Articles Posted in Trusts and Estates

Clients sometimes consult a New York estate planning lawyer in order to investigate the possibility of “writing someone out” of a Will. In the eyes of the law, this process is called ‘disinheriting’ the person. Disinheriting essentially removes any rights or entitlements that a person may expect to receive upon the death of the testator. It is a right possessed exclusively by the testator and one that ordinarily may not be challenged. Sometimes challenges do occur in the form of a Will Contest or Contested Will where a distributee (i.e., next of kin) or other interested party may contend that the Will is invalid. As previously discussed in the New York Probate Lawyer Blog a Will may be contested on various grounds such as Undue Influence, Lack of Testamentary Capacity or Improper Execution.

The person drafting a Will may arrive at the decision to disinherit a relative or other interested person for any number of reasons. Some of the most common reasons to disinherit a person are: (1) the testator no longer maintains a relationship with the person; (2) the testator does not condone the life choices the person has made or is making; (3) the testator feels that the person has sufficient financial resources such that a testamentary gift would be inappropriate; or (4) the testator would rather bequeath the assets to another person to whom they had a closer relationship, or from whom the testator had received the bulk of his or her end-of-life care.

Whatever the reason, the decision to write someone out of a Will should not come lightly. Disinheriting a person often causes tremendous emotional and financial consequences, and can even make the possibility of a Will Contest more likely. After all, if someone’s assets are left, for example, to all of the surviving children except one, the excluded child is almost definitely going to feel hurt, saddened, and/or angry. The excluded child may claim that the others unduly influenced the parent to keep him or her out, which may lead to years of bitter disputes and expensive Estate Litigation.

New York Estate Lawyers are aware that all Wills, Trusts and Advance Directives must be explicit as to the terms and beneficiaries. These emotional and legal considerations are, in fact, so persuasive that when the beneficiaries of a Will do not include the testator’s spouse and/or children, New York courts sometimes find that the testator meant to have included the missing relative. This means that any document that excludes a close relative from the estate should contain clear, unambiguous language that cannot be interpreted any way other than to express the testator’s desire to have that person excluded. such language can facilitate the Probate and Estate Settlement process.

Moreover, local laws still allow certain relatives to collect a portion of the estate assets even if this language is present. For example, in New York, a surviving spouse is entitled to collect either one-third of the estate or $50,000.00, whichever is greater. This occurs even if the spouse is written out of the Will, so that the surviving spouse does not experience a significant financial burden on top of the loss of their loved one. Estates, Powers and Trusts Law (EPTL) section 5-1.1A provides extensive rules that allow a surviving spouse to take a share of a decedent’s estate (the “elective share”) even if he or she is otherwise disinherited.

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Most New Yorkers spend a significant portion of their adult lives figuring out ways to accumulate wealth. At a certain age, the focus tends to shift from the accumulation of wealth to wealth protection. At a certain age beyond that, the focus shifts to how to utilize that wealth in order to ensure a secure retirement. Around the same time, the secondary focus is what will happen to any leftover assets once you are gone.

As complicated as this process is for any New Yorker, the process can be even more complicated for a New Yorker who operates his or her own small business. The primary trouble for an aging New York business owner is that his or her wealth is much harder to calculate, as much of his or her assets are likely tied up in the operation of the business.

As a result, aging business owners have two primary choices when it comes to estate planning. On one hand, they can plan to sell the business for its fair market value. This option puts the full value of the business assets in the owner’s proverbial pocket, from which he or she can set aside retirement money and carve out a plan for what happens to any leftovers at death.

In many cases, however, the state of affairs is not as cut-and-dry. Small businesses in New York are very often family affairs, passed down among multiple generations in some cases. A long-time pizzeria owner may employ some of his own children and even grandchildren, for example. When family livelihoods revolve around the family business, an estate plan that would sell the business for its proceeds just would not make much sense.

Instead, many New York small business owners choose to craft estate plans that transfer ownership interests in the business rather than a defined monetary value. After all, an ownership interest in a business can have a potentially unlimited value, even if its present interest is difficult to calculate. Additionally, the preservation of your business amongst your family members can give you the flexibility to transfer ownership subject to as many or as few conditions as you wish. Hands-on owners may wish to set out long term plans for the business even after they are gone, while others may wish to entrust the direction of the business wholly to a son or daughter.

