense. In many cases avoiding probate can be a worthwhile goal; however, a closer look at the probate process may reduce the angst that is often associated with a sometimes inevitable end to the best laid plans.

Some Basic Vocabulary

If you have been exposed to the probate process in some capacity in the past in connection with a deceased relative or friend you may have had heard some terms not often used in everyday life. Here are a few basic terms you should know:

  • “decedent” means the person who died and whose estate is the now the subject of the probate proceeding;
  • “domicile” means the primary place of residence that establishes the venue for the probate proceeding;
  • “estate” means all the property or interest in property owned by the decedent at the time of death;
  • “personal representative” means the person with authority to administer the decedent’s estate; and
  • “issue” means a descendant from a common ancestor, such as children of the decedent, including adopted children.

What Does Probate Accomplish?

At a most basic level, the probate process in New York, like in other states, is a way for the decedent’s assets and debts to be settled and distributed in an orderly process in accordance with the decedent’s last will and testament, or the laws of descent and distribution if the decedent died without a will, also known as intestate. Probate is a court supervised process administered by a fiduciary of the estate, such as the decedent’s personal representative.

Steps in the Probate Process

Based the decedent’s domicile, a probate case will be opened and, assuming there is a will, the decedent’s personal representative will receive “letters” or authority to administer the probate estate. At this point it is important to understand the scope of the decedent’s estate. The probate proceedings are concerned with the estate of probate assets. This means assets disposed of by a trust or outside of the probate process, e.g. transfer on death accounts and deeds, are not within the jurisdiction of the probate court. Herein lies the widespread motivation to utilize non-probate transfers to reduce or eliminate the probate estate, and with that, the time, expense, and exposure related to probate administration. After an inventory of the probate estate is complete, the personal representative will settle the outstanding debts and claims of the estate. The assets of the estate are used to settle all proper claims submitted by creditors of the decedent. The final stage will be the final accounting and distribution of assets, which will close the estate. The foregoing represents the most basic sequence of a probate proceeding. There are many issues that can occur during the course of a probate case, including disputes brought by beneficiaries or creditors, that can add complexity to the proceedings.

Planning for Probate

There are estate planning steps you can take to avoid probate, including getting help from an estate planning attorney who can explain the nuances of the probate process in New York. If the estate is small enough, there are also summary proceedings available to lessen the burden and expense of the probate process. Having the knowledge of the process and what is included in the probate estate is a first step in dealing with the potential of probate for your or a loved one’s estate.

Trusts can be used as a useful tool in your estate plan to accomplish a variety of goals. One example is establishing a split-interest charitable trust. These charitable trusts are an irrevocable trust established for a charitable purpose of your choosing, while at the same time featuring a benefit to a non-charitable trust beneficiary. In addition to tax benefits received under federal law, charitable trusts offer the person establishing the trust, also known as the “settlor,” a controlled process to effectuate their gift to a selected charity. Examples of charitable trusts include a charitable remainder annuity trust (CRAT), charitable remainder unitrust (CRUT), and a charitable lead trust (CLT).


Establishing a charitable remainder annuity trust includes the transfer of property to a trust that first distributes a fixed annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt charity selected by the settlor. Similar to the charitable remainder annuity trust, a charitable remainder unitrust also includes the transfer of property to a trust that first distributes an annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt trust beneficiary; however, the amount of the annuity fluctuates with the value of the trust assets. A charitable lead trust differs from the charitable remainder annuity trust and charitable remainder unitrust in that the settlor will designate that the charitable beneficiary will first received a distribution of trust assets at least annually for a set period of time, after which the non-charitable trust beneficiary will receive the remainder of trust property. Each of these three split-interest charitable trusts offer dual benefit to a designated charitable purpose and the settlor’s non-charitable trust beneficiary.

New York Requirements for Charitable Trusts

After deciding to include a charitable trust in your estate plan, an estate planning attorney can help you create the trust vehicle to accomplish your goals. Charitable trusts established under New York law must adhere to several requirements and ongoing administration. The creation of a charitable trust under New York law is effectuated like other types of trusts where the settlor transfers property to a trustee for the benefit of a charity. Within six months of the settlement of a charitable trust, the trustee must register the trust with the State of New York Attorney General by completing the appropriate forms and submitting a copy of the trust document. Depending on the type and size of charitable trust established by the settlor, annual financial reports and fees may have to be submitted to the state. Charitable trusts are terminated upon their terms, or as a result of an action by an interested party or the State of New York on the basis that the ongoing administration of the trust assets of $100,000 or less is not beneficial.

