Estate Planning

What is a Power of Attorney?

A Power of Attorney is a legal document that appoints another individual, called your agent, to handle your financial and other matters for you if you become unable to handle them yourself.

What is a Health Care Proxy?

A Health Care Proxy is a legal document that appoints another individual to make health care decisions for you when you are unable to make them yourself. This document may be combined with a Living Will, which contains your wishes with regard to end of life care.

What is a Disposition of Remain Appointment?

A Disposition of Remains Appointment is a legal document that appoints another individual to make funeral and burial arrangements for you and contains your wishes with regard to such arrangements.

What is a Revocable Living Trust?

A Revocable Living Trust is a trust that you establish during your lifetime. You are the trustee and beneficiary of your own Revocable Living Trust. The primary reason for establishing a Revocable Living Trust is to avoid probate.

What is a trust?

A trust is an agreement between you and another individual, called the trustee. The trustee holds the property, manages the property, and makes distributions to the individuals named in the trust, also called the beneficiaries. You can be the trustee and beneficiary of your own trust, or you can name other individuals to be the trustee and beneficiary.

Does a Will avoid probate?

No, a Will does not avoid probate. Probate is the process of having the court review your Will, approving your selection of an Executor, and overseeing the distribution of your property.

What happens if I die without a Will?

If you die without a Will, your property will be distributed to your heirs according to New York intestacy law. If you have a spouse and children, your spouse will receive $50,000 plus one-half of your property and your children will receive the other one-half of your property.

What does a Will do?

A Will enables you to decide who is to receive your property when you die, and how much each person is to receive. Your will appoints an Executor, who will oversee everything and distribute your property to the individuals you have named in your will.

Estate and Trust Administration

Who may challenge the Will?

Certain family members who survive the decedent known as distributees. Distributees are defined under NYS Estate Powers and Trust Law. Also, certain persons adversely affected by the purported Will or a Codicil thereto may challenge the Will or Codicil.

Are Will contests common?

No, and they seldom succeed except when extenuating circumstances such as fraud, duress, undue influence, lack of testamentary capacity or invalid execution of the Will exist.

What will be the cost of the legal services required to administer the estate?

Costs for the legal services required to administer estates vary widely depending on the estate’s own facts and circumstances. Under New York law, certain factors should be considered in determining a reasonable legal fee, some of which are the nature and/or complexity of the work involved, the estate size, the attorney’s reputation, the time dedicated to the work, and the results obtained. We will set forth a fee that we believe is appropriate in a formal letter of engagement which we will ask you to sign before commencing work on the estate. The legal fees paid are in addition to any fees paid to the Court, experts, or other third party vendors.

Must the estate pay any fees to the Surrogate’s Court?

Yes, each proceeding commenced in the Surrogate’s Court, including the probate proceeding, will require the payment of a fee to the Surrogate’s Court. The size of the fee will vary with the size of the estate, and can run anywhere from $45.00 to $1,250.00 depending on the size of the estate. The same fee is applicable to administration proceedings and accounting proceedings. Additional court fees may be applicable as required by statute.

Do beneficiaries pay an income tax on their inheritance?

No. However, they will be responsible to pay their share of any tax on any post mortem income earned on their inheritance, as well as on any income accrued to, but not realized by the deceased during his or her lifetime, such as income on savings bonds and IRAs.

What are some common factors that could increase the time and cost involved in administering the estate?

While many factors can impact estate administration time and costs, prolonging the process, some common factors include litigation, estate tax filing requirements, creditor’s claims, minor beneficiaries, incapacitated beneficiaries, charitable beneficiaries, accounting proceedings, problems proving the validity of the Will to the Court’s satisfaction, and assets which are difficult to value and/or distribute equitably.

How long does the estate administration process last?

The estate must remain open for at least seven months from your appointment as Executor or Executrix. This period is known as the creditor’s period under New York law. However, for larger estates requiring the filing of state or federal estate tax returns, or for estates involving complicated issues or litigation, the period can be considerably longer.

If I am named Executor under the Will, may I begin to administer the estate immediately upon the death of the testator or testatrix?

No. A petition must first be filed with the appropriate Surrogate’s Court to determine that the Will is valid and that you are fit for appointment as a fiduciary.

Am I entitled to compensation for my services as Executor?

