Tenants by the Entirety:
Home ownership rates, especially in areas such as Long Island, Brooklyn, and Queens, are quite high. Consequently, the most valuable asset in a person’s estate is their home. A married couple usually owns their home jointly, as tenants by the entirety, which means that after the death of the first spouse, the home automatically passes to the other spouse. Only married couples may take title by tenants by the entirety. While this may make estate administration easier by avoiding probate, there are certain drawbacks to this approach. First, it doesn’t allow the deceased spouse to fully utilize their New York lifetime estate tax credit amount which may cause higher estate taxes after the second spouse’s passing. Second, the surviving spouse may be, or may soon be, on Medicaid, and owning the home in their names may subject them to Medicaid liens or Medicaid estate recovery. Additionally, when the second spouse passes away, the property will have to go through the probate process (see below) unless a joint owner is added to the deed. An estate attorney should be consulted in each situation.

Joint Ownership:
A second way of holding title is by joint ownership or joint tenancy. This is similar to tenants by the entirety except that it lacks some protections which are outside the scope of this article. Real property can be held as a joint tenancy with rights of survivorship (JTWROS) which means that when one joint owner passes, their share automatically transfers to the other remaining joint owner(s), avoiding probate. At the death of the final joint owner, the property passes under his will or through intestacy and necessitates the probate or estate administration process. Bank and brokerage accounts can also be held jointly. This type of ownership, common among spouses, means that each co-owner has the full right to use the assets during his or her life, with the balance going to the surviving joint account holder at his or her death. Owning assets jointly may be convenient, but it also opens up all the joint owners to liability based on the acts of one joint owner.

Beneficiary Designations:
Another common way of passing assets is by designating a beneficiary. Many financial products allow for the designation of a beneficiary. Examples include bank accounts (“POD” or “ITF”), life insurance policies, and IRAs. When you list a beneficiary, that person will be able to collect the funds without going through a court process. That individual will simply present a death certificate to the financial institution and fill out the necessary paperwork. This is a great way to pass money to people to help pay for immediate expenses associated with the funeral. There are some issues which need to be considered with beneficiary designations, however. First, a minor should not be listed as a beneficiary since the money will not be accessible until he or she turns 18 or 21, depending on the state. Consequently, it is advisable to name a trust or a custodian as the beneficiary to hold the money for the benefit of the minor. Second, if the beneficiary is receiving governmental benefits such as SSI or Medicaid, he or she may lose their benefits upon receiving the funds. In this situation, it is advisable to establish and name a supplemental needs trust for the benefit of the beneficiary. Third, if you own a life insurance policy on your own life, your heirs may have to pay an estate tax on the proceeds. To avoid this result, ownership may need to be changed and an irrevocable life insurance trust may be necessary. (Also read: Will Your Life Insurance Payout Be Taxed)

Assets in a Trust:
Assets which are titled in the name of the trust pass under the terms of the trust and avoid probate. Commonly, a pour over will is also executed to transfer anything not titled in the name of the trust. A trust can allow for asset protection, preservation of Medicaid and/or SSI benefits, and distribution to minors. (Also Read: Do You Need A Living Trust?)

Sole Name with No Beneficiary:
A person may simply own property in his own name without any joint owner or beneficiary. In such a case, except for certain property passing to his or her surviving spouse or minor children, the property will have to pass through probate (if there was a last will and testament) or administration (if there was no will). Probate, as you can read about here, is an expensive and time consuming process. You will likely require the assistance of a probate attorney to deal with the Surrogate’s Courts in the county where the decedent was domiciled, whether it be Brooklyn, Queens, or Nassau.

In order to properly and efficiently plan for your future while protecting your family, it is important to speak with a Brooklyn-Queens estate planning lawyer about your particular situation. Our office is available to assist you with any questions you may have. Contact us at 347-766-2685 for a free consultation.

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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.

The post The Probate Process in Brooklyn, Simplified: An Attorney’s Advice appeared first on Queens, NY Estate Planning, Elder Law, Probate Attorney.

Will (Last Will and Testament)

The purpose of a Will is to distribute your assets after you pass. If you have ever seen a movie with a lawyer reading a document to the family of a rich uncle who died, the lawyer is reading from this type of a will. A Will allows you to decide what you would like to go to whom, when, and how.

Without a Will, State law will determine who inherits your assets and handles your estate. A Will, as well as a living trust, allows you to structure the asset distribution to help avoid estate taxes, protect your heirs from creditors, and space out the distribution over time.

Family heirlooms can be expressly left to a beneficiary in a will to avoid fights. Only a Will can also be used to nominate guardians for your minor children if both of their parents pass away, although the court still has final discretion. A Will also allows the testator (person making the Will) to appoint executor(s) who will oversee the administration of the estate.

