Estate Planning

Plaintiff tried to bring a personal injury lawsuit against a College on behalf of his daughter, acting under authority of a Power of Attorney. The Power of Attorney was found and printed from the internet, and was not prepared by an attorney.

The defendant argued that the plaintiff lacked authority to bring the action, because the Power of Attorney was invalid as it did not comply with the statutory requirements of GOL 5-1501B(1)(d). The Court agreed with the defendant and dismissed the lawsuit, finding that the document did not contain the exact wording required by the statute. Berrian v. Siena College, 2015 NY Slip Op. 05431 (App. Div. 2d, June 24, 2015)

Morale of the Story: the Power of Attorney document looks very easy to prepare. A lot of people think that they do not need an attorney to do it. And yet a very large percentage of these documents later turn out to be invalid, either because a wrong form was used or because it was not signed in the right places. Talk to an attorney when executing this document!

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. ATTORNEY ADVERTISING

Current Tax Rates: The top federal estate tax return is 40%. The top New York State estate tax return is 16%.

Federal Estate and Gift Tax Exclusion: In 2015, the federal estate and gift tax exclusion is $5,430,000. That means that no federal taxes will be due for gifts made during one’s lifetime that in total did not exceed this amount. Similarly, no federal taxes will be due for estates whose assets do not exceed this amount, even where assets are passed to children or other non-spouse beneficiaries.  

The New York State has an exclusion of $3,000,000. This number is set to increase annually, until it reaches the federal exclusion in 2019. The New Jersey State has the smallest estate tax exclusion in the country of $675,000.

Portability of Spousal Estate Tax Exemption: if a predeceased spouse did not fully utilize his or her $5,430,000 estate tax exemption, the surviving spouse can utilize the unused exemption of her predeceased spouse.  This benefit, however, is only available for federal returns, and not for New York State returns.

Marital Deduction: No estate tax is due on any property which passes from the decedent to his or her surviving spouse. However, this deduction is only available as long as the surviving spouse is a United States citizen. If the spouse is not a US citizen, then, to take advantage of this deduction, property should pass to a “Qualified Domestic Trust” for the benefit of the surviving spouse, at which point it becomes fully deductible. However, there are a lot of requirements that need to be fulfilled for the QDT.

Step Up in Basis: the basis of a property acquired from a decedent is its fair market value (FMV) at the time of death. The income tax benefit is always a consideration when planning for estate taxes. When the beneficiary sells the property, his capital gains tax will be calculated on the difference between the market value at the time of sale and the FMV at the time of sale. If these are close in time, little or no capital gains taxes may be due.

• When a husband and wife own property as tenants by the entirety, one half of the property is included in the deceased spouse’s estate, resulting in a step up in basis as to one-half of the property.

• Where there is a joint tenant other than a husband and wife, there is a full inclusion in the estate of the first to die and a corresponding 100% income tax step up, unless the survivor can prove that she supplied part or all of the consideration.

• When an owner reserves a life estate in real property and transfers the remainder to another party, there is a 100% tax step up in basis upon the life tenant’s demise.

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.

In a recent Australian case, Re Yu [2013] QSC 322, a digital Will was admitted to probate. Mr. Karter Yu, prior to committing suicide, drafted several documents on his I-phone, saying farewell to his family and friends. One of these documents was his stated Will, appointing his brother as an Executor. The court, after pain-staking analysis, admitted this electronic document to Probate. The court did this despite the fact that the legal requirements of the execution were not met.

In New York, which is very strict about observing all legal formalities, this bending of the rules would not have been permitted and Mr. Yu would have been considered to have died “intestate” – without a Will. There are several requirements for a Will to be valid in New York:

1. A Will must be in writing

2. A Will must be signed at the end by the Testator

3. The Testator must sign the Will in the presence of at least two Witnesses

4. The Testator must declare to the Witnesses that the document that he is about to sign is his Willwhile

5. The two witnesses must attest to the Testator’s signature and must sign the document themselves.

The only exceptions that are permitted to the punctilious execution of these formalities are for members of the armed forces of the United States while in the actual military or naval service during a war or other armed conflict, a person who serves with or accompanies an armed force engaged in actual military or naval service during a war, or a mariner while at sea. Upon an expiration of one year from a discharge from armed forces, or upon an expiration of three years from the time the mariner returned from the sea, such a Will becomes invalid.

As a result, if one wants to have a proper Will in New York State, ALL legal requirements as stated above must be observed.

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.

In 2015, a US citizen may gift during life or bequeath at death as much as $5.43MM without paying federal estate taxes. A foreign national, however, has an estate tax exemption of only $60,000. If a foreign national owns a $2MM house in US that they want to pass upon their death to heirs, the heirs will end up paying federal estate tax of $740,000 (plus additional state estate taxes).

To reduce the taxes, a foreign national can utilize the annual gift tax exemption of $14,000. This number is similar to the US citizens and the gift can be given to an unlimited number of beneficiaries, therefore Crummey trusts are very appropriate.

In addition, a foreign national can make gifts to a spouse. However, unlike a US citizen who can gift or bequeath an unlimited amount of money to a spouse without triggering an estate tax, a foreign national is limited to $147,000 of lifetime gifts to a spouse. Any amount greater will trigger a gift or an estate tax.

Canadians, however, benefit from a treaty that allows them the same exemption as US citizens.

