Old Problems, New Solutions: Estate Planning for Non-Traditional Families. Part 1-An Introduction to Estate Planning for Non-Traditional Families

Over the past forty years, the number of traditional “nuclear families” (defined as a mother, father and children) has declined from approximately 40% of the total households in 1970 to 20% in 2010.  Changing lifestyles, economic conditions and growing acceptance of non-traditional family arrangements factor into this change which has dramatically shifted how adults cohabitate and how children are raised.

This change also requires a different approach to estate planning from the typical planning used by a nuclear family.  Over the next week, we will discuss a variety of planning issues faced by non-traditional families including specific issues related to blended families (families created from one or more previous marriages).  In addition, we will discuss how non-traditional families can utilize a wide variety of tools to deal with the complications related to their estate planning.

“Non-traditional families” encompass a group of family arrangements that vary in one way or another from the traditional family.  They include:

1)   Single Parents-This includes parents who have divorced their former spouse and are raising children on their own, parents who have adopted children or parents who do not have or never had a relationship with the child’s other biological parent.

2)   Co-parenting Arrangements-Traditionally, these arrangements have been used by divorced couples to ensure that their children received support from both parents.  More recently, individuals wishing to become parents without cohabitation, marriage or a romantic relationship have begun using this type of arrangement.  Co-parents may be friends or may be introduced through professional matching services.

3)   Blended Families-As mentioned above, a blended family is created when one or more divorced individuals remarry and incorporate their existing children into one family unit.  Complications can arise if there are children born outside this relationship and children born of both new spouses.

4)   Non-married families-Some individuals begins families with their partners without marrying.  For some, such as LGBT individuals, it may not be legally possible to marry.  For others, it may be a conscious choice to remain unmarried even though their relationship may be long-term and the partners may have children together.

5)   Same-sex married couples-New York, the District of Columbia and seven other states currently allow same-sex couples to marry.  Despite the rights granted to these families at the state level, the Federal Defense of Marriage Act (DOMA) complicates and limits the rights granted to these individuals and their families.

While progress has been made towards providing the same or similar rights to non-traditional families, the traditional estate planning benefits granted to a traditional nuclear family do not extend to a non-traditional family.  Consequently, non-traditional families must be aware of the following issues related to their estate plans:

1)   Guardianship of minor children-Ensuring that a child is cared for by the right people after a parent dies is one of main reasons individuals create an estate plan.  For single parents, the lack of a second parent makes this issue of the utmost importance.  For non-biological parents or co-parents, it is also essential that proper documentation be in place to allow a surviving parent to remain the legal guardian of a minor child.

2)   Inheritance rights-The New York intestacy statute governs the order in which property passes if an individual has no will.  Families that include non-biological relatives, non-married partners and, depending on the state, same-sex spouses are not ensured any inheritance rights under this statute.  A last will and testament or a comparable testamentary instrument (such as a revocable trust) is necessary if you wish to pass property to these relatives, partners and spouses.

3)   Taxes-Married individuals receive numerous tax benefits that non-married individuals and same-sex spouses do not receive.  For gift tax purposes, a married heterosexual couple can transfer unlimited assets between spouses during their lifetime.  Due to DOMA, this benefit is not available to same-sex married couples.

 The estate tax benefits for heterosexual married couples are similarly skewed.  In addition to their own personal estate tax exemption, married couples may pass unlimited assets to each other at death using a marital deduction.  This is unavailable to non-married partners and co-parents.  Same-sex married couples may utilize the marital deduction for New York estate tax purposes, but it is unavailable for federal estate tax, again due to DOMA.

4)   Medical and financial decisions during incapacity or disability-Married couples in New York (both opposite sex and same-sex) have the ability to make medical and financial decisions for their spouses if they become incapacitated or disabled.  For non-married families, these rights are granted to the disabled or incapacitated individual’s biological family rather than any partner.

The complications in planning an estate for a non-traditional family are numerous, but they are not insurmountable.  In the next post, I will discuss some specific issues and solutions that related to blended families.

For more information on estate planning for non-traditional families, please contact info@levyestatelaw.com.

