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.

You Don’t Need An Angel, You Just Need a Guardian

One of the key decisions families with minor children have to make when setting up an estate plan is who will serve as the guardian of those children if both parents die prior to the children reach 18 years old.   The probability of a guardianship provision being enforced is rare, but not impossible. For that reason, it is essential that such a decision be made long before it can become an issue.

Guardianship can mean different things depending on who the ‘ward’ or person needing care is and why they need such care.   For persons with mental or physical disabilities or who lack capacity to care for themselves, an interested party will typically petition the court to allow them to take control of another person’s life. Guardianship for minors differs on several fronts. First, it has an expiration date built in (when the minor turns 18). Second, depending on the type of guardianship sought, it can affect a minor’s entire life or just the assets they may have. Finally, the proof needed to establish guardianship is significantly less than a guardianship based on incapacity or disability.

A guardian of a minor may be appointed to care for the minor’s person, property or both.   Guardianship of a person deals with the care of the actual minor. In most situations, the minor would live with the appointed guardian and the guardian would be responsible for ensuring the proper care of the child. Guardianship of property is specific to assets that are set aside for or owned by a minor child. This can include inherited property, gifts or other assets that require adult supervision. Guardians of property serve alongside the Surrogate’s Court as being responsible for the assets of the minor. On a minor’s 18th birthday, the assets become the direct property of the former minor.

The selection process for choosing a guardian can be fraught with familial issues, concerns about making the correct choice and anxiety about whether anyone can care for a child the way their parents can.   As mentioned above, it is a rare occurrence when these provisions actually get enforced.   When choosing a guardian, some factors to consider include the potential guardians values and beliefs and how they compare to your own; financial stability and responsibility; availability to care for a child; and if the guardian has their own children, whether the care of additional children would create an undue burden on your selected guardian.

It is not easy to think of someone other than yourself or your spouse/partner raising your child and many clients delay completing their estate planning work because of their anxiety over this issue. The alternative is relying on the state to name the right person as guardian without any guidance from the minor’s parents. It is far better to go through the small discomfort yourself than to leave your children with potentially greater issues if the wrong guardian is chosen.

Please contact info@levyestatelaw.com for more information.

 

Summer’s Here, And the Time Is Right, For Getting Your Estate Plan in Order!

Over the next few weeks, summer will usher in a fun-filled, relaxing three-month period where kids can say goodbye to their studies for the time being and adults can travel and enjoy everything the season has to offer. It would seem odd to think of this as the perfect time to work on your estate plan; in fact, with many companies offering summer hours and workloads generally lightening during the warm months, it is the perfect time to consider to get your estate plan in proper shape.

Where do you start? It all depends on what you’ve already done, but here are ten action items for you to consider while you’re making your vacation and travel plans:

  1. Have your initial planning documents drafted. You’ve been busy all year…and the year before that…and the year before that.   Taking the first step in getting your estate planning prepared may be the hardest, but once you begin, the process can be completed quickly and painlessly.   Initial documents include a last will and testament, a durable power of attorney and a health care proxy/living will.

 

  1. Review your existing documents to ensure they still fit your needs. Having an initial plan in place puts you ahead of most people, but that is only the starting point of the estate planning process.   Family, assets and health changes can affect what your wishes are. If you haven’t reviewed your documents recently, take the time to speak with your attorney to ensure that your wishes and intentions are still reflected in your documents.

 

  1. Fund your irrevocable and revocable trusts. Clients often forget that setting up a trust is a two-stage process.   First, the trust document is drafted to express how it will work and who will benefit from the assets. Second, the assets must be transferred into the trust. In particular, with irrevocable trusts, transfers should be made as soon as possible to avoid the imposition of the three-year rule if you die within three years of a transfer.

 

  1. Complete and/or update your beneficiary designations. Paid on death accounts and contracts such as retirement accounts, life insurance and annuities are amongst the easiest to claim after a loved one dies. Without the need to petition the court, these assets can be transferred quickly to the proper beneficiaries. However, without proper beneficiary designations, they can pass to the estate or to the wrong persons.

 

  1. Create or revise your assets list. Most estate attorneys, financial planners and other advisors will compile a list of your assets during the planning process, but the most accurate lists usually are self created. Updating or creating such a list will give you a better idea of where things stand with you and your family and can reveal that your assets have grown to the point where additional planning is needed.   Alternatively, in the event of your death, it can provide your heirs with a good roadmap of what assets need to be transferred and retitled.

