Author Archives: nyestateomfmind

Unknown's avatar

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.

Finding Success Through Business Succession Planning

Posted on by
Reply

During a recent meeting, the topic of business succession planning was brought up by one of my colleagues.  He mentioned that he recently oversaw the transition of a family business from the third generation of a family to the fourth generation.  Given the poor odds that a business will successfully transition from the first generation to a second, I found this to be very impressive.

65% of family businesses fail to survive the transition from the first generation to the second and 90% fail to survive the transition from the second to the third.  Fortunately, family businesses can increase their odds significantly by preparing a comprehensive succession plan.  A succession plan lays out how the business will be owned and operated once the senior family member or members leave the business.

There are several key questions that a succession plan must answer.  Among them:

1)    Who will own the business?-One of the primary goals of succession planning is to preserve a family business within the family and not require a sale to outsiders.  Beyond this, the original owner must decide if all family members will own the company or only certain family members who are involved in the business will become owners.  Each choice has its own set of problems and challenges that must be addressed.

2)    How will the business be owned?-If the original owner decides to transfer the business to a large group of new owners, they may wish to consider using a trust or another entity such as an LLC to own the business interests.  This can provide both tax and asset protection benefits to the new owners and also allow the current owners to ease the owners into their new responsibilities.

3)    Who will manage the business?-In many family businesses, the original owner will have controlled the business completely for many years and may be hesitant to name a successor.  Nevertheless, picking a proper successor and training them before they take over the business are essential parts of administering a successful succession plan.

4)    How will conflicts be handled? –When a single person controls a business, having a conflict policy is unnecessary.  Once the ownership and management expand, a conflict policy allows both the original owner and his or her successors to prevent conflicts from growing beyond internal disputes.  In businesses without conflict policies, it is not uncommon for disgruntled owners to bring legal action against the business and its owners for failing to protect the interests of the new owners.

5)    How will the original owner be compensated for his interests? –It is common for the original owner’s interest in their company to be their primary asset.  If the original owner retires or wishes to leave the business, he or she will rely on that interest to pay for their living expenses for the remainder of their lifetime.  A succession plan should include a mechanism by which the original owner can be compensated for his or her ownership interests.

Transferring a business to family members is often the goal of the original owner, but in some instances, it is either not desired or not possible.  In these situations, the original owner may instead sell the business for either a lump sum payment or a fixed series of payments.  In these situations, it is important for the original owner to coordinate where the proceeds of the sale will go and how they will be held.  Regardless of how a business is transitioned, it is essential that the business owner coordinate their succession planning with their estate planning to ensure that their assets and family members are properly protected.

A family business lasting four generations is a rarity, but it does not need to be an impossibility.  As with all planning, starting early and working consistently with your advisors will yield the best results for you, your family and your business.

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

The Estate Planning Lessons of “The Descendants.”

Posted on by
Reply

Last weekend, my wife and I saw “The Descendants,” the new film by director Alexander Payne (Sideways, About Schmidt and Election).  The film has drawn significant Oscar buzz both for the actors’ performances and the film itself.  Additionally, it has created a buzz amongst estate planning professionals regarding its two main plotlines.

The movie focuses on Matt King, played by George Clooney, who is in the midst of two major life events.  As the film begins, we learn that King is the trustee of one of the largest parcels of land in Hawaii on behalf of himself and his other family members.  The family has decided to sell the land, a move that will produce a significant windfall for the family, but ultimately, the decision of who to sell the property to and whether to sell at is left to King alone.

The other major life event involves a speedboat accident involving Matt’s wife, Elizabeth.  As the film begins, we find Elizabeth in a coma, leaving Matt with even more on his plate. Each of these life events on their own would be difficult to manage, but both simultaneously occurring (and additional drama which I won’t spoil here) leaves King with the weight of the world on his shoulders.

