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Katya Sverdlov Blog

Monday, February 9, 2015

Social Security “Spousal Benefits” – the money you never knew you had!

Spousal benefits are available to spouses, divorced spouses and widows / widowers. Married individuals can choose which Social Security benefit they will receive – their own or a percentage of their spouse’s, whichever is greater. The benefit of receiving the ‘spousal benefit’ is to delay the collecting spouse’s retirement age, and as a result, receive a larger Social Security Payment from her own earnings in the future.

When Should One Apply for Spousal Benefits:

Only after the both spouses reach the full retirement age (FRA). If you apply before the FRA, you may be permanently penalized and will not receive the full benefit of the program.

How Does It Work?

For example, Mary is 66 (her FRA), and her husband Jake is 67 (past his FRA). Jake is entitled to collect $2,000 from Social Security. Mary, if she were to start collecting her own social security benefit, would receive $800. Mary can either begin collecting her own benefit, or collect the $1,000 of the “spousal benefit” for the next 4 years (50% of Jake’s full benefit). As a result, she will delay collecting her own benefits until the age of 70. At the age of 70, she can begin collecting her own benefits, but at that point they will be 132% of the original amount - $1,056.

What If The Higher Earning Spouse Does Not Want to Collect His Own Benefit Yet?

In order for Mary to collect the “spousal benefit”, Jake needs to apply for his own benefit first. If he is not ready to start collecting yet, Jake can apply for benefits and then ‘suspend’ them. As a result, Mary will collect her spousal benefit based on Jake’s retirement benefit at the FRA. Simultaneously, by suspending the receipt of his own retirement benefits, Jake will be taking advantage of the increased benefits that he will receive after he turns 70. There is absolutely no downside to collecting ‘spousal benefits’.

Are These Benefits Available for Divorced Spouses?

Yes.  As long as you have been divorced for at least 2 years, the marriage lasted 10 years or longer, both you and your former spouse are aged 62 or older, and the former spouse is entitled to Social Security Benefits, you are entitled to ‘spousal benefits’.

Two additional benefits for divorced spouses:

  1. the former spouse does not need to know that the spouse has applied for ‘spousal benefit’

  2. the former spouse need not have filed (or filed and suspended) his own Social Security benefit in order for you to receive it.

Are These Benefits Available for Widows / Widowers?

At the death of one spouse, the surviving spouse will receive the larger of her own benefit or her husband's benefit, but not both. Therefore, it is beneficial for both spouses not to take their retirement benefits too early. The delay in collecting Social Security and maximizing  both spouse's benefits can act as another form of life insurance.

See more at: http://individual.troweprice.com/retail/pages/retail/applications/investorMag/2014/june/managing-it/index.jsp

This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.


Thursday, February 5, 2015

Trusts will be the only solution if the “Step Up” in basis is eliminated

Earlier I wrote a post about what is the step up that President Obama wants to eliminate. Currently, the step up in basis is the favorable tax treatment that heirs get if the assets were held until death by the parent. If the mother buys stock at $20 a share, holds on to it until the share price rose to $100, and then dies, the heirs will not need to pay any capital gains on the appreciation. Obama wants to eliminate this ‘loophole’, treat death as a taxable event, and make $80 appreciation taxable immediately at death.

The unintended consequence of this proposal would likely be an increased use of trusts. If the mother holds the stock that she bought at $20, and thinks that the stock is likely to appreciate significantly (such as, for example, shares of a closely held corporation), she would be better off transferring the stock into a trust. For example, if she transfers the stock when it is worth $30, under the new proposal only $10 would be immediately taxable. Any further appreciation (such as when the stock reaches $100) would take place inside the trust. As a result, it would be outside the estate of the mother, and the mother’s death would not trigger a taxable event.

There are multiple assets who would benefit from being transferred to a trust if this proposal goes through. Art work, income producing real estate, stock of a closely held corporation – basically all the assets that heirs might want to hold on to after the parents’ death, yet whose value is high enough that heirs might not have sufficient cash to pay the death taxes.

 

http://www.forbes.com/sites/janetnovack/2015/01/20/obama-attack-on-trust-fund-loophole-could-increase-tax-advantage-of-trusts/

This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.


