Estate Planning

Estate Planning - Long Island and NYC

While nobody wants to think about death or disability‚ establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Burner Law Group's experienced estate planning attorneys, with locations in NYC and Long Island, can put you in charge of your finances and spare your loved ones of the expense‚ delay and frustration associated with managing your affairs when you pass away or become disabled.

What is an Estate Plan?

A basic estate plan includes advanced directives, in case of incapacity, and a validly executed last will and testament. However, every family situation is different and an estate planning attorney can advise you as to  variations that can be drafted into your last will and testament.  For example, a simple "sweetheart will" where each spouse leaves assets to the other outright is rarely recommended for various reasons.  One reason is to avoid assets returning to a spouse who becomes disabled or incapacitated and is receiving government benefits, by drafting a supplemental needs trust trigger into your will.

Planning for Estate Taxes in New York

The IRS will want to review your estate at death to ensure you don’t owe them that one final tax: the federal estate tax. In addition to the IRS‚ New York imposes a separate estate tax‚ which is even imposed on individuals with relatively modest estates. Whether there will be any tax to pay depends on the size of your estate and how your estate plan works. There are many effective strategies that can be implemented to reduce or eliminate death taxes‚ but you must start the planning process early in order to implement many of these plans. Therefore,  an additional reason not to simple leave assets outright to a spouse is to capture a spouse's NYS estate tax exemption with the use of disclaimer planning.

Other issues to consider in this respect is whether you’d like your beneficiaries to receive your assets directly‚ or whether you’d prefer to have the assets placed in trust and distributed based a number of factors which you designate‚ such as age‚ need and even incentives based on behavior and education. All too often‚ children receive substantial assets before they are mature enough to handle them properly‚ with devastating results. As you can gather, there is no one-will-fits-all and everyone needs a tailored estate plan.

What are Advanced Directives?

Advanced Directives are legally binding documents which allow you to establish a plan for your medical care and your financial affairs in case of incapacity, namely Healthcare Proxy, Living Will, and Durable Power of Attorney.

A Healthcare Proxy allows you to appoint an agent,  a family member or close friend, to make decisions on your behalf about medical treatment options if you lose the ability to decide for yourself.

A Living Will documents your preferred medical treatments such as the use of extraordinary measures should you become permanently unconscious or terminally ill.

A Durable Power of Attorney is a document that allows you to name agents who can make financial decisions on your behalf and assist in taking care of your daily financial obligations. New York has adopted a statutory Power of Attorney form with detailed requirements for it to be considered valid in the state. While the statutory form or the form provided by the bank may be accepted by certain institutions, it is typically not sufficient to convey all the powers needed to a client.  Not all power of attorneys are the same.  A good Elder Law attorney will make numerous modifications to the statutory form.

The difference between a Will and Trust

When we discuss the difference between a will and a trust, the type of trust to which we are referring is a Living Trust. A Living Trust, also called an intervivos trust, is a document created and administered during an individual's lifetime directing how and to whom the named Trustee is to administer assets within the trust during life and upon death. The distinction is important because many Wills include testamentary trusts, that is trusts that only come into existence at time of testator's death.

Trusts Avoid Probate

If you leave your estate to your loved ones using a will‚ everything you own will pass through probate. The process is expensive‚ time-consuming and open to the public. The probate court‚ which in New York called the Surrogate Court is in control of the process until the estate has been settled and distributed. There is one Surrogate Court in each county. If you are married and have children, you want to make certain that your surviving family has immediate access to cash to pay for living expenses while your estate is being settled. It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. This is especially important if you own a business or income producing property. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be. With proper planning, your assets can pass on to your loved ones without undergoing probate‚ in a manner that is quick‚ inexpensive and private.

Trusts Provide for Incapacity

If you become incapacitated‚ you won’t be able to manage your own financial affairs. Many are under the mistaken impression that their spouse or adult children can automatically take over for them in case they become incapacitated. The truth is that in order for others to be able to manage your finances‚ they must petition a court to declare you legally incompetent. This process can be lengthy‚ costly and stressful. Even if the court appoints the person you would have chosen‚ they may have to come back to the court every year and show how they are spending and investing each and every penny. If you want your family to be able to immediately take over for you, you must designate a person or persons that you trust in proper legal documents so that they will have the authority to withdraw money from your accounts‚ pay bills‚ take distributions from your IRAs‚ sell stocks‚ and refinance your home. A will does not take effect until you die and a power of attorney may be insufficient.

