Articles Posted in Wills & Trusts

New Yorkers seem to be “taxed to death”, paying the highest average property taxes in the country. We are the only state that charges a tax for the making of a mortgage. The tax burden does not end at death, as New York also has its own estate tax. Governor Andrew Cuomo, seeking re-election this year, has been encouraging the state legislature to reduce these burdens.

Estates may be subject to both federal and state estate taxes. During the past thirteen years, the federal estate tax has been modified. The federal taxable exemption now stands at a generous amount of $5,340,000.00 per person. This generally means that estates that do not exceed this amount are not subject to federal estate taxes. As many people do not have estates that exceed such amount, federal estate tax is not a concern for most families. However, New York State has levied an estate tax on estates exceeding $1,000,000.00 until a revision to the law was passed in April of this year. Since many New Yorkers could easily have assets exceeding $1,000,000.00, considering high property values, many of our residents have been subject to state estate tax.

The revision to New York’s estate tax law now provides that the exemption will immediately rise to $2,062,500.00, so that only estates valued above that amount will be subject to New York state estate taxes. Further, each April, the state estate tax exemption is set to rise by $1,062,500.00, until it reaches $5,250,000.00 in 2017, then the exemption will continue to rise to close to $6,000,000.00 on January 1, 2019. Tax liability will certainly be a “moving target” during the next five years.

Our clients have inquired as to the consequences of the termination of a martial relationship upon rights in a New York estate. The resolution to this issue depends upon whether the relationship was legally terminated through a divorce and whether the estate is being conducted as an administration or a probate proceeding. Many of us are familiar with those whose relationships end, but who do not legally end the relationship by applying for and obtaining a legally binding divorce decree. In some cases, one of the partners relocates and is estranged to such a degree that they are unable to be found. In order to complete the estate proceedings, private detectives may be needed to determine if the relocating spouse predeceased, making them unqualified to inherit, or to ensure that notice as required by the Surrogate’s Court is effectuated. In other cases, the parties have a cordial breakup and interact often. However, in either case, the spouse is entitled to inherit from the deceased party’s estate, unless a judgment of divorce was obtained during the lifetime of both parties. The Surrogate’s Court will often request a copy of the judgment of divorce, so it is important for parties to maintain such significant documents in an accessible location.

In the instances when a divorce was not obtained, this blog post will analyze the distinctions between an administration and a probate proceeding. This blog has discussed in general terms an estate administration proceeding, which is appropriate when a person dies without a will (intestate). New York’s Estates Powers and Trusts Law provides that the spouse receives the entire estate if there are no children. If there are children, the spouse will still receive $50,000.00 plus one-half of the rest of the estate. Certainly, a separated person would not wish for his spouse to receive the bulk of his estate, but this would be the result in an administration proceeding.

Should such a separated person not wish to divorce, he should have a will that is consistent with his wishes prepared by legal counsel in order to attempt to prevent this result. One should be mindful that in New York State, a spouse cannot be disinherited under most circumstances. A spouse has the right to her “elective share”, which is that amount that would have been inherited in the event of intestacy. An exception to this concept is obtaining a proper waiver of elective share document, wherein the party waives her right to her elective share in the spouse’s will. This document may be appropriate even when a relationship has not dissolved. For instance, one spouse may be independently wealthy and be willing to waive her elective share so that the children of the deceased receive the bulk of the estate. The waiving spouse may also be duly provided for by other assets such as life insurance.

The Associated Press recently reported about a controversy concerning treasured possessions belonging to Dr. Martin Luther King Jr. Dr. King’s daughter Bernice King is currently in possession of his Nobel Peace Prize Medal and personal Bible. Her brothers, who control the Estate, have been attempting to seize these items, so that the Estate can allegedly sell them. There may be a written agreement to which Dr. King’s daughter may be subject where she previously agreed to deliver these items to those controlling the Estate. While most of us do not possess such historically important and valuable items, we should make provision for our “stuff” after our passing.