Fortunately, King, his wife and his ancestors successfully prepared for these events and the results of their planning manifest during the film.  The film provides three very important lessons regarding estate planning:

1.  A Health Care Proxy can reduce family friction over the care of an incapacitated loved one-When a loved one falls ill and decisions need to be made about their care, underlying conflicts between family members may get in the way of what’s best for the incapacitated person.  If a health care proxy has been executed, those conflicts can be prevented.  In the film, it becomes clear that Matt and his in-laws do not agree on much.  The one thing that they do agree on is the wisdom shown by Matt and Elizabeth by executing health care proxies.

2. Not all trusts are designed to last forever-We learn early on that the land is being sold because the perpetuities period for the trust is set to expire in five years.  Hawaii, like many other states, has codified a common law rule called the Rule Against Perpetuities, which requires a disposition of property to eventually vest in an individual.  Practically, this prevents a trust from continuing forever.  Some states have modified or eliminated this rule and it has become more common for continuous trusts known as dynasty trusts to hold property permanently in trust.  Currently, New York has retained the common law rule and trusts and other dispositions must end 21 years after the death of a specified individual who was alive when the disposition was created.

3.  It is important to pick a fiduciary who will protect your family’s interests and protect the property you leave behind-Throughout the movie, Matt’s decision regarding the land is a point of interest for not only his family, but for many in the community as well.  In the end, his decision is based on what he believes his predecessors would have wanted for his family and not necessarily what the current generation of beneficiaries wants.  In choosing Matt, his ancestors believed that he would provide for the rest of his family while preserving and protecting the family property.  His personality, intelligence and management capabilities, and not just his status as a relative, made him a good choice to oversee this valuable property.

The estate planning aspect of “The Descendants” helps tie the two life events together and they help to define the character of Matt King.  In many ways, the legacies we leave behind through our estate plans help define how our descendants will remember us after we’re gone.

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

The Good, Bad and Ugly of the New York’s Marriage Equality Act

Posted on by
Reply

On June 24, 2011, Governor Cuomo signed into law the Marriage Equality Act, making New York the sixth and largest state to legalize same-sex marriage.  The new law provided the most significant victory for those seeking full rights for same-sex couples and could lead to more states following suit.

But, with the new rights and obligations granted to same-sex couples wishing to marry, the law also complicated certain aspects of personal and tax planning for these couples.  Additionally, newly wed same-sex couples face new problems due to the lack of full faith and credit typically provided by the federal government and other states.

The Good 

Same-sex couples in New York can now marry and become entitled to the same rights and obligations that heterosexual married couples have.  This includes access to spousal insurance benefits, authority to make decisions for an incapacitated spouse and the obligation of each spouse to support the other

One key right from an estate planning perspective is spousal inheritance rights.  Prior to the enactment of the Act, same-sex couples could only pass property through the use of a will or a trust.  Now, a surviving spouse, regardless of gender, is entitled automatic inheritance rights under New York law even if no will exists.

The state marital deduction for estate tax purposes is also now available to same-sex couples.  Under New York law, a surviving spouse can inherit unlimited assets from their deceased spouse without incurring a state estate tax.  This allows a same-sex couple to fully protect their assets from state estate tax until both spouses die.  Unfortunately, this benefit is limited to New York state estate taxes only.

The Bad

New York requires all married couples to file their income tax returns as a married couple, either individually or jointly.  Because of the federal Defense of Marriage Act (“DOMA”), same-sex couples must file their federal income tax returns as individuals. In addition to preparing both state and federal tax returns, same-sex couples will also need to prepare a draft federal return for a married couple in order to complete their state income tax returns.  This creates a more complicated tax situation and more work for the couple or their accountants.

This discrepancy is not limited to income tax.  As I previously mentioned, in New York, a same-sex surviving spouse can inherit unlimited assets from their deceased spouse.  This is not true for federal estate tax purposes and surviving spouses are limited to the federal estate tax exemption ($5.12 million in 2012).  For couples with illiquid assets, this requires additional planning for when the first spouse dies.