These cases may be further complicated if some, but not all, of the business owner’s family members intend to carry on the business. For those that do, an interest in the business may be an appropriate testamentary gift. For those who wish to pursue careers outside the family business, other gifts may be appropriate. No two estate plans are exactly the same, especially ones involving the transfer of a business.

For these reasons, an experienced New York estate planning attorney can be an essential ally. Don’t entrust your personal and business assets to the laws of New York when your time comes. Make sure your assets pass precisely how you intended.
Business owners and their New York estate lawyers must be fully familiar with all of the documents and agreements that can effect an estate plan. These items include, shareholder agreements, partnership agreements, real estate deeds, commercial leases, life insurance policies and various types of retirement and pension plans. All of these papers must be fully understood so that their provisions and beneficiaries can be incorporated into the overall estate and lifetime gifting plan that is being developed.

In many instances estate administration and estate settlement can be disrupted where the terms of an estate planning document such as a trust or Last Will contradicts or is not otherwise in harmony with provisions in business papers such as shareholder agreements. A shareholder agreement may provide for the transfer of a business interest upon the death of a shareholder that is contrary to provisions put into a Last Will. Provisions in these documents that contradict one another can ultimately lead to Surrogate’s Court litigation such as Will contests or construction proceedings. Not only can a lack of good planning result in estate litigation, the operation of a profitable family business may be disrupted where there is uncertainty as to whom the new owners will be and who has the present right to make crucial business decisions.

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These days, New York estate planning attorneys are finding it far more common for New Yorkers to give a portion of their estate to charity. They can do this because the law recognizes charitable organizations as legal entities in the same category as ordinary persons. As a result of this characterization, a charitable organization is free to receive testamentary gifts – i.e. gifts from a person’s estate – as if it were merely a transfer from one person to another.

Unlike gifts to ordinary persons though, lawmakers typically want to encourage charitable giving. Charitable giving tends to distribute the wealth across a broader spectrum of people or causes, rather than keeping assets tied up within a single family. As a result of these public policy theories, lawmakers have created tax incentives designed to encourage people to write charitable gifts into their wills.

A typical testamentary gift to charity can be achieved in several different ways. One of the most common ways to do it is to leave the charity a percentage of one’s estate. A gift of this sort would read something to the effect of: “I give ___% of my estate to X Charity.” The only trouble with this kind of gift is that its value is uncertain. The value of one’s estate is a function of how much of one’s assets remain at the end of one’s life. Therefore, it is not until one dies that the charity will learn of the value of its gift.

Another common way to leave a gift to charity is to give a fixed amount or a particular piece of property. A gift of this sort would read: “I give $____ to X Charity” or “I give my property located at [address] to X Charity.” This kind of gift is far more certain because in the first instance a fixed dollar amount is gifted. In the second instance, a property of a certain current value is promised, and the charity can reasonably predict its future value.

Another way is to grant the charity a remainder of one’s estate once other beneficiaries are gone. Charities are potentially infinite in duration, unlike people. It is possible to leave certain loved ones your assets once you are gone, and for the charity to take the remainder of those assets (if any) once your loved ones are deceased.

Still another common way to leave a charitable gift is by making a charity the beneficiary of a life insurance policy. Because charities are “people” in the eyes of the law, a charity can be designated as a beneficiary to be paid upon the death of the policyholder, just like any ordinary person can. Similarly, charities can be named the beneficiaries of any retirement plan.
This is by no means an exhaustive list. A New York estate lawyer is best equipped to explain the nuances of each of these variations and to explain the other variations of charitable giving. In cases where the client wants to bequeath some or all of his or her assets to charity, there is no one-size-fits-all solution.

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Contesting a will in New York is an uphill battle. After all, the purpose of a will is to commemorate the wishes of a person after they are deceased. Since the person in question is no longer alive to clear up any potential conflicts, courts tend to give tremendous weight to the provisions contained in the will.

