Estates and Taxes

January 15, 2020

Interesting Information Concerning Discovery of Estate Assets

When an Executor or Administrator is appointed by the Surrogate’s Court, the job of estate settlement begins. One of the first orders of business is identifying and collecting the assets of the estate.

The New York Probate Lawyer Blog has discussed the issue of asset protection and collection on many occasions. One of the primary sources of information in this regard is the financial records maintained by the decedent. Typically, the decedent will receive bank statements, brokerage statements and other correspondence that reflect values and other ownership information. Another excellent place to look for evidence of estate assets is the decedent’s prior income tax returns. These documents may contain the names of banks or other sources of dividend or interest income. The tax returns may show ownership rights in real estate, corporations, limited liability companies or partnerships.

Earlier articles in this Blog have referred to Surrogate’s Court Procedure Act Section 2103 entitled “Proceeding by fiduciary to discover property withheld or obtain information.” This statute provides the Administrator or Executor with a legal procedure to obtain verification from third parties who may be withholding or otherwise refusing to give up information concerning possible assets that were owned by a decedent. SCPA 2103 requires that a petition be filed with the Surrogate’s Court and a hearing be held before the Court to obtain the requested relief. While it may take time and effort to commence estate litigation and prosecute these proceedings, there can be very positive results for an estate if property is located and recovered. As an estate lawyer in New York City, I have been involved in numerous SCPA 2103 cases. The Surrogate’s Courts throughout New York are very familiar with these matters and recognize their importance for the successful settlement of an estate.

November 28, 2012

New York Gift Planning Requires Many Considerations

by Jules M. Haas

New York Estate Planning Lawyers are often asked by their clients about making gifts to family members or friends or charities. When considering a gift there are a number of items that should be part of a list of basic considerations.

1. It is important to identify the person to whom the gift is to be made. While this seems rather basic, it is not always easy to provide a gift to the person to whom you want to benefit. For example, if you desire to make a gift to a grandchild or other person who is a minor, some alternative method such as a trust or a Uniform Gift to Minors Act account may be needed since the minor cannot receive the asset in his or her own right. It may be that the donor of the gift may not want to make a gift that is in a trust or a restricted account and may feel comfortable just providing funds outright to a minor’s parent with the confidence that the parent will use the gift solely for the minor’s benefit.

A similar situation may arise where an individual desires to gift assets to a person who is disabled or incapacitated. Such situations may require the establishment of a Supplemental Needs Trust to protect the governmental benefits received by the intended donee.

2. Another consideration is the financial effect that the gift may have on the donor and the donee. Thought should be given as to whether the donor can afford to make the gift and whether the loss of the asset will affect the donor’s standard of living or future retirement planning. As to the donee, it should be determined whether receipt of the asset might increase the donee’s income tax bracket or create complications regarding the donee’s estate plan by exceeding federal or state exemptions. Additionally, the donee’s physical condition may be a factor since it would not be beneficial to provide assets to a person whose medical costs may skyrocket, especially where those costs might be paid by government programs such as Medicaid.

3. Of course, the gift tax impact of any gift is always important. This is especially true at present since the current Federal tax laws allow a combined estate and gift tax exemption of just over $5,000,000. In view of the uncertainty of the future of this exemption after December 31, 2012, many high net worth individuals are looking to use up their exemption by gifting assets having a value of up to $5,000,000 before the end of the year.

While such a planning step appears to be beneficial, there are certain circumstances where the gifting of assets can be troublesome. A recent article in Forbes on November 19, 2012 by Peter J. Reilly, “IRS Position on Wandry Decision Makes 2012 Gifting More Difficult“, provides an excellent discussion of some mine-fields. As reported in the article, the IRS has announced its non-acquiesence to a Tax Court memorandum opinion which essentially allowed a donor, through a formula clause, to modify his gift percentage interests of a family LLC after the IRS had revalued same.

In the event the IRS revalues a gift after an audit, the possibility exists that the $5,000,000 exemption gift is determined to really be a $7,000,000 gift resulting in thousands of dollars of unintended gift taxes being due.

