Trusts and Estates

February 15, 2011

Federal Estate Tax Changes Affect New York Estates

The Federal estate tax ceased to exist in the year 2010. At least for most of the year it seemed that the estate of a person who died in 2010 would not be subject to any Federal estate tax. However, since other provisions relating to the estate tax, particularly, “step-up” basis rules, also drastically changed with the disappearance of the tax, both confusion and potential hardship faced many 2010 estate administrators. In New York, the estate tax exemption remained at $1,000,000.00 which added even more complexity and uncertainty to planning and estate settlement in New York.

In late December 2010, Congress and the President finally passed legislation which provided at least some clarity to the void that had existed earlier in the year. Essentially, the new law reinstated the Federal estate tax for 2010 but raised the exemption to $5,000,000.00 for estates of decedent’s who died in 2010, 2011 and 2012. However, the $5,000,000.00 exemption for gifts does not apply until 2011.

Under the new law, the “step-up” basis rules again apply to estate assets. An estate is also given the option of opting-out of the 2010 estate tax and instead, accepting “carry-over” basis treatment for estate assets. Another interesting and beneficial feature of the new law allows portability of the $5,000,000.00 exemption between spouses. Thus, if one spouse dies in 2011 and does not use all of his or her exemption (say – $1,000,000), the unused portion can be transferred to and used by the surviving spouse thereby increasing his or her exemption above the $5,000,000.00 level.

The new Federal tax law does not change the New York estate tax exemption limit of $1,000,000.00. Therefore, the variance between the State and Federal tax laws and the unfamiliarity with the nuances of the just passed Federal legislation present challenges to planning a New York estate.

It should be remembered that the Federal and New York estate tax applies to a decedent’s gross estate. Generally, the gross estate includes all assets that pass through probate and are distributed according to a Last Will or by intestate administration as well as assets that pass by operation by law such as joint bank accounts or life insurance that has designated beneficiaries.

February 9, 2011

Complications May Arise From Estate Settlement Outside New York Probate

by Jules M. Haas

As we discuss the pros and cons of avoiding probate court that certainly does not mean you will not need the help of a probate lawyer in New York City.

As part of our ongoing series on estate settling options, we reported on our New York Probate Lawyer Blog that avoiding probate in New York is not for everyone. However, there are certain advantages to avoiding probate in New York.An article in The New York Times also tackled the issue.

Probate is the system used to determine the validity of a Will before an estate is distributed to heirs. It is a public process, and can be time consuming. Passing assets outside of probate keeps the process private.

Establishing a Living Trust in New York is the most common method of avoiding probate. A Living Trust holds assets for your use during your lifetime and then distributes them to your chosen heirs after you pass. However, such trusts only avoid probate to the extent assets are placed in the trust.

Non-trust assets must still go through the probate process. Other assets that will avoid probate include assets that have a named beneficiary such as retirement assets, life insurance, savings bonds and jointly held real estate or bank accounts. This can also cause problems — as in cases where one child is named in a joint account for the purposes of taking care of an aging parent. Money in that account will automatically pass to the surviving account holder, whether or not that was the intention.

Checking the beneficiaries on accounts and life insurance policies is an important consideration. Seeking the advice of a New York estate lawyer can be a great investment when it comes to ensuring that your affairs are in order. The peace of mind can be priceless.

February 7, 2011

Payable-on-Death Accounts one Option for Distributing Estate Funds in New York

by Jules M. Haas

Consulting a New York City probate attorney is always the best option when establishing estate plans, executing a Will or deciding upon the best course of action for distributing your estate after your passing.

For some, probate court is a good option. Others may choose estate planning options that permit them to bypass probate court. This is the third blog in our series. Recently we wrote avoiding probate court is not for everyone and about the many advantages to avoiding probate. Here we are going to look at some common issues with bank accounts. One option is to create a Totten Trust, tentative trust or informal trust. These are payable-on-death accounts. Adding a payable-on-death designation can be done for many types of accounts, including certificates of deposit, checking and savings. By listing the beneficiary on the signature card, you have established where the assets go at the time of your passing.

