Frequently Asked Questions-Part Two

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

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

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

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

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

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

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

Frequently Asked Questions-Part One

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

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

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

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

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

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

For more information, please contact info@levyestatelaw.com

 

Doing It For Your Kids: Key Estate Planning Decisions For Families with Minor Children

Preparing an estate plan at a young age comes with a series of unique and often difficult decisions for an individual, couple or family to make with regard to how their planning will be structured.   One of the primary difficulties comes from having to think about the care of their children in the event that both parents die before the children reach adulthood. This often holds people back from starting their planning, leaving their assets and their families unprotected from this unlikely-but not impossible-scenario.

To properly protect your minor children, an estate plan is a necessity. A properly drafted estate plan will outline certain key decisions that must be made to ensure that the family’s children are properly cared for. Amongst those decisions to be made are the following, namely:

How will property for the children be held-Money and other property that is held for the benefit of a minor child can be held in several different manners, each with a varying level of protection.   Parents or other relatives can set up custodial accounts for their minor children, which will protect the funds for the children they are set up for until the child reaches an appropriate age. In New York, custodial accounts must be paid out to the beneficiary of the account at age 21.

In some instances, a custodial account is insufficient or inappropriate. If the creator of the account is older, he or she may pass away without naming a successor custodian. A petition would have to be filed by another individual to gain control of the custodial account. Alternatively, the amount being held for a child may be large enough that allowing the child full access to the funds at 21 may not be wanted.   In such instances, the use of a trust can extend the period of time that the funds or property is not directly controlled by a child.

Who will control the property for your children-Careful consideration must be made to determine the persons who will control property for the benefit of a minor child. Factors such as the competence, financial knowledge and temperament should be considered in selecting executors (responsible for a person’s estate), trustees (responsible for managing trust assets) and custodians (responsible for holding custodial accounts. In addition, an individual’s relationship with the child beneficiaries and understanding of your wishes with regard to distributions should be given consideration as well.

Who will care for your children-The decision of who to select as a guardian for your children is often fraught with emotion, fear and jealousy on the part of both parents and the persons considered for this important position. However, the key factor must be who will best care for your children.   You should consider not only how well you get along with the chosen guardian, but also how well the children get along with the selected individual(s). If a person has a large family themselves, the prospect of adding one or more children may be more than they can reasonably be expected to handle regardless of how close they are to the parents of the children. Finally, how seamlessly a guardian can take over responsibility for a child should be factored into making your final decision.

How will their education be paid for-College expenses and other educational costs should be a factor in determining how best to plan your estate. The use of savings vehicles such as a 529 plan or crummey trust can help establish a funding mechanism for education at a very young age.   Life insurance can also be a helpful tool either by purchasing permanent coverage with a cash value or by carrying sufficient term life insurance to cover expected expenses.

The benefit to making these crucial decisions early on is that once an initial plan is put in place, it can be modified and changed as your children grow older to meet their changing needs. Being prepared also can be a powerful way to reduce parental anxiety about their children’s future by ensuring that their children will be protected financially and cared for even after they are gone.

 

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

Changes To New York Estate And Gift Taxes-2014 and Beyond

Earlier this month, Governor Cuomo along with both houses of the New York State Legislature, enacted the most sweeping changes to the New York Estate and Gift Tax system in well over a decade. Some of these changes have already gone into effect while others will progressively be phased into how estates and trusts are taxed over the next few years.

Among the changes are the following:

1) A progressive increase in the state exclusion to ultimately index the New York exemption with the federal exemption by 2019.  Beginning April 1, 2014, New York has increased its estate tax exclusion from $1,000,000.00 to $2,062,500. This will remain in effect until next April when the exemption will again increase. A full list of scheduled changes to the exemption is below:

04/01/14-03/31/15                       $2,062,500

04/01/15-03/31/16                       $3,125,000

04/01/16-3/31/17                         $4,187,500

04/01/17-12/31/18                       $5,250,000

From January 1, 2019 on, the state estate tax exemption will be indexed with the federal estate tax exemption every year subject to inflationary increases.

2) A phase out of the estate tax credit for estates valued at 105% or more of the applicable exemption. This change may cause many unintended results if not properly planned for. In short, estates that are above the applicable estate tax exemption but below 105% of the exemption, will be taxed on the portion of their estate above the exemption in effect the year of the death. However, for estates valued at 105% or more of the exemption, the ENTIRE ESTATE will be taxed! This change has been questioned by many planners and tax professionals, but until further guidance or changes are enacted by the legislature, it should be assumed that this was the intended result.

3) Inclusion of gifts made on or after April 1, 2014, but before January 1, 2019, within 3 years of decedent’s death in the decedent’s taxable estate. This change will limit the ability of taxpayers to make lifetime transfers during the final years of their life to avoid estate tax inclusion. While this provision has a limited time-frame, it may make certain gifting strategies less attractive from a tax avoidance perspective.

4) Income taxation of certain trust income from certain trusts. Under the new legislation, income payable to New York residents from exempt resident trusts will now be subject to income tax. Furthermore, income from incomplete non-grantor trusts will be included in the income of the grantor. Both of these changes are subject to certain dates with regard to when the income is received.

