Katya Sverdlov Blog

In the past, when the federal estate tax threshold was $1MM, most estate planners concentrated on reducing or eliminating the estate taxes. The goal was to transfer out of the estate as soon as possible.

Today’s estate tax threshold: Today, the individual federal estate tax threshold is $5.4MM. The New York State estate threshold is $3MM (and set to rise until 2019, when it will reach the federal threshold). For a couple, no federal estate taxes are anticipated until the estate reaches $10.8MM. As a result, for the vast majority of people, the focus has shifted to reducing income taxes.

Maximizing step up: In order to reduce income taxes, a plan has to be devised which maximizes the step up in basis (and avoids a step-down in basis). An outright transfer to an irrevocable trust takes out an asset from the estate (thus eliminating the future estate taxes), but at the same time this transfer may prevent an income tax benefit upon death.  The dilemma is whether to transfer the asset outright, to transfer it to a trust while retaining some indicia of ownership (thus retaining the asset in the estate), or to keep the asset in one’s name outright.

Example: Suppose you bought a building 10 years ago for $200,000. The building is currently worth $1.5MM. At the time of your demise, the building will likely be worth $3MM.

• If the building will be retained in your estate, there will likely not be any estate taxes or capital gains taxes for your heirs.

• If the building is transferred out of your estate during your life and later sold for $3MM by your heirs, they will likely have to pay federal capital gains taxes at 20% of $560,000.  Furthermore, New York State has a capital gains tax as well, with the maximum rate of 8.82%, for an additional tax of $246,960. Thus, the total taxes that will need to be paid by the heirs in New York on this property will be approximately $806,960!

There are methods of modifying trusts under the New York State law, even if the trusts are irrevocable. Your trust may need to be modified or decanted, in order to take advantage of the favorable income tax treatment achieved through the step up in basis.

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.

Your parents may have had a long and relatively happy marriage. They may intend to live together until their death. Nonetheless, the financial reality of today’s government rules may force them to consider divorce.  And there is no need for psychological counseling at this point. Divorce, with future cohabitation, would be done simply to qualify for long term care benefits.

Current Medicaid rules tacitly encourage divorce. In New York State, for people over 65, to qualify for Medicaid as an individual, one cannot have income of greater than $825 a month. A married couple cannot have income of greater than $1,209. Clearly, a divorced couple can shelter a greater amount of income than a married one. Furthermore, an individual on Medicaid cannot have assets of greater than $14,850. A married couple cannot have assets of greater than $21,750, again, penalizing a couple and encouraging divorce.

When only one spouse needs Medicaid (in order to receive home care or nursing home care), divorce may simply become a necessity in order to shelter some of the assets.  A ‘community spouse’ (the spouse which is not receiving Medicaid) is permitted to keep no more than $119,200 of assets, and no more than $2,980 of income per month. Any excess above these numbers may be subject to a Medicaid recovery lawsuit. As a result, the sick spouse may transfer all of his assets to his spouse, and then the spouses divorce.

The information in this blog was adapted from

http://www.huffingtonpost.com/rev-amy-ziettlow/is-divorce-the-best-option-for-older-americans_b_6878658.html

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.

Many people believe that their situation is so simple, that they have no need to go to an estate planning attorney. However, I do not pretend to be an expert in many fields of work (I'm not a doctor,  I'm not an engineer, etc.). Why do so many people think that they are an expert in estate planning?

During a regular consultation I usually get the same question 2-3 times “but isn’t it true that …”, to which my answer is most often “no, it is not true”. There are lots of misconceptions about the estate planning and Medicaid law. There are also lots of issues that you might not even be aware of that you need to think about.

Some of the examples include:

1. If you are leaving your entire estate to only one person, to the exclusion of your other family, that person may need to go through YEARS of probate court procedures and hearings  before the assets get distributed to him.

2. If you are leaving your money to a minor child outright, that child will receive all the money once he turns 18. Did you really think the child will be mature enough to handle the assets?

3. If you are signing your will without attorney supervision, there is no presumption of its validity. That means it may be much easier to challenge your Will by anyone who believes he was unfairly treated by you!

