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 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.


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 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 for more information about multi-generation estate planning.

Elections (may) Have Consequences: The Fiscal Cliff and Estate and Gift Taxes

For much of 2012, the looming changes to the tax rates and exemptions set to go into effect in 2013 have weighed heavily on all discussions of estate planning.  The so-called “Fiscal Cliff” and the 2012 Presidential and Congressional elections left planners with uncertainty of whether the scheduled sunset provisions of the Bush/Obama tax cuts would go into effect or if Congress and the President would strike a deal before year’s end.

Tuesday ‘s election ended some of the uncertainty with regard to the respective players in this debate and what type of leverage they would have.  President Obama won a second term as President while in Congress, the Democrats extended their majority in the Senate.  In the House, Republicans retain control, albeit by a slightly slimmer margin.  In the days following the election, the three lead players in the upcoming negotiations (President Obama, Speaker of the House John Boehner and Senate Minority Leader Mitch McConell) each expressed their positions with each retaining their previous stance on increasing or retaining existing tax rates and exemptions.

Earlier today, President Obama announced that he will meet with Congressional leaders next week to begin working on a deal to avoid the Fiscal Cliff.  The possible outcomes are several:

  1. The President and Congress will agree to a comprehensive deal-Both sides have indicated a desire to achieve a deal on both tax issues and spending cuts.  But despite the results of the election, there appears to be no true bridging of the two sides polarized positions.  This may change  after next week’s negotiations, but such a change would reflect a major shift in tactics and attitudes.
  2. The President and Congress will agree to a temporary, non-comprehensive plan-In his press conference today, President Obama stated he was ready to sign  into law the permanent extension of the income tax rates for 98% of all taxpayers.  The Senate has previously passed such a bill, but the House has refused to even vote on it.  It is possible that they will now agree to separate those tax rates from other issues, but that remains unlikely.  More likely would be a temporary extension of the current tax rates and exemptions similar to the extension passed in 2010.
  3. No deal is reached before the end of the year-If no deal is reached before the end of the year, the tax rates and exemptions revert back to their pre-President Bush levels.  While this may be frowned upon by many financial analysts, this would change the political dynamic  significantly and may force one or both sides to finally come to a comprehensive deal.
  4. A deal is reached on issues other than estate and gift tax rates and exemptions-The previously mentioned Senate bill made no mention of any extension, increase or decrease to the estate and gifts taxes.  During the Presidential campaign, neither candidate spent much time discussing these transfer taxes.  For those reasons, it would not be surprising to see the income tax issues resolved while the gift and estate tax issues are left to sunset and possibly be renegotiated in 2013.

If we are to believe the President, in any of these four scenarios, we should expect to see the federal estate and gift tax rates to increase and the respective exemptions to decrease come 2013.  To best prepare for these changes, you should consider the following three pieces of advice:

1. Make 2012 gifts ASAP-The current gift tax exemption of $5.12 million is unlikely to ever return to this high level in the foreseeable future.  For those with the means or the need to utilize a 2012 gift, it is already past the point of making more complicated gifts.  With that said, by utilizing transfers to a grantor trust, it is still possible to make a 2012 gift today of cash, securities or even a promissory note and substitute harder to value assets in 2013.

2. Consider or reconsider the use of a credit shelter trust under your will-The lower estate tax exemptions that will likely go into effect will make using a credit shelter trust, a testamentary trust that allows property to pass estate tax-free at the death of both spouses, more attractive.  Since 2010, such trusts were less appealing given the disparity between Federal and State estate taxes.  If the exemptions are reduced, that disparity will decrease as well.

3.  Speak to an estate planning attorney and stay informed.  This is a fluid issue and things may change dramatically very quickly.  It is important to keep in touch with your estate planning attorney to learn about any changes.  If you do not have an attorney, you can also keep yourself updated by reading this and other estate planning blogs.