The legal term for “stuff” is personal property, which is not real property (land, house or condominium). Personal property can be as diverse as automobiles, jewelry, shares of stock in a cooperative corporation or a china collection. Some personal property can be highly valuable and unique, of sentimental value or of historical interest. Other items of personal property may be a nuisance because they are “junk”, difficult to dispose of and no one wants them.

If one dies intestate (without a Will) there will be an estate administration whereby an administrator is appointed by the Surrogate’s Court to distribute the personal property. In this case, the personal property will be distributed consistent with Estates Powers and Trusts Law Section 4-1.1. If one dies with a Will, the Surrogate’s Court in the probate proceeding will appoint an executor to dispense with the personal property consistent with the terms of the Will. As our readers can see, if one dies without a Will, the statute determines who is entitled to the personal property. If one has a Will drafted by experienced legal professionals , he can specify who should receive his personal possessions.

Trusts provide a valuable tool in estate planning because they serve the purposes of preserving assets, protecting intended beneficiaries, and potentially saving or eliminating estate taxes. A trust is a legal document that conveys a “corpus”, or body of assets, from the settlor (the person who creates the trust and owns to assets) to a trustee (the individual or corporate entity with the responsibility of holding the assets) for the benefit of the beneficiary (the person who will ultimately receive the proceeds of the trust). A charitable organization may also be the beneficiary of a trust.

These documents should be drafted by skilled legal professionals and signed in accordance with New York State Law . Trustees selected should be responsible and qualified for the tasks required. In addition, the age of the trustee should be considered. It is not sensible to appoint a trustee who may be eighty years old when he needs to perform his duties, or a trustee who does not have a good working relationship with the beneficiary. In some cases, clients may decide to appoint a corporate trustee, such as a bank or brokerage, so that the beneficiaries do not outlive the individual trustee (requiring a Court procedure to appoint a new trustee if the trust does not name a substitute) or if they do not otherwise have an appropriate individual to act as trustee.

There are potential advantages and disadvantages of trusts that will be discussed in this blog post. If assets are in multiple states, a trust can more efficiently distribute assets as opposed to the alternative, a probate proceeding in one state followed by ancillary probate proceedings in other states to dispose of specific assets. It is a myth that trusts always allow for estate tax savings, as individual circumstances may vary. Further, trusts are separate taxable entities, and are required to file income tax returns, just as an individual would be required.

The fiftieth anniversary of the March on Washington was recently acknowledged, celebrating the great civil rights battle for equality for our African-American citizens. More recently, same-sex couples have also been engaged in their own battle for equal treatment in issues such as the right to marry, taxation, health and pension benefits, and similar property and economic matters.

In June, 2013, the United States Supreme Court struck down the Defense of Marriage Act of 1996 (“DOMA”). DOMA specified that “…the word “marriage” means only a legal union between one man and one woman…and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife”. The case at issue involved a lesbian couple who were married in Canada. One of the parties died and left her estate to her partner. The surviving widow filed the federal estate tax return that was due. Because the federal government did not consider the couple married for estate tax purposes, the estate was not qualified to apply the marital deduction available to heterosexual married couples, increasing the estate tax bill by several hundred thousand dollars. The Supreme Court ruled that it is a violation of equal protection principles and an infringement on state sovereignty for the federal government to maintain such a position. In Windsor, the Court determined that same-sex married couples are to be treated as married heterosexual couples and ordered the refund of the excessive tax payment.

In late August, 2013, the Internal Revenue Service issued a subsequent ruling that legally married same-sex couples will be recognized as married, even if the state in which they live does not recognize same-sex marriages. Our readers should know that two legal standards are at play. The “place of celebration” standard mandates that a couple will receive benefits as long as they are legally married, regardless of whether the state in which they now live recognizes the union. The “place of residence” standard mandates that if the state in which the couple lives does not recognize their union, then the couple will not receive benefits.

Our readers may be aware of an unusual estate litigation in New York City. Huguette Clark died in 2011 at the age of 104. Being the only surviving child of a copper mining magnate, she left a fortune of approximately three hundred million dollars. Ms. Clark was also highly eccentric. After being hospitalized for a purported legitimate medical condition in New York’s Beth Israel Medical Center, she spent her last decades housed in that hospital, despite having an apartment on Fifth Avenue and at least one mansion in which to reside.

