Establishing a Charitable Legacy

When preparing an estate plan, many individuals wish to include a charitable component in their planning.  From a personal perspective, a charitable bequest allows an individual to benefit a group, institution or cause important to them and their families.  From a tax perspective, charitable planning can provide significant benefits to an individual and his estate.

The benefits of charitable or philanthropic planning can range from the tangible to conceptual.  Charitable contributions can reduce the size of a taxable estate while also providing a 100% charitable deduction for the value of the contribution.  Certain charitable vehicles can also create a guaranteed stream of income for the donor Charitable giving is also personally rewarding to donor and his or her family.  By using their wealth to help others, the donor establishes a legacy of giving that can continue from generation to generation in the donor’s family.

Charitable giving in an estate-planning context can take several forms.  Among the most common:

1)    Specific and General Charitable Gifts-Under the terms of a donor’s Will or Trust, a donor may leave a specific amount or specific percentage of their estate to charity.  The donor may choose a specific charity or leave the choice up to their fiduciaries.  The donor’s estate will be able to deduct the value of the gift from the value of his or her taxable estate.

2)    Charitable Annuities-Many public charities have established charitable annuities to provide donors with a steady stream of income for the rest of their lives.  The donor contributes a gift to the charity and receives an income payment for the rest of their life.  The annuity amount is determined by using the donor’s age, the value of the gift and the annuity rates used by the charity.  Using charitable annuities reduces the value of the donor’s taxable estate while creating a tax deduction equal to the gift less the present value of the annuity payments.

3)    Charitable Trusts-These trusts come in two main forms, charitable remainder trusts and charitable lead trusts.  Each includes an interest for a term of years and a remainder interest.  Charitable remainder trusts provide a lifetime income stream to a specific individual and leaves the remaining assets to a charity.  Conversely, a charitable lead trust provides a lifetime benefit to a charity and the remainder interest to the donor’s heirs.  The charitable deduction for both trusts is based on the value of the interest that the charity receives.

4)    Private Foundations-A private foundation is a nonprofit organization administered and controlled by a private individual or family.  The foundation is required to pay 5% of its corpus every year to qualified charities that are chosen by the foundation’s directors or trustees.  Families looking to make a long-term charitable investment may prefer the flexibility that a foundation provides.  A foundation can also serve as a source of family pride for the continued philanthropic work that a family engages in.

5)    Donor-Advised Funds-Donor Advised Funds provide similar benefits to a private foundation without the corresponding complexities.  The funds are run through a public charity and allow the donors to determine how the funds are distributed and what purposes the contributions are used for. Using donor advised funds can maximize a donor’s charitable deduction without the cost of a direct gift or the regulation of a private foundation or trust.

The goals behind any charitable gifting strategy may be different for each donor, but the benefits are universal.  After ensuring that your family is cared for financially, it is a great way to further enhance the legacy you leave behind to your family, friends and community.

Please contact for more information about charitable planning.

Life Insurance as an Estate Planning Tool

Estate planning is a key component to an individual’s long term life planning.  To ensure the best possible result, an estate plan should be coordinated with other forms of planning such as investment, retirement and tax planning.  In addition, most individuals will include life insurance planning as part of their overall life planning.  For estate planning purposes, life insurance can be a very important and versatile tool.

There are several types of life insurance to choose from.  Term life insurance provides financial protection for a period of years.  It is the most inexpensive form of life insurance and is a good fit for younger people.  However, the premiums increase as a person gets older and unlike other types of life insurance, there is no accumulated cash value to a policy.

Whole life insurance protects an individual for their entire life. In addition, a whole life policy will accumulate cash value over time.  The cash value can be borrowed against and either be repaid or deducted from the death benefit payable to the policy’s beneficiaries.  Whole life insurance is more expensive that term life insurance because it acts as a savings plan as well as a form of protection.  Other types of life insurance include universal life and variable universal life insurance.

The uses of life insurance for estate planning purposes are numerous.  They include:

1) Income Replacement-Regardless of the type of insurance you own, the key component to all insurance policies is the death benefit.  For younger people, having an available resource to replace a loved one’s income stream is the biggest reason to own life insurance.  When purchasing insurance, it is important to determine how large of a policy will be necessary to replace an income stream in the event of an untimely death.

2) Estate Liquidity-Life insurance proceeds can be used to pay funeral expenses, debts, taxes and other expenses incurred at the time of a loved one’s death.  This is especially key for individuals with largely illiquid assets such as real estate and securities.  Without life insurance proceeds, these assets would have to be sold to provide an estate with the necessary cash to pay for these expenses.

