Planning and Administrating Estates During The Time of COVID-19: The State of Surrogate’s Court Practice

The recent executive orders by Governor Cuomo has allowed estate planning attorneys and clients to use alternative means to prepare and finalize their planning documents. However, while it is still relatively easy to complete your estate planning, the areas of estate administration and practicing before the New York Surrogate’s Courts has become more complicated and uncertain.

Prior to April 13, 2020, the courts had limited the matters that they would hear and proceed upon to those that were deemed to be “essential.” This catch-all criteria was not fully explained and it was left to the petitioners/applicants to prove the essential nature of the specific cases. On April 13th, the courts expanded the matters that they would review to non-essential matters, but several obstacles remain for new and old petitioners.

First, given the state’s stay at home order, the personnel currently working at each court is extremely limited. Second, because of the limitations on movement, all filings are now being made either by mail or the state’s e-filing system.   While the latter is theoretically quicker than in person filing, not all counties are employing it and many are relying solely on mailed in documents. The postal service has become less reliable during this crisis and the timing of delivery of documents is increased.

In addition to these challenges, for matters where there are conflicts, the court has delayed any future in person hearings through May in some cases. In addition, the courts are also delaying issuing citations through the end of May as well. All of this together presents a great challenge to individuals with matters before the court or new matters that need to be filed.

Patience and preparation, as is the case with much of what is going on in the world today, are key to weathering this current modified court administration. Petitions that would normally take several weeks will likely be delayed even after these restrictions are lifted due to the backlog of matters. In order to reduce the delay, if you do have a matter that is already in process or needs to be filed, do not delay collecting, executing or sending any necessary paperwork to the court or your attorneys so that you will be better situated than those who wait for the current pause to end.

 

Planning and Administrating Estates During The Time of COVID-19: Virtual Execution of Documents.

The current crisis has posed specific problems as it relates to the execution of new estate planning documents. Unlike in other areas of transactional law, the execution of documents which will ultimately be filed with the New York Surrogate’s Court require adherence to a series of formalities not required of other legal documents. Specifically, with regard to last will and testaments and other estate planning documents, there is a requirement for such documents to be witnessed by two or more persons at the time the signatory of the document is executed. The current restrictions on public gatherings made this requirement seemingly impossible until there was an easing or lifting of the restrictions.

Fortunately, over the last month, Governor Andrew Cuomo has issued a pair of executive orders which allow for the virtual execution and witnessing of certain legal documents including wills and other estate planning documents. The executive order can be found here:

https://www.governor.ny.gov/news/no-20214-continuing-temporary-suspension-and-modification-laws-relating-disaster-emergency?fbclid=IwAR3ukaFetCzvov8fgAB8IQM88OWp60gRf_2KX918BKOsRvwYmeIJGYVTq8g

Specifically, in order to utilize virtual execution and witnessing of documents, the following is required, namely:

  • If the person executing the documents is not known to the witnesses, they must present identification at the time of the virtual meeting;
  • The individual, witnesses and any supervising attorney must be able to verbally interact in real time during the execution of the documents;
  • The witnesses must receive an electronic copy of the signed document on the same date it was executed and may then sign where needed and transmit the witnessed document back to the individual; and
  • The witnesses may repeat the witnessing of the documents upon receipt of the electronically executed and witnessed documents within thirty (30) days of the execution of those documents.

This executive order follows a previous order which allows notary publics to take virtual acknowledgment of a signatory’s signature.   Collectively, these two orders remove physical separation and the current stay-at-home orders as barrier to current execution of documents. This is especially important for persons who become sick and need documents executed in a timely manner.

Planning and Administering Estates in the Time of COVID-19: Keeping Your Plan Updated

At the end of any meeting where a will, trust or other document is executed, one of the common questions I receive is how often should a client’s documents be reviewed/changed. My common answer is that major changes to three main areas of importance-health, wealth and family-should trigger a call or email to your attorney to discuss what, if anything, needs to be changed.