Yes, you are entitled to commissions by statute under the New York Surrogate’s Court Procedure Act. You are not required to take commissions, but if you do, any commissions received by you will be subject to income in the year received.

Tax Planning

What is the Marital Deduction and how does this allow for marital planning opportunities?

There is a deduction from gift and estate taxes for transfers to your spouse. This deduction is known as the marital deduction. The marital deduction will allow a husband and wife to defer estate taxes until the death of the second spouse, which will allow for estate tax deferral.

What is an Irrevocable Life Insurance Trust and how can it help my estate planning?

An Irrevocable Life Insurance Trust (“ILIT”) is a Trust that holds a life insurance policy on the life of the Grantor (you and/or your spouse) and if the ILIT is properly structured, the life insurance proceeds will not be includable in your taxable estate. The trustee of the ILIT will purchase the life insurance held on your life. The ILIT will allow you to determine how and when life insurance proceeds will be paid to the next generation (instead of naming the children as the outright beneficiaries of a life insurance policy), while having the proceeds excluded from your gross estate. Also, the life insurance held in the ILIT can be used to create liquidity in your estate to pay your estate tax liability and avoid selling illiquid assets (most likely for less than FMV) held in your estate to pay your estate tax liability.

What is an Intentionally Defective Grantor Trust and how can it help my estate planning?

An Intentionally Defective Grantor Trust (“IDGT”) is a Trust that is treated as a Grantor Trust for income tax purposes but is a completed transfer for estate and gift tax purposes. This will allow the Grantor (you and/or your spouse) to remove appreciating assets (estate freeze) from your estate for estate tax purposes, while you will pay the income tax liability of the IDGT. The reason that your payment of the income tax liability of the IDGT is an important planning technique is that the payment of the income tax is a tax free gift to the beneficiaries of the IDGT (by not reducing the assets held in the IDGT by its income tax liability), while at the same time reducing your taxable estate.

What is a Wealth Replacement Trust and how can it help my estate planning?

A Wealth Replacement Trust is an Irrevocable Life Insurance Trust that works in tandem with a Charitable Remainder Trust to replace wealth transferred to the charity, which allows you to maximize your charitable deduction with no reduction in the wealth you transfer to the next generation of your family, while incurring no income or estate tax on the life insurance proceeds. The Grantor(s) (You and/or your spouse) can pay the life insurance premium of the life insurance held in the Wealth Replacement Trust by using a portion of your retained annuity from the charitable remainder trust, and/or a portion of the tax savings from the charitable income tax deduction from the transfer of assets to the charitable remainder trust, and/or making annual exclusion gifts to the Wealth Replacement Trust. In the end, the Wealth Replacement Trust will allow you to take a highly appreciated asset (ex. Stock) and sell that highly appreciated asset inside a charitable trust without incurring income (capital gain) tax, provide you with an income stream from the charitable remainder trust, without reducing the wealth transferred to your intended beneficiaries (ex. Children).

What is a Qualified Personal Residence Trust and how can it help with my estate planning?

A Qualified Personal Residence Trust (“QPRT”) is a Trust where a Grantor (you) can either transfer your principal residence or one vacation home and retain the right to live in the residence for a term of years (ex. 10 years) during which time you pay for all the expenses of the residence. After the term of years expires, the beneficiaries of the QPRT will own the house and you can continue to live in the house by paying reasonable rent. A QPRT will remove the house held in the Trust from your taxable estate; the value of the gift is reduced by the value of your retained interest in the house; and if you survive the term of the QPRT, you will be able to further reduce your taxable estate by paying rent to the beneficiaries of the QPRT, who are most likely the intended beneficiaries of your estate (ex. Children).

What is a Grantor Retained Annuity Trust and how can it help with my estate planning?

A Grantor Retained Annuity Trust (“GRAT”) is a Trust for a fixed term or the life of the Grantor, where the Grantor receives an annual or more frequent annuity payment from the Trust and at the end of the Trust, the remainder passes to the beneficiary(ies) of the Trust as a gift. There is an assessed value for gift tax purposes determined when the GRAT is set up, which is calculated according to IRS regulations. If the value of the assets held in the GRAT increase in value at a rate in excess of the modest rate assumed by the interest rate set by the IRS, then what is actually transferred to the beneficiaries of the GRAT will be larger than the gift reported for gift tax purposes, thus the appreciation has passed tax free.