This is not the same as a joint account. A joint account frequently comes with “right of survivorship.” In these cases, a POD (Payable On Death) designation would only apply after the death of the second account holder.

Beneficiary issues for bank account inheritance in New York:

-Children: While you can name a minor child as POD beneficiary, you might want to explore appointing an adult to hold the money on a child’s behalf. Or make other arrangements to provide some restrictions and guidance. Appointing a guardian for the funds can be easily and inexpensively done through the Uniform Transfer to Minors Act. In New York, such custodianship would be good until a minor child turns 21.

-Multiple Beneficiaries: Can be designated on the appropriate bank documents. However, you cannot name an alternate payee.

-Your Spouse: May have rights to the funds in the account and a POD should not be used as an attempt to exclude them from collecting.

-Creditors: You can’t use a POD to empty an account and short-change creditors.

You may also run into issues by trying to use a Will to change a POD designation. In cases where you change your mind, you can simply close the account or you can go to the bank and change the paperwork.

And, like with most types of inheritance, you may owe New York estates taxes and federal estate taxes on the proceeds.

February 2, 2011

Rights Of The New York Surviving Spouse Are Not Clear In Same-Sex Marriages

by Jules M. Haas

New York and Federal Laws generally provide many advantages and protections for married individuals. For example, in New York a person may not disinherit his or her spouse. New York Estates, Powers and Trusts Law (EPTL) Section 5-1.1-A provides a spouse with a Right of Election to take a portion of the deceased spouse’s estate. This share is, subject to a complex formula, equal to the greater of $50,000.00 or one-third of the estate.

Similarly, when a spouse dies intestate (without a Last Will), Section 4-1.1 of the EPTL provides for the spouse to obtain the entire estate or at least $50,000.00 and one-half of the residue or balance if the decedent had issue (i.e., children). Also, New York Courts have given spousal status to the surviving spouse of a same-sex marriage performed in a jurisdiction outside of New York.

On the Federal level, the Federal (and New York) estate tax laws provide for a 100% marital deduction for assets passing upon death between spouses. However, the Federal estate tax spousal deduction has been denied to a same-sex couple. As reported in the New York Law Journal on November 12, 2010 by Victor Li, New Challenges To DOMA Filed in Connecticut and New York, the Federal 1996 Defense Of Marriage Act (DOMA) “defines marriage as a legal union between a man and a woman.”

Thus, pursuant to DOMA, and as reported in the Article, the federal estate tax marital deduction was denied to the surviving partner of a same-sex marriage which resulted in a tax liability of $363,053.

As reported, a number of federal lawsuits are pending challenging the constitutionality of DOMA. As can be seen from this controversy, a person’s status as a spouse and as a distributee (next of kin) of a decedent can be the subject of contention and litigation in the New York Surrogate’s Court. The determination of these issues can effect the rights of individuals to inherit from a decedent as well as the tax liability of the decedent’s estate.

January 28, 2011

Guardianship, Special-Needs Trusts In New York Should Be Considered When Caring For Those With Disabilities

by Jules M. Haas

As we begin 2011, we encourage you to take special care in planning for the welfare of a child with special needs. Consulting a New York City guardianship attorney is a great way to bring peace of mind to the issue of caring for a child or adult-child in your absence.

In other cases, a New York Article 81 Guardianship proceeding can assist in caring for an older loved one who is no longer able to manage their affairs.One aspect that is often overlooked is the need to provide for the care of such dependents in your New York estate plans. Leaving an estate to a loved one can prevent them from collecting state or federal aid. Life insurance proceeds can lead to the same unwanted result. Establishing a special-needs trust is one option that will ensure the long-term care of a loved one in your absence.

When a child with disabilities reaches the age of maturity, a parent or loved one may petition for guardianship under Article 17A of the New York Surrogate’s Court Procedure Act. More than 280,000 people in New York are believed to have mental retardation and another 24,000 have cerebral palsy. The New York State Mental Hygiene Law defines mental disability as:

-Attributed to mental retardation, cerebral palsy, epilepsy, neurological impairment, autism or other closely related condition.