Finally, same-sex couples are also limited regarding lifetime transfers between spouses.  Transfers between same-sex spouses are considered taxable gifts, while transfers between heterosexual spouses are not.  Spouses in a same-sex couple are limited to their annual gift tax exclusion amount ($13,000), using a portion of their lifetime exemption ($5.12 million) or having to pay gift tax on the transfers.

The Ugly

Once a same-sex couple marries, it limits their ability to move outside of New York and still have their marriage recognized.  As mentioned previously, only five other states (Connecticut, Iowa, Massachusetts, New Hampshire, Vermont plus Washington, D.C.) recognize same-sex marriage. DOMA prevents the federal government from providing any federal benefits to same-sex couples.  Additionally, 41 states have “mini-DOMAs” which either ban same-sex marriage or specifically define marriage as being between a man and a woman.

Adoption of a child can be a problem for same-sex couple as well.  While most states allow homosexual individuals to adopt children, less than half of the states explicitly allow a same-sex couple to jointly adopt.  This is also true of some foreign countries, most notably China.

Conclusion

The Marriage Equality Act was an important first step for same-sex couples in New York.  The Justice Department’s recent decision to stop defending DOMA in court may eventually bring additional rights.  Until then, it is important that same-sex couples work with their advisors to ensure that their rights, the rights of their spouses and the rights of their children are protected to the fullest extent possible.

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

Now or Later: Choosing Between a Will and a Revocable Living Trust

Posted on by
Reply

A Last Will and Testament is the most essential part of any estate plan.  It explains who your assets will pass to, how they will pass (outright or in trust), who will be in charge of administering the assets and who will care for your minor children.  For many people, a properly drafted will is sufficient to allow their estate to pass as they wish.

In some circumstances, however, a will is secondary to another document known as a Revocable Living Trust.  A revocable trust is trust established and funded during the lifetime of an individual (the “Grantor” of the trust).  At the Grantor’s death, a short will known as a “pour over will” pays any remaining assets in the Grantor’s estate to the revocable trust.  Revocable trusts have become an extremely popular alternative to the traditional last will and testament plan.

So, which is the better fit for your planning needs?  Consider these ten factors:

  1. Probate-One of the main advantages of a revocable trust is the avoidance of the process known as probate.  During the probate process, a will is submitted to a court (in New York, the court is called the Surrogate’s Court) and the named executor under the will is granted the power to distribute the Grantor’s assets.  The process can take several months and may cost a significant amount in legal and court fees.  A properly drafted and administered revocable trust can minimize or eliminate the need for the probate process.  This is especially important for individuals with property in multiple jurisdictions.
  2. Funding-In order to ensure that a revocable trust works properly, assets must be transferred to the trust before the Grantor dies.  Any assets not in the trust at the date of death will have to pass through the probate process.  This negates one of the main benefits of a revocable trust. A will requires no lifetime transfers or retitling of assets.
  3. Administration-During the Grantor’s lifetime and after they die, a revocable trust must be administered in accordance with trust instrument.  A will requires no lifetime administration.
  4. Cost-An estate plan that includes a revocable trust will typically cost more up front than a plan that includes only a will.  However, the costs after an individual dies may be less for a revocable trust due to the limited or nonexistent probate costs.
  5. Privacy-Once a will is submitted to the court, it becomes part of the public record and the general public can access it. The trust instrument, unlike a will, is not submitted to a court and the beneficiaries of the trust can remain private.
  6. Tax Planning-One common misconception about revocable trusts is that they provide tax planning benefits over wills.  In reality, both wills and revocable trusts can be drafted to minimize or eliminate estate and other transfer taxes.
  7. Revocation and Amendment-Both wills and revocable trusts can be amended or revoked any time prior to the Grantor or individual’s death.  After the Grantor’s death, both become irrevocable and the fiduciaries of the estate or trust cannot change the terms of the will or trust.
  8. Disability-The trust agreement creating a revocable trust will include successor trustees who will serve if the initial trustees can no longer act as trustees.  It is also common to have a second person serve as a co-trustee with the grantor of the trust.  If the grantor becomes disabled or incapacitated, the remaining co-trustee or successor trust can administer the trust’s assets without applying for guardianship over the grantor.
  9. Ability to Challenge-While will contests are more common, it is also possible to challenge the validity of a revocable trust on the basis of a lack of capacity on the part of the grantor and the trust being created due to the undue influence of another party.
  10. Asset Protection-During the Grantor’s lifetime, a revocable trust provides no asset protection from creditor claims.  After the Grantor dies, the Trust can be structured to protect assets from creditor claims.  This is option is also available when drafting wills.

