Estate Planning for Young Families

July 7, 2016

Young people, including the author, tend to think they are invincible. They don’t plan on getting sick or even worse, dying. Why, then, do they need an estate plan? For the same reason that older people create them: we are all mortals with a finite lifespan and no guarantee of good health. Young families do, however, have certain unique concerns which need to properly addressed and which will be briefly discussed in this article.

Guardians for Minors
Young families usually have minor children whose care, if both parents were to pass away, needs to be entrusted to someone reliable. Not surprisingly, one of the most important reasons that young couples need to think about estate planning is to decide who will be tasked with the important responsibility of raising their children if they were to both pass on. This decision is one of the most important a parent ever has to answer. I often see couples who are 100% in agreement with the financial portions of their estates have visceral disagreements regarding who will care for their kids if they’re gone. Sitting down with an estate planning attorney to appoint a guardian for minor children is a difficult but necessary task that every young family needs to engage in.

Naming an Executor for Your Estate
Who do you want to collect your assets, pay your debts, and manage your bequests after you pass? While a spouse is the natural first choice – who will step in if he/she cant? While that person can be the same as the guardian, it need not be. The choice is critical and will have a huge effect on the management of your estate.

Distribution of Assets at Appropriate Ages
Would you trust your 18 year old with the proceeds of your life insurance, IRA, and home? Without an estate plan, your children will be able to access their inheritance when they become legal adults at age 18. Unless your idea of teaching children responsibility is giving them the keys to a Ferrari and a seemingly unlimited supply of spending cash, it may be wise to set up an estate plan which allows a trustee to distribute the money to your children over time. A trustee, someone you trust to handle your children’s finances for their benefit, can have discretion to pay for the child’s education and living expenses and can give them spending cash without giving them direct access to their eventual inheritance. You don’t have to have millions to set up a trust, and most trusts for minors are spelled out directly in the will and are known as testamentary minors’ trusts.

Life Insurance Planning
While I don’t sell life insurance, I strongly urge young parents to look into their insurance needs and purchase enough insurance to cover their mortgage, loans, anticipated children’s tuitions, and lifestyle expenses for their families. Insurance won’t alleviate the sense of loss your loved ones will feel, but it can help make sure that they can go about their lives in relative financial security. While life insurance is used for a variety of purposes from business agreements to estate tax planning, its practical effect is felt most poignantly when a parent suddenly passes away leaving dependents, making it vital for young families.

In summary, while young people have time on their side, they also often have the responsibilities of small families on their shoulders. They don’t need to be millionaires or in poor health to think about their estate plans – they simply need to consider their responsibilities to their loved ones.

Roman Aminov, Esq. is an Queens, NY based estate planning lawyer concentrating in estate planning, elder law, Medicaid planning and probate. For a consultation, contact him at (347)766-2685 or AminovLaw.com

Should I Deed My Home to My Children?

March 30, 2016

deed to childrenI often receive phone calls from potential clients asking whether, as an estate planning and elder attorney, I recommend that they add their children as co-owners to the deed of their house, co-op, or condominium. The callers are usually concerned with avoiding probate or protecting their home from Medicaid if they need long term care. The answer is almost always no, and this article will outline some of the reasons why.

Risk of Children’s Creditors
Adding a child to your home makes him a joint owner, which opens your home up to his creditors; past, present, and future. If the child is at fault in a car accident, is sued for negligence, or owes money to a spouse or creditor, your house can be used to satisfy claims against him.

Loss of Control Over the Home
Want to refinance or sell the property? By adding a child to the title of your home, you will need their consent to do either. Additionally, the portion of the home which has been transferred to a child as a tenant in common will bypass your will and go through the estate of the child. That means that if the child predeceases you, you could wind up owning the house together with your son or daughter in law or grandchildren.

Medicaid Penalty
Adding a child on the deed is equivalent to gifting part of the house to them. Consequently, unless a specific exception applies, the gift will make you ineligible for New York Nursing Home Medicaid for up to 5 years.

Loss of Enhanced STAR Real Estate Tax Exemption
For seniors who are receiving a real estate tax break, also known as Enhanced STAR, adding a child under 65 to the deed can cause them to lose part of their tax exemption. That is because the rules requires that all owners must be 65 or older by the end of the calendar year in which the exemption begins. I have seen the New York assessor’s office attempt to collect 6 years worth of improperly granted exemptions after realizing that a child under 65 had been added to an otherwise eligible property.

