New York Estate Planning & Elder Law Blog

SPLIT ANNUITY FOR ESTATE PLANNING

Published on: April 21, 2016 | by Ettinger Law Firm

HYBRID PLANNING TOOL – COMPOUND INTEREST AND IMMEDIATE PAYOUT

There are some retirement strategies that people engage in that have many benefits one the one hand with a similar amount of disadvantages on the other. Life is like that, it involves trade offs and often you get what you pay for. There are exceptions, however, especially in financial planning products. The only limits are the laws and the creativity of investment managers. With respect to the laws, the main concern that investors should consider is the tax liability, which can vary depending on what form of investment is generating income with the invested money.

Annuities are investment products that generally either guarantee a specific rate of return and start to pay immediately for a specified period of time, or, the funds are placed in an account where they accumulate tax deferred as an investment and then converted into an annuity and withdrawn in accordance with the annuity plan. The former type of annuity is called an immediate annuity, while the later is called the deferred annuity. An immediate annuity is generally taxed up prior to deposit of the funds, while the payout of the annuity is not considered a taxable event. With respect to the deferred annuity, the payout, minus the principal, is a taxable event. If the money is withdrawn from the annuity prior to the age 59 1/2, the amount is generally subject to a 10% tax penalty. A split annuity, however, is a financial product that couples these two types of annuities together.

INTERSTATE ADULT GUARDIANSHIPS

Published on: April 19, 2016 | by Ettinger Law Firm

INCREASING IN FREQUENCY

Guardians across the country are beginning to grapple with a larger phenomena of life in these United States: that we are a mobile society. Many times these decisions are made by legally competent adults who have the right to decide where they want to live. When it comes to the decisions of an older population, those decisions are animated by such things as access to good health care, location of relatives and loved ones as well as climate and quality of life. Many of those same elderly citizens who move are only in their current location because they may have recently retired and that is where they worked for several decades. Family and home may be elsewhere. It is very common for people to have family that they are close to strewn out across the country, allowing such people a number of locations and climates to chose from. These same facts and drives also apply to people who are involved in adult guardianships. It is not uncommon for these individuals to move from one jurisdiction to another to obtain specialized treatment. With an aging population, these issues are only increasing in frequency.

One would assume that a Court in one state would honor a judgment of guardianship from another. After all the federal Constitution requires states to grant full faith and credit to the judgments of sister states. Often this is the case, but not always. Different standards apply in different states and questions and concerns may arise when one state’s laws require a guardianship to be vacated when the original state contemplated that it would last for life due to the first state’s different laws and the guardian made plans accordingly. How does that influence the issue of continued care? How does the lack of capacity of the protected party affect the decision of the Court? Moreover, when does one state assert jurisdiction and the other relinquish? Courts cannot enter an Order without jurisdiction. Some nightmare scenarios could play out, as they did in the Alabama case of Sears v. Hampton in 2013, without some basic standards to tell Courts how to measure its decisions.

JOINT SPOUSAL TRUST

Published on: April 15, 2016 | by Ettinger Law Firm

NOT AS USEFUL BUT STILL GOOD TO HAVE

This blog has explored the issues revolving around an ABC trust in the past and how its previously primary reason for existence is now no longer a consideration for many people. The primary reason for their existence was to ultimately lowering the overall tax liability of the parties by sheltering one spouse’s assets and estate tax liability from the others. With the higher estate tax exemption and exemption portability allowed between spouses, its utility is diminished. For those in New York, however, there is some need to maintain it for New York estate tax purposes. There are other benefits to having such a trust. ABC trusts are known by many names, including a credit shelter trust or a joint spousal trust.

There is little if any difference between the names. Another benefit to such trusts is the step up basis that is accomplished upon the passing of the owner. Whenever title to that asset eventually does pass, the new owner will have a higher basis, so that when they in turn pass title, they will have a lower capital gains tax bill. Indeed under federal estate tax law, the stepped up basis will likely be not be an issue for estate tax liability, given the large federal estate tax exemption and availability of the portable exemption between spouses. New York’s estate tax, however, makes it more likely that a joint spousal trust should be employed, so that the deceased spouse’s original basis can be noted and the surviving spouse can account for any increase in basis for their estate when they pass away, since the surviving spouse gets full stepped up basis of the asset. This can help to possibly reduce the overall tax bill.