-Originates before a person reaches the age of 22 and has continued or is expected to continue indefinitely.

-Constitutes a substantial handicap.

Once such guardianship is established, you will be able to continue to assist an adult child with special needs in whatever capacity is necessary. However, caring for them after your departure will still require sound estate planning, including a special needs trust or a supplemental needs trust. These investment vehicles will permit your estate to go toward the care of a loved one with special needs without jeopardizing government benefits, Medicaid or other assistance.

January 27, 2011

Avoiding Probate Court Process In New York Not For Everyone

by Jules M. Haas

While many seek the advice of a New York City probate lawyer to establish a Will, trusts, or other estate plans, far too many will die intestate, without a Will or other directions for the dispersal of their estate upon their death.

As we wrote recently on our New York Probate Lawyer Blog, trusts can be made to keep your estate out of the probate process, which can be time consuming and unnecessarily public. Yet there are some things that cannot be accomplished by avoiding probate in New York. Avoiding Taxes: Certainly comprehensive estate planning in New York may save thousands in taxes. But the mere fact that an estate avoids probate does not mean that it avoids tax obligations. State and federal estate taxes, capital gains taxes and real estate taxes are just a few of the tax obligations that estates frequently face.

Rights of immediate family: Avoiding the probate process, in general, does not change the fact that your spouse has a right to inherit. A spouse who does not receive a “statutory share” may go to court to claim property you have put in trust. In most cases, you are not obligated to leave your children an inheritance.

Creditors’ Rights: Bypassing probate may not relieve you of your obligation to creditors or their right to collect upon your death. If you do not leave enough assets outside of trust to pay your debts and taxes, those assets may be claimed by creditors after your death.

Creditors have strict time limits for making a probate claim. This is one area where going through probate court has its advantages. A creditor that does not make a claim within the appropriate time limit, may be barred from attempting to collect.

Understanding your rights to probate — as well as the ways to avoid the probate process — can allow you to make informed decisions as part of your estate planning in 2011 and beyond.

January 25, 2011

Many Advantages To Avoiding Probate Court In New York

by Jules M. Haas

There can be many benefits to avoiding the probate court process in the settling of an estate, including more privacy. Contacting an estate planning lawyer in New York City is a good first step toward putting your affairs in order as we begin 2011.

This is the first of several posts to our New York Probate Lawyer Blog that will examine ways to avoid the probate court process and the possible benefits and consequences of doing so.In general, if a decedent has no Will, known as an intestate estate, or if his or her estate is governed by a Will, the estate will go through the probate court process for dispersal to named heirs or living relatives. Some small estates, valued at less than $30,000, may avoid the probate court process.

New York does not follow the uniform probate code, as is in place in some other states, which can make the process longer and more costly in some instances. Establishing a trust in New York or taking other steps to avoid probate, may be to your advantage in many instances.

Other common challenges inherent in the probate process include:

-Identifying and contacting relatives: In cases where spouse and children are present this is not much of an issue. But in cases where a decedent passes away with only distant relatives, tracking down relatives can be an unnecessary headache.

-Lack of privacy: Probate court is a public forum and a family’s private finances and other information will become public for all to see.

By creating trust funds and taking other steps to avoid the probate court process in New York, you can ensure that your heirs receive the inheritance privately, with as little cost, hassle and wait as possible. Probate court does a lot of things right — including ensuring the proper distribution of your assets to your chosen heirs — but the same may be accomplished in a private, expedited manner with a little forethought and some basic estate planning.

January 19, 2011

Life Insurance Can Provide Many Benefits To A New York Estate Plan

by Jules M. Haas

The New York Probate Lawyer Blog has previously discussed the need for estate planning documents including a Last Will, Health Care Proxy, Living Will and Power of Attorney. Life Insurance can also provide a valuable estate planning tool. In its most fundamental function, life insurance can add a tremendous amount of liquidity and value to an estate. The payment upon death of a life insurance policy with a cash value of say $500,000.00 most certainly would provide an immediate benefit to the named beneficiaries.