Partial Loss of Homestead Exclusion Upon Sale
Under current tax law, a homeowner can exempt up to $250,000 ($500,000 if married) of gain upon the sale of their home during their life. If a child is added, and doesn’t live in the home, their portion of home is not subject to this exception resulting in an unnecessary capital gains tax (as high as 31.5%) if the home is sold.

Loss of Step-Up In Basis
In my opinion, one of the most compelling reasons not to add a child to a deed is the loss of one of the most valuable IRS “gifts” that we have been given: the step-up in basis upon death. This “gift” allows your beneficiaries to inherit your property, at the basis that the property will be worth when you pass away, wiping out any capital gains tax which they may otherwise have had to pay. Adding a child to the deed will cause them to pay capital gains tax if they sell the home after you pass away since they wont have the advantage of the step-up in basis for their portion.

In almost all situations, it doesn’t make sense to add a child to the deed as a joint or co-tenant. There are better ways to avoid probate and/or protect the home than simply gifting it to a child. Some clients will benefit most from a Medicaid Trust, other clients may find a life estate deed more appropriate, while still others may prefer a revocable living trust to suit their needs. Every situation is unique and a free phone consultation with an estate planning and elder attorney is a good step towards learning your options.

Roman Aminov, Esq. is an estate planning and elder law attorney. You can contact Roman now for a free phone consultation: Law Offices of Roman Aminov 147-17 Union Turnpike, Flushing, NY 11367 (347) 766-2685

Do You Need A New Power of Attorney?

July 6, 2015

As we had discussed in a prior article, a statutory short form durable power of attorney (“POA”) is an important document which every New Yorker should consider. To recap, a POA allows any agents you select, typically your spouse and/or children, to make financial decisions for you. This can be crucial if you are sick and not able to manage your financial affairs, and the POA is a standard and essential component of any estate plan. However, I have also noticed a troubling phenomenon. Clients often come to my office with existing powers of attorney, the majority of which would have serious challenges raised by any institution which may be asked to accept them. In this article, I will try to highlight a sampling of the issues I have seen and what you should look for when deciding if you may need an updated power of attorney.

Outdated Power of Attorney:
The most common POA clients show me is a POA which was drafted and executed prior to September 12, 2010, which is when the new POA laws went into effect in New York. The new law requires a Statutory Gifts Rider if the principal wants to allow the agent to make gifts of over $500 per year, including gifts which help qualify the principal for long term care Medicaid services. NY GOL 5-1504 states that a bank must honor a properly executed POA if it conforms with the requirements of the 2010 law. The law also “grandfathers” statutory POAs which were executed prior to September 12, 2010, as long as they were executed properly. The problem is that, in practice, banks and other financial institutions routinely reject POAs executed prior to 9/12/2010, and are generally comfortably only accepting the new POAs. Therefore, we generally recommend that clients who have a POA executed prior to 9/12/2010 have a new power of attorney which incorporates all of the latest changes and which it makes it easier for their agents to act if the need ever arises.

Non New York/Non Statutory Power of Attorney:
Clients sometimes show me powers which are either not New York forms or, even if the language on the form states that they are valid in New York, are not statutory short form documents, which means banks do not have to accept them. I usually see that in the context of people who downloaded forms off the internet and filling them out themselves. It is important to note that each state has their laws regarding powers of attorney and that a power created under the laws of one state do not necessarily mean that it will be accepted in New York. It is equally vital to remember that a power of attorney created in New York must comport to the requirements of GOL 5-1501 – 5-1514 to enjoy the benefits of mandatory acceptance by financial institutions and that many online forms, even those claiming to be New York forms, do not comport to those rules.

Improperly Executed Power of Attorney:
While not as common as the aforementioned mistakes, I have seen otherwise valid POAs which simply have not been executed properly by the principal. The 2010 law requires a specific, and often time consuming, execution protocol which can trip up unwary clients and practitioners. A careful review by a seasoned New York elder care attorney is usually all it takes to uncover such defects.

