Estate Planning

June 6, 2012

How your Longevity May Devalue your Estate

Most New Yorkers expect to live until a ripe old age. What happens, though, when a person outlives their projected life expectancy? In many cases, the assets that ordinarily would have been passed down in the person’s estate instead become the source from which living expenses are paid. As a result, a person who long outlives their life projections can inadvertently cause considerable financial impact on the beneficiaries of his or her estate.

The Worry
Of course, this is not to say that elders should not endeavor to live the longest and happiest lives they can muster. Medical breakthroughs are enabling people to survive catastrophic medical emergencies at a higher rate, while pharmaceutical research is producing drugs that better control latent medical conditions like heart disease, diabetes, and certain cancers. There is, however, the concern among many New Yorkers that modern medicine may produce the unintended consequence of outliving their assets, thereby depleting their estate.

Longevity Insurance
According to a recent article in Kiplinger Magazine, there is a modern solution to this growing concern. Many financial service companies – citing primarily advances in medicine – have begun to offer policies in what is commonly called “longevity insurance.” According to the article, thirty percent of women and twenty percent of men can expect to survive into their nineties. The purpose of longevity insurance, then, is to insure against the financial strain of such longevity by paying a monthly benefit to cover healthcare and living expenses once the policyholder reaches a predetermined age.

The typical longevity insurance policy requires the payment of a large lump-sum premium. Once the premium is collected, the policy guarantees disbursements of income on a monthly basis in the event the policyholder reaches a certain age (usually 85). If the policyholder lives well beyond the age on the policy, the insurance company must still make the monthly income payments to the policyholder, even if the payment of such income begins to exceed the initial lump-sum premium payment. If, on the other hand, the policyholder fails to reach the agreed-upon age, the insurance company typically pockets the entirety of the lump-sum premium.

New York City estate planning attorneys understand that the value of longevity insurance is exceptionally personal and tied to one’s individual circumstances. For example, persons with major health issues, past and/or present, may wish to forego such coverage, while persons in good health may find such coverage more attractive. Similarly, those with a greater number of estate beneficiaries may be more inclined to insure against longevity than those with comparably fewer estate beneficiaries.

New York Estate Planning
A New York estate planning attorney is best equipped to evaluate one’s estate situation and to determine – in light of New York’s particular laws – whether longevity insurance is a viable and prudent option. After all, what good is an ironclad will if there is a reasonable likelihood that one’s estate assets may not be around for one’s beneficiaries to enjoy? A good estate planner is there to guard your assets against any contingencies that may arise. Don’t overlook the most fortunate of contingencies: that you may far outlive your life expectancy.

May 30, 2012

Family Limited Partnerships Offer Asset Protection

by Jules M. Haas

Estate taxes are costly. New York estate planning attorneys are often consulted for their expertise on how to limit estate taxes when people wish to transfer their wealth to their next of kin. In appropriate cases, this expertise may lead an estate lawyer to suggest the creation of a Family Limited Partnership.

Family limited partnerships exhibit many of the same characteristics of regular limited partnerships. For one, the control of the family limited partnership rests in the hands of one or more general partners. In the case of a family limited partnership, the general partners are typically the elders who possess the bulk of the personal assets: most often mothers and fathers, or sometimes grandparents. The family limited partnership also typically has a number of limited partners: the children or grandchildren of the general partners. The key difference between the general partners and the limited partners is control of the assets invested in the family limited partnership. General partners enjoy their proportional share of the assets plus control over how the assets are used, while limited partners only enjoy their proportional share of the assets without any control over how the assets are used.

In an estate planning context, the creation of a family limited partnership can be quite advantageous in terms of the tax burdens of the partners. Imagine a father and son scenario in which there are no other family members, such as a wife or sister. If the father wishes to transfer his assets to his son, the exchange would be subject to a gift tax. Essentially, the Internal Revenue Service wants to tax the son’s newfound income.