What is a Charitable Remainder Trust and how can it help my estate planning?

A Charitable Remainder Trust is a Trust that can be used to sell highly appreciated assets (retirement benefits, Employee Stock Options, etc.) at greatly reduced tax consequences. A Charitable Remainder Trust can be used to save income, gift, and/or estate tax. The basics of the Charitable Remainder Trust are that you or your designated beneficiary will receive an annuity interest in the Trust for a term of years or the lifetime of the income beneficiary, with a charity or charities of your choice receiving the remainder interest of the Trust. In addition to the tax savings offered by a Charitable Remainder Trust, you will be able to fulfill your philanthropic goals by giving a charity or charities of your choice a remainder interest in the Trust.

What is a Charitable Lead Trust and how can it help my estate planning?

A Charitable Lead Trust is a Trust where a charity or charities have an annuity interest in the Trust for a term of years or on a measuring life and your designated beneficiaries receive the remainder held in the Trust after the term of years or measuring life ends. A Charitable Lead Trust can reduce income, gift and/or estate taxes. The Charitable Lead Trust can greatly reduce the value of the remainder interest gifted or transferred to your designated beneficiaries. The IRS uses actuarial tables with a modest growth rate to value the remainder interest gifted to the remainder beneficiaries of the Trust. If the assets held in the Charitable Lead Trust grow in excess of the IRS rate (currently about 2%), then the appreciation in excess of the IRS rate will transfer to the remainder beneficiaries tax free. The Charitable Lead Trust will allow you to fulfill your philanthropic goals, while transferring wealth to the next generation with minimized transfer taxes.

Business Planning

How does proper planning protect the Remaining Owners?

The remaining owners are protected with proper planning by preventing unwanted third parties (such as spouses, children …) from becoming owners of the business, avoid transfers that could potentially result in the loss of the entity’s legal status, having a method in place to purchase the withdrawing owner’s interest, avoid disputes among the owners, and provide for a smooth transition of the business to the remaining owners.

How does proper planning protect the Employees of the Business?

Employees of a closely held business are protected by the smooth transition of a business to future owners because it should increase the likelihood that they will keep their jobs, current wages and position in the business. For closely held businesses, the employees often are the key to their success that provided the owners with the ability to create the wealth they have accumulated and has resulted in a close relationship between the owners and their employees. By planning ahead of time and restricting who can purchase the business and the process of purchasing a withdrawing owner’s interest, it is more likely that the remaining or new owners will keep the existing business plan and make few if any changes to the remaining employees of the business. This should result in a feeling of job security for the employees that will benefit the owners through increased productivity.

How does a properly drafted Operating or Partnership or Shareholders Agreement improve my Business?

This agreement will govern the rights, duties, and ownership interests of the owners. This agreement will allow the owners to determine how the business will be managed, what percentage of a vote will be required for the business to take certain action, and what authority each owner has to take certain action on behalf of the business in their own discretion. This agreement will govern how the business will operate and what will result in the termination of the business. This agreement will also determine the type of activities engaged in by the business.

How can the use of an Intentionally Defective Grantor Trust help in the Transfer of a Family Business and Wealth to my Children?

An Intentionally Defective Grantor Trust (“IDGT”) is a Trust that is treated as a Grantor Trust for income tax purposes, but is treated as a completed transfer for gift and estate tax purposes. The Grantor Trust status for income tax purposes means that the Trust will be taxed to the creator of the Trust even though the assets are owned by the IDGT. This removes the appreciation of the asset from your estate and allows for a tax free gift to your children in the amount of the income tax paid on the IDGT each year. The IDGT is growing income tax free while your wealth is decreasing in the amount of the income taxes paid each year, which results in a decrease of your taxable estate for estate and gift tax purposes and allows for increased wealth to be transferred to your children in the amount of the income taxes paid by you each year. This result can be maximized through the use of a note sale of the business interest and a valuation of the business interest transferred to the IDGT.

How does the type of entity formed impact my business?

Selecting and forming the proper entity for your business can reduce the business and the owners income tax liability, provide the owners with asset protection, provide owners with limited liability for actions of the business, provide the business with limited liability for actions of the owners, and allow for flexibility and governance in the operation of the business.

