Author Archives: nyestateomfmind

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About nyestateomfmind

For the past decade, I have worked closely with individuals and families to prepare the right estate plan for their specific needs. My work has also included business succession planning, family charitable planning, estate and fiduciary litigation and estate administration.

An Estate Planning Attorney’s Misadventures in New York Estate Administration

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On May 1st of this year, my father, Robert, died after suffering a massive heart attack.  With my mother predeceasing him two years prior, I was left with the unenviable task of administering their collective estates for the benefit myself and my brother.

During the last years of their lives, my parents and I spoke numerous times about their estate planning.  My father, a non-estate planning attorney, had drafted wills and trusts for them and had executed them several years before I became an attorney.  Despite the knowledge that their planning needed an update, they never got around to making the necessary changes.

Overall, their plan was effective, but several issues popped up that delayed the administration of their estate and cost the estate more in expenses and taxes than if their plan had been revised to include the following changes:

  1. Adding a self-proving affidavit to their wills.  In New York, a will is considered valid if it is signed by the testator and two subscribing witnesses.  In addition, if the witness sign a self-proving affidavit at the time the will is created, the Executor of the estate will not need to seek out the witnesses at the time of the testator’s death. Neither of my parents’ wills contained a self-proving affidavit and I was required to seek out the two witnesses to have them confirm that they had witnessed the execution of the wills.  This required a trip upstate and a half day away from other matters.
  2. Refrain from using unclear provisions and dispositions.  A common cause of estate litigation is the use of unclear or complicated language.  Using such language can result in conflict between beneficiaries and require a court interpretation of the will to confirm which interpretation was correct.

         My parents’ wills contained provisions regarding my brother’s competency in the event that a cure or treatment was found to       his condition.  The language that was used made it unclear who had to raise the issue of competency, how it would be determined and whether the estate administration could continue before such issues were determined.

     3. Make lifetime gifts to persons with disabilities utilizing a Supplemental Needs Trust.  When a disabled person or minor is an interested person in an estate administration, the Court may appoint a Guardian ad Litem.  A Guardian ad Litem is a representative for interested parties who cannot represent themselves and whose interests may be in conflict with their natural guardians or parents.  Using a lifetime gifting mechanism such as a Supplemental Needs Trust can reduce the likelihood that a Guardian ad Litem will be appointed and this can save the estate the cost of the Guardian ad Litem’s fees. Because my brother did receive bequests under my parents’ wills, a Guardian ad Litem was appointed. 

    4. If you own personal and real property in multiple jurisdictions consider the use of a revocable trust to avoid ancillary estate administration.  When an individual resides in one jurisdiction, but owns real or personal property situated in another jurisdiction, an ancillary estate administration proceeding is required in the secondary jurisdiction to give an estate the right to transfer said property. 

My father bought a home in Florida following my mother’s death and owned it in his name at the time of his death.  If he had drafted a revocable trust and properly funding it prior to his death, his estate would not have had to have a separate estate administration in Florida

   5. Consider changing your domicile from a high estate tax state to allow or no estate tax state.  For many New Yorkers who own homes in New York and in another state, changing their domicile can be a powerful tool to protect their assets from taxation.  States such as Arizona, Florida and other popular retirement destinations do not have a state specific estate tax.  With the increase in the federal estate tax exemption to $5.25 million per individual ($10.5 million per married couple), eliminating state estate taxes can eliminate all estate taxes.

My father chose to retain his New York domicile and residency despite spending significant time in Florida.  This decision resulted in an estate tax liability that would not exist if he had domiciled in Florida.

As I mentioned earlier, my parents’ plan worked well comparative to many other plans.  Even so and even with my years of experience in the field, the estate administration process has not been easy.  The difficult times that follow the death of a loved one can be significantly eased by properly planning ahead of time and working with a qualified professional to guide you through the administration process.

Please contact info@levyestatelaw.com for more information.

The State of New York Estate of Mind

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For those who have been actively reading this blog over the past two years, you have likely noticed that I have not posted new content since this past July.  

 

There are many reasons for this inactivity, but overall, it comes down to time.  Time is something that is always in limited supply and over the past few months, time is something I have simply been in short supply of.  Because of this, some things have fallen down the priority list and one of them is this blog.