The presumption, however, that wills are impenetrable documents is not absolute. On occasion, a dead person’s decedents are able to convince a court that the will should not be enforced as written, or that it should be thrown out entirely. The reasons why someone might want a will overturned are numerous. Perhaps you have been excluded from a will when you don’t believe the deceased would have wanted you to be. Perhaps you were included, but you feel that someone else should not have been included. Whatever the case, the following common grounds can potentially lead to a successful New York will contest:

The will was not properly executed
New York state law requires that the deceased must have signed the document with a declaration that the document is to be considered his or her will. Two witnesses must have been present during the execution of a will, and both must have signed their names to the document to certify their understanding of the deceased’s intent. If any one of these standards is not met, a will contest action is likely to succeed.

The testator lacked testamentary capacity
In a will, the term “testator” is synonymous with the deceased: the person whose wishes are to be carried out. When the testator executes the document, he or she must generally be of sound mind, demonstrating adequate comprehension of what he or she is doing. In particular, the testator must understand (1) the nature and value of his or her assets, (2) the nature of the people who are to receive his or her assets, and (3) the legal effect of signing a will. If, once the testator is dead, someone contesting the will can demonstrate evidence that the testator was incapable of meeting any of these legal standards, the will contest may succeed. However, lack of testamentary capacity is a very difficult standard to prove.

The testator signed the will because of undue influence
As people age, they can naturally become physically and mentally weakened. In this weakened state, a person can become susceptible to the influence of others who have designs for the testator’s assets. Often, the line is blurry between those who seek to influence a testator for legitimate purposes and those who seek to profit from the testator’s weakened state. The standard for undue influence is one of extreme pressure that causes severe duress. The duress must be so severe as to cause the testator to lose free will in the distribution of their assets. Not surprisingly, this is a difficult standard to prove, as the testator’s stand of mind is impossible to access once they are dead, and much of the evidence of the undue influence may be one person’s word against another’s.

If you believe you have sufficient grounds to contest a will, consider consulting a New York estate lawyer, who can help evaluate the strengths and potential weaknesses of your argument. New York will contests are difficult battles, but worth fighting if you have the proper evidence and a skilled attorney.

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New York Estate Administration Attorneys are often confronted with questions as to whether a decedent was married at the time of death. The issue of marital status is important since a surviving spouse is a distributee (next of kin) under New York Estate Laws and is afforded certain rights in a decedent’s estate. These rights have been discussed in previous posts in the New York Probate Lawyer Blog including a spousal right of election (Estates, Powers and Trusts Law [EPTL] Section 5-1.1 A) and a spousal right to an intestate share of the estate (EPTL Section 4-1.1).

The determination as to a person being married at the time of death involves investigation as to whether there was a valid marriage and, if so, was the marriage terminated by a valid divorce.

New York Estate Litigation may be necessary to provide an answer to these inquiries. As a New York Trust and Estate Lawyer, I often need to investigate such issues by obtaining and examining relevant documents such as marriage certificates and divorce settlements and divorce decrees to advise clients as to the decedent’s marital status so that proper estate settlement can occur.

A recent case in the Richmond County Surrogate’s Court provides an example of the complicated facts that can be involved in determining marital status. In Estate of Daniel Kelly, decided by Surrogate Robert Gigante on June 18, 2012 and reported in the New York Law Journal on June 29, 2012, the decedent and his spouse entered into a divorce Separation and Settlement Agreement on October 16, 2008. On that same date they appeared in Court and the divorce judge granted the divorce. However, the decedent died on January 7, 2009 and the actual divorce judgment was not signed until March 25, 2009 relating back to the October 16, 2008 Court divorce decision. Based upon the above events, the Surrogate in Kelly found that the decedent was divorced at the time of his death.

As is common in many divorce situations, divorcing parties provide in their settlement or separation Agreements that each waives or relinquishes rights in the others’ assets and property including insurance policies and retirement benefits. Problems arise where, despite the waiver of rights, the name of the divorced spouse is not changed or deleted as a beneficiary on the insurance policy or retirement account. Surrogate’s Court litigation then becomes necessary to determine the rightful payee of the decedent’s benefits.