How does proper planning protect the Selling Owner?

Depending on the situation, proper planning can result in the smooth transition of a business to the next generation, the possibility of reducing the value of the interest for transfer tax purposes (income, estate and gift), set the value and provide the funding for the purchase of the ownership interest in closely held businesses, and avoid disputes by having predetermined independent mechanisms to determine the process when there is a withdrawing owner.

Special Needs Planning

What is a third party Special Needs Trust?

An SNT is called a “third party” SNT when the funds going into the trust originally belonged to a person other than the beneficiary, such as a parent, grandparent, etc. With a third party SNT, there are no payback provisions to the state, so at the death of the beneficiary, the Trustee can pay any outstanding principal to whomever the original trust creator indicates, including other family members or not for profit agencies.

What is a first person Special Needs Trust?

An SNT is called a “first person” SNT when the funds going into the trust originally belonged to the beneficiary or were designated to be distributed to the beneficiary. In New York, this is also considered a “payback” trust because at the death of the beneficiary, the Trustee must first reimburse the local Medicaid agency (either the Department of Social Services or HRA) for the value of benefits paid out to the beneficiary through the Medicaid program. If there are any funds left after reimbursing the local Medicaid agency, then the balance may go to the beneficiary’s estate.

Can you place the proceeds from a personal injury action in a Special Needs Trust?

Yes. In fact, this is a very common use of first-party SNT’s. We often work with personal injury law firms to assist with the creation of first party SNT’s to receive either lump sum payments or annuity payments from personal injury lawsuits. By doing so, the beneficiary would not lose his or her crucial Medicaid benefits.

Are there different types of Special Needs Trusts?

Yes, there are different types of SNT’s depending on who creates the trust, how the trust is created and whose money and assets will be transferred to the trust.

How can I create a Special Needs Trust?

A family member may create an SNT for the benefit of a person with a disability by either creating a stand alone SNT while the creator is alive (called an inter vivos SNT) or by creating it under a Will (called a testamentary SNT).

If the person with a disability wants to create his/her own SNT, based on state and federal law, they must work with either their parent, grandparent, guardian or a court to act as the “grantor” or “settlor”. This is the person who officially creates the trust.

If a person with a disability no longer has living parents or grandparents and does not have or need a guardian, we can assist the individual to petition a court to grant permission to create an SNT.

Qualifying for Medicaid Benefits

What is a “penalty period” and does it apply to all Medicaid applications?

A “penalty period” is a period of time when an individual is ineligible for Medicaid because he or she made uncompensated gifts or transfers in the five year period prior to a Medicaid application.

If a family member needs to go to a nursing home and still owns a home, will they need to sell their home?

There are special rules which can help protect the family home for many clients. We will perform a comprehensive review of each individual’s circumstances and advise you on the best ways to protect this important asset.

What are the income and asset limits for an individual to qualify for Medicaid?

The income and asset limits change annually. We meet with clients, explain the current rules and assist with the development of a plan which would enable the client or a loved one to apply for Medicaid benefits, either at home in the community or in a nursing home.

If I need to place family member in a nursing home and we have not already done any planning, will the nursing home take all of my family member’s assets?

The rules surrounding Medicaid qualification are complex and vary depending on the applicant’s assets. Under current Medicaid rules, we can often help families preserve a large percentage of their assets, even when they have not previously completed any planning.

When is the best time to do Medicaid planning?

Ideally, the best time to do planning is at least five years before the potential Medicaid applicant requires in-home or skilled nursing facility assistance. However, if this is not possible, there are still many techniques that help to protect assets starting from the date of planning to the Medicaid application date.

Will Medicaid pay for assisted living?

No, Medicaid will only pay for care at home or at a skilled nursing facility, such as a hospital, rehabilitation center or nursing home, or for caregivers to provide assistance in one’s own home.

If I have Medicare, do I need Medicaid?

Medicaid is the only government benefit which will cover the costs of long term care, either in the home or at a skilled nursing facility. Medicare does not cover these costs, nor does private health insurance.

What is Medicaid?

Medicaid is a government benefits program that provides coverage for medical expenses and long term care to those with medical needs and who meet certain financial criteria.