Asset Protection

BACK TO THE BASICS – INHERITING AN IRA

Published on: February 15, 2016 | by Ettinger Law Firm

STILL TAXABLE

Death and taxes, the old saying goes, are the only two things in life that are guaranteed. Taxes unlike passing away, can at least be deferred, mitigated and reduced. If your total estate is less than $5.45 million (2016), it is logical to believe that an individual retirement account (or IRA) would pass tax free to your heirs. Indeed this is true, but the taxable event is when the account owner withdraws money in the account. As such, depending on the exact nature of your estate, it may make sense to pass your IRA to your estate, so that your heirs can inherit your IRA. The IRA would avoid being taxed under the estate tax, assuming the whole of the estate is under the estate tax threshold. That does not make the IRA, however, tax exempt or otherwise free of tax liability. In other words, the IRA is a taxable asset, just not taxable under the estate tax, but rather under tax schema that controls distributions of an IRA, namely income tax schema.

ESTATE TAX VERSUS INCOME TAX

HOW TO WRAP UP THE AFFAIRS OF A SPECIAL NEEDS TRUST?

Published on: February 13, 2016 | by Ettinger Law Firm

TRUST SETTLOR GIVES UP CONTROL

When a settlor creates a trust, he/she passes title of the property or asset to the trust or gives cash money to the trust, wherein the trustee invests the money as a fiduciary or manages the asset or asset in issue for the best interest of the trust beneficiary. It is true that in some circumstances the settlor, or the person who created the trust and most likely provided the seed capital, asset(s) or property for the trust, is or can be the trustee. The settlor is also known as the grantor, trustor or even donor; the terms can be used interchangeably. Often enough also, the settlor may not give up complete control of the money, asset(s) or property that he/she otherwise gives to the trust, for the trustee to manage, by, for example, providing for a life estate of the property in the settlor or his/her spouse.

There are a great many types of trusts that are permitted with a great variety of factual scenarios imaginable. For some special needs trusts, however, the trustee must receive assets, properties or monies from a third source, for the sole use by the beneficiary. Many rules apply for the funding and ongoing management of a special needs trust in order for the trust to maintain its privileged position, being excluded from the assets of the beneficiary for government benefits qualification. This blog has already discussed the various elements of special needs blogs, here, here and here. It is important to note that there are important restrictions on trusts, such as what the distribution of the funds can be used on as well the method and manner of initial funding and ongoing funding of the trust. The question should also be asked, how does a trustee wrap up the affairs of a special needs trust? What if the beneficiary uses up all of the funds? Is legally unable to recieve the funds? For any number of reasons. What if the beneficiary passes away and there are still funds in the trust? What then?

UNDERSTANDING CELEBRITY BONDS

Published on: February 11, 2016 | by Ettinger Law Firm

DAVID BOWIE BONDS

As the world learned, David Bowie passed away on January 10, 2016. Mr. Bowie was always on the leading edge of creativity, an advocate for meaningful social change and a musical genius to boot. He started his musical career at the same time as the Beatles, Rolling Stones and the Who and remained just as socially relevant, if not more so, compared to his contemporaries. As well as being a singer and songwriter, Mr. Bowie was also an accomplished actor and painter. More pertinent to the topic of estate planning, Mr. Bowie was a trailblazer in financial or investment products. In 1997, Mr. Bowie issued Bowie bonds, the first of any celebrity bonds. Since their initial offering, many credit agencies downgraded Bowie bonds status to just one level above junk bond status. True to form, Mr. Bowie was a first, with many other talented artists following suit.