As in all estate and trust and estate planning contexts, it is necessary to consider both the practical and tax implications of asset transfers and the manner in which such dispositions are made, whether by a gift, a Last Will and Testament and a Trust. Discussions with other family members and advisors such estate planning lawyers and accountants is the best method to avoid unintended results.

September 20, 2012

Estate Tax Changes Can Effect New York Estate Planning

by Jules M. Haas

As 2012 is coming to an end, so are the many provisions of the tax laws that are set to expire on December 31, 2012. Among the laws that will change in 2013 is the Federal Estate Tax. At present, a New York Estate Attorney is aware that the federal estate tax exclusion is $5,000,000. When the estate tax laws change in a few months, only $1,000,000 will be protected from taxation.

The impending dramatic change in federal estate tax protection has created uncertainty and confusion for individuals and estate planners. This is especially so since neither Congress or the President have shown any indication that a definitive new law is being seriously considered.

For example, a Manhattan Estate Lawyer or Brooklyn Trust and Estates Attorney can prepare a Last Will for a client with precise provisions regarding the disposition of assets such as real estate, bank accounts, brokerage accounts and retirement funds. The Will can be probated in the Surrogate’s Court according to set procedures and requirements. However, the provisions in the Last Will dealing with estate tax planning must be flexible enough to accommodate the uncertainty in the tax laws that are going to change but in an unknown manner.

The variations in recent years in estate taxes due to the changing tax code and the failure of the government to provide long term certainty has resulted in unwanted and unexpected estate settlement and estate administration problems. For example a recent article in Business Financial News by Amy Feldman on July 31, 2012 recounted how a tax savings clause in a Will resulted in litigation to prevent an apparent aberration in the decedent’s estate plan. Essentially, a formula tax savings clause that was intended when drafted in 2008 to provide a sum of money to the decedent’s children of only about $2,000,000 would have given the children all of their mother’s $100 million dollar estate in 2010 when the estate tax had been eliminated. The problem was that the decedent’s husband would not have received any portion of the estate. When the Will was originally written it was not expected that there would be no estate tax in 2010 resulting in an unlimited bequest to the children.

The New York State estate tax law currently provides for a $1,000,000 exclusion. Because of the uncertainty surrounding the Federal Estate tax exclusion during the past years and in the coming months, questions continue to be raised regarding the need for the tax. An article appearing in The Daily Caller on September 4, 2012 discussed a report by the congressional Joint Economic Committee that the cost to enforce the estate tax is greater than the benefits it produces.

As a New York Trusts and Estates Lawyer, I am involved with potential estate tax issues with regard to Will preparation, estate planning and probate and estate administration. The initial concern is whether or not a person’s estate is subject to possible taxation based upon its value. If so, other issues such as the use of deductions, credits and gifts must be considered to minimize the impact of the tax. These considerations can be quite complex and require the cooperative efforts of the client and his or her tax advisors.

June 20, 2012

Time Dwindling for Estate Tax Laws

by Jules M. Haas

Back in 2001, Congress passed legislation that had drastic effects on the estate tax. That year, a decedent could pass up to $675,000 to their heirs tax-free. Any funds in excess of that amount were taxed between 35-55%. Each year after that for the first decade of the new millennium, the tax-free threshold increased in increments, culminating in a tax-free threshold of $3.5 million in 2009.

Then, in 2010, Congress temporarily repealed the estate tax altogether, effective for that year only. At the end of the 2010 session, Congress reinstated the estate tax with a temporary tax-free threshold of $5 million per person, effective through December 31, 2012. As a result of this temporary measure, the vast majority of Americans were, and still are, able to pass the entirety of their estate’s value to their heirs without incurring tax penalties. However, the time in which to take advantage of this expansive tax-free loophole is quickly dwindling.

