New York Estate Planning & Elder Law Blog

Some estate planning concepts may seem so straight-forward that community members try to go it alone. After all, a will is just a document that clearly spells out one’s wishes and lists who gets what on a piece of paper. Other assets, like retirement funds, just need a beneficiary named. What could be complex about that?

The answer, of course, is many things.

Take the retirement funds. It may not be as simple as just picking someone. A New York estate planning attorney knows that sometimes special steps have to be taken to guarantee that the desired beneficiary actually receives the funds in as hassle-free a manner as possible. For example, there may be problems when one wants to name children as the beneficiary of an employer retirement plan–like a 401(k). The rule in most cases requires a spouse to give their consent when anyone other than the spouse is named beneficiary This is true even if the named beneficiary is someone like a child– a stepchild, adopted child, or even a natural child.

With so much attention focused on the future of the estate tax rate and exemption levels, it is easy to forget about other tools to save on taxes while passing on assets. Perhaps the most easily understood is the “annual gift tax exclusion.” Each New York City estate planning lawyer at our firm knows that this is a very helpful way to transfer property tax free–and it will likely remain in effect regardless of what Congress does in the future.

The exclusion exists above and beyond the estate tax exemption. It allows each taxpayer to give up to $13,000 per year to anyone tax free. Because the exemption applies to individuals, couples have two bites at the apple and are able to transfer $26,000 yearly to each individual they chose. In fact, due to inflation the annual gift exclusion level is likely to jump to near $14,000 next year according to a recent Wall Street Journal article.

Estate planning lawyers often advise that, considering the uncertainty of the federal estate tax next year, it is helpful to use the annual gift exclusion now to transfer assets beyond the reach of taxes at death. This is especially true in states like New York with state estate tax exemption levels below the federal rate. Therefore, even if one currently has an estate below the federal exemption level ($5.12 million per individual), there will be a state tax so long as the estate is above the state exemption level ($1 million).

Forbes posted earlier this month on the continued squabbles over the estate of civil rights pioneer Rosa Parks. Unfortunately, our New York estate planning attorneys appreciate that the higher the profile of the individual (and the more assets at stake), the more common an inheritance fight is to arise. That is true no matter who is involved, including a beloved icon like Rosa Parks.

This case is also a testament to the drawn-out nature of these disagreements. Parks died nearly seven years ago, in mid-October of 2005 at ninety-two years old. In 1998 she created a will and trust indicating that she wanted all her belongings given to a charitable endeavor she created. A close friend and judge were named executors, with the friend to receive 90% of subsequent royalties. Parks nieces and nephews were set to receive the remaining 10%.

The relatives contested the will and at one point the friend was removed as executor by the probate judge over claims of undue influence. Shortly before trial the parties were able to settle the matter, re-appointing the friend in her role as head of the charitable organization–the Rosa and Raymond Parks Institute for Self-Development.

The possibilities to tailor an estate plan to one’s exact specifications is virtually endless. That is perhaps most evident in the various ways that heir’s can be required to meet certain guidelines as part of a gift or inheritance. The Wall Street Journal dove into this idea last week with an article on “controlling heirs from the grave.” While that phrasing likely conjures images of busybody relatives, the basic concept of securing one’s wishes after death is entirely prudent

The story explains that many consider adding “strings” when passing on assets to others. The conditions can be placed both on inheritances and gifts given while still alive. Our New York City estate planning lawyers appreciate that many community members are strategically making sizable gifts this year in order to take advantage of favorable exemption levels and tax rates that are set to expire at the end of December.

One common concern about large gifts is the requirements that one give up control of the asset entirely–they are usually given as part of an irrevocable trust. Yet, it is important to realize that some strings can still be attached to those gifts. In general, gifts can be given with any requirement attached, even when the requirement seems silly–like demanding that family members spell their name a certain way. One of the most common provisions are “spendthrift clauses” which strive to protect a gift given to one who is known to have poor financial acumen.

Ken5 News reported on a unique estate planning case this week involving a man who left a fortune to his favorite canine.

The report explains how the man amassed a large collection of various valuables over his lifetime, from fine china to antique furniture. His possessions were enough to fill ten homes. Wanting to ensure his wishes were carried out after his passing, the man contacted an estate planning lawyer to ensure legal documents were in place. Trusts were used to protect the valuables and delineate ownership in the event of death or disability. Our New York estate planning lawyers know that all of this is similar to steps taken by local families (of all net worths) when planning for the future.

What was different in this case, however, was who was set to receive all of these valuables at the man’s death. Interestingly, the man’s will left everything to his dogs–only one of which, named “Lucky,” was actually alive when the man passed away.

Designating inheritances is not the only purpose of a New York estate plan. Some local residents may feel like there is no rush to have a plan in place, because they do not have many assets to pass on or have no particular wishes about their possessions. But inheritances are just a part of the planning. For one thing, all families with children–regardless of their net worth–need to have a plan in place to designate alternate caregivers for their children in the event of death or disability.

Naming an appropriate guardian is one of the most important preparatory steps that a parent can take to ensure their child’s well-being no matter what the future holds. If the parents do not make their wishes known in appropriate legal documents, then the decision is left to the court. While the court will work to make the best decision with the information in front of it, there is obviously no replacement for a parent’s choice.

In our area it is crucial to have a New York estate planning lawyer guide your family through this process. That is both to ensure the legal formalities are met and also to have an experienced third-party involved in the event of disagreement.

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.