4. If one of the witnesses to your will is also a beneficiary under that will, a large part of the bequest to that person may be invalidated.

5. If you are leaving money outright to a person with special needs, that person may lose her government benefits, including health care.

6. If you are leaving money to your spouse, the money can be passed tax free. But if you are leaving money to your children, there may be federal and state estate taxes due.

7. If you are leaving all of your assets to your spouse, and then later the spouse remarries, your children may not receive any money. Is this something that you wanted?

 These are just some of the examples of problems that 'simple' estate planning software can create.  All of the above examples could be avoided, with proper and knowledgeable planning. 

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.

A New York case, the Matter of the Estate of Robyn R. Lewis, is going up in front of New York Court of Appeals now, to decide a case of a missing Will.

Robyn Lewis executed a Will in Texas in favor of her husband; the Will also provided that if the husband predeceased her, her father-in-law would be the executor and sole heir. Later, the couple divorced. As a result of the divorce, under New York law, the husband was effectively disinherited, but the ex-father-in-law was not.

Later, Ms. Lewis executed another Will, leaving everything to her two brothers. She gave this second Will to her neighbor for safe keeping. When she died, the brothers, who were not aware of the new Will, applied for and received Letters of Administration (if there is no Will, then the law determines who gets the assets). Later, however, the ex-husband found out that Ms. Lewis was dead, and his father applied for the Letters Testamentary, on the basis of the original Will. Unfortunately, the neighbor lost the second Will given to him for safekeeping.

The Surrogate revoked the Letters of Administration granted to the brothers and admitted the earlier Will to probate. It is very unlikely that Ms. Lewis would have wanted her ex father-in-law to receive her family house! The brothers, of course, have appealed. Given that this is a modest $200,000 estate, by the time this litigation is finished, the majority of the estate may be consumed by the legal costs!

Lesson to everyone: be careful how you store your estate planning documents. Make a copy or two (but do not unstaple the original!)  Keep the original (either in your home, safe deposit box, or give it to the drafting attorney) and give a copy to your family.

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.

Why estate planning: In general, there are many reasons why people engage in estate planning. Those include: death time tax mitigation, avoidance of probate, smooth transition of property at death, and making sure the deceased’s dispositive wishes are followed. Asset protection is an additional aspect of estate planning, which safeguards the assets from the risks they would otherwise be subject to.

What is asset protection: The goal of asset protection is generally to deter litigation. At the same time, the plan must be flexible enough to provide options to the client and to change over time in response to changing laws.  However, asset protection will not aid the client in the avoidance of taxes and it will not aid the client in the fraudulent hiding of assets.

Timing is crucial. There is no one particular planning tool that will aid every client in protecting the assets. Every situation is unique. The main lesson, however, applies to everyone: planning must be done in advance of litigation. Protecting or transferring assets after there are claims, may expose the client and the attorney to criminal and civil liability.

What one can be sued for: In general, one can never be sure what one will be sued for. If a person is a sole proprietor, then he can be sued for his business. If there is a corporation or an LLC, the corporate veil can be pierced. If one is a general partner, the partnership’s debts may cause personal issues. And generally, there is a “deep pocket syndrome” in America, where lawyers often base their analysis on whether the opposing party can pay a judgment.

Tools of asset protection: Gifting, joint ownership, insurance, corporations, family limited partnerships, domestic trusts, foreign trusts.

Result of asset protection: The client will divest himself of assets and still retain a degree of control over the property. As a result, if  / when in the future a cause of action accrues, there will be little incentive for the opposing side to sue, because there will be little or no assets to pursue.

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.

Resident Trust: In general, a Trust is considered a Resident Trust and the Trustee must file New York State income tax, if the Trust was created by a New York State Testator or Grantor. What that means is if the property was being transferred to a Trust from a person who was domiciled in New York State, then the Trust is a Resident Trust and will be taxed according to New York State rules.