Sunday, February 1, 2015

Differences between Medicare and Medicaid

The cost of nursing home care or 24 hour home care averages over $140,000 per year in New York City. At this rate, only the very wealthy can pay indefinitely for this care, without depleting their lifetime savings. Since most people do not have private long term care insurance to pay for this cost, seniors look to government programs to pay for the cost of long term health care. The following explains some of the differences between Medicaid and Medicare, the programs that people rely on to pay for this cost.

Difference Between Eligibility for Medicaid and Medicare

Medicare is available for those above 65 years of age and those with disabilities under the age of 65 who have received Social Security Disability benefits for 2 years. Medicare is based on one’s payments into the Social Security system, therefore eligibility is not based upon the income or assets of a beneficiary.

Medicaid is means tested, i.e. the recipient must qualify financially, both based on income and assets. In 2015, for people older than 65, the annual income threshold for a single individual is $9,900 ($14,500 for a married couple) and the asset threshold for a single individual is $14,850  ($21,750  for a married couple).

What Does Medicare Cover and What Does Medicaid Cover?

Medicare Part A covers in-patient medically necessary hospital care, skilled nursing facility care, skilled home health services and hospice care.  The requirement for “skilled” is very specific, Medicare Part A will not cover nursing home care or home care if it is simple "personal care services" (feeding, dressing, etc).  The fact that Medicare does not cover regular long term care comes as a surprise to many.  

Medicare Part B covers physician’s payments.

Medicare Part C provides beneficiaries with alternatives to the traditional fee for service. The services are provided by various health care providers, such as Health Maintenance Organizations ("HMOs").

Medicare Part D covers prescription drugs.

Medicaid covers chronic care in hospitals, skilled nursing facilities, participating physicians’ fees and home care services. Since Medicaid covers home care and nursing home care, something that Medicare and most private insurance plans do not, Medicaid coverage becomes almost a necessity for people who are expecting to need long term home care.

What Are Countable Assets (from Medicaid’s Perspective)?

All financial accounts in one’s name are countable. Retirement plans that are in pay status do not count as assets, however the monthly distributions are counted as income. The individual’s primary residence does not count as an asset (unless the Medicaid recipient is in a nursing home, the equity in the house exceeds $828,000, and there is no spouse or disabled child living in the home).

Can One Transfer The Assets and Qualify for Medicaid?

The answer is – it depends. All transfers between spouses are exempt, therefore there is no penalty period after those transfers. Similarly, if one is applying for Medicaid while living in his home, then he can transfer the assets to his children or to a trust in one month, and become eligible for Medicaid during the following month.
However, if one is applying for nursing home Medicaid, then Medicaid looks at all transfers made within the last 5 years of the application, and determines an ineligibility period based on the amount of assets transferred. Therefore, crisis planning is usually not very effective when it comes to nursing home Medicaid planning.

 

Can One Transfer All Assets to a Spouse and Qualify for Medicaid Immediately?

Yes, however, there is a maximum resource and income allowance for the “community spouse” – the spouse who remains in the community while the institutionalized spouse is in the nursing home. The community spouse may retain the home, may retain between $74,820 and $1192,20 in assets, and may retain the maximum annual income of $119,220. However, the community spouse has a  legal duty to support the institutionalized spouse. Therefore, if the community spouse has the assets and the income above these thresholds, Medicaid is likely to institute a collection action, to compel the community spouse’s support.

In general, Medicaid seeks contribution of 25% of the excess income, but may seek up to all excess assets. It is generally advisable to convert the excess assets into an income stream.  However, as there may be a dispute about how much of an income is “excess”, unintended consequences may result, with nursing homes filing guardianship actions to compel additional payments.

One should also think about the future of the second spouse. Generally, spouses are close in age. If one of the spouses currently needs home care or nursing home care, it is likely that the second spouse may need similar type of care in a few years. Therefore, planning for the second spouse is also advisable. Transferring all assets to a ‘community spouse’ may solve the immediate crisis and is not a good long term solution.  

This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.