Insufficient Power of Attorney:
Most attorney drafted POA’s that I review for clients fall into this category. The POA isn’t a simple off the shelf document. There are modifications which may, and almost always, should be added to it in order to give agents additional rights i.e. the rights to engage in Medicaid planning, to enroll in pooled trusts, to change beneficiary designations, etc. While many modifications may be made in the “Modifications” section of the actual POA, it is vital to execute an additional document, the Statutory Gifts Rider (“SGR”), at the same time as the POA. Without an SGR, many of the most power rights the principal can give to the agent are lost, including sheltering assets from long term care costs through the use of Medicaid trusts. I have found that, unless the POA was drafted by an estate planning or elder attorney, it is likely that it lacks an SGR and, consequently, a necessary document for effective incapacity planning.

 In all these cases, the most unfortunate situation is finding the mistake only after the principal has lost capacity to execute a new one. I have seen enough harm caused by improper or incomplete powers of attorney to always recommend a review of an existing POA for my clients. The old adage from Benjamin Franklin is as true with regards to powers of attorney as it is in any other field: an ounce of prevention is worth a pound of cure.

To schedule a consultation with an estate planning and elder law attorney to discuss your existing power of attorney, or the preparation of new one, please contact our office at 347-766-2685.

Effects of a Divorce on Estate Planning

January 1, 2015

In addition to the emotional and financial ramifications of a divorce, there are important estate planning implications for clients contemplating divorce or separation. Along with selling, dividing, and re-titling assets comes the necessity to reevaluate your estate plan. “Why?” you might ask. Here are a few important reasons to sit down with an estate planning attorney during this critical time in your life:

Beneficiary Designations
When a New Yorker gets a divorce (including a judicial separation or annulment), all beneficiary dispositions they made to their former spouse, such as naming them as a beneficiary of life insurance or IRA, are automatically revoked by law under EPTL 5-1.4 unless, of course, the language in the governing instrument specifically states otherwise. Therefore, after a divorce decree has been issued, the bequest to the former spouse is revoked, and the next beneficiary listed would be entitled to the asset. However, if you fail to list successor beneficiaries, the asset would become a part of your “probate” estate and would require an estate administration or probate proceeding before it is passed to your loved ones. Why is that so bad? A couple of reasons:

First, probate and estate administration proceedings are time consuming and can get expensive. Naming beneficiaries makes the process faster and easier for your heirs. Second, if you have certain tax-deferred accounts such as IRAs and 401Ks, there are negative tax consequences if there are no beneficiaries listed on your accounts. As an important side point, if you have minor children, instead of listing them as beneficiaries, it is better to set up a minor’s trust, either in your will or a separate living trust, and name that minor’s trustee as the beneficiary. This will allow you to exert greater control over how and when your children receive their inheritance.

Wills and Advance Directives
A divorce also revokes your former spouse’s beneficiary rights under your last will or revocable trust agreement, in addition to any rights your ex-spouse had to act as an executor under your last will or as an agent under your health care proxy or power of attorney. It is important to revisit these essential estate planning documents to make sure that you have someone else appointed to manage your affairs if you become sick or pass away.

In Laws
While a divorce automatically revokes your ex-spouse’s designation as beneficiary or agent, it does not remove any of the ex-spouse’s family or friends as your agent or beneficiaries. Consequently, if your will appoints your ex-spouse’s sister to be the guardian of your children, or if you left any inheritance to any of your former spouse’s family or friends, a divorce does not revoke those selections. So unless you are in love with your ex-in-laws, a divorce is a good time to review your estate plan.

General Review
Tax laws change, families get bigger (and sometimes, unfortunately, smaller), and clients’ goals shift. Therefore, I advise clients to have their estate plans reviewed once every five years, or sooner, if there is they experience a significant change in financial or familial status. The process of getting divorced affects both aspects of a person’s life and provides a good opportunity to sit down with an estate planning attorney to make sure that your family and your assets are protected going forward.

It is important to remember that the automatic revocation provisions of EPTL 5-1.4 only take effect upon the completion of the divorce proceeding; if you pass away before you are legally divorced, your spouse would be entitled to whatever your current estate plan gives them. In addition, even though the law provides for automatic revocation, some financial institutions may choose to pay out to the beneficiary they have on file despite the law. For these reasons, it is important to speak with a wills and trusts attorney if you are contemplating a divorce.

