Articles Posted in Estate Planning

The financial world is a complex one. It is easy for local residents to get lost in the mire of special accounts and various loopholes to maximize their savings while protecting their hard-earned dollars. As always, the professional guidance of financial experts, estate planning attorneys, and others is usually the only foolproof way to ensure costly mistakes aren’t made. This also comes with the added benefit of having a trained set of eyes ensuring that one doesn’t fall for one of the many financial scams.

For example, the Wall Street Journal published a story late last month discussing the prevalence of Individual Retirement Account (IRA) scams. A growing number of states have opened investigations into fraud as a result of “self-directed IRAs. These special retirement accounts allow investors to use funds in a range of ways, including things like hedge funds and land purchases. The investments involved in these efforts are not publicly-traded which, officials advise, makes them far more susceptible to fraud.

For example, in one high profile case several defendants were accused of convincing individuals, mostly seniors, to roll their retirement accounts into these self-directed IRAs. Those doing so thought that the decision was a safe alternative to stocks or bonds. In this case, the investors were told that the money would be used to fund profitable small businesses.

Nothing is easy when dealing with the Internal Revenue Service (IRS). Even situations that seems straightforward or streamlined invariably involve developing complications that present headaches to taxpayers. Our New York estate planning attorneys know that this bears out in many planning issues.

Take, for example, the estate tax. As helpfully explained in a recent Wall Street Journal story, if not careful estate executors may cause spouses to miss out on millions in estate tax exemptions. This June the IRS intended to help families by streamlining the process for receiving the exemption. The new guidance sought to fix the complications caused by one spouse leaving all their assets to the other. Each spouse has a $5.12 million exemption individually, but when leaving assets to one another one of those exemptions was oftenlost. The new rules clarify the “portability” of the exemption from one spouse to another. In the past, various trusts were needed to get around this problem.

Yet, the new portability of the exemption does not mean that nothing need be done after a death to take advantage of the spouse’s exemptions. An estate tax return must be filed within nine months of the partner’s death to receive the benefit. Many executors may be under the mistaken impression that the return does not need to be filed. Failure to complete this step may be the difference between sheltering $5 million from the tax instead of over $10 million. Estate planning lawyers appreciate that this is no small error–literally millions of dollars might go to Uncle Sam which would have stayed with a family.

Prenuptial agreements commonly make headlines as celebrities getting hitched try to protect their fortunes. But the focus on celebrities (or the ultra-rich) is misleading. In reality, average Americans should, and frequently do, make use of the benefits of prenuptial agreements. In our area, New York estate planning attorneys know that these agreements are an important part of one’s long-term planning, particularly in the event of late-in-life or second marriages. These agreements allow for an individual to prepare and protect themselves and their families. But the creation of these legal documents is not without some pitfalls.

The Basics

A prenuptial agreement is essentially a contract between two people planning to get married. They agree prior to marriage on how they will divide their assets if they are divorced and on any number of other issues. While this process can be emotional, especially because the couples are naturally optimistic and excited about their future, forming this agreement while everyone still cares for each other and wants the best for each other is always the preferred model. If the good feelings should disappear, this agreement allows a couple to separate as fairly and painlessly as possible.

An appraisal is an expert assessment of the value of a particular asset at a given time. Many factors involved in the appraisal of a property can easily distort its value–overvaluing or undervaluing it.

The IRS uses appraisals in the process of assessing property taxes, which requires the appeal of experts in the subject. As such, the IRS’s Art Appraisal Services’ (AAS) job consists of assessing the value of works of art for tax purposes. Our New York estate planning lawyers work with families who have valuable art collections and whose tax burden is significantly affected by these appraisal services.

A recent article in Accounting Today discusses the IRS’ need to improve its appraisal of the value of art and the Government Accountability Office (GAO) report on the matter.

http://www.washingtonpost.com/lifestyle/style/edie-windsors-fight-for-same-sex-marriage-rights-continues-even-after-partners-death/2012/07/19/gJQARguhwW_story.html

In the wake of the passage of marriage equality laws in our state, many assumed that the issue was settled for New York’s same-sex couples–they would be treated the same as all other couples in our state. Not so. Our New York estate planning attorneys are acutely aware of the continued inequalities faced by these citizens. The problem is rooted in federal treatment of these couples with clear estate planning ramifications.