Friday, January 30, 2015

Top Ten Reasons Why You Might Want a Trust

The federal estate tax threshold for an individual is currently $5.43MM (and double that for most married couples). The New York State estate tax threshold is currently $2.06MM (and set to rise to the federal level by 2019). That all means that for the vast majority of New York residents, estate taxes are no longer an important reason to consider creating a trust.

Does that mean that no one needs a trust anymore? Not exactly. Below are the top 10 reasons why you might still want to create a trust:

  1. You want to avoid probate. If the assets are owned outright at the time of death and there is a will, then the family must go through probate. If the assets are owned outright at the time of death and there is no will, then the family must go through administration. Both probate and administration are costly, long-lasting, and often frustrating court processes. Placing assets in a trust avoids this hassle for your family.

  2. You favor privacy. The text of your will and the names and addresses of the people to whom you left money and property become part of the public record. A trust document, on the other hand, is completely private. If you have unusual family dynamics or a publicly recognized name you might want to keep the distribution of your assets private.

  3. You want to make it easier for your family to get control of your assets. If you place assets in a revocable trust, you can name yourself as a trustee while you are capable of acting. You name a successor trustee (a family member or an institution) to take over in case of you lose capacity or death. The transition is orderly.

  4. You have real estate in more than 1 state. If you have real estate property in more than one state, the family will have to go through the probate process in each state. Each state has its own rules and complications, and attorneys will have to be hired in each of these states.

  5. You have children who are professionals (doctors, lawyers, accountants, real estate owners). By placing assets in a trust, you can protect your children’s inheritance from creditors and malpractice claims. You can also protect your children’s inheritance from divorce proceedings.

  6. You have children or grandchildren who are minor. In a trust, you can specify when and under what circumstances your beneficiaries will receive the money. However, you will still need a will in order to specify who will be the guardian of your minor children.

  7. You have a family member who is not good with money or who has a drug / alcohol / gambling problem. You might want some kind of outside management for that beneficiary’s share of your estate.

  8. You have a child, a grandchild or a relative with a disability. If they are receiving public benefits like Supplemental Security Income (SSI) or Medicaid, you will want to create a special needs trust for any share of the inheritance that they will receive.

  9. You may want to change your mind. A trust often has the language that permits the Grantor to change the disposition of the assets amongst the various beneficiaries of the trust. Thus, if for now your trust beneficiaries are your son and your daughter equally, and later you want to give only 25% to your son, you do not need to create a new trust in order to accomplish that. You can simply write a letter stating your new preferences, and sign it in front of a notary.

  10. It is harder to challenge a trust. To submit the probate or administration petition to court, an agreement from all your potential distributees is required. If one of the children wants to cause problems, the probate process and litigation may take years and cost thousands. A trust, on the other hand, does not require a sign off from the beneficiaries in order for the assets to be distributed.

This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.


Tuesday, January 27, 2015

Asset Protection: Self-Settled Trusts vs. New York Based Trusts

The goal of asset protection planning is to insulate assets from claims of creditors without concealment or tax evasion. Many people get sued. Some are in professions that almost seem to invite litigation (doctors, lawyers, business owners, home owners). Others simply get unlucky (i.e. car accident). If one is already getting sued, then it’s too late to protect the assets. Any transfers that get made after a creditor is known may be considered fraudulent conveyance and may be invalidated. The time to plan and protect the assets is before the debt or the creditor exists.

When it comes to asset protection from future creditors, there are 2 broad categories of trust options available: self-settled trust (based outside of New York State) and New York-based trusts.

Self-Settled Trusts:

What is it:  An irrevocable trust formed under the law of one of the 14 states in the United States that permit these types of Trusts. The Grantor is a beneficiary of the Trust.

  • The States that permit the self-settled trusts are: Alaska, Colorado, Delaware, Hawaii, Missouri, New Hampshire, Nevada, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Wyoming.

Main features:

  1. The grantor of a self-settled asset protection trust irrevocably transfers assets to a trust under which he or she is a beneficiary.  The trust must also contain contingent beneficiaries of trust income and principal.

  2. An independent trustee controls all trust distributions. The Trustee must be based in the state under which the Trust is formed.

  3. The trust must contain a spendthrift provision, prohibiting the grantor and his creditors from accessing the trust’s assets.

