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Aside from federal and state tax, estate planning is a vital process for anyone seeking a risk-free future for they family. Without formation of a will, estate, or trust, assets are distributed pursuant to state law in the jurisdiction of residence of the decedent. The estate planning process ensures that a surviving spouse, children, and other named beneficiaries are in receipt of valuable assets according to a decedent’s wishes when state laws are inadequate. Here are ten essential reasons estate planning should be part of your retirement strategy.

  1.     Financial Control

A constructive priority, estate planning offers enhanced financial control. Taxation also falls under this general framework of fiscal responsibility and reporting accountability. Control, the exercise of financial accounting management, enables an estate owner to dictate how assets will be transferred, held, and distributed during their life, and upon death. A testamentary document such as a will or estate document, established during a decedent’s life, is a written directive that provides a Trustee or Executor instructions for distribution of estate or trust assets to named beneficiaries.

The desire to ensure that grandchildren receive a high-caliber education can now be met with transfer of a 529 plan contribution fund to an estate or trust. Internal Revenue Service (“IRS”) 26 U.S. Code, Section 529 is the federal statutory rule guiding 529 plan tax-exempt transfer of individual investment contribution accounts. An extension of the “generation-skipping” legislation within federal and state tax laws, education funds are a popular estate planning tool that allows family elders to set aside funds earmarked for their grandchildren’s college tuition and expenses.

What is a 529 plan?

Investment contribution funds, 529 plans are state and education institution sponsored programs. An investor can elect a tax-advantaged savings plan or prepaid tuition plan to secure tuition rates to fund a child or grandchild’s college expenses. 529 savings plans allow participants to make cash contributions, and tax-free withdrawal of principle and earnings for “qualified expenses.”

When planning an international trust, a Clifford Trust will allow a grantor to transfer high net worth assets that produce taxable income into an estate’s trust with the option of reclaim at time of trust expiry. Though used little at present, the Clifford Trust offers the opportunity for high net worth beneficiaries tax relief. If planning an international trust involving foreign national beneficiaries, a Clifford Trust will protect heirs from withholding tax at time of transfer (12 Int’l Bus. Law. 394 (1984)).

Rules to ‘Clifford Trust’ Tax Shelters

Prior to the Tax Reform Act of 1986, Clifford Trusts have been used to tax-shelter assets through transfer of earned income to children from a parent or grandparent’s estate. Post-enactment of the Act, it was mandated that Clifford Trust income be taxed to the grantor, making these trusts nearly obsolete since with exception of use as an effective legal means for large tax expense avoidance and to avoid withholding by international trusts involving foreign national family beneficiaries.

The Commodity Futures Trading Commission (“CFTC”) recently issued an advisory warning about the dangers of digital coins and tokens for speculative investors. Attracted by high exposure and the promise of quick returns, cryptocurrency has proven to be a volatile, yet lucrative market asset for many investors interested in funding a retirement fast. Much like hedge funds and futures contracts, digital cryptocurrency and securities backed by the dynamic value of this asset, carry a certain amount of risk that some investors are willing to assume for higher payoffs. Investment advisers estimate risks associated with cryptocurrency trading and the retention of digital tokens and securitized assets as part of a retirement portfolio, estate or trust:

  •         fluctuations in market liquidity;
  •         changes in validation or mining fees;

When retirement investors are considering assets for estate or trust transfer, one of the main priorities is the impact of risk. In the past several years, cryptocurrency assets have increased in popularity. Until 2017, Bitcoin and other digital currency assets were also considered as tax-exempt “property” under federal Internal Revenue Service (“IRS”) guidelines. Recent IRS rule reform of tax-exempt treatment of cryptocurrency assets reflects a growing concern about the lack of direct oversight of digital currency within the regulatory environment. Identified as the most significant risks of cryptocurrency asset transfer within policy formation at this time: pricing transparency, price manipulation, as well as the potential for fraud scams, custody disputes, and liquidity issues.

How CFTC & SEC Oversight Will Help

Regulatory oversight of price transparency and control over price fixing, and price manipulation is uneven across national and international markets. For this reason, digital currency cannot be traded on regulated financial markets. Derivatives like Bitcoin futures trading on the CBOE or CME offer investors the least risky investment for profit.

The record of retirement investment and trust fund fraud is extensive, and not restricted to sales agents, fiduciaries, and retirement investment advisers.