For a free phone consultation with an estate planning attorney, contact us today at 347-766-2685.

Joint Ownership of Assets

September 2, 2014

A significant portion of the assets we own are held jointly with another person. Almost anything, including real property, bank accounts, and investment accounts, can be, and often is, owned jointly. Therefore, it is of utmost importance to understand the various joint tenancies and their consequences. This article will deal with the three joint ownership structures in New York and discuss their basic characteristics. As always, no planning should be undertaken without consulting a New York estate planning attorney.

Joint Tenants With Rights of Survivorship (JTWROS)
If you are married and look at your bank or investment account statements, the chances are that you and your spouse are both named owners. This simple, yet common and useful ownership structure, is known as joint tenancy with rights of survivorship (JTWROS). The reason that JTWROS is so popular is that, upon the death of one owner, their rights in the property automatically pass to the remaining owner(s). That means that jointly owned assets do not need to be probated when one party passes away and there are remaining owners. When there is only one owner living, the property will pass to the beneficiaries or distributees of the final owner. Each joint tenant has equal and undivided ownership in the property, which means all of the owners have an equal percentage. Each joint tenant can gift or sell their share of the property to a third party without the consent of the remaining joint owners. When that happens, the joint tenancy stops and becomes a tenancy in common (see below). Unlike tenancy by the entirety, described below, there is no creditor protection. Consequently, the creditor of one owner can place a lien on that owner’s portion of the property and foreclose on it, affecting all the remaining owners. The creation of JTWROS can cause significant tax and liability issues and is best done after a consultation with an attorney.

Tenancy by the Entirety (TBE)
The second form of ownership, tenancy by the entirety (TBE), is very common when a married couple owns real estate, such as their primary residence. If you were married when you bought your home, it is highly likely that you own it as TBE with your spouse. In New York, tenants by the entirety (TBE) can only apply to real property (and co-ops if purchsed after 1996) and can only be used by a married couple. In fact, if a married couple takes ownership of real property, they automatically own it as TBE, unless the deed indicates otherwise. Just like a JTWROS, when one spouse passes away, the property automatically passes to the other spouse without probate. Each spouse owns an undivided 100% interest in the property which, unlike the other two forms, can’t be sold or given away without the other spouse’s permission. The main advantage of a TBE over a JTWROS is that, as long as the couple is married, a creditor of one spouse can not place a lien on the real property while the non-debtor spouse is alive. If the spouse who incurred the judgment and lien passes away, the property passes automatically to the surviving spouse, and the lien is extinguished. However, if the non-debtor spouse passes away first, the creditor can place on lien on the property.

Tenancy in Common (TIC)
With a tenancy in common (TIC), each owner owns an undivided percentage in the property. Unlike the other two structures, one owner can own a greater percentage than the other(s) – one owning 99% and one owning 1%, for example. Like a joint tenancy, any owner can use the property whenever they wish, and any owner can sell their portion without the consent of the other(s). The major distinction between TIC and the other two forms is that, after the death of an owner, his share goes to his heirs, and NOT to the remaining owners. This allows owners to plan for the distribution of the asset in accordance with their will and to potentially maximize their estate tax savings in some instances. A big drawback of TIC ownership is that when one owner passes, the assets held as tenants in common will require probate or estate administration,which may delay the transfer of the property until the court process is complete. Additionally, unlike a TBE, there is no creditor protection for the owners.

While this overview may appear straightforward, the practical application is fraught with significant tax, estate, liability, and long term care implications. Before purchasing new property or transferring existing property into joint names, it is best to consult with an attorney to understand the potential pitfalls which may affect you and your loved ones.

For a consultation with an estate planning attorney, contact us at 347-766-2685.

What’s So Bad About Writing Your Own Will?

July 8, 2014

Almost everyone can draft their own will – just like most people can give themselves a haircut – but the question is should they. There are many websites and form books offering a do-it-yourself service, but should you use them? In this article, I will try to show what can (and did) go wrong with non-attorney prepared last wills. However, instead of describing why clients should steer clear from self help wills, I will use true stories from my practice to illustrate the point (certain details changed to protect identities).

