Pets And Estate Planning

Pets have become an important part of our families today, many owners putting their love and care a top priority. Whether someone is single or has a family that includes children, pets contribute to our quality of life by providing companionship and unconditional love. They may go along on the family vacation, accompany us on a morning run, or just tuck in on the sofa while watching a favorite movie or television show. Many animal lovers who are passionate about their furry family members are curious about pets and estate planning. Is there such a thing, and what should you know? Those with questions may want to consider reaching out to the experienced estate planning attorneys at Jennifer V. Abelaj Law Firm at 212-328-9568 to learn about all of their legal options.

Pet Ownership in the United States

According to the Insurance Information Institute, Inc. (III) approximately 70% of households in the United States include pets. A survey conducted by the American Pet Products Association found that more than 90 million families owned pets during 2021. This increase is partially due to the COVID-19 pandemic when more people brought pets into their homes for companionship and comfort. Of pet owners, 69% of households had a dog, while 45% had a cat. Many pet owners assume that if something were to happen to them, a family member would take over the care of a pet. Unfortunately, many end up in shelters where they may or may not be adopted.

Why Include a Pet in Your Estate Plan?

Just as people create a Last Will and Testament or estate plan to plan for the future of their loved ones upon their passing, many want to make provisions for their dog, cat, or other pet in the event of their death. It is possible to designate who will be responsible for providing shelter, care, nourishment, and for the other needs of a pet. However, it is important to consider who would be trustworthy and responsible in carrying out your wishes. Surveys conducted in recent years indicate that millennials are significantly more interested than baby boomers in having provisions for pets in their estate plans. Ultimately, when there are no provisions outlined in a will concerning the future care of a pet, it may be considered property. This means the future of a pet may depend on a state’s intestacy laws. The simplest thing to do is designate who you want to care for a pet in a will, however there are other options such as pet trusts.

Pets and Estate Planning Options

There are a few options when it comes to providing for a pet’s future or seeking medical care for a pet in some circumstances. Some of the options include:

• Informal agreements
• Letters of instruction
• Pet trusts
• Durable power of attorney for pet care

Those with questions regarding the various estate planning options for pets may want to consider visiting with Jennifer V. Abelaj Law Firm to learn more.

Informal Agreements

Informal agreements are common and often involve a close friend or family member who is reliable and trustworthy. A person can request that if they become ill or pass, this person will care for the pet. Informal agreements are fine for their purpose, however it is important to consider that whoever is chosen to provide care can do whatever they please. For instance, someone who moves into a retirement home and places the care of their pet to a son or daughter will have no control in what happens once the pet is in their possession. Therefore, it is critical to choose someone who is highly trusted when using an informal agreement.

Letters of Instruction

A letter of instruction is not submitted to a probate court and is designed to work in unison with a will, trust, or other estate planning device. Letters of instruction are often left behind for family members, and are information, instructions, or express wishes concerning what you do and do not want. Letters of instruction are not legally enforceable and have little impact on assets or property. Many pet owners use letters of instruction to outline their wishes regarding their pets, how the pet should be cared for, who should take care of it, and more. Letters of instruction can be modified or updated at any time, which makes this option easy for many pet owners.

Pet Trusts

A pet trust makes it possible for a pet owner to name a caretaker that will provide for a pet in the event the owner becomes incapacitated or passes. The designated caretaker is under a fiduciary obligation to care for the pet as outlined in the trust. Pet trusts typically provide funds that will be used to take care of the pet which are disbursed to the appointed caretaker by the trustee. These funds are used for food, veterinary care, and other costs.

Pet trusts also make it possible to designate successive caretakers should the primary caretaker have a change in life circumstances or another event that makes it impossible for them to continue caring for the pet. A pet trust ensures that a pet does not become the legal property of someone who is not trustworthy or responsible, or someone of your choosing. With a pet trust it is possible to maintain control over caregivers. This gives the most peace of mind to many pet owners who want to ensure their pets are in good hands. 

Durable Power of Attorney for Pet Care

Some pet owners want someone who can act on their behalf when their pet needs medical care and they are on vacation or away on business. A durable power of attorney for pet care authorizes another person to seek medical care for a pet and specifies the extent to which the agent may act on the pet owner’s behalf.

Consider Visiting with an Experienced Estate Planning Attorney Today 

Pets and estate planning are more common than ever before today. Each year more than 500,000 pets are euthanized because their owners could no longer care for them according to the American Bar Association. While humans have many others they can rely on for their needs, pets have only their owners. They rely on their “humans” for food, shelter, love, and care. Those with dogs, cats, or other pets who are considering planning for their pets’ futures may want to consider visiting with Jennifer V. Abelaj Law Firm today at 212-328-9568.