 

With that said, this blog and the importance of keeping those who read it educated and informed on the area of estate planning and estate administration remains incredibly important to me.  A lack of time does not change that and there are several posts that I have been planning and will tackle in the coming weeks.  

 

On November 25th, the two year anniversary of this blog, I will return to a regular schedule of updating this blog on a biweekly basis.   If the need or the ability to update it more frequently, I will certainly do so.

 

Thank you all for your support and understanding.  Most importantly, thank you for reading!

Estate Planning For Same Sex Couples in a “Post DOMA” World

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It has been two weeks since the United States Supreme Court issued its decision in United States v. Windsor in which the 5-4 majority found that Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional.  This historic decision nullified the federal definition of marriage as a union between a man and a woman and qualified same sex married couples for federal benefits that were previously available only to heterosexual married couples.

Windsor specifically dealt with a same sex surviving spouse who had been required to pay over $300,000 in federal estate taxes due to her inability to claim the federal estate tax marital deduction.  This was despite the fact that the plaintiff, Edith Windsor, had been legally married to her spouse under the laws of the State of New York.  The majority’s decision, written by Justice Anthony M. Kennedy, held that DOMA created “two contradictory marriage regimes within the same state” and causes same sex marriages to be treated as “second tier marriages.”   The majority held DOMA unconstitutional for violating the Fifth Amendment due process rights of same sex married couples.

The practical result of this decision is that same sex married couples in the 13 states (and the District of Columbia) which allow same sex marriage are entitled to the same protections and rights under federal law as heterosexual married couples.  With 1/3 of the United States population and ¼ of the states now allowing full marriage equality, estate planning for same sex married couples in these states has changed significantly.  Amongst the new estate planning benefits are the following:

Federal Marital Deduction-The inability to qualify for this deduction was injury that allowed DOMA to be challenged.  Previously, same sex married couples could not protect their assets from federal estate tax using this deduction.  Now, assets passing to all surviving spouses pass free of both federal and state estate tax.

Gift Tax Implications-Prior to Windsor, lifetime transfers between same sex spouses were considered taxable gifts and had to be counted towards a spouse’s annual exclusion and lifetime exemption amounts.  Lifetime transfers between spouses are now considered non-taxable events for gift tax purposes.  Furthermore, same sex married couples can now utilize gift splitting to maximize their annual gift tax exclusion.  Prior to Windsor, this was available only to heterosexual married couples.

Portability-With the 2013 Tax Act, President Obama made the concept of portability, which allows a surviving spouse to claim the unused portion of a deceased spouse’s federal estate tax exemption, permanent.  This benefit will now be extended to same sex married couples as well.  However, it should be noted that portability only applied to federal estate tax and not New York or other state estate tax exemptions.

Qualified Retirement Plans-The Employee Retirement Income Service Act (“ERISA”) requires that the beneficiary of a qualified retirement plan must be the owner’s spouse unless the spouse consents to a substitute beneficiary.  Same sex spouses will now be entitled to the same default treatment.

While these changes are significant, many issues remain.  First, the decision in Windsor did not invalidate DOMA as a whole and did not find that states must allow same sex marriage.  This poses a significant burden on same sex couples in the states that do not allow same sex marriage.  Second, the available options for legally married same sex couples looking to move to other states remain limited.  Finally, because DOMA remains applicable to the states where marriage bans remain, there still remains a possibility that a state where same sex marriage is allowed could eventually reverse course and change its laws to ban same sex marriage.

Nevertheless, this change is welcomed by same sex couples and their advisors alike.  And while Windsor makes estate planning for same sex couples significantly easier, it still requires careful planning and consideration to ensure that their families are protected.

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

Preserving the Foundations of Family and Business Require the Right Tools

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“The store was like my grandparent’s house,” said a longtime friend when recalling his childhood visits to his family store in Manhattan  For years, his family’s business was something he considered important, but not essential to his life. However, when the possibility of watching his family’s business disappear came close to becoming a reality, he chose to enter the business.  His intervention proved fortuitous-several years later, the business was more successful than ever.