It is important to know that, unlike a living will, the last will and testament only takes effect after you die and can be changed, or revoked, any time prior to your death. To have any effect, your Will must be probated in the Surrogate’s Court where you last resided after you die.

Living Will

The purpose of a living will is to memorialize your health care wishes so that your family, doctors, and/or health care proxy (the person making your health care decision) know what you want done if you are not able to make decisions for yourself.

You are able to specify whether you would like to be kept alive by artificial means if there is no hope of recovery. You are also able to specify the level of care that you want to receive if you are in an accident or a coma.

A living will, although not officially authorized by New York State law, is enforceable as long as it provides clear and convincing evidence of your desires. Since it is hard to draft instructions for all the different possibilities which may arise, I generally advise clients to also prepare a health care proxy which appoints a trusted person to make decisions on your behalf.

The health care proxy should be given a copy of your living will so that they can use it as a guide as they make decisions. For individuals who wish to have decisions made according to the laws of their religion, such as organ donation and cremation, it is important to appoint a proxy who is sensitive to those wishes and to specify those wishes in the living will.

Similar to a power of attorney, which is used by your agent for financial and business transactions, a living will ceases to be effective after you pass away. Additionally, a person may also have a form which designates an agent to carry out his burial wishes. Such a designation, which is sanctioned by NY Public Health Law, is superior to instructions in a Will which take time to access.

Both a Will and a living will are important pieces of any estate plan. Each should be prepared under the guidance of an attorney and both need to be witnessed by two disinterested witnesses. That is where the similarities end. It is important for clients to understand that while a living will deals with health care decisions, a Will deals with distribution of property and the appointment of guardians and fiduciaries. Contact us for a free consultation with an attorney who can explain the difference between these documents and prepare the proper estate plan for your individual needs.

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As I sit with clients to understand their situation, I advise them that the answer to this question is quite complex and depends on many factors including their age, familial situation, and the type of care that Medicaid is providing them. Medicaid is divided into two general categories: (1) Institutional, which includes nursing home and intermediate care facilities, and (2) Community-based which includes all the other services Medicaid provides including home care and insurance. Let us look at what Medicaid can do with your property in each situation:

If you (1) are receiving nursing home care, (2) are deemed a “permanently institutionalized individual (PII)” (meaning you are deemed not to have an intent to return home) , (3) and own your home, Medicaid must place a lien on your home for the amount that they pay out. When the property is eventually sold, the lien must be satisfied before your heirs get the remaining proceeds. There are a few exceptions. First, a lien may not be placed upon your home if certain people are lawfully residing in the home, including a spouse, a child under 18, or a child of any age who is certified blind or certified disabled. Second, if you return home after being a PII, Medicaid must remove the lien. Third, prior to imposing a lien against your home, Medicaid must allow you to transfer the home to the aforementioned individuals, assuming you are able to.

Regardless of whether you are receiving institutional or community-based Medicaid, Medicaid can seek “estate recovery”. Estate recovery is when Medicaid tries to recover the amount it paid for your care from your probate estate. Your probate estate only includes assets which you held in your own name and which do not pass by operation of law or through a beneficiary designation. If Medicaid is providing you with either nursing home care, home care aid services, doctor’s visits, prescription coverage, or hospital visit coverage, they may go after your probate estate to recover their outlay. The operative words here are “probate estate” and much can be done, relatively simply and inexpensively, to remove your home from your probate estate. There are a few caveats and exceptions to estate recovery. First of all, for community-based care, Medicaid can only collect services provided to you since your 55^th birthday. Secondly, for either community or institutional care, Medicaid can only recover up to 10 years worth of benefits counting back from the date of death. Third, no recovery may be made your spouse’s life, or at a time when your have a surviving child who is less than 21 years of age or who is certified blind or certified disabled.

Assuming that the Medicaid agency in New York has not placed a lien on your property, you have the opportunity, with some careful planning, to prevent this from happening sometime in the future. A knowledgeable elder law attorney can utilize different methods such as deed transfers with retained life estates and income only Medicaid trusts along with properly drafted powers of attorney to shelter your home from Medicaid claims. An elder care attorney can also help you prepare a proper estate plan consisting of a will, power of attorney, health care proxy, and a living will. The important thing to know is that the sooner you speak with an estate planning/elder law lawyer, the more likely it is that you can receive the care you need while protecting your home for your heirs.

For a free consultation with a New York estate planning/elder law attorney, contact us by calling (347)766-2685 today.