Inherited Property: What is Step Up in Basis? Discussion with Cherie Williams, CPA of The Little CPA

Jennifer collaborated with Cherie Williams, CPA, founder of The Little CPA, on the topic of inheriting assets. Cherie created The Little CPA to empower purpose-driven professionals to make wise financial decisions that build diligent wealth.

Inherited Property: What is Step-Up in Basis? – The Little CPA

(The Little CPA empowers purpose-driven professionals to make wise financial decisions that build diligent wealth.)

Jennifer V. Abelaj, Guest on the Inside BS Show Podcast, hosted by Dave Lorenzo: The Right Way to Plan Your Estate and Gifts to Charitable Institutions (Show 97, originally aired 06-29-2022)

I enjoyed my recent discussion with Dave Lorenzo, who is the host of The Inside BS Show podcast about The Right Way to Plan Your Estate and Gifts to Charitable Institutions.

Dave’s daily podcast includes informative discussions with professionals in the spaces of marketing, sales, business strategy and all the big secrets THEY don’t want you to know.  The show will entertain you with great interviews, help you make more money, and give you the inside scoop on all the best secrets most people never share.

I’m so pleased to be a guest on this show and provide information about estate and philanthropic planning.  I had a great time chatting with Dave, who is an excellent podcast host and an expert in sales techniques. 

Below is a bio for the show, as well as a link to the audio and YouTube.  Hopefully you get to learn more about Wills, Trusts and my passion for philanthropic planning.  Let me know what you think!

_________________________________

The Right Way to Plan Your Estate and Gifts to Charitable Institutions

This show is important for anyone who cares about his/her family. Today Dave Lorenzo has a conversation with Jennifer Abelaj, a New York Estate Planning Attorney.

Join us!

Podcast:  Inside BS with Dave Lorenzo on Apple Podcasts

YouTube:  The Right Way to Plan Your Estate and Gifts to Charitable Institutions | Jennifer Abelaj | Show 97 – YouTube

Creating A Business Succession Plan

Starting and building a business is a work of a lifetime that requires making unsaid compromises and facing unknown hardships. Yet, when it comes to planning a future for their businesses, most business owners do not have a legal plan in place. The United States Small Business Administration reports that around 70 percent of privately owned businesses, with an estimated worth of $70 trillion, will change hands in the next 10–15 years. Yet, as reported by the National Association of Corporate Directors, only one in four private companies opt to have a formal succession plan in place. If you want to know more about creating a business succession plan for your business and about the legal process involved, consider contacting the experienced New York estate planning attorneys of Jennifer V. Abelaj Law Firm today by calling 212-328-9568.

What Is Business Succession Planning?

In simple words, business succession planning means preparing in advance for a change in the ownership of the business. This involves identifying the events that may cause the ownership change, establishing certain timelines and standard operating procedures, and identifying potential successors or key employees.

Unforeseen and unfortunate events, such as a family feud, death, severe illness, or disability, may require a sudden change in business ownership and management. Having a proper succession plan for a business is like having a will for a person. When a person prepares a will, that person decides what will happen to his or her wealth and property after he or she dies. Similarly, having a business succession plan in place ensures that the business has an exit or a transfer per the owner’s wishes.

Benefits of Having a Business Succession Plan

Creating a succession plan for one’s business has many benefits. Some of these benefits include:

• Smoothing the transition
• Maximizing value and minimizing loss
• Training future leaders or employees
• Identifying weaknesses
• Retaining key employees or creating roles

Smoothing the Transition

If the business is to be transferred to a family member, a succession plan enables a smooth and clear transition and avoids a potential family feud. Rather than leaving it to the court to decide what happens to the business, the decision is made by the business owner in advance when a plan is in place.

Maximizing Value and Minimizing Loss

If the business is to be sold or transferred to a third party, a pre-determined plan about how that transition will be handled helps to maximize the value of the business. Having a succession plan in place also helps to avoid a last minute or sudden sale below the market or fair value.

Training Future Leaders or Employees

Whether the business is to be transferred among family members or to a key employee, identifying the potential successor or successors allows time for sufficient training.

Identifying Weaknesses

While planning in advance, the owner may identify loopholes or inefficiencies in the business and will be able to make a plan to address those weaknesses.

Retaining Key Employees or Creating Roles

Certain employees are important to the success of the business. Further, a business owner may want to involve certain family members in the business. With succession planning, the business owner has the opportunity to retain those employees and create roles as needed for family members.

If you have been thinking about creating a business succession plan but are not sure about the best options for your business, a skilled estate planning attorney at Jennifer V. Abelaj Law Firm can help you better understand the steps involved in creating a sound business succession plan.