By contrast, imagine the same scenario in a family limited partnership context wherein the father is the general partner and the son is the limited partner. If a family limited partnership is properly established, the father can establish for the son a percentage interest in the value of the partnership. As a limited partner, the son cannot cash in on his interest until the controlling general partner, his father, orders a distribution of the assets. Because the possessor of a non-controlling interest in a partnership cannot liquidate his interest for personal use, the interest has no fair market value. Thus, the Internal Revenue Service cannot tax the limited partner’s interest.

The key advantage of the family limited partnership occurs at the death of the general partner. The entity’s formation and governing papers can provide for the assets of the entity to pass to the limited partner in the event of the general partner’s death. In this way, the father, at his death, has achieved what amounts to a gift in the amount of the assets tied up within the partnership entity.

A word of caution: family limited partnerships cannot be established for the sole purpose of devising assets to one’s heirs. The entity must still operate as if it is a business. Business revenues and costs must flow through the entity, and the general partners must generally pay themselves salaries from the assets tied up in the entity. Purchases must be made through the entity for legitimate business purposes, or in furtherance of another business entity. For this reason, most family limited partnerships are “holding companies” for assets accumulated in other business ventures.

An experienced New York estate planning attorney can help you evaluate whether your estate plan may benefit from the creation of a family limited partnership. Your attorney can best explain the risks and rewards of such creation in light of federal law and of the laws of your jurisdiction.

May 24, 2012

Government Urges Online Media Wills

by Jules M. Haas

According to a recent article in the New York Daily News, the modern New Yorker has one more thing to worry about when creating a Will. The proliferation of social media web sites like Facebook and Twitter, along with the abundance of e-mail and online transaction accounts, is creating a demand for will provisions tied to the administration of a deceased person’s web usage.

Even the federal government is acknowledging the phenomenon. As of April, the federal government’s official personal finance information page includes a recommendation that people leave detailed and specific instructions for the administrators of their Wills as to who will have access to their online accounts after they die. The federal government also urges people to update these Will instructions frequently so as to reflect changes in online usage. Many online accounts require users to change their passwords after a period of time. Other accounts are used less frequently, meaning their users are often forced to reset their passwords. Therefore, it is imperative to record these changes.

The need for such provisions in a Will may not be immediately apparent. However, if you are the type of person that utilizes online billing or online banking, you are typically the only person who can access these applications. Suppose you have opted to receive paperless billing via e-mail. If no one in your life is kept apprised of your e-mail password or billing account password, your executor or administrator may be unable to easily obtain information concerning something like the utilities in your home. Similarly, those who receive paperless credit card statements could accumulate significant interest charges on outstanding debts if their fiduciaries are unable to access the online account to obtain account information or pay the bill. Without a trusted individual empowered with the responsibility for these online accounts – and the login information to access them – a deceased person may unwittingly have imposed considerable confusion and financial strain on their estate.

On the social media front, accounts on sites like Facebook contain a wealth of personal information and private interactions that a deceased person may not want “floating” in cyberspace. Often without realizing it, living users employ a host of defensive measures to safeguard against other people’s access to this private information. However, a deceased’s unmaintained account can be significantly more susceptible to intrusion for identity fraud and other purposes. Modern Wills empower trusted individuals to access these accounts upon the user’s death and to either close the accounts or restrict them to memorial postings about the deceased. Facebook, for example, will deactivate the account of a deceased user upon request and replace it instead with a page to post memories.

If online accounts and social media are ingrained in your life to the point that the inability to access such accounts could potentially harm your beneficiaries, it may be prudent to consult a New York estate attorney. Your attorney can help determine whether such access could affect the administration of your estate, and can help craft and maintain a Will tailored to reflect these modern estate issues.