For more information about the 2012 Estate and Gift Tax changes, please contact

Five Reasons Why You Should NOT Have An Estate Plan

You may be wondering why I would ever consider writing a post about not having an estate plan.  As an estate planning attorney, it might seem counterintuitive for me to discuss the reasons why an estate plan isn’t a necessary component of every adult’s life planning.

The reality is the reasons listed below come not from me, but from conversations I have had with people who do not have estate plans.  People of all ages, levels of wealth and familial situations have used one or more of these reasons to explain their reluctance or unwillingness to prepare an estate plan.  And with more than 60% of adults in the United States lacking even a basic will, it’s more likely than not that a relative, friend or colleague of yours has relied one of these reasons.

Reason Number One: Insufficient Assets.  One of the key goals of any estate plan is to delay, minimize or eliminate any estate taxes on the assets passing from an individual to his or her heirs.  Without sufficient assets, this component of an estate plan is unnecessary.

BUT, for individuals living in New York, New Jersey and Connecticut, having sufficient assets to require tax planning is more common than in other parts of the country.  First, individual income and personal wealth are higher in the tri-state area than in many other parts of the United States.  Second, the estate tax exemptions in Connecticut  ($2,000,000), New Jersey ($675,000) and New York ($1,000,000) are amongst the lowest in the US (many states do not have a state estate tax).  When you consider the real estate values in the tri-state area and the fact that life insurance death benefits are included in a taxable estate, it is very easy for an estate to surpass the state exemptions.

This does not even factor in the possibility that in 2013, the federal estate tax exemption will drop to $1,000,000.  This would expose many individuals to both federal and states estate taxes.

Reason Number Two: Estate Planning is Expensive.  Compared to many forms of planning, the upfront costs of preparing a good estate plan may seem expensive.

BUT, unlike other forms of planning, the fees for estate planning are not re-occurring unless your plan needs to be changed.  Additionally, while many of the larger law firms may charge fees that are uneconomical for many, there are numerous high quality boutique law firms and solo practitioners in the tri-state area who can provide a comparable service for a fraction of the cost.

Reason Number Three: I’m Too Young To Need An Estate Plan.  Fortunately, the likelihood of a premature death is small for most Americans.  For parents with minor children, the chances that both parents will pass before a child reaches 18 is very remote.

BUT, just because something is unlikely or an event is remote does not mean it is impossible.  The care of a minor child is not something most parents want to leave to chance.  And while there may be relatives or friends willing to step in and care for a minor child, not having a guardian named is a risk not worth taking.

Reason Four: I Can Rely on the State Intestacy Statute to pass my property to my heirs.  It is true that every person has a fallback estate plan regardless of whether they prepare any documents on their own.  New York, like all states, has a statute known as the intestacy statute which governs who will inherit your property and who will be able to manage your property if you die without a will.

BUT, the distribution pattern laid out by the New York intestacy statute is not necessarily what you would want.  For example, if a spouse and children survive an individual, the spouse will receive only fifty percent of the estate with the remainder passing to his or her children.  There are no provisions to reduce estate taxes, protect assets from waste or select your own representatives by utilizing this statute.  Furthermore, from a purely ideological perspective, there are very few people who would prefer such intimate decisions to be made by the government rather than by themselves.

Reason Five: Mortality Fears.  An unfortunate consequence of preparing an estate plan is the necessity to think about death and severe illness.  In many cases, this fear trumps all the previous reasons for stopping individuals from preparing an estate plan.

There is no BUT attached to this reason as because mortality fears are very real and deserve proper consideration.  In my experience, for many of my clients, preparing an estate plan allows an individual a sense of piece of mind from the fact that their affairs will be handled properly if they die.  Furthermore, preparing an estate plan reduces the stress and complications that your family will have to deal with in the aftermath of an already traumatic event.

And in the end, for all the reasons not to prepare an estate plan, the ability to protect your family from those stresses and complications remains the best counter-argument for estate planning.