Steps To Create a Business Succession Plan

Creating a business succession plan involves considering multiple factors. Some of the most important steps involved in creating a business plan include the following:

• Identifying future goals
• Identifying potential successors
• Conducting a business valuation
• Completing estate and tax planning
• Making necessary changes to governing documents
• Selecting an exit option
• Selecting a team of professionals

Identifying Future Goals

While creating a business succession plan, the business owner needs to identify personal goals are and desires for the business. This includes retirement planning and, if the business is a family business, choosing whether to transfer the business to family members or opt for an exit strategy.

Identifying Potential Successors

A business owner must initiate an honest conversation with family members and identify who is most capable of running the business. Additionally, determine whether the family member is actually interested in running the family business in the future. Sometimes, however, a key employee may be best suited to run the business through an Employee Stock Ownership Plan. If there are no potential candidates, the business owner may consider selling the business.

Conducting a Business Valuation

Conducting a business valuation through an appraiser is important to the process of creating an appropriate business succession plan. A business valuation is done on the basis of revenues, potential incomes, debt, assets, pending litigation, and current market value.

Completing Estate and Tax Planning

Estate and tax planning is one of the most important steps in a business succession plan. Failing to plan these well can lead to unnecessary expenses. However, proper planning can minimize taxes.

Making Necessary Changes to Governing Documents

Making corresponding changes in the organization’s governing documents will ensure that those documents align with the succession plan. Any contrary terms or clauses in the company’s partnership agreement or shareholder agreement may later create a hurdle if not changed accordingly.

Selecting an Exit Option

Typically, business owners select one of four modes of exiting their own business:

• Transferring to a family member
• Making a sale deal with a key employee or a business partner
• Selling the company to a third party
• Closing and liquidating the company

Selecting a Team of Professionals

A good business succession plan addresses the multiple factors that impact the value and longevity of the business. Therefore, it is important to select a team that can handle the many aspects of succession planning.

Contacting a Business Succession Planning Attorney

Creating a business succession plan is a challenging and multidisciplinary task. One needs to consider family relationships, personal future goals, taxes, and other legal matters involved while making a solid succession plan. To learn more about your legal options and how you can create a succession plan for your business, consider contacting an experienced New York estate planning attorney at Jennifer V. Abelaj Law Firm today by calling 212-328-9568 to schedule a consultation.

Valuation Of Hard To Value Assets

It is difficult to determine the value of hard to value assets, hence their name. Hard to value assets, also referred to as HTVAs, can make appraisals in estate planning and business valuation more complicated and time-consuming. There are different methods for valuing hard to value assets, but the appropriate methodology depends on the type of asset and the circumstances surrounding the valuation. A consultation with a knowledgeable estate planning attorney may be beneficial for a proper and accurate valuation of hard to value assets. At the Jennifer V. Abelaj Law Firm, we assist clients in New York with a wide range of estate planning needs. You can request more information by calling 212-328-9568 and scheduling a consultation.

Methods for Valuing Hard to Value Assets

The methods for valuing HTVAs differ from one case to another. Choosing the appropriate methodology requires a thorough understanding of appraisal regulations and available valuation approaches. When selecting the method for a valuation of hard to value assets, it is vital to consider the purpose of the valuation, the asset’s competitive properties, and the nature of the local market. When valuing HTVAs, appraisals need to apply a comprehensive framework, follow the accepted guidelines, use professional judgment, and consider all factors to ensure an accurate valuation.

A Guide to Valuation of Hard to Value Assets

As mentioned, the appropriate method for valuing hard to value assets depends on the type of asset and reason for the valuation. For example, is the valuation necessary as part of a sale, gift or death.  What follows are general guidelines for valuing these HTVAs:

• Real estate and automobiles
• Stocks
• Bonds
• Life insurance
• Annuities
• Business
• Personal property
• Debts

Real Estate and Automobiles

Often, people seek the help of an experienced real estate agent to estimate the value of their real property. An agent who knows the local market will be able to provide a rough estimate. However, this approach may not work with hard to value real estate. Similarly, certain automobiles, such a collectibles or rare versions, may have a value which depends on whether it is part of a collection.  If the asset requires a more thorough analysis, the owner of the property will most likely have to hire an appraiser and collect all available information about real estate and any automobiles in order to obtain an accurate valuation.

Stocks

Valuing closely-held stocks often involves computing the company’s price-to-earnings ratio. However, an amateur may not be able to determine the value of stocks accurately. If the owner of stocks dies, the personal representative of the decedent’s estate may choose to get in touch with the company that managed the decedent’s stocks or consult with a financial expert well-versed in stock valuation. Title 26 of the Code of Federal Regulations (CFR) § 20.2031-2 provides guidelines for the valuation of stocks and bonds based on selling, bid, and asked prices.