In New York, attorney malpractice in the area of retirement investment and estate planning has led to professional activism by the New York Bar Association and national affiliation the New York Bar Association, and punitive action by the courts. The Lawyers’ Fund for Client Protection is an independent public trust, financed by attorney registration fees.

The Fund reimburses legal clients for “losses caused by dishonest conduct of former New York State lawyers,” including theft of estate assets and falsely promised and paid for legal services. Adopted by the American Bar Association House of Delegates, the Model Rules for Lawyers’ Funds for Client Protection enacted August 9, 1989 is an amendment of the Model Rules for Clients’ Security Funds first ratified in 1981.  

New York laws of intestacy and probate do not allow an executor to sell real estate or property belonging to a decedent’s estate where no will is present without official appointment by the Surrogate’s Court of the jurisdiction where the case has been filed. If a decedent’s will does not deny sale of real property and other assets, the executor can sell a property without the consent of beneficiaries or probate proceedings. The power of a fiduciary representative in such case, depends on the terms of a decedent’s last will and testament.

Fiduciary Appointment and Duty

According to New York statute, in probate cases where no will is present, an administrator, rather than an executor must be appointed for probate distribution of estate assets to proceed. This includes fiduciary liquidation of the decedent’s financial assets such as stocks, bonds, bank accounts, and sale of real estate. All proceeds are to be deposited into the estate’s holdings for distribution after all creditor claims, legal fees, and other expenses have been satisfied.

Rarely is there a more interesting circumstance presented an attorney of an estate law practice than a matter implicated with bioethics. Advances in Assisted Reproductive Technologies (“ARTs”) have created a range of reproduction options for infertile individuals. The result is that human conception or artificial insemination (“AI”) in vitro fertilization (“IVF”) and cryopreservation refined by the scientific assisted reproduction process through innovation of new technologies, has created the conditions for new rule elements within law.

ARTs and Statutory (Pro-)Creation

At the heart of the legal debate lies the United States Supreme Court’s interpretation of the fundamental principle of rights to procreation. For example, cryopreservation (cryogenic freezing) is one of the latest technologies incorporating IVF and incorporated in IVF, which allows for storage and preservation of reproductive material. While the technology offers advantages for improving the success rate of IVF, cryopreservation implicates the inheritance laws of U.S. states in its potential for the posthumous conception of children.

Fair market value of assets held by the estate is key for determining tax liability of an estate. In Estate of Eva  Kollsman v. Commissioner of Internal Revenue, taxation of the sale of two 17th-century Old Master paintings was contested in federal tax court. The federal U.S. Tax Court agreed to expert analysis of the IRS’s testimony and opposition to the Plaintiff’s valuation of the two paintings sold at auction as “unpersuasive” and “unreliable.”

Appraisal Below Fair Market Value

The two paintings, Village Kermesse, Dance Around the Maypole (“Maypole”) by Pieter Brueghel the Younger, and Orpheus Charming the Animals (“Orpheus”) by Jan Brueghel the Elder or the Younger were, according to the IRS, worth more than claimed by the estate in the case. “Maypole” was later sold by Sotheby’s New York, Auction Lot. 43 in 2009 for $2,100,000 hammer price. Following Eva Franzen’s death In September 2005, Vice President of Sotheby’s North America and South America, George Wachter appraised the value of the paintings at $500,000 for Maypole and $100,000 for Orpheus, respectively. In his testimony before the Tax Court, damage caused by the decedent’s smoking was reportedly the reason for lower than fair market valuation of the paintings in the estate’s 2005 IRS tax return.

The Surrogate’s Court will probate the Last Will and Testament of a decedent, or a copy in some circumstances if those original documents are missing. In New York, the attorney representative of an estate can petition the court to commence probate proceedings with a duplicate of a will. Petition to the Surrogate’s Court must be accompanied by clear and convincing proof that the dislocation of the Last Will and Testament is in error. If a decedent is found to have purposely destroyed the original documents of their own estate, the validity of the claim may be called into question by the court. A preponderance of evidence showing a copy of those documents should be demonstrated to verify that the interests of the decedent, and their estate are accurate.  

Rules of Intestacy Apply

When a court considers if a petition requesting probate of a copy of the Last Will and Testament of an estate, intestate succession laws apply. Rules of intestacy determine whether the parties claiming rights to distribution of a decedent’s assets are those designated as the rightful heirs and beneficiaries of an estate by law. New York rules of intestacy define the rights of surviving spouses, children, and other relatives to an estate’s assets in circumstances where no will exists.

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