Please contact for more information about estate planning.

Old Problems, New Solutions: Estate Planning For Non-Traditional Families. Part 3-Planning Complications For Non-Traditional Families

“At a certain point, I’ve just concluded that for me personally it is important for me to go ahead and affirm that I think same-sex couples should be able to get married.”-President Barack Obama, May 9, 2012

The historic comments made by President Obama regarding his support for gay marriage marks another important step towards same-sex couples receiving the same legal treatment as heterosexual couples.  This progress was further augmented by a ruling earlier this week by 1st Circuit Court of Appeals which held that the Defense of Marriage Act (DOMA) was unconstitutional.  As public support for these changes increases, it is likely that more progress will be made.

But as quickly as social views may be changing, the laws relating to estate planning are unlikely to change in such a rapid manner.  Additionally, other forms of non-traditional families such as domestic partnerships, single parents and parenting partners are unlikely to see their rights change.

With the optimism attached to the president’s words and the realistic knowledge that laws are slow to change, non-traditional families should be aware of the following issues related to their estate plans:

1)   Guardianship of Minor Children-The care of minor children when one or both parents die is a difficult one in any circumstance, but it becomes much more difficult when the choices may be limited or may be conflicted with other familial relationships.  For single parents and parents who have entered into parenting partnerships, it is incredibly important to determine who your child’s guardian will be if you should die or become disabled.

This issue can also become highly problematic if a former spouse is still alive or if other relatives disapprove of your relationship.  Without the fallback legal protections of marriage, who is appointed guardian after a parent dies could become tangled up in a lengthy court proceeding.

Preparing a will or a similar guardianship appointment document can ensure that your wishes as to the care of your child are known and respected.  Notifying your family members about your selection can also reduce the likelihood of a conflict after you have passed.

2)   Inheritance-Married couples, both heterosexual and same-sex, have automatic inheritance rights under the New York intestacy statute.  However, relying on this statute may cause fifty percent of your estate to pass to your children outright regardless of their age.

For other non-traditional families, no automatic inheritance rights exist.  Rather than inheriting fifty percent of a deceased parent’s estate, a child of a non-married couple would inherit the entire estate of their predeceased parent if no will exists.  Having a will in place allows a surviving domestic partner to inherit property from their deceased partner.  A will can also include a trust for the benefit of the deceased’s children, which can protect the assets from waste by a child who may be unprepared to manage an inheritance.

Alternatively, families may choose to use one or more revocable trusts to pass property to their surviving spouses, partners or children.  A revocable trust avoids the probate process for any assets contributed to it during an individual’s lifetime and can be coupled with a “pour over” will to receive any assets that remain in the deceased person’s estate.  A revocable trust should also be considered if a family believes that another family member may challenge their estate plan.

3)   Estate Taxes-The New York Marriage Equality Act allowed same-sex couples to utilize the New York state marital deduction for estate tax purposes.  Same-sex couples can now pass unlimited assets to their spouses upon their death without incurring a New York State estate tax.  However, because of DOMA, the corresponding federal marital deduction is not available to same-sex couples.

For other non-traditional families, estate taxes will apply to any assets above the federal ($5.12 million) and New York ($1 million) estate tax exemptions.  Families can reduce their potential estate tax liability by utilizing the annual gift tax exclusion of $13,000 per beneficiary per year or by contributing a portion of their estate to charity.

Families may also prepare for an eventual estate tax liability by purchasing additional life insurance to provide the necessary liquidity to their estate.  In order to avoid additional estate taxation, the life insurance should be owned and administered by an irrevocable life insurance trust.

4)   Gift Taxes-All non-traditional families must also be mindful of potential gift tax liability under the federal tax code.  While a heterosexual married couple can pass assets freely between spouses, non-traditional families may incur a gift tax if they pass assets to their spouses, partners or children above the annual gift tax exclusion of $13,000 per person.  Any excess will be credited towards their lifetime gift tax exemption.  And while that exemption is currently $5.12 million, it is scheduled to be reduced to $1 million at the end of 2012.