5) Creation of a New York Specific QTIP Election. Prior to the new legislation, an individual wishing to leave property to their spouse in a QTIP marital trust would be required to file a federal estate tax return to take advantage of this exclusion. The new legislature now allows New York residents to make a QTIP election specific to New York estate tax law without a corresponding federal election.

These changes come with several planning opportunities and pitfalls. First and foremost, with the changes to the state estate tax exemption, the difference between the state and federal exemptions will shrink and ultimately disappear. This makes the use of mandatory credit shelter trusts more attractive. Previously, the use of such a trust could cause state estate tax to possibly be due at the first spouse’s passing. Now, the bigger risk is failing to utilize both spouses full state exemption. Under federal law, a surviving spouse can ‘inherit’ the unused portion of their spouse’s exemption; under New York law, this is only possible by using a credit-shelter trust.

Second, given the significant taxation that becomes due once an estate exceeds 105% of the state estate exemption, individuals may wish to consider gifting a portion of their estates to a spouse, their children or making a charitable bequest.

Finally, for those individuals who are looking to make gifts over the next four and half years, it may be advisable to consider alternative gifting vehicles other than outright gifts.

It is likely that these changes will evolve during the next few years and clarifications will be made to certain provisions of the new legislation. For this very reason, the proper legal and tax advice is crucial to ensure that your estate is properly protected from excess taxation.

For more information, please contact info@levyestatelaw.com

Major Changes Coming To New York Estate (and Gift) Tax Laws

Over the last decade, the federal estate and gift tax system has seen numerous changes to both the individual exemptions and tax rates. During that same period, New York state has consistently refused to make changes to its state specific exemptions and rates. After “decoupling” from the federal estate and gift tax system, the state specific exemptions and rates have remained $1 million per individual with a maximum rate of 16% respectively.

In the next few weeks, this is very likely to change. Earlier this year, Governor Andrew Cuomo proposed a series of major changes to the state’s estate and gift tax system. These changes, if agreed to by the State’s Assembly and Legislature, would greatly change both how estates, individuals and trusts are taxed and how estate planners advise their clients with regard to New York taxation.
The proposed changes include:

1) Increasing the individual estate tax exemption and lowering the maximum tax rate-Governor Cuomo’s proposal would, over the next four years, increase the individual estate tax exemption to $5.25 million. The exemption would be indexed to inflation thereafter, similar to the current increases to the federal exemption. The maximum tax rate would be reduced over the same period of time from 16% to 10%.

2) Reinstating the state gift tax-New York has not had a state specific gift tax for well over a decade, but under the governor’s proposal, taxable gifts would be included in a decedent’s estate. This would have the net effect of reducing an individual’s estate exemption by the value of all taxable gifts made during their lifetime.

3) Repealing the state Generation-Skipping Transfer Tax-This is a tax imposed on any transfers from an individual to an individual two or more generations below them (grandchildren and all subsequent generations).

4) Taxing distributions to New York beneficiaries of income accumulated in non-resident and exempt resident trusts-Typically, income accumulated by non-resident and exempt resident trusts is exempt from taxation. However, if the governor’s proposals are enacted, some income to New York beneficiaries of these trusts will be subject to tax.

The response to the governor’s proposals have generally been positive from both houses of the legislature. However, the Democrat controlled Assembly is seeking to tweak the governor’s estate tax proposal by increasing the exemption to $3 million and keeping the current rate structure in place. This difference of opinion is minor in the context of whether or not a change will likely take effect.

The practical effect of these proposals will not be known until the final budget is proposed and ultimately passed by the legislature and signed by Governor Cuomo. Once this takes place, it is important that all New York resident reevaluate their current planning to determine if it needs to be updated to reflect the changes to the law.

For more information, please contact info@levyestatelaw.com

The FYI on DIY Estate Planning

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 SupportLegal 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

Estate Planning For Same Sex Couples in a “Post DOMA” World

It has been two weeks since the United States Supreme Court issued its decision in United States v. Windsor in which the 5-4 majority found that Section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional.  This historic decision nullified the federal definition of marriage as a union between a man and a woman and qualified same sex married couples for federal benefits that were previously available only to heterosexual married couples.

Windsor specifically dealt with a same sex surviving spouse who had been required to pay over $300,000 in federal estate taxes due to her inability to claim the federal estate tax marital deduction.  This was despite the fact that the plaintiff, Edith Windsor, had been legally married to her spouse under the laws of the State of New York.  The majority’s decision, written by Justice Anthony M. Kennedy, held that DOMA created “two contradictory marriage regimes within the same state” and causes same sex marriages to be treated as “second tier marriages.”   The majority held DOMA unconstitutional for violating the Fifth Amendment due process rights of same sex married couples.

