New York Estate Planning & Elder Law

Do It Yourself Estate Planning Can Backfire / White Plains, NY & Greenwich, CT

Shortcutting the process can save money now. However, it will be costly later and cause problems for heirs.

Trying to work around estate planning with limited knowledge can often create more problems than it solves, according to My San Antonio in the article “Estate planning workaround idea needs work.”

The article concerns a rancher who planned to put his accounts in his wife’s name and the land in his children’s, in order to avoid the legal work within a courtroom. The problems this rancher will create for himself, his wife, and his children, will easily eclipse any savings in time or fees he thinks he may have avoided.

Let’s start with the idea of putting all the man’s assets in his wife’s name. For starters, that means she has complete control and access to all the accounts. Even if the accounts began as community property, once they are in her name only, she is the sole manager of these accounts.

If the husband dies first, she will not have to go into probate court. That is true. However, if she dies first, the husband will need to go to probate court to access and claim the accounts. If the marriage goes sour, it’s not likely that she’ll be in a big hurry to return access to everything.

Another solution: set the accounts up as joint accounts with the right of survivorship. The bank would have to specify that, when a spouse dies, the other owns the accounts. However, that’s just one facet of this estate planning hack.

The next proposal is to put the ranch into the adult children’s names. Gifting the ranch to children has a number of irreversible consequences.

First, the children will all be co-owners. Each one of them will have full legal control. What if they don’t agree on something? How will they break an impasse? Will they run the ranch by majority rule? What if they don’t want to honor any of the parent’s requests or ideas for running the ranch?  In addition, if one of them dies, their spouse or their child will inherit their share of the ranch. If they divorce, will their future ex-spouse retain ownership of their shares of the ranch?

Second, you can’t gift the ranch and still be an owner. The husband and wife will no longer own the ranch. If they don’t agree with the kid’s plans for the ranch, they can be evicted. After all, the parents gave them the ranch.

Third, the transfer of the ranch to the children is a gift. There will be a federal gift tax return form to be filed. Depending on the value of the ranch, the parents may have to pay gift tax to the IRS.  Because the children have become owners of the ranch by virtue of a gift, they receive the tax-saving “free step-up in basis.” If they sell the ranch (and they have that right), they will get hit with capital gains taxes that will cost a lot more than the cost of an estate plan with an estate planning attorney and the “courtroom mumbo jumbo.”

Finally, the ranch is not the children’s homestead. If it has been gifted it to them, it’s not the parent’s homestead either. Therefore, they can expect an increase in the local property taxes. Those taxes will also be due every year for the rest of the parent’s life and again, will cost more over time than the cost of creating a proper estate plan. Since the ranch is not a homestead, it is subject to a creditor’s claim, if any of the new owners—those children—have a financial problem.

We haven’t even mentioned the family business succession plan, which takes a while to create and complements the estate plan. Both plans exist to protect the current owners and their heirs. If the goal is to keep the ranch in the family and have the next generation take the reins, everyone concerned be better served by sitting down with an estate planning attorney and discussing the many different ways to make this happen.

An estate planning attorney can advise you on creating an estate plan that fits your family’s particular circumstances.

Reference: My San Antonio (April 29, 2019) “Estate planning workaround idea needs work”

For more information on asset preservation and estate planning, please visit my estate planning website.

Tough Situations May Develop when Inheriting the Family Farm / Greenwich, CT & White Plains, NY

Tax liabilities can lead to a severe financial misstep.

If you are likely to inherit the family farm, it would be wise to pay especially close attention to your estate planning attorney and CPA, according to Capital Press in “The family farm is coming to you: What’s next?”

If you receive the property as a gift from parents while they are alive, then you retain their income tax basis in the property. If they inherited it also, they likely have a low tax basis. Farms with a basis of $50,000 that are now worth $2 million are not unusual. If the farm is sold, there will be a capital gains tax on the difference between the basis and the present value, which could be more than $600,000.

If you inherit the farm from a parent and then sell it for $2 million, its value at the time of their death, you would not have to pay a capital gains tax. That saves $600,000.

The estate tax may not be so bad, depending upon your state’s estate tax, which is probably lower than the highest capital gains rate. If you live in Oregon, you may be eligible for the Oregon National Resource Credit, which was created to reduce Oregon estate taxes on family farms. Your estate planning attorney will be able to help you plan for and manage these taxes.

If you bought the farm from a parent’s trust or estate for $2 million, then you have a $2 million basis in the property and will probably not owe any property gains tax, if you eventually sell it for $2 million.

