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The Consumer Financial Protection Bureau (CFPB) recently released a set of helpful guides to help individuals manage the financial affairs of loved ones or others who are unable to do so and require a fiduciary to take of such matters. The guides cover multiple topics to help fiduciaries, including how to spot financial exploitation and avoid scams as well as a “Where to go for help” section with a list of relevant resources for more information.

One of the guides included is “Help for agents under a power of attorney” which lists the four basic duties that fiduciaries with a power of attorney need to keep in mind when managing the affairs of another. Those include to act only in the beneficiary’s interest, manage the beneficiary’s property and money carefully, keep the money and property of the beneficiary and fiduciary separate, and to keep good records of all transactions.

Another helpful guide included in the series is “Help for court-appointed guardians of property and conservators” which someone the court names to manage money and property for someone else whom the court has found cannot manage it alone. This can also apply to instances where a fiduciary is named to act in the interest of another person as a guardian, managing that person’s healthcare and other personal decisions. Other times, a court may be appointed to manage the governmental benefits of an individual and the CFPB also provides outlines for these responsibilities too.

Aside from federal and state tax, estate planning is a vital process for anyone seeking a risk-free future for they family. Without formation of a will, estate, or trust, assets are distributed pursuant to state law in the jurisdiction of residence of the decedent. The estate planning process ensures that a surviving spouse, children, and other named beneficiaries are in receipt of valuable assets according to a decedent’s wishes when state laws are inadequate. Here are ten essential reasons estate planning should be part of your retirement strategy.

1.     Financial Control

A constructive priority, estate planning offers enhanced financial control. Taxation also falls under this general framework of fiscal responsibility and reporting accountability. Control, the exercise of financial accounting management, enables an estate owner to dictate how assets will be transferred, held, and distributed during their life, and upon death. A testamentary document such as a will or estate document, established during a decedent’s life, is a written directive that provides a Trustee or Executor instructions for distribution of estate or trust assets to named beneficiaries.

The desire to ensure that grandchildren receive a high-caliber education can now be met with transfer of a 529 plan contribution fund to an estate or trust. Internal Revenue Service (“IRS”) 26 U.S. Code, Section 529 is the federal statutory rule guiding 529 plan tax-exempt transfer of individual investment contribution accounts. An extension of the “generation-skipping” legislation within federal and state tax laws, education funds are a popular estate planning tool that allows family elders to set aside funds earmarked for their grandchildren’s college tuition and expenses.

What is a 529 plan?

Investment contribution funds, 529 plans are state and education institution sponsored programs. An investor can elect a tax-advantaged savings plan or prepaid tuition plan to secure tuition rates to fund a child or grandchild’s college expenses. 529 savings plans allow participants to make cash contributions, and tax-free withdrawal of principle and earnings for “qualified expenses.”

When planning an international trust, a Clifford Trust will allow a grantor to transfer high net worth assets that produce taxable income into an estate’s trust with the option of reclaim at time of trust expiry. Though used little at present, the Clifford Trust offers the opportunity for high net worth beneficiaries tax relief. If planning an international trust involving foreign national beneficiaries, a Clifford Trust will protect heirs from withholding tax at time of transfer (12 Int’l Bus. Law. 394 (1984)).

Rules to ‘Clifford Trust’ Tax Shelters

Prior to the Tax Reform Act of 1986, Clifford Trusts have been used to tax-shelter assets through transfer of earned income to children from a parent or grandparent’s estate. Post-enactment of the Act, it was mandated that Clifford Trust income be taxed to the grantor, making these trusts nearly obsolete since with exception of use as an effective legal means for large tax expense avoidance and to avoid withholding by international trusts involving foreign national family beneficiaries.

The Commodity Futures Trading Commission (“CFTC”) recently issued an advisory warning about the dangers of digital coins and tokens for speculative investors. Attracted by high exposure and the promise of quick returns, cryptocurrency has proven to be a volatile, yet lucrative market asset for many investors interested in funding a retirement fast. Much like hedge funds and futures contracts, digital cryptocurrency and securities backed by the dynamic value of this asset, carry a certain amount of risk that some investors are willing to assume for higher payoffs. Investment advisers estimate risks associated with cryptocurrency trading and the retention of digital tokens and securitized assets as part of a retirement portfolio, estate or trust:

•         fluctuations in market liquidity;
•         changes in validation or mining fees;

