Category Archives: Estate Administration

New Year, New Exemptions, Same Concerns

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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

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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

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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

 

The FYI on DIY Estate Planning

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The advent of the internet has lead to many aspects of life becoming simpler and more user friendly.  In some areas, where a trained professional was needed previously, individuals now have the opportunity to do many things for themselves such as trading stocks, preparing their taxes and finding insurance quotes.  This also became true with preparing legal documents especially with the launch of Legal Zoom in 2001.

Do-it-yourself legal documents are not new and in the estate planning world, both professionals and non professionals alike have turned to self created documents to save time and money.  Programs like Legal Zoom have improved upon this by creating interactive forms that are created by professionals and reviewed prior to execution.  But, are these documents all they are cracked up to be? The key considerations with regard to choosing a DIY legal document are:

Cost-One of the most attractive aspects of DIY planning is the cost.  For individuals who need the protection of a will (or other legal instruments) but lack the funds to pay for a qualified attorney, using a service like Legal Zoom may appear to be a way to have your cake and eat it to.  But, much like many things in life, when you purchase a DIY legal product, you do get what you pay for.  It is not that the will be ineffective or found to be improperly drafted.  Rather, a DIY legal product is meant for mass use and tailored to the most typical situations.  For those whose lives deviate from the typical, a DIY product may not provide the flexibility needed to properly protect your family and property.

Simplicity-In addition to cost, the desire to have a “simple will” leads many to use DIY products.  Even for those who use attorneys, it is extremely common for a client to request that a document be kept simple.  The problem with this approach is that it is a rarity that a person’s life is as simple as they believe it to be for estate planning purposes.  Family issues, tax issues and health issues are just a few of the common reasons that a client’s planning needs to deviate from the simplest path possible.  Using DIY products gives a person control over keeping their documents simple-for better or for worse.

Attorney Support–Legal Zoom and comparable programs have marketed themselves wisely by incorporating the use of an attorney to review the client produced work as a selling point.  Having a qualified attorney review your work is significantly better than simply preparing a document with no outside help.  But, it comes with certain limitations in this context.  First, many of the attorneys who work for Legal Zoom and other document preparation software providers are providing their services as a side business to their main clients.  Given the low fees that the document preparation software providers charge, the fees the attorneys receive rarely warrant the same care they give their own clients.  Second, because the goal of using such software is to prepare a legally sufficient document, it is unlikely that a reviewing attorney will give more feedback beyond what is needed to have the document found to be properly prepared and executed.  Finally, and perhaps most importantly, when the document needs to be submitted to court, the reviewing attorney will not be available to guide the client through that process.  In the context of estate planning, this will require finding a new attorney often at a time when other things are more of a priority.

In summary, DIY legal drafting products are absolutely better than not having any planning documents at all.  For some people, it is a blessing to have such a service available.  But, for most, it is likely not sufficient to fully protect your family and property and ensure that you will have the right people available to help you when you need them.  And more than anything, that is the real benefit of using an attorney.

For more information, please contact info@levyestatelaw.com

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

Aside

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.

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.

Windsor, DOMA and the Future of Estate Planning For Same-Sex Couples

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This past Friday, the United States Supreme Court decided to hear two cases related to the treatment of same-sex married couples.  One of the cases, Windsor v. United States, was brought as a challenge to the Defense of Marriage Act (“DOMA”) which was enacted in 1996.  Under DOMA, regardless of any recognition by states or other jurisdictions, the federal definition of marriage is limited to a marriage between a man and a woman.  This has been detrimental to same-sex married couples seeking equality with their heterosexual counterparts in numerous areas including estate planning and estate tax.

In Windsor, Edith Schlain Windsor sued the United States as the executor of her wife’s estate.  Windsor and her wife were New York residents and married in Canada in 2007.  While New York did not recognize same-sex marriages performed in New York until 2011, it did recognize marriages performed in jurisdictions where same-sex marriage was recognized.  Despite having her marriage recognized by New York, Windsor was denied the federal estate tax marital deduction by DOMA.

In June, the United States District Court for the Southern District of New York held that the section of DOMA defining marriage as being only between a man and a woman was unconstitutional because it violated the equal protection clause of the Constitution.  In September, the United States Court of Appeals, Second Circuit, affirmed this finding and further held that classifications based on sexual orientation are subject to a higher level of scrutiny than previous courts had held.