The consequences could be drastic. A person with a substantial estate (let’s say $3 million) who dies on December 31, 2012 will be able to transfer their entire estate value tax-free. By contrast, someone who has a $3 million estate and dies on January 1, 2013 will have a substantial chunk of their estate wiped out by taxes. On that date, the taxable threshold will fall to $1 million. In the example of our second individual, 2/3 of the estate will therefore be subject to taxation of 35% or more. Our second decedent’s heirs will see substantially less money than our first decedent’s heirs.

This is not to say that people with substantial estates should endeavor to depart this world before the effective date. What it does mean, however, is that someone with a substantial estate who shows no signs of ill health should begin exploring alternative strategies for protecting their estate assets.

A popular option for people in these situations is to create what is called an irrevocable trust. The primary characteristic of an irrevocable trust is that once the trust’s creator transfers the assets into the trust, the creator is effectively unable to withdraw the assets. Instead, the power to withdraw from the trust is wholly that of the beneficiaries.
The reason irrevocable trusts have become popular options is that they are an effective alternative to protect assets and project who will benefit from the assets. The classic case in which an irrevocable trust would work is for a parent with substantial assets who wishes to devise all of his or her assets equally between his or her children. Instead of all assets beyond the $1 million tax-free threshold being heavily taxed at the decedent’s death, the same assets are protected in a trust, which enjoys considerably more tax protections.

New York estate planners strongly urge all persons to consider the implications of the impending expiration of the current estate tax law. Even if you don’t intend to expire before the end of the year, its expiration could drastically affect your distribution of assets to your loved ones. Consider the aid of a New York estate lawyer, who can help you determine how to take care of your loved ones when you are gone.

February 22, 2012

Estate Tax Rules Impact Estates of New York Decedents

by Jules M. Haas

New York estates are subject to many requirements relating to taxes. Estate taxes can have a major impact on the estate administration process since the estate fiduciary such as the Executor or Administrator is responsible for timely preparing the estate tax returns and paying the tax that may be due. New York decedent’s estates may be subject to both New York State and Federal Estate Tax.

The New York Probate Lawyer Blog has previously discussed revisions that were made to the Federal Estate Tax at the end of 2010. These new rules terminate at the end of 2012 unless extended or modified. Beginning in 2011 the basic amount of exclusion from the Federal Estate Tax was increased to $5,000,000 per individual. Under the new law, to the extent that the exclusion amount was not used for a deceased spouse, the unused amount could be transferred to the surviving spouse to be used to offset his or her estate tax. This transfer, called Portability, could conceivably allow the second to die spouse to have an exclusion of 10 million dollars.

In order to qualify for Portability, the Executor or Administrator of the first spouse to die must make an election on a timely filed Federal Estate Tax Return. A Federal Estate Tax Return is due to be filed within 9 months after death and a 6 month automatic extension can be applied for. The IRS recently issued a notice which provides additional time for filing the estate tax return for decedent’s who died during the first six months of 2011. See article by Michael Cohn dated February 17, 2012, “IRS Extends Deadline on Estate Tax Portability Election.” This extension of time would allow for the election of the portability option.

Fiduciary duties in settling an estate can be very extensive and complicated. Advise from probate attorneys and tax professionals is essential for an estate to be handled properly and efficiently. Estate assets need to be identified, valued and collected and bills, debts and other expenses paid. All of the estate financial information needs to be retained and organized so that it can be reported in the Estate tax return and accounting papers. Failure by a fiduciary to properly handle these financial and estate tax matters can result in damage to an estate and a breach of fiduciary duty for which a fiduciary may incur personal liability.

I have represented many fiduciaries over the years and assisted them with the numerous estate settlement tasks and tax reporting duties that they are responsible for completing. The welfare and interests of the estate beneficiaries are of utmost importance and it is essential to protect these interests by effectively processing the estate finances.

December 14, 2011

New York Estate Administration Must Always Consider Tax Issues

by Jules M. Haas

Estate settlement in New York, including Westchester and Suffolk counties, requires a consideration of many issues. A post in the New York Probate Lawyer Blog on December 6, 2011 talked about a number of estate tax issues that should be considered, including the current $5 million federal tax exemption and “portability” of the unused exemption between spouses.