In Kelly, the decedent’s former spouse remained named as a beneficiary of his federal retirement benefits. However, the parties’ Separation and Settlement Agreement specifically provided that the divorced spouse waived all rights to these benefits. The Court, after reviewing the parties’ divorce agreement and their apparent intentions, determined that the surviving divorced spouse waived all interest in these benefits and that the retirement funds should be paid to the decedent’s estate.

Estate Administration can be very complex and involve the review and analysis of many types of papers concerning the decedent’s affairs such as deeds, business agreements and divorce papers. All of these documents can impact estate settlement, estate taxes and distribution of assets to estate beneficiaries. I have assisted executors and administrators for over 30 years with all aspects of estate administration and the review of various documents required for successful and efficient estate processing.

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Back in 2001, Congress passed legislation that had drastic effects on the estate tax. That year, a decedent could pass up to $675,000 to their heirs tax-free. Any funds in excess of that amount were taxed between 35-55%. Each year after that for the first decade of the new millennium, the tax-free threshold increased in increments, culminating in a tax-free threshold of $3.5 million in 2009.

Then, in 2010, Congress temporarily repealed the estate tax altogether, effective for that year only. At the end of the 2010 session, Congress reinstated the estate tax with a temporary tax-free threshold of $5 million per person, effective through December 31, 2012. As a result of this temporary measure, the vast majority of Americans were, and still are, able to pass the entirety of their estate’s value to their heirs without incurring tax penalties. However, the time in which to take advantage of this expansive tax-free loophole is quickly dwindling.

The consequences could be drastic. A person with a substantial estate (let’s say $3 million) who dies on December 31, 2012 will be able to transfer their entire estate value tax-free. By contrast, someone who has a $3 million estate and dies on January 1, 2013 will have a substantial chunk of their estate wiped out by taxes. On that date, the taxable threshold will fall to $1 million. In the example of our second individual, 2/3 of the estate will therefore be subject to taxation of 35% or more. Our second decedent’s heirs will see substantially less money than our first decedent’s heirs.

This is not to say that people with substantial estates should endeavor to depart this world before the effective date. What it does mean, however, is that someone with a substantial estate who shows no signs of ill health should begin exploring alternative strategies for protecting their estate assets.

A popular option for people in these situations is to create what is called an irrevocable trust. The primary characteristic of an irrevocable trust is that once the trust’s creator transfers the assets into the trust, the creator is effectively unable to withdraw the assets. Instead, the power to withdraw from the trust is wholly that of the beneficiaries.
The reason irrevocable trusts have become popular options is that they are an effective alternative to protect assets and project who will benefit from the assets. The classic case in which an irrevocable trust would work is for a parent with substantial assets who wishes to devise all of his or her assets equally between his or her children. Instead of all assets beyond the $1 million tax-free threshold being heavily taxed at the decedent’s death, the same assets are protected in a trust, which enjoys considerably more tax protections.

New York estate planners strongly urge all persons to consider the implications of the impending expiration of the current estate tax law. Even if you don’t intend to expire before the end of the year, its expiration could drastically affect your distribution of assets to your loved ones. Consider the aid of a New York estate lawyer, who can help you determine how to take care of your loved ones when you are gone.

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New York estate settlement is not an easy task. While estate lawyers assist their clients with probating New York Wills as well as finding and collecting estate assets, paying estate taxes and other debts and obligations, these procedures can be extremely complex.

The ownership of estate assets such as real estate or bank accounts is often the subject of estate litigation. When drafting a Last Will or beginning estate planning, it is fundamentally important to obtain all information regarding the ownership of the testator’s assets. Without full and complete information, the estate plan and Will and Trust papers that are prepared can turn a simple estate into one filled with litigation in the Surrogate’s Courts.

Real estate ownership typically is the center of many controversies because of its high value and the different ways title can be owned. For example, real estate that is jointly owned with rights of survivorship or by spouses, known as tenants by the entirety, passes automatically from one owner to the other upon death. However, realty that is owned as tenants in common is basically owned in separate shares by the tenant in common owners and does not automatically pass to the other owners upon death. The decedent’s estate is entitled to receive the interest of the deceased tenant in common owner.

