Articles Posted in Estate Planning

A client came in to see us for their follow-up consultation.  The client shared that, in between their two meetings with us, the husband‘s brother had suffered a stroke and was now in a rehabilitation facility.  He was a bachelor.  He had no power of attorney or health care proxy.  He may or may not have had a will — they didn’t know.  Further, they were unable to get access to his apartment to clean out the fridge and get his clothes because he had failed to put them on the list of persons approved to enter in the event of an emergency.

One of the most overlooked areas in estate planning is the question of who you are responsible for.  Do you have a friend or relative who you know will need to rely on you if something happens?  Either they have no one else or everyone else is too far away.  If you have the responsibility, then make sure that you have the documents you will need to carry out that responsibility.  Otherwise, the challenges become of a magnitude greater.

Similarly, so many of our clients have adult children with young families.  Do you know whether your children have wills, powers of attorney and health care proxies?

“Elder Law Estate Planning” is an area of law that combines features of both elder law (disability planning) and estate planning (death planning) and relates mostly to the needs of the middle class. Estate planning was formerly only for the wealthy, who wanted to shelter their assets from taxes and pass more on to their heirs. But today estate planning is also needed by the middle class who may have assets exceeding one million dollars, especially when you consider life insurance in the mix.

Estate planning with trusts became popular starting in 1991 when AARP published “A Consumer Report on Probate” concluding that probate should be avoided and trusts should be used to transfer assets to heirs without the expense and delay of probate, a court proceeding on death. Trusts are also widely used today to avoid guardianship proceedings on disability, protect privacy, and reduce the chance of a will contest in court.

As the population aged, life expectancies increased, and the cost of care skyrocketed, the field of elder law emerged in the late 1980’s to help people protect assets from the cost of long-term care by using Medicaid asset protection strategies.

Planning for, and then executing, inheritances is often fraught with emotion.

Most families choose to leave the inheritance “to my children in equal shares, per stirpes.”  Per stirpes is Latin meaning “by the roots” so that if a child dies before the parent, their share goes to their children (if any) in equal shares.  If there are no children, then generally the inheritance is disregarded and their share goes to their surviving siblings in equal shares.

What about gifts to grandchildren?  Let’s say one child has five children and the other has two children — seven grandchildren altogether. When a significant gift is given to grandchildren equally, it is not uncommon for the child with two children to say “well it was my brother’s choice to have five children, why do I have to pay for it?”  Good estate planning also looks at inheritances from the heirs’ point of view as well.

Revocable living trusts, where the grantor (creator) and the trustee (manager) are the same person, use the grantor’s social security number and are not required to file an income tax return. All income and capital gains taxes are reported on the individual’s Form 1040.

Irrevocable living trusts come in two main varieties, “grantor” and “non-grantor” trusts. Non-grantor trusts are often used by the wealthy to give assets away during their lifetime and for all income and capital gains taxes to be paid either by the trust or the trust beneficiary but not by them. Gifts to non-grantor trusts are reported to the IRS but are rarely taxable. Currently, the annual exclusion is $17,000 per person per year to as many people as you wish. However, if you go over the $17,000 to any one person you must report the gift to Uncle Sam, but they merely subtract the excess gift from the $12,920,000 each person is allowed to give at death. Most of our clients are “comfortably under” as we like to say. These gifts then grow estate tax-free to the recipient.

Grantor trusts, such as the Medicaid Asset Protection Trust (MAPT), are designed to get the assets out of your name for Medicaid purposes but keep them in your name for tax purposes. You continue to receive income from the MAPT and pay income tax the same as before. The MAPT files an “informational return” (Form 1041) telling the IRS that all the income is passing through to you.  Gifts to non-grantor trusts take the grantor’s “basis” for calculating capital gains taxes on sale, i.e. what the grantor originally paid and, if real estate, plus any capital improvements.

New York law prevents spouses from being disinherited. Instead, a spouse who is disinherited may go to court and claim their “elective share” which is the greater of fifty thousand dollars or one-third of the estate.

Questions often arise as what the “estate” of the deceased spouse consists of. Naturally, any assets in the decedent’s name only and listed in the estate court proceeding apply. Other assets, known as “testamentary substitutes” because they do not pay by will, and is against which the spouse may make their claim are: bank accounts, investment accounts and retirement accounts with named beneficiaries other than the spouse or, similarly, those same asset if they have a joint owner other than the spouse. An exception would be if the other joint owner had made contributions to the joint account and then as to the contributions only.

Gifts made within one year of death are also available for the elective share claim. Oddly enough, life insurance is not considered a testamentary substitute however annuities are.

Estate planning is not written in stone.  Instead, estate plans should be revised and reconsidered when various major life events occur.