3) Business Buy-Sell Planning-Life insurance can provide a family member with the means to purchase an interest in a family business.  Conversely, insurance may also be used by a non-family business partner to purchase a deceased individual’s business interests at the time of their death.

4) Inheritance creation/equalization-Life insurance can be used to create additional wealth to be passed to an individual’s heirs.  It can also be used to equalize inheritances in situations where other estate assets will not be shared equally amongst the individual’s heirs.

5) Estate reduction through gifting-For individuals who have taxable estates, using the annual gift tax exclusion to pay for an insurance policy can decrease the size of their taxable estate.  However, if the individual or the estate owns the insurance policy, the proceeds of the policy will be included in their taxable estate.

As indicated in number 5, if a life insurance policy is owned individually or by an estate, it is a taxable asset for estate tax purposes.  As an alternative, life insurance can be purchased by a trust known as an irrevocable life insurance trust (“ILIT”).  Insurance owned by an ILIT is considered outside of a taxable estate and the proceeds of an ILIT owned life insurance policy pass free of estate tax.  You can also transfer existing policies into an ILIT.  However, if an individual dies within three years of transferring a policy, the proceeds of the policy will be included in their taxable estates.

ILITs can be very helpful in passing wealth estate tax-free, but they require proper care and administration.  Insurance premiums must be paid by the trust directly to the insurance carrier.  The creator of the trust (the settlor) has limited powers regarding the insurance and should not be a trustee or a beneficiary.  The trustee of the trust must also follow all the formalities required by the trust instrument to ensure that the trust assets remain outside the taxable estate.

As you can see, life insurance can provide significant benefits to an individual and his or her heirs.  To ensure that you maximize those benefits, it is best to consult with both an estate planning attorney and an insurance professional to collectively determine the best possible plan for your specific needs.

Please contact for more information about estate planning with life insurance.

A Matter of Trust: Tips for Choosing Your Fiduciaries

There are several key components to any estate plan.  A will or trust will describe who will be entitled to certain assets, how the assets will be held and when distributions will be made to the beneficiaries.  An equally important component is who will be in charge of administering the estate or trust.  These persons are commonly referred to as fiduciaries.

A fiduciary is a person who takes care of property or other matters for another person.  In estate planning, the three most common forms of fiduciaries are executors, trustees and guardians.  An executor is the person responsible for the administration of an estate of a deceased person.; a trustee manages and administers a trust for the trust’s beneficiaries; and a guardian cares for the personal and financial needs of another person who legally cannot take care of themselves (typically, minor children or persons with severe disabilities).

Selecting fiduciaries is often overlooked by estate planners and their clients as a secondary concern to who receives the estate or trust’s assets and how the assets are held.  But, choosing the wrong person to serve as a fiduciary can have severe consequences (litigation, wasted assets, etc.) for the beneficiaries and fiduciaries alike.

Fortunately, selecting the right people should not be difficult if you keep the following tips in mind:

1)    Make sure the nominated fiduciary is willing to serve-It is not uncommon for a person to be nominated for a fiduciary position and be unaware of their appointment.  This is especially true of appointments under wills where the actual work will not occur for many years.  During the drafting phase of any estate-planning document, clients should contact the people they wish to serve as fiduciaries and confirm their willingness to serve.

2)    Ensure that the nominated fiduciary is qualified to serve-Spouses typically name each other as their executor and trustee.  Alternatively, children are often nominated to serve as the initial or successor fiduciary.  While this is understandable, the nominated person must be aware of their responsibilities and be capable of carrying them out.  A fiduciary is held to a very high standard of care and failing to live up to their fiduciary duties has can lead to many headaches for fiduciary and beneficiary alike.

3)    Be mindful of a fiduciary’s relationship with the beneficiaries-The relationship between the fiduciary and the person appointing them is not the only one that should be considered.  While it may not be necessary or wise to get a beneficiary’s approval of a fiduciary, consideration should be given to how they will interact.  This can become especially tricky when issues of divorce and stepparents come into play.  If there is potential for conflict between a fiduciary and a beneficiary, appointing a co-fiduciary or even an alternate fiduciary is advisable.

4)    Understand how a fiduciary is compensated-Under New York law, fiduciaries are entitled to statutory commissions for their service to the estate or trust.  In some instances, a family member serving as a fiduciary will waive their right to commissions even though they are entitled to them.  If you choose a corporate fiduciary or a professional to serve, they will likely have a set fee schedule for their services.  This may be in excess of what the statute requires and, in the cases of attorneys serving, may be in addition to legal fees that they charge.