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While no one wants to think about it, becoming incapacitated during your lifetime is not an unlikely event. According to the National Association of Insurance Commissioners, one in four 25-year-olds will experience at least one period of disability before they are 65. Other Insurance statistics indicate that there is a 79% chance that an individual will be disabled for at least 90 days or more at some time in their life. What will happen to your home and bank accounts when you are not able to pay bills or deposit checks? What will happen with your IRA or investment accounts if you are not able to manage them? In the “Planning for Incapacity Series” we will discuss different options individuals can utilize to protect themselves and their families in the event of disability or incapacity. The first article will answer some basic questions regarding a New York Statutory Short Form Power of Attorney, or “POA” for short. Subsequent articles will discuss other facets of planning for disability or incapacity.

What Is A Power of Attorney?

A POA is a powerful and inexpensive tool which allows a competent individual who is at least 18 years old (the principal) to designate an agent to handle their financial, business, and real estate related affairs. Through a detailed and statutorily recognized writing, the principal can empower his agent to act on his behalf as per the directions and limitations spelled out in the POA. The agent can do no more than a properly drafted POA allows, which makes proper drafting crucial. A POA can allow an agent to deposit checks, pay bills, transfer real estate, manage finances, and open and close financial accounts on behalf of the principal while acting in a fiduciary capacity. The principal will have peace of mind knowing that his finances, and his family, will be taken care of in the event that he is not capable of handling them on his own. Preparing a POA can save thousands of dollars and many months which are required to obtain guardianship over an incapacitated individual’s finances.

Who Can Be An Agent?

The agent can be anyone that the principal trusts to manage his/her affairs, but is generally the spouse and/or children. A typical POA appoints the spouse as the agent and the child(ren) as successor agents in the event that the spouse is unable to act. Since a POA gives the agent power to manage the principal’s finances, it should be given with much thought.  The general rule is that you should only appoint those individuals whom you would trust with your credit card or a blank check. A principal can name co-trustees which means that multiple agents will have to act together to accomplish anything. This can be an effective way to prevent one agent from having unbridled control but can make it more difficult to accomplish even simple transaction. Another way to oversee the acts of the agent is to appoint a monitor over him/her, although this is seldom done. If you need someone to monitor your agent, maybe you shouldn’t appoint them in the first place.

When Can The Agent Begin to Act?

The powers can be given to the agent immediately upon execution of the POA or can “spring” into effect upon the principal’s incapacity. If “springing powers” are used, the agent can only act after the principal is shown to be incapacitated by a letter from the principal’s treating physician, or by another physician if the treating physician is not available. This will assure the principal that the agent can not do anything while the principal is competent, but will make it more burdensome for the agent to prove that the principal is, in fact, incapacitated or incompetent.

When Does the Power Terminate?

A competent principal can revoke the POA at any time by giving notice to the agent and preferably any institutions which the agent may have already used the POA. If the principal does not, or can not, revoke, we look at what type of POA was given. There are two general types of Powers of Attorney: (1) Durable Power of Attorney and (2) Non-Durable Power of Attorney. A durable power of attorney survives the principal’s subsequent incapacity while the non-durable power of attorney ceases to be valid if the principal becomes incapacitated. For obvious reasons, the durable POA is the only one that I recommend clients use in order to plan for incapacity. A non-durable POA is useful in situations where incapacity is not the reason for its creation, such as when one spouse can not attend a house closing in person. A POA can also terminate the agent’s authority at a certain date or after a certain goal has been accomplished.

How Do I Execute a Power of Attorney?

After a POA has been properly drafted, preferably by a knowledgeable attorney, the principal needs to initial next to each power which they wish to confer upon the agent. The principal then signs the POA and has his signature notarized. The POA is not effective, however, until the agent signs and acknowledges that he has read the section titled “Important Information For Agent” which explains the agent’s role, fiduciary obligations, and limitations on his authority. The agent does not have to sign at the same time as the principal, and successor agents do not have to sign at the same time as the primary agent.

The Statutory Short Form Power of Attorney is a fundamental document of any estate plan and should be considered for all individuals regardless of their financial situation. It helps the family deal, at least financially, with the incapacity of a loved one and is a much more inexpensive way to deal with such an occurrence. To discuss this issue with a Queens estate planning lawyer who specializes in these matters, contact our office at (347)766-2685.

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This article explains the requirements necessary for qualifying for Medicaid and offers some basic Medicaid planning options. Subsequent articles will deal with Medicaid planning options in more detail. If you are on Medicaid, or thinking of applying for Medicaid, read this article to learn how to protect your home and assets from liens and estate recovery from New York Medicaid.

What is Medicaid?