It is my sincere hope that during this health and financial crisis, none of you experience any such changes. But, I would suggest that the current national crisis-and any future crisis-should provide a fourth clear reason to review your existing planning. Specifically, during this time when most of us are at home and not venturing out often, there are four areas that should be specifically reviewed, namely:

Fiduciaries: The current crisis has exposed the importance of additional factors to consider when selecting fiduciaries including executors, guardians and trustees. The physical and mental health of chosen fiduciaries may, under circumstances such as the present crisis, may not be as solid as you may wish it to be. Older fiduciaries who are more susceptible to the virus and who also are being advised to remain at home may not be in as great of a position to serve as they would under normal circumstances.   Finally, while proximity is not an official barrier to selecting someone, travel limitations and availability should be factored into these choices.

Funding existing trusts. Whether a trust is irrevocable or revocable and regardless of its intended purpose, if it is not funded, then it accomplishes nothing. Individuals often execute trust agreements and wait till a later date to fund the trust. If you have not funded an executed trust, this is an opportune time to do that for many types of assets. Real property may pose certain problem due to the delays at the county clerk’s offices, but the paperwork can be begun now even if the documents cannot be filed until a later date

Completing beneficiary designations. Amongst the easiest things that you can do to bolster your estate planning is ensure all beneficiary designations for any paid on death accounts and policies (retirement account, life insurance and annuities typically) are up to date and correct.   Most companies have the forms available online and those that do not can be contacted to get such forms.

Making taxable gifts. Individuals often forget to take advantage of the annual $15,000 gift tax exclusion ($30,000 for married couples) that provides a good opportunity to benefit their children and other heirs as well as reduce the size of their taxable estates.   Like reviewing your beneficiary designations, this takes minimal effort and cost to achieve potentially significant results.

A general review of your existing estate plan may uncover additional areas that you may want to revise. In many cases, the benefit of these reviews far exceeds the downside of not doing so.

 

Planning and Administering Estates in the Time of COVID-19: Start Your Planning Now

The current pandemic that has affected the whole world has brought with it a dramatic change to the way we think about many different things. Basic parts of our life like shopping and spending time with friends and family have been upended as we try to find a way to establish a “new normal” while also finding ways to reduce the virus’ reach. It is extremely hard to think of the future when so much of the present remains uncertain, but in the area of trusts and estates, planning ahead is always the proper approach. In the current environment, it may also prove essential to protecting your family and assets.

If you have not begun any formal estate planning, it may seem like an inopportune time to begin that process. However, there are very significant reasons to consider starting the process now. First, as we all know by now, there is no clear end date to the current situation. Even when we can begin to function in something resembling normalcy, many things that were held up or paused during the pandemic will suddenly become pressing. Starting the planning process now can allow you to remove one thing from what may be a long list once the pandemic subsides.

Second, this situation has provided many of us with the clarity of what really matters most to us. An estate plan, at its core, is an expression of the people and things we want to protect above all others. Finally, while it is my hope that no one reading this will fall ill, the possibility is real now more than ever. In the past, procrastinating about planning could be considered problematic. In the current environment, avoiding the process can have profound and detrimental effects on your family and assets.

Once you have determined that you are ready to begin planning, it is important to consider certain general concepts. What are you short term goals for your planning and what are your long-term goals? The former should take precedence, but considering where you would like things to be beyond the next several months and years is also wise. Additionally, given our current situation, the decision as to whom you should ask to serve as a fiduciary (executor, trustee or guardian) has become more complicated. Age and geographic location have become more important factors to consider given the current restrictions and potential susceptibility of older people to the virus.

The form of the bequests or gifts under your estate plan is also complicated by the current situation. Protection of assets for minor children remains a key concern while tax based planning may prove to be less important for the time being. And while testamentary trusts do not pose significant administration issues as it compares to outright bequests, it should be noted that the current situation with the Unified Court System in New York and access to financial institutions might delay the final set up and administration of trusts.

These are unprecedented times for most of us and we can only do so much each day to help our families, our communities and ourselves. Protecting your most valuable assets has become more important than ever and ensuring that your family is taken care of no matter what comes next.

The President has no Trust.

Following his election as the 45th President of the United States, President Trump made repeated claims that he would divest himself from his business assets to avoid any conflicts of interest. Despite numerous claims that conflicts of interest laws do not apply to a sitting president, in January, Trump finally revealed his plan to the world-he would transfer his business holdings to the Donald J. Trump Revocable Trust, a trust set up for his own personal benefit but controlled by his son Donald and Allen Weisselberg, the CFO of the Trump Organization, who were named as Trustees. This, he claimed, would allow him to remove any doubt with regard to any potential conflict between his acts as president and his business holdings.

