April 23, 2013
With the loss of a loved on, there are many important decisions which need to be made. Arranging the funeral, dealing with the burial, and eventually administering the estate are three of the major issues that the family has to deal with. This article provides an overview of the process known as probate, specifically in Kings County. If a Brooklyn resident passed away with an estate of over $30,000 (not including exempt property going to a surviving spouse or minor children under EPTL 5-3.1) and has a will, there are certain specific steps which need to be taken before their estate can be distributed to their beneficiaries.
To begin the probate process, a Brooklyn based estate attorney should be consulted to prepare a probate petition which asks the court to accept the last will and testament and to appoint a fiduciary of the estate. The fiduciary, also known as the executor, is named in the will and is responsible for marshalling and protecting the assets, paying the debts of the estate, and ultimately distributing the assets to the beneficiaries. The petition will need to include the original will along with a copy of the will, which is kept with the court. The estate attorney will also retain a copy for his records. In no event should the staples of the original will be removed, as that may be construed as tampering. The petition must also include a certified copy of the death certificate, which should have been obtained from the funeral home. It is generally advisable to obtain 10-15 death certificates because each institution may require one, and it is much easier to get them in the beginning rather than ordering them afterwards.
The probate petition must list the names and addresses of all the distributees, i.e. the people who would be entitled to receive a share of the estate if there had been no will, even if they were not beneficiaries under the will. Generally, that means the decedent’s spouse and children, if he had any. If he was not married and had no children, then his parents would need to be listed in the petition, followed by his siblings if the parents predeceased. The distributees need to be listed because they have to be given the right to contest the will. If they consent to the will being admitted to probate, and to the appointment of the fiduciary, they can sign a waiver and consent, which expedites the probate process. If they want to challenge the admittance of the will to probate, the probate lawyer will serve them with a citation which would give them the right to come in to Brooklyn Surrogate’s Court on a certain day and challenge the will. They also have the right to have their own probate attorney appear in court for them. If you receive either a waiver and consent or a citation, have an estate lawyer in Brooklyn review it and advise you of your rights, as time is of the essence.
Assuming there are no challenges to the will, the court will admit the will to probate and appoint the executor of the will as the fiduciary of the estate. The executor may have to purchase a bond in order to protect the beneficiaries, but since virtually every will dispenses with the necessity of bond, the judge is likely to waive that requirement. The executor receives official papers from the court, known as letters testamentary, which gives them the right to act as the fiduciary. The first order of business would be to obtain a federal tax identification number for the estate and open an estate account in which to deposit the proceeds of the estate. It is important to remember that both the federal and New York State estate tax returns are due 9 months after the date of death (Form 706 and ET-706, respectively). If the estate assets generated income for the estate, there may be an estate income tax return due (Form 1040). In addition, the executor is responsible for filing the decedent’s final income tax return (Form 1040). Your probate attorney may work with a CPA to prepare the returns.
Six months after the appointment of a fiduciary, the court will require a report of the assets and inventory of the estate (Form 207.20) which will require the appraisal of the assets in the estate. Within nine months, any beneficiary has the right to disclaim any assets, which will then pass to the other beneficiaries as per the terms of the will. Finally, after all the debts and expenses are accounted for, including the executors’ commissions, and all releases are signed, the assets can be distributed to the beneficiaries, and the estate can be closed upon the petition of the executor.
While administering an estate may be tedious and time consuming, it is also a sign of respect for the decedent to carry out his/her wishes. At the Law Offices of Roman Aminov, we understand the complexities of the probate process and welcome you to contact us at (347)766-2685 to discuss your probate issues. Visit our Brooklyn Estate Planning Attorney service page and learn more.