  4. The grantor cannot have the ability to amend or revoke the trust. Often, however, the grantor retains a limited power to appoint the trust assets to persons and / or charities of grantor’s choosing at death.

Benefits:

  1. The Grantor can receive money from the Trust. This is one of the key features that make these trusts so desirable to individuals who are reluctant to part with their assets. Even though the Trust is irrevocable, the assets that are placed into it can ultimately be given back to the Grantor.

  2. Asset protection. Various states have different time periods during which the creditors can act after the asset transfer. For example, a Nevada trust has a 2 year statute of limitations – if the creditor pursues a claim 2 years after the debtor transferred his property into the trust, the assets cannot be recouped.

  3. Note, however, that if the debtor declares bankruptcy, the bankruptcy court has a 10 year statute of limitations for asset claw back.

 Drawbacks:

  1.  The Trustee must be based in the jurisdiction under which the Trust is formed. This may be a significant problem for individuals who have no relationship to the state, and who have will have a complete stranger (or a corporate entity) control the distributions to them.

  2. Some creditors still have priority. Depending on the state, there are certain categories of creditors that are exempt from the asset protection features of these trusts (child support claims, claims from divorcing spouses and / or alimony, torts, etc.)

  3. The asset protection from general creditors may also be limited. There are very few court cases that test the validity of these trusts. Lately, however, there have been several bankruptcy cases that invalidated the asset protection features of self-settled trusts.

  4. New York has a policy against self-settled trusts and does not permit their creation in New York. However, New York must respect the laws of another state, therefore there are many of these trusts done by New York residents, in the hopes that their assets will be protected.  Yet it is unclear whether, when the creditor sues, New York courts will apply the law of the New York State (and invalidate the trust) or the law of the jurisdiction where the trust is formed.

  5. Cost. It is much more expansive to create and run a ‘foreign-based’ trust than a domestic trust.

Domestic Trusts:

What is it: An irrevocable trust that is formed in the New York State and governed by the New York State laws. The Grantor cannot be a beneficiary of the Trust.

Main features:

  1. The Trustee can be anyone, including the Grantor’s family member (although the spouse of the Grantor should not be the Trustee if asset protection is the reason for the creation of the Trust).

  2. The beneficiaries are usually the Grantor’s spouse and children. But the Trust can be for the benefit of anyone that the Grantor desires, including other family members, friends and charities.

  3. Can contain a spendthrift provision, but since the beneficiaries are people other than the Grantor, this provision will apply to them alone.

Benefits:

  1. These trusts have been tested multiple times in New York courts and are valid as an asset protection tool.

  2. The Trustee can be a local individual with whom the Grantor can have a relationship (a sibling, an uncle, a grandparent).

  3. Cost. It is much cheaper to create and to administer a domestic trust.

Drawback:

  1. The Grantor cannot be the beneficiary of the trust. This is a very hard decision to make for a lot of individuals. Once the transfer of an asset to the trust is made, it is an irrevocable decision and the asset cannot be given back to the Grantor.

     

Common feature: For both domestic and foreign trusts, the transfers cannot be fraudulent, meant to hinder or delay a creditor. Therefore, if there are known creditors and the transfer to the trust would make the Grantor insolvent, the assets are likely to be clawed back.

This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.


Thursday, January 22, 2015

Planning for digital assets is just as important as planning for other assets.

What would happen to your Facebook account in case of your untimely death? Your email? Your online bank account? Your computer that is protected by a password? Your small business payroll system? Once you stop to think about the issue, you realize that without proper planning, finding and accessing your online accounts may be incredibly difficult, if not outright impossible, for the survivors.

What are digital assets? These can be digital accounts (such as Facebook, LinkedIn, Paypal, Amazon, etc), or digital assets (such as music files, photographs, Dropbox documents, Bitcoins, etc).

Why plan for these assets?

  • To ease the burden on the surviving relatives. Without a comprehensive list of accounts with passwords, survivors may never get the necessary information that you had wanted to share.

  • To prevent identity theft. There are multiple ways for thieves to obtain people’s information. With no one monitoring the accounts that relatives may not even be aware of, identity theft is rampant.

  • To preserve the digital legacy. Facebook refuses to provide information about the account to survivors once it is aware that the account holder has passed away. Other internet companies have similar provisions.  Your entire digital life may be erased.