Bonds

The approach to valuing bonds is similar to the method for valuing stocks. Determining the value of a bond usually involves calculating the bond’s cash flow and face value. The individual or firm performing a valuation of a bond may also need to add accrued interest that has not been paid after the decedent’s death.

Life Insurance

When determining the value, the appraiser may calculate the policy’s face value and cash value. The policy’s face value is the amount of money beneficiaries of the policy receive upon the owner’s death. The cash value, on the other hand, is the accrued amount that can be accessed outside of the death benefit.  For life insurance that is part of a gifting transaction, sometimes the value is based on the interpolated terminate reserve (ITR).  The ITR is similar to the cash value, but the calculation is based on various other factors.

Annuities

A valuation of hard to value assets may also include valuing annuities if the decedent owned any. In order to determine the value of annuities, the personal representative of the decedent’s estate may need to contact the company that sold the annuities to valuate them as of the date of the owner’s death.

Business

Often, determining the value of a business is the most challenging part of valuing hard to value assets because businesses may include both tangible and intangible assets and liabilities. A business is also difficult to value if the deceased person was not the only owner of the business. In this case, the personal representative of the estate may need to contact a certified public accountant to estimate the value of the deceased person’s interest. However, business and other valuations may be easier if planned in advance. At the Jennifer V. Abelaj Law Firm, we offer estate planning and business succession planning services tailored to each client’s needs.

Personal Property

Certain types of personal property may be considered hard to value assets. Common examples of HTVAs among personal property include cryptocurrency, digital assets, works of art, jewelry, and antiques. While many people choose to visit eBay and similar platforms for estimating how much personal property is worth, it may be necessary to reach out to an auction house, art museum, gemologist, or other expert who specializes in valuing antiques, artworks, and jewelry.

Debts

According to the Federal Trade Commission, the personal representative of the estate is responsible for settling the deceased person’s debts. Once the valuation of hard to value assets is complete, it is essential to identify all debts that the debtor owes and determine their value. Common types of debt include mortgages, credit cards, loans, and debts associated with the deceased person’s medical treatment prior to the death.

Is an Appraisal Necessary for a Valuation of Hard to Value Assets?

An appraisal may be necessary for some of the hard to value assets mentioned above. Usually, people choose to hire a professional appraiser for an accurate appraisal. It is recommended to request the appraisal as soon as possible after the decedent’s death. A valuation of hard to value assets can become even more difficult if a significant amount of time has passed after the owner’s death. The Date of Death Appraisal is necessary for several purposes, including taxes. The appraisal will be used to establish whether an estate tax should be paid to the Internal Revenue Service (IRS) and to determine the amount of estate tax if any.

Contacting an Estate Planning Attorney

For assistance with the valuation of hard to value assets, consider seeking legal guidance from an estate planning attorney at the Jennifer V. Abelaj Law Firm. We help executors and personal representatives of estates in the efficient settling of the decedent’s affairs, including valuation of the assets. We also assist people with creating a comprehensive estate plan that takes into account the hard to value assets in order to protect them and minimize taxes. To schedule a case review, call 212-328-9568.

Estate Planning And The Holidays: A Checklist For Your Family

While enjoying time with your family this holiday season, you might want to consider broaching the subject of your estate plan. Since this may be one of the few times when you are around a larger group of loved ones and you have a chance to take stock of your current family situation, estate planning and the holidays can go together. You can give your family the most important gift of all this holiday season: the gift of peace of mind. Telling your loved ones about your wishes and the plans you have made can prevent misunderstandings and unburden your loved ones from having to make difficult decisions. Consider the following checklist for your family as you begin to broach the subject of estate planning during the holidays.

Property

A large part of many estate plans is what will happen to a person’s property after they pass away. Many people draft a Last Will and Testament (will) to provide clear instructions regarding the distribution of their property after their death. As the New York State Bar Association explains, the laws of intestacy will apply to how a person’s assets are distributed without a properly executed will. These are the default laws that favor a person’s nearest relatives to inherit their property after their death. In order to avoid having your property distributed to family members against your wishes according to intestate laws, you may want to consider visiting with an estate planning attorney to ensure your property is passed on to the loved ones you choose after your death.

Another option to distribute property following your death is with the creation of a trust. The New York City Bar Association defines a trust as a financial plan that protects and manages a person’s property while they are alive. After a person’s death, a trust can prevent the need for court proceedings (probate). A person can place various types of property in a trust, control the property during their lifetime, and leave clear instructions on how the property should be managed after their passing.

During this holiday time, consider carefully all of your property (real estate, stocks, bonds, cash, cryptocurrency, valuable possessions, collectibles and more) and who you would want to receive this property after your death.