Many family businesses are not as fortunate when it comes to ownership and management succession.  A recent survey found that nearly half of all family businesses lack a clear succession plan.  Additionally, a third of those with plans have one or more incomplete components which can lead to confusion and conflict over the planning owner’s intent.  This lack of planning threatens not only the existence of the business, but the continued health and closeness of a family.

To avoid such situations, the owners of family businesses must prepare their businesses and families for the eventual transition well before it actually take place.  Consideration must be given to issues of who will own the business and who will manage it.  It is also important to consider the tax implications of transferring a business to members of a younger generation and how to preserve a business’s family ownership structure.  Beyond the actual mechanics of ownership transfer, business owners should also consider how such transfers will affect those not selected to be involved in the management and ownership of the business.  A complete review of the senior family member or members’ estate and financial planning should take place alongside any planning for the business.

The components of a successful succession plan vary depending on the specifics of the family and business involved.  Certain considerations are essential.  First, the plan must lay a groundwork for the transfer of the ownership of the business to the next generation.  Who will own it, when they will take over and how they will pay or not pay for the ownership interests are key questions that must be answered.  Second, the management structure of the business should be determined while the current managers are still in charge.  Preparing the next generation of business managers to take over and illustrating what is expected of them will greatly enhance their chance to succeed.  Finally, businesses should consider using a succession plan as a means to establish a conflict resolution policy and a policy regarding future transfers of ownership interests.

The benefits of preserving a healthy family business are numerous and far outweigh the work that must go into preserving its health.  In financially uncertain times, family-owned businesses provide their owners with stability and protection from outside forces.  Because they are typically not subject to the whims of investors and other outsiders, the business owners are vested with control over their affairs and, being family, they tend to share the same values with one and other.  These shared values greatly reduce the amount of turnover of the management a business can face. Just as important as the benefits that family ownership can bring to a business are the benefits a business can bring to its family owners.  Family-owned businesses become the centers of their families and can serve as a tremendous source of family pride and unity.

As a major component of the world economy, with nearly 70 to 90 percent of the global GDP tied to family owned ventures, the continued health of family businesses is important to all of us all.  For family business owners, the importance is a more personal affair. Proper succession planning allows families to continue to thrive both in the workplace and at home.  Without a solid plan, problems in the business sphere can inevitably seep into the family dynamic.  “It’s difficult sometimes because this is my family,” my friend told me regarding his concerns for the future.  “At the end of the day, I have to have Thanksgiving with these people.”

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

Estate Planning By Default: Let the Non-Buyer Beware!

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For years, it has been well known that at least 50% of all Americans die without a last will and testament.  Following the economic downturn in 2008,  those numbers rose to as high as 70%.  Without a will or other basic estate planning documents, the family of a deceased individual has to rely on a state specific statute known as the intestacy statute.

Intestacy laws were originally the sole way of inheriting property.  In the 16th Century, this changed by King Henry VIII and the passage of the Statute of Wills, which allowed individuals to choose who inherited their property.  The default inheritance laws remained for those who did not draft a will and became the basis for modern intestacy law.  In the United States, the laws of intestate succession differ from state to state.

New York outlines the order of inheritance for family members inheriting through intestate inheritance.   Because there is no will, the Surrogate’s Court administers the property of the deceased individual based of on series of proofs aimed at determined who the next of kind is.  A spouse has the highest priority followed by children.  If the deceased has neither, the property and the right to administer to the property pass to the parents of the deceased, then to the siblings and then to the grandparents.  The line of succession continues until first cousins once removed.  If there are still no successors, the assets are transferred to the state.

The default nature of the intestate succession is the sole advantage that intestacy has over preparing your own estate plan.  There is no cost, no work that must be done by the deceased individual prior to death and the question of who inherits/administers the estate are known.  However, the cost to the family of a deceased individual far outweighs the benefits.  An intestate administration can be more costly than a probate administration.  In addition, by relying on the intestacy statute, an individual gives up their personal rights to decide how their property passes, who it passes to and who will be responsible for administering the property.  Losing these rights can have a significant adverse effect on your survivors and create family conflict.