Earlier this month, ProPublica published a report that in February, the terms of the Trust were changed to allow the President the ability to receive principal and income from the Trust at his request subject to the approval of the Trustees. While this appeared to be an about face from Trump, the truth of the matter is the choice to use a revocable trust as a means of divestiture was never a serious transfer of his assets and the control thereof.

For starters, a revocable trust is not a traditional trust under United States trust law. Typically, trusts are irrevocable and the person contributing property to a trust loses all direct control over the property. Additionally, in many states, the donor or grantor of a trust cannot also be a beneficiary of the trust. Finally, while not impossible, most trusts cannot be amended or changed without a court order.

A revocable trust has none of these restrictions. The grantor of the trust reserves the right to revoke the trust at any time. In most instances, a grantor of a revocable trust is also the main beneficiary of the trust. And while the trust agreement can put restrictions on the control and distribution of trust property, the grantor has the ability to amend the trust and remove and replace the trustees if they are not happy with how the trust is being administered.

The main restriction found in a revocable trust is that these powers typically disappear if the grantor becomes incapacitated or dies. The trust then becomes irrevocable and the grantor loses the power to revoke and amend. It is possible that the President’s trust could have included his time as president as a further triggering event to losing these powers. The certification of trust presented by the President indicates that he retained his right to revoke the trust, so it is clear he did not do that.

Revocable trusts are often used to ensure a client’s privacy, to protect a client’s assets if they become incapacitated and to reduce the time and cost of estate administration upon their death. The idea that such a trust could be used to create any sort of separation between the president and his assets ignores the fact that the rights retained by the President are not a bug, but a feature of these trusts.  Revocable trusts are trusts in name alone and cannot be used to properly separate the President or any other government official from the conflicts associated with their business holdings.

For more information on trusts, please contact info@levyestatelaw.com

The Perils of Procrastinating: Six Ways Delaying Your Estate Planning Can Harm You, Your Assets and Your Family

Procrastinating is a typical and normal response to having to deal difficult and uncomfortable tasks and situations. Everyone would prefer to delay dealing with the hard decisions related to setting up an estate plan. But, for far too many people, what begins as procrastination turns into inaction. Since no one can accurately predict when any part of an estate plan will need to be utilized, this inaction can have irreparable and unwanted harm on an individual, his or her assets and their family.

Without an estate plan in place, many decisions that should have been made by an individual are left to a series of statutes and rules related to the laws of intestacy. These laws and rules dictate how a person’s estate will be managed and administered if they did not leave a properly executed will or other testamentary device when they die. While those who have an estate plan will be able to make these choices, those without will have numerous choices made for them:

Who will benefit from your estate? The laws of intestacy determine who will benefit from your estate based on a specific line of familial succession. If you are married without children, your spouse receives everything.   If you are married with children, the surviving spouse and the children split the estate 50-50.   If no children or spouse are living, the line of succession continues down all the way to first cousins once removed if no previous class of relative is alive.

This poses several potential problems. First, the statutes do not differentiate minor children from adults, leaving a potential situation where a minor child will receive potentially large sums of money. How this money is held and the level of court control over this money becomes an issue as well (more on that later).

Second, for more complicated family structures, the statutes pose significant problems.   Children born of wedlock or adopted children may face the need to prove their relationship with a deceased parent in court. Non-blood relatives who might have benefited from the deceased individual’s estate are not considered.

Finally, since New York does not recognize the concept of common law marriage, a non-married partner will be left out of the inheritance even if they had children with the deceased. It is especially important for persons in non-traditional relationships to have their wishes outlined in an estate plan if they wish to benefit persons other than their blood relatives.

Who will administer your estate? Without a will or other testamentary device, the Surrogate’s Court will look to the intestacy order of succession to determine who will be appointed the administrator of the estate. In addition to taking this decisions out of an individual’s hands, the lack of a clear choice to administer the estate may lead to higher costs, a longer administration and potential litigation from unhappy beneficiaries.

Who will care for your minor children? In the rare instances where both parents die with minor children, a will or other testamentary instrument will typically nominate person to serve as the guardian for any minor children. Without a will, the friends and relatives of the deceased may petition the court for the right to care for the children. It is then up to the judge to decide, based on his or her opinion, who the most qualified person is. The judge’s criteria may differ sharply from the parents’ criteria for choosing a guardian.