Financial Accounts

Another important consideration for estate planning is what will happen to your financial accounts after you pass away. If another person is named as a joint tenant with rights of survivorship on the account, they will be able to access and control the funds in the account. However, if only one person is on the account, the account owner can often designate a beneficiary who will receive the funds upon their death by completing a beneficiary designation form that outlines this information.

A person can designate various types of accounts and benefits through beneficiary designations, including:

• IRAs
• 401(k)s
• Pensions
• Stocks
• Bonds
• Investment accounts
• Checking accounts
• Savings accounts
• Life insurance policies

Oftentimes, a trust can be named as the beneficiary of such accounts, which can be a useful way of providing for minor beneficiaries.

Power of Attorney – Medical Decisions

A thorough estate plan will not only address what happens after a person’s death but also what happens in case of a medical crisis. Individuals have the right to create a living will that outlines end-of-life treatment they want and do not want. This document states whether life-saving medical measures should be taken to prolong a person’s life. A person can also create a healthcare proxy that names a trusted person to make medical decisions on their behalf if they are unable to make these decisions themselves. Consider who you would want to make these important medical decisions if you suffer an illness or accident that leaves you unable to make these decisions for yourself.

Power of Attorney – Financial Decisions

A person’s estate plan can also create safeguards in the event they become incapacitated and can no longer effectively make decisions regarding their personal and financial affairs. A durable power of attorney can help manage the financial and legal details of a person’s life. Consider who you would want to make these important financial decisions if you suffer an illness or accident that leaves you unable to make these decisions for yourself.

Long-Term Care

Many people will ultimately need to turn to a long-term care facility for care at the end of their life, or if they suffer an illness or injury. As such, they may need to financially prepare for this possibility. An experienced estate planning attorney can discuss Medicaid eligibility, long-term care insurance, and other strategies that can effectively plan for long-term care.

When to Make Changes in Your Estate Plan 

While estate planning and the holidays can sometimes go hand in hand, there are other times when an update to an estate plan may be necessary, such as in the case of:

• A new marriage
• Divorce
• Birth or adoption of a child
• Separation from a spouse
• Death of a beneficiary or fiduciary
• Change in relationship to beneficiaries or fiduciaries
• A significant change in the value or character of assets
• Acquisition of real property
• Purchase or sale of a business
• Relocation to another state
• A new need to care for a loved one with special needs
• A change in tax laws that might impact the estate plan

The Jennifer V. Abelaj Law Firm can review your existing estate plan and explain when it might be necessary to update your plan.

Practical Tips for Mixing Estate Planning and the Holidays

If you are planning to bring up your estate plan this holiday season, here are some practical tips for achieving the outcome you want:

Talk About It

The holidays should not be the only time your family hears about your plans and wishes. Make the conversation an ongoing one so that they are never left in the dark. Also, plan ahead of time and let your loved ones know that you want to set aside some time during your family visit for this important conversation. Consider whether or not it would be more appropriate to have the conversation before the festivities or after your holiday events as a family.

Approach the Subject with Sensitivity

It can be difficult for adult children to see their parents age or not be as active as they once were. It can also be difficult for people to confront their mortality and talk about death. Additionally, many people feel uncomfortable talking about money.

For these reasons, it is important to approach the subject with sensitivity and to be prepared for an emotional response. The person should focus on wanting to provide peace of mind and ensure their healthcare values are known.

Ask for Help from a Professional

Having a professional available for the conversation can be a helpful buffer. A professional can discuss the issues matter-of-factly and provide an objective perspective. He or she can also explain the purpose of an estate plan and the benefits of being proactive about creating one at any age. You may have the ability to consult with an estate planning attorney during the holidays by phone or even a video call to ensure that all of your loved ones have an opportunity to understand your wishes and even ask questions.

End on a Positive Note

Talking about your estate plan need not be a morbid or negative experience. Emphasize your desire to have your wishes known and respected so your loved ones have peace of mind.

Contact an Estate Planning Attorney to Learn More  

The holidays are a time for families to get together and enjoy each other’s company. However, these types of events also present a perfect opportunity to discuss with family your wishes regarding your estate plan. Consider contacting your family ahead of the holidays and let them know your intentions to have this important conversation. If you need help devising a plan regarding your discussion with your family with respect to estate planning and the holidays, contact the experienced estate planning attorneys at the Jennifer V. Abelaj Law Firm at 212-328-9568 today.

Time is of the Essence for High-Net Worth Estates

Potential Changes in Estate Tax Laws

You may have heard about the most recent House proposal in September, 2021 that addresses changes to the tax law, which will cover the costs of a massive ($3.5 trillion) proposed spending package.  There have been various proposals since President Biden was elected that target an increase in various taxes.  Until now, none of the prior proposals have successfully passed.  This might be a different scenario.