The costs of intestate succession are borne by all families who have a relative who dies without an estate plan, but certain groups bear an even greater burden.  They include:

1)   Married couples with children-If a deceased individual leaves behind a spouse and children, then the children and spouse share the estate almost equally (the spouse receives an additional $50,000 before the remainder is split).  The consequence of this is that property meant for a spouse will end up in the hands of children.  If the children are not of a suitable age, the property can be quickly wasted and lost.  Furthermore, property passing to children rather than a spouse cannot be protected from estate tax by using the unlimited marital deduction.

2)   Non-Marital Children-Children born outside of a marriage may face additional headaches if a parent dies intestate.  Under New York law, a child is automatically considered to be the child of their biological mother for inheritance purposes.  However, if a father dies intestate, a non-marital child may be required to prove paternity before being allowed to inherit.  This may require writings from a deceased father, affidavits from friends and family of the father and even DNA testing to prove that the child was, biologically or socially, the child of the father.

3)   Domestic Partners-The intestacy statute does not allow a domestic partner or a ‘common law spouse’ to inherit from a deceased individual.  Even if the partners had lived together, raised children together or treated each other with the same regard as a married couple, the domestic partner is left out of the intestate succession.  New York does not recognize common law marriage, so for a domestic partner to be protected, there must be a will naming them a beneficiary or they must officially marry.

4)   Single Parents-While a single parent will be able to pass property to their children, the lack of a clear substitute for them if they die may cause tremendous headaches.  Without a guardian appointment, several family members may be left to decide who will care for a minor child with no guidance from the deceased parent.

5)   Taxable estates under New York or Federal Estate Tax laws- The ability to utilize the estate tax exemptions and marital deductions under New York and Federal Estate Tax law may be compromised without an estate plan.  Besides property passing to the wrong people, failure to prepare an estate plan can expose an estate to unnecessary or premature taxation.

The Latin expression ‘caveat emptor’ warns buyers to be cautious before purchasing property.  When it comes to estate planning, it is actually the persons who choose not to have an estate plan prepared who should be aware of the potential dangers and dilemmas that their failure to plan may yield.

Please contact info@levyestatelaw.com for more information about preparing an estate plan.

An Englishman (Or Other International Citizen) In New York: An Introduction to International Estate Planning

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New York is an international city in every sense of the term.  Every year, people from every corner of the world come to New York to work and live.  While some return to their home countries in short order, others stay for longer periods of time while others decide to make this their permanent home.

Once an international citizen decides to live here on a long-term basis or if they purchase significant assets in the United States, it becomes important to determine how their property would pass if they die.  In order to determine this, it is important to first understand what their legal status is in the United States.

There are three classifications that international citizens are grouped in for estate planning purposes.  A non-US citizen who considers the United States their permanent residence is considered a resident alien.  On the other hand, if the non-citizen is here temporarily or maintains a permanent residence outside the Unite Status, they are considered non-resident aliens.  A final classification to consider is persons who hold one or more additional citizenships beyond US citizens.  For each of these classifications, unique issues arise as it relates to estate planning, namely:

Estate Administration

Property is primarily administered by the jurisdiction where the decedent was domiciled.  For resident aliens, this means that their estates would be administered where they lived when they passed away.  The main exception to this rule is for real and personal property, which must be administered in the jurisdiction where it is located. For non-resident aliens, as well as other individuals owning property outside of their domicile, the estate administration process becomes complicated by the involvement of multiple jurisdictions and the need for additional proceedings known as ancillary estate administration. For this reason, persons who own property in multiple jurisdictions and non-resident aliens often utilize trusts and entities like limited partnerships and LLCS to avoid ancillary probate.

Estate Taxes

The status as a resident alien versus a non-resident alien can have significant estate tax implications.  Resident aliens retain the current $5.25 million federal estate tax exemption while non-resident aliens can only exempt $60,000 from estate taxes.  While the types of property that are included in a non-resident alien’s estate are limited, owners of significant real and personal property may be subject to a significant tax bill if they do not plan properly.

For both resident and non-resident aliens, the standard marital deduction is limited.  In order to qualify for this deduction, property passing to any non-US citizen must pass into a special type of marital trust called a qualified domestic trust (“QDOT”).  The beneficiary of a QDOT receives income free of estate tax, but any principal that is distributed will potentially be taxed.  In addition, a QDOT must have a US citizen as trustee at all times.

