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Articles Tagged with nyc trust lawyer

The Benefits of Planning

The loss of a loved one is difficult enough without having to plan and pay for a funeral. With a little foresight, you can save your loved ones from unnecessary stress. While death is an eventuality, few people seem to want to plan for it. Everyday 7,195 Americans die leaving family and loved ones to pick up the pieces. One of the easiest ways to reduce the stress on your loved ones is to provide funeral instructions.These instructions may include: how you would like your remains to be treated (cremation or traditional burial), how you would like your organs to be treated (medical donation, scientific donation or traditional burial), what type of memorial service you would like, and what type of grave marker you would like.

By planning now, you can help to reduce some of the pain and stress associated with the loss of a loved one. Your family will be able to mourn without having to worry about making important funeral plans.

STATE SPECIFIC PROTECTIONS

        The current aggregate value of retirement assets in America is roughly $21 trillion, with individual retirement accounts (IRAs) amounting to the largest single investment asset.  While many, if not most, types of retirement assets and accounts are protected against creditors, the IRA is not necessarily one of them.  The various protections for IRA are dependent on the amount, how long ago you put the money into your account and the state or jurisdiction you live in.  Employer sponsored plans are covered by protections found in federal law, so it is much easier to talk about what protections exist for such plans.  The Employer Retirement Income Security Act of 1974 (ERISA) created a large host of protections for employees, including protections against creditors, except when the creditor is the Internal Revenue Service (IRS) or a spouse or former spouse for debt incurred through domestic relations.  

The protections found under ERISA have expanded over time through both Congressional action and judicial interpretation of the law.  ERISA plans must provide periodic updates to the employees, information about the plan features, creates fiduciary responsibilities for the plan administrators as well as things such as an appeal process for certain decisions that the employee disagrees with.  One large collective group of accounts that are not protected, however, are IRAs.  IRAs, as the name implies, are owned by an individual and thus do not fall under the protections of ERISA.  Most protections for IRAs are found in state law.  

VERY SIMPLE CONCEPT

This blog examined the dynasty trust in the past but it is time to reexamine certain aspects of the dynasty trust.  The dynasty trust is a trust designed primarily to avoid the generation skipping transfer tax when a person wants to leave money to their grandchildren or great grandchildren (or even generations beyond that).  Before getting into the nuts and bolts of what a dynasty trust is, it is best to outline some of the basic tax issues inherent in the generation skipping transfer tax.  

Grandfather wants to leave an asset to his son, with the intention that he will leave it to his son and for him to leave it to his son and so on.  Just to make the dollar figures simple, let us assume that it worth $10 million.  For further simplicity, let us also assume that grandfather’s estate already went through the federal (and state) estate tax exemption.  That means that son has to pay the current top estate tax rate of 40%, which means that the asset is no longer worth $10 million.  Instead it is only worth $6 million.  For further simplicity, father’s estate also passed through all of his estate tax exemption, so instead of the asset being worth $6 million when it passes to the grandson, it is now worth $3.6 million in light of the 40% estate tax.  And the process goes on and on.  

An intentionally defective grantor trust is an extremely effective tool that accomplishes multiple objectives. First, it helps to minimize gift or transfer tax liability that a person may have to pay if the asset passed through normal probate process or it were gifted to the intended recipient. Second, it helps to step up the cost basis, which can be extremely valuable if the asset grew in value and then stabilized. It is often an effective tool for a small business owner who seeks to pass his/her business on to children or grandchildren. It is even more fitting if the same small business grew in size but then stabilized in value.

But, the question has to be asked. What’s with the reference “defective” in its name? It certainly is not a name conducive to marketing its rather impressive abilities. The term does not refer to something being broken (or busted).  The term defective has a simple explanation, it is defective as to income tax liability. To state it in the inverse may help to explain it better; the trust is effective for estate tax purposes. In other words, the trust does not eliminate all taxes in that the grantor still pays the income taxes generated by the asset that is the corpus of the trust, but it does eliminate estate tax liability. Furthermore, it is a “grantor trust”, as defined at 26 U.S.C. § 675, meaning that it satisfies the legal definition of a grantor trust.

WHAT ABOUT GIFT TAX LIABILITY?

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