  • To determine privacy issues. With advance planning, you have the ability to determine which accounts are acceptable to share with your relatives and the rest of the world, and which should remain private forever.

What happens if the survivors are not aware of accounts or passwords? Potentially, a crime! Federal laws criminalize the unauthorized access of computers and digital accounts and prohibit most service providers from disclosing account information to anyone without the account holder's consent.  By law, if an executor hires a computer specialist to find out the password on an account, under both federal and state laws, the executor is guilty either of a crime or a misdemeanor. You do not want to put the survivors in the position where their only option would be to commit a crime.

How to plan for digital assets?

  • You can create an inventory of all your accounts, together with passwords and security questions.

  • Include appropriate provisions in the will, giving your executor authority to access the digital assets.

  • Include appropriate language in the Power of Attorney ,  giving your your agent authority to access your digital accounts.

  • Consider digital estate planning services

  • Back up regularly

This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney client relationship.


Wednesday, January 21, 2015

What is the Step Up Basis that Obama Wants to Eliminate?

This is an extremely valuable tool in the long term tax planning that saves middle class thousands of dollars in taxes every year. It also enables families to pass on their most valuable possessions at death without the need for beneficiaries to immediately sell it.

What is it? Under the federal tax code, if a tax payer holds an asset until his death, the owner’s cost basis for such asset rises to the full market value at the time of death. That means that the starting point for measuring a tax gain rises to the value of the asset at the time of death. This has huge tax saving implications for the people inheriting the asset.

How does it work? For example, your grandmother bought some stock 50 years ago for $50,000. Now that same stock is worth $1,000,000. If your grandmother holds the stock until her death and you inherit it, your cost basis in the stock becomes $1,000,000. If you sell the stock a week after her death, you will not have to pay any capital gains taxes.

On the other hand, if your grandmother gifts you the stock during her life time, then you will “inherit her basis,” and your cost basis of the stock remains $50,000. If you sell the stock for $1,000,000, you will need to pay capital gains taxes on $950,000. The same result is achieved if your grandmother sells the stock during her lifetime. She will have to pay capital gains taxes on $950,000.

Why the step up in basis was fair: some people think that by having a step up in basis, families are unfairly avoiding the taxes. But the estate tax catches an inheritance at the other hand. If the grandmother was holding the stock at her death, that stock was included in her estate. As a result, depending on the state in which you live in, both federal and state estate taxes may be due. New Jersey taxes estates that are greater than $675,000. New York State taxes estates that are greater than $2MM (set to rise to $3.1MM on April 1st). The federal government taxes estates that are greater than $5.43MM.

President’s Proposal: Under the President’s proposal, the step up in basis would be eliminated. Any time an asset would be inherited or gifted, it would be treated as a sale, and taxes on capital gains would be due.

Exemptions from the President’s proposal: There are some notable exemptions from the proposal, made in order to ease the burden on middle-class Americans.

  • Capital gains of up to $100,000 per individual can be bequeathed free of tax for any type of asset.
  • Capital gains of up to $250,000 per individual can be bequeathed free of tax for a personal residence.
  • No tax would be due on inherited small business – until such business gets sold.

Implications for estate planning: If the proposals pass the Congress, most of the existing estate plans will need to be re-evaluated and likely modified. At this point, given a Republican-controlled Congress, it is unclear whether any of these proposals will actually become law.

 

http://www.whitehouse.gov/the-press-office/2015/01/17/fact-sheet-simpler-fairer-tax-code-responsibly-invests-middle-class-fami


Tuesday, January 20, 2015

Supreme Court to Decide Whether States Can Prohibit Same-Sex Marriage

On Friday, the Supreme Court agreed to decide whether any of our 50 states can prohibit same-sex marriage. Currently, the number of states allowing same-sex marriage is 36 and the District of Columbia, and more than 70% of Americans now live in states where gay couples can marry.

A 2012 case United States v. Windsor struck down a part of the Defense of Marriage Act which barred federal benefits for same-sex couples. This decision was later used by lower courts to rule in favor of same-sex marriage, and recently the Fourth, Seventh and Tenth circuits have struck down same-sex marriage bans in many states.