Individuals with multiple citizenships must also be aware of how each of the countries in which they claim citizenship tax assets at death.  Many countries have estate tax treaties with the United States to prevent individuals from being taxed by multiple jurisdictions.  For countries without estate tax treaties, it is important to understand which assets and which individuals are subject to their tax system.

Guardianship

Selecting a guardian to serve if both parents die is never an easy process.  For non-citizens, the process becomes more complicated by the potential lack of suitable options domestically.  The question becomes even more difficult if the child is an US citizen.

To ensure that their children are cared for as they choose, non-citizens must be explicit in terms of where they wish for their children to live and whom they wish to be their guardian.  If they wish for their children to leave the US, they may wish to speak with an immigration attorney to ensure their citizenship is preserved.  In addition, they should consider a ‘temporary’ or transitory guardian who is a US resident or citizen to assist with the appointment process.

The opportunities for international citizens in New York and in the United States will continue to attract the world’s best and brightest.  Proper estate planning, with focus on both local and foreign issues, ensures that their stays here will not be compromised by their unique issues.

Please contact info@levyestatelaw.com for more information about international and multi-jurisdiction estate planning.

Five Fiduciary Failures That Can Land You In Surrogate’s Court

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The selection of a fiduciary requires a great deal of care and consideration on the part of an individual preparing their estate plan.  The choice can be difficult, especially if there are a limited amount of possible candidates.  In the end, the decision should turn on one question-who will protect the property and provide for the beneficiaries the best?

For a nominated fiduciary, how they were chosen is far less important than what they were chosen to do.  Far too many fiduciaries are appointed or accept their nomination without fully understanding the duties that they will owe the beneficiaries of the estates and trusts they administer.  These failures can cost an estate or trust thousands and even millions of dollars.  They can also cause a fiduciary to be subject of an action in the Surrogate’s Court.

Understanding these duties is an important part of serving as a fiduciary.  Amongst the duties owed by a fiduciary are:

  1. Duty to prudently invest-A fiduciary must ensure that the assets they are responsible for are invested in a prudent manner given their specific circumstances.  Fiduciaries must prepare an investment strategy that matches the needs of the beneficiaries and gives due consideration to issues of risk, preservation of principal and production of income.
  2. Duty to distribute-In a last will and testament or in a trust, the specific distribution schemes are laid out.  It is expected that a fiduciary will ensure that the property that they collect and administer is distributed in timely and regular payments to the beneficiaries.  While there may be circumstances where a fiduciary is not allowed to distribute or where a distribution is not prudent, a failure to distribute that has no basis is likely to result in unhappy and potentially litigious beneficiaries.
  3. Duty of loyalty to the beneficiaries-A fiduciary is expected to act with greater care and concern towards his or her beneficiaries than a normal standard of care. In addition to having to be honest with the beneficiaries, a fiduciary is generally forbidden from self-dealing with the property they are administering.  A fiduciary cannot compete with the trust or estate they are administering.  When a fiduciary puts his or her interest above or in conflict with the trust or estate they administer, they are setting themselves up for potential litigation.
  4. Duty to exercise reasonable care and skill-A fiduciary is not required to have a background in finance, tax or law in order to qualify to serve.  However, a fiduciary is expected to use reasonable care and skill to ensure that the property they are administering is not diminished because of their actions.  A fiduciary can make reasonable mistakes, such as choosing an unsuccessful investment portfolio, but will expose themselves to litigation for failing to take the necessary steps to protect an estate or trust.  Failing to collect assets, failing to file tax returns and other major mistakes should be avoided.
  5. Duty to account and inform beneficiaries-A fiduciary who fulfills his or her other duties to an estate or trust may still find themselves party to litigation if they do not properly account for their actions.  Preparing a formal accounting can be time-consuming and expensive, but usually less cumbersome than litigation.  By providing beneficiaries with periodic informal accountings and additional records upon request, a fiduciary can potentially shield themselves from liability

Abiding by his or her duties is not a guaranty that a fiduciary or estate litigation will not be commenced.  If a fiduciary fulfills their duties, however,  commencing and maintaining a successful litigation becomes much more difficult for the aggrieved beneficiaries.

Please contact info@levyestatelaw.com for more information.