After a person dies, it is often startling to discover that real estate that had been assumed to be owned as, tenants in common, was really owned as a joint tenancy and the decedent’s estate and beneficiaries receive no interest in the property which passes automatically to the joint owner. Moreover, the ownership of property can be even more complicated based upon other variables such as real estate contracts, divorces or marriage separations and agreements that relate to the real estate ownership.

Such was the case in The Matter of Scola, which was decided by Surrogate Peter J. Kelly, Queens Surrogate’s Court, on May 9, 2012 and reported in the New York Law Journal on May 18, 2012. In Scola, the decedent and his wife had owned a residence as tenants by the entirety. The parties had signed a Separation Agreement but were still married at the time of the husband’s death. The Court found that the Separation Agreement did not provide an adequate expression of intent to prevent the entire property from passing automatically to the wife upon the husband’s death.

Given an opportunity to fully analyze and understand the results that would transpire upon the death of either party, perhaps the husband and wife in Scola would have changed the title on the property prior to the husband’s death to prevent this automatic transfer.

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Many New Yorkers worry about the possibility that their pets will outlive them. Many more make the mistake of thinking that a standard Last Will is sufficient to look after their pets’ interests when they die. Any New York estate planning attorney would caution that this is not necessarily the case.

Pets & The Standard Will
The assumption that a standard Will is enough to look after Fido once his owner is gone is based on sound legal principle. At common law, pets are treated as chattel, meaning that they are moveable items of property, not unlike livestock, your car, or the computer from which you read this article. Whatever sentimental attachment we give to pets has no bearing on their ability to be treated like any other item of property, whose owners are free to devise to their beneficiaries in a Will.

But when is a Will insufficient to look after your pet? You may have carefully selected which of your friends or relatives was most appropriate for the job. You may even have discussed the care of your pet with this person and drafted a corresponding Will provision to cover the expense of the pet’s care. What you may not have thought about, however, is what might happen to your pet during the probate process. It can take months or even years to effectively administer your Will, especially if the Will is contested. During this lengthy process, your pet may be left in a state of limbo at best or perhaps given away to a shelter at worst.

The Pet Trust
A better alternative is becoming more popular in a growing number of jurisdictions. The majority of states, including New York, allow for the creation of what is commonly termed a “pet trust.” A New York pet trust is a legal instrument in which a pet’s owner sets aside a sum of money exclusively for the pet’s future care. Like in a normal trust, the creator of a pet trust names a trustee or trustees whose responsibility will be to use the funds from the trust to care for the pet.

If you love your pet, selecting a pet trustee should be a solemn consideration for your pet’s well-being. If you own a dog, your pet trustee should be the type of person who has the room and capacity to care for a dog. In selecting a pet trustee, the pet owner should give careful consideration to things like the trustee’s home environment, including their children, their other pets, and any potential allergy issues. You owe it to your furry friend to provide a comfortable and happy environment, and you owe it to your trustees to ensure that the care for your pet is something they are happy to do – not forced to do.

A New York trust and estate lawyer can explain the requirements and limitations of a New York pet trust and help you evaluate whether a pet trust should be your last gift to man’s best friend.

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Most New Yorkers expect to live until a ripe old age. What happens, though, when a person outlives their projected life expectancy? In many cases, the assets that ordinarily would have been passed down in the person’s estate instead become the source from which living expenses are paid. As a result, a person who long outlives their life projections can inadvertently cause considerable financial impact on the beneficiaries of his or her estate.

The Worry
Of course, this is not to say that elders should not endeavor to live the longest and happiest lives they can muster. Medical breakthroughs are enabling people to survive catastrophic medical emergencies at a higher rate, while pharmaceutical research is producing drugs that better control latent medical conditions like heart disease, diabetes, and certain cancers. There is, however, the concern among many New Yorkers that modern medicine may produce the unintended consequence of outliving their assets, thereby depleting their estate.

Longevity Insurance
According to a recent article in Kiplinger Magazine, there is a modern solution to this growing concern. Many financial service companies – citing primarily advances in medicine – have begun to offer policies in what is commonly called “longevity insurance.” According to the article, thirty percent of women and twenty percent of men can expect to survive into their nineties. The purpose of longevity insurance, then, is to insure against the financial strain of such longevity by paying a monthly benefit to cover healthcare and living expenses once the policyholder reaches a predetermined age.