Brief Summary of Recent Estate Tax History

Most of the current popular tax concerns, such as income, estate, gift, and corporate taxes, are governed by the Tax Cuts and Jobs Act (TCJA).  The TCJA was effective as of January 1, 2018 and is set to sunset on December 31, 2025.  The sunset provision means that the tax laws that were in effect on December 31, 2017 will again govern beginning in 2026.

The current (i.e., 2021) estate tax exemption is a whopping $11,700,000 per person, which can be doubled for married spouses with intentional planning for a total of nearly $24,000,000.  The estate tax exemption generally increases each year for inflation.  Under the TCJA, the increased exemption will revert back to 2017 exemption of $5,490,000, adjusted for inflation, or approximately $6,000,000, beginning on January 1, 2026.

What is important in the House Proposal for Estate Tax Planning?

I.  Capital Gains Taxes Increase

The rate of capital gains will increase to 25%, which is 5% higher than the current 20%.  The 25% is closer in line to what it was prior to the TCJA.  Capital gains taxes are an important consideration when transferring or selling assets during life.  The 5% increase may be substantial for assets that have significant built-in capital gains.  Two common scenarios are real estate and small businesses. 

For example, if someone purchased real estate 30 years ago with an adjusted cost basis of $150,000, and the property is now worth $2,000,000 (i.e., built-in gains of $1,850,000), the 5% increase in capital gains results in $92,000 more in capital gains tax, for a total capital gains tax of $462,500.  This is only FEDERAL capital gains tax.  If you live in an area such as New York City, you can add up to 25% to the capital gains tax without taking advantage of other estate planning tools (i.e., Delaware Asset Protection Trusts, 1031 Exchange, Charitable Trusts, etc.).

What to do:  Discuss with your attorney or accountant whether certain assets might benefit from being sold this year while the capital gains tax is still at the lower rate.

II. Federal Estate Tax Exemption Reduced Sooner than 2026

As summarized above, the current estate tax exemption is set to expire December 31, 2025 and reduced to 2017 levels of approximately $6,000,000.  The Proposal would accelerate the effective date to January 1, 2022.

For estates that are greater than $6,000,000, they will essentially lose an equivalent amount that can be given away estate tax-free during life or at death.

What to do:  Discuss with your attorney how to reduce your estate by making gifts or otherwise transferring portions of your estate while the exemption is still $11.7 million.

III.  Grantor Trust Rules for Income Tax Purposes will be Eliminated

Trusts which are treated as owned by the Grantor for income tax purposes (i.e., Grantor Trusts) will be deemed as owned by the Grantor for estate tax purposes as well.  This means that most common trusts used for estate tax planning purposes will be included in the Grantor’s taxable estate.  This includes Grantor Retained Annuity Trusts (GRAT), Irrevocable Life Insurance Trusts (ILIT) or Spousal Lifetime Access Trusts (SLAT), just to name a few.

Explanation of Grantor Trusts

Grantor Trusts are a great tool for estate planning in that it allows the Trust assets to grow without the Trust assets being utilized to pay the Trust’s annual income tax.  In addition, as the Grantor pays the Trust’s income tax annually, the Grantor’s estate continues to be reduced.  Any assets in the Trust are excludible from the Grantor’s estate as it is considered a completed lifetime gift.

Under the Proposed rules, any Grantor Trusts created after the effective will be included in the Grantor’s estate for estate tax purposes.  In addition, existing Grantor Trusts that receive additional contributions will also be included in the Grantor’s estate.  The timing is for any trust that is created after the EFFECTIVE DATE, which is the date the proposal is approved (could be in 2021).

What to do:  Discuss with your attorney whether you should URGENTLY CREATE AND FUND certain trusts before the EFFECTIVE DATE.  Remember, under the current rules, the effective date might be earlier than January 1, 2022.  Any delay can create a significant impact in the amount of estate taxes that your estate might have to pay when you die.

IV.  Other Proposals that Might Impact Estate Planning

Valuation Discounts May be Eliminated

Many individuals have an interest in a corporation or limited liability company for purposes of liability protection and not for running an operating business.  Under the current rules, discounting for these types of assets may be eliminated.

What to do:  Make an inventory of your current holdings and determine with your attorney or accountant which ones are operating a business and which are being held for non-operating purposes.  Determine if any changes can and must be made.

Back-Door IRA Conversions May be Limited

Current law does not allow individuals to make contributions to a Roth IRA if their income exceeds a certain level.  However, these same individuals can get around the limitation rule by first contributing to a non-deductible traditional IRA and then converting to a Roth IRA.  The primary benefit of a Roth IRA is that any increase in value over time is not includible in the annuitant’s income taxes when withdrawals are made during retirement.  The Proposal would disallow Roth conversions for taxpayers whose taxable income exceeds $450,000 for married taxpayers filing jointly or $400,000 for single taxpayers or married taxpayers filing separately.