Real and Adequate Considerations: Estate Planning for Real Estate

Real estate is one of the most common types of property disposed of by an estate plan.  For many individuals and families, a house or other real property will be one of the most valuable assets that they will transfer during their lifetimes or at their death.  In order to achieve the best results, certain aspects of the transfer must be considered from the initial planning stages through the completion of the transfer.

The following are the most important factors to consider when planning a transfer of real property:

1. Consider How The Property Is Titled-Property owned by more than one person can be titled in several ways, either with a right of survivorship or without one.  Property titled as “tenancy by the entirety” (which is available only to married couples) or “joint tenancy” have a rights of survivorship and will pass outside of probate to the surviving owner.  Property owned as “tenancy in common” property have no rights of survivorship and passes through the probate process.  Ensuring that jointly owned property can pass outside of the probate process is an easy way to avoid the delay and cost related to property passing through probate.

2. Consider How the Property Is Owned-The simplest form of property ownership is outright ownership.  However, under some circumstances, it may be advantageous to consider the use of a trust or business entity such as an LLC or family limited partnership to own real estate.

Property owned by a trust or business entity can be shielded from certain forms of creditor claims or limit the liability of its owners.  In addition, the use of a trust or business entity may allow the property to be discounted for gift and estate tax purposes.  Finally, for larger families, a trust or business entity may allow for a centralized management and administration of family property.

Owners of condominiums and coops should consult with their respective board of directors before transferring property to a trust or a business entity.  Some boards prohibit the use of one or both of these ownership forms.

3. Consider When A Transfer Should Be Made-The decision of when a real estate transfer will take place requires considering several things.  The age of the transferor, the type of real estate being transferred and whether the transferor wishes to retain an interest in the property for a term of years should all be factored into the decision making process.

Additionally, the cost basis of the property should be determined.  A Gift of real estate during the transferor’s lifetime will result in the transferee assuming the transferor’s basis.   If the property has appreciated significantly since the transferor acquired the property, the transferee will be assuming a large capital gain when the property is ultimately sold.  If the property is transferred upon the transferor’s death, the cost basis receives a step up to the value of the property at the transferor’s date of death or an alternative valuation date six months after the date of death, whichever value is lower.

4. Consider Transfer Taxes-In addition to a potential capital gains tax, the transfer of real estate may subject the transferor or his or her estate to gift or estate tax liability.  Before making a transfer or planning a transfer, owners of real estate should review their financial records with an accountant, estate planning attorney or other financial professional to determine how much of their lifetime gift tax /estate tax exemption has been used.  If the proposed transfer would result in a tax liability, the use of  estate planning instrument such as a qualified personal residence trust (QPRT), an LLC or a family limited partnership should be considered to reduce the value of the transfer for gift or estate tax purposes.

5. Consider Where the Property is Located-Unlike intangible assets such as cash, stocks and bonds, the physical location of real estate will dictate which state’s probate laws will apply.  If an individual owns real estate in one or more states or countries outside of New York, they may be required to file a secondary probate proceeding known as ancillary probate.  This may create an additional burden on the family of a deceased individual at a time when they will already be stretched thin.

Proper titling of the property can protect joint property if a right of survivorship is included.  In other instances, it may be beneficial to transfer the property to a revocable trust or another trust or entity to ensure that the property(ies) will not be subject to ancillary probate.

As with other forms of property, proper planning with real estate can be the difference between a successful transfer and one that is plagued with delay, additional taxes and other complications.  It is essential to take the above-mentioned factors into consideration before preparing an estate plan for your real estate.

Please contact info@levyestatelaw.com for more information about estate planning for real estate.

A Spring Cleaning Checklist For Your Estate Plan

Spring has begun to blossom and although we had a very mild winter, the improved weather is a welcome change.  And while we are only a few weeks into the new season, thoughts of summer and various travel plans have begun to enter many of our minds.

This time of year is a very common time for reviewing, adjusting and creating estate plans.  With tax season nearly over, getting your estate plan in order is a good next step to ensure all your planning is properly in place for the remainder of the year.