The practical result of this decision is that same sex married couples in the 13 states (and the District of Columbia) which allow same sex marriage are entitled to the same protections and rights under federal law as heterosexual married couples.  With 1/3 of the United States population and ¼ of the states now allowing full marriage equality, estate planning for same sex married couples in these states has changed significantly.  Amongst the new estate planning benefits are the following:

Federal Marital Deduction-The inability to qualify for this deduction was injury that allowed DOMA to be challenged.  Previously, same sex married couples could not protect their assets from federal estate tax using this deduction.  Now, assets passing to all surviving spouses pass free of both federal and state estate tax.

Gift Tax Implications-Prior to Windsor, lifetime transfers between same sex spouses were considered taxable gifts and had to be counted towards a spouse’s annual exclusion and lifetime exemption amounts.  Lifetime transfers between spouses are now considered non-taxable events for gift tax purposes.  Furthermore, same sex married couples can now utilize gift splitting to maximize their annual gift tax exclusion.  Prior to Windsor, this was available only to heterosexual married couples.

Portability-With the 2013 Tax Act, President Obama made the concept of portability, which allows a surviving spouse to claim the unused portion of a deceased spouse’s federal estate tax exemption, permanent.  This benefit will now be extended to same sex married couples as well.  However, it should be noted that portability only applied to federal estate tax and not New York or other state estate tax exemptions.

Qualified Retirement Plans-The Employee Retirement Income Service Act (“ERISA”) requires that the beneficiary of a qualified retirement plan must be the owner’s spouse unless the spouse consents to a substitute beneficiary.  Same sex spouses will now be entitled to the same default treatment.

While these changes are significant, many issues remain.  First, the decision in Windsor did not invalidate DOMA as a whole and did not find that states must allow same sex marriage.  This poses a significant burden on same sex couples in the states that do not allow same sex marriage.  Second, the available options for legally married same sex couples looking to move to other states remain limited.  Finally, because DOMA remains applicable to the states where marriage bans remain, there still remains a possibility that a state where same sex marriage is allowed could eventually reverse course and change its laws to ban same sex marriage.

Nevertheless, this change is welcomed by same sex couples and their advisors alike.  And while Windsor makes estate planning for same sex couples significantly easier, it still requires careful planning and consideration to ensure that their families are protected.

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

Estate Planning By Default: Let the Non-Buyer Beware!

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

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.

Thanksgiving Food For Thought: Talking To Your Parents and Grandparents about Estate Planning

Tomorrow, families across the United States will gather to celebrate Thanksgiving.  Both immediate and extended families will be spending a significant portion of the next few days with each other and inevitably, interesting discussions will emerge.  One discussion point that will be less likely to emerge than most is about estate planning, specifically the plans parents and grandparents have in place. But while talking about this topic may not be the happiest way to spend your holiday, having a conversation with your older relatives is essential to protecting them, their assets and your own planning.

There are several reasons why a child (or grandchild) should be concerned with their parents’ and grandparents’ estate plans.  First, knowing what your senior relatives plans are will allow for a smoother transition and administration of their assets if they die, become severely disabled or incapacitated.  Second, with nearly 75% of all adults over 65 having some form of a long-term care event during their lifetime, children and grandchildren may have to coordinate the payment of their elder relatives long-term care expenses.   Third, in the event of death, severe disability or incapacity, children and grandchildren may be asked to serve as fiduciaries for senior family members as executors of their estates, trustees of trusts or agents under power of attorneys and health care proxies.  Finally, children and grandchildren may be named as beneficiaries of their parents’ and grandparents’ estates.  An inheritance can raise issues for the inheriting children and grandchildren including tax and creditor related problems.

Understanding why you should speak to your parents and grandparents about estate planning is significantly easier than actually speaking to them about the subject.  Each family member has their own temperament when it comes to discussing financial and other personal matters, so an awareness of how a relative will react is key to avoiding unnecessary conflict.  If they are open to having a discussion about estate planning, explain that you are coming from a place of concern.  Inquire about what they have and have not done in terms of their planning.

If, like many parents and grandparents, they don’t want to discuss this issue, there are other ways to ensure that they are protected.  If they have already worked with an estate planner, encourage them to check in with their advisor to ensure their plan is up to date.  If they have not prepared an estate plan, offer them the names of attorneys, financial planners and accountants that you work with and with whom you trust.   While some older relatives may not want to openly discuss their planning with their younger relatives, many will appreciate the opportunity to speak with a professional with no personal connection to them.

Once you are able to begin the discussion, by yourself or through a professional, there are certain subjects that should be discussed.  Among them:

1)   Nature and location of the estate planning documents;

2)   What assets do they own and where are they located;

3)   Who are their professional advisors;

4)   How are they planning to pay for any long-term care expenses;

5)   Who are the beneficiaries of their estate; and

6)   Who are the fiduciaries that will be in charge of their affairs if they die, become severely disabled or incapacitated.

 Having an estate planning conversation with your parents and grandparents will be difficult.  Even if they are completely transparent and willing to talk, the subject matter can be difficult to think about.  Nevertheless, as a loving relative, it is important that your relatives are protected and that their ultimate wishes as to their estates and well-being are known and able to be fulfilled in a timely and proper manner.

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