How will the assets of the estate be held and what involvement will the court have with the administration of the assets? It is often advisable to utilize one or more trusts under a will as the receptacle for the assets passing out of the estate. Asset protection, tax savings and avoidance of waste are common reasons why using trusts are preferred over outright bequests. A court is unlikely to create a trust for an individual who does not have a will or testamentary instrument. This failure to plan may expose assets to risks that a trust could easily avoid.

In addition, if a minor is a beneficiary of an estate, the court and their guardian will oversee their share of the estate until the minor reaches eighteen.   The guardian will be required to petition the court for any distributions that a child may need and requests for distributions are not automatically granted.

How can I avoid, delay or reduce estate, gift and generation skipping transfer taxes? Beyond using an individual’s state and federal exemptions, coupled with the marital deduction if an individual is married at the time of their death, failure to have an estate plan in place will almost completely foreclose any tax planning for an estate’s assets.   Post-mortem (after death) planning is an available option, but it may not be as effective as proactive planning.

Who will make decisions related to finances and medical care if I am unable to? The previous questions related to what happens after someone dies, but issues related to incapacity and disability are equally important.   Along with a will, a durable power of attorney, health care proxy and living will are essential components of an estate plan. Without theses documents, decisions related to finances and medical decisions may not be made by the correct person or may require court intervention to authorize. In a worst-case scenario, a dispute may arise amongst family members about these decisions that could devolve into litigation.

It is impossible to predict when and how you will need to utilize an estate plan. However, for most people, it is clear that making the decisions that will affect themselves, their families and their assets is preferable than leaving these decisions to others.

Please contact info@levyestatelaw.com

An Estate without Trust: An Introduction to Estate and Trust Litigation

Two of the most difficult situations that people find themselves in are the administration of a deceased loved one’s estate and an active litigation matter.   It is no surprise then that when those two stressful situations combine, the resulting conflict can result in loss of assets and the destruction of close family bonds. In order to minimize the damage that an estate or trust litigation can bring, it helps to understand how these type of matters are handled.

In New York state, litigation involved trusts and estates are handled by the Surrogate’s Court in the county where the trust or estate is situated. While there are a wide variety of actions that can be brought in the Surrogate’s Court, there are few very common actions that trusts and estates professionals see repeatedly. They include:

  1. Will Contests-If a family member or another presumed beneficiary of an estate believes that a will presented to the court is either invalid or does not express the deceased individual’s actual intent, a will contest can be brought. If the challenge is based on the intent of the Testator, the person(s) contesting the will must show that the Testator either lacked capacity when they executed the will or they were unduly influenced by another party to agree to certain provisions of the will.
  1. Construction Proceedings-A will or trust may be considered valid by all parties, but one or more provisions may be open to multiple interpretations. A construction proceeding is mechanism by which the Court can determine, based on evidence provided by each side, what the testator or a will or the grantor of a trust intended with regard to certain provisions in their documents.
  1. Discovery and Turnover Proceedings-In some instances, property that should be in the possession of an estate or trust has to be turnover to the respective fiduciaries. If the person in possession of that property is unwilling to voluntarily turn it over to the fiduciaries, the fiduciaries or other interested parties may request a discovery and/or turnover proceeding to determine if certain assets should be distributed to the fiduciaries.
  1. Contested Accountings-All fiduciaries, whether executors of an estate or trustees of a trust, have an obligation to provide their beneficiaries with a regular account of their activities.   If a beneficiary believes that the fiduciary has acted improperly, he or she may use the fiduciary’s accounting as a basis to contest certain actions that they have taken. Failure by a fiduciary to account voluntarily may lead to a mandatory accounting ordered by the court and additional relief for the beneficiaries.
  1. Fiduciary removal proceeding-If the actions of a fiduciary are so egregious that the beneficiaries believe that they can no longer serve the interests of the beneficiaries, trust or estate, they may petition the court to have the fiduciary removed.   Removal is a severe form of relief that the court is reluctant to grant unless they are presented with sufficient evidence to justify relief. If a fiduciary’s actions can be justified as being within the discretion they are granted, the court will likely seek alternative solutions rather than removing them from their positions.