Just be sure that you comply with all reporting requirements. If you are in Oregon and took the Oregon National Resource Credit, then for five out of eight years after the death, the recipient of the inherited property is required to file an annual certification to keep the credit that was used to lower the estate tax. Failure to comply, means that a portion of the estate tax will have to be repaid.

If you own the farm without other family members, you should start planning your next steps. To whom do you want to pass the farm? If you want to keep the farm in the family, work with an attorney who is familiar with farm families so that you can keep working the land and reduce any disputes.

Farmers often separate business operations from the land, with the operations held by one business and the land held by another entity. This allows the estate planning attorney to plan for succession in how operations and land are transferred to the next generation. It also provides asset protection, while you are alive.

Make sure that your farm succession plan and your estate plan are aligned. A common issue is finding that buy-sell documents don’t align with the will or trust. 

Reference: Capital Press (March 24, 2019) “The family farm is coming to you: What’s next?”

For more information on asset preservation and estate planning, please visit my estate planning website.

Longer Life Span for Women Means Different Estate Planning / New York, NY & Greenwich, CT

Women should consider how to care for loved ones through an estate plan as well as themselves.

Women live approximately 4.9 years longer than men. That fact should be considered in estate planning, according to the Boca Newspaper in “Smart Tips for Women: Estate Planning.”

If you plan carefully, wishes for the distribution of your assets are more likely to be carried out, tax liabilities can be minimized, and your loved ones will not be faced with an extended and expensive process of settling your estate.

Here are a number of actions that should be considered:

If you have an estate plan but aren’t really sure what’s in it, it’s time to get those questions answered. Make sure that you understand everything. Don’t be intimidated by the legal language: ask questions and keep asking until you fully understand the documents.

If you have not reviewed your estate plan in three or four years, it’s time for a review. There have been new tax laws that may have changed the outcomes from your estate plan. Anytime there is a big change in the law or in your life, it’s time for a review. Triggering events include births, deaths, marriages, and divorces, purchases or sales of a home or a business or a major change in financial status, good or bad.

If you don’t have an estate plan, stop postponing and make an appointment with an estate planning attorney as soon as possible.

Your estate plan should include advance directives, including a Durable Power of Attorney and a Health Care Proxy. You may not be capable of executing these documents during a health emergency and having them in place will make it possible for those you name to make decisions on your behalf.

Anyone who is over the age of 18 needs to have these same documents in place. Parents do not have a legal right to make any decisions or obtain medical information about their children, once they celebrate their 18^th birthday.

Make a list of your trusted professionals: your estate planning attorney, CPA, financial advisor, your insurance agent and anyone else your executor will need to contact.

Tell your family where this list is located. Don’t ask them to go on a scavenger hunt while they are grieving your loss.

List all your assets. You should include where they are located, account numbers, contact phone numbers, etc. Tell your family that this list exists and where to find it.

If you have assets with primary beneficiaries, make sure that they also have contingent beneficiaries.

If you have assets from a first marriage and remarry, be smart and have a prenuptial agreement drafted that aligns with a new estate plan.

If you have children and assets from a first marriage and want to make sure that they continue to be your heirs, work with an estate planning attorney to determine the best way to make this happen. You may need a will, or you may simply need to have your children become the primary beneficiaries on certain accounts. A trust may be needed. Your estate planning attorney will know the best strategy for your situation.

If you own a business, make sure you have a plan for what will happen to that business if you become incapacitated or die unexpectedly. Who will run the business, who will own it and should it be sold? Consider what you’d like to happen for long-standing employees and clients.

An estate planning attorney can advise you on creating an estate plan that fits your specific circumstances.

Reference: Boca Newspaper (March 4, 2019) “Smart Tips for Women: Estate Planning”

For more information on asset preservation and estate planning, please visit my estate planning website.

When It Comes to Farming, It’s All about the Family / White Plains, NY & Greenwich, CT

Government regulations usually have less impact than family relations.

There are some big estate planning mistakes that farmers can make. It is best to be aware of them and avoid following in the footsteps of others, according to Ag Web in “5 Estate Planning Mistakes You Don’t Want To Make.”

The current estate tax exemptions of over $11 million per person and over $22 million per married couple will only be this high for a limited period of time. When the Tax Act expires in 2025, the exemption will be back down to $5.5 million per person and $11 million for a couple.  However, there is an election in 2020. There is no guarantee that the limits will remain in place until 2025.

The biggest risk to the future of any family business is not taxes but rather the family itself. Blended families, stepparents, siblings and half-siblings and how family relationships work or don’t work is the bigger reason why family farmers, ranchers and business owners need estate and succession planning.

