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

When a ‘minor’ issue can become a Major Problem.

One of the primary concerns for families with minor children have with regard to their estate planning is the care, both personal and financial, of the minor children if both parents predecease the child before he or she reaches the age of majority. The appointment of a guardian (typically a relative or close friend) provides a level of comfort for parents who wish to be certain of who will take of their children if they are no longer around.

Relying on a guardianship appointment alone may not sufficiently protect your child from certain financial problems that are common with children who receive large sums of money at an early age. In New York, a child reaches the age of majority at 18. Unless the child consents to the continuation or appointment of a guardian, all monies and property held for their benefit must be released to them directly. In rare circumstances, a child can petition the Surrogate’s Court prior to reaching 18 if the appointed guardian is not fulfilling his or her responsibilities or the court finds guardianship to not be in the child’s best interest.

It is rare to find an 18 year old with sufficient financial maturity to handle the administration, investment and maintenance of large sums of money. It is for this reason that I strongly advocate establishing trusts for children under both last will and testaments and under lifetime trusts. The benefits are substantial and clear: first, by continuing to have a fiduciary (rather than the child) as the responsible party for the assets, the value of the assets have a reduced chance of being wasted or used for frivolous or harmful purposes.   Second, by retaining the assets in a trust and not in a child’s name, the assets can be shielded from potential creditors of the child.

Finally, using a trust gives the donor of the assets-the testator under a will or a grantor of a trust-the ability to structure the distributions and usage of the assets to best accommodate their wishes and the needs of the children beneficiaries. The donor is typically a parent or close relative and may have a better understanding of a child’s strengths and weaknesses when it comes to managing money.

There is no perfect solution that ensures that assets being inherited by or gifted to a child will not ultimately be wasted or abused. However, by relying on your own knowledge of a child rather than arbitrary deadlines, the chances of seeing the assets used for the intended purposes greatly increases.

 

Please contact info@levyestatelaw.com for more information.

A Declaration of Interdependence

Last Monday, we celebrated the 240th anniversary of the signing of the Declaration of Independence, the document by which the United States of America was born.  By recognizing the need to break free from the control of England, the former colonists put forth the belief that only by gaining independence could they gain the unalienable rights of “Life, Liberty and the Pursuit of Happiness.”

Nearly two and half centuries later, the world has changed dramatically, but the desire for independence and the ability to chart our own course remain key values to Americans. Running parallel to this need for freedom is our history of finding great success by relying upon each other.  The motto “E Pluribus Unim” (out of many, one) reflects that this is also a core American value.

When preparing an estate plan, it is understandable to want to rely on one person or one advisor to ensure all your wishes and desires are fulfilled.  However, in most cases, it is preferable and useful to have multiple advisors across multiple professions working with you to provide you and your family with the security you wish for.  By working together, attorneys, accountants, financial and wealth advisors and other professionals can bring their specific expertise to the table and strengthen the other advisors’ abilities to help a client reach their goals.

Family members and friends also play a part in ensuring your estate plan fulfills its goals. In their capacities as fiduciaries or beneficiaries, these most important individuals can assist both the individual and their advisors during their lifetime and beyond.  Conversely, a disgruntled family member can cause great harm to the success of an estate plan.

In the end, each individual’s estate plan should reflect their specific wishes and intentions.  It is each individual’s right to plan their affairs as they see fit.  Utilizing the people and resources available to you is best way to achieve this goal.

For more information, 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