Providing for Minor Children New York State

It is important that your estate plan address issues regarding the upbringing of your children. If your children are young‚ you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children‚ without the burden of work obligations. You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters. You should also discuss with your attorney the possibility of both you and your spouse dying simultaneously‚ or within a short duration of time. A contingency plan should provide for persons you’d like to manage your assets as well as the guardian you’d like to nominate for the upbringing of your children. The person‚ or trustee in charge of the finances need not be the same person as the guardian. In fact‚ in many situations‚ you may want to purposely designate different persons to maintain a system of checks and balances. Otherwise‚ the decision as to who will manage your finances and raise your children will be left to a court of law. Even if you are lucky enough to have the person or persons you would have wanted selected by the court‚ they may have undue burdens and restrictions placed on them by the court‚ such as having to provide annual accounting.

You should give careful thought to your choice of guardian‚ ensuring that he or she shares the values you want instilled in your children. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary. Make sure that your plan does not create an additional financial burden for the guardian.

Charitable Bequests – Planned Giving

Do you want to benefit a charitable organization or cause? Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death. Depending on how your charitable estate plan is set up, it may also let you receive a stream of income for life‚ earn higher investment yield‚ or reduce your capital gains or estate taxes.

A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding guardianship during your lifetime, probate at death, estate taxes and unnecessary delays. Feel free to contact our Long Island or New York City estate planning attorneys to review your family and financial situation and goals.  We will explain the various options available to you and draft an estate plan that specifically addresses your unique situation. Once your estate plan is in place‚ you will have peace of mind knowing that you have provided for yourself and your family in the most efficient and comprehensive manner.

Estate Planning FAQ

The main purpose of estate planning is to control how your assets are distributed upon your death. Most estate planning attorneys also help you prepare for incapacity by using a health care proxy, living will, and power of attorney. Certain estate planning techniques can protect your beneficiaries from creditors and minimize or avoid taxes.

An estate plan is simply how you wish your assets to be distributed upon your death. It can be as simple as a Will leaving everything to a spouse to trusts that minimize or avoid estate taxes.

You need a lawyer for estate planning because a mistake can be costly or stressful to the people you leave behind. Every estate planning attorney can tell you horror stories about an invalid will or trust that ended up causing interfamily strife and costly litigation. If cost is a factor, contact a local bar association to inquire about low income resources.

Advance directives are legal documents stating your wishes regarding medical care and treatment that are to be used when you can no longer make such decisions for yourself.  The most common advanced directives are the Living Will and the Health Care Proxy. A Living Will memorializes your preferences regarding end of life treatment. A Health Care Proxy allows you to name an agent to make medical decisions for you when you cannot do so.

Your estate planning documents should be secured in a location in your home, preferably in a fireproof lock box. Such documents should never be kept in a safe deposit box because banks seal these boxes at your death and they can only be unsealed with a court order.

A Durable Power of Attorney allows you to name an agent to make a wide range of financial decisions on your behalf. This powerful document is crucial should you become mentally or physically incapacitated. A power of attorney is in effect once signed by you and your agent.

A Health Care Proxy is a document in which you designate an agent to make health care decisions for you in the event you are unable to do so. The Health Care Proxy often contains language allowing your healthcare agent to hire and fire physicians, health care professionals and obtain confidential medical information.

Not to be confused with a last will and testament, a living will memorializes your wishes with respect to end of life medical treatment and intervention, such as whether you want to kept alive artificially. The Living Will is only triggered when you are suffering from an incurable illness, with no hope of recovery, and you are incapable of expressing your preference.

Although there is no statute in the State of New York which specifically recognizes living wills, there are both state and federal court decisions that have established the right of an incompetent patient to have his or her wishes respected, as long as those wishes are known. New York law requires clear and convincing evidence of what the patient would want. Of all the various acceptable forms of evidence, a living will is often the best evidence of those wishes

A Last Will and Testament is a legal document dictating how you, the testator, want your assets to be distributed after you die.  If you die without a Will, your assets will be distributed according to state statute, also known as the laws of intestacy.  For example, in New York State, if you die with a surviving spouse and children, your spouse will receive the first $50,000 of your estate and then one-half of the balance.  The remainder will be distributed equally amongst your children. This is not ideal for someone who wants all their assets to go to their surviving spouse or owns a business.

The Will has functions other than just listing the distribution of assets upon death, such as:

  • Creating a testamentary trust for minor children and thus avoiding court intervention.
  • A will can also distribute assets that are received after your death, such as tax refunds or an inheritance from another estate. 
  • Creating a trust to protect beneficiaries from creditors and divorce.
  • A Will allows the creator to waive any bond that the executor would otherwise have to pay in order to administer the estate. Depending on the size of the estate, the bond may have a large annual premium which will be paid out of the assets of the estate. 