BACKGROUND TO MR. BOWIE’S FORTUNE

FEDERAL COURT EXCEPTION TO PROBATE JURISDICTION

Published on: February 6, 2016 | by Ettinger Law Firm

FEDERAL COURTS ARE COURTS OF LIMITED JURISDICTION

There is little question that Federal Courts are courts of limited jurisdiction. If there is neither original jurisdiction, meaning a question of federal law or rights that arise as a result of federal legislation nor complete diversity of the parties, meaning that all of the defendants domicile in a different jurisdiction from the plaintiffs home state, then there is no jurisdiction for a federal Court to preside over a case. In all matters of diversity jurisdiction, the matter has to involve at least $75,000 in property or damages. Certainly at least some probate cases fit into the requirements of diversity jurisdiction. Yet, there is generally a federal Court hands off approach to dealing with probate cases, known as the probate exception to federal jurisdiction.

A famous case from 1946 in the United States Supreme Court held that a federal Court can adjudicate various suits against a decedents estate, so long as they do not assume general jurisdiction over the probate proceeding itself or assume control over the property that is properly in the hands of the state probate Court. Markham v. Allen, 326 U.S. 490, 494 (1946). The meets and bounds of this holding have caused volumes of case law and law journal articles. It was not until 2006 with the celebrity, Anna Nicole Smith case that came before the United States Supreme Court that the Court expounded on the federal probate exception in any meaningful regards. Specifically the Supreme Court held that when one court is adjudicating a claim over a specific piece of property (or in the case of an estate, a bundle of property rights) a second court will not assume jurisdiction over the same property.

FEDERAL TAX EXEMPTION FOR ELDERLY DEPENDENTS

Published on: February 3, 2016 | by Ettinger Law Firm

EVERY LITTLE BIT COUNTS

For those of among us who care for elderly parents or relatives, you do it without expectation of compensation or reimbursement. You dedicate time, money, resources and do it day in and day out and will continue to do so without concern for recompense. That does not mean, however, that you would not take any financial reimbursement from outside companies or or tax exemptions from the IRS. Most people do not realize that caring for an elderly parent or relative comes with some fairly generous tax benefits. There are some very important and precise legal definitions that need to be satisfied before you can properly claim your elderly relative dependent.

TAX LAW DEFINITIONS AS QUALIFYING DEPENDENT

BACK TO BASICS: WRAP AROUND PLAN FOR ALL CONTINGENCIES – ADVANCED MEDICAL DIRECTIVES

Published on: January 26, 2016 | by Ettinger Law Firm

As the new year opens it is a good time to review all of your legal estate planning decisions and tweak any previous documents that you think need to be modified. This requires us to get back to the basics of estate planning . For those scenarios that deal with what happens to you in an emergency situation, you have an advanced medical directive, with some level of specificity but not too much. The term advanced medical directive is an umbrella term that encompasses several types of legally significant documents. One of them is a living will. Your living will tells the medical professionals who are treating you, what your wishes are in advance for any number of medical situations.

HEALTH CARE PROXY

Underneath the umbrella term of advanced medical directive, there is also the health care proxy. The health care proxy allows for you to appoint a trusted person to act as a decision maker for those scenarios that are not contemplated in your living will and if you are unable to make any medical decisions by yourself. Medical conditions change, different doctors have varying opinions as to the best course of treatment or even over the correct diagnosis. Having a health care proxy will have someone stand in for you to make the best decision under the circumstances. You can limit the authority that you give to the person or only permit the health care proxy go into effect after certain conditions or triggers occur.

ADULT PROTECTIVE SERVICES IN NEW YORK – GOAL TO PROTECT VULNERABLE SENIORS

Published on: January 19, 2016 | by Ettinger Law Firm

New York along with every other state, most United States administered territories and even The Bureau of Indian Affairs for Indian Tribes has an adult protective services enabling statute. New York’s adult protective services statute is found in the archaically entitled Title 81 of the New York State Mental Hygiene Law. It allows for the appointment of a guardian over an incapacitated person only after a Court makes two specific findings of fact:

1) The allegedly incapacitated person is unable to provide for his/her personal needs or unable to manage their property and financial affairs; and

2) The person cannot adequately understand and appreciate the nature and consequences of their inability.