Mr. Will Contest:
This individual was married and had two children with his current wife. He also had a child from a previous relationship with whom he had no contact and to whom he wished to leave nothing. His will stated that upon his death, everything passes to his wife, but if she predeceases, to his two children from his current marriage. He was interested to learn that before his will could be admitted to probate, his son would need to be located and given permission to contest the will on various grounds, including that the will was not properly executed. After I explained what the New York law on due execution is, he was shocked to discover that he did not comply with the requirements. His entire will would have been ineffective, and when he passed all of his probate assets would have been divided amongst his wife and 3 children, including the estranged child. It is important to know that just drafting a will is not enough – it needs to be executed according to New York law, which is why estate planning attorneys have special will signing ceremonies in which every step is choreographed.

Mr. Witness-Beneficiary:
Interestingly enough, Mr. Witness-Beneficiary had a will drafted by a law firm, but decided to take it home and execute it himself. He left everything to 2 out of his 10 children, and one of the beneficiary children also happened to be a witness of the will. What’s the big deal? In this particular case, New York statute did not allow a beneficiary who was a witness to get her full share under the will, and her share was reduced from 50% to 10%.

Ms. Fill-In-The-Blanks:
This will was a form which had blanks to fill in. It also had pronouns to pick i.e. “he/she/they”. Ms. Fill-In-The-Blanks had a self-made will which left all the pronouns in, making it frustrating to read and interpret. Additionally, she disinherited one of her four children, but when the form asked how many children she had, she only listed three. Such an omission, although innocuous, can be used by a probate attorney to question her testamentary capacity (the mental capacity necessary to make a will) and claim that she could not comprehend who her children were.

Mr. and Mrs. No Tax Plan:
I have often seen “I Love You” wills between couples leaving everything to each other. What I haven’t seen is self made wills with properly drafted credit shelter and marital trusts which allow for maximum tax savings. An attorney can think through the various tax strategies which can help save your estate significant sums of money after you pass. This is especially important in New York State, which imposes its own estate tax, but does not allow for portability between spouses.

Writing your own will is rarely a good idea. Saving a few hundred dollars today can, in many situations, cost thousands of dollars to clean up after your pass. Do-it-yourself wills are notorious for their inflexibility in saving estate taxes, providing for disabled beneficiaries, thinking through when a trust makes more sense than a will, avoiding probate, and avoiding mistakes which make will contests more likely. Additionally, there may be underlying issues, like creditor protection and Medicaid eligibility, which only a licensed attorney can identify and plan around. Each person’s situation, not matter how seemingly simple, is like a fingerprint – unique and special. No form or online service can ask the same questions, provide the same expertise, and stand behind your will like an experienced estate planning and will drafting attorney. Remember that when there’s a will, there should be an attorney.

For a consultation with an estate planning attorney, contact us at 347-766-2685.

Intestacy Laws: Dying Without a Will in NY

April 10, 2014

A person who dies without a will in New York is said to have diedny intestacy law intestate. If a person owned assets, they either pass automatically, such a joint accounts and accounts with beneficiary designations, or through a court process known as estate administration which is governed by New York’s laws of intestacy, which are codified in EPTL 4-1.1.  A more detailed article on how assets pass when you die can be found here. New York’s intestacy laws control who inherits the decedent’s assets, as well as who has priority to serve as the administrator of the estate. The Surrogate’s Court in the county in which the decedent was domiciled has jurisdiction over the estate. This particular article will discuss the distribution of assets under New York’s intestacy laws.

New York‘s Intestacy Laws
New York law states that if the decedent left a surviving spouse, they are entitled to the following assets, before anyone else gets anything. The surviving spouse under intestacy receives:
1. Cash or cash equivalents, including bank accounts of up to $25,000.
2. One car of up to $25,000 (if the value of the car is greater than $25,000, the spouse has the option of paying the difference to the estate).
3. Household items, including the decedent’s clothes, furniture, appliances, and jewelry up to $20,000.
4. The decedent’s family pictures, books, computers, discs, and software, up to $2,500.

Next, the surviving spouse receives $50,000 in assets and 1/2 of the remainder of the estate if the decedent left children. If the decedent had no children, the spouse inherits everything, no matter how long they were married. In practice, this means that the if the decedent did not leave a will, the spouse can receive well over $100,000 in assets before anyone else collects anything.