You cannot disinherit a spouse unless there is a prenuptial agreement in place. New York law states that a surviving spouse has a right of election, that is, a right to receive the greater of $50,000 or one-third (1/3) of their spouse’s assets.  That means that even though you might effectively “disinherit” your spouse by distributing probate and non-probate assets to your respective children, the surviving spouse can still elect to receive one-third of your estate.

The federal estate tax exemption, or known colloquially as the “death tax”, is currently so high that it does not affect most people. In 2020, the federal estate and gift tax exemption is $11.58 million dollars. In New York State, the exemption in 2020 is $5.85 million dollars. Although for most people, estate tax will not be an issue, the federal exemption sunsets on December 31, 2025, and there is a possibility that the exemption will be lowered.

When looking to minimize or eliminate estate taxes, we must differentiate between the federal estate tax and the state estate tax. In 2020, the federal estate and gift tax exemption is $11.58 million dollars and the NYS estate tax exemption is $5.85 million. The federal exemption combines gifts made during your lifetime and assets distributed at death. This means that if you live in NYS, ideally you should not have more than $5.85 million at the time of your death – unless you are married. If married, you can double your exemption amount by capturing both spouse’s exemption with a portability election and credit shelter trust.

The only way to avoid or minimize estate tax is move assets out of your name. Aside from spending your assets, an easy method is to simply gift the allowable amount ($15,000 in 2020) each year to as many people as you want, without affecting your estate and gift tax exemption. Gifts for medical or educational purposes also do not count against your lifetime exemption. This lowers the amount you have at death and does not cut into your exemption.

If you have charitable inclinations, a Charitable Remainder Trust (CRT) or Charitable Lead Trust (CLT) qualifies for an estate tax deduction equal to the value of the behest and allows up to a twenty-year income stream to designated beneficiaries.

If you are under the federal amount, but over the NYS exemption, your estate plan will concentrate on gifting during your lifetime up to the allowable $11.58 million. Instead of straight gifting, you can choose to create irrevocable trusts, including: Irrevocable Life Insurance Trust (ILIT), Intentionally Defective Grantor Trust (IDGIT), Qualified Personal Residence Trust (QPRT), Spousal Lifetime Access Trust (SLAT), Grantor Retained Annuity Trust (GRAT), and LLC or FLLC (Family Limited Liability Company) entities. Usually, clients use a variety of techniques.  

When gifting outright or into an irrevocable trust, it is important to consider the type of asset being given away, including its potential for growth and capital gains.  As you can see, more sophisticated estate planning tools that can minimize estate tax require the help of an experienced estate planning attorney.

A descendant’s trust is incorporated into a Will or Trust and is the preferred way to leave assets to children of any age. Such trusts can be drafted to protect the beneficiary from creditors and divorce. The trust can allow the beneficiary to be his or her own trustee or name a trustee to manage the assets on behalf of the beneficiary. If drafted properly, the assets left in the trust at the child’s death will also pass tax free to their own children. This same method applies to any beneficiary.

It depends on whether the Trust is drafted to treat a grantor as entitled to the income generated by the trust. A grantor trust is a "disregarded entity" for tax purposes and thus no separate tax return is necessary. However, we often apply for tax identification numbers for the irrevocable trusts we draft.

In New York, a revocable trust can be revoked unilaterally by the grantor of the trust whereas the grantor of an irrevocable trust must either receive permission from the beneficiaries under EPTL §7-1.9(a) or satisfy the decanting requirements under EPTL §10-6.6(b). The key difference between a revocable and irrevocable trust lies in how the trust is administered and what purpose it is to serve.

A revocable trust is mainly used to avoid probate and provide for administration of the assets if the trust creator (also known as trustor or settlor) becomes incapacitated. The creator can be both the Trustee and beneficiary of the trust. Since the creator has complete control over how the assets are spent, it is a “grantor” trust and all income of the trust is taxed to the grantor. Upon the Testator’s death, the assets are disbursed according to the provisions in the Trust, much like a Will but avoiding the hassle of Surrogate’s Court.

An irrevocable trust also avoids probate but is predominantly used for robust asset protection and, in many cases, to move assets outside of an estate to avoid or minimize inheritance tax.  The Trustor is prohibited from acting as Trustee but can retain certain powers – such as the right to change beneficiaries and trustees and the right to an income stream. An irrevocable trust can be drafted as either a grantor trust or a non-grantor trust, by including or avoiding certain grantor rules contained in Internal Code §§ 671, 673, 674, 675, 676, and 677.