DISINHERITED HEIRS NOT ALWAYS A SURPRISE

Published on: January 15, 2016 | by Ettinger Law Firm

It happens often enough that a parent for many reasons decides to disinherit one, several or all of his/her children. At the same time, this is often not a controversial decision and is just as common both understandable and predicable. Perhaps a person promised their estate to a specific child, stepchild or niece or nephew for taking care of them instead of being required to be sent to a long term continuing care facility. Perhaps the parent provided financial largesse to his/her via college education, graduate school and even helped them purchase a house but had one child who had special needs who always lived at home and insured that child’s future by funding a trust during his/her lifetime and then disinherited all of his/her other children by putting the whole of the estate into the trust.

Mickey Rooney was a very well known and well paid actor that had a long career, with many children and many marriages and disinherited his children. He instead left his estate to his stepson and explained that his kids were better off than he was. By the time Mr. Rooney passed, his estate dwindled to just about $18,000, so there was little incentive for any of his kids to contest the will, although the same did not hold true for Mr. Rooney’s then current spouse. Unfortunately for some families, this can be a shock and there are sufficient incentives for the family to contest the will.

INVALIDATING THE WILL

LET GO OF MY INHERITANCE – INTERFERENCE WITH AN EXPECTANCY

Published on: January 6, 2016 | by Ettinger Law Firm

WRONGFUL INTERFERENCE WITH WILL

It is known by many different names, depending on the state and the era. Most recently it made its appearance in news headlines with the name – intentional interference with expected inheritance, sometimes even shortened it IIEI. The United States Supreme Court referred to it as “a widely recognized” cause of action and as the “tort of interference with a gift or inheritance” in the Anna Nicole Smith case. Marshall v. Marshall, 547 U.S. 293, 296 (2006). The matter has surfaced in the news over at least the last century, most famously (perhaps infamously) in the Father Divine case in New York, in 1949. Latham v. Father Divine, 299 N.Y. 22 (1949).

The American Law Institute published the The Restatement of Torts (Second) of Torts in 1979. That was the first time that the tort, known by many names, was formally recognized as such. Prior to this, the principal and concept was recognized but only in the most egregious of circumstances. There are several seminal cases that speak to the larger concept, one of which was the New York case dealing with Father Divine case noted above.

HOW LONG CAN IRS COME AFTER ME? THE SUMNER REDSTONE CASE

Published on: January 2, 2016 | by Ettinger Law Firm

Sumner Redstone is an entertainment business mogul with a majority share ownership of CBS entertainment and Viacom, and through Viacom, BET and Paramount Pictures, all through his majority ownership of his family business, National Amusement, which originally started out in the drive in movie theater business during The Great Depression. In just the last few weeks a case against Mr. Redstone by the IRS presents an oddity in the law, which may make many people shutter. More particularly, the IRS issued a Notice of Deficiency for a taxable event from 1972 – over 40 years later.

The nature of the case revolved around a transfer of shares in National Amusement Corporation in 1972 to separate trusts set up for the grandchildren of the founder, Sumner Redstone’s father Michael Redstone. Sumner set up one trust for his kids while his siblings set up separate trusts for their kids. At the time the transfer of interfamily stock was of a insignificant amount that passing them from personal ownership to a trust did not even require a tax return. One can and should ask about the concept of a statute of limitation.

Apparently, as the case against Mr. Redstone shows, the IRS does not have a statute of limitation for unfiled tax returns. 26 U.S.C. § 6501(c)(1) establishes that when a taxpayer files a fraudulent tax return, (c)(2) otherwise attempts to avoid tax liability, or (c)(3) fails to file a tax return, there is no statute of limitation. Mr. Redstone has an impressive educational pedigree, where he graduated from first in his class from the Boston Latin School and then graduated Harvard in only three years in 1944, which was actually common at the time. After graduation he served as an officer in the United States Army, helping to decode Japanese messages. He attended Georgetown Law School after the war and then received his LL.B. in 1947 from Harvard Law. After working for various governmental departments followed by private practice, Mr. Redstone went to work for the family business, which was booming by then.