Life insurance products can be complex and can take various forms such as term life, whole life or universal life. Before purchasing life insurance, a person should fully research and understand the different aspects of each product and obtain advise from professionals including insurance brokers, attorneys and financial advisors.

Additionally, the selection and designation of the insurance beneficiaries must be considered and made so that the life insurance proceeds are paid in a manner that is part of an overall estate plan. Very often people take out life insurance and either forget to name beneficiaries or beneficiaries who were named are no longer alive or perhaps are no longer intended by the policy owner to be the preferred recipients.

While life insurance can provide a huge benefit upon a person’s death, there are also a number of potential advantages that arise during a person’s life. One very interesting advantage is that a policyholder may sell their interest in the policy to another during their life. The investor essentially pays a fee to the owner and invests in the prospect that the person whose life is insured will die sooner rather than later. The insurance proceeds are paid to the investor. This arrangement is called “Stranger-owned life insurance” (“SOLI” or “STOLI”) and was recently found not to violate New York Insurance Law by the New York State Court of Appeals in Kramer v. Phoenix Life Insurance Co., decided on November 17, 2010. Thus, a person can obtain an immediate pre-death benefit from insurance on his or her life by assigning the policy to an investor.

January 12, 2011

Safekeeping of A New York Last Will Is Vital To Protect Beneficiaries

by Jules M. Haas

The New York Probate Law Blog previously talked about the importance of maintaining a Last Will in a safe and secure location. After investing the time and effort to develop an estate plan and finalize a Will and other estate planning documents such as advance directives, it would be unfortunate if the Will could not be located after a person dies.

As previously pointed out, there are a number of alternatives available with regard to safeguarding a Will. The original can be left with an attorney or kept by the person himself. A Will can also be filed with the Surrogate’s Court. Keeping a Will in a safe deposit box can be problematic since a Court Order may be required to open the box after a person’s death, thus delaying estate settlement proceedings. Also, a legal presumption may arise that the Will was revoked if it is kept by the person himself or herself and the Will cannot be located after death. Attempting to probate a photocopy of a misplaced Will can be extremely difficult.

Issues that arise concerning locating a decedent’s Will are evident from a recent lawsuit filed by the sibling’s of Mama Cass, who was a member of the 1960’s group The Mamas and The Papas. As reported in the New York Law Journal on January 11, 2011, from an article appearing in The National Law Journal by Leigh Jones, Mama Cass’ died in 1974. In their lawsuit, the siblings alleged that a law firm which recently located Mama Cass’ 1967 Will in their archives, had told them at the time of her death that a Will could not be found. Since Mama Cass had apparently died without a Will, her estate was distributed pursuant to California’s law of intestacy rather than in accordance with the terms of the just found Will. As a result, the siblings claim that they were damaged by not receiving a part of the estate. “The lawsuit claims malpractice, negligent misrepresentation and fraud.”

January 5, 2011

New York City Estate Leaves Popular Upper East Side Restaurant to Employees

by Jules M. Haas

The Huffington Post reports that the owner of a popular Upper East Side restaurant has left the business to its longtime manager.

New York estate lawyers frequently report here on our New York Probate Lawyer Blog about the challenge of leaving a business to heirs. Without proper estate planning, the results can be tragic. It is not unusual for heirs to be forced to sell a business to pay taxes and satisfy other obligations as a result of an inheritance.State and federal inheritance taxes, capital gains taxes and property taxes are just a few of the issues that can plague the transfer or sale of a family business. In some cases, life insurance is bought to assist with the cost but can have its own implications if not properly purchased and structured.

Business owners should do themselves and their heirs a favor and make visiting an estate planning attorney a resolution in 2011.

In this case, the New York Times reports that Elaine Kaufman’s death in December left many wondering what would become of “Elaine’s” the popular eatery on the Upper East Side. Turns out, the owner has left the restaurant to her longtime manager Diane Becker.

Kaufman also left much of her estate to Becker and to her longtime maitre d’hotel, Giovanni Adamo, known by regulars as Gianni.

The new owners promise to run the restaurant the way it has always run, saying “the only missing link is Elaine.”