5)    Choose successor and co-fiduciaries carefully-When a fiduciary stops serving, the will or trust instrument typically has a named successor who will take their place.  In some instances, the will or trust creator names co-fiduciaries to ensure that one person is not overburdened. Both successor and co-fiduciaries will have to work with other fiduciaries and the beneficiaries and must be compatible with both.  Conflict between fiduciaries can snowball quickly and lead to protracted legal battles that may severely deplete the assets of a trust or an estate.

Once assets are transferred to a fiduciary or a person is put in their care, the responsibility to protect those assets/people becomes theirs.  Fiduciaries are held to the highest standards of care because they are given exclusive control over a person’s most important assets.  You should use the same level of care when choosing who your fiduciaries will be.

Please contact for more information.

Planning for Long Term Care Needs

Science and medicine have demonstrably changed how long we live and quality of our lives over time.  In the 1910s, the average life expectancy for Americans was 50.1 years.  Today, the average life expectancy is 77.9 years, an increase of over 50%.  With the longer life expectancies and growing populations, new problems have also arisen.

Among those living past 65, 70% of them will need some form of long-term care.  Long-term care is a broad class of services, which include nursing homes, assisted living facilities, home health care, adult day services and other services provided to older adults. Most of these services are not completely covered by traditional health insurance or even Medicare.  Therefore, it is important to have other means to pay for these services planned for before the need arises.

The most basic method of payment is self-payment.  Unfortunately, the cost of paying for long-term care services out of pocket is prohibitive to all but the wealthiest individuals.  In some instances, an individual can create a long-term care savings account or trust and contribute to it throughout their lifetime to ensure that their long-term care is paid for.

A preferred method of payment is the use of a long-term care insurance plan. These policies cover the long-term care expenses that health insurance, Medicare and Medicaid do not cover.  There are many types of long-term care insurance policies with varying premiums, benefits and periods of time that a policy holder must wait before the benefits will be paid.  Additionally, some life insurance policies are structured to allow the owner to accelerate the death benefit to be used to pay long-term care expenses.

In order to take advantage of either the self-pay or long-term care insurance options, it is essential to plan early on in life.  For some, their health and/or age make these options unavailable or cost prohibitive.  In other situations, a sudden change to a person’s health can trigger an unexpected long-term care need.  In these situations, an individual can pay for their expenses by qualifying for Medicaid.

Medicaid is only available in limited circumstances and it requires careful planning to ensure that individual qualifies.  There are strict limitations on the assets, which a person on Medicaid can own and how much income they may receive.  In New York, a Medicaid applicant may only own $13,800 in non-exempt assets and may only receive $767 in income per month.  The asset limits do not include a person’s home, which is considered an exempt asset.

An individual may transfer their assets out of their name to qualify for Medicaid.  When the transfer is made and how much is transferred will affect when the individual will qualify for benefits.  In New Yorks, transfers made within sixty months of a Medicaid application will be considered an available resource and will delay the individual’s qualification for Medicaid.  The length of this “penalty period” will be determined based on the value of the assets transferred divided by the average cost of private care in the applicant’s community.  During the penalty period, the applicant must self-pay for their care.

As with estate planning, long-term care planning requires dealing with a difficult topic that many would rather avoid.  Avoiding the issue does not solve the problem and as our life expectancies continue to increase, even more people will have a need for long-term care.  Planning early in life can ensure that your care will be paid for and that your other assets will be preserved.

Please contact for more information about long-term care planning.

Special Needs, Special Planning

As some of you know, I grew up in a family with a brother who has special needs.  Having a disabled relative poses many challenges to parents and siblings alike on an emotional, physical and social level.  It can also pose a financial challenge, a challenge, which can usually be met by applying for and receiving government benefits such as Supplemental Social Security Income (“SSI”).

The acceptance of SSI benefits comes with a limitation regarding what the disabled person can financially receive from other persons including their parents.  This poses a unique problem when preparing an estate plan for a family with a special needs relative.

Fortunately, in New York and many other states, parents and other relatives can establish a trust known as a special needs or supplemental needs trust for the benefit of their disabled child or relative.  Special Needs Trusts provide supplemental benefits to the disabled person beyond the benefits provided by the governmental assistance they receive.  In order to preserve their benefits, the trust must be structured in a specific manner.