Second, people make a huge mistake in trying to treat their children the same. Fair does not always mean equal. Think about who is working on the farm, and who is not. Who is going to do a great job maintaining the family legacy, and who has already left to live in another state?   

Third, you cannot simply title your property so your kids and your spouse own it together and it passes to them when you die. It sounds nice and simple, but it’s a huge mistake. People think they want to do this to avoid probate, but it creates many problems. If you just add names on property and there is no bill of sale, you create a taxable gift. What happens if one of your children gets divorced? 

Fourth, the plan to “sell off the farm when I retire” plan is a terrible tax burden to place on yourself. If you sell the last crop and auction off the equipment, there will be a big income tax bite. Farmers tend not to pay a lot of income taxes. They sell this year’s grain next year, and they deduct next year’s expenses this year. They buy equipment in December and then depreciate it, but then when you do a retirement sell off, you get all the taxes that you’ve been pushing away all at once.

Fifth is the one that dooms so many families, both farmers and non-farmers. You can’t copy your neighbor’s estate plan and hope it will work. Every family is different, and no matter how small your town, everybody does not know the exact details of everybody else’s business.  

Reference: Ag Web (Jan. 15, 2019) “5 Estate Planning Mistakes You Don’t Want To Make”

For more information on tax planning, asset preservation and estate planning, please visit my estate planning website.

A Farmer’s Estate Plan Can Be a Challenge / Greenwich, CT & White Plains, NY

Are one or more of the potential heirs considering or have no interest in the farm? There are three steps.

When a farmer passes away, one, all or none of the children may have an interest in the farm. That makes planning seem difficult.  However, in reality there are only three steps to consider, according to Agriculture.com in "3 Steps To Succession Planning."

The steps include:

• Communicate with family members about what you want to happen to your farm after you pass away and figure out what your family expects to happen. This is especially important when children are not interested in farming, so their inheritance expectations can be known and taken into account.
• Try to determine what tools are available to meet your goals. If you can modify a lease agreement to help meet your goals, then that may be an available tool.
• The last thing to do is to determine your legal options. This is where a good estate planning attorney comes into play. The attorney will listen to your goals and figure how to meet them. What that will look like will vary because every family farm is different.

Reference: Agriculture.com (March 8, 2018) "3 Steps To Succession Planning."

For more information on asset preservation and estate planning, please visit my estate planning website.

Shares in Family Business Can Be Challenging / Greenwich, CT & New York, NY

Value of shares in a private company can more easily be lost because of the time factor.

Shares in most public companies can be sold quickly and easily.  However, if you leave your heirs shares in a family business, it can be more difficult because money can more easily be lost, according to the Wills, Trusts & Estates Prof Blog in "The Family-Shareholder Wealth Roadmap."

If heirs receive shares in publicly traded companies it is easy enough for them to turn those shares into cash anytime they wish.

If you leave your family shares in a private or family business, it is much more difficult to turn those shares into cash. There are often restrictions on who can own the shares and there is not an easily and quickly accessible market to sell the shares.

One of the biggest mistakes that family businesses make is not adequately considering the time value of money when it comes to making cash distributions to shareholders.

Companies often wait too long to make the distributions and thus the shareholders lose value. Another common mistake is using equity to finance operations, when debt financing would be better under the circumstances.

These problems can be overcome with the right assistance.

An estate planning attorney can advise you on creating an estate plan that fits your family’s circumstances and may include assets in the form of a family business.

Reference: Wills, Trusts & Estates Prof Blog (Nov. 24, 2017) "The Family-Shareholder Wealth Roadmap."

For more information on asset preservation and estate planning, please visit my estate planning website

Transition to Succession for a Family Business / Greenwich, CT & New York, NY

While most estate plans have a good chance of success even if you do not inform your heirs of the details, the chances of success are greatly diminished if you are passing on a family business.

If you own a family business, it is not only vital that you plan ahead for passing on the ownership and control but that you also have a transition plan in place in order to increase the chances of a success, according to the Wills, Trusts & Estates Prof Blog "Preparing the Family Business for Succession."

For the family business to thrive after the current owner passes away, careful plans must be made for who will be in charge next. Everyone needs to know who will be in charge on day one and, to make that transition go as smoothly as possible, it is important that the next leader knows what he or she is supposed to do.

Ideally, the next leader should be groomed for the role by taking part in the business on a day-to-day basis and making decisions about it sooner rather than later. Even if all that is done, it is important to plan for any contingencies that might occur. A secondary plan for succession should also be in place.