The arguments for each side at the Supreme Court(scheduled for Spring 2013) will likely track those made at the Court of Appeals level.  The proponents of holding DOMA unconstitutional will likely focus on the heightened scrutiny required for laws based on sexual orientation.  They will also seek to show that marriage is generally decided at the state level and that DOMA, by interfering with a power reserved to the states, overstepped federal authority.   Proponents of retaining DOMA will continue to make the case that sexual orientation is not a suspect class and that the Federal government has a rational basis to legislate the definition of marriage.

If the Court upholds the Second Circuit ruling, the benefits to same-sex couples will be significant.  First, whereas New York couples are currently only entitled to a marital deduction on their New York estate tax, they will be entitled to the same deduction at the Federal level.  Secondly, lifetime transfers between same-sex spouses will no longer be subject to federal gift tax (or use up a portion of a spouse’s lifetime gift tax exemption.  Finally, assuming estate tax portability is retained, same-sex spouses will be able to utilize the remaining portion of their spouse’s estate tax exemption.

It is premature to predict an outcome and the ruling may be limited or broad.  Nevertheless, it appears 2013 will be, at the very least, an interesting year for preparing estate plans for same-sex married couples.

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

The President’s Budget and the Future of Estate Planning

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Earlier this month, President Obama released his 2013 budget. Almost immediately following its release, it was declared “dead on arrival” by Republicans and pundits alike. In many ways, the President expected this and presented the budget to express his ideal approach to government spending and taxation. If the President is reelected in November, it is possible that he will push one or more of these proposals during his second term. It is especially worth noting with regard to how the estate, gift and GST tax systems may be structured in his second term.

While many of the proposals are repeats of the President’s previous proposals, the release of the budget was met with both hyperbole and apathy. To some, it expressed ”a war on the wealthy” while to others, it was ”same thing, different year”. Regardless of your opinion on the proposals, it’s important to recognize the possible changes to estate planning included in the budget. This includes:

Returning the Estate, Gift and GST Tax Exemptions and Rates to 2009 levels-Absent action before the end of the year, the Estate, Gift and GST Tax exemptions will reduce to $1 million and the top rate will increase to 55%. In the President’s budget, he has proposed returning the Estate and GST Tax exemptions to $3.5 million and the top rate to 45%. For the Gift Tax exemption, it would still be $1 million, but top rate would increase from the current 35% to 45%.

Reducing the use of valuation discount on family entities-Wealthy families often use family limited partnerships and family LLCs to pool their assets and allow for centralized management. An additional benefit has been the use of valuation discounts on individual interests in the family entity due to the partner or member lacking control over the underlying assets and being unable to sell their interests on the open market. The IRS has long contested these discounts and the President’s budget indicates his desire to continue pressuring planners to reduce or discontinue the use of these discounts.

Increasing the minimum term of Grantor Retained Annuity Trusts (GRATs) and the elimination of “zeroed out” GRATs-Estate Planners often utilize GRATs to transfer property that is expected to appreciate significantly from a senior family member to a junior family member without paying gift tax (known as a “zeroed out” GRAT). Using shorter term GRATs (a minimum term of two years must be used) have allowed their creators to avoid the risk of the transferred property ending up in their taxable estates. The proposals in the President’s budget would require a minimum term of a GRAT to ten years and would require the creator of the GRAT to make some form of a taxable gift at the time of the GRAT’s creation.

Limiting the term of a Dynasty Trust to 90 years-With many states amending or eliminating their Rules Against Perpetuities, a trust that continues over multiple generations known as a Dynasty Trust have become more popular. Because the assets of a Dynasty Trust remain in trust for multiple generations, the payment of estate taxes can be delayed potentially forever if the grantor the trust continues to have descendants. Under the President’s budget, a dynasty trust would terminate after 90 years and an estate tax would then be due on the assets of the trust.

Eliminate the Gift and Estate Tax benefits of a Grantor Trust-One of the newer proposals included in the budget involved altering the estate and gift tax treatment of grantor trusts. As I previously discussed in an an earlier post, a grantor trust’s income is taxed to the grantor of the trust rather than to the trust itself. Under the proposed changes, this favorable tax treatment for income tax purposes would cause the distributions from the trust and transfers to the trust to be considered taxable gifts. Additionally, when a grantor trust terminates due to the death of a grantor, the assets in the trust would be included in the grantor’s taxable estate.

Will any of these proposals eventually become law? That will depend in large part on the results of this year’s national election. Nevertheless, these proposals are a look into how the estate tax system may change next year if the President wins a second term.

Please contact info@levyestatelaw.com for more information about Estate and Gift Tax Planning.

A Matter of Trust: Tips for Choosing Your Fiduciaries

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

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

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

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

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

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

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

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

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

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

Please contact info@levyestatelaw.com for more information.