There are two types of special needs trusts-trusts created with the disabled persons assets and trusts created by third parties including the disabled person’s parents.  The first type is created when the disabled person receives a direct payment from a settlement or a bequest under a will. The disabled person’s legal guardian serves as the Grantor of the trust and upon the disabled person’s death, the remaining assets are first used to repay any advancements made to Medicaid. Any additional assets remaining are distributed to the disabled person’s then living relatives.

The second and more common type of trust is created by a third-party, typically the disabled person’s parents.  During the parents’ lifetime or at their death, the trust is funded and the trustee of the trust makes payments of the trust assets on behalf of the disabled person.  Unlike the first type of special needs trust, upon the disabled person’s death, the remaining assets go directly to the named remainder beneficiaries without any reimbursement made to Medicaid.

Unlike most trusts, special needs trusts are limited with regard to the distributions it can make to its beneficiary.  In New York, there is a statutory requirement that the trust must only make distributions once all governmental benefits are exhausted.  Additionally, while many trusts are used for the health, education, maintenance and support of their beneficiary, a special needs trust can only be used to provide additional comforts to the disabled person.  This can include entertainment, an assistant for the disabled person and any other services not covered by government benefits.

In addition, the trust instrument must make clear that the disabled person can never have direct access to the trust’s assets nor can they have any discretion over the distributions made to him or her.  With all these unique restrictions, it is essential that the person selected to be the trustee is not only aware of how these trusts must be managed, but also must be willing to take a very hands on role in managing the trust for the disabled person’s benefit.

The care of a person with special needs is incredibly important to that person’s family.  Many families try to do everything they can to make their disabled relatives feel as normal and as much a part of the family as their other family members.  But, when it comes to their financial well-being and ensuring that they receive the best possible care, extra planning and extra precautions must be taken to ensure their main source of care is not threatened.

Please contact for more information about special needs trusts.

Estate Planning 2012: A Look Ahead

A new year has begun and it is already looking to be a very interesting year.  The upcoming national elections have once again been dubbed “the most important election ever” by the media and despite the hyperbole, there is no doubt that the upcoming election could potentially reshape the direction of our nation.

This is especially true for those of us in the estate planning world.  In late 2010, the president and Congress agreed to reinstate the estate tax with a $5 million exemption and a top tax rate of 35%.  This change came with a significant catch-the new exemption and rate would expire December 31, 2012 and absent an agreement prior to that date, the exemption would return to $1 million and a top rate of 55%.

Given the gridlock in Washington over the last twelve months and a national election that will likely worsen that gridlock, this massive change may become a reality come this time next year.  But, this is not the only possible change to look out for.  These additional issues bear watching throughout the next year:

Changes to the Federal Gift Tax:  For the last year, estate planners have noted the limited and significant opportunity for individuals to make large lifetime gifts while the gift tax exemption remained at $5 million.  There was some concern that the gift tax exemption would be reduced to produce revenue during the Super Committee negotiations, but nothing came of that (much like the negotiations themselves).  With an exemption now at $5.12 million, there remains an ever-decreasing window to make large lifetime gifts.

Interest Rates:  For individuals looking to sell assets to their relatives or to pass them on through vehicles like GRATs, the federal interest rates have remained at historically low rates.  There are indications that these rates may rise before the end of 2012, so this advantage may soon disappear.

Market Volatility: The current volatility in the stock market is another reason to consider vehicles such as GRATs.  Individuals can transfer assets to their relatives at a lower value than they will likely have over time.  This allows individuals to use a smaller portion of the lifetime gift tax exemption while providing their beneficiaries with a higher valued asset.

Changes to the Federal Income Tax: Along with the expiration of the current estate and gift tax rates and exemptions, absent action before December 31, 2012, the federal income tax rates will revert back to the rates that were in place prior to the Bush tax cuts.  Additionally, the President has proposed several changes to the income tax system that would reduce the use of the itemized deduction for wealthier Americans.  The Democrats in Congress have also suggested a surtax on individuals making more than $1 million a year.

Same Sex Marriage Laws:  Beyond taxes and asset values, changes to the legal status of same-sex couples remains an issue to watch with regard to estate planning.  The administration’s decision to stop defending the Defense of Marriage Act and the continued challenges to state bans on Same Sex Marriage (most notably, the lawsuit against Proposition 8 in California) may alter the way same sex couples plan their estates during the next 366 days.

It is likely that other factors will alter the way estate planners counsel our clients during 2012.  However, having seen the estate tax repeal and subsequent reinstatement during 2010, something no one ever imagined would happen, it would be crazy to predict what will actually happen this year.  The best you can do is sit back, watch and make sure your planning is up to date!

Please contact for more information.