Just as you would decant wine from one vessel to another, decanting allows the trustee of an irrevocable trust to move the assets to a new trust with more favorable terms- without court intervention or permission of beneficiaries.

 

Under New York’s decanting statute, EPTL § 10-6.6, the allowable changes to the trust terms depends on the “authorized” trustee’s discretion in the original trust. A trustee with unlimited discretion over distributions of principal can appoint the assets to a new trust that excludes the original beneficiaries. Although a new beneficiary cannot be added, the trustee can give a beneficiary a power of appointment, allowing the beneficiary to leave assets to anyone of his or her choosing at death. A trustee without unlimited discretion may appoint the principal into another trust but the beneficiaries and the original power of appointment, must remain the same.

Written notice must be given to the trust settlor, any party with power to remove trustee, and any “interested parties” in the original trust. The notice must provide whether a portion or the entire trust is being decanted and copies of the original trust and new trust. The new trust becomes valid 30 days after notice is given. The noticed parties may object and conceivably seek judicial intervention before the 30 days run. However, the statute is straightforward and if the authorized trustee has the requisite power to decant – a beneficiary can be removed and the dispersal terms can be changed, without recourse.  A trustee can also seek judicial approval prior to decanting.

Additionally, authorization to decant can be written into the trust instrument with less stringent requirements than those mandated by EPTL § 10-6.6.

An intentionally Defective Grantor Trust (IDGT) is an irrevocable trust that is a completed gift for estate tax purposes but incomplete for income tax purposes. It is drafted as a Grantor trust so that the income derived from the trust is taxed at the grantor’s tax rate (instead of the compressed trust rates), but the income, and eventually the principal, is left to designated beneficiaries. The income generated therefore goes gift-tax free to beneficiaries.

Assets can also be sold to an IDGT in exchange for a promissory note. The sale is not recognized as a taxable event because of the grantor trusts status. The assets are thereby removed from the estate without using any gift tax. Annually the IDGT pays interest payments to the grantor at the applicable federal rate (AFR) established by the IRS.

Often IDGTs are combined with LLC interests when businesses are involved and especially for valuation discounts. A big draw is the expectation that the assets will grow within the IDGT and thus that growth is transferred to beneficiaries’ tax free.  

A Charitable remainder trust (CRT) is used to qualify for an estate tax deduction equal to the value of the gift, minimize capital gains, and, of late, a vehicle to stretch IRA distributions after the SECURE Act.

A Charitable Remainder Trust can be created during a person’s lifetime or upon death. The term of years for a CRT is capped at 20 years. During that time period, the designated beneficiary (which can be the grantor of the trust) receives payments which can be to income only, an annuity or unitrust amount. The assets compound tax-free, in the same manner as a qualified pension fund or an IRA. The income stream must take into consideration that at least 10% of the trust’s initial value must pass to the charity.

Most often, appreciated assets, those with a low-cost basis, are placed into a CRT. The transfer to the trust is a non-taxable event and the CRT can sell the assets without recognizing capital gain.

At the grantor’s death, or the end of the 20-year term, the remaining principal goes to the designated charity. The estate gets an estate tax deduction for the bequest.

A Charitable Lead Trust (CLT) works in reverse: the charity receives income payments and the remaining principal is left to designated beneficiaries.

Many clients are plan for their eventual long-term care needs while they are still healthy by purchasing long term care insurance and through Medicaid planning. Medicaid is a joint federal-state program that provides medical long-term care assistance to individuals needing nursing home care, who are 65 or older‚ disabled or blind. Applicants can generally have no more than $15,750.00 in available resources, however, certain assets are considered exempt and do not count toward eligibility. The income guidelines depend on whether an applicant needs home care or nursing home care. Since anyone needing homecare must remain in the community, his or her income can be preserved using a pooled income trust. For nursing home care, all but $50.00 of the applicant’s income must go toward the cost of care. Medicaid planning using an asset protection trust must be done several years before care is needed, 2.5 years for home care and 5 years for nursing home care.

Whether you would benefit more from a Will or a Trust depends on what you are trying to accomplish with your estate plan. A Trust avoids probate, which is especially important if you are disinheriting a natural heir, own out of state property, have a business or income producing property that needs continuity, or value privacy.

You cannot find out if you are a beneficiary in a Will until the Testator dies or the Will has been filed in the Surrogate’s Court.

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