Marriage may or may not involve a prenuptial agreement.  Regardless, it may call for adding your new spouse’s name as beneficiary on insurance policies, on a will or trust, power of attorney, health care proxy and deeds.

Serious illness requires that you give thought to appointing someone to handle your affairs and making sure they have the documents needed to discharge the responsibility. You may want to add a second person to share the load or as a back-up. It is also the time to consider asset protection strategies should long-term care be needed one day, either at home or in a facility. One of the biggest mistakes we see, as elder law attorneys, is that the family becomes so focused on the medical side of things that they fail to focus on the legal side until it is too late.

In order to contest a will, the objectant must have “standing”, meaning they would legally be entitled to a share or a greater share of the estate if the will was declared invalid. “Standing” alone, however, is insufficient. There must also be grounds for contesting as provided below.

1. Undue Influence: Independent caregivers and caregiver children who end up being named primary beneficiaries under the will are often scrutinized for having prevailed upon the decedent to leave them the lion’s share of the estate. The various means alleged may be physical or mental abuse, threats and isolation of the disabled person. Even non-caregivers who had influence over mom or dad may be challenged where they end up with more than their fair share. As with any court proceedings, proof of the claim will need to be made.

2. Improper Execution: The formalities for executing a will must be strictly observed. The formalities include that the witnesses believed the decedent was of sound mind, memory and understanding. There must be two witnesses who signed in the presence of the testator and of each other. The testator must declare in front of the witnesses that they read the will, understood it, declare that it is their last will and testament and approve of the two witnesses to act as witnesses to the will.

So many people who come in to see us do not understand the estate plan they have or do not know what is in their current plan. Some of the reasons for this are (1) time has inevitably blurred their memories, (2) the plan may be written in legalese and was never properly explained to them, (3) they may have misconceptions and misunderstandings of what their plan is; and (4) their lawyer may have lacked the knowledge required to find the right solution for their family in the event of death and disability. To this we say, “if you don’t understand the plan, you don’t have a plan.”

Ettinger Law Firm developed a process, in use for over thirty years, to avoid these problems. First, we offer a free initial consultation to go over the pros and cons of having a will or a trust and the differences between revocable and irrevocable trusts. So many people have misconceptions about trusts based on what friends have said or what they have read on the internet. For example, many clients are afraid to create an irrevocable trust because they think they will lose control. We explain why that is incorrect and how you can still change the trustee, change who you leave it to, take money out and even how you can revoke an irrevocable trust!

After the overview provided in the initial consultation, we give you a copy of our plain English book, “Elder Law Estate Planning”, and advise which chapters apply to your situation — maybe an hour or so of reading. We also invite you to watch the thirty minute estate planning video at trustlaw.com.

At Ettinger Law Firm, we are fond of saying “trusts create order out of chaos” — for three major reasons:

First, as noted in previous columns, an ever-increasing number of Americans suffer a period of legal disability later in life.  Without your own private plan for disability, consisting of a trust and a “prescription strength” elder law power of attorney, you run the risk of a state appointed legal guardian.  Do you want the people you choose to be in charge in the event of your disability, with the freedom to act immediately in your best interests, or do you want the state to appoint someone who will require court permission to protect your assets and your family — which permission is sometimes denied. A guardianship proceeding is expensive, time-consuming and stressful — in other words, chaotic. Trusts create an orderly process whereby your appointed trustees consult with your elder law attorney and are free to act immediately without court interference.

Secondly, trusts avoid probate court proceedings on death whereby wills, even though supervised by an attorney, with two witnesses and a notary, must first be proven to be valid in court proceedings.  The client has no control over probate court proceedings – the time they will take or the amount they will cost.  Typically, it takes months and, not unusually, one to two years or more.  Meantime, property cannot be sold and assets cannot be reached to pay bills.  In other words, chaos.  With a trust, the trustee may act immediately upon death, list property for sale and access investments and bank accounts.

Ask most people if they’ve done their estate planning and a common answer is, “Yes, I have a will.” However, estate planning is not just a plan for death. It’s a plan for life that addresses what happens if you become disabled. About half of us will eventually becoming disabled. You can choose ahead of time who will be in charge of your affairs if you become disabled through a power of attorney, health care proxy, and a trust.

A will cannot provide for disability. A will tells the world where you want your assets to go when you die. A will is probated, which means proven, in court, and becomes a public document. Those without their own living trust plan, with their personal choices for who will be in charge if they become disabled, risk getting the state’s plan of guardianship proceedings where the court chooses who will handle your affairs if you become disabled.

Probate court proceedings can go smoothly but they may also be complicated, such as having a special needs child or disinheriting a child. Also, if you own property in another state, a trust makes more sense than a will because you may deed the out-of-state property into the name of your trust, and avoid both a New York probate and a probate in the other state.

Contact Information