Estate and Business Planning Legal Blog

Second marriages create special issues for estate planning.  In the absence of a prenuptial agreement, the new spouse is entitled to inherit, generally, one-third (1/3) of the estate of the other, regardless of what the spouse's will dictates.  This right is referred to the right of election.  It was designed to prevent one spouse from leaving all assets to a friend or lover, thus leaving the widow or widower with nothing, causing financial distress.  If one dies without a will and is married, the new spouse is entitled to one-half (1/2) of the estate

  Especially if one has children from a prior marriage, it is important to consider entering into a prenuptial agreement, so that the children are not left to inherit  a smaller portion of the estate.  Of course, a prenuptial agreement will also serve the purpose of protecting one's assets in the event of  a divorce, especially if one goes into a second marriage with substantial assets.

It is often a good idea for a business to develop an employee handbook, which sets forth the company's policies regarding vacation, sick leave, holidays, benefits, and the like.  The advantage of putting this type of information into one handbook, which is given to all employees, is that you are keeping workers abreast of their benefits.  It is also a good place to state what is expected of them, in terms of hours, performance, and dress.  An employee handbook also usually sets forth the company policy on terminations, retirement and severance pay.   A well written handbook will contains an agreement by the employee, which should be signed by employees upon hiring, not to compete with the business of the company or  solicit customers and it requires them to keep proprietary information confidential. 

One of the most important decisions clients need to make, when preparing their will, is who to choose as Executor of their estate.  An Executor is the person who will be responsible for collecting assets, paying taxes and other expenses, and then distributing what is left.  If there is a home, the Executor will also take care of selling it, if that is the wish of the testator (the person making the will).  The Executor's role, essentially, is to carry out the stated wishes of the testator.

Usually, if there is a spouse, the testator's spouse is the primary Executor.  If one has children, they are usually next in line.  It is usually ill-advised to have more than two Executors acting at the same time, since it is very cumbersome and inefficient to have more than two people having to act together.  If a client has two children, it is  difficult to choose one over the other, unless one of the children is disabled, irresponsible, or immature; therefore, it is common to name both children.  When one has more than two children, it is imperative that one child be designated the primary, with the others as back-up.  While many parents choose based on age order, it is usually best to choose the child who is most responsible and least likely to cause or exacerbate family tensions. 

Federal law allows one to gift up to $14,000 per year to as many individuals as desired, without any adverse gift tax consequences and without the filing of a gift tax return.  Certainly, this is a very effective way of reducing one's estate and, therefore, reducing or even eliminating the estate tax.  In addition to this annual gift tax exclusion, one can pay medical and educational expenses for anyone, in an unlimited amounts, provided the payment goes directly to the institution. Lastly, these annual gifts can be used to fund a 529 college plan for children or grandchildren, and you can even make these annual contributions for up to 5 years in advance.

Surely, gift giving can be quite effective in reducing one's estate, assuming the donor is comfortable with this.  One caveat, however, is that New York law was changed relatively recently so that  the value of any gifts made within three years of death falls back into the taxable estate, for New York State estate tax purposes.  Moreover, these annual gifts may trigger a look-back period for medicaid eligibility. 

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 your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Clients are often reluctant  to spend money to purchase long-term health care insurance.  While that is understandable, if one can afford the cost and is healthy enough to obtain the insurance, it is indeed a very wise investment. With nursing homes currently costing in excess of $10,000 per month in the metropolitan New York area, it is difficult for all but the very wealthy to continue to pay that cost out-of-pocket.  The only option, besides paying for the care out of one's own funds, is to use long-term care insurance, or to divest oneself of essentially all of one's assets. If there is a spouse at home, the cost of such care can severely impact the lifestyle of that spouse.   Having long-term care insurance can certainly alleviate the financial and emotional pressure caused by the need for long-term care.

Terminating an employee is always a difficult job for an employer.  One of the biggest concerns an employer may have is that the employee will sue the company for wrongful termination.  There are some things an employer can do to reduce the chances of litigation.  First, the company should have a clear, written policy regarding termination, including procedures to be followed.  Someone at the company should be responsible for clearly and methodically documenting an employee's poor performance or wrongful behavior.  Occurrences should be reduced to writing and the employee should be promptly notified and/or warned,  in writing.  Additionally, it is often helpful to offer the employee some amount of severance pay and have that employee sign a release, promising not to bring legal action, as part of the severance package.