A 1996 law–the so-called, “Defense of Marriage Act” (DOMA)–forces the federal government to treat same-sex married couples differently than others. Breaking with long-standing tradition of recognizing all marriages legal in each states, the federal government explicitly defined marriage as not including same-sex couples. As a result, same-sex couples married legally in individual states are still considered strangers by the U.S. government. Obviously, this split recognition has negative consequences for the involved couples. All estate plans for these couples must continue to take this into account.

One of the more unique estate planning feuds in recent memory remains under investigation, three years following the death of the family matriarch that started the debacle. While few families descend into physical violence, our New York estate planning lawyers appreciate that this case is a stark reminder of the mix of extreme emotions often present in these cases.

According to a Seacoast Online report, when Eugenia Boies died in 2009 at the age of 96 she left a family fortune valued at $12 million. The estate had mostly passed to her when her longtime husband passed away in 2007. The family wealth originated on the husband’s side of the family, dating as far back as a Civil-War era gunpowder company. The wealth included over a million dollars in the bank, real estate in North Hampton, and millions in stocks.

Before her death Eugenia named her nephew, Peter, as one of three executors of her estate. Shortly after Eugenia passing, while the probate process was underway, Peter and his wife were awoken in the middle of the middle to a drive by shooting, with dozens of high-caliber bullets shot into the family’s bedroom. The family home was riddled, but fortunately the couple survived the ordeal.

Our New York estate planning attorneys frequently remind residents that it is important to update an estate plan following major life changes, such as a divorce or marriage. However, that basic advice may be misleading, because in some cases it is crucial to consider updating the plan before the major life event takes place. That may be especially true in the case of second marriages.

A recent Elder Law Answers article summarized a few points to consider at this time:

-Make sure both spouses are on equal footing. Secrecy at this time is toxic. Both partners should take an inventory and understand what assets and debts are on the table. All planning extends from that base.

Taxes undoubtedly play a determinant role in New York estate planning. Understanding how assets can be transferred and passed on while incurring the lowest tax burden is crucial. Yet, it is a drastic oversimplification to assume that planning involves only looking at taxes. The “human” element is often even more important. Each New York estate planning lawyer at our firm understand that creating the best possible plan for each family requires an understanding of the unique family dynamics at play.

These family issues are not always easy to discuss. No one necessarily enjoys sharing information about potential family conflicts, personality issues, or other challenges which influence these decisions. However, as a new article in Financial Planning recently argued, failing to address these details often means that a plan will not work as needed.

What are these “human” factors beyond the legal, tax, and technical issues? The story summarizes them as “lifestyle choices, drug addictions, religious practices, health concerns, charitable goals, and preference regarding the disposition of collectibles and other personal property.”

No legal news item last week was bigger than the U.S. Supreme Court’s decision to uphold virtually the entirety of the Affordable Care Act (so-called “Obamacare”). In a move that surprised many observers, in a 5-4 decision the Court deemed the controversial “individual mandate” portion of the measure constitutional on grounds that it constituted a tax. While the court held that the Congress could not pass the law pursuant to its power to regulate interstate commerce, it did find it a permissible use of the legislature’s taxing power.

Now that the matter is reasonably settled, local residents may be wondering how the law affects their New York elder law estate planning, if at all. A recent Smart Money story talked about some of these issues, explaining how certain tax matters will indeed change in the upcoming year as a result of the decision.

A few select rates will change next year. For example, an extra .9% Medicare tax increase will start for various individuals making over $200,000 or $250,000. In addition, some investment income (long-term capital gains and dividends) may face a 3.8% “Medicare contribution tax.” This is in addition to the rising rates if the “Bush tax cuts” expire without renewal.

Most local residents understand that a New York estate plan needs to be updated to account for changing life circumstances. If one is divorced, has a child, has a falling out with a relative, acquires a significant asset, or experiences countless other life changes, then planning documents need to be altered to take that into account.

Unfortunately, some are under the mistaken assumption that this is a very simple, straightforward process involving some changes to a will. Our New York estate planning attorneys appreciate that this sort of thinking often leads to serious problems down the road. Failure to take a full range of issues–beyond a will–into account following life changes may mean one’s plans do not work as desired when the time comes.

For example, the Alternative Press shared an interesting story about a man who wanted to remove a daughter from an inheritance. However, the man only updated his will (and nothing else). The result was the that daughter still received almost half of the man’s estate