Avoiding the cost and stress of an estate or trust litigation is among the most important goals an estate planner has when suggested certain planning options. Unfortunately, there is no guaranteed way to avoid litigation entirely. Proper planning beforehand and quality representation if litigation does occur are key to ensure the best possible outcome in these extremely difficult situations.

 

For more information on estate and trust litigation, please contact info@levyestatelaw.com

 

New Year, New Exemptions, Same Concerns

2014 was a year of major changes for New York estate planners. For the first time in twelve years, the state specific exemption increased from $1 million to $2.052 million. This was the first of several changes to the New York exemption that will occur annually through 2019 when it will be tied to the federal estate tax exemption.

The increased exemption was coupled with a possibly more significant development, the so-called “cliff” for estates that exceed the exemption by 5% or more. Previously, New York State only taxed the value of an estate that exceeded the applicable exemption. For estates that reach or exceed the cliff, the entire value of the estate will now be subject to taxation. This change made it even more important to carefully craft your estate plan.

As 2015 begins, here is a look at where the applicable exemptions and exclusion amounts stand:

Federal Estate Tax Exemption-In 2015, the exemption has increased from $5.34 million to $5.43 million. This represents the smallest annual increase to the exemption amount since it was indexed to the inflation rate in 2012.

Federal Gift Tax Exemption-Similarly, the federal gift tax exemption has increased to $5.43 million. For those who maxed out their exemptions in 2012, the small change will provide minimal additional room for them to make additional gifts.

Federal Gift Tax Annual Exclusion-There has been no change from the 2014 (and 2013) amount of $14,000 per beneficiary. Coupled with the small increase to the lifetime gift exemption, there has been very little additional room for donors to make additional tax-free gifts.

New York Estate Tax Exemption– On April 1, 2015, the state estate tax exemption will increase to $3,125,000.00. Although not as dramatic of an increase as the 2014 change, this still represents more than a 50% increase to the exemption.   The cliff kicks in $3,281,250 and estates at or in excess of this amount will see the entire value of their estates subject to taxation at a maximum rate of 16%.

New Jersey and Connecticut Estate Tax Exemptions-New York’s neighboring states did not follow suit with increasing their respective estate tax exemptions. Connecticut’s exemption, which had previously been higher than New York’s, remains at $2 million while New Jersey’s exemption is the lowest amongst those states with a separate state exemption a $675,000. New Jersey also has a separate inheritance tax that may or may not apply depending on who the beneficiary is.

These changes, while creating some additional flexibility, do not alleviate some of the issues that concern estate planners. In New York, it remains important to ensure that assets are properly allotted based on the applicable state and federal exemptions. If they are not, unnecessary tax may be due. The introduction of the cliff increases this concern because under New York law, unlike federal law, a surviving spouse cannot inherit the unused portion of the deceased spouse’s exemption. This concept, known as portability, is limited to federal taxation and will not protect a New York estate from exceeding the cliff.

The 2014 changes have created new opportunities to shield additional assets from taxation. They have also created new pitfalls that clients will need their estate planners’ assistance to avoid.

Please contact info@levyestatelaw.com for more information

Frequently Asked Questions-Part Two

Last month, I took a look at some of the most common questions that I get from clients and prospective clients. Today, I’ll answer a few more frequently asked questions:

6) “I am concerned about protecting my assets from the claims of creditors. Is there a way to protect my assets?”-It depends. If you currently have no known or possible claims against you, there are several options available to protect your assets including the use of trusts and business entities such as LLCs and partnerships. However, if you have known or anticipated claims against you, any transfers made to protect your assets will likely be deemed to be fraudulent conveyances by the courts.

7) “My advisor suggested the use of an irrevocable trust, but I am concerned that if I contribute assets to a trust, there will be no way to get it back. Are irrevocable trusts truly irrevocable?”-The intention behind the creation of an irrevocable trust is forever transfer assets out of the grantor’s name for the benefit of one or more trust beneficiaries. With that said, if a trust needs to be changed, revoked or otherwise modified, there are several options available. If the grantor, trustees and beneficiaries all agree, the trust can be amended under New York law. In New York, a trustee can also take advantage of the decanting statute to transfer assets out of a “bad trust” into a more advantageous trust. Finally, a beneficiary or a trustee can petition the surrogate’s for a modification, amendment or termination. Each of these options come with drawbacks ranging from added tax burden to extra expense with no guarantee of success.