Clients often inquire about health care proxies and living wills and wonder what the difference is between the two, if any.  A health care proxy is simply a document where you appoint someone to make health care decisions if you become incapable of making them on your own.   These decisions are usually general in nature and include items such as surgery, blood transfusions, and other treatments.  Ordinarily, unless combined with a living will in the same document, the health care proxy does not permit the agent to make end-of-life decisions.   A living will is usually a free-standing document which states to the world one's wishes regarding life and death decisions, and does not usually give the right to make these decisions to anyone in particular.  Of course, the health care proxy and living will can be combined in one document, in order to give the agent the authority to make end-of-life decisions, in which event the decision is usually at the discretion of the agent.

               It is quite common for people to have two homes, usually one in New York and one in Florida or some other southern state.  While a will prepared in one state is usually valid in all other states, if done in accordance with the law of one's residency, that is not the case with health care directives.  Each state usually has their own laws and forms regarding  health care proxies and living wills, and is is quite common for institutions not to honor or recognize forms prepared in another state.  This is usually also the case with power of attorney documents, since they are state-specific.  It is highly recommended, then, if one spends a good deal of time in another state, to have a second set of these documents prepared by an attorney licensed to practice law in that state.

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 your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.

If you have a child who suffers from a type of disability which makes it impossible for the child to make his/her own decisions, then you will need to obtain legal guardianship of that child once the child nears the age of 18.   At eighteen years old, a child is considered an adult and, so, the parent is not able to make decisions for the child unless the parent has been appointed the legal guardian.  Of course, the guardianship can be done after the child's 18th birthday, as long as it is clear that the disability began before the age of majority.

   New York has made it relatively easy for the parents of disabled children to become the legal guardians.  It is accomplished through an Article 17A proceeding, and is done through the Surrogates Court.  This is a simpler, less expensive procedure that is specifically for disabled children.  There are several forms required to be filed with the Court and then a hearing date is set when the parents and child appear personally.  One of the many advantages of the procedure is that the parents can list other family members or persons to step in as legal guardian in the event they become unavailable. 

   Guardianship will permit the parent (or other guardian) to make all decisions for the child, including health care decisions, and to manage the child's income and assets, if any.  While the proceeding can be done without an attorney, it is highly recommended that a lawyer experienced in handling these proceedings be retained for this purpose.

It is a well-known fact that nursing care, whether rendered at home or in a nursing facility, is extremely expensive. Even if one possesses substantial assets, those assets will be eroded quickly as a result of spiraling health care costs.  Often, the most significant asset owned by the person needing such care is the family home.  Therefore, it is important to take steps to ensure its protection.

A common method of financing long-term health care costs is the utilization of benefits available under the federally funded Medicaid program. Unfortunately, in order to qualify for benefits, the value of the assets which you own (including your residence) must be minimal.

A properly drafted irrevocable trust can preserve your home, and at the same time, avoid adverse gift tax and capital gains tax consequences.  It can also provide you with a great deal of flexibility and some degree of control. For example, the trust can be designed to provide you and your spouse with the right to reside in the home for the remainder of your lives.  If you later decide you want to move, you can require the trustee to sell the home and either buy another home in its place or invest the proceeds of the sale in order to provide you with income.  Lastly, such a trust can provide for disposition of the home upon your death without the necessity of your heirs going through probate.

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 your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.

Unfortunately, not getting paid promptly, or at all, for services or products supplied is a common problem experienced by businesses.. There are a number of simple steps a business owner can take in order to decrease the occurrences of such non-payment, without resorting to litigation.   

       Of course, it is always better to be paid in advance, but most customers are not  willing to do so.  
One of the first things a business owner can do in order to improve collections is to make sure that detailed invoices are promptly sent  to the customer, with the total owed shown clearly and boldly, along with a prominently displayed statement that payment is due within a certain, short time period, and that interest will accrue if the invoice is not paid promptly.  Putting this additional language in your invoices may invoke a negative response from customers, but it also shows customers that you are serious about getting paid. 

                           It is also extremely important for a member of the Company's staff to be in charge of quickly following up with customers who do not pay in a timely fashion, whether it be by sending out a second invoice, or by calling the customer.  The longer one waits to pursue payment,  the less likely collection will be successful. If  the call and/or second invoice doesn't yield positive results, a letter from the company demanding payment should be sent out on company letterhead.  As a last resort, the business owner should have his/her attorney send a collection letter to the customer, threatening litigation.