June 25, 2012
As the saying goes, “nothing is certain but death and taxes.” In the context of estate planning, this reality drives the estate planner’s desire to minimize taxes upon death as much as possible. In fact, the world of estate planning is consumed with the minimization of taxes in all of its forms. Attorneys and advisers have clients jump through legal and financial hoops in order to avoid or delay the payment of taxes, whether estate, capital gains, gift, income, etc. It is imperative that clients know if their assets will be taxed upon their death so that they can properly seek advice from their estate planning professional. This article provides a general overview of estate taxes. More detailed articles dealing with the proposed tax savings are available in the articles section with more to be written in the future.
What Is Taxable?
Very generally, any property that a person owns at his passing is taxable including bank account, cash, securities, real estate, cars, etc. are includable in his gross estate. Contrary to popular belief, the death benefit of life insurance policies a person owns are taxable unless properly structured. See a more detailed explanation regarding life insurance policies here. Joint property, including joint bank accounts, is 100% includable in the estate of the first joint property owner to die except to the extent that the other joint owner can show that he contributed to the property. Business, corporate, and LLC interests are also includable in the gross estate as are general powers of appointment.
Deductions from the Gross Estate:
To determine the taxable estate, we need to reduce the gross estate by the applicable deductions. The IRS allows the following deductions from the gross estate [1. http://www.irs.gov/businesses/small/article/0,,id=108143,00.html#5] which reduce the gross estate:
1. Marital Deduction: One of the primary deductions for married decedents is the Marital Deduction. Both jurisdictions allow for an unlimited marital deduction which means that assets passing outright to a citizen spouse will not be taxed at the death of the first spouse. There are often very good financial, legal, and tax reasons not to leave everything to the surviving spouse as will be discussed in the upcoming article dealing with credit shelter/bypass trusts
2. Charitable Deduction: If the decedent leaves property to a qualifying charity, it is deductible from the gross estate.
3. Mortgages and Debt associated with the properties.
4. Administration expenses of the estate including executor/administrator, accountant’s and attorney’s fees.
5. Losses during estate administration.
Not One, But Two:
Both New York State and the federal government impose separate estate taxes on decedents who pass away with a certain amount assets[2. It should be noted that only about 15 states and Washington D.C. impose estate taxes which explains why many seniors move to Florida which doesn’t have an estate tax.]. The government figures that death should be a taxable event because almost everything else you did in life was. New York State and the federal government tax estates at different levels and at different rates. Uncle Sam does, however, give taxpayers a deduction for the amount they paid in state taxes[3. The Estate Tax Credit was phased out completely in 2005.].
Federal Estate Taxation:
The federal government taxes estates valued at over $5.12 million, which is adjusted for inflation ever year, at a rate of 35% in 2012 and 40% in 2013 and beyond.
New York State Estate Taxation:
New York State taxes the estates of New York residents if they are over $1,000,000. Non residents pay the tax only if their estate includes real property or tangible personal property located in New York and worth over $1 million. NY estate tax rates range from 5.6% to 16% for estates over $10 million and are expected to remain the same for the foreseeable future. New York requires estates with a gross estate of over $1,000,000 to file form ET-706 along with a federal estate tax return, even though one may not be required by the IRS (because the estate is under the federal filing threshold).
The tax thresholds mentioned above assume that the decedent did not make taxable gifts during his lifetime. A taxable gift is a gift made to a person above the annual gift tax exclusion amount, currently at $14,000 in 2013[4. Married couples can “gift split” and give away $28,000 a year. The amount is pegged for inflation and adjusts to the nearest thousand.]. If taxable gifts were made, they reduce estate tax exemption amount to the extent that gift tax was not paid on them.
It is possible to avoid the sting of the estate tax by (1) fully utilizing each spouse’s estate tax exemption (2) deferring taxes until the death of the second spouse (3) and completely escaping taxes by gifting properly during life and/or after death. To speak to an estate planning attorney for an evaluation of your financial situation and to see which options can minimize or eliminate your potential estate tax liability, contact us at (347)ROMAN-85
May 22, 2012
Living trusts are a much talked about topic in the field of estate planning, and for good reason. You may have heard financial planners or attorneys mention these trusts as a “must have” item in your planning portfolio but may be confused as to what a living trust really is, what it accomplishes, and most importantly, if you really need one.