This gives families additional incentive to maximize their use of the annual gift tax exclusion every year.  For larger transfers, families may wish to consider the use of more advanced planning structures like sales to defective grantor trusts or GRATs to zero out the gift tax liability.  Families can also use family owned entities such as limited partnerships and LLCs to reduce the value of the assets being transferred.

For non-traditional family, estate planning is more complicated and with less advantages than are afforded to traditional families.  Nevertheless, a properly drafted and administered estate plan can provide any family with the financial protection and security that they deserve.

Please contact for more information about estate planning for non-traditional families.

Old Problems, New Solutions: Estate Planning For Non-Traditional Families. Part 2-Planning for Blended Families

Once upon a time, a lovely lady was bringing up three equally love girls.  At the same time, there was a man with three boys of his own, four men living all together.  One day, the lady met the fella and the rest became television history.

As The Brady Bunch reminds us, the concept of a blended family has been well known for decades now.  A family created by a couple bringing children from a previous marriage have specific issues that a traditional family will not have to deal with.  In the context of estate planning, a failure to consider the complexity of these issues and how a family resolves them can cause many problems both during and after the couple’s lifetime together.

The key considerations that a blended family must consider when preparing an estate plan include the following, namely:

1. Guardianship of minor children-One of the more complicated issues related to blended families is what happens to a child if their biological parent predeceases their stepparent.  If the child’s other biological parent is still living, they will likely be named as the successor guardian. This may uproot the child from their current homes and may not be what the child prefers.

In some circumstances, the relationship between the former spouses may be so negative that the stepparent may be named as the successor guardian.  This may lead to a dispute over guardianship that will ultimately decided by the Surrogate’s Court.  To avoid this contentious form of litigation, it is suggested that issues of guardianship be coordinated with both biological parents and the stepparent that the children live with.

2. Inheritance-Determining who will inherit your assets becomes more complicated when an individual remarries.  An individual must be aware of the rights (and lack thereof) of their new spouse, former spouse, biological children and stepchildren.

In some circumstances, a spouse in a blended family will have come to the marriage with significant wealth.  Some may have continuing support obligations to their former spouses.  Others may enter into a prenuptial agreement with their current spouse outlining what, if any, inheritance rights they will be entitled to.  Without a prenuptial agreement or a last will and testament, the new spouse will be entitled to fifty percent of their spouse’s estate as their statutory marital share.  As an alternative, couples should prepare wills which outline what inheritance rights, if any, the surviving spouse will receive.

If either spouse had previously prepared a will or executed any beneficiary designations, it is essential that these documents and designations be updated to remove the former spouse as a beneficiary.

Children also pose a potential planning problem.  New York intestacy law and most wills do not provide for children that are not biologically related to a parent.  For stepchildren, this could potentially leave them without an inheritance if their biological parent passes before their stepparent.  Careful drafting and consideration should be taken to ensure all children are cared for in some manner.

3. Estate Taxes-As mentioned above, spouses in a blended family will often come into a marriage with preexisting wealth.  It may be a spouse’s desire to use their wealth created before the new marriage to benefit their children when they die.  However, when an estate tax may be due at the federal or state level, it may beneficial to leave assets to the surviving spouse to take advantage of the marital deduction for estate tax.

The use of a marital trust called a qualified terminable interest trust, or QTIP trust, can satisfy both goals.  Under the terms of this type of trust, the surviving spouse receives all of the income of the trust.  If that is insufficient, the surviving spouse may also be given a “5 and 5 power” to take the greater of (a) $5,000 or (b) 5% of the trust principal out every year.  The majority of the trust principal is preserved for the deceased spouse’s children and the entire trust principal avoids estate tax until the surviving spouse passes.