Two Wills are being contested in the litigation, both of which were made within one month of each other when Ms. Clark was 98 years old, six years before her death. The first Will left her estate to distant relatives who were not named and with whom she did not have a personal relationship. The second Will disinherited the distant relatives, increased the bequest to her caregiver, left a bequest to a goddaughter and established a foundation. An art museum in Washington, DC is challenging a bequest of artwork, instead advocating for cash. The state and federal estate taxing authorities are involved in the litigation because additional estate taxes will be due should the case be determined in a particular way.

While due to the large sums of money involved, many people cannot relate to the problems that have arisen in this case, even smaller estates can be subject to some of the same issues. For instance, dying without surviving close relatives opens the door to distant relatives such as first cousins once removed having the authority to challenge a Will offered for probate. In addition, estrangement from close relatives who are not beneficiaries under the Will could result in a Will challenge. People without living relatives or who have estranged relationships are vulnerable to intrusion into their estate plan by caregivers and institutions in their final years. Would Beth Israel Medical Center have allowed Ms. Clark to remain for decades, even if she paid for her housing, if a large bequest had not been negotiated? While the caregiver was undoubtedly of great value to Ms. Clark, did the dependence engendered by the relationship encourage too large a bequest?

Our readers who follow politics know that members of Congress have battled in recent years with respect to revisions to the tax law. Specifically, estate, gift, and income taxes have been subject to adjustments. The purpose of this blog post is not to describe the specific changes made to these laws. The laws in this area are fluid and heavily influenced by politics, making them subject to change at almost any time. Because our readers cannot rely on consistency in the tax law, they must be mindful of their estate plans, beneficiary designations, and means by which title is held. The goal is so that intended recipients receive intended assets and that taxes are reduced as much as legally possible.

Further, while some of the tax laws have been revised at the Federal level, they have not been so adjusted in New York State. As such, estates valued at more than one million dollars are subject to New York State estate tax. In the New York metropolitan area, it is easy to accumulate one million dollars in assets, which could be deemed the value of real estate (net of the balance of a mortgage), life insurance policies that are considered to be revocable and other assets.

In any tax climate, estate planning will always be needed for the purpose of naming guardians for minor children, providing for beneficiaries with special needs such as those with physical or mental disabilities, identifying those persons desired to serve as executors and for establishing business succession plans. People with property in multiple states also require estate planning services, as different states may have their own estate tax, necessitating strategies to achieve tax reduction. In addition, same sex couples require estate planning, even if they reside in a state where they are considered legally married, to determine the allocation of assets in other states and to ensure that the spouse receives intended assets, rather than blood relatives.

This blog post contains a description of some of the standard substantive objections that a person may have to the admission of a Will to probate. Estate practitioners deem these objections the “four horsemen”. Due execution, testamentary capacity, undue influence and fraud comprise the four horsemen.

Due execution is known as the Statute of Wills. The proponent of the Will must show by the fair preponderance of the evidence that the Will was signed at its physical end in the presence of at least two disinterested witnesses. At the time of execution, the person making the Will should make it known to the witnesses that he is signing his Will and wants the witnesses to act as witnesses. Due execution is assumed if an attorney supervised the Will execution “ceremony” and if the Will contains the legal attestation clause. Our firm is mindful of New York’s execution requirements and conducts the Will signings that it supervises in accordance with the statute.

Testamentary capacity, the ability to make a Will, is broadly defined as every person over eighteen years of age who is of sound mind and memory. The Court will look to the testator’s capacity at the time that the Will was executed. Elements that the Court will consider include whether the testator understood the meaning of the Will’s provisions, the nature and extent of his property and the “natural objects of his bounty” (the identity of his family members or friends). Old age, dementia, and physical infirmaries such as blindness are not automatic disqualifiers depending upon the condition of the person when he signed his Will.