Executors and Administrators have the fiduciary responsibility of calculating and preparing both Federal and New York State estate taxes, as well as fiduciary estate income taxes. Once an estate comes into existence it is like an ongoing business. Assets must be determined and collected and liabilities and debts need to be paid or resolved. Essentially, the fair market value of the assets owned by a decedent at death will form the basis for determining the estate tax obligation. The income and expenses generated by the estate during the course of Estate Administration are factors to be considered in determining the estate’s annual income tax liability.

Estate taxes are typically due to be paid nine (9) months after the decedent’s date of death. Fiduciary income tax returns are usually due in April. Extensions for the filing of estate tax and income tax returns are routinely obtained but estimated payments on account of the taxes due must be timely made or interest and possibly penalties can be imposed.

The problem faced by many fiduciaries is obtaining enough information about assets, income, expenses and liabilities in a relatively short period of time so that accurate returns can be prepared and appropriate estimated payments can be made. This process can be complicated where the decedent’s assets and income are not easily discovered or are complicated by issues of valuation or litigation regarding ownership. Nassau estate attorneys, like estate attorneys throughout New York, work closely with executors, administrators and trustees to obtain necessary information and plan for the filing and payment of these taxes.

An example of such problems was recently reported with regard to the estate of Brooke Astor. Many articles have been written concerning the estate of socialite Brooke Astor who died on August 13, 2007 and whose son was convicted of stealing her assets. In an article written by William P. Barrett which appeared in Forbes on December 7, 2011, it was reported that the IRS is seeking upwards of $62 million in taxes from the estate, which includes millions of dollars in assessed penalties. The tax disputes seem to concern charitable deductions that the IRS is refusing to recognize along with the failure of the decedent to file and pay certain gift taxes during her lifetime.

It is not uncommon for actions and failures to act by a decedent during life to have a dramatic effect upon estate settlement and, ultimately, estate beneficiaries. Suppose a decedent due to illness or neglect failed to file or pay income or gift taxes during the years prior to death. The estate fiduciaries have a fiduciary obligation to prepare these old and overdue tax returns and pay the tax liability along with any interest and penalty charges. Such payments may have a large impact upon the amount of monies that pass under a Last Will or by intestacy to the decedent’s beneficiaries. The advice and counsel of estate attorneys is essential when dealing with these matters.

December 6, 2011

Estate Tax in New York Remains Uncertain

by Jules M. Haas

The Estate Tax continues to generate many articles and much analysis. As previously reported in the New York Probate Lawyer Blog, the changes in the Federal Estate Tax that occurred in December 2010 resulted in increasing the Federal estate tax exemption to $5 million dollars for 2010, 2011 and 2012. The Federal gift tax exemption for 2010 was $1 million but will increase to $5 million for 2011 and 2012. Also, during these years, the 100% marital deduction will remain and the new legislation introduces the new concept of “portability” which allows a decedent to transfer his or her unused federal estate tax exemption to a surviving spouse.

While these new tax provisions may protect more estates from potential federal estate taxes, tremendous uncertainty still exists. The new estate tax provisions expire at the end of 2012 after which the exemption shrinks to $1 million. Adding to the complexity is the New York State estate tax which currently has an exemption of only $1 million. Thus, if a decedent’s estate transferred more than $1 million to a non-spouse, the estate may be subject to New York estate tax. For example, if a decedent’s estate was $2,000,000 and was inherited by children, the $5,000,000 federal exemption would result in no federal estate tax. However, a $2,000,000 estate would result in a $99,600.00 New York estate tax.

Consulting with a New York estate planning attorney is important both to plan an estate for the future and to help with estate settlement and administration following a death. One important aspect of post-death planning can involve the use of the new “portability” provision. A key aspect of preserving the unused portion of a decedent’s federal exemption is to timely file a Federal estate tax return (Form 706). In a recent article in Forbes by Robertson Williams, dated November 30, 2011,The Coming Flood of Estate Tax Returns, the author notes that many tax returns may be filed for the sole purpose of preserving the portable exemption from one spouse to the other.