Blended families have become a common and widely accepted type of family structure.  With that said, there are key differences in the estate planning needs, goals and potential problems of a blended family will face.  Families and planners alike must be aware of these differences in order to achieve a positive result.

For more information about estate planning for blended families, please contact


Old Problems, New Solutions: Estate Planning for Non-Traditional Families. Part 1-An Introduction to Estate Planning for Non-Traditional Families

Over the past forty years, the number of traditional “nuclear families” (defined as a mother, father and children) has declined from approximately 40% of the total households in 1970 to 20% in 2010.  Changing lifestyles, economic conditions and growing acceptance of non-traditional family arrangements factor into this change which has dramatically shifted how adults cohabitate and how children are raised.

This change also requires a different approach to estate planning from the typical planning used by a nuclear family.  Over the next week, we will discuss a variety of planning issues faced by non-traditional families including specific issues related to blended families (families created from one or more previous marriages).  In addition, we will discuss how non-traditional families can utilize a wide variety of tools to deal with the complications related to their estate planning.

“Non-traditional families” encompass a group of family arrangements that vary in one way or another from the traditional family.  They include:

1)   Single Parents-This includes parents who have divorced their former spouse and are raising children on their own, parents who have adopted children or parents who do not have or never had a relationship with the child’s other biological parent.

2)   Co-parenting Arrangements-Traditionally, these arrangements have been used by divorced couples to ensure that their children received support from both parents.  More recently, individuals wishing to become parents without cohabitation, marriage or a romantic relationship have begun using this type of arrangement.  Co-parents may be friends or may be introduced through professional matching services.

3)   Blended Families-As mentioned above, a blended family is created when one or more divorced individuals remarry and incorporate their existing children into one family unit.  Complications can arise if there are children born outside this relationship and children born of both new spouses.

4)   Non-married families-Some individuals begins families with their partners without marrying.  For some, such as LGBT individuals, it may not be legally possible to marry.  For others, it may be a conscious choice to remain unmarried even though their relationship may be long-term and the partners may have children together.

5)   Same-sex married couples-New York, the District of Columbia and seven other states currently allow same-sex couples to marry.  Despite the rights granted to these families at the state level, the Federal Defense of Marriage Act (DOMA) complicates and limits the rights granted to these individuals and their families.

While progress has been made towards providing the same or similar rights to non-traditional families, the traditional estate planning benefits granted to a traditional nuclear family do not extend to a non-traditional family.  Consequently, non-traditional families must be aware of the following issues related to their estate plans:

1)   Guardianship of minor children-Ensuring that a child is cared for by the right people after a parent dies is one of main reasons individuals create an estate plan.  For single parents, the lack of a second parent makes this issue of the utmost importance.  For non-biological parents or co-parents, it is also essential that proper documentation be in place to allow a surviving parent to remain the legal guardian of a minor child.

2)   Inheritance rights-The New York intestacy statute governs the order in which property passes if an individual has no will.  Families that include non-biological relatives, non-married partners and, depending on the state, same-sex spouses are not ensured any inheritance rights under this statute.  A last will and testament or a comparable testamentary instrument (such as a revocable trust) is necessary if you wish to pass property to these relatives, partners and spouses.

3)   Taxes-Married individuals receive numerous tax benefits that non-married individuals and same-sex spouses do not receive.  For gift tax purposes, a married heterosexual couple can transfer unlimited assets between spouses during their lifetime.  Due to DOMA, this benefit is not available to same-sex married couples.

 The estate tax benefits for heterosexual married couples are similarly skewed.  In addition to their own personal estate tax exemption, married couples may pass unlimited assets to each other at death using a marital deduction.  This is unavailable to non-married partners and co-parents.  Same-sex married couples may utilize the marital deduction for New York estate tax purposes, but it is unavailable for federal estate tax, again due to DOMA.