HOW DOES THE DEATH OF A SPOUSE AFFECT MEDICAID ELIGIBILITY

Published on: April 14, 2016 | by Ettinger Law Firm

NEED FOR UPDATED ESTATE PLANNING WHEN ONE SPOUSE GOES INTO NURSING HOME

When one spouse goes into a nursing home, there is a good chance that he/she is using to pay for their care. That means that the community spouse will have to live survive on certain income thresholds determined by Medicaid. There are also asset limits that are allowed under Medicaid. Estate planning can allow for a middle class family to have one spouse qualify for Medicaid through such legal mechanisms as spousal refusal, which is only allowed in a few states, New York being one of them. These asset and income thresholds presuppose that there is one spouse in a nursing home and the other in the community.

If the spouse in the nursing home passes away, there may be some legal effect on the community spouse, depending on what means based programs he/she qualifies for. They may also receive Medicaid but only receive community based care or any number of other programs, such as the veterans aid and attendance program. On the other hand, if the community spouse passes away first, there will be a much greater chance that the spouse in the nursing home will risk losing their Medicaid benefits or have that additional income provide for the medical care of the spouse in the nursing home and the assets liquidated. The retirement account, the family home any life insurance proceeds from the community spouse’s passing as well as any investments or valuable personal property owned by the community spouse. All of this may be quite contrary to the estate plans that both spouses had. They would have rather left their nest egg to their children and grandchildren rather than have it pay for a Medicaid lien.

ESTATE PLANNING FOR NEW YORK’S ESTATE TAX

Published on: April 13, 2016 | by Ettinger Law Firm

GOOD NEWS AND BAD NEWS

Most people are aware that April 15 is tax day. That simply means that you have to have your taxes filed and paid by that date and that the year that those taxes are due for are from January 1st to December 31st of the previous year. New York, however, takes a slightly different approach to estate tax liability. Estate tax liability rates are set from April 1st to March 31st. So, if you are administering an estate, wherein the deceased passed away on March 30, the estate tax liability will be different and lower than if they passed away on April 2 of the same year. As this blog discussed in the past, New York state amended its estate tax in 2014 so that it will be on par with the federal estate tax rate in 2019. Prior to 2014, New York had an estate tax exclusion of one million dollars. As of April 1, 2016 the estate tax exclusion is $4,187,500. As such the good news is that with the passage of the changes to the estate tax laws, more estates will not have to pay any estate tax at all. The bad news is that the majority of the estates that exceed that value will likely have to pay a higher tax rate than before and maybe even more than the federal tax rate.

Starting in 2019, New York’s estate tax rate exclusion will mirror the federal amounts. Since both are pegged to inflation, they will grow year to year. That is where the differences will end. Under the federal estate tax, only the amount above the federal tax exclusion is taxed. So, just to make the example easy, if the federal tax exclusion is $5,000,000 (it is not), an estate worth $6,000,000 would only be taxed by the federal government on $1,000,000. New York’s estate tax requires that if the estate is greater than 105% of the exclusion, the entire estate is taxed. So, with the same example immediately above, the entire estate (6,000,000) would be taxed. If the estate was say $5,249,999 (one dollar less than 105%) instead of 6,000,000, the entire amount would not be taxed, since the estate has to exceed 105%. If the estate was $5,250,001 (one dollar more than 105%), the entire estate would be taxed.

HOW TO ASSURE AN ESTATE BATTLE

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

HUGUETTE CLARK AS EXEMPLAR

The last member of the gilded age passed away just a few years ago. Huguette Clark’s life, in some ways, seems to mirror the classic Orson Welles classic

One of the first things that she did to insure an estate battle was to pass the entirety of her estate via a will. While the larger family itself may have created various trusts for family members to pass on the overwhelming wealth, Ms. Clark herself chose to pass her wealth via a will. While it is alleged that Ms. Clark’s attorney and accountant had something to do with these limited and financially irresponsible decisions, Ms. Clark did not create a trust to ensure the passage of her large and very valuable art collection to charity, which included a painting by Monet, valued at at least $25 million as well as a Picasso worth over $31 million.

MEDICARE’S OBSERVATIONAL STATUS

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

SOME LIMITED RELIEF

Patients who rely on Medicare sometimes experience sticker shock after being released from the hospital only to find out that because some hospital administrator classified their stay as “observational” that they must pay a large portion of the final bill. Many times a doctor will seek to have a patient admitted for any number of reasons, only to have a bureaucrat reclassify the patient’s time at the hospital as observational. Such a designation will mean that Medicare will not pay for this time in the hospital. For Medicare to pay for a hospital stay, the patient has to be an admitted patient for at least three days (three midnights in the hospital).

