Estate and Business Planning Legal Blog

Monday, December 31, 2012

The Uncertainty of Taxes: How to Plan Your Estate

We are all tired of hearing about the "fiscal cliff" and Congress's inability to come to agreement on the issue of taxes.  How does one plan one's estate in the midst of such uncertainty?  While estate taxes are, and should be, an integral consideration in the development of an estate plan, there are still important components of an estate plan which can be assembled regardless of the tax laws.  It is essential that people don't put all of their planning on hold, waiting for some clarity on taxes.  It is certainly better to have a partial plan, rather than none at all. 

So what can be done now, in the wake of the uncertainty?  Simple basics.  For example, your will (or living trust) should be reviewed to see if it needs to be updated.  You  should make sure you have an adequate health care proxy/living will and power of attorney in place, in the event you should become disabled.  Do you need a living trust, or is having a will adequate for you? Consider how your assets are structured.  Do you have designated beneficiaries on your accounts?  If so, are these beneficiary designations current?  Have you considered the consequences of having designated beneficiaries in the first place?  Often, clients have beneficiary designations without considering what monies will be available at death in order to pay taxes,  funeral and other expenses.  If there are no funds in the estate, it will be up to individual beneficiaries to contribute monies, something you might not want to rely on.  Additionally, the designated beneficiary designations may result, inadevertently, in some beneficiaries receiving more than others.  Remember that IRAs, 401ks and other retirement accounts should have individual beneficiaries listed, in order to avoid adverse income tax consequences.

For those who have children and no will in place, now would certainly be the time to get started on developing an estate plan. At a minimum, guardians should be appointed for minors, so that a court does not have to step in to name someone to raise your child.  Also, you will likely want to make provision for monies to be held in trust for the minors, until they attain stipulated ages, in order to avoid having a child inherit monies when he/she is too young.  Since minors can not legally own money on their own behalf, one should make sure not to list a minor as a beneficiary on one's accounts; otherwise, legally proceedings will need to be commenced upon your death in order for someone to be able to control these funds for the minor.   It would certainly be a better idea to prepare a will, nominating a person of your own choice for this role.

In summary, while we are waiting for their to be some certainty with the tax laws, we should devote our time and energy to making sure that we have some form of a comprehensive estate plan in place.

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IRS Circular 230 disclosure:  We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by you or or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code. 


Sunday, December 16, 2012

Changing Residency From New York to Florida

Are you trying to decide whether or not to become a Florida resident?  There are many factors to consider. Most people want to give up their residency in New York and change to Florida in order to avoid income taxes and the New York State estate tax.   People also make the change in order to qualify for the homestead exemption and keep their Florida real estate taxes down.  However, there are a number of factors one needs to consider before making the switch.

First, if you continue to maintain real property in the State of New York, you will still need to file a New York estate tax return and you may owe estate taxes as a result of the ownership, notwithstanding Florida residency.  In addition, if you move to Florida, you will lose your STAR exemption, assuming you continue to own real property in New York, and you may also lose your $250,000 per person capital gains tax exclusion on the sale of your New York property, depending on when you sell it. The reason for this is that the STAR exemption only applies if you are a New York resident and the capital gains tax exclusion only applies to the sale of property which is your principal residence.  One certainly can not claim a homestead exemption as a Florida resident and then a STAR exemption as a New York resident. You can only have one residency. In order to avoid the tax exclusion, it is recommended you sell the New York property either before or promptly after moving to Florida. 

One should also take note that New York State is quite aggressive in auditing people who switch their residency to Florida, so you should be prepared for an audit, keeping careful records of the time you spend in Florida and your trips back and forth to New York.  At a minimum, you should get a Florida drivers license, register to vote in Florida, and show that most of your associations and contacts are in Florida, all in addition to showing that the majority of your time is spent in Florida.     

If you decide to change your residency to Florida, you will need to have new health care proxies, living wills and powers of attorney prepared, as the New York documents are generally not accepted in Florida.  While any will you have created will likely be valid, you may want to consider the creation of a revocable trust, since Florida probate is much more time consuming and expensive than it is in New York.

As a last point, if you have any additional insurance, such as long-term insurance, you need to check to see if the same benefits will be available if you become a Florida resident.

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IRS CIrcular DIsclosure:  Any tax advice contained in this communication is not intended or written to be used, and may not be used by you or anyone else, for the purpose of avoiding penalties imposed under the Internal Revenue Code.

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