Estate Executors and Administrators have the fiduciary responsibility of collecting estate assets, paying debts and expenses, and preparing and filing estate tax returns. In view of the complexity of the tax laws, the job facing the fiduciary is not easy. Consultation with probate and estate settlement lawyers and other tax advisors is essential to protect estate assets and take advantage of all deductions and exemptions.

August 23, 2011

IRS Provides Guidance for Executors of New York Estates for 2010 Deaths

by Jules M. Haas

A recent article on Forbes.com lays out the long-awaited guidance for executors of estates of people who died in 2010, explaining how executors can opt out of the estate tax and which tax rules apply to assets if they do.

Being named an executor in a New York estate or trust carries a big responsibility and one of those responsibilities is determining how best to handle the assets and minimize New York Estate Taxes. But this isn’t something a person must handle on their own. Hiring an experienced and knowledgeable New York City Estate Lawyer to provide guidance in this area of law is a smart move for someone who isn’t familiar with the law.While New York state law doesn’t conform to the federal estate tax laws, there are ways to save on estate taxes through various strategies that can be used, such as by giving a lifetime gift or charitable contribution. There are many areas of this law and a New York Estate Lawyer should be hired to provide advice for every step of the way.

According to the article, the estate tax and the generation-skipping transfer tax were repealed on Jan. 1, 2010, but last December, President Obama signed a law that reinstated them. This law gives people who died in 2010 a special tax break, meaning executors can opt out of the default estate tax regime. In 2010, the maximum federal estate tax rate was 35 percent. The New York Probate Lawyer Blog has previously reviewed the new federal estate tax laws.

Opting out requires the filing of Form 8939 and also means opting out of the stepped-up basis rule and into the carryover basis rule under the Internal Revenue Code.

Carryover means that assets keep the same basis and the basis in the hands of the decedent “carries over” to the recipient. If the basis is greater than fair market value, the basis is limited to the fair market value, however, the article states.

The article also reports that the generation skipping transfer tax exemption in 2010 was set at $5 million with a 0 percent tax rate and that the wealthiest of taxpayers had only a brief opportunity to take advantage.

It’s obvious from this article how complicated being an executor can be in a New York estate. There are many options to consider when determining how to handle a New York estate or will. There are both state and federal tax laws to take into consideration, all while balancing the desires of the decedent and perhaps the constant bickering from estate beneficiaries. It is a lot to balance and must be handled carefully in order to properly care for the decedent’s assets.

July 25, 2011

Manhattan and Other New York Couples Still Face Estate and Other Problems Under the Same-Sex Marriage Law

by Jules M. Haas

Beginning on July 24, 2011 same-sex couples will be allowed to marry in New York. As is common with most new laws, marriage equality provides many new estate and property rights while leaving unanswered other issues.

As is provided throughout New York estate statutes such as the Surrogate’s Court Procedure Act (SCPA) and the Estates, Power and Trusts Law (EPTL), marriage creates a plethora of spousal rights that are quite beneficial. For instance, EPTL section 5-1.1-A provides for a spousal right of election. In essence, the statute seeks to prevent one spouse from disinheriting the other through a Last Will. The statute grants the disinherited spouse certain rights to receive a minimum share of a decedent’s estate.

Similarly, where a person dies intestate without a Last Will EPTL section 4-1.1 provides that the surviving spouse is to receive a share of the estate. Absent the recognition of same-sex marriage, the death of one partner in a same sex relationship left the surviving partner as nothing more than a stranger with regard to estate distribution unless the decedent had actually named the survivor as a beneficiary under a Last Will or other testamentary document such as a revocable trust.