You have saved and invested throughout your life to build enough wealth to fund your retirement. You have worked with your estate planning attorney to establish an estate plan to leave behind assets to your loved ones to share after you pass away. However, like many individuals, you are now considering giving your children or beneficiaries their inheritance before your death. There are many advantages to giving an early inheritance, but also some important considerations.


Advantages to Giving an Early Inheritance


Providing an early advance could provide your children with some needed financial help. Whether your children are experiencing financial difficulty, starting a new business venture, or are planning a big purchase, such as a house or getting married, providing them an early gift may be of greater value now than after your death.


For purposes of tax planning, New York does not have an inheritance tax, however, a handful of states do. If you were to relocate to a state with an inheritance tax, giving early may help alleviate that tax burden depending on the applicable state’s tax law. Giving early will also reduce the size of your estate for federal estate tax purposes, and therefore any estate tax that may be due if you have a sizable estate. Keep in mind that gifts within your lifetime may be subject to federal gift tax to the extent they exceed the annual exclusion, which in 2015 is $14,000 for each you and your spouse ($28,000 total).


Another advantage of an early inheritance is the that it gives you the opportunity to see your gift put to use. For many this provides a benefit to those they love, and provides them with lasting memories and a greater sense of satisfaction.


Additional Considerations


You will have to consider the overall effect your early gift will have on your financial future. Of course, you will have to consider if an early gift will compromise the funding of your living expenses and goals for the remainder of your life. You will want to meet with your financial advisor to ensure you are not overextending yourself with an early gift. You will also want to consider your family dynamic and the possibility of potential disputes among your beneficiaries in cases where you are giving unequally.


If you intend for early gift to be an advance on the donee’s share of your estate, you will have to take additional steps with the help of your estate planning attorney. For example, assume you have two children and your will provides that each child shall share equally in your estate. Assume you give child A $20,000 as a down payment on a new home while you are alive, and you give child B nothing. Now assume that upon your death, your estate has a value of $80,000. Per your will, child A and child B will each receive $40,000, even though you already gave child A $20,000.

Under New York law, if you intend for the $20,000 gift to child A to be a true advancement of their share of your estate you will have to execute a document evidencing your intention that the gift be treated as an advancement. If you intend the $20,000 gift to be an advancement and executed the proper documents at the time of the gift, child A would receive $30,000, and child B would receive $50,000 upon your death. Planning your gifting strategy with the help of financial and legal advisors will ensure your gifts are effectuated as you intended them to be.

When you create an estate plan, you face many decisions. One of those decisions will be how you should divide and distribute your property. You will spend a great deal of time deciding who will get what upon your death. One area that may need special attention is the distribution of your tangible personal property, especially those items that may not have significant monetary value, but may hold substantial sentimental value to you and your loved ones.

What is tangible personal property?


Under New York law, property is anything that may be the subject of ownership. The property specifically devised by your will or trust commonly includes real property, cash, stocks, motor vehicles, and other items of value you wish to pass on to those named in your will or trust. It is a good idea to define what you mean to include as part of your tangible personal property, which typically excludes cash, securities, and tangible evidence of intangible property. Generally, tangible personal property will include property, other than real estate, whose value is derived from the item itself, or its uniqueness, such as furniture, decor, jewelry, coin collections, photos, and other personal items you use in daily life. While you may consider your pets as members of your family, the law classifies pets as tangible personal property.


Ways to distribute sentimental items you leave behind.


After you identify what tangible personal property is included within your estate, the next step is to determine the best way to effectuate your decision as to who receives the property. You should discuss the relationships and dynamics of those receiving property with your estate planning attorney who can help craft provisions to help avoid confusion or later disputes. After addressing any potential issues that may come up among those who are receiving the property, you should identify the manner in which your personal representative or trustee will distribute the estate property. Because your list of tangible personal property may be very lengthy, and subject to constant change until your death, one practical method is using a document separate from your will or trust that outlines your wishes.


Because New York law does not provide for incorporating such a document in your will or trust in a way that would be legally binding, one practical approach would be to empower your personal representative or trustee with the discretion of dividing up your tangible personal property in their sole discretion or under a separate memorandum of wishes you may provide during your lifetime. In using this option, you should be sure that you are very comfortable with your selection of your personal representative or trustee and their commitment to carrying out your wishes. Also, your will and/or trust must also include the necessary provision that empowers the person to distribute the property and what to do in certain situations you may not have expected at the time of creating your estate plan or memorandum of wishes.