What to do:  Discuss with your financial advisor your options in converting certain traditional IRA account to Roth IRA accounts and with your accountant the tax impact of the conversion.

Take Action Now

There are many other proposals that impact various areas of the tax law.  Some have more chance of being adopted than others.  However, it is very likely that a change will affect and limit estate tax planning options.

If you have any questions on the areas of the tax law that impact your estate and asset planning, please do not hesitate to contact me.

When to Review or Revise your Estate Documents

There are certain times when you should consider reviewing your estate documents to determine if they still meet your needs.  Sometimes it is based on specific relationship and life events, such as marriage, divorce, birth of a child, or death of a loved one.  Other times it is based outside events, such as on the passage of time, growth of your estate value, changes in the law or desire for a different distribution of your estate.

Relationship and Life Events

A life event is generally an obvious time to review your estate plan and consider making changes.  Because the life event affects you directly, you are able to know when a change to your documents might be necessary.  If you have worked with me in the past, you might recall me saying that your Will is flexible for certain life changes.  Even so, it is prudent to review the documents to consider if it would be best to update the estate plan to reflect your current life circumstances.

Marriage or Divorce

A change in your life circumstances may be causing you to reconsider the distribution of your estate, whether by your own choice or by law.  In particular, New York State law (EPTL Sec. 5-1.1-A) requires that you provide a portion (approximately 1/3) of your estate to your spouse.  In the absence of a pre-nuptial agreement, it may be necessary to revise your documents accordingly.  If you become divorced, you may have to revise your estate plan to comply with a Separation Agreement or Judgment of Divorce.

Birth or Death

The birth of a child is always a cause for celebration!  You may want to include the child as a beneficiary of your estate or create a trust for the child.  You will want to consider who to appoint as guardian of your child if both parents are deceased.  This may be a difficult decision to make, but this should not deter you from finalizing your Will because you can always update the appointments later.  Without naming a guardian, it will be up to the Court to determine who is the best person to care for the child and it may not be your first choice.

If someone named in your Will dies, consider revising the Will to clear any confusion as to the person’s bequest.  You may want to change the distribution of your estate as a result of the person’s death.  It is just as important to consider revising your Will or Trust if a named fiduciary dies.  You will be able to appoint a successor to ensure there is no gap in administration of your estate or trust.

Outside Circumstances

It is important to be aware of outside circumstances, such as those without a specific identifiable life event, which may affect your estate.

Passage of Time

Clients frequently ask me when they should review their estate documents.  If there is no life event, your estate documents may work just as well many years after being finalized.  But a good rule of thumb is to review your documents every two or three years.  It’s as simple as reading through the documents you have and deciding if you want to make any changes.  As you read the documents, consider if you have any questions on the impact of certain provisions or changes in the law.

Growth of Your Estate Value

If you notice that the value or your assets has appreciated since your estate documents were finalized, you should consider reviewing them to determine if tax planning is necessary or beneficial.

The growth of your estate may also provide additional options for distribution of your estate.  This includes adding new beneficiaries, creating trusts or providing for charities.

Changes in the Tax Law

For most of us, it is easy to become aware that there has been a change in the tax laws.  When such a law is passed, you should review your estate documents to consider if the tax law may impact your current estate plan.

Estate tax planning can only be done while you are alive through your Will, trusts or gifting.  If you die intestate or with documents that do not include proper drafting specific to minimize estate taxes, your estate will be subject to estate tax that could have been avoided.

Desire for a Different Distribution of Your Estate

It is common for individuals to revise their documents to modify the distribution of their estates.  This may include adding or removing a beneficiary, changing bequests, providing for a disabled beneficiary or modifying a named fiduciary.

Some changes, such as modifying a named fiduciary, may be done easily by use of a Codicil.  Substantive changes generally require preparing a new Will or amending and restating an existing revocable Trust.

Be Proactive in Updating Your Estate Plan

Estate planning requires you to makes serious decisions about people and matters that you care about.  You may want to “set it and forget it” once your documents are finalized, but don’t let your estate wishes become stale or ineffective because your circumstances changed since finalizing your estate.

If you are considering changing your estate documents, please do not hesitate to contact me.  If I previously prepared your estate documents, I will be happy to review the documents and have a brief complimentary discussion on whether changes should be made.

Estate Planning for Young Adults and College Students

Congratulations!  You graduated high school or college and are ready to start adulting.  Moving into your new dorm.  Meeting or seeing new friends.  Long days and nights studying.  Fun on the weekends – of course!  College and post-grad is supposed to be a fun and enlightening time.  But with the fun, also comes some responsibility.

