New York Estate Planning & Elder Law Blog

FILE AND SUSPEND STRATEGY IS NO MORE – NEED TO REASSESS PLANS

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

For over a decade it was sound and perfectly legal advice for financial advisors and elder law practitioners to advise their married clients to file and suspend their social security benefits, thereby maximizing their financial returns. The basic advice was to advise a married couple to have the spouse who earned more through his/her lifetime to file for social security benefits at the full retirement age. After the higher earning spouse filed, the lower earning spouse would automatically be eligible for spousal benefits and would therefore file for spousal benefits. Once the lower earning spouse started to receive benefits, he/she would get a higher monthly benefit amount as the lower earning spouse would piggyback on the higher earnings of their spouse.

At that time, the higher earning spouse would suspend their benefits and work, thereby increasing their social security benefits even more, so that way when they hit the maximum benefit age now set at 70 they would have a higher monthly benefit amount. When the higher earning spouse hit the maximum benefit age, they would have maxed out their social security earnings and have already benefitted from a spouse who collected social security benefits in the meantime. It all comes down to dollars and cents. Someone has to crunch the numbers to determine if it made sense for the couple to do it, although for the majority of couples it did make sense.

The question also had to be asked, when was the optimum time? Again, someone had to crunch the numbers to find the sweet spot. There was even a second strategy for those whom it did not make sense to do so. The second approach was for both spouses to file a “restricted application”, whereby each spouse would only receive their spousal benefits. This let them increase their own earnings, so that way when they reach seventy, they have maximized their social security benefits. In either event, the couple would be able to benefit from an additional several thousands of dollars.

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.

MORE ON ELDER ABUSE – FEDERAL GOVERNMENT RESPONSE

Published on: January 22, 2016 | by Ettinger Law Firm

Throughout the twentieth century, the Federal government took various legal steps to positively impact the lives of senior citizens, the disabled and the elderly in general. Throughout the 1930s a variety of retirement and pension programs were enacted, most significantly social security. 1952 saw the funding for social services programs targeted for the elderly and senior citizen population. The 1960s saw a number of progressive social legislation enacted, with 1965 as a particularly important year, with the implementation of Medicare as well as the Older Americans Act. The 1970s followed with many funding programs expanding the legislative enactments of the 1960s. For example, 1972 saw the funding for a national nutritional program for the elderly, which is known today as meals on wheels, while in 1973 Congress funded grants for local senior community centers.

OLDER AMERICANS ACT

For purposes of the prevention and coordination of the national response to elder abuse, the Older Americans Act, is perhaps the most significant and comprehensive federal law to deal with elder abuse. Currently the Department of Health and Human Services, Administration on Aging manages the various programs flowing from the Older Americans Act. It ensures that each state has a sufficiently strong adult protective services program and a Long Term Care Ombudsman Program, which acts as a voice for residents of long term care facilities in the jurisdiction. These programs are necessary for the state to receive funding from the federal government.

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.

INTENTIONALLY DEFECTIVE GRANTOR TRUSTS ARE ANYTHING BUT BUSTED OBJECTIVES OF THE TRUST

Published on: January 18, 2016 | by Ettinger Law Firm

An intentionally defective grantor trust is an extremely effective tool that accomplishes multiple objectives. First, it helps to minimize gift or transfer tax liability that a person may have to pay if the asset passed through normal probate process or it were gifted to the intended recipient. Second, it helps to step up the cost basis, which can be extremely valuable if the asset grew in value and then stabilized. It is often an effective tool for a small business owner who seeks to pass his/her business on to children or grandchildren. It is even more fitting if the same small business grew in size but then stabilized in value.

But, the question has to be asked. What’s with the reference “defective” in its name? It certainly is not a name conducive to marketing its rather impressive abilities. The term does not refer to something being broken (or busted). The term defective has a simple explanation, it is defective as to income tax liability. To state it in the inverse may help to explain it better; the trust is effective for estate tax purposes. In other words, the trust does not eliminate all taxes in that the grantor still pays the income taxes generated by the asset that is the corpus of the trust, but it does eliminate estate tax liability. Furthermore, it is a “grantor trust”, as defined at 26 U.S.C. § 675, meaning that it satisfies the legal definition of a grantor trust.

WHAT ABOUT GIFT TAX LIABILITY?

BANKRUPTCY AND MEDICARE – A FRAUDULENT TRANSFER IS A FRAUDULENT TRANSFER

Published on: January 16, 2016 | by Ettinger Law Firm

The Eastern District of Virginia Bankruptcy Court issued an opinion on a case with a unique factual scenario almost three years ago, on February 6, 2013 in the case of In Re Woodworth, (Bankr. E.D. Va., No. 11-11051-BFK, Feb. 6, 2013). The case is important because it speaks to the larger issue of fraudulent intent and how even when a trust settlor relies on a seemingly befitting and authoritative disclaimer against fraudulent conveyances, a Court can still find fraud. It also speaks to the vital need to consult with competent counsel for all major financial decisions, to insure that those decisions do not impact eligibility for medicaid or other government programs.