4)   Medical and financial decisions during incapacity or disability-Married couples in New York (both opposite sex and same-sex) have the ability to make medical and financial decisions for their spouses if they become incapacitated or disabled.  For non-married families, these rights are granted to the disabled or incapacitated individual’s biological family rather than any partner.

The complications in planning an estate for a non-traditional family are numerous, but they are not insurmountable.  In the next post, I will discuss some specific issues and solutions that related to blended families.

For more information on estate planning for non-traditional families, please contact

A Spring Cleaning Checklist For Your Estate Plan

Spring has begun to blossom and although we had a very mild winter, the improved weather is a welcome change.  And while we are only a few weeks into the new season, thoughts of summer and various travel plans have begun to enter many of our minds.

This time of year is a very common time for reviewing, adjusting and creating estate plans.  With tax season nearly over, getting your estate plan in order is a good next step to ensure all your planning is properly in place for the remainder of the year.

Below is a to-do list for your estate plan.  Some of the items may not be applicable to your specific situation, but all are worth considering.

1. Review your current estate planning documents with your attorney-For a typical individual or family, an estate plan should be reviewed every 3-4 years.  If you have had major life changes or your planning is complicated by health, money or interpersonal issue, you should review your plan even more frequently.

2. Complete your beneficiary designations for “transfer on death” accounts-One of the easiest and cheapest ways to improve your estate plan is to ensure that the beneficiary designations for all “transfer on death” accounts are properly completed.  Certain bank accounts, retirements accounts and life insurance all pass outside of a probate estate as long as the beneficiary designations are executed.  If you fail to designate beneficiaries, these accounts and assets will pass to your estate through the probate process, delaying their transfer.

3. Review all deeds and real estate documents-Real estate that is owned with a right of survivorship will pass outside the probate process.  To ensure a smooth transition, it is important make sure all jointly owned real estate is titled as a tenancy by the entirety property (for married couples) or as joint tenancy property (for non-married couples).

People who own multiple pieces of real estate may wish to consider consolidating their properties in a trust or an entity such as an LLC.  This is especially important if you real estate in multiple states or if you own real estate outside of New York.

4. Meet with your financial planner or insurance agent to discuss your insurance coverage-Like an estate plan, it is crucial that your insurance policies (life, disability and long-term care) are periodically reviewed alongside your trusted advisor.  This allows the advisor to determine if you have sufficient coverage for your current situation and allows the client to determine if they are satisfied with their current policies.

5. Speak with your current or named fiduciaries-In time between a person is named a fiduciary under a will and trust and the time when they actually are asked to serve, the named fiduciary’s relationship with you and their personal circumstances may change.  While most named fiduciaries are close friends or relatives, it is helpful to frequently confirm their willingness and ability to serve.

For those with existing fiduciary relationships, frequent communication about the fiduciary’s administration of an estate or trust is a good way to avoid conflict at a later date.  It also gives the fiduciary the ability to communicate any suggestions or concerns they may have with their current role.

6. File Gift Tax and Fiduciary Income Tax Returns-If you and your spouse have made any large-scale gifts during 2011, it will be necessary to file a gift tax return.  Similarly, nongrantor trusts and estates are required to file fiduciary income tax returns since the income of each will be taxed as a separate entity.

The April 17th filing deadline for personal income tax returns also applies to gift and fiduciary income tax returns.  So while it may be too late to have a return filed before then, it is not too late to file for an extension.

7. Plan your 2012 gifts-With 2012 almost a third over, there remains nine months in which large scale gifts may be made that take advantage of the current $5.12 million gift tax exemption.  On January 1, 2013, absent an intervening action, the exemption drops to $1 million.

For those looking to make more modest gifts, utilizing your annual gift tax exclusion is a great way to benefit your children and reduce the size of your taxable estate.  Individuals may gift $13,000 to as many beneficiaries as they like while married couples can gift up to $26,000 per beneficiary.