May 22, 2012

Last Wills in New York Express A Person’s Wishes

by Jules M. Haas

A New York Will is a means by which a person can express his or her desires regarding the final disposition of property and the management of the affairs of his estate. New York Estates, Powers and Trusts (EPTL) section 1-2.19 defines a “Will’ as “an oral declaration or written instrument. . . . whereby a person disposes of property or directs how it shall not be disposed of . . . .”

The New York Probate Lawyer Blog has discussed in previous posts that the execution of a Will must comply with a number of requirements such as the necessity for the testator to sign the Will at the end of the document and that there must be “at least two attesting witnesses”. (EPTL 3-2.1).

The reason for strict Will formalities is to protect the intention of the testator and to establish the sanctity of the document that expresses a person’s final desires. The Surrogate’s Court always wants to be certain that fraudulent or invalid papers are not given judicial validation. Obviously, once a person dies, a Will may be the controlling statement regarding a person’s personal affairs.

Preparing a Will requires a full consideration of a person’s property and beneficiaries so that the proper provisions and directions are clearly set forth. It is a testator’s expectations that his fiduciaries, such as his Executors and Trustees, carry out the terms of the bequests or other dispositions spelled out in the document.

As a New York Estate Lawyer I spend time speaking with clients to understand their desires so that these matters can be fully and accurately set forth in their Will provisions. Of course, it is common that there is Estate Litigation where controversies arise concerning the meaning or interpretation of certain aspects of a Last Will.

Recently, there have been a number of instances where beneficiaries of charitable provisions have sought to modify the terms of bequests and abrogate the expressed desires of the decedent. In 1964 Edward Carter, who had been a Board of Regents Chairman, bequeathed to UCLA, property which was a rare example of a Japanese private garden. The garden was intended to be maintained in perpetuity. As reported by Charles A. Birnbaum on May 25, 2012 in the Huffington Post Los Angeles, UCLA, without advising the decedent’s family, obtained Court approval to allow the University to sell the property.

A similar scenario occurred in Ipswich, Massachusetts, as previously discussed in this Blog, where a colony of homes was the subject of a land trust established by a Last Will in 1660 for the benefit of the local schools with instructions that the property was not to be sold. As reported by Kathy McCabe on May 13, 2012 in the Boston Globe, the local voters appealed a Probate Court decision that allowed the sale despite the Will restrictions.

These two cases show that despite explicit directions and restrictions provided in a Will, beneficiaries and Courts may sometimes act contrary to a testator’s intent. Nevertheless, in most situations, the testator’s desires are followed. It is important to clearly spell out these desires so disputes can be avoided and, hopefully, a Court will abide by the specific terms of the testamentary instructions

May 15, 2012

Estate Planning for Singles or the Widowed

by Jules M. Haas

How planning for one differs from planning for a couple

In some ways, estate planning for a single person can be more challenging for an estate planner than planning for a couple. When a couple formulates an estate plan, the easiest and most natural thing to do is to entrust one another with all of the responsibilities in the event of one spouse’s death. Among these responsibilities are the administration of the estate, execution of advance medical directives, power of attorney for financial decisions, and access to medical records in end-of-life scenarios.

The relative ease in dealing with these issues for couples is that the surviving spouse is most often within the closest emotional and geographic proximity to the deceased and their assets. Spouses are uniquely qualified to speak for one another, because they have likely had more occasions to discuss end-of-life scenarios with one another. Moreover, the surviving spouse is more likely to have been included in the financial decision making throughout the marriage, making the surviving spouse the utmost authority in the financial decision making beyond the marriage.

Those who never married and those who have been widowed do not have the luxury of entrusting emergency or end-of-life responsibilities to their spouse. These responsibilities typically fall to other members of the immediate family, like siblings. Siblings and other family members are often naturally less in-tune with one’s financial and medical wishes than a spouse might be. Therefore, a single person who is planning for his/her estate should make sure that any responsibilities entrusted to a relative are clearly spelled out in the appropriate documentation. Medical emergencies and end-of-life scenarios are emotional times in which the appropriate people must often be quick and decisive. Quick and decisive action is most easily achieved by a clear delegation of authority backed by legally sound paperwork. The appropriate people should have copies of this paperwork in a safe yet available place.