Exempt Resident Trust Exemption. New York will not tax the income from the Resident Trust if, during a particular year, it had no New York State domiciled trustees, the entire corpus of the Trust was located outside of New York and all income and gains of the trust were derived from sources outside of the State of New York. Thus, if the Trust has only intangible assets, such as stocks and bonds, and all the Trustees are domiciled outside of New York, the Trust will meet the exemption and will not be taxed based on New York State rules.

New York beneficiaries exemption . Unfortunately, even if the Trust qualifies for an exemption, all distributions from the Trust to New York resident beneficiaries will be taxed by the New York State. This tax can be avoided by either not distributing money from the Trust, or distributing money to other beneficiaries who are not New York residents.

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.

When drafting a testamentary or an estate plan, one always should always consider family dynamics in order to preserve family relationships.

Parents may have several concerns about their children: entitlements, sibling rivalry, children’s spouses, safeguard from malpractice actions, and safeguard from drug abuse.

Entitlements: for parents of younger or minor children, the parents may not know what the children are going to be like when they grow up. It is up to the parents to build in incentives into their estate plan, so that the child graduates college, gets a career, waits until a certain age to get married, etc. One must be careful of entitlements that are against ‘public policy’ as those may be found void by the courts. Explicitly racist bequests (i.e. no money if she marries a Chinese) will not be upheld.

Sibling rivalry: most parents should be concerned about sibling rivalry. Once the parent is gone, the glue that held the family together may be gone as well.  A typical parent usually names the older child as the trustee or an executor of the trust, despite the feeling of ill-will that this nomination may cause. One method to avoid the rivalry may be to name a third party executor or a trustee.  This way the children may actually unite against a common enemy, who is not distributing the assets fast enough (in their opinion).

If the parent has left different provisions to children, it is imperative that the parent have a conversation with the children about his plan prior to his own demise. It is unfair to all siblings involved, if the disinherited child will find out about his disinheritance from the other siblings. In addition to feelings of resentment against the parent, the disinherited child may also suspect the other siblings in coercing the parent into doing what was done, and may start litigating.

Spouses of the Children:  parents usually want to leave bequests to their children and grandchildren, but not necessarily to the spouses of their children. Bequests to spouses may either be specifically avoided, or restricted, such that if the spouse divorces the child, the bequest will terminate.

Protection from malpractice action: A lot of the trusts that are now set up are done to protect the beneficiaries from creditor actions. The trust can be structured in a way that permits the beneficiary to enjoy the assets but not to technically own them.

Protection from drug abuse: if the parent is concerned about a child who has a drug, alcohol or gambling problem, naming a third party trustee is almost a necessity. The trust may also permit a trustee to engage in periodic testing of the child, and to stop making any payments to the child, in full discretion of the trustee. The goal is to provide for the child’s basic needs (shelter, food, clothing), and potential rehabilitation, without supporting the problem.

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.

A lot of people think that if a Will was executed under a supervision of an attorney, then the Will is a rock solid instrument that cannot be challenged. However, that is not a case. A Will can be challenged on many grounds (incapacity, coercion, fraud, forgery and improper execution are some of the common ones).

A Brooklyn father executed a Will explicitly disowning his daughter, while leaving his son $500 a week for life, with the remainder of his $8MM fortune going to an animal charity. Both children have successfully challenged the Will. The case never got to trial. A psychiatrist that the daughter hired diagnosed her father (post mortem) with a diagnosis similar to narcissistic personality disorder. After the diagnosis became public, the interested parties negotiated a settlement, where the charity got less than 50% of the initial amount, while the daughter, the uncle and the son each got a significant amount of money.

Should a Will be challenged? There is no right answer to this question. Legal grounds, family harmony, amount of money at stake and specific language in the Will all need to be considered prior to any legal challenge being raised. It helps to talk to an experienced attorney to evaluate your options.

The information in this blog was adapted from

http://www.dnainfo.com/new-york/20150305/new-york-city/owner-of-brooklyn-hardware-store-hid-tens-of-millions-of-dollars-son-says

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.

