New York Estate Planning & Elder Law Blog

The fiduciary responsibility to create an effective estate investment plan is something that some trustees and administrators find to be a challenge. Trust laws allow estate planning clients a fair amount of control and flexibility in asset diversification. If the goal is to generate income while minimizing taxes, and protecting assets for the purposes of family legacy, working with a licensed estate planning specialist who offers expert advice about trust investment, will assist a client in accomplishing the financial objectives of an estate.

Asset Diversification Strategies

Most high net worth estate planning clients require a diversified portfolio of equities, fixed-income securities, hedge funds, private equity, real estate, and natural resource funds. Since enactment of the Uniform Prudent Investor Act (UPIA) in 1994, all trustees in the United States must consider specific guidelines when formulating an investment strategy. In accordance with the legislation, a trust investment planner must consider the duration of the trust; the size of the portfolio; liquidity and distribution; tax consequences; expected total returns; individual investments; and the overall economic environment. Rules of UPIA fiduciary duty stipulate that trust assets are to be diversified, unless the purpose of the trust is solely for the targeted transfer of a family interest in a business, or to avoid capital gains. Trustee fiduciary liability is the premise of the legislation; also limiting client exposure to high-risk diversification strategies.

The recent Financial Industry Regulatory Authority (“FINRA”) announcement about federal enactment of a substantial piece of legislation that will likely delay close of some foreign direct investment (“FDI”) deals overseen by the Committee on Foreign Investment in the United States (“CFIUS”). The Act supports CFIUS regulatory response to the evolution in alternative trading system (“ATS”) transaction types. Under the new legislation, foreign investors will be responsible for filing mandatory “declarations” with description of transactions prior to close or transfer to an estate or trust; and payment of a filing fee of up to $300,000 per transaction.  

CIFIUS Oversight Expanded

Federal enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) on August 13, 2018 expands the jurisdictional powers of CFIUS responsible for oversight of foreign direct investment (“FDI”) made by investors from abroad. FIRRMA establishes that ATS compliance with Securities and Exchange Commission (“SEC”) NMS Regulation, and Regulation SHO close out standards. The Act also stipulates ATS have the capability of identifying trading risks occurring in those systems to be compliant. Full implementation of the Act will come in effect after the adoption of near future ATS regulatory provisions required to impose compliance within the investment sector.

In New York, the law allows individuals to create what are known as “advanced directives” to help ensure that person’s end of life decisions are carried out in the event he or she is incapacitated or otherwise unable to make that choice. Advance directives are important for any individual, including young people, concerned about the medical state they may be left in following a serious accident, adverse medical event, or cognitive impairment brought on by alzheimer’s disease or dementia.

One of the three end of life directives legally recognized by New York law is the health care proxy which allows someone to appoint an agent to act on his or her behalf in cases where that person cannot make decisions for himself or herself. Health care proxies can be created using standard forms available from the New York State Department of Health and take effect when two doctors determine the testator is incapacitated.

Health care proxies can be either permanent or temporary, depending on the type of situation laid out in the documents. For example, a temporary health care proxy would ideal for someone going under general anesthesia and allow the proxy to make decisions quickly, if necessary. On the other hand, permanent health care proxies may be better suited for those facing long term risks due to dementia or alzheimer’s.

The intent to commission, conspire to commission, or commission of a criminal act through intimidation, coercion, or solicitation of another for “racketeering activity” as defined by the  Racketeer Influenced and Corrupt Organization (RICO) Act  is illegal in New York. The RICO Act prohibits enterprises, including family businesses, from fraudulent and criminal racketeering activities while conducting interstate trade or foreign commerce. The costs associated with a RICO criminal proceeding can lead to excessive fees and the loss of an enterprise, including estate or trust held assets of a family business and its proceeds.  

A Lost Inheritance?

August 14, 2018 a federal US Court of Appeals declined to exercise supplemental jurisdiction over a Connecticut Superior Court decision denying Virginia A. D’Addario damages for beneficiary rights to her mother’s estate inheritance coinciding with the conviction of her sibling, David D’Addario in a RICO violation case (D’Addario v. D’Addario, No. 17-1162 (2d Cir. 2018). The Second Circuit appellate court instead vacated and remanded the case, upholding her claim of legal expenses incurred in pursuance of complaint against her brother and the other RICO defendants; yet rested a claim for full distribution of estate assets under her name was not necessary as RICO losses were speculative; and the estate was not closed.  

If you have an estate with any number of assets, including a home, real estate, retirement benefits, and bank accounts, passing these along to your heirs can be quite a challenge for them if your will needs to go through probate. Furthermore, having your estate go through the probate courts, referred to as Surrogate’s Court in New York, creates a public record that others can look up and view, creating privacy concerns for your heirs which they may rather avoid.

The good news is that New York probate laws allow individuals numerous ways to pass along the assets of their estate to heirs that can also avoid the timely, and often times expensive, process of passing a will through probate courts. It is important to know that even these means to pass assets outside of a probate court have their own challenges that need to met in order to ensure an easier transfer of assets upon passing away.

One of the more common ways for individuals to transfer their assets upon death is to create a living trust (sometimes called an “inter vivos” or “revocable” trust) works by placing assets into a trust while still alive and then transferring to beneficiaries upon death. The benefit of a living trust is being able to maintain control of the assets during one’s lifetime and then allowing beneficiaries to assume control over the trust with the aid of a trustee.

The last will and testament is an important document an individual creates to spell out his or her final wishes to pass on the assets of an estate to friends, family, and business partners. However, New York probate laws do put limits on the extent to which a person may exclude his or her surviving spouse spouse from a will. Just as in many states, New York does not allow spouses to be cut out of wills, not matter the language contained in the document.

In situations where a deceased person excludes his or her spouse from a will, the New York Surrogate’s Court hearing the case will step in to award a certain percentage of the estate to the surviving spouse. Just as in a divorce, the law gives certain property rights to spouses to assets like homes, cars, and bank accounts that cannot necessarily be undone by a written document.

Whether or not someone passes away with a last will and testament, the deceased’s heirs must be notified my the executor of the estate that a the estate has been entered into Surrogate’s Court. In order to pass the estate through probate, the executor will need each of the decedent’s heirs to sign a waiver giving up their individual rights to challenge the will and the estate. Although it is usually not an issue to have heirs sign the waiver and agree to the split of the estate, not every situation is harmonious.

In New York, not every estate needs to pass through the probate process in Surrogate’s Court. The law gives this exemption to so-called “small estates” valued under a certain number and provider the executor to the estate handles the process correctly. Although small estates are allowed to pass through a more simplified probate process, executors will still need to perform some of the same duties as if he or she were overseeing a larger estate.

Estates with real property valued less than $30,000 are considered small estates and can avoid the lengthy and expensive formal probate process for larger estates. Even though the asset threshold for small estates may appear quite low, there are still circumstances where even large estates could pass through the small estate probate process. This is because not all personal property needs to be counted towards the $30,000 small estate threshold, thus allowing the more simplified probate process.

Under New York probate laws, only property owned exclusively by the deceased counts towards the small estate probate threshold. What his means is that jointly owned assets like homes, vehicles, and family businesses in two people’s names will not count towards the $30,000 limit. Additionally, only real property like life insurance, an IRA and similar assets with a named beneficiary do not need to be counted as these pass automatically to a beneficiary upon the passing of the deceased policyholder.