When retirement investors are considering assets for estate or trust transfer, one of the main priorities is the impact of risk. In the past several years, cryptocurrency assets have increased in popularity. Until 2017, Bitcoin and other digital currency assets were also considered as tax-exempt “property” under federal Internal Revenue Service (“IRS”) guidelines. Recent IRS rule reform of tax-exempt treatment of cryptocurrency assets reflects a growing concern about the lack of direct oversight of digital currency within the regulatory environment. Identified as the most significant risks of cryptocurrency asset transfer within policy formation at this time: pricing transparency, price manipulation, as well as the potential for fraud scams, custody disputes, and liquidity issues.

How CFTC & SEC Oversight Will Help

Regulatory oversight of price transparency and control over price fixing, and price manipulation is uneven across national and international markets. For this reason, digital currency cannot be traded on regulated financial markets. Derivatives like Bitcoin futures trading on the CBOE or CME offer investors the least risky investment for profit.

A Kings County Surrogate’s Court judge recently removed the executor to an estate without a hearing over the individual’s failure to comply with the court’s order to properly account of the estate’s assets. The case is a prime example of how and why someone can be removed as the executor from estate if he or she fails to comply with their fiduciary duty to faithfully discharge the responsibilities of the executorship.

The petition to remove the executor was brought by a co-beneficiary to the estate, the sister of the former executor, after the executor failed to open a separate trust account and to file federal or state income tax returns for the trust. Additionally, the petition charged that the respondent’s neglect of the real property held by the limited liability company caused it to sell for a price much less than two previous offers to purchase the real estate, which the executor had rejected.

Prior to suspending the executor from his role of managing the estate, the co-beneficiary filed two-petitions with the Surrogate’s Court. The first, seeking the executor’s removal from management of the estate and the second asking the court to compel the executor into account and file the estate. The court subsequently issued a 45-day order for the executor to account for the estate and file the necessary paperwork.

The record of retirement investment and trust fund fraud is extensive, and not restricted to sales agents, fiduciaries, and retirement investment advisers.

In New York, attorney malpractice in the area of retirement investment and estate planning has led to professional activism by the New York Bar Association and national affiliation the New York Bar Association, and punitive action by the courts. The Lawyers’ Fund for Client Protection is an independent public trust, financed by attorney registration fees.

The Fund reimburses legal clients for “losses caused by dishonest conduct of former New York State lawyers,” including theft of estate assets and falsely promised and paid for legal services. Adopted by the American Bar Association House of Delegates, the Model Rules for Lawyers’ Funds for Client Protection enacted August 9, 1989 is an amendment of the Model Rules for Clients’ Security Funds first ratified in 1981.  

New York laws of intestacy and probate do not allow an executor to sell real estate or property belonging to a decedent’s estate where no will is present without official appointment by the Surrogate’s Court of the jurisdiction where the case has been filed. If a decedent’s will does not deny sale of real property and other assets, the executor can sell a property without the consent of beneficiaries or probate proceedings. The power of a fiduciary representative in such case, depends on the terms of a decedent’s last will and testament.

Fiduciary Appointment and Duty

According to New York statute, in probate cases where no will is present, an administrator, rather than an executor must be appointed for probate distribution of estate assets to proceed. This includes fiduciary liquidation of the decedent’s financial assets such as stocks, bonds, bank accounts, and sale of real estate. All proceeds are to be deposited into the estate’s holdings for distribution after all creditor claims, legal fees, and other expenses have been satisfied.

A King County Surrogate’s Court judge recently handed down a significant ruling in the case of a caretaker who appeared to marry her elderly patient in his final days in an effort to claim part of the deceased’s estate. The judge hearing the case decided the woman forfeited her statutory share of the estate because she knowingly married the deceased while he was alive and mentally incapacitated.

The ruling came down after a 37-day trial and nearly 12-years of litigation surrounding the $5 million estate of a successful businessman who was 100-years old when he passed away in 2006. The now deceased married his caretaker in secret in from of the New York City Clerk’s Office, without the knowledge of his two adult sons who brought the challenges to the estate.

The judge said he found it impossible that the deceased’s wife did not know her husband was mentally incapacitated when they married just a year before the man’s death.. “The evidence presented shows consistent, insidious and duplicitous conduct that led to” the wife’s “clandestine marriage” to the deceased, the judge said.