There are several ways in which a Will can be challenged. The three main reasons for contesting the Will include:

1. Proper execution of a Will

2. Whether the decedent had testamentary capacity to execute a Will

3. Whether the Will was the product of undue influence or duress.

Whether or not the Will was the product of undue influence or duress is not easy to prove. The answer is usually determined at trial, and it is very fact specific.

In general, the objectant to the Will must establish a motive, an opportunity and actual exercise of undue influence (specific instances in which undue influence was actually exercised). Some of the issues that the court will examine include:

• Was there was a dependency upon and subjection to the control of the person supposed to have wielded the influence.

• Was the person who was supposedly wielding the influence present at the time of the Will execution? Was that person involved in preparing the Will?

• Was there a prior Will? Did the new Will change the disposition of assets in unexpected and unexplained ways?

• Did the beneficiary have a confidential relationship with the decedent? A confidential relationship includes being a lawyer, an accountant, a financial advisor, or other person of trust, who assisted the decedent in managing his financial affairs.

The court is likely to review all evidence regarding the decedent, including mental capacity, physical capacity, relationships with the beneficiary and relationship with the remaining family before deciding whether or not a Will should be invalidated.

Estate litigation is expensive, time consuming and embarrassing. It is better to avoid it all together, if possible. Talking to an experienced attorney who will anticipate the issues that can arise in litigation and advise about the best methods of avoiding it may save your loved ones money and heartache.

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.

Many people think that if they put their money in a joint account, the survivor will automatically inherit the funds and no further claims can be laid on that money. Unfortunately, as the survivors often discover to their great chagrin, it often does not work like this easily. The other heirs, including spouses and legatees under the will, as well as the IRS and other creditors of the estate, may all have higher priority claims to these funds.

Presumption: In general, if there is ‘survivorship language’ included in the joint bank account signature card, there is a presumption that the money should go to the surviving party upon the death of the first account holder. However, this presumption can easily be rebutted with direct proof that no joint tenancy was intended, or circumstantial proof that joint account had been opened for convenience only. If the court will determine that the account was for convenience purpose only, then the funds in the account will belong to the estate and may be used to first satisfy the estate’s debts and other bequests.

Testator’s Behavior: When determining the purpose for which the account was opened, the court will first examine the decedent’s behavior in regards to this account. The court will look at the testamentary plan – did the Will give the money to the joint account holder alone or did the testator provide for other people?  If the only remaining money is in the joint account, and there are explicit gifts given to other people, the court may infer that the account was joint only for convenience purposes. In that case, the funds are likely to be given back to the estate to satisfy the other bequests.

The court will also examine the signature requirement – whether or not both signatures were required in order to withdraw money. If both signatures were required, the court is likely to conclude that the account was for convenience purpose only. Similarly, the court will inquire about who had the control of the checks during the decedent’s lifetime. Full control of the withdrawals by the decedent will likely mean that the account was joint for convenience purposes only and the money should belong to the estate.

Survivor’s behavior: The court will also look at the behavior of the surviving account holder during the life of the decedent. The court will inquire whether or not the survivor ever withdrew from or deposited money into the account. The court will also inquire whether or not the survivor knew about the decedent’s testamentary plan. Lack of access to the funds or lack of knowledge about the plan will likely mean that the funds will be brought back into the estate.

Summary:  As you can see, placing money in a joint account is not an easy panacea that people often hope it will be. When creating a testamentary plan, it helps to talk to an attorney, to determine whether the distribution of your funds will be what you intend it to be.

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.

• If you are not married yet, write a prenuptual agreement, which specifies who owns which asset, the support arrangement in case of future separation, and asset distribution in case of death.  
• If you are already married, communicate with the your new-spouse and any adult children regarding your current financial situation, and desires for distribution of those assets.
• Set up a trust to make sure that the surviving spouse will be provided for.
• Set up a trust to make sure that the children of each spouse get their assets.
• Update power of attorney and advance health care directives.
• Update any forms with beneficiary designations.
• Prepare and share a list of personal and work contacts with your new spouse.

The information in this blog was adapted from

http://www.huffingtonpost.com/alexandra-smyser/estate-planning-for-blend_b_6754664.html

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.