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.

What happens if a person dies without direct relatives and without a Will? The result is a long and expensive process for the heirs, that could last years and cost thousands of dollars.

What happens if a person dies without a will? New York State has an administration process under which the assets are distributed to the heirs at law (spouse, children, siblings, more distant relatives). Before the assets are distributed, however, the heirs must prove that (1) they are related to the decedent and (2) there are no other relatives that are entitled to the inheritance. With a spouse, the process is usually easy – a marriage certificate is sufficient proof. With children, the proof is also easy – a birth certificate is sufficient.

Proof of relationship: The process becomes more complicated when there are more distant relatives. You can understand why the Surrogate Court will want to see proof of the relationship – otherwise anyone could walk in and claim to be a relative of the decedent. However, establishing this more distant relationship becomes difficult. For example, how to prove that your uncle is actually your uncle? You can potentially get a letter from a un-related party who will swear that he knows your entire family well and that you are related. But what if there is no such person?

Proof that no other relatives with claims similar to yours exist. In addition, the Surrogate Court wants to ensure that ALL relatives get their fair share. Thus, if your grandfather died without a will, and there are no surviving children, but there are grandchildren, the Court will want to ensure that ALL grandchildren receive their equal share.  At that point, you will have to prove to the court that 1) all the grandfather’s children have died (a death certificate is preferable) and 2) that all the grandchildren are accounted for.

What happens if some of the grandchildren cannot be located, and you are not aware if they are alive or dead? You may have to hire an investigator and search for them. You may also have to publish announcements in local newspapers. And what if these relatives are likely to be in another country? You have to go through the same process, but internationally. The court may even assign a Guardian Ad Litem for these ‘unknown heirs’. Now imagine if the same process has to be repeated for your aunt. Or your cousin. The length of time it will take to locate all the relatives, and to prove that there are no other ones remaining is arbitrary.

There are ways of eliminating this administration process. All of them, however, involve planning prior to the person’s death. Thus, if you know that the family relationship is complicated and it may take years for the heirs to get access to the money, it helps to talk to an estate planning attorney, to evaluate your options.

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.

I frequently see clients with global ties. New York community is home to many multinational technology, finance, consulting, and other companies.  Frequently, skilled employees of these businesses have family ties overseas, or have worked for their companies in other countries. Workers often bring their families with them, to live and to study and to work in New York. Families like this, which are increasingly common in today’s world, require careful estate planning services, often from an international team of experts.

Hypothetical Family:

Imagine our hypothetical family owns a half-million dollar apartment in Moscow, a half-million dollar house in Queens and a half-million dollars worth of stocks in US brokerage accounts.  The family has lived in the US for two years.  All family members are dual Russian-US citizens.  Every summer the family goes back to Moscow for a month for the children to visit their grandparents, but spends the rest of the year in New York.  The family may one day return to the Russia or live in a third country, depending on where the company sends them next.

The Local Component

Because the family is living in New York, it is extremely important that the parents work with an estate planning attorney licensed to practice law in New York.  If either or both parents became disabled or die, a New York power of attorney (in the event of disability) or a well-drafted trust (in the event of disability or death) would help ensure the family is properly cared for.   Many families with this level of assets also plan ahead to avoid the difficulties of probate, typically through the use of a living trust.  Perhaps most importantly, the family should name guardians for their children in the event of their deaths, as a New York judge would ultimately decide who should serve as guardians.  Without instructions from parents, a judge may pick someone the parents would not have chosen.

So far, the family’s discussion with a New York attorney is similar to the discussion any typical New York family might have with their attorney.  However, the family’s ties to Russia add a layer of complexity.

Russian Estate Plans

Only a lawyer licensed to practice law in Russia is qualified to give advice about an estate plan in that country.  The ideal time for a family to create an estate plan for its overseas property is at the same time as when dealing with US property.

If the US and Russian lawyer are working on their respective pieces of the estate plan at the same time, the family would be wise to ask the two lawyers to coordinate.  Some potential reasons:

-Probate is aggravating, expensive, and time consuming enough in one country.  It would be unfortunate if the family ultimately had to go through the process in two countries, due to a lack of planning.  A conservative estimate would be $6,000 in legal fees per probate estate, per country. 

-Local counsel in Russia can properly advise on the formalities of Russian will execution.

 -If the family has overseas relatives, there is a chance it will inherit further overseas property    after drafting its estate plan.  This could exacerbate foreign estate tax and probate problems.     Planning ahead with Russian counsel would be wise.

EXECUTORSHIP/TRUSTEESHIP

The successor trustee of a living trust ensures that its terms are carried out after the death or disability of the settlor (the person who created the trust).  Typically this means distributing funds, maintaining accounts, ensuring children are financially cared for, etc.  Similarly, the executor of a will closes out the estate in probate, if probate is necessary.

In New York, an executor may be anyone who has attained the age of 18 years, is a resident of the United States, is not of unsound mind, is not an adjudged disabled person and has not been convicted of a felony. So for the family in question, it is important the executor appointed in any Will be a US resident, not a relative in Russia.

For different reasons, all successor trustees of a living trust should ideally be US residents.  Under IRS regulations, allowing a non-US resident to serve as trustee will cause the trust to be classified as a “foreign trust” and incur much more burdensome tax reporting obligations. 

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.

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.

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.

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.