Manhattan probate and administration proceedings, as well as proceedings throughout New York, have been dramatically changed by the new law. Despite these new state entitlements, questions and problems remain, particularly with regard to estate planning and government entitlements. As of now, a federal statute called the Defense of Marriage Act (DOMA) provides that federal law only recognizes a marriage between a man and a woman. Thus, the same sex marriages that result in the recognition of state-level benefits are ignored for purposes of federal law. As an example, the New York Probate Law Blog has discussed the amendments to the Federal estate tax laws that were enacted in December 2010. Among the changes in the Federal law was a provision that allowed the “portability” or transfer of the unused $5,000,000 estate tax credit between spouses. However, such portability appears not to be available at present to validly married New York same sex couples since they are not considered to be married under Federal law. New York estate planning and estate settlement issues can be very complex given the conflicting application of laws. The same problem arises with the unlimited estate tax marital deduction which would be applied for New York estate tax purposes but not Federal estate tax.

In an article entitled For Love and Money: Inequalities Remain Despite Same-Sex Marriage, written by Allison Arden Besunder published in Law.com on July 1, 2011, many of the “disparities” and conflicts between Federal and New York State laws are discussed.

I represent clients in Surrogate’s Court proceedings and estate tax and property matters. As a New York City estate attorney, it is apparent that clients preparing their Wills and executors administering an estate require an indepth understanding of both Federal and State laws.

July 19, 2011

Queens and Brooklyn Will and Estate Planning Is Necessary

by Jules M. Haas

A recent survey posted on The Wall Street Journal’s MarketWatch website found that while Americans believe that estate planning and wills are important, they do not have the documents in place for themselves. Residents of Queens and Brooklyn, particularly those owning homes, should not leave the disposition of their assets and estate settlement to be determined by inheritance statutes.

For New York Estate Planning Lawyers, this seems to be an accurate survey. Most Americans would be able to tell you what a will is and that it is necessary, but many also would probably admit they haven’t made any plans for what will happen to their assets when they die. Because most people consider death a far-off event, they don’t plan today.And that can be dangerous. New York wills and estate planning is critical because not only does it save your relatives time, money and effort when you die, it ensures that the wealth you spent years accruing doesn’t get swept away in taxes or go to someone other than your desired beneficiary.

According to the survey, which was conducted by EZLaw, 60 percent of Americans believe that all adults should have a will or estate planning documents. But only 44 percent report that they themselves have these documents in place. I have helped many clients with Brooklyn probate matters as well as Queens estate administration. Proper planning is essential to expediting these proceedings.

In contrast to those numbers, 36 percent of Americans with minor children do not believe that wills or estate plans are among the most important documents to have on hand. Rather, adults with minor children in the household rank birth certificates (76 percent), and titles/deeds for property and vehicles (70 percent) as the most important. While parents with minors understand that a court will decide the child’s legal guardian if they die before the child turns 18 and there is no will, only 39 percent have any documents in place for such an event.

Reasons given for not making a will or estate plan a priority vary widely. According to the survey, 37 percent of Americans cite a current focus on “essentials,” such as paying bills and buying groceries, as the top reason they don’t have any estate planning documents. Other reasons cited by survey respondents include:

Not necessary (18 percent).

Too complicated to deal with right now (16 percent).

Too expensive (14 percent).

Belief that their spouse and/or children will automatically receive any assets that they have (13 percent).

Too time consumng (6 percent).

Gender and age also play a factor in the findings, the survey reported. For most Americans, finding money to retire and preserving their health are main priorities rather than protecting their financial assets. Women are more concerned with their weight (47 percent) than protecting their assets (43 percent).

Most disturbing is that parents with minor children haven’t made plans to care for their children in the event of their death. While New York Intestate Laws would dictate that the children receive the assets, they wouldn’t necessarily determine where the child would live. This could spark contentious debate among surviving family members and could be avoided by having documents prepared and filed away. Additionally, more flexibility can be provided if a trust is established for a child rather than relying on the often restrictive Court appointed guardianship rules.

It doesn’t take much to prepare a will and other directives in the event you die. New York Estate and Will Lawyers have done this for many families and individuals and are prepared to help you, too.