Medicaid is a joint program with New York State and the federal government for New Yorkers who can not afford to pay for medical care, home care, or nursing home care. There are two main types of Medicaid benefits, generally classified as Community Medicaid and Institutional Medicaid. Community Medicaid covers things such as doctors’ visits, medications, hospital inpatient and outpatient services, and care through home health agencies . Institutional Medicaid covers nursing home care. In order for a person to qualify for Medicaid, they have to be a resident of New York and meet certain financial guidelines.

Medicaid’s Financial Guidelines

Medicaid has different financial requirements based on an individual’s living situation, familial status, and health. All Medicaid recipients have to meet a certain income requirement, described below. Additionally, disabled individuals and those over 65 have to meet a resource requirement.

Here is a sampling of the financial requirements:

• Non-disabled adults aged 21-64 without children under 21 in the household may earn up to $735 a month for one person and $918 for a family of two.
• Parents, 19 and 20 year olds, disabled or blind 21-64 year olds, persons 65 and over can have a higher income level than the previous category. A single person can make up to $792 in income, while a family of two can make up to $1159. A family of three can make up to $1333 and still qualify.
• For non-disabled individuals under 65, there is no limit to the amount of assets they can own; Medicaid simply looks at their income. For individuals 65 and over, as well as disabled or blind people of any age, there is an additional resource test which needs to be met. For example, a single person in the latter category can have up to $14,250 in resources and still qualify for Medicaid. A family of two can have up to $20,850.

Resources include cash, savings, life insurance, stocks, bonds, IRAs, and other property, liquid and non-liquid. One car per household, regardless of value, will be excluded from the resource limit. A second car will be excluded from the resource limit if there is a medical need for it. In all scenarios, the more people in the household, the higher the income and resource levels will be.

What if my income exceeds Medicaid thresholds?

If someone is under 21, age 65 or older, certified blind or certified disabled, pregnant, or a parent of a child under age 21, they may be eligible for the Medicaid Excess Income program, better known as the Spenddown program.

A client who falls into this classification, but who still has income over Medicaid’s allowance amount, is said to have “excess income.” If the client’s medical bills for that month exceed his “excess income”, Medicaid will pay their medical bills beyond the excess.

Additionally, special needs and pooled income trusts can be utilized by disabled Medicaid recipients who would otherwise have to give their excess income to Medicaid. For example, if an individual receives Social Security, SSI, pension, or other income which exceeds $792 a month, he can place the excess income into a pooled income trust which would allow him to qualify for Medicaid while allowing the trust to use the remaining income to pay the individual’s bills such as rent. These options will be discussed in further detail in subsequent articles.

What if my resources exceed Medicaid thresholds?

There are certain exemptions which allow a person in need of Medicaid to keep certain assets. The most important is the homestead exemption. An individual’s homestead is an exempt resource if it is “essential and appropriate to the needs of the household” and has equity up to $786,000. If the equity in the home is greater than this amount, a home equity loan or a reverse mortgage can be used to reduce the equity in the homestead.

Additionally, the equity cap may be waived in the case of hardship. It is important to note that the equity cap does not apply if the spouse or the intended Medicaid beneficiary’s child who is under 21 or is blind or disabled, resides in the home.

The homestead is only exempt if the owner intends to return and no spouse, child under 21, or a child who is certified blind or certified disabled, or a dependent relative is living in the home. If the Medicaid beneficiary resides in a nursing home, the house is exempt as long as he has a subjective intent to return to the home.

If the homestead exemption does not assist the intended Medicaid beneficiary in qualifying, there are other options. For example, to qualify for community Medicaid, one can give away his “excess” assets in one month and qualify for Medicaid the next month. Depending on his situation, one can give away his assets to his loved ones, including adult children, or place them into an irrevocable income only Medicaid trust, which will be discussed in future articles.

Qualifying for institutional Medicaid is not as simple because Medicaid applies a 5 year look-back to all transfers made for less than their full value. This means that if you gift away your assets, even by using the annual $13,000 gift tax exclusion, Medicaid will count them as part of your resources for five years.

Certain exceptions to this five year look-back apply, including transfers of the homestead to a:

1. spouse
2. child who is blind, disabled or under the age of 21
3. sibling who has an equity interest in the home and who resided in the home for at least one year before the person was institutionalized; or
4. child who resided in the home for at least two years before the person was institutionalized and provided care to maintain the person at home.

The best advice an attorney can give a client who is interested in qualifying for institutional Medicaid is to plan at least 5 years in advance of needing it.

Feel free to contact the Law Offices of Roman Aminov to discuss any questions you may have on qualifying for Medicaid while preserving your assets by calling (347)766-2685.

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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 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

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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.

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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.

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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.

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