A Tale Of Two Business Owners

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The following is a true story of two businesses.  Two professionals owned their respective businesses and successfully built them into thriving practices.  Each professional decided to bring a partner on board to share the burden and benefit of ownership.  And, unfortunately, each professional died while still engaged while still practicing their respective trades, leaving their business partners and family members to pick up the pieces.

Professional A had entered into a buy-sell agreement with his partner.  The agreement was fully funded by having each partner buy a life insurance policy on the life of the other.  When A passed away, his partner submitted a claim to his life insurance policy.  Three months after A’s death, his partner received the proceeds from the insurance policy, and used them to buy out A’s widow.  The partner had complete ownership of the business and A’s widow received the full value of her husband’s hard work.

Professional B hemmed and hawed about preparing a buy-sell agreement with his partner.  A draft agreement was prepared, but never signed.  No funding mechanism was ever decided upon or implemented.  When B died, his partner decided that it was his hard work that created the value in the practice, not B’s.  B’s widow tried to buy the partner out, but the partner refused.  Lawsuits commenced with neither B’s widow nor the partner receiving the proper value for their hard work.  Three year’s after B’s death, the lawsuit is still not resolved.

The difference between the end results for A and B’s families illustrates how a properly executed and enacted business succession plan can be the difference between finding a way to move on and being mired in a conflict that outlives our relatives.  It is not enough to just have a succession plan for your business, but the plan needs to consider five important issues, namely:

  1. Who will own the business-Business owners must decide if their business will continue by transferring ownership within the company or to parties outside the company.  For family businesses, having children and other relatives who are divided between active and inactive participants in the business can complicate this issue.
  2. Who will manage the business-Many business owners focus solely on the ownership question without considering who will actually manage the business once they are gone.  Failure to name a successor and prepare that successor for the tasks he or she may face is a common reason for a business succession plan to fail.
  3. How will the buyout of the departing owner be paid for-Regardless of whether a funding mechanism exists, the departing owner or his or her estate will be taxed for the value of their business interest.  By preparing in advance for how a buyout will be paid for is crucial to not only maximize the value the departing owner or his or her estate receives, but also to prevent taxes from being paid from non-business related assets.
  4. For family businesses, what about non-owner family members?  In some instances, not every heir of a business owner will inherit a piece of the business he or she built.  This may create jealousy or resentment if the non-owner heirs are not equalized in some form.  Dividing non business assets more favorably to non owner heirs, purchasing life insurance for the benefit of non owner heirs and providing a non ownership income stream from the business are some examples of how to equalize the non owner heirs.
  5. Special issues for professional businesses (professional corporations and professional LLCs)-Under the New York Business Corporation Law, a professional business cannot be owned by individuals not engaged in the specific profession that the business is engaged in (medicine, law, etc.).  The family of a deceased professional will be able to receive a redemption of the deceased professional’s business interests.  However, without a defined valuation clause or buyout provisions, this may provide the family with only a fraction of the true value of their family member’s interest.

The failure of a business owner to plan for their eventual exit from their business, whether for retirement, death or disability, can wreak havoc for their business and family alike.  Planning ahead, as with all forms of planning, provides a business owner with their best chance of allowing both to thrive once they are gone.

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

Protecting Their Assets, Preserving Your Planning: Why Estate Planning Is A Key Tool For Other Advisors

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The question of why an individual or a family needs an estate plan is often asked and answered in a typical fashion.  Issues regarding proper distribution, the minimization of taxes, who controls assets and cares for children and how a person’s assets and family are protected from disability and incapacity are always part of my answer when it comes to stressing the importance of estate planning.

An additional concern that I raise is important not only to individuals who I work with to prepare estate plans, but also to the other advisors they work with.  Estate planning provides a prophylactic veil over the work of other advisors to ensure that their work is not compromised.  Many advisors recognize the importance of an estate plan to their specific planning and understand the consequences of their clients’ failure to plan.

Some examples of advisors who benefit from their clients’ establishing estate plans include (but are not limited to):

Financial Planners/Investment Advisors-Financial plans and investment portfolios are created with specific goals in mind and allocations based on the advisor’s strategy to achieve those goals.   Without an estate plan, a portfolio may be divided or distributed to persons that were not intended by the client and the advisors.  In addition, without a plan to delay, reduce or eliminate estate taxes or, alternatively, a way to pay for estate taxes, a portion of a portfolio may have to be liquidated prematurely.