On that note, single people should bear in mind that the best people to entrust with these responsibilities are often within relative geographic proximity. It makes little sense for a New Yorker to entrust the authority of advance medical directives to a relative living in Seattle, for example.

Single people have even more estate planning considerations to think about. One such consideration is the unavailability of supplemental sources of income in case of disease, disablement, or incapacitation. Single New Yorkers should consider these possibilities in their estate planning efforts. Those who still work should ensure that they are covered by sufficient disability insurance, either privately or through their work. As single people get older, they should also consider purchasing long term care insurance to supplement any health insurance they may have. Long term care insurance typically covers expenses incurred in things like nursing home or hospice care that could be denied by normal health insurance coverage.

No matter which category you fall under, a New York estate planning attorney is the best resource to consult on these matters. Your estate lawyer understands the difference between planning for a couple and planning for the single or the widowed, and can help you craft the appropriate emergency and end-of-life directives, including to whom they will be entrusted.

April 25, 2012

New York Estate Planning Provides Protection Both Before and After Death

by Jules M. Haas

A New York Estate Planning Attorney can advise a client regarding the preparation of documents such as a Last Will, Living Will, Health Care Proxy, Power of Attorney and Living Trust. By preparing these documents an individual can provide protection to him or herself and their family during life and after death and avoid protracted Guardianship proceedings and Estate Litigation.

The New York Probate Lawyer Blog has discussed many issues regarding Article 81 Guardianship Proceedings. New York Guardianship proceedings are usually necessary when a person becomes incapacitated and does not have a Living Will, Health Care Proxy, Power of Attorney or Living Trust. These documents are advance directives that allow designated agents to make health care, end of life and property management decisions without the delay and complications of seeking court appointments. Unfortunately, in many instances such directives are not prepared and the assistance of a New York Guardianship Attorney will be required to prepare the Court petition and process the Guardianship proceeding. Guardianship proceedings are filed in the County where the incapacitated person resides or is physically present (MHL §81.05) I have represented many clients in Queens Guardianships, Manhattan Guardianships, Brooklyn Guardianships and proceedings in other counties as well.

The creation and signing of other types of documents are also important in both the pre and post death setting. For example, individuals who own businesses should prepare documents such as Shareholder and Partnership Agreements that define the rights and interests of the respective owners and provide specific instructions regarding the transfer of an owner’s interest upon death or disability. The failure to seek guidance from a New York Estate Planning Attorney with regard to succession planning can result in disputes and litigation after the death of one or more of the business owners. Such was the case with regard to the founders of the company that created the Archie comics book character. As reported in Estate of Denial on April 26, 2012 the disputes that arise between successors can transform a once peaceful company setting into disarray.

Certainly, having a Last Will which provides for a clear disposition of assets and takes into account those assets that pass by operation of law such as joint accounts, is a fundamental necessity for post death security.

A recent article by Rob Clarfield in Forbes on April 25, 2012 entitled, “7 Major Errors in Estate Planning” provides a short-hand guide to some current considerations. The 7 “errors” discussed in the article are:

1. Not having a plan
2. Online or DIY rather than professionals
3. Failure to Review Beneficiary Designations and Titling of Assets
4. Failure to Consider the Estate and Gift Tax Consequences of Life Insurance
5. Maximizing annual gifts
6. Failure to Take Advantage of the Estate Tax Exemption in 2012
7. Leaving assets outright to Adult Children
As is true in every estate plan, a comprehensive analysis of a person’s desires and intentions and family and assets is needed to determine the proper course to follow for their personal plan. Putting the proper documents into place not only provides lifetime stability and protection, but also prevents Estate Litigation in Probate Courts that be destructive to family harmony and costly to the estate beneficiaries.