What if a person passes away single? If they had children, whether biological or adopted, who survived them, their children each share equally. If one child predeceased (died before the parent) but left behind children of their own (the decedent’s grandchildren), the grandchildren would inherit their parent’s share. If, however, two or more of the decedent’s children predeceased and left children, all of the predeceased children’s shares are combined and distributed to the remaining grandchildren equally. This is called distribution by representation, and essentially means that each of the grandchildren will inherit the same share as all the others. If all of the decedent’s children predeceased, then the grandchildren share the inheritance equally amongst each other.

It may not be surprising to learn that if the decedent was not married and never had any children, their parents inherit their estate. If the decedent’s parents are no longer alive, the decedent’s siblings each take equally. If one of the siblings predeceased, that share goes to the sibling’s child(ren). If more than one sibling predeceased, then their children share equally, similar to the situation with the grandchildren. It should be noted that the statute does not allow spouses or parents who abandoned the decedent in certain circumstances to collect an intestate share, but that discussion is outside the scope of this article.

Priority to Act as Administrator
The administrator of the estate is the person responsible for collecting the assets, paying the debts, and ultimately distributing the assets to the distributees. This is similar to the duties of the executor in a probate proceeding. SCPA 1001 provides the order of who can serve as the administrator of the estate: (a) the surviving spouse, (b) the children, (c) the grandchildren, (d) the father or mother, (e) the brothers or sisters, etc. If there are multiple distributees who are eligible, the court may grant letters of administration to one or more of such persons. Depending on the size and debts of the estate, the Surrogate’s Court, may require the administrator(s) to purchase a bond in order to protect the distributees.

Reasons to Have a Will
Based on the strict rules of estate administration and the uncertainty of who will be administering your estate after you pass, New York estate planning attorneys always recommend the preparation of a last will and testament, and sometimes of living trusts. Among the many reasons to write a will are the ability to pick your executor(s) who will manage the estate, waive the requirement of imposing a bond, and controlling who gets your assets, subject to the spousal right of election. Many clients want the surviving spouse to inherit all of the estate which may not happen if they have children and probate assets over $50,000. Some clients wish to disinherit a child, and others wish to make gifts to siblings and other family members. Almost all clients want to control who is responsible for the administration of the estate assets. Understanding what happens when a person dies intestate is the first step in planning an estate.

To speak with an experienced estate lawyer about your family situation, feel free to contact our office at 347-766-2685.

Medicaid Planning with a Life Estate Deed

March 13, 2014

As we discussed in the previous Medicaid planningarticle, in order to avoid Medicaid liens and estate recovery, elder law clients would be well advised to learn about their rights to protect their homes. This is true whether they need Medicaid home care and wish to avoid estate recovery, or whether they are planning for nursing home care and wish to avoid liens and/or estate recovery. One strategy entails transferring the home into an irrevocable Medicaid trust which allows for the most flexibility. Another technique to protect the home involves transferring the home to loved one while retaining a life estate in the home. This article will discuss the benefits and drawbacks of a deed with retained life estate for the elder law client.

Life Estate Benefits:

  • A legal life estate allows the life estate holder the absolute and exclusive right to live in the property for the rest of their lives. Therefore, the senior can live in their home without worrying about the remainder owners (usually the children) kicking them out. This can also be accomplished with a Medicaid trust.
  • The life estate holder has the right to all the rents from the property if it is rented out during his/her life, similar to a Medicaid trust.
  • The property avoids probate after the death of the client since it passes by operation of law, similar to a Medicaid trust.
  • The life tenant retains their real property tax breaks including STAR, Enhanced STAR, SCRIE, SCHE, etc. which can also be accomplished with a Medicaid trust.
  • Under current (March 2014) Medicaid estate recovery laws, the home will not be available to Medicaid under an estate recovery action since the home avoids probate (see above).
  • The property receives a step-up in tax basis upon the death of the owner which saves the remainder beneficiaries capital gains tax if the property appreciated after it was purchased. This result is the same under a properly drafted Medicaid trust.
  • The transfer of the property with a retained life estate triggers Medicaid’s 5 year look-back period for nursing home care which means the earlier you transfer the home, the sooner you would be eligible for Medicaid nursing home care coverage. The same applies to transfer to a trust.
  • The transfer with a retained life estate will often result in a shorter penalty period than a transfer into a trust since the value of the life estate is subtracted from the amount gifted.
  • Life estates are cheaper and simpler to create than irrevocable Medicaid trusts.