The choice between a will and a revocable should be well thought out and discussed with your advisors.  While a revocable trust does provide certain advantages to a traditional will, it must be properly drafted, funded and administered to ensure that you receive the maximum benefit.

Please contact info@levyestatelaw.com for more information about revocable trusts.

Protecting Your Most Valuable Assets: An Introduction to Estate Planning for Young Families

Posted on by
Reply

Starting a family comes with a new set of joys, challenges and responsibilities from single or even married life.  These changes also come with a certain level of anxiety and concern, some of which can be alleviated by proper planning.  It is not uncommon for a young family to begin a financial plan and a college-funding plan when a child is born and at that time, it is also important to prepare an estate plan. Drafting an estate plan at this time provides significant benefits over waiting until later in life.

The primary benefit of preparing an estate plan at a young age is removing the uncertainty of what will happen if you and your spouse die.  While it is unpleasant to discuss, having an estate plan in place can answer five important questions, namely:

1)    Who will care for my children if my spouse and I die?  One of the main factors that lead young families to prepare an estate plan is the appointment of a guardian if both parents die.  Without such a provision, the child may be subject to multiple relatives fighting over the child’s care.  A guardian appointment can curb these problems and assure that the person who will care for your child is someone you trust and believe to be capable of accepting this responsibility.

2)    How will my children be provided for financially?  An estate plan provides how your assets will pass, to whom they will pass and in what form they will pass.  For assets passing to a minor, there is often a concern that the assets will be insufficient and that the child may gain access to the assets before they are capable of managing the assets responsibly.

Instead of an outright bequest, assets passing to a child can be held in a trust known as descendants’ trust, which is established under the parents’ wills.   A trustee of the parents choosing manages and uses the trust’s assets to pay for the child’s care.  Once the child reaches a selected age, the assets pass to him or her outright.

3)    How can I protect my assets from excess taxation?  Most young couples lack sufficient assets to exceed the current federal estate tax exemption ($5.12 million in 2012).  But, in the tri-state area, the state estate tax exemptions in New York, New Jersey and Connecticut are among the lowest in the country ($1 million in NY, $675,000 in NJ and $2 million in CT).  For a young couple with a home and one or more large life insurance policies, it is very easy to exceed these exemptions and therefore be in a position to owe state estate tax.  Fortunately, a properly drafted estate plan can minimize or eliminate most of these taxes.

4)    How will my special needs child be cared for?  Children with special needs often rely on government assistance to pay for the care and treatment.   Qualifying for government assistance requires the person receiving the benefits to own minimal assets of their own. By preparing a trust known as a supplemental needs or special needs trust, parents can augment their child’s care and pass assets to a special needs child without risking the loss of their child’s benefits.

5)   What if my spouse or I become disabled, incapacitated or unavailable?  Two components of every estate plan are a durable power of attorney and a health care proxy and living will.  A power of attorney allows a named agent (initially, the person’s spouse) to perform certain transactions as if they were the person granting the powers.  A health care proxy and living will allow the spouse or other trusted individual to make medical decisions for an incapacitated person.  Both instruments ensure that financial and medical decisions can be made during periods of incapacity, disability or unavailability.