Other Considerations.


Certain property may require additional considerations. For instance, tangible personal property that has significant value may be better suited for specific reference in your estate plan, especially if the property is to be divided. Also, while frequent flyer miles and other reward point programs may fall outside the traditional definition of tangible personal property, these programs sometimes carry significant value, and you should check with your program for details on how these benefits may be transferred upon your death. Lastly, if you have pets, consider a trust for your pet that includes funds for its care. Just as your tangible personal property is unique, so are the alternatives for ensuring your property is distributed and cared for after you pass on.

Saving for the cost of your child’s or grandchild’s college education can be intimidating. Participating in a qualified tuition program, also known as a 529 college savings plan, that is administered by the State of New York can be an effective part of your estate plan, and a great way to save for college tuition.


What is a 529 Plan?


When you (the “participant”) enroll in a 529 savings plan, you open a special account with the sponsoring state program. This account is a tax-advantaged account that helps you pay for your designated beneficiary’s qualified higher education expenses, including tuition, fees, room and board, and required books.


What are the Advantages of Saving Through a 529 Plan?


The major advantage of a 529 college savings plan is that the earnings generated from your contributions are not subject to federal income tax. In addition, New York’s 529 plan will provide you with a state income tax deduction up to $5,000 for individuals, and $10,000 for married couples.


How to Get Started with a 529 Plan


The first step you should take is to review the disclosure documents of the 529 plan you are considering. If your plan has a favorable expense ratio, and provides additional state tax benefits, you should consider enrolling to set up an account. As part of that process you should consider any investment options offered by the plan. Next, you will begin to contribute to the plan through an automatic investment plan. When the time comes for the designated beneficiary to enroll in an eligible institution, you can begin to take withdrawals to pay for eligible expenses.


What Happens if the Designated Beneficiary does not Attend College?


Funds in your 529 savings account can also be used at a qualifying two year college, vocational, or technical institution. Also, you can always name a different designated beneficiary if your original designee does not attend college. If you do not use the entire account balance for eligible expenses, you can use the funds for other higher education endeavors, transfer the balance to a different qualified beneficiary, or withdrawal the balance. Withdrawing money for non-educational purposes may be subject to tax and penalties.


How does a 529 Plan Fit in my Estate Plan?


It is important to consult your estate planning attorney or tax advisor when structuring your contributions. Generally, your 529 account is not counted as part of your taxable estate for federal estate tax purposes. Contributions to a 529 plan are subject to gift and generation-skipping transfer taxes; however, contributions qualify for the annual gift tax exclusion. You will want to consider this if you make other gifts to the designated beneficiary. You will also need to consider how your participation in a 529 plan may affect your medicaid eligibility. In New York, accounts established in your name may be counted as part of your assets for determining medicaid eligibility. Under the right circumstances, participation in a 529 college savings plan can be an effective piece of your estate and financial planning.

Without you around to clarify your testamentary intent, those receiving property, and likely those intentionally omitted from your will, might battle over your estate for years. There are many potential sources of dispute, but there are steps you can take to make sure your intent is carried out without an ongoing legal battle after you pass on.


Common Sources of Dispute


  • One child may have received more financial help over the years while the decedent was alive, and the will or trust does not take into account this prior assistance, which may leave the other children or beneficiaries with a sense of unfairness.
  • A beneficiary takes the decedent’s general intentions expressed during their life, as promises, which may not be congruent with the provisions of the will at the time of death.
  • The decedent underestimates the sentimental value that the respective beneficiaries place on certain estate property, or the decedent leaves it up to the beneficiaries to decide the division of property among themselves.


Tips for Avoiding Disputes


Level Setting Expectations. If the first time your heirs and beneficiaries learn of your intent is after your death, the more likely it is there will be some disappointment or confusion among those you choose to benefit from your estate. In order to avoid this potential dispute, be realistic about the dynamics between those you did or did not choose to include in your estate plan. You should think about how each person may feel about your choices. If there is a potential for sore feelings, you may want to approach those who may be negatively surprised and explain your intentions and decisions.


Consider an Independent Voice. In many cases a parent selects one sibling over another to manage the distribution of their estate as a personal representative, or trustee if you have a trust. Depending on the circumstances, this may pique any underlying sibling rivalry. Even if you try to resolve this problem by having siblings share responsibility, in-fighting often still occurs, which could lead to a protracted legal battle or power struggle.