 

  1. Review your life insurance. The amount, type and ownership of life insurance can change as you grow older and expand your family/assets. Many insurance agents provide audits of policies at no additional cost. Additionally, because life insurance is taxable only for estate tax purposes, changing the ownership of the policy to a life insurance trust is a great way to reduce the size of your taxable estate.

 

  1. Protect your family or small business. Business owners are often focused on the here and now and don’t take the time to consider what will happen to their business if and when they are no longer running it.   Many businesses lack the proper buy-sell agreements or even a proper organizational document to give co-owners and the owner’s family guidance over what happens to the business once the business owner leaves, retires or dies.

 

  1. Create a gifting plan. With the large increase to the federal estate tax exemption and the increased New York exemption, it might seem less important to consider gifting strategies. This is not true. For starters, individuals can now gift $15,000 (or $30,000 per married couple) to their beneficiaries every year. Additionally, through the use of trusts, the monies given to minors can be protected from waste and be available for usage for education and other expenses.   Finally, for those with estates nearing New York’s “estate tax cliff,” the lack of a New York specific gift tax continues to keep gifting as an important tool to reduce estate taxes.

 

  1. Consider Charitable Giving. For those with estate tax issues and philanthropic goals, setting up a structure to maximize your giving takes time and many state and federal approvals before you can begin giving. Summer gives you ample time to get the process started so that you can hopefully be ready to make contributions before the end of 2018.

 

  1. Understand your planning goals. Estate Planning attorneys and other advisors provide suggestions and advice based on what we know about the law and what others do.   But, without the input and understanding of what our client’s goals are, any plan we put in place will be incomplete.   With more time to contemplate your planning goals, you can help your advisors craft the right plan for you and your family.

 

Please contact info@levyestatelaw.com for more information

The New York/Federal Estate Tax Divorce Becomes Permanent (for now)

In the final month of 2017, President Trump and the Republicans in Congress agreed upon a massive change to the federal tax system. Amongst the changes was significant increase to the federal estate, gift and generation skipping transfer tax exemptions. Beginning in 2018 and continuing through the end of 2025, each individual receives a $11.2 million exemption (adjusted annually for inflation) and each married couple receives a collective $22.4 million exemption. This leaves the vast majority of estates able to pass free of federal estate tax.

In New York, however, this change brought about an end to the hope of both tax professionals and clients alike that the New York state and federal exemptions would once again be equal. This hope has now been extinguished as New York’s exemption will remain $5.25 million through the end of 2018. On January 1, 2019, the exemption will be determined based on a base exemption of $ 5 million adjusted for inflation over the course of the last ten years. Furthermore, two major differences from the federal estate tax system will complicate New York estate planning even further.

First, under federal estate tax law, if one spouse dies leaving a portion of their exemption unused, the surviving spouse may ‘inherit’ the remaining exemption through the concept of portability. New York, on the other hand, does not recognize portability and without additional planning, the unused exemption would not be preserved. Secondly, under federal estate tax law, the taxable portion of an estate is the value of the assets above the decedent’s exemption. This is also true in New York unless your estate exceeds 5% of the exemption. Once an estate exceeds this amount, the entirety of the estate is taxable, not just the excess amount.

The New York/Federal Exemptions historically

For many years, New York conformed it’s estate tax exemption to the state death tax credit under the federal estate tax system. In 2001, this changed due to the tax legislation passed by President George W. Bush which increased the federal estate exemption over the course of the next decade leading to a temporary repeal in 2010. In order to preserve the revenue that it was receiving from estate taxes, New York and other states which had a state-specific estate tax decoupled from the federal system and set their own exemptions. In New York, the exemption remaining $1 million for well over a decade.

In 2014, Governor Andrew Cuomo enacted legislation by which the New York exemption would progressively grow in size over a period of five years. By 2019, the New York exemption was scheduled to be tied to the same formula by which the federal estate tax exemption was determined. This, it was hoped, would reduce the estate tax burden on many New York families while reduces the disparity between state and federal tax regimes.

Planning for the new New York/Federal disparity

 The large disparity between the two exemptions creates new complications and opportunities for New York residents with regard to their estate plans. Wills which utilized a mandatory credit shelter trust should be reviewed and changed to more flexible disclaimer trusts to give fiduciaries more room to determine how much and which tax to pay at a decedent’s death. Additionally, because New York does not have a state specific gift tax, New York residents with estates valued between the New York and Federal exemptions should consider gifting plans to lower their New York taxable estate and to avoid the estate tax cliff.