With all these advantages, one may wonder why attorneys still recommend the use of irrevocable Medicaid trusts. The following disadvantages will highlight some of the reasons. A consultation with a Medicaid planning attorney is crucial before undertaking any course of action.

Life Estate Disadvantages

  • When you transfer property with a retained life estate to someone else, you can not sell the property without the remainder owners’ consent.
  • You also lose the right to change who the eventual owners will be; once the transfer occurs, you can’t take it back without consent. This contrasts with a trust which allows you to retain a limited power of appointment and change who the eventual beneficiaries will be at any time.
  • The property will become an asset of the remainder beneficiaries immediately upon the transfer and will also be available to the creditors and may prevent them from obtaining means tested governmental benefits such as Medicaid and SSI.
  • Although both a life estate and a trust transfer require the filing of gift taxes, the transfer of a property with a life estate is a completed gift for gift tax purposes and may therefore require the payment of gift taxes.
  • The sale of the home while you are in a nursing home will result in the life estate portion of that transfer (calculated using IRS tables) becoming an available resource.
  • If the home is sold, you would not qualify for the full $250,000 exclusion of capital gain tax ($500,000 if you are married filing jointly). Rather, you would be entitled to a partial qualification relative to the value of the life estate.

The decision of whether to use a life estate or an irrevocable Medicaid trust involves many different areas of law as well as individualized personal factors. Therefore, the decision to protect the home while qualifying for Medicaid should be followed up by a conversation with an elder lawyer to make sure that your plan comports with your wishes. Our estate planning/elder law office is available for a free consultation at 347-766-2685.

Disinheriting a Spouse and the NY Spousal Right of Election

December 31, 2013

What would you do if you found out that your spouse completely disinherited you? Perhaps you are thinking about disinheriting your spouse in your estate plan. Is your spouse entitled to a portion of your inheritance? It is imperative to know your rights as well as your obligations under New York’s spousal right of election laws outlined in EPTL 5-1.1A.

 A Spouse’s Rights in New York:

New York, under EPTL 5-3.1, allows the surviving spouse to collect certain assets, even if the will bequeaths them to someone else. The surviving spouse can collect cash or cash equivalents, including bank accounts and CDs, of up to $25,000. Additionally, the surviving spouse inherits one automobile of up to $25,000. If the value of the car is greater than $25,000, the spouse can pay the difference to the estate. Household items, including the decedent’s clothes, furniture, appliances, and jewelry up to $20,000 are also passed to the spouse. The decedent’s family pictures, books, computers, discs, and software, up to $2,500 are also given.

In additSpousal right of electionion to the allowances under EPTL 5-3.1, the surviving spouse is given a right under EPTL 5-1.1A to take the greater of 1/3 or $50,000 from the decedent’s “net estate” which is defined as the probate estate plus “testamentary substitutes” under the statute. This includes assets passing under a last will and testament along with jointly owned property and bank accounts, payable on death accounts (POD), assets held in a living trust, assets with beneficiary designations (other than life insurance or certain ERISA plans), and gifts made by the decedent within one year of death. The law’s intention is to allow the surviving spouse to access their elective share even if the decedent used techniques to avoid probate. If the decedent did not leave a will, and their assets pass under intestacy, the right of election still exists. If the spouse’s right of election would result in a greater inheritance than intestacy, he has the right to exercise it.

The right of election can be exercised within fix months of the Surrogate’s Court issuing letters testamentary (if there was a will) or letters of administration (if there was no will). If letters were not issued, the spouse has two years after death to make the election. There are exceptions to these time restrictions and judges are allowed leeway, but it is important to act as quickly as possible to avoid running afoul of these restrictions. If the right of election is allowed, the judge can claw-back bequests left to other beneficiaries to satisfy the spouse’s interest. The spouse, usually through their estate lawyer, is allowed to take depositions of the executor and beneficiaries to determine what assets the net estate consists of.