What Is A Trust?
A trust is an arrangement in which one person, the trustee, holds legal title to the property of another person or group of people, the beneficiaries. Every trust must have at least a settlor, trustee, beneficiary, and the corpus which is the property placed into trust. A trust document sets out the rules that the trustee has to follow when managing, distributing, and generally overseeing the corpus. A living trust, also known as an inter vivos trust, is a trust which is set up by the settlor (person creating the arrangement and funding the trust) while he/she is still alive (as opposed to being created by a will at their death).
How Does This Benefit Me?
A. Reduces Cost: When a person passes away, assets titled in his/her name pass either under the will or by New York’s intestacy statute which dictates how assets are distributed if there is no will. Either process requires the intervention of the local Surrogate’s Court and, most likely, an attorney. An attorney will typically charge 3-5% of the total value of the probate estate which is in addition to a similar amount charged by the executor/administrator for marshaling and distributing the assets of the estate . With a revocable living trust, the property which is transferred to the trust passes outside of court and does not have to go through probate. The trustee can distribute the assets almost immediately without the need to get the court or an attorney involved. There is a slightly higher initial fee to set up and fund the trust, but it is usually a fraction of the cost of going through probate.
B. Saves Time: By going through the judicial process of probate, the validity of your will is open to challenges by disinherited heirs and other interested parties. Intestate heirs, also known as distributees, can challenge the validity of a will if they stand to receive more money if there had not been a will at all. The probate/administration process can protract the transfer of assets by months in the best case scenario and years in the worst. This can delay getting your assets to those who need them and costs your estate unnecessary legal fees. Since a revocable living trust is not a public document and does not need to be filed with the court in order to distribute assets, there is less unnecessary delay in transferring the assets since the trust does not need to be probated. You will not have to waste time waiting to get letters testamentary appointing an executor since a successor trustee is appointed automatically by the trust. Additionally, while a living trust can be challenged, it is more difficult to do so than with a will. All this means that your final wishes will be executed as quickly as possible.
C. Give You Control: Since a living trust will be prepared by you, typically in consultation with your attorney, you retain full control to specify what will happen to your assets when you pass away. You set the terms, pick the trustees, and direct them how/when to invest, manage, and distribute your assets. Best of all, you retain complete control of the property in the trust while you are alive by naming yourself as trustee. You can enjoy, manage, and sell the property as you would if it was owned in your name. Since the IRS deems living trusts to be grantor trusts, there is no need to obtain a separate tax ID number or file a separate return. Additionally, since the trust is revocable, you can change or even revoke the entire trust any time you wish.
Living trusts are powerful estate planning tools which deserve a serious look by anyone serious about saving their heirs time and money in the long run. Decisions on whether to invest in a revocable living trust are best made in consultation with a qualified estate planning attorney who can sit down with you to evaluate your individual needs. For a free consultation to discuss your estate planning needs, contact the Law Offices of Roman Aminov at (347)ROMAN-85.
May 4, 2012
Many people automatically assume that the life insurance death benefit they leave over to their loved ones will not be taxed. This common misconception can result in the unnecessary payment of tens or hundreds of thousands of dollars of estate taxes.
The Rule: The IRS (Section 2042) states that the death benefit of your life insurance policy is included in your estate if the proceeds are payable either (1) to your estate or (2) to your beneficiaries if you possessed any incidents of ownership in the policy at the time of your death. Incidents of ownership include the right to (1)change/add beneficiaries (2) transfer ownership of the policy (3) borrow against the policy, among other rights. Basically, if you retain control over the policy, it will be includable in your estate.
The Problem: With the New York estate tax set at $1,000,000 and the federal estate tax set to return to $1,000,000 in 2013, many New Yorkers who own their own home, have some savings, and own a life insurance policy will be subject to estate taxes. For example, the estate of a New York resident with a $500,000 life insurance policy who passes away in 2013 with a taxable estate will pay $350,000 in estate taxes just for the policy. At a time when your loved ones need money the most, you need to make sure that more money goes to them as opposed to the state and federal governments.