Welcome to Adulthood – Under the Law anyway

As soon as you turn 18, the law says that you are an official adult.  Maybe you are still living with your parents, so you don’t feel like an adult.  But if something happens to you, they have no legal rights to make decisions on your behalf.

Important Adult Decisions:  Who do you Trust to Help?

You can appoint someone you trust to take care of your affairs if something happens to you.  This may be one or both of your parents, an aunt or uncle, a sibling, or a trusted friend.

Document Your Selections and Authorized Powers

The basic and simple documents to appoint a trusted person is a Health Care Proxy and Power of Attorney.

In the Health Care Proxy, you choose the first person that you want to be responsible to speak with doctors and hospital staff, make medical decisions about treatment and surgery, and choose to withhold life support if you are in a catastrophic health situation.  You can appoint more than one person, in successive order.

This document only takes effect if you cannot communicate your own preferences.  This might occur if you are in a coma.  So long as you are still able to communicate, you have complete control over your own health care decisions.

In the Power of Attorney, you may authorize one or more persons to make financial decisions on your behalf.  This might include speaking with your bank, communicating with your Bursar office, or paying your outstanding expenses.

This document is useful even if you are not sick or injured.  It may provide convenience to your agent to assist in your financial affairs while you are on campus and away from home.

Easy to Prepare and Sign

In order to prepare a Health Care Proxy, you need to provide your name and home address and the name, home address and telephone numbers of your selected agents.  Once the document is prepared, you must sign it in the presence of two witnesses.  That’s it!

Preparing a simple Power of Attorney is just as easy.  Provide the name and home address of your chosen agents.  Decide if you want them to be able to work separately or if they must act together.  Once the document is prepared, you must initial it in certain sections, sign and date it in the presence of two witnesses and a notary.  That’s it!

An attorney can easily prepare these documents for you.  Once you have them signed, they are valid until you decide to execute a new document.  This means you sign once, and you may be covered for many years without having to think about it again.  But you have the peace of mind that someone is appointed to take care of you and your affairs if you cannot do so.

Now is the Perfect Time

The summer or winter break is an ideal time to prepare these documents.  It give you the opportunity to consider and decide who should be your agents, work with an attorney to prepare and sign the documents, and have it done before you head back to your studies.

Flat-Fee for Young Adults (ages 18-24)

Our office is currently offering these important documents to young adults (between the ages of 18 and 24) for a low flat-fee of $175 per document. We can turn them around for your signature within 2 weeks. This includes supervising the execution and providing witnesses and a notary.  Do not hesitate to contact me if you would like assistance.

New York State Enacts NEW Power of Attorney Form

Effective June 13, 2021, New York State will have a new Power of Attorney form.  This is a significant change to the existing from, which was last revised in 2010.

The goal of the new document is to make the signing process easier by eliminating the numerous – and somewhat confusing – sections that had to be initialed and to allow for an easier experience when attempting to use the document at a financial institution.

What are the major changes?

1. The agent is authorized, by default, to gift up to $5,000 per year per recipient without the need for additional authorization within the Power of Attorney.  The prior maximum amount was $500, unless a Statutory Major Gifts Rider was also executed.
2. And speaking of the Statutory Major Gifts Rider, it has been eliminated.  Any modifications which expand or limit the agent’s default gifting authority is included in the Power of Attorney “Modifications” section, instead of in a separate Rider.
3. The Principal’s signature must now be witnessed by two disinterested persons, as well as notarized.  Previously, only a notarization was required.
4. The statute includes detailed enforcement provisions which a third party must comply with if it does not honor a validly executed Power of Attorney.  If a third party refuses to honor the document, it must provide written notice to the agent within 10 days of presentation, along with detailed reasons.  An agent may be awarded damages, including attorney’s fees and any costs associated with the third party’s unreasonable refusal to honor the document.
5. There is clear guidance on how a Principal may direct another person to sign the Power of Attorney on his or her behalf.  This is particularly important for individuals who have physical challenges, such as holding a pen or limited vision.

Do I need to execute a new Power of Attorney?

Not necessarily.  So long as your existing “old” Power of Attorney was validly executed, you do not need to execute a new document.

Do the Detailed Enforcement Provisions apply to my existing Power of Attorney?

Yes!  An “old” validly executed Power of Attorney is grandfathered into the new rules and third parties must comply with the new enforcement provisions.

What else do I need to know?

Although the new Power of Attorney requires less initialing and no longer includes a Statutory Major Gifts Rider, it will likely include many modifications and may be just as long (or longer) than your prior document.

This might be a good time to review your appointments in existing document and determine if you would like make updates, whether to your Power of Attorney, Will or Health Care Proxy. If you have questions, please do not hesitate to contact me.