Life Insurance Advisors-Life Insurance can be a great source of liquidity when someone dies since the proceeds of the policy will typically be paid prior to any estate taxes being due.   However, without consideration of a person’s assets, life insurance may create an estate tax where none would be due otherwise.  By working with an estate planning attorney to purchase or assign a life insurance policy to a trust, the full value of the death benefit can pass to the intended beneficiaries estate tax free.

Accountants-With many accountants serving as the “quarterback” for their clients over planning, having an estate plan in place ensures that the problems improper distributions or excess taxation harm their clients.  Some accountants will be responsible for the estate, gift and generation skipping transfer (GST) tax returns of theirs clients as well as fiduciary income tax returns for trusts and estates.  Having an estate plan in place makes the tax preparer’s job easier and less complicated.

Other Attorneys-Attorneys who practice in areas such as family, matrimonial and tax law will often be aware of the trusts and estates related issues that may complicate their work.   Real Estate and Corporate attorneys can also benefit from ensuring that their clients’ work with them is not compromised by estate related issues.   In some litigation matters,  having an estate plan in place can expedite the commencement or settlement of a lawsuit with a sick or deceased client.

In a similar vein, estate planning attorneys rely on our clients’ other advisors to help ensure the best results possible.  Advisors working together for the benefit a client enhances the client’s planning and the advisor’s reputation with the client.

Please contact info@levyestatelaw.com for more information.

The New Normal-Estate Planning in 2013 and Beyond

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Since 1997, the federal estate tax exemption and maximum tax rate have changed every year but three.   The exemption has changed eleven times; the maximum rate has changed eight times.  Many of these changes have been due to the temporary nature of the tax legislation that Congress have passed and each change came with a specific end date in mind.  With each change, estate planning attorneys have been forced to speculate as to where the exemptions and rates would end up after the expiration date of each new law.

But, with the passage of the Tax Relief Act of 2012, it appears this consistent uncertainty is coming to an end.  Amongst the many revenue related changes made permanent by this law were permanent extensions of the estate, gift and generation skipping transfer (GST) tax exemptions enacted in 2010.  Each exemption will be adjusted for inflation annually and it is estimated that the 2013 exemption will be $5.25 million.

On the tax rate side, the maximum rate for these three transfer taxes was increased from 35% to 40%.  In addition, the concept known as portability-the ability of surviving spouse to utilize the unused portion of their deceased spouse’s exemption-was also made a permanent part of the estate tax law.  This is a major benefit to couples where one spouse has more wealth than the other.

Beyond the Tax Relief Act, the annual federal gift tax exclusion was increased from $13,000 per beneficiary to $14,000.  Coupled with the extension of the lifetime gift tax exemption, this change will allow for further tax-free lifetime gifting.

The changes at the federal level were not matched by a corresponding change to local state estate tax law.  In the three states that make up the tri-state area, the state estate tax exemptions remain low (the maximum tax rates are significantly lower than the federal rates).  Connecticut ($2 million), New Jersey ($675,000) and New York ($1 million) residents will still need to plan their estates to delay, minimize and possibly eliminate their exposure to state level estate taxes even if their estates are well below the federal exemption amounts

The new certainty to federal transfer tax law does not mean we will not see further changes over the next year.  With the Supreme Court scheduled to determine the constitutionality of the Defense of Marriage Act this summer, same sex married couples may see their estate planning options increase if the court strikes down the law.  Furthermore, it is clear the President Obama will seek to find additional revenue to help balance the current budget deficit and cut our federal debt.  In past budgets, he has indicated a willingness to curb popular estate planning tools such as valuation discounts and complex trusts like GRATs and dynasty trusts to produce revenue.  Whether this will be able to pass a Republican controlled House of Representatives remains unclear if not incredibly unlikely.

Regardless of any future changes, the Tax Relief Act of 2012 has allowed estate planners to shift their focus from predicting where the transfer tax exemptions and rates will end up to simply providing our clients with the best possible advice.  For that reason alone, the Act is a tremendous help to taxpayers and planners alike.

Please contact info@levyestatelaw.com for more information on 2013 estate planning.