The Solutions: There are effective and legal ways to avoid paying any estate taxes on insurance proceeds.
Solution A: An insured can transfer ownership of his/her policy to the beneficiaries and thereby relinquish incidents of ownership. However, since the money will be paid outright to the beneficiary, there are many drawbacks to this solution, including the lack of creditor protection for the beneficiary, the fact that the beneficiary may be a minor or may be unable to manage large sums of money, and that the proceeds will be includable in the beneficiary’s estate for estate tax purposes.
Solution B: Instead of you owning the life insurance policy in your own name or transferring ownership to a beneficiary, an estate planning attorney can set up an irrevocable life insurance trust (ILIT) to own the policy which will pay the death benefit into into the trust. Therefore, since you don’t own the policy, you don’t have “incidents of ownership” according to the IRS, and consequently your estate is not taxed on the proceeds of the death benefit.
The Practicalities: An irrevocable life insurance trust is just that, irrevocable. This means that the trust can not generally be undone and the terms can not be altered by you. You may set the terms of the trust, decide who the beneficiaries will be, and appoint any trustee you desire, including a spouse and/or children. The trust may specify who gets the money and under which circumstances. This provides potential asset protection for your beneficiaries and can protect them from creditors, ex spouses, and their own immaturity when it comes to spending the money. The trust can accept an existing life insurance policy or can purchase a new one. If an existing policy is transferred, the IRS will wait three years before it will be considered owned by the trust. If you pass away before that time, the proceeds will be counted in your gross estate. This is why it is highly recommended that an ILIT is set up contemporaneously with the purchase of any significant life insurance policy. Premiums will be paid by the trust with funds which you may want to gift to the trust. You can utilize your annual gift tax exemption amount of up to $13,000 which can be doubled to $26,000 for spouses. Your ILIT will be listed as the designated beneficiary under your policy and upon your passing, the insurance policy will pay out to the ILIT, which will in turn distribute the funds as per your original instructions. All of this will be overseen by the trustee(s) which you selected. Best of all, none of the proceeds will be taxed by the government. It is important to keep in mind that if an existing life insurance policy is transferred into the trust there is a three year look back period, during which the IRS will include the death benefit in the original owner’s estate. Therefore, it is generally recommended to establish an ILIT and subsequently purchase a new policy in order to avoid this three year look back period.
The Bottom Line: The whole idea behind life insurance is to provide the financial resources your loved ones need when you pass away. With the use of an irrevocable life insurance trust you can make sure that your loved ones get the maximum amount possible without Uncle Sam dipping his hands into the pot.
Utilizing any of the solutions mentioned above should be done as part of a comprehensive estate plan and should not be undertaken without at least speaking with an attorney. Feel free to contact our office for a free consultation.
April 10, 2012
In the estate planning world, there is no such thing as a “cookie cutter” plan for any individual or family. Every situation is unique and needs a plan prepared especially for it. There are, however, a few essential documents which almost every person needs in order to cover their bases regardless of income, assets, family, or health status.
1. Last Will and Testament – A properly executed will allows you to
- appoint guardians for your minor children
- distribute your assets as you see fit instead of allowing the state to distribute them according to its laws
- appoint an individual or entity to administer your estate instead of letting your loved ones fight it out
- potentially save on estate taxes with a properly structured bypass trust
- pour over your remaining assets into a trust
Remember that wills have very specific execution instructions, and it is crucial to follow them exactly. One simple mistake can completely invalidate a will as if it was never created. For this reason, it is highly recommended, and in most cases essential, that an attorney prepare and properly execute the last will and testament.