Exceptions to the Spousal Right of Election:

There are certain limitations on the spousal right of election. First, a spouse who has “abandoned” the predeceased spouse is disqualified from making the election. More commonly, waivers of the right of election are signed in prenuptial or postnuptial agreements. In order to be effective, the waivers must be fully understood and agreed to by the waiving party. It is highly recommended that each side have their own attorney review the agreement and advise them accordingly. Otherwise, a judge may disregard the agreement on the basis that it was not entered into with the full knowledge of the parties. Remember: just because the agreement allows one spouse to disinherit the other does not mean that they have to. Spouses can always leave each other whatever they want; they just won’t be obligated to.

Whether you have lost a spouse and been disinherited or are wondering about how plan your estate properly, it is vital that you speak to an estate planning attorney who can explain your rights. Our law office routinely assists individuals in these situations and offers a free consultation. Contact us today at 347-766-2685.

Drafting Wills and Trusts for Beneficiaries with Special Needs in New York

September 25, 2013

Michael and Joan came in to my Queens estate planning office to re-draft estate planning documents that they had prepared over a decade ago. Their wills, like those of many married couples, left everything to each other. If one of them passed away first, the wills had mirroring provisions which left 10% of the estate to Joan’s brother, Tom, with the remainder, 90%, split evenly between their three children. From the face of it, their wills looked alright, but their accountant advised them to see me about updating their plans. We were all glad that he did, since much had changed since they had their estate plan prepared. Joan’s brother’s medical situation worsened and he was receiving Supplemental Security Income, also known as SSI. Additionally, their third child, David, who was only 6 months old when their prior wills were prepared, was determined to be developmentally disabled and would need Medicaid as he got older.

Had Michael and Joan kept their wills the way they were, their bequests would have disqualified Tom from SSI and David from Medicaid until their portion of the inheritance was spent down. I advised the couple that they should prepare a new estate plan which does not give any outright bequest to a beneficiary who is receiving means tested government programs such as Medicaid and SSI. As a Queens elder law attorney, I understand how important it is to preserve assets while receiving benefits.  Instead, I explained the benefits of incorporating a testamentary Supplemental Needs Trust (SNT) into their wills (the same concept can be applied to living trusts).

A supplemental needs trust, sometimes referred to as a special needs trust, allows a person to leave a bequest to a beneficiary in trust instead of outright. The trust, which is authorized in New York under EPTL 7-1.12, would allow the beneficiaries to qualify for government benefits while receiving distributions from the trust if the following conditions are met: (1) the beneficiary suffers from a severe and chronic or persistent disability; (2) the trust document clearly states that the bequest should be used to supplement, not supplant, government benefits; (3) the trust prohibits the trustee from using the assets in a way that may impair or diminish the beneficiary’s entitlement to government benefits or assistance; (4) the beneficiary does not have the power to assign, encumber, direct, distribute or authorize distribution of trust assets; (5) the distributions are at the sole discretion of the trustee(s) and are not mandatory.

If Joan and Michael give Tom and David their inheritance in trust, the assets in the trust will not be considered the beneficiaries’ assets for purposes of eligibility for SSI or Medicaid, thereby letting them keep their benefits along with their inheritance. The trustee(s) of the trust will be able to use the principal and/or income to provide Tom and David with their needs, beyond what Medicaid or SSI provides. They will be able to purchase necessary medical equipment and pay for additional care. They could also purchase a car, home, or even a vacation. It is important to note that, for SSI purposes, payments made for food, clothing or shelter are considered “unearned income” and will reduce SSI benefits by up to one-third. The SNT may own a residence where the beneficiary can live without a reduction to his or her SSI. Unlike SSI, Medicaid does not impose this penalty. If the beneficiary is a Medicaid recipient, payments can be made for various needs including food, clothing, or shelter with no reduction in benefits or eligibility.

Michael and Joan can were advised that they can use the SNT to provide for a disabled child and sibling for life. As long as the trust was funded after their legal duty to support beneficiary ended, the couple is free to direct how any unused trust property will be distributed upon the beneficiaries’ deaths. They could direct that the funds be given to their other children or grandchildren if it was not used up during the beneficiaries’ life. This is an ideal and statutorily authorized tool to allow a disabled person to get the care they need, while allowing their family to provide them with benefits that government programs don’t pay for.

To discuss your particular situation with a New York estate planning attorney, contact our office at 347-766-2685 today.

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