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Category Archives: Estate Planning
Special Needs Trusts
Elderly and disabled persons are peculiarly prone to significant and continuing costs for long-term care. Since many governmental benefits are need-based, ownership of substantial assets may preclude qualification under these programs.
A Special Needs Trust (SNT) established for a person with severe and chronic disabilities may enable a parent or family member to supplement Medicare or Supplemental Security Income (SSI), without adversely affecting eligibility under these programs, both of which impose restrictions on the amount of “income” or “resources” which the beneficiary may possess. 42 U.S.C. § 1382a. Continue reading
Posted in Elder Law, Supplemental Needs Trusts, Trusts
Tagged EPTL § 7-1.12, Medicaid, Medicare, SSI, supplemental needs trusts
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INSTALLMENT SALES OF ASSETS TO “DEFECTIVE” GRANTOR TRUSTS
Installment sales of assets to grantor trusts indirectly exploit income tax provisions enacted to prevent income shifting at a time when trust income tax rates were much lower than individual tax rates. Specifically, the technique capitalizes on different definitions of “transfer” for transfer tax and grantor trust income tax purposes. The resulting trusts are termed “defective” because the different definitions of “transfer” result in a serendipitous divergence in income and transfer tax treatment when assets are sold by the grantor to his own grantor trust. Continue reading
Use of Disclaimers in Pre and Post-Mortem Estate Planning
Disclaimers can be extremely useful in estate planning. A person who disclaims property is treated as never having received the property for gift, estate or income tax purposes. This is significant, since the actual receipt of the same property followed by a gratuitous transfer would result in a taxable gift. Although Wills frequently contain express language advising a beneficiary of a right to disclaim, such language is gratuitous, since a beneficiary may always disclaim.
For a disclaimer to achieve the intended federal tax result, it must constitute a qualified disclaimer under IRC §2518. If the disclaimer is not a qualified disclaimer, the disclaimant is treated as having received the property and then having made a taxable gift. Treas. Regs. §25.2518-1(b). Under the EPTL, as well as under most states’ laws, the person disclaiming is treated as if he had predeceased the donor, or died before the date on which the transfer creating the interest was made. Neither New York nor Florida is among the ten states which have adopted the Uniform Disclaimer of Property Interests Act (UDPIA). Continue reading
Posted in Disclaimers, Estate Planning, Post Mortem Estate Planning, Post Mortem Estate Planning
Tagged accepence of benefits, charitable disclaimers, credit shelter trust, disclaim within 9 months, disclaimant, disclaimer of fiduciary powers, disclaimers, disclaimers by infants, disclaiming applicable exclusion amount, disclaiming jointly owned property, EPTL 2-11(b)(2), exercise of general power of appointment, general power of appointment, interest passing without direction, IRC 2518, marital disclaimers, minors and incompetents, QTIP election, qualified disclaimers, separate and severable interests, surviving spouse
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NYS Department of Taxation and Finance Announces It Will Allow Separate QTIP Election
In certain cases, an estate is required to file a return for New York State estate tax but is not required to file a federal return. This may occur if there is no federal estate tax in effect on the decedent’s date of death or if the decedent died while the federal estate tax was in effect but the value of his or her gross estate was too low to require the filing of a federal estate tax return. In either instance, and if applicable, the estate may still elect to take a marital deduction for Qualified Terminal Interest Property (QTIP) on a pro-forma federal estate tax return that is attached to the New York State estate tax return. Continue reading
Avoiding Liability Risks of Single-Member LLCs
Businesses have traditionally limited exposure to liabilities by forming a group of corporations or subsidiaries to insulate assets. Although effective, these structures are complicated and burdensome, often requiring separate boards of directors and annual meetings. Single-member LLCs (SMLLCs), which require few formalities, can also be utilized to insulate liabilities of various divisions of a business, or even the assets of a single taxpayer, such as an individual or corporation. Continue reading
Posted in Estate Planning, Family Entities
Tagged disregarded entity, liability risk, single member LLC, SMLLC, veil piercing
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Operation of New Carryover Basis Rules