Below is a to-do list for your estate plan.  Some of the items may not be applicable to your specific situation, but all are worth considering.

1. Review your current estate planning documents with your attorney-For a typical individual or family, an estate plan should be reviewed every 3-4 years.  If you have had major life changes or your planning is complicated by health, money or interpersonal issue, you should review your plan even more frequently.

2. Complete your beneficiary designations for “transfer on death” accounts-One of the easiest and cheapest ways to improve your estate plan is to ensure that the beneficiary designations for all “transfer on death” accounts are properly completed.  Certain bank accounts, retirements accounts and life insurance all pass outside of a probate estate as long as the beneficiary designations are executed.  If you fail to designate beneficiaries, these accounts and assets will pass to your estate through the probate process, delaying their transfer.

3. Review all deeds and real estate documents-Real estate that is owned with a right of survivorship will pass outside the probate process.  To ensure a smooth transition, it is important make sure all jointly owned real estate is titled as a tenancy by the entirety property (for married couples) or as joint tenancy property (for non-married couples).

People who own multiple pieces of real estate may wish to consider consolidating their properties in a trust or an entity such as an LLC.  This is especially important if you real estate in multiple states or if you own real estate outside of New York.

4. Meet with your financial planner or insurance agent to discuss your insurance coverage-Like an estate plan, it is crucial that your insurance policies (life, disability and long-term care) are periodically reviewed alongside your trusted advisor.  This allows the advisor to determine if you have sufficient coverage for your current situation and allows the client to determine if they are satisfied with their current policies.

5. Speak with your current or named fiduciaries-In time between a person is named a fiduciary under a will and trust and the time when they actually are asked to serve, the named fiduciary’s relationship with you and their personal circumstances may change.  While most named fiduciaries are close friends or relatives, it is helpful to frequently confirm their willingness and ability to serve.

For those with existing fiduciary relationships, frequent communication about the fiduciary’s administration of an estate or trust is a good way to avoid conflict at a later date.  It also gives the fiduciary the ability to communicate any suggestions or concerns they may have with their current role.

6. File Gift Tax and Fiduciary Income Tax Returns-If you and your spouse have made any large-scale gifts during 2011, it will be necessary to file a gift tax return.  Similarly, nongrantor trusts and estates are required to file fiduciary income tax returns since the income of each will be taxed as a separate entity.

The April 17th filing deadline for personal income tax returns also applies to gift and fiduciary income tax returns.  So while it may be too late to have a return filed before then, it is not too late to file for an extension.

7. Plan your 2012 gifts-With 2012 almost a third over, there remains nine months in which large scale gifts may be made that take advantage of the current $5.12 million gift tax exemption.  On January 1, 2013, absent an intervening action, the exemption drops to $1 million.

For those looking to make more modest gifts, utilizing your annual gift tax exclusion is a great way to benefit your children and reduce the size of your taxable estate.  Individuals may gift $13,000 to as many beneficiaries as they like while married couples can gift up to $26,000 per beneficiary.

8. Plan 2012 charitable gifts-Philanthropically minded individuals should consider the different ways of benefiting charities while also creating tax benefits for themselves.  Individual gifts, charitable annuities, the use of charitable trusts and the creation of a private foundation are all great ways to benefit the causes or organizations that matter most to you.

9. Consider Lifetime Trust Planning-Whether planning for your child’s education, removing your life insurance from your taxable estate or making gifts to your children, lifetime trust planning provides a great mechanism for protecting assets while also providing your children and other relatives with a significant financial benefit.  This is especially true this year while the lifetime gift tax exemption is at an all time high and interest rates are at a historic low.

10. Update your business succession/organization plan-Business owners should be aware of the potential negative consequences of not having a succession plan in place.  Failure to plan for your business, much like failing to create an estate plan, could create unexpected and undesired consequences for your family, business and associates.

A good estate plan requires consistent review and updates to ensure yourwishes are properly enacted.  Before you make your summer plans, make sure that your estate plan is up to date.  It will be one less thing that will keep you from having a great summer.

Please contact info@levyestatelaw.com for more information about estate planning.