The case centered on a woman’s attempt, and seeming initial success, at what the Court characterized as medicaid fraud. The case involved the debtor, Holly Woodworth and her mother, Dorothy Lee Stutesman. Assuming that the facts of the opinion are accurate, it seems that Ms. Stutesman was rather poor in her money management skills. Ms. Stutesman first entrusted her husband to manage her finances and then her daughter, Ms. Woodworth, after her husband passed away. Most specifically, she first invested a very large sum of money, at least $143,000, with Merrill Lynch, although she used Ms. Woodworth’s social security number to open and listed her as the account owner. Both Ms. Woodworth and Ms. Stutesman both testified under oath that this arrangement was to protect the money from those who would prey on Ms. Stutesman’s lack of financial ability. Most importantly, Ms. Stutesman added that in addition to her desire to protect the money from potential scammers, she did not want assets in her name, in order to be eligible for Medicaid and other public benefits, if and when she should need them. In 2010, after the hit to the stock market, the parties created a trust.

The Bankruptcy Court found the language of the engagement letter that came along with the creation of the trust noteworthy and for good reason. Most specifically, the engagement letter stated that the trust “avoids creditors claims of fraudulent conveyance and civil conspiracy to divest yourself of valuable assets, and avoids IRS trigger for a taxable transaction.” Id. At 3. Both parties recognized that the money in the Merrill Lynch account and then trust was Ms. Stutesman’s. Ms. Woodworth filed bankruptcy due to events and factors unrelated to the trust, although she claimed that she only held title to the funds in the trust but no equitable interest.

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

ABLE ACCOUNT LAW CHANGES BROADENING PROTECTIONS FOR SPECIAL NEEDS PLANNING

Published on: January 12, 2016 | by Ettinger Law Firm

On December 19, 2014 President Obama signed into law a number of tax and financial measures to extend certain tax benefits. More specifically, the legislation enacted the Achieving a Better Life Experience (ABLE) Act of 2013, which amends section 529(e) of the United States Tax Code, to allow for tax-free savings accounts for individuals with disabilities. Almost a year later, almost to the day, both the Federal government and New York state both acted to expand the coverage under the ABLE Act. Prior to the most recent change, ABLE accounts had to be located in the same jurisdiction as the beneficiary.

The law also required state laws enabling such savings accounts. If the state did not have such enabling legislation, individuals in that state would not be able to set up such an account. On December 18, 2015, New York Governor Andrew Cuomo signed the New York Achieving a Better Life Experience (NY ABLE) Act allowing for such savings accounts in New York. On the same day that Governor Cuomo signed the NY ABLE Act, President Obama signed another spending bill that contained, among other things, legislative changes to the ABLE Act. More specifically, sections 302 and 303 of the bill allows for changes in what purchases or expenditures are permitted under the ABLE Act and allowed for beneficiaries to have such accounts in jurisdictions different than the one that they live in.

While one might reasonably believe that the NY ABLE Act is now not necessary, it still has much value as it allows for such accounts to exist within the state and thus subject to the various protections afforded under New York law. It would also draw in capital from other jurisdictions that do not have ABLE Act enabling legislation. All of these measures are part of an expansion of the laws that allow for the financial protections for financial and estate planning for those with special needs. Previous to the PATH Act, individuals with special needs who had savings accounts or other assets over a certain amount (generally, $2,000) would possibly be disqualified from certain governmental benefits. Savings in a PATH Act account will not jeopardize these benefits or eligibility for benefits.

PRETERMITTED OR OMITTED CHILDREN NOT ADDRESSED IN A WILL

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

Contrary to the European model, American parents are legally free to disinherit their children, but at the same time, they cannot simply forget or omit their children in their will by mistake. If the child is specifically addressed in the will and, at the same time, the will either fails to pass any property or assets on the child or specifically disinherits the child, there is nothing that the child can do to inherit something from the estate, aside from invalidating the will and potentially inheriting under the intestacy statutes. Children born after a will is created and not properly addressed in the will, via language that is expansive and inclusive that undoubtedly includes even children born or adopted after the specific will is created are referred to in the law by the ungainly term pretermitted children.

Not surprisingly it comes from a latin verb meaning to overlook or forget. New York’s law that addresses pretermitted children and found at NY EPTL §5-3.2, only addresses children born after the creation of a last will and not otherwise provided for by other means, such as life insurance proceeds, a trust or other assets. The children that fall under the pretermitted law protections are entitled to whatever the other children who are addressed in last will. Oddly enough, if the children born before the creation of the will are mentioned but unprovided for, the pretermitted child will not inherit anything. Indeed, the law specifically addresses this possibility, insofar as it indicates that “(1) If the testator has one or more children living when he executes his last will, and: (A) No provision is made therein for any such child, an after-born child is not entitled to share in the testator’s estate.” NY EPTL §5-3.2. Certainly there are many problems with this, insofar as some parents specifically disinherit their children. Anna Nicole Smith disinherited her son in her last will and then had a baby daughter only a short time prior to her passing away, without any change in her will.

RATHER COMMON PROBLEM WITH SIMPLE SOLUTION

DIFFERENCES BETWEEN ABLE ACT ACCOUNTS AND SPECIAL NEEDS TRUSTS

Published on: January 8, 2016 | by Ettinger Law Firm

WHAT IS BEST FIT

Both an ABLE Act account and a special needs trusts try to accomplish essentially the same thing. Both attempt to ensure that a special needs child or person are financially planned for through various legal and financial means so as to enrich the life of the beneficiary. An ABLE Act account as well as a special needs trust also aim to protect the beneficiaries valuable governmental benefits that utilize a means based testing for eligibility purposes. While both products roughly accomplish the same thing, one may be better at accomplishing one thing rather than the other.

TWO DIFFERENT MEANS TO ONE END