Should a family business be part of your life, it would be wise to meet with an estate planning attorney to increase your chances of a successful family business transition.

Reference: Wills, Trusts & Estates Prof Blog (Oct. 6, 2016) "Preparing the Family Business for Succession."

For more information on asset preservation and estate planning, please visit my estate planning website.

Defending the Family Ranch If That Is What You Want / White Plains, NY & New York, NY

An estate plan is really important when it comes to keeping the family ranch in the family and it really doesn’t have to be complicated.

Keeping the ranch in the family can be simple if you have a good estate plan and the estate plan doesn’t have to be difficult if you break it down into simple steps, according to the Huntsville Item in “Estate planning and the family ranch.”

The steps are:

• Start a conversation with your family about what to do with the ranch after you pass away. This will help determine which of your relatives might want a stake in the ranch and make sure that everyone in the family is on the same page.
• After talking with your family, decide what your objectives are for the ranch and what you would like to see happen to it.
• Gather all of your important financial documents.
• Choose an experienced estate planning attorney you are comfortable with and have the attorney draw up an estate plan that meets your objectives.
• After your estate plan is complete, make sure that you keep it updated whenever circumstances change.

An estate planning attorney can guide you in keeping the ranch in the family or not … whichever you want.

Reference: Huntsville Item (July 31, 2016) “Estate planning and the family ranch.”

For more information on asset preservation and estate planning, please visit my estate planning website.

Questionable Tactics Can Result in Estate Battles / New York, NY & Greenwich, CT

The owners of a family business sometimes attempt creative ways to protect the business from a divorce within the family but those plans can backfire.

The owner of a pizza parlor chain in New York chose to leave her estate to her daughter, cutting her son completely out of the will. She supposedly did this to protect the estate from the son’s wife because a divorce was looming. The plan apparently blew up.

John’s Pizzeria is a chain with locations all over the New York area and when owner Madeline Castelloti passed away in 2004, she left her entire fortune to her daughter Lisa, including the pizza empire. Her son Peter was cut out of the will entirely.

According to Peter, shortly before his mother passed away he was going through a divorce. An agreement was reached whereby his mother would cut him out of the will. Then, once his divorce was finalized his sister would give him his share of the pizza business in exchange for Peter agreeing to pay the estate tax on the estate. Consequently, Peter’s soon to be ex-wife would not receive any assets from their mother.

Apparently, this arrangement did not work as planned. When the time came for Lisa to give Peter a share of the business, she balked.

The New York Daily News reported this story in "John's Pizzeria family to go to court over their empire."

An appellate court recently ruled that John can proceed with his case against Lisa. However, the court also mentioned this could result in the reopening of his divorce case.

Result?

Peter’s ex-wife could get some of the pizza business, so the entire plot might have been pointless.

An estate planning attorney could be helpful in protecting the family business and keeping peace in the family.

Reference: New York Daily News (March 9, 2016) "John's Pizzeria family to go to court over their empire."

For more information on asset preservation and estate planning, please visit my estate planning website.

Emotions Have No Place in Business Estate Plans / Greenwich, CT & New York, NY

Survivors are almost always emotional when dealing with the passing of a loved one, but if the deceased is a business owner it is important to limit the impact on businesses and operations.

The drama that surrounds survivors after a death can affect businesses of all sizes from tiny Mom & Pop operations to large corporations as heirs question whether they are being treated fairly

This leads to emotionally fueled conflict that can be difficult to resolve.

One of the goals of estate planning is to make it so that any emotions do not affect how the estate will be distributed and do not lead to unnecessary litigation. If you own a business, or even just a part of one, you can create a business estate plan to accomplish the same goals for the business.

In "Don't Be So Emotional: Drama-Free Business Estate Planning" Forbes described some methods that can be used to accomplish this, including:

• Buy-Sell Agreement – This allows you to set a valuation for your share of the business, determine who will be getting it and make sure that your heirs receive fair value.
• Escrow and Trusts – Stock can be held in escrow until such time as agreed upon plans are carried out. Trusts can be used for all sorts of things, such as holding stock, voting, and buy-sell agreements.
• Pre-Funding – One of the biggest sources of conflict over business succession is when any party that will receive a payment gets the money. This can be resolved by using pre-funding to make sure that the money is available when you pass away.

A qualified estate planning attorney should be consulted to ease the drama and head off the conflict.

Reference: Forbes (Nov. 9, 2015) "Don't Be So Emotional: Drama-Free Business Estate Planning"

For more information on business succession and estate planning, please visit my estate planning website.