In November 2014, a Sixth Circuit court upheld bans on same-sex marriage in four states (Michigan, Ohio, Kentucky and Tennessee). By upholding a marriage ban, the Sixth Circuit created a split among the federal appeals courts. A circuit split usually dramatically increases the chances of the Supreme Court review of the issue.

The Supreme Court agreed to hear petitions from plaintiffs challenging the marriage bans in these four states. The two issues in front of the Court are whether the Constitution requires states “to license a marriage between two people of the same sex” and whether states must “recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state”. A final ruling on these two issues is expected in June.

Both proponents and opponents of same sex marriage were happy that the issue is in front of the Supreme Court. Proponents of same sex marriage want to end the legal bans against same sex couples. Opponents want to uphold the states’ right to decide the issue, including the right to define marriage as the union of a man and a woman.

http://www.scotusblog.com/2015/01/court-will-rule-on-same-sex-marriage/


Friday, January 16, 2015

What is a Health Care Proxy?

Multiple problems may arise when an adult lacks capacity.  Do you remember Terri Schiavo and the 7 year court battle that her family had to endure to determine the proper course of her medical treatment? Much to the extreme surprise of relatives and close friends, unless certain documents were signed ahead of time, they are not entitled to make health care decisions for another individual. A Health Care Proxy is an effective tool to carry out a person’s wishes after incapacity. 

What is a Health Care Proxy? It is a document by means of which an adult individual appoints an Agent to make health care decisions for him if he is unable to do so. The Agent will act as a surrogate for the principal.

What is the Purpose of a Health Care Proxy? To insure that treatment and non-treatment decisions respect and honor the wishes of the principal.  Similar to the Power of Attorney, this document affords the principal a certain piece of mind.

Who Can Sign a Health Care Proxy? Any competent individual may appoint a health care agent.

How Long Does a Health Care Proxy Last? Unless there were any limitations inserted by the principal, a Health Care Proxy does not expire and lasts until the principal’s death.

Contents of a Health Care Proxy: the document contains the name of the principal, the designation of an agent and an alternate agent, statement of principal’s wishes and instructions regarding various types of treatment, and a statement of principal’s wishes regarding organ donation.

Who Can Be an Agent? Any competent individual over 18 years of age, as long as he is not the principal’s attending physician and not an employee of a hospital or a nursing home where the principal is a patient. Unlike a Power of Attorney, where multiple simultaneous agents can be appointed, only one Health Care Agent can be appointed. However, alternate agents can and should be named, in case the primary agent is not available.

You should ensure that your agent is 1. someone that you trust and 2. aware of your wishes regarding your treatment.

When Does an Agent’s Authority Begin? A Health Care Proxy becomes effective as soon as a physician determines that the individual is incapable of making health care decisions. As long as a person is competent, he is free to make his own decisions about his own treatment.


Wednesday, January 14, 2015

Celebrity Estates – the smart and the not-so-smart ways to leave the money.

Three beloved celebrities died in 2014 – Robin Williams, Phillip Seymour Hoffman and Joan Rivers. Both their deaths and their estate planning could not have been more different.

Robin Williams left behind 3 children from 2 separate marriages. During his life, Mr. Williams set up trusts for his children. The trusts are structured in such a way as to provide 3 separate payouts to the children – when they reach 21, 25, and 30.

This was a smart way to leave the money. Unlike a will, whose details are public, these trusts are private instruments, so the amount of money in the trusts and conditions of the payouts remain private.  Furthermore, the money is protected from the children’s mothers – whatever their eccentricities may be, and whoever their new spouses may be. The money is also protected from the children’s own immaturity – at least the hope is that a child at 30 is more mature than a child at 18. Finally, by taking the money out of his estate during his life, Mr. Williams may have avoided having his heirs pay an estate tax on their inheritance.

After his death, it was disclosed that Mr. Williams was diagnosed with Parksinson’s disease and Lewy Body Dementia. Had those trusts been established after his diagnoses, they would have been subject to potentially long and costly court battle. By establishing these trusts before he became ill, Mr. Williams saved his family a lot of money and pain.