2. Power of Attorney – A power of attorney allows a trusted individual or individuals, typically a spouse and/or child(ren), to carry out certain financial, legal, and business activities on your behalf. You, the principal, give them, the agents, certain powers as well as instructions which allows them to carry our your wishes in your best interest. A power of attorney must be executed when you have capacity but can be used in the event that you become disabled or incapacitated if you specify so. This document allows your loved ones to handle your matters directly in the event of incapacity without going through a lengthy and expensive guardianship proceeding. A power of attorney becomes invalid upon the principal’s death. New York recently introduced a new short form power of attorney which is much more complicated than the outgoing form and therefore a New York attorney should be consulted prior to preparing one. A more detailed article on the power of attorney can be found here.
3. Health Care Proxy- A health care proxy is a person you designate to make health decisions on your behalf in the event that you are not able to on your own. The proxy would be under a duty to carry out your wishes in regards to medical decisions such as engaging in risky but potentially life saving treatments, DNI/DNR orders. Without such a document, New York’s Family Health Care Decisions Act would govern the order of who could make decisions. The act makes no provisions for who, among the various children, would be given the right to make decisions and can lead to legal challenges. A valid health care proxy prepared by an attorney will give you the peace of mind of knowing who will represent your best interests in the event that you can not make your own health care decisions. It also has the additional benefit of prompting you to discuss your wishes with your proxy.
While this is by no means an exhaustive list of estate planning documents, the foregoing are the foundation which every person, irrespective of wealth, needs to have in place while they are still healthy. It is highly recommended that an attorney familiar with all the relevant laws prepare and execute these vital documents. For a free consultation with an experienced attorney, please contact us today.
March 25, 2012
People often ask estate planning attorneys why they need to make a will if they aren’t “rich”? While each person’s situation is unique, there are usually many reasons why everyone needs to have a will prepared. Here are a 5 things that a valid New York will allows you to do:
1. Appoint guardians and alternate guardians over your minor children. This may be the biggest reason for a young couple without many assets to prepare a will who prefer to decide who will take care of their children, instead of allowing a possible fight in court over the issue.
2. Circumvent New York’s default inheritance laws which gives the first $50,000 and half of the remainder to a spouse and divides the rest among the children equally. Many people want the surviving spouse to inherit more that the statutory amount. Others wish to give a little more or a little less to each child. Still others want to include other persons, charities, or organizations in their will. Without a will, New York State decides the fate of your estate.
3. Appoint an executor/executrix over your estate who will be responsible for collecting your assets, paying your bills, and distributing your estate as per your directions. By appointing an executor/executrix in your will, you minimize the risk of your heirs fighting it out in court if they can not come to an agreement. You will also have the peace of mind that comes with knowing who will take handle your affairs in this most sensitive time.
4. Not require your executor/executrix to post a bond which, without a provision in a will dispensing of that requirement, may be ordered by the court and may be an unnecessary burdens on the person responsible for carrying out your wishes.
5. Save on estate taxes, especially in New York with a $1 million threshold for filing an estate tax return, by creating a testamentary bypass trust in your will. A bypass trust will allow each spouse to maximize their estate tax exemption amount to the fullest. The proper planning can save couples with assets of over a million dollars a substantial amount in estate taxes.
Remember that wills has very specific execution instructions, and it is crucial to follow them exactly. One simple mistake can completely invalidate a will as if it was never created. For this reason, it is highly recommended, and in most cases indispensable, that an attorney prepare and properly execute the last will and testament.
A good estate planning attorney will not simply draft a will without discussing a client’s current financial, family, and health situation as well as their goals for the future. Only after an extensive and open discussion with a qualified estate planning attorney can you feel confident that your wishes will be carried out in your will and/or supplementary estate planning documents such as trusts, powers of attorney, and health care proxies. An estate planning attorney should also look at your situation from an elder law perspective and should advise you regarding Medicaid issues as well. For a free consultation to discuss drafting a valid New York will as well as other estate planning, elder law, or trusts and estates issues, please contact The Law Offices of Roman Aminov at (347)ROMAN-85 or by visiting www.AminovLaw.com