Observational status does not equate to an admitted patient in Medicare’s own set of self defined definitions. That may be quite different to the patient who went to the hospital and received a number of drugs and tests during their time their and was consistent with the majority of their non-surgical stays in a hospital in life. In an effort to address these obvious problems that will only grow with time, President Obama signed a bill that required hospitals to warn patients that their stay will be considered observational in nature and that they are not being admitted under Medicare’s rules, which may result in a bill from the hospital that they will have to pay. The Notice of Observation Treatment and Implications for Care Eligibility Act would have to inform the patient that they are going to receive outpatient services under Medicare’s rules which requires cost sharing from the patient and that the observational status does not count towards the necessary three day inpatient in order to transition to a skilled nursing care facility.

WHAT IS A CRUMMEY TRUST

Published on: April 7, 2016 | by Ettinger Law Firm

STRANGE NAME, GREAT CONCEPT

A person is entitled to gift up to $14,000 per year without incurring any gift tax liability. There are some limitations to those gifts, however. The gift must be for the unlimited, present usage of the interest that is being conveyed. That creates problems for when someone wants to convey up to $14,000 per year to a minor but not have the same money handed over to the minor in its entirety when the minor reaches the age of 21. Gift tax liability is controlled by 26 U.S.C. § 2503. 2503(b) states that in order to qualify for the gift tax exclusion the giftor (person giving the gift) must convey a present interest. Subsection (c) states that if the recipient is a minor, the giftor can put the money into a trust that will convey the money to the minor when they are 21 years old and it will still be considered a present interest for purposes of gift tax liability. So, if you want to give $14,000 to a trust for a minor, with the intention that the minor not withdrawal all of the monies accumulated when they reach 21, so that they may obtain the benefit of compound interest and allow the $14,000 to grow even more, the Crummey trust is the right tool.

While the Crummey trust may have a strange sounding name, it comes from the name of the person who first created such trust, D. Clifford Crummey, and the resulting Tax Court opinion of 1966. It works by gifting a certain sum of money to a trust as a gift, with the right of immediate withdrawal from the trust by the recipient, with the expectation that the recipient will not withdrawal the money or liquidate the asset from the trust. The law recognizes the right to immediate withdrawal, not actual realization of the present interest as satisfying the present interest requirement under 2503. This right of withdrawal for a limited period of time is called the Crummey power. In 1999, the IRS issued a letter ruling on the Crummey trust and outlined the four criteria to qualify as a Crummey trust.

SOCIAL SECURITY SURVIVOR BENEFITS

Published on: April 5, 2016 | by Ettinger Law Firm

NEW RULES FOR SAME SEX COUPLES

Social security survivor benefits may seem like a relatively straightforward issues to understand. Indeed, it can be for the majority of people, but with the Supreme Court ruling in Obergefell v. Hodges that states must recognize the right of all couples, including same sex couples, to marry, the issue of social security survivor benefits for spouses and even for children should at least be touched upon. The opinion in Obergefell may be as monumental of an opinion as the Court ever penned. While only history will tell, the social consequences may be of the same magnitude as the Supreme Court’s opinion in Brown v. Little Rock Board of Education, requiring racial integration of schools across the country.

The implications ripple throughout the law, from tax law to social security benefits to family law, estate planning, bankruptcy and even elder law. Less than a year prior to the writing of this blog there was a patchwork of treatment for same sex couples, which was anything but similar in its treatment of two similarly situated couples, with the only difference being what jurisdiction the couple lived in. Social Security indeed denied some same sex life partners survivor benefits when a couple resided with each other as spouses for decades. Even before the Supreme Court heard oral arguments in Obergefell some who be widows/widowers (but for the state law denial of this right) sued the Social Security for this disparate treatment.

GENERATION SKIPPING TRANSFER TAX

Published on: April 5, 2016 | by Ettinger Law Firm

SEEMINGLY COMPLICATED

The Generation skipping transfer tax seems complicated to understand and it absolutely should only be dealt with by a seasoned professional, but there are some hallmarks that are present in each such transaction so that individual taxpayers know when the tax will apply and can follow a general conversation about the topic. To begin with, the name may seem a bit confusing at first. The skipping that the name refers to is the tax that would (should according to some lawmakers and IRS officials no doubt) be incurred when a second generation passes on the inherited asset.

The generation skipping transfer tax was first introduced in 1976 to avoid what Congress saw as an avoidance of the estate tax by wealthy families that could afford to hire attorneys to create complicated, long term trusts that avoided the estate tax. The net result was that less wealthy, middle class families were paying a disproportionate share of the estate taxes; in other words, those who could least afford it were paying more of the tax. The generation skipping transfer tax in its current incarnation creates tax liability anytime a transfer of an asset or money is transferred more than one generation from the grantor or to someone who is at least 37.5 years younger.