Phillip Seymour Hoffman, on the other hand, left his entire estate of $35MM to his partner, the mother of his 3 children. He left nothing to his children directly.

This was not the smartest way of leaving the money. First, all the details of his estate are public, since everything passed through a will. This result could have been avoided by the use of a revocable trust. Second, Mr. Hoffman’s partner had to pay a $15MM tax on the inheritance: since they were not legally married, she could not take advantage of unlimited marriage deduction. This high amount could have been avoided by a marriage, or at least reduced by through the use of lifetime gifts. Third, this plan places a lot of trust into one person – the partner. She is now free to squander the money, leave it all to charity, or leave it to one of the children to the detriment of the others. She could also be sued (i.e. by an angry driver) and lose the money in a lawsuit. Overall, not a fair result to the children.

It is understood that Mr. Hoffman did not want his children to become ‘trust fund babies’. However, his desire could have been achieved by having a trust whose payout is contingent upon his children achieving certain results in life (graduating college, keeping a job, remaining drug free).

Joan Rivers’ estate was worth approximately $150 million. She wrote a will, where everything that she owned was left to a Trust (this is called a simple ‘pour over’ will). Reportedly, the trust language provides that she left her fortune to a combination of her daughter, grandson, friends and charity.  The executor and trustee is Ms. Rivers’ daughter. The charities that were important to Ms. Rivers were listed in the trust. The friends whom Ms. Rivers wanted to benefit were named in the trust. At the same time, the actual amounts given to each beneficiary remain private (because, unlike a will, the trust document does not need to be made public). Furthermore, there is a provision in the will that anyone who challenges either the trust or the will is going to be completely disinherited.

This was a clearly well thought out plan, put together while Ms. Rivers was in full command of her facilities.  Regardless of whether or not Ms. Rivers’ estate taxes were minimized, her wishes were fulfilled and the people and causes that she wanted to benefit will receive her money.

Sunday, January 11, 2015

Power of Attorney – an important document that every adult should have.

What is it? A Power of Attorney is a document that gives another person (your agent) the authority to make legal decisions and transactions on your behalf. 

Why do you need it? If an individual loses the capacity to act on his own behalf, then the agent can act for him. If there is no Power of Attorney signed, a Guardianship proceeding will need to be commenced with a Surrogate Court to have a legal guardian appointed – an extremely intrusive, time consuming, and expensive procedure. Every adult above 18 years of age should have this document signed.

Who should be named as my agent? Often, spouses name each other as their primary agents. If you have adult children, then one or more of the children can be named as successor agents. If there are no adult children, then a competent parent, relative or a friend can be named as the agent. You can name more than 1 person to be your simultaneous agents, and specify whether or not you want them to act together or separate. The most important consideration is to name someone that you can trust.

When does it become effective? A durable Power of Attorney becomes effective immediate upon signing. Often, since the document is done as part of the overall planning, the document is signed but retained by the principal. together with other estate planning document.  This way, only if the principal loses capacity, will his agent get the document and use it.

What kind of powers does my agent have over my affairs? You have the ability to control that issue. The statutory form has a list of powers that you may grant to your agent. A competent attorney will have a form that will have additional powers. The most effective Power of Attorney is the one that grants the broadest powers, because one cannot anticipate the future. However, if you are uncomfortable with granting your agent all of the powers, you can specify which ones you want to give (i.e. banking and real estate, but not trusts).  The Power of Attorney is a very important document, one that gives someone else the potential control over your financial life, that is why it is very important to sign it in front of a competent attorney who can explain the implications of various provisions.

What can the Power of Attorney NOT be used for? The Power of Attorney cannot be used to make health care Decisions on your behalf. In order to designate a health care agent, you need to sign a Health Care Proxy.

When does the Power of Attorney expire? There are 2 ways for the document to expire. First, you can revoke your Power of Attorney at any point in your life, as long as you have the mental capacity to do so. Second, the Power of Attorney expires immediately upon your death. Just like one cannot make legal transactions after death, your agent loses his capacity to act on your behalf as well.  

Is the document subject to abuse? Absolutely. By signing the document, you are giving someone else the access to your financial accounts and real estate. That is why your agent should be someone that you trust to act in your best interests.  

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.


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