8. Plan 2012 charitable gifts-Philanthropically minded individuals should consider the different ways of benefiting charities while also creating tax benefits for themselves.  Individual gifts, charitable annuities, the use of charitable trusts and the creation of a private foundation are all great ways to benefit the causes or organizations that matter most to you.

9. Consider Lifetime Trust Planning-Whether planning for your child’s education, removing your life insurance from your taxable estate or making gifts to your children, lifetime trust planning provides a great mechanism for protecting assets while also providing your children and other relatives with a significant financial benefit.  This is especially true this year while the lifetime gift tax exemption is at an all time high and interest rates are at a historic low.

10. Update your business succession/organization plan-Business owners should be aware of the potential negative consequences of not having a succession plan in place.  Failure to plan for your business, much like failing to create an estate plan, could create unexpected and undesired consequences for your family, business and associates.

A good estate plan requires consistent review and updates to ensure yourwishes are properly enacted.  Before you make your summer plans, make sure that your estate plan is up to date.  It will be one less thing that will keep you from having a great summer.

Please contact for more information about estate planning.

Using Testamentary Trusts: Part Two-Protection Trusts

In my last post, I discussed the use of trusts under a Will (known as “testamentary trusts”) to delay, minimize or eliminate federal and state estate taxes.  Marital, credit-shelter and disclaimer trusts provide sufficient protection from excess taxation for many individuals and families.  In addition, these trusts can also protect the assets contributed to them from claims of creditors.

Another type of testamentary trust frequently used are trusts that are designed to protect and preserve the assets from waste or other concerns other than taxes.  These “protection trusts” may exist for a short period of time or may last the lifetime of beneficiary depending on why they are established.

When discussing “protection trusts,” I am referring to two specific types of testamentary trusts, namely:

1)   Descendants’ Trusts-In a typical estate plan, the children (and grandchildren) of a Testator are often primary or secondary beneficiaries of an estate.  If these beneficiaries are not old enough or mature enough to handle inheriting a large amount of wealth directly, a descendants’ trust can be used to preserve the assets while also providing the beneficiaries with access to the trust’s income and principal.

Descendants’ trusts can either be structured as one trust for all the children (and grandchildren) or as individual trusts for each respective beneficiary.  Income and principal distributions are made based on a standard of the Testator’s choosing.  A common standard is to allow distributions for a beneficiary’s health, education, maintenance or support.  The Trustee of the Descendants’ trusts would have discretion to determine when distributions would be made and how much should be paid or applied for the benefit of a specific beneficiary.

A Descendants’ Trust can continue for the lifetime of a beneficiary or may terminate at earlier age as chosen by the Testator.  In addition, the beneficiary of a Descendants’ Trust may given the ability to withdraw a portion of the Trust principal before the Trust terminates.  The Testator is given significant flexibility in determining when and if to terminate these trusts and whether to allow for partial terminations.

2)   Supplemental Needs Trusts-For families with children or other relatives on government assistance programs like SSI or Medicaid, the ability to leave an inheritance to their special needs relative requires additional care.  Because of the strict income and asset limits on the beneficiaries of these programs, leaving an outright bequest is not possible.  Instead, a special needs relative may receive a bequest through a supplemental needs trust.

The beneficiary of supplemental needs trust can receive distributions during their lifetime to supplement the services paid for by the government.  Examples include travel, entertainment and other products or services normally not paid for by the beneficiary’s benefits.  The beneficiary cannot have any direct or indirect control over when and how the distributions are made.

A supplemental needs trust continues until the death of its beneficiary.  A named remainder beneficiary will receive whatever remains in the trust.   The beneficiary has no say in determining who receives the remainder of the trust principal and undistributed income.

Like the tax based trusts, these trusts can protect the assets in them from the claims of the creditors.  Unlike those trusts, descendants’ trusts and supplemental needs trusts also protect the assets from waste by a beneficiary and protect a beneficiary’s benefits in the case of supplemental needs trusts.

Please contact for more information about testamentary trusts.