The typical longevity insurance policy requires the payment of a large lump-sum premium. Once the premium is collected, the policy guarantees disbursements of income on a monthly basis in the event the policyholder reaches a certain age (usually 85). If the policyholder lives well beyond the age on the policy, the insurance company must still make the monthly income payments to the policyholder, even if the payment of such income begins to exceed the initial lump-sum premium payment. If, on the other hand, the policyholder fails to reach the agreed-upon age, the insurance company typically pockets the entirety of the lump-sum premium.

New York City estate planning attorneys understand that the value of longevity insurance is exceptionally personal and tied to one’s individual circumstances. For example, persons with major health issues, past and/or present, may wish to forego such coverage, while persons in good health may find such coverage more attractive. Similarly, those with a greater number of estate beneficiaries may be more inclined to insure against longevity than those with comparably fewer estate beneficiaries.

New York Estate Planning
A New York estate planning attorney is best equipped to evaluate one’s estate situation and to determine – in light of New York’s particular laws – whether longevity insurance is a viable and prudent option. After all, what good is an ironclad will if there is a reasonable likelihood that one’s estate assets may not be around for one’s beneficiaries to enjoy? A good estate planner is there to guard your assets against any contingencies that may arise. Don’t overlook the most fortunate of contingencies: that you may far outlive your life expectancy.

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Estate taxes are costly. New York estate planning attorneys are often consulted for their expertise on how to limit estate taxes when people wish to transfer their wealth to their next of kin. In appropriate cases, this expertise may lead an estate lawyer to suggest the creation of a Family Limited Partnership.

Family limited partnerships exhibit many of the same characteristics of regular limited partnerships. For one, the control of the family limited partnership rests in the hands of one or more general partners. In the case of a family limited partnership, the general partners are typically the elders who possess the bulk of the personal assets: most often mothers and fathers, or sometimes grandparents. The family limited partnership also typically has a number of limited partners: the children or grandchildren of the general partners. The key difference between the general partners and the limited partners is control of the assets invested in the family limited partnership. General partners enjoy their proportional share of the assets plus control over how the assets are used, while limited partners only enjoy their proportional share of the assets without any control over how the assets are used.

In an estate planning context, the creation of a family limited partnership can be quite advantageous in terms of the tax burdens of the partners. Imagine a father and son scenario in which there are no other family members, such as a wife or sister. If the father wishes to transfer his assets to his son, the exchange would be subject to a gift tax. Essentially, the Internal Revenue Service wants to tax the son’s newfound income.

By contrast, imagine the same scenario in a family limited partnership context wherein the father is the general partner and the son is the limited partner. If a family limited partnership is properly established, the father can establish for the son a percentage interest in the value of the partnership. As a limited partner, the son cannot cash in on his interest until the controlling general partner, his father, orders a distribution of the assets. Because the possessor of a non-controlling interest in a partnership cannot liquidate his interest for personal use, the interest has no fair market value. Thus, the Internal Revenue Service cannot tax the limited partner’s interest.

The key advantage of the family limited partnership occurs at the death of the general partner. The entity’s formation and governing papers can provide for the assets of the entity to pass to the limited partner in the event of the general partner’s death. In this way, the father, at his death, has achieved what amounts to a gift in the amount of the assets tied up within the partnership entity.

A word of caution: family limited partnerships cannot be established for the sole purpose of devising assets to one’s heirs. The entity must still operate as if it is a business. Business revenues and costs must flow through the entity, and the general partners must generally pay themselves salaries from the assets tied up in the entity. Purchases must be made through the entity for legitimate business purposes, or in furtherance of another business entity. For this reason, most family limited partnerships are “holding companies” for assets accumulated in other business ventures.

An experienced New York estate planning attorney can help you evaluate whether your estate plan may benefit from the creation of a family limited partnership. Your attorney can best explain the risks and rewards of such creation in light of federal law and of the laws of your jurisdiction.

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