New York Probate Lawyer Blog

February 24, 2011

Properly Naming Beneficiaries of Retirement Accounts Critical to New York Estate Planning

As part of our ongoing series on Avoiding Probate in New York, we examine the issue of retirement accounts and beneficiaries.

As always, we preface the discussion by saying that avoiding probate does not mean you do not need a New York City probate lawyer. In fact, investing in professional estate planning services in New York is the best way to ensure your assets are protected, and that your estate is distributed in accordance with your wishes after your passing.Previously on our New York Probate Lawyer Blog, we reported on why avoiding probate in New York might not be for you, as well as the complications that may arise from bypassing probate in New York.

One of the most common issues — and certainly the most easily corrected– is the failure of a decedent to properly name beneficiaries on retirement accounts. When we say easily corrected, we are of course speaking about corrections made prior to death. After death, the naming of an incorrect beneficiary on a retirement account is much more complicated. Still, ex-wives and ex-husbands routinely remain on retirement accounts, which are often the most valuable asset of a deceased. This is particularly true in cases of sudden death in middle age.

As a general rule, however, properly naming a beneficiary on a retirement account can bypass the probate process in many cases. Even after the market meltdown, 401 (k) plans and similar retirement vehicles held a total of $14 trillion in 2008. A potential complication of such inheritance is income tax, which may be due on withdraws made even after a person dies.

Properly naming the beneficiary is critical, particularly in divorce situations as we have already discussed. In cases where a current spouse inherits, he or she may have more flexibility (including leaving the money in the account) than in those instances where someone else is the named beneficiary. Typically, unless a spouse inherits, the beneficiary will be required to begin withdrawing money and will therefore incur the associated tax consequences.

Additional considerations should be made when naming a minor child. A large inheritance to a minor child could result in court supervision. Another common complication is the naming of more than one beneficiary, which can result in a spouse’s forfeiture of the ability to leave the money in the account and will result in mandatory withdraws based on the age of the oldest beneficiary.

We see there are many benefits to properly naming beneficiaries to a retirement account. And, of course, a few complications. But with a little diligence and planning, significant assets can be left to the beneficiary of a retirement account without the intrusion inherent in the probate court process.

February 22, 2011

Contested Will Results in Settlement after Undue Influence Alleged with Dementia Patient

by Jules M. Haas

The beneficiaries of the estate of a wealthy Connecticut woman have agreed to settle a dispute over changes made to her Will after she was diagnosed with dementia, Bloomberg News reported.

Sadly, theft from the elderly and other forms of estate fraud are an all-too-common occurrence. A New York City estate planning attorney can assist residents with making estate plans that minimize such risks. In some cases, a loved one may file for Article 81 Guardianship in New York to take over the affairs of a vulnerable or aging loved one.And safeguards in probate court may also offer some protection. In still other cases, contesting a Will in New York may be the best option.

In this case, a trial over the $3.6 million estate was set to begin this month in West Harford. However, the sides have reached an agreement. The 89-year-old art teacher’s fortune was left to several colleges and other beneficiaries. Her husband, an aviation executive, died in 1999 and their only child passed away in 1963.

The dispute centered around two people who were close to her at the time of her death; they were set to inherit about $1.3 million after changes were made to her Will in 2006. The settlement will largely restore the directives of a previous Will. The changes eliminated large donations to several colleges and other beneficiaries, which led to the probate court challenge.

The decedent left $1 million to the University of Hartford to establish a scholarship in her daughter’s name. Jeanne died of meningitis while a freshman at the university. The 2006 Will cut the donation to just $100,000. Other schools that were set to receive money until being cut from the 2006 Will were Columbia University’s Teachers College, New York University and Parsons.

The settlement calls for the University of Harford to get about $900,000 and for the three New York schools to get about $160,000 each. The 2006 Will was completed shortly after doctors diagnosed her with dementia. She was moved to an assisted living facility a month later.

February 17, 2011

New York Estate Fiduciaries and Guardians Must Consider Internet Information and Assets

by Jules M. Haas

New York Executors, Administrators and Guardians have the responsibility of ascertaining, protecting and collecting the assets, documents and other effects of the estate or incapacitated person they are appointed to oversee. The New York Probate Lawyer Blog has previously discussed fiduciary responsibility concerning asset determination and protection.

An interesting aspect in this area of responsibility concerns assets, information and accounts that are internet or web-based. A fairly basic question is what becomes of a website or Facebook account or other internet based information after a person dies or becomes incapacitated. An insightful article by Ken Strutin entitled What Happens to Your Digital Life When You Die? appeared in Law Technology News on January 26, 2011. As noted in the article “the majority of state laws make no specific provisions for information assets such as those stored in the cloud.”

An Article 81 Guardian or a New York Executor faces issues not only with collecting and preserving these internet items, but may need to be able to value them for tax purposes or possibly for disposal by sale. For the most part, the estate settlement process will be in unchartered waters when dealing with such matters. As a New York Guardianship and Probate attorney, I have assisted clients in resolving many different and complex issues regarding asset identification, collection and disposal. Fiduciaries that are appointed by the Court bear a lot of responsibility in resolving the diverse issues they encounter in administering an estate. It is important for them to consider all matters thoroughly and make decisions that avoid Court criticism.

February 15, 2011

Federal Estate Tax Changes Affect New York Estates

by Jules M. Haas

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 4, 2011

New York Guardianship Property Transfers Require Court Approval And Review

by Jules M. Haas

The New York Probate Lawyer Blog has previously discussed numerous aspects concerning the appointment and duties of an Article 81 personal needs and property management Guardian.

Very often the assets of the incapacitated person includes real property such as a home. It may become necessary for the Guardian to sell the home if the incapacitated person no longer can live in a community setting due to illness, or if the maintenance of the home is unaffordable or if the proceeds from the sale are needed for the person’s long term care.

Other considerations may be presented where the home might be transferred to a relative in conjunction with Medicaid or estate planning and thereby preserved for the incapacitated person, as well as family members, to live in.

An interesting situation involving such a transfer arose in the case of White v. Prister, 912 N.Y.S.2d 127 (2nd Dept. 2010). In White, a daughter had been appointed as guardian of the person and property of her mother, Lila. Following the appointment, the daughter moved into the mother’s house and after a few years asked the Court for permission to transfer the title to the house to the daughter/guardian “for Medicaid and estate planning purposes.” The Court approved the transfer and the deed to the house was placed in the daughter’s name.

After Lila died, her great granddaughter, on behalf of Lila’s estate, sought to set aside the deed. The Court refused to undo the transfer and dismissed the great granddaughter’s case finding that the daughter was allowed by the family to live in the house for many years after Lila’s death without any objection. Thus, the equitable concept of “laches” or undue delay prevented the voiding of the deed. The Court found that it would have been inequitable to force the daughter to give up the house at such late date.

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.