8) “My biggest concern is that the administration of my estate will take a long time and cost my estate too much. Is there a way to reduce the time and cost?”-The time and costs of an estate administration vary depend on numerous factors including the size and nature of a deceased person’s assets, the number of beneficiaries, distributees and fiduciaries and what, if any, debts and taxes will be due. Proper planning can reduce the time and cost of administration, but there are many variables that may be impossible to control. Ensuring the proper beneficiary designations and titling of your property before you die is a significant way to reduce the time and cost of estate administration.

9) “Have the recent changes to the New York estate tax law made some of the trust planning under my will unnecessary?” The increases to the estate tax exemption that began this year will make the use of marital trusts under a will not always the best choice. However, because marital trusts provided additional benefits besides estate tax savings, many still prefer to use this type of trust over an outright bequest. For couples with combined assets approaching the current New York estate tax exemption, the use of a mandatory credit shelter trust may be preferable to avoid the New York estate tax cliff.

10) “We recently completed our wills and were curious about when we should revisit them. Is there a certain recommended time frame or certain events when we should revise our documents?”-Revising your wills and other estate planning documents should be done only when necessary to ensure that your wishes are still effectuated by your plan. Changes in your health, wealth or family are good times to consult with your attorney. In addition, when laws related to your estate plan are change, consulting with your attorney is key to preventing your plan from becoming obsolete. Finally, if nothing changes in your life or in the law, consulting with your attorney approximately every four years will help ensure that your planning remains the best reflection of your personal wishes.

For more information, please contact info@levyestatelaw.com.

Frequently Asked Questions-Part One

In my years counseling clients, I have found that each client, couple or family who comes to me have their own unique situations to plan for. But while their situations are unique, the questions that they ask tend to be very similar. Below are some of the most common questions I get and some general answers to those questions.   Later this week, I will post some additional questions and answers:

1) Why do I need to use an attorney? Can I draft my will/estate plan myself? The proliferation of products like Legal Zoom have encouraged do-it-yourselfers to consider drafting their own estate plans with little to no advice from an attorney. In some situations, a “simple will” may be all you need and the harm in using self-preparation software is minimal. However, for most individuals, a simple will does not reflect their complicated lives. Moreover, while Legal Zoom does provide some legal counsel, the professionals they use are likely less dedicated to the do-it-yourselfers than their own clients.

2) Who should I select as my fiduciaries (executors, trustees, guardians)? Can they be the same people? The main criteria for selecting a fiduciary is whether you believe a person is qualified to handle the tasks they are appointed to do.   You may have family or friends who may handle financial situations well, but would struggle in the role as a guardian. There may be individuals whose current life situation is simply too complicated to serve in any capacity while others could handle all roles in a manner that you find appropriate. In the end, your fiduciaries should reflect your values and beliefs in how each role should be handled.

3) Why should I leave property to my children (or other minors) in trust and not outright? Under New York law, any account beneficially owned by a child must be paid to that child by the time they reach age twenty-one (21). For many children, this is a very early age to be given such a large financial responsibility.   The use of a trust for a child can extend the period of time when the property earmarked for that child can be held and managed by another individual (the trustee).

4) I was told that life insurance was tax free, but recently learned that life insurance proceeds are included in my taxable estate. Is there a way to avoid having these proceeds subject to estate tax? By using a vehicle known as an irrevocable life insurance trust (ILIT for short), life insurance proceeds can be removed from an individual’s taxable estate for both federal and New York estate tax purposes. The inclusion of these proceeds in a taxable estate can increase or even create an estate tax liability where none would exist otherwise.   The creation and administration of an ILIT does require additional time and money, but if properly administered, the benefits far exceeds the cost.

5) My parents have all of their assets in a revocable living trust and recommended I do the same. Is it true that this trust can help me avoid probate? If funded and administered properly, a revocable living trust can help avoid the costs and delays associated with probate and estate administration. However, for many individuals, an estate administration proceeding may be necessary even with a revocable living trust. Oftentimes, assets will not be properly transferred into a revocable trust before a person dies. In these situations, a short ‘pour over will’ will typically transfer the remaining assets into the trust following an estate administration proceeding.

For more information, please contact info@levyestatelaw.com