A secondary benefit to preparing an estate plan at an early age is the creation of a relationship with a trusted advisor who can help guide you through the financial and personal changes that life brings.  Having an estate planning attorney available to you can help you deal with issues before they come up rather than after a problem has occurred.

Preparing an estate plan at a young age can be difficult, especially when you have many other issues to deal with.  But, once a plan is in place, it can alleviate numerous concerns and provide you with the security of knowing your most valuable assets will always be cared for.

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

The ABCs of Trust Planning

Posted on by
Reply

Estate Planning, like many specialty fields, has a language all its own.  For professionals involved in the field, short hand acronyms for various planning techniques are well-known and understood.  For the individuals and families seeking estate planning advice, however, it can leave your head spinning.

Fortunately, once explained, many of these techniques are fairly easy to understand and extremely helpful in achieving your estate planning goals.  This is especially true of a group of “alphabet soup” trusts that are common techniques used by most estate planners.

This is not exhaustive list of trusts or estate planning techniques, but these are some of the more commonly used trusts:

Charitable Lead Trusts (CLT)

How it works: The Grantor (the person who creates and funds the trust) contributes property to the trust and gives a charity or other exempt entity an income interest for a term of years.  Upon the end of the trust term, the remaining property passes to the Grantor’s descendants or other named beneficiaries.

Benefits: The Grantor receives a charitable deduction based on the present value of the income stream and the contributed property is removed from the Grantor’s taxable estate.

Charitable Remainder Trusts (CRT)

How it works: A CRT works exactly like a CLT except the beneficiaries are reversed.  The Grantor or a member of the Grantor’s family receives an income interest for a term of years.  At the end of trust term, the remaining property passes to a charity or exempt organization.

Benefits: The Grantor receives a charitable deduction based on the present value of the remainder interest and the contributed assets are removed from his or her taxable estate.

Grantor Retained Annuity Trusts (GRAT)

How it works: The Grantor contributes property to a trust and receives an annuity interest for a term of years.  At the end of the trust term, the property passes to the Grantor’s descendants or other beneficiaries.

Benefits:  By using the present value of the property and the Section 7520 interest rate, the value of the gift made by the Grantor is zero for gift tax purposes.  The remainder beneficiaries receive the remaining property without the Grantor incurring any gift tax.

Intentionally Defective Grantor Trusts (IDGT)

How it works:  By retaining certain powers over the trust (for example, the power to substitute trust property), a trust is considered a pass through for income tax purposes.  The grantor, rather than the trust, pays any income tax attributable to the trust property.

Benefits:  The income tax rates for individuals are typically more favorable than the tax rates for trusts.  Additionally, the Grantor reduces his taxable estate by paying taxes on the trust income.  IDGTs are often used in sales transactions between the Grantor and the Trust, which also allows the property to pass without estate or gift tax.

Irrevocable Life Insurance Trusts (ILIT)

How it works:  The Grantor contributes cash or cash equivalents to the trust which are used to purchase life insurance on the Grantor’s life.   Each year, the Grantor makes additional contributions to pay the premiums on the life insurance.  Upon the Grantor’s death, the death benefit of the policy(ies) is paid to the Trust.

Benefits:  The proceeds of the life insurance policy(ies) are outside the Grantor’s estate for estate tax purposes.  Additionally, the proceeds may be used to pay any estate taxes due on the Grantor’s estate and allows the Grantor’s estate to avoid liquidating assets such as real estate or business interests.

Qualified Personal Residence Trusts (QPRT)

How it works: The Grantor contributes his or her residence to the trust and retains the right to reside in it for a term of years. At the end of the trust term, the residence passes to the remainder beneficiaries, typically the Grantor’s descendants.

Benefits: Upon the contribution of the residence, the property is removed from the Grantor’s taxable estate.  The value of the gift made by the Grantor is reduced by the value of his or her interest in the residence during the initial trust term.