Gifting does not come without risks. For a taxable gift to be effective, the donor must live for three years after the gift is made. If they die in the interim, the gift is brought back into their estate for purposes of calculating their estate tax. In addition, given the partisan nature of the recent changes, it is not inconceivable that the current federal exemption may be repealed or lowered by a Democratic president and Congress. Finally, even if Republicans retain control over the presidency and Congress, the change to the estate tax will sunset. It is possible that any gifts made today may be subject to a future clawback by the IRS.

The Only Certainty Is Uncertainty.

 In the sixteen plus years since New York first decoupled from the federal estate tax system, the federal exemption has changed twelve times and the New York exemption has changed five times. There is no reason to believe that these changes will suddenly end at the federal or state level. The best way to ensure that your plan reflects these changes is to remain in contact with your estate planning and tax professionals.

Please contact info@levyestatelaw.com for more information.

Estate Tax 2018-What We Know, What Trump Wants and What’s To Come

On Wednesday afternoon, after months of speculation, the Congressional Republicans released their and President Trump’s proposal for tax reform/cuts to begin as soon as 2018. Much of the general parameters of the plan have been known for months with few specifics being known. The proposal released on Wednesday didn’t add many specific although the contours of the proposal were now official. Not shockingly, a repeal of the federal estate tax was amongst the proposals presented.

With a formal bill not yet written and a strategy for passage still unclear, it is helpful to look at what the estate tax system-both federal and state-may look like next year depending on what Congress does and whether or not the estate tax factors into the eventual final bill.

Federal Estate Tax Exemption-A Tale of Two Possible Futures.

Currently, the Federal Estate Tax Exemption stands at $5.49 million per individual and a collective $10.98 million for married couples. Under the federal system, through the concept of portability, a surviving spouse may utilize any unused portion of their deceased spouse’s estate tax exemption. Since all assets pass to surviving spouses estate tax free (due to the federal marital deduction), a surviving spouse has great potential to transfer an eight-figure estate to their heirs free of estate tax.

Since 2010, the exemption has been increased annually as a factor of inflation. And although an official decision will not be made by the IRS until next month, the expectation is that the exemption will be increased to $5.6 million per person and $11.2 million per married couple. It is also projected that the federal gift tax exclusion will be increased from $14,000 per beneficiary per year to $15,000.

Under the Trump/Republican plan, the federal estate tax and the generation skipping transfer tax (GST tax) will be repealed. Beyond that, very few specifics are known. Will the repeal begin in 2018, be retroactive or phased in as it was when it was repealed in 2001? What will happen with capital gains treatment of inherited property? Since there will be no longer an estate tax, will property that previously received a step up in basis be given a favorable treatment at death and what, if any, limit on stepped up basis will there be?

Another notable omission from the plan is any mention of the federal gift tax. Given the reduction in revenue that a repeal of the estate tax will create, is it possible that the federal gift tax exemption will be reduced? Or will the system also be overhauled to deal with the reality of an estate tax federal tax system? The coming weeks and months may or may not tell the tale on this issue.

New York and other local State Estate Tax Exemptions.

 In New York, the outcome of where the Federal Estate Tax Exemption will land matters more over the next year than any time since 2000. In 2014, Governor Cuomo and the state legislature agreed to increase New York’s state exemption from $1 million to eventually re-connecting it with the applicable federal exemption. Currently and through December 31, 2018, the New York estate tax exemption is $5.25 million. On January 1, 2019, the exemption will be tied to the then in-effect Federal Estate Tax Exemption. What if there is no Federal Estate Tax Exemption? It is unclear as of now what New York would do, but it seems unlikely that New York would follow suit with a full repeal.

Our neighboring states have taken different tacts with regard to their state specific exemptions. Last year, New Jersey repealed their estate tax exemption starting January 1, 2018. They continue to have an inheritance tax for bequests to non-lineal family members and with a new governor entering office shortly after the New Year, there may be additional changes to their estate tax/inheritance tax system. Like New Jersey, Pennsylvania has only an inheritance tax, but only fully exempts bequests to surviving spouses and children under 21. Connecticut has an estate tax with a current exemption of $2 million.

Beyond 2018.

By this time next year, we will likely know what both the exemptions for both the federal and state specific estate tax systems will be. But, as with any change to a tax code, it may be many months if not years before we fully understand the ramifications of these changes.

Please contact info@levyestatelaw.com for more information.