Include Protections in Your Estate Plan. If other measures are not feasible, or may not be effective, another option you have is to include a no-contest clause in your will. Under New York law a properly drafted no-contest clause will provide that a beneficiary who contests the provisions in your will, that beneficiary will forfeit the gift provided by the terms of the will. This type of provision will serve as a motivation for your beneficiaries to abide by your stated intentions. If you decide to include a no-contest clause in your will, you should consult with an estate planning attorney because while these types of clauses are valid under New York law, they can be narrowly construed by a court and are subject to some exceptions.

Age-old wisdom tells us that only two things in life are certain – death and taxes. Well, when it comes to dying in America, you can be certain that when you die, you also have to do your taxes. After all, if you earn money, you must pay taxes on it. And just because you choose to die, does not mean the IRS is going to let you get out of paying your taxes. Obviously there are exceptions that should be discussed with a local New York estate-planning attorney, but as a general rule, an estate must file a final tax return following final administration. There are 3a couple IRS publications that will aid in filing a final estate return.

Publication 17 – Who Should File?

As an initial matter, decedents are considered the same as regular taxpayers in some respects. For one, they only have to file if they meet the basic requirement of income. So an elderly person who has little or no income may not have to file. Publication 17 provides several tables that can assist with this. In 2014, single filers over the age of 65 who made less than $11,700 did not have to file. For married filers who are both over 65, the amount is $22,700.

Publication 559 – Survivors, Executors, and Administrators

Under this publication, the IRS explains that the final estate return should include all income actually received by the decedent while still alive. This means money that is paid to a decedent after death, which was never received during life, simply passes to the estate and is distributed to heirs. Nevertheless, there are a host of exceptions to this rule as well, thus it is very important to consult an attorney or certified public accountant when completing these returns. For single decedents, the personal representative should sign the return, and for decedents who leave a surviving spouse and wish to file jointly, both the surviving spouse and representative should file. The IRS also prefers that the words “DECEASED” or “DECEDENT RETURN” across the top of the decedent’s final 1040. Likewise, an Estate Return Form 1041 should be filed.

Ultimately, just about all employed individuals, and even retired people with income, will file an estate tax return. Provided taxes were properly withheld during life, this often means a tax return being added to the estate. If taxes are owed, your attorney can advise you regarding the order in which you should pay such debts.

Some clients may ask, “what happens if we lose the original will; is the court still going to let it be admitted to probate?” The short answer is, as always, maybe. As a general rule of thumb, New York courts are very reluctant to admit a copy of a will. If the original is lost, there is a presumption that a copy may not be the true will. It could be outdated, older version of the testator’s wishes. Maybe the original will was destroyed, and the person presenting the copy is trying to defraud the estate. These and more are just examples of concerns that judges may have. However, there are proactive steps that can be taken early in the estate-planning process to avoid this unfortunate complication.

New York Law Does Allow Lost or Destroyed Wills to be Admitted

Under Section 1407 of the New York Code, the following things must be shown in order to admit a lost or destroyed will to probate.

First, you must show that the will was never revoked. This is a pretty tough task. A judge may even require that a hearing be held in order to have testimony presented.

Second, the Code says that execution of the copy must be the same as required of an original will. This is fairly common sense. If a will requires two witnesses and specific language of attestation, a copy should do the same.

Third, each provision of the will must be “clearly and distinctly proved by each of at least two credible witnesses or by a copy or draft of the will proved to be true and complete.” Now this is tough. In general, if there is no document to present to the court, there is little chance of convincing a judge. However, if a copy is provided, and it meets all the same basic requirements of a valid will, including witnesses, then it may be admitted to probate so long as it can be proven that it is “true and complete.” Many judges will hold a formal proof of will hearing where witnesses are called to testify that they were present at execution, witnessed the decedent signing the will, and believed him or her to be of sound mind.

An Ounce of Prevention

To prevent all the complications, it is usually best to simply execute two identical original wills. Keep one in a secure, but easily accessible place, and leave the other in a safe deposit box or with a trusted friend of family member, preferably the representative. Some estate-planning attorneys will offer to maintain a copy of the will, but this practice is rare for many practical reasons. Some county clerks will even offer to record a will and issue certified copies. Although not available everywhere, this may also be an option for preserving evidence of authenticity. Discuss with your estate planning attorney what will work best for you.

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