Enacted as part of the 2001 Tax Act, IRC § 1022 repeals the current basis step-up at death for property owned by a decedent, and replaces it with a carryover basis provision effective on January 1, 2010. If estate tax repeal occurs as scheduled on December 31, 2009, the new basis rules must be planned for, as they will effect a sea change in income and estate taxation. Congress is unlikely to repeal the estate tax without a return to carryover basis. Continue reading
Life Insurance Trusts
Life insurance trusts have long assumed a position of importance in estate planning, especially for larger estates, since insurance proceeds may be excluded from the settlor’s gross estate, thereby reducing or eliminating estate taxes. These tax savings may be achieved if the trust is drafted to authorize (but not require) the trustee to purchase assets from, or loan money to, the estate. Continue reading
Defeating a Will Contest
Without a Will, one’s property passes by the laws of intestacy. “Distributees” (i.e., those who would take under intestacy) have a right to be “cited” by the Surrogate’s Court prior to a Will’s admission to probate. For example, children of a decedent whose Will leaves everything to the wife must be cited, or waive citation, since as distributees they would be entitled to nearly half the estate if the decedent died without a will. Continue reading
Posted in Will Contests, Wills
Tagged testamentary capacity, undue influence, will contest
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Trust May Compliment Prenuptial Agreement
The prenuptial agreement effec tively protects against the vagaries of marital dissolution. However, even a well-drafted prenuptial agreement will not always succeed in fully accomplishing this objective. For ex ample , the agreement will likely not prevent separate property from becoming marital property if as sets are commingled. Continue reading
AVOIDING CHALLENGES TO TESTAMENTARY INSTRUMENTS
Protracted legal proceedings by disgruntled descendants and relatives asserting lack of testamentary capacity or undue influence deplete the estate and delay distribution. Therefore, steps taken by the testator before death which minimize the possibility of later challenge are essential. Although somewhat surprising, the mere choice of who witnesses the will execution may later determine the success of a will contest. Favorable testimony given by attesting witnesses at an SCPA § 1404 deposition may facilitate the admission of the instrument into probate, or at least force a favorable settlement. Continue reading
INSTALLMENT SALES OF ASSETS TO GRANTOR TRUSTS
Installment sales of assets to irrevocable grantor trusts is one of the most powerful estate planning techniques available today. Sales to “intentionally defective” irrevocable grantor trusts capitalize on different definitions of “transfer” for income and transfer tax purposes. Following such a sale, the grantor reports income tax on trust income. However, the grantor no longer owns the assets for gift and estate tax purposes. Therefore, the trust assets (and appreciation) will be removed from the grantor’s gross estate. Assets sold to the trust may consist of stock in a closely held business, real estate, marketable securities, or limited partnership interests. The trust may even hold S Corporation stock without jeopardizing the election. Continue reading
Importance of Trusts in Estate Planning & Asset Protection
A trust beneficiary possesses an equitable interest, but not legal ownership, in trust property. Creditors of a trust beneficiary therefore cannot generally assert claims at law against the beneficiary’s equitable interest in trust assets. However, under common law, a settlor … Continue reading
Validity, Interpretation & Effect of Wills Having Jurisdiction Outside of New York
PDF: Wills Having Jurisdiction Outside NYS The burden of proof that a will was executed in accordance with formal requirements imposed by EPTL § 3-2.1 is on the will’s proponent, who may be the executor, a beneficiary, or an interested … Continue reading
General Power of Appointment Can Neutralize Estate Tax
A general power of appointment is power of appointment that is exercisable in favor of the donee, the donee’s creditors, or the creditors of the donee’s estate. Under IRC § 2042, the value of property over which the donee possesses a general power of appointment at death is included in the donee’s estate. Continue reading
Posted in Estate Planning, General Power of Appointment
Tagged 2523(f), applicable exclusion amount, appoint trust assets, completed gift, credit shelter, credit shelter trust, equalize, equalize estates, general power of appointment, PLR 200101021, PLR 200210051, PLR 200403094, PLR 200604028, QTIP, testamentary general power of appointment, unequal estates
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