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Estate Planning

Saturday, February 27, 2016

Understanding Trusts

Clients are often understandably confused about the differences between revocable trusts, irrevocable trusts, and testamentary trusts.  Very simply, testamentary trusts are those created pursuant to one’s last will and testament. Such trusts do not get established until the death of the person who created the will, and the provisions which govern the trust are contained in the will itself.  These are usually created for the benefit of minors, spouses and disabled children.  These trusts can be changed by the testator at any time, but they become irrevocable at his or her death.

A revocable trust is created during the maker’s lifetime, by a separate document. Revocable trusts, also commonly referred to as living trusts, can be amended or revoked at any time by the maker of the trust (the “grantor”).  Only upon the death of the grantor does the trust become irrevocable. The primary purpose of the revocable trust is to avoid probate.  In order to accomplish this purpose, all assets of the grantor must be transferred to the trust during the grantor’s lifetime.  Contrary to what is often discussed at revocable trust seminars, these trusts do not accomplish any tax savings, nor do they protect assets in the event one needs long-term health care.  

Irrevocable trusts are also created during the grantor’s lifetime, by separate documents.  There are many types of irrevocable trusts and their primary purpose is to achieve tax savings, prevent disabled beneficiaries from losing government benefits, and/or protect assets from long-term health care costs, while also avoiding probate.  They are often used in the case of second marriages, to allow a surviving spouse to receive income from the assets but ensure that upon the death of the surviving spouse, the assets pass to the grantor’s children.  Irrevocable trusts, by definition, may not be amended or revoked by the grantor.  Moreover, they necessarily entail some loss of control by the grantor over the assets transferred to the trust.  Of course, there are many types of irrevocable trusts.  For example, if one’s primary goal is to avoid or reduce estate taxes, one can establish a qualified personal residence trust, a grantor retained annuity trust, or a charitable remainder trust, to name a few.  Life insurance trusts are extremely useful, as they remove the entire value of life insurance proceeds from one’s taxable estate. As is the case with all irrevocable trusts, the grantor may not act as Trustee of these trusts, nor exert any control over the trusts.

         Prior to establishing any type of trust, one should first give serious thought to what objectives one is looking to achieve. Obtaining advice from an attorney who is knowledgeable in the areas of taxation and estate planning will prove invaluable.

 

 

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


Sunday, January 31, 2016

The Value of Long-Term Health Care Insurance in New York

 

Long-term health care insurance is essential for anyone who has assets to protect and does not have the financial ability to pay well in excess of $10,000 per month for a nursing home without jeopardizing one's financial stability.  This is especially true when one spouse becomes ill, and the other is able to live at home but also needs to maintain his/her own standard of living.  While no one wants to go to a nursing home, sometimes it is inevitable.  More commonly, a person will go to an assisted living facility or have  a health professional take care of him/her at home, with the nursing home being the absolute last resort.  Unfortunately, while not as expensive as nursing home care, both home care and assisted living are quite expensive.  In New York, where the cost of care is especially high, purchasing long-term care insurance should be a serious consideration for anyone over the age of 50.


Friday, January 22, 2016

Beneficiary Designations for Retirement Assets

 

While it is not necessary, nor necessarily desirable, to name beneficiaries on one's savings, checking and investment accounts, it is essential that retirement accounts have named beneficiaries.  Retirement accounts include IRAs, 401ks, TDAs, 403(b) accounts, and the like.  If one does not name an individual beneficiary or beneficiaries, and these accounts pass to one's estate, income tax will be due almost immediately, at the estate income tax rate.  The tax rate for an estate is usually substantially higher than the individual income tax rate.  If an individual is named as beneficiary, that individual can draw the money out over time, paying income tax over time instead of immediately, and usually at a lower rate. An annuity is also an asset which should have beneficiaries named, as the growth in the annuity is taxed at ordinary income tax rates, rather than being treated as capital gains. 

  

 

 

 

 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.


Friday, December 4, 2015

How to Avoid Probate

 

A very common misconception is that probate is to be avoided at all costs.  While the probate process in some states can be long and arduous, probate in New York, if handled by a competent attorney, is usually quite simple.  One advantage of going through probate is that the Courts oversees the process, to some extent, and so it forces the parties involved to do the right thing.  Having a will which goes through probate also allows the easy creation of trusts for minor children and it can provide for the distribution of assets in the event of the death of a beneficiary.

If one desires to avoid probate, preparing a revocable living trust is one option.  Another option is to make sure that all of one's liquid assets have beneficiaries listed on them, so that at death the assets will pass directly to the beneficiaries without court intervention.  Clearly, this can not be done with real property. One should take care, however, in naming beneficiaries, to make sure they are all competent adults.  One should never list minor children as beneficiaries, as that causes a good deal of legal complications.  Moreover, problems are created when a beneficiary listed on an account predeceases the owner.  


Saturday, October 17, 2015

Second Marriages: The Need for Prenuptial Agreements

 

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.


Saturday, September 19, 2015

Choosing an Executor Under Your Will

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. 

 


Friday, September 4, 2015

Making Gifts in Order to Avoid Estate Tax

 

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.

 


Wednesday, August 19, 2015

Investing In Long-Term Care Insurance

 

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.


Thursday, July 16, 2015

The Differences Between a Health Care Proxy and Living Will

 

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.


Sunday, July 5, 2015

Important Estate Planning Considerations For Dual Residents

   

               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.

 

 

                                     


Sunday, May 31, 2015

Guardianship of Disabled Children

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.


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At the Law Office of Angela Siegel, we are pleased to offer legal assistance to clients located in Nassau, Suffolk, Queens, Kings and New York Counties specifically but not limited to Garden City, Jericho, East Meadow, Mineola, Syosset, Roslyn, Cedarhurst, Woodmere, Hicksville, Plainview, Merrick, Wantagh, Bellmore, Rockville Center, West Hempstead, Little Neck, Douglaston, Bayside, Flushing, Forest Hills, Astoria, etc., as well as clients located within the state of Florida.



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