Each of these trusts is not without its disadvantages and complications.  Unless they are properly drafted and administered, the benefits discussed above may be thwarted.  Despite this, for those looking to reduce their taxes, to pass property to their descendants and/or make a charitable gift, they are well worth diving into the ‘alphabet soup’ to find the right transaction for you.

Please contact info@levyestatelaw.com for more information about these and other trust transactions.

“I Don’t Have An Estate-Why Do I Need An Estate Plan?”

Posted on by
Reply

A 2010 survey by Lawyers.com found that 65% of adult Americans lack any form of an estate plan.  In past surveys, the findings were similar as were the reasons for avoiding estate planning. The reasons given included financial concerns, discomfort with talking about death and disability, a belief that their assets would pass properly without an estate plan and a lack of knowledge regarding estate planning.

But, for one in five respondents, their lack of planning came from the belief that they had insufficient assets to require planning.  They had no “estate to plan.”  I have encountered this line of thinking many times with people who believe that estate planning is only for the super affluent.  In reality, many people beyond the very wealthy need estate planning.  They include:

  1. Families with minor children-Who will care for your children, how the assets you leave for them will be controlled and when the children will have full access to the assets in the event both parents pass are key components of a well executed estate plan.
  2. Families with special needs relatives-Disabled individuals may only own limited assets in order to qualify for government assistance.  Families can provide these relatives with additional assets by using a special needs trust or other planning vehicles.
  3. People concerned with disability and incapacity- Most estate plans include a durable power of attorney, an instrument that allows an agent to legally step into the disabled person’s shoes and complete certain transactions on their behalf.  Another component is a health care proxy and living will which gives an appointed health care agent the ability to make medical decisions for an incapacitated person.
  4. People with current health issues or a family history of health issues- Many illnesses strike quickly and leave little time to get your financial house in order.  An estate plan can provide the families of the chronically ill with one less issue to worry about.
  5. Families with children from multiple marriages-The dynamics of a family of second or third marriage present many issues regarding inheritance.  Without an estate plan, assets may pass in a manner inconsistent with the parents’ wishes.
  6. Non-traditional families including same sex couples-Same sex couples and other non-traditional families are not granted the same inheritance and tax rights as traditional families.  Even with the recent changes to the New York law, an estate plan is essential to protect the rights of spouses and children of these families.
  7. Professionals in areas with malpractice exposure or other liability concerns-Many professionals seek ways to protect their assets from lawsuits and other liabilities.   By using trusts and other asset protection vehicles, assets can be shielded from exposure to any future liabilities (please note that such plans cannot protect assets from existing or known liabilities).
  8. Small and Family Business Owners-A estate plan coordinated with a business succession plan allows a business owner to protect both his business and avoid family conflict over the transfer of the business.
  9. People with assets in excess of their state’s estate tax exemption-All three states in the tri-state area have state estate tax exemptions significantly lower than the federal exemption ($2 million in Connecticut; $1 million in New York; and $675,000 in New Jersey).  And while the tax rates are also lower, many people who would not be subject to federal estate tax may be subject to state estate tax.
  10. People who wish the control how their assets are passed-If you die without a will, your assets with pass through the intestacy law, which specifies who inherits your property and who may petition the court to control your assets.  In essence, by not having a properly executed estate plan, you transfer decision-making regarding your assets to the government.  Giving such power away is a tough pill for almost everyone to swallow.

None of these concerns or scenarios is predicated on having an estate worth more than the federal estate tax exemption.  And yet, each of these groups would benefit from a properly drafted estate plan.  So, who really needs an estate plan?

The answer is pretty much everyone.

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

Welcome to New York Estate of Mind!

Posted on by
Reply

Hi everyone,

I wanted to put up a quick post to replace the “Nothing Here” one that’s been on this blog since it was created.  I also hope everyone had a great holiday.

The first real post will go up late Sunday/early Monday and after that, you can expect a new post every Monday and Thursday with occasional